[Federal Register Volume 80, Number 46 (Tuesday, March 10, 2015)]
[Notices]
[Pages 12690-12696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-05480]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74433; File No. SR-NYSEArca-2015-02]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Amendments to NYSE Arca Equities 
Rule 8.600 to Adopt Generic Listing Standards for Managed Fund Shares

March 4, 2015.
    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 February 17, 2015, 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 and II 
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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 8.600 to 
adopt generic listing standards for Managed Fund Shares. 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.

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 proposes to amend NYSE Arca Equities Rule 8.600 to 
adopt generic listing standards for Managed Fund Shares. Under the 
Exchange's current rules, a proposed rule change must be filed with the 
Securities and Exchange Commission (``SEC'' or ``Commission'') for the 
listing and trading of each new series of Managed Fund Shares. The 
Exchange believes that it is appropriate to codify certain rules within 
Rule 8.600 that would generally eliminate the need for such proposed 
rule changes, which would create greater efficiency and promote uniform 
standards in the listing process.
Background
    Rule 8.600 sets forth certain rules related to the listing and 
trading of Managed Fund Shares.\4\ Under Rule 8.600(c)(1), the term 
``Managed Fund Share'' means a security that:
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 57619 (April 4, 
2008), 73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25) (order 
approving NYSE Arca Equities Rule 8.600 and listing and trading of 
shares of certain issues of Managed Fund Shares) (the ``Approval 
Order''). The Approval Order approved the rules permitting the 
listing and trading of Managed Fund Shares, trading hours and halts, 
listing fees applicable to Managed Fund Shares, and the listing and 
trading of several individual series of Managed Fund Shares.
---------------------------------------------------------------------------

    (a) represents an interest in a registered investment company 
(``Investment Company'') organized as an open-end management investment 
company or similar entity, that invests in a portfolio of securities 
selected by the Investment Company's investment adviser (hereafter 
``Adviser'') consistent with the Investment Company's investment 
objectives and policies;
    (b) is issued in a specified aggregate minimum number in return for 
a deposit of a specified portfolio of securities and/or a cash amount 
with a value equal to the next determined net asset value; and
    (c) when aggregated in the same specified minimum number, may be 
redeemed at a holder's request, which holder will be paid a specified 
portfolio of securities and/or cash with a value equal to the next 
determined net asset value.
    Effectively, Managed Fund Shares are securities issued by an 
actively-managed open-end Investment Company (i.e., an actively-managed 
exchange-traded fund (``ETF'')). Because Managed Fund Shares are 
actively-managed, they do not seek to replicate the performance of a 
specified passive index of securities. Instead, they generally use an 
active investment strategy to seek to meet their investment objectives. 
In contrast, an open-end Investment Company that issues Investment 
Company Units (``Units''), listed and traded on the Exchange pursuant 
to NYSE Arca Equities Rule 5.2(j)(3), seeks to provide investment 
results that generally correspond to the price and yield performance of 
a specific foreign or domestic stock index, fixed income securities 
index or combination thereof.
    All Managed Fund Shares listed and/or traded pursuant to Rule 8.600 
(including pursuant to unlisted trading privileges) are subject to the 
full panoply of Exchange rules and procedures that currently govern the 
trading of equity securities on the Exchange.\5\
---------------------------------------------------------------------------

    \5\ See Approval Order, supra note 4, at 19547.
---------------------------------------------------------------------------

    In addition, Rule 8.600(d) currently provides for the criteria that 
Managed Fund Shares must satisfy for initial and continued listing on 
the Exchange, including, for example, that a minimum number of Managed 
Fund Shares are required to be outstanding at the time of commencement 
of trading on the Exchange. However, the current process for listing 
and trading new series of Managed Fund Shares on the Exchange requires 
that the Exchange submit a proposed rule change with the Commission. In 
this regard, Commentary .01 to Rule 8.600 specifies that the Exchange 
will file separate proposals under Section 19(b) of the Act (hereafter, 
a ``proposed rule change'') before listing and trading of [sic] shares 
of an issue of Managed Fund Shares.
Proposed Changes to Rule 8.600
    The Exchange would amend Commentary .01 to Rule 8.600 to specify 
that the Exchange may approve Managed Fund Shares for listing and/or 
trading (including pursuant to unlisted trading privileges) pursuant to 
SEC Rule 19b-4(e) under the Act, which pertains to derivative 
securities products (``SEC Rule 19b-4(e)'').\6\ SEC Rule 19b-4(e)(1)

[[Page 12691]]

provides that the listing and trading of a new derivative securities 
product by a self-regulatory organization (``SRO'') is not deemed a 
proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4,\7\ if 
the Commission has approved, pursuant to section 19(b) of the Act, the 
SRO's trading rules, procedures and listing standards for the product 
class that would include the new derivative securities product and the 
SRO has a surveillance program for the product class. This is the 
current method pursuant to which ``passive'' ETFs are listed under NYSE 
Arca Equities Rule 5.2(j)(3).
---------------------------------------------------------------------------

