[Federal Register Volume 80, Number 14 (Thursday, January 22, 2015)]
[Notices]
[Pages 3294-3299]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00964]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-74058; File No. SR-NYSEArca-2014-114]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendments No. 1 and No. 2 and Order Granting Accelerated Approval
of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, to
List and Trade Shares of the iShares Interest Rate Hedged 0-5 Year High
Yield Bond ETF, iShares Interest Rate Hedged 10+ Year Credit Bond ETF,
and the iShares Interest Rate Hedged Emerging Markets Bond ETF Under
NYSE Arca Equities Rule 8.600
January 15, 2015.
I. Introduction
On September 29, 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'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
iShares Interest Rate Hedged 0-5 Year High Yield Bond ETF (``High Yield
Bond Fund''), iShares Interest Rate Hedged 10+ Year Credit Bond ETF
(``Credit Bond Fund''), and the iShares Interest Rate Hedged Emerging
Markets Bond ETF (``Emerging Markets Bond Fund'') (collectively ``the
Funds'') under NYSE Arca Equities Rule 8.600. The proposed rule change
was published for comment in the Federal Register on October 17,
2014.\3\ The Commission received one supporting comment on the
proposal,\4\ and on
[[Page 3295]]
November 18, 2014, the Exchange filed Amendment No 1. to the proposed
rule change, which entirely replaced and superseded its proposal as
originally filed.\5\ The Commission designated a longer period for
Commission action.\6\ On January 14, 2015, the Exchange filed Amendment
No. 2 to the proposed rule change.\7\ The Commission is publishing this
notice to solicit comments on Amendments No. 1 and No. 2 from
interested persons, and is approving the proposed rule change, as
modified by Amendment Nos. 1 and 2, on an accelerated basis.
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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. 73342 (Oct. 10,
2014), 79 FR 62492.
\4\ Letter to SEC from Anonymous Commenter, dated November 7,
2014. Comments regarding the proposed rule change are available on
the Commission's Web site at: http://www.sec.gov/comments/sr-nysearca-2014-114/nysearca2014114.shtml.
\5\ In Amendment No. 1, the Exchange (1) clarified that there
presently is no sub-adviser to the Funds; (2) specified that US
Treasury futures are a type of interest rate future; (3) provided
more information about the Federal Funds futures the Funds may hold;
(4) clarified the scope of the investment restriction on illiquid
assets; (5) clarified one aspect of the net asset value calculation
process for the Funds; (6) supplemented the information that would
be provided in the disclosed portfolios of the Funds; and (7)
clarified the availability of price information regarding the Funds'
holdings.
\6\ See Securities Exchange Act Release No. 73659 (Nov. 20,
2014), 79 FR 70607 (Nov. 26, 2014). The Commission designated a
longer period within which to take action on the proposed rule
change to provide more time for it to consider the proposed rule
change, as modified by Amendment No. 1.
\7\ In Amendment No. 2, the Exchange stated that (1) with
respect to corporate bond issuances, the Adviser expects that under
normal circumstances, each of the Funds will generally seek to
invest in corporate bond issuances that have at least $100,000,000
par amount outstanding in developed countries and at least
$200,000,000 par amount outstanding in emerging market countries;
and (2) with respect to each Fund's investments in fixed-income
securities, no fixed-income security (excluding Treasury Securities,
government-sponsored entity and other exempted securities) will
represent more than 30% of the weight of that Fund's total assets,
and the five highest weighted fixed income securities held by that
Fund (excluding Treasury Securities, government-sponsored entity and
other exempted securities) will not in the aggregate account for
more than 65% of the weight of that Fund's total assets.
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II. Description of Proposed Rule Change
A. In General
The Exchange proposes to list and trade the Shares under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares on the Exchange. The Shares will be offered by iShares U.S.
ETF Trust (``Trust''),\8\ a registered open-end management investment
company. BlackRock Fund Advisors (``BFA'') will be the investment
adviser for the Funds (the ``Adviser'').\9\ BFA is an indirect wholly-
owned subsidiary of BlackRock, Inc. BlackRock Investments, LLC will be
the principal underwriter and distributor of the Funds' Shares. State
Street Bank and Trust Company will serve as administrator, custodian
and transfer agent for the Funds.
