Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change for a New Rule 5.2(j)(8), 86584-86590 [2020-28804]
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[FR Doc. 2020–28899 Filed 12–29–20; 8:45 am]
BILLING CODE 6325–38–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90775; File No. SR–NYSE–
2020–86]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change for a
New Rule 5.2(j)(8)
December 22, 2020.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on December
18, 2020, New York Stock Exchange
LLC (‘‘NYSE’’ or the ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes (1) a new
Rule 5.2(j)(8) establishing ‘‘generic’’
listing standards for Exchange-Traded
Products that are permitted to operate in
reliance on Rule 6c–11 under the
Investment Company Act of 1940, and
(2) a new Rule 7.18(d)(2) that would
govern trading halts for listed ExchangeTraded Products. The proposed rule
change is available on the Exchange’s
website at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
2 15
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A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes a new Rule
5.2(j)(8) establishing ‘‘generic’’ listing
standards for Exchange-Traded Products
(‘‘ETPs’’) 4 that are permitted to operate
in reliance on Rule 6c–11 under the
Investment Company Act of 1940 (the
‘‘1940 Act’’). The Exchange also
proposes a new Rule 7.18(d)(2) that
would govern trading halts for listed
ETPs.
Background
Currently, the Exchange trades
securities, including ETPs, on its Pillar
trading platform on an unlisted trading
privileges (‘‘UTP’’) basis, subject to
Pillar Platform Rules 1P–13P.5 ETPs
traded on a UTP basis on the Exchange
are not assigned to a Designated Market
Maker (‘‘DMM’’) but are available for
Floor brokers to trade in Floor-based
crossing transactions.6
The Exchange’s rules permit it to list
ETPs under Rules 5P and 8P.
Specifically, Rules 5P (Securities
Traded) and 8P (Trading of Certain
Exchange-Traded Products) provide for
the listing of certain ETPs on the
Exchange that (1) meet the applicable
requirements set forth in those rules,
and (2) do not have any component
NMS Stock that is listed on the
Exchange or is based on, or represents
an interest in, an underlying index or
reference asset that includes an NMS
Stock listed on the Exchange. ETPs
listed under Rules 5P and 8P would be
‘‘Tape A’’ listings and traded pursuant
to the rules applicable to NYSE-listed
securities. Accordingly, once an ETP is
listed, it would be assigned to a DMM
pursuant to Rule 103B and the assigned
4 Rule 1.1(k) defines ‘‘Exchange Traded Product’’
as a security that meets the definition of ‘‘derivative
securities product’’ in Rule 19b–4(e) under the Act.
ETPs include, for example, securities listed and
traded on the Exchange pursuant to the following
Exchange rules: Rule 5.2(j)(3) (Investment Company
Units); Rule 5.2(j)(5) (Equity Gold Shares); Rule
5.2(j)(6) (Index-Linked Securities); Rule 8.100
(Portfolio Depositary Receipts); Rule 8.200 (Trust
Issued Receipts); Rule 8.201 (Commodity-Based
Trust Shares); Rule 8.202 (Currency Trust Shares);
Rule 8.203 (Commodity Index Trust Shares); Rule
8.204 (Commodity Futures Trust Shares); Rule
8.600 (Managed Fund Shares); and Rule 8.700
(Managed Trust Securities).
5 ‘‘UTP Security’’ is defined as a security that is
listed on a national securities exchange other than
the Exchange and that trades on the Exchange
pursuant to unlisted trading privileges. See Rule
1.1.
6 See Securities Exchange Act Release No. 82945
(March 26, 2018), 83 FR 13553, 13568 (March 29,
2018) (SR–NYSE–2017–36) (approving Exchange
rules to trade securities on a UTP basis on the Pillar
trading platform).
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DMM would have obligations vis-a`-vis
such securities as specified in Rule 104,
including facilitating the opening,
reopening, and closing of such
securities.7
The Commission recently adopted
Rule 6c–11 under the 1940 Act to
permit ETPs that are exchange traded
funds (‘‘ETF’’) shares (‘‘ExchangeTraded Fund Shares’’) and that satisfy
certain conditions to operate without
obtaining an exemptive order from the
Commission under the 1940 Act.8 The
regulatory framework provided in Rule
6c–11 streamlines procedures and
reduces the costs and time frames
associated with bringing ETFs to
market, thereby enhancing competition
among ETF issuers and reducing costs
for investors.9
The Exchange proposes new Rule
5.2(j)(8) to establish generic listing
standards allowing the Exchange to list
and trade Exchange-Traded Fund Shares
in a manner consistent with Rule 6c–11.
Proposed Rule 5.2(j)(8) is based on
NYSE Arca, Inc. (‘‘NYSE Arca’’) Rule
5.2–E(j)(8).10 In addition, the Exchange
proposes a new Rule 7.18(d)(2) based on
NYSE Arca Rule 7.18–E(d)(2) that
would govern trading halts for listed
ETPs.
Proposed Rule Change
The Exchange proposes standards that
would pertain to Exchange-Traded Fund
7 See Securities Exchange Act Release No. 87056
(September 23, 2019), 84 FR 51205 (September 27,
2019) (SR–NYSE–2019–34) (order approving
amendments to Rule 104 to specify DMM
requirements for ETPs listed on the Exchange
pursuant to Rules 5P and 8P).
8 See Release Nos. 33–10695; IC–33646; File No.
S7–15–18 (ETFs) (September 25, 2019), 84 FR
57162 (October 24, 2019) (the ‘‘Rule 6c–11
Release’’).
9 The Commission observed that the ‘‘rule will
modernize the regulatory framework for ETFs to
reflect our more than two decades of experience
with these investment products. The rule is
designed to further important Commission
objectives, including establishing a consistent,
transparent, and efficient regulatory framework for
ETFs and facilitating greater competition and
innovation among ETFs.’’ See Rule 6c–11 Release,
at 57163. The Commission also stated the following
regarding the rule’s impact: ‘‘We believe rule 6c–
11 will establish a regulatory framework that: (1)
Reduces the expense and delay currently associated
with forming and operating certain ETFs unable to
rely on existing orders; and (2) creates a level
playing field for ETFs that can rely on the rule. As
such, the rule will enable increased product
competition among certain ETF providers, which
can lead to lower fees for investors, encourage
financial innovation, and increase investor choice
in the ETF market.’’ Id. at 57204.
10 See Securities Exchange Act Release No. 88625
(April 13, 2020), 85 FR 21479 (April 17, 2020) (SR–
NYSEArca–2019–81) (Notice of filing of
Amendment No. 2 and Order granting accelerated
approval of proposed rule change, as modified by
Amendment No. 2, to adopt NYSE Arca Rule 5.2–
E(j)(8) establishing generic listing standards for
Exchange-Traded Fund Shares).
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Shares to qualify for listing and trading
pursuant to Rule 19b–4(e), as follows.
Proposed Rule 5.2(j)(8)(a) would
provide that the Exchange would
consider for trading, whether by listing
or on a UTP basis, Exchange-Traded
Fund Shares that meet the criteria of
proposed Rule 5.2(j)(8). Proposed Rule
5.2(j)(8)(a) is based on NYSE Arca Rule
5.2–E(j)(8)(a) without any differences.
Proposed Rule 5.2(j)(8)(b) would
specify applicability of proposed Rule
5.2(j)(8) and would provide that it is
applicable only to Exchange-Traded
Fund Shares. Proposed Rule 5.2(j)(8)(b)
would further provide that, except to
the extent inconsistent with proposed
Rule 5.2(j)(8) or unless the context
otherwise requires, Exchange rules
would be applicable to the trading on
the Exchange of such securities and that
Exchange-Traded Fund Shares would be
included within the definition of NMS
Stock as defined in Rule 1.1. Proposed
Rule 5.2(j)(8)(b) is based on NYSE Arca
Rule 5.2–E(j)(8)(b) without any
differences.
Proposed Rule 5.2(j)(8)(c) would set
forth the proposed rule’s applicable
definitions, which are based on NYSE
Arca Rule 5.2–E(j)(8)(c) without any
differences, as follows:
• Proposed Rule 5.2(j)(8)(c)(1) would
define the term ‘‘1940 Act’’ to mean the
Investment Company Act of 1940, as
amended.
• Proposed Rule 5.2(j)(8)(c)(2) would
define the term ‘‘Exchange-Traded
Fund’’ as having the same meaning as
the term ‘‘exchange-traded fund’’ as
defined in Rule 6c–11(a)(1) under the
1940 Act.11
• Proposed Rule 5.2(j)(8)(c)(3) would
define the term ‘‘Exchange-Traded Fund
Share’’ to mean a share of stock issued
by an Exchange-Traded Fund.12
• Proposed Rule 5.2(j)(8)(c)(4) would
define the term ‘‘Reporting Authority’’
to mean with respect to a particular
series of Exchange-Traded Fund Shares,
the Exchange, an institution, or a
reporting service designated by the
Exchange or by the exchange that lists
a particular series of Exchange-Traded
Fund Shares (if the Exchange is trading
such series pursuant to unlisted trading
11 Rule 6c–11(a)(1) defines ‘‘exchange-traded
fund’’ as a registered open-end management
company: (i) That issues (and redeems) creation
units to (and from) authorized participants in
exchange for a basket and a cash balancing amount
if any; and (ii) Whose shares are listed on a national
securities exchange and traded at marketdetermined prices. The terms ‘‘authorized
participant,’’ ‘‘basket’’ and ‘‘creation unit’’ are
defined in Rule 6c–11(a).
12 The definition of Exchange-Traded Fund
Shares is the same as the definition of ‘‘exchangetraded fund shares’’ in Rule 6c–11(a) under the
1940 Act.
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86585
privileges) as the official source for
calculating and reporting information
relating to such series, including, but
not limited to, any current index or
portfolio value, the current value of the
portfolio of any securities required to be
deposited in connection with issuance
of Exchange-Traded Fund Shares, the
amount of any dividend equivalent
payment or cash distribution to holders
of Exchange-Traded Fund Shares, net
asset value, or other information relating
to the issuance, redemption or trading of
Exchange-Traded Fund Shares. A series
of Exchange-Traded Fund Shares may
have more than one Reporting
Authority, each having different
functions.
