[Federal Register Volume 79, Number 111 (Tuesday, June 10, 2014)]
[Notices]
[Pages 33229-33238]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-13458]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72314; File No. SR-NYSEArca-2014-64]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the ARK Innovation
ETF, ARK Genomic Revolution ETF, ARK Industrial Innovation ETF, and ARK
Web x.0 ETF Under NYSE Arca Equities Rule 8.600
June 4, 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 May 28, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. 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 Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): ARK
Innovation ETF, ARK Genomic Revolution ETF, ARK Industrial Innovation
ETF, and ARK Web x.0 ETF. The text of the proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
[[Page 33230]]
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares \4\: ARK Innovation ETF, ARK
Genomic Revolution ETF, ARK Industrial Innovation ETF, and ARK Web x.0
ETF (each, a ``Fund'' and, collectively, the ``Funds''). The Shares
will be offered by ARK ETF Trust (``Trust''), which is organized as a
Delaware statutory trust and is registered with the Commission as an
open-end management investment company.\5\ ARK Investment Management
LLC (``Adviser'') will serve as the investment adviser to the Funds.
Foreside Fund Services, LLC (``Distributor'') will be the principal
underwriter and distributor of the Funds' Shares. The Bank of New York
Mellon will serve as administrator, custodian and transfer agent
(``Administrator'').\6\
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\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
\5\ The Trust is registered under the 1940 Act. On March 31,
2014, the Trust filed with the Commission its registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a)
(``Securities Act''), and under the 1940 Act relating to the Funds
(File Nos. 333-191019 and 811-22883) (``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 the1940 Act. See Investment Company Act Release No.
31009 (April 7, 2014) (File No. 812-14172) (``Exemptive Order'').
\6\ The Commission has previously approved listing and trading
on the Exchange of a number of actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8,
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order
approving Exchange listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 60981 (November 10, 2009), 74 FR
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving
listing and trading of five fixed income funds of the PIMCO ETF
Trust); 66343 (February 7, 2012), 77 FR 7647 (February 13, 2012)
(SR-NYSEArca-2011-85) (order approving listing and trading of SPDR
SSgA Real Assets ETF; SPDR SSgA Income Allocation ETF; SPDR SSgA
Conservative Global Allocation ETF; SPDR SSgA Global Allocation ETF;
and SPDR SSgA Aggressive Global Allocation ETF).
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Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio.\7\ Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds. The
Adviser is not registered as a broker-dealer and is not affiliated with
a broker-dealer. In the event (a) the Adviser or any sub-adviser
becomes, or becomes newly affiliated with, a broker-dealer, or (b) any
new adviser or sub-adviser is, or becomes affiliated with, a broker-
dealer, it will implement a fire wall with respect to its relevant
personnel or broker-dealer affiliate, as applicable, 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.
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\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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ARK Genomic Revolution ETF
According to the Registration Statement, the ARK Genomic Revolution
ETF's investment objective will be long-term growth of capital.
According to the Registration Statement, the Fund will invest under
normal circumstances \8\ primarily (at least 80% of its assets) in
domestic and foreign equity securities of companies that are relevant
to the Fund's investment theme of genomics. Companies relevant to this
theme are those that are focused on and are expected to benefit from
extending and enhancing the quality of human and other life by
incorporating technological and scientific developments, improvements
and advancements in genetics into their business, such as by offering
new products or services that rely on genetic sequencing, analysis,
synthesis or instrumentation. These companies may include ones that
develop, produce, manufacture or significantly rely on bionic devices,
bio-inspired computing, bioinformatics, molecular medicine, and
agricultural biology.
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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.
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In selecting companies that the Adviser believes are relevant to a
particular investment theme, it will seek to identify, using its own
internal research and analysis, companies capitalizing on disruptive
innovation or that are enabling the further development of a theme in
the markets in which they operate. The Adviser's internal research and
analysis will leverage insights from diverse sources, including
external research, to develop and refine its investment themes and
identify and take advantage of trends that have ramifications for
individual companies or entire industries. The Adviser will use both
``top down'' (macro-economic and business cycle analysis) and ``bottom
up'' (valuation, fundamental and quantitative measures) approaches to
select investments for the Fund.
Under normal circumstances substantially all of the Fund's assets
will be invested in equity securities, including common stocks,
partnership interests, business trust shares and other
[[Page 33231]]
equity investments or ownership interests in business enterprises.\9\
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\9\ According to the Adviser, at least 90% of each Fund's
investments in equity securities (including Global Depositary
Receipts (``GDRs''), American Depositary Receipts (``ADRs''),
rights, warrants and preferred securities, discussed under ``Other
Investments,'' below) will be in securities that trade in markets
that are members of the Intermarket Surveillance Group (``ISG'') or
are parties to a comprehensive surveillance sharing agreement with
the Exchange.
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According to the Registration Statement, the Fund's investments
will include issuers of micro-, small-, medium- and large-
capitalizations. The Fund's investments in foreign equity securities
will be in both developed and emerging markets.\10\
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\10\ The Adviser generally considers emerging market countries
to be developing market countries whose gross domestic product per
person is classified below ``high income'' by the World Bank.