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\8\ The Trust is registered under the 1940 Act. According to the
Exchange, on December 6, 2013, the Trust filed with the Commission
registration statements on Form N-1A relating to the Funds
(``Registration Statements'') (File Nos. 333-179904 and 811-22649).
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. 29571 (File No. 812-13601) (``Exemptive
Order'').
\9\ The Exchange represents that the Adviser is not registered
as a broker-dealer, but is affiliated with multiple broker-dealers.
The Exchange further represents that the Adviser has implemented a
``fire wall'' with respect to its broker-dealer affiliates regarding
access to information concerning the composition of and changes to
the Funds' portfolio. In addition, according to the Exchange, in the
event (a) the Adviser or any sub-adviser becomes, or becomes newly
affiliated with, a broker-dealer, or (b) any new adviser or sub-
adviser is, or becomes affiliated with, a broker-dealer, the Adviser
or any new adviser or sub-adviser, as applicable, will implement a
fire wall with respect to its relevant personnel or its broker-
dealer affiliate regarding access to information concerning the
composition of and changes to the Funds' 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 Funds
The Exchange has made the following representations and statements
in describing the Funds and its investment strategies, including other
portfolio holdings and investment restrictions.\10\
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\10\ Additional information regarding the Trust, the Funds, and
the Shares, including investment strategies, risks, net asset value
(``NAV'') calculation, creation and redemption procedures, fees,
portfolio holdings disclosure policies, distributions, and taxes,
among other information, is included in the Amendments No. 1, No. 2,
and the Registration Statements, as applicable. See Amendment No. 1,
supra note 5, Amendment No. 2, supra note 7, and Registration
Statements, supra note 8.
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1. Principal Investments of the iShares Interest Rate Hedged 0-5 Year
High Yield Bond ETF
The High Yield Bond Fund will seek to mitigate the interest rate
risk of a portfolio composed of U.S. dollar-denominated, high yield
corporate bonds with remaining maturities of less than five years. This
Fund will seek to achieve its investment objective by investing, under
normal circumstances,\11\ at least 80% of its net assets in U.S.
dollar-denominated high yield corporate bonds with remaining maturities
of less than five years, in one or more investment companies (exchange-
traded and non-exchange-traded) that principally invest in high yield
bonds, in U.S. Treasury securities (or cash equivalents), and by taking
short positions in U.S. Treasury futures, other interest rate futures
contracts, and interest rate swaps.\12\
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\11\ The term ``under normal circumstances'' includes, but is
not limited to, the absence of extreme volatility or trading halts
in the equity markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
\12\ All Funds will invest only in futures contracts that are
traded on an exchange that is a member of the Intermarket
Surveillance Group (``ISG'') or with which the Exchange has in place
a comprehensive surveillance sharing agreement. Swaps will be
centrally cleared. All derivatives held by the Funds will be
collateralized.
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The High Yield Bond Fund intends to initially invest a substantial
portion of its assets in one underlying fund, the iShares 0-5 Year High
Yield Corporate Bond ETF (the ``Underlying High Yield Corporate Bond
Fund''). This Fund will attempt to mitigate the interest rate risk
primarily through the use of U.S. Treasury futures contracts and
interest rate swaps. The High Yield Bond Fund may also take short
positions in other interest rate futures contracts, including but not
limited to, Eurodollar and Federal Funds futures.
