[Federal Register Volume 79, Number 144 (Monday, July 28, 2014)]
[Notices]
[Pages 43801-43808]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-17639]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72651; File No. SR-NYSEArca-2014-79]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Proposing To List and Trade Shares of InfraCap
Active MLP ETF Under NYSE Arca Equities Rule 8.600
July 22, 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 July 9, 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 and II
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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of the
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''): InfraCap
Active MLP ETF. The text of the proposed rule change is available on
the
[[Page 43802]]
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
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\ on the Exchange:
InfraCap Active MLP ETF (the ``Fund'').\5\ The Shares of the Fund will
be offered by ETFis Series Trust I (the ``Trust''). The Trust will be
registered with the Securities and Exchange Commission (``Commission'')
as an open-end management investment company.\6\ Etfis Capital LLC will
serve as the investment adviser to the Fund (the ``Adviser''). ETF
Distributors LLC (the ``Distributor'') will be the principal
distributor of the Fund's Shares. Infrastructure Capital Advisors, LLC
(the ``Sub-Adviser'') will serve as sub-adviser for the Fund. The Bank
of New York Mellon will serve as the administrator, accountant,
custodian and transfer agent for the Fund (``Administrator,''
``Accountant,'' ``Custodian'' and ``Transfer Agent,'' respectively).
---------------------------------------------------------------------------
\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 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); 60460 (August 7, 2009), 74 FR 41468
(August 17, 2009) (SR-NYSEArca-2009-55) (order approving listing and
trading of Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874
(October 18, 2010) (SR-NYSEArca-2010-79) (order approving listing
and trading of Cambria Global Tactical ETF).
\6\ The Trust is registered under the 1940 Act. On February 26,
2014, the Trust filed a post-effective amendment to its registration
statement on Form N-1A under the Securities Act of 1933 (the ``1933
Act'') (15 U.S.C. 77a), and under the 1940 Act relating to the Fund
(File Nos. 333-187668 and 811-22819) (the ``Registration
Statement''). The description of the operation of the Trust and the
Fund herein is based, in part, on the Registration Statement. The
Trust filed an Amended and Restated Application for an Order under
Section 6(c) of the 1940 Act for exemptions from various provisions
of the 1940 Act and rules thereunder (File No. 812-14080), dated
June 19, 2013 (``Exemptive Application''). The Commission has issued
an order granting certain exemptive relief to the Trust under the
1940 Act. See Investment Company Act Release No. 30607 (July 23,
2013) (``Exemptive Order'').
---------------------------------------------------------------------------
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 of and/or
changes to such investment company portfolio. 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 and
Sub-Adviser are not registered as a broker-dealer; however the Adviser
(but not the Sub-Adviser) is affiliated with a broker-dealer and has
implemented a fire wall with respect to such broker-dealer regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding the
portfolio. In the event (a) the Adviser or any sub-adviser registers as
a broker-dealer or becomes newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, they will implement a fire
wall with respect to their relevant personnel or broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
---------------------------------------------------------------------------
\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their 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.
---------------------------------------------------------------------------
Principal Fund Investments
According to the Registration Statement, the Fund seeks total
return primarily through investments in equity securities of publicly-
traded master limited partnerships and limited liability companies
taxed as partnerships (``MLPs'').\8\ The Fund will seek to achieve its
investment objective by normally \9\ investing up to 100% (but
[[Page 43803]]
not less than 80%) of its total assets in exchange-traded securities of
MLPs in the energy infrastructure sector. The Fund will focus on
investing in MLPs selected by the Sub-Adviser that trade on the New
York Stock Exchange (``NYSE'') or the NASDAQ Stock Market (``Nasdaq'')
and that, as their principal business, operate assets used in the
gathering, transporting, processing, storing, refining, distributing,
mining or marketing of natural gas, natural gas liquids, crude oil,
refined petroleum products or coal (collectively, ``Energy Products'').
---------------------------------------------------------------------------
\8\ According to the Registration Statement, the Fund may invest
in MLP units, securities of companies holding primarily general
partner or managing member interests in MLPs, securities that
themselves own interests in MLPs (e.g., exchange-traded funds
(``ETFs''), exchange-traded notes (``ETNs'') and open-end and
closed-end other investment companies that invest in MLPs).
