[Federal Register Volume 79, Number 234 (Friday, December 5, 2014)]
[Notices]
[Pages 72223-72225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-28547]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73706; File No. SR-NYSEArca-2014-89]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove Proposed Rule 
Change Relating To Listing and Trading of Shares of Eight PIMCO 
Exchange-Traded Funds

December 1, 2014.

I. Introduction

    On August 15, 2014, NYSE Arca, Inc. (``NYSEArca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares of the following eight 
PIMCO exchange-traded funds, pursuant to NYSE Arca Equities Rule 8.600: 
PIMCO StocksPLUS[supreg] Absolute Return Exchange-Traded Fund 
(``StocksPLUS AR Fund''), PIMCO Small Cap StocksPLUS[supreg] AR 
Strategy Exchange-Traded Fund (``Small Cap StocksPLUS AR Fund''), PIMCO 
Fundamental IndexPLUS[supreg] AR Exchange-Traded Fund (``Fundamental 
IndexPLUS Fund''), PIMCO Small Company Fundamental IndexPLUS[supreg] AR 
Strategy Exchange-Traded Fund (``Small Company Fundamental IndexPLUS 
Fund''), PIMCO EM Fundamental IndexPLUS[supreg] AR Strategy Exchange-
Traded Fund (``EM Fundamental IndexPLUS Fund''), PIMCO International 
Fundamental IndexPLUS[supreg] AR Strategy Exchange-Traded Fund 
(``International Fundamental IndexPLUS Fund''), PIMCO EM 
StocksPLUS[supreg] AR Strategy Exchange-Traded Fund (``EM StocksPLUS 
Fund''), and PIMCO International StocksPLUS[supreg] AR Strategy 
Exchange-Traded Fund (Unhedged) (``International StocksPLUS Fund'') 
(each a ``Fund'' and collectively the ``Funds.''). The proposed rule 
change was published for comment in the Federal Register on September 
3, 2014.\3\ The Commission received no comments on the proposal. On 
October 15, 2014, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to either approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to disapprove the proposed 
rule change.\5\ This order institutes proceedings under Section 
19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72937 (Aug. 27, 
2014), 79 FR 52385 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 73364, 79 FR 62988 
(Oct. 21, 2014). The Commission determined that it was appropriate 
to designate a longer period within which to take action on the 
proposed rule change so that it has sufficient time to consider the 
proposed rule change. Accordingly, the Commission designated 
December 2, 2014 as the date by which it should approve, disapprove, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to list and trade shares (``Shares'') of the 
Funds under NYSE Arca Equities Rule 8.600, which governs the listing 
and trading of Managed Fund Shares.\7\
---------------------------------------------------------------------------

    \7\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
---------------------------------------------------------------------------

A. Characteristics and Holdings of the Funds \8\
---------------------------------------------------------------------------

    \8\ Additional information regarding the Shares and the Funds, 
including investment strategy, risks, creation and redemption 
procedures, portfolio holdings, and investment restrictions, is 
included in the Notice, supra note 3.
---------------------------------------------------------------------------

1. Investment Objective and Principal Holdings
    Each Fund would seek total return that exceeds the total return of 
its equity securities index benchmark, and under normal circumstances 
would seek to achieve its investment objective by investing in 
derivatives overlying its benchmark and a portfolio of Fixed Income 
Instruments (defined below), which would be managed using an absolute 
return approach. Typically, the Funds would use derivative instruments 
as a substitute for taking a position in

[[Page 72224]]

the underlying asset \9\ or as part of a strategy designed to reduce 
exposure to other risks. The Funds may also use derivative instruments 
to enhance returns.
---------------------------------------------------------------------------

    \9\ The Exchange states that derivatives may be purchased with a 
small fraction of the assets that would be needed to purchase the 
benchmark index securities directly, so that the remainder of the 
Funds' assets may be invested in Fixed Income Instruments. 
Accordingly, the Funds generally would not invest directly in 
benchmark index component stocks, but the Exchange states that the 
Funds may invest in stocks and exchange-traded funds.
---------------------------------------------------------------------------

    The Exchange states that ``Fixed Income Instruments'' may include: 
Securities issued or guaranteed by the U.S. Government, its agencies, 
or government-sponsored enterprises (``U.S. Government Securities''); 
corporate debt securities of U.S. and non-U.S. issuers, including 
convertible securities and corporate commercial paper; mortgage-backed 
and other asset-backed securities; inflation-indexed bonds issued both 
by governments and corporations; structured notes, including hybrid or 
``indexed'' securities, and event-linked bonds; \10\ bank capital and 
trust preferred securities; loan participations and assignments; \11\ 
delayed funding loans and revolving credit facilities; bank 
certificates of deposit, fixed time deposits and bankers' acceptances; 
repurchase agreements on Fixed Income Instruments and reverse 
repurchase agreements on Fixed Income Instruments; debt securities 
issued by states or local governments and their agencies, authorities 
and other government-sponsored enterprises; obligations of non-U.S. 
governments or their subdivisions, agencies, and government-sponsored 
enterprises; and obligations of international agencies or supranational 
entities. The Exchange also states that derivative instruments may 
include the following: Forwards; exchange-traded and over-the-counter 
(``OTC'') options contracts; exchange-traded futures contracts; 
exchange-traded and OTC swap agreements; exchange-traded and OTC 
options on futures contracts; and OTC options on swap agreements.\12\
---------------------------------------------------------------------------

