[Federal Register Volume 82, Number 71 (Friday, April 14, 2017)]
[Notices]
[Pages 18058-18061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07598]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80427; File No. SR-NYSEArca-2016-173]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendments No. 2 and No. 3 
Thereto, To List and Trade Shares of the United States 3x Oil Fund and 
United States 3x Short Oil Fund Under NYSE Arca Equities Rule 8.200, 
Commentary .02

April 11, 2017.

I. Introduction

    On December 23, 2016, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to list and trade shares 
(``Shares'') of the United States 3x Oil Fund (``Oil Fund'') and United 
States 3x Short Oil Fund (``Short Oil Fund,'' and together with the Oil 
Fund, ``Funds'') under NYSE Arca Equities Rule 8.200, Commentary .02. 
The proposed rule change was published for comment in the Federal 
Register on January 11, 2017.\4\ On February 22, 2017, 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,\5\ 
pursuant to Section 19(b)(2) of the Act.\6\ On March 13, 2017, the 
Exchange filed Amendment No. 1 to the proposed rule change. On March 
29, 2017, the Exchange filed Amendment No. 2 to the proposed rule 
change, which replaced and superseded the proposed rule change as 
modified by Amendment No. 1.\7\ On April 7, 2017, the Exchange filed 
Amendment No. 3 to the proposed rule change.\8\ The Commission received 
no comments on the proposed rule change. This order approves the 
proposed rule change, as modified by Amendments No. 2 and No. 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. 79742 (January 5, 
2017), 82 FR 3366.
    \5\ See Securities Exchange Act Release No. 80079 (February 27, 
2017), 82 FR 11955 (designating April 11, 2017 as the date by which 
the Commission would approve the proposal, disapprove the proposal, 
or institute proceedings to approve or disapprove the proposal).
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ In Amendment No. 2, the Exchange: (1) Provided additional 
detail regarding the Funds' Benchmark Oil Futures Contract; (2) 
stated that the CME Group, Inc. (``CME'') is a member of the 
Intermarket Surveillance Group; (3) provided additional 
clarification regarding the timing of the daily rebalancing of the 
Funds' holdings; (4) provided additional clarification and 
specificity regarding the instruments in which the Funds may invest; 
(5) provided additional information regarding accountability level 
requirements applicable to the Funds; (6) supplemented the 
description of how certain investments will be valued for computing 
a Fund's net asset value (``NAV''); (7) provided additional 
clarification regarding the calculation of the Indicative Fund Value 
(``IFV'') for a Fund; (8) represented that certain aspects of the 
Funds' creation and redemption procedures will not impact market 
maker arbitrage opportunities; (9) provided information regarding 
the availability of the Benchmark Oil Futures Contract trading 
prices prior to the New York Mercantile Exchange closing time and 
end of day settlement price once published by the New York 
Mercantile Exchange after its closing; (10) removed statements 
regarding the rejection or suspension of redemption orders; (11) 
provided additional detail regarding the availability of information 
regarding the Funds and their portfolio holdings; (12) represented 
that the applicability of Exchange listing rules specified in the 
proposed rule change shall constitute continued listing requirements 
for listing the Shares on the Exchange; (13) supplemented its 
description of the information that the Exchange will provide to 
Equity Trading Permit Holders in an Information Bulletin; and (14) 
made other technical amendments. The amendments to the proposed rule 
change are available at: https://www.sec.gov/comments/sr-nysearca-2016-173/nysearca2016173.htm. Amendment No. 2 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.
    \8\ In Amendment No. 3, the Exchange: (1) Clarified that the 
futures contracts that trade under the symbol ``CL'' are WTI Crude 
Oil futures; and (2) stated that the contents of each Fund's 
portfolio would be disclosed to all market participants at the same 
time. 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 \9\
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    \9\ A more detailed description of the Funds, the Shares, and 
the Benchmark Oil Futures Contract, as well as investment risks, 
creation and redemption procedures, NAV calculation, availability of 
values and other information regarding the Funds' portfolio 
holdings, and fees, among other things, is included in the 
Registration Statements (defined below) and Amendments No. 2 and No. 
3, as applicable. See infra note 11, and supra notes 7 and 8, 
respectively.
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    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 8.200, Commentary .02, which governs the listing and 
trading of Trust Issued Receipts.\10\ Each Fund is a series of the USCF 
Funds Trust (``Trust''), a Delaware statutory trust.\11\ The Trust and 
the Funds are managed and controlled by United States Commodity Funds 
LLC (``USCF''). USCF is registered as a commodity pool operator with 
the Commodity Futures Trading Commission and is a member of the 
National Futures Association. Brown Brothers Harriman & Co. is the 
custodian, registrar, transfer agent, and administrator for the Funds. 
ALPS Fund Services, Inc. is the marketing agent for the Funds.
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    \10\ Commentary .02 to NYSE Arca Equities Rule 8.200 applies to 
Trust Issued Receipts that invest in ``Financial Instruments.'' The 
term ``Financial Instruments,'' as defined in Commentary .02(b)(4) 
to NYSE Arca Equities Rule 8.200, means any combination of 
investments, including cash; securities; options on securities and 
indices; futures contracts; options on futures contracts; forward 
contracts; equity caps, collars, and floors; and swap agreements.
    \11\ The Trust is registered under the Securities Act of 1933. 
The Trust filed with the Commission a registration statement on Form 
S-1 under the Securities Act of 1933 (15 U.S.C. 77a) relating to the 
United States 3x Oil Fund (File No. 333-214825) and the United 
States 3x Short Oil Fund (File No. 333-214881) (each a 
``Registration Statement'' and, collectively, ``Registration 
Statements'') on November 29, 2016 and December 2, 2016, 
respectively.
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Overview of the Funds

