[Federal Register Volume 79, Number 178 (Monday, September 15, 2014)]
[Notices]
[Pages 55050-55054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-21868]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73022; File No. SR-NYSEArca-2014-79]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change, as Modified by Amendments No. 1 and
No. 2, To List and Trade Shares of InfraCap MLP ETF Under NYSE Arca
Equities Rule 8.600
September 9, 2014.
I. Introduction
On July 9, 2014, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of InfraCap MLP ETF (``Fund'') under
NYSE Arca Equities Rule 8.600. The proposed rule change was published
for comment in the Federal Register on July 28, 2014.\3\ On July 25,
2014, NYSE Arca filed
[[Page 55051]]
Amendment No. 1 to the proposal.\4\ On August 8, 2014, NYSE Arca filed
Amendment No. 2 to the proposal.\5\ The Commission received no comments
on the proposal. This order grants approval of the proposed rule
change, as modified by Amendments No. 1 and No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 72651 (July 22,
2014), 79 FR 43801 (``Notice'').
\4\ Amendment No. 1 replaced and superseded the original filing
in its entirety. In Amendment No. 1, the Exchange amended the
proposed rule change to: (a) Clarify the type of investment company
securities that the Fund may invest in as part of its principal
investment strategy; (b) clarify that the real estate investment
trust interests that the Fund may invest in as part of its non-
principal investment strategy will be exchange-traded; (c) state
that not more than 10% of the assets of the Fund will be invested in
equity securities that are traded on an exchange that is not a
member of the Intermarket Surveillance Group (``ISG'') or with which
the Exchange does not have in place a comprehensive surveillance
sharing agreement; (d) describe how the over-the-counter (``OTC'')
securities in which the Fund invests will be valued for purposes of
calculating the Fund's Net Asset Value (``NAV'') of the Fund, and
specify where pricing information for such securities may be
obtained; and (e) state, for surveillance purposes, that the
Financial Industry Regulatory Authority (``FINRA''), on behalf of
the Exchange, is able to access, as needed, trade information for
certain fixed income securities held by the Fund reported to FINRA's
Trade Reporting and Compliance Engine (``TRACE''). See Amendment No.
1, available at: http://www.sec.gov/comments/sr-nysearca-2014-79/nysearca201479-1.pdf. Amendment No. 1 provided clarification to the
proposed rule change, and because it does not materially affect the
substance of the proposed rule change or raise novel or unique
regulatory issues, Amendment No. 1 is not subject to notice and
comment.
\5\ Amendment No. 2 amended the filing, as modified by Amendment
No. 1, to: (a) Reflect a name change to the Fund from ``InfraCap
Active MLP ETF'' to ``InfraCap MLP ETF;'' and (b) clarify that all
of the principal investments of the Fund, including the other open-
end and closed-end investment companies that the Fund may invest in
as part of its principal investment strategy, will be exchange-
traded. Amendment No. 2 provided clarification to the proposed rule
change, and because it does not materially affect the substance of
the proposed rule change or raise novel or unique regulatory issues,
Amendment No. 2 is not subject to notice and comment.
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II. Description of the Proposed Rule Change
The Exchange proposes to list and trade the Shares under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares on the Exchange. The Shares will be offered by ETFis Series
Trust I (``Trust''). The Trust is registered with the Commission as an
investment company.\6\
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\6\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). The Exchange states that on February 26, 2014,
the Trust filed with the Commission a post-effective amendment to
its registration statement on Form N-1A under the Securities Act of
1933 and under the 1940 Act relating to the Fund (File Nos. 333-
187668 and 811-22819) (``Registration Statement''). In addition, the
Exchange states that 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, and that 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) (File No. 812-14080).
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Etfis Capital LLC (``Adviser'') will serve as the investment
adviser to the Fund and Infrastructure Capital Advisors, LLC (``Sub-
Adviser'') will serve as sub-adviser for the Fund. The Exchange states
that neither the Adviser nor the Sub-Adviser is registered as a broker-
dealer. The Exchange states that the Adviser (but not the Sub-Adviser)
is affiliated with a broker-dealer; that the Adviser has implemented a
fire wall with respect to such broker-dealer affiliate regarding access
to information concerning the composition of, or changes to, the
portfolio; and that the Adviser will be subject to procedures designed
to prevent the use and dissemination of material non-public information
regarding the portfolio.\7\
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\7\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The
Exchange states that, 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,
the adviser or sub-adviser will implement a fire wall with respect
to its relevant personnel or broker-dealer affiliate, as applicable,
regarding access to information concerning the composition of, or
changes to, the portfolio, and that adviser or sub-adviser will be
subject to procedures designed to prevent the use and dissemination
of material non-public information regarding such portfolio.
