[Federal Register Volume 85, Number 92 (Tuesday, May 12, 2020)]
[Notices]
[Pages 28061-28068]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10060]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88822; File No. SR-NYSEArca-2020-37]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, Regarding
Investments of the PIMCO Enhanced Short Maturity Active ESG Exchange-
Traded Fund
May 6, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on April 29, 2020, NYSE Arca, Inc. (``NYSE Arca'' 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. On May 4, 2020, the Exchange filed Amendment No. 1 to the
proposed rule change, which superseded and replaced the proposed rule
change in its entirety. The Commission is publishing this notice to
solicit comments on the proposed rule
[[Page 28062]]
change, as modified by Amendment No. 1, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes certain changes regarding investments of the
PIMCO Enhanced Short Maturity Active ESG Exchange-Traded Fund (the
``Fund''), a series of PIMCO ETF Trust (the ``Trust''), shares of which
are currently listed and traded on the Exchange under NYSE Arca Rule
8.600-E (``Managed Fund Shares'').\4\ This Amendment No. 1 to SR-
NYSEArca-2020-37 replaces SR-NYSEArca-2020-37 as originally filed and
supersedes such filing in its entirety. The proposed change is
available on the Exchange's website at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
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\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3),
seeks to provide investment results that correspond generally to the
price and yield performance of a specific foreign or domestic stock
index, fixed income securities index or combination thereof.
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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 certain changes, described below under
``Application of Generic Listing Requirements,'' regarding investments
of the Fund. The shares (``Shares'') of the Fund are currently listed
and traded on the Exchange under Commentary .01 to NYSE Arca Rule
8.600-E, which provides generic criteria applicable to the listing and
trading of Managed Fund Shares.\5\
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\5\ Shares commenced trading on the Exchange on December 10,
2019 pursuant to Commentary .01 to NYSE Arca Rule 8.600-E.
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Pacific Investment Management Company LLC is the investment adviser
(``PIMCO'' or ``Adviser'') to the Fund. PIMCO Investments LLC is the
distributor (``Distributor'') for the Fund's Shares. State Street Bank
& Trust Co. acts as the custodian and transfer agent (``Custodian'' or
``Transfer Agent'') for the Fund. Shares are offered by PIMCO ETF
Trust, which is registered with the Commission as an open-end
management investment company.\6\
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\6\ The Trust is registered under the 1940 Act. On November 12,
2019, the Trust filed with the Commission its registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a), and
under the 1940 Act relating to the Fund (File Nos. 333-155395 and
811-22250) (``Registration Statement''). The description of the
operation of the Trust and the Fund herein is based, in part, on the
Registration Statement. In addition, the Commission has issued an
order upon which the Trust may rely, granting certain exemptive
relief under the 1940 Act. See Investment Company Act Release No.
28993 (November 10, 2009) (File No. 812-13571).
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Commentary .06 to Rule 8.600-E provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall 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 investment company portfolio. In
addition, Commentary .06 further requires that personnel who make
decisions on the open-end fund's portfolio composition must be subject
to procedures designed to prevent the use and dissemination of material
nonpublic information regarding the open-end fund's portfolio.
Commentary .06 to Rule 8.600-E is similar to Commentary .03(a)(i) and
(iii) to NYSE Arca Rule 5.2-E(j)(3); however, Commentary .06 in
connection with the establishment and maintenance of a ``fire wall''
between the investment adviser and the broker-dealer reflects the
applicable open-end fund's portfolio, not an underlying benchmark
index, as is the case with index-based funds.
The Adviser is not registered as a broker-dealer but is affiliated
with a broker-dealer and has implemented and will maintain a fire wall
with respect to such broker-dealer affiliate regarding access to
information concerning the composition and/or changes to the portfolio.
In the event (a) the Adviser becomes registered as a broker-dealer or
newly affiliated with one or more broker-dealers, or (b) any new
adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement and maintain a fire
wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
PIMCO Enhanced Short Maturity Active ESG Exchange-Traded Fund
According to the Registration Statement, the investment objective
of the Fund is to seek maximum current income, consistent with
preservation of capital and daily liquidity, while incorporating
PIMCO's environment, social responsibility, and governance (``ESG'')
investment strategy. Under normal market conditions,\7\ the Fund
invests at least 80% of its net assets in a diversified portfolio of
``Fixed Income Instruments'' (defined below) of varying maturities,
which may be represented by forwards.
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\7\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5).
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In managing the Fund's portfolio, PIMCO may avoid investment in the
securities of issuers whose business practices with respect to ESG
practices are not to PIMCO's satisfaction.
