[Federal Register Volume 81, Number 197 (Wednesday, October 12, 2016)]
[Notices]
[Pages 70468-70472]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-24578]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79053; File No. SR-BatsBZX-2016-35]


Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
Nos. 1, 2, and 3, To List and Trade Shares of the JPMorgan Global Bond 
Opportunities ETF of the J.P. Morgan Exchange-Traded Fund Trust Under 
BZX Rule 14.11(i), Managed Fund Shares

October 5, 2016.

I. Introduction

    On July 1, 2015, Bats BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to 
list and trade shares (``Shares'') of the JPMorgan Global Bond 
Opportunities ETF (``Fund'') of the J.P. Morgan Exchange-Traded Fund 
Trust (``Trust'') under BZX Rule 14.11(i). The proposed rule change was 
published for comment in the Federal Register on July 14, 2016.\4\ On 
August 18, 2016, the Commission extended the time period within which 
to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to approve or 
disapprove the proposed rule change to October 12, 2016.\5\ On August 
30, 2016, the Exchange filed Amendment No. 1 to the proposed rule 
change. On October 3, 2016, the Exchange filed Amendment No. 2 to the 
proposed rule change.\6\ On October 4, 2016, the Exchange filed 
Amendment No. 3 to the proposed rule change.\7\ The Commission received 
no comments on the proposed rule change. This order grants approval of 
the proposed rule change, as modified by Amendment Nos. 1, 2, and 3.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 78264 (July 8, 
2016), 81 FR 45546 (``Notice'').
    \5\ See Securities Exchange Act Release No. 78613 (August 18, 
2016), 81 FR 57967 (August 24, 2016).
    \6\ Amendment No. 2 replaced Amendment No. 1, which amended and 
replaced the original filing in its entirety. In Amendment No. 2, 
the Exchange: (1) clarified the Fund's investments in instruments 
that provide exposure to countries other than the U.S.; (2) added 
the defined terms ``Bonds'' and ``Non-Bonds'' to describe and 
clarify some of the Fund's investments; (3) provided additional 
detail regarding restrictions on the Fund's investments in non-
agency asset-backed securities; (4) clarified restrictions on the 
Fund's investments in municipal securities; (5) provided additional 
clarity regarding the definition of private placements, restricted 
securities, and unregistered securities, as well as restrictions on 
such holdings; (6) provided additional description of restrictions 
on the Fund's structured investments; (7) provided additional 
clarification regarding the types of derivatives and foreign 
currency transactions in which the Fund may invest; (8) provided 
additional detail regarding the Fund's coverage of options; (9) 
provided additional detail regarding the commodity-related pooled 
investment vehicles that the Fund may hold; and (10) provided 
additional clarification regarding the Fund's valuation of 
convertible securities, warrants and rights, and custodial receipts. 
Because the changes in Amendment No. 2 to the proposed rule change 
clarify certain statements in the proposal and do not materially 
alter the substance of the proposed rule change or raise any novel 
regulatory issues, it is not subject to notice and comment.
    \7\ In Amendment No. 3, which partially amended Amendment No. 2 
to the proposed rule change, the Exchange: (i) Added a citation to a 
Commission Order in support of proposed restrictions on the Fund's 
investments in municipal securities; and (ii) consolidated footnotes 
into a single footnote. Amendment No. 3 is not subject to notice and 
comment because it is a technical amendment that does not materially 
alter the substance of the proposed rule change or raise any novel 
regulatory issues.
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under BZX Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange. The Shares will be offered by the Trust. According to 
the Exchange, the Trust is registered with the Commission as an open-
end investment company and has filed a registration statement with 
respect to the Fund on Form N-1A (``Registration Statement'') with the 
Commission.\8\
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    \8\ See Registration Statement on Form N-1A for the Trust, dated 
May 26, 2016 (File Nos. 333-191837 and 811-22903). The Exchange 
states that the Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (``1940 Act''). See Investment Company Act Release No. 31990 
(February 9, 2016) (File No. 812-13761).
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    J.P. Morgan Investment Management Inc. will be the investment 
adviser (``Adviser'') to the Fund. The Adviser will serve as the 
administrator for the Fund. SEI Investments Distribution Co. serves as 
the distributor for the Trust. JPMorgan Chase Bank, N.A. will act as 
the custodian and transfer agent for the Trust. The Exchange states 
that the Adviser is not registered as a broker-dealer but that the 
Adviser is affiliated with a broker-dealer and has implemented a ``fire 
wall'' with respect to such broker-dealer regarding access to

