[Federal Register Volume 85, Number 67 (Tuesday, April 7, 2020)]
[Notices]
[Pages 19554-19562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07228]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88535; File No. SR-NYSEArca-2019-92]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 1 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by
Amendment No. 1, To List and Trade Four Series of Active Proxy
Portfolio Shares Issued by T. Rowe Price Exchange-Traded Funds, Inc.
Under Proposed NYSE Arca Rule 8.601-E
April 1, 2020.
I. Introduction
On December 23, 2019, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade the following Active Proxy
Portfolio Shares under proposed NYSE Arca Rule 8.601-E: T. Rowe Price
Blue Chip Growth ETF, T. Rowe Price Dividend Growth ETF, T. Rowe Price
Growth Stock ETF, and T. Rowe Price Equity Income ETF (``Funds'').\3\
The proposed rule change was published for comment in the Federal
Register on January 3, 2020.\4\ On February 13, 2020, pursuant to
Section 19(b)(2) of the Exchange Act,\5\ the Commission designated a
longer period within which to approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.\6\ On March
31, 2020, the Exchange filed Amendment No. 1 to the proposed rule
change, which replaced and superseded the proposed rule change as
originally filed.\7\ The Commission has received no comments on the
proposed rule change. The Commission is publishing this notice and
order to solicit comments on the proposed rule change, as modified by
Amendment No. 1, from interested persons and to institute proceedings
pursuant to Section 19(b)(2)(B) of the Act \8\ to determine whether to
approve or disapprove the proposed rule change, as modified by
Amendment No. 1.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange originally proposed to adopt NYSE Arca Rule
8.601-E to permit the Exchange to list and trade Managed Portfolio
Securities, and to list and trade shares of the Funds under proposed
Exchange Rule 8.601-E (Managed Portfolio Securities). In Amendment
No. 1, the Exchange removed the proposal to adopt proposed NYSE Arca
Rule 8.601-E (Managed Portfolio Securities) and revised the proposal
to seek to list and trade shares of the Funds under proposed NYSE
Arca Rule 8.601-E (Active Proxy Portfolio Shares). See Amendment No.
1, infra note 7. See also Amendment 2 to SR-NYSEArca-2019-95
(proposing to adopt NYSE Arca Rule 8.601-E to list and trade Active
Proxy Portfolio Shares, available on the Commission's website at
https://www.sec.gov/comments/sr-nysearca-2019-95/srnysearca201995.htm).
\4\ See Securities Exchange Act Release No. 87865 (Dec. 30,
2019), 85 FR 380 (``Notice'').
\5\ 15 U.S.C. 78s(b)(2).
\6\ See Securities Exchange Act Release No. 88197, 85 FR 9887
(Feb. 20, 2020). The Commission designated April 2, 2020, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\7\ Amendment No. 1 is available on the Commission's website at
https://www.sec.gov/.
\8\ 15 U.S.C. 78s(b)(2)(B).
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II. The Exchange's Description of the Proposed Rule Change, as Modified
by Amendment No. 1
The Exchange proposes to list and trade shares of the following
under proposed NYSE Arca Rule 8.601-E (Active Proxy Portfolio Shares):
T. Rowe Price Blue Chip Growth ETF; T. Rowe Price Dividend Growth ETF;
T. Rowe Price Growth Stock ETF; and T. Rowe Price Equity Income ETF.
This Amendment No. 1 to SR-NYSEArca-2019-92 replaces SR-NYSEArca-2019-
92 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.
III. 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange has proposed to add new NYSE Arca Rule 8.601-E for the
purpose of permitting the listing and trading, or trading pursuant to
unlisted trading privileges (``UTP''), of Active Proxy Portfolio
Shares, which are securities issued by an actively managed open-end
investment management company.\9\ Proposed Commentary .02 to Rule
8.601-E would require the Exchange to file separate proposals under
Section 19(b) of the Act before listing and trading any series of
Active Proxy Portfolio Shares on the Exchange. Therefore, the Exchange
is submitting this proposal in order to list and trade shares
(``Shares'') of the T. Rowe Price Blue Chip Growth ETF; T. Rowe Price
Dividend Growth ETF; T. Rowe Price Growth Stock ETF; and T. Rowe Price
[[Page 19555]]
Equity Income ETF (each a ``Fund'' and, collectively, the ``Funds'')
under proposed Rule 8.601-E.
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\9\ See Amendment 2 to SR-NYSEArca-2019-95, filed on March 31,
2020. Proposed Rule 8.601-E(c)(1) provides that the term ``Active
Proxy Portfolio Share'' means a security that (a) is issued by a
registered investment company (``Investment Company'') organized as
an open-end management investment company that invests in a
portfolio of securities selected by the Investment Company's
investment adviser consistent with the Investment Company's
investment objectives and policies; (b) is issued in a Creation
Unit, or multiples thereof, in return for a deposit by the purchaser
of the Proxy Portfolio and/or cash with a value equal to the next
determined net asset value (``NAV''); (c) when aggregated in the
same specified minimum number of Active Proxy Portfolio Shares, or
multiples thereof, may be redeemed at a holder's request in return
for a transfer of the Proxy Portfolio and/or cash to the holder by
the issuer with a value equal to the next determined NAV; and (d)
the portfolio holdings for which are disclosed within at least 60
days following the end of every fiscal quarter.
