[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Notices]
[Pages 27950-27958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11157]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72139; File No. SR-NYSEArca-2014-45]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to PowerShares Insured California
Municipal Bond Portfolio, PowerShares Insured National Municipal Bond
Portfolio, and PowerShares Insured New York Municipal Bond Portfolio
May 9, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on April 25, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes a rule change relating to the listing and
trading of the following series of Investment Company Units that are
currently listed and traded on the Exchange under NYSE Arca Equities
Rule 5.2(j)(3): PowerShares Insured California Municipal Bond
Portfolio; PowerShares Insured National Municipal Bond Portfolio; and
PowerShares Insured New York Municipal Bond Portfolio. 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.
[[Page 27951]]
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange currently lists and trades shares of the PowerShares
Insured California Municipal Bond Portfolio (``CA Portfolio''),
PowerShares Insured National Municipal Bond Portfolio (``National
Portfolio'') and PowerShares Insured New York Municipal Bond Portfolio
(``NY Portfolio'', and, together with the CA Portfolio and the National
Portfolio, the ``Municipal Bond Portfolios'' or the ``Funds'') \4\
under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02, which governs
the listing and trading of Investment Company Units (``Units'') based
on fixed income securities indexes.\5\ The Funds are series of the
PowerShares Exchange-Traded Fund Trust II (``Trust'').\6\
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\4\ On February 27, 2014, the Trust filed a post-effective
amendment on Form 485 under the Securities Act of 1933 (15 U.S.C.
77a) (``1933 Act'') to its registration statement on Form N-1A under
the 1933 Act and the Investment Company Act of 1940 (``1940 Act'')
(15 U.S.C. 80a-1) (File Nos. 333-138490 and 811-21977) (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 Trust under the 1940 Act. See
Investment Company Act Release No. 27841 (May 25, 2007) (File No.
812-13335) (``Exemptive Order'').
\5\ The Municipal Bond Portfolios were initially listed on the
American Stock Exchange, Inc. (``Amex'') (now NYSE MKT) on October
11, 2007 pursuant to the generic listing criteria of Amex Rule
1000A. On November 3, 2008, the listings transferred from the Amex
to NYSE Arca, which changes were effected pursuant to NYSE Arca
Equities Rule 5.2(j)(3), Commentary .02.
\6\ The Commission previously has approved a proposed rule
change relating to listing and trading on the Exchange of Units
based on municipal bond indexes. See Securities Exchange Act Release
No. 67985 (October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-
NYSEArca-2012-92) (order approving proposed rule change relating to
the listing and trading of iShares 2018 S&P AMT-Free Municipal
Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE
Arca Equities Rule 5.2(j)(3), Commentary .02) (``iShares Order'').
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Invesco PowerShares Capital Management LLC is the investment
adviser (``Adviser'') for the Funds. Invesco Distributors, Inc. is the
Funds' distributor (``Distributor''). The Bank of New York Mellon is
the administrator, custodian and fund accounting and transfer agent for
each Fund.
The Exchange is submitting this proposed rule change (1) to permit
the continued listing and trading of shares (``Shares'') of the Funds
following previous changes to the indexes underlying the Funds, as
described below, and (2) to propose changes to the indexes underlying
the Funds and new names for the Funds, as described below.
Municipal Bond Portfolios
On May 28, 2009, the municipal bond indexes underlying the CA
Portfolio; the National Portfolio; and the NY Portfolio were changed to
the Merrill Lynch California Insured Long-Term Core Plus Municipal
Securities Index, the Merrill Lynch National Insured Long-Term Core
Plus Municipal Securities Index, and the Merrill Lynch New York Insured
Long-Term Core Plus Municipal Securities Index, respectively.\7\ On
September 25, 2009, the names of the indexes underlying the Municipal
Bond Portfolios again were changed to the BofA Merrill Lynch California
Insured Long-Term Core Plus Municipal Securities Index (``CA Index''),
the BofA Merrill Lynch National Insured Long-Term Core Plus Municipal
Securities Index (``National Index''), and the BofA Merrill Lynch New
York Insured Long-Term Core Plus Municipal Securities Index,
respectively \8\ (``NY Index'', collectively, with the CA Index and the
National Index, the ``Municipal Bond Indexes'').\9\
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\7\ The changes to the indexes underlying the Municipal Bond
Portfolios were reflected in a supplement on Form 497 under the 1933
Act, dated May 28, 2009 (``May 28, 2009 Supplement'') to the
Municipal Bond Portfolios' prospectus dated February 27, 2009. The
previous names of the indexes underlying the Municipal Bond
Portfolios were the Merrill Lynch California Insured Long-Term Core
Municipal Securities Index, Merrill Lynch National Insured Long-Term
Core Municipal Securities Index, and Merrill Lynch New York Insured
Long-Term Core Municipal Securities Index, respectively.