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ETF Distributors LLC will be the principal distributor of the
Fund's Shares. The Bank of New York Mellon will serve as the
administrator, accountant, custodian, and transfer agent for the Fund.
The Exchange has made the following representations and statements
in describing the Fund and its investment strategies, including
portfolio holdings and investment restrictions.\8\
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\8\ The Commission notes that additional information regarding
the Trust, the Fund, and the Shares, investment strategies, risks,
NAV calculation, creation and redemption procedures, fees, portfolio
holdings disclosure policies, distributions, and taxes, among other
information, is included in the Notice, Amendment Nos. 1 and 2, and
the Registration Statement, as applicable. See Notice, Amendment
Nos. 1 and 2, and Registration Statement, supra notes 3, 4, 5, and 6
respectively.
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Principal Fund Investments
According to the Exchange, 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'').\9\ The Fund will seek to achieve its
investment objective by normally \10\ investing up to 100% (but 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.
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\9\ According to the Exchange, the Fund may invest in MLP units,
securities of companies holding primarily general partner or
managing member interests in MLPs, and securities that themselves
own interests in MLPs (e.g., exchange-traded funds (``ETFs''),
exchange-traded notes (``ETNs''), and other exchange-traded open-end
and closed-end investment companies that invest in MLPs). The
Exchange states that, for purposes of this filing, ETFs 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). The Exchange
further states that, for purposes of this filing, ETNs include
securities listed and traded on the Exchange under NYSE Arca
Equities Rule 5.2(j)(6) (Index-Linked Securities).
\10\ 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.
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According to the Exchange, 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.\11\
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\11\ According to the Exchange, 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.
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The Fund expects to typically invest in a portfolio of between 25
and 50 MLPs, but there is no limit on the number of MLPs in which the
Fund will invest.\12\ The Sub-Adviser's investment decisions will be
based on a variety of quantitative, qualitative, and relative
[[Page 55052]]
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.
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\12\ Under normal circumstances, the Fund will not invest more
than 15% of its total assets in any one issuer.
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Other Fund Investments
According to the Exchange, 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 or 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 Exchange, 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 exchange-traded real
estate investment trusts.
According to the Exchange, the Fund may invest in money market
instruments and foreign debt traded on U.S. exchanges or in OTC
markets, and the Fund may invest in equity securities (including equity
securities in the form of American Depositary Receipts) traded on U.S.
exchanges or in the OTC markets.
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.
Investment Restrictions
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.\13\ 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.
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\13\ 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).
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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 that 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 ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. Not more than 10% of the
assets of the Fund will be invested in equity securities that are
traded on an exchange that is not a member of the ISG or with which the
Exchange does not have in place a comprehensive surveillance sharing
agreement.
The Fund may 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.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendments No. 1 and No. 2, is consistent with
the requirements of Section 6 of the Act \14\ and the rules and
regulations thereunder applicable to a national securities
exchange.\15\ In particular, the Commission finds that the proposed
rule change is consistent with the requirements of Section 6(b)(5) of
the Act,\16\ which requires, among other things, that the Exchange's
rules be designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in facilitating
transactions in securities, to remove impediments to and perfect the
mechanism of a free and open market and a national market system, and,
in general, to protect investors and the public interest. The
Commission notes that the Fund and the Shares must comply with the
requirements of NYSE Arca Equities Rule 8.600 for the Shares to be
listed and traded on the Exchange.
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\14\ 15 U.S.C. 78f.
\15\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\16\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\17\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association (``CTA'') high-speed line. In addition, the Indicative
Optimized Portfolio Value (``IOPV''),\18\
[[Page 55053]]
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.\19\ 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, as defined in NYSE
Arca Equities Rule 8.600(c)(2), that will form the basis for the Fund's
calculation of NAV at the end of the business day.\20\ 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.\21\ 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 the National Securities Clearing Corporation. Information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. The intra-day, closing, and settlement prices of
the portfolio securities and other Fund investments will be readily
available from the national securities exchanges trading those
securities, automated quotation systems, published or other public
sources, or on-line information services such as Bloomberg or Reuters.