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Key Features of Active Proxy Portfolio Shares
While funds issuing Active Proxy Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares
listed and traded under NYSE Arca Rule 8.600-E,\10\ Active Proxy
Portfolio Shares differ from Managed Fund Shares in the following
important respects. First, in contrast to Managed Fund Shares, for
which a fund's ``Disclosed Portfolio'' is required to be disseminated
at least once daily,\11\ the full portfolio holdings for a series of
Active Proxy Portfolio Shares will not be made available on a daily
basis. Rather, a fund's ``Actual Portfolio'' \12\ will be publicly
disclosed within at least 60 days following the end of every fiscal
quarter in accordance and in compliance with the portfolio holdings
disclosure requirements applicable to other registered open-end funds,
including traditional mutual funds.\13\ Second, in connection with the
creation and redemption of Active Proxy Portfolio Shares, such creation
or redemption may be in exchange for a fund's Proxy Portfolio and/or
cash with a value equal to the next determined NAV. The Proxy Portfolio
is designed to serve as a pricing signal for low-risk arbitrage trades
in shares of Active Proxy Portfolio Shares generally.
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\10\ The Commission has previously approved listing and trading
on the Exchange of a number of issues of Managed Fund Shares under
Rule 8.600-E. 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. See,
e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73
FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving
Exchange listing and trading of twelve actively-managed funds of the
WisdomTree Trust); 76871 (January 11, 2016), 81 FR 2261 (January 15,
2016) (SR-NYSEArca-2015-114) (Notice of Filing of Amendment No. 1
and Order Granting Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment No. 1, to List and Trade Shares of the
Market Vectors Dynamic Put Write ETF under NYSE Arca Equities Rule
8.600); 86636 (August 12, 2019), 84 FR 42030 (August 16, 2019) (SR-
NYSEArca-2018-98) (Notice of Filing of Amendment No. 4 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 4, to List and Trade Shares of the iShares
Commodity Multi-Strategy ETF under NYSE Arca Rule 8.600-E).
\11\ NYSE Arca Rule 8.600-E(c)(2) defines the term ``Disclosed
Portfolio'' as the identities and quantities of the securities and
other assets held by the Investment Company that will form the basis
for the Investment Company's calculation of NAV at the end of the
Business Day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires that the
Disclosed Portfolio be disseminated at least once daily and be made
available to all market participants at the same time.
\12\ Proposed Rule 8.601-E(c)(2) provides that term ``Actual
Portfolio'' means the identities and quantities of the securities
and other assets held by the Investment Company that shall form the
basis for the Investment Company's calculation of NAV at the end of
the business day.
\13\ A mutual fund is required to file with the Commission its
complete portfolio schedules for the second and fourth fiscal
quarters on Form N-CSR under the 1940 Act, and is required to file
its complete portfolio schedules each month on Form N-PORT under the
1940 Act, within 60 days of the end of each month. Information
reported on Form N-PORT for the third month of the Fund's fiscal
quarter will be made publicly available 60 days after the end of the
Fund's fiscal quarter. Form N-PORT requires reporting of a fund's
complete portfolio holdings on a position-by-position basis on a
quarterly basis within 60 days after fiscal quarter end. Investors
can obtain a fund's Statement of Additional Information, its
Shareholder Reports, its Form N-CSR, filed twice a year, and its
Form N-CEN, filed annually. A fund's statement of additional
information (``SAI'') and Shareholder Reports are available free
upon request from the Investment Company, and those documents and
the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed on-screen
or downloaded from the Commission's website at www.sec.gov.
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Market makers have indicated to the Exchange that there will be
sufficient data to engage in arbitrage trades in Active Proxy Portfolio
Shares with accuracy and minimal risk. In addition, market makers have
indicated that they are incented to engage in arbitrage trades when the
risk of the trade is low. However, they cannot know with any certainty
the precise risk of an arbitrage trade on the current or any future
Business Day. Rather, they must use information from the past to
evaluate the likely risk of an arbitrage trade executed today or in the
future. More specifically, it is understood that they must use
historical data about the performance of a fund whose shares are being
arbitraged and the performance of the fund's Proxy Portfolio. From such
data, arbitrageurs may be able to develop sufficient insight into the
risk of an arbitrage trade to evaluate and price it into the trade.
Description of the Funds
The Shares of each Fund will be issued by T. Rowe Price Exchange-
Traded Funds, Inc. (``Issuer''), a corporation organized under the laws
of the State of Maryland, which may be comprised of multiple separate
series, and registered with the Commission as an open-end management
investment company.\14\ The investment adviser for the Funds will be T.
Rowe Price Associates, Inc. (``Adviser''). State Street Bank and Trust
Co. will serve as the Funds' transfer agent, administrator and
custodian (the ``Transfer Agent'', ``Administrator'', or
``Custodian''). T. Rowe Price Investment Services, Inc., a registered
broker dealer and an affiliate of the Adviser, will serve as the
distributor (``Distributor'') of the Shares.
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\14\ The Issuer is registered under the 1940 Act. On December
11, 2019, the Issuer filed a registration statement on Form N-1A
under the Securities Act of 1933 Act (``1933 Act'') (15 U.S.C. 77a)
and under the 1940 Act relating to the Funds (File Nos. 333-235450
and 811-23494) (the ``Registration Statement''). The Issuer filed a
seventh amended application for an order under Section 6(c) of the
1940 Act for exemptions from various provisions of the 1940 Act and
rules thereunder (File No. 812-14214), dated October 16, 2019
(``Application''). On December 10, 2019, the Commission issued an
order (``Exemptive Order'') under the 1940 Act granting the
exemptions requested in the Application (Investment Company Act
Release No. 33713, December 10, 2019). Investments made by the Funds
will comply with the conditions set forth in the Application and the
Exemptive Order. The description of the operation of the Funds
herein is based, in part, on the Registration Statement and the
Application.
