[Federal Register Volume 79, Number 247 (Wednesday, December 24, 2014)]
[Notices]
[Pages 77583-77586]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-30105]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73866; File No. SR-NYSEArca-2014-120]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by Amendment No. 2 Thereto, To List
and Trade Shares of the Sit Rising Rate Fund Under NYSE Arca Equities
Rule 8.200
December 17, 2014.
I. Introduction
On October 16, 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 (``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the Sit Rising Rate Fund (``Fund''), pursuant to NYSE
Arca Equities Rule 8.200. The proposed rule change was published for
comment in the Federal Register on November 4, 2014.\3\ On November 6,
2014, the Exchange filed Amendment No. 2 to the proposed rule change,
which superseded and replaced the proposed
[[Page 77584]]
rule change as originally filed.\4\ The proposed rule change, as
modified by Amendment No. 2, was published for comment in the Federal
Register on November 20, 2014.\5\ The Commission received no comments
on the proposal. This order approves the proposed rule change, as
modified by Amendment No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 73464 (Oct. 29,
2014), 79 FR 65437.
\4\ Amendment No. 2 replaced SR-NYSEArca-2014-120 and superseded
such filing in its entirety. Amendment No. 1 was filed on November
3, 2014, and withdrawn on November 6, 2014.
\5\ See Securities Exchange Act Release No. 73602 (Nov. 14,
2014), 79 FR 69173 (``Notice'').
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II. Description of the Proposed Rule Change
The Exchange proposes to list and trade Shares of the Fund pursuant
to NYSE Arca Equities Rule 8.200, Commentary .02, which permits the
listing of Trust Issued Receipts (``TIRs''). The Exchange has
represented that the Fund will meet the initial and continued listing
requirements applicable to TIRs in NYSE Arca Equities Rule 8.200 and
Commentary .02 thereto.\6\ 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.\7\
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\6\ See id. at 69173.
\7\ See id. at 69177.
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The Fund is a series of the ETF Managers Group Commodity Trust I
(``Trust''), a Delaware statutory trust.\8\ The Fund's sponsor and
investment manager is ETF Managers Capital LLC (``Sponsor''), a limited
liability company that is a commodity pool operator that is registered
with the Commodity Futures Trading Commission \9\ and is a member of
the National Futures Association. U.S. Bancorp Fund Services will be
the transfer agent, custodian, and administrator for the Fund. Esposito
Securities LLC will provide statutory and wholesaling distribution
services.
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\8\ The Trust submitted a registration statement with respect to
the Fund on Form S-1 under the Securities Act of 1933 on October 7,
2014 (File No. 333-199190) (``Registration Statement'').
\9\ The Sponsor is not a broker-dealer or affiliated with a
broker-dealer. See Notice, supra note 5, 79 FR at 69178.
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The Fund's investment objective will be to profit from rising
interest rates by tracking the performance of a portfolio (``Benchmark
Portfolio'') that consists of exchange traded futures contracts and
options on futures on 2, 5 and 10-year U.S. Treasury securities
(``Treasury Instruments'') and that is weighted to achieve a targeted
negative 10-year average effective portfolio duration (``Benchmark
Component Instruments''). The Fund will seek to achieve its investment
objective by investing in the Benchmark Component Instruments currently
constituting the Benchmark Portfolio. The Fund will invest in the
Treasury Instruments in the same weighting as the Benchmark Portfolio.
The Benchmark Portfolio will be maintained by Sit Fixed Income
Advisors II, LLC (``Sit'') \10\ and will be rebalanced, reconstituted,
or both, monthly, typically on the 15th of each month and on the next
business day if the 15th is a holiday, weekend, or other day on which
the national exchanges are closed, to maintain a negative 10-year
average effective duration. The Benchmark Portfolio and the Fund will
each maintain a short position in Treasury Instruments. The Fund will
not use futures contracts or options to obtain leveraged investment
results.
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\10\ Sit is not affiliated with the Sponsor. Sit is not a
broker-dealer or affiliated with a broker-dealer. See id. at 69174
n. 14.
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The Sponsor anticipates that approximately 5% to 15% of the Fund's
assets will be used as payment for or collateral for Treasury
Instruments. In order to collateralize its Treasury Instrument
positions the Fund will hold such assets, from which it will post
margin to its futures commission merchant (``FCM''), in an amount equal
to the margin required by the relevant exchange, and transfer to its
FCM any additional amounts that may be separately required by the
FCM.\11\ Any assets not required to be posted as margin with the FCM
will be held at the Fund's administrator in cash or cash equivalents.
