Federal Register, Volume 80 Issue 150 (Wednesday, August 5, 2015)

[Federal Register Volume 80, Number 150 (Wednesday, August 5, 2015)]
[Notices]
[Pages 46612-46615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-19132]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75566; File No. SR-NYSEArca-2015-42]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by Amendments No. 1 and No. 2, To
List and Trade of Shares of Newfleet Multi-Sector Unconstrained Bond
ETF Under NYSE Arca Equities Rule 8.600

July 30, 2015.

I. Introduction

On June 5, 2015, NYSE Arca, Inc. (``Exchange'') 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 Newfleet Multi-Sector
Unconstrained Bond ETF (``Fund''), a series of the ETFis Series Trust I
(``Trust'') under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares. On June 15, 2015, the
Exchange filed Amendment No. 1 to the proposed rule change.\3\ The
Commission published notice of the proposed rule change, as modified by
Amendment No. 1 thereto, in the Federal Register on June 24, 2015.\4\
On July 23, 2015, the Exchange filed Amendment No. 2 to the proposed
rule change.\5\ The Commission received no comments on the proposal.
This

[[Page 46613]]

order approves the proposed rule change, as modified by Amendments No.
1 and No. 2.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ Amendment No. 1 to the proposed rule change replaced and
superseded the original filing in its entirety.
\4\ See Securities Exchange Act Release No. 75247 (June 18,
2015), 80 FR 36372 (``Notice'').
\5\ Amendment No. 2 clarified that the Adviser expects that,
under normal market conditions, the Fund will seek to invest at
least 75% of its corporate bond assets in issuances that have at
least $100,000,000 par amount outstanding in developed countries or
at least $200,000,000 par amount outstanding in emerging market
countries. Because it only makes this clarification and does not
materially affect the substance of the proposed rule change or raise
unique or novel regulatory issues, Amendment No. 2 to the proposed
rule change does not require notice and comment. The text of
Amendment No. 2 is available at: http://www.sec.gov/comments/sr-nysearca-2015-42/nysearca201542-2.pdf.
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II. The Exchange's Description of the Proposal \6\
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\6\ The Commission notes that additional information regarding
the Fund, the Trust, and the Shares, including investment
strategies, risks, creation and redemption procedures, fees,
portfolio holdings, disclosure policies, calculation of net asset
value (``NAV''), distributions, and taxes, among other things, can
be found in the Notice and the Registration Statement, as
applicable. See Notice, supra note 3, and Registration Statement,
infra note 7.
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NYSE Arca proposes to list and trade 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 the Trust,
which is registered with the Commission as an investment company.\7\
The investment adviser to the Fund will be Etfis Capital LLC
(``Adviser''), and the sub-adviser to the Fund will be Newfleet Asset
Management LLC (``Sub-Adviser'').\8\ ETF Issuer Solutions Inc. will
serve as the Fund's operational administrator. ETF Distributors LLC
will serve as the distributor, and the Bank of New York Mellon will
serve as the administrator, custodian, transfer agent and fund
accounting agent for the Fund.
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\7\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). The Exchange states that on January 26, 2015,
the Trust filed with the Commission an amendment to its registration
statement on Form N-1A under the Securities Act of 1933 (15 U.S.C.
77a) (``Securities Act'') and under the 1940 Act relating to the
Fund (File Nos. 333-187668 and 811-22819) (``Registration
Statement'').
\8\ The Adviser and Sub-Adviser are not registered as broker-
dealers, but each is affiliated with one or more broker-dealers and
has implemented and will maintain a fire wall with respect to each
such broker-dealer affiliate regarding access to information
concerning the composition of or changes to the portfolio. In the
event (a) the Adviser or Sub-Adviser become registered broker-
dealers or newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser is a registered broker-dealer or becomes
affiliated with a broker-dealer, it will implement a fire wall with
respect to its relevant personnel or its broker-dealer affiliate
regarding access to information concerning the composition of or
changes to the portfolio, and it will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
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The Fund's investment objective is to provide a high level of
current income and, secondarily, capital appreciation. Under normal
market conditions,\9\ the Sub-Adviser will seek to select securities
using a sector rotation approach and seek to adjust the proportion of
Fund investments in various sectors and sub-sectors in an effort to
obtain higher relative returns.
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\9\ The term ``under normal market conditions'' includes, but is
not limited to, the absence of 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. In the absence of normal market conditions, the Fund
may invest 100% of its total assets, without limitation, in cash or
cash equivalents. The Fund may be invested in this manner for
extended periods depending on the Sub-Adviser's assessment of market
conditions.
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A. The Fund's Principal Investments

