[Federal Register Volume 79, Number 226 (Monday, November 24, 2014)]
[Notices]
[Pages 69929-69936]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-27707]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73631; File No. SR-NYSEArca-2014-41]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of a Proposed Rule Change, as Modified by Amendments No. 1 and
No. 4 Thereto, Relating to Listing and Trading of Shares of the Reality
Shares DIVS Index ETF Under NYSE Arca Equities Rule 5.2(j)(3)
November 18, 2014.
I. Introduction
On April 11, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
Reality Shares DIVS Index ETF (``Fund'') under NYSE Arca Equities Rule
5.2(j)(3). The proposed rule change was published for comment in the
Federal Register on April 30, 2014.\3\ On May 6, 2014, the Exchange
filed Amendment No. 1 to the proposed rule change, which amended and
replaced the proposed rule change in its entirety.\4\ On June 6, 2014,
the Exchange filed Amendment No. 4 to the proposed rule change.\5\ On
June 13, 2014, pursuant to Section 19(b)(2) of the Act,\6\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\7\ On July 29, 2014, the Commission instituted proceedings
under Section 19(b)(2)(B) of the Act \8\ to determine whether to
approve or disapprove the proposed rule change.\9\ In response to the
Order Instituting Proceedings, the Commission received two comment
letters on the proposal.\10\ On October 23, 2014, the Commission
designated a longer period for Commission action on the Order
Instituting Proceedings.\11\ This order grants approval of the proposed
rule change, as modified by Amendments No. 1 and No. 4 thereto.
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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. 72015 (Apr. 24,
2014), 79 FR 24475 (``Notice'').
\4\ In Amendment No. 1, the Exchange clarified the valuation of
investments for purposes of calculating net asset value, provided
additional details regarding the dissemination of the Disclosed
Portfolio, and made other minor technical edits to the proposed rule
change. 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\ The Exchange filed Amendment No. 2 on June 4, 2014 and
withdrew it on June 5, 2014, and filed Amendment No. 3 on June 5,
2014 and withdrew it on June 6, 2014. Amendment No. 4 supersedes
both Amendments No. 2 and No. 3. In Amendment No. 4, the Exchange
amended the proposal to reflect a change to the name of the Fund and
the underlying index. Specifically, the Exchange replaced each
reference in the proposal to the ``Reality Shares Isolated Dividend
Growth Index ETF'' (the original name of the Fund) with a reference
to the ``Reality Shares DIVS Index ETF.'' Similarly, the Exchange
replaced each reference in the proposal to the ``Reality Shares
Isolated Dividend Growth Index'' with a reference to the ``Reality
Shares DIVS Index.'' Amendment No. 4 is a technical amendment and is
not subject to notice and comment as it does not materially affect
the substance of the filing.
\6\ 15 U.S.C. 78s(b)(2).
\7\ See Securities Exchange Act Release No. 72385, 79 FR 35205
(Jun. 19, 2014). The Commission designated a longer period within
which to take action on the proposed rule change and designated July
29, 2014, as the date by which it should approve, disapprove, or
institute proceedings to determine whether to disapprove the
proposed rule change.
\8\ 15 U.S.C. 78s(b)(2)(B).
\9\ See Securities Exchange Act Release No. 72714, 79 FR 45574
(Aug. 5, 2014) (``Order Instituting Proceedings''). Specifically,
the Commission instituted proceedings to allow for additional
analysis of the proposed rule change's consistency with Section
6(b)(5) of the Act, which requires, among other things, that the
rules of a national securities exchange be ``designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade,'' and ``to protect investors and the
public interest.'' See id.
\10\ See Letter from Eric R. Ervin, President, Reality Shares
ETF Trust and Reality Shares Advisors, LLC, and President and CEO,
Reality Shares, Inc., to Kevin M. O'Neill, Deputy Secretary,
Commission, dated August 22, 2014 (``Reality Shares Letter 1'');
Letter from Eric R. Ervin, President, Reality Shares ETF Trust and
Reality Shares Advisors, LLC, and President and CEO, Reality Shares,
Inc., to Arun Manoharan, Financial Economist, Commission, dated
October 21, 2014 (``Reality Shares Letter 2'').
\11\ See Securities Exchange Act Release No. 73417, 79 FR 64430
(Oct. 29, 2014).
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II. Description of the Proposal, as Modified by Amendments No. 1 and
No. 4 Thereto
A. The Fund, Generally
The Exchange proposes to list and trade Shares of the Fund under
NYSE Arca Equities Rule 5.2(j)(3), which
[[Page 69930]]
governs the listing and trading of Investment Company Units on the
Exchange.\12\ The Fund is an exchange-traded fund (``ETF'') that will
seek long-term capital appreciation by tracking the performance of the
Reality Shares DIVS Index (``Index''). The Shares of the Fund will be
offered by the Reality Shares ETF Trust (``Trust''). The Exchange
represents that the Trust will be registered with the Commission as an
open-end management investment company.\13\ Reality Shares Advisors,
LLC will serve as the investment adviser to the Fund (``Adviser'').\14\
The Exchange states that the Adviser is not registered as a broker-
dealer and is not affiliated with any broker-dealers.\15\ ALPS
Distributors, Inc. will be the principal underwriter and distributor of
the Fund's Shares. The Bank of New York Mellon will serve as
administrator, custodian, and transfer agent for the Fund.
