[Federal Register Volume 79, Number 94 (Thursday, May 15, 2014)]
[Notices]
[Pages 27950-27958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-11157]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72139; File No. SR-NYSEArca-2014-45]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to PowerShares Insured California 
Municipal Bond Portfolio, PowerShares Insured National Municipal Bond 
Portfolio, and PowerShares Insured New York Municipal Bond Portfolio

May 9, 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 April 25, 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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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes a rule change relating to the listing and 
trading of the following series of Investment Company Units that are 
currently listed and traded on the Exchange under NYSE Arca Equities 
Rule 5.2(j)(3): PowerShares Insured California Municipal Bond 
Portfolio; PowerShares Insured National Municipal Bond Portfolio; and 
PowerShares Insured New York Municipal Bond Portfolio. 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.

[[Page 27951]]

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 currently lists and trades shares of the PowerShares 
Insured California Municipal Bond Portfolio (``CA Portfolio''), 
PowerShares Insured National Municipal Bond Portfolio (``National 
Portfolio'') and PowerShares Insured New York Municipal Bond Portfolio 
(``NY Portfolio'', and, together with the CA Portfolio and the National 
Portfolio, the ``Municipal Bond Portfolios'' or the ``Funds'') \4\ 
under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02, which governs 
the listing and trading of Investment Company Units (``Units'') based 
on fixed income securities indexes.\5\ The Funds are series of the 
PowerShares Exchange-Traded Fund Trust II (``Trust'').\6\
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    \4\ On February 27, 2014, the Trust filed a post-effective 
amendment on Form 485 under the Securities Act of 1933 (15 U.S.C. 
77a) (``1933 Act'') to its registration statement on Form N-1A under 
the 1933 Act and the Investment Company Act of 1940 (``1940 Act'') 
(15 U.S.C. 80a-1) (File Nos. 333-138490 and 811-21977) (the 
``Registration Statement''). The description of the operation of the 
Trust and the Funds 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. 27841 (May 25, 2007) (File No. 
812-13335) (``Exemptive Order'').
    \5\ The Municipal Bond Portfolios were initially listed on the 
American Stock Exchange, Inc. (``Amex'') (now NYSE MKT) on October 
11, 2007 pursuant to the generic listing criteria of Amex Rule 
1000A. On November 3, 2008, the listings transferred from the Amex 
to NYSE Arca, which changes were effected pursuant to NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02.
    \6\ The Commission previously has approved a proposed rule 
change relating to listing and trading on the Exchange of Units 
based on municipal bond indexes. See Securities Exchange Act Release 
No. 67985 (October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-
NYSEArca-2012-92) (order approving proposed rule change relating to 
the listing and trading of iShares 2018 S&P AMT-Free Municipal 
Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE 
Arca Equities Rule 5.2(j)(3), Commentary .02) (``iShares Order'').
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    Invesco PowerShares Capital Management LLC is the investment 
adviser (``Adviser'') for the Funds. Invesco Distributors, Inc. is the 
Funds' distributor (``Distributor''). The Bank of New York Mellon is 
the administrator, custodian and fund accounting and transfer agent for 
each Fund.
    The Exchange is submitting this proposed rule change (1) to permit 
the continued listing and trading of shares (``Shares'') of the Funds 
following previous changes to the indexes underlying the Funds, as 
described below, and (2) to propose changes to the indexes underlying 
the Funds and new names for the Funds, as described below.
Municipal Bond Portfolios
    On May 28, 2009, the municipal bond indexes underlying the CA 
Portfolio; the National Portfolio; and the NY Portfolio were changed to 
the Merrill Lynch California Insured Long-Term Core Plus Municipal 
Securities Index, the Merrill Lynch National Insured Long-Term Core 
Plus Municipal Securities Index, and the Merrill Lynch New York Insured 