Proposed Rule 5.2(j)(8)(d) would
specify the limitations on Exchange
liability and relates to limitations of the
Exchange, the Reporting Authority, or
any agent of the Exchange as a result of
specified events and conditions.
Specifying such limitations of liability
is standard in the Exchange’s rules
governing the listing of ExchangeTraded Products and the proposed rule
text is substantively identical to Rules
5.2(j)(3)(D), 8.100(f), 8.201(f), 8.200(f),
8.202(f), 8.203(f), 8.204(g), 8.300(f),
8.400(f), 8.500(e), 8.600(e), and 8.700(g).
Proposed Rule 5.2(j)(8)(d) is based on
NYSE Arca Rule 5.2–E(j)(8)(d) without
any differences.
Proposed Rule 5.2(j)(8)(e) would
provide that the Exchange may approve
Exchange-Traded Fund Shares for
listing and/or trading (including on a
UTP basis) pursuant to Rule 19b–4(e)
under the Exchange Act provided that
each series of Exchange-Traded Fund
Shares must be eligible to operate in
reliance on Rule 6c–11 under the 1940
Act and must satisfy the requirements of
proposed Rule 5.2(j)(8)(as described
below) upon initial listing and, except
for subparagraph (1)(A) of proposed
Rule 5.2(j)(8)(e), on a continuing basis.
As further proposed, an issuer of such
securities must notify the Exchange of
any failure to comply with such
requirements. Proposed Rule 5.2(j)(8)(e)
is based on NYSE Arca Rule 5.2–
E(j)(8)(e) without any differences.
Proposed Rule 5.2(j)(8)(e)(1) sets forth
the initial and continued listing
standards for Exchange-Traded Fund
Shares to be listed on the NYSE and
would provide that Exchange-Traded
Fund Shares will be listed and traded
on the Exchange subject to the
requirement that the investment
company issuing a series of ExchangeTraded Fund Shares is eligible to
operate in reliance on the requirements
of Rule 6c–11(c) on an initial and
continued listing basis. Proposed Rule
5.2(j)(8)(e)(1) is based on NYSE Arca
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Rule 5.2–E(j)(8)(e)(1) without any
differences.
Proposed Rule 5.2(j)(8)(e)(1)(A)
provides that, for each series of
Exchange-Traded Fund Shares, the
Exchange will establish a minimum
number of Exchange-Traded Fund
Shares required to be outstanding at the
time of commencement of trading on the
Exchange. Proposed Rule
5.2(j)(8)(e)(1)(A) is based on NYSE Arca
Rule 5.2–E(j)(8)(e)(1)(A) without any
differences.
Proposed Rule 5.2(j)(8)(e)(2) would set
forth the standards for suspension of
trading or removal of Exchange-Traded
Fund Shares from listing on the
Exchange and would provide that the
Exchange will consider the suspension
of trading in, and will commence
delisting proceedings under Rule 5.5(m)
of, a series of Exchange-Traded Fund
Shares under any of the following
circumstances:
(A) If the Exchange becomes aware
that the investment company is no
longer eligible to operate in reliance on
Rule 6c–11;
(B) if the investment company no
longer complies with the requirements
set forth in Rule 5.2(j)(8);
(C) if, following the initial twelvemonth period after commencement of
trading on the Exchange of a series of
Exchange-Traded Fund Shares, there are
fewer than 50 beneficial holders of such
series of Exchange-Traded Fund Shares;
or
(D) if such other event shall occur or
condition exists which, in the opinion
of the Exchange, makes further dealings
on the Exchange inadvisable (see
proposed Rule 5.2(j)(8)(e)(2)(D)).
Proposed Rule 5.2(j)(8)(e)(2) is based
on NYSE Arca Rule 5.2–E(j)(8)(e)(2)
without any differences.
Proposed Rule 5.2(j)(8)(f) would
provide that transactions in ExchangeTraded Fund Shares would occur
during the trading hours specified in
Rule 7.34(a) for Exchange-listed
securities. Proposed Rule 5.2(j)(8)(f) is
based on NYSE Arca Rule 5.2–E(j)(8)(f)
with a difference to cross reference the
Exchange’s rule governing the hours of
trading. In addition, unlike NYSE Arca,
Exchange-listed securities trade on the
Exchange only during Core Trading
Hours.
Proposed Rule 5.2(j)(8)(g) would
provide that the Exchange would
implement and maintain written
surveillance procedures for ExchangeTraded Fund Shares. This proposed rule
is based, for example, on Commentary
.01(f) to Rule 5.2(j)(3) (for Investment
Company Units); Commentary .03 to
Rule 8.600 (for Managed Fund Shares);
and Commentary .04 to Rule 8.700 (for
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Managed Trust Securities). Proposed
Rule 5.2(j)(8)(g) is based on NYSE Arca
Rule 5.2–E(j)(8)(g) without any
differences.
Proposed Rule 5.2(j)(8)(h) would
provide that, upon termination of an
investment company issuing ExchangeTraded Fund Shares, the Exchange
would require that Exchange-Traded
Fund Shares issued in connection with
such entity be removed from Exchange
listing. Proposed Rule 5.2(j)(8)(h) is
based on NYSE Arca Rule 5.2–E(j)(8)(h)
without any differences.
Proposed Commentary .01 to Rule
5.2(j)(8) would provide that a security
that has previously been approved for
listing on the Exchange pursuant to the
generic listing requirements specified in
Rule 5.2(j)(3) or Commentary .01 to Rule
8.600, or pursuant to a proposed rule
change approved or subject to a notice
of effectiveness by the Commission, may
be considered approved for listing
solely under Rule 5.2(j)(8) if such
security is eligible to operate in reliance
on Rule 6c–11 under the 1940 Act. Once
so approved for listing, the continued
listing requirements applicable to such
previously-listed security will be those
specified in paragraph (e) of Rule
5.2(j)(8). Any requirements for listing as
specified in Rule 5.2(j)(3) or
Commentary .01 to Rule 8.600, or an
approval order or notice of effectiveness
of a separate proposed rule change that
differ from the requirements of Rule
5.2(j)(8) will no longer be applicable to
such security. Commentary .01 to
proposed Rule 5.2(j)(8) is based on
Commentary .01 to NYSE Arca Rule
5.2–E(j)(8) without any differences.13
The Exchange believes that proposed
Commentary .01 to Rule 5.2(j)(8)
harmonizes the Exchange’s listing
standards for all ETFs that will be listed
on the Exchange, even if they were
previously listed pursuant to different
continued listing requirements.
Specifically, as noted in the Rule 6c–11
Release, one year following the effective
date of Rule 6c–11, the Commission will
be rescinding those portions of its prior
ETF exemptive orders under the 1940
Act that grant relief related to the
formation and operation of certain ETFs.
The Exchange believes that once this
occurs, all ETFs will be subject to the
same requirements under Rule 6c–11
and will no longer be subject to any
differing requirements that may have
been set forth in the exemptive orders
issued before the effective date of Rule
6c–11.
13 There are currently no securities listed on the
Exchange that would be eligible for approval under
proposed Commentary .01 to Rule 5.2(j)(8).
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Proposed Commentary .02 to Rule
5.2(j)(8) is based on Commentary .02 to
NYSE Arca Rule 5.2–E(j)(8)(a) without
any differences, and would establish the
following requirements that each series
of Exchange-Traded Fund Shares based
on an index would be required to meet
on an initial and continued listing basis:
(1) If the underlying index is
maintained by a broker-dealer or fund
adviser, the broker-dealer or fund
adviser will erect and maintain a ‘‘fire
wall’’ around the personnel who have
access to information concerning
changes and adjustments to the index
and the index will be calculated by a
third party who is not a broker-dealer or
fund adviser, and
(2) Any advisory committee,
supervisory board, or similar entity that
advises a Reporting Authority or that
makes decisions on the index
composition, methodology and related
matters, must implement and maintain,
or be subject to, procedures designed to
prevent the use and dissemination of
material non-public information
regarding the applicable index.14
In addition, with respect to series of
Exchange-Traded Fund Shares that are
actively managed, if the investment
adviser to the investment company
issuing Exchange-Traded Fund Shares is
affiliated with a broker-dealer, such
investment adviser will erect and
maintain a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such portfolio.
Personnel who make decisions on the
portfolio composition must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable portfolio. The Reporting
Authority that provides information
relating to the portfolio of a series of
Exchange-Traded Fund Shares must
implement and maintain, or be subject
to, procedures designed to prevent the
use and dissemination of material nonpublic information regarding the actual
components of such portfolio.15
The Exchange notes that ExchangeTraded Fund Shares will be subject to
all Exchange rules applicable to equities
trading. With respect to ExchangeTraded Fund Shares, all obligations
relating to product description and
prospectus delivery requirements will
continue to apply in accordance with
14 See proposed Commentary .02(a) to Rule
5.2(j)(8)). Proposed Commentary .02(a) is based on
Commentary .01(b)(1) to Rule 5.2(j)(3) and
Commentary .02(b)(1) and (b)(3) to Rule 5.2(j)(3).
15 See proposed Commentary .02(b) to Rule
5.2(j)(8)). Proposed Commentary .02(b) is based in
part on Commentary .06 to Rule 8.600.
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Exchange rules and federal securities
laws, and the Exchange and the
Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) will continue
to monitor Exchange members for
compliance with such requirements,
which are not changing as a result of
Rule 6c–11 under the 1940 Act.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in a series of
Exchange-Traded Fund Shares.16
Trading in Exchange-Traded Fund
Shares will be halted if the circuit
breaker parameters in Rule 7.12 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 ExchangeTraded Fund Shares inadvisable. These
may include: (1) The extent to which
certain information about the ExchangeTraded Fund Shares that is required to
be disclosed under Rule 6c–11(c) of the
1940 Act is not being made available, or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present.
The Exchange proposes a new Rule
7.18(d)(2) modeled on NYSE Arca Rule
7.18–E(d)(2) that would govern trading
halts for listed ETPs (which would
include Exchange-Traded Fund Shares).
