[Federal Register Volume 79, Number 235 (Monday, December 8, 2014)]
[Notices]
[Pages 72723-72730]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28643]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73716; File No. SR-NYSEArca-2014-134]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading the following
Series of IndexIQ Active ETF Trust Under NYSE Arca Equities Rule 8.600:
IQ Wilshire Alternative Strategies ETF
December 2, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on November 18, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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[[Page 72724]]
I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to list and trade the following series of
IndexIQ Active ETF Trust under NYSE Arca Equities Rule 8.600 (``Managed
Fund Shares''): IQ Wilshire Alternative Strategies ETF. The text of the
proposed rule change is available on the Exchange's Web site at
www.nyse.com, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
IQ Wilshire Alternative Strategies ETF (the ``Fund'') under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares \4\ on the Exchange.\5\ The Fund is a series of the IndexIQ
Active ETF Trust (the ``Trust'').\6\
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\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1), as amended (``1940 Act''),
organized as an open-end investment company or similar entity that
invests in a portfolio of securities selected by its investment
adviser consistent with its investment objectives and policies. In
contrast, an open-end investment company that issues Investment
Company Units, listed and traded on the Exchange under NYSE Arca
Equities Rule 5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield performance of a
specific foreign or domestic stock index, fixed income securities
index or combination thereof.
\5\ The Commission has previously approved the listing and
trading on the Exchange of other of actively managed funds under
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 60717
(September 24, 2009), 74 FR 50853 (October 1, 2009) (SR-NYSEArca-
2009-74) (order approving listing of Four Grail Advisors RP
Exchange-Traded Funds) and 67320 (June 29, 2012), 77 FR 39763 (July
5, 2012) (SR-NYSEArca-2012-44) (order approving listing of the
iShares Strategic Beta U.S. Large Cap Fund and iShares Strategic
Beta U.S. Small Cap Fund).
\6\ The Trust is registered under the 1940 Act. On April 25,
2014, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A relating to the Fund (File Nos.
333-193560 and 811-22739) (the ``Registration Statement''). The
description of the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement. In addition, the
Commission has issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment Company Act Release No.
30198 (September 10, 2012) (File No. 812-13956) (the ``Exemptive
Order'').
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The Fund is an actively-managed exchange-traded fund and does not
seek to replicate the performance of a specified index.
IndexIQ Advisors LLC (the ``Adviser'') is the investment adviser
for the Fund.\7\ The Bank of New York Mellon (``Administrator''), is
the administrator, custodian, transfer agent and securities lending
agent for the Fund. ALPS Distributors Inc. (``Distributor''), is the
distributor for the Fund.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). The Adviser, Wilshire and the underlying managers that are
sub-advisers to the Fund (the ``Underlying Managers'') are each
registered as an investment adviser under the Advisers Act. As a
result, each of the Adviser, Wilshire and the Underlying Managers
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, each of the
Adviser, Wilshire and the Underlying Managers and its related
personnel are subject to the provisions of Rule 206(4)-7 under the
Advisers Act, which makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio. Commentary .06 to Rule 8.600
is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 in connection with the establishment
of a ``fire wall'' between the investment adviser and the broker-dealer
reflects the applicable open-end fund's portfolio, not an underlying
benchmark index, as is the case with index-based funds. In the event
(a) any of the Adviser, Wilshire or the Underlying Managers is or
becomes a broker-dealer or newly affiliated with a broker-dealer, or
(b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with a broker-dealer, then, to the extent the
broker-dealer or affiliated broker-dealer is not a limited purpose
broker-dealer used for marketing and not trading purposes, it will
implement a firewall with respect to its relevant personnel or its
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to a portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material
non-public information regarding such portfolio.
According to the Registration Statement, the Fund will seek long-
term capital appreciation. Under normal circumstances,\8\ 100% of the
Fund's assets will be allocated among the Underlying Managers and that
will employ a variety of alternative investment strategies.\9\ In
making these allocations, the Advisor will seek to combine the
strategies of the Underlying Managers efficiently and systematically so
that the Fund will generate a positive total return with relatively low
volatility and low sensitivity or correlation to market indices.
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\8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of adverse market, economic, political or
other conditions, including extreme volatility or trading halts in
the fixed income 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.