BFA will utilize a model-based proprietary investment process to
assemble an investment portfolio composed of (i) long positions in the
Underlying High Yield Corporate Bond Fund, (ii) long positions in U.S.
dollar-denominated high yield corporate bonds, (iii) long positions in
U.S. Treasury securities, and (iv) short positions in U.S. Treasury
futures, other interest rate futures contracts, and interest rate
swaps. The Exchange notes that the short positions are expected to
have, in the aggregate, approximately equivalent duration to the
underlying securities in the Underlying High Yield Corporate Bond Fund
and to the high yield corporate bonds. By taking these short positions,
BFA will seek to mitigate the potential impact of rising interest rates
on the performance of the Underlying High Yield Corporate Bond Fund and
the high yield corporate bonds (conversely also limiting the potential
positive impact of falling interest rates). The short positions will
not be intended to mitigate other factors influencing the price of high
yield bonds, such as credit risk, which may have a greater impact than
rising or falling interest rates. Relative to a long-only investment in
the same high yield bonds, the High Yield Bond Fund's investment
strategy is designed to outperform in a rising interest rate
environment and underperform in a falling interest rate environment.
[[Page 3296]]
2. Principal Investments of the iShares Interest Rate Hedged 10+ Year
Credit Bond ETF
The Credit Bond Fund will seek to mitigate the interest rate risk
of a portfolio composed of investment-grade U.S. corporate bonds and
U.S. dollar-denominated bonds, including those of non-U.S. corporations
and governments, with remaining maturities greater than ten years. This
Fund will seek to achieve its investment objective by investing, under
normal circumstances,\13\ at least 80% of its net assets in investment-
grade U.S. corporate bonds and U.S. dollar-denominated bonds, including
those of non-U.S. corporations and governments, with remaining
maturities greater than ten years, in one or more investment companies
(exchange-traded and non-exchange-traded) that principally invest in
investment-grade bonds, in U.S. Treasury securities (or cash
equivalents), and by taking short positions in U.S. Treasury futures,
other interest rate futures contracts, and interest rate swaps.\14\
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\13\ See supra note 11.
\14\ See supra note 12.
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The Credit Bond Fund intends to initially invest a substantial
portion of its assets in one underlying fund, the iShares 10+ Year
Credit Bond ETF (the ``Underlying Credit Bond Fund''). The Credit Bond
Fund will attempt to mitigate the interest rate risk primarily through
the use of U.S. Treasury futures contracts and interest rate swaps. The
Credit Bond Fund may also invest in other interest rate futures
contracts, including but not limited to, Eurodollar and Federal Funds
futures.
BFA will utilize a model-based proprietary investment process to
assemble an investment portfolio composed of (i) long positions in the
Underlying Credit Bond Fund, (ii) long positions in U.S. dollar-
denominated investment-grade corporate bonds, (iii) long positions in
U.S. Treasury securities, and (iv) short positions in U.S. Treasury
futures, other interest rate futures contracts, and interest rate
swaps. The short positions are expected to have, in the aggregate,
approximately equivalent duration to the underlying securities in the
Underlying Credit Bond Fund and to the investment-grade corporate
bonds. By taking these short positions, BFA will seek to mitigate the
potential impact of rising interest rates on the performance of the
Underlying Credit Bond Fund and the investment-grade corporate bonds
(conversely also limiting the potential positive impact of falling
interest rates). Further, the short positions are not intended to
mitigate other factors influencing the price of investment-grade bonds,
such as credit risk, which may have a greater impact than rising or
falling interest rates. Relative to a long-only investment in the same
investment-grade bonds, the Credit Bond Fund's investment strategy is
designed to outperform in a rising interest rate environment and
underperform in a falling interest rate environment.
3. Principal Investments of the iShares Interest Rate Hedged Emerging
Markets Bond ETF
The Emerging Markets Bond Fund will seek to mitigate the interest
rate risk of a portfolio composed of U.S. dollar-denominated, emerging
market bonds. This Fund will seek to achieve its investment objective
by investing, under normal circumstances,\15\ at least 80% of its net
assets in U.S. dollar-denominated emerging market bonds, in one or more
investment companies (exchange-traded and non-exchange-traded) that
principally invest in emerging market bonds, in U.S. Treasury
securities (or cash equivalents), and by taking short positions in U.S.
Treasury futures, other interest rate futures contracts, and interest
rate swaps.\16\
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\15\ See supra note 11.
\16\ See supra note 12.