Pursuant to this investment strategy, the Fund may invest in the
following fixed income securities (together, ``Fixed Income
Instruments''):
securities issued or guaranteed by the U.S. government,
its agencies, or U.S. government-sponsored entities (``U.S. government
securities'');
corporate debt securities of U.S. and non-U.S. issuers,
including convertible securities and corporate commercial paper;
mortgage-backed securities (``MBS'') and other asset-
backed securities (``ABS''), including non-agency, non-government-
sponsored entity (``GSE'') and privately-issued mortgage-related and
other asset-backed securities (``Private ABS/MBS''), collateralized
bond obligations (``CBOs''), collateralized loan obligations
(``CLOs''), and other collateralized debt obligations (``CDOs''); \8\
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\8\ For avoidance of doubt, ``Private ABS/MBS'' as referenced
herein are non-agency, non-GSE and privately-issued mortgage-related
and other asset-backed securities as stated in Commentary .01(b)(5)
to NYSE Arca Rule 8.600-E. However, for purposes of this filing,
CDOs, CBOs, and CLOs are excluded from the term Private ABS/MBS.
CDOs/CBOs/CLOs are distinguishable from ABS because they are
collateralized by bank loans or by corporate or government fixed
income securities and not by consumer and other loans made by non-
bank lenders, including student loans.
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[[Page 28063]]
inflation-indexed bonds issued both by governments and
corporations;
structured notes, including hybrid or ``indexed''
securities and event-linked bonds;
bank capital and trust preferred securities;
loan participations and assignments;
delayed funding loans and revolving credit facilities;
bank certificates of deposit, fixed time deposits and
bankers' acceptances;
repurchase agreements on Fixed Income Instruments and
reverse repurchase agreements on Fixed Income Instruments;
debt securities issued by states or local governments and
their agencies, authorities and other government-sponsored enterprises;
obligations of non-U.S. governments or their subdivisions,
agencies and government-sponsored enterprises; and
obligations of international agencies or supranational
entities.
With respect to Fixed Income Instruments, the Fund may invest,
without limitation, in U.S. dollar-denominated securities of foreign
issuers, U.S. dollar-denominated instruments of foreign issuers, and
securities denominated in foreign currencies.
The Fund may invest in to-be-announced transactions. The Fund may
also purchase and sell securities on a when-issued, delayed delivery or
forward commitment basis.
The Fund may, without limitation, seek to obtain market exposure to
the securities in which it primarily invests by entering into a series
of purchase and sale contracts or by using other investment techniques
(such as buy backs or dollar rolls).
The Fund may hold cash and cash equivalents.\9\
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\9\ For purposes of this filing, the term ``cash equivalents''
includes the short-term instruments enumerated in Commentary .01(c)
to NYSE Arca Rule 8.600-E.
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The Fund may invest in, to the extent permitted by Section 12(d) of
the 1940 Act or exemptive relief therefrom, other affiliated and
unaffiliated funds, such as open-end or closed-end management
investment companies, including other exchange-traded funds
(``ETFs'').\10\
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\10\ For purposes of this filing, the term ``ETFs'' are
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca
Rule 8.600-E). All ETFs will be listed and traded on national
securities exchanges. While the Fund may invest in inverse ETFs, the
Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
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Use of Derivatives by the Fund
The Fund may invest in forwards to (i) provide exposure to Fixed
Income Instruments, (ii) enhance returns, (iii) manage portfolio
duration, or (iv) manage the risk of securities price fluctuations.
Investments in forwards will be made in accordance with the 1940 Act
and consistent with the Fund's investment objective and policies.
To limit the potential risk associated with such transactions, the
Fund may enter into offsetting transactions or segregate or ``earmark''
assets determined to be liquid by the Adviser in accordance with
procedures established by the Trust's Board of Trustees (the ``Board'')
and in accordance with the 1940 Act or as permitted by applicable
Commission guidance. These procedures have been adopted consistent with
Section 18 of the 1940 Act and related Commission guidance. In
addition, the Fund has included risk disclosure in its offering
documents, including leveraging risk. Leveraging risk is the risk that
certain transactions of the Fund, including the Fund's use of forwards,
may give rise to leverage, causing the Fund to be more volatile than if
it had not been leveraged.
Impact on Arbitrage Mechanism
The Adviser believes there will be minimal, if any, impact to the
arbitrage mechanism as a result of the Fund's use of forwards. The
Adviser understands that market makers and participants should be able
to value derivatives as long as the positions are disclosed with
relevant information. The Adviser believes that the price at which
Shares trade will continue to be disciplined by arbitrage opportunities
created by the ability to purchase or redeem Shares at their net asset
value (``NAV''), which should ensure that Shares will not trade at a
material discount or premium in relation to their NAV.