[[Page 70469]]

information concerning the composition and/or changes to the Fund's 
portfolio.\9\ In the event (a) the Adviser becomes registered as a 
broker-dealer or newly affiliated with a broker-dealer, or (b) any new 
adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement a fire wall with 
respect to its relevant personnel or broker-dealer affiliate regarding 
access to information concerning the composition and/or changes to the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio.\10\
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    \9\ See Notice, supra note 4, 80 FR at 45547.
    \10\ See id.
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    The Exchange has made the following representations and statements 
in describing the Funds.\11\
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    \11\ The Commission notes that additional information regarding 
the Trust, the Funds, and the Shares, including investment 
strategies, risks, creation and redemption procedures, calculation 
of net asset value (``NAV''), fees, distributions, and taxes, among 
other things, can be found in the Notice, Amendment No. 2, and 
Registration Statement, as applicable. See Notice, supra note 4, 
Amendment No. 2, supra note 6, and Registration Statement, supra 
note 8.
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Principal Investments for the Fund

    The Fund will seek to provide total return by investing across 
sectors in developed and emerging markets located around the world. The 
Fund will be an actively-managed fund that does not seek to replicate 
the performance of a specified index. Because the Fund will not be 
managed to a benchmark, the Adviser will have broad discretion to shift 
the Fund's exposure to strategies, sectors, countries or currencies 
based on changing market conditions and its view of the best mix of 
investment opportunities. In buying and selling investments for the 
Fund, the Adviser will allocate the Fund's exposure to strategies, 
sectors, countries and currencies based on the Adviser's analysis of 
individual investments and broader economic conditions in individual 
countries, regions and the world. According to the Exchange, this will 
allow the Adviser to take a conservative approach during uncertain 
periods and move into higher risk opportunities as market conditions 
improve, which may result in the Fund focusing in only a few markets 
and sectors.\12\
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    \12\ See Notice, supra note 4, 80 FR at 45547.
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    The Fund may invest in instruments that provide exposure to 
developed or emerging markets. The Exchange states that emerging 
markets currently include most countries in the world except Australia, 
Canada, Japan, New Zealand, the U.S., the United Kingdom and most 
western European countries and Hong Kong.\13\ In managing the Fund, the 
Adviser will seek to diversify the Fund's portfolio by investing in 
instruments that provide exposure to at least three countries other 
than the U.S. The Fund may invest a substantial part of its assets in 
just one country and is not required to allocate its investments in any 
set percentages in any particular countries.
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    \13\ See id.
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    Although the Fund will have the flexibility to invest without limit 
in securities that are rated below investment grade (also known as junk 
bonds or high yield securities), or the unrated equivalent, the Fund 
generally will invest at least 25% of the Fund's assets in securities 
that at the time of purchase are rated investment grade or the unrated 
equivalent. The Fund will have flexibility to decrease the percentage 
of its assets invested in investment grade securities at any time to 
take advantage of higher risk opportunities when market conditions are 
improving.
    The Fund currently seeks to maintain a duration of eight years or 
less, although the Fund will have the flexibility to maintain a longer 
duration under certain market conditions such as significant volatility 
in interest rates and spreads. As part of its principal investment 
strategy and for temporary defensive purposes, any portion of the 
Fund's total assets may be invested in cash and cash equivalents.
    The Fund intends to achieve its investment objective by investing, 
under normal circumstances,\14\ at least 80% of its net assets (plus 
the amount of borrowings for investment purposes) (``Assets'') in bonds 
(a debt security with a maturity of 90 days or more at the time of its 
issuance) (``Bonds'') and Non-Bonds, as defined below, subject to 
certain limits described below. The Exchange defines Bonds as the 
following instruments: Asset-backed securities \15\ (including 
mortgages, mortgage dollar rolls, and stripped mortgage-backed 
securities); bank obligations; commercial paper; convertible bonds; 
corporate debt securities; \16\ inflation-linked debt securities; 
inverse floating rate instruments; municipal securities; \17\ 
obligations of supranational agencies; private placements, restricted 
securities, and other unregistered securities; \18\