\9\ The term ``normally'' 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. According to the
Registration Statement, the Fund may, from time to time, take
temporary defensive positions that are inconsistent with its
principal investment strategies in an attempt to respond to adverse
market, economic, political or other conditions. In such
circumstances, the Fund may also hold up to 100% of its portfolio in
cash and cash equivalent positions. According to the Registration
Statement, when the Fund takes a temporary defensive position, it
may not be able to achieve its investment objective.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund will typically
focus on ``midstream'' MLPs which are MLPs that collect, gather,
process, transport and store natural resources and their byproducts
(primarily crude oil, natural gas and refined petroleum products),
generally without taking ownership of the energy products.\10\
---------------------------------------------------------------------------
\10\ According to the Registration Statement, Midstream MLPs may
also operate ancillary businesses, including the marketing of energy
products and logistical services related thereto, but are typically
not engaged in the mining, production or distribution of energy
products.
---------------------------------------------------------------------------
The Fund expects to typically invest in a portfolio of between 25
to 50 MLPs, however there is no limit on the number of MLPs in which
the Fund will invest.\11\ The Sub-Adviser's investment decisions will
be based on a variety of quantitative, qualitative and relative
valuation factors. The Sub-Adviser will typically evaluate potential
investments with respect to certain key variables that the Sub-Adviser
believes make a business successful over time, including, without
limitation, a company's competitive position, its perceived ability to
earn a high return on capital, the historical and projected stability
and reliability of its earnings and cash flow, its anticipated ability
to generate cash in excess of its growth needs and its access to
additional capital. The Sub-Adviser also expects to utilize its
personnel's experience in evaluating energy infrastructure investments
and long-term relationships with energy industry participants to help
identify investment opportunities.
---------------------------------------------------------------------------
\11\ According to the Registration Statement, under normal
circumstances, the Fund will not invest more than 15% of its total
assets in any one issuer.
---------------------------------------------------------------------------
Other Fund Investments
According to the Registration Statement, although the Fund will
normally invest not less than 80% of its total assets as described
above, the Fund has flexibility to invest the remaining 20% of its
assets in other types of securities, including exchange-traded equity
securities of large, medium and small capitalization companies, money
market mutual funds, ETFs and other open-end and closed-end investment
companies unrelated to the energy infrastructure sector, when the Sub-
Adviser believes they offer more attractive opportunities or to meet
liquidity, redemption or short-term investing needs.
According to the Registration Statement, the Fund may invest up to
20% of its total assets in securities convertible into common stock.
Convertible securities eligible for purchase by the Fund will be
exchange-traded and include convertible bonds, convertible preferred
stocks, and warrants. The Fund will not invest directly in real estate,
but may invest in exchange-traded readily marketable securities issued
by companies that invest in real estate or interests therein. The Fund
may also invest in readily marketable interests in real estate
investment trusts.
According to the Registration Statement, the Fund may invest in
money market instruments, foreign debt or equity securities traded on
U.S. exchanges, in over-the-counter markets or in the form of American
Depositary Receipts.
According to the Registration Statement, the Fund may also use
leverage (including margin borrowing) to the extent permitted by the
1940 Act. However, the Fund's investments will not be used to seek
performance that is the multiple or inverse multiple (i.e., 2Xs and
3Xs) of an index. The Fund may also invest, or establish short
positions, in ETFs, exchange-traded options or futures contracts in an
effort to hedge against market, interest rate or commodity risks in the
Fund's portfolio.
General Limitations
The 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 to be illiquid by the Sub-
Adviser.\12\ The 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 the 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.\13\
---------------------------------------------------------------------------
\12\ According to the Registration Statement, in determining the
liquidity of the Fund's investments, the Sub-Adviser may consider
various factors including: (i) The frequency of trades and
quotations; (ii) the number of dealers and prospective purchasers in
the marketplace; (iii) dealer undertakings to make a market; (iv)
the nature of the security (including any demand or tender
features); and (v) the nature of the marketplace for trades
(including the ability to assign or offset the Fund's rights and
obligations relating to the investment).
\13\ 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).
---------------------------------------------------------------------------
The Fund may lend portfolio securities in an amount equal to up to
33% of its total assets to broker-dealers, major banks, or other
recognized domestic institutional borrowers of securities which the
Sub-Adviser has determined are creditworthy under guidelines
established by the Board of Trustees. The Fund may not lend securities
to any company affiliated with the Sub-Adviser. Each loan of securities
will be collateralized by cash, securities, or letters of credit. The
Fund might experience a loss if the borrower defaults on the loan.
The Fund will not invest in swaps. The Fund's investments will be
consistent with its investment objective.