Under normal market conditions, at least 80% of the Fund's net
assets will be invested in the fixed income securities identified below
and in U.S. Treasury futures. The Fund may invest across the credit-
rating spectrum, which includes securities rated below investment grade
by a nationally recognized statistical rating organization (``NRSRO''),
and in unrated securities. The Fund has no target duration for its
investment portfolio.
The Fund may invest in the following fixed income securities:
Securities issued or guaranteed as to principal and
interest by the U.S. Government, or by its agencies, authorities or
instrumentalities, including, without limitation, collateralized
mortgage obligations (``CMOs''), real estate mortgage investment
conduits, and other pass-through securities;
non-agency \10\ commercial mortgage-backed securities
(``CMBS''), agency and non-agency residential mortgage-backed
securities (``RMBS''), and other asset-backed securities (``ABS''),
including equipment trust certificates; \11\
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\10\ ``Non-agency'' securities are financial instruments that
have been issued by an entity that is not a government-sponsored
agency such as the Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, Federal Home Loan Banks, or the
Government National Mortgage Association.
\11\ The Fund may invest up to 20% of its net assets in the
aggregate in non-agency CMBS, RMBS, and ABS.
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Yankee bonds; \12\
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\12\ Yankee bonds are denominated in U.S. dollars, registered in
accordance with the Securities Act and publicly issued in the U.S.
by foreign banks and corporations.
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loan assignments, including senior and junior bank loans
(generally with floating rates); \13\
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\13\ The Fund may invest in loan assignments, including senior
and junior bank loans, rated C or higher by an NRSRO or unrated but
considered to be of comparable quality by the Adviser or Sub-
Adviser. The Fund will not invest in loan assignments that are in
default at time of purchase. The Fund will only invest in U.S.
dollar-denominated loan assignments. In addition, for investment
purposes, a bank loan must have a par amount outstanding of U.S.
$150 million or greater at the time it is originally issued. The
Fund may invest up to 20% of its net assets in junior bank loans.
The Adviser generally will invest in loan assignments, including
bank loans, that it deems highly liquid, with readily available
prices.
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corporate bonds; \14\ and
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\14\ The Adviser expects that under normal market conditions,
the Fund will seek to invest at least 75% of its corporate bond
assets in issuances that have at least $100,000,000 par amount
outstanding in developed countries or at least $200,000,000 par
amount outstanding in emerging market countries. See Amendment No.
2, supra note 5.
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taxable municipal bonds and tax-exempt municipal bonds.
Generally, the portfolio will include a minimum of 13 non-
affiliated issuers of debt securities, and the Fund will only purchase
performing securities, not distressed debt.\15\
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\15\ Distressed debt is debt that is currently in default and is
not expected to pay the current coupon.
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The Fund may invest in U.S. Treasury futures contracts traded on
U.S. futures exchanges to attempt to protect the Fund's current or
intended investments from broad fluctuations in securities prices.

B. The Fund's Non-Principal Investments

While the Fund, under normal market conditions, will invest at
least 80% of its assets in the fixed income securities and financial
instruments identified above, the Fund may invest its remaining assets
in other assets and financial instruments, as described below.
The Fund may hold the following exchange-traded equity securities:
Common stocks, preferred stocks, warrants, convertible securities, unit
investment trusts, master limited partnerships, real estate investment
trusts (``REITs''), exchange-traded funds (``ETFs''),\16\ and exchange-
traded notes (``ETNs'').\17\ These equity securities will be traded in
the U.S. on registered exchanges.
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\16\ The Fund may invest in inverse ETFs, leveraged ETFs and
inverse leveraged ETFs (e.g., 2X or 3X).
\17\ The Fund will not invest in leveraged ETNs and inverse
leveraged ETNs (e.g., 2X or 3X).
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To gain exposure to the performance of foreign issuers, the Fund
may also invest in the following types of equity securities: American
Depositary Receipts (``ADRs''); ``ordinary shares'' and ``New York
shares'' (each of which is issued and traded in the U.S.); and Global
Depositary Receipts, European Depositary Receipts, and International
Depositary Receipts, which are traded on foreign exchanges.\18\
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\18\ The Fund may invest in sponsored or unsponsored ADRs;
however, non-exchange listed ADRs will not exceed 10% of the Fund's
net assets.
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With respect to its exchange-traded equity securities, the Fund
will normally invest in equity securities that are listed and traded on
a U.S. exchange or in markets that are members of the Intermarket
Surveillance Group (``ISG'')