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\11\ When establishing positions in Treasury Instruments, the
Fund will be required to deposit initial margin with a value of
approximately 3% to 10% of the value of each Treasury Instrument
position at the time it is established. These margin requirements
are subject to change from time to time by the exchange or the FCM.
On a daily basis, the Fund will be obligated to pay, or entitled to
receive, variation margin in an amount equal to the change in the
daily settlement level of its Treasury Instruments positions. See
id. at 69174 n. 17.
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The Fund will incur certain expenses in connection with its
operations. The Fund will hold cash or cash equivalents such as U.S.
Treasuries or other high credit quality, short-term fixed-income or
similar securities (such as shares of money market funds) for direct
investment or as collateral for the Treasury Instruments and for other
liquidity purposes and to meet redemptions that may be necessary on an
ongoing basis. These expenses and income from the cash and cash
equivalent holdings may cause imperfect correlation between changes in
the Fund's net asset value (``NAV'') and changes in the Benchmark
Portfolio, because the Benchmark Portfolio does not reflect expenses or
income.
Additional information regarding the Fund, including the NAV
calculation, operation of the Fund, the Benchmark Portfolio,
restrictions, risks, fees, expenses, and Share creations and redemption
can be found in the Notice and the Registration Statement, as
applicable.\12\
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\12\ See supra notes 5 and 8, respectively.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal to list and trade Shares of the Fund is consistent with the
Exchange Act and the rules and regulations thereunder applicable to a
national securities exchange.\13\ In particular, the Commission finds
that the proposed rule change is consistent with Section 6(b)(5) of the
Exchange Act,\14\ which requires, among other things, that the
Exchange's rules be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to 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.
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\13\ 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).
\14\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal is consistent with Section
11A(a)(1)(C)(iii) of the Exchange Act,\15\ 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 regarding the Shares
will be disseminated through the facilities of the Consolidated Tape
Association (``CTA'').\16\ The Exchange will make available on its Web
site daily trading volume of the Shares and the closing prices of the
Shares.\17\ 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.\18\ Information regarding the previous day's closing price
and trading volume
[[Page 77585]]
information for the Shares will be published daily in the financial
section of newspapers.\19\
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\15\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\16\ See Notice, supra note 5, 79 FR at 69177.
\17\ See id.
\18\ See id. at 69176.
\19\ See id.
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The Intraday Indicative Value (``IIV'') \20\ per Share will be
widely disseminated by one or more major market data vendors at least
every 15 seconds during the Core Trading Session on the Exchange (9:30
a.m., Eastern Time, to 4:00 p.m., Eastern Time).\21\ The Exchange
disseminates the IIV through the facilities of CTA/CQ High Speed
Lines.\22\ In addition, the IIV is published on the NYSE Arca's Web
site and is available through on-line information services such as
Bloomberg and Reuters.\23\
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\20\ The Exchange represents that the IIV will be calculated by
using the Fund's prior day's closing NAV per share as a base and
updating that value throughout the trading day to reflect changes in
the most recently reported trade price for the Treasury Instruments.
The net asset value of the Fund's cash and cash equivalent holdings
will not be updated throughout the day. See id. at 69175. The
Exchange states that there is a gap in time at the beginning and the
end of each day during which the Fund's Shares are traded on the
Exchange but real-time trading prices for contracts traded on the
futures exchanges are unavailable and that, during such gaps in
time, the IIV will be calculated based on the end of day price of
such contracts from the futures exchanges' immediately preceding
trading session. See id.
\21\ See id. at 69175.
\22\ See id.
\23\ See id.
