[Federal Register Volume 79, Number 82 (Tuesday, April 29, 2014)]
[Notices]
[Pages 24040-24045]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-09673]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71999; File No. SR-NYSEArca-2014-19]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 3 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3, to List
and Trade Shares of the iShares Core Allocation Conservative ETF,
iShares Core Allocation Moderate ETF, iShares Core Allocation Moderate
Growth ETF, and iShares Core Allocation Growth ETF Under NYSE Arca
Equities Rule 8.600
April 23, 2014.
I. Introduction
On February 25, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the iShares Core Allocation Conservative ETF, iShares
Core Allocation Moderate ETF, iShares Core Allocation Moderate Growth
ETF, and iShares Core Allocation Growth ETF (each a ``Fund,'' and
collectively ``Funds'') under NYSE Arca Equities Rule 8.600. On March
10, 2014, the Exchange filed Amendment No. 2 to the proposed rule
change, which amended and replaced the proposed rule change in its
entirety.\3\ The proposed rule change was published for comment in the
Federal Register on March 18, 2014.\4\ On March 19, 2014, the Exchange
filed Amendment No. 3 to the proposed rule change.\5\ The Commission
received no comments on the proposed rule change. The Commission is
publishing this notice to solicit comments on Amendment No. 3 from
interested persons, and is approving the proposed rule change, as
modified by Amendment Nos. 2 and 3, on an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ The Exchange filed Amendment No. 1 on March 7, 2014 and
withdrew it on March 11, 2014.
\4\ See Securities Exchange Act Release No. 71702 (March 12,
2014), 79 FR 15191 (``Notice'').
\5\ In Amendment No. 3, the Exchange describes more clearly and
specifically the ``short-term instruments'' in which the Funds may
invest.
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II. Description of the Proposed Rule Change
The Exchange proposes to list and trade the Shares under NYSE Arca
[[Page 24041]]
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares. The Shares will be offered by iShares U.S. ETF Trust
(``Trust''). The Trust is registered with the Commission as an open-end
management investment company.\6\ BlackRock Fund Advisors (``BFA'')
will serve as the investment adviser to the Funds (``Adviser'').
BlackRock Investments, LLC will be the principal underwriter and
distributor of the Funds' Shares. State Street Bank and Trust Company
will serve as administrator, custodian, and transfer agent for the
Funds. The Exchange represents that the Adviser is not registered as a
broker-dealer but is affiliated with multiple broker-dealers and has
implemented a ``fire wall'' with respect to such broker-dealers
regarding access to information concerning the composition and/or
changes to a Fund's portfolio.\7\
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\6\ The Exchange states that the Trust is registered under the
Investment Company Act of 1940 (``1940 Act''). According to the
Exchange, on September 6, 2013, the Trust filed with the Commission
Form N-1A under the Securities Act of 1933 and under the 1940 Act
relating to the Funds (File Nos. 333-179904 and 811-22649)
(``Registration Statement''). The Exchange states that the
Commission has issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment Company Act Release No.
29571 (File No. 812-13601).
\7\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the
event (a) the Adviser or any sub-adviser registers as a broker-
dealer or becomes newly affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser is a registered broker-dealer, or becomes
affiliated with a broker-dealer, it will implement a fire wall with
respect to its relevant personnel or its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to a portfolio, and will be subject to procedures designed
to prevent the use and dissemination of material non-public
information regarding such portfolio. Notice, supra note 4, 79 FR at
15192.
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iShares Core Allocation Conservative ETF
The Exchange states that the iShares Core Allocation Conservative
ETF will seek to create a portfolio with a conservative risk profile by
allocating its assets among the iShares Core suite of equity and fixed
income exchange-traded funds (``ETFs''), as described below.
The Fund will be a fund of funds and will seek to achieve its
investment objective by investing, under normal circumstances,\8\
generally at least 80% of its net assets in the securities of
``Underlying Funds'' that themselves seek investment results
corresponding to their own underlying indexes.\9\ The Underlying Funds
will invest primarily in distinct asset classes, such as large-
capitalization, mid-capitalization, and small-capitalization U.S.
equity, international developed market and emerging market equity,
short-term U.S. government and corporate debt, long-term U.S.
government and corporate debt, or the U.S. aggregate bond market; each
such asset class has its own risk profile.\10\
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\8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the equity 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.
