[Federal Register Volume 78, Number 233 (Wednesday, December 4, 2013)]
[Notices]
[Pages 72955-72964]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-28971]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70954; File No. SR-NYSEArca-2013-127]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To
List and Trade Under NYSE Arca Equities Rule 8.600 Shares of Nine
Series of the IndexIQ Active ETF Trust
November 27, 2013
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 November 18, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in
[[Page 72956]]
Items I and II below, which Items have been prepared by the self-
regulatory organization. On November 26, 2013, the Exchange filed
Amendment No. 1 to the proposed rule change.\4\ The Commission is
publishing this notice to solicit comments on the proposed rule 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.
\4\ Amendment No. 1 clarifies (i) how certain holdings will be
valued for purposes of calculating a fund's net asset value, and
(ii) where investors will be able to obtain pricing information for
certain underlying holdings.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the following series of
IndexIQ Active ETF Trust under NYSE Arca Equities Rule 8.600 (``Managed
Fund Shares''): IQ Long/Short Alpha ETF, IQ Bear U.S. Large Cap ETF, IQ
Bear U.S. Small Cap ETF, IQ Bear International ETF, IQ Bear Emerging
Markets ETF, IQ Bull U.S. Large Cap ETF, IQ Bull U.S. Small Cap ETF, IQ
Bull International ETF and IQ Bull Emerging Markets ETF. The text of
the proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
IQ Long/Short Alpha ETF, IQ Bear U.S. Large Cap ETF, IQ Bear U.S. Small
Cap ETF, IQ Bear International ETF, IQ Bear Emerging Markets ETF, IQ
Bull U.S. Large Cap ETF, IQ Bull U.S. Small Cap ETF, IQ Bull
International ETF and IQ Bull Emerging Markets ETF (each, a ``Fund''
and, collectively, the ``Funds'') under NYSE Arca Equities Rule 8.600,
which governs the listing and trading of Managed Fund Shares \5\ on the
Exchange.\6\ IQ Long/Short Alpha ETF, IQ Bear U.S. Large Cap ETF, IQ
Bear U.S. Small Cap ETF, IQ Bear International ETF, IQ Bear Emerging
Markets ETF, IQ Bull U.S. Large Cap ETF, IQ Bull U.S. Small Cap ETF, IQ
Bull International ETF and IQ Bull Emerging Markets ETF are each a
series of the IndexIQ Active ETF Trust (the ``Trust'').\7\
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\5\ 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), as amended (``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
Equities Rule 5.2(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.
\6\ The Commission has previously approved the listing and
trading on the Exchange of other of actively managed funds under
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 60717
(September 24, 2009), 74 FR 50853 (October 1, 2009) (SR-NYSEArca-
2009-74) (order approving listing of Four Grail Advisors RP
Exchange-Traded Funds) and 67320 (June 29, 2012), 77 FR 39763 (July
5, 2012) (SR-NYSEArca-2012-44) (order approving listing of the
iShares Strategic Beta U.S. Large Cap Fund and iShares Strategic
Beta U.S. Small Cap Fund).
\7\ The Trust is registered under the 1940 Act. On September 12,
2013, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A relating to the Funds (File Nos.
333-183489 and 811-22739) (the ``Registration Statement''). The
description of the operation of the Trust and the Funds herein is
based, in part, on the Registration Statement. In addition, the
Commission has issued an order granting certain exemptive relief to
the Trusts under the 1940 Act. See Investment Company Act Release
No. 30198 (September 10, 2012) (File No. 812-13956) (the ``Exemptive
Order'').
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Each Fund is an actively-managed exchange-traded fund and does not
seek to replicate the performance of a specified index.
IndexIQ Advisors LLC (the ``Adviser'') is the investment adviser
for the Funds.\8\ The Bank of New York Mellon (``Administrator''), is
the administrator, custodian, transfer agent and securities lending
agent for the Funds. ALPS Distributors Inc. (``Distributor''), is the
distributor for the Funds.
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\8\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). The Adviser is registered as an investment adviser under the
Advisers Act. As a result, the Adviser and its related personnel are
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, the Adviser and its related personnel are subject to
the provisions of Rule 206(4)-7 under the Advisers Act, which 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 violation, 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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Commentary .06 to Rule 8.600 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 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
is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 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. The Adviser is
not a broker-dealer and is not affiliated with a broker-dealer. In the
event (a) the Adviser becomes newly affiliated with a broker-dealer, or
(b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with a broker-dealer it will implement a firewall
with respect to its relevant personnel or its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to a portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
IQ Long/Short Alpha ETF
According to the Registration Statement, the IQ Long/Short Alpha
ETF will seek capital appreciation.
[[Page 72957]]
Under normal circumstances,\9\ at least 80% of the Fund's assets
will be exposed to equity securities of U.S. large capitalization
companies,\10\ by investing in exchange-traded funds (``ETFs''),\11\
and/or swap agreements, options contracts and futures contracts with
economic characteristics similar to those of the ETFs for which they
are substituted (such swap agreements, options contracts and futures
contracts, collectively, ``Financial Instruments'').\12\
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\9\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of adverse market, economic, political or
other conditions, including extreme volatility or trading halts in
the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
\10\ According to the Registration Statement, the Adviser
considers ``large capitalization companies'' to have market
capitalizations of at least $5 billion.