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Proposed Commentary .04 to NYSE Arca Rule 8.601-E provides that, if
the investment adviser to the Investment Company issuing Active Proxy
Portfolio Shares is registered as a broker-dealer or is affiliated with
a broker-dealer, such investment adviser will erect and maintain a
``fire wall'' between the investment adviser and personnel of the
broker-dealer or broker-dealer affiliate, as applicable, with respect
to access to information concerning the composition and/or changes to
such Investment Company's Actual Portfolio and/or Proxy Portfolio. Any
person related to the investment adviser or Investment Company who
makes decisions pertaining to the Investment Company's portfolio
composition or has access to non-public information regarding the
Investment Company's Actual Portfolio or changes thereto or the Proxy
Portfolio must be subject to procedures reasonably designed to prevent
the use and dissemination of material non-public information regarding
the Actual Portfolio or changes thereto or the Proxy Portfolio.
Proposed Commentary .04 is similar to Commentary .03(a)(i) and
(iii) to NYSE Arca Rule 5.2-E(j)(3); however, Commentary .03(a) in
connection with the establishment of a ``fire wall'' between the
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case
with index-based funds.\15\
[[Page 19556]]
Commentary .04 is also similar to Commentary .06 to Rule 8.600-E
related to Managed Fund Shares, except that proposed Commentary .04
relates to establishment and maintenance of a ``fire wall'' between the
investment adviser and the broker-dealer applicable to an Investment
Company's Actual Portfolio and/or Proxy Portfolio, and not just to the
underlying portfolio, as is the case with Managed Fund Shares.
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\15\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel will be
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violations, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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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 a Fund's
portfolio. In the event (a) the Adviser becomes registered as a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new 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 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.
Description of the Funds
According to the Application, for each Fund, the Adviser will
identify its Proxy Portfolio, which could be a broad-based securities
index (e.g., the S&P 500) or a Fund's recently disclosed portfolio
holdings. The Proxy Portfolio will be determined such that at least 80%
of its total assets will overlap with the portfolio weightings of a
Fund. Although the Adviser may change a Fund's Proxy Portfolio at any
time, the Adviser currently does not expect to make such changes more
frequently than quarterly (for example, in connection with the release
of a Fund's portfolio holdings). The Adviser will publish a new Proxy
Portfolio for a Fund only before the commencement of trading of such
Fund's Shares on that ``Business Day,'' \16\ and the Adviser will not
make intra-day changes to the Proxy Portfolio except to correct errors
in the published Proxy Portfolio. For the reasons described herein, the
Adviser believes that each Fund's Proxy Portfolio will be a high-
quality hedging vehicle, the value of which will provide arbitrageurs
with a high quality pricing signal.
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\16\ ``Business Day'' is defined to mean any day that the
Exchange is open, including any day when a Fund satisfies redemption
requests as required by section 22(e) of the 1940 Act.
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The Fund's holdings will conform to the permissible investments as
set forth in the Application and Exemptive Order as described below in
``Other Characteristics of the Funds,'' and the holdings will be
consistent with all requirements in the Application and Exemptive
Order.
T. Rowe Price Blue Chip Growth ETF
The investment objective of the T. Rowe Price Blue Chip Growth ETF
will be to seek to provide long-term capital growth. Income will be a
secondary objective.
The Fund will normally invest at least 80% of its net assets in the
common stocks of large and medium-sized blue-chip growth companies that
are listed in the United States. These are companies that, in the
Adviser's view, are well established in their industries and have the
potential for above-average earnings growth. The Fund generally will
invest in U.S. and foreign exchange-traded securities, U.S. exchange-
traded futures, cash and cash equivalents.
T. Rowe Price Dividend Growth ETF
The investment objective of the T. Rowe Price Dividend Growth ETF
will be to seek dividend income and long-term capital growth.
The Fund normally will invest at least 65% of the Fund's total
assets in stocks listed in the United States, with an emphasis on
stocks that have a strong track record of paying dividends or that are
expected to increase their dividends over time. The Fund generally will
invest in U.S. and foreign exchange-traded securities, U.S. exchange-
traded futures cash, and cash equivalents.
T. Rowe Price Growth Stock ETF
The investment objective of the T. Rowe Price Growth Stock ETF will
be to seek long-term capital growth.
The Fund will normally invest at least 80% of its net assets in the
common stocks of a diversified group of growth companies. While it may
invest in companies of any market capitalization, the Fund generally
seeks investments in stocks of large-capitalization companies with one
or more of the following characteristics: Strong cash flow and an
above-average rate of earnings growth; the ability to sustain earnings
momentum during economic downturns; and occupation of a lucrative niche
in the economy and the ability to expand even during times of slow
economic growth. The Fund generally will invest in U.S. and foreign
exchange-traded securities, U.S. exchange-traded futures, cash and cash
equivalents.
T. Rowe Price Equity Income ETF
The investment objective of the T. Rowe Price Equity Income ETF
will be to seek a high level of dividend income and long-term capital
growth.