Investments in emerging markets equity securities will not exceed
20% of a Fund's total assets.
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According to the Registration Statement, the Fund will be
concentrated in issuers in any industry or group of industries in the
health care sector. Issuers in the health care sector include
manufacturers and distributors of health care equipment and supplies,
owners and operators of health care facilities, health maintenance
organizations and managed health care plans, health care providers and
issuers that provide services to health care providers.
ARK Industrial Innovation ETF
According to the Registration Statement, the ARK Industrial
Innovation ETF's investment objective will be long-term growth of
capital.
According to the Registration Statement, the Fund will invest under
normal circumstances \11\ primarily (at least 80% of its assets) in
domestic and foreign equity securities of companies that are relevant
to the Fund's investment theme of industrial innovation. Companies
relevant to this theme are those that are expected to focus on and
benefit from the development of new products or services, technological
improvements and advancements in scientific research related to, among
other things, disruptive innovation in energy (``energy transformation
companies''), automation and manufacturing (``automation transformation
companies''), materials, and transportation.\12\
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\11\ See note 8, supra.
\12\ According to the Registration Statement, the Adviser will
consider a company to be an energy transformation company if it
seeks to capitalize on innovations or evolutions in: (i) Ways that
energy is stored or used; (ii) the discovery, collection and/or
implementation of new sources of energy, including unconventional
sources of oil or natural gas and/or (iii) the production or
development of new materials for use in commercial applications of
energy production, use or storage. The Adviser will consider a
company to be an automation transformation company if it is focused
on man capitalizing on the productivity of machines, such as through
the automation of functions, processes or activities previously
performed by human labor or the use of robotics to perform other
functions, activities or processes.
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According to the Registration Statement, in selecting companies
that the Adviser believes are relevant to a particular investment
theme, it will seek to identify, using its own internal research and
analysis, companies capitalizing on disruptive innovation or that are
enabling the further development of a theme in the markets in which
they operate. The Adviser's internal research and analysis will
leverage insights from diverse sources, including external research, to
develop and refine its investment themes and identify and take
advantage of trends that have ramifications for individual companies or
entire industries. The Adviser will use both ``top down'' (macro-
economic and business cycle analysis) and ``bottom up'' (valuation,
fundamental and quantitative measures) approaches to select investments
for the Fund.
Under normal circumstances, substantially all of the Fund's assets
will be invested in equity securities, including common stocks,
partnership interests, business trust shares and other equity
investments or ownership interests in business enterprises.\13\
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\13\ See note 9, supra.
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According to the Registration Statement, the Fund's investments
will include issuers of micro-, small-, medium- and large-
capitalizations. The Fund's investments in foreign equity securities
will be in both developed and emerging markets.\14\
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\14\ See note 10, supra.
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According to the Registration Statement, the Fund will be
concentrated in issuers in any industry or group of industries in the
industrials \15\ and information technology sectors.\16\
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\15\ According to the Registration Statement, the industrials
sector includes companies engaged in the manufacture and
distribution of capital goods, such as those used in defense,
construction and engineering, companies that manufacture and
distribute electrical equipment and industrial machinery and those
that provide commercial and transportation services and supplies.
\16\ According to the Registration Statement, the information
technology sector includes software developers, providers of
information technology consulting and services and manufacturers and
distributors of computers, peripherals, communications equipment and
semiconductors.
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ARK Innovation ETF
According to the Registration Statement, the ARK Innovation ETF's
investment objective will be long-term growth of capital.
According to the Registration Statement, the Fund will invest under
normal circumstances\17\ primarily (at least 65% of its assets) in
domestic and foreign equity securities of companies that are relevant
to the Fund's investment theme of disruptive innovation. Companies
relevant to this theme are those that rely on or benefit from the
development of new products or services, technological improvements and
advancements in scientific research relating to the areas of genomics
(``genomic companies''), industrial innovation (``industrial innovation
companies'') or the increased use of shared technology, infrastructure,
and services (``Web x.0 companies'').
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\17\ See note 8, supra.
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According to the Registration Statement, in selecting companies
that the Adviser believes are relevant to a particular investment
theme, it will seek to identify, using its own internal research and
analysis, companies capitalizing on disruptive innovation or that are
enabling the further development of a theme in the markets in which
they operate. The Adviser's internal research and analysis will
leverage insights from diverse sources, including external research, to
develop and refine its investment themes and identify and take
advantage of trends that have ramifications for individual companies or
entire industries. The types of companies that the Adviser believes are
genomic companies, industrial innovation companies or Web x.0 companies
are listed below:
Genomics companies are companies that are focused on and
are expected to benefit from extending and enhancing the quality of
human and other life by incorporating technological and scientific
developments in genetics into their business, such as by offering
products or services that rely on genetic sequencing, analysis,
synthesis or instrumentation. These companies may include ones that
develop, produce, manufacture or significantly rely on bionic devices,
bio-inspired computing, bioinformatics, molecular medicine, and
agricultural biology.