[[Page 70470]]

securities issued in connection with reorganizations and corporate 
restructurings; sovereign obligations; structured investments; treasury 
receipts; trust preferreds; U.S. Government Agency Securities; U.S. 
Government obligations; and zero-coupon, pay-in-kind, and deferred 
payment securities. Bonds may have fixed or variable interest rates and 
may be of any maturity.
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    \14\ The term ``under normal circumstances'' includes, but is 
not limited to, the absence of extreme volatility or trading halts 
in the fixed income markets or the financial markets generally; 
operational issues causing dissemination of inaccurate market 
information; or force majeure type events such as systems failure, 
natural or man-made disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance.
    \15\ The Exchange represents that the Fund will not invest more 
than 20% of the Fund's total assets in non-agency ABS. See Notice, 
supra note 4, 80 FR at 45547, and Amendment No. 2, supra note 6.
    \16\ According to the Exchange, although the Fund is permitted 
to invest without restriction in corporate bonds, the Adviser 
expects that, under normal circumstances, the Fund will generally 
seek to invest in corporate bond issuances that have at least 
$100,000,000 par amount outstanding. The Exchange represents that 
component corporate bonds that in the aggregate account for at least 
75% of the weight of corporate bonds will have a minimum original 
principal outstanding of $100 million or more.
    \17\ The Exchange states that municipal securities held by the 
Fund will be rated Baa3/BBB- or higher by at least two of the 
following ratings agencies if all three agencies rate the security: 
Moody's, S&P and Fitch. If only two of the three agencies rate the 
security, the lower rating will be used. If only one of the three 
agencies rates a security, the rating must be at least Baa3/BBB-. 
The Exchange represents that municipal securities held by the Fund 
will have an outstanding par value of at least $7 million and be 
issued as part of a transaction of at least $75 million. The 
Exchange further represents that the Fund will not invest more than 
20% of the Fund's total assets in municipal securities. See Notice, 
supra note 4, 80 FR at 45548 n.14, and Amendment No. 2, supra note 
6.
    \18\ According to the Exchange, private placement, restricted 
securities, and other unregistered securities include only the 
following: (1) Commercial obligations issued in reliance on the so-
called ``private placement'' exemption from registration afforded by 
Section 4(a)(2) under the Securities Act of 1933, as amended (the 
``Securities Act''); or (2) securities that are not registered under 
the Securities Act, but which can be offered and sold to ``qualified 
institutional buyers'' under Rule 144A under the Securities Act. The 
Exchange states that in the aggregate, the Fund may invest up to 20% 
of its total assets in the following instruments: (i) Structured 
investments; and (ii) private placements, restricted securities, and 
other unregistered securities, although this 20% limitation does not 
apply to private placements, restricted securities, and other 
unregistered securities (collectively, ``Unregistered Securities'') 
that satisfy the generic fixed income listing requirements in BZX 
Rule 14.11(i)(4)(C)(ii)(d) (the ``Fixed Income Rule'') measured at 
the time of purchase. The Exchange represents that the only 