Quotation and last sale information for 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 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 sources, including Bloomberg,
IDC, and Reuters. Quotation information for foreign debt securities,
domestic debt securities, and equity securities that trade in OTC
markets may be obtained from brokers and dealers who make markets in
those securities or through nationally recognized pricing services
through subscription agreements. 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 and additional data relating to NAV and other applicable
quantitative information.
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\17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\18\ According to the Exchange, 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
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 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. The
Exchange states that the IOPV 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.
\19\ According to the Exchange, several major market data
vendors currently display or make widely available IOPVs taken from
the CTA or other data feeds.
\20\ 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.
\21\ 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 Exchange represents
that for purposes of calculating NAV, 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. Foreign debt securities,
domestic debt securities, and equity securities, in each case that
trade in the OTC market, will be valued based on price quotations
obtained from a broker-dealer who makes markets in such securities
or on other equivalent indications of value provided by a third-
party pricing service. Any such third-party pricing service may use
a variety of methodologies to value some or all such securities to
determine the market price. The Fund's foreign and domestic debt
securities that trade in the OTC market will generally be valued at
bid prices. 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
the 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 that 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 Trustees. 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 other open-end
investment companies that are registered under the 1940 Act, the
Fund's NAV is calculated based upon the NAVs reported by those
registered open-end investment companies.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.\22\
The Exchange may halt trading in the Shares if trading is not occurring
in the securities or the financial instruments constituting the
Disclosed Portfolio of the Fund, or if other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present.\23\ In addition, trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
additional circumstances under which Shares of the Fund may be halted.
The Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its employees.
Further, the Commission notes that the Reporting Authority that
provides the Disclosed Portfolio of the Fund must implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material, non-public information regarding the actual
components of the Fund's portfolio.\24\ In addition, the Exchange
states that, while neither the Adviser nor the Sub-Adviser is
registered as a broker-dealer, the
[[Page 55054]]
Adviser (but not the Sub-Adviser) is affiliated with a broker-dealer
and has implemented a fire wall with respect to that broker-dealer
regarding access to information concerning the composition of, 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.\25\ The Exchange represents that trading in
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.\26\ The Exchange further 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.
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\22\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\23\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing
additional considerations for the suspension of trading in or
removal from listing of Managed Fund Shares on the Exchange). With
respect to trading halts, the Exchange may consider all relevant
factors in exercising its discretion to halt or suspend trading in
the Shares of the Fund. 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.
\24\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
\25\ See supra note 7 and accompanying text. 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 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.
\26\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement and that the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made the following
representations:
(1) The Shares will conform to the initial and continuing listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and exchange-traded assets held by the
Fund with other markets that are members of ISG, and FINRA, on behalf
of the Exchange, may obtain trading information regarding trading in
the Shares and exchange-traded assets held by the Fund from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and exchange-traded assets
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. In addition, FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Fund reported to FINRA's TRACE.
(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Specifically, the Bulletin will discuss the following: (a) The
procedures for purchases and redemptions of Shares in creation unit
aggregations (and that Shares are not individually redeemable); (b)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its Equity Trading Permit Holders to learn the essential facts
relating to every customer prior to trading the Shares; (c) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated IOPV will not be calculated or publicly
disseminated; (d) how information regarding the IOPV is disseminated;
(e) the requirement that Equity Trading Permit Holders deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (f) trading
information.
(5) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Act,\27\ as provided by NYSE Arca
Equities Rule 5.3.
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\27\ 17 CFR 240.10A-3.
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(6) The Fund will normally invest up to 100% (but not less than
80%) of its total assets in exchange-traded securities of MLPs in the
energy infrastructure sector.
(7) The Fund will not invest in swaps.
(8) 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 ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.
(9) Not more than 10% of the assets of the Fund will be invested in
equity securities that are traded on an exchange that is not a member
of the ISG or with which the Exchange does not have in place a
comprehensive surveillance sharing agreement.
(10) 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. 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.
(11) The Fund's investments will be consistent with its investment
objective. The Fund may 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.
(12) A minimum of 100,000 Shares for the Fund will be outstanding
at the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's
representations and description of the Fund, including those set forth
above and in the Notice and Amendments No. 1 and No. 2.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendments No. 1 and No. 2, is consistent
with Section 6(b)(5) of the Act \28\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\28\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\29\ that the proposed rule change (SR-NYSEArca-2014-79), as
modified by Amendments No. 1 and No. 2, be, and it hereby is, approved.
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\29\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-21868 Filed 9-12-14; 8:45 am]
BILLING CODE 8011-01-P