Creation and Redemption of Shares
The Fund offers and issues Shares at the NAV per Share only in
aggregations of a 50,000 Shares or multiples thereof (``Creation
Units''), with certain large institutional investors who have entered
into agreements with the Distributor (``Authorized Participants'')
generally in exchange for a basket of securities (the ``Deposit
Securities'') together with a deposit of a specified cash payment (the
``Cash Component''). Alternatively, the Fund may issue and redeem
Creation Units in exchange for a specified all-cash payment (``Cash
Deposit''). The size of a Creation Unit is subject to change. Shares
are redeemable by the Fund only in Creation Units, and, generally, in
exchange for securities and/or cash.
A ``Business Day'' with respect to the Fund is each day the
Exchange is open. Orders from Authorized Participants to create or
redeem Creation Units will only be accepted on a Business Day.
The consideration for purchase of Creation Units may consist of:
(i) Deposit Securities and the Cash Component, which will generally
correspond pro rata, to the extent practicable, to the Fund securities,
or, alternatively; (ii) the Cash Deposit. Together, the Deposit
Securities and Cash Component or, alternatively, the Cash Deposit,
constitute the ``Fund Deposit,'' which represents the minimum initial
and subsequent investment amount for a Creation Unit of the Fund.
PIMCO, through the National Securities Clearing Corporation
(``NSCC''), makes available on each Business Day, prior to the opening
of business (subject to amendments) on the Exchange (currently 9:30
a.m., Eastern time (``E.T.'')), the identity and the required number of
each Deposit Security and the amount of the Cash Component (or Cash
Deposit) to be included in the current Fund Deposit (based on
information from the end of the previous Business Day).
The Deposit Securities and Cash Component (or Cash Deposit) are
subject to any adjustments, as described below, in order to effect
purchases of Creation Units of the Fund until such time as the next-
announced composition of the Deposit Securities and Cash Component (or
Cash Deposit) is made available.
The Trust may require the substitution of an amount of cash (a
``cash-in-lieu'' amount) to replace any Deposit Security of the Fund.
The amount of cash contributed will be equivalent to the value of the
instrument listed as a Deposit Security, as determined by the Trust.
The Trust reserves the right to permit or require the substitution of a
``cash-in-lieu'' amount to be added to replace any Deposit Security
that is a to-be announced (``TBA'') transaction, that may not be
available in sufficient quantity for delivery, that may not be eligible
for trading by a Participating Party (defined below), that may not be
permitted to be registered in the name of the Trust as a result of an
in-kind creation order pursuant to local law or market convention, or
that may not be eligible for transfer through the systems of the
Depository Trust Company (``DTC'') or the Clearing Process (as
[[Page 28064]]
discussed below), or the Federal Reserve System for U.S. Treasury
securities. The Trust also reserves the right to permit or require a
``cash-in-lieu'' amount where the delivery of Deposit Securities by the
Authorized Participant (as described below) would be restricted under
the securities laws or where the delivery of Deposit Securities from an
investor to the Authorized Participant would result in the disposition
of Deposit Securities by the Authorized Participant becoming restricted
under the securities laws, and in certain other situations. The Trust
may permit a ``cash-in-lieu'' amount for any reason at the Trust's sole
discretion but is not required to do so.
Redemption of Creation Units
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form on a
Business Day and only through a Participating Party \11\ or DTC
Participant \12\ who has executed a Participant Agreement. The Fund
will not redeem shares in amounts less than Creation Units. Beneficial
owners must accumulate enough shares to constitute a Creation Unit in
order to have such shares redeemed by the Trust.
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\11\ A ``Participating Party'' is a broker-dealer or other
participant in the clearing process through the Continuous Net
Settlement System of the NSCC (the ``Clearing Process''), a clearing
agency that is registered with the SEC; or (ii) a DTC Participant,
and must have executed an agreement with the Distributor (and
accepted by the Transfer Agent), with respect to creations and
redemptions of Creation Units (``Participant Agreement'').
\12\ DTC participants include securities brokers and dealers,
banks, trust companies, clearing corporations and other institutions
that directly or indirectly maintain a custodial relationship with
Depository Trust Company.
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With respect to the Fund, as mentioned above, PIMCO, through the
NSCC, makes available immediately prior to the opening of business on
the Exchange (currently 9:30 a.m., E.T.) on each Business Day, the
identity of the Fund's securities and/or an amount of cash that will be
delivered in exchange for a redemption request received in proper form
on that day. Fund securities received on redemption (``Fund
Securities'') may not be identical to Deposit Securities that are used
for the creation of Creation Units.