\11\ For purposes of this filing, ETFs include Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3));
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). The ETFs all will be listed and traded in the
U.S. on registered exchanges. The ETFs in which the Fund may invest
will primarily be index-based exchange-traded funds that hold
substantially all of their assets in securities representing a
specific index. While the Fund may invest in inverse ETFs, the Fund
will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
\12\ The Adviser has represented that all options contracts and
futures contracts will be listed on a U.S. national securities
exchange or a non-U.S. securities exchange that is a member of the
Intermarket Surveillance Group (``ISG'') or a party to a
comprehensive surveillance sharing agreement with the Exchange.
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According to the Registration Statement, the Fund will take long
and short positions in U.S.-listed ETFs registered pursuant to the
Investment Company Act of 1940 (the ``1940 Act'') holding primarily
U.S. large capitalization equity securities. As opposed to taking long
positions in which an investor seeks to profit from increases in the
price of a stock, short selling (or ``selling short'') is a technique
that will be used by the Fund to try and profit from the falling price
of a stock. Short selling involves selling stock that has been borrowed
from a third party with the intention of buying identical stock back at
a later date to return to that third party.
The Fund's investment process will first break down all large
capitalization U.S. companies by the sector in which they operate.
Generally, these sectors will include Consumer Discretionary, Consumer
Staples, Energy, Financial, Health Care, Industrial, Materials,
Technology, Telecommunications and Utilities. The Adviser will then
analyze each sector based on a set of common investment factors. These
factors will include the following: Price momentum (the trend in stock
prices for each sector); valuation (how expensive stocks in one sector
are relative to stocks in other sectors); and relative earnings
(earnings strength and related characteristics of stocks in one sector
relative to stocks in other sectors). The portfolio manager of the Fund
will then use the factors to determine which sectors will have a long
or short position and, within the long and short groupings, the
relative sector weights thereof.
According to the Registration Statement, to implement its strategy,
the Fund will hold long and short positions in ETFs providing exposure
to the sectors listed above.
According to the Registration Statement, having both long and short
positions in an equity security portfolio is a common way to create
returns that are independent of market moves. One advantage of a long
and short portfolio is that the long and short positions may offset one
another in a manner that results in a market neutral portfolio, which
is a portfolio with little to no net exposure to the direction of the
market. In addition to the offsetting positions, it is possible that
the long and short equity securities will outperform their respective
long and short benchmarks.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.\13\
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\13\ According to the Registration Statement, money market
instruments are generally short-term cash instruments that have a
remaining maturity of 397 days or less and exhibit high quality
credit profiles. These include U.S. Treasury Bills and repurchase
agreements.
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IQ Bear U.S. Large Cap ETF
According to the Registration Statement, the IQ Bear U.S. Large Cap
ETF will seek capital appreciation.
Under normal circumstances, at least 80% of the Fund's assets will
be exposed to equity securities of U.S. large capitalization issuers,
by taking short positions in ETFs and/or Financial Instruments.
According to the Registration Statement, the Fund will take primarily
short positions in U.S.-listed ETFs registered pursuant to the 1940 Act
holding primarily U.S. large capitalization equity securities.
According to the Registration Statement, the Fund's investment
process will first break down all large capitalization U.S. companies
by the sector in which they operate. Generally, these sectors will
include Consumer Discretionary, Consumer Staples, Energy, Financial,
Health Care, Industrial, Materials, Technology, Telecommunications and
Utilities. The Adviser will then analyze each sector based on a set of
common investment factors. These factors will include the following:
Price momentum (the trend in stock prices for each sector); valuation
(how expensive stocks in one sector are relative to stocks in other
sectors); and relative earnings (earnings strength and related
characteristics of stocks in one sector relative to stocks in other
sectors). The portfolio managers of the Fund will then use the factors
to determine the magnitude of the short weighting for each sector in
the portfolio.
According to the Registration Statement, to implement its strategy,
the Fund will hold short positions in ETFs providing exposure to the
sectors listed above.
According to the Registration Statement, by using a dynamic
allocation process, the Fund will seek to outperform the inverse of the
U.S. large capitalization equity market (``U.S. Large Cap Market'')
performance in both rising and falling markets. In other words, when
the U.S. Large Cap Market is down in a given period, the Fund will seek
to be up more than the inverse of the U.S. Large Cap Market during the
same period and, conversely, when the U.S. Large Cap Market is up in a
given period, the Fund will seek to be down less than the inverse of
the return of the U.S. Large Cap Market during the same period.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.
IQ Bear U.S. Small Cap ETF
According to the Registration Statement, the IQ Bear U.S. Small Cap
ETF will seek capital appreciation.
Under normal circumstances, at least 80% of the Fund's assets will
be exposed to equity securities of U.S. small capitalization
companies,\14\ by taking short positions in ETFs and/or Financial
Instruments. According to the Registration Statement, the Fund will
take primarily short positions in U.S.-listed ETFs registered pursuant
to the 1940 Act holding primarily U.S. small capitalization equity
securities.