\9\ According to the Registration Statement, the investment of
Fund assets not allocated to the Underlying Managers may be directly
managed by the Advisor, although the Advisor does not currently
intend to manage a significant portion of the Fund's assets
directly, and to the extent the Advisor does manage a portion of the
Fund's assets it would invest such assets in the same manner as the
Underlying Managers.
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According to the Registration Statement, Wilshire Associates
[[Page 72725]]
Incorporated (``Wilshire'') will be a sub-advisor to the Fund and, in
that role, will evaluate and recommend strategies and Underlying
Managers to the Advisor for use by the Fund. Additionally, according to
the Registration Statement Wilshire will provide recommendations to the
Advisor for allocating and reallocating Fund assets among the
Underlying Managers. Wilshire will not directly manage any assets of
the Fund, although it may provide the Advisor or an Underlying Manager
with non-discretionary advice on investment decisions and underlying
positions.
According to the Registration Statement, the Fund and each of its
Underlying Managers may use all or some of the following strategies in
managing the assets of the Fund: Equity hedge (long/short)
strategies,\10\ relative value strategies,\11\ global macro
strategies,\12\ event driven strategies,\13\ opportunistic credit
strategies,\14\ tactical trading strategies \15\ and liquid alternative
beta strategies.\16\ The Fund, and each of its Underlying Managers, may
also add additional strategies in the future. According to the
Registration Statement, the Advisor may allocate 0 to 100 percent of
the Fund's assets to any of these strategies or any of the Underlying
Managers at any time.
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\10\ According to the Registration Statement, an equity hedge
(long/short) strategy will seek to identify equities that are
trading under or over their perceived intrinsic value or are deemed
to be mispriced based on fundamental, statistical, technical or
other factors.
\11\ According to the Registration Statement, a relative value
strategy will seek to exploit differences in valuation through the
simultaneous purchase and sale of related financial instruments.
\12\ According to the Registration Statement, a global macro
strategy will seek to analyze macroeconomic variables to identify
global asset/security mispricings (i.e., securities that are trading
higher or lower than their intrinsic or actual value) and forecast
future moves in such asset/security prices on a directional or
relative value basis.
\13\ According to the Registration Statement, an event driven
strategy will involve investing in securities of companies currently
or prospectively involved in a wide variety of corporate
transactions or other events where the investment thesis is
predicated on the anticipated effect of such transactions or events
(e.g., merger arbitrage strategy, which involves the simultaneous
purchase of stock in a company being acquired and the sale of stock
in its acquirer in an attempt to profit from the spread in prices).
\14\ According to the Registration Statement, an opportunistic
credit strategy will seek to deliver positive absolute returns in
excess of cash investments regardless of economic cycle (i.e.,
downturns and upswings) or cyclical credit availability primarily by
investing in mispriced credit securities (i.e., credit securities
that are trading higher or lower than their intrinsic or actual
value).
\15\ According to the Registration Statement, a tactical trading
strategy will relate to a variety of strategic and opportunistic
investment strategies not captured by one of the other enumerated
strategies, such as short-term trading opportunities.
\16\ According to the Registration Statement, a liquid
alternative beta strategy will seek to track the beta portion of the
returns (i.e., that portion of the returns of hedge funds that are
non-idiosyncratic, or unrelated to manager skill) of hedge funds
that employ various hedge fund investment styles.
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According to the Registration Statement, in implementing the
aforementioned strategies, the Fund will invest in a portfolio
consisting of some or all of the following:
Equity Securities
The Fund may invest in exchange-traded Equity Securities, which
will consist of:
Common stocks;
Preferred stocks;
Convertible securities;
Rights and warrants;
Depositary receipts;
Exchange-traded Funds (``ETFs''); \17\
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\17\ For purposes of this filing, ETFs include 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 ETFs all will be listed and traded in the
U.S. on registered exchanges or a non-U.S. securities exchange that
is a member of the Intermarket Surveillance Group (``ISG'') or a
party to a comprehensive surveillance sharing agreement with the
Exchange. The ETFs in which the Fund may invest will primarily be
index-based exchange-traded funds that hold substantially all of
their assets in securities representing a specific index.
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Non-ETF exchange-traded vehicles (``ETVs''); \18\ and
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\18\ According to the Adviser, an ETV is a non-investment
company exchange-traded vehicle that issues equity securities, such
as an exchange-traded commodity pool.
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Partnership interests, including master limited partnerships.