[[Page 46614]]

or parties to a comprehensive surveillance sharing agreement with the
Exchange. In any case, not more than 10% of the net assets of the Fund
in the aggregate invested in exchange-traded equity securities will
consist of equity securities whose principal market is not a member of
ISG or a market with which the Exchange does not have a comprehensive
surveillance sharing agreement.
The Fund may invest in, to the extent permitted by Section 12(d)(1)
of the 1940 Act and the rules thereunder,\19\ other affiliated and
unaffiliated funds, such as open-end or closed-end management
investment companies (``closed-end funds''), including other ETFs. The
Fund may also invest in the securities of other investment companies in
compliance with Section 12(d)(1)(E), (F) and (G) of the 1940 Act and
the rules thereunder.\20\
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\19\ 15 U.S.C. 80a-12(d)(1).
\20\ 15 U.S.C. 80a-12(d)(1)(E),(F) and (G).
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The Fund may invest in exchange-traded securities of pooled
vehicles that are not investment companies and, thus, not required to
comply with the provisions of the 1940 Act, although such pooled
vehicles would be required to comply with the provisions of other
federal securities laws, such as the Securities Act. These pooled
vehicles typically hold commodities, such as gold or oil; currency; or
other property that is itself not a security.\21\
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\21\ Exchange-traded pooled investment vehicles include Trust
Issued Receipts (as described in NYSE Arca Equities Rule 8.200);
Commodity-Based Trust Shares (as described in NYSE Arca Equities
Rule 8.201); Currency Trust Shares (as described in NYSE Arca
Equities Rule 8.202); Commodity Index Trust Shares (as described in
NYSE Arca Equities Rule 8.203); and Trust Units (as described in
NYSE Arca Equities Rule 8.500).
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III. Discussion and Commission Findings

After careful review, the Commission finds that the Exchange's
proposal to list and trade the Shares is consistent with the Exchange
Act and the rules and regulations thereunder applicable to a national
securities exchange.\22\ In particular, 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 Exchange Act,\23\ 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 Exchange Act,\24\ which sets forth the finding of Congress 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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\22\ 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).
\23\ 15 U.S.C. 78f(b)(5).
\24\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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Quotation and last-sale information for the Shares and the
underlying U.S. exchange-traded equity securities will be available via
the Consolidated Tape Association (``CTA'') high-speed line, and from
the national securities exchange on which they are listed. In addition,
the intraday indicative value or ``IIV'' (which is the Portfolio
Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3))
will be widely disseminated at least every 15 seconds during the Core
Trading Session by one or more major market data vendors.\25\ On each
business day, before commencement of trading in Shares in the Core
Trading Session on the Exchange, the Fund's Web site will publish the
Disclosed Portfolio \26\ that will form the basis for the Fund's
calculation of NAV at the end of the business day.\27\
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\25\ Currently, it is the Exchange's understanding that several
major market data vendors display or make widely available IIVs
taken from CTA or other data feeds.
\26\ The term ``Disclosed Portfolio'' is defined in NYSE Arca
Equities Rule 8.600(c)(2).
\27\ 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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The NAV for the Shares will be calculated after 4:00 p.m. Eastern
Time each trading day. 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. Pricing information regarding each
asset class in which the Fund will invest will generally be available
through nationally recognized data service providers through
subscription agreements. Foreign exchange prices are available from
major market data vendors. Intra-day and closing price information for
Rule 144A fixed income securities and loan assignments will be
available from major market data vendors. Price information for
investment company securities (other than ETFs and exchange-traded
closed end funds) will be available from the investment company's Web
site and from market data vendors. Quotation information from brokers
and dealers or pricing services will be available for unsponsored ADRs;
fixed income securities; bank loans; U.S. Treasury securities; other
obligations issued or guaranteed by U.S. government agencies or
instrumentalities; bank obligations; short-term securities; money
market instruments; ABS; MBS; CMBS; RMBS; CMOs; shares of mutual funds;
corporate debt securities; and convertible securities.
The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange will obtain a representation from the issuer of
the Shares that the NAV per Share will be calculated daily and that the
NAV and the Disclosed Portfolio will be made available to all market
participants at the same time. 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.\28\ Trading in the Shares also 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. The
Exchange represents that it has a general policy prohibiting the
distribution of material, non-public information by its employees. The
Adviser and Sub-Adviser are not registered as broker-dealers but are
affiliated with two broker-dealers and have implemented and will
maintain a fire wall with respect to each such broker-dealer
affiliate.\29\
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\28\ These may include: (1) The extent to which trading is not
occurring in the securities or the financial instruments
constituting 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.
\29\ See supra note 7. The Exchange represents that an
investment adviser to an open-end fund is required to be registered
under the Investment Advisers Act of 1940.