Unregistered Securities that will not be subject to the 20% 
limitation 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. The Exchange states that if, subsequent to purchase 
by the Fund, an Unregistered Security that was previously not 
subject to this 20% limitation because it met the Fixed Income Rule 
at the time of purchase no longer meets the Fixed Income Rule, the 
Fund may continue to hold the Unregistered Security and the 
Unregistered Security will not cause the Fund to violate the 20% 
limitation. However, the Exchange represents that the Unregistered 
Security that no longer meets the Fixed Income Rule will be taken 
into account for purposes of determining whether purchases of 
additional structured investments and Unregistered Securities that 
do not meet the Fixed Income Rule will cause the Fund to violate 
such limitation. See Notice, supra note 4, 80 FR at 45548 and 
Amendment No. 2, supra note 6.
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    The Fund may also invest in the following instruments as part of 
its principal investment strategy (``Non-Bonds''): Custodial receipts; 
derivatives, including only options,\19\ swaps,\20\ and futures; \21\ 
exchange traded funds (``ETFs''); \22\ foreign currency transactions; 
\23\ investment company securities that are not ETFs; preferred stock; 
and short-term funding agreements.
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    \19\ According to the Exchange, the Fund may invest in OTC and 
exchange-traded call and put options, including only the following: 
Fixed income securities, currencies, futures, and indexes of fixed 
income, currencies, or credit default swaps. The Exchange states 
that the Fund will segregate an amount of cash, cash equivalents, or 
liquid securities sufficient to cover any obligations arising under 
the options as required under Section 18 of the 1940 Act. See 
Notice, supra note 4, 80 FR at 45548 n.22 and Amendment No. 2, supra 
note 6.
    \20\ The Exchange states that the Fund may invest in only the 
following types of swaps: Interest rate swaps, credit default swaps, 
currency swaps, and total return swaps on equities, bonds, equity 
indexes, bond indexes, commodities, and commodity indexes. The Fund 
may also invest in swaptions based on any of the foregoing types of 
swaps. See Notice, supra note 4, 80 FR at 45548 n.23 and Amendment 
No. 2, supra note 6.
    \21\ According to the Exchange, the Fund may invest in only the 
following types of futures: Interest rate futures, bond futures, 
equity futures, currency futures, and commodity futures. See 
Amendment No. 2, supra note 6.
    \22\ The Exchange represents that all ETFs in which the Fund 
invests will be listed and traded in the U.S. on registered 
exchanges. The Fund will not invest in inverse or leveraged (e.g., 
2X, -2X, 3X or -3X) ETFs. See Notice, supra note 4, 80 FR at 45548 
n.24.
    \23\ According to the Exchange, foreign currency transactions 
will be used to hedge against currency risks, for other risk 
management purposes, to increase income or gain to the Fund, and/or 
for other investment purposes and, in addition to the derivative 
strategies described above, may include only the following: Spot and 
forward foreign currency transactions (including non-deliverable 
forwards and forward rate agreements). The Fund may engage in such 
transactions in both U.S. and non-U.S. markets. See Notice, supra 
note 4, 80 FR at 45548 n.25 and Amendment No. 2, supra note 6.
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Other Portfolio Holdings

