Self-Regulatory Organizations; New York Stock Exchange LLC; Notice of Filing of Proposed Rule Change Amending Section 102.04 of the NYSE Listed Company Manual To Establish Limits on Investments in Unregistered Investment Vehicles by Listed Closed End Funds, 22080-22082 [2021-08566]
Download as PDF
22080
Federal Register / Vol. 86, No. 78 / Monday, April 26, 2021 / Notices
This Notice will be published in the
Federal Register.
Erica A. Barker,
Secretary.
[FR Doc. 2021–08652 Filed 4–23–21; 8:45 am]
BILLING CODE 7710–FW–P
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91618; File No. SR–NYSE–
2021–20]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Filing of Proposed Rule Change
Amending Section 102.04 of the NYSE
Listed Company Manual To Establish
Limits on Investments in Unregistered
Investment Vehicles by Listed Closed
End Funds
April 20, 2021.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on April 9,
2021, 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 to amend
Section 102.04 of the NYSE Listed
Company Manual (‘‘Manual’’) to
establish limits on investments in
unregistered investment vehicles by
listed closed end funds. 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
1 15
U.S.C. 78s(b)(1).
U.S.C. 78a.
3 17 CFR 240.19b–4.
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. Purpose
The Exchange will generally authorize
the listing of a closed-end management
investment company (a ‘‘Fund’’)
registered under the Investment
Company Act of 1940 (the ‘‘Investment
Company Act’’) pursuant to the
provisions of Section 102.04(A) of the
Manual. Section 102.04(A) does not
include any explicit restrictions on the
kinds of investments a listed Fund may
include in its portfolio. The Exchange
proposes to amend Section 102.04(A) to
provide for a limited ability of listed
Funds to invest in private fund vehicles
that are not themselves registered under
the Investment Company Act, including
alternative asset classes such as hedge
funds and private equity funds. The SEC
has amended its own rules with respect
to mutual funds to formally establish
permitted levels of investments by
mutual funds in illiquid investment
categories. The longstanding guidance
from SEC staff has been that mutual
funds should not exceed a 15%
limitation on illiquid investments,
including private funds. In 2016, the
Commission adopted Investment
Company Act Rule 22e–4(b)(1)(iv) to
codify this policy.4 In light of this
development in the SEC’s regulation of
mutual funds and the continuing
interest demonstrated by issuers, the
Exchange now proposes to amend
Section 102.04(A) to provide for a
limited ability of Funds to invest in
private funds.
The proposed amendment to Section
102.04(A) of the Manual would include
a new definition of ‘‘Private Funds.’’ A
‘‘Private Fund’’ for purposes of Section
102.04(A) as amended would mean (1)
in the case of an entity organized under
the laws of the United States or any
state therein, a limited partnership,
limited liability company, trust,
corporation or similar incorporated or
unincorporated entity that would be an
investment company under Section 3(a)
of the Investment Company Act but for
the exception provided from that
definition by either Sections 3(c)(1) or
3(c)(7) of the Investment Company Act
and (2) in the case of an entity not
2 15
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18:01 Apr 23, 2021
4 17
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CFR 270.22e–4(b)(1)(iv).
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Fmt 4703
Sfmt 4703
organized under the laws of the United
States or any state, an entity that is only
permitted to offer its securities in the
United States in a private offering that
complies with Section 7(d) and either
3(c)(1) or 3(c)(7) of the Investment
Company Act and the interpretations of
the SEC thereunder.
The Exchange proposes to exclude
from the definition of Private Funds any
funds that are issuers of collateralized
debt obligations (‘‘CDOs’’) or
collateralized loan obligations (‘‘CLOs’’).
The issuers of CDOs and CLOs are
private investment vehicles not
registered under the Investment
Company Act, and differ from hedge
funds and private equity funds in
material respects. Most importantly,
there is an active secondary trading
market for CDOs and CLOs and there are
services that report trading prices for
those markets. As a result, there is a
significant degree of transparency in the
valuation of CDOs and CLOs, as the
market typically values them based on
general market prices for debt issuances
with the same credit rating and seniority
as the tranches included in the specific
CDO or CLO. Considering the greater
liquidity and transparency of CDOs and
CLOs, the Exchange proposes to exclude
investments in those asset classes from
its definition of Private Funds and, thus,
does not propose to apply to CDOs and
CLOs the proposed limits on listed
Funds’ investments in Private Funds.