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[[Page 46615]]

Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders (``ETP Holders'') in an Information
Bulletin (``Bulletin'') of the special characteristics and risks
associated with trading the Shares. 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.\30\
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\30\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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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 conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) Trading in the Shares will be subject to the existing trading
surveillances, administered by FINRA on behalf of the Exchange, which
are designed to detect violations of Exchange rules and applicable
federal securities laws, and 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.
(4) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, exchange-traded equity securities and
futures contracts with other markets and other entities that are
members of the ISG, and FINRA, on behalf of the Exchange, may obtain
trading information regarding trading in the Shares, exchange-traded
equity securities and futures contracts from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares, exchange-traded equity securities and 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.\31\ 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.
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\31\ 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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(5) Prior to the commencement of trading of the Shares, the
Exchange will inform its ETP Holders in a Bulletin of the special
characteristics and risks associated with trading the Shares. The
Bulletin will discuss the following: (i) The procedures for purchases
and redemptions of Shares in Creation Unit aggregations (and that
Shares are not individually redeemable); (ii) 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; (iii) the risks involved in trading the Shares during the
Opening and Late Trading Sessions (as defined in NYSE Arca Equities
7.34) when an updated IIV or Index value will not be calculated or
publicly disseminated; (iv) how information regarding the IIV, the
Disclosed Portfolio, and the Index value will be disseminated; (v) 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 (vi) trading information.
(6) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\32\ as provided by
NYSE Arca Equities Rule 5.3.
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\32\ 17 CFR 240.10A-3.
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(7) Not more than 20% of the Fund's net assets in the aggregate
will be invested in non-agency CMBS, RMBS, and ABS.
(8) Not more than 20% of the Fund's net assets will be invested in
junior bank loans.
(9) The Fund will invest only in U.S. dollar-denominated loan
assignments, and for investment purposes, a bank loan must have a par
amount outstanding of U.S. $150 million or greater at the time it is
originally issued. Furthermore, the Adviser will invest generally in
loan assignments, including bank loans, which it deems to be highly
liquid, with readily available prices.
(10) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A fixed income securities and bank loans that are
deemed illiquid by the Adviser, consistent with Commission guidance.
(11) A minimum of 100,000 Shares for the Fund will be outstanding
at the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice. The
Commission notes that the Fund and the Shares must comply with the
requirements of NYSE Arca Equities Rule 8.600 to be initially and
continuously listed and traded on the Exchange.
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 Exchange Act \33\ and Section
11A(a)(1)(C)(iii) of the Exchange Act \34\ and the rules and
regulations thereunder applicable to a national securities exchange.
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\33\ 15 U.S.C. 78f(b)(5).
\34\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\35\ that the proposed rule change (SR-NYSEArca-2015-42),
as modified by Amendments No. 1 and No. 2 thereto, be, and it hereby
is, approved.
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\35\ 15 U.S.C. 78s(b)(2).
\36\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-19132 Filed 8-4-15; 8:45 am]
BILLING CODE 8011-01-P