Unless cash-only redemptions are available or specified for the
Fund, the redemption proceeds for a Creation Unit will generally
consist of Fund Securities--as announced on the Business Day of the
request for a redemption order received in proper form--plus cash in an
amount equal to the difference between the NAV of the Shares being
redeemed, as next determined after a receipt of a request in proper
form, and the value of the Fund Securities (the ``Cash Redemption
Amount''), less a redemption transaction fee, if applicable.
Application of Generic Listing Requirements
The Exchange is submitting this proposed rule change because the
changes described below would result in the portfolio for the Fund not
meeting all of the ``generic'' listing requirements of Commentary .01
to NYSE Arca Rule 8.600-E applicable to the listing of Managed Fund
Shares. The Fund's portfolio would meet all such requirements except
for those set forth in Commentary .01(b)(1), Commentary .01(b)(4) and
Commentary .01(b)(5). Specifically, the Fund:
Will not comply with the requirement in Commentary
.01(b)(1) that components that in the aggregate account for at least
75% of the fixed income weight of the portfolio each shall have a
minimum original principal amount outstanding of $100 million or more.
Instead, the Exchange proposes that components, excluding Private ABS/
MBS and CDOs/CBOs/CLOs that, in the aggregate, account for at least 50%
of the fixed income weight of the portfolio each shall have a minimum
original principal amount outstanding of $50 million or more. Private
ABS/MBS and CDOs/CBOs/CLOs would not be subject to a requirement for a
minimum original principal amount outstanding.
will not comply with the requirement in Commentary
.01(b)(5) to Rule 8.600-E that investments in non-agency, non-
government sponsored entity and privately issued mortgage-related and
other asset-backed securities (i.e., Private ABS/MBS) not account, in
the aggregate, for more than 20% of the weight of the portfolio.\13\
Instead, the Fund will not invest more than 20% of the Fund's total
assets in Private ABS/MBS or more than 20% of the Fund's total assets
in U.S. or foreign CDOs/CBOs/CLOs.
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\13\ Commentary .01(b)(5) to NYSE Arca Rule 8.600-E provides
that non-agency, non-government sponsored entity and privately
issued mortgage-related and other asset-backed securities components
of a portfolio may not account, in the aggregate, for more than 20%
of the weight of the portfolio.
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will not comply with the requirements in Commentary
.01(b)(4) to Rule 8.600-E that component securities that in the
aggregate account for at least 90% of the fixed income weight of the
portfolio meet one of the criteria specified in Commentary
.01(b)(4).\14\ Instead, the Exchange proposes that (i) the Fund's
investments in fixed income securities that do not meet any of the
criteria in Commentary .01(b)(4) will not exceed 10% of the total
assets of the Fund, excluding Private ABS/MBS and CDOs/CBOs/CLOs; (ii)
Private ABS/MBS, which will be limited to 20% of the Fund's total
assets, will not be required to comply with any of the criteria in
Commentary .01(b)(4) to Rule 8.600-E; and (iii) CDOs/CBOs/CLOs also
will not be subject to any of the criteria in Commentary .01(b)(4) but
will be separately limited to 20% of the Fund's total assets.
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\14\ Commentary .01(b)(4) provides that component securities
that in the aggregate account for at least 90% of the fixed income
weight of the portfolio must be either: (a) From issuers that are
required to file reports pursuant to Sections 13 and 15(d) of the
Act; (b) from issuers that have a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more; (c) from issuers that have outstanding securities that are
notes, bonds debentures, or evidence of indebtedness having a total
remaining principal amount of at least $1 billion; (d) exempted
securities as defined in Section 3(a)(12) of the Act; or (e) from
issuers that are a government of a foreign country or a political
subdivision of a foreign country.
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Deviations from the generic requirements are necessary for the Fund
to achieve its investment objective in a manner that is cost-effective
and that maximizes investors' returns. Further, the proposed
alternative requirements are narrowly tailored to allow the Fund to
achieve its investment objective in manner that is consistent with the
principles of Section 6(b)(5) of the Act. As a result, it is in the
public interest to approve listing and trading of Shares of the Fund on
the Exchange pursuant to the requirements set forth herein.