    \6\ 17 CFR 240.19b-4(e). As provided under SEC Rule 19b-4(e), 
the term ``new derivative securities product'' means any type of 
option, warrant, hybrid securities product or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest in, an underlying instrument.
    \7\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO 
shall be deemed to be a proposed rule change unless it is reasonably 
and fairly implied by an existing rule of the SRO.
---------------------------------------------------------------------------

    The Exchange would also specify within Commentary .01 to Rule 8.600 
that components of Managed Fund Shares listed pursuant to SEC Rule 19b-
4(e) must satisfy on an initial and continued basis certain specific 
criteria, which the Exchange would include within Commentary .01, as 
described in greater detail below. As proposed, the Exchange would 
continue to file separate proposed rule changes before the listing and 
trading of Managed Fund Shares with components that do not satisfy the 
additional criteria described below or components other than those 
specified below. For example, if the components of a Managed Fund Share 
exceeded one of the applicable thresholds, the Exchange would file a 
separate proposed rule change before listing and trading such Managed 
Fund Share. Similarly, if the components of a Managed Fund Share 
included a security or asset that is not specified below, the Exchange 
would file a separate proposed rule change.
    The Exchange would also add to the ``generic'' criteria of Rule 
8.600(d) by specifying that all Managed Fund Shares must have a stated 
investment objective, which must be adhered to under normal market 
conditions.\8\
---------------------------------------------------------------------------

    \8\ The Exchange would also add a new defined term under Rule 
8.600(c)(5) to specify that the term ``normal market conditions'' 
includes, but is not limited to, the absence of trading halts in the 
applicable 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.
---------------------------------------------------------------------------

    Finally, the Exchange would also amend the continued listing 
requirement in Rule 8.600(d)(2)(A) by changing the requirement that a 
Portfolio Indicative Value for Managed Fund Shares be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the time when the Managed Fund Shares trade on the 
Exchange to a requirement that a Portfolio Indicative Value be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session (as defined in NYSE Arca 
Equities Rule 7.34).
Proposed Managed Fund Share Portfolio Standards
    The Exchange is proposing standards that would pertain to Managed 
Fund Shares to qualify for listing and trading pursuant to SEC Rule 
19b-4(e). These standards would be grouped according to security or 
asset type. The Exchange notes that the standards proposed for a 
Managed Fund Share portfolio that holds domestic equity securities, 
Derivative Securities Products and Index-Linked Securities are based in 
large part on the existing equity security standards applicable to 
Units in Commentary .01 to Rule 5.2(j)(3). The standards proposed for a 
Managed Fund Share portfolio that holds fixed income securities are 
based in large part on the existing fixed income security standards 
applicable to Units in Commentary .02 to Rule 5.2(j)(3). Many of the 
standards proposed for other types of holdings in a Managed Fund Share 
portfolio are based on previous proposed rule changes for specific 
series of Managed Fund Shares.\9\
---------------------------------------------------------------------------

    \9\ See Securities Exchange Act Release Nos. 66321 (February 3, 
2012), 77 FR 6850 (February 9, 2012) (SR-NYSEArca-2011-95) (the 
``PIMCO Total Return Approval'') and 72666 (July 3, 2014), 79 FR 
44224 (July 30, 2014) (SR-NYSEArca-2013-122) (the ``PIMCO Total 
Return Use of Derivatives Approval''); 69244 (March 27, 2013), 78 FR 
19766 (April 2, 2013) (SR-NYSEArca-2013-08) (the ``SPDR Blackstone/
GSO Senior Loan Approval''); 68870 (February 8, 2013), 78 FR 11245 
(February 15, 2013) (SR-NYSEArca-2012-139) (the ``First Trust 
Preferred Securities and Income Approval''); 69591 (May 16, 2013), 
78 FR 30372 (May 22, 2013) (SR-NYSEArca-2013-33) (the 
``International Bear Approval''); 61697 (March 12, 2010), 75 FR 
13616 (March 22, 2010) (SR-NYSEArca-2010-04) (the ``WisdomTree Real 
Return Approval''); and 67054 (May 24, 2012), 77 FR 32161 (May 31, 
2012) (SR-NYSEArca-2012-25) (the ``WisdomTree Brazil Bond 
Approval''). Certain standards proposed herein for Managed Fund 
Shares are also based on previous proposed rule changes for specific 
series of Units for which Commission approval for listing was 
required due to the Units not satisfying certain standards of 
Commentary .01 and .02 to Rule 5.2(j)(3). See Securities Exchange 
Act Release Nos. 67985 (October 4, 2012), 77 FR 61804 (October 11, 
2012) (SR-NYSEArca-2012-92) (the ``iShares 2018 S&P AMT-Free 
Municipal Series and iShares 2019 S&P AMT-Free Municipal Series 
Approval''); 63881(February 9, 2011), 76 FR 9065 (February 16, 2011) 
(SR-NYSEArca-2010-120) (the ``SPDR Nuveen S&P High Yield Municipal 
Bond ETF Approval''); 63176 (October 25, 2010), 75 FR 66815 (October 
29, 2010) (SR-NYSEArca-2010-94) (the ``iShares Taxable Municipal 
Bond Fund Approval''); and 69373 (April 15, 2013), 78 FR 23601 
(April 19, 2013) (SR-NYSEArca-2012-108) (the ``NYSE Arca U.S. Equity 
Synthetic Reverse Convertible Index Fund Approval'').
---------------------------------------------------------------------------