The Fund will normally invest at least 80% of its net assets in
common stocks listed in the United States, with an emphasis on large-
capitalization stocks that have a strong track record of paying
dividends or that are believed to be undervalued. The Fund typically
will employ a ``value'' approach in selecting investments. The Fund
generally will invest in U.S. and foreign exchange-traded securities,
U.S. exchange-traded futures, cash and cash equivalents.
Other Characteristics of the Funds
With respect to the Funds, Shares will generally be issued and
redeemed primarily on an in-kind basis, but may include cash under
certain circumstances as described in the Application.\17\
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\17\ See note 22, infra.
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With respect to the Funds, in order to provide a hedging vehicle
whose performance reliably and highly correlates to the NAV of the
relevant Fund, and that is liquid and trades synchronously (that is,
during the hours of the Exchange's Core Trading Session, normally 9:30
a.m. to 4:00 p.m. E.T.) with the Shares of the Funds, a Fund's Actual
Portfolio will (a) be listed on an exchange and the primary trading
session of such exchange will trade synchronously with the Exchange's
Core Trading Session, as defined in Rule 7.34-E(a); (b) with respect to
exchange-traded futures, be listed on a U.S. futures exchange; or (c)
consist of cash and cash equivalents.
Consistent with these representations, each Fund will only invest
in exchange-traded common stocks, common stocks
[[Page 19557]]
listed on a foreign exchange that trade on such exchange synchronously
with the Shares (``foreign common stocks''), ETFs,\18\ exchange-traded
notes (``ETNs''),\19\ exchange-traded preferred stocks, exchange-traded
American Depositary Receipts (``ADRs''),\20\ exchange-traded real
estate investment trusts, exchange-traded commodity pools, exchange-
traded metals trusts, exchange-traded currency trusts and exchange-
traded futures contracts \21\ (collectively, ``exchange-traded
instruments'') that trade synchronously with the Fund's Shares, as well
as cash and cash equivalents. For purposes of this filing, cash
equivalents are short-term U.S. Treasury securities, government money
market funds, and repurchase agreements.
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\18\ For purposes of this filing, ETFs include 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 in the U.S. on a national
securities exchange. While the Funds may invest in inverse ETFs, the
Funds will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
\19\ ETNs are securities as described in NYSE Arca Rule 5.2-
E(j)(6) (Equity Index-Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Fixed Income Index-Linked
Securities, Futures-Linked Securities and Multifactor Index-Linked
Securities). All ETNs will be listed and traded in the U.S. on a
national securities exchange. The Funds will not invest in inverse
or leveraged (e.g., 2X, -2X, 3X or -3X) ETNs.
\20\ ADRs are issued by a U.S. financial institution (a
``depositary'') and evidence ownership in a security or pool of
securities issued by a foreign issuer that have been deposited with
the depositary. Each ADR is registered under the Securities Act of
1933 (``1933 Act'') (15 U.S.C. 77a) on Form F-6. ADRs in which a
Fund may invest will trade on an exchange.
\21\ Exchange-traded futures are U.S. listed futures contracts
where the futures contract's reference asset is an asset that the
Fund could invest in directly, or in the case of an index future, is
based on an index of a type of asset that the Fund could invest in
directly, such as an S&P 500 index futures contract. All futures
contracts that a Fund may invest in will be traded on a U.S. futures
exchange.
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The Proxy Portfolio will not include any asset that is ineligible
to be in the Actual Portfolio of the applicable Fund.
Investment Restrictions
The Shares of each Fund will conform to the initial and continued
listing criteria under proposed Rule 8.601-E.
Each Fund's investments will be consistent with its investment
objective and with the applicable exemptive order or no-action relief
granted by the Commission or Commission staff to the Issuer with
respect to the Funds.
Purchases and Redemptions
The Issuer will offer, issue and sell Shares of each Fund to
investors only in Creation Units through the Distributor on a
continuous basis at the NAV per Share next determined after an order in
proper form is received. The NAV of each Fund is expected to be
determined as of 4:00 p.m. E.T. on each Business Day. The Issuer will
sell and redeem Creation Units of each Fund only on a Business Day. A
Creation Unit will consist of at least 5,000 Shares.
Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Accordingly, except where the purchase
or redemption will include cash under the circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments''). The
names and quantities of the instruments that constitute the Deposit
Instruments and the Redemption Instruments for a Fund (collectively,
the ``Creation Basket'') will be the same as a Fund's designated Proxy
Portfolio, except to the extent that a Fund requires purchases and
redemptions to be made entirely or in part on a cash basis, as
described below.
If there is a difference between the net asset value attributable
to a Creation Unit and the aggregate market value of the Creation
Basket exchanged for the Creation Unit, the party conveying instruments
with the lower value will also pay to the other an amount in cash equal
to that difference (the ``Cash Amount'').
Each Fund will adopt and implement policies and procedures
regarding the composition of its Creation Baskets. The policies and
procedures will set forth detailed parameters for the construction and
acceptance of baskets that are in the best interests of a Fund,
including the process for any revisions to or deviations from, those
parameters.
A Fund that normally issues and redeems Creation Units in kind may
require purchases and redemptions to be made entirely or in part on a
cash basis.\22\ In such an instance, the Fund will announce, before the
open of trading on a given Business Day, that all purchases, all
redemptions or all purchases and redemptions on that day will be made
wholly or partly in cash. A Fund may also determine, upon receiving a
purchase or redemption order from an Authorized Participant (as defined
below), to have the purchase or redemption, as applicable, be made
entirely or in part in cash.