\9\ According to the Exchange, as of June 30, 2013, the
Underlying Funds included the following iShares Core funds: iShares
Core Long-Term U.S. Bond ETF, iShares Core MSCI EAFE ETF, iShares
Core MSCI Emerging Markets ETF, iShares Core MSCI Total
International Stock ETF, iShares Core S&P 500 ETF, iShares Core S&P
Mid-Cap ETF, iShares Core S&P Small-Cap ETF, iShares Core S&P Total
U.S. Stock Market ETF, iShares Core Short-Term U.S. Bond ETF, and
iShares Core Total U.S. Bond Market ETF. BFA may add, eliminate, or
replace the Underlying Funds at any time without advance notice to
investors. The Underlying Funds held by a Fund may change over time
and may not include all of the Underlying Funds listed above. In
addition, the relative proportions of the Underlying Funds held by a
Fund may change over time. Top sectors of the iShares Core
Allocation Conservative ETF primarily include agency securities,
financial companies, industrials companies, and treasury securities.
The top sectors of the Fund, and the degree to which they represent
certain industries, may change over time.
\10\ The term ``Underlying Fund'' includes Investment Company
Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Index-
Linked Securities (as described in NYSE Arca Equities Rule
5.2(j)(6)); Portfolio Depositary Receipts (as described in NYSE Arca
Equities Rule 8.100); 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); Commodity Index Trust
Shares (as described in NYSE Arca Equities Rule 8.203); Commodity
Futures Trust Shares (as described in NYSE Arca Equities Rule
8.204); and Managed Fund Shares (as described in NYSE Arca Equities
Rule 8.600). All Underlying Funds will be listed and traded on a
U.S. national securities exchange. While the Underlying Funds
currently include only Investment Company Units (as described in
NYSE Arca Equities Rule 5.2(j)(3)), which are based on indexes, in
the future, Underlying Funds may include other types of securities
enumerated in this footnote.
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The Fund will be an actively managed ETF that does not seek to
replicate the performance of a specified index. BFA will select
securities for the Fund using a proprietary, model-based investment
process that seeks to maximize returns for the Fund's stated risk/
return profile through investments in Underlying Funds.
The Fund intends to hold investments which in the aggregate have a
conservative risk/return profile as determined by BFA. A
``conservative'' risk allocation typically emphasizes significant
exposure to fixed income securities, while maintaining smaller exposure
to equity securities, in an effort to preserve capital and reduce
volatility of returns. As of June 30, 2013, BFA's model recommended an
allocation of approximately 20% to Underlying Funds that invest
primarily in equity securities and 80% to Underlying Funds that invest
primarily in fixed income securities.
The Fund may lend securities representing up to one-third of the
value of the Fund's total assets (including the value of the collateral
received).
iShares Core Allocation Moderate ETF
The Exchange states that the iShares Core Allocation Moderate ETF
will seek to create a portfolio with a moderate risk profile by
allocating its assets among the iShares Core suite of equity and fixed
income ETFs, as described below.
The Fund will be a fund of funds and will seek to achieve its
investment objective by investing, under normal circumstances,
generally at least 80% of its net assets in the securities of
Underlying Funds that themselves seek investment results corresponding
to their own underlying indexes.\11\ The Underlying Funds will invest
primarily in distinct asset classes, such as large-capitalization, mid-
capitalization, and small-capitalization U.S. equity, international
developed market and emerging market equity, short-term U.S. government
and corporate debt, long-term U.S. government and corporate debt, or
the U.S. aggregate bond market; each such asset class has its own risk
profile.
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\11\ See supra note 10. Top sectors of the iShares Core
Allocation Moderate ETF primarily include agency securities,
financial companies, and treasury securities. The top sectors of the
Fund, and the degree to which they represent certain industries, may
change over time.
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The Fund will be an actively managed ETF that does not seek to
replicate the performance of a specified index. BFA will select
securities for the Fund using a proprietary, model-based investment
process that seeks to maximize returns for the Fund's stated risk/
return profile through investments in Underlying Funds.
The Fund intends to hold investments which in the aggregate have a
moderate risk/return profile as determined by BFA. A ``moderate'' risk
allocation typically emphasizes exposure to fixed income securities,
while maintaining some exposure to equity securities, in an effort to
provide an opportunity for some capital preservation and for low to
moderate capital appreciation. As of June 30, 2013, BFA's model
recommended an allocation of approximately 40% to Underlying Funds that
invest primarily in equity securities and 60% to Underlying Funds
[[Page 24042]]
that invest primarily in fixed income securities.
The Fund may lend securities representing up to one-third of the
value of the Fund's total assets (including the value of the collateral
received).
iShares Core Allocation Moderate Growth ETF
The Exchange states that the iShares Core Allocation Moderate
Growth ETF will seek to create a portfolio with a moderate growth risk
profile by allocating its assets among the iShares Core suite of equity
and fixed income ETFs, as described below.