The Fund will not invest in unsponsored ADRs. The Fund will invest
only in ADRs, futures and options that are traded on an exchange that
is a member of the Intermarket Surveillance Group (``ISG'') or with
which the Exchange has in place a comprehensive surveillance sharing
agreement.
Creation and Redemption of Shares
According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis at net asset value (``NAV'') in
aggregations of 50,000 Shares (``Creation Units'').
The consideration for purchase of a Creation Unit of the Fund
generally consists of an in-kind deposit of a designated portfolio of
securities (the ``Deposit Securities'') per each Creation
[[Page 43804]]
Unit constituting a substantial replication, or a representation, of
the securities included in the Fund's portfolio and an amount of cash
(the ``Cash Component''). Together, the Deposit Securities and the Cash
Component constitute the ``Fund Deposit,'' which represents the minimum
initial and subsequent investment amount for a Creation Unit of the
Fund.
The Cash Component is an amount equal to the difference between the
NAV of the Shares (per Creation Unit) and the market value of the
Deposit Securities. If the Cash Component is a positive number (i.e.,
the NAV per Creation Unit exceeds the market value of the Deposit
Securities), the Cash Component shall be such positive amount. If the
Cash Component is a negative number (i.e., the NAV per Creation Unit is
less than the market value of the Deposit Securities), the Cash
Component shall be such negative amount and the creator will be
entitled to receive cash from the Fund in an amount equal to the Cash
Component. The Cash Component serves the function of compensating for
any differences between the NAV per Creation Unit and the market value
of the Deposit Securities.
The Administrator, through the National Securities Clearing
Corporation (``NSCC''), makes available on each business day,
immediately prior to the opening of business on the Exchange (currently
9:30 a.m., Eastern Time), the list of the names and the required number
of shares of each Deposit Security to be included in the current Fund
Deposit (based on information at the end of the previous business day)
for the Fund. Such Fund Deposit is applicable in order to effect
creations of Creation Units of the Fund until such time as the next-
announced composition of the Deposit Securities is made available.
The identity and number of shares of the Deposit Securities
required for the Fund Deposit for the Fund changes as rebalancing
adjustments and corporate action events are reflected from time to time
by the portfolio managers with a view to the investment objective of
the Fund. In addition, the Trust reserves the right to permit or
require the substitution of an amount of cash to be added to the Cash
Component to replace any Deposit Security which may not be available.
The Adviser represents that, to the extent that cash is substituted to
replace any Deposit Security, such transactions will be effected in the
same manner for all Authorized Participants. In addition to the list of
names and numbers of securities constituting the current Deposit
Securities of the Fund Deposit, the Administrator, through the NSCC,
also makes available on each business day, the estimated Cash
Component, effective through and including the previous business day,
per outstanding Creation Unit of the Fund.
All purchase orders must be placed by or through an ``Authorized
Participant.'' An Authorized Participant must be either a broker-dealer
or other participant in the Continuous Net Settlement System
(``Clearing Process'') of the NSCC or a participant in The Depository
Trust Company (``DTC'') with access to the DTC system, and must execute
an agreement with the Trust, the Distributor and the Administrator that
governs transactions in the Fund's Creation Units. All orders to create
Creation Units must be received by the Distributor no later than the
close of the regular trading session on the Exchange (ordinarily 4:00
p.m. Eastern Time) on the date such order is placed in order for the
creation of Creation Units to be effected based on the NAV of Shares of
the Fund as next determined on such date after receipt of the order in
proper form.
Fund 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 and the Fund through the Administrator and only on a
business day. The Trust will not redeem Shares in amounts less than
Creation Units.
The redemption proceeds for a Creation Unit generally will consist
of securities held by the Fund (the ``Fund Securities'') (as announced
on the Fund's Web site prior to the commencement of trading on the
business day of the request for redemption received in proper form)
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 Fund Securities (the ``Cash
Redemption Amount''), less a redemption transaction fee. In the event
that the Fund Securities have a value greater than the NAV of the
Shares, a compensating cash payment equal to the differential will be
required to be made by or through an Authorized Participant by the
redeeming shareholder.
The right of redemption may be suspended or the date of payment
postponed with respect to the Fund (1) for any period during which the
Exchange is closed (other than customary weekend and holiday closings);
(2) for any period during which trading on the Exchange is suspended or
restricted; (3) for any period during which an emergency exists as a
result of which disposal of the Shares of the Fund or determination of
the Shares' NAV is not reasonably practicable \14\; or (4) in such
other circumstance as is permitted by the Commission.
