[Federal Register Volume 80, Number 17 (Tuesday, January 27, 2015)]
[Notices]
[Pages 4327-4330]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01376]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74109; File No. SR-NYSE-Arca-2014-134]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change To List and Trade Shares of the IQ Wilshire 
Alternative Strategies ETF Under NYSE Arca Equities Rule 8.600

January 21, 2015.

I. Introduction

    On November 18, 2014, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to list and trade shares 
(``Shares'') of the IQ Wilshire Alternative Strategies ETF (the 
``Fund'') under NYSE Arca Equities Rule 8.600. The proposed rule change 
was published for comment in the Federal Register on December 8, 
2014.\4\ The Commission received no comments on the proposed rule 
change. This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 73716 (December 2, 
2014), 79 FR 72723 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares on the Exchange. The Fund is a series of the IndexIQ Active 
ETF Trust (the ``Trust'').\5\ The Fund is an actively-managed exchange-
traded fund (``ETF'') and does not seek to replicate the performance of 
a specified index.
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    \5\ The Trust is registered under the 1940 Act. On April 25, 
2014, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A relating to the Fund (File Nos. 
333-193560 and 811-22739) (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. 30198 (September 10, 2012) (File No. 812-
13956).
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    IndexIQ Advisors LLC (the ``Adviser'') is the investment adviser 
for the Fund.\6\ The Exchange states that the Adviser is a not a 
registered broker-dealer and is not affiliated with a broker-dealer.\7\ 
The Exchange represents that in the event (a) any of the Adviser, 
Wilshire or the Underlying Managers is or becomes a broker-dealer 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, then, to the extent the broker-dealer or affiliated 
broker-dealer is not a limited purpose broker-dealer used for marketing 
and not trading purposes, it will implement a firewall with respect to 
its relevant personnel or its broker-dealer affiliate regarding access 
to information concerning the composition and/or changes to a 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio.\8\
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). The Adviser, Wilshire Associates Incorporated (``Wilshire'') 
and the underlying managers that are sub-advisers to the Fund (the 
``Underlying Managers'') are each registered as an investment 
adviser under the Advisers Act. Wilshire will be a sub-adviser to 
the Fund and, in that role, will evaluate and recommend strategies 
and Underlying Managers to the Adviser for use by the Fund. 
Additionally, according to the Exchange, Wilshire will provide 
recommendations to the Adviser for allocating and reallocating Fund 
assets among the Underlying Managers. Wilshire will not directly 
manage any assets of the Fund, although it may provide the Adviser 
or an Underlying Manager with non-discretionary advice on investment 
decisions and underlying positions.
    \7\ See Notice, supra note 4, 79 FR at 72729.
    \8\ See Notice, supra note 4, 79 FR at 72724.
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    The Bank of New York Mellon (``Administrator'') is the 
administrator, custodian, transfer agent and securities lending agent 
for the Fund. ALPS

[[Page 4328]]

Distributors Inc. is the distributor for the Fund.
    The Exchange has made the following representations and statements 
in describing the Fund and its strategy and characteristics, 
investments, and investment restrictions.\9\
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    \9\ The Commission notes that additional information regarding 
the IQ Wilshire Alternative Strategies ETF and its shares; 
investment objectives; strategies; methodology and restrictions; 
risks; fees and expenses; creations and redemptions of Shares; 
availability of information; trading rules and halts; and 
surveillance procedures, among other things, can be found in the 
Registration Statement and in the Notice. See Notice, supra note 4, 
and Registration Statement, supra note 5, respectively.
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Fund Strategies and Characteristics