As noted above, the Fund will not comply with the requirement in
Commentary .01(b)(1) to Rule 8.600-E that components that in the
aggregate account for at least 75% of the fixed income weight of the
portfolio each shall have a minimum original principal amount
outstanding of $100 million or more. Instead, the Exchange proposes
that components, excluding Private ABS/MBS and CDOs/CBOs/CLOs, that in
the aggregate account for at least 50% of the fixed income weight of
the portfolio each shall have a minimum original principal amount
outstanding of $50 million or more. Private ABS/MBS and CDOs/CBOs/CLOs
will not be subject to a requirement for a minimum original principal
amount outstanding. At least 50% of the fixed income weight of the
Fund's portfolio, excluding Private ABS/MBS and CDOs/CBOs/CLOs, will
continue to be subject to a substantial minimum (i.e., $50 million)
[[Page 28065]]
original principal amount outstanding.\15\ By excluding Private ABS/MBS
and CDOs/CBOs/CLOs from this requirement, the Fund will be able to
better diversify its holdings in such securities, and will be able to
invest in a larger variety of Private ABS/MBS and CDOs/CBOs/CLOs that
have characteristics consistent with the Fund's investment objective to
seek maximum current income, consistent with preservation of capital
and daily liquidity, while incorporating PIMCO's ESG investment
strategy. These characteristics may include, for example, Private ABS/
MBS and CDOs/CBOs/CLOs with investment grade credit rating or liquidity
comparable to fixed income securities with a much greater amount
outstanding. The Adviser represents that, with respect to the Fund's
investments in CDOs/CBOs/CLOs, the Fund will invest principally in the
senior-most tranches of these securities, generally with an AAA
investment rating which have first claim in the capital structure and
generally have less sensitivity to the credit risk of the underlying
assets (e.g., bank loans or commercial real estate).
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\15\ The Exchange notes that the Commission has previously
approved a proposed rule change granting the same proposals in
regard to Commentary .01(b)(1) to Rule 8.600-E. See Securities
Exchange Act Release No. 86841 (August 30, 2019), 84 FR 47024
(September 6, 2019) (SR-NYSEArca-2019-38) (Order Approving a
Proposed Rule Change, as Modified by Amendments No. 1 and No. 2, To
Amend the Listing Rule Applicable to Shares of the Aware Ultra-Short
Duration Enhanced Income ETF).
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The Fund will not comply with the requirement in Commentary
.01(b)(5) to Rule 8.600-E that investments in non-agency, non-
government sponsored entity and privately issued mortgage-related and
other asset-backed securities (i.e., Private ABS/MBS) not account, in
the aggregate, for more than 20% of the weight of the portfolio.
Instead, the Fund will not invest more than 20% of the Fund's total
assets in Private ABS/MBS or more than 20% of the Fund's total assets
in U.S. or foreign CDOs/CBOs/CLOs.\16\ The Exchange believes that these
20% limitations will help the Fund maintain portfolio diversification
and will reduce manipulation risk. In addition, the Fund's investment
in CDOs/CBOs/CLOs will be subject to the Fund's liquidity procedures as
adopted by the Board, and the Adviser does not expect that investments
in CDOs/CBOs/CLOs of up to 20% of the total assets of the Fund will
have any material impact on the liquidity of the Fund's investments.
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\16\ The Exchange notes that the Commission has previously
approved a proposed rule change granting the same proposals in
regard to Commentary .01(b)(5) to Rule 8.600-E. See Securities
Exchange Act Release No. 87576 (November 20, 2019), 84 FR 65206
(November 26, 2019) (SR-NYSEArca-2019-14) (Order Approving a
Proposed Rule Change, as Modified by Amendment No. 1, Relating to
the Permitted Investments of the PGIM Ultra Short Bond ETF).
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The Fund will not comply with the requirements in Commentary
.01(b)(4) to Rule 8.600-E that component securities that in the
aggregate account for at least 90% of the fixed income weight of the
portfolio meet one of the criteria specified in Commentary .01(b)(4).
Instead, the Exchange proposes that: (i) The Fund's investments in
fixed income securities that do not meet any of the criteria in
Commentary .01(b)(4) will not exceed 10% of the total assets of the
Fund, excluding Private ABS/MBS and CDOs/CBOs/CLOs; (ii) Private ABS/
MBS, which will be limited to 20% of the Fund's total assets, will not
be required to comply with the criteria in Commentary .01(b)(4)(a)
through (e) to Rule 8.600-E; and (iii) CDOs/CBOs/CLOs also will not be
subject to the criteria in Commentary .01(b)(4)(a) through (e) but will
be subject to a limit of 20%, measured with respect to the total assets
of the Fund. \17\
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\17\ The Exchange notes that the Commission has previously
approved a proposed rule change granting the same proposals in
regard to Commentary .01(b)(4) to Rule 8.600-E. See Securities
Exchange Act Release No. 87576 (November 20, 2019), 84 FR 65206
(November 26, 2019) (SR-NYSEArca-2019-14) (Order Approving a
Proposed Rule Change, as Modified by Amendment No. 1, Relating to
the Permitted Investments of the PGIM Ultra Short Bond ETF).