Industrial innovation companies are companies that are
focused on and are expected to benefit from the development of new
products or services, technological improvements and advancements in
scientific research related to, among other things, disruptive
innovation in energy (``energy transformation companies''), automation
and manufacturing (``automation transformation
[[Page 33232]]
companies''), materials, and transportation.\18\
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\18\ See note 12, supra.
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Web x.0 companies are companies that are focused on and
expected to benefit from shifting the bases of technology
infrastructure from hardware and software to the cloud, enabling mobile
and local services, such as companies that rely on or benefit from the
increased use of shared technology, infrastructure and services. These
companies may also include ones that develop, use or rely on innovative
payment methodologies, big data, the internet of things, and social
distribution and media.
The Adviser will select investments for the Fund that represent its
highest-conviction investment ideas within the theme of disruptive
innovation, as described above, in constructing the Fund's portfolio.
The Adviser's process for identifying genomic companies, industrial
innovation companies and Web x.0 companies will use both ``top down''
(macro-economic and business cycle analysis) and ``bottom up''
(valuation, fundamental and quantitative measures) approaches. The
Adviser's highest-conviction investment ideas are those that it
believes present the best risk-reward opportunities.
Under normal circumstances, substantially all of the Fund's assets
will be invested in equity securities, including common stocks,
partnership interests, business trust shares and other equity
investments or ownership interests in business enterprises.\19\
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\19\ See note 9, supra.
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According to the Registration Statement, the Fund's investments
will include issuers of micro-, small-, medium- and large-
capitalizations. The Fund's investments in foreign equity securities
will be in both developed and emerging markets.\20\
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\20\ See note 10, supra.
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According to the Registration Statement, the Fund will be
concentrated in issuers in any industry or group of industries in the
industrials\21\ and information technology\22\ sectors.
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\21\ See note 15, supra.
\22\ See note 16, supra.
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ARK Web x.0 ETF
According to the Registration Statement, the ARK Web x.0 ETF's
investment objective will be long-term growth of capital.
According to the Registration Statement, the Fund will invest under
normal circumstances \23\ primarily (at least 80% of its assets) in
domestic and foreign equity securities of companies that are relevant
to the Fund's investment theme of Web x.0. Companies relevant to this
theme are focused on and expected to benefit from shifting the bases of
technology infrastructure from hardware and software to the cloud,
enabling mobile and local services, such as companies that rely on or
benefit from the increased use of shared technology, infrastructure and
services. These companies may also include ones that develop, use or
rely on innovative payment methodologies, big data, the internet of
things, and social distribution and media.
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\23\ See note 8, supra.
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In selecting companies that the Adviser believes are relevant to a
particular investment theme, it will seek to identify, using its own
internal research and analysis, companies capitalizing on disruptive
innovation or that are enabling the further development of a theme in
the markets in which they operate. The Adviser's internal research and
analysis will leverage insights from diverse sources, including
internal and external research, to develop and refine its investment
themes and identify and take advantage of trends that have
ramifications for individual companies or entire industries. The
Adviser will use both ``top down'' (macro-economic and business cycle
analysis) and ``bottom up'' (valuation, fundamental and quantitative
measures) approaches to select investments for the Fund.
Under normal circumstances, substantially all of the Fund's assets
will be invested in equity securities, including common stocks,
partnership interests, business trust shares and other equity
investments or ownership interests in business enterprises.\24\
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\24\ See note 9, supra.
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According to the Registration Statement, the Fund's investments
will include issuers of micro-, small-, medium- and large-
capitalizations. The Fund's investments in foreign equity securities
will be in both developed and emerging markets.\25\
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\25\ See note 10, supra.
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According to the Registration Statement, the Fund will be
concentrated in issuers in any group of industries in the information
technology sector.\26\ The Fund's investments may include issuers in
the telecommunications services sector.\27\
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\26\ See note 16, supra.
\27\ According to the Registration Statement, the
telecommunications services sector includes companies that provide
fixed-line or wireless telecommunication and data transmission
services.
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Other Investments
While each Fund will invest, under normal circumstances, primarily
in the equity securities described above, each Fund may invest in other
investments, as described below. With the exception of the ARK
Innovation ETF, under normal circumstances such other investments will
not exceed 20% of a Fund's assets. Regarding the ARK Innovation ETF,
under normal circumstances such other investments will not exceed 35%
of the Fund's investments.
According to the Registration Statement, each Fund may invest no
more than 35% of its assets in depositary receipts, rights, warrants,
preferred securities and convertible securities.
ADRs and GDRs are securities typically issued by a bank or trust
company that evidence ownership of underlying securities issued by a
foreign corporation and entitle the holder to all dividends and capital
gains that are paid out on the underlying foreign securities. Rights
and warrants are option securities permitting their holders to
subscribe for other securities. Preferred securities are contractual
obligations that entail rights to distributions declared by the
issuer's board of directors but may permit the issuer to defer or
suspend distributions for a certain period of time. ADRs may be traded
over the counter (``OTC'').