Long-Term Core Plus Municipal Securities Index, respectively.\7\ On 
September 25, 2009, the names of the indexes underlying the Municipal 
Bond Portfolios again were changed to the BofA Merrill Lynch California 
Insured Long-Term Core Plus Municipal Securities Index (``CA Index''), 
the BofA Merrill Lynch National Insured Long-Term Core Plus Municipal 
Securities Index (``National Index''), and the BofA Merrill Lynch New 
York Insured Long-Term Core Plus Municipal Securities Index, 
respectively \8\ (``NY Index'', collectively, with the CA Index and the 
National Index, the ``Municipal Bond Indexes'').\9\
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    \7\ The changes to the indexes underlying the Municipal Bond 
Portfolios were reflected in a supplement on Form 497 under the 1933 
Act, dated May 28, 2009 (``May 28, 2009 Supplement'') to the 
Municipal Bond Portfolios' prospectus dated February 27, 2009. The 
previous names of the indexes underlying the Municipal Bond 
Portfolios were the Merrill Lynch California Insured Long-Term Core 
Municipal Securities Index, Merrill Lynch National Insured Long-Term 
Core Municipal Securities Index, and Merrill Lynch New York Insured 
Long-Term Core Municipal Securities Index, respectively.
    \8\ BofA Merrill Lynch is the ``Index Provider'' with respect to 
the Municipal Bond Indexes and the ``New Municipal Bond Indexes'' 
(as described below). The Index Provider is a broker-dealer and has 
implemented a firewall with respect to and will maintain procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the Municipal Bond Indexes and New Municipal 
Bond Indexes.
    \9\ The September 25, 2009, name changes were reflected in a 
supplement dated September 25, 2009 to the Municipal Bond 
Portfolios' prospectus dated February 27, 2009.
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    The Exchange recently became aware of changes to the indexes 
underlying the Municipal Bond Portfolios as reflected in the May 28, 
2009 Supplement. Currently, therefore, the Municipal Bond Indexes do 
not meet the generic listing criteria of NYSE Arca Equities Rule 
5.2(j)(3), as described below.
    Accordingly, the Exchange is submitting this proposed rule change 
to permit the continued listing of each of the Funds. The Municipal 
Bond Indexes meet all of the requirements of the generic listing 
criteria of NYSE Arca Equities Rule 5.2(j)(3), except for those set 
forth in Commentary .02(a)(2).\10\ Specifically, as of March 6, 2014, 
approximately 34.84%, and 37.16%, and 59.22% of the weight of the 
components of the CA Index, Core Index and NY Index, respectively, have 
a minimum original principal amount outstanding of $100 million or 
more.
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    \10\ Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3) 
provides that components that in the aggregate account for at least 
75% of the weight of the index or portfolio each shall have a 
minimum original principal amount outstanding of $100 million or 
more.
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PowerShares Insured California Municipal Bond Portfolio
    According to the Registration Statement, the CA Portfolio seeks 
investment results that generally correspond (before fees and expenses) 
to the price and yield performance of the CA Index. The CA Portfolio 
generally invests at least 80% of its total assets in insured municipal 
securities that are exempt from federal income tax and California state 
income tax (the ``80% policy''). The CA Portfolio normally invests at 
least 80% of its total assets in the securities that comprise the CA 
Index and generally expects to so invest at least 90% of its total 
assets. The CA Portfolio, however, reserves the right to invest up to 
20% of its assets in certain futures, options and swap contracts, cash 
and cash equivalents, including money market funds, as well as in 
municipal securities not included in the CA Index to the extent that 
the Adviser believes investment in such instruments will facilitate the 
CA Portfolio's ability to achieve its investment objective.
    The CA Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by 
California or U.S. territories (including Puerto Rico), or their 
political subdivisions, in the U.S. domestic market and includes 
approximately 267 bonds (as of January 31, 2014). The CA Index is 
adjusted monthly. The CA