\8\ BofA Merrill Lynch is the ``Index Provider'' with respect to
the Municipal Bond Indexes and the ``New Municipal Bond Indexes''
(as described below). The Index Provider is a broker-dealer and has
implemented a firewall with respect to and will maintain procedures
designed to prevent the use and dissemination of material non-public
information regarding the Municipal Bond Indexes and New Municipal
Bond Indexes.
\9\ The September 25, 2009, name changes were reflected in a
supplement dated September 25, 2009 to the Municipal Bond
Portfolios' prospectus dated February 27, 2009.
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The Exchange recently became aware of changes to the indexes
underlying the Municipal Bond Portfolios as reflected in the May 28,
2009 Supplement. Currently, therefore, the Municipal Bond Indexes do
not meet the generic listing criteria of NYSE Arca Equities Rule
5.2(j)(3), as described below.
Accordingly, the Exchange is submitting this proposed rule change
to permit the continued listing of each of the Funds. The Municipal
Bond Indexes meet all of the requirements of the generic listing
criteria of NYSE Arca Equities Rule 5.2(j)(3), except for those set
forth in Commentary .02(a)(2).\10\ Specifically, as of March 6, 2014,
approximately 34.84%, and 37.16%, and 59.22% of the weight of the
components of the CA Index, Core Index and NY Index, respectively, have
a minimum original principal amount outstanding of $100 million or
more.
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\10\ Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3)
provides that components that in the aggregate account for at least
75% of the weight of the index or portfolio each shall have a
minimum original principal amount outstanding of $100 million or
more.
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PowerShares Insured California Municipal Bond Portfolio
According to the Registration Statement, the CA Portfolio seeks
investment results that generally correspond (before fees and expenses)
to the price and yield performance of the CA Index. The CA Portfolio
generally invests at least 80% of its total assets in insured municipal
securities that are exempt from federal income tax and California state
income tax (the ``80% policy''). The CA Portfolio normally invests at
least 80% of its total assets in the securities that comprise the CA
Index and generally expects to so invest at least 90% of its total
assets. The CA Portfolio, however, reserves the right to invest up to
20% of its assets in certain futures, options and swap contracts, cash
and cash equivalents, including money market funds, as well as in
municipal securities not included in the CA Index to the extent that
the Adviser believes investment in such instruments will facilitate the
CA Portfolio's ability to achieve its investment objective.
The CA Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by
California or U.S. territories (including Puerto Rico), or their
political subdivisions, in the U.S. domestic market and includes
approximately 267 bonds (as of January 31, 2014). The CA Index is
adjusted monthly. The CA
[[Page 27952]]
Portfolio, using an ``indexing'' investment approach, attempts to
replicate, before fees and expenses, the performance of the CA Index
through sampling. The Adviser seeks correlation over time of 0.95% or
better between the CA Portfolio's performance and the performance of
the CA Index.
As of January 31, 2014, approximately 86.1% of the weight of the CA
Index components was composed of individual maturities that were part
of an entire municipal bond offering with a minimum original principal
amount outstanding of $100 million or more for all maturities of the
offering. In addition, as of January 31, 2014, the total dollar amount
outstanding of issues in the CA Index was approximately $17.201 billion
and the average dollar amount outstanding of issues in the CA Index was
approximately $64.42 million. Further, the most heavily weighted
component represents 3.53% of the weight of the CA Index and the five
most heavily weighted components represent 9.94% of the weight of the
CA Index.\11\ Therefore, the Exchange believes that, notwithstanding
that the CA Index does not satisfy the criterion in NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02 (a)(2), the CA Index is sufficiently
broad-based to deter potential manipulation, given that it is composed
of approximately 267 issues and 127 unique issuers. The Exchange notes
that the individual maturities that are part of the same municipal bond
offering share common characteristics, such as issuer, rating,
structure, and purpose (i.e., general obligation bonds, revenue bonds
or ``double-barreled'' bonds). In addition, the CA Index securities are
sufficiently liquid to deter manipulation in that a substantial portion
(86.1%) of the CA Index weight is composed of maturities that are part
of a minimum original principal amount outstanding of $100 million or
more for all the maturities of the offering, and in view of the
substantial total dollar amount outstanding and the average dollar
amount outstanding of CA Index issues, as referenced above.
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\11\ See note 11, supra, regarding the requirement of Commentary
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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In addition, the average daily notional trading volume for CA Index
components for the calendar year 2013 was approximately $27.45 million
and the sum of the notional trading volumes for the same period was
approximately$6.9 billion.