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The NAV of the Fund will be calculated daily and will be released
after 4:00 p.m. Eastern Time, the end of the Core Trading Session on
the Exchange.\24\ The NAV for the Shares will be disseminated to all
market participants at the same time.\25\ The Fund's Web site will
display the applicable end of day closing NAV and will include
additional quantitative information updated on a daily basis, including
(a) the current NAV per Share daily and the prior Business Day's NAV
and the reported closing price; (b) the mid-point of the bid-ask price
in relation to the NAV as of the time the NAV is calculated (the ``Bid-
Ask Price''); (c) calculation of the premium or discount of such price
against such NAV; (d) the Bid-Ask Price of Shares determined using the
highest bid and lowest offer as of the time of calculation of the NAV;
(e) data in chart form displaying the frequency distribution of
discounts and premiums of the Bid-Ask Price against the NAV, within
appropriate ranges for each of the four (4) previous calendar quarters;
(f) the prospectus; and (g) other applicable quantitative
information.\26\
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\24\ See id. The Fund's NAV will be calculated by taking the
current market value of its total assets, subtracting any
liabilities, and dividing that total by the total number of
outstanding Shares. For purposes of calculating NAV, the
administrator will use the closing price of the Treasury Instruments
on the U.S. exchanges on which the Treasury Instruments are traded
(primarily on the exchanges within the Chicago Mercantile Exchange
Group of exchanges and other national exchanges. The Administrator
will value all other holdings of the Fund at (1) current market
value, if quotations for such property are readily available, or (2)
fair value, as reasonably determined by the Administrator, if the
current market value cannot be determined. See id.
\25\ See id. at 69177.
\26\ See id. at 69176 and 69177.
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The Fund will provide Web site disclosure of its portfolio holdings
daily, which will include the names, quantity, price, and market value
of the Treasury Instruments held by the Fund and other financial
instruments such as Treasury Bills, if any; the characteristics of such
instruments and cash equivalents; and the amount of cash held in the
portfolio of the Fund.\27\ This Web site disclosure of the portfolio
composition of the Fund will occur at the same time as the disclosure
by the Sponsor of the portfolio composition to authorized participants
so that all market participants are provided portfolio composition
information at the same time.\28\ 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 Exchange via the National Securities Clearing
Corporation.\29\
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\27\ See id. at 69176.
\28\ See id.
\29\ See id.
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The daily closing Benchmark Portfolio level and the percentage
change in the daily closing level for the Benchmark Portfolio will be
publicly available from one or more major market data vendors.\30\ The
intraday value of the Benchmark Portfolio, updated every 15 seconds,
will also be available through major market data vendors.\31\ The
Benchmark Component Instruments constituting the Benchmark Portfolio
and anticipated rebalancing dates, information relating to the
weighting of Treasury Instruments in the Benchmark Portfolio, and the
Benchmark Portfolio methodology will be available on the Web site for
Fund.\32\
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\30\ See id. at 69177.
\31\ See id.
\32\ See id. at 69174 and 69177.
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The Exchange represents that quotation and last sale information
for the Treasury Instruments will be widely disseminated through a
variety of major market data vendors worldwide, such as Bloomberg and
Reuters.\33\ In addition, the Exchange further represents that complete
real-time price (and volume) data for such contracts is available by
subscription from Reuters and Bloomberg.\34\ The intra-day closing
prices and settlement prices of the Treasury Instruments are or will be
readily available from the Web sites of the futures exchanges on which
the Treasury Instruments are traded.\35\ The relevant futures exchanges
trading Treasury Instruments also provide delayed futures price (and
volume) information on current and past trading sessions and market
news free-of-charge on their Web sites.\36\ The specific contract
specifications for such contracts are available at the futures
exchanges Web sites, as well as other financial informational
sources.\37\ The price of Treasury Instruments also is available on a
24-hour basis from major market data vendors.\38\ Similar information
regarding the Treasury securities underlying the Treasury Instruments
will be publicly available from various financial information service
providers.\39\ Quotation information from brokers and dealers or major
market data vendors will be available for U.S. Treasuries or other high
credit quality, short-term fixed-income or similar securities (such as
shares of money market funds).\40\
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\33\ See id. at 69176.
\34\ See id.
\35\ See id. at 69177.
\36\ See id.
\37\ See id. at 69176.
\38\ See id.
\39\ See id. at 69177.
\40\ See id.
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The Commission believes that the proposal to list and trade Shares
is reasonably designed to promote fair disclosure of information that
may be necessary to price Shares appropriately and to prevent trading
when a reasonable degree of transparency cannot be assured. The
Exchange represents that it may halt trading during the day in which an
interruption to the dissemination of the IIV, the Benchmark Portfolio,
or the value of the underlying Treasury Instruments occurs.\41\ If an
interruption to the dissemination of the IIV, the Benchmark Portfolio,
or the value of the underlying Treasury Instruments persists past the
trading day in which it occurred, the Exchange will halt trading no
later than the beginning of the trading day following the
interruption.\42\ In addition, if the Exchange becomes aware that the
NAV with respect to the Shares is not disseminated to all market
participants at the same time, it will halt trading in the Shares until
such time as
[[Page 77586]]
the NAV is available to all market participants.\43\
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\41\ See id.