    While the Adviser, under normal circumstances, will invest at least 
80% of the Fund's Assets in Bonds and Non-Bonds, the Adviser may invest 
up to 20% of the Fund's Assets in other securities and financial 
instruments, as described below.
    The Fund may invest in auction rate securities, which include 
auction rate municipal securities and auction rate preferred securities 
issued by closed-end investment companies.
    The Fund may invest in Brady Bonds, which are securities created 
through the exchange of existing commercial bank loans to sovereign 
entities for new obligations in connection with a debt restructuring.
    The Exchange states that the Fund may invest in commodity-related 
pooled investment vehicles, which include only the following 
instruments and their equivalent products on other national stock 
exchanges: Trust Issued Receipts (as defined in BZX Rule 14.11(f)); 
Commodity-Based Trust Shares (as defined in BZX Rule 14.11(e)(4)); 
Currency Trust Shares (as defined in BZX Rule 14.11(e)(5)); Commodity 
Index Trust Shares (as defined in BZX Rule 14.11(e)(6)); Trust Units 
(as defined in Rule BZX 14.11(e)(9)); and Paired Class Shares (as 
defined in NASDAQ Stock Market LLC Rule 5713).\24\ The Fund will not 
invest in inverse or leveraged (e.g., 2X, -2X, 3X or -3X) commodity-
related pooled investment vehicles.
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    \24\ See Notice, supra note 4, 80 FR at 45548 and Amendment No. 
2, supra note 6.
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    The Fund may invest in U.S. equity securities. Equity securities 
are securities that represent an ownership interest (or the right to 
acquire such an interest) in a company and include common and preferred 
stock, warrants, and rights. The Fund's investments in such U.S. equity 
securities may include securities traded over-the-counter as well as 
those traded on a securities exchange. The Fund may purchase such 
securities on a forward commitment or when-issued or delayed delivery 
basis, which means delivery and payment take place a number of days 
after the date of the commitment to purchase. The Fund may invest in 
exchange-traded master limited partnerships (``MLPs'').
    The Fund may purchase exchange-traded common stocks, exchange-
traded warrants, and exchange-traded rights in foreign corporations. 
The Fund's investments in common stock of foreign corporations may also 
be in the form of American Depositary Receipts (``ADRs''), Global 
Depositary Receipts and European Depositary Receipts (collectively 
``Depositary Receipts'').\25\
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    \25\ According to the Exchange, the Fund will not invest in 
unsponsored ADRs. The Exchange states that all exchange-traded 
equity securities in which the Fund may invest will trade on markets 
that are members of the Intermarket Surveillance Group (``ISG'') or 
that have entered into a comprehensive surveillance agreement with 
the Exchange. See Notice, supra note 4, 80 FR at 45548 n.28.
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    The Fund may invest in convertible securities traded on an exchange 
or OTC that are not described in the Principal Holdings section above. 
Convertible securities are securities that may be converted or 
exchanged (by the holder or by the issuer) into shares of the 
underlying common stock (or cash or securities of equivalent value) at 
a stated exchange ratio. Convertible securities include contingent 
convertible securities.
    The Fund may invest in loan assignments and participations, which 
are assignments of, or participations in, all or a portion of loans to 
corporations or to governments, including governments in less developed 
countries. The Fund may also invest in commitments to purchase loan 
assignments.

Investment Restrictions

    The Fund may hold up to an aggregate amount of 15% of its Assets in 
illiquid assets (calculated at the time of investment), including 
restricted securities deemed illiquid by the Adviser under the 1940 
Act. The 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, Assets, or other circumstances, more than 15% of the 
Fund's Assets are held in illiquid assets. A security is considered 
illiquid if it cannot be sold or disposed of in the ordinary course of 
business within 7 days at approximately the value at which it is being 
carried by the Fund.
    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended. The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification, and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\26\ In

[[Page 70471]]