[[Page 27952]]

Portfolio, using an ``indexing'' investment approach, attempts to 
replicate, before fees and expenses, the performance of the CA Index 
through sampling. The Adviser seeks correlation over time of 0.95% or 
better between the CA Portfolio's performance and the performance of 
the CA Index.
    As of January 31, 2014, approximately 86.1% of the weight of the CA 
Index components was composed of individual maturities that were part 
of an entire municipal bond offering with a minimum original principal 
amount outstanding of $100 million or more for all maturities of the 
offering. In addition, as of January 31, 2014, the total dollar amount 
outstanding of issues in the CA Index was approximately $17.201 billion 
and the average dollar amount outstanding of issues in the CA Index was 
approximately $64.42 million. Further, the most heavily weighted 
component represents 3.53% of the weight of the CA Index and the five 
most heavily weighted components represent 9.94% of the weight of the 
CA Index.\11\ Therefore, the Exchange believes that, notwithstanding 
that the CA Index does not satisfy the criterion in NYSE Arca Equities 
Rule 5.2(j)(3), Commentary .02 (a)(2), the CA Index is sufficiently 
broad-based to deter potential manipulation, given that it is composed 
of approximately 267 issues and 127 unique issuers. The Exchange notes 
that the individual maturities that are part of the same municipal bond 
offering share common characteristics, such as issuer, rating, 
structure, and purpose (i.e., general obligation bonds, revenue bonds 
or ``double-barreled'' bonds). In addition, the CA Index securities are 
sufficiently liquid to deter manipulation in that a substantial portion 
(86.1%) of the CA Index weight is composed of maturities that are part 
of a minimum original principal amount outstanding of $100 million or 
more for all the maturities of the offering, and in view of the 
substantial total dollar amount outstanding and the average dollar 
amount outstanding of CA Index issues, as referenced above.
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    \11\ See note 11, supra, regarding the requirement of Commentary 
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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    In addition, the average daily notional trading volume for CA Index 
components for the calendar year 2013 was approximately $27.45 million 
and the sum of the notional trading volumes for the same period was 
approximately$6.9 billion.
PowerShares Insured National Municipal Bond Portfolio
    According to the Registration Statement, the National Portfolio 
seeks investment results that generally correspond (before fees and 
expenses) to the price and yield performance of the National Index. The 
National Portfolio will generally invest at least 80% of its total 
assets in the securities that compose the National Index and generally 
expects to so invest at least 90% of its total assets. The National 
Portfolio, however, reserves the right to invest up to 20% of its 
assets in certain futures, options and swap contracts, cash and cash 
equivalents, including money market funds, as well as in municipal 
securities not included in the National Index to the extent that the 
Adviser believes such investments will facilitate the National 
Portfolio's ability to achieve its investment objective. The National 
Index is designed to track the performance of U.S. dollar-denominated 
investment grade insured tax-exempt debt publicly issued by U.S. states 
and territories (including Puerto Rico), or their political 
subdivision, in the U.S. domestic market and includes approximately 
1,238 bonds (as of January 31, 2014). The National Index is adjusted 
monthly.
    The National Portfolio, using an ``indexing'' investment approach, 
attempts to replicate, before fees and expenses, the performance of the 
National Index through sampling. The Adviser seeks correlation over 
time of 0.95% or better between the National Portfolio's performance 
and the performance of the National Index.
    As of January 31, 2014, approximately 89.24% of the weight of the 
National Index components was composed of individual maturities that 
were part of an entire municipal bond offering with a minimum original 
principal amount outstanding of $100 million or more for all maturities 
of the offering. In addition, as of January 31, 2014, the total dollar 
amount outstanding of issues in the National Index was approximately 
$78.69 billion and the average dollar amount outstanding of issues in 
the National Index was approximately $63.56 million. Further, the most 
heavily weighted component represents 0.88% of the weight of the 
National Index and the five most heavily weighted components represent 
3.51% of the weight of the National Index.\12\ Therefore, the Exchange 
believes that, notwithstanding that the National Index does not satisfy 
the criterion in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 
(a)(2), the National Index is sufficiently broad-based to deter 
potential manipulation, given that it is composed of approximately 
1,238 issues and 521 unique issuers. The Exchange notes that the 
individual maturities that are part of the same municipal bond offering 
share common characteristics, such as issuer, rating, structure, and 
purpose (i.e., general obligation bonds, revenue bonds or ``double-
barreled'' bonds). In addition, the National Index securities are 
sufficiently liquid to deter potential manipulation in that a 
substantial portion (89.24%) of the National Index weight is composed 
of maturities that are part of a minimum original principal amount 
outstanding of $100 million or more for all the maturities of the 
offering, and in view of the substantial total dollar amount 
outstanding and the average dollar amount outstanding of National Index 
issues, as referenced above.
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    \12\ See note 11, supra, regarding the requirement of Commentary 
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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    In addition, the average daily notional trading volume for National 
Index components for the calendar year 2013 was approximately $101.99 
million and the sum of the notional trading volumes for the same period 
was approximately $25.7 billion.
PowerShares Insured New York Municipal Bond Portfolio
    According to the Registration Statement, the NY Portfolio seeks 
investment results that generally correspond (before fees and expenses) 
to the price and yield performance of the NY Index. The NY Portfolio 
will generally invest at least 80% of its total assets in insured 
municipal securities that are exempt from federal income tax, New York 
State income tax and New York City income tax. The NY Portfolio will 
normally invest at least 80% of its total assets in the securities that 
compose the NY Index. The NY Portfolio, however, reserves the right to 
invest up to 20% of its assets in certain futures, options and swap 
contracts, cash and cash equivalents, including money market funds, as 
well as in municipal securities not included in the NY Index to the 
extent that the Adviser believes such investments will facilitate the 
NY Portfolio's ability to achieve its investment objective.
    The NY Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by New 
York or U.S. territories (including Puerto Rico), or their political 
subdivisions, included in the U.S. domestic market and includes 
approximately 130 bonds (as of January

[[Page 27953]]

