Federal Register, Volume 81 Issue 64 (Monday, April 4, 2016)

[Federal Register Volume 81, Number 64 (Monday, April 4, 2016)]
[Notices]
[Pages 19255-19260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-07511]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77463; File No. SR-NYSEArca-2015-107]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change, as Modified by Amendment Nos. 1, 2,
3, and 4 Thereto, To List and Trade Shares of the REX Gold Hedged S&P
500 ETF and the REX Gold Hedged FTSE Emerging Markets ETF Under NYSE
Arca Equities Rule 8.600

March 29, 2016.

I. Introduction

On December 10, 2015, NYSE Arca, Inc. (``Exchange'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade
shares (``Shares'') of the REX Gold Hedged S&P 500 ETF and the REX Gold
Hedged FTSE Emerging Markets ETF (individually, a ``Fund,'' and
collectively, ``Funds''), which will be offered by Exchange Traded
Concepts Trust (``Trust''). The proposed rule change was published for
comment in the Federal Register on December 30, 2015.\3\ On January 15,
2016, the Exchange submitted Amendment No. 1 to the proposed rule
change.\4\ On January 27, 2016, the Exchange submitted Amendment No. 2
to the proposed rule change.\5\ On February 11, 2016, the Exchange
submitted Amendment No. 3 to the proposed rule change.\6\ On February
12, 2016, pursuant to Section 19(b)(2) of the Act,\7\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\8\ On
March 24, 2016, the Exchange submitted Amendment No. 4 to the proposed
rule change.\9\ The Commission

[[Page 19256]]

received no comments on the proposed rule change. This order grants
approval of the proposed rule change, as modified by Amendment Nos. 1,
2, 3, and 4 thereto.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 76761 (December 23,
2015), 80 FR 81564 (``Notice'').
\4\ In Amendment No. 1, which replaced and superseded the
original filing in its entirety, the Exchange clarified the Funds'
direct and indirect principal and other investments; the
determination of the value of certain underlying assets for purposes
of the Funds' net asset value (``NAV'') calculation; and the
availability of price information for certain underlying assets.
Because Amendment No. 1 adds clarification to the proposal and does
not materially alter the substance of the proposed rule change or
raise unique or novel regulatory issues, Amendment No. 1 is not
subject to notice and comment (Amendment No. 1 to the proposed rule
change is available at: http://www.sec.gov/comments/sr-nysearca-2015-107/nysearca2015107-1.pdf).
\5\ In Amendment No. 2, the Exchange made additional clarifying
changes regarding the Funds' other investments; the availability of
price information for certain underlying assets; and the
dissemination of the Portfolio Indicative Value (as defined herein).
Because Amendment No. 2 adds clarification to the proposal and does
not materially alter the substance of the proposed rule change or
raise unique or novel regulatory issues, Amendment No. 2 is not
subject to notice and comment (Amendment No. 2 to the proposed rule
change is available at: http://www.sec.gov/comments/sr-nysearca-2015-107/nysearca2015107-2.pdf).
\6\ In Amendment No. 3, the Exchange expanded the application of
the criteria for non-U.S. equity securities in the REX Gold Hedged
FTSE Emerging Markets ETF portfolio so that they will apply on a
continual basis. Because Amendment No. 3 does not materially alter
the substance of the proposed rule change or raise unique or novel
regulatory issues, Amendment No. 3 is not subject to notice and
comment (Amendment No. 3 to the proposed rule change is available
at: http://www.sec.gov/comments/sr-nysearca-2015-107/nysearca2015107-3.pdf).
\7\ 15 U.S.C. 78s(b)(2).
\8\ See Securities Exchange Act Release No. 77128, 81 FR 8557
(February 19, 2016).
\9\ In Amendment No. 4, the Exchange clarified that: (a) all
statements and representations made in the proposal regarding the
description of the portfolio, limitations on portfolio holdings or
reference assets, or the applicability of Exchange rules and
surveillance procedures shall constitute continued listing
requirements for listing the Shares on the Exchange; (b) the issuer
will advise the Exchange of any failure by the Funds to comply with
the continued listing requirements; (c) pursuant to its obligations
under Section 19(g)(1) of the Act, the Exchange will monitor for
compliance with the continued listing requirements; and (d) if any
Fund is not in compliance with the applicable listing requirements,
the Exchange will commence delisting procedures under NYSE Arca
Equities Rule 5.5(m). Because Amendment No. 4 does not materially
alter the substance of the proposed rule change or raise unique or
novel regulatory issues, Amendment No. 4 is not subject to notice
and comment (Amendment No. 4 to the proposed rule change is
available at: http://www.sec.gov/comments/sr-nysearca-2015-107/nysearca2015107-4.pdf).
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II. Exchange's Description of the Proposed Rule Change