particular, the Commission finds that the proposed rule change, as 
modified by Amendment Nos. 1, 2, and 3, is consistent with Section 
6(b)(5) of the Exchange Act,\27\ 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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    \26\ 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).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Exchange Act,\28\ which sets forth Congress' finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers and investors of information with respect to 
quotations for and transactions in securities. Quotation information 
from brokers and dealers or pricing services will be available for U.S. 
government obligations. Quotation and price information for Bonds, 
auction rate securities, when-issued securities, delayed delivery 
securities, and forward commitments, loan assignments and 
participations, Brady Bonds, mortgages, common stock warrants and 
rights, CDS, and foreign currency transactions will be available via 
major market data vendors or broker dealers that make markets in such 
instruments. Quotation and last sale information for the Shares will be 
available on the facilities of the Consolidated Tape Association 
(``CTA''). Information regarding market price and volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. The 
previous day's closing price and trading volume information for the 
Shares will be published daily in the financial section of newspapers. 
Daily trading volume information for the Fund will also be available 
through subscription services such as Bloomberg, Thomson Reuters, and 
International Data Corporation, which can be accessed by authorized 
participants and other investors, as well as through other electronic 
services, including major public Web sites.
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    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    In addition, the ``Intraday Indicative Value'' \29\ will be updated 
and widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Regular Trading Hours.\30\ 
On each business day, before commencement of trading in Shares during 
Regular Trading Hours on the Exchange, the Fund will disclose on its 
Web site the identities and quantities of the portfolio of securities 
and other assets (the ``Disclosed Portfolio'') held by the Fund that 
will form the basis for the Fund's calculation of NAV at the end of the 
business day.\31\ The Web site for the Fund will include a form of the 
prospectus for the Fund and additional data relating to NAV and other 
applicable quantitative information. The Web site and information will 
be publicly available at no charge.
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    \29\ According to the Exchange, the Intraday Indicative Value 
for each Fund will reflect an estimated intraday value of such 
Fund's portfolio, and will be based upon the current value for the 
components of the Disclosed Portfolio (as defined below). The 
quotations of certain of the Fund's holdings may not be updated 
during U.S. trading hours if such holdings do not trade in the 
United States or if updated prices cannot be ascertained. The 
Exchange's Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \30\ The Exchange notes that that several major market data 
vendors display and/or make widely available Intraday Indicative 
Values published via the CTA or other data feeds.
    \31\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
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    Intraday, closing, and settlement prices of common stocks and other 
exchange-listed instruments (including futures, options, Depositary 
Receipts, preferred securities, convertible securities, warrants, 
rights, MLPs, commodity-related pooled investment vehicles, and ETFs) 
will be readily available from the exchanges trading such securities as 
well as automated quotation systems, published or other public sources, 
or online information services such as Bloomberg or Reuters. In 
addition, price information for U.S. exchange-traded options will be 
available from the Options Price Reporting Authority.
    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 NAV of the Fund's Shares generally will be calculated once 
daily Monday through Friday as of the close of regular trading on the 
Exchange, generally 4:00 p.m. Eastern Time (the ``NAV Calculation 
Time'') on each day that the Exchange is open for trading, based on 
prices at the NAV Calculation Time. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV will be 
calculated daily and that the NAV and the Disclosed Portfolio will be 
made available to all market participants at the same time.\32\
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    \32\ See Notice, supra note 4, 80 FR 45551.
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    Trading in the Shares will be subject to BZX Rules 11.18 and 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the Disclosed Portfolio of a Fund; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.
    The Reporting Authority that provides the Disclosed Portfolio must 
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 the portfolio.\33\ The Exchange 
represents that it prohibits the distribution of material non-public 
information by its employees.\34\ The Exchange states that the Adviser 
is not registered as a broker-dealer but that the Adviser is affiliated 
with a broker-dealer. In addition, the Exchange states that the Adviser 
has implemented a ``fire wall'' with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio.\35\ In the event (a) the Adviser 
becomes registered as a broker-dealer or newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to its relevant personnel or broker-
dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \33\ See BZX Rule 14.11(i)(4)(B)(ii)(b).
    \34\ See Notice, supra note 4, 80 FR at 45552.
    \35\ See id.
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    The Exchange may obtain information regarding trading in the Shares 
and the underlying shares in exchange traded investment companies, U.S. 
equity securities, foreign equity securities, futures, and options via 
the ISG, from