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\12\ NYSE Arca Equities Rule 5.2(j)(3)(A) provides that an
Investment Company Unit is a security that represents an interest in
a registered investment company that holds securities comprising, or
otherwise based on or representing an interest in, an index or
portfolio of securities (or holds securities in another registered
investment company that holds securities comprising, or otherwise
based on, or representing an interest in, an index or portfolio of
securities).
\13\ According to the Exchange, the Trust will be registered
under the Investment Company Act of 1940 (``1940 Act''). On February
6, 2014, the Trust filed a registration statement on Form N-1A under
the Securities Act of 1933 and the 1940 Act relating to the Fund, as
amended by Pre-Effective Amendment Number 1, filed with the
Commission on February 6, 2014 (File Nos. 333-192288 and 811-22911)
(``Registration Statement''). In addition, the Exchange states that
the Trust has obtained certain exemptive relief under the 1940 Act.
Investment Company Act Release No. 30678 (Aug. 27, 2013)
(``Exemptive Order''). The Exchange represents that investments made
by the Fund will comply with the conditions set forth in the
Exemptive Order.
\14\ The Adviser is a wholly-owned subsidiary of Reality Shares,
Inc. (``Index Provider'').
\15\ According to the Exchange, the Adviser and the Index
Provider have represented that a fire wall exists around the
respective personnel who have access to information concerning
changes and adjustments to the Index. The Exchange further
represents that in the event (a) the Adviser, any sub-adviser, or
the Index Provider becomes registered as a broker-dealer or newly
affiliated with a broker-dealer, or (b) any new adviser, sub-
adviser, or Index Provider is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement a fire wall with
respect to the relevant personnel or broker-dealer affiliate
regarding access to information concerning the composition 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.
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B. The Exchange's Description of the Fund
The Exchange has made the following representations and statements
in describing the Fund and its investment strategy, including permitted
portfolio holdings and investment restrictions.\16\
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\16\ Additional information regarding the Trust, the Fund, and
the Shares, including investment strategy, risks, creation and
redemption procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes, among other things, is included in the
Notice, Registration Statement, and Exemptive Order, as applicable.
See Notice, supra note 3; see also Registration Statement and
Exemptive Order, supra note 13.
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Reality Shares DIVS Index ETF
The Index was developed and is maintained by Reality Shares,
Inc.\17\ The Exchange states that the Index Provider is not registered
as an investment adviser or broker dealer and is not affiliated with
any broker-dealers.\18\ The Exchange states that the Index for the Fund
does not meet all of the ``generic'' listing requirements of Commentary
.01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) applicable to the
listing of Investment Company Units based upon an index of ``US
Component Stocks.'' \19\ Specifically, Commentary .01(a)(A) to NYSE
Arca Equities Rule 5.2(j)(3) sets forth the requirements to be met by
components of an index or portfolio of US Component Stocks. As
discussed in more detail herein, the Index is calculated using a
proprietary, rules-based methodology designed to track market
expectations for dividend growth conveyed in real-time using bid-ask
prices on exchange-listed S&P 500 Index options and exchange-listed
options on exchange traded funds (``ETFs'') designed to track the S&P
500 Index.\20\ The Fund may also invest up to 20% of its total assets
in other securities such as over-the-counter (``OTC'') options,
futures, and forward contracts on the S&P 500 Index, and OTC options,
futures, and forward contracts on ETFs that track the S&P 500 Index.
Because the Index will consist primarily of S&P 500 Index options and
options on ETFs designed to track the S&P 500 Index, and not US
Component Stocks, the Index does not satisfy the requirements of
Commentary .01(a)(A).\21\
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\17\ The Index will be calculated by International Data
Corporation (``IDC''), which is not affiliated with the Adviser or
Index Provider, and which is not a broker-dealer or fund advisor.
\18\ See supra note 15.
\19\ NYSE Arca Equities Rule 5.2(j)(3) defines the term ``US
Component Stock'' as an equity security that is registered under
Sections 12(b) or 12(g) of the Act or an American Depositary
Receipt, the underlying equity security of which is registered under
Sections 12(b) or 12(g) of the Act.
\20\ For purposes of this proposed rule change, ETFs include
Investment Company Units (as described in NYSE Arca Equities Rule
5.2(j)(3)) and Portfolio Depositary Receipts (as described in NYSE
Arca Equities Rule 8.100). The ETFs all will be listed and traded in
the U.S. on registered exchanges. The Fund may not invest in
leveraged or inverse leveraged (e.g., 2X, -2X, 3X, or -3X) ETFs or
options on such ETFs.
\21\ NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(A)(5)
provides that all securities in the applicable index or portfolio
shall be US Component Stocks listed on a national securities
exchange and shall be NMS Stocks as defined in Rule 600 under
Regulation NMS of the Act. The Exchange states that each component
stock of the S&P 500 Index is a US Component Stock that is listed on
a national securities exchange and is an NMS Stock. Options,
however, are excluded from the definition of NMS Stock. The Exchange
represents that the Fund and the Index meet all of the requirements
of the listing standards for Investment Company Units in Rule
5.2(j)(3) and the requirements of Commentary .01, except the
requirements in Commentary .01(a)(A)(1)-(5), because the Index
includes options on US Component Stocks.