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The Exchange accordingly believes that it is appropriate and in the
public interest to approve listing and trading of Shares of the Fund on
the Exchange notwithstanding that the Fund would not meet the
requirements of Commentary .01(b)(1), (b)(4) and (b)(5) to Rule 8.600-
E. The Exchange notes that, other than Commentary .01(b)(1), Commentary
.01 (b)(4) and Commentary .01(b)(5) to Rule 8.600-E, the Fund's
portfolio will meet all other requirements of Rule 8.600.
Availability of Information
The Fund's website (www.pimco.com) will include the prospectus for
the Fund that may be downloaded. The Fund's website will include
additional quantitative information updated on a daily basis including,
for the Fund, (1) daily trading volume, the prior Business Day's
reported closing price, NAV and midpoint of the bid/ask spread at the
time of calculation of such NAV (the ``Bid/Ask Price''),\18\ and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV, and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each Business Day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund will disclose on its website the Disclosed Portfolio as defined in
NYSE Arca Rule 8.600-E(c)(2) that forms the basis for the Fund's
calculation of NAV at the end of the Business Day.\19\
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\18\ The Bid/Ask Price of the Fund's Shares will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of the Fund's NAV. The
records relating to Bid/Ask Prices will be retained by the Fund and
its service providers.
\19\ Under accounting procedures followed by the Fund, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (``T + 1''). Accordingly, the
Fund will be able to disclose at the beginning of the Business Day
the portfolio that will form the basis for the NAV calculation at
the end of the Business Day.
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On a daily basis, the Fund will disclose the information required
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The
website information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for the Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of
the Fund. Authorized Participants may refer to the basket composition
file for information regarding fixed income securities, and any other
instrument that may comprise the Fund's basket on a given day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's
Forms N-CSR and Forms N-CEN, filed twice a year. The Fund's SAI and
Shareholder Reports will be available free upon request from the Trust,
and those documents and the Form N-CSR, Form N-PX and Form N-CEN may be
viewed on-screen or downloaded from the Commission's website at
www.sec.gov.
Intra-day and closing price information regarding fixed income
securities will be available from major market data vendors. For ETFs,
intraday price quotations will generally be available from broker-
dealers and trading platforms (as applicable). Intraday and other price
information for the fixed income securities in which the Fund will
invest will be available through subscription services, such as
[[Page 28066]]
Bloomberg, Markit and Thomson Reuters, which can be accessed by
Authorized Participants and other market participants. Price
information for forwards and for affiliated and unaffiliated funds,
such as open-end or closed-end management investment companies, is
available from major market data vendors. Additionally, the Trade
Reporting and Compliance Engine (``TRACE'') of the Financial Industry
Regulatory Authority (``FINRA'') will be a source of price information
for corporate bonds, and Private ABS/MBS, to the extent transactions in
such securities are reported to TRACE.\20\ Money market funds are
typically priced once each Business Day and their prices will be
available through the applicable fund's website or from major market
data vendors. Electronic Municipal Market Access (``EMMA'') will be a
source of price information for municipal bonds. Price information
regarding U.S. government securities, repurchase agreements, reverse
repurchase agreements and cash equivalents generally may be obtained
from brokers and dealers who make markets in such securities or through
nationally recognized pricing services through subscription agreements.
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\20\ Broker-dealers that are FINRA member firms have an
obligation to report transactions in specified debt securities to
TRACE to the extent required under applicable FINRA rules.
Generally, such debt securities will have at issuance a maturity
that exceeds one calendar year. For fixed income securities that are
not reported to TRACE, (i) intraday price quotations will generally
be available from broker-dealers and trading platforms (as
applicable) and (ii) price information will be available from feeds
from market data vendors, published or other public sources, or
online information services, as described above.
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Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers.
Quotation and last sale information for the Shares will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. In addition, the Portfolio Indicative Value (``PIV''), as defined
in NYSE Arca Rule 8.600-E(c)(3), will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Core Trading Session.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E
have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. Trading in the Fund's Shares also
will be subject to Rule 8.600-E(d)(2)(D) (``Trading Halts'').
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Rule 7.34-E (Trading Sessions). The Exchange
has appropriate rules to facilitate transactions in the Shares during
all trading sessions. As provided in NYSE Arca Rule 7.6-E, the minimum
price variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
With the exception of the requirements of Commentary .01(b)(1),
(b)(4) and (b)(5) to Rule 8.600-E as described above in ``Application
of Generic Listing Requirements,'' the Shares of the Fund will conform
to the continued listing criteria under NYSE Arca Rule 8.600-E.
Consistent with NYSE Arca Rule 8.600-E(d)(2)(B)(ii), the Adviser will
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 the Fund's portfolio.