    Proposed Commentary .01(a) would describe the standards for a 
Managed Fund Share portfolio that holds equity securities, including 
U.S. Component Stocks,\10\ Derivative Securities Products,\11\ and 
Index-Linked Securities \12\ listed on a national securities exchange, 
as follows:
---------------------------------------------------------------------------

    \10\ For the purposes of Commentary .01 and this proposal, the 
term ``U.S. Component Stocks'' would have the same meaning as 
defined in NYSE Arca Equities Rule 5.2(j)(3).
    \11\ For the purposes of Commentary .01 and this proposal, the 
term ``Derivative Securities Products'' would have the same meaning 
as defined in NYSE Arca Equities Rule 7.34(a)(4)(A).
    \12\ Index-Linked Securities are securities listed under NYSE 
Arca Equities Rule 5.2(j)(6).
---------------------------------------------------------------------------

    (1) Component stocks (excluding Derivative Securities Products and 
Index-Linked Securities) that in the aggregate account for at least 90% 
of the equity weight of the portfolio (excluding such Derivative 
Securities Products and Index-Linked Securities) each must have a 
minimum market value of at least $75 million; \13\
---------------------------------------------------------------------------

    \13\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(A)(1) to Rule 5.2(j)(3), except for the 
omission of the reference to ``index,'' which is not applicable, and 
the addition of the reference to Index-Linked Securities.
---------------------------------------------------------------------------

    (2) Component stocks (excluding Derivative Securities Products and 
Index-Linked Securities) that in the aggregate account for at least 70% 
of the equity weight of the portfolio (excluding such Derivative 
Securities Products and Index-Linked Securities) each must have a 
minimum monthly trading volume of 250,000 shares, or minimum notional 
volume traded per month of $25,000,000, averaged over the last six 
months; \14\
---------------------------------------------------------------------------

    \14\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(A)(2) to Rule 5.2(j)(3), except for the 
omission of the reference to ``index,'' which is not applicable, and 
the addition of the reference to Index-Linked Securities.
---------------------------------------------------------------------------

    (3) The most heavily weighted component stock (excluding Derivative 
Securities Products and Index-Linked Securities) must not exceed 30% of 
the equity weight of the portfolio, and, to the extent applicable, the 
five most heavily weighted component stocks (excluding Derivative 
Securities Products and Index-Linked Securities) must not exceed 65% of 
the equity weight of the portfolio; \15\
---------------------------------------------------------------------------

    \15\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(A)(3) to Rule 5.2(j)(3), except for the 
omission of the reference to ``index,'' which is not applicable, and 
the addition of the reference to Index-Linked Securities.

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

[[Page 12692]]

    (4) The portfolio must include a minimum of 13 component stocks; 
provided, however, that there would be no minimum number of component 
stocks if (a) one or more series of Derivative Securities Products or 
Index-Linked Securities constitute, at least in part, components 
underlying a series of Managed Fund Shares, or (b) one or more series 
of Derivative Securities Products or Index-Linked Securities account 
for 100% of the equity weight of the portfolio of a series of Managed 
Fund Shares; \16\
---------------------------------------------------------------------------

    \16\ This proposed text is identical to the corresponding text 
of Commentary .01(a)(A)(4) to Rule 5.2(j)(3), except for the 
omission of the reference to ``index,'' which is not applicable, the 
addition of the reference to Index-Linked Securities, and the 
reference to the 100% limit applying to the ``equity portion'' of 
the portfolio--this last difference included [sic] because these 
proposed standards in Commentary .01(a) to Rule 8.600 permit the 
inclusion of non-equity securities, whereas Commentary .01 to Rule 
5.2(j)(3) only applies to equity securities.
---------------------------------------------------------------------------

    (5) Equity securities (excluding unsponsored American Depository 
Receipts (``ADRs'')) in the portfolio must be U.S. Component Stocks 
listed on a national securities exchange and must be NMS Stocks as 
defined in Rule 600 of Regulation NMS; \17\
---------------------------------------------------------------------------

    \17\ 17 CFR 240.600. This proposed text is identical to the 
corresponding text of Commentary .01(a)(A)(5) to Rule 5.2(j)(3), 
except for the addition of ``equity'' to make clear that the 
standard applies to ``equity securities'', the exclusion of 
unsponsored ADRs, and the omission of the reference to ``index,'' 
which is not applicable.
---------------------------------------------------------------------------