According to the Registration Statement, each Fund may invest in
the securities of open-end or closed-end investment companies, subject
to applicable limitations under the 1940 Act. A Fund's investment in
other investment companies may include shares of exchange traded funds
registered under the 1940 Act (``ETFs''),\28\ closed-end investment
companies (which include business development companies), unit
investment trusts, and other open-end investment companies. In
addition, the Funds may invest in other exchange-traded products
(``ETPs'') such as commodity pools,\29\ or other entities that are
traded on an exchange.
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\28\ For purposes of this filing, ETFs, which will be listed on
a national securities exchange, include the following: Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3);
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600).
\29\ For purposes of this filing, ETPs include Trust Issued
Receipts (as described in NYSE Arca Equities Rule 8.200); Commodity-
Based Trust Shares (as described in NYSE Arca Equities Rule 8.201);
Currency Trust Shares (as described in NYSE Arca Equities Rule
8.202); Commodity Index Trust Shares (as described in NYSE Arca
Equities Rule 8.203); and Trust Units (as described in NYSE Arca
Equities Rule 8.500).
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[[Page 33233]]
In addition, according to the Registration Statement, each Fund may
use derivative instruments. Specifically, the Funds may use options,
futures, swaps and forwards, for hedging or risk management purposes or
as part of its investment practices. Derivative instruments are
contracts whose value depends on, or is derived from, the value of an
underlying asset, reference rate or index. These underlying assets,
reference rates or indices may be any one of the following: stocks,
interest rates, currency exchange rates and stock indices.
The options in which the Funds may invest may be exchanged-traded
or OTC. The exchange-traded options in which the Funds may invest will
trade on markets that are members of the ISG or parties to a
comprehensive surveillance sharing agreement with the Exchange. The
futures in which the Funds may invest will be exchange-traded. Each
Fund will not invest more than 10% of its assets in futures that trade
in markets that are not members of the ISG or parties to a
comprehensive surveillance sharing agreement with the Exchange. The
swaps in which the Funds will invest may be cleared swaps or non-
cleared. The Funds will collateralize their obligations with liquid
assets consistent with the 1940 Act and interpretations thereunder.
The Funds will only enter into transactions in derivative
instruments with counterparties that the Adviser reasonably believes
are capable of performing under the contract and will post as
collateral as required by the counterparty. The Funds will seek, where
possible, to use counterparties, as applicable, whose financial status
is such that the risk of default is reduced; however, the risk of
losses resulting from default is still possible. The Adviser will
evaluate the creditworthiness of counterparties on a regular basis. In
addition to information provided by credit agencies, the Adviser will
review approved counterparties using various factors, which may include
the counterparty's reputation, the Adviser's past experience with the
counterparty and the price/market actions of debt of the counterparty.
According to the Registration Statement, the Funds may invest in
currency forwards. A currency forward transaction is a contract to buy
or sell a specified quantity of currency at a specified date in the
future at a specified price which may be any fixed number of days from
the date of the contract agreed upon by the parties, at a price set at
the time of the contract. Currency forward contracts may be used to
increase or reduce exposure to currency price movements.
According to the Registration Statement, the Funds may enter into
futures contracts and options, including options on futures contracts.
Futures contracts generally provide for the future sale by one party
and purchase by another party of a specified instrument, index or
commodity at a specified future time and at a specified price. Futures
contracts are standardized as to maturity date and underlying
instrument and are traded on futures exchanges. An option is a contract
that provides the holder the right to buy or sell shares or futures at
a fixed price, within a specified period of time.
According to the Registration Statement, the Funds may invest in
participation notes (``P-Notes''). P-Notes are issued by banks or
broker-dealers and are designed to offer a return linked to the
performance of a particular underlying equity security or market. P-
Notes can have the characteristics or take the form of various
instruments, including, but not limited to, certificates or warrants.
According to the Registration Statement, each Fund may invest in
repurchase agreements with commercial banks, brokers or dealers and to
invest securities lending cash collateral. A repurchase agreement is an
agreement under which a Fund acquires a money market instrument from a
seller, subject to resale to the seller at an agreed upon price and
date.
According to the Registration Statement, the Funds may invest in
structured notes. A structured note is a derivative security for which
the amount of principal repayment and/or interest payments is based on
the movement of one or more ``factors.'' These factors include, but are
not limited to, currency exchange rates, interest rates (such as the
prime lending rate or LIBOR), referenced bonds and stock indices.
Each Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser
consistent with Commission guidance.\30\ 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 each Fund's net assets are
held in illiquid assets. Illiquid assets include assets subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets as determined in accordance with
Commission staff guidance.\31\
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\30\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
asset; the number of dealers wishing to purchase or sell the asset
and the number of other potential purchasers; dealer undertakings to
make a market in the asset; and the nature of the asset and the
nature of the marketplace in which it trades (e.g., the time needed
to dispose of the asset, the method of soliciting offers, and the
mechanics of transfer).