Accordingly, the Exchange proposes
that a ‘‘Private Fund’’ not include any
entity that meets the following
requirements:
(i) The entity is engaged in the
business of purchasing, or otherwise
acquiring, and holding Eligible Assets
(as defined below) (and in activities
related or incidental thereto);
(ii) all securities issued by the entity
are either (A) initially sold to qualified
institutional buyers as defined in Rule
144A under the Securities Act or to
persons involved in the organization or
operation of the issuer or an affiliate, as
defined in Rule 405 under the Securities
Act, of such a person or (B) fixedincome securities or other securities
which entitle their holders to receive
payments that depend primarily on the
cash flow from Eligible Assets;
(iii) the entity appoints a trustee that
meets the requirements of Section
26(a)(1) of the Investment Company Act
and that is not affiliated, as defined in
Rule 405 under the Securities Act, with
such entity or with any person involved
in the organization or operation of such
entity, which does not offer or provide
credit or credit enhancement to such
entity and that executes an agreement or
instrument concerning such entity’s
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Federal Register / Vol. 86, No. 78 / Monday, April 26, 2021 / Notices
securities containing provisions to the
effect set forth in Section 26(a)(3) of the
Investment Company Act;
(iv) the entity takes reasonable steps
to cause the trustee to have a perfected
security interest or ownership interest
valid against third parties in those
Eligible Assets that principally generate
the cash flow needed to pay the fixedincome security holders, provided that
such assets otherwise required to be
held by the trustee may be released to
the extent needed at the time for the
operation of the issuer; and
(v) the entity takes actions necessary
for the cash flows derived from Eligible
Assets for the benefit of the holders of
fixed-income securities to be deposited
periodically in a segregated account that
is maintained or controlled by the
trustee consistent with the rating (if any)
of the outstanding fixed-income
securities.
‘‘Eligible Assets’’ means financial
assets, either fixed or revolving, that by
their terms convert into cash within a
finite time period plus any rights or
other assets designed to assure the
servicing or timely distribution of
proceeds to security holders.
Proposed Limitations on Investments in
Private Funds
Under the proposed amended form of
Section 102.04(A), the Exchange would
not authorize the initial listing of any
Fund where, at the time of original
listing
(A) Private Funds on an aggregated
basis represent more than 15% of the
Fund’s net assets
(B) any single Private Fund represents
more than 5% of the Fund’s net assets;
or
(C) the Fund invests or intends to
invest in Private Funds and has not
adopted and does not maintain
fundamental policies (as such term is
used in the Investment Company Act of
1940) providing that:
(i) Such Fund may not at any time
make an additional investment in a
Private Fund if, immediately after giving
effect to such investment, Private Funds
would represent more than 15% of such
Fund’s net assets or such individual
Private Fund would represent more than
5% of such Fund’s net assets; and
(ii) if at any time such Fund (a) holds
more than 15% of its net assets in
Private Funds or (b) violates its
fundamental policy prohibiting any
additional investment in a Private Fund
such that, immediately after giving
effect to such investment, such
individual Private Fund would
represent more than 5% of such Fund’s
net assets:
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18:01 Apr 23, 2021
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• The Fund must immediately inform
the Exchange of such occurrence and
publicly disclose such occurrence in a
manner consistent with the Exchange’s
immediate release policy as set forth in
Sections 202.05 and 202.06 of the
Manual;
• management must report such an
occurrence to the Fund’s board of
directors within one business day of the
occurrence, with an explanation of the
extent and causes of the occurrence, and
how the Fund plans, as the case may be,
to (i) reduce its investments in Private
Funds to no more than 15% of its net
assets within a reasonable period of
time, or (ii) reduce its investment in the
individual Private Fund with respect to
which it has exceeded the ownership
interest permitted by the applicable
fundamental policy to a level no greater
than its ownership interest immediately
prior to the transaction giving rise to
such condition, in each case within a
reasonable period of time; and
• if the amount, as the case may be,
of (i) the Fund’s investments in Private
Funds is still above 15% of its net
assets, or (ii) the Fund’s investment in
the individual Private Fund with
respect to which it has exceeded the
investment limit of its fundamental
policy is still above its ownership
interest immediately prior to the
transaction giving rise to such
condition, in each case 30 days from the
occurrence (and at each consecutive 30
day period thereafter), the Fund’s board
of directors, including a majority of
directors who are not interested persons
(as such term is defined in Section
2(a)(19) of the Investment Company Act
of 1940) of the Fund, must assess
whether the plan presented to it
pursuant to the requirements set forth
above continues to be in the best
interest of the Fund.