    (6) For Derivative Securities Products and Index-Linked Securities, 
no more than 25% of the equity weight of the portfolio could include 
leveraged and/or inverse leveraged Derivative Securities Products or 
Index-Linked Securities; and
    (7) ADRs may be sponsored or unsponsored. However no more than 10% 
of the equity weight of the portfolio shall consist of unsponsored 
ADRs.
    Proposed Commentary .01(b) would describe the standards for a 
Managed Fund Share portfolio that holds fixed income securities, which 
are debt securities \18\ that are notes, bonds, debentures or evidence 
of indebtedness that include, but are not limited to, U.S. Department 
of Treasury securities (``Treasury Securities''), government-sponsored 
entity securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign country 
or a subdivision thereof, investment grade and high yield corporate 
debt, bank loans, mortgage and asset backed securities, and commercial 
paper. The applicable portfolio holdings standards would be as follows:
---------------------------------------------------------------------------

    \18\ Debt securities include a variety of fixed income 
obligations, including, but not limited to, corporate debt 
securities, government securities, municipal securities, convertible 
securities, and mortgage-backed securities. Debt securities include 
investment-grade securities, non-investment-grade securities, and 
unrated securities. Debt securities also include variable and 
floating rate securities.
---------------------------------------------------------------------------

    (1) Components that in the aggregate account for at least 75% of 
the fixed income weight of the portfolio shall meet the following:
    (i) each shall have a minimum original principal amount outstanding 
of $100 million or more; \19\ or
---------------------------------------------------------------------------

    \19\ This text of proposed Commentary .01(b)(1)(i) to Rule 8.600 
is based on the corresponding text of Commentary .02(a)(2) to Rule 
5.2(j)(3) .
---------------------------------------------------------------------------

    (iii) [sic] if a municipal bond component, such component shall be 
issued in an offering with an aggregate size, as set forth in the 
official statement of the offering, of $100 million or more; \20\
---------------------------------------------------------------------------

    \20\ This proposed text is similar to the amendment to 
Commentary .02(a)(2) to Rule 5.2(j)(3) as proposed in SR-NYSEArca-
2015-01. See Securities Exchange Act Release No. 74175 (January 29, 
2015), 80 FR 6150 (February 4, 2015) (notice of filing of proposed 
rule change amending NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.02 relating to listing of Investment Company Units based on 
municipal bond indexes). Proposed rule changes for series of Units 
previously listed and traded on the Exchange pursuant to Rule 
5.2(j)(3) similarly included the ability for such Units' holdings to 
include municipal bond components with individual principal amount 
outstanding of less than $100 million. See, e.g., iShares 2018 S&P 
AMT-Free Municipal Series and iShares 2019 S&P AMT-Free Municipal 
Series Approval, supra note 9, at 61807; SPDR Nuveen S&P High Yield 
Municipal Bond ETF Approval, supra note 9, at 9066; and iShares 
Taxable Municipal Bond Fund Approval, supra note 9, at 66815-6. The 
proposed rule takes into account features of municipal bonds that 
differ from those of most other Fixed Income Securities. 
Principally, municipal bonds are issued with either ``serial'' or 
``term'' maturities or some combination thereof. The official 
statement issued in connection with a municipal bond offering 
describes the terms of the bonds and the issuer and/or obligor on 
the related bonds, which is comprised of a number of specific 
maturity sizes. The entire issue (sometimes referred to as the 
``deal size'') receives the same credit rating and the various 
maturities are all subject to the provisions set forth in the 
official statement. The entire issue is based on a specified project 
or group of related projects and funded by the same revenue or other 
funding sources identified in the official statement. The Exchange 
believes that the proposed rule change is reasonable and appropriate 
in that pricing and liquidity of such maturity sizes is 
predominately based on the common characteristics of the aggregate 
issue of which the municipal bond is part. Thus, consideration of 
the aggregate issue rather than the individual bond component does 
not raise concerns regarding pricing or liquidity of the index 
components or of the Units overlying the applicable municipal bond 
index.
---------------------------------------------------------------------------

    (2) No component fixed-income security (excluding Treasury 
Securities and GSE Securities) could represent more than 30% of the 
fixed income weight of the portfolio, and the five most heavily 
weighted component fixed income securities in the portfolio must not in 
the aggregate account for more than 65% of the fixed income weight of 
the portfolio; \21\
---------------------------------------------------------------------------

    \21\ This proposed text is identical to the corresponding text 
of Commentary .02(a)(4) to Rule 5.2(j)(3), except for the omission 
of the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------

    (3) An underlying portfolio (excluding exempted securities) must 
include a minimum of 13 non-affiliated issuers; \22\
---------------------------------------------------------------------------

    \22\ This proposed text is identical to the corresponding text 
of Commentary .02(a)(5) to Rule 5.2(j)(3), except for the omission 
of the reference to ``index,'' which is not applicable, and the 
exclusion of the text ``consisting entirely of.''
---------------------------------------------------------------------------