31, 2014). The NY Index is adjusted monthly. The NY Portfolio, using an 
``indexing'' investment approach, attempts to replicate, before fees 
and expenses, the performance of the NY Index through sampling. The 
Adviser seeks correlation over time of 0.95% or better between the NY 
Portfolio's performance and the performance of the NY Index.
    As of January 31, 2014, approximately 95.89% of the weight of the 
NY Index components was composed of individual maturities that were 
part of an entire municipal bond offering with a minimum original 
principal amount outstanding of $100 million or more for all maturities 
of the offering. In addition, as of January, 2014, the total dollar 
amount outstanding of issues in the NY Index was approximately $17.76 
billion and the average dollar amount outstanding of issues in the NY 
Index was approximately $90.58 million. Further, the most heavily 
weighted component represents 6.14% of the weight of the NY Index and 
the five most heavily weighted components represent 20.15% of the 
weight of the NY Index.\13\ Therefore, the Exchange believes that, 
notwithstanding that the NY Index does not satisfy the criterion in 
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (a)(2), the NY Index 
is sufficiently broad-based to deter potential manipulation, given that 
it is composed of approximately 130 issues and 25 unique issuers. The 
Exchange notes that the individual maturities that are part of the same 
municipal bond offering share common characteristics, such as issuer, 
rating, structure, and purpose (i.e., general obligation bonds, revenue 
bonds or ``double-barreled'' bonds). In addition, the NY Index 
securities are sufficiently liquid to deter manipulation in that a 
substantial portion (95.89%) of the NY Index weight is composed of 
maturities that are part of a minimum original principal amount 
outstanding of $100 million or more for all the maturities of the 
offering, and in view of the substantial total dollar amount 
outstanding and the average dollar amount outstanding of NY Index 
issues, as referenced above.
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    \13\ See note 11, supra, regarding the requirement of Commentary 
.02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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    In addition, the average daily notional trading volume for NY Index 
components for the calendar year 2013 was approximately $19.41 million 
and the sum of the notional trading volumes for the same period was 
approximately $4.89 billion.
Changes to Indexes Underlying the Municipal Bond Portfolios
    As noted above, the indexes currently underlying the Municipal Bond 
Portfolios are the BofA Merrill Lynch California Insured Long-Term Core 
Plus Municipal Securities Index, the BofA Merrill Lynch National 
Insured Long-Term Core Plus Municipal Securities Index and the BofA 
Merrill Lynch New York Insured Long-Term Core Plus Municipal Securities 
Index, respectively. As described below, the Trust has proposed to 
change the indexes underlying the Funds and the name of the Funds.
    On May 10, 2013, the Trust filed with the Commission on Schedule 
14A a definitive proxy statement and notice of shareholders meeting 
calling a meeting on June 20, 2013 (``Proxy Statement'').\14\ As stated 
in the Proxy Statement, each of the Funds has a policy to invest 
normally at least 80% of its total assets in insured municipal 
securities (the ``80% investment policy''), the income from which is 
exempt, as applicable, from federal income tax or from both federal and 
state income tax. As stated in the Proxy Statement, in response to the 
changing market environment relating to municipal securities insurance, 
the Adviser proposed that each Fund's underlying index be changed from 
one that is composed solely of insured municipal securities to one that 
is composed of both insured and uninsured municipal securities. 
However, according to the Proxy Statement, before a Fund can change its 
underlying index to invest in uninsured municipal securities, it must 
obtain shareholder approval of a change to its fundamental 80% 
investment policy. Therefore, the Trust recommended that the 
fundamental 80% investment policy of each Fund be changed such that (1) 
it requires an investment of at least 80% of a Fund's net assets (plus 
any borrowings for investment purposes), rather than total assets, and 
(2) it eliminates the requirement that the municipal securities be 
insured, such that a Fund need only invest 80% of its net assets (plus 
any borrowings for investment purposes) in municipal securities, 
regardless of whether those securities are insured or uninsured.
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    \14\ See Definitive Proxy Statement dated May 10, 2013 on 
Schedule 14A (Proxy Statement Pursuant to Section 14(a) of the Act) 
(File No. 811-21977).
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    Thus, in the Proxy Statement, the Trust stated that, subject to 
shareholder approval of the above proposals, each Fund intends to 
change its underlying index to one that is composed of both insured and 
uninsured municipal securities. Following such change, the proposed 
underlying indexes for the Funds will be, respectively, BofA Merrill 
Lynch California Long-Term Core Plus Municipal Securities Index (``New 
CA Index''); BofA Merrill Lynch National Long-Term Core Plus Municipal 
Index (``New National Index''); and BofA Merrill Lynch New York Long-
Term Core Plus Municipal Securities Index (``New NY Index'', 
collectively, with the New CA Index and the New National Index, the 
``New Municipal Bond Indexes'').
    According to the Proxy Statement, the change in investment 
objective for each Fund described above is designed to enable each Fund 
to track its proposed underlying index by substituting the actual name 
of the proposed underlying index in the investment objective; 
otherwise, there is no other change to any of the investment 
objectives. After such change, each Fund's investment objective will be 
to seek investment results that generally correspond (before fees and 
expenses) to the price and yield of its respective proposed underlying 
index.
    In addition, each Fund intends to change its name by removing the 
word ``Insured'' and adding the term ``AMT-Free'' to reflect that the 
proposed underlying indexes will include primarily municipal securities 
that are exempt from the alternative minimum tax. \15\ After such 
change, the names of the Funds will be PowerShares California AMT-Free 
Municipal Bond Portfolio (``New CA Portfolio''), PowerShares National 
AMT-Free Municipal Bond Portfolio (``New National Portfolio'') and 
PowerShares New York AMT-Free Municipal Bond Portfolio (``New NY 
Portfolio''), respectively.\16\
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    \15\ In connection with the addition of the term ``AMT-Free'' to 
each Fund's name, the Trust's Board of Trustees has adopted a non-
fundamental investment policy for each Fund normally to invest at 
least 80% of its net assets, including the amount of any borrowings 
for investment purposes, in municipal securities that are exempt 
from the federal alternative minimum tax.
    \16\ The shareholders of each Fund have approved these changes 
contingent upon approval of this proposed rule change. The changes 
described herein with respect to use of the New Municipal Bond 
Indexes will be effective upon filing with the Commission of another 
amendment to the Trust's Registration Statement, or a prospectus 
supplement reflecting these changes. The Adviser represents that the 
Adviser and Sub-Adviser have managed and will continue to manage the 
Funds in the manner described in the Registration Statement and will 
not implement the changes described herein until this proposed rule 
change is operative.
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    The New Municipal Bond Indexes currently do not meet the generic 
listing criteria of NYSE Arca Equities Rule 5.2(j)(3), as described 
below. Accordingly, the Exchange is submitting this proposed rule 
change to permit the