Any listed Fund in good standing may
commence investing in Private Funds,
but may do so only if it first adopts the
required fundamental policies described
above. The Fund must consult with the
Exchange before taking this action. Any
such Fund will also be subject to the
ongoing requirements with respect to
investments in Private Funds set forth
above.
Today Exchange rules do not restrict
the investment by listed Funds in
Private Funds. The proposed
amendment to Section 102.04(A) would
amend the Exchange’s listing rules to
restrict the investment by Funds in
Private Funds, such as hedge funds and
private equity funds, which are illiquid
and consequently difficult to value. The
Exchange notes that the SEC has
addressed identical concerns about the
inclusion of illiquid asset classes in
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
22081
mutual fund portfolios by adopting a
rule imposing a 15% limitation on the
acquisition of such assets by mutual
funds. By adopting an identical
restriction for listed Funds, the
Exchange believes that it is similarly
appropriately addressing these concerns
for listed Funds. Furthermore, the
Exchange notes that its own proposal
goes further than the restriction the SEC
has imposed upon mutual funds by also
requiring a diversification in any listed
Fund’s holdings of Private Funds. The
Exchange believes that the proposed 5%
limitation on any individual Private
Fund investment would limit the
materiality of any individual Private
Fund investment with respect to the
Fund portfolio as a whole and that this
provision provides a significant
additional protection for investors in
listed Funds over and above the
protection provided to mutual fund
investors by the comparable rule under
the Investment Company Act.
2. Statutory Basis
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,5 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,6 in particular, because it is
designed to prevent fraudulent and
manipulative acts and practices,
promote just and equitable principles of
trade, remove impediments to and
perfect the mechanism of a free and
open market and a national market
system, and protect investors and the
public interest. The Exchange believes
that the proposal protects investors and
the public interest because it strictly
limits both the aggregate investment by
listed Funds in Private Funds and the
percentage any individual Private Fund
investment may represent in a listed
Fund’s portfolio. The Exchange believes
that these restrictions appropriately
address concerns about the illiquidity of
Private Fund investments by limiting
the materiality of Private Fund
investments to a listed Fund’s portfolio
both in the aggregate and for any
individual Private Fund investment.
The Exchange notes that the 15%
aggregate investment limit in the
proposal is the same as the limit applied
by the SEC to mutual funds under
Investment Company Act rules, while
the 5% limit on individual investments
in the proposal is an augmentation of
the SEC’s limitations with respect to
mutual funds. The Exchange believes
that it is consistent with the protection
of investors and the public interest to
exempt CDOs and CLOs from these
5 15
6 15
E:\FR\FM\26APN1.SGM
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
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Federal Register / Vol. 86, No. 78 / Monday, April 26, 2021 / Notices
restrictions, as there is a more active
trading market for CDOs and CLOs than
for Private Funds and there is more
consistency and transparency in valuing
them.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change would impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act. The purpose
of the proposal is to enhance
competition by providing a listing
market for Funds that wish to have the
ability to invest in Private Funds, while
appropriately restricting Funds in
pursuing that strategy to protect
investors. The proposed amendment
would not impose any burden on
competition between newly-listed
Funds and those that are already listed,
as currently-listed Funds that are in
good standing would be eligible to
invest in Private Funds on the same
terms as newly-listed Funds. Other
listing venues can adopt similar rules if
they so desire. As such, the Exchange
does not believe that the proposal
imposes any burden on competition.
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:
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18:01 Apr 23, 2021
Jkt 253001
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSE–2021–20 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–2021–20. 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–2021–20 and should
be submitted on or before May 17, 2021.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.7
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021–08566 Filed 4–23–21; 8:45 am]
BILLING CODE 8011–01–P
7 17
PO 00000
CFR 200.30–3(a)(12).