The Exchange proposes to list and trade Shares of the Funds under
NYSE Arca Equities Rule 8.600, which governs the listing and trading of
Managed Fund Shares on the Exchange. The Shares will be offered by the
Trust,\10\ which is registered with the Commission as an investment
company and has filed a registration statement on Form N-1A with the
Commission.\11\ Exchange Traded Concepts, LLC will serve as the
investment adviser to the Funds (``Adviser'').\12\ Vident Investment
Advisory, LLC (``Sub-Adviser'') will serve as sub-adviser to the
Funds.\13\ SEI Investments Distribution Co. will be the principal
underwriter and distributor of the Funds' Shares. SEI Investments
Global Funds Services will serve as the administrator, custodian,
transfer agent, and fund accounting agent for the Funds.\14\
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\10\ The Exchange represents that the Trust has obtained certain
exemptive relief under the Investment Company Act of 1940 (``1940
Act'').
\11\ According to the Exchange, on October 9, 2015, the Trust
filed with the Commission an amendment to its registration statement
on Form N-1A under the Securities Act of 1933 and under the 1940 Act
relating to the Funds (File Nos. 333-156529 and 811-22263)
(``Registration Statement'').
\12\ The Exchange represents that the Funds are subject to
regulation under the Commodity Exchange Act and Commodity Futures
Trading Commission (``CFTC'') rules as commodity pools. The Adviser
is registered as a commodity pool operator, and the Funds will be
operated in accordance with CFTC rules.
\13\ The Exchange represents that the Adviser and Sub-Adviser
are not registered as broker-dealers or affiliated with any broker-
dealers. In the event (a) the Adviser or Sub-Adviser becomes a
registered 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, it will implement a fire
wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition
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.
\14\ The Commission notes that additional information regarding
the Funds, the Trust, and the Shares, including investment
strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, calculation of NAV,
distributions, and taxes, among other things, can be found in the
Notice, the amendments, and the Registration Statement, as
applicable. See Notice, Amendment Nos. 1-4, and Registration
Statement, supra notes 3, 4, 5, 6, 9, and 11, respectively.
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A. Exchange's Description of the Funds' Principal Investments