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Principal Investments of the Fund
The Fund will seek long-term capital appreciation and will seek
investment results that, before fees and expenses, generally correspond
to the performance of the Index. At least 80% of the Fund's total
assets (exclusive of collateral held from securities lending, if any)
will be invested in the component securities of the Index. The Fund
will seek a correlation of 0.95 or better between its performance and
the performance of its Index (a figure of 1.00 would represent perfect
correlation). The Fund generally will use a representative sampling
investment strategy.
The Fund will buy (i.e., hold a ``long'' position in) and sell
(i.e., hold a ``short'' position in) put and call options. The strategy
of taking both a long position in a security through its ex-dividend
date (the last date an investor can own the security and receive
dividends paid on the security) and a corresponding short position in
the same security immediately thereafter is designed to allow the Fund
to isolate its exposure to the growth of the level of dividends
expected to be paid on such security while minimizing its exposure to
changes in the trading price of such security.
The Fund will buy and sell U.S. exchange-listed options on the S&P
500 Index and U.S. exchange-listed options on ETFs designed to track
the S&P 500 Index. A put option gives the purchaser of the option the
right to sell, and the issuer of the option the obligation to buy, the
underlying security or instrument on a specified date or during a
specified period of time. A call option on a security gives the
purchaser of the option the right to buy, and the writer of the option
the obligation to sell, the underlying security or instrument on a
specified date or during a specified period of time. The Fund will
invest in a combination of put and call options designed to allow the
Fund to isolate its
[[Page 69931]]
exposure to the growth of the level of expected dividends reflected in
options on the S&P 500 Index and options on ETFs tracking the S&P 500
Index, while minimizing the Fund's exposure to changes in the trading
price of such securities.
Index Methodology
The Index will be calculated using a proprietary, rules-based
methodology designed to track market expectations for dividend growth
conveyed in real-time using the mid-point of the bid-ask spread on S&P
500 Index options and options on ETFs designed to track the S&P 500
Index.\22\ All options included in the Index will be listed and traded
on a U.S. national securities exchange. The Index will consist of a
minimum of 20 components.
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\22\ The Exchange notes that there is no guarantee that either
the level of overall dividends paid by such companies will grow over
time, or that the Index or Fund's investment strategies will capture
such growth. The Fund will include appropriate risk disclosure in
its offering documents disclosing these risks, which will be
available for free on the Commission's Web site and on the Fund's
Web site, www.realityshares.com.
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The prices of index and ETF options reflect the market trading
prices of the securities included in the applicable underlying index or
ETF, as well as market expectations regarding the level of dividends to
be paid on such indexes or ETFs during the term of the option. The
Index constituents, and, therefore, most of the Fund's portfolio
holdings, will consist of multiple corresponding near-term and long-
term put and call option combinations on the same reference assets
(i.e., options on the S&P 500 Index or options on S&P 500 ETFs) with
the same strike price. Because option prices reflect both stock price
and dividend expectations, they can be used in combination to isolate
either price exposure or dividend expectations. The use of near-term
and long-term put and call options combinations on the same reference
asset with the same strike price, but with different maturities, is
designed to gain exposure to the expected dividends reflected in
options on the S&P 500 Index and options on ETFs tracking the S&P 500
Index while neutralizing the impact of stock price.
Once established, this portfolio construction of options
combinations will accomplish two goals. First, the use of corresponding
buy or sell positions on near and long-term options at the same strike
price is designed to neutralize underlying stock price movements. In
other words, the corresponding ``buy'' and ``sell'' positions on the
same reference asset are designed to net against each other and
eliminate the impact that changes to the stock price of the reference
asset would otherwise have on the value of the Index (and Fund Shares).
Second, by minimizing the impact of price fluctuations through the
construct of the near- and long-term contract combinations, the
strategy is designed to isolate market expectations for dividends
implied between expiration dates of the near-term and long-term option
contracts. Over time, the Index will increase or decrease in value as
the dividend spread between the near-term and long-term options
combinations increases or decreases as a result of changing market
expectations for dividend growth.
Other Fund Investments
While, as described above, at least 80% of the Fund's total assets
(exclusive of collateral held from securities lending, if any) will be
invested in the component securities of the Index, the Fund may invest
up to 20% of its total assets in other securities and financial
instruments, as described below.
The Fund may invest in: (a) U.S. exchange-listed futures contracts
based on the S&P 500 Index and ETFs designed to track the S&P 500
Index; and (b) forward contracts based on the S&P 500 Index and ETFs
designed to track the S&P 500 Index. The Fund's use of exchange-listed
futures contracts and forward contracts is designed to allow the Fund
to isolate its exposure to the growth of the level of expected
dividends reflected in options on the S&P 500 Index and options on ETFs
tracking the S&P 500 Index, while minimizing the Fund's exposure to
changes in the trading price of such securities. The Fund may also buy
and sell OTC options on the S&P 500 Index and on ETFs designed to track
the S&P 500 Index.