The Fund will be a fund of funds and will seek to achieve its
investment objective by investing, under normal circumstances,
generally at least 80% of its net assets in the securities of
Underlying Funds that themselves seek investment results corresponding
to their own underlying indexes.\12\ The Underlying Funds will invest
primarily in distinct asset classes, such as large-capitalization, mid-
capitalization, and small-capitalization U.S. equity, international
developed market and emerging market equity, short-term U.S. government
and corporate debt, long-term U.S. government and corporate debt, or
the U.S. aggregate bond market; each such asset class has its own risk
profile.
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\12\ See supra note 10. Top sectors of the iShares Core
Allocation Moderate Growth ETF primarily include consumer
discretionary, financial companies, industrials, information
technology companies, and treasury securities. The top sectors of
the Fund, and the degree to which they represent certain industries,
may change over time.
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The Fund will be an actively managed ETF that will not seek to
replicate the performance of a specified index. BFA will select
securities for the Fund using a proprietary, model-based investment
process that seeks to maximize returns for the Fund's stated risk/
return profile through investments in Underlying Funds.
The Fund intends to hold investments which in the aggregate have a
moderate growth risk/return profile as determined by BFA. A ``moderate
growth'' risk allocation typically emphasizes exposure to equity
securities, while maintaining some exposure to fixed income securities,
in an effort to provide an opportunity for moderate capital
appreciation and some capital preservation. As of June 30, 2013, BFA's
model recommended an allocation of approximately 60% to Underlying
Funds that invest primarily in equity securities and 40% to Underlying
Funds that invest primarily in fixed income securities.
The Fund may lend securities representing up to one-third of the
value of the Fund's total assets (including the value of the collateral
received).
iShares Core Allocation Growth ETF
The Exchange states that the iShares Core Allocation Growth ETF
seeks to create a portfolio with a growth risk profile by allocating
its assets among the iShares Core suite of equity and fixed income
ETFs, as described below.
The Fund will be a fund of funds and will seek to achieve its
investment objective by investing under normal circumstances generally
at least 80% of its net assets in the securities of Underlying Funds
that themselves seek investment results corresponding to their own
underlying indexes.\13\ The Underlying Funds will invest primarily in
distinct asset classes, such as large-capitalization, mid-
capitalization, and small-capitalization U.S. equity, international
developed market and emerging market equity, short-term U.S. government
and corporate debt, long-term U.S. government and corporate debt, or
the U.S. aggregate bond market; each such asset class has its own risk
profile.
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\13\ See supra note 10. Top sectors of the iShares Core
Allocation Growth ETF primarily include consumer discretionary,
financial companies, industrials, and information technology
companies. The top sectors of the Fund, and the degree to which they
represent certain industries, may change over time.
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The Fund will be an actively managed ETF that will not seek to
replicate the performance of a specified index. BFA will select
securities for the Fund using a proprietary, model-based investment
process that seeks to maximize returns for the Fund's stated risk/
return profile through investments in Underlying Funds.
The Fund intends to hold investments which in the aggregate have a
growth risk/return profile as determined by BFA. A ``growth'' risk
allocation typically emphasizes significant exposure to equity
securities, while also allocating a smaller portion of exposure to
fixed income securities, in an effort to provide an opportunity for
long-term capital appreciation. As of June 30, 2013, BFA's model
recommended an allocation of approximately 85% to Underlying Funds that
invest primarily in equity securities and 15% to Underlying Funds that
invest primarily in fixed income securities.
The Fund may lend securities representing up to one-third of the
value of the Fund's total assets (including the value of the collateral
received).
Other Investments
According to the Exchange, while each Fund, under normal
circumstances, generally will invest at least 80% of its assets in
Underlying Funds, as described above, each Fund may invest in other
securities and financial instruments, as described below.
Each Fund may invest in other exchange-traded products (``ETPs'')
in addition to the Underlying Funds described above.\14\
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\14\ The term ``ETP'' includes Investment Company Units (as
described in NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked
Securities (as described in NYSE Arca Equities Rule 5.2(j)(6));
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); 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); Commodity Index Trust Shares (as
described in NYSE Arca Equities Rule 8.203); Commodity Futures Trust
Shares (as described in NYSE Arca Equities Rule 8.204); and Managed
Fund Shares (as described in NYSE Arca Equities Rule 8.600). All
ETPs will be listed and traded on a U.S. national securities
exchange.