PowerShares Insured National Municipal Bond Portfolio
According to the Registration Statement, the National Portfolio
seeks investment results that generally correspond (before fees and
expenses) to the price and yield performance of the National Index. The
National Portfolio will generally invest at least 80% of its total
assets in the securities that compose the National Index and generally
expects to so invest at least 90% of its total assets. The National
Portfolio, however, reserves the right to invest up to 20% of its
assets in certain futures, options and swap contracts, cash and cash
equivalents, including money market funds, as well as in municipal
securities not included in the National Index to the extent that the
Adviser believes such investments will facilitate the National
Portfolio's ability to achieve its investment objective. The National
Index is designed to track the performance of U.S. dollar-denominated
investment grade insured tax-exempt debt publicly issued by U.S. states
and territories (including Puerto Rico), or their political
subdivision, in the U.S. domestic market and includes approximately
1,238 bonds (as of January 31, 2014). The National Index is adjusted
monthly.
The National Portfolio, using an ``indexing'' investment approach,
attempts to replicate, before fees and expenses, the performance of the
National Index through sampling. The Adviser seeks correlation over
time of 0.95% or better between the National Portfolio's performance
and the performance of the National Index.
As of January 31, 2014, approximately 89.24% of the weight of the
National Index components was composed of individual maturities that
were part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the National Index was approximately
$78.69 billion and the average dollar amount outstanding of issues in
the National Index was approximately $63.56 million. Further, the most
heavily weighted component represents 0.88% of the weight of the
National Index and the five most heavily weighted components represent
3.51% of the weight of the National Index.\12\ Therefore, the Exchange
believes that, notwithstanding that the National Index does not satisfy
the criterion in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02
(a)(2), the National Index is sufficiently broad-based to deter
potential manipulation, given that it is composed of approximately
1,238 issues and 521 unique issuers. The Exchange notes that the
individual maturities that are part of the same municipal bond offering
share common characteristics, such as issuer, rating, structure, and
purpose (i.e., general obligation bonds, revenue bonds or ``double-
barreled'' bonds). In addition, the National Index securities are
sufficiently liquid to deter potential manipulation in that a
substantial portion (89.24%) of the National Index weight is composed
of maturities that are part of a minimum original principal amount
outstanding of $100 million or more for all the maturities of the
offering, and in view of the substantial total dollar amount
outstanding and the average dollar amount outstanding of National Index
issues, as referenced above.
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\12\ See note 11, supra, regarding the requirement of Commentary
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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In addition, the average daily notional trading volume for National
Index components for the calendar year 2013 was approximately $101.99
million and the sum of the notional trading volumes for the same period
was approximately $25.7 billion.
PowerShares Insured New York Municipal Bond Portfolio
According to the Registration Statement, the NY Portfolio seeks
investment results that generally correspond (before fees and expenses)
to the price and yield performance of the NY Index. The NY Portfolio
will generally invest at least 80% of its total assets in insured
municipal securities that are exempt from federal income tax, New York
State income tax and New York City income tax. The NY Portfolio will
normally invest at least 80% of its total assets in the securities that
compose the NY Index. The NY Portfolio, however, reserves the right to
invest up to 20% of its assets in certain futures, options and swap
contracts, cash and cash equivalents, including money market funds, as
well as in municipal securities not included in the NY Index to the
extent that the Adviser believes such investments will facilitate the
NY Portfolio's ability to achieve its investment objective.
The NY Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by New
York or U.S. territories (including Puerto Rico), or their political
subdivisions, included in the U.S. domestic market and includes
approximately 130 bonds (as of January
[[Page 27953]]
31, 2014). The NY Index is adjusted monthly. The NY Portfolio, using an
``indexing'' investment approach, attempts to replicate, before fees
and expenses, the performance of the NY Index through sampling. The
Adviser seeks correlation over time of 0.95% or better between the NY
Portfolio's performance and the performance of the NY Index.
As of January 31, 2014, approximately 95.89% of the weight of the
NY Index components was composed of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January, 2014, the total dollar
amount outstanding of issues in the NY Index was approximately $17.76
billion and the average dollar amount outstanding of issues in the NY
Index was approximately $90.58 million. Further, the most heavily
weighted component represents 6.14% of the weight of the NY Index and
the five most heavily weighted components represent 20.15% of the
weight of the NY Index.\13\ Therefore, the Exchange believes that,
notwithstanding that the NY Index does not satisfy the criterion in
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (a)(2), the NY Index
is sufficiently broad-based to deter potential manipulation, given that
it is composed of approximately 130 issues and 25 unique issuers. The
Exchange notes that the individual maturities that are part of the same
municipal bond offering share common characteristics, such as issuer,
rating, structure, and purpose (i.e., general obligation bonds, revenue
bonds or ``double-barreled'' bonds). In addition, the NY Index
securities are sufficiently liquid to deter manipulation in that a
substantial portion (95.89%) of the NY Index weight is composed of
maturities that are part of a minimum original principal amount
outstanding of $100 million or more for all the maturities of the
offering, and in view of the substantial total dollar amount
outstanding and the average dollar amount outstanding of NY Index
issues, as referenced above.