The Fund may enter into dividend and total return swap transactions
(including equity swap transactions) based on the S&P 500 Index and
ETFs designed to track the S&P 500 Index.\23\ In a typical swap
transaction, one party agrees to make periodic payments to another
party (``counterparty'') based on the change in market value or level
of a specified rate, index, or asset. In return, the counterparty
agrees to make periodic payments to the first party based on the return
of a different specified rate, index, or asset. Swap transactions are
usually done on a net basis, whereby the Fund would receive or pay only
the net amount of the two payments. In a typical dividend swap
transaction, the Fund would pay the swap counterparty a premium and
would be entitled to receive the value of the actual dividends paid on
the subject index during the term of the swap contract. In a typical
total return swap, the Fund might exchange long or short exposures to
the return of the underlying securities or index to isolate the value
of the dividends paid on the underlying securities or index
constituents. The Fund also may engage in interest rate swap
transactions. In a typical interest rate swap transaction one stream of
future interest payments is exchanged for another. Such transactions
often take the form of an exchange of a fixed payment for a variable
payment based on a future interest rate. The Fund intends to use
interest rate swap transactions to manage or hedge exposure to interest
rate fluctuations.
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\23\ The Fund will transact only with swap dealers that have in
place an ISDA agreement with the Fund.
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The Fund may invest up to 20% of its assets (exclusive of
collateral held from securities lending, if any) in exchange-listed
equity securities and derivative instruments (specifically, futures
contracts, forward contracts, and swap transactions, as noted above)
\24\ relating to the Index and its component securities that the
Adviser believes will help the Fund track the Index. For example, the
Fund may buy and sell ETFs and, to a limited extent, individual large-
capitalization equity securities listed and traded on a U.S. national
securities exchange.
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\24\ Where practicable, the Fund intends to invest in swaps
cleared through a central clearing house (``Cleared Swaps'').
Currently, only certain of the interest rate swaps in which the Fund
intends to invest are Cleared Swaps, while the dividend and total
return swaps (including equity swaps) in which the Fund may invest
are currently not Cleared Swaps.
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The Fund may invest in the securities of other investment companies
(including money market funds) to the extent permitted under the 1940
Act.
The Fund's short positions and its investments in swaps, futures
contracts, forward contracts, and options based on the S&P 500 Index
and ETFs designed to track the S&P 500 Index will be backed by
investments in cash, high-quality short-term debt securities, and
money-market instruments in an amount equal to the Fund's maximum
liability under the applicable position or contract, or will otherwise
be offset in accordance with Section 18 of the 1940 Act. Short-term
debt securities and money market instruments include shares of fixed
income or money market mutual funds, commercial paper, certificates of
deposit, bankers'
[[Page 69932]]
acceptances, U.S. government securities (including securities issued or
guaranteed by the U.S. government or its authorities, agencies, or
instrumentalities), repurchase agreements,\25\ and bonds that are rated
BBB or higher. In addition to the investments described above, and in a
manner consistent with its investment objective, the Fund may invest a
limited portion of its net assets in high-quality, short-term debt
securities and money market instruments for cash management
purposes.\26\
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\25\ The Fund may enter into repurchase agreements with banks
and broker-dealers. A repurchase agreement is an agreement under
which securities are acquired by a fund from a securities dealer or
bank subject to resale at an agreed upon price on a later date. The
acquiring fund bears a risk of loss in the event that the other
party to a repurchase agreement defaults on its obligations and the
fund is delayed or prevented from exercising its rights to dispose
of the collateral securities.
\26\ The Fund may invest in shares of money market mutual funds
to the extent permitted by the 1940 Act.
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The Fund will attempt to limit counterparty risk in non-cleared
swap, forward, and OTC option contracts by entering into such contracts
only with counterparties the Adviser believes are creditworthy and by
limiting the Fund's exposure to each counterparty. The Adviser will
monitor the creditworthiness of each counterparty and the Fund's
exposure to each counterparty on an ongoing basis.\27\
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\27\ The Fund 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 an ongoing basis. In addition
to information provided by credit agencies, the Adviser will
evaluate each approved counterparty using various methods of
analysis, such as, for example, the counterparty's liquidity in the
event of default, the counterparty's reputation, the Adviser's past
experience with the counterparty, and the counterparty's share of
market participation.
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The Fund's investments in swaps, futures contracts, forward
contracts, and options will be consistent with the Fund's investment
objective and with the requirements of the 1940 Act.\28\
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\28\ To limit the potential risk associated with such
transactions, the Fund will segregate or ``earmark'' assets
determined to be liquid by the Adviser in accordance with procedures
established by the Trust's Board of Trustees and in accordance with
the 1940 Act (or, as permitted by applicable regulation, enter into
certain offsetting positions) to cover its obligations arising from
such transactions. These procedures have been adopted consistent
with Section 18 of the 1940 Act and related Commission guidance. In
addition, the Fund will include appropriate risk disclosure in its
offering documents, including leveraging risk. Leveraging risk is
the risk that certain transactions of the Fund, including the Fund's
use of derivatives, may give rise to leverage, causing the Fund to
be more volatile than if it had not been leveraged. To mitigate
leveraging risk, the Adviser will segregate or ``earmark'' liquid
assets or otherwise cover the transactions that may give rise to
such risk.
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Investment Restrictions
To the extent the Index concentrates (i.e., holds 25% or more of
its total assets) in the securities of a particular industry or group
of industries, the Fund will concentrate its investments to
approximately the same extent as the Index.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment) deemed
illiquid by the Adviser, consistent with Commission guidance.\29\ 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
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.
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\29\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer).
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The Fund may make secured loans of its portfolio securities;
however, securities loans will not be made if, as a result, the
aggregate amount of all outstanding securities loans by the Fund
exceeds 33\1/3\% of its total assets (including the market value of
collateral received). To the extent the Fund engages in securities
lending, securities loans will be made to broker-dealers that the
Adviser believes to be of relatively high credit standing pursuant to
agreements requiring that the loans continuously be collateralized by
cash, liquid securities, or shares of other investment companies with a
value at least equal to the market value of the loaned securities.