\31\ See Investment Company Act Release No. 18612 (March 12,
1992), 57 FR 9828 (March 20, 1992) (Revisions of Guidelines to Form
N-1A) (stating that Guide 4 ``permit[s] a fund to invest up to 15%
of its assets in illiquid securities''). The Commission has stated
that long-standing Commission guidelines have required open-end
funds to hold no more than 15% of their net assets in illiquid
securities and other illiquid assets. See Investment Company Act
Release No. 28193 (March 11, 2008), 73 FR 14618 (March 18, 2008),
footnote 34. See also, Investment Company Act Release No. 5847
(October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement
Regarding ``Restricted Securities''); Investment Company Act Release
No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions
of Guidelines to Form N-1A). A fund's portfolio security is illiquid
if it cannot be disposed of in the ordinary course of business
within seven days at approximately the value ascribed to it by the
fund. See Investment Company Act Release No. 14983 (March 12, 1986),
51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 under
the 1940 Act); Investment Company Act Release No. 17452 (April 23,
1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the
1933 Act).
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Each Fund will be classified as a ``non-diversified'' investment
company under the 1940 Act \32\ and therefore may concentrate its
investments in any particular industry or group of industries, such
that: (i) ARK Genomic Revolution ETF will concentrate in securities of
issuers having their principal business activities in any industry or
group of industries in the health care sector; (ii) ARK Innovation ETF
will concentrate in securities of issuers having their principal
business activities in any industry or group of industries in the
health care sector, the industrials sector, the information technology
sector, or the telecommunications services sector; (iii) ARK Industrial
Innovation ETF will concentrate in securities of issuers having their
principal business activities in any industry or group of industries in
the industrials sector or the information technology sector; and (iv)
ARK Web x.0 ETF will concentrate in securities of issuers having their
principal business activities in any industry or group of industries in
the information technology sector or the
[[Page 33234]]
telecommunications services sector.\33\ Each Fund will consider an
issuer to have its ``principal business activities'' in an industry or
group of industries if the issuer derives more than 50% of its revenues
from a business considered to be a part of such industry or group of
industries according to a third party's industry classification system
or that of the Adviser.
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\32\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
\33\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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The Funds intend to qualify for and to elect treatment as a
separate regulated investment company (``RIC'') under Subchapter M of
the Internal Revenue Code.\34\
---------------------------------------------------------------------------
\34\ 26 U.S.C. 851 et seq.
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According to the Registration Statement, each Fund may take a
temporary defensive position (investments in cash or cash equivalents)
in response to adverse market, economic, political or other
conditions.\35\ Cash equivalents include short-term high quality debt
securities and money market instruments such as commercial paper,
certificates of deposit, bankers' acceptances, U.S. Government
securities, repurchase agreements and bonds that are rated BBB or
higher and shares of short-term fixed income or money market funds.
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\35\ According to the Adviser, circumstances under which a Fund
may temporarily depart from its normal investment process include,
but are not limited to, 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.
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The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents
that, for initial and/or continued listing, the Funds will be in
compliance with Rule 10A-3 \36\ under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares for each Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the net asset value (``NAV'') per Share for each Fund will be
calculated daily and that the NAV and the Disclosed Portfolio for each
Fund will be made available to all market participants at the same
time. Each Fund's investments will be consistent with its respective
investment objective in accordance with the 1940 Act and will not be
used to enhance leverage. Each Fund's investments will not be used to
seek performance that is the multiple or inverse multiple (i.e., 2Xs or
3Xs) of the Fund's broad-based securities market index (as defined in
Form N-1A).\37\
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\36\ 17 CFR 240.10A-3.
\37\ Each Fund's broad-based securities market index will be
identified in a future amendment to the Registration Statement
following each Fund's first full calendar year of performance.
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Net Asset Value
According to the Registration Statement, the NAV per Share for the
Fund will be computed by dividing the value of the net assets of the
Fund (the value of its total assets less total liabilities) by the
total number of Shares outstanding. Expenses and fees will be accrued
daily and taken into account for purposes of determining NAV. The NAV
of each Fund will be determined each business day as of the close of
trading (ordinarily 4:00 p.m., Eastern time (``E.T.'') on the New York
Stock Exchange (``NYSE'')). Any assets or liabilities denominated in
currencies other than the U.S. dollar will be converted into U.S.
dollars at the current market rates on the date of valuation as quoted
by one or more sources.
According to the Registration Statement, the values of each Fund's
portfolio securities holdings will be based on market prices.
Price information for exchange-traded equity securities, including
equity securities of domestic and foreign companies, such as common
stock, partnership interests, business trust shares, ETFs and ETPs as
well as depositary receipts (excluding ADRs traded OTC), rights,
warrants and preferred securities, will be taken from the exchange
where the security or asset is primarily traded.
ADRs traded OTC will be valued on the basis of the market closing
price on the exchange where the stock of the foreign issuer that
underlies the ADR is listed.
Investment company securities (other than ETFs), including closed
end investment companies, unit investment trusts and other open-end
investment companies, will be valued at NAV, utilizing pricing
services.
Non-exchange-traded derivatives, including forwards, swaps and
certain options, will normally be valued on the basis of quotes
obtained from brokers and dealers or independent pricing services using
data reflecting the earlier closing of the principal markets for those
assets. Prices obtained from independent pricing services use
information provided by market makers or estimates of market values
obtained from yield data relating to investments or securities with
similar characteristics.