    The investment objective of the Oil Fund will be for the daily 
changes in percentage terms of its Shares' per share NAV to reflect 
three times (3x) the daily change in percentage terms of the price

[[Page 18059]]

of a specified short-term futures contract on light, sweet crude oil 
(``Benchmark Oil Futures Contract''), less the Fund's expenses. The 
Benchmark Oil Futures Contract is the futures contract on light, sweet 
crude oil as traded on the New York Mercantile Exchange (``NYMEX''), 
which is part of the CME, traded under the trading symbol ``CL'' (for 
WTI Crude Oil futures), that is the near month contract to expire, 
except when the near month contract is within two weeks of expiration, 
in which case it will be measured by the futures contract that is the 
next month contract to expire.\12\
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    \12\ See Amendment No. 3, supra note 8. The Exchange represents 
that CME is a member of the Intermarket Surveillance Group 
(``ISG''). See Amendment No. 2, supra note 7, at 5 n.7.
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    The investment objective of the Short Oil Fund will be for the 
daily changes in percentage terms of its shares' per share NAV to 
reflect three times the inverse (-3x) of the daily change in percentage 
terms of the price of the Benchmark Oil Futures Contract, less the 
Fund's expenses.
    To achieve these objectives, USCF will endeavor to have the 
notional value of a Fund's aggregate exposure (in the case of the Oil 
Fund) or aggregate short exposure (in the case of the Short Oil Fund) 
to the Benchmark Oil Futures Contract at the close of each trading day 
approximately equal to 300% of the Fund's NAV. The Funds will not seek 
to achieve correlation to the Benchmark Oil Futures Contract over a 
period of time greater than one day.\13\
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    \13\ The pursuit of daily leveraged investment goals means that 
the return of a Fund for a period longer than a full trading day may 
have no resemblance to 300% (in the case of the Oil Fund) or -300% 
(in the case of the Short Oil Fund) of the return of the Benchmark 
Oil Futures Contract for a period of longer than a full trading day 
because the aggregate return of the Fund is the product of the 
series of each trading day's daily returns. See Amendment No. 2, 
supra note 7, at 5 n.6, 9 n.10.
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Investments of the Funds