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\13\ See note 11, supra, regarding the requirement of Commentary
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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In addition, the average daily notional trading volume for NY Index
components for the calendar year 2013 was approximately $19.41 million
and the sum of the notional trading volumes for the same period was
approximately $4.89 billion.
Changes to Indexes Underlying the Municipal Bond Portfolios
As noted above, the indexes currently underlying the Municipal Bond
Portfolios are the BofA Merrill Lynch California Insured Long-Term Core
Plus Municipal Securities Index, the BofA Merrill Lynch National
Insured Long-Term Core Plus Municipal Securities Index and the BofA
Merrill Lynch New York Insured Long-Term Core Plus Municipal Securities
Index, respectively. As described below, the Trust has proposed to
change the indexes underlying the Funds and the name of the Funds.
On May 10, 2013, the Trust filed with the Commission on Schedule
14A a definitive proxy statement and notice of shareholders meeting
calling a meeting on June 20, 2013 (``Proxy Statement'').\14\ As stated
in the Proxy Statement, each of the Funds has a policy to invest
normally at least 80% of its total assets in insured municipal
securities (the ``80% investment policy''), the income from which is
exempt, as applicable, from federal income tax or from both federal and
state income tax. As stated in the Proxy Statement, in response to the
changing market environment relating to municipal securities insurance,
the Adviser proposed that each Fund's underlying index be changed from
one that is composed solely of insured municipal securities to one that
is composed of both insured and uninsured municipal securities.
However, according to the Proxy Statement, before a Fund can change its
underlying index to invest in uninsured municipal securities, it must
obtain shareholder approval of a change to its fundamental 80%
investment policy. Therefore, the Trust recommended that the
fundamental 80% investment policy of each Fund be changed such that (1)
it requires an investment of at least 80% of a Fund's net assets (plus
any borrowings for investment purposes), rather than total assets, and
(2) it eliminates the requirement that the municipal securities be
insured, such that a Fund need only invest 80% of its net assets (plus
any borrowings for investment purposes) in municipal securities,
regardless of whether those securities are insured or uninsured.
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\14\ See Definitive Proxy Statement dated May 10, 2013 on
Schedule 14A (Proxy Statement Pursuant to Section 14(a) of the Act)
(File No. 811-21977).
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Thus, in the Proxy Statement, the Trust stated that, subject to
shareholder approval of the above proposals, each Fund intends to
change its underlying index to one that is composed of both insured and
uninsured municipal securities. Following such change, the proposed
underlying indexes for the Funds will be, respectively, BofA Merrill
Lynch California Long-Term Core Plus Municipal Securities Index (``New
CA Index''); BofA Merrill Lynch National Long-Term Core Plus Municipal
Index (``New National Index''); and BofA Merrill Lynch New York Long-
Term Core Plus Municipal Securities Index (``New NY Index'',
collectively, with the New CA Index and the New National Index, the
``New Municipal Bond Indexes'').
According to the Proxy Statement, the change in investment
objective for each Fund described above is designed to enable each Fund
to track its proposed underlying index by substituting the actual name
of the proposed underlying index in the investment objective;
otherwise, there is no other change to any of the investment
objectives. After such change, each Fund's investment objective will be
to seek investment results that generally correspond (before fees and
expenses) to the price and yield of its respective proposed underlying
index.
In addition, each Fund intends to change its name by removing the
word ``Insured'' and adding the term ``AMT-Free'' to reflect that the
proposed underlying indexes will include primarily municipal securities
that are exempt from the alternative minimum tax. \15\ After such
change, the names of the Funds will be PowerShares California AMT-Free
Municipal Bond Portfolio (``New CA Portfolio''), PowerShares National
AMT-Free Municipal Bond Portfolio (``New National Portfolio'') and
PowerShares New York AMT-Free Municipal Bond Portfolio (``New NY
Portfolio''), respectively.\16\
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\15\ In connection with the addition of the term ``AMT-Free'' to
each Fund's name, the Trust's Board of Trustees has adopted a non-
fundamental investment policy for each Fund normally to invest at
least 80% of its net assets, including the amount of any borrowings
for investment purposes, in municipal securities that are exempt
from the federal alternative minimum tax.
\16\ The shareholders of each Fund have approved these changes
contingent upon approval of this proposed rule change. The changes
described herein with respect to use of the New Municipal Bond
Indexes will be effective upon filing with the Commission of another
amendment to the Trust's Registration Statement, or a prospectus
supplement reflecting these changes. The Adviser represents that the
Adviser and Sub-Adviser have managed and will continue to manage the
Funds in the manner described in the Registration Statement and will
not implement the changes described herein until this proposed rule
change is operative.