Exchange-traded options (excluding options on futures) will be
valued at market closing price. Futures and options on futures will be
valued at the settlement price determined by the applicable exchange.
Fixed income securities generally trade in the OTC market rather
than on a securities exchange. A Fund will generally value these
portfolio securities, including P-Notes, structured notes, debt
securities, money market instruments such as commercial paper,
certificates of deposit, bankers' acceptances, U.S. Government
securities, repurchase agreements, bonds and convertible securities,
and shares of short-term fixed income or money market funds by relying
on independent pricing services. A Fund's pricing services will use
valuation models or matrix pricing to determine current value. In
general, pricing services use information with respect to comparable
bond and note transactions, quotations from bond dealers or by
reference to other securities that are considered comparable in such
characteristics as rating, interest rate, maturity date, option
adjusted spread models, prepayment projections, interest rate spreads
and yield curves. Matrix price is an estimated price or value for a
fixed-income security. Matrix pricing is considered a form of fair
value pricing.
Any assets or liabilities denominated in currencies other than the
U.S. dollar will be converted into U.S. dollars at the current market
rates on the date of valuation as quoted by one or more sources.
In the absence of a last reported sales price for an exchange-
traded security or asset, if no sales were reported, if a market
quotation for a security or asset is not readily available or the
Adviser believes it does not otherwise accurately reflect the market
value of the security or asset at the time a Fund calculates its NAV,
the security or asset will be valued based on fair value as determined
in good faith by the Adviser in accordance with the Trust's valuation
policies and procedures approved by the Board of Trustees and in
accordance with the 1940 Act. A Fund may also use fair value pricing in
a variety of circumstances, including but not limited to, trading in a
security or asset has been suspended or halted. Fair value pricing
involves subjective judgments and it is possible that a fair value
determination for a security or asset may be materially different than
[[Page 33235]]
the value that could be realized upon the sale of the security or
asset.
Values may be based on quotes obtained from a quotation reporting
system, established market makers or by an outside independent pricing
service. Prices obtained by an outside independent pricing service will
use information provided by market makers or estimates of market values
obtained from data related to investments or securities with similar
characteristics and may use a computerized grid matrix of securities
and its evaluations in determining what it believes is the fair value
of the portfolio securities.
Creation and Redemption of Shares
According to the Registration Statement, each Fund will issue, sell
and redeem Shares only in aggregations of a specified number of Shares
(each, a ``Creation Unit'') on a continuous basis at its NAV next
determined after receipt, on any business day, of an order in proper
form. A Creation Unit will initially consist of 50,000 Shares.
According to the Registration Statement, the consideration for a
purchase of Creation Units will generally consist of an in-kind deposit
of specified securities that would be consistent with the relevant
Fund's investment objective and portfolio (``Deposit Instruments'') and
an amount of cash (``Cash Amount'') or, as permitted or required by the
Fund, of cash. The Cash Amount together with the Deposit Instruments,
as applicable, are referred to as the ``Creation Deposit,'' which
represents the minimum initial and subsequent investment amount for
Creation Units. The Cash Amount represents the difference between the
NAV of a Creation Unit and the market value of Deposit Instruments.
According to the Registration Statement, the Trust reserves the
right to accept a basket of securities or cash that differs from
Deposit Instruments or to permit or require the substitution of an
amount of cash (i.e., a ``cash in lieu'' amount) to be added to the
Cash Amount to replace any Deposit Instrument which may, among other
reasons, not be available in sufficient quantity for delivery, not be
permitted to be re-registered in the name of the Trust as a result of
an in-kind creation order pursuant to local law or market convention or
which may not be eligible for transfer through the clearing process, or
which may not be eligible for trading by a participating party.
According to the Registration Statement, all orders to create
Creation Units must be received by the Distributor no later than the
closing time of the regular trading session on the Exchange (ordinarily
4:00 p.m. E.T.) on the date such order is placed in order for creation
of Creation Units to be effected based on the NAV of the relevant Fund
as determined on such date.
According to the Registration Statement, Shares may be redeemed
only in Creation Units at their NAV next determined after receipt of a
redemption request in proper form by the Distributor, only on a
business day and only through an authorized participant.
According to the Registration Statement, unless cash redemptions
are permitted or required for a Fund, the redemption proceeds for a
Creation Unit will generally consist of in-kind securities and
instruments (``Redemption Instruments'') as announced by the
Administrator on the business day of the request for redemption, plus
cash in an amount equal to the difference between the NAV of the Shares
being redeemed, as next determined after a receipt of a request in
proper form, and the value of the Redemption Instruments, less the
applicable fees. Should the Redemption Instruments have a value greater
than the NAV of the Shares being redeemed, a compensating cash payment
to the Trust equal to the differential plus the applicable redemption
transaction fee will be required to be arranged for by or on behalf of
the redeeming shareholder. Each Fund reserves the right to honor a
redemption request by delivering a basket of securities or cash that
differs from the Redemption Instruments.
According to the Registration Statement, an order to redeem
Creation Units of a Fund will be deemed received on the transmittal
date if such order is received by the Distributor not later than 4:00
p.m. E.T. on such transmittal date and all other procedures are
properly followed; such order will be effected based on the NAV of a
Fund as next determined.