\42\ See id.
\43\ See id.
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With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares.\44\ Trading 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 underlying Treasury Instruments,
(2) if the creation or redemption of Shares is suspended for a period
that, in the judgment of the Exchange, may detrimentally impact
Exchange trading of the Shares, or (3) whether other unusual conditions
or circumstances detrimental to the maintenance of a fair and orderly
market are present. In addition, trading in Shares will be subject to
trading halts caused by extraordinary market volatility pursuant to the
Exchange's ``circuit breaker'' rule \45\ or by the halt or suspension
of trading of the underlying Treasury Instruments.\46\
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\44\ See id.
\45\ See NYSE Arca Equities Rule 7.12.
\46\ See Notice, supra note 5, 79 FR at 69177.
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The Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its employees.\47\
Moreover, the trading of the Shares will be subject to NYSE Arca
Equities Rule 8.200, Commentary .02(e), which sets forth certain
restrictions on Equity Trading Permit (``ETP'') Holders acting as
registered market makers in TIRs to facilitate surveillance.\48\ The
Financial Industry Regulatory Authority (``FINRA''), on behalf of the
Exchange, will communicate as needed regarding trading in the Shares
and underlying Treasury Instruments with other markets and 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 and underlying Treasury Instruments
from such markets and other entities.\49\ In addition, the Exchange may
obtain information regarding trading in the Shares and underlying
Treasury Instruments from markets and other entities that are members
of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\50\ 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.\51\ Furthermore, the Sponsor is not a broker-
dealer or affiliated with a broker-dealer and the Sponsor represents
that it will implement and maintain procedures designed to prevent the
use and dissemination of material non-public information.\52\ Sit,
which maintains the Benchmark Portfolio, is not affiliated with the
Sponsor and is not a broker-dealer or affiliated with a broker-
dealer.\53\
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\47\ See id. at 69178.
\48\ See id. at 69177.
\49\ See id.
\50\ See id. at 69177-78.
\51\ See id. at 69178.
\52\ See id.
\53\ See id.
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In support of this proposal, the Exchange has made the following
representations:
(1) The Fund will meet the initial and continued listing
requirements applicable to TIRs in NYSE Arca Equities Rule 8.200 and
Commentary .02 thereto.\54\
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\54\ See id. at 69176.
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(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.\55\
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\55\ See id. at 69177.
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(3) Trading in the Shares will be subject to the existing trading
surveillances, administered by the FINRA on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws, and these procedures are adequate
to properly monitor Exchange trading of the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
federal securities laws applicable to trading on the Exchange.\56\
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\56\ See id.
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(4) 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.
Specifically, the Bulletin will discuss the following: (a) The
procedures for purchases and redemptions of Shares in Creation Basket
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 ETP 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 will not be calculated or publicly disseminated; (d) how
information regarding the IIV is disseminated; (e) 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 (f) trading information.\57\
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\57\ See id. at 69178.
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(5) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Act,\58\ as provided by NYSE Arca
Equities Rule 5.3.\59\
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\58\ 17 CFR 240.10A-3.
\59\ See Notice, supra note 5, 79 FR at 69177.
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(6) For components traded on exchanges, not more than 10% of such
components shall consist of components whose principal trading market
is not a member of ISG or is a market with which the Exchange does not
have a comprehensive surveillance sharing agreement.\60\
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\60\ See id. at 69178.
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(7) The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. That is,
the Fund's investments will not be used to seek performance that is a
multiple (e.g., 2X or 3X) or inverse multiple of the Fund's Benchmark
Portfolio.\61\
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\61\ See id. at 69176.
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(8) A minimum of 100,000 Shares for the Fund will be outstanding at
the commencement of trading on the Exchange.\62\
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\62\ See id. at 69177.
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This order is based on the Exchange's representations above, as
well as those in the Notice.\63\
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\63\ See supra note 5.
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For the forgoing reasons, the Commission believes the Exchange's
proposal to list and trade the Shares is consistent with the Exchange
Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\64\ that the proposed rule change (SR-NYSEArca-2014-120),
as modified by Amendment No. 2 thereto, be, and it hereby is, approved.
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\64\ 15 U.S.C. 78s(b)(2).
\65\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\65\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-30105 Filed 12-23-14; 8:45 am]
BILLING CODE 8011-01-P