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\14\ According to the Registration Statement, the Adviser will
consider ``small capitalization companies'' to have market
capitalizations of between $300 million and $2 billion.
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According to the Registration Statement, the Fund's investment
process will first break down all small capitalization U.S. companies
by the
[[Page 72958]]
sector in which they operate. Generally, these sectors will include
Consumer Discretionary, Consumer Staples, Energy, Financial, Health
Care, Industrial, Materials, Technology, Telecommunications and
Utilities. The Adviser will then analyze each sector based on a set of
common investment factors. These factors will include the following:
Price momentum (the trend in stock prices for each sector); valuation
(how expensive stocks in one sector are relative to stocks in other
sectors); and relative earnings (earnings strength and related
characteristics of stocks in one sector relative to stocks in other
sectors). The portfolio manager of the Fund will then use the factors
to determine the magnitude of the short weighting for each sector in
the portfolio.
According to the Registration Statement, to implement its strategy,
the Fund will hold short positions in ETFs providing exposure to the
sectors listed above.
According to the Registration Statement, by using a dynamic
allocation process, the Fund will seek to outperform the inverse of the
performance of the U.S. small capitalization equity market (the ``U.S.
Small Cap Market'') in both rising and falling markets. In other words,
when the U.S. Small Cap Market is down in a given period, the Fund will
seek to be up more than the inverse of the U.S. Small Cap Market during
the same period and, conversely, when the U.S. Small Cap Market is up
in a given period, the Fund will seek to be down less than the inverse
of the return of the U.S. Small Cap Market during the same period.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.
IQ Bear International ETF
According to the Registration Statement, the IQ Bear International
ETF will seek capital appreciation.
Under normal circumstances, at least 80% of the Fund's assets will
be exposed to equity securities of issuers domiciled in developed
market countries,\15\ by taking short positions in ETFs and/or
Financial Instruments. According to the Registration Statement, the
Fund will take primarily short positions in U.S.-listed ETFs registered
pursuant to the 1940 Act holding primarily developed market equity
securities.
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\15\ According to the Registration Statement, developed market
countries will generally include Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland,
Israel, Italy, Japan, the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and the United
Kingdom. To the extent that the Adviser believes that countries
should be added or subtracted to the developed markets category, the
Adviser may adjust the list of countries accordingly.
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According to the Registration Statement, the Fund's investment
process will first break down developed market companies by the country
in which they are domiciled. The Adviser will then analyze each country
based on a set of common investment factors. These factors will include
the following: Price momentum (the trend in stock prices for each
country); valuation (how expensive stocks in one country are relative
to stocks in other countries); and relative earnings (earnings strength
and related characteristics of stocks in one country relative to stocks
in other countries). The portfolio manager of the Fund will then use
the factors to determine the magnitude of the short weighting for each
country in the portfolio.
According to the Registration Statement, to implement its strategy,
the Fund will hold short positions in ETFs providing exposure to the
countries listed above.
According to the Registration Statement, by using a dynamic
allocation process, the Fund will seek to outperform the inverse of the
developed market segment of the international equities market (the
``International Market'') performance in both rising and falling
markets. In other words, when the International Market is down in a
given period, the Fund will seek to be up more than the inverse of the
International Market during the same period and, conversely, when the
International Market is up in a given period, the Fund will seek to be
down less than the inverse of the return of the International Market
during the same period.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.
IQ Bear Emerging Markets ETF
According to the Registration Statement, the IQ Bear Emerging
Markets ETF will seek capital appreciation. Under normal circumstances,
at least 80% of the Fund's assets will be exposed to equity securities
of issuers domiciled in emerging market countries,\16\ by taking short
positions in ETFs and/or Financial Instruments.
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\16\ According to the Registration Statement, emerging market
countries will generally include Brazil, Chile, China, Colombia, the
Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico,
Morocco, Peru, the Philippines, Poland, Russia, South Africa, South
Korea, Taiwan, Thailand and Turkey. To the extent that the Adviser
believes that countries should be added or subtracted to the
emerging markets category, it may adjust the list of countries
accordingly.
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According to the Registration Statement, the Fund will take
primarily short positions in U.S.-listed ETFs registered pursuant to
the 1940 Act holding primarily emerging market equity securities.
According to the Registration Statement, the Fund's investment
process will first break down emerging market companies by the country
in which they are domiciled. The Adviser will then analyze each country
based on a set of common investment factors. These factors will include
the following: price momentum (the trend in stock prices for each
country); valuation (how expensive stocks in one country are relative
to stocks in other countries); and relative earnings (earnings strength
and related characteristics of stocks in one country relative to stocks
in other countries). The portfolio manager of the Fund will then use
the factors to determine the magnitude of the short weighting for each
country in the portfolio.
According to the Registration Statement, to implement its strategy,
the Fund will hold short positions in ETFs providing exposure to the
countries listed above.