(1) REX Gold Hedged S&P 500 ETF--Principal Investments
This Fund will seek to outperform the total return performance of
the S&P 500 Dynamic Gold Hedged Index (``S&P Benchmark'') \15\ by
actively hedging the returns of the S&P 500 Index using gold futures.
The Fund will seek to achieve its investment objective of outperforming
the S&P Benchmark by providing exposure to a gold-hedged U.S. large-cap
portfolio using a quantitative, rules-based strategy. The Fund will
invest at least 80% of its assets (plus the amount of any borrowings
for investment purposes) in (i) U.S. exchange-listed large-cap U.S.
stocks; (ii) gold futures; (iii) exchange-traded funds (``ETFs'') \16\
and exchange-traded closed-end funds (together with ETFs, ``Underlying
Funds'') that provide exposure to large-cap U.S. stocks; (iv) ETFs,
commodity-related pooled vehicles,\17\ and exchange-traded notes
(``ETNs'') \18\ that provide exposure to gold; and (v) futures that
provide exposure to the S&P 500 Index. The Fund will not invest in non-
U.S. stocks. The Fund will seek to achieve a similar level of
volatility as that of the S&P Benchmark, although there is no assurance
it will do so. The Sub-Adviser will continuously monitor the Fund's
holdings in order to enhance performance while still providing
approximately equal notional exposure to equity securities and gold
futures contracts.
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\15\ According to the Exchange, the S&P Benchmark seeks to
reflect the returns of a portfolio of S&P 500 stocks, hedged with a
long gold futures overlay. Specifically, the S&P Benchmark measures
the total return performance of a hypothetical portfolio consisting
of securities that compose the S&P 500 Index, which measures the
performance of the large-capitalization sector of the U.S. equity
market, and a long position in gold futures contracts, the notional
value of which is comparable to the value of the S&P Benchmark's
equity component.
\16\ For purposes of this filing, ETFs include Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3));
Portfolio Depository Receipts (as described in NYSE Arca Equities
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). The Underlying Funds in which a Fund will
invest all will be listed and traded on national securities
exchanges. While the Funds may invest in inverse ETFs, the Funds
will not invest in leveraged (e.g., 2X, -2X, 3X, or -3X) ETFs.
\17\ For purposes of the filing, commodity-related pooled
vehicles will mean: Equity Gold Shares (as described in NYSE Arca
Equities Rule 5.2(j)(5)); Trust Issued Receipts (as described in
NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201); Commodity Index Trust
Shares (as described in NYSE Arca Equities Rule 8.203); and Trust
Units (as described in NYSE Arca Equities Rule 8.500).
\18\ ETNs, which will be listed on a national securities
exchange, are securities such as those described in NYSE Arca
Equities Rule 5.2(j)(6). While the Funds may invest in inverse ETNs,
the Funds will not invest in leveraged (e.g., 2X, -2X, 3X, or -3X)
ETNs.
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The Fund will not directly hold gold futures contracts, commodity-
related pooled vehicles, and options on commodity futures (as
referenced below). Rather, the Fund expects to gain exposure to these
instruments by investing up to 25% of its total assets, as measured at
the end of every quarter of the Fund's taxable year, in a wholly-owned
and controlled Cayman Islands subsidiary (``Subsidiary''). The
Subsidiary will be advised by the Adviser, and the Fund's investment in
the Subsidiary will primarily be intended to provide the Fund with
exposure to the price of gold.
(2) REX Gold Hedged FTSE Emerging Markets ETF--Principal Investments
This Fund will seek to outperform the total return performance of
the FTSE Emerging Gold Overlay Index (``FTSE Benchmark'') \19\ by
actively hedging a portfolio of emerging markets securities using gold
futures. The Fund will seek to achieve its investment objective of
outperforming the FTSE Benchmark by providing exposure to a gold-hedged
emerging markets portfolio using a quantitative, rules-based strategy.
The Fund will invest at least 80% of its assets (plus the amount of any
borrowings for investment purposes) in (i) equity securities of
emerging markets companies, as such companies are classified by the
FTSE Benchmark (``Emerging Markets Securities''); \20\ (ii)

[[Page 19257]]

gold futures; (iii) Underlying Funds, ADRs, Global Depository Receipts
(``GDRs''), American Depositary Shares (``ADS''), European Depositary
Receipts (``EDRs''), and International Depository Receipts (``IDRs,''
and together with ADRs, GDRs, EDRs, and ADS, ``Depositary Receipts'')
\21\ that provide exposure to Emerging Markets Securities; (iv)
ETFs,\22\ commodity-related pooled vehicles,\23\ and ETNs \24\ that
provide exposure to gold; and (v) futures that provide exposure to
Emerging Markets Securities. The Fund will seek to achieve a similar
level of volatility as that of the FTSE Benchmark, although there is no
assurance it will do so. The Sub-Adviser will continuously monitor the
Fund's holdings in order to enhance performance while still providing
approximately equal notional exposure to equity securities and gold
futures contracts.
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\19\ The FTSE Benchmark seeks to reflect the returns of a
portfolio of Emerging Markets Securities (as defined below), hedged
with a long gold futures overlay. Specifically, the FTSE Benchmark
measures the total return performance of a hypothetical portfolio
consisting of Emerging Markets Securities and a long position in
gold futures, the notional value of which is comparable to the value
of the FTSE Benchmark's equity component.
\20\ The non-U.S. equity securities in this Fund's portfolio
will meet the following criteria on a continual basis: (1) non-U.S.
equity securities each shall have a minimum market value of at least
$100 million; (2) non-U.S. equity securities each shall have a
minimum global monthly trading volume of 250,000 shares, or minimum
global notional volume traded per month of $25,000,000, averaged
over the last six months; (3) the most heavily weighted non-U.S.
equity security shall not exceed 25% of the weight of the Fund's
entire portfolio, and, to the extent applicable, the five most
heavily weighted non-U.S. equity securities shall not exceed 60% of
the weight of the Fund's entire portfolio; and (4) each non-U.S.
equity security shall be listed and traded on an exchange that has
last-sale reporting. For purposes of this filing, the term ``non-
U.S. equity securities'' includes the following: Common stocks and
preferred securities of foreign corporations; warrants; convertible
securities; master limited partnerships (``MLPs''); rights; and
Depositary Receipts (as defined below, excluding Depositary Receipts
that are registered under the Act and non-exchange-listed American
Depositary Receipts (``ADRs'')).
\21\ Non-exchange-listed ADRs will not exceed 10% of the Fund's
net assets.
\22\ See supra note 16.
\23\ See supra note 17.
\24\ See supra note 18.
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B. Exchange's Description of the Funds' Other Investments