Proposed Rule 7.18(d)(2) would provide
that, with respect to an ETP listed on
the Exchange for which a Net Asset
Value (‘‘NAV’’) (and in the case of
Managed Fund Shares under NYSE Rule
8.600 and Managed Trust Securities
under NYSE Rule 8.700, a Disclosed
Portfolio) is disseminated, if the
Exchange becomes aware that the NAV
(or in the case of Managed Fund Shares
or Managed Trust Securities, the
Disclosed Portfolio) is not being
disseminated to all market participants
at the same time, it will halt trading in
the affected Exchange Traded Product
on the NYSE until such time as the NAV
(or in the case of Managed Fund Shares
or Managed Trust Securities, the
Disclosed Portfolio, as applicable) is
available to all market participants.
In addition, the Exchange may halt
trading in ETPs if there is an
interruption or disruption in the
dissemination of an underlying index
value, if applicable, if there are major
interruptions in securities trading in
U.S. or global markets, or in the
presence of other unusual conditions or
circumstances detrimental to the
16 See
NYSE Rule 7.12.
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maintenance of a fair and orderly
market.
Minimum Price Variation
As provided in NYSE Rule 7.6, the
minimum price variation (‘‘MPV’’) for
quoting and entry of orders in equity
securities traded on the NYSE is $0.01,
with the exception of securities that are
priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
Exchange-Traded Fund Shares in all
trading sessions and to deter and detect
violations of Exchange rules.
Specifically, the Exchange will
implement and maintain written
surveillance procedures to monitor
trading in Exchange-Traded Fund
Shares on the NYSE.17 The Exchange or
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in Exchange-Traded Fund
Shares and certain of their applicable
underlying components with other
markets that are members of the
Intermarket Surveillance Group (‘‘ISG’’)
or with which the Exchange has in place
a comprehensive surveillance sharing
agreement. In addition, the Exchange
may obtain information regarding
trading in Exchange-Traded Fund
Shares and certain of their applicable
underlying components from markets
and other entities that are members of
ISG or with which the Exchange has in
place a comprehensive surveillance
sharing agreement. Additionally,
FINRA, on behalf of the Exchange, is
able to access, as needed, trade
information for certain fixed income
securities that may be held by a series
of Exchange-Traded Fund Shares
reported to FINRA’s TRACE. FINRA
also can access data obtained from the
Municipal Securities Rulemaking
Board’s Electronic Municipal Market
Access (‘‘EMMA’’) system relating to
municipal bond trading activity for
surveillance purposes in connection
with trading in a series of ExchangeTraded Fund Shares, to the extent that
a series of Exchange-Traded Fund
Shares holds municipal securities. As
noted below, the issuer of a series of
Exchange-Traded Fund Shares will be
required to comply with Rule 10A–3
under the Act for the initial and
continued listing of Exchange-Traded
17 The Exchange notes that the surveillance
procedures applicable to Exchange-Traded Fund
Shares on the NYSE would be substantially similar
to those in place for Investment Company Units,
Exchange-Traded Fund Shares, and Managed Fund
Shares, among other product types, on NYSE Arca.
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Frm 00059
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86587
Fund Shares, as provided under Rule
5.2.
Pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange
will monitor for compliance with the
continued listing requirements. As
provided for under proposed Rule
5.2(j)(8)(e)(2), if the investment
company or series of Exchange-Traded
Fund Shares is not in compliance with
the applicable listing requirements, the
Exchange will commence delisting
procedures under Rule 5.5(m).
The Exchange will implement and
maintain written surveillance
procedures to monitor issuer
compliance with the requirements of
proposed Rule 5.2(j)(8) for ExchangeTraded Funds on the NYSE. For
example, the Exchange will use intraday
alerts that will notify Exchange
personnel of trading activity throughout
the day that may indicate that certain
disclosures are not being made
accurately or that other unusual
conditions or circumstances are present
that could be detrimental to the
maintenance of a fair and orderly
market. The Exchange will require
periodic certification from the issuer of
a series of Exchange-Traded Fund
Shares that it is in compliance with
Rule 6c–11 and the requirements of
Rule 5.2(j)(8).
Proposed Rule 5.2(j)(8)(e)(2)(i)
provides that the Exchange will
consider the suspension of trading in,
and will commence delisting
proceedings under Rule 5.5(m) of, a
series of Exchange-Traded Fund Shares
if the Exchange becomes aware that the
investment company is no longer
eligible to operate in reliance on Rule
6c–11. The Exchange’s awareness for
purposes of determining whether to
suspend trading or delist a series of
Exchange-Traded Fund Shares may
result from notification by the
investment company or by the Exchange
learning, through its own efforts, of noncompliance with Rule 5.2(j)(8).18 In
addition, the Exchange will periodically
review issuer websites to monitor
whether disclosures are being made for
a series of Exchange-Traded Fund
Shares as required by Rule 6c–11(c)(1).
The Exchange also notes that proposed
Rule 5.2(j)(8)(e) would require an issuer
of Exchange-Traded Fund Shares to
notify the Exchange that it is no longer
eligible to operate in reliance on Rule
6c–11 or that it does not comply with
the requirements of proposed Rule
5.2(j)(8). The Exchange will rely on the
18 As proposed, Rule 5.2(j)(8) does not impose
index dissemination requirements, the Exchange
does not plan to conduct a specific index
dissemination surveillance for securities listed
pursuant to such rule.
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foregoing procedures to become aware
of any non-compliance with the
requirements of Rule 5.2(j)(8). Proposed
Rule 5.2(j)(8)(e)(2)(i) is based on NYSE
Arca Rule 5.2–E(j)(8)(e)(2)(i) without
any differences.
Firewalls
Commentary .01(b)(1) and
Commentary .02(b) to NYSE Rule
5.2(j)(3) (applicable to Investment
Company Units) and Commentary .06 to
NYSE Rule 8.600 (applicable to
Managed Fund Shares) require the
establishment and maintenance of a
‘‘firewall’’ around personnel who have
access to information concerning
changes to an index or the composition
and/or changes to a fund’s portfolio; and
that specified persons or entities be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding the applicable index or
portfolio.
In the Rule 6c–11 Release, the
Commission, in the context of indexbased ETFs with affiliated index
providers (‘‘self-indexed ETFs’’), noted
the federal securities law provisions that
currently relate to implementation by
funds of appropriate measures to deal
with misuse of non-public
information.19 The Exchange notes that
these federal securities law
requirements will continue to apply to
issues of index and actively-managed
ETFs and the proposed generic listing
rules for Exchange-Traded Fund Shares
are consistent with such requirements.
The Exchange notes that proposed
Commentary .02(a) to Rule 5.2(j)(8)
provides that, with respect to series of
Exchange-Traded Fund Shares that are
based on an index, if the underlying
19 See Rule 6c–11 Release at 57168–57169. See
also 17 CFR 270.38a–1 (Rule 38a–1 under the 1940
Act) (requiring funds to adopt policies and
procedures reasonably designed to prevent
violation of federal securities laws); 17 CFR 270.17j1(c)(1) (Rule 17j–1(c)(1) under the Investment
Company Act) (requiring funds to adopt a code of
ethics containing provisions designed to prevent
certain fund personnel (‘‘access persons’’) from
misusing information regarding fund transactions);
section 204A of the Investment Advisers Act of
1940 (‘‘Advisers Act’’) (15 U.S.C. 80b–204A)
(requiring an adviser to adopt policies and
procedures that are reasonably designed, taking into
account the nature of its business, to prevent the
misuse of material, non-public information by the
adviser or any associated person, in violation of the
Advisers Act or the Exchange Act, or the rules or
regulations thereunder); section 15(g) of the
Exchange Act (15 U.S.C. 78o(f)) (requiring a
registered broker or dealer to adopt policies and
procedures reasonably designed, taking into
account the nature of the broker’s or dealer’s
business, to prevent the misuse of material,
nonpublic information by the broker or dealer or
any person associated with the broker or dealer, in
violation of the Exchange Act or the rules or
regulations thereunder).
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17:47 Dec 29, 2020
Jkt 253001
index is maintained by a broker-dealer
or fund adviser, the broker-dealer or
fund adviser will erect and maintain a
‘‘fire wall’’ around the personnel who
have access to information concerning
changes and adjustments to the index
and the index shall be calculated by a
third party who is not a broker-dealer or
fund advisor. In addition, proposed
Commentary .02(b) to Rule 5.2(j)(8)
provides that, with respect to series of
Exchange-Traded Fund Shares that are
actively managed if, the investment
adviser to the Exchange-Traded Fund
issuing Exchange-Traded Fund Shares is
affiliated with a broker-dealer, such
investment adviser will erect and
maintain a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such ExchangeTraded Fund portfolio. Personnel who
make decisions on the applicable
Exchange-Traded Fund’s portfolio
composition must be subject to
procedures designed to prevent the use
and dissemination of material
nonpublic information regarding the
applicable Exchange-Traded Fund
portfolio. Proposed Commentary .02(a)
to Rule 5.2(j)(8)(k) is based on
Commentary .02(a) to NYSE Arca Rule
5.2–E(j)(8) without any differences.
As noted, proposed Rule is based on
recently adopted NYSE Arca Rule 5.2–
E(j)(8).20 The Exchange believes that
adopting the same generic standards for
Exchange-Traded Fund Shares would
facilitate efficient procedures for ETFs
that are permitted to operate in reliance
on Rule 6c–11. The Exchange further
believes that the proposed rule is, like
its NYSE Arca counterpart, fully
consistent with, and will further, the
Commission’s goals in adopting Rule
6c–11.
For all of the reasons stated above, the
proposal is therefore consistent with the
requirements of the Act.
2. Statutory Basis
The Exchange believes that the
proposal is consistent with Section 6(b)
of the Act,21 in general, and furthers the
objectives of Sections 6(b)(5) of the
Act,22 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
23 Rule 6c–11(c) sets forth certain conditions
applicable to exchange-traded funds, including
information required to be disclosed on the fund’s
website.
20 See
note 10, supra.
21 15 U.S.C. 78f(b).
22 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00060
Fmt 4703
remove impediments to, and perfect the
mechanisms of, a free and open market
and a national market system and, in
general, to protect investors and the
public interest and because it is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers.