According to the Registration Statement, the Administrator, through
the NSCC, will make available on each business day, immediately prior
to the opening of business on the Exchange (currently 9:30 a.m. Eastern
time), (a) the list of the names and the required number of each
Deposit Instrument to be included in the current Creation Deposit
(based on information at the end of the previous business day) as well
as the Cash Amount for each Fund and (b) the Redemption Instruments
that will be applicable to redemption requests received in proper form
on that day. In addition, the Administrator, through the NSCC, also
makes available on a continuous basis throughout the day, the
indicative optimized portfolio value (``IOPV'').
Availability of Information
The Funds' Web site (www.ARK-Funds.com) will include a form of the
prospectus for the Funds that may be downloaded. The Funds' Web site
will include additional quantitative information updated on a daily
basis, including, for each Fund, (1) daily trading volume, the prior
business day's reported closing price, NAV and mid-point of the bid/ask
spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\38\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Adviser 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 each Fund's calculation of NAV at the end of the business day.\39\
---------------------------------------------------------------------------
\38\ The Bid/Ask Price of each Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the relevant Fund's NAV. The records
relating to Bid/Ask Prices will be retained by the Funds and their
service providers.
\39\ Under accounting procedures followed by the Funds, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Funds
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
---------------------------------------------------------------------------
On a daily basis, the Adviser will disclose for each portfolio
security and other financial instrument of the Funds the following
information on the Funds' Web site: Ticker symbol (if applicable), name
of security and/or financial instrument, number of shares, if
applicable, and dollar value of financial instruments and securities
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.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for a Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via NSCC. The basket will represent one Creation Unit of the
relevant Fund.
Investors will also be able to obtain the Trust's Statement of
Additional
[[Page 33236]]
Information (``SAI''), the Funds' Shareholder Reports, and the Trust's
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and
Shareholder Reports are available free upon request from the Trust, and
those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers.
Quotation and last sale information for the Shares and underlying
securities that are exchange listed, including equities (including
common stock, partnership interests and business trust shares, as well
as depositary receipts (excluding ADRs traded OTC and GDRs), rights,
warrants, preferred securities, ETFs and ETPs (collectively, ``Exchange
Traded Equities'')), will be available via the Consolidated Tape
Association (``CTA'') high-speed line and from the securities exchange
on which they are listed. Quotation and last sale information for GDRs
will be available from the securities exchange on which they are
listed. Information relating to futures and options on futures also
will be available from the exchange on which such instruments are
traded. Information relating to exchange-traded options will be
available via the Options Price Reporting Authority. Quotation
information from brokers and dealers or pricing services will be
available for ADRs traded OTC, investment company securities (other
than ETFs), including closed end investment companies, unit investment
trusts and open-end investment companies, non-exchange-traded
derivatives, including forwards, swaps and certain options, and fixed
income securities, including P-Notes, structured notes, debt
securities, money market instruments such as commercial paper,
certificates of deposit, bankers' acceptances, U.S. Government
securities, repurchase agreements, bonds and convertible securities,
and shares of short-term fixed income or money market funds. Pricing
information regarding each asset class in which the Funds will invest
is generally available through nationally recognized data services
providers through subscription agreements.
Every fifteen seconds during NYSE Arca Core Trading Session, an
IOPV relating to each Fund will be widely disseminated by one or more
major market data vendors.\40\ The IOPV is the Portfolio Indicative
Value as defined in NYSE Arca Equities Rule 8.600(c)(3).\41\ The
dissemination of the Portfolio Indicative Value, together with the
Disclosed Portfolio, will allow investors to determine the value of the
underlying portfolio of each Fund on a daily basis and to provide a
close estimate of that value throughout the trading day.
---------------------------------------------------------------------------
\40\ The IOPV calculations are estimates of the value of the
Funds' NAV per Share using market data converted into U.S. dollars
at the current currency rates. The IOPV price is based on quotes and
closing prices from the securities' local market and may not reflect
events that occur subsequent to the local market's close. Premiums
and discounts between the IOPV and the market price may occur. This
should not be viewed as a ``real-time'' update of the NAV per Share
of the Funds, which is calculated only once a day.
\41\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IOPVs
taken from the CTA or other data feeds.
---------------------------------------------------------------------------
Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement. All terms relating
to the Funds that are referred to, but not defined in, this proposed
rule change are defined in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Funds.\42\ Trading in Shares of the Funds
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Funds;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of a Fund may be
halted.
---------------------------------------------------------------------------
\42\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\43\ 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.