The Exchange has obtained a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. The Fund's investments will be
consistent with its investment goal and will not be used to enhance
leverage.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by FINRA on behalf
of the Exchange, or by regulatory staff of the Exchange, which are
designed to detect violations of Exchange rules and applicable federal
securities laws. The Exchange represents that these procedures are
adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and federal securities laws applicable to trading on the Exchange.\21\
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\21\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and ETFs with
other markets and other entities that are members of the Intermarket
Surveillance Group (``ISG''), and the Exchange or FINRA, on behalf of
the Exchange, or both, may obtain trading information regarding trading
in such securities from such markets and other entities.\22\ In
addition, FINRA, on behalf of the Exchange, is able to access, as
needed, trade information for certain fixed income securities held by
the Fund reported to TRACE. FINRA also can access data obtained from
the Municipal Securities Rulemaking Board (``MSRB'') relating to
certain municipal bond trading activity for surveillance purposes in
connection with trading in the Shares.
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\22\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement (``CSSA'').
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio or reference asset, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules specified in this rule filing
shall constitute continued listing requirements for listing the Shares
of the Fund on the Exchange.
The issuer must notify the Exchange of any failure by the Fund to
comply with the continued listing requirements, and, pursuant to its
obligations under Section 19(g)(1) of the Act, the Exchange will
monitor for compliance with the continued listing requirements. If the
[[Page 28067]]
Fund is not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-E
(m).
Information Bulletin
The Exchange will inform its Equity Trading Permit Holders in an
Information Bulletin (``Bulletin'') of the special characteristics and
risks associated with trading the Shares. Specifically, the Bulletin
will discuss the following: (1) The procedures for purchases and
redemptions of Shares in Creation Unit aggregations (and that Shares
are not individually redeemable); (2) NYSE Arca Rule 9.2-E(a), which
imposes a duty of due diligence on its Equity Trading Permit Holders to
learn the essential facts relating to every customer prior to trading
the Shares; (3) the risks involved in trading the Shares during the
applicable Trading Sessions when an updated PIV will not be calculated
or publicly disseminated; (4) how information regarding the PIV and the
Disclosed Portfolio is disseminated; (5) the requirement that Equity
Trading Permit Holders deliver a prospectus to investors purchasing
newly issued Shares prior to or concurrently with the confirmation of a
transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) of the Act that an exchange have
rules that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares are listed and traded on the Exchange pursuant to the initial
and continued listing criteria in NYSE Arca Rule 8.600-E. The Exchange
has in place surveillance procedures that are adequate to properly
monitor trading in the Shares in all trading sessions and to deter and
detect violations of Exchange rules and federal securities laws
applicable to trading on the Exchange. The Adviser is not registered as
a broker-dealer, but the Adviser is affiliated with a broker-dealer and
has implemented and will maintain a ``fire wall'' with respect to such
broker-dealer regarding access to information concerning the
composition and/or changes to the Fund's portfolio. The Exchange or
FINRA, on behalf of the Exchange, or both, will communicate as needed
regarding trading in the Shares and ETFs with other markets and other
entities that are members of the ISG, and the Exchange or FINRA, on
behalf of the Exchange, or both, may obtain trading information
regarding trading in such securities from such markets and other
entities. In addition, FINRA, on behalf of the Exchange, is able to
access, as needed, trade information for certain fixed income
securities held by the Fund reported to TRACE. FINRA also can access
data obtained from the MSRB relating to certain municipal bond trading
activity for surveillance purposes in connection with trading in the
Shares.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. The website for the Fund
includes a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information. Trading
in Shares of the Fund will be halted if the circuit breaker parameters
in NYSE Arca Rule 7.12-E have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable, and trading in the Shares will be
subject to NYSE Arca Rule 8.600-E (d)(2)(D), which sets forth
circumstances under which trading in the Shares of the Fund may be
halted. In addition, as noted above, investors will have ready access
to information regarding the Fund's holdings, NAV, the PIV, the
Disclosed Portfolio, and quotation and last sale information for the
Shares.
As described above, deviations from the generic requirements are
necessary for the Fund to achieve its investment objective in a manner
that is cost-effective and that maximizes investors' returns. Further,
the proposed alternative requirements are narrowly tailored to allow
the Fund to achieve its investment objective in manner that is
consistent with the principles of Section 6(b)(5) of the Act. As a
result, it is in the public interest to approve listing and trading of
Shares of the Fund on the Exchange pursuant to the requirements set
forth herein.\23\
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\23\ The Exchange represents that, for continued listing, the
Fund will be in compliance with Rule 10A-3 under the Act, as
provided by NYSE Arca Rule 5.3-E.