While each Fund will invest at least 80% of its net assets in the
securities and financial instruments described above, each Fund may
invest its remaining assets in the securities and financial instruments
described below.
In addition to the exchange-traded equity securities described
above for the Funds, the Funds may invest in the following exchange-
traded equity securities: exchange-traded common stock (other than
large-cap U.S. stocks or Emerging Markets Securities, respectively, for
the respective Funds); exchange-traded preferred stock; exchange-traded
warrants; exchange-traded MLPs; exchange-traded rights; and exchange-
traded convertible securities.
In addition to the futures transactions described above, the Funds
may engage in other index, commodity, and currency futures
transactions, and may engage in exchange-traded options transactions on
such futures. The Funds may use futures contracts and related options
for bona fide hedging; to offset changes in the value of securities
held or expected to be acquired or be disposed of; to gain exposure to
a particular market, index, or instrument; or for other risk management
purposes. The Funds also may purchase and write exchange-traded and
over-the-counter put and call options on securities, securities
indices, and currencies. A Fund may purchase put and call options on
securities to protect against a decline in the market value of the
securities in its portfolio or to anticipate an increase in the market
value of securities that a Fund may seek to purchase in the future.
The Funds may invest in restricted (Rule 144A) securities.
Each Fund will also invest in cash and cash equivalents \25\ to
collateralize its exposure to futures contracts and for investment
purposes. Each Fund may enter into repurchase agreements with financial
institutions, and each Fund may enter into reverse repurchase
agreements as part of a Fund's investment strategy. In addition, the
Funds may invest in U.S. government securities, namely, U.S. Treasury
obligations,\26\ U.S. government agency securities, and U.S. Treasury
zero-coupon bonds (``Fixed Income Instruments'').
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\25\ For purposes of this filing, cash equivalents include
short-term instruments (instruments with maturities of less than 3
months) of the following types: (i) 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 U.S. Government agencies or instrumentalities; (ii)
certificates of deposit issued against funds deposited in a bank or
savings and loan association; (iii) bankers' acceptances; (iv)
repurchase agreements and reverse repurchase agreements; (v) bank
time deposits; (vi) commercial paper; and (vii) money market funds.
\26\ U.S. Treasury obligations consist of bills, notes, and
bonds issued by the U.S. Treasury and separately traded interest and
principal component parts of such obligations that are transferable
through the federal book-entry system known as Separately Traded
Registered Interest and Principal Securities and Treasury Receipts.
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The Funds will invest in the securities of other investment
companies, including the Underlying Funds, to the extent that such an
investment would be consistent with the requirements of Section
12(d)(1) of the 1940 Act, or any rule, regulation, or order of the
Commission or interpretation thereof.

C. Exchange's Description of the Funds' Subsidiaries

According to the Exchange, each Fund will achieve commodities
exposure through investment in its respective Subsidiary. Such
investment may not exceed 25% of a Fund's total assets, as measured at
the end of every quarter of a Fund's taxable year. Each Subsidiary will
invest in gold futures contracts, commodity-related pooled vehicles,
options on commodity futures, and other investments (cash, cash
equivalents, and Fixed Income Instruments with less than one year to
maturity) intended to serve as margin or collateral or otherwise
support the Subsidiary's derivatives positions. Unlike a Fund, the
Subsidiary may invest without limitation in commodity futures and may
use leveraged investment techniques. The Subsidiaries otherwise are
subject to the same general investment policies and restrictions as the
Funds.\27\
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\27\ According to the Exchange, the Subsidiaries are not
registered under the 1940 Act. As an investor in its Subsidiary,
each Fund, as the Subsidiary's sole shareholder, would not have the
protections offered to investors in registered investment companies.
However, because a Fund would wholly own and control the Subsidiary,
and a Fund and its Subsidiary would be managed by the Adviser, it is
unlikely that the Subsidiary would take action contrary to the
interests of a Fund or a Fund's shareholders. A Fund's Board of
Trustees has oversight responsibility for the investment activities
of the Fund, including its investments in its Subsidiary, and the
Fund's role as the sole shareholder of its Subsidiary. Also, in
managing a Subsidiary's portfolio, the Adviser and Sub-Adviser would
be subject to the same investment restrictions and operational
guidelines that apply to the management of a Fund.
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D. Exchange's Description of the Funds' Investment Restrictions