    Each Fund will seek to achieve its investment objective by 
investing primarily in futures contracts for light, sweet crude oil 
that are traded on the NYMEX, ICE Futures U.S., or other U.S. and 
foreign exchanges (collectively, ``Oil Futures Contracts''). The Funds 
will, to a lesser extent and in view of regulatory requirements and/or 
market conditions:

    (1) Next invest in (a) cleared swaps based on the Benchmark 
Futures Contract, (b) non-exchange traded (``over-the-counter'' or 
``OTC''), negotiated swap contracts that are based on the Benchmark 
Futures Contract, and (c) forward contracts for oil;
    (2) followed by investments in futures contracts for other types 
of crude oil, diesel-heating oil, gasoline, natural gas, and other 
petroleum-based fuels, each of which that are traded on the NYMEX, 
ICE Futures U.S., or other U.S. and foreign exchanges, as well as 
cleared swaps and OTC swap contracts valued based on the foregoing; 
and
    (3) finally, invest in exchange-traded cash settled options on 
Oil Futures Contracts.

    All such other investments are referred to as ``Other Oil-Related 
Investments'' (Other Oil-Related Investments, together with Oil Futures 
Contracts, are referred to collectively as ``Oil Interests''). The 
Exchange states that regulatory requirements, such as accountability 
levels or position limits, and market conditions could cause a Fund to 
invest in Other Oil-Related Investments.\14\
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    \14\ See id. at 6-7, 10. The Funds have not limited the size of 
their offerings and are committed to utilizing substantially all of 
their proceeds to purchase Oil Interests. If a Fund encounters 
accountability levels, position limits, or price fluctuation limits 
for Oil Futures Contracts on the NYMEX or ICE Futures U.S., it may 
then, if permitted under applicable regulatory requirements, 
purchase Oil Futures Contracts on other exchanges that trade listed 
crude oil futures or invest in Other Oil-Related Investments to meet 
its investment objective. See id. at 8, 11.
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    To satisfy their margin, collateral, and other requirements, the 
Funds may hold short-term obligations of the United States of two years 
or less (``Treasuries''), cash, and cash equivalents.\15\ The Exchange 
states that approximately 15% to 90% of each Fund's assets will be 
committed as margin for commodity futures contracts,\16\ but that from 
time to time the percentage of assets committed as margin may be 
substantially more, or less, than such range. The Funds may hold shares 
of money market funds and Treasuries with a maturity date of two years 
or less as investments, rather than just as margin or collateral.
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    \15\ The Exchange states that cash equivalents are short-term 
instruments with maturities of less than three months and shall 
include the following: (i) Certificates of deposit issued against 
funds deposited in a bank or savings and loan association; (ii) 
bankers' acceptances, which are short-term credit instruments used 
to finance commercial transactions; (iii) repurchase agreements and 
reverse repurchase agreements; (iv) 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; (v) 
commercial paper, which are short-term unsecured promissory notes; 
and (vi) money market funds. See id. at 7 n.9.
    \16\ See id. Ongoing margin and collateral payments will 
generally be required for both exchange-traded and OTC contracts 
based on changes in the value of the Oil Interests.
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    For a Fund to maintain a consistent 300% (in the case of the Oil 
Fund) or -300% (in the case of the Short Oil Fund) return versus the 
Benchmark Oil Futures Contract, the Fund's holdings must be rebalanced 
on a daily basis by buying additional Oil Interests or by selling Oil 
Interests that the Fund holds. Such rebalancing generally will occur 
before or at the close of trading of the Shares on the Exchange, at or 
as near as possible to that day's settlement price, and will be 
disclosed on the Fund's Web site as pending trades before the opening 
of trading on the Exchange the next business day and will be taken into 
account in the Fund's IFV and reflected in the Fund's end of day NAV on 
that business day.\17\
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    \17\ See id. at 6, 9.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\18\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendments No. 2 and No. 3 
thereto, is consistent with Section 6(b)(5) of the Exchange Act,\19\ 
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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    \18\ 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).
    \19\ 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,\20\ 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. According to the 
Exchange, quotation and last-sale information regarding the Shares will 
be disseminated through the facilities of the Consolidated Tape 
Association. The intraday, closing prices, and settlement prices of the 
Oil Futures Contracts will be readily available from the applicable 
futures exchange Web sites, automated quotation systems, published or 
other public sources, or major market data vendors. Complete real-time 
data for the Oil Futures Contracts is available by subscription through 
on-line information services. ICE Futures U.S. and NYMEX also provide 
delayed futures information on current and past trading sessions and 
market news free of