According to the Registration Statement, by using a dynamic
allocation process, the Fund will seek to outperform the inverse of
emerging market equities (the ``Emerging Market'') performance in both
rising and falling markets. In other words, when the Emerging Market is
down in a given period, the Fund will seek to be up more than the
inverse of the Emerging Market during the same period and, conversely,
when the Emerging Market is up in a given period, the Fund will seek to
be down less than the inverse of the return of the Emerging Market
during the same period.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.
IQ Bull U.S. Large Cap ETF
According to the Registration Statement, the IQ Bull U.S. Large Cap
ETF will seek capital appreciation. Under normal circumstances, at
least 80% of the Fund's assets will be exposed to equity securities of
U.S. large capitalization issuers,\17\ by investing in ETFs and/or
Financial Instruments.
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\17\ See note 10, supra.
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[[Page 72959]]
According to the Registration Statement, the Fund will invest
primarily in U.S.-listed ETFs registered pursuant to the 1940 Act
holding primarily U.S. large capitalization equity securities.
According to the Registration Statement, the Fund's investment
process will first break down all large capitalization U.S. companies
by the sector in which they operate. Generally, these sectors will
include Consumer Discretionary, Consumer Staples, Energy, Financial,
Health Care, Industrial, Materials, Technology, Telecommunications and
Utilities. The Adviser will then analyze each sector based on a set of
common investment factors. These factors will include the following:
price momentum (the trend in stock prices for each sector); valuation
(how expensive stocks in one sector are relative to stocks in other
sectors); and relative earnings (earnings strength and related
characteristics of stocks in one sector relative to stocks in other
sectors). The portfolio manager of the Fund will the use the factors to
determine the magnitude of the long weighting for each sector in the
portfolio.
According to the Registration Statement, to implement its strategy,
the Fund will hold long positions in ETFs providing exposure to the
sectors listed above. In addition, the Fund will employ leverage
inherent to the derivative security to increase exposure to the ETFs in
which it is invested up to 100% of the net assets of the Fund to gain
additional exposure to the Fund's portfolio holdings, such that the
Fund will have 200% exposure to its investments. The leverage ratio
will be uniform across all of the underlying ETFs, such that the
relative weights of each sector will stay the same, but the overall
exposure of the Fund will be increased.
According to the Registration Statement, by using a dynamic
allocation process combined with leverage, the Fund will seek to
outperform by a factor of two the U.S. large capitalization equity
market (``U.S. Large Cap Market'') performance in both rising and
falling markets. In other words, when the U.S. Large Cap Market is up
in a given period, the Fund will seek to be up by more than two times
the return of the U.S. Large Cap Market during the period and,
conversely, when the U.S. Large Cap Market is down in a given period,
the Fund will seek to be down by less than two times the return of the
U.S. Large Cap Market during the period.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.
IQ Bull U.S. Small Cap ETF
According to the Registration Statement, the IQ Bull U.S. Small Cap
ETF will seek capital appreciation. Under normal circumstances, at
least 80% of the Fund's assets will be exposed to equity securities of
U.S. small capitalization issuers,\18\ by investing in ETFs and/or
Financial Instruments.
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\18\ See note 14, supra.
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According to the Registration Statement, the Fund will invest
primarily in U.S.-listed ETFs registered pursuant to the 1940 Act
holding primarily U.S. small capitalization equity securities.
According to the Registration Statement, the Fund's investment
process will first break down all small capitalization U.S. companies
by the sector in which they operate. Generally, these sectors will
include Consumer Discretionary, Consumer Staples, Energy, Financial,
Health Care, Industrial, Materials, Technology, Telecommunications and
Utilities. The Adviser will then analyze each sector based on a set of
common investment factors. These factors will include the following:
price momentum (the trend in stock prices for each sector); valuation
(how expensive stocks in one sector are relative to stocks in other
sectors); and relative earnings (earnings strength and related
characteristics of stocks in one sector relative to stocks in other
sectors). The portfolio manager of the Fund will then use the factors
to determine the magnitude of the long weighting for each sector in the
portfolio.
According to the Registration Statement, to implement its strategy,
the Fund will hold long positions in ETFs providing exposure to the
sectors listed above. In addition, the Fund will employ leverage
inherent to the derivative security to increase exposure to the ETFs in
which it is invested up to 100% of the net assets of the Fund to gain
additional exposure to the Fund's portfolio holdings, such that the
Fund will have 200% exposure to its investments. The leverage ratio
will be uniform across all of the underlying ETFs, such that the
relative weights of each sector will stay the same, but the overall
exposure of the Fund will be increased.
According to the Registration Statement, by using a dynamic
allocation process combined with leverage, the Fund will seek to
outperform by a factor of two the U.S. small capitalization equity
market (``U.S. Small Cap Market'') performance in both rising and
falling markets. In other words, when the U.S. Small Cap Market is up
in a given period, the Fund will seek to be up by more than two times
the return of the U.S. Small Cap Market during the period and,
conversely, when the U.S. Small Cap Market is down in a given period,
the Fund will seek to be down by less than two times the return of the
U.S. Small Cap Market during the period.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.
IQ Bull International ETF
According to the Registration Statement, the IQ Bull International
ETF will seek capital appreciation.
Under normal circumstances, at least 80% of the Fund's assets will
be exposed to equity securities of issuers domiciled in developed
market countries,\19\ by investing in ETFs and/or Financial
Instruments.