    According to the Exchange, the Fund will seek long-term capital 
appreciation. Under normal circumstances,\10\ 100% of the Fund's assets 
will be allocated among the Underlying Managers that will employ a 
variety of alternative investment strategies.\11\ The Exchange states 
that in making these allocations, the Advisor will seek to combine the 
strategies of the Underlying Managers efficiently and systematically so 
that the Fund will generate a positive total return with relatively low 
volatility and low sensitivity or correlation to market indices.\12\
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    \10\ The term ``under normal circumstances'' includes, but is 
not limited to, the absence of adverse market, economic, political 
or other conditions, including 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.
    \11\ According to the Exchange, the investment of Fund assets 
not allocated to the Underlying Managers may be directly managed by 
the Advisor, although the Advisor does not currently intend to 
manage a significant portion of the Fund's assets directly, and to 
the extent the Advisor does manage a portion of the Fund's assets it 
would invest such assets in the same manner as the Underlying 
Managers.
    \12\ See Notice, supra note 4, 79 FR at 72724.
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    The Exchange states that the Fund and each of its Underlying 
Managers may use all or some of the following strategies in managing 
the assets of the Fund: equity hedge (long/short) strategies, relative 
value strategies, global macro strategies, event driven strategies, 
opportunistic credit strategies, tactical trading strategies, and 
liquid alternative beta strategies.\13\ The Fund and each of its 
Underlying Managers may also add additional strategies in the future. 
According to the Exchange, the Advisor may allocate 0 to 100 percent of 
the Fund's assets to any of these strategies or any of the Underlying 
Managers at any time.
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    \13\ These strategies are discussed in greater detail in the 
Notice and the Registration Statement. See Notice, supra note 4, and 
Registration Statement, supra note 5, respectively.
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Investments of the Fund

    The Exchange states that in implementing the strategies discussed 
above, the Fund will invest in a portfolio consisting of some or all of 
the following instruments:
     Exchange-traded equity securities, which will consist of 
common stocks, preferred stocks, convertible securities, rights and 
warrants, depositary receipts, ETFs, non-ETF exchange-traded vehicles 
(``ETVs''), and partnership interests, including master limited 
partnerships;
     Fixed income securities, which will consist of debt issued 
by corporations,\14\ debt issued by governments, their agencies, 
instrumentalities, sponsored entities, and political subdivisions, 
covered bonds, debt participations, convertible bonds, non-investment 
grade securities, senior bank loans, exchange-traded notes, mortgage-
backed and other asset-backed securities, and to-be-announced 
securities;\15\
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    \14\ According to the Exchange, under normal market 
circumstances, the Fund generally will seek to invest in corporate 
bond issuances in developed countries that have at least 
$100,000,000 par amount outstanding and at least $200,000,000 par 
amount outstanding with respect to corporate bond issuances in 
emerging market countries. See Notice, supra note 4, 79 FR at 72725, 
n. 19.
    \15\ The Fund will seek to gain exposure to U.S. agency mortgage 
pass-through securities primarily through the use of ``to-be-
announced securities.''
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     Currencies;
     The following derivative instruments: futures contracts 
(consisting of futures contracts based on equity or fixed income 
securities and/or equity or fixed income indices, commodities, interest 
rates and currencies), swap agreements on any of the following asset 
classes: equity, fixed income, currency and interest rates (such swaps 
may be based on the price return or total return of the referenced 
asset), credit default swaps (consisting of credit default swaps in 
which the referenced asset is a single fixed income security or a group 
of fixed income securities), options (consisting of long and short 
positions in call options and put options on indices based on equities, 
fixed income securities, interest rates, currencies or commodities, 
individual securities or currencies, swaptions and options on futures 
contracts), forward contracts (consisting of forward contracts based on 
equity or fixed income securities and/or equity or fixed income 
indices, currencies, interest rates, swap forwards and non-deliverable 
forwards), and structured securities (such derivative instruments, 
collectively ``Financial Instruments'').\16\
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    \16\ As a result of the Fund's ability to invest in Financial 
Instruments, it may also hold U.S. Treasury Bills or short-term 
investments as collateral for the Financial Instruments, including 
money market funds, repurchase agreements, cash and time deposits.
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    The Exchange states that the Fund may use leverage (e.g., through 
the use of Financial Instruments) to obtain exposure in excess of 100% 
in an investment. The Fund may employ leverage to increase exposure to 
the Fund's portfolio holdings by up to 100% of the net assets of the 
Fund to gain additional exposure to the Fund's portfolio holdings, such 
that the Fund will have up to 200% net exposure to its investments.
    According to the Exchange, the Fund may take long and/or short 
positions in equity securities, fixed income securities, commodities 
\17\ and currencies, among others.
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    \17\ The Fund may gain exposure to commodities through 
investments in other investment companies, ETFs or ETVs.
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Investment Restrictions