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\22\ The Adviser represents that, to the extent the Issuer
effects the creation or redemption of Shares in cash, such
transactions will be effected in the same manner for all
``Authorized Participants'' (as defined below).
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Each Business Day, before the open of trading on the Exchange, the
Fund will cause to be published through the National Securities
Clearing Corporation (``NSCC'') the names and quantities of the
instruments comprising the Creation Basket, as well as the estimated
Cash Amount (if any) for that day. The published Creation Basket will
apply until a new Creation Basket is announced on the following
Business Day, and there will be no intra-day changes to the Creation
Basket except to correct errors in the published Creation Basket. The
Proxy Portfolio will be published each Business Day regardless of
whether a Fund decides to issue or redeem Creation Units entirely or in
part on a cash basis.
All orders to purchase Creation Units must be placed with the
Distributor by or through an Authorized Participant, which is a member
or participant of a clearing agency registered with the Commission,
which has a written agreement with a Fund or one of its service
providers that allows the Authorized Participant to place orders for
the purchase and redemption of Creation Units. Except as otherwise
permitted, no promoter, principal underwriter (e.g., the Distributor)
or affiliated person of a Fund, or any affiliated person of such
person, will be an Authorized Participant in Shares.
Validly submitted orders to purchase or redeem Creation Units on
each Business Day will be accepted until the end of the Core Trading
Session (the ``Order Cut-Off Time''), generally 4:00 p.m. E.T., on the
Business Day that the order is placed (the ``Transmittal Date''). All
Creation Unit orders must be received by the Distributor no later than
the Order Cut-Off Time in order to receive the NAV determined on the
Transmittal Date. When the Exchange closes earlier than normal, a Fund
may require orders for Creation Units to be placed earlier in the
Business Day.
Availability of Information
The Funds' website, which will be publicly available at no charge
prior to the public offering of Shares, will include a prospectus for
each Fund that may be downloaded. In addition, the website will include
the following:
Quantitative information updated on a daily basis,
including, on a per Share basis for each Fund, the prior Business Day's
NAV and the Closing Price \23\ or Bid/Ask Price of Shares, and
[[Page 19558]]
a calculation of the premium/discount of the Closing Price or Bid/Ask
Price \24\ against such NAV and any other information regarding
premiums and discounts as may be required for other ETFs under rule 6c-
11 under the 1940 Act. The website will also disclose any information
regarding the bid-ask spread for each Fund as may be required for other
ETFs under rule 6c-11 under the 1940 Act.
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\23\ The ``Closing Price'' of Shares is the official closing
price of Shares on the Exchange's Core Trading Session.
\24\ The ``Bid/Ask Price'' is the midpoint of the highest bid
and lowest offer based on the National Best Bid and Offer at the
time that a Fund's NAV is calculated. The ``National Best Bid and
Offer'' is the current national best bid and national best offer as
disseminated by the Consolidated Quotation System or UTP Plan
Securities Information Processor.
---------------------------------------------------------------------------
Each Fund's Proxy Portfolio.
Bid-ask spread information for each Fund.
Each Fund's website also will disclose the information required
under proposed Rule 8.601-E (c)(3).\25\
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\25\ See note 9, supra. Proposed Rule 8.601-E (c)(3) provides
that the website for each series of Active Proxy Portfolio Shares
shall disclose the information regarding the Proxy Portfolio as
provided in the exemptive relief pursuant to the Investment Company
Act of 1940 applicable to such series, including the following, to
the extent applicable:
(i) Ticker symbol;
(ii) CUSIP or other identifier;
(iii) Description of holding;
(iv) Quantity of each security or other asset held; and
(v) Percentage weighting of the holding in the portfolio.
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Investors interested in a particular Fund can also obtain its
prospectus, statement of additional information (``SAI''), shareholder
reports, Form N-CSR and Form N-CEN. Investors may access complete
portfolio schedules for the Funds on Form N-CSR and Form N-PORT. The
prospectus, SAI and shareholder reports will be available free upon
request from the Funds, and those documents and the Form N-CSR and Form
N-CEN may be viewed on-screen or downloaded from the Commission's
website at http://www.sec.gov.
Information regarding the market price of Shares and trading volume
in Shares will be continually available on a real-time basis throughout
the day on brokers' computer screens and other electronic services. The
previous day's closing price and trading volume information may be
published daily in the financial section of newspapers.
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.\26\ 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 Shares will be
subject to NYSE Arca Rule 8.601-E(d)(2)(D), which sets forth
circumstances under which Shares of the Fund will be halted.
---------------------------------------------------------------------------
\26\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------
Specifically, proposed Rule 8.601-E(d)(2)(D) provides that the
Exchange may consider all relevant factors in exercising its discretion
to halt trading in a series of Active Proxy Portfolio Shares. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the series of Active Proxy
Portfolio Shares inadvisable. These may include: (a) The extent to
which trading is not occurring in the securities and/or the financial
instruments composing the portfolio; or (b) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present.
In addition, upon notification to the Exchange by the issuer of a
series of Active Proxy Portfolio Shares, that the NAV, Proxy Portfolio
or Actual Portfolio with respect to a series of Active Proxy Portfolio
Shares is not disseminated to all market participants at the same time,
the Exchange shall halt trading in such series until such time as the
NAV, Proxy Portfolio or Actual Portfolio is available to all market
participants at the same time. The issuer has represented to the
Exchange that it will provide the Exchange with prompt notification
upon the existence of any such condition or set of conditions.