    (4) Component securities that in [sic] aggregate account for at 
least 90% of the fixed income weight of the portfolio must be either 
(a) from issuers that are required to file reports pursuant to Sections 
13 and 15(d) of the Act; (b) from issuers that have a worldwide market 
value of its outstanding common equity held by non-affiliates of $700 
million or more; (c) from issuers that have outstanding securities that 
are notes, bonds debentures, or evidence of indebtedness having a total 
remaining principal amount of at least $1 billion; (d) exempted 
securities as defined in Section 3(a)(12) of the Act; or (e) from 
issuers that are a government of a foreign country or a political 
subdivision of a foreign country; and
    (5) Non-agency mortgage-related and other asset-backed securities 
components of a portfolio shall not account for more than 20% of the 
weight of the fixed income portion of the portfolio.
    Proposed Commentary .01(c) would describe the standards for a 
Managed Fund Share portfolio that holds cash and cash equivalents.\23\ 
Specifically, the portfolio may hold short-term instruments with 
maturities of less than 3 months. There would be no limitation to the 
percentage of the portfolio invested in such holdings. Short-term 
instruments would include, without limitation, the following: \24\
---------------------------------------------------------------------------

    \23\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include cash and cash equivalents. 
See, e.g., SPDR Blackstone/GSO Senior Loan Approval, supra note 9, 
at 19768-69 and First Trust Preferred Securities and Income 
Approval, supra note 9, at 76150.
    \24\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly specified short-term instruments 
with respect to their inclusion in Managed Fund Share holdings. See, 
e.g., First Trust Preferred Securities and Income Approval, supra 
note 9, at 76150-51.
---------------------------------------------------------------------------

    (1) U.S. Government securities, including bills, notes and bonds 
differing as to maturity and rates of interest, which are either issued 
or guaranteed by the U.S. Treasury or by

[[Page 12693]]

U.S. Government agencies or instrumentalities;
    (2) certificates of deposit issued against funds deposited in a 
bank or savings and loan association;
    (3) bankers' acceptances, which are short-term credit instruments 
used to finance commercial transactions;
    (4) repurchase agreements and reverse repurchase agreements;
    (5) bank time deposits, which are monies kept on deposit with banks 
or savings and loan associations for a stated period of time at a fixed 
rate of interest; and
    (6) commercial paper, which are short-term unsecured promissory 
notes.
    Proposed Commentary .01(d) would describe the standards for a 
Managed Fund Share portfolio that holds listed and centrally cleared 
derivatives, including futures, options and cleared swaps on 
commodities, currencies and financial instruments (e.g., stocks, fixed 
income, interest rates, and volatility) or a basket or index of any of 
the foregoing.\25\ There would be no limitation to the percentage of 
the portfolio invested in such holdings; provided, however, that, in 
the aggregate, at least 90% of the weight of such holdings invested in 
futures and exchange-traded options shall consist of futures and 
options whose principal market is a member of the Intermarket 
Surveillance Group (``ISG'') or is a market with which the Exchange has 
a comprehensive surveillance sharing agreement (``CSSA'').\26\ 
Additionally, proposed Commentary .01(d)(2) requires certain 
information to be included on the Web site of each series of Managed 
Fund Shares holding any listed and centrally cleared derivative.\27\ 
The required information includes the following, to the extent 
relevant: ticker symbol, CUSIP or other identifier, a description of 
the holding, identity of the asset upon which the derivative is based, 
the strike price for any options, the quantity of each such derivative 
held as measured by select metrics, maturity date, coupon rate, 
effective date, market value and percentage weight of the holding in 
the portfolio.
---------------------------------------------------------------------------

    \25\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include listed derivatives. See, 
e.g., WisdomTree Real Return Approval, supra note 9, at 13617 and 
WisdomTree Brazil Bond Approval, supra note 9, at 32163.
    \26\ ISG is comprised of an international group of exchanges, 
market centers, and market regulators that perform front-line market 
surveillance in their respective jurisdictions. See https://www.isgportal.org/home.html.
    \27\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included disclosure requirements 
with respect to each portfolio holding, as applicable to the type of 
holding. See, e.g.. PIMCO Total Return Use of Derivatives Approval, 
supra note 9, at 44227.
---------------------------------------------------------------------------

    Proposed Commentary .01(e) would describe the standards for a 
Managed Fund Share portfolio that holds over the counter (``OTC'') 
derivatives, including forwards, options and swaps on commodities, 
currencies and financial instruments (e.g., stocks, fixed income, 
interest rates, and volatility) or a basket or index of any of the 
foregoing.\28\ There would be no limitation to the percentage of the 
portfolio invested in such holdings. Additionally, proposed Commentary 
.01(e)(2) requires certain information to be included on the Web site 
of each series of Managed Fund Shares holding any OTC derivative.\29\ 
The required information includes the following, to the extent 
relevant: ticker symbol, CUSIP or other identifier, a description of 
the holding, identity of the asset upon which the derivative is based, 
the strike price for any options, the quantity of each such derivative 
held as measured by select metrics, maturity date, coupon rate, 
effective date, market value and percentage weight of the holding in 
the portfolio.
---------------------------------------------------------------------------