[[Page 27954]]

continued listing of each of the Funds based on the New Municipal Bond 
Indexes. The New Municipal Bond Indexes meet all of the requirements of 
the generic listing criteria of NYSE Arca Equities Rule 5.2(j)(3), 
except for those set forth in Commentary .02(a)(2).\17\ Specifically, 
as of January 31, 2014, approximately 59.51%, 46.90%, and 60.63% of the 
weight of the components of the New CA Index, New National Index and 
New NY Index, respectively, have a minimum original principal amount 
outstanding of $100 million or more.
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    \17\ See note 10, supra, regarding the requirements of 
Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3).
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PowerShares California AMT-Free Municipal Bond Portfolio
    According to the Registration Statement as supplemented by the 
Proxy Statement, the New CA Portfolio will generally seek investment 
results that correspond (before fees and expenses) to the price and 
yield performance of the New CA Index. The New CA Portfolio normally 
will invest at least 80% of its net assets (plus borrowings for 
investment purposes, if any) in municipal securities that are exempt 
from federal income tax and California state income tax. The New CA 
Portfolio normally will invest at least 80% of its total assets in the 
securities that compose the New CA Index and generally expects to so 
invest at least 90% of its total assets.\18\ The New CA Portfolio, 
however, reserves the right to invest up to 20% of its assets in 
certain futures, options and swap contracts, cash and cash equivalents, 
including money market funds, as well as in municipal securities not 
included in the New CA Index to the extent that the Adviser believes 
investment in such instruments will facilitate the New CA Portfolio's 
ability to achieve its investment objective.
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    \18\ Each Fund is required by Rule 35d-1 under the 1940 Act to 
invest at least 80% of its net assets (plus borrowings for 
investment purposes, if any) in securities implied by its name. In 
addition, the Exemptive Order requires each Fund to invest at least 
80% of its total assets in securities comprising its underlying 
index.
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    The New CA Index is designed to track the performance of U.S. 
dollar-denominated, investment grade, tax-exempt debt publicly issued 
by California or U.S. territories (including Puerto Rico), or their 
political subdivisions, in the U.S. domestic market and includes 
approximately 1,086 bonds (as of January 31, 2014). The New CA Index is 
adjusted monthly. The New CA Portfolio, using an ``indexing'' 
investment approach, will attempt to replicate, before fees and 
expenses, the performance of the New CA Index through sampling. The 
Adviser will seek correlation over time of 0.95% or better between the 
New CA Portfolio's performance and the performance of the New CA Index.
    As of January 31, 2014, approximately 94.60% of the weight of the 
New CA Index components was composed of individual maturities that were 
part of an entire municipal bond offering with a minimum original 
principal amount outstanding of $100 million or more for all maturities 
of the offering. In addition, as of January, 2014, the total dollar 
amount outstanding of issues in the New CA Index was approximately 
$100.76 billion and the average dollar amount outstanding of issues in 
the Index was approximately $92.81 million. Further, the most heavily 
weighted component represents 1.39% of the weight of the New CA Index 
and the five most heavily weighted components represent 5.17% of the 
weight of the CA Index.\19\ Therefore, the Exchange believes that, 
notwithstanding that the New CA Index does not satisfy the criterion in 
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(a)(2), the New CA 
Index is sufficiently broad-based to deter potential manipulation, 
given that it is composed of approximately 1,086 issues and 229 unique 
issuers. The Exchange notes that the individual maturities that are 
part of the same municipal bond offering share common characteristics, 
such as issuer, rating, structure, and purpose (i.e., general 
obligation bonds, revenue bonds or ``double-barreled'' bonds). In 
addition, the New CA Index securities are sufficiently liquid to deter 
manipulation in that a substantial portion (94.60%) of the New CA Index 
weight is composed of maturities that are part of a minimum original 
principal amount outstanding of $100 million or more for all the 
maturities of the offering, and in view of the substantial total dollar 
amount outstanding and the average dollar amount outstanding of New CA 
Index issues, as referenced above.
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    \19\ See note 11, supra, regarding the requirements of 
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
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    In addition, the average daily notional trading volume for New CA 
Index components for the calendar year 2013 was approximately $364.22 
million and the sum of the notional trading volumes for the same period 
was approximately $91.78 billion.
PowerShares National AMT-Free Municipal Bond Portfolio
    According to the Registration Statement as supplemented by the 
Proxy Statement, the New National Portfolio generally will seek 
investment results that correspond (before fees and expenses) to the 
price and yield performance of the New National Index. The New National 
Portfolio normally will invest at least 80% of its net assets (plus 
borrowings for investment purposes, if any) in municipal securities 
that are exempt from federal income tax. The New National Portfolio 
will normally invest at least 80% of its total assets in the securities 
that compose the New National Index and generally expects to so invest 
at least 90% of its total assets. The New National Portfolio, however, 
reserves the right to invest up to 20% of its assets in certain 
futures, options and swap contracts, cash and cash equivalents, 
including money market funds, as well as in municipal securities not 
included in the New National Index to the extent that the Adviser 
believes such investments will facilitate the New National Portfolio's 
ability to achieve its investment objective. The New National Index is 
designed to track the performance of U.S. dollar-denominated investment 
grade tax-exempt debt publicly issued by U.S. states or U.S. 
territories (including Puerto Rico), or its political subdivision, in 
the U.S. domestic market and includes approximately 5,476 bonds (as of 
January 31, 2014). The New National Index is adjusted monthly.
    The New National Portfolio, using an ``indexing'' investment 
approach, will attempt to replicate, before fees and expenses, the 
performance of the New National Index through sampling. The Adviser 
will seek correlation over time of 0.95% or better between the National 
Portfolio's performance and the performance of the New National Index.
    As of January 31, 2014, approximately 91.86% of the weight of the 
New National Index components was composed of individual maturities 
that were part of an entire municipal bond offering with a minimum 
original principal amount outstanding of $100 million or more for all 
maturities of the offering. In addition, as of January 31, 2014, the 
total dollar amount outstanding of issues in the New National Index was 
approximately $394.04 billion and the average dollar amount outstanding 
of issues in the New National Index was approximately $71.96 million. 
Further, the most heavily weighted component represents 0.34% of the 
weight of the New