The Fund will be classified as a ``non-diversified'' investment
company under the 1940 Act. The Fund intends to qualify for and to
elect treatment as a separate regulated investment company (``RIC'')
under Subchapter M of the Internal Revenue Code.
The Fund's investments will be consistent with its investment
objective and will not be used to provide multiple returns of a
benchmark or to produce leveraged returns.
III. Summary of Comment Letters
As noted above, the Commission received two comment letters in
response to the Order Instituting Proceedings.\30\ Both comment
letters, which were in favor of the proposal, sought to address certain
questions, as outlined in the Order Instituting Proceedings,\31\ and
provide additional clarification regarding the proposal.
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\30\ See Reality Shares Letter 1; Reality Shares Letter 2, supra
note 10.
\31\ In the Order Instituting Proceedings, the Commission sought
comment on the following questions: (a) Because the Index is
designed to reflect changes in market expectations of future
dividend growth, rather than to track actual dividend growth, is the
Fund's investment strategy fundamentally based on an assumption that
the options markets systemically underprice dividend growth? What
are commenters' views regarding whether investors would be able to
understand the strategy, risks, potential rewards, assumptions, and
expected performance of the Fund's strategy? (b) With respect to the
trading of the Shares on the Exchange, do commenters believe that
the Exchange's rules governing sales practices are adequately
designed to ensure the suitability of recommendations regarding the
Shares? Why or why not? If not, should the Exchange's rules
governing sales practices be enhanced? If so, in what ways? (c) How
closely do commenters think the market price of the Shares will
track the Fund's intraday indicative value (``IIV'') or the intraday
value of the Index? Are certain of these values likely to be more
volatile than others? If so, how would this affect trading in the
Shares? Are the Shares likely to trade with a significant premium or
discount to IIV? What are commenters' views of how effectively the
IIV of the Fund would represent the Fund's portfolio? What are
commenters' views of how the Shares' market price, the Fund's IIV,
and the intraday value of the Index will relate to one another
during times of market stress? and (d) Does the liquidity of the
long-dated options in which the Fund will invest differ materially
from that of the short-dated options in which the Fund will invest?
If so, how would that affect the ability of market makers to engage
in arbitrage or to hedge their positions while making a market in
the Shares? Would the liquidity characteristics of the Index
components or of the options in the Fund's portfolio affect the
calculation of the Index value, the calculation of the Fund's IIV,
the calculation of the Fund's NAV, or the ability of market makers
or other market participants to value the Shares? If so, how?
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A. Reality Shares Letter 1
In Reality Shares Letter 1, the commenter offers its responses to
the Commission's questions. The commenter responds that the Fund's
investment strategy is not based on the assumption that dividend growth
is underpriced by the options markets, stating that it is instead based
on the expected dividend value to be paid on S&P 500 securities (as
implied in the price of listed S&P 500 Index options over time) and the
``historical high correlation between such expected dividend values and
the value of actual dividends paid on S&P 500
[[Page 69933]]
securities.'' \32\ The commenter then explains that as the value of
actual dividends paid increases or decreases, market expectations for
dividends typically move up or down in a corresponding direction, and
that if the current expected dividend value of the options in the
Fund's portfolio changes, the value of an investment in the Fund
changes correspondingly.\33\
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\32\ See Reality Shares Letter 1, supra note 10, at 2-3.
\33\ See id., at 3.
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The commenter asserts that the Fund's Registration Statement will
sufficiently disclose to investors the key features of the Fund,
including explanations of how the Fund's strategy works and how the
Fund is expected to perform under various market conditions, and
disclosures highlighting all material risks of investing in the
Fund.\34\ The commenter believes that these disclosures and the
disclosures in the Fund's marketing materials, will allow investors to
understand the Fund's investment objective, strategy, risks, potential
rewards, assumptions, and performance characteristics.\35\ Further, the
commenter believes that the Exchange's rules governing sales practices
are sufficient to ensure the suitability of recommendations to
investors regarding the Fund's Shares.\36\
---------------------------------------------------------------------------
\34\ See id., at 3-4.
\35\ See id., at 4.
\36\ See id., at 5.
---------------------------------------------------------------------------
With respect to IIV, the commenter responds that it believes that
the market price of the Fund Shares will closely approximate the IIV of
the Fund's portfolio and the intraday value of the Fund's underlying
Index.\37\ While it believes that ``the Fund's IIV and intraday Index
values may reflect higher volatility than the market trading price of
Fund Shares,'' the commenter does not expect this will have any
material impact on secondary market trading of Fund Shares or arbitrage
in Fund Shares.\38\ The commenter expects that Authorized Participants
and other institutional investors will quote and trade the option
contracts held by the Fund in combination (by holding simultaneous long
and short positions in the same put/call contracts) and that this
combination tends to trade at tighter bid/ask spreads than do the
individual contracts.\39\ The commenter expects that Authorized
Participants and other market makers will factor the price of the
combination trades into their assessment of the value of Fund Shares,
which will be reflected in the trading price of Fund Shares.\40\ The
commenter explains that the Fund's IIV and the intraday Index values
are based on the intraday market price of individual option contracts
and do not reflect the trading price of option contracts held in
combination. So, while the commenter expects the price of Fund Shares
to closely approximate the Fund's IIV and the intraday values of the
Index, it also expects that the trading price of Fund shares will be
less volatile than the Fund's IIV and the intraday value of the
Index.\41\
---------------------------------------------------------------------------
\37\ See Reality Shares Letter 1, supra note 10, at 6.
