[Federal Register Volume 82, Number 187 (Thursday, September 28, 2017)]
[Notices]
[Pages 45342-45349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-20751]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-81681; File No. SR-NYSEArca-2017-107]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of Shares of
Breakwave Dry Bulk Shipping ETF Under NYSE Arca Rule 8.200-E,
Commentary .02
September 22, 2017.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on September 8, 2017, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been substantially prepared by the self-
regulatory organization. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C.78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the shares of Breakwave Dry
Bulk Shipping ETF under NYSE Arca Rule 8.200-E, Commentary .02 (``Trust
Issued Receipts''). The proposed change is available on the Exchange's
Web site at www.nyse.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Rule 8.200-E, Commentary .02, which governs
the listing and trading of Trust Issued Receipts: Breakwave Dry Bulk
Shipping ETF (the ``Fund'').\4\
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\4\ Commentary .02 to NYSE Arca Rule 8.200-E applies to Trust
Issued Receipts that invest in ``Financial Instruments.'' The term
``Financial Instruments,'' as defined in Commentary .02(b)(4) to
NYSE Arca Rule 8.200-E, 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.
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The Fund will be a series of ETF Managers Group Commodity Trust I
(the ``Trust).\5\ The Fund and the Trust will be managed and controlled
by their sponsor and investment manager, ETF Managers Capital LLC (the
``Sponsor''). The Sponsor is registered with the Commodity Futures
Trading Commission (``CFTC'') as a commodity pool operator (``CPO'')
and is a member of the National Futures Association (``NFA'').
Breakwave Advisors LLC (``Breakwave'') is registered as a commodity
trading advisor with the CFTC and will serve as the Fund's commodity
trading advisor. ETFMG Financial LLC will be the Fund's distributor
(``Distributor'' or ``Marketing Agent''). US Bancorp Fund Services LLC
will be the Fund's ``Administrator'' and ``Transfer Agent''.
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\5\ On June 2, 2017, the Trust filed with the Commission a
registration statement on Form S-1 under the Securities Act of 1933
(15 U.S.C. 77a) (``Securities Act'') relating to the Fund (File No.
333-218453) (the ``Registration Statement''). The description of the
operation of the Trust and the Fund herein is based, in part, on the
Registration Statement.
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The Fund's Investment Objective and Strategy
According to the Registration Statement, the Fund's investment
objective will be to provide investors with exposure to the daily
change in the price of dry bulk freight futures, before expenses and
liabilities of the Fund, by tracking the performance of a portfolio
(the ``Benchmark Portfolio'') consisting of a three-month strip of the
nearest calendar quarter of futures contracts on specified indexes
(each a ``Reference Index'') that measure rates for shipping dry bulk
freight (``Freight Futures''). Each Reference Index is published daily
by the London-based Baltic Exchange Ltd \6\ and measures the charter
rate for shipping dry bulk freight in a specific size category of cargo
ship--Capesize, Panamax or Supramax. The three Reference Indexes are as
follows: Capesize: the Capesize 5TC Index; Panamax: the Panamax 4TC
Index; and Supramax: the Supramax 6TC Index.\7\
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\6\ The Baltic Exchange, which is a wholly owned subsidiary of
the Singapore Exchange Ltd (``SGX''), is a membership and an
independent source of maritime market information for the trading
and settlement of physical and derivative shipping contracts.
According to the Baltic Exchange, this information is used by
shipbrokers, owners and operators, traders, financiers and
charterers as a reliable and independent view of the dry and tanker
markets.
\7\ The Reference Indexes are published by the Baltic Exchange's
subsidiary company, Baltic Exchange Information Services Ltd
(``Baltic''), which publishes a wide range of market reports,
fixture lists and market rate indicators on a daily and (in some
cases) weekly basis. The Baltic indices, which include the Reference
Indexes, are an assessment of the price of moving the major raw
materials by sea. The indices are based on assessments of the cost
of transporting various bulk cargoes, both wet (e.g., crude oil and
oil products) and dry (e.g., coal and iron ore), made by leading
shipbroking houses located around the world on a per tonne and daily
hire basis. The information is collated and published by the Baltic
Exchange. Procedures relating to administration of the Baltic
indices are set forth in ``The Baltic Exchange, Guide to Market
Benchmarks'' November 2016 (the ``Guide''), including production
methods, calculation, confidentiality and transparency, duties of
panelists, code of conduct, audits and quality control. According to
the Guide, these procedures are in compliance with the ``Principles
for Financial Benchmarks'' issued by the International Organization
of Securities Commissioners (``IOSCO''). The Guide is available at
www.balticexchange.com.
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The Fund will seek to achieve its investment objective by investing
substantially all of its assets in the Freight Futures currently
constituting the Benchmark Portfolio. The Benchmark Portfolio will
include all existing positions to maturity and settle them in cash.
During any given calendar quarter, the Benchmark Portfolio will
progressively increase its position to the next calendar quarter three-
month strip, thus maintaining constant exposure to the Freight Futures
market as positions mature.
The Benchmark Portfolio will maintain long-only positions in
Freight Futures. The Benchmark Portfolio will hold a combination of
Capesize, Panamax and Supramax Freight Futures. More specifically, the
Benchmark Portfolio will hold 50% exposure in Capesize Freight Futures
contracts, 40% exposure in Panamax Freight Futures contracts and 10%
exposure in Supramax Freight Futures contracts. The Benchmark Portfolio
will not include and the Fund will not invest in swaps, non-cleared dry
bulk freight forwards or other over-the-counter
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derivative instruments that are not cleared through exchanges or
clearing houses. The Fund may hold exchange-traded options on Freight
Futures. The Benchmark Portfolio is maintained by Breakwave and will be
rebalanced annually.
When establishing positions in Freight Futures, the Fund will be
required to deposit initial margin with a value of approximately 10% to
40% of the notional value of each Freight Futures position at the time
it is established. These margin requirements are established and
subject to change from time to time by the relevant exchanges, clearing
houses or the Fund's futures commission merchant (``FCM''). On a daily
basis, the Fund will be obligated to pay, or entitled to receive,
variation margin in an amount equal to the change in the daily
settlement level of its Freight Futures positions. Any assets not
required to be posted as margin with the FCM will be held at the Fund's
custodian in cash or cash equivalents.\8\
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\8\ The Fund will hold cash or cash equivalents, such as U.S.
Treasuries or other high credit quality, short-term fixed-income or
similar securities for direct investment or as collateral for the
U.S. Treasuries and for other liquidity purposes, and to meet
redemptions that may be necessary on an ongoing basis.
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The Fund will seek to achieve its objective by purchasing Freight
Futures that are cleared through major exchanges (see description of
Freight Futures below). The Fund will place purchase orders for Freight
Futures with an execution broker. The broker will identify a selling
counterparty and, simultaneously with the completion of the
transaction, will submit the block traded Freight Futures to the
relevant exchange or clearing house for clearing, thereby completing
and creating a cleared futures transaction. If the exchange or clearing
house does not accept the transaction for any reason, the transaction
will be considered null and void and of no legal effect. The Fund's
investments in Freight Futures will be cleared by Nasdaq OMX-Stockholm
AB, Chicago Mercantile Exchange (``CME''), ICE Futures U.S., SGX and/or
the European Energy Exchange (``EEX