By facilitating efficient procedures for
listing Exchange-Traded Fund Shares
that are permitted to operate in reliance
on Rule 6c–11, the generic listing rules
in proposed Rule 5.2(j)(8) described
above based on NYSE Arca Rule 5.2–
E(j)(8) recently approved by the
Commission are consistent with, and
will further, the Commission’s goals in
adopting Rule 6c–11. In addition, by
allowing Exchange-Traded Fund Shares
to be listed and traded on the Exchange
without a prior Commission approval
order or notice of effectiveness pursuant
to Section 19(b) of the Act, proposed
Rule 5.2(j)(8) will significantly reduce
the time frame and costs associated with
bringing these securities to market,
thereby promoting market competition
among issuers of Exchange-Traded Fund
Shares, to the benefit of the investing
public. In addition, the proposed rule
change would fulfill the intended
objective of Rule 19b–4(e) under the Act
by permitting Exchange-Traded Fund
Shares that satisfy the proposed listing
standards to be listed and traded
without separate Commission approval.
Proposed Rule 5.2(j)(8)(d) would
specify the limitations on Exchange
liability and relates to limitation of the
Exchange, the Reporting Authority, or
any agent of the Exchange as a result of
specified events and conditions. As
provided in proposed Rule 5.2(j)(8)(e),
the Exchange may approve ExchangeTraded Fund Shares for listing and
trading on the Exchange subject to the
requirement that the investment
company issuing a series of ExchangeTraded Fund Shares is eligible to
operate in reliance on Rule 6c–11 23
under the 1940 Act and must satisfy the
requirements of Rule 5.2(j)(8) on an
initial listing and, except for
subparagraph (1)(A) of Rule 5.2(j)(8)(e),
a continuing basis. An issuer of such
securities must notify the Exchange of
any failure to comply with such
requirements. These requirements will
ensure that Exchange-listed ExchangeTraded Fund Shares continue to operate
in a manner that fully complies with the
portfolio transparency requirements of
Rule 6c–11(c). As provided in proposed
Rule 5.2(j)(8)(e)(1), Exchange-Traded
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Fund Shares will be listed and traded
on the Exchange subject to the
requirement that the investment
company issuing a series of ExchangeTraded Fund Shares is eligible to
operate in reliance on the requirements
of Rule 6c–11(c) under the 1940 Act on
an initial and continued listing basis. As
provided in proposed Rule 5.2(j)(8)(e)(2)
(Suspension of trading or removal), the
Exchange will consider the suspension
of trading in, and will commence
delisting proceedings under Rule 5.5(m)
of, a series of Exchange-Traded Fund
Shares if the Exchange becomes aware
that it is no longer eligible to operate in
reliance on Rule 6c–11 or does not
comply with the requirements set forth
in Rule 5.2(j)(8); if, following the initial
twelve-month period after
commencement of trading on the
Exchange of a series of Exchange-Traded
Fund Shares, there are fewer than 50
beneficial holders of such series of
Exchange-Traded Fund Shares; or if
such other event shall occur or
condition exists which, in the opinion
of the Exchange, makes further dealings
on the Exchange inadvisable.
As provided in proposed Rule
5.2(j)(8)(g), the Exchange will
implement and maintain written
surveillance procedures for ExchangeTraded Fund Shares on the NYSE. The
Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
Exchange-Traded Fund Shares in all
trading sessions and to deter and detect
violations of Exchange rules. Proposed
Rule 5.2(j)(8)(h) provides that, upon
termination of an investment company
issuing Exchange-Traded Fund Shares,
the Exchange requires that ExchangeTraded Fund Shares issued in
connection with such entity be removed
from Exchange listing.
Proposed Commentary .01 to Rule
5.2(j)(8) provides that a security that has
previously been approved for listing on
the Exchange pursuant to the generic
listing requirements specified in Rule
5.2(j)(3) or Commentary .01 to Rule
8.600, or pursuant to a proposed rule
change approved or subject to a notice
of effectiveness by the Commission, may
be considered approved for listing
solely under Rule 5.2(j)(8) if such
security is eligible to operate in reliance
on Rule 6c–11 under the 1940 Act. Once
so approved for listing, the continued
listing requirements applicable to such
previously-listed security will be those
specified in paragraph (e) of Rule
5.2(j)(8). Any requirements for listing as
specified in Rule 5.2(j)(3) or
Commentary .01 to Rule 8.600, or an
approval order or notice of effectiveness
of a separate proposed rule change that
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17:47 Dec 29, 2020
Jkt 253001
differ from the requirements of Rule
5.2(j)(8) will no longer be applicable to
such security. The Exchange believes
proposed Commentary .01 to Rule
5.2(j)(8) will streamline the listing
process for such securities, consistent
with the regulatory framework adopted
in Rule 6c–11 under the 1940 Act.
Proposed Commentary .02 to Rule
5.2(j)(8) would provide requirements to
be met on an initial and continued
listing basis by series of ExchangeTraded Fund Shares that are based on
an index or are actively managed
regarding the erection and maintenance
of a ‘‘fire wall’’ as well as
implementation and maintenance of
procedures designed to prevent the use
and dissemination of material nonpublic information regarding the
applicable index or portfolio. The
Exchange believes the provisions of the
proposed rule will address possible
concerns regarding misuse of material
non-public information regarding an
index underlying a series of ExchangeTraded Fund Shares or the portfolio for
a series of Exchange-Traded Fund
Shares, as applicable.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices and is consistent with
the protection of investors and the
public interest because the Exchange
will have in place surveillance
procedures that are adequate to properly
monitor trading in the Exchange-Traded
Fund Shares in all trading sessions and
to deter and detect violations of
Exchange rules and applicable federal
securities laws. FINRA, on behalf of the
Exchange, will communicate as needed
regarding trading in Exchange-Traded
Fund Shares and certain of their
applicable underlying components with
other markets that are members of ISG
or with which the Exchange has in place
a comprehensive surveillance sharing
agreement. In addition, the Exchange
may obtain information regarding
trading in Exchange-Traded Fund
Shares and certain of their applicable
underlying components from markets
and other entities that are members of
ISG or with which the Exchange has in
place a comprehensive surveillance
sharing agreement. Additionally,
FINRA, on behalf of the Exchange, is
able to access, as needed, trade
information for certain fixed income
securities that may be held by a series
of Exchange-Traded Fund Shares
reported to FINRA’s TRACE. FINRA
also can access data obtained from the
Municipal Securities Rulemaking
Board’s EMMA system relating to
municipal bond trading activity for
surveillance purposes in connection
PO 00000
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Sfmt 4703
86589
with trading in a series of ExchangeTraded Fund Shares, to the extent that
a series of Exchange-Traded Fund
Shares holds municipal securities. As
noted above, the issuer of a series of
Exchange-Traded Fund Shares will be
required to comply with Rule 10A–3
under the Act for the initial and
continued listing of Exchange-Traded
Fund Shares, as provided under Rule
5.2.
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in a series of
Exchange-Traded Fund Shares.24
Trading in Exchange-Traded Fund
Shares will be halted if the circuit
breaker parameters in NYSE Rule 7.12
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 ExchangeTraded Fund Shares inadvisable.
Proposed NYSE Rule 7.18(d)(2), which
is based on NYSE Arca Rule 7.18–
E(d)(2) without any differences, would
permit the Exchange to halt trading in
listed ETPs (which would include
Exchange-Traded Fund Shares) for
which an NAV (and in the case of
Managed Fund Shares under NYSE Rule
8.600 and Managed Trust Securities
under NYSE Rule 8.700, a Disclosed
Portfolio) is disseminated when the
Exchange becomes aware that the NAV
(or in the case of Managed Fund Shares
or Managed Trust Securities, the
Disclosed Portfolio) is not being
disseminated to all market participants
at the same time until such time as the
NAV (or in the case of Managed Fund
Shares or Managed Trust Securities, the
Disclosed Portfolio, as applicable) is
available to all market participants.
The Exchange will obtain a
representation from the issuer of a series
of Exchange-Traded Fund Shares that
the NAV per share of such series will be
calculated daily and will be made
available to all market participants at
the same time. The Exchange will
monitor for compliance with the
continued listing requirements. If the
Exchange-Traded Fund is not in
compliance with the applicable listing
requirements, the Exchange will
commence delisting procedures under
Rule 5.5(m). The Exchange will utilize
existing procedures to monitor issuer
compliance with the requirements of
proposed Rule 5.2(j)(8). For example,
the Exchange will continue to use
intraday alerts that will notify Exchange
personnel of trading activity throughout
the day that may indicate that certain
disclosures are not being made
24 See
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accurately or that other unusual
conditions or circumstances are present
that could be detrimental to the
maintenance of a fair and orderly
market. The Exchange will require
periodic certification from the issuer of
a series of Exchange-Traded Fund
Shares that it is in compliance with
Rule 6c–11 and the requirements of
Rule 5.2(j)(8). In addition, the Exchange,
on a periodic basis will review issues of
Exchange-Traded Fund Shares listed on
the Exchange for compliance with the
requirements of Rule 6c–11(c)(1).
Proposed Rule 5.2(j)(8)(e) would require
an issuer of Exchange-Traded Fund
Shares to notify the Exchange if it is no
longer eligible to operate in reliance on
Rule 6c–11 or that it does not comply
with the requirements of proposed Rule
5.2(j)(8) (except for subparagraph (1)(A)
of Rule 5.2(j)(8)(e)).
For the foregoing reasons, the
Exchange believes that the proposal is
consistent with the Act.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
B. Self-Regulatory Organization’s
Statement on Burden on Competition
Electronic Comments
In accordance with Section 6(b)(8) of
the Act,25 the Exchange believes that the
proposed rule change would not impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. Instead, the
Exchange believes that the proposed
rule change would facilitate the listing
and trading of Exchange-Traded Fund
Shares and result in an efficient process
surrounding the listing and trading of
Exchange-Traded Fund Shares, which
will enhance competition among market
participants, to the benefit of investors
and the marketplace. The Exchange also
believes that the proposed change will
reduce the time frame for bringing
Exchange-Traded Fund Shares to
market, thereby reducing the burdens on
issuers and other market participants
and promoting competition. In turn, the
Exchange believes that the proposed
change would make the process for
listing Exchange-Traded Fund Shares
more competitive by applying uniform
listing standards to Exchange-Traded
Fund Shares.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
25 15
U.S.C. 78f(b)(8).