    All equity securities will be listed on a U.S. national securities 
exchange or a non-U.S. securities exchange that is a member of the 
Intermarket Surveillance Group (``ISG'') or a party to a comprehensive 
surveillance sharing agreement with the Exchange; provided, however, 
that up to 10% of the assets of the Fund may be invested in non-U.S. 
listed equity securities that do not meet these requirements.\18\
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    \18\ See Notice, supra note 4, 79 FR at 72726.
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    All options contracts will be listed on a U.S. national securities 
exchange or a non-U.S. securities exchange that is a member of ISG or a 
party to a comprehensive surveillance sharing agreement with the 
Exchange.\19\
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    \19\ See id.
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    Not more than 20% of the Fund's assets will be invested, in the 
aggregate, in non-investment grade securities and structured 
securities.\20\
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    \20\ See id.
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    Up to 10% of the weight of the futures contracts held by the Fund 
may consist of futures contracts whose principal trading market is not 
a member of ISG or a party to a comprehensive surveillance sharing 
agreement with the Exchange.\21\
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    \21\ See id.
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    The Fund may invest up to 20% of its total assets in mortgage-
backed securities or in other asset-backed securities, although this 
20% limitation will not apply to U.S. government securities.\22\
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    \22\ See id.

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[[Page 4329]]

    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 securities.\23\ The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in the light of 
current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid assets.
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    \23\ See id.
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    The Fund will not invest more than 10% of its net assets in 
unsponsored depositary receipts.\24\
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    \24\ See id.
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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.\25\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\26\ 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.
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    \25\ 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).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Commission 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,\27\ which sets forth Congress' finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares and underlying securities that are listed on 
a U.S. exchange will be available via the Consolidated Tape Association 
high-speed line. Quotation and last-sale information for such U.S. 
exchange-listed securities as well as futures will be available from 
the exchange on which they are listed. Quotation and last sale 
information for options contracts will be available via the Options 
Price Reporting Authority.
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    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Quotation information for OTC-traded securities and OTC-traded 
Financial Instruments (such as forwards, swaps and currency-related 
derivatives), and investment company securities (excluding ETFs), may 
be obtained from brokers and dealers who make markets in such 
securities or through nationally recognized pricing services through 
subscription agreements. Quotation information from brokers and dealers 
or pricing services will be available for spot and forward currency 
transactions held by the Fund. 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.
    The Commission also 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. On each business day, before commencement of trading in Shares 
in the Core Trading Session (9:30 a.m. to 4:00 p.m., Eastern Time) on 
the Exchange, each Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for a Fund's calculation of NAV at 
the end of the business day.\28\ The Web site information will be 
publicly available at no charge. The NAV will be calculated by the 
Administrator and determined each business day as of the close of 
regular trading on the Exchange (ordinarily 4:00 p.m., Eastern Time). 
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 as defined in NYSE Arca Equities Rule 
8.600(c)(2) will be made available to all market participants at the 
same time.\29\ The Portfolio Indicative Value of the Fund, as defined 
in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated by 
one or more major market data vendors at least every 15 seconds during 
the Core Trading Session.\30\ The Web site for the Fund will include a 
form of the prospectus for the Fund and additional data relating to the 
Fund's NAV and other applicable quantitative information.\31\
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    \28\ 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, each 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.
    \29\ See Notice, supra note 4, 79 FR at 72728.
    \30\ According to the Exchange, several major market data 
vendors display and/or make widely available Portfolio Indicative 
Values taken from Consolidated Tape Association or other data feeds. 
See Notice, supra note 4, 79 FR at 72728, n. 26.
    \31\ See Notice, supra note 4, 79 FR at 72729.
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    The Exchange represents that trading in Shares of a Fund will be 
halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached.\32\ 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.\33\ Trading in the Shares will 
be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
circumstances under which Shares may be halted.
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    \32\ See Notice, supra note 4, 79 FR at 72728.
    \33\ These may include: (1) The extent to which trading is not 
occurring in the securities and/or the financial instruments 
comprising the Disclosed Portfolio of a Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance 
of a fair and orderly market are present. See Notice, supra note 4, 
79 FR at 72728.
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    The Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees.\34\ 
The Exchange states that the Adviser is a not a registered broker-
dealer and is not affiliated with a broker-dealer. The Exchange 
represents that, in the event (a) the Adviser becomes 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 firewall with respect to its relevant personnel or its 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to a portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \34\ See Notice, supra note 4, 79 FR at 72728.
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    The Financial Industry Regulatory Authority (``FINRA''), on behalf 
of the Exchange, will communicate as needed regarding trading in the 
Shares, equity securities, exchange-traded options, futures contracts 
and options on futures contracts with other markets that are members of 
the ISG and FINRA, on behalf of the Exchange, may obtain trading 
information regarding trading in the Shares, exchange-traded equities, 
exchange-traded options, futures contracts and options on futures 
contracts from such markets. In