Frm 00073
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–91614; File No. SR–Phlx–
2021–10]
Self-Regulatory Organizations; Nasdaq
PHLX LLC; Order Approving a
Proposed Rule Change To Permit
Monday and Wednesday Expirations
for Options Listed Pursuant to the
Short Term Options Program on the
Invesco QQQ TrustSM Series ETF Trust
April 20, 2021.
I. Introduction
On February 22, 2021, Nasdaq PHLX
LLC (‘‘Phlx’’ 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 Phlx Options 4,
Section 5 at Commentary .11 to allow
Monday and Wednesday expirations for
options listed pursuant to the
Exchange’s short term option series
program (‘‘Short Term Option Series
Program’’) on the Invesco QQQ TrustSM
Series (‘‘QQQ’’) ETF Trust. The
proposed rule change was published for
comment in the Federal Register on
March 8, 2021.3 The Commission
received no comments on the proposal.
This order approves the proposed rule
change.
II. Description of the Proposal
Under the terms of the current Short
Term Option Series Program, after an
option class has been approved for
listing and trading on the Exchange, the
Exchange may open for trading on any
Thursday or Friday that is a business
day series of options on that class that
expire on each of the next five
consecutive Fridays that are business
days,4 provided that such Friday does
not occur in the same week in which
monthly options series on the same
class expire or is not a Friday on which
Quarterly Options Series on the same
class expire.5 If the Exchange is not
open for business on the Friday of the
following business week, the series will
expire on the first business day
immediately prior to that Friday.6 In
addition, the Exchange may open for
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 91238
(March 2, 2021), 86 FR 13404 (‘‘Notice’’).
4 See Commentary .11 to Phlx Options 4, Section
5.
5 See Commentary .11(b) to Phlx Options 4,
Section 5.
6 See Commentary .11 to Phlx Options 4, Section
5.
2 17
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Agencies
[Federal Register Volume 86, Number 78 (Monday, April 26, 2021)]
[Notices]
[Pages 22080-22082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-08566]
=======================================================================
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-91618; File No. SR-NYSE-2021-20]
Self-Regulatory Organizations; New York Stock Exchange LLC;
Notice of Filing of Proposed Rule Change Amending Section 102.04 of the
NYSE Listed Company Manual To Establish Limits on Investments in
Unregistered Investment Vehicles by Listed Closed End Funds
April 20, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on April 9, 2021, 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 to amend Section 102.04 of the NYSE Listed
Company Manual (``Manual'') to establish limits on investments in
unregistered investment vehicles by listed closed end funds. 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 will generally authorize the listing of a closed-end
management investment company (a ``Fund'') registered under the
Investment Company Act of 1940 (the ``Investment Company Act'')
pursuant to the provisions of Section 102.04(A) of the Manual. Section
102.04(A) does not include any explicit restrictions on the kinds of
investments a listed Fund may include in its portfolio. The Exchange
proposes to amend Section 102.04(A) to provide for a limited ability of
listed Funds to invest in private fund vehicles that are not themselves
registered under the Investment Company Act, including alternative
asset classes such as hedge funds and private equity funds. The SEC has
amended its own rules with respect to mutual funds to formally
establish permitted levels of investments by mutual funds in illiquid
investment categories. The longstanding guidance from SEC staff has
been that mutual funds should not exceed a 15% limitation on illiquid
investments, including private funds. In 2016, the Commission adopted
Investment Company Act Rule 22e-4(b)(1)(iv) to codify this policy.\4\
In light of this development in the SEC's regulation of mutual funds
and the continuing interest demonstrated by issuers, the Exchange now
proposes to amend Section 102.04(A) to provide for a limited ability of
Funds to invest in private funds.
---------------------------------------------------------------------------
\4\ 17 CFR 270.22e-4(b)(1)(iv).
---------------------------------------------------------------------------
The proposed amendment to Section 102.04(A) of the Manual would
include a new definition of ``Private Funds.'' A ``Private Fund'' for
purposes of Section 102.04(A) as amended would mean (1) in the case of
an entity organized under the laws of the United States or any state
therein, a limited partnership, limited liability company, trust,
corporation or similar incorporated or unincorporated entity that would
be an investment company under Section 3(a) of the Investment Company
Act but for the exception provided from that definition by either
Sections 3(c)(1) or 3(c)(7) of the Investment Company Act and (2) in
the case of an entity not organized under the laws of the United States
or any state, an entity that is only permitted to offer its securities
in the United States in a private offering that complies with Section
7(d) and either 3(c)(1) or 3(c)(7) of the Investment Company Act and
the interpretations of the SEC thereunder.