[[Page 27955]]

National Index and the five most heavily weighted components represent 
1.47% of the weight of the New National Index.\20\ Therefore, the 
Exchange believes that, notwithstanding that the New National Index 
does not satisfy the criterion in NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02(a)(2), the New National Index is sufficiently broad-
based to deter potential manipulation, given that it is composed of 
approximately 5,476 issues and 1,259 unique issuers. The Exchange notes 
that the individual maturities that are part of the same municipal bond 
offering share common characteristics, such as issuer, rating, 
structure, and purpose (i.e., general obligation bonds, revenue bonds 
or ``double-barreled'' bonds). In addition, the New National Index 
securities are sufficiently liquid to deter potential manipulation in 
that a substantial portion (91.86%) of the New National Index weight is 
composed of maturities that are part of a minimum original principal 
amount outstanding of $100 million or more for all the maturities of 
the offering, and in view of the substantial total dollar amount 
outstanding and the average dollar amount outstanding of New National 
Index issues, as referenced above.
---------------------------------------------------------------------------

    \20\ See note 11, supra, regarding the requirements of 
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------

    In addition, the average daily notional trading volume for New 
National Index components for the calendar year 2013 was approximately 
$1.26 billion and the sum of the notional trading volumes for the same 
period was approximately $317.73 billion.
PowerShares New York AMT-Free Municipal Bond Portfolio
    According to the Registration Statement as supplemented by the 
Proxy Statement, the New NY Portfolio will seek investment results that 
correspond (before fees and expenses) generally to the price and yield 
performance of the New NY Index. The New NY Portfolio will normally 
invest at least 80% of its net assets in municipal securities that are 
exempt from federal income tax, New York State income tax and New York 
City income tax. The NY Portfolio will normally invest at least 80% of 
its total assets in the securities that compose the New NY Index. The 
New NY Portfolio, however, reserves the right to invest up to 20% of 
its assets in certain futures, options and swap contracts, cash and 
cash equivalents, including money market funds, as well as in municipal 
securities not included in the New NY Index to the extent that the 
Adviser believes such investments will facilitate the New NY 
Portfolio's ability to achieve its investment objective. The Adviser 
will seek correlation over time of 0.95% or better between the New NY 
Portfolio's performance and the performance of the New NY Index. The 
New NY Index is designed to track the performance of U.S. dollar-
denominated, investment grade, tax-exempt debt publicly issued by New 
York or U.S. territories (including Puerto Rico), or their political 
subdivisions, included in the U.S. domestic market includes 
approximately 952 bonds (as of January 31, 2014).
    As of January 31, 2014, approximately 98.21% of the weight of the 
New NY Index components was composed of individual maturities that were 
part of an entire municipal bond offering with a minimum original 
principal amount outstanding of $100 million or more for all maturities 
of the offering. In addition, as of January 31, 2014, the total dollar 
amount outstanding of issues in the New NY Index was approximately 
$86.75 billion and the average dollar amount outstanding of issues in 
the New NY Index was approximately $91.13 million. Further, the most 
heavily weighted component represents 1.61% of the weight of the New NY 
Index and the five most heavily weighted components represent 5.07% of 
the weight of the New NY Index.\21\ Therefore, the Exchange believes 
that, notwithstanding that the New NY Index does not satisfy the 
criterion in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(a)(2), 
the New NY Index is sufficiently broad-based to deter potential 
manipulation, given that it is composed of approximately 952 issues and 
67 unique issuers. The Exchange notes that the individual maturities 
that are part of the same municipal bond offering share common 
characteristics, such as issuer, rating, structure, and purpose (i.e., 
general obligation bonds, revenue bonds or ``double-barreled'' bonds). 
In addition, the New NY Index securities are sufficiently liquid to 
deter potential manipulation in that a substantial portion (98.21%) of 
the New NY Index weight is composed of maturities that are part of a 
minimum original principal amount outstanding of $100 million or more 
for all the maturities of the offering, and in view of the substantial 
total dollar amount outstanding and the average dollar amount 
outstanding of New NY Index issues, as referenced above.
---------------------------------------------------------------------------

    \21\ See note 11, supra, regarding the requirements of 
Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------