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The New Municipal Bond Indexes currently do not meet the generic
listing criteria of NYSE Arca Equities Rule 5.2(j)(3), as described
below. Accordingly, the Exchange is submitting this proposed rule
change to permit the
[[Page 27954]]
continued listing of each of the Funds based on the New Municipal Bond
Indexes. The New Municipal Bond Indexes meet all of the requirements of
the generic listing criteria of NYSE Arca Equities Rule 5.2(j)(3),
except for those set forth in Commentary .02(a)(2).\17\ Specifically,
as of January 31, 2014, approximately 59.51%, 46.90%, and 60.63% of the
weight of the components of the New CA Index, New National Index and
New NY Index, respectively, have a minimum original principal amount
outstanding of $100 million or more.
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\17\ See note 10, supra, regarding the requirements of
Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3).
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PowerShares California AMT-Free Municipal Bond Portfolio
According to the Registration Statement as supplemented by the
Proxy Statement, the New CA Portfolio will generally seek investment
results that correspond (before fees and expenses) to the price and
yield performance of the New CA Index. The New CA Portfolio normally
will invest at least 80% of its net assets (plus borrowings for
investment purposes, if any) in municipal securities that are exempt
from federal income tax and California state income tax. The New CA
Portfolio normally will invest at least 80% of its total assets in the
securities that compose the New CA Index and generally expects to so
invest at least 90% of its total assets.\18\ The New CA Portfolio,
however, reserves the right to invest up to 20% of its assets in
certain futures, options and swap contracts, cash and cash equivalents,
including money market funds, as well as in municipal securities not
included in the New CA Index to the extent that the Adviser believes
investment in such instruments will facilitate the New CA Portfolio's
ability to achieve its investment objective.
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\18\ Each Fund is required by Rule 35d-1 under the 1940 Act to
invest at least 80% of its net assets (plus borrowings for
investment purposes, if any) in securities implied by its name. In
addition, the Exemptive Order requires each Fund to invest at least
80% of its total assets in securities comprising its underlying
index.
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The New CA Index is designed to track the performance of U.S.
dollar-denominated, investment grade, tax-exempt debt publicly issued
by California or U.S. territories (including Puerto Rico), or their
political subdivisions, in the U.S. domestic market and includes
approximately 1,086 bonds (as of January 31, 2014). The New CA Index is
adjusted monthly. The New CA Portfolio, using an ``indexing''
investment approach, will attempt to replicate, before fees and
expenses, the performance of the New CA Index through sampling. The
Adviser will seek correlation over time of 0.95% or better between the
New CA Portfolio's performance and the performance of the New CA Index.
As of January 31, 2014, approximately 94.60% of the weight of the
New CA Index components was composed of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January, 2014, the total dollar
amount outstanding of issues in the New CA Index was approximately
$100.76 billion and the average dollar amount outstanding of issues in
the Index was approximately $92.81 million. Further, the most heavily
weighted component represents 1.39% of the weight of the New CA Index
and the five most heavily weighted components represent 5.17% of the
weight of the CA Index.\19\ Therefore, the Exchange believes that,
notwithstanding that the New CA Index does not satisfy the criterion in
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(a)(2), the New CA
Index is sufficiently broad-based to deter potential manipulation,
given that it is composed of approximately 1,086 issues and 229 unique
issuers. The Exchange notes that the individual maturities that are
part of the same municipal bond offering share common characteristics,
such as issuer, rating, structure, and purpose (i.e., general
obligation bonds, revenue bonds or ``double-barreled'' bonds). In
addition, the New CA Index securities are sufficiently liquid to deter
manipulation in that a substantial portion (94.60%) of the New CA Index
weight is composed of maturities that are part of a minimum original
principal amount outstanding of $100 million or more for all the
maturities of the offering, and in view of the substantial total dollar
amount outstanding and the average dollar amount outstanding of New CA
Index issues, as referenced above.
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\19\ See note 11, supra, regarding the requirements of
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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In addition, the average daily notional trading volume for New CA
Index components for the calendar year 2013 was approximately $364.22
million and the sum of the notional trading volumes for the same period
was approximately $91.78 billion.