Fixed Income Securities
The Fund may invest in Fixed Income Securities, which will consist
of:
Debt issued by corporations; \19\
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\19\ The Adviser expects that, under normal market
circumstances, the Fund will generally seek to invest in corporate
bond issuances in developed countries that have at least
$100,000,000 par amount outstanding and at least $200,000,000 par
amount outstanding with respect to corporate bond issuances in
emerging market countries.
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Debt issued by governments, their agencies, instrumentalities,
sponsored entities, and political subdivisions;
Covered bonds;
Debt participations;
Convertible bonds;
Non-investment grade securities;
Senior bank loans;
Exchange-traded notes (``ETNs'');
Mortgage-backed and other asset-backed securities; and
To-be-announced securities.\20\
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\20\ The Fund will seek to gain exposure to U.S. agency mortgage
pass-through securities primarily through the use of ``to-be-
announced securities.'' ``To-be-announced'' refers to a commonly
used mechanism for the forward settlement of U.S. agency mortgage
pass-through securities, and not to a separate type of mortgage-
backed security. Most transactions in mortgage pass-through
securities occur through the use of to-be-announced securities.
According to the Registration Statement, the Fund may also invest
directly in currencies.
According to the Registration Statement, the Fund may invest in the
following derivative instruments: Futures contracts (consisting of
futures contracts based on equity or fixed income securities and/or
equity or fixed income indices, commodities, interest rates and
currencies); swap agreements on any of the following asset classes:
Equity, fixed income, currency and interest rates (such swaps may be
based on the price return or total return of the referenced asset);
credit default swaps (consisting of credit default swaps in which the
referenced asset is a single fixed income security or a group of fixed
income securities); options (consisting of long and short positions in
call options and put options on indices based on equities, fixed income
securities, interest rates, currencies or commodities, individual
securities or currencies, swaptions and options on futures contracts);
forward contracts (consisting of forward contracts based on equity or
fixed income securities and/or equity or fixed income indices,
currencies, interest rates, swap forwards and non-deliverable
forwards); and structured securities (such derivative instruments,
collectively ``Financial Instruments'').\21\
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\21\ According to the Registration Statement, as a result of the
Fund's ability to invest in Financial Instruments, it may also hold
U.S. Treasury Bills or short-term investments as collateral for the
Financial Instruments, including money market funds, repurchase
agreements, cash and time deposits.
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According to the Registration Statement, the Fund may use leverage
(e.g., through the use of Financial Instruments) to obtain exposure in
excess of 100% in an investment. The Fund may employ leverage to
increase exposure to the Fund's portfolio holdings by up to 100% of the
net assets of the Fund to gain additional exposure to the Fund's
portfolio holdings, such that the Fund will have up to 200% net
exposure to its investments.
According to the Registration Statement, the Fund may take long
and/or short positions in Equity Securities, Fixed Income Securities,
commodities \22\ and currencies, among others.
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\22\ According to the Registration Statement, the Fund may gain
exposure to commodities through investments in other investment
companies, ETFs or ETVs.
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[[Page 72726]]
Investment Restrictions
According to the Adviser, all Equity Securities will be listed on a
U.S. national securities exchange or a non-U.S. securities exchange
that is a member of the ISG or a party to a comprehensive surveillance
sharing agreement with the Exchange; provided, however, that up to 10%
of the assets of the Fund may be invested in non-U.S. listed Equity
Securities that do not meet these requirements.
The Adviser has represented that all options contracts will be
listed on a U.S. national securities exchange or a non-U.S. securities
exchange that is a member of ISG or a party to a comprehensive
surveillance sharing agreement with the Exchange.
The Adviser has represented that not more than 20% of the Fund's
assets will be invested, in the aggregate, in non-investment grade
securities and structured securities.
According to the Registration Statement, up to 10% of the weight of
the futures contracts held by the Fund may consist of futures contracts
whose principal trading market is not a member of ISG or a party to a
comprehensive surveillance sharing agreement with the Exchange.
According to the Advisor, the Fund may invest up to 20% of its
total assets in mortgage-backed securities or in other asset-backed
securities, although this 20% limitation will not apply to U.S.
government securities.
According to the Registration Statement, 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.\23\ The Fund will monitor its portfolio liquidity on an
ongoing basis to determine whether, in the 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.
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\23\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 8901 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the ETF. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act of 1933).
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The Fund will not invest more than 10% of its net assets in
unsponsored depositary receipts.