Each Fund may invest up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser,\28\
consistent with Commission

[[Page 19258]]

guidance. Each Fund will monitor its portfolio liquidity on an ongoing
basis to determine whether, in 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 a Fund's net assets are invested in illiquid assets.
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.
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\28\ In reaching liquidity decisions, the Adviser may consider
the following factors: the frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer).
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Each Fund will concentrate its investments (i.e., hold 25% or more
of its total assets) in a particular industry or group of industries to
approximately the same extent that the respective benchmark
concentrates in an industry or group of industries, and each Fund will
be classified as a non-diversified investment company under the 1940
Act.
Each Fund will seek to qualify for treatment as a Regulated
Investment Company under the Internal Revenue Code.
Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage.

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 Act and
the rules and regulations thereunder applicable to a national
securities exchange.\29\ In particular, the Commission finds that the
proposed rule change, as modified by Amendment Nos. 1, 2, 3, and 4, is
consistent with Section 6(b)(5) of the Act,\30\ 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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\29\ 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).
\30\ 15 U.S.C. 78f(b)(5).
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The Commission also finds that the proposal to list and trade the
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of
the Act,\31\ which sets forth Congress's 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.
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\31\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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Quotation and last-sale information for the Shares will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. The Portfolio Indicative Value, as defined in NYSE Arca Equities
Rule 8.600(c)(3), will be widely disseminated at least every 15 seconds
during the Core Trading Session by one or more major market data
vendors.\32\ On each business day, before commencement of trading in
the Shares in the Core Trading Session on the Exchange, the Funds' Web
site will disclose the Disclosed Portfolio \33\ that will form the
basis for each Fund's NAV calculation at the end of the business
day.\34\ The Funds' Web site will also include a form of the prospectus
for the Funds and additional data relating to NAV and other applicable
quantitative information. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services. Information regarding the previous day's closing
price and trading volume information for the Shares will be published
daily in the financial section of newspapers. Pricing information
regarding each asset class in which a Fund will invest will generally
be available through nationally recognized data service providers
through subscription agreements. Quotation and last-sale information
for the Underlying Funds, ETNs, and other U.S. exchange-traded
equities, will be available via the CTA high-speed line, and, for
equity securities that are U.S. exchange-listed, will be available from
the national securities exchange on which they are listed. With respect
to non-U.S. exchange-listed equity securities, intra-day, closing, and
settlement prices of common stocks and other equity securities
(including shares of preferred securities and non-U.S. Depositary
Receipts) will be available from the foreign exchanges on which such
securities trade, as well as from major market data vendors. Price
information for money market funds will be available from the
investment company's Web site and from market data vendors. Price
information relating to cash, cash equivalents (other than money market
funds), futures, options, options on futures, Depositary Receipts, Rule
144A securities, repurchase agreements, reverse repurchase agreements,
the S&P Benchmark, and the FTSE Benchmark will be available from major
market data vendors. Information relating to futures and exchange-
traded options on futures also will be available from the exchange on
which such instruments are traded, and information relating to U.S.
exchange-traded options will be available via the Options Price
Reporting Authority.