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17:47 Dec 29, 2020
Jkt 253001
Within 45 days of the date of
publication of this notice in the Federal
Register or up to 90 days (i) as the
Commission may designate if it finds
such longer period to be appropriate
and publishes its reasons for so finding
or (ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
• 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–
NYSE–2020–86 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–NYSE–2020–86. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
Frm 00062
Fmt 4703
Sfmt 4703
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020–28804 Filed 12–29–20; 8:45 am]
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
PO 00000
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–NYSE–2020–86, and
should be submitted on or before
January 21, 2021.
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90796; File No. SR–BX–
2020–032]
Self-Regulatory Organizations; Nasdaq
BX, Inc.; Notice of Designation of a
Longer Period for Commission Action
on a Proposed Rule Change To Amend
Options 4, Section 5, To Limit Short
Term Options Series Intervals Between
Strikes Which Are Available for
Quoting and Trading on BX
December 23, 2020.
On November 6, 2020, Nasdaq BX,
Inc. (‘‘BX’’ 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
amend Options 4, Section 5, ‘‘Series of
Options Contracts Open for Trading’’ to
seek to limit Short Term Options Series
intervals between strikes which are
available for quoting and trading on BX.
The proposed rule change was
published for comment in the Federal
Register on November 16, 2020.3
Section 19(b)(2) of the Act 4 provides
that within 45 days of the publication of
notice of the filing of a proposed rule
change, or within such longer period up
to 90 days as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding, or as to which the
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 90384
(November 9, 2020), 85 FR 73113 (November 16,
2020). Comments on the proposed rule change can
be found at https://www.sec.gov/comments/sr-bx2020-032/srbx2020032.htm.
4 15 U.S.C. 78s(b)(2).
1 15
E:\FR\FM\30DEN1.SGM
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]]>Agencies
[Federal Register Volume 85, Number 250 (Wednesday, December 30, 2020)]
[Notices]
[Pages 86584-86590]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28804]
=======================================================================
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90775; File No. SR-NYSE-2020-86]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change for a New Rule 5.2(j)(8)
December 22, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on December 18, 2020, New York Stock Exchange LLC (``NYSE''
or the ``Exchange'') filed with the Securities and Exchange Commission
(the ``Commission'') the proposed rule change as described in Items I,
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes (1) a new Rule 5.2(j)(8) establishing
``generic'' listing standards for Exchange-Traded Products that are
permitted to operate in reliance on Rule 6c-11 under the Investment
Company Act of 1940, and (2) a new Rule 7.18(d)(2) that would govern
trading halts for listed Exchange-Traded Products. The proposed rule
change is available on the Exchange's website at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes a new Rule 5.2(j)(8) establishing ``generic''
listing standards for Exchange-Traded Products (``ETPs'') \4\ that are
permitted to operate in reliance on Rule 6c-11 under the Investment
Company Act of 1940 (the ``1940 Act''). The Exchange also proposes a
new Rule 7.18(d)(2) that would govern trading halts for listed ETPs.
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\4\ Rule 1.1(k) defines ``Exchange Traded Product'' as a
security that meets the definition of ``derivative securities
product'' in Rule 19b-4(e) under the Act. ETPs include, for example,
securities listed and traded on the Exchange pursuant to the
following Exchange rules: Rule 5.2(j)(3) (Investment Company Units);
Rule 5.2(j)(5) (Equity Gold Shares); Rule 5.2(j)(6) (Index-Linked
Securities); Rule 8.100 (Portfolio Depositary Receipts); Rule 8.200
(Trust Issued Receipts); Rule 8.201 (Commodity-Based Trust Shares);
Rule 8.202 (Currency Trust Shares); Rule 8.203 (Commodity Index
Trust Shares); Rule 8.204 (Commodity Futures Trust Shares); Rule
8.600 (Managed Fund Shares); and Rule 8.700 (Managed Trust
Securities).
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Background
Currently, the Exchange trades securities, including ETPs, on its
Pillar trading platform on an unlisted trading privileges (``UTP'')
basis, subject to Pillar Platform Rules 1P-13P.\5\ ETPs traded on a UTP
basis on the Exchange are not assigned to a Designated Market Maker
(``DMM'') but are available for Floor brokers to trade in Floor-based
crossing transactions.\6\
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\5\ ``UTP Security'' is defined as a security that is listed on
a national securities exchange other than the Exchange and that
trades on the Exchange pursuant to unlisted trading privileges. See
Rule 1.1.
\6\ See Securities Exchange Act Release No. 82945 (March 26,
2018), 83 FR 13553, 13568 (March 29, 2018) (SR-NYSE-2017-36)
(approving Exchange rules to trade securities on a UTP basis on the
Pillar trading platform).
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The Exchange's rules permit it to list ETPs under Rules 5P and 8P.
Specifically, Rules 5P (Securities Traded) and 8P (Trading of Certain
Exchange-Traded Products) provide for the listing of certain ETPs on
the Exchange that (1) meet the applicable requirements set forth in
those rules, and (2) do not have any component NMS Stock that is listed
on the Exchange or is based on, or represents an interest in, an
underlying index or reference asset that includes an NMS Stock listed
on the Exchange. ETPs listed under Rules 5P and 8P would be ``Tape A''
listings and traded pursuant to the rules applicable to NYSE-listed
securities. Accordingly, once an ETP is listed, it would be assigned to
a DMM pursuant to Rule 103B and the assigned
[[Page 86585]]
DMM would have obligations vis-[agrave]-vis such securities as
specified in Rule 104, including facilitating the opening, reopening,
and closing of such securities.\7\
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\7\ See Securities Exchange Act Release No. 87056 (September 23,
2019), 84 FR 51205 (September 27, 2019) (SR-NYSE-2019-34) (order
approving amendments to Rule 104 to specify DMM requirements for
ETPs listed on the Exchange pursuant to Rules 5P and 8P).
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The Commission recently adopted Rule 6c-11 under the 1940 Act to
permit ETPs that are exchange traded funds (``ETF'') shares
(``Exchange-Traded Fund Shares'') and that satisfy certain conditions
to operate without obtaining an exemptive order from the Commission
under the 1940 Act.\8\ The regulatory framework provided in Rule 6c-11
streamlines procedures and reduces the costs and time frames associated
with bringing ETFs to market, thereby enhancing competition among ETF
issuers and reducing costs for investors.\9\
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\8\ See Release Nos. 33-10695; IC-33646; File No. S7-15-18
(ETFs) (September 25, 2019), 84 FR 57162 (October 24, 2019) (the
``Rule 6c-11 Release'').
\9\ The Commission observed that the ``rule will modernize the
regulatory framework for ETFs to reflect our more than two decades
of experience with these investment products. The rule is designed
to further important Commission objectives, including establishing a
consistent, transparent, and efficient regulatory framework for ETFs
and facilitating greater competition and innovation among ETFs.''
See Rule 6c-11 Release, at 57163. The Commission also stated the
following regarding the rule's impact: ``We believe rule 6c-11 will
establish a regulatory framework that: (1) Reduces the expense and
delay currently associated with forming and operating certain ETFs
unable to rely on existing orders; and (2) creates a level playing
field for ETFs that can rely on the rule. As such, the rule will
enable increased product competition among certain ETF providers,
which can lead to lower fees for investors, encourage financial
innovation, and increase investor choice in the ETF market.'' Id. at
57204.
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The Exchange proposes new Rule 5.2(j)(8) to establish generic
listing standards allowing the Exchange to list and trade Exchange-
Traded Fund Shares in a manner consistent with Rule 6c-11. Proposed
Rule 5.2(j)(8) is based on NYSE Arca, Inc. (``NYSE Arca'') Rule 5.2-
E(j)(8).\10\ In addition, the Exchange proposes a new Rule 7.18(d)(2)
based on NYSE Arca Rule 7.18-E(d)(2) that would govern trading halts
for listed ETPs.
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\10\ See Securities Exchange Act Release No. 88625 (April 13,
2020), 85 FR 21479 (April 17, 2020) (SR-NYSEArca-2019-81) (Notice of
filing of Amendment No. 2 and Order granting accelerated approval of
proposed rule change, as modified by Amendment No. 2, to adopt NYSE
Arca Rule 5.2-E(j)(8) establishing generic listing standards for
Exchange-Traded Fund Shares).
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Proposed Rule Change
The Exchange proposes standards that would pertain to Exchange-
Traded Fund Shares to qualify for listing and trading pursuant to Rule
19b-4(e), as follows.
Proposed Rule 5.2(j)(8)(a) would provide that the Exchange would
consider for trading, whether by listing or on a UTP basis, Exchange-
Traded Fund Shares that meet the criteria of proposed Rule 5.2(j)(8).
Proposed Rule 5.2(j)(8)(a) is based on NYSE Arca Rule 5.2-E(j)(8)(a)
without any differences.
Proposed Rule 5.2(j)(8)(b) would specify applicability of proposed
Rule 5.2(j)(8) and would provide that it is applicable only to
Exchange-Traded Fund Shares. Proposed Rule 5.2(j)(8)(b) would further
provide that, except to the extent inconsistent with proposed Rule
5.2(j)(8) or unless the context otherwise requires, Exchange rules
would be applicable to the trading on the Exchange of such securities
and that Exchange-Traded Fund Shares would be included within the
definition of NMS Stock as defined in Rule 1.1. Proposed Rule
5.2(j)(8)(b) is based on NYSE Arca Rule 5.2-E(j)(8)(b) without any
differences.
Proposed Rule 5.2(j)(8)(c) would set forth the proposed rule's
applicable definitions, which are based on NYSE Arca Rule 5.2-
E(j)(8)(c) without any differences, as follows:
Proposed Rule 5.2(j)(8)(c)(1) would define the term ``1940
Act'' to mean the Investment Company Act of 1940, as amended.
Proposed Rule 5.2(j)(8)(c)(2) would define the term
``Exchange-Traded Fund'' as having the same meaning as the term
``exchange-traded fund'' as defined in Rule 6c-11(a)(1) under the 1940
Act.\11\
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\11\ Rule 6c-11(a)(1) defines ``exchange-traded fund'' as a
registered open-end management company: (i) That issues (and
redeems) creation units to (and from) authorized participants in
exchange for a basket and a cash balancing amount if any; and (ii)
Whose shares are listed on a national securities exchange and traded
at market-determined prices. The terms ``authorized participant,''
``basket'' and ``creation unit'' are defined in Rule 6c-11(a).