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\19\ According to the Registration Statement, developed market
countries will generally include Australia, Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland,
Israel, Italy, Japan, the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and the United
Kingdom. To the extent that the Adviser believes that countries
should be added or subtracted to the developed markets category, the
Adviser may adjust the list of countries accordingly.
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According to the Registration Statement, the Fund will invest
primarily in U.S.-listed ETFs registered pursuant to the 1940 Act
holding primarily developed market equity securities.
According to the Registration Statement, the Fund's investment
process will first break down developed market companies by the country
in which they are domiciled. The Adviser will then analyze each country
based on a set of common investment factors. These factors will include
the following: price momentum (the trend in stock prices for each
country); valuation (how expensive stocks in one country are relative
to stocks in other countries); and relative earnings (earnings strength
and related characteristics of stocks in one country relative to stocks
in other countries). The portfolio manager for the Fund will then use
the factors to determine the magnitude of the long weighting for each
country in the portfolio.
According to the Registration Statement, to implement its strategy,
the Fund will hold long positions in ETFs providing exposure to the
countries listed above. In addition, the Fund will
[[Page 72960]]
employ leverage inherent to the derivative security, primarily through
the use of total return swaps that track ETFs, to increase exposure to
the ETFs in which it is invested up to 100% of the net assets of the
Fund to gain additional exposure of the Fund's portfolio holdings, such
that the Fund will have 200% exposure to its investments. The leverage
ratio will be uniform across all of the underlying ETFs, such that the
relative weights of each sector will stay the same, but the overall
exposure of the Fund will be increased.
According to the Registration Statement, by using a dynamic
allocation process combined with leverage, the Fund seeks to outperform
by a factor of two the developed market segment of the international
equities market (the ``International Market'') performance in both
rising and falling markets. In other words, when the International
Market is up in a given period, the Fund will seek to be up by more
than two times the return of the International Market during the period
and, conversely, when the International Market is down in a given
period, the Fund will seek to be down by less than two times the return
of the International Market during the period.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.
IQ Bull Emerging Markets ETF
According to the Registration Statement, the IQ Bull Emerging
Markets ETF will seek capital appreciation.
Under normal circumstances, at least 80% of the Fund's assets will
be exposed to equity securities of issuers domiciled in emerging market
countries,\20\ by investing in ETFs and/or Financial Instruments.
---------------------------------------------------------------------------
\20\ See note 16, supra.
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According to the Registration Statement, the Fund will invest
primarily in U.S.-listed ETFs registered pursuant to the 1940 Act
holding primarily emerging market equity securities.
According to the Registration Statement, the Fund's investment
process will first break down emerging market companies by the country
in which they are domiciled. The Adviser will then analyze each country
based on a set of common investment factors. These factors will include
the following: price momentum (the trend in stock prices for each
country); valuation (how expensive stocks in one country are relative
to stocks in other countries); and relative earnings (earnings strength
and related characteristics of stocks in one country relative to stocks
in other countries). The portfolio manager of the Fund will then use
the factors to determine the magnitude of the long weighting for each
country in the portfolio.
According to the Registration Statement, to implement its strategy,
the Fund will hold long positions in ETFs providing exposure to the
countries listed above. In addition, the Fund will employ leverage
inherent to the derivative security to increase exposure to the ETFs in
which it is invested up to 100% of the net assets of the Fund to gain
additional exposure to the Fund's portfolio holdings, such that the
Fund will have 200% exposure to its investments. The leverage ratio
will be uniform across all of the underlying ETFs, such that the
relative weights of each sector will stay the same, but the overall
exposure of the Fund will be increased.
According to the Registration Statement, by using a dynamic
allocation process combined with leverage, the Fund seeks to outperform
by a factor of two the emerging market equities (the ``Emerging
Market'') performance in both rising and falling markets. In other
words, when the Emerging Market is up in a given period, the Fund will
seek to be up by more than two times the return of the Emerging Market
during the period and, conversely, when the Emerging Market is down in
a given period, the Fund will seek to be down by less than two times
the return of the Emerging Market during the period.
In addition, cash balances arising from the use of short selling
and derivatives typically will be held in money market instruments.
Other Investments of the Funds
According to the Registration Statements, while each Fund will be,
under normal circumstances,\21\ investing at least 80% of its net
assets in securities as described above, each Fund may also invest in
other investments, as described below.
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\21\ See note 9, supra.
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According to the Registration Statements, each Fund may invest a
portion of its assets in high-quality money market instruments on an
ongoing basis. The instruments in which each Fund may invest include:
(1) Short-term obligations issued by the U.S. government; (2)
negotiable certificates of deposit (``CDs''), fixed time deposits and
bankers' acceptances of U.S. and foreign banks and similar
institutions; (3) commercial paper rated at the date of purchase
``Prime-1'' by Moody's Investors Service, Inc. or ``A-1+'' or ``A-1''
by Standard & Poor's Ratings Group, Inc., a division of The McGraw-Hill
Companies, Inc., or, if unrated, of comparable quality as determined by
the Adviser; (4) repurchase agreements (only from or to a commercial
bank or a broker-dealer, and only if the purchase is scheduled to occur
within seven (7) days or less); and (5) money market mutual funds. CDs
are short-term negotiable obligations of commercial banks. Time
deposits are non-negotiable deposits maintained in banking institutions
for specified periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks by borrowers,
usually in connection with international transactions.