The Exchange proposes to exclude from the definition of Private
Funds any funds that are issuers of collateralized debt obligations
(``CDOs'') or collateralized loan obligations (``CLOs''). The issuers
of CDOs and CLOs are private investment vehicles not registered under
the Investment Company Act, and differ from hedge funds and private
equity funds in material respects. Most importantly, there is an active
secondary trading market for CDOs and CLOs and there are services that
report trading prices for those markets. As a result, there is a
significant degree of transparency in the valuation of CDOs and CLOs,
as the market typically values them based on general market prices for
debt issuances with the same credit rating and seniority as the
tranches included in the specific CDO or CLO. Considering the greater
liquidity and transparency of CDOs and CLOs, the Exchange proposes to
exclude investments in those asset classes from its definition of
Private Funds and, thus, does not propose to apply to CDOs and CLOs the
proposed limits on listed Funds' investments in Private Funds.
Accordingly, the Exchange proposes that a ``Private Fund'' not
include any entity that meets the following requirements:
(i) The entity is engaged in the business of purchasing, or
otherwise acquiring, and holding Eligible Assets (as defined below)
(and in activities related or incidental thereto);
(ii) all securities issued by the entity are either (A) initially
sold to qualified institutional buyers as defined in Rule 144A under
the Securities Act or to persons involved in the organization or
operation of the issuer or an affiliate, as defined in Rule 405 under
the Securities Act, of such a person or (B) fixed-income securities or
other securities which entitle their holders to receive payments that
depend primarily on the cash flow from Eligible Assets;
(iii) the entity appoints a trustee that meets the requirements of
Section 26(a)(1) of the Investment Company Act and that is not
affiliated, as defined in Rule 405 under the Securities Act, with such
entity or with any person involved in the organization or operation of
such entity, which does not offer or provide credit or credit
enhancement to such entity and that executes an agreement or instrument
concerning such entity's
[[Page 22081]]
securities containing provisions to the effect set forth in Section
26(a)(3) of the Investment Company Act;
(iv) the entity takes reasonable steps to cause the trustee to have
a perfected security interest or ownership interest valid against third
parties in those Eligible Assets that principally generate the cash
flow needed to pay the fixed-income security holders, provided that
such assets otherwise required to be held by the trustee may be
released to the extent needed at the time for the operation of the
issuer; and
(v) the entity takes actions necessary for the cash flows derived
from Eligible Assets for the benefit of the holders of fixed-income
securities to be deposited periodically in a segregated account that is
maintained or controlled by the trustee consistent with the rating (if
any) of the outstanding fixed-income securities.
``Eligible Assets'' means financial assets, either fixed or
revolving, that by their terms convert into cash within a finite time
period plus any rights or other assets designed to assure the servicing
or timely distribution of proceeds to security holders.
Proposed Limitations on Investments in Private Funds
Under the proposed amended form of Section 102.04(A), the Exchange
would not authorize the initial listing of any Fund where, at the time
of original listing
(A) Private Funds on an aggregated basis represent more than 15% of
the Fund's net assets
(B) any single Private Fund represents more than 5% of the Fund's
net assets; or
(C) the Fund invests or intends to invest in Private Funds and has
not adopted and does not maintain fundamental policies (as such term is
used in the Investment Company Act of 1940) providing that:
(i) Such Fund may not at any time make an additional investment in
a Private Fund if, immediately after giving effect to such investment,
Private Funds would represent more than 15% of such Fund's net assets
or such individual Private Fund would represent more than 5% of such
Fund's net assets; and
(ii) if at any time such Fund (a) holds more than 15% of its net
assets in Private Funds or (b) violates its fundamental policy
prohibiting any additional investment in a Private Fund such that,
immediately after giving effect to such investment, such individual
Private Fund would represent more than 5% of such Fund's net assets:
The Fund must immediately inform the Exchange of such
occurrence and publicly disclose such occurrence in a manner consistent
with the Exchange's immediate release policy as set forth in Sections
202.05 and 202.06 of the Manual;
management must report such an occurrence to the Fund's
board of directors within one business day of the occurrence, with an
explanation of the extent and causes of the occurrence, and how the
Fund plans, as the case may be, to (i) reduce its investments in
Private Funds to no more than 15% of its net assets within a reasonable
period of time, or (ii) reduce its investment in the individual Private
Fund with respect to which it has exceeded the ownership interest
permitted by the applicable fundamental policy to a level no greater
than its ownership interest immediately prior to the transaction giving
rise to such condition, in each case within a reasonable period of
time; and
if the amount, as the case may be, of (i) the Fund's
investments in Private Funds is still above 15% of its net assets, or
(ii) the Fund's investment in the individual Private Fund with respect
to which it has exceeded the investment limit of its fundamental policy
is still above its ownership interest immediately prior to the
transaction giving rise to such condition, in each case 30 days from
the occurrence (and at each consecutive 30 day period thereafter), the
Fund's board of directors, including a majority of directors who are
not interested persons (as such term is defined in Section 2(a)(19) of
the Investment Company Act of 1940) of the Fund, must assess whether
the plan presented to it pursuant to the requirements set forth above
continues to be in the best interest of the Fund.