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Proposed Rule 5.2(j)(8)(c)(3) would define the term
``Exchange-Traded Fund Share'' to mean a share of stock issued by an
Exchange-Traded Fund.\12\
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\12\ The definition of Exchange-Traded Fund Shares is the same
as the definition of ``exchange-traded fund shares'' in Rule 6c-
11(a) under the 1940 Act.
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Proposed Rule 5.2(j)(8)(c)(4) would define the term
``Reporting Authority'' to mean with respect to a particular series of
Exchange-Traded Fund Shares, the Exchange, an institution, or a
reporting service designated by the Exchange or by the exchange that
lists a particular series of Exchange-Traded Fund Shares (if the
Exchange is trading such series pursuant to unlisted trading
privileges) as the official source for calculating and reporting
information relating to such series, including, but not limited to, any
current index or portfolio value, the current value of the portfolio of
any securities required to be deposited in connection with issuance of
Exchange-Traded Fund Shares, the amount of any dividend equivalent
payment or cash distribution to holders of Exchange-Traded Fund Shares,
net asset value, or other information relating to the issuance,
redemption or trading of Exchange-Traded Fund Shares. A series of
Exchange-Traded Fund Shares may have more than one Reporting Authority,
each having different functions.
Proposed Rule 5.2(j)(8)(d) would specify the limitations on
Exchange liability and relates to limitations of the Exchange, the
Reporting Authority, or any agent of the Exchange as a result of
specified events and conditions. Specifying such limitations of
liability is standard in the Exchange's rules governing the listing of
Exchange-Traded Products and the proposed rule text is substantively
identical to Rules 5.2(j)(3)(D), 8.100(f), 8.201(f), 8.200(f),
8.202(f), 8.203(f), 8.204(g), 8.300(f), 8.400(f), 8.500(e), 8.600(e),
and 8.700(g). Proposed Rule 5.2(j)(8)(d) is based on NYSE Arca Rule
5.2-E(j)(8)(d) without any differences.
Proposed Rule 5.2(j)(8)(e) would provide that the Exchange may
approve Exchange-Traded Fund Shares for listing and/or trading
(including on a UTP basis) pursuant to Rule 19b-4(e) under the Exchange
Act provided that each series of Exchange-Traded Fund Shares must be
eligible to operate in reliance on Rule 6c-11 under the 1940 Act and
must satisfy the requirements of proposed Rule 5.2(j)(8)(as described
below) upon initial listing and, except for subparagraph (1)(A) of
proposed Rule 5.2(j)(8)(e), on a continuing basis. As further proposed,
an issuer of such securities must notify the Exchange of any failure to
comply with such requirements. Proposed Rule 5.2(j)(8)(e) is based on
NYSE Arca Rule 5.2-E(j)(8)(e) without any differences.
Proposed Rule 5.2(j)(8)(e)(1) sets forth the initial and continued
listing standards for Exchange-Traded Fund Shares to be listed on the
NYSE and would provide that Exchange-Traded Fund Shares will be listed
and traded on the Exchange subject to the requirement that the
investment company issuing a series of Exchange-Traded Fund Shares is
eligible to operate in reliance on the requirements of Rule 6c-11(c) on
an initial and continued listing basis. Proposed Rule 5.2(j)(8)(e)(1)
is based on NYSE Arca
[[Page 86586]]
Rule 5.2-E(j)(8)(e)(1) without any differences.
Proposed Rule 5.2(j)(8)(e)(1)(A) provides that, for each series of
Exchange-Traded Fund Shares, the Exchange will establish a minimum
number of Exchange-Traded Fund Shares required to be outstanding at the
time of commencement of trading on the Exchange. Proposed Rule
5.2(j)(8)(e)(1)(A) is based on NYSE Arca Rule 5.2-E(j)(8)(e)(1)(A)
without any differences.
Proposed Rule 5.2(j)(8)(e)(2) would set forth the standards for
suspension of trading or removal of Exchange-Traded Fund Shares from
listing on the Exchange and would provide that the Exchange will
consider the suspension of trading in, and will commence delisting
proceedings under Rule 5.5(m) of, a series of Exchange-Traded Fund
Shares under any of the following circumstances:
(A) If the Exchange becomes aware that the investment company is no
longer eligible to operate in reliance on Rule 6c-11;
(B) if the investment company no longer complies with the
requirements set forth in Rule 5.2(j)(8);
(C) if, following the initial twelve-month period after
commencement of trading on the Exchange of a series of Exchange-Traded
Fund Shares, there are fewer than 50 beneficial holders of such series
of Exchange-Traded Fund Shares; or
(D) if such other event shall occur or condition exists which, in
the opinion of the Exchange, makes further dealings on the Exchange
inadvisable (see proposed Rule 5.2(j)(8)(e)(2)(D)).
Proposed Rule 5.2(j)(8)(e)(2) is based on NYSE Arca Rule 5.2-
E(j)(8)(e)(2) without any differences.
Proposed Rule 5.2(j)(8)(f) would provide that transactions in
Exchange-Traded Fund Shares would occur during the trading hours
specified in Rule 7.34(a) for Exchange-listed securities. Proposed Rule
5.2(j)(8)(f) is based on NYSE Arca Rule 5.2-E(j)(8)(f) with a
difference to cross reference the Exchange's rule governing the hours
of trading. In addition, unlike NYSE Arca, Exchange-listed securities
trade on the Exchange only during Core Trading Hours.
Proposed Rule 5.2(j)(8)(g) would provide that the Exchange would
implement and maintain written surveillance procedures for Exchange-
Traded Fund Shares. This proposed rule is based, for example, on
Commentary .01(f) to Rule 5.2(j)(3) (for Investment Company Units);
Commentary .03 to Rule 8.600 (for Managed Fund Shares); and Commentary
.04 to Rule 8.700 (for Managed Trust Securities). Proposed Rule
5.2(j)(8)(g) is based on NYSE Arca Rule 5.2-E(j)(8)(g) without any
differences.
Proposed Rule 5.2(j)(8)(h) would provide that, upon termination of
an investment company issuing Exchange-Traded Fund Shares, the Exchange
would require that Exchange-Traded Fund Shares issued in connection
with such entity be removed from Exchange listing. Proposed Rule
5.2(j)(8)(h) is based on NYSE Arca Rule 5.2-E(j)(8)(h) without any
differences.
Proposed Commentary .01 to Rule 5.2(j)(8) would provide that a
security that has previously been approved for listing on the Exchange
pursuant to the generic listing requirements specified in Rule
5.2(j)(3) or Commentary .01 to Rule 8.600, or pursuant to a proposed
rule change approved or subject to a notice of effectiveness by the
Commission, may be considered approved for listing solely under Rule
5.2(j)(8) if such security is eligible to operate in reliance on Rule
6c-11 under the 1940 Act. Once so approved for listing, the continued
listing requirements applicable to such previously-listed security will
be those specified in paragraph (e) of Rule 5.2(j)(8). Any requirements
for listing as specified in Rule 5.2(j)(3) or Commentary .01 to Rule
8.600, or an approval order or notice of effectiveness of a separate
proposed rule change that differ from the requirements of Rule
5.2(j)(8) will no longer be applicable to such security. Commentary .01
to proposed Rule 5.2(j)(8) is based on Commentary .01 to NYSE Arca Rule
5.2-E(j)(8) without any differences.\13\
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\13\ There are currently no securities listed on the Exchange
that would be eligible for approval under proposed Commentary .01 to
Rule 5.2(j)(8).
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The Exchange believes that proposed Commentary .01 to Rule
5.2(j)(8) harmonizes the Exchange's listing standards for all ETFs that
will be listed on the Exchange, even if they were previously listed
pursuant to different continued listing requirements. Specifically, as
noted in the Rule 6c-11 Release, one year following the effective date
of Rule 6c-11, the Commission will be rescinding those portions of its
prior ETF exemptive orders under the 1940 Act that grant relief related
to the formation and operation of certain ETFs. The Exchange believes
that once this occurs, all ETFs will be subject to the same
requirements under Rule 6c-11 and will no longer be subject to any
differing requirements that may have been set forth in the exemptive
orders issued before the effective date of Rule 6c-11.
Proposed Commentary .02 to Rule 5.2(j)(8) is based on Commentary
.02 to NYSE Arca Rule 5.2-E(j)(8)(a) without any differences, and would
establish the following requirements that each series of Exchange-
Traded Fund Shares based on an index would be required to meet on an
initial and continued listing basis:
(1) If the underlying index is maintained by a broker-dealer or
fund adviser, the broker-dealer or fund adviser will erect and maintain
a ``fire wall'' around the personnel who have access to information
concerning changes and adjustments to the index and the index will be
calculated by a third party who is not a broker-dealer or fund adviser,
and
(2) Any advisory committee, supervisory board, or similar entity
that advises a Reporting Authority or that makes decisions on the index
composition, methodology and related matters, must implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the
applicable index.\14\
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\14\ See proposed Commentary .02(a) to Rule 5.2(j)(8)). Proposed
Commentary .02(a) is based on Commentary .01(b)(1) to Rule 5.2(j)(3)
and Commentary .02(b)(1) and (b)(3) to Rule 5.2(j)(3).
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In addition, with respect to series of Exchange-Traded Fund Shares
that are actively managed, if the investment adviser to the investment
company issuing Exchange-Traded Fund Shares is affiliated with a
broker-dealer, such investment adviser will erect and maintain a ``fire
wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such portfolio. Personnel who make decisions on the
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the applicable portfolio. The Reporting Authority that provides
information relating to the portfolio of a series of Exchange-Traded
Fund Shares must implement and maintain, or be subject to, procedures
designed to prevent the use and dissemination of material non-public
information regarding the actual components of such portfolio.\15\
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\15\ See proposed Commentary .02(b) to Rule 5.2(j)(8)). Proposed
Commentary .02(b) is based in part on Commentary .06 to Rule 8.600.
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The Exchange notes that Exchange-Traded Fund Shares will be subject
to all Exchange rules applicable to equities trading. With respect to
Exchange-Traded Fund Shares, all obligations relating to product
description and prospectus delivery requirements will continue to apply
in accordance with
[[Page 86587]]
Exchange rules and federal securities laws, and the Exchange and the
Financial Industry Regulatory Authority, Inc. (``FINRA'') will continue
to monitor Exchange members for compliance with such requirements,
which are not changing as a result of Rule 6c-11 under the 1940 Act.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in a series of Exchange-Traded Fund Shares.\16\ Trading in
Exchange-Traded Fund Shares will be halted if the circuit breaker
parameters in Rule 7.12 have been reached. Trading also may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in Exchange-Traded Fund Shares inadvisable.