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Each Fund may invest in short-term instruments on an ongoing basis
to provide liquidity or for other reasons. Short-term instruments are:
(i) Shares of money market funds (including those advised by BFA or
otherwise affiliated with BFA); (ii) obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities (including
government-sponsored enterprises); (iii) negotiable certificates of
deposit, bankers' acceptances, fixed-time deposits, and other
obligations of U.S. and non-U.S. banks (including non-U.S. branches)
and similar institutions; (iv) commercial paper rated, at the date of
purchase, ``Prime-1'' by Moody's Investors Service, Inc., ``F-1'' by
Fitch Inc., or ``A-1'' by Standard & Poor's Financial Services LLC, or
if unrated, of comparable quality as determined by BFA; (v) non-
convertible corporate debt securities (e.g., bonds and debentures) with
remaining maturities at the date of purchase of not more than 397 days
and that satisfy the rating requirements set forth in Rule 2a-7 under
the 1940 Act; (vi) repurchase agreements; (vii) short-term U.S. dollar-
denominated obligations of non-U.S. banks (including U.S. branches)
that, in the opinion of BFA, are of comparable quality to obligations
of U.S. banks which may be purchased by a Fund; and (viii) other
similar short-term instruments.\15\
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\15\ See Amendment No. 3.
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Other Restrictions
Each Fund will be classified as ``non-diversified.'' A non-
diversified fund is a fund that is not limited by the 1940 Act with
regard to the percentage of its
[[Page 24043]]
assets that may be invested in the securities of a single issuer.\16\
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\16\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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Each Fund intends to maintain the required level of diversification
and otherwise conduct its operations so as to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code.\17\
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\17\ 26 U.S.C. 851 et seq.
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A Fund may hold up to an aggregate amount of 15% of its net assets
(calculated at the time of investment) in assets deemed illiquid by the
Adviser,\18\ consistent with Commission guidance. Each Fund will
monitor its portfolio liquidity on an ongoing basis to determine
whether, in 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 assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.
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\18\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer).
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Additional information regarding the Trust, the Funds, and the
Shares, including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes, among other things, is included in the Notice
and Registration Statement, as applicable.\19\
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\19\ See Notice and Registration Statement, supra notes 4 and 6,
respectively.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \20\
and the rules and regulations thereunder applicable to a national
securities exchange.\21\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\22\
which requires, among other things, that the Exchange's rules 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. The Commission notes that the Funds and the Shares must
comply with the requirements of NYSE Arca Equities Rule 8.600 for the
Shares to be listed and traded on the Exchange.
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\20\ 15 U.S.C. 78f.
\21\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\22\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\23\ which sets forth Congress's finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. According to the
Exchange, quotation and last-sale information for the Shares of each
Fund, shares of the Underlying Funds, and shares of other ETPs will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. In addition, the Indicative Optimized Portfolio Value (``IPOV''),
which is the Portfolio Indicative Value as defined in NYSE Arca
Equities Rule 8.600(c)(3), will be widely disseminated at least every
15 seconds during the Core Trading Session by one or more major market
data vendors.\24\ On each business day, before commencement of trading
in Shares in the Core Trading Session on the Exchange, each Fund will
disclose on its Web site the Disclosed Portfolio, as defined in NYSE
Arca Equities Rule 8.600(c)(2), that will form the basis for such
Fund's calculation of net asset value (``NAV'') at the end of the
business day.\25\ The NAV of each Fund normally will be determined once
daily Monday through Friday, generally as of the regularly scheduled
close of business of the New York Stock Exchange (normally 4:00 p.m.
Eastern Time) on each day the New York Stock Exchange is open for
trading. A basket composition file, which will include the security
names and share quantities required to be delivered in exchange for
each Fund's Shares, together with estimates and actual cash components,
will be publicly disseminated daily prior to the opening of the New
York Stock Exchange via the National Securities Clearing Corporation.
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. The Web site for the Funds will include a form
of the prospectus for the Funds and additional data relating to NAV and
other applicable quantitative information.
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\23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\24\ According to the Exchange, several major market data
vendors display and/or make widely available IOPVs taken from the
CTA or other data feeds.