Any listed Fund in good standing may commence investing in Private
Funds, but may do so only if it first adopts the required fundamental
policies described above. The Fund must consult with the Exchange
before taking this action. Any such Fund will also be subject to the
ongoing requirements with respect to investments in Private Funds set
forth above.
Today Exchange rules do not restrict the investment by listed Funds
in Private Funds. The proposed amendment to Section 102.04(A) would
amend the Exchange's listing rules to restrict the investment by Funds
in Private Funds, such as hedge funds and private equity funds, which
are illiquid and consequently difficult to value. The Exchange notes
that the SEC has addressed identical concerns about the inclusion of
illiquid asset classes in mutual fund portfolios by adopting a rule
imposing a 15% limitation on the acquisition of such assets by mutual
funds. By adopting an identical restriction for listed Funds, the
Exchange believes that it is similarly appropriately addressing these
concerns for listed Funds. Furthermore, the Exchange notes that its own
proposal goes further than the restriction the SEC has imposed upon
mutual funds by also requiring a diversification in any listed Fund's
holdings of Private Funds. The Exchange believes that the proposed 5%
limitation on any individual Private Fund investment would limit the
materiality of any individual Private Fund investment with respect to
the Fund portfolio as a whole and that this provision provides a
significant additional protection for investors in listed Funds over
and above the protection provided to mutual fund investors by the
comparable rule under the Investment Company Act.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\5\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\6\ in particular, because it
is designed to prevent fraudulent and manipulative acts and practices,
promote just and equitable principles of trade, remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and protect investors and the public interest. The
Exchange believes that the proposal protects investors and the public
interest because it strictly limits both the aggregate investment by
listed Funds in Private Funds and the percentage any individual Private
Fund investment may represent in a listed Fund's portfolio. The
Exchange believes that these restrictions appropriately address
concerns about the illiquidity of Private Fund investments by limiting
the materiality of Private Fund investments to a listed Fund's
portfolio both in the aggregate and for any individual Private Fund
investment. The Exchange notes that the 15% aggregate investment limit
in the proposal is the same as the limit applied by the SEC to mutual
funds under Investment Company Act rules, while the 5% limit on
individual investments in the proposal is an augmentation of the SEC's
limitations with respect to mutual funds. The Exchange believes that it
is consistent with the protection of investors and the public interest
to exempt CDOs and CLOs from these
[[Page 22082]]
restrictions, as there is a more active trading market for CDOs and
CLOs than for Private Funds and there is more consistency and
transparency in valuing them.
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\5\ 15 U.S.C. 78f(b).
\6\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change would
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The purpose of the proposal
is to enhance competition by providing a listing market for Funds that
wish to have the ability to invest in Private Funds, while
appropriately restricting Funds in pursuing that strategy to protect
investors. The proposed amendment would not impose any burden on
competition between newly-listed Funds and those that are already
listed, as currently-listed Funds that are in good standing would be
eligible to invest in Private Funds on the same terms as newly-listed
Funds. Other listing venues can adopt similar rules if they so desire.
As such, the Exchange does not believe that the proposal imposes any
burden on competition.
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-2021-20 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-2021-20. 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-2021-20 and should be submitted on
or before May 17, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\7\
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\7\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-08566 Filed 4-23-21; 8:45 am]
BILLING CODE 8011-01-P