According to the Registration Statement, in addition to
implementing its strategy by taking long or short positions in the
underlying ETFs, as the case may be, each Fund may, from time to time,
invest directly in non-ETF equity securities, including U.S.-listed and
non-U.S. listed equity securities; provided, however, that all equity
securities in which the Funds may invest will be listed on a U.S.
national securities exchange or a non-U.S. securities exchange that is
a member of the ISG or a party to a comprehensive surveillance sharing
agreement with the Exchange.
In addition to ETFs, the Funds may invest in U.S.-listed exchange-
traded notes \22\ and other U.S.-listed exchange-traded products.\23\
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\22\ Exchange-traded notes are securities such as those listed
and traded on the Exchange under NYSE Arca Equities Rule 5.2(j)(6).
\23\ For purposes of this filing, other U.S.-listed exchange-
traded products include Trust Issued Receipts (as described in NYSE
Arca Equities Rule 8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares
(as described in NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and
Trust Units (as described in NYSE Arca Equities Rule 8.500).
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Certain Funds may use American depositary receipts, European
depositary receipts and Global depositary receipts when, in the
discretion of the Adviser, the use of such securities is warranted for
liquidity, pricing, timing or other reasons. No Fund will invest more
than 10% of its net assets in unsponsored depositary receipts.
In certain situations or market conditions, a Fund may temporarily
depart from its normal investment policies and strategies provided that
the alternative is consistent with the Fund's
[[Page 72961]]
investment objective and is in the best interest of the Fund. For
example, a Fund that typically takes short positions may hold little or
no short positions for extended periods, or a Fund may hold a higher
than normal proportion of its assets in cash in times of extreme market
stress.
Investment Restrictions
Each Fund will seek to qualify for treatment as a regulated
investment company (``RIC'') under Subchapter M of the Internal Revenue
Code of 1986, as amended.\24\
---------------------------------------------------------------------------
\24\ 26 U.S.C. 151.
---------------------------------------------------------------------------
A Fund may hold up to an aggregate amount of 15% of its net assets
in illiquid securities (calculated at the time of investment),
including Rule 144A Securities.\25\ The Funds will monitor their
portfolio liquidity on an ongoing basis to determine whether, in the
light of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of a Fund's net assets are held
in illiquid securities and other illiquid assets.
---------------------------------------------------------------------------
\25\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 8901 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the ETF. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act of 1933).
---------------------------------------------------------------------------
According to the Registration Statement, the strategy of
overweighting and underweighting sectors to maximize opportunities for
capital appreciation may result in a Fund investing greater than 25% of
its total assets, directly or indirectly, through underlying ETFs, in
the equity securities of companies operating in one or more sectors.
Sectors are comprised of multiple individual industries. According to
the Registration Statement, a Fund will not invest more than 25% of its
total assets, directly or indirectly, through underlying ETFs, in an
individual industry, as defined by the Standard Industrial
Classification Codes utilized by the Division of Corporate Finance of
the Commission.\26\ This limitation does not apply to investments in
securities issued or guaranteed by the U.S. Government, its agencies or
instrumentalities, or shares of investment companies.
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\26\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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According to the Registration Statement, a Fund may not purchase or
sell commodities or commodity contracts unless acquired as a result of
ownership of securities or other instruments issued by persons that
purchase or sell commodities or commodities contracts, but this shall
not prevent the Fund from purchasing, selling and entering into
financial futures contracts (including futures contracts on indices of
securities, interest rates and currencies), options on financial
futures contracts (including futures contracts on indices of
securities, interest rates and currencies), warrants, swaps, forward
contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities.
Net Asset Value
According to the Registration Statement, the net asset value
(``NAV'') of the Shares of a Fund will be equal to the Fund's total
assets minus the Fund's total liabilities divided by the total number
of shares outstanding. The NAV that is published will be rounded to the
nearest cent; however, for purposes of determining the price of
Creation Units, the NAV will be calculated to five decimal places.
Equities, ETFs and other exchange-traded products, depositary
receipts, futures and options traded on any recognized national or
foreign stock exchange are valued at the last reported sale price on
the exchange where the security is primarily traded, or if no sale
price is available, at the bid price. A swap on an index is valued at
the publicly available index price. The index price, in turn is
determined by the applicable index calculation agent, which generally
values the securities underlying the index at the last reported sale
price.
When market quotations are not readily available, are deemed
unreliable or do not reflect material events occurring between the
close of local markets and the time of valuation, investments will be
valued using fair value pricing as determined in good faith by the
Adviser under procedures established by and under the general
supervision and responsibility of the Trust's Board of Trustees.
According to the Registration Statement, the NAV will be calculated by
the Administrator and determined each Business Day as of the close of
regular trading on the Exchange (ordinarily 4:00 p.m., Eastern time
(``E.T.''). The Shares of the Funds will not be priced on days on which
the Exchange is closed for trading.