These may include: (1) The extent to which certain information about
the Exchange-Traded Fund Shares that is required to be disclosed under
Rule 6c-11(c) of the 1940 Act is not being made available, or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.
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\16\ See NYSE Rule 7.12.
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The Exchange proposes a new Rule 7.18(d)(2) modeled on NYSE Arca
Rule 7.18-E(d)(2) that would govern trading halts for listed ETPs
(which would include Exchange-Traded Fund Shares). Proposed Rule
7.18(d)(2) would provide that, with respect to an ETP listed on the
Exchange for which a Net Asset Value (``NAV'') (and in the case of
Managed Fund Shares under NYSE Rule 8.600 and Managed Trust Securities
under NYSE Rule 8.700, a Disclosed Portfolio) is disseminated, if the
Exchange becomes aware that the NAV (or in the case of Managed Fund
Shares or Managed Trust Securities, the Disclosed Portfolio) is not
being disseminated to all market participants at the same time, it will
halt trading in the affected Exchange Traded Product on the NYSE until
such time as the NAV (or in the case of Managed Fund Shares or Managed
Trust Securities, the Disclosed Portfolio, as applicable) is available
to all market participants.
In addition, the Exchange may halt trading in ETPs if there is an
interruption or disruption in the dissemination of an underlying index
value, if applicable, if there are major interruptions in securities
trading in U.S. or global markets, or in the presence of other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market.
Minimum Price Variation
As provided in NYSE Rule 7.6, the minimum price variation (``MPV'')
for quoting and entry of orders in equity securities traded on the NYSE
is $0.01, with the exception of securities that are priced less than
$1.00 for which the MPV for order entry is $0.0001.
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Exchange-Traded Fund
Shares in all trading sessions and to deter and detect violations of
Exchange rules. Specifically, the Exchange will implement and maintain
written surveillance procedures to monitor trading in Exchange-Traded
Fund Shares on the NYSE.\17\ The Exchange or FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in Exchange-
Traded Fund Shares and certain of their applicable underlying
components with other markets that are members of the Intermarket
Surveillance Group (``ISG'') or with which the Exchange has in place a
comprehensive surveillance sharing agreement. In addition, the Exchange
may obtain information regarding trading in Exchange-Traded Fund Shares
and certain of their applicable underlying components from markets and
other entities that are members of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement. Additionally,
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities that may be held by a
series of Exchange-Traded Fund Shares reported to FINRA's TRACE. FINRA
also can access data obtained from the Municipal Securities Rulemaking
Board's Electronic Municipal Market Access (``EMMA'') system relating
to municipal bond trading activity for surveillance purposes in
connection with trading in a series of Exchange-Traded Fund Shares, to
the extent that a series of Exchange-Traded Fund Shares holds municipal
securities. As noted below, the issuer of a series of Exchange-Traded
Fund Shares will be required to comply with Rule 10A-3 under the Act
for the initial and continued listing of Exchange-Traded Fund Shares,
as provided under Rule 5.2.
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\17\ The Exchange notes that the surveillance procedures
applicable to Exchange-Traded Fund Shares on the NYSE would be
substantially similar to those in place for Investment Company
Units, Exchange-Traded Fund Shares, and Managed Fund Shares, among
other product types, on NYSE Arca.
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Pursuant to its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor for compliance with the continued listing
requirements. As provided for under proposed Rule 5.2(j)(8)(e)(2), if
the investment company or series of Exchange-Traded Fund Shares is not
in compliance with the applicable listing requirements, the Exchange
will commence delisting procedures under Rule 5.5(m).
The Exchange will implement and maintain written surveillance
procedures to monitor issuer compliance with the requirements of
proposed Rule 5.2(j)(8) for Exchange-Traded Funds on the NYSE. For
example, the Exchange will use intraday alerts that will notify
Exchange personnel of trading activity throughout the day that may
indicate that certain disclosures are not being made accurately or that
other unusual conditions or circumstances are present that could be
detrimental to the maintenance of a fair and orderly market. The
Exchange will require periodic certification from the issuer of a
series of Exchange-Traded Fund Shares that it is in compliance with
Rule 6c-11 and the requirements of Rule 5.2(j)(8).
Proposed Rule 5.2(j)(8)(e)(2)(i) provides that the Exchange will
consider the suspension of trading in, and will commence delisting
proceedings under Rule 5.5(m) of, a series of Exchange-Traded Fund
Shares if the Exchange becomes aware that the investment company is no
longer eligible to operate in reliance on Rule 6c-11. The Exchange's
awareness for purposes of determining whether to suspend trading or
delist a series of Exchange-Traded Fund Shares may result from
notification by the investment company or by the Exchange learning,
through its own efforts, of non-compliance with Rule 5.2(j)(8).\18\ In
addition, the Exchange will periodically review issuer websites to
monitor whether disclosures are being made for a series of Exchange-
Traded Fund Shares as required by Rule 6c-11(c)(1). The Exchange also
notes that proposed Rule 5.2(j)(8)(e) would require an issuer of
Exchange-Traded Fund Shares to notify the Exchange that it is no longer
eligible to operate in reliance on Rule 6c-11 or that it does not
comply with the requirements of proposed Rule 5.2(j)(8). The Exchange
will rely on the
[[Page 86588]]
foregoing procedures to become aware of any non-compliance with the
requirements of Rule 5.2(j)(8). Proposed Rule 5.2(j)(8)(e)(2)(i) is
based on NYSE Arca Rule 5.2-E(j)(8)(e)(2)(i) without any differences.
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\18\ As proposed, Rule 5.2(j)(8) does not impose index
dissemination requirements, the Exchange does not plan to conduct a
specific index dissemination surveillance for securities listed
pursuant to such rule.
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Firewalls
Commentary .01(b)(1) and Commentary .02(b) to NYSE Rule 5.2(j)(3)
(applicable to Investment Company Units) and Commentary .06 to NYSE
Rule 8.600 (applicable to Managed Fund Shares) require the
establishment and maintenance of a ``firewall'' around personnel who
have access to information concerning changes to an index or the
composition and/or changes to a fund's portfolio; and that specified
persons or entities be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding the
applicable index or portfolio.
In the Rule 6c-11 Release, the Commission, in the context of index-
based ETFs with affiliated index providers (``self-indexed ETFs''),
noted the federal securities law provisions that currently relate to
implementation by funds of appropriate measures to deal with misuse of
non-public information.\19\ The Exchange notes that these federal
securities law requirements will continue to apply to issues of index
and actively-managed ETFs and the proposed generic listing rules for
Exchange-Traded Fund Shares are consistent with such requirements.
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\19\ See Rule 6c-11 Release at 57168-57169. See also 17 CFR
270.38a-1 (Rule 38a-1 under the 1940 Act) (requiring funds to adopt
policies and procedures reasonably designed to prevent violation of
federal securities laws); 17 CFR 270.17j-1(c)(1) (Rule 17j-1(c)(1)
under the Investment Company Act) (requiring funds to adopt a code
of ethics containing provisions designed to prevent certain fund
personnel (``access persons'') from misusing information regarding
fund transactions); section 204A of the Investment Advisers Act of
1940 (``Advisers Act'') (15 U.S.C. 80b-204A) (requiring an adviser
to adopt policies and procedures that are reasonably designed,
taking into account the nature of its business, to prevent the
misuse of material, non-public information by the adviser or any
associated person, in violation of the Advisers Act or the Exchange
Act, or the rules or regulations thereunder); section 15(g) of the
Exchange Act (15 U.S.C. 78o(f)) (requiring a registered broker or
dealer to adopt policies and procedures reasonably designed, taking
into account the nature of the broker's or dealer's business, to
prevent the misuse of material, nonpublic information by the broker
or dealer or any person associated with the broker or dealer, in
violation of the Exchange Act or the rules or regulations
thereunder).
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The Exchange notes that proposed Commentary .02(a) to Rule
5.2(j)(8) provides that, with respect to series of Exchange-Traded Fund
Shares that are based on an index, if the underlying index is
maintained by a broker-dealer or fund adviser, the broker-dealer or
fund adviser will erect and maintain a ``fire wall'' around the
personnel who have access to information concerning changes and
adjustments to the index and the index shall be calculated by a third
party who is not a broker-dealer or fund advisor. In addition, proposed
Commentary .02(b) to Rule 5.2(j)(8) provides that, with respect to
series of Exchange-Traded Fund Shares that are actively managed if, the
investment adviser to the Exchange-Traded Fund issuing Exchange-Traded
Fund Shares is affiliated with a broker-dealer, such investment adviser
will erect and maintain a ``fire wall'' between the investment adviser
and the broker-dealer with respect to access to information concerning
the composition and/or changes to such Exchange-Traded Fund portfolio.
Personnel who make decisions on the applicable Exchange-Traded Fund's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the applicable Exchange-Traded Fund portfolio. Proposed Commentary
.02(a) to Rule 5.2(j)(8)(k) is based on Commentary .02(a) to NYSE Arca
Rule 5.2-E(j)(8) without any differences.
As noted, proposed Rule is based on recently adopted NYSE Arca Rule
5.2-E(j)(8).\20\ The Exchange believes that adopting the same generic
standards for Exchange-Traded Fund Shares would facilitate efficient
procedures for ETFs that are permitted to operate in reliance on Rule
6c-11. The Exchange further believes that the proposed rule is, like
its NYSE Arca counterpart, fully consistent with, and will further, the
Commission's goals in adopting Rule 6c-11.
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\20\ See note 10, supra.
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For all of the reasons stated above, the proposal is therefore
consistent with the requirements of the Act.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act,\21\ in general, and furthers the objectives of
Sections 6(b)(5) of the Act,\22\ in particular, because it is designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to, and perfect the mechanisms of,
a free and open market and a national market system and, in general, to
protect investors and the public interest and because it is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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\21\ 15 U.S.C. 78f(b).
\22\ 15 U.S.C. 78f(b)(5).