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The Emerging Markets Bond Fund intends to initially invest a
substantial portion of its assets in one underlying fund, the iShares
J.P. Morgan USD Emerging Markets Bond ETF (the ``Underlying Emerging
Markets Bond Fund''). This Fund will attempt to mitigate the interest
rate risk primarily through the use of U.S. Treasury futures contracts
and interest rate swaps. It may also take short positions in other
interest rate futures contracts, including but not limited to,
Eurodollar and Federal Funds futures.
BFA will utilize a model-based proprietary investment process to
assemble an investment portfolio composed of (i) long positions in the
Underlying Emerging Markets Bond Fund, (ii) long positions in U.S.
dollar-denominated emerging market bonds, (iii) long positions in U.S.
Treasury securities, and (iv) short positions in U.S. Treasury futures,
other interest rate futures contracts, and interest rate swaps. The
short positions are expected to have, in the aggregate, approximately
equivalent duration to the underlying securities in the Underlying
Emerging Markets Bond Fund and to the emerging market bonds. By taking
these short positions, BFA will seek to mitigate the potential impact
of rising interest rates on the performance of the Underlying Emerging
Markets Bond Fund and the emerging market bonds (conversely also
limiting the potential positive impact of falling interest rates).
Further, the short positions are not intended to mitigate other factors
influencing the price of emerging market bonds, such as credit risk,
which may have a greater impact than rising or falling interest rates.
Relative to a long-only investment in the same emerging market bonds,
the Emerging Markets Bond Fund's investment strategy is designed to
outperform in a rising interest rate environment and underperform in a
falling interest rate environment.
4. Other Investments of the Funds
While each of the Funds, under normal circumstances,\17\ will
invest at least 80% of its net assets in investments as described
above, the Funds may also invest in other certain investments as
described below.
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\17\ See supra note 11.
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The Funds may invest in repurchase and reverse repurchase
agreements. The Funds may invest in money market instruments. The
instruments in which the Funds may invest include: (i) Shares of money
market funds (including those advised by BFA or otherwise affiliated
with BFA); (ii) obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities (including government-
sponsored enterprises); (iii) negotiable certificates of deposit
(``CDs''), bankers' acceptances, fixed-time deposits and other
obligations of U.S. and non-U.S. banks (including non-U.S. branches)
and similar institutions; (iv) commercial paper rated, at the date of
purchase, ``Prime-1'' by Moody's[supreg] Investors Service, Inc., ``F-
1'' by Fitch Inc., or ``A-1'' by Standard & Poor's[supreg]
(``S&P[supreg]''), or if unrated, of comparable quality as determined
by BFA; (v) non-convertible corporate debt securities (e.g., bonds and
debentures) with remaining maturities at the date of purchase of not
more than 397 days and that satisfy the rating requirements set forth
in Rule 2a-7 under the 1940 Act; and (vi) short-term U.S. dollar-
denominated obligations of non-U.S. banks (including U.S. branches)
that, in the opinion of BFA, are of comparable quality to obligations
of U.S. banks which may be purchased by the Funds. Any of these
instruments may be purchased on a current or forward-settled basis.
Each of the Funds also may invest in options that are traded on a
U.S. or non-U.S. exchange and that reference U.S. Treasury securities.
To the extent that
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the High Yield Bond Fund, the Credit Bond Fund, or the Emerging Markets
Bond Fund invests in options, not more than 10% of such investment
would be in options 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.
Each of the Funds may invest in debt securities of non-U.S. issuers
and may invest in privately-issued debt securities.
III. Description of Comment Letter
As noted above, the Commission received one comment letter from an
anonymous commenter.\18\ The commenter supported the proposal and
stated that the Funds would be a useful tool for individual and small-
institutional investors because it is difficult for many investors to
otherwise achieve what the Funds claim they will deliver. The commenter
also stated that the isolation of credit spread exposure in a liquid
and relatively simple product should be attractive to many types of
investors.
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\18\ See supra note 4.
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IV. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \19\
and the rules and regulations thereunder applicable to a national
securities exchange.\20\ In particular, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act,\21\ 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. 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 Act,\22\ 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.