\38\ See id.
\39\ See id.
\40\ See id., at 7.
\41\ See id.
---------------------------------------------------------------------------
In times of market stress, the commenter believes that the Fund's
Shares will trade within an acceptable spread to the Fund's IIV and the
intraday value of the Index.\42\ The commenter believes that because
the Fund's portfolio is transparent and the Index constituents are
publicly disclosed, market participants will be able to assess the
value of the Fund and the Index and access the securities necessary to
hedge their position exposures, even during times of market stress.\43\
Further, the commenter asserts that, ``[b]ecause of the transparency of
the Fund's portfolio and the liquidity and transparency of the
underlying listed index options . . . investors will continue to have
the ability to buy and sell Shares in the secondary market at fair and
representative prices should there be any material departure from the
IIV.'' \44\
---------------------------------------------------------------------------
\42\ See Reality Shares Letter 1, supra note 10, at 9.
\43\ See id.
\44\ See id., at 10.
---------------------------------------------------------------------------
The commenter states that the liquidity of the longer-dated option
contracts in the Fund's portfolio will not differ materially from the
liquidity of the shorter-dated option contracts.\45\ Further, the
commenter explains that the liquidity characteristics of the option
contracts held by the Fund will not negatively impact the Fund's
operation, the calculation of the Index value, the calculation of the
Fund's IIV, or the calculation of the Fund's NAV.\46\ The commenter
believes that the options contracts provide ``sufficient and ample
liquidity . . . for Authorized Participants and other investors to
engage in efficient hedging activity, to value Fund Shares and to make
markets in Fund Shares.'' \47\
---------------------------------------------------------------------------
\45\ See id.
\46\ See id., at 11.
\47\ See Reality Shares Letter 1, supra note 10, at 12.
---------------------------------------------------------------------------
B. Reality Shares Letter 2
In Reality Shares Letter 2, the commenter seeks to address whether
the Fund's strategy will produce positive returns for buy-and-hold
investors over the longer term in light of the efficient nature of
markets and the ability of astute market participants to predict
dividend growth.\48\ The commenter claims that the historical returns
of the Fund's strategy have been positive over long periods of time and
that an investor can reasonably expect returns in the future that are
non-zero and positive in the long term.\49\
---------------------------------------------------------------------------
\48\ See Reality Shares Letter 2, supra note 10, at 1.
\49\ See id.
---------------------------------------------------------------------------
In support of this claim, the commenter argues that all
investments, even in perfectly efficient markets, are expected to have,
at minimum, a risk-free rate associated with them.\50\ For example,
Treasury Bills (theoretically risk-free assets) are discounted by the
risk-free rate in order to entice investors to purchase them.\51\ Thus,
even in a perfectly efficient market such as the one for Treasury
Bills, an investment in a riskless asset will produce a long-term
return greater than zero.\52\ In addition, the commenter adds that, if
any uncertainty surrounds the future payoff of an investment, one would
expect a risk premium to be attached to the investment.\53\ This would
be quantified as the amount of money by which the expected return on
the asset exceeds the known return of a risk-free asset.\54\ This risk
premium compensates investors for the uncertainty in their investment
in a risky asset.\55\ If the dividend risk premium were low, one would
expect the strategy to earn less than the actual growth of dividends;
if dividend risk premium were high, one would expect the strategy to
earn more than actual dividend growth.\56\ The commenter notes that,
while expected dividend returns may not match dividend growth exactly,
the rate of return would (at a minimum) be expected to be equal to the
risk free rate, plus the risk premium.\57\
---------------------------------------------------------------------------
\50\ See id.
\51\ See id.
\52\ See id.
\53\ See Reality Shares Letter 2, supra note 10, at 2.
\54\ See id.
\55\ See id.
\56\ See id.
\57\ See id.
---------------------------------------------------------------------------
The commenter further asserts that, beyond the theoretical analogy
stated above, an investment in the expected dividend implied in the
options markets has historically produced positive returns and that the
Fund's strategy can
[[Page 69934]]
be expected to produce future positive long-term returns.\58\ While the
commenter believes that it is possible for implied dividend strategies
to outperform equity returns, as well as actual dividend growth, the
commenter argues that the foundation of the Fund's investment strategy
is predicated on its conclusion that implied dividends carry risk and
that, in an efficient market, this risk will be reflected in the form
of a dividend risk premium.\59\
---------------------------------------------------------------------------
\58\ See Reality Shares Letter 2, supra note 10, at 2.
\59\ See id., at 3.
---------------------------------------------------------------------------
IV. Discussion and Commission Findings
The Commission has carefully considered the proposal and the
comments submitted in response to the questions raised by the
Commission in the Order Instituting Proceedings. For the reasons
discussed below, the Commission finds that the Exchange's proposal to
list and trade the Shares is consistent with the Exchange Act and the
rules and regulations thereunder applicable to a national securities
exchange.\60\ In particular, the Commission finds that the proposed
rule change, as modified by Amendments No. 1 and No. 4 thereto, is
consistent with Section 6(b)(5) of the Exchange Act,\61\ which
requires, among other things, that the Exchange's rules be designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest.