    \10\ The Exchange states that such investments will constitute 
only up to 20% of a Fund's total assets.
    \11\ The Exchange states that such investments will constitute 
only up to 20% of a Fund's total assets.
    \12\ According to the Exchange, all investment guidelines and 
limitations will apply to a Fund's aggregate investment exposure to 
a particular type of investment that is the subject of the guideline 
or limitation, whether such exposure is obtained through direct 
holdings or through derivative instruments. See Notice, supra note 
3, at 52387.
---------------------------------------------------------------------------

2. Other Investments
    The Funds may invest in securities and instruments that are 
economically tied to foreign (non-U.S.) countries. The Funds may invest 
in securities denominated in foreign (non-U.S.) currencies and in U.S. 
dollar-denominated securities of foreign (non-U.S.) issuers, subject to 
applicable limitations set forth in the Notice. With respect to the 
Funds' absolute return investments, each Fund will normally limit its 
foreign currency exposure (from non-U.S. dollar-denominated securities 
or currencies) to 20% of its total assets. With respect to the Funds' 
absolute return investments, each Fund may invest up to 25% of its 
total assets in securities and instruments that are economically tied 
to emerging market countries.
    The Funds may engage in foreign currency transactions on a spot 
(cash) basis or forward basis, and they may invest in foreign currency 
futures contracts and options contracts. The Funds may enter into these 
contracts to hedge against foreign exchange risk, to increase exposure 
to a foreign currency, or to shift exposure to foreign currency 
fluctuations from one currency to another. Suitable hedging 
transactions may not be available in all circumstances and there can be 
no assurance that the Funds will engage in such transactions at any 
given time or from time to time.
    The Funds may, without limitation, seek to obtain market exposure 
to the securities in which they primarily invest by entering into a 
series of purchase and sale contracts. The Funds may purchase or sell 
securities on a when-issued, delayed delivery or forward commitment 
basis and may engage in short sales.
3. Additional Investment Limits
    According to the Exchange, each of the Funds may invest up to 10% 
of its total assets in preferred stocks, convertible securities, and 
other equity-related securities. Each Fund may invest up to 20% of its 
total assets in: (i) Variable and floating rate securities that are not 
Fixed Income Instruments; (ii) floaters and inverse floaters that are 
not Fixed Income Instruments; (iii) trade claims, privately placed and 
unregistered securities, exchange-traded and OTC-traded structured 
products, including credit-linked securities and commodity-linked 
notes; (iv) Brady Bonds; and (v) bank loans.
    Each Fund may, with up to 20% of its total assets, enter into 
repurchase agreements on instruments other than Fixed Income 
Instruments. Each Fund may also, with up to 20% of its total assets, 
enter into reverse repurchase agreements on instruments other than 
Fixed Income Instruments, subject to the Fund's limitations on 
borrowings.
    Each Fund may invest up to 20% of its total assets in ``high yield 
securities'' or unrated securities determined by PIMCO to be of 
comparable quality (except that within such limitation, the Fund may 
invest in mortgage-related securities rated below B).
    Each Fund may invest up to 20% of its assets in mortgage-related 
and other asset-backed securities, although this 20% limitation does 
not apply to securities issued or guaranteed by Federal agencies and/or 
U.S. government sponsored instrumentalities.

III. Proceedings To Determine Whether To Approve or Disapprove the 
Proposed Rule Change and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \13\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change, as discussed below. 
Institution of proceedings does not indicate that the Commission has 
reached any conclusions with respect to any of the issues involved. 
Rather, as described below, the Commission seeks and encourages 
interested persons to provide comment on the proposed rule change.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Act,\14\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of, and input from commenters with respect to, the proposed 
rule change's consistency with Section 6(b)(5) of the Exchange Act, 
which requires, among other things, that the rules of a national 
securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \15\
---------------------------------------------------------------------------

    \14\ Id.
    \15\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
concerns identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission

[[Page 72225]]

invites the written views of interested persons concerning (1) the 
transparency and liquidity of the markets for the assets in which each 
Fund would be permitted to invest a substantial portion of its 
portfolio and (2) the expected effectiveness and efficiency of 
arbitrage with respect to the market price of the Funds' shares and the 
value of the underlying portfolio assets, given the transparency and 
liquidity of the markets for those underlying assets.
    Although there do not appear to be any issues relevant to approval 
or disapproval which would be facilitated by an oral presentation of 
views, data, and arguments, the Commission will consider, pursuant to 
Rule 19b-4, any request for an opportunity to make an oral 
presentation.\16\
---------------------------------------------------------------------------

    \16\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by December 26, 2014. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
January 9, 2015.
    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-2014-89 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 Numbers SR-NYSEArca-2014-89. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filings 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-2014-89 and should 
be submitted on or before December 26, 2014. Rebuttal comments should 
be submitted by January 9, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(57).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28547 Filed 12-4-14; 8:45 am]
BILLING CODE 8011-01-P