Indicative Intra-Day Value
According to the Registration Statement, an independent third party
calculator will calculate the Indicative Intra-Day Value (``IIV'') for
each Fund during hours of trading on the Exchange by dividing the
``Estimated Fund Value'' as of the time of the calculation by the total
number of outstanding Shares of that Fund. ``Estimated Fund Value'' is
the sum of the estimated amount of cash held in a Fund's portfolio, the
estimated amount of accrued interest owed to the Fund and the estimated
value of the securities held in the Fund's portfolio, minus the
estimated amount of the Fund's liabilities. The IIV will be calculated
based on the same portfolio holdings disclosed on the Trust's Web site.
All assets held by a Fund will be included in the IIV calculation.
According to the Registration Statement, the Funds will provide the
independent third party calculator with information to calculate the
IIV, but the Funds will not be involved in the actual calculation of
the IIV and are not responsible for the calculation or dissemination of
the IIV. The Funds make no warranty as to the accuracy of the IIV. The
IIV should not be viewed as a ``real-time'' update of NAV because the
IIV may not be calculated in the same manner as NAV, which is computed
once per day.
Creations and Redemptions of Shares
According to the Registration Statement, each Fund will issue and
redeem Shares on a continuous basis, at their NAV next determined after
receipt, on any business day, for a creation order or redemption
request received in proper form. Each Fund will issue and redeem Shares
only in blocks of 50,000 Shares or whole multiples thereof (``Creation
Units'').
According to the Registration Statement, Creation Units (a) for the
IQ Long/Short Alpha ETF and the ``Bull'' Funds (together, ``Standard
Creation Funds'') will be sold in exchange for an in-kind basket of a
designated portfolio of securities and a cash component and (b) for the
``Bear'' Funds (``Cash Creation Funds'') will be sold in exchange for
only cash. All orders to create Creation
[[Page 72962]]
Units must be received by the Distributor no later than 3:00 p.m. E.T.
for the Cash Creation Funds or ordinarily 4:00 p.m. E.T. (3:00 p.m.
E.T. in the case of custom orders) for the Standard Creation Funds, in
each case on the date such order is placed, in order for the creation
of Creation Units to be effected based on the NAV of Shares of a Fund
as next determined on such date after receipt of the order in proper
form.
According to the Registration Statement, beneficial owners must
accumulate enough Shares in the secondary market to constitute a
Creation Unit in order to have such Shares redeemed by the Trust. The
redemption proceeds for a Creation Unit will consist of consideration
in an amount equal to the NAV of the Shares being redeemed, as next
determined after receipt of a request in proper form less a redemption
transaction fee. Creation Units will be redeemed principally in-kind
for securities included in the relevant Fund but also including cash
based on the then-current value of the securities sold short by the
relevant Fund (as applicable). With respect to the Funds, the
Administrator, through the National Securities Clearing Corporation
(``NSCC''), will make available immediately prior to the opening of
business on the Exchange (currently 9:30 a.m., E.T.) on each business
day, the designated portfolio of securities (the ``Fund Securities'')
or cash component, as applicable, per Creation Unit that will be
applicable to redemption requests received in proper form on that day.
An order to redeem Creation Units must be received by the Administrator
not later than 3:00 p.m., E.T.
Availability of Information
The Funds' Web site (www.indexiq.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Funds that may be downloaded. The Funds' Web
site will include additional quantitative information updated on a
daily basis, including, for the Funds, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\27\ 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.
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\27\ The Bid/Ask Price of the Funds will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Funds' NAV. The records relating
to Bid/Ask Prices will be retained by the Funds and their service
providers.
---------------------------------------------------------------------------
On each business day, before commencement of trading in Shares in
the Core Trading Session (9:30 a.m. E.T. to 4:00 p.m. E.T.) on the
Exchange, the Funds will disclose on their Web site the Disclosed
Portfolio that will form the basis for the Funds' calculation of NAV at
the end of the business day.\28\ The Web site information will be
publicly available at no charge.
---------------------------------------------------------------------------
\28\ Under accounting procedures followed by the Funds, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Funds
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.
---------------------------------------------------------------------------
On a daily basis, the Funds will disclose on www.indexiq.com for
each portfolio security and other financial instrument of the Funds the
following information: ticker symbol, name of security and financial
instrument, number of shares (if applicable) and dollar value of each
security and financial instrument held in the portfolio, and percentage
weighting of each security and financial instrument in the portfolio.
In addition, a basket composition file, which includes the security
names and share quantities required to be delivered in exchange for
Fund Shares, together with estimates and actual cash components, will
be publicly disseminated daily prior to the opening of the NYSE via the
NSCC. The basket represents one Creation Unit of each Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), Shareholder Reports and Form N-CSR. The Trust's
SAI and Shareholder Reports are available free upon request from the
Trust, and those documents and the Form N-CSR may be viewed on-screen
or downloaded from the Commission's Web site at www.sec.gov.