According to the Registration Statement, the Fund is considered
non-diversified, which means that it can invest a higher percentage of
assets in securities of individual issuers than a diversified fund.
Net Asset Value
According to the Registration Statement, the net asset value
(``NAV'') of the Shares of the Fund will be equal to the Fund's total
assets minus the Fund's total liabilities divided by the total number
of shares outstanding. The NAV that is published will be rounded to the
nearest cent; however, for purposes of determining the price of
Creation Units, the NAV will be calculated to five decimal places.
For purposes of calculating NAV, portfolio securities and other
assets for which market quotations are readily available will be valued
at market value. Market value will generally be determined on the basis
of last reported sales prices, or if no sales are reported, based on
quotes obtained from a quotation reporting system, established market
makers, or pricing services.
In calculating NAV, the Fund's exchange-traded Equity Securities
will be valued at market value, which will generally be determined
using the last reported official closing or last trading price on the
exchange or market on which the security is primarily traded at the
time of valuation or, if no sale has occurred, at the last quoted mid
price on the primary market or exchange on which they are traded.
Investment company securities (other than ETFs) will be valued at NAV.
Unsponsored depositary receipts will be valued at the last quoted
mid price on the primary market on which they are traded. Fixed Income
Securities will be valued using market quotations when available or
other equivalent indications of value provided by an independent third-
party pricing service. Short-term Fixed Income Securities having a
remaining maturity of 60 days or less are generally valued at amortized
cost, which approximates market value.
A swap on an exchange-listed security or securities is valued at
the last reported sale price of the swap's underlying security or
securities on the exchange where the security or securities is
primarily traded, or if no sale price is available, at the mid price of
the security or securities underlying the swap on the exchange where
the security is primarily traded. A swap on Fixed Income Securities
will be valued on the price of the referenced Fixed Income Securities
on which the swap is based (i.e., using market quotations when
available or other equivalent indications of value provided by an
independent third-party pricing service; short term Fixed Income
Securities having a remaining maturity of 60 days or less are generally
valued at amortized cost, which approximates market value). A swap on
an index is valued based on the publicly available index price. The
index price, in turn, is determined by the applicable index calculation
agent, which generally values the securities underlying the index at
the last reported sale price.
Currency swaps will generally be valued on the basis of quotes
obtained from brokers and dealers or pricing services using data
reflecting the earlier closing of the principal markets for those
assets. Credit default swaps will be valued on the basis of market
prices, generally the mid point between the bid/ask quotes, obtained
from a third-party pricing service at the time the Fund calculates its
NAV.
Futures contracts will be valued at the settlement or closing price
determined by the applicable exchange. Exchange-traded option
contracts, including options on futures, will be valued at their most
recent sale price. If no such sales are reported, these contracts will
be valued at their last traded price.
The Fund's OTC-traded Financial Instruments that are based on
exchange-listed underlying securities or for which exchange pricing is
otherwise available will generally be valued at the last reported
official closing or last traded price of the applicable underlying
securities. Other OTC-traded Financial Instruments will normally be
valued on the basis of quotes obtained from a third party broker-dealer
who makes markets in such securities or on the basis of quotes obtained
from an independent third-party pricing service.
Foreign securities and instruments will be valued in their local
currency following the methodologies described above. Foreign
securities, instruments and currencies will be translated to U.S.
dollars, based on foreign currency exchange rate quotations supplied by
the London Stock Exchange.
When market quotations are not readily available, are deemed
unreliable or do not reflect material events occurring between the
close of local markets and the time of valuation, investments will be
valued using fair value pricing as determined in good
[[Page 72727]]
faith by the Adviser under procedures established by and under the
general supervision and responsibility of the Trust's Board of
Trustees. According to the Registration Statement, the NAV will be
calculated by the Administrator and determined each business day as of
the close of regular trading on the Exchange (ordinarily 4:00 p.m.,
Eastern time (``E.T.'')). The Shares of the Fund will not be priced on
days on which the Exchange is closed for trading.
Indicative Intra-Day Value
According to the Registration Statement, an independent third party
calculator will calculate the Indicative Intra-Day Value (``IIV'') for
the Fund during hours of trading on the Exchange by dividing the
``Estimated Fund Value'' as of the time of the calculation by the total
number of outstanding Shares of that Fund. ``Estimated Fund Value'' is
the sum of the estimated amount of cash held in the Fund's portfolio,
the estimated amount of accrued interest owed to the Fund and the
estimated value of the assets held in the Fund's portfolio, minus the
estimated amount of the Fund's liabilities. The IIV will be calculated
based on the same portfolio holdings disclosed on the Trust's Web site.