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\19\ 15 U.S.C. 78f.
\20\ 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).
\21\ 15 U.S.C. 78f(b)(5).
\22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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Quotation and last-sale information for the Shares and the shares
of the Underlying High Yield Corporate Bond Fund, Underlying Credit
Bond Fund, the Underlying Emerging Markets Bond Fund, and any other
exchange-traded funds held by any of the Funds will be available via
the Consolidated Tape Association (``CTA'') high-speed line. In
addition, the Indicative Optimized Portfolio Indicative Value
(``IOPV''), which is the Portfolio Indicative Value as defined in NYSE
Arca Equities Rule 8.600(c)(3), will be widely disseminated at least
every fifteen seconds during the NYSE Arca Core Trading Session by one
or more major market data vendors.\23\ On a daily basis, each of the
Funds will disclose for each portfolio security or other financial
instrument the following information on the Funds' Web site: Ticker
symbol, if any; 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 or other asset or instrument
underlying the holding,\24\ 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; market value of the holding; and the percentage
weighting of the holding in the portfolio.\25\ The Web site information
will be publicly available at no charge.
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\23\ The Exchange understands that several major market data
vendors display and/or make widely available IOPVs taken from CTA or
other data feeds.
\24\ Derivatives that reference or allow delivery of more than
one asset, such as U.S. Treasury futures, will name the underlying
asset generically.
\25\ See supra note 5.
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In addition, for each of the Funds, a basket composition file,
which includes the security names and share quantities required to be
delivered in exchange for that 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 National
Securities Clearing Corporation. The NAV of each of the Funds will be
determined as of the close of trading (normally 4 p.m., Eastern Time)
on each day the NYSE is open for business.
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. Intra-day, closing and settlement prices of
exchange-traded portfolio assets, including investment companies, money
market instruments, futures and options will be available from the
securities exchanges and futures exchanges trading such securities and
futures contracts, respectively; automated quotation systems; published
or other public sources; or on-line information services, such as
Bloomberg or Reuters or any such future service provider. The Funds'
Web site will include a form of the prospectus for the High Yield Bond
Fund, the Credit Bond Fund, and the Emerging Markets Bond Fund and
additional data relating to NAV and other applicable quantitative
information for the Funds.
The Exchange will obtain a representation from the issuer of the
Shares that, for each Fund, the NAV per Share will be calculated daily
and the NAV and the Disclosed Portfolio will be made available to all
market participants at the same time. Trading in Shares 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,\26\
and trading in the Shares will be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth additional circumstances under which
trading in the Shares may be halted. The Exchange states that it has a
general policy prohibiting the distribution of material, non-public
information by its employees. Consistent with NYSE Arca Equities Rule
8.600(d)(2)(B)(ii), the Commission notes that the Reporting Authority
must implement and maintain, or be subject to, procedures designed to
prevent the use and dissemination of material, non-public information
regarding the actual components of the Funds' portfolios. In addition,
the Exchange states that the Adviser is affiliated with multiple
broker-dealers and that the Adviser has implemented a fire wall with
respect to its broker-dealer affiliates regarding access to information
concerning the composition and changes to the Funds' portfolios.\27\
The Exchange represents
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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.\28\ The Exchange further represents that these procedures are
adequate to properly monitor Exchange-trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and federal securities laws applicable to trading on the Exchange.
Moreover, prior to the commencement of trading, the Exchange states
that it will inform its Equity Trading Permit Holders in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares.
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\26\ These reasons may include: (1) The extent to which trading
is not occurring in the securities or the financial instruments
composing the Disclosed Portfolio of the Funds; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance
of a fair and orderly market are present. With respect to trading
halts, the Exchange may consider all relevant factors in exercising
its discretion to halt or suspend trading in the Shares.
\27\ See supra note 9. 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.