PowerShares National AMT-Free Municipal Bond Portfolio
According to the Registration Statement as supplemented by the
Proxy Statement, the New National Portfolio generally will seek
investment results that correspond (before fees and expenses) to the
price and yield performance of the New National Index. The New National
Portfolio normally will invest at least 80% of its net assets (plus
borrowings for investment purposes, if any) in municipal securities
that are exempt from federal income tax. The New National Portfolio
will normally invest at least 80% of its total assets in the securities
that compose the New National Index and generally expects to so invest
at least 90% of its total assets. The New National Portfolio, however,
reserves the right to invest up to 20% of its assets in certain
futures, options and swap contracts, cash and cash equivalents,
including money market funds, as well as in municipal securities not
included in the New National Index to the extent that the Adviser
believes such investments will facilitate the New National Portfolio's
ability to achieve its investment objective. The New National Index is
designed to track the performance of U.S. dollar-denominated investment
grade tax-exempt debt publicly issued by U.S. states or U.S.
territories (including Puerto Rico), or its political subdivision, in
the U.S. domestic market and includes approximately 5,476 bonds (as of
January 31, 2014). The New National Index is adjusted monthly.
The New National Portfolio, using an ``indexing'' investment
approach, will attempt to replicate, before fees and expenses, the
performance of the New National Index through sampling. The Adviser
will seek correlation over time of 0.95% or better between the National
Portfolio's performance and the performance of the New National Index.
As of January 31, 2014, approximately 91.86% of the weight of the
New National Index components was composed of individual maturities
that were part of an entire municipal bond offering with a minimum
original principal amount outstanding of $100 million or more for all
maturities of the offering. In addition, as of January 31, 2014, the
total dollar amount outstanding of issues in the New National Index was
approximately $394.04 billion and the average dollar amount outstanding
of issues in the New National Index was approximately $71.96 million.
Further, the most heavily weighted component represents 0.34% of the
weight of the New
[[Page 27955]]
National Index and the five most heavily weighted components represent
1.47% of the weight of the New National Index.\20\ Therefore, the
Exchange believes that, notwithstanding that the New National Index
does not satisfy the criterion in NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02(a)(2), the New National Index is sufficiently broad-
based to deter potential manipulation, given that it is composed of
approximately 5,476 issues and 1,259 unique issuers. The Exchange notes
that the individual maturities that are part of the same municipal bond
offering share common characteristics, such as issuer, rating,
structure, and purpose (i.e., general obligation bonds, revenue bonds
or ``double-barreled'' bonds). In addition, the New National Index
securities are sufficiently liquid to deter potential manipulation in
that a substantial portion (91.86%) of the New National Index weight is
composed of maturities that are part of a minimum original principal
amount outstanding of $100 million or more for all the maturities of
the offering, and in view of the substantial total dollar amount
outstanding and the average dollar amount outstanding of New National
Index issues, as referenced above.
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\20\ See note 11, supra, regarding the requirements of
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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In addition, the average daily notional trading volume for New
National Index components for the calendar year 2013 was approximately
$1.26 billion and the sum of the notional trading volumes for the same
period was approximately $317.73 billion.
PowerShares New York AMT-Free Municipal Bond Portfolio
According to the Registration Statement as supplemented by the
Proxy Statement, the New NY Portfolio will seek investment results that
correspond (before fees and expenses) generally to the price and yield
performance of the New NY Index. The New NY Portfolio will normally
invest at least 80% of its net assets in municipal securities that are
exempt from federal income tax, New York State income tax and New York
City income tax. The NY Portfolio will normally invest at least 80% of
its total assets in the securities that compose the New NY Index. The
New NY Portfolio, however, reserves the right to invest up to 20% of
its assets in certain futures, options and swap contracts, cash and
cash equivalents, including money market funds, as well as in municipal
securities not included in the New NY Index to the extent that the
Adviser believes such investments will facilitate the New NY
Portfolio's ability to achieve its investment objective. The Adviser
will seek correlation over time of 0.95% or better between the New NY
Portfolio's performance and the performance of the New NY Index. The
New NY Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by New
York or U.S. territories (including Puerto Rico), or their political
subdivisions, included in the U.S. domestic market includes
approximately 952 bonds (as of January 31, 2014).
As of January 31, 2014, approximately 98.21% of the weight of the
New NY Index components was composed of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the New NY Index was approximately
$86.75 billion and the average dollar amount outstanding of issues in
the New NY Index was approximately $91.13 million. Further, the most
heavily weighted component represents 1.61% of the weight of the New NY
Index and the five most heavily weighted components represent 5.07% of
the weight of the New NY Index.\21\ Therefore, the Exchange believes
that, notwithstanding that the New NY Index does not satisfy the
criterion in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(a)(2),
the New NY Index is sufficiently broad-based to deter potential
manipulation, given that it is composed of approximately 952 issues and
67 unique issuers. The Exchange notes that the individual maturities
that are part of the same municipal bond offering share common
characteristics, such as issuer, rating, structure, and purpose (i.e.,
general obligation bonds, revenue bonds or ``double-barreled'' bonds).
In addition, the New NY Index securities are sufficiently liquid to
deter potential manipulation in that a substantial portion (98.21%) of
the New NY Index weight is composed of maturities that are part of a
minimum original principal amount outstanding of $100 million or more
for all the maturities of the offering, and in view of the substantial
total dollar amount outstanding and the average dollar amount
outstanding of New NY Index issues, as referenced above.