[[Page 19259]]

Intra-day and closing price information from brokers and dealers or
independent pricing services will be available for Fixed Income
Instruments.
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\32\ According to the Exchange, several major market data
vendors display or make widely available Portfolio Indicative Values
taken from CTA or other data feeds.
\33\ The term ``Disclosed Portfolio'' is defined in NYSE Arca
Equities Rule 8.600(c)(2). On a daily basis, the Funds will also
disclose on the Funds' Web site the following information regarding
each portfolio holding of a Fund and its respective Subsidiary, as
applicable to the type of holding: ticker symbol, CUSIP number or
other identifier, if any; a description of the holding (including
the type of holding); the identity of the security, commodity,
index, or other asset or instrument underlying the holding, if any;
for options, the option strike price; quantity held (as measured by,
for example, par value, notional value, or number of shares,
contracts, or units); maturity date, if any; coupon rate, if any;
effective date, if any; market value of the holding; and the
percentage weighting of the holding in a Fund's portfolio. The Web
site information will be publicly available at no charge.
\34\ The NAV for the Shares will be calculated after 4:00 p.m.
Eastern Time each trading day. According to the Exchange, in
computing a Fund's NAV, a Fund's securities holdings will be valued
based on their last readily available market price. Price
information on exchange-listed securities, including common stocks,
preferred stocks, warrants, convertible securities, MLPs, rights,
Underlying Funds, ETNs, Depositary Receipts, and commodity-related
pooled vehicles in which a Fund invests, will be taken from the
exchange where the security is primarily traded. Other portfolio
securities and assets for which market quotations are not readily
available or determined to not represent the current fair value will
be valued based on fair value as determined in good faith by the
Sub-Adviser in accordance with procedures adopted by the Board.
Futures contracts and exchange-traded options on futures will be
valued at the settlement or closing price determined by the
applicable exchange. Exchange-traded options contracts will be
valued at their most recent sale price. Over-the-counter options
normally will be valued on the basis of quotes obtained from a
third-party broker-dealer who makes markets in such securities or on
the basis of quotes obtained from a third-party pricing service.
Cash and cash equivalents (with the exception of money market funds)
may be valued at market values, as furnished by recognized dealers
in such securities or assets. Cash equivalents (with the exception
of money market funds) also may be valued on the basis of
information furnished by an independent pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations
and electronic data processing techniques. Shares of money market
funds held by each Fund will be valued at their respective NAVs.
Fixed Income Instruments, Rule 144A securities, repurchase
agreements, and reverse repurchase agreements will generally be
valued at bid prices received from independent pricing services as
of the announced closing time for trading in fixed-income
instruments in the respective market. Non-exchange-traded ADRs will
be valued at the last quoted mid-price on the primary market on
which they are traded.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Exchange will obtain a representation from the issuer of
the Shares of each Fund that the NAV per Share will be calculated daily
and that the NAV and the Disclosed Portfolio will be made available to
all market participants at the same time. Trading in Shares of each
Fund will be halted if the circuit-breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached. Trading also may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable.\35\ Moreover, trading
in the Shares will be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth circumstances under which Shares of
the Funds may be halted. The Exchange represents that it has a general
policy prohibiting the distribution of material, non-public information
by its employees, and that neither the Adviser nor the Sub-Adviser is a
broker-dealer or affiliated with a broker-dealer.\36\ The Exchange also
represents that, the Adviser, as the Reporting Authority, will
implement and maintain, or be subject to, procedures designed to
prevent the use and dissemination of material non-public information
regarding the actual components of a Fund's portfolio.
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\35\ These may include: (1) The extent to which trading is not
occurring in the securities or the financial instruments
constituting the Disclosed Portfolio of the Funds; or (2) whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.
\36\ See supra note 13 and accompanying text. According to the
Exchange, an investment adviser to an open-end fund is required to
be registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel will be subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violations, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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The Exchange represents that it deems the Shares to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made the following
representations:
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) Trading in the Shares will be subject to the existing trading
surveillances, which are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities
laws.\37\
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\37\ The Exchange states that the Financial Industry Regulatory
Authority (``FINRA'') surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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(4) The regulatory staff of the Exchange or FINRA, on behalf of the
Exchange, will communicate as needed regarding trading in the Shares,
certain exchange-listed equity securities, certain futures, certain
options on futures, and certain exchange-traded options with other
markets and other entities that are members of the Intermarket
Surveillance Group (``ISG''), and FINRA, on behalf of the Exchange, may
obtain information regarding trading in such securities and financial
instruments from such markets and other entities. In addition, the
regulatory staff of the Exchange may obtain information regarding
trading in such securities and financial instruments from markets and
other entities that are members of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement. FINRA, on
behalf of the Exchange, also is able to access, as needed, trade
information for certain fixed income securities held by a Fund reported
to FINRA's Trade Reporting and Compliance Engine.
(5) Not more than 10% of the net assets of a Fund in the aggregate
invested in futures contracts or options contracts shall consist of
futures contracts or options contracts whose principal market is not a
member of ISG or is a market with which the Exchange does not have a
comprehensive surveillance sharing agreement.
(6) Prior to the commencement of trading of the Shares, the
Exchange will inform its ETP Holders in a Bulletin of the special
characteristics and risks associated with trading the Shares. The
Bulletin will discuss the following: (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 and the Disclosed
Portfolio 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.
(7) For initial and continued listing, the Funds will be in
compliance with Rule 10A-3 under the Act,\38\ as provided by NYSE Arca
Equities Rule 5.3.
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\38\ 17 CFR 240.10A-3.
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(8) The REX Gold Hedged S&P 500 ETF will not invest in non-U.S.
stocks.
(9) The non-U.S. equity securities in the REX Gold Hedged FTSE
Emerging Markets ETF portfolio will meet the following criteria on a
continual basis: (i) Non-U.S. equity securities each shall have a
minimum market value of at least $100 million; (ii) non-U.S. equity
securities each shall have a minimum global monthly trading volume of
250,000 shares, or minimum global notional volume traded per month of
$25,000,000, averaged over the last six months; (iii) the most heavily
weighted non-U.S. equity security shall not exceed 25% of the weight of
the Fund's entire portfolio, and, to the extent applicable, the five
most heavily weighted non-U.S. equity securities shall not exceed 60%
of the weight of the Fund's entire portfolio; and (iv) each non-U.S.
equity security shall be listed and traded on an exchange that has
last-sale reporting. In addition, non-exchange-listed ADRs will not
exceed 10% of this Fund's net assets.
(10) While a Fund may invest in inverse ETFs and ETNs, a Fund will
not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs and ETNs.