All assets held by the Fund will be included in the IIV calculation.
According to the Registration Statement, the Fund will provide the
independent third party calculator with information to calculate the
IIV, but the Fund will not be involved in the actual calculation of the
IIV and is not responsible for the calculation or dissemination of the
IIV. The Fund makes no warranty as to the accuracy of the IIV. The IIV
should not be viewed as a ``real-time'' update of NAV because the IIV
may not be calculated in the same manner as NAV, which is computed once
per day.
Creations and Redemptions of Shares
According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis, at their NAV next determined after
receipt, on any business day, for a creation order or redemption
request received in proper form. The Fund will issue and redeem Shares
only in blocks of 50,000 Shares or whole multiples thereof (``Creation
Units'').
According to the Registration Statement, Creation Units will be
sold in exchange for an in-kind basket of a designated portfolio of
securities and a cash component. All orders to create Creation Units
must be received by the Distributor no later than 3:00 p.m. E.T. on the
date such order is placed, in order for the creation of Creation Units
to be effected based on the NAV of Shares of the Fund as next
determined on such date after receipt of the order in proper form.
According to the Registration Statement, beneficial owners must
accumulate enough Shares in the secondary market to constitute a
Creation Unit in order to have such Shares redeemed by the Trust. The
redemption proceeds for a Creation Unit will consist of consideration
in an amount equal to the NAV of the Shares being redeemed, as next
determined after receipt of a request in proper form less a redemption
transaction fee. Creation Units will be redeemed principally in-kind
for securities included in the Fund but also including cash based on
the then-current value of the securities sold short by the Fund and/or
the Financial Instruments used by the Fund (as applicable). With
respect to the Funds, the Administrator, through the National
Securities Clearing Corporation (``NSCC''), will make available
immediately prior to the opening of business on the Exchange (currently
9:30 a.m., E.T.) on each business day, the designated portfolio of
securities (the ``Fund Securities'') or cash component, as applicable,
per Creation Unit that will be applicable to redemption requests
received in proper form on that day. An order to redeem Creation Units
must be received by the Administrator not later than 3:00 p.m., E.T.
Availability of Information
The Fund's Web site (www.indexiq.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\24\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters.
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\24\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
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On each business day, before commencement of trading in Shares in
the Core Trading Session (9:30 a.m. E.T. to 4:00 p.m. E.T.) on the
Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day.\25\ The Web site information will be
publicly available at no charge.
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\25\ Under accounting procedures 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.
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On a daily basis, the Fund will disclose on www.indexiq.com 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.
In addition, a basket composition file, which includes the security
names and share quantities required to be delivered in exchange for
Fund Shares, together with estimates and actual cash components, will
be publicly disseminated daily prior to the opening of the NYSE via the
NSCC. The basket represents one Creation Unit of the Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), Shareholder Reports and Form N-CSR. The Trust's
SAI and Shareholder Reports are available free upon request from the
Trust, and those documents and the Form N-CSR may be viewed on-screen
or downloaded from the Commission's Web site at www.sec.gov.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers.
Quotation and last sale information for the Shares and underlying
securities that are U.S. exchange listed will be
[[Page 72728]]
available via the Consolidated Tape Association (``CTA'') high-speed
line. Quotation and last sale information for such U.S. exchange-listed
securities as well as futures will be available from the exchange on
which they are listed. Quotation and last sale information for options
contracts will be available via the Options Price Reporting Authority.
Quotation information for OTC-traded securities and OTC-traded
Financial Instruments (such as forwards, swaps and currency-related
derivatives), and investment company securities (excluding ETFs), may
be obtained from brokers and dealers who make markets in such
securities or through nationally recognized pricing services through
subscription agreements. Quotation information from brokers and dealers
or pricing services will be available for spot and forward currency
transactions held by the Fund.
In addition, the Portfolio Indicative Value of the Fund, as defined
in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated by
one or more major market data vendors at least every 15 seconds during
the Core Trading Session.\26\ The dissemination of the Portfolio
Indicative Value, together with the Disclosed Portfolio, will allow
investors to determine the value of the underlying portfolio of the
Fund on a daily basis and to provide a close estimate of that value
throughout the trading day.