[[Page 18060]]

charge on their respective Web sites. The specific contract 
specifications for Futures Contracts are also available on the Web 
sites of those futures exchanges, as well as other financial 
informational sources. Information regarding exchange-traded cash-
settled options and cleared swap contracts will be available from the 
applicable exchanges and major market data vendors. Information 
regarding exchange-traded cash-settled options and cleared swap 
contracts will be available from the applicable exchanges and major 
market data vendors.
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    \20\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Funds' Web site, www.uscfinvestments.com, will display the 
applicable end of day closing NAV. The daily holdings of each Fund will 
be available on the Fund's Web site before 9:30 a.m. Eastern Time 
(``E.T.'') each day. The Web site disclosure of portfolio holdings will 
be made daily and will include the following (as applicable): (1) The 
composite value of the total portfolio, (2) the quantity and type of 
each holding (including the ticker symbol, maturity date or other 
identifier, if any) and other descriptive information including, in the 
case of a swap, the type of swap, its notional value and the underlying 
instrument, index or asset on which the swap is based and, in the case 
of an option, its strike price, (3) the value of each Oil Interest (in 
U.S. dollars), (4) the type (including maturity, ticker symbol, or 
other identifier) and value of each Treasury security and cash 
equivalent, and (5) the amount of cash held in each Fund's 
portfolio.\21\
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    \21\ See Amendment No. 2, supra note 7, at 15.
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    The trading price of the Benchmark Oil Futures Contract will be 
disseminated by one or more major market data vendors every 15 seconds 
during NYSE Arca's Core Trading Session (9:30 a.m. to 4:00 p.m. E.T.). 
An IFV will be disseminated for each Fund on a per Share basis every 15 
seconds during the Exchange's Core Trading Session.\22\ The 
administrator for the Funds will calculate the NAV of each Fund once 
each NYSE trading day. On a normal trading day, the NAV of each Fund's 
Shares will be released after 4:00 p.m. E.T. The NAV will be 
disseminated daily to all market participants at the same time.
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    \22\ Each IFV will be calculated by using the prior day's 
closing NAV per Share as a base and updating that value throughout 
the trading day to reflect changes in the most recently reported 
trade price for the active light, sweet Oil Futures Contract on the 
NYMEX. See id. at 12.
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    The Commission 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. If 
the Exchange becomes aware that the NAV with respect to the Shares is 
not disseminated to all market participants at the same time, it will 
halt trading in the Shares until such time as the NAV is available to 
all market participants. Further, the Exchange may halt trading during 
the day in which an interruption to the dissemination of the IFV or the 
value of the Benchmark Oil Futures Contract occurs. If the interruption 
to the dissemination of the IFV or the value of the Benchmark Oil 
Futures Contract persists past the trading day in which it occurred, 
the Exchange will halt trading no later than the beginning of the 
trading day following the interruption. Trading in Shares will also be 
halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached. Moreover, trading may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. The Exchange states that it has 
a general policy prohibiting the distribution of material, non-public 
information by its employees.\23\ Moreover, trading of the Shares will 
be subject to NYSE Arca Equities Rule 8.200, Commentary .02(e), which 
sets forth certain requirements to facilitate surveillance of Equity 
Trading Permit (``ETP'') Holders acting as registered Market Makers in 
Trust Issued Receipts.
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    \23\ See Amendment No. 2, supra note 7, at 18.
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    The Commission notes that the Exchange or the Financial Industry 
Regulatory Authority (``FINRA''), on behalf of the Exchange, or both, 
will communicate as needed regarding trading in the Shares and certain 
Oil Futures Contracts with other markets and other entities that are 
members of the ISG, and the Exchange or FINRA, on behalf of the 
Exchange, or both, may obtain trading information regarding trading in 
the Shares and certain Oil Futures Contracts from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and certain Oil Futures Contracts from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement 
(``CSSA'').\24\
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    \24\ For a list of the current members of ISG, see 
www.isgportal.org.
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    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. In support of this 
proposal, the Exchange represented that:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.200.
    (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 administered by the Exchange, as well as cross-market 
surveillances administered by FINRA on behalf of the Exchange, which 
are designed to detect violations of Exchange rules and applicable 
federal securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The risks involved in trading the Shares during the Opening and Late 
Trading Sessions when an updated IFV will not be calculated or publicly 
disseminated; (b) the procedures for purchases and redemptions of 
Shares in Creation Baskets and Redemption Baskets (and that Shares are 
not individually redeemable); (c) 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; 
(d) how information regarding the IFV is disseminated; (e) how 
information regarding portfolio holdings is disseminated; (f) 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 (g) trading information.
    (5) For initial and continued listing, the Funds will be in 
compliance with Rule 10A-3 under the Act,\25\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \25\ 17 CFR 240.10A-3.
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    (6) The daily holdings of each Fund will be available on the Funds' 
Web site before 9:30 a.m. E.T. each day, and the daily Web site 
disclosure of each Fund's portfolio holdings will include the following 
(as applicable): (a) The composite value of the total portfolio, (b) 
the quantity and type of each holding (including the ticker symbol, 
maturity date or other identifier, if any) and other descriptive 
information including, in the case of a swap, the type of swap, its 
notional value and the underlying instrument, index or asset on which 
the swap is based and, in the