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\21\ See note 11, supra, regarding the requirements of
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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In addition, the average daily notional trading volume for New NY
Index components for the calendar year 2013 was approximately $334.68
million and the sum of the notional trading volumes for the same period
was approximately $84.34 billion.
All components of each of the Municipal Bond Indexes and New
Municipal Bond Indexes currently are rated as investment grade (A3 or
higher by Moody's Investors Service).
The Exchange represents that: (1) With respect to the Municipal
Bond Portfolios, except for Commentary .02(a)(2) to NYSE Arca Equities
Rule 5.2(j)(3), the Shares of the Municipal Bond Portfolios currently
satisfy all of the generic listing standards under NYSE Arca Equities
Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca
Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply
to the Shares of the Funds; and (3) the Trust is required to comply
with Rule 10A-3 \22\ under the Act for the initial and continued
listing of the Shares of the Funds. In addition, the Exchange
represents that the Shares of the Funds will comply with all other
requirements applicable to Units including, but not limited to,
requirements relating to the dissemination of key information such as
the value of the Index and the applicable Intraday Indicative Value
(``IIV''),\23\ rules governing the trading of equity securities,
trading hours, trading halts, surveillance, information barriers and
the Information Bulletin to Equity Trading Permit Holders (``ETP
Holders''), as set forth in Exchange rules applicable to Units and
prior Commission orders approving the generic listing rules applicable
to the listing and trading of Units.\24\
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\22\ 17 CFR 240.10A-3.
\23\ The IIV will be widely disseminated by one or more major
market data vendors at least every 15 seconds during the Exchange's
Core Trading Session of 9:30 a.m. to 4:00 p.m., Eastern time.
Currently, it is the Exchange's understanding that several major
market data vendors display and/or make widely available IIVs taken
from the Consolidated Tape Association (``CTA'') or other data
feeds.
\24\ See, e.g., Securities Exchange Act Release Nos. 55783 (May
17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order
approving NYSE Arca generic listing standards for Units based on a
fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19,
2001) (SR-PCX-2001-14) (order approving generic listing standards
for Units and Portfolio Depositary Receipts); 41983 (October 6,
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order
approving rules for listing and trading of Units).
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The current value of the Municipal Bond Indexes and New Municipal
Bond Indexes are widely disseminated by one or more major market data
vendors at
[[Page 27956]]
least once per day, as required by NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02(b)(ii). The IIVs for Shares of the Funds are
disseminated by one or more major market data vendors, updated at least
every 15 seconds during the Exchange's Core Trading Session, as
required by NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(c), and
Commentary .01(c), respectively. The components and percentage
weightings of each Municipal Bond Index and New Municipal Bond Index
are also available from major market data vendors. In addition, the
portfolio of securities held by each Fund is disclosed daily on the
Funds' Web site at www.invescopowershares.com
Detailed descriptions of the Funds, the Municipal Bond Indexes, the
New Municipal Bond Indexes, procedures for creating and redeeming
Shares, transaction fees and expenses, dividends, distributions, taxes,
risks, and reports to be distributed to beneficial owners of the Shares
can be found in the Registration Statement or on the Web site for the
Funds (www.invescopowershares.com), as applicable.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \25\ 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.
---------------------------------------------------------------------------
\25\ 15 U.S.C. 78f(b)(5).
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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
5.2(j)(3). 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
federal securities laws applicable to trading on the Exchange.\26\ The
Exchange represents that these procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and federal securities
laws applicable to trading on the Exchange. FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
with other markets that are members of the Intermarket Surveillance
Group (``ISG''). In addition, the Exchange will communicate as needed
regarding trading in the Shares with other markets that are members of
the ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. The Index Provider is a broker-dealer
and has implemented a firewall and will maintain procedures designed to
prevent the use and dissemination of material non-public information
regarding the Municipal Bond Indexes and New Municipal Bond Indexes.
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\26\ 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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As discussed above, the Exchange believes that each of the
Municipal Bond Indexes is sufficiently broad-based to deter potential
manipulation. As of January 31, 2014, approximately 86.1% of the weight
of the CA Index components was composed of individual maturities that
were part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the CA Index was approximately $17.201
billion and the average dollar amount outstanding of issues in the
Index was approximately $64.42 million. Further, the most heavily
weighted component represents 3.53% of the weight of the CA Index and
the five most heavily weighted components represent 9.94% of the weight
of the CA Index.
As of January 31, 2014, approximately 89.24% of the weight of the
National Index components was composed of individual maturities that
were part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the National Index was approximately
$78.69 billion and the average dollar amount outstanding of issues in
the National Index was approximately $63.56 million. Further, the most
heavily weighted component represents 0.88% of the weight of the
National Index and the five most heavily weighted components represent
3.51% of the weight of the National Index.