    In addition, the average daily notional trading volume for New NY 
Index components for the calendar year 2013 was approximately $334.68 
million and the sum of the notional trading volumes for the same period 
was approximately $84.34 billion.
    All components of each of the Municipal Bond Indexes and New 
Municipal Bond Indexes currently are rated as investment grade (A3 or 
higher by Moody's Investors Service).
    The Exchange represents that: (1) With respect to the Municipal 
Bond Portfolios, except for Commentary .02(a)(2) to NYSE Arca Equities 
Rule 5.2(j)(3), the Shares of the Municipal Bond Portfolios currently 
satisfy all of the generic listing standards under NYSE Arca Equities 
Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca 
Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply 
to the Shares of the Funds; and (3) the Trust is required to comply 
with Rule 10A-3 \22\ under the Act for the initial and continued 
listing of the Shares of the Funds. In addition, the Exchange 
represents that the Shares of the Funds will comply with all other 
requirements applicable to Units including, but not limited to, 
requirements relating to the dissemination of key information such as 
the value of the Index and the applicable Intraday Indicative Value 
(``IIV''),\23\ rules governing the trading of equity securities, 
trading hours, trading halts, surveillance, information barriers and 
the Information Bulletin to Equity Trading Permit Holders (``ETP 
Holders''), as set forth in Exchange rules applicable to Units and 
prior Commission orders approving the generic listing rules applicable 
to the listing and trading of Units.\24\
---------------------------------------------------------------------------

    \22\ 17 CFR 240.10A-3.
    \23\ The IIV will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Core Trading Session of 9:30 a.m. to 4:00 p.m., Eastern time. 
Currently, it is the Exchange's understanding that several major 
market data vendors display and/or make widely available IIVs taken 
from the Consolidated Tape Association (``CTA'') or other data 
feeds.
    \24\ See, e.g., Securities Exchange Act Release Nos. 55783 (May 
17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order 
approving NYSE Arca generic listing standards for Units based on a 
fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19, 
2001) (SR-PCX-2001-14) (order approving generic listing standards 
for Units and Portfolio Depositary Receipts); 41983 (October 6, 
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order 
approving rules for listing and trading of Units).
---------------------------------------------------------------------------

    The current value of the Municipal Bond Indexes and New Municipal 
Bond Indexes are widely disseminated by one or more major market data 
vendors at

[[Page 27956]]

least once per day, as required by NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02(b)(ii). The IIVs for Shares of the Funds are 
disseminated by one or more major market data vendors, updated at least 
every 15 seconds during the Exchange's Core Trading Session, as 
required by NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(c), and 
Commentary .01(c), respectively. The components and percentage 
weightings of each Municipal Bond Index and New Municipal Bond Index 
are also available from major market data vendors. In addition, the 
portfolio of securities held by each Fund is disclosed daily on the 
Funds' Web site at www.invescopowershares.com
    Detailed descriptions of the Funds, the Municipal Bond Indexes, the 
New Municipal Bond Indexes, procedures for creating and redeeming 
Shares, transaction fees and expenses, dividends, distributions, taxes, 
risks, and reports to be distributed to beneficial owners of the Shares 
can be found in the Registration Statement or on the Web site for the 
Funds (www.invescopowershares.com), as applicable.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \25\ 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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 
5.2(j)(3). 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 
federal securities laws applicable to trading on the Exchange.\26\ The 
Exchange 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. FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
with other markets that are members of the Intermarket Surveillance 
Group (``ISG''). In addition, the Exchange will communicate as needed 
regarding trading in the Shares with other markets that are members of 
the ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. The Index Provider is a broker-dealer 
and has implemented a firewall and will maintain procedures designed to 
prevent the use and dissemination of material non-public information 
regarding the Municipal Bond Indexes and New Municipal Bond Indexes.
---------------------------------------------------------------------------

    \26\ 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.
---------------------------------------------------------------------------