---------------------------------------------------------------------------
\60\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\61\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Commission also finds that the proposal to list and trade the
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of
the Exchange Act,\62\ 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. The value of the Index will be
published by one or more major market data vendors every 15 seconds
during the NYSE Arca Core Trading Session of 9:30 a.m. E.T. to 4:00
p.m. E.T. Information about the Index constituents, the weighting of
the constituents, the Index's methodology, and the Index's rules will
be available at no charge on the Index Provider's Web site at
www.realityshares.com. In addition, the Intraday Indicative Value
(``IIV'') as defined in NYSE Arca Equities Rule 5.2(j)(3), Commentary
01(c), will be widely disseminated at least every 15 seconds during the
Core Trading Session by one or more major market data vendors.\63\ 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 such term is 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.\64\ In addition, a
portfolio composition file, which includes the security names and
quantities, as applicable, 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 New York
Stock Exchange (``NYSE'') via the National Securities Clearing
Corporation. The portfolio composition file will represent one Creation
Unit of Shares of the Fund. The Fund will calculate its NAV by: (i)
Taking the current market value of its total assets; (ii) subtracting
any liabilities; and (iii) dividing that amount by the total number of
Shares outstanding. The Fund will calculate NAV once each business day
as of the regularly scheduled close of trading on the NYSE (normally,
4:00 p.m., Eastern Time).\65\ The intra-day, closing, and settlement
prices of the portfolio securities and other Fund investments,
including futures and exchange-traded equities, ETFs, and exchange-
traded options,\66\ will also be readily available from the national
securities exchanges trading such securities, automated quotation
systems, published or other public sources, and, with respect to OTC
options, swap transactions, and forward transactions, from third party
pricing sources, or on-line information services such as Bloomberg or
Reuters. The intra-day, closing, and settlement prices of debt
securities and money market instruments will be readily available from
published and other public sources or on-line information services.
Price information regarding investment company securities, including
ETFs, will be available from on-line information services and from the
Web site for the applicable investment company security. 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 Fund's Web site will include a form of the
prospectus for the Fund that may be downloaded and additional data
relating to NAV and other applicable quantitative information.
---------------------------------------------------------------------------
\62\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\63\ According to the Exchange, several major market data
vendors display and/or make widely available IIVs taken from the CTA
or other data feeds.
\64\ 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, on
behalf of the Fund, will disclose on the Fund's Web site the
following information regarding each portfolio holding, as
applicable to the type of holding: Ticker symbol, CUSIP number or
other identifier, if any; a description of the holding (including
the type of holding, such as the type of swap); 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.
\65\ The Trust will generally value exchange-listed equity
securities (which include common stocks and ETFs) and exchange-
listed options, including options on the S&P 500 Index and options
on ETFs, at market closing prices. Market closing price is generally
determined on the basis of last reported sales prices on the
applicable exchange, or if no sales are reported, based on the mid-
point between the last reported bid and ask. The Trust will
generally value exchange-listed futures at the settlement price
determined by the applicable exchange. Non-exchange-traded
derivatives, including OTC options, swap transactions, and forward
transactions, will normally be valued on the basis of quotations or
equivalent indication of value supplied by an independent pricing
service or major market makers or dealers. Debt securities and money
market instruments generally will be valued based on prices provided
by independent pricing services, which may use valuation models or
matrix pricing to determine current value. Investment company
securities (other than ETFs) will be valued at NAV. The Trust
generally will use amortized cost to value fixed income or money
market securities that have a remaining maturity of 60 days or less.
\66\ Information relating to U.S. exchange-listed options is
available via the Options Price Reporting Authority.
---------------------------------------------------------------------------
The Commission also believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be
[[Page 69935]]
necessary to price the Shares appropriately and to prevent trading when
a reasonable degree of transparency cannot be assured. The Exchange
represents that 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.\67\ In addition, if the IIV, the Index Value or the value
of the Index Components is not being disseminated as required, the
Exchange may halt trading during the day in which the disruption
occurs; if the interruption persists past the day in which it occurred,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption. The Exchange will obtain a
representation from the Fund that the NAV for the Fund will be
calculated daily and will be made available to all market participants
at the same time. Under NYSE Arca Equities Rule 7.34(a)(5), if the
Exchange becomes aware that the NAV for the Fund is not being
disseminated to all market participants at the same time, it will halt
trading in the Shares until such time as the NAV is available to all
market participants.
---------------------------------------------------------------------------
\67\ These reasons may include: (1) The extent to which trading
is not occurring in the securities 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. The Exchange represents
that it may consider all relevant factors in exercising its
discretion to halt or suspend trading in the Shares of the Fund.
---------------------------------------------------------------------------
The Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its employees. The
Commission notes that the Index Provider is not registered as an
investment adviser or broker dealer and is not affiliated with any
broker-dealers, and the Adviser is not registered as a broker-dealer
and is not affiliated with any broker-dealers.\68\ 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. The
Financial Industry Regulatory Authority (``FINRA''), on behalf of the
Exchange,\69\ will communicate as needed regarding trading in the
Shares, exchange-listed equity securities, ETFs, futures contracts, and
exchange-traded options contracts with other markets and other entities
that are members of the Intermarket Surveillance Group (``ISG''), and
FINRA, on behalf of the Exchange, may obtain trading information
regarding trading in the Shares, exchange-listed equity securities,
ETFs, futures contracts, and exchange-traded options contracts from
such markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, exchange-listed equity
securities, ETFs, futures contracts, and exchange-traded options
contracts from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.\70\ All exchange-listed equity securities, ETFs,
futures contracts and options held by the Fund will be traded on U.S.
exchanges, all of which are members of ISG or are exchanges 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 Trade Reporting and
Compliance Engine.