\28\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement and that the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
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The Commission notes that the Funds and the Shares must comply with
the initial and continued listing criteria in NYSE Arca Equities Rule
8.600 for the Shares to be listed and traded on the Exchange. The
Exchange represents that it 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 also made the following representations:
(1) 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.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, exchange-traded equity securities,
futures and options contracts with other markets and other entities
that are members of ISG, and FINRA, on behalf of the Exchange, may
obtain trading information regarding trading in the Shares, exchange-
traded equity securities, futures and options contracts from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, exchange-trade equity
securities, futures and options contracts from ISG member markets or
markets with which the Exchange has in place a comprehensive
surveillance sharing agreement.
(4) With respect to its exchange-traded equity securities
investments, the Funds will invest only in equity securities that trade
in markets that are members of the ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange. To the
extent that any of the Funds invest in options, not more than 10% of
such investment would be in options 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. The Funds will
invest only in futures contracts that are traded on an exchange that is
a member of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
(5) 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
units (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 Portfolio Indicative Value will not be calculated or publicly
disseminated; (d) how information regarding the Portfolio Indicative
Value and Disclosed Portfolio is disseminated; (e) the requirement that
Equity Trading Permit Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (f) trading information.
(6) For initial and continued listing, the Funds will be in
compliance with Rule 10A-3 under the Act,\29\ as provided by NYSE Arca
Equities Rule 5.3.
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\29\ 17 CFR 240.10A-3.
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(7) Each of the Funds may hold up to an aggregate amount of 15% of
its net assets in illiquid assets (calculated at the time of
investment).
(8) A minimum of 100,000 Shares for each of the Funds will be
outstanding at the commencement of trading on the Exchange.
(9) With respect to each Fund's investments in fixed-income
securities, no fixed-income security (excluding Treasury Securities,
government-sponsored-entity securities, and other exempted securities)
will represent more than 30% of the weight of that Fund's total assets,
and the five highest weighted fixed income securities held by such Fund
(excluding Treasury Securities, government-sponsored entity and other
exempted securities) will not in the aggregate account for more than
65% of the weight of that Fund's total assets.
This approval order is based on all of the Exchange's
representations, including those set forth above and in Amendments No.
1 and No. 2.
For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendments No. 1 and No. 2, is consistent
with Section 6(b)(5) of the Act \30\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\30\ 15 U.S.C. 78f(b)(5).
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V. Solicitation of Comments on Amendments No. 1 and No. 2
Interested persons are invited to submit written data, views, and
arguments concerning whether Amendments No. 1 and No. 2 are 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-2014-114 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
[[Page 3299]]
All submissions should refer to File Number SR-NYSEArca-2014-114. 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
a.m. and 3 p.m. Copies of the 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-2014-114 and should
be submitted on or before February 12, 2015.
V. Accelerated Approval of Proposed Rule Change as Modified by
Amendment Nos. 1 and 2
The Commission finds good cause to approve the proposed rule
change, as modified by Amendments No. 1 and No. 2, prior to the
thirtieth day after the date of publication of notice of the amendments
in the Federal Register. Amendment No. 1 supplements the proposed rule
change by, among other things, supplementing the information that will
be provided regarding the Disclosed Portfolios of the Funds. The
Commission believes that dissemination of this additional information
should aid in the pricing of the Shares. Amendment No. 2 modifies the
proposed rule change by specifying (1) the minimum par amounts
outstanding for the corporate bonds that generally will be held by the
Funds; and (2) portfolio concentration limits for fixed income
securities held by the Funds. This assisted the Commission in
evaluating the liquidity of certain types of potential holdings and the
susceptibility of the Shares to price manipulation. Accordingly, the
Commission finds good cause, pursuant to Section 19(b)(2) of the
Act,\31\ to approve the proposed rule change, as modified by Amendment
Nos. 1 and 2, on an accelerated basis.
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\31\ 15 U.S.C. 78s(b)(2).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\32\ that the proposed rule change as modified by Amendments No. 1
and No. 2 (SR-NYSEArca-2014-114) be, and it hereby is, approved on an
accelerated basis.
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\32\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-00964 Filed 1-21-15; 8:45 am]
BILLING CODE 8011-01-P