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By facilitating efficient procedures for listing Exchange-Traded
Fund Shares that are permitted to operate in reliance on Rule 6c-11,
the generic listing rules in proposed Rule 5.2(j)(8) described above
based on NYSE Arca Rule 5.2-E(j)(8) recently approved by the Commission
are consistent with, and will further, the Commission's goals in
adopting Rule 6c-11. In addition, by allowing Exchange-Traded Fund
Shares to be listed and traded on the Exchange without a prior
Commission approval order or notice of effectiveness pursuant to
Section 19(b) of the Act, proposed Rule 5.2(j)(8) will significantly
reduce the time frame and costs associated with bringing these
securities to market, thereby promoting market competition among
issuers of Exchange-Traded Fund Shares, to the benefit of the investing
public. In addition, the proposed rule change would fulfill the
intended objective of Rule 19b-4(e) under the Act by permitting
Exchange-Traded Fund Shares that satisfy the proposed listing standards
to be listed and traded without separate Commission approval.
Proposed Rule 5.2(j)(8)(d) would specify the limitations on
Exchange liability and relates to limitation of the Exchange, the
Reporting Authority, or any agent of the Exchange as a result of
specified events and conditions. As provided in proposed Rule
5.2(j)(8)(e), the Exchange may approve Exchange-Traded Fund Shares for
listing and trading on the Exchange subject to the requirement that the
investment company issuing a series of Exchange-Traded Fund Shares is
eligible to operate in reliance on Rule 6c-11 \23\ under the 1940 Act
and must satisfy the requirements of Rule 5.2(j)(8) on an initial
listing and, except for subparagraph (1)(A) of Rule 5.2(j)(8)(e), a
continuing basis. An issuer of such securities must notify the Exchange
of any failure to comply with such requirements. These requirements
will ensure that Exchange-listed Exchange-Traded Fund Shares continue
to operate in a manner that fully complies with the portfolio
transparency requirements of Rule 6c-11(c). As provided in proposed
Rule 5.2(j)(8)(e)(1), Exchange-Traded
[[Page 86589]]
Fund Shares will be listed and traded on the Exchange subject to the
requirement that the investment company issuing a series of Exchange-
Traded Fund Shares is eligible to operate in reliance on the
requirements of Rule 6c-11(c) under the 1940 Act on an initial and
continued listing basis. As provided in proposed Rule 5.2(j)(8)(e)(2)
(Suspension of trading or removal), the Exchange will consider the
suspension of trading in, and will commence delisting proceedings under
Rule 5.5(m) of, a series of Exchange-Traded Fund Shares if the Exchange
becomes aware that it is no longer eligible to operate in reliance on
Rule 6c-11 or does not comply with the requirements set forth in Rule
5.2(j)(8); if, following the initial twelve-month period after
commencement of trading on the Exchange of a series of Exchange-Traded
Fund Shares, there are fewer than 50 beneficial holders of such series
of Exchange-Traded Fund Shares; or if such other event shall occur or
condition exists which, in the opinion of the Exchange, makes further
dealings on the Exchange inadvisable.
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\23\ Rule 6c-11(c) sets forth certain conditions applicable to
exchange-traded funds, including information required to be
disclosed on the fund's website.
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As provided in proposed Rule 5.2(j)(8)(g), the Exchange will
implement and maintain written surveillance procedures for Exchange-
Traded Fund Shares on the NYSE. The Exchange represents that its
surveillance procedures are adequate to properly monitor the trading of
the Exchange-Traded Fund Shares in all trading sessions and to deter
and detect violations of Exchange rules. Proposed Rule 5.2(j)(8)(h)
provides that, upon termination of an investment company issuing
Exchange-Traded Fund Shares, the Exchange requires that Exchange-Traded
Fund Shares issued in connection with such entity be removed from
Exchange listing.
Proposed Commentary .01 to Rule 5.2(j)(8) provides that a security
that has previously been approved for listing on the Exchange pursuant
to the generic listing requirements specified in Rule 5.2(j)(3) or
Commentary .01 to Rule 8.600, or pursuant to a proposed rule change
approved or subject to a notice of effectiveness by the Commission, may
be considered approved for listing solely under Rule 5.2(j)(8) if such
security is eligible to operate in reliance on Rule 6c-11 under the
1940 Act. Once so approved for listing, the continued listing
requirements applicable to such previously-listed security will be
those specified in paragraph (e) of Rule 5.2(j)(8). Any requirements
for listing as specified in Rule 5.2(j)(3) or Commentary .01 to Rule
8.600, or an approval order or notice of effectiveness of a separate
proposed rule change that differ from the requirements of Rule
5.2(j)(8) will no longer be applicable to such security. The Exchange
believes proposed Commentary .01 to Rule 5.2(j)(8) will streamline the
listing process for such securities, consistent with the regulatory
framework adopted in Rule 6c-11 under the 1940 Act.
Proposed Commentary .02 to Rule 5.2(j)(8) would provide
requirements to be met on an initial and continued listing basis by
series of Exchange-Traded Fund Shares that are based on an index or are
actively managed regarding the erection and maintenance of a ``fire
wall'' as well as implementation and maintenance of procedures designed
to prevent the use and dissemination of material non-public information
regarding the applicable index or portfolio. The Exchange believes the
provisions of the proposed rule will address possible concerns
regarding misuse of material non-public information regarding an index
underlying a series of Exchange-Traded Fund Shares or the portfolio for
a series of Exchange-Traded Fund Shares, as applicable.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices and is
consistent with the protection of investors and the public interest
because the Exchange will have in place surveillance procedures that
are adequate to properly monitor trading in the Exchange-Traded Fund
Shares in all trading sessions and to deter and detect violations of
Exchange rules and applicable federal securities laws. FINRA, on behalf
of the Exchange, will communicate as needed regarding trading in
Exchange-Traded Fund Shares and certain of their applicable underlying
components with other markets that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
In addition, the Exchange may obtain information regarding trading in
Exchange-Traded Fund Shares and certain of their applicable underlying
components from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. Additionally, FINRA, on behalf of the Exchange, is
able to access, as needed, trade information for certain fixed income
securities that may be held by a series of Exchange-Traded Fund Shares
reported to FINRA's TRACE. FINRA also can access data obtained from the
Municipal Securities Rulemaking Board's EMMA system relating to
municipal bond trading activity for surveillance purposes in connection
with trading in a series of Exchange-Traded Fund Shares, to the extent
that a series of Exchange-Traded Fund Shares holds municipal
securities. As noted above, the issuer of a series of Exchange-Traded
Fund Shares will be required to comply with Rule 10A-3 under the Act
for the initial and continued listing of Exchange-Traded Fund Shares,
as provided under Rule 5.2.
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in a series of Exchange-Traded Fund Shares.\24\ Trading in
Exchange-Traded Fund Shares will be halted if the circuit breaker
parameters in NYSE Rule 7.12 have been reached. Trading also may be
halted because of market conditions or for reasons that, in the view of
the Exchange, make trading in Exchange-Traded Fund Shares inadvisable.
Proposed NYSE Rule 7.18(d)(2), which is based on NYSE Arca Rule 7.18-
E(d)(2) without any differences, would permit the Exchange to halt
trading in listed ETPs (which would include Exchange-Traded Fund
Shares) for which an NAV (and in the case of Managed Fund Shares under
NYSE Rule 8.600 and Managed Trust Securities under NYSE Rule 8.700, a
Disclosed Portfolio) is disseminated when the Exchange becomes aware
that the NAV (or in the case of Managed Fund Shares or Managed Trust
Securities, the Disclosed Portfolio) is not being disseminated to all
market participants at the same time until such time as the NAV (or in
the case of Managed Fund Shares or Managed Trust Securities, the
Disclosed Portfolio, as applicable) is available to all market
participants.
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\24\ See NYSE Rule 7.12.
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The Exchange will obtain a representation from the issuer of a
series of Exchange-Traded Fund Shares that the NAV per share of such
series will be calculated daily and will be made available to all
market participants at the same time. The Exchange will monitor for
compliance with the continued listing requirements. If the Exchange-
Traded Fund is not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures under
Rule 5.5(m). The Exchange will utilize existing procedures to monitor
issuer compliance with the requirements of proposed Rule 5.2(j)(8). For
example, the Exchange will continue to use intraday alerts that will
notify Exchange personnel of trading activity throughout the day that
may indicate that certain disclosures are not being made
[[Page 86590]]
accurately or that other unusual conditions or circumstances are
present that could be detrimental to the maintenance of a fair and
orderly market. The Exchange will require periodic certification from
the issuer of a series of Exchange-Traded Fund Shares that it is in
compliance with Rule 6c-11 and the requirements of Rule 5.2(j)(8). In
addition, the Exchange, on a periodic basis will review issues of
Exchange-Traded Fund Shares listed on the Exchange for compliance with
the requirements of Rule 6c-11(c)(1). Proposed Rule 5.2(j)(8)(e) would
require an issuer of Exchange-Traded Fund Shares to notify the Exchange
if it is no longer eligible to operate in reliance on Rule 6c-11 or
that it does not comply with the requirements of proposed Rule
5.2(j)(8) (except for subparagraph (1)(A) of Rule 5.2(j)(8)(e)).
For the foregoing reasons, the Exchange believes that the proposal
is consistent with the Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\25\ the Exchange
believes that the proposed rule change would not impose any burden on
competition that is not necessary or appropriate in furtherance of the
purposes of the Act. Instead, the Exchange believes that the proposed
rule change would facilitate the listing and trading of Exchange-Traded
Fund Shares and result in an efficient process surrounding the listing
and trading of Exchange-Traded Fund Shares, which will enhance
competition among market participants, to the benefit of investors and
the marketplace. The Exchange also believes that the proposed change
will reduce the time frame for bringing Exchange-Traded Fund Shares to
market, thereby reducing the burdens on issuers and other market
participants and promoting competition. In turn, the Exchange believes
that the proposed change would make the process for listing Exchange-
Traded Fund Shares more competitive by applying uniform listing
standards to Exchange-Traded Fund Shares.
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\25\ 15 U.S.C. 78f(b)(8).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSE-2020-86 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-NYSE-2020-86. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSE-2020-86, and should be submitted on
or before January 21, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2020-28804 Filed 12-29-20; 8:45 am]
BILLING CODE 8011-01-P