\25\ On a daily basis, each Fund will disclose for each
portfolio security or other financial instrument of each Fund the
following information on the Funds' Web site: ticker symbol (if
applicable); name of security and financial instrument; number of
shares and dollar value of securities and financial instruments held
in the portfolio; and percentage weighting of the security and
financial instrument in the portfolio. The Web site information will
be publicly available at no charge.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share of
each Fund will be calculated daily and that the NAV and the Disclosed
Portfolio will be made available to all market participants at the same
time.\26\ In addition, 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 a Fund may be halted. The Exchange may halt trading in
the Shares if trading is not occurring in the securities and/or the
financial instruments constituting the Disclosed Portfolio of a Fund,
or if other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.\27\ Further, the
Commission notes that the Reporting Authority that provides the
Disclosed Portfolio of each Fund must implement and maintain, or be
subject to,
[[Page 24044]]
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of the
portfolio.\28\ The Commission notes that the Financial Industry
Regulatory Authority (``FINRA''), on behalf of the Exchange,\29\ will
communicate as needed regarding trading in the Shares of each Fund,
shares of the Underlying Funds, and shares of other ETPs with other
markets and other entities that are members of the Intermarket
Surveillance Group (``ISG''), and FINRA, on behalf of the Exchange, may
obtain trading information from these markets and other entities
regarding trading in the Shares of each Fund, shares of the Underlying
Funds, and shares of other ETPs. In addition, the Exchange may obtain
information regarding trading in the Shares of the Funds, shares of the
Underlying Funds, and shares of other ETPs from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. The Exchange
states that it has a general policy prohibiting the distribution of
material, non-public information by its employees. The Exchange also
states that the Adviser is not registered as a broker-dealer but is
affiliated with multiple broker-dealers and has implemented a ``fire
wall'' with respect to such broker-dealers regarding access to
information concerning the composition and/or changes to a Fund's
portfolio.\30\
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\26\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\27\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing
additional considerations for the suspension of trading in or
removal from listing of Managed Fund Shares on the Exchange). 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 each Fund. Trading in Shares of a Fund 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 in the Shares inadvisable.
\28\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
\29\ The Exchange states that, while 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.
\30\ See supra note 7. An investment adviser to an open-end fund
is required to be registered under the Investment Advisers Act of
1940 (``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, 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 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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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
(1) The Shares of each Fund will conform to the initial and
continued listing criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) Trading in the Shares will be subject to the existing
surveillance procedures administered by FINRA on behalf of the
Exchange, which are designed to detect violations of Exchange rules and
applicable federal securities laws and 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.
(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (a)
The procedures for purchases and redemptions of Shares in Creation
Units (and that Shares are not individually redeemable); (b) NYSE Arca
Equities Rule 9.2(a), which imposes a duty of due diligence on its
Equity Trading Permit Holders to learn the essential facts relating to
every customer prior to trading the Shares; (c) the risks involved in
trading the Shares during the Opening and Late Trading Sessions when an
updated IOPV will not be calculated or publicly disseminated; (d) how
information regarding the IOPV is disseminated; (e) the requirement
that Equity Trading Permit Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (f) trading information.
(5) For initial and/or continued listing, the Funds will be in
compliance with Rule 10A-3 under the Exchange Act,\31\ as provided by
NYSE Arca Equities Rule 5.3.
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\31\ 17 CFR 240.10A-3.
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(6) A Fund may hold up to an aggregate amount of 15% of its net
assets (calculated at the time of investment) in assets deemed illiquid
by the Adviser, consistent with Commission guidance.
(7) A minimum of 100,000 Shares of each Fund will be outstanding at
the commencement of trading on the Exchange.
(8) All Underlying Funds and ETPs will be listed and traded on a
U.S. national securities exchange. With the exception of short-term
instruments, all components of the Disclosed Portfolio for a Fund will
trade on markets that are members of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement.
This approval order is based on all of the Exchange's
representations and description of the Funds, including those set forth
above and in the Notice.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 2 and 3, is consistent with
Section 6(b)(5) of the Act \32\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\32\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments on Amendment No. 3
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 3
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2014-19 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-2014-19. 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 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
[[Page 24045]]
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 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; 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 Number SR-NYSEArca-2014-19 and should
be submitted on or before May 20, 2014.
V. Accelerated Approval of Proposed Rule Change as Modified by
Amendment Nos. 2 and 3
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment Nos. 2 and 3, prior to the thirtieth
day after the date of publication of notice in the Federal Register.
Amendment No. 3 supplements the proposed rule change by describing more
clearly and specifically the ``short-term instruments'' in which the
Funds may invest. The Commission believes that this additional
information provides clarity on the Funds' ability to invest in short-
term instruments. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\33\ to approve the proposed
rule change, as modified by Amendment Nos. 2 and 3, on an accelerated
basis.
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\33\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\34\ that the proposed rule change (SR-NYSEArca-2014-19), as
modified by Amendment Nos. 2 and 3, be, and it hereby is, approved on
an accelerated basis.
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\34\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-09673 Filed 4-28-14; 8:45 am]
BILLING CODE 8011-01-P