As of January 31, 2014, approximately 95.89% of the weight of the
NY Index components was composed of individual maturities that were
part of an entire municipal bond offering with a minimum original
principal amount outstanding of $100 million or more for all maturities
of the offering. In addition, as of January 31, 2014, the total dollar
amount outstanding of issues in the NY Index was approximately $17.76
billion and the average dollar amount outstanding of issues in the NY
Index was approximately $90.58 million. Further, the most heavily
weighted component represents 6.14% of the weight of the NY Index and
the five most heavily weighted components represent 20.15% of the
weight of the NY Index.
As discussed above, the Exchange further believes that each of the
New Municipal Bond Indexes is sufficiently broad-based to deter
potential manipulation. As of January 31, 2014, approximately 94.60% of
the weight of the New CA Index components was composed of individual
maturities that were part of an entire municipal bond offering with a
minimum original principal amount outstanding of $100 million or more
for all maturities of the offering. In addition, as of January 31,
2014, the total dollar amount outstanding of issues in the New CA Index
was approximately $100.76 billion and the average dollar amount
outstanding of issues in the New CA Index was approximately $92.81
million. Further, the most heavily weighted component represents 1.39%
of the weight of the New CA Index and the five most heavily weighted
components represent 5.17% of the weight of the New CA Index.
As of January 31, 2014, approximately 91.86% of the weight of the
New National Index components was composed of individual maturities
that were part of an entire municipal bond offering with a minimum
original principal amount outstanding of $100 million or more for all
maturities of the offering. In addition, as of January 31, 2014, the
total dollar amount outstanding of issues in the New National Index was
approximately $394.04 billion and the average dollar amount outstanding
of issues in the New National Index was approximately $71.96 million.
Further, the most heavily weighted component represents 0.34% of the
weight of the New National Index and the five most heavily weighted
components represent 1.47% of the weight of the New National Index.
As of January 31, 2014, approximately 98.21% of the weight of the
New NY Index components was composed of individual maturities that were
part of an entire municipal bond offering with
[[Page 27957]]
a minimum original principal amount outstanding of $100 million or more
for all maturities of the offering. In addition, as of January 31,
2014, the total dollar amount outstanding of issues in the New NY Index
was approximately $86.75 billion and the average dollar amount
outstanding of issues in the New NY Index was approximately $91.13
million. Further, the most heavily weighted component represents 1.61%
of the weight of the New NY Index and the five most heavily weighted
components represent 5.07% of the weight of the New NY Index.
The Municipal Bond Indexes and New Municipal Bond Indexes values,
calculated and disseminated at least once daily, as well as the
components of the Municipal Bond Indexes and New Municipal Bond Indexes
and their respective percentage weightings, will be available from
major market data vendors. In addition, the portfolio of securities
held by the Funds will be disclosed on the Funds' Web site. The IIV for
Shares of the Funds will be disseminated by one or more major market
data vendors, updated at least every 15 seconds during the Exchange's
Core Trading Session.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that 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 the Funds' 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 IIV for Shares
of the Funds will be widely disseminated by one or more major market
data vendors at least every 15 seconds during the Exchange's Core
Trading Session. The current value of the Municipal Bond Indexes and
New Municipal Bond Indexes will be disseminated by one or more major
market data vendors at least once per day. 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 the prospectus for the Funds and additional data relating
to NAV 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. If the Exchange becomes aware
that the NAV is not being disseminated to all market participants at
the same time, it will halt trading in the Shares until such time as
the NAV is available to all market participants. 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. 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. If the applicable IIV, the Municipal Bond Index or
New Municipal Bond Index values are not being disseminated as required,
the Corporation may halt trading during the day in which the
interruption to the dissemination of the applicable IIV, Municipal Bond
Index, or New Municipal Bond Index value occurs. If the interruption to
the dissemination of the applicable IIV, Municipal Bond Index, or New
Municipal Bond Index value persists past the trading day in which it
occurred, the Corporation will halt trading. 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 7.34, which sets forth circumstances under which
Shares of the Funds may be halted. In addition, investors will have
ready access to information regarding the applicable IIV, 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 continued listing and
trading of exchange-traded products that principally hold municipal
bonds and that will enhance competition among market participants, to
the benefit of investors and the marketplace. 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, investors will have ready
access to information regarding the IIV 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 continued listing and trading
of 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 (i) as the Commission may
designate up to 90 days of such date 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 Number SR-NYSEArca-2014-45 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-2014-45. 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
[[Page 27958]]
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 Number SR-NYSEArca-2014-45, and should
be submitted on or before June 5, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11157 Filed 5-14-14; 8:45 am]
BILLING CODE 8011-01-P