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 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Rule 7.34-E (Opening, Core, and Late 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.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.601-E.
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. The Exchange has
appropriate rules to facilitate trading in the Shares during all
trading sessions.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\27\ 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.
---------------------------------------------------------------------------
\27\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, or the Exchange or both will
communicate as needed regarding trading in the Shares, certain
exchange-traded equities, ETFs, ETNs and futures with other markets and
other entities that are members of the Intermarket Surveillance Group
(``ISG''), and FINRA, on behalf of the Exchange, or the Exchange or
both may obtain trading information regarding trading such securities
and financial instruments from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in such
securities and financial instruments from markets and other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\28\
---------------------------------------------------------------------------
\28\ For a list of the current members of ISG, see
www.isgportal.org.
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The Funds' Adviser will make available to FINRA and the Exchange
the portfolio holdings of each Fund in order to facilitate the
performance of the surveillances referred to above on a confidential
basis.
[[Page 19559]]
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Proposed Commentary .03 to NYSE Arca Rule 8.601-E provides that the
Exchange will implement and maintain written surveillance procedures
for Active Proxy Portfolio Shares. As part of these surveillance
procedures, the Investment Company's investment adviser will upon
request by the Exchange or FINRA, on behalf of the Exchange, make
available to the Exchange or FINRA the daily portfolio holdings of each
series of Active Proxy Portfolio Shares. The Exchange believes that the
ability to access the information on an as needed basis will provide it
with sufficient information to perform the necessary regulatory
functions associated with listing and trading series of Active Proxy
Portfolio Shares on the Exchange, including the ability to monitor
compliance with the initial and continued listing requirements as well
as the ability to surveil for manipulation of Active Proxy Portfolio
Shares.
The Exchange will utilize its existing procedures to monitor issuer
compliance with the requirements of proposed Rule 8.601-E. For example,
the Exchange will continue to use intraday alerts that will notify
Exchange personnel of trading activity throughout the day that may
indicate that unusual conditions or circumstances are present that
could be detrimental to the maintenance of a fair and orderly market.
The Exchange will require from the issuer of a series of Active Proxy
Portfolio Shares, upon initial listing and periodically thereafter, a
representation that it is in compliance with Rule 8.601-E. The Exchange
notes that proposed Commentary .01 to Rule 8.601-E would require an
issuer of Active Proxy Portfolio Shares to notify the Exchange of any
failure to comply with the continued listing requirements of Rule
8.601-E. In addition, the Exchange will require issuers to represent
that they will notify the Exchange of any failure to comply with the
terms of applicable exemptive and no-action relief. The Exchange will
rely on the foregoing procedures to become aware of any non-compliance
with the requirements of Rule 8.601-E.
With respect to the Funds, all statements and representations made
in this filing regarding (a) the description of the portfolio or
reference asset, (b) limitations on portfolio holdings or reference
assets, or (c) the applicability of Exchange listing rules specified in
this rule filing shall constitute continued listing requirements for
listing the Shares on the Exchange. The issuer has represented to the
Exchange that it will advise the Exchange of any failure by a Fund to
comply with the continued listing requirements, and, pursuant to its
obligations under Section 19(g)(1) of the Act, the Exchange will
monitor for compliance with the continued listing requirements. If a
Fund is not in compliance with the applicable listing requirements, the
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares;
(2) NYSE Arca Rule 9.2-E(a), which imposes a duty of due diligence on
its ETP Holders to learn the essential facts relating to every customer
prior to trading the Shares; (3) the requirement that ETP Holders
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; (4) that
holdings of a Fund will not be disclosed daily; and (5) trading
information.
In addition, the Bulletin will reference that the Funds are subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated as of 4:00 p.m. E.T. each trading day.
The Exchange notes that the proposed change is not otherwise
intended to address any other issues and that the Exchange is not aware
of any problems that Equity Trading Permit Holders or issuers would
have in complying with the proposed change.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\29\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\30\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------
\29\ 15 U.S.C. 78f(b).
\30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
With respect to the proposed listing and trading of Shares of the
Funds, the Exchange believes that the proposed rule change is designed
to prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.601-E. One-
hundred percent of the value of a Fund's Actual Portfolio (except for
cash, cash equivalents and Treasury securities) at the time of purchase
will be listed on U.S. or foreign securities exchanges (or, in the
limited case of futures contracts, U.S. futures exchanges). The listing
and trading of such securities is subject to rules of the exchanges on
which they are listed and traded, as approved by the Commission. FINRA,
on behalf of the Exchange, will communicate as needed regarding trading
in the Shares, certain exchange-traded equities, ETFs, ETNs and futures
with other markets and other entities that are members of the ISG, and
FINRA, on behalf of the Exchange, may obtain trading information
regarding trading such securities and financial instruments from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in such securities and financial
instruments from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
With respect to the Funds, the Exchange believes that a Fund's
Proxy Portfolio, as well as the right of Authorized Participants to
create and redeem each day at the NAV, will be sufficient for market
participants to value and trade Shares in a manner that will not lead
to significant deviations between the Shares' bid/ask price and NAV.