    As discussed above, the Exchange believes that each of the 
Municipal Bond Indexes is sufficiently broad-based to deter potential 
manipulation. As of January 31, 2014, approximately 86.1% of the weight 
of the CA Index components was composed of individual maturities that 
were part of an entire municipal bond offering with a minimum original 
principal amount outstanding of $100 million or more for all maturities 
of the offering. In addition, as of January 31, 2014, the total dollar 
amount outstanding of issues in the CA Index was approximately $17.201 
billion and the average dollar amount outstanding of issues in the 
Index was approximately $64.42 million. Further, the most heavily 
weighted component represents 3.53% of the weight of the CA Index and 
the five most heavily weighted components represent 9.94% of the weight 
of the CA Index.
    As of January 31, 2014, approximately 89.24% of the weight of the 
National Index components was composed of individual maturities that 
were part of an entire municipal bond offering with a minimum original 
principal amount outstanding of $100 million or more for all maturities 
of the offering. In addition, as of January 31, 2014, the total dollar 
amount outstanding of issues in the National Index was approximately 
$78.69 billion and the average dollar amount outstanding of issues in 
the National Index was approximately $63.56 million. Further, the most 
heavily weighted component represents 0.88% of the weight of the 
National Index and the five most heavily weighted components represent 
3.51% of the weight of the National Index.
    As of January 31, 2014, approximately 95.89% of the weight of the 
NY Index components was composed of individual maturities that were 
part of an entire municipal bond offering with a minimum original 
principal amount outstanding of $100 million or more for all maturities 
of the offering. In addition, as of January 31, 2014, the total dollar 
amount outstanding of issues in the NY Index was approximately $17.76 
billion and the average dollar amount outstanding of issues in the NY 
Index was approximately $90.58 million. Further, the most heavily 
weighted component represents 6.14% of the weight of the NY Index and 
the five most heavily weighted components represent 20.15% of the 
weight of the NY Index.
    As discussed above, the Exchange further believes that each of the 
New Municipal Bond Indexes is sufficiently broad-based to deter 
potential manipulation. As of January 31, 2014, approximately 94.60% of 
the weight of the New CA Index components was composed of individual 
maturities that were part of an entire municipal bond offering with a 
minimum original principal amount outstanding of $100 million or more 
for all maturities of the offering. In addition, as of January 31, 
2014, the total dollar amount outstanding of issues in the New CA Index 
was approximately $100.76 billion and the average dollar amount 
outstanding of issues in the New CA Index was approximately $92.81 
million. Further, the most heavily weighted component represents 1.39% 
of the weight of the New CA Index and the five most heavily weighted 
components represent 5.17% of the weight of the New CA Index.
    As of January 31, 2014, approximately 91.86% of the weight of the 
New National Index components was composed of individual maturities 
that were part of an entire municipal bond offering with a minimum 
original principal amount outstanding of $100 million or more for all 
maturities of the offering. In addition, as of January 31, 2014, the 
total dollar amount outstanding of issues in the New National Index was 
approximately $394.04 billion and the average dollar amount outstanding 
of issues in the New National Index was approximately $71.96 million. 
Further, the most heavily weighted component represents 0.34% of the 
weight of the New National Index and the five most heavily weighted 
components represent 1.47% of the weight of the New National Index.
    As of January 31, 2014, approximately 98.21% of the weight of the 
New NY Index components was composed of individual maturities that were 
part of an entire municipal bond offering with

[[Page 27957]]

a minimum original principal amount outstanding of $100 million or more 
for all maturities of the offering. In addition, as of January 31, 
2014, the total dollar amount outstanding of issues in the New NY Index 
was approximately $86.75 billion and the average dollar amount 
outstanding of issues in the New NY Index was approximately $91.13 
million. Further, the most heavily weighted component represents 1.61% 
of the weight of the New NY Index and the five most heavily weighted 
components represent 5.07% of the weight of the New NY Index.
    The Municipal Bond Indexes and New Municipal Bond Indexes values, 
calculated and disseminated at least once daily, as well as the 
components of the Municipal Bond Indexes and New Municipal Bond Indexes 
and their respective percentage weightings, will be available from 
major market data vendors. In addition, the portfolio of securities 
held by the Funds will be disclosed on the Funds' Web site. The IIV for 
Shares of the Funds will be disseminated by one or more major market 
data vendors, updated at least every 15 seconds during the Exchange's 
Core Trading Session.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that a large amount of information is publicly available regarding the 
Funds and the Shares, thereby promoting market transparency. The Funds' 
portfolio holdings will be disclosed on the Funds' 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 IIV for Shares 
of the Funds will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Exchange's Core 
Trading Session. The current value of the Municipal Bond Indexes and 
New Municipal Bond Indexes will be disseminated by one or more major 
market data vendors at least once per 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, and quotation and last sale information will 
be available via the CTA high-speed line. The Web site for the Funds 
will include the prospectus for the Funds and additional data relating 
to NAV 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. If the Exchange becomes aware 
that the NAV is not being disseminated to all market participants at 
the same time, it will halt trading in the Shares until such time as 
the NAV is available to all market participants. 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 Funds. 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. If the applicable IIV, the Municipal Bond Index or 
New Municipal Bond Index values are not being disseminated as required, 
the Corporation may halt trading during the day in which the 
interruption to the dissemination of the applicable IIV, Municipal Bond 
Index, or New Municipal Bond Index value occurs. If the interruption to 
the dissemination of the applicable IIV, Municipal Bond Index, or New 
Municipal Bond Index value persists past the trading day in which it 
occurred, the Corporation will halt trading. Trading in Shares of the 
Funds 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 7.34, which sets forth circumstances under which 
Shares of the Funds may be halted. In addition, investors will have 
ready access to information regarding the applicable IIV, 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 continued listing and 
trading of exchange-traded products that principally hold municipal 
bonds and that will enhance competition among market participants, to 
the benefit of investors and the marketplace. 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, investors will have ready 
access to information regarding the IIV 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 continued listing and trading 
of 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.

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 within such longer period (i) as the Commission may 
designate up to 90 days of such date 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-2014-45 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.

All submissions should refer to File Number SR-NYSEArca-2014-45. 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

[[Page 27958]]

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-2014-45, and should 
be submitted on or before June 5, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
---------------------------------------------------------------------------

    \27\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11157 Filed 5-14-14; 8:45 am]
BILLING CODE 8011-01-P