---------------------------------------------------------------------------
\68\ See supra note 15 and accompanying text. The Exchange
states that 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.
\69\ The Exchange states that 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.
\70\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
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.
---------------------------------------------------------------------------
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. In support of this
proposal, the Exchange has made representations, including:
(1) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions (Opening, Core, and Late
Trading Sessions).
(2) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2), except
that the Index will not meet the requirements of NYSE Arca Equities
Rule 5.2(j)(3), Commentary .01(a)(A)(1)-(5) in that the Index will
consist of options based on US Component Stocks (i.e., ETFs based on
the S&P 500 Index) and options on an index of US Component Stocks
(i.e., S&P 500 Index options), rather than US Component Stocks
themselves. The Index will include a minimum of 20 components and,
therefore, would meet the numerical requirement of NYSE Arca Equities
Rule 5.2(j)(3), Commentary .01(a)(A)(4) (a minimum of 13 index or
portfolio components).
(3) 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, and that these procedures are adequate to
properly monitor Exchange trading of the Shares in all trading sessions
and to detect and help deter violations of Exchange rules and federal
securities laws applicable to trading on the Exchange.
(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (a)
The procedures for purchases and redemptions of Shares in Creation 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 IIV or Index value will not be calculated or
publicly disseminated; (d) how information regarding the IIV and Index
value will be 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.
[[Page 69936]]
(5) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\71\ as provided by
NYSE Arca Equities Rule 5.3.
---------------------------------------------------------------------------
\71\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
(6) At least 80% of the Fund's total assets (exclusive of
collateral held from securities lending, if any) will be invested in
the component securities of the Index. The Fund will seek a correlation
of 0.95 or better between its performance and the performance of its
Index. A figure of 1.00 would represent perfect correlation. All
options included in the Index will be listed and traded on a U.S.
national securities exchange.
(7) The Fund's investments in swaps, futures contracts, forward
contracts and options will be consistent with the Fund's investment
objective and with the requirements of the 1940 Act. To limit the
potential risk associated with such transactions, the Fund will
segregate or ``earmark'' assets determined to be liquid by the Adviser
in accordance with procedures established by the Trust's Board of
Trustees and in accordance with the 1940 Act (or, as permitted by
applicable regulation, enter into certain offsetting positions) to
cover its obligations arising from such transactions. These procedures
have been adopted consistent with Section 18 of the 1940 Act and
related Commission guidance. In addition, the Fund will include
appropriate risk disclosure in its offering documents, including
leveraging risk. Leveraging risk is the risk that certain transactions
of the Fund, including the Fund's use of derivatives, may give rise to
leverage, causing the Fund to be more volatile than if it had not been
leveraged. To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that may
give rise to such risk. The Fund may not invest in leveraged or inverse
leveraged (e.g., 2X, -2X, 3X, or -3X) ETFs or options on such ETFs. The
Fund's investments will be consistent with its investment objective and
will not be used to provide multiple returns of a benchmark or to
produce leveraged returns.
(8) The Fund will transact only with swap dealers that have in
place an ISDA agreement with the Fund. Where practicable, the Fund
intends to invest in Cleared Swaps. The Fund will attempt to limit
counterparty risk in non-cleared swap, forward, and OTC option
contracts by entering into such contracts only with counterparties the
Adviser believes are creditworthy and by limiting the Fund's exposure
to each counterparty. The Adviser will monitor the creditworthiness of
each counterparty and the Fund's exposure to each counterparty on an
ongoing basis. The Fund will seek, where possible, to use
counterparties, as applicable, whose financial status is such that the
risk of default is reduced. The Adviser will evaluate the
creditworthiness of counterparties on an ongoing basis. In addition to
information provided by credit agencies, the Adviser will evaluate each
approved counterparty using various methods of analysis, such as, for
example, the counterparty's liquidity in the event of default, the
counterparty's reputation, the Adviser's past experience with the
counterparty, and the counterparty's share of market participation.
(9) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment) deemed
illiquid by the Adviser, consistent with Commission guidance.
(10) A minimum of 100,000 Shares for the Fund will be outstanding
at the commencement of trading on the Exchange.
(11) The Fund will include appropriate risk disclosure in its
offering documents, which will be available on the Commission's Web
site and on the Fund's Web site, www.realityshares.com.
This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice, and
the Exchange's description of the Fund.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendments No. 1 and No. 4 thereto, is
consistent with Section 6(b)(5) of the Act \72\ and the rules and
regulations thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------
\72\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\73\ that the proposed rule change (SR-NYSEArca-2014-41), as
modified by Amendments No. 1 and No. 4 thereto, be, and it hereby is,
approved.
---------------------------------------------------------------------------
\73\ Id.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\74\
---------------------------------------------------------------------------
\74\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-27707 Filed 11-21-14; 8:45 am]
BILLING CODE 8011-01-P