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\26\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
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Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees (including money manager and other advisory or
management fees), portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement. All terms relating
to the Fund that are referred to, but not defined in, this proposed
rule change are defined in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\27\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted.
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\27\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
The Shares will be subject to NYSE Arca Equities Rule 8.600, which
sets forth the initial and continued listing criteria applicable to
Managed Fund Shares. The Exchange represents that, for initial and/or
continued listing, each Trust will be in compliance with Rule 10A-3
\28\ under the Act, as provided by NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares will be outstanding at the commencement of
trading on the Exchange. The Exchange will obtain a representation from
the issuer of the Shares that the NAV per Share will be calculated
daily and that the NAV and the Disclosed Portfolio as defined in NYSE
Arca Equities Rule 8.600(c)(2) will be made available to all market
participants at the same time.
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\28\ 17 CFR 240.10A-3.
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Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\29\ The Exchange represents 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 applicable federal securities laws.
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\29\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, Equity Securities, exchange-traded
options, futures contracts and options on futures contracts with other
markets that are members of the ISG and FINRA, on behalf of the
Exchange, may obtain trading information regarding trading in the
Shares, exchange-traded equities, exchange-traded options, futures
contracts and options on futures contracts from such markets. In
addition, the Exchange may obtain information regarding trading in the
Shares, exchange-traded equities, exchange-traded options, futures
contracts and options on futures contracts from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.\30\ 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'').
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\30\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that
[[Page 72729]]
Shares are not individually redeemable); (2) NYSE Arca Equities Rule
9.2(a), which imposes a duty of due diligence on its ETP Holders to
learn the essential facts relating to every customer prior to trading
the Shares; (3) the risks involved in trading the Shares during the
Opening and Late Trading Sessions when an updated Portfolio Indicative
Value will not be calculated or publicly disseminated; (4) how
information regarding the Portfolio Indicative Value is disseminated;
(5) the requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \31\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\31\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement. All of the Equity Securities in which the Fund will invest
will be listed on a U.S. national securities exchange or a non-U.S.
securities exchange that is a member of the ISG or a party to a
comprehensive surveillance sharing agreement with the Exchange;
provided, however, that up to 10% of the assets of the Fund may be
invested in non-U.S. listed equity securities that do not meet these
requirements. The Adviser has represented that not more than 20% of the
Fund's assets will be invested, in the aggregate, in non-investment
grade securities and structured securities. The Fund's investments
will, under normal circumstances, be consistent with its investment
objective. The Fund will not hold more than 15% of its net assets in
illiquid securities, including Rule 144A securities. The Adviser is not
a broker-dealer and is not affiliated with a broker-dealer. In the
event (a) the Adviser becomes newly affiliated with a broker-dealer, or
(b) any new adviser or subadviser is a registered broker-dealer or
becomes affiliated with a broker-dealer it will implement a firewall
with respect to its relevant personnel or its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to a portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Adviser is not affiliated with broker-dealers. The Exchange
will obtain a representation from the issuer of the Shares that the
NAVs per Share will be calculated daily and that the NAVs and the
Disclosed Portfolio will be made available to all market participants
at the same time. In addition, a large amount of information is
publicly available regarding the Fund and the Shares, thereby promoting
market transparency. The Fund's portfolio holdings will be disclosed on
its Web site daily after the close of trading on the Exchange and prior
to the opening of trading on the Exchange the following day. Moreover,
the Portfolio Indicative Value will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Core Trading Session. Information regarding market price and trading
volume of the Shares will be continually available on a real-time basis
throughout the day on brokers' computer screens and other electronic
services, and quotation and last sale information will be available via
the CTA high-speed line. The Web site for the Fund will include a form
of the prospectus for the Fund and additional data relating to the
Fund's NAVs and other applicable quantitative information. Moreover,
prior to the commencement of trading, the Exchange will inform its ETP
Holders in an Information Bulletin of the special characteristics and
risks associated with trading the Shares. Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached or because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Shares
inadvisable, and trading in the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the Portfolio Indicative Value, the Disclosed Portfolio, and
quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
[[Page 72730]]
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2014-134 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2014-134. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2014-134, and
should be submitted on or before December 29, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
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\32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28643 Filed 12-5-14; 8:45 am]
BILLING CODE 8011-01-P