---------------------------------------------------------------------------
\14\ Pursuant to NYSE Arca Equities Rule 7.34(a)(5), trading in
the Shares will be halted if the Fund's NAV is not disseminated to
all market participants at the same time.
---------------------------------------------------------------------------
Detailed descriptions of the Fund's 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 Fund (www.infracapmlp.com), as
applicable.
Determination of 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 (i.e., the value of its total assets less total liabilities) by
the total number of Shares outstanding, rounded to the nearest cent.
Expenses and fees, including the management fee, will be accrued daily
and taken into account for purposes of determining NAV. The NAV of the
Fund will be determined as of the close of the regular trading session
on the Exchange (ordinarily 4:00 p.m., Eastern time) on each day that
the Exchange is open.
Exchange-traded securities will be valued at market closing price
or, if no sale has occurred, at the last quoted bid price on the
primary exchange on which they are traded. Price information for
exchange-traded securities, including equity securities of MLPs and
large, medium and small capitalization companies, ETFs, ETNs, ADRs,
convertible securities and options will be taken from the exchange
where the security is primarily traded.
Futures will be valued at the settlement price determined by the
applicable exchange.
Investment company securities, including money market mutual funds
and open-end and closed-end investment companies, will be valued at
NAV, utilizing pricing services.
In computing the Fund's NAV, the value of the Fund's portfolio
holdings is based on such holdings' closing price on local markets when
available. When a portfolio holding's market price is not readily
available or does not otherwise accurately reflect the fair value of
such security, the Fund will use such holding's fair value as
determined in good faith in accordance with the Fund's fair value
pricing procedures, which will be approved by the Board of
[[Page 43805]]
Trustees. Fair value pricing may be used, for example, in situations
where (i) portfolio holdings, such as holdings with small
capitalizations, are so thinly traded that there have been no
transactions for that portfolio holding over an extended period of
time; (ii) an event occurs after the close of the exchange on which a
portfolio holding is principally traded that is likely to change the
value of the portfolio holding prior to the Fund's NAV calculation;
(iii) the exchange on which the portfolio holding is principally traded
closes early; or (iv) trading of the particular portfolio holding is
halted during the day and does not resume prior to the Fund's NAV
calculation. In addition, the Fund may fair value foreign equity
portfolio holdings each day the Fund calculates its NAV. Accordingly,
the Fund's NAV may reflect certain portfolio holdings' fair values
rather than their market prices.
In valuing non-exchange traded securities, the Fund will first use
publicly-available pricing sources, including Bloomberg, IDC, and
Reuters. Non-exchange traded securities will only be fair valued if
their market prices are not readily available.
To the extent the assets of the Fund are invested in the other
open-end investment companies that are registered under the 1940 Act,
the Fund's NAV is calculated based upon the NAVs reported by such
registered open-end investment companies, and the prospectuses for
these companies explain the circumstances under which they will use
fair value pricing and the effects of using fair value pricing.
Availability of Information
The Fund's Web site (www.infracapmlp.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) 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''),\15\ 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
Fund will disclose on its Web site the Disclosed Portfolio that will
form the basis for the Fund's calculation of NAV at the end of the
business day.\16\
---------------------------------------------------------------------------
\15\ The Bid/Ask Price of the 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 Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\16\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
the Fund 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 or other financial instrument of the Fund the following
information on the Fund's Web site: ticker symbol, CUSIP number or
other identifier, if any; a description of the holding (including the
type of holding); the identity of the security, commodity, index or
other asset or instrument underlying the holding, if any; for options,
the option strike price; quantity held (as measured by, for example,
par value, notional value or number of shares, contracts or units);
maturity date, if any; coupon rate, if any; effective date, if any;
market value of the holding; and the percentage weighting of the
holding in the Fund's 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 required to be delivered in exchange for the
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 Shares of the
Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's 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 any
underlying securities that are exchange-listed, including equity
securities of MLPs and large, medium and small capitalization
companies, ETFs, ETNs, ADRs and convertible securities will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. Information relating to futures will be available from the
exchange on which such futures are traded. Information relating to
exchange-traded options will be available via the Options Price
Reporting Authority. Information for investment companies, including
money market mutual funds and open-end and closed-end investment
companies, will be available from publicly-available pricing souces
[sic], including Bloomberg, IDC and Reuters. In addition, the
Indicative Optimized Portfolio Value (``IOPV''),\17\ which is the
Portfolio Indicative Value as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated at least every 15 seconds
during the Core Trading Session by one or more major market data
vendors.\18\
---------------------------------------------------------------------------
\17\ The IOPV calculations will be estimates of the value of the
Fund's NAV per Share using market data converted into U.S. dollars
at the current currency rates. The IOPV price will be 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. The quotations of certain Fund holdings may not be updated
during U.S. trading hours if such holdings do not trade in the
United States. 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 Fund, which will be calculated
only once a day.