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As discussed above, the Fund will not comply with the requirement
in Commentary .01(b)(1) to Rule 8.600-E that components that in the
aggregate account for at least 75% of the fixed income weight of the
portfolio each have a minimum original principal amount outstanding of
$100 million or more. Instead, the Exchange proposes that components,
excluding Private ABS/MBS and CDOs/CBOs/CLOs, that in the aggregate
account for at least 50% of the fixed income weight of the portfolio
each shall have a minimum original principal amount outstanding of $50
million or more. Private ABS/MBS and CDOs/CBOs/CLOs would not be
subject to a requirement for a minimum original principal amount
outstanding. The Exchange believes this alternative is appropriate
because at least 50% of the fixed income weight of the Fund's
portfolio, excluding Private ABS/MBS and CDOs/CBOs/CLOs, would continue
to be subject to a substantial minimum (i.e., $50 million) original
principal amount outstanding. In addition, by excluding Private ABS/MBS
and CDOs/CBOs/CLOs from this requirement, the Fund will be able to
better diversify its holdings in such securities, and would be able to
invest in a larger variety of Private ABS/MBS and CDOs/CBOs/CLOs that
have characteristics consistent with the Fund's investment objective to
seek maximum current income, consistent with preservation of capital
and daily liquidity, while incorporating PIMCO's ESG investment
strategy.
The Fund will not comply with the requirement in Commentary
.01(b)(5) to Rule 8.600-E that investments in non-agency, non-
government sponsored entity and privately issued mortgage-related and
other asset-backed securities (i.e., Private ABS/MBS) not account, in
the aggregate, for more than 20% of the weight of the portfolio.
Instead, the Fund will not invest more than 20% of the Fund's total
assets in Private ABS/MBS or more than 20% of the Fund's total assets
in U.S. or foreign CDOs/
[[Page 28068]]
CBOs/CLOs.\24\ The Exchange believes that these 20% limitations will
help the Fund maintain portfolio diversification and will reduce
manipulation risk. In addition, the Fund's investment in CDOs/CBOs/CLOs
will be subject to the Fund's liquidity procedures as adopted by the
Board, and the Adviser does not expect that investments in CDOs/CBOs/
CLOs of up to 20% of the total assets of the Fund will have any
material impact on the liquidity of the Fund's investments.
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\24\ The Exchange notes that the Commission has previously
approved a proposed rule change granting the same proposals in
regard to Commentary .01(b)(5) to Rule 8.600-E. See Securities
Exchange Act Release No. 87576 (November 20, 2019), 84 FR 65206
(November 26, 2019) (SR-NYSEArca-2019-14) (Order Approving a
Proposed Rule Change, as Modified by Amendment No. 1, Relating to
the Permitted Investments of the PGIM Ultra Short Bond ETF).
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The Fund will not comply with the requirements in Commentary
.01(b)(4) to Rule 8.600-E that component securities that in the
aggregate account for at least 90% of the fixed income weight of the
portfolio meet one of the criteria specified in Commentary .01(b)(4).
Instead, the Exchange proposes that: (i) The Fund's investments in
fixed income securities that do not meet any of the criteria in
Commentary .01(b)(4) will not exceed 10% of the total assets of the
Fund, excluding Private ABS/MBS and CDOs/CBOs/CLOs; (ii) Private ABS/
MBS, which will be limited to 20% of the Fund's total assets, will not
be required to comply with any of the criteria in Commentary .01(b)(4);
and (iii) CDOs/CBOs/CLOs also will not be subject to any of the
criteria in Commentary .01(b)(4) but will be separately limited to 20%
of the Fund's total assets.
The Adviser represents that, with respect to the Fund's investments
in CDOs/CBOs/CLOs, the Fund will invest principally in the senior-most
tranches of these securities, generally with an AAA investment rating
which have first claim in the capital structure and generally have less
sensitivity to the credit risk of the underlying assets (e.g., bank
loans or commercial real estate).
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively managed ETF that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a CSSA. In addition, as noted above,
investors have ready access to information regarding the Fund's
holdings, NAV, the PIV, the Disclosed Portfolio, and quotation and last
sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate a change to the Fund's investments
similar to investments of other actively managed ETFs, shares of which
have been approved for Exchange listing and trading,\25\ that
principally hold fixed income securities, and that will enhance
competition among market participants, to the benefit of investors and
the marketplace.
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\25\ See notes 13-15, supra.
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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, as modified by Amendment No. 1, is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2020-37 on the subject line.
Paper Comments:
Send paper comments in triplicate to: Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number SR-NYSEArca-2020-37. 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 (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2020-37 and should be submitted
on or before June 2, 2020.
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10060 Filed 5-11-20; 8:45 am]
BILLING CODE 8011-01-P