---------------------------------------------------------------------------
\43\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and underlying Exchange Traded
Equities, exchange traded options and futures with other markets and
other entities that are members of the ISG, and FINRA, on behalf of the
Exchange, may obtain trading information regarding trading in the
Shares and underlying Exchange Traded Equities, exchange traded options
and futures from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in the Shares and
underlying Exchange Traded Equities, exchange traded options and
futures from markets and other entities that are
[[Page 33237]]
members of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\44\ At least 90% of each Fund's
investments in equity securities (including GDRs and ADRs) will be in
securities that trade in markets that are members of the ISG or are
parties to a comprehensive surveillance sharing agreement with the
Exchange. The exchange-traded options in which the Funds may invest
will trade on markets that are members of the ISG or parties to a
comprehensive surveillance sharing agreement with the Exchange. Each
Fund will not invest more than 10% of its assets in futures that trade
in markets that are not members of the ISG or parties to a
comprehensive surveillance sharing agreement with the Exchange.
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\44\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for each Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'')
of the special characteristics and risks associated with trading the
Shares. Specifically, the Bulletin will discuss the following: (1) The
procedures for purchases and redemptions of Shares in Creation Units
(and that Shares are not individually redeemable); (2) 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; (3) the risks involved in
trading the Shares during the Opening and Late Trading Sessions when an
updated Portfolio Indicative Value will not be calculated or publicly
disseminated; (4) how information regarding the Portfolio Indicative
Value is disseminated; (5) the requirement that Equity Trading Permit
Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information.
In addition, the Bulletin will reference that the Funds are subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \45\ 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.
---------------------------------------------------------------------------
\45\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
federal securities laws applicable to trading on the Exchange. FINRA,
on behalf of the Exchange, will communicate as needed regarding trading
in the Shares and underlying Exchange Traded Equities, exchange traded
options and futures with other markets and other entities that are
members of the ISG, and FINRA, on behalf of the Exchange, may obtain
trading information regarding trading in the Shares and underlying
Exchange Traded Equities, exchange traded options and futures from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and Exchange Traded
Equities, exchange traded options and futures from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. At least 90% of
each Fund's investments in equity securities (including GDRs and ADRs)
will be in securities that trade in markets that are members of the ISG
or are parties to a comprehensive surveillance sharing agreement with
the Exchange. The exchange-traded options in which the Funds may invest
will trade on markets that are members of the ISG or parties to a
comprehensive surveillance sharing agreement with the Exchange. Each
Fund will not invest more than 10% of its assets in futures that trade
in markets that are not members of the ISG or parties to a
comprehensive surveillance sharing agreement with the Exchange.
The Adviser is not registered as a broker-dealer and is not
affiliated with a broker-dealer. In the event (a) the Adviser or any
sub-adviser becomes, or becomes newly affiliated with, a broker-dealer,
or (b) any new adviser or sub-adviser is, or becomes affiliated with, a
broker-dealer, it will implement a fire wall with respect to its
relevant personnel or broker-dealer affiliate, as applicable, 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. Each Fund may hold up to an aggregate amount of 15% of its
net assets in illiquid securities (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser consistent with Commission guidance. Each Fund's investments
will be consistent with its respective investment objective and will
not be used to enhance leverage.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Funds and the Shares,
thereby promoting market transparency. Moreover, the IOPV will be
widely disseminated by one or more major market data vendors at least
every 15 seconds during the Exchange's Core Trading Session. On each
business day, before commencement of trading in Shares in the Core
Trading Session on the Exchange, the Adviser will disclose on its Web
site the Disclosed Portfolio that will form the basis for the Funds'
calculation of NAV at the end of the business 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. Quotation
and last sale information for the Shares and underlying securities that
are exchange listed, including Exchange Traded Equities, will be
available via the CTA high-speed line and from the securities exchange
on which they are listed. Quotation and last sale information for GDRs
will be available from the securities exchange on which they are
listed. Information relating to futures
[[Page 33238]]
and options on futures also will be available from the exchange on
which such instruments are traded. Information relating to exchange-
traded options will be available via the Options Price Reporting
Authority. Quotation information from brokers and dealers or pricing
services will be available for ADRs traded OTC, investment company
securities (other than ETFs), including closed end investment
companies, unit investment trusts and open-end investment companies,
non-exchange-traded derivatives, including forwards, swaps and certain
options, and fixed income securities, including P-Notes, structured
notes, debt securities, money market instruments such as commercial
paper, certificates of deposit, bankers' acceptances, U.S. Government
securities, repurchase agreements, bonds and convertible securities,
and shares of short-term fixed income or money market funds. Pricing
information regarding each asset class in which the Funds will invest
is generally available through nationally recognized data services
providers through subscription agreements. 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.
Moreover, 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. Trading in Shares of the Funds will be halted if the circuit
breaker parameters in NYSE Arca Equities Rule 7.12 have been reached or
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable, and trading in the
Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which
sets forth circumstances under which Shares of the Funds may be halted.
In addition, as noted above, investors will have ready access to
information regarding the Funds' holdings, the IOPV, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange may obtain
information regarding trading in the Shares from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. In addition, as
noted above, investors will have ready access to information regarding
the Funds' holdings, the IOPV, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that hold
equity securities and will enhance competition among market
participants, to the benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml ); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2014-64 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-2014-64. 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 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 20549-1090 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-2014-64 and should
be submitted on or before July 1, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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\46\ 17 CFR 200.30-3(a)(12).
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13458 Filed 6-9-14; 8:45 am]
BILLING CODE 8011-01-P