\18\ 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.
---------------------------------------------------------------------------
The IOPV will be calculated by an independent third party
calculator and will be calculated based on the same portfolio holdings
disclosed on the Fund's Web site.
The dissemination of the IOPV, together with the Disclosed
Portfolio, will allow investors to determine the value of the
underlying portfolio of the Fund on a daily basis and to provide a
close estimate of that value throughout the trading day. The intra-day,
closing and settlement prices of the portfolio securities and other
Fund investments will also be readily available from the national
securities exchanges trading such securities, automated quotation
systems, published or other public sources, or on-line information
services such as Bloomberg or Reuters.
Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio
[[Page 43806]]
holdings disclosure policies, distributions and taxes is included in
the Registration Statement. All terms relating to the Fund 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 Fund.\19\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. 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 Fund;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares may be halted.
---------------------------------------------------------------------------
\19\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. Eastern time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
The Shares will 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 Fund will be in
compliance with Rule 10A-3 \20\ under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares for the 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 NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio as defined in NYSE Arca Equities Rule
8.600(c)(2) will be made available to all market participants at the
same time.
---------------------------------------------------------------------------
\20\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
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.\21\ 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 applicable federal securities laws.
---------------------------------------------------------------------------
\21\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and exchange-traded securities held by
the Fund with other markets that are members of the ISG and FINRA, on
behalf of the Exchange, may obtain trading information regarding
trading in the Shares and exchange-traded securities held by the Fund
from such markets or other entities. In addition, the Exchange may
obtain information regarding trading in the Shares and exchange-traded
securities held by the Fund from markets and other entities that are
members of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\22\
---------------------------------------------------------------------------
\22\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated IOPV will not be calculated or publicly
disseminated; (4) how information regarding the IOPV is disseminated;
(5) the requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is 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. Eastern time each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5)\23\ 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.
---------------------------------------------------------------------------
\23\ 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 Shares will be subject to the existing trading
surveillances, administered by FINRA on behalf of the Exchange, which
are designed to detect violations of Exchange rules and applicable
federal securities laws. The Adviser is affiliated with a broker-dealer
[[Page 43807]]
and has implemented a fire wall with respect to such broker-dealer
regarding access to information concerning the composition and/or
changes to the portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding the portfolio. In the event (a) the Adviser or the Sub-
Adviser becomes newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, they will implement a ``fire wall''
with respect to their relevant personnel or broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the Fund's portfolio. FINRA, on behalf of the Exchange, may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. The Fund will invest only in ADRs,
futures and options that are traded on an exchange that is a member of
the ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. The Fund may invest up to 15% of its
net assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Sub-Adviser.
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 Fund 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 Fund will disclose on its Web site
the Disclosed Portfolio that will form the basis for the Fund's
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, and quotation
and last sale information will be available via the CTA high-speed
line. The Web site for the Fund will include the prospectus for the
Fund 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. Trading in Shares of the Fund 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 Fund may be halted. In addition, as noted above, investors will
have ready access to information regarding the Fund's 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
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Shares will be
subject to the existing trading surveillances, administered by FINRA on
behalf of the Exchange, which are designed to detect violations of
Exchange rules and applicable federal securities laws and FINRA, on
behalf of the Exchange, may obtain information via ISG from other
exchanges that are members of ISG or with which the Exchange has
entered into a comprehensive surveillance sharing agreement. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the IOPV, the Disclosed
Portfolio, and quotation and last sale information for the Shares. The
Fund's investments will be consistent with its investment objective.
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 an
additional type of actively-managed exchange-traded product that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2014-79 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-2014-79. 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
[[Page 43808]]
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-2014-79, and should
be submitted on or before August 18, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
Kevin M. O'Neill,
Deputy Secretary.
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
[FR Doc. 2014-17639 Filed 7-25-14; 8:45 am]
BILLING CODE 8011-01-P