The pricing efficiency with respect to trading a series of Active
Proxy Portfolio Shares will not generally rest on the ability of market
participants to arbitrage between the Active Proxy Portfolio Shares and
a fund's portfolio, but rather on the ability of market participants to
assess a fund's underlying value accurately enough throughout the
trading day in order to hedge positions in Active Proxy Portfolio
Shares effectively. Professional traders will buy Active Proxy
Portfolio Shares that they perceive to be trading at a price less than
that which will be available at a subsequent time, and sell Active
Proxy Portfolio Shares they perceive to be trading at a price higher
than that which will be available at a
[[Page 19560]]
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to series of Active Proxy
Portfolio Shares by the Exchange, off-exchange market makers, firms
that specialize in electronic trading, hedge funds and other
professionals specializing in short-term, non-fundamental trading
strategies will assume the risk of being ``long'' or ``short'' Active
Proxy Portfolio Shares through such trading and will hedge such risk
wholly or partly by simultaneously taking positions in correlated
assets \31\ or by netting the exposure against other, offsetting
trading positions--much as such firms do with existing ETFs and other
equities.
---------------------------------------------------------------------------
\31\ Price correlation trading is used throughout the financial
industry. It is used to discover both trading opportunities to be
exploited, such as currency pairs and statistical arbitrage, as well
as for risk mitigation such as dispersion trading and beta hedging.
These correlations are a function of differentials, over time,
between one or multiple securities pricing. Once the nature of these
price deviations have been quantified, a universe of securities is
searched in an effort to, in the case of a hedging strategy,
minimize the differential. With the Proxy Portfolio identified, a
trader can minimize portfolio risk by executing the hedging basket.
The trader then can monitor the performance of the Proxy Portfolio
throughout the trade period, making corrections where warranted.
---------------------------------------------------------------------------
With respect to the Funds, disclosure of the Proxy Portfolio, a
Fund's investment objective and principal investment strategies in its
prospectus and SAI, should permit professional investors to engage
readily in this type of hedging activity.\32\
---------------------------------------------------------------------------
\32\ With respect to trading in Shares of the Funds, market
participants can manage risk in a variety of ways. It is expected
that market participants will be able to determine how to trade
Shares at levels approximating the intra-day value of the Funds'
holdings without taking undue risk by utilizing the Proxy Portfolio
directly as a hedge, analyzing other data that may be disseminated
by a Fund, gaining experience with how various market factors (e.g.,
general market movements, sensitivity of the value of the Proxy
Portfolio to intraday movements in interest rates or commodity
prices, etc.) affect value of the Proxy Portfolio, and by finding
hedges for their long or short positions in Shares using instruments
correlated with such factors.
---------------------------------------------------------------------------
It is expected that market participants will utilize the Proxy
Portfolio as a pricing signal and high quality hedging vehicle and gain
experience with how various market factors (e.g., general market
movements, sensitivity or correlations of the Proxy Portfolio to
intraday movements in interest rates or commodity prices, other
benchmarks, etc.) affect the value of the Proxy Portfolio in order to
determine how best to hedge long or short positions taken in Shares in
a manner that will permit them to provide a bid/ask price for Shares
that is near to the value of the Proxy Portfolio throughout the day.
The ability of market participants to accurately hedge their positions
should serve to minimize any divergence between the secondary market
price of the Shares and a Fund's NAV, as well as create liquidity in
the Shares. With respect to trading of Shares of the Funds, the ability
of market participants to buy and sell Shares at prices near the NAV is
dependent upon their assessment that the value of the Proxy Portfolio
is a reliable, indicative real-time value for a Fund's underlying
holdings. Market participants are expected to accept the value of the
Proxy Portfolio as a reliable, indicative real-time value because (1)
the Proxy Portfolio will be determined such that at least 80% of its
total assets will overlap with the portfolio weightings of the Fund,
(2) the securities in which the Funds plan to invest are generally
highly liquid and actively traded and therefore generally have accurate
real time pricing available, and (3) market participants will have a
daily opportunity to evaluate whether the value of the Proxy Portfolio
at or near the close of trading is predictive of the actual NAV.
The disclosure of a Fund's Proxy Portfolio and the ability of
Authorized Participants to create and redeem each Business Day at the
NAV, will be crucial for market participants to value and trade Shares
in a manner that will not lead to significant deviations between the
Shares' Bid/Ask Price and NAV.
With respect to Active Proxy Portfolio Shares generally, the
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 an
issue of Active Proxy Portfolio Shares that the NAV per share of such
issue will be calculated daily and that the NAV and Actual Portfolio
will be made available to all market participants at the same time.
Investors can also obtain a fund's SAI, shareholder reports, and its
Form N-CSR and Form N-CEN. A fund's SAI and shareholder reports will be
available free upon request from the applicable fund, and those
documents and the Form N-CSR and Form N-CEN may be viewed on-screen or
downloaded from the Commission's website.
Proposed Commentary .03 to NYSE Arca Rule 8.601-E provides that the
Exchange will implement and maintain written surveillance procedures
for Active Proxy Portfolio Shares. As part of these surveillance
procedures, the Investment Company's investment adviser will, upon
request by the Exchange or FINRA, on behalf of the Exchange, make
available to the Exchange or FINRA the daily portfolio holdings of each
series of Active Proxy Portfolio Shares. The Exchange believes that the
ability to access the information on an as needed basis will provide it
with sufficient information to perform the necessary regulatory
functions associated with listing and trading series of Active Proxy
Portfolio Shares on the Exchange, including the ability to monitor
compliance with the initial and continued listing requirements as well
as the ability to surveil for manipulation of Active Proxy Portfolio
Shares. With respect to the Fund, the Adviser will make available daily
to FINRA and the Exchange the portfolio holdings of the Fund upon
request in order to facilitate the performance of the surveillances
referred to above.