[[Page 4330]]

addition, the Exchange may obtain information regarding trading in the 
Shares, exchange-traded equities, exchange-traded options, futures 
contracts and options on 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.\35\ 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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    \35\ For a list of the current members of ISG, see 
www.isgportal.org.
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    The Commission notes that the Fund and the Shares must comply with 
the requirements of NYSE Arca Equities Rule 8.600 to be listed and 
traded on the Exchange. The Exchange deems the Shares to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange represented that:
    (1) The Shares will be subject to NYSE Arca Equities Rule 8.600, 
which sets forth the initial and continued listing criteria applicable 
to Managed Fund Shares.
    (2) 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 
detect and help deter violations of Exchange rules and applicable 
federal securities laws.
    (3) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (a) The procedures for purchases and redemptions of Shares 
in creation unit aggregations (and that Shares are not individually 
redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (c) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (d) how information regarding the 
Portfolio Indicative Value is disseminated; (e) the requirement that 
ETP Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (5) For initial and/or continued listing, the Trust will be in 
compliance with Rule 10A-3 \36\ under the Act, as provided by NYSE Arca 
Equities Rule 5.3.
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    \36\ 17 CFR 240.10A-3.
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    (6) All equity securities will be listed on a U.S. national 
securities exchange or a non-U.S. securities exchange that is a member 
of the ISG or a party to a comprehensive surveillance sharing agreement 
with the Exchange; provided, however, that up to 10% of the assets of 
the Fund may be invested in non-U.S. listed equity securities that do 
not meet these requirements.
    (7) All options contracts will be listed on a U.S. national 
securities exchange or a non-U.S. securities exchange that is a member 
of ISG or a party to a comprehensive surveillance sharing agreement 
with the Exchange.
    (8) Not more than 20% of the Fund's assets will be invested, in the 
aggregate, in non-investment grade securities and structured 
securities.
    (9) Not more than 10% of the weight of the futures contracts held 
by the Fund may consist of futures contracts whose principal trading 
market is not a member of ISG or a party to a comprehensive 
surveillance sharing agreement with the Exchange.
    (10) The Fund may invest no more than 20% of its total assets in 
mortgage-backed securities or in other asset-backed securities, 
although this 20% limitation will not apply to U.S. government 
securities.
    (11) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities, including Rule 144A securities.
    (12) The Fund will not invest more than 10% of its net assets in 
unsponsored depository receipts will not exceed 10% of a Fund's net 
assets
    (13) A minimum of 100,000 Shares 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, and 
the Exchange's descriptions of the Funds. For the foregoing reasons, 
the Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act \37\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \37\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\38\ that the proposed rule change (SR-NYSEArca-2014-134) 
is hereby approved.\39\
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    \38\ 15 U.S.C. 78s(b)(2).
    \39\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.
Brent J. Fields,
Secretary.
[FR Doc. 2015-01376 Filed 1-26-15; 8:45 am]
BILLING CODE 8011-01-P