[[Page 19260]]

(11) Each Fund will achieve commodities exposure through investment
in a Subsidiary, and such investment may not exceed 25% of a Fund's
total assets, as measured at the end of every quarter of a Fund's
taxable year.
(12) Each Fund may invest up to an aggregate amount of 15% of its
net assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser,
consistent with Commission guidance.
(13) A minimum of 100,000 Shares for each Fund will be outstanding
at the commencement of trading on the Exchange.

The Exchange represents that all statements and representations made in
the filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange rules and surveillance procedures constitute
continued listing requirements for listing the Shares on the Exchange.
In addition, the issuer has represented to the Exchange that it will
advise the Exchange of any failure by the Funds to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange will monitor for compliance
with the continued listing requirements.\39\ If a Fund is not in
compliance with the applicable listing requirements, the Exchange will
commence delisting procedures under NYSE Arca Equities Rule 5.5(m).
This approval order is based on all of the Exchange's representations,
including those set forth above, in the Notice, and in Amendment Nos.
1, 2, 3, and 4 to the proposed rule change. The Commission notes that
the Funds and the Shares must comply with the requirements of NYSE Arca
Equities Rule 8.600, including those set forth in this proposed rule
change, to be listed and traded on the Exchange on an initial and
continuing basis.
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\39\ The Commission notes that certain other proposals for the
listing and trading of managed fund shares include a representation
that the exchange will ``surveil'' for compliance with the continued
listing requirements. See, e.g., Amendment No. 2 to SR-BATS-2016-04,
available at: http://www.sec.gov/comments/sr-bats-2016-04/bats201604-2.pdf. In the context of this representation, it is the
Commission's view that ``monitor'' and ``surveil'' both mean ongoing
oversight of the Fund's compliance with the continued listing
requirements. Therefore, the Commission does not view ``monitor'' as
a more or less stringent obligation than ``surveil'' with respect to
the continued listing requirements.
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For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment Nos. 1, 2, 3, and 4 thereto, is
consistent with Section 6(b)(5) of the Act \40\ and Section
11A(a)(1)(C)(iii) of the Act \41\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\40\ 15 U.S.C. 78f(b)(5).
\41\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\42\ that the proposed rule change (SR-NYSEArca-2015-107), as
modified by Amendment Nos. 1, 2, 3, and 4 thereto, be, and it hereby
is, approved.
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\42\ 15 U.S.C. 78s(b)(2).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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\43\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-07511 Filed 4-1-16; 8:45 am]
BILLING CODE 8011-01-P