    \28\ A proposed rule change for series of Units previously 
listed and traded on the Exchange pursuant to Rule 5.2(j)(3) 
similarly included the ability for such Units' holdings to include 
OTC derivatives, specifically OTC down-and-in put options, which are 
not NMS Stocks as defined in Rule 600 of Regulation NMS and 
therefore do not satisfy the requirements of Commentary .01(a)(A) to 
Rule 5.2(j)(3). See, e.g., NYSE Arca U.S. Equity Synthetic Reverse 
Convertible Index Fund Approval, supra note 9, at 23602.
    \29\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included disclosure requirements 
with respect to each portfolio holding, as applicable to the type of 
holding. See, e.g.. PIMCO Total Return Use of Derivatives Approval, 
supra note 9, at 44227.
---------------------------------------------------------------------------

    Proposed Commentary .01(f) would describe the standards for a 
Managed Fund Share portfolio that holds illiquid assets.\30\ The 
portfolio could hold up to an aggregate amount of 15% of the weight of 
its portfolio (calculated at the time of investment) in assets deemed 
illiquid by the Adviser.\31\
---------------------------------------------------------------------------

    \30\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Shares to include illiquid assets. See, e.g., 
International Bear Approval, supra note 9, at 30375-76. Illiquid 
assets include securities subject to contractual or other 
restrictions on resale and other instruments that lack readily 
available markets as determined in accordance with Commission staff 
guidance. The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the fund. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); and Investment Company Act Release No. 17452 
(April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A 
under the Securities Act of 1933). See also First Trust Preferred 
Securities and Income Approval, supra note 9, at 76151, n. 16. The 
Exchange understands that a number of factors are currently 
considered by investment companies in reaching liquidity decisions. 
Examples of factors that would be reasonable for a board of 
directors to take into account with respect to a Rule 144A security 
(but which would not necessarily be determinative) would include, 
among others: (1) The frequency of trades and quotes for the 
security; (2) the number of dealers willing to purchase or sell the 
security and the number of other potential purchasers; (3) dealer 
undertakings to make a market in the security; and (4) the nature of 
the security and the nature of the marketplace trades (e.g., the 
time needed to dispose of the security, the method of soliciting 
offers, and the mechanics of transfer).
    \31\ If a Managed Fund Share portfolio holds Rule 144A 
securities, such securities would be subject to this 15% threshold 
if deemed to be illiquid by the Adviser. However, if deemed to be 
liquid by the Adviser, such Rule 144A securities would be subject to 
the other applicable standards.
---------------------------------------------------------------------------

    The changes proposed herein would not have an impact on the 
existing rules applicable to the listing and trading of Managed Fund 
Shares, which address, for example, net asset value, creation and 
redemption of shares, availability of information, trading halts, 
surveillance and information bulletins.
    The Exchange believes that the proposed standards would continue to 
ensure transparency surrounding the listing process for Managed Fund 
Shares. Additionally, the Exchange believes that the proposed portfolio 
standards for listing and trading Managed Fund Shares, many of which 
track existing Exchange rules relating to Units, are reasonably 
designed to promote a fair and orderly market for such Managed Fund 
Shares.\32\ These proposed standards would also work in conjunction 
with the existing initial and continued listing criteria related to 
surveillance procedures and trading guidelines.
---------------------------------------------------------------------------

    \32\ See Approval Order, supra note 4 at 19548.
---------------------------------------------------------------------------

    In support of this proposal, the Exchange represents that: \33\
---------------------------------------------------------------------------

    \33\ The Exchange made similar representations in the Approval 
Order. See id. at 19549.
---------------------------------------------------------------------------

    (1) The Managed Fund Shares will continue to conform to the initial 
and continued listing criteria under Rule 8.600;
    (2) the Exchange's surveillance procedures are adequate to continue 
to properly monitor the trading of the Managed Fund Shares in all 
trading sessions and to deter and detect violations of Exchange rules. 
Specifically, the Exchange intends to

[[Page 12694]]