[[Page 18061]]

case of an option, its strike price, (c) the value of each Oil Interest 
(in U.S. dollars), (d) the type (including maturity, ticker symbol, or 
other identifier) and value of each Treasury security and cash 
equivalent; and (e) the amount of cash held in each Fund's portfolio.
    (7) Not more than 10% of the net assets of a Fund in the aggregate 
invested in futures contracts shall consist of futures contracts whose 
principal market is not a member of the ISG or is a market with which 
the Exchange does not have a CSSA.
    (8) Web site disclosure of each Fund's daily holdings will occur at 
the same time as the disclosure by the Trust of the daily holdings to 
Authorized Participants so that all market participants are provided 
daily holdings information at the same time.\26\
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    \26\ See Amendment No. 3, supra note 8.
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    (9) A minimum of 100,000 Shares of each Fund will be outstanding at 
the commencement of trading on the Exchange.
    (10) All statements and representations made in the filing 
regarding (a) the description of the portfolios of the Funds, (b) 
limitations on portfolio holdings or reference assets, or (c) 
applicability of Exchange listing rules specified in this filing shall 
constitute continued listing requirements for listing the Shares on the 
Exchange.
    (11) 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.
    (12) Pursuant to its obligations under Section 19(g)(1) of the Act, 
the Exchange will monitor for compliance with the continued listing 
requirements.\27\
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    \27\ The Commission notes that certain other proposals for the 
listing and trading of exchange traded products include a 
representation that the listing exchange will ``surveil'' for 
compliance with the continued listing requirements. See, e.g., 
Securities Exchange Act Release No. 77499 (April 1, 2016), 81 FR 
20428 (April 7, 2016) (SR-BATS-2016-04). 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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    (13) 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 statements 
and representations, including those set forth above and in Amendments 
No. 2 and No. 3.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendments No. 2 and No. 3 thereto, is 
consistent with Section 6(b)(5) of the Act \28\ and the rules and 
regulations thereunder applicable to a national securities exchange.
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    \28\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\29\ that the proposed rule change (SR-NYSEArca-2016-173), 
as modified by Amendments No. 2 and No. 3 thereto, be, and it hereby 
is, approved.
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    \29\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-07598 Filed 4-13-17; 8:45 am]
 BILLING CODE 8011-01-P