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 and the ETF shares underlying the Shares will be available via
the Consolidated Tape Association (``CTA'') high-speed line. Quotation
and last sale information for options contracts will be available via
the Options Price Reporting Authority. Information regarding the equity
securities and other portfolio securities held by each Fund will be
available from the national securities exchange trading such
securities, automated quotation systems, published or other public
sources, or on-line information services such as Bloomberg or Reuters
or any future service provider. Given that any swap used by a Fund will
be priced based on underlying securities that are publicly traded, the
pricing information for such underlying securities also will be
available from the national securities exchange trading such
securities, automated quotation systems, published or other public
sources, or on-line information services such as Bloomberg or Reuters
or any future service provider. In addition, the Portfolio Indicative
Value of the Funds, as defined in NYSE Arca Equities Rule 8.600(c)(3),
will be widely disseminated by one or more major market data vendors at
least every 15 seconds during the Core Trading Session.\29\ The
dissemination of the Portfolio Indicative Value, together with the
Disclosed Portfolio, will allow investors to determine the value of the
underlying portfolio of the Funds on a daily basis and to provide a
close estimate of that value throughout the trading day.
---------------------------------------------------------------------------
\29\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------
Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees (including money manager and other advisory or
management fees), portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement. All terms relating
to the Funds that are referred to, but not defined in, this proposed
rule change are defined in the Registration Statements.
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 Funds.\30\ Trading in Shares of the Funds
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading
[[Page 72963]]
in the Shares inadvisable. These may include: (1) The extent to which
trading is not occurring in the securities and/or the financial
instruments comprising the Disclosed Portfolio of a Fund; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Trading in the
Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which
sets forth circumstances under which Shares of the Funds may be halted.
---------------------------------------------------------------------------
\30\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------
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 Equities Rule 7.34 (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 Equities Rule 7.6, Commentary .03, 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 be subject to NYSE Arca Equities Rule 8.600, which
sets forth the initial and continued listing criteria applicable to
Managed Fund Shares. The Exchange represents that, for initial and/or
continued listing, each Trust will be in compliance with Rule 10A-3
\31\ under the Act, as provided by NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares will be outstanding at the commencement of
trading on the Exchange. 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 as defined in NYSE
Arca Equities Rule 8.600(c)(2) will be made available to all market
participants at the same time.
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\31\ 17 CFR 240.10A-3.
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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.\32\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to detect and help deter
violations of Exchange rules and applicable federal securities laws.
---------------------------------------------------------------------------
\32\ 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.
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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. FINRA, on
behalf of the Exchange, will communicate as needed regarding trading in
the Shares 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 in the Shares from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares from markets and other entities that are members
of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\33\
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\33\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
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
in Creation Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(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 risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated Portfolio Indicative Value will not be
calculated or publicly disseminated; (4) how information regarding the
Portfolio Indicative Value is disseminated; (5) the requirement that
ETP 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 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 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) \34\ 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.
---------------------------------------------------------------------------
\34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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 Equities Rule
8.600. 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
applicable federal securities laws. The Exchange 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. All of the equity securities in which the Funds may invest
will be listed on a U.S. national securities exchange or a non-U.S.
securities exchange that is a member of ISG or a party to a
comprehensive surveillance sharing agreement with the Exchange. Each
Fund's investments will, under normal circumstances, be consistent with
its investment objective. Each Fund will not hold more than 15% of its
net assets in illiquid securities, including Rule 144A securities. The
Adviser is not a broker-dealer and is not affiliated with a broker-
dealer. In the event (a) the Adviser becomes newly affiliated with a
broker-dealer, or (b) any new adviser or subadviser is a registered
broker-dealer or becomes affiliated with a broker-dealer it will
implement a firewall with respect to its relevant
[[Page 72964]]
personnel or its broker-dealer affiliate regarding access to
information concerning the composition and/or changes to a portfolio,
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio.
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 Adviser is not affiliated with broker-dealers. The Exchange
will obtain a representation from the issuer of the Shares that the
NAVs per Share will be calculated daily and that the NAVs 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 Funds and the Shares, thereby
promoting market transparency. The Funds' portfolio holdings will be
disclosed on their Web site daily after the close of trading on the
Exchange and prior to the opening of trading on the Exchange the
following day. Moreover, the Portfolio Indicative Value will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session. 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, and quotation and last sale information will
be available via the CTA high-speed line. The Web site for the Funds
will include a form of the prospectus for the Funds and additional data
relating to the Funds' NAVs and other applicable quantitative
information. Moreover, prior to the commencement of trading, the
Exchange will inform its ETP Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Trading in Shares of the Funds will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule 7.12 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 Equities Rule 8.600(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
information regarding the Funds' holdings, the Portfolio Indicative
Value, the Disclosed Portfolio, and quotation and last sale information
for the Shares.
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
additional types of actively-managed exchange-traded products 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 comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Funds' holdings,
the Portfolio Indicative Value, 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 the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
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 within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File No. SR-NYSEArca-2013-127 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-NYSEArca-2013-127. 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 Web site (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 Web site 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 such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File No. SR-NYSEArca-2013-127 and should be
submitted on or before December 26, 2013.
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\35\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28971 Filed 12-3-13; 8:45 am]
BILLING CODE 8011-01-P