The Exchange will utilize its existing procedures to monitor issuer
compliance with the requirements of proposed Rule 8.601-E. For example,
the Exchange will continue to use intraday alerts that will notify
Exchange personnel of trading activity throughout the day that may
indicate that unusual conditions or circumstances are present that
could be detrimental to the maintenance of a fair and orderly market.
The Exchange will require from the issuer of a series of Active Proxy
Portfolio Shares, upon initial listing and periodically thereafter, a
representation that it is in compliance with Rule 8.601-E. The Exchange
notes that proposed Commentary .01 to Rule 8.601-E would require an
issuer of Active Proxy Portfolio Shares to notify the Exchange of any
failure to comply with the continued listing requirements of Rule
8.601-E.\33\ In addition, the Exchange will require issuers to
represent that they will notify the Exchange of any failure to comply
with the terms of applicable exemptive and no-action relief. The
Exchange will rely on the foregoing procedures to become aware of any
non-compliance with the requirements of Rule 8.601-E.
---------------------------------------------------------------------------
\33\ Id. [sic].
---------------------------------------------------------------------------
In addition, with respect to the Funds, a large amount of
information will be publicly available regarding the Funds and the
Shares, thereby promoting market transparency. Quotation and last sale
information for the Shares will be available via the Consolidated Tape
Association high-speed line. The website for the Funds will include a
form of the prospectus for the Funds that may be downloaded, and
additional data relating to NAV and other applicable quantitative
information, updated on a daily basis. Moreover, prior to the
commencement of trading, the Exchange will inform its ETP
[[Page 19561]]
Holders in a Bulletin of the special characteristics and risks
associated with trading the Shares. Trading in Shares of a 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.
Trading in the Shares will be subject to NYSE Arca Rule 8.601-
E(d)(2)(D), which sets forth circumstances under which Shares of the
Funds may be halted. In addition, as noted above, investors will have
ready access to the Proxy Portfolio, and quotation and last sale
information for the Shares. The Shares will conform to the initial and
continued listing criteria under proposed Rule 8.601-E.
The components of a Fund's Actual Portfolio will (a) be listed on
an exchange and the primary trading session of such exchange will trade
synchronously with the Exchange's Core Trading Session, as defined in
Rule 7.34-E(a); (b) with respect to exchange-traded futures, be listed
on a U.S. futures exchange; or (c) consist of cash and cash
equivalents.
The proposed rule change is designed to improve the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, with respect to the
Active Proxy Portfolio Shares generally, the Exchange has in place
surveillance procedures relating to trading in such securities and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, with
respect to the Funds, investors will have ready access to information
regarding the Proxy Portfolio and quotation and last sale information
for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
In accordance with Section 6(b)(8) of the Act,\34\ the Exchange
does not believe that the proposed rule change will impose any burden
on competition that is not necessary or appropriate in furtherance of
the purposes of the Act. The Exchange believes the proposed rule change
would permit listing and trading of another type of actively-managed
ETF that has characteristics different from existing actively-managed
and index ETFs, including that the portfolio is disclosed at least once
quarterly as opposed to daily, and would introduce additional
competition among various ETF products to the benefit of investors.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------
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.
IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2019-92, as Modified by Amendment No. 1, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Exchange Act \35\ to determine whether the proposed
rule change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
---------------------------------------------------------------------------
\35\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
Pursuant to Section 19(b)(2)(B) of the Exchange Act,\36\ the
Commission is providing notice of the grounds for disapproval under
consideration. The Commission is instituting proceedings to allow for
additional analysis of the proposed rule change's consistency with
Section 6(b)(5) of the Exchange Act, which requires, among other
things, that the rules of a national securities exchange be ``designed
to prevent fraudulent and manipulative acts and practices, to promote
just and equitable principles of trade, . . . to remove impediments to
and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.'' \37\
---------------------------------------------------------------------------
\36\ Id.
\37\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
V. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) or any other provision of the Exchange Act, or the rules and
regulations thereunder. Although there do not appear to be any issues
relevant to approval or disapproval that would be facilitated by an
oral presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4, any request for an opportunity to
make an oral presentation.\38\
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\38\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------
Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by April 28, 2020.
Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by May 12, 2020.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in Amendment No. 1,\39\ and any other issues raised by the proposed
rule change, as modified by Amendment No. 1, under the Exchange Act. In
this regard, the Commission seeks commenters' views regarding whether
the Exchange's proposed rule to list and trade Active Proxy Portfolio
Shares, which are actively managed exchange-traded products for which
the portfolio holdings would be disclosed on a quarterly, rather than
daily, basis, is adequately designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, and to protect investors and the public interest,
and is consistent with the maintenance of a fair and orderly market
under the Exchange Act. In particular, the Commission seeks commenters'
views regarding whether the Exchange's proposed listing rule provisions
as they relate to foreign securities are adequate to prevent fraud and
manipulation. In addition, the Commission seeks commenters' views
regarding whether the Exchange's proposed listing rule provisions are
adequate to prevent the
[[Page 19562]]
use and dissemination of material non-public information relating to
the Funds.
---------------------------------------------------------------------------
\39\ See supra note 7.
---------------------------------------------------------------------------
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-2019-92 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2019-92. 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-2019-92 and should be submitted
on or before April 28, 2020. Rebuttal comments should be submitted by
May 12, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07228 Filed 4-6-20; 8:45 am]
BILLING CODE 8011-01-P