[[Page 70472]]

other exchanges who are members or affiliates of the ISG, or with which 
the Exchange has entered into a comprehensive surveillance sharing 
agreement.\36\ In addition, the Exchange is able to access, as needed, 
trade information for certain fixed income instruments reported to 
FINRA's Trade Reporting and Compliance Engine. The Exchange can also 
access municipal bond trading activity for surveillance purposes in 
connection with trading in the Shares through the Electronic Municipal 
Market Access (``EMMA'') \37\ of the Municipal Securities Rulemaking 
Board.
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    \36\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Exchange 
also notes that all exchange-traded instruments, including ETFs, 
commodity-related pooled investment vehicles, futures, and options 
will trade on markets that are a member or affiliate of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.
    \37\ Information available from EMMA includes next-day 
information regarding municipal securities transactions and par 
amounts traded.
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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 be subject to BZX Rule 14.11(i), which sets for 
the initial and continued listing criteria applicable to Managed Fund 
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading of the Shares through the Exchange will be subject to 
the Exchange's surveillance procedures for derivative products, 
including Managed Fund Shares, and such surveillance procedures are 
adequate to properly monitor the trading of the Shares on the Exchange 
during all trading sessions and to deter and detect violations of 
Exchange rules and the applicable federal securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in creation units (and that Shares 
are not individually redeemable); (b) BZX Rule 3.7, which imposes 
suitability obligations on Exchange members with respect to 
recommending transactions in the Shares to customers; (c) how 
information regarding the Intraday Indicative Value and Disclosed 
Portfolio is disseminated; (d) the risks involved in trading the Shares 
during the Pre-Opening and After Hours Trading Sessions (as defined in 
the Exchange's rules) when an updated Intraday Indicative Value will 
not be calculated or publicly disseminated; (e) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (5) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act.\38\
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    \38\ See 17 CFR 240.10A-3.
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    (6) The Fund will not invest more than 20% of the Fund's total 
assets in non-agency ABS.
    (7) The Fund will not invest more than 20% of the Fund's total 
assets in municipal securities.
    (8) In the aggregate, the Fund will not invest more than 20% of its 
total assets in the following instruments: (a) Structured investments; 
and (b) Unregistered Securities that do not satisfy the generic fixed 
income listing requirements in BZX Rule 14.11(i)(4)(C)(ii)(d) measured 
at the time of purchase. An Unregistered Security that no longer meets 
the generic fixed income listing requirements of BZX Rule 
14.11(i)(4)(C)(ii)(d) will be taken into account for purposes of 
determining whether purchases of additional structured investments and 
Unregistered Securities that do not meet the Fixed Income Rule will 
cause the Fund to violate this 20% limitation.
    (9) The Fund will not invest in inverse or leveraged (e.g., 2X, -
2X, 3X or -3X) commodity-related pooled investment vehicles.
    (10) All exchange-traded equity securities in which the Fund may 
invest will trade on markets that are ISG members or that have entered 
into a comprehensive surveillance agreement with the Exchange.
    (11) The Fund may hold up to an aggregate amount of 15% of the 
Fund's Assets in illiquid assets (calculated at the time of 
investment), including restricted securities deemed illiquid by the 
Adviser under the 1940 Act.
    (12) 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 a Fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will surveil for compliance 
with the continued listing requirements. If a Fund is not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Exchange Rule 14.12.

    This approval order is based on all of the Exchange's 
representations, including those set forth above and in Amendment Nos. 
2 and 3. The Commission notes that the Funds and the Shares must comply 
with the requirements of BZX Rule 14.11(i) to be initially and 
continuously listed and traded on the Exchange.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment Nos. 1, 2, and 3, is consistent 
with Section 6(b)(5) of the Act \39\ and Section 11A(a)(1)(C)(iii) of 
the Act \40\ and the rules and regulations thereunder applicable to a 
national securities exchange.
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    \39\ 15 U.S.C. 78f(b)(5).
    \40\ 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,\41\ that the proposed rule change (SR-BatsBZX-2016-35), as 
modified by Amendment Nos. 1, 2, and 3, be, and it hereby is, approved.
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    \41\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-24578 Filed 10-11-16; 8:45 am]
 BILLING CODE 8011-01-P