utilize its existing surveillance procedures applicable to derivative 
products, which will include Managed Fund Shares, to monitor trading in 
the Managed Fund Shares;
    (3) prior to the commencement of trading of a particular series of 
Managed Fund Shares, the Exchange will inform its Equity Trading Permit 
(``ETP'') Holders in a Bulletin of the special characteristics and 
risks associated with trading the Managed Fund Shares, including 
procedures for purchases and redemptions of Managed Fund Shares, 
suitability requirements under NYSE Arca Equities Rule 9.2(a), the 
risks involved in trading the Managed Fund Shares during the Opening 
and Late Trading Sessions when an updated Portfolio Indicative Value 
will not be calculated or publicly disseminated, information regarding 
the Portfolio Indicative Value, prospectus delivery requirements, and 
other trading information. In addition, the Bulletin will disclose that 
the Managed Fund Shares are subject to various fees and expenses, as 
described in the Registration Statement, and will discuss any 
exemptive, no-action, and interpretive relief granted by the Commission 
from any rules under the Act. Finally, the Bulletin will disclose that 
the net asset value for the Managed Fund Shares will be calculated 
after 4 p.m. ET each trading day; and
    (4) the issuer of a series of Managed Fund Shares will be required 
to comply with Rule 10A-3 under the Act for the initial and continued 
listing of Managed Fund Shares, as provided under NYSE Arca Equities 
Rule 5.3.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and that the Exchange is not aware 
of any problems that ETP Holders or issuers would have in complying 
with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\34\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\35\ in particular, because it 
is 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b).
    \35\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 because it would facilitate the listing and trading of 
additional Managed Fund Shares, which would enhance competition among 
market participants, to the benefit of investors and the marketplace. 
Specifically, after more than six years under the current process, 
whereby the Exchange is required to file a proposed rule change with 
the Commission for the listing and trading of each new series of 
Managed Fund Shares, the Exchange believes that it is appropriate to 
codify certain rules within Rule 8.600 that would generally eliminate 
the need for separate proposed rule changes. The Exchange believes that 
this would facilitate the listing and trading of additional types of 
Managed Fund Shares that have investment portfolios that are similar to 
investment portfolios for Units, which have been approved for listing 
and trading, thereby creating greater efficiencies in the listing 
process for the Exchange and the Commission. In this regard, the 
Exchange notes that the standards proposed for Managed Fund Share 
portfolios that include domestic equity securities, Derivative 
Securities Products, and Index-Linked Securities are based in large 
part on the existing equity security standards applicable to Units in 
Commentary .01 to Rule 5.2(j)(3) and that the standards proposed for 
Managed Fund Share portfolios that include fixed income securities are 
based in large part on the existing fixed income standards applicable 
to Units in Commentary .02 to Rule 5.2(j)(3). Additionally, many of the 
standards proposed for other types of holdings of series of Managed 
Fund Shares are based on previous proposed rule changes for specific 
series of Managed Fund Shares.\36\ With respect to the proposed 
exclusion of Derivatives Securities Products and Index-Linked 
Securities from the requirements of proposed Commentary .01(a) of Rule 
8.600, the Exchange believes it is appropriate to exclude Index-Linked 
Securities as well as Derivative Securities Products from certain 
component stock eligibility criteria for Managed Fund Shares in so far 
as Derivative Securities Products and Index-Linked Securities are 
themselves subject to specific quantitative listing and continued 
listing requirements of a national securities exchange on which such 
securities are listed. Derivative Securities Products and Index-Linked 
Securities that are components of a fund's portfolio would have been 
listed and traded on a national securities exchange pursuant to a 
proposed rule change approved by the Commission pursuant to Section 
19(b)(2) of the Act \37\ or submitted by a national securities exchange 
pursuant to Section 19(b)(3)(A) of the Act \38\ or would have been 
listed by a national securities exchange pursuant to the requirements 
of Rule 19b-4(e) under the Act.\39\ The Exchange also notes that 
Derivative Securities Products and Index-Linked Securities are 
derivatively priced, and, therefore, the Exchange believes that it 
would not be necessary to apply the proposed generic quantitative 
criteria (e.g., market capitalization, trading volume, or portfolio 
component weighting) applicable to equity securities other than 
Derivative Securities Products or Index-Linked Securities (e.g., common 
stocks) to such products.\40\
---------------------------------------------------------------------------

    \36\ See supra, note 9.
    \37\ 15 U.S.C. 78s(b)(2).
    \38\ 15 U.S.C. 78s(b)(3)(A).
    \39\ 17 CFR 240.19b-4(e).
    \40\ See Securities Exchange Act Release Nos. 57561 (March 26, 
2008), 73 FR 17390 (April 1, 2008) (SR-NYSEArca-2008-29) (notice of 
filing of proposed rule change to amend eligibility criteria for 
components of an index underlying Investment Company Units); 57751 
(May 1, 2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29) 
(order approving proposed rule change to amend eligibility criteria 
for components of an index underlying Investment Company Units).
---------------------------------------------------------------------------

    With respect to the proposed amendment to the continued listing 
requirement in Rule 8.600(d)(2)(A) to require dissemination of a 
Portfolio Indicative Value at least every 15 seconds during the Core 
Trading Session (as defined in NYSE Arca Equities Rule 7.34), such 
requirement conforms to the requirement applicable to the dissemination 
of the Intraday Indicative Value for Investment Company Units in 
Commentary .01(c) and Commentary .02(c) to NYSE Arca Equities Rule 
5.2(j)(3). In addition, such dissemination is consistent with 
representations made in proposed rule changes for issues of Managed 
Fund Shares previously approved by the Commission.\41\
---------------------------------------------------------------------------

    \41\ See, e.g., Approval Order, supra note 4; International Bear 
Approval, supra note 9.
---------------------------------------------------------------------------

    The proposed rule change is also designed to protect investors and 
the public interest because Managed Fund Shares listed and traded 
pursuant to Rule 8.600, including pursuant to the proposed new 
portfolio standards, would continue to be subject to the full panoply 
of Exchange rules and procedures that currently govern the trading of 
equity securities on the Exchange.\42\
---------------------------------------------------------------------------

    \42\ See Approval Order, supra note 4, at 19547.
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices because the 
Managed

[[Page 12695]]

Fund Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Rule 8.600. The Exchange has 
in place surveillance procedures that are adequate to properly monitor 
trading in the Managed Fund Shares in all trading sessions and to deter 
and detect violations of Exchange rules and applicable federal 
securities laws. The Financial Industry Regulatory Authority, Inc. 
(``FINRA''), on behalf of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including all U.S. securities exchanges and futures 
exchanges on which the components are traded. In addition, the Exchange 
may obtain information regarding trading in Managed Fund Shares from 
other markets that are members of the ISG, including all U.S. 
securities exchanges and futures exchanges on which the components are 
traded, or with which the Exchange has in place a CSSA.
    The Exchange also believes that the proposed rule change would 
fulfill the intended objective of Rule 19b-4(e) under the Act by 
allowing Managed Fund Shares that satisfy the proposed listing 
standards to be listed and traded without separate Commission approval. 
However, as proposed, the Exchange would continue to file separate 
proposed rule changes before the listing and trading of Managed Fund 
Shares that do not satisfy the additional criteria described above.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\43\ 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 purposes of the Act. Instead, the Exchange believes that the 
proposed rule change would facilitate the listing and trading of 
additional types of Managed Fund Shares and result in a significantly 
more efficient process surrounding the listing and trading of Managed 
Fund Shares, which will enhance competition among market participants, 
to the benefit of investors and the marketplace. The Exchange believes 
that this would reduce the time frame for bringing Managed Fund Shares 
to market, thereby reducing the burdens on issuers and other market 
participants and promoting competition. In turn, the Exchange believes 
that the proposed change would make the process for listing Managed 
Fund Shares more competitive by applying uniform listing standards with 
respect to Managed Fund Shares portfolio holdings.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b)(8).
---------------------------------------------------------------------------

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 up to 90 days (i) as the 
Commission may designate 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. In particular, the Commission seeks 
comments on the following questions:
    1. According to the Exchange, many of the requirements of the 
proposed rule applicable to equity and fixed income securities holdings 
are identical to the requirements for equity and fixed income index-
based ETFs, respectively.\44\
---------------------------------------------------------------------------

    \44\ See proposed Commentaries .01(a) and (b) to NYSE Arca 
Equities Rule 8.600.
---------------------------------------------------------------------------

    a. Do commenters believe that these requirements for index-based 
ETFs should equally apply to the listing and trading of Managed Fund 
Shares? If so, why? If not, why not?
    b. Do commenters believe that the requirements for index-based ETFs 
that the Exchange proposes to apply to Managed Fund Shares are adequate 
to deter manipulation irrespective of similarities between the two 
types of products? If so, why? If not, why not?
    2. In addition, as noted by the Exchange, some of the requirements 
of the proposed rule are identical to certain, specifically tailored 
requirements referenced in other previously approved proposed rule 
changes pertaining to the listing and trading of specific series of 
Managed Fund Shares. What are commenters' views on whether these 
specifically tailored requirements for certain series of Managed Fund 
Shares ought to equally apply to all Managed Fund Shares by virtue of 
being incorporated into these proposed generic listing standards?
    3. Do commenters believe that the proposed listing requirements are 
adequate to deter manipulation and other trading abuses of the price of 
generically listed Managed Fund Shares? If so, why? If not, why not?
    4. Under the proposed rule, there would be no limitation to the 
percentage of the portfolio invested in short-term cash equivalents or 
derivative instruments. In addition, under the proposed rule, there 
would be no limitation as to the types of short-term cash equivalents 
or derivative instruments that could be held in the portfolio. To what 
extent, if at all, should the proposed generic listing standards 
restrict the holding of these portfolio components? If so, how and why? 
If not, why not?
    5. Do commenters have views on whether the proposed generic listing 
requirements for Managed Fund Shares have adequately accounted for all 
types of assets that a portfolio can hold? Should the proposed rules 
include additional or fewer restrictions? Are there other measures that 
the Commission and the Exchange should consider with respect to a 
portfolio of Managed Fund Shares that are generically listed?
    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-2015-02 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2015-02. 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

[[Page 12696]]

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 
the filing also will be available for inspection and copying at the 
principal office of the Exchange. All comments received will be posted 
without change; the Commission does not edit personal identifying 
information from submissions. You should submit only information that 
you wish to make available publicly. All submissions should refer to 
File Number SR-NYSEArca-2015-02 and should be submitted on or before 
March 31, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
---------------------------------------------------------------------------

    \45\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-05480 Filed 3-9-15; 8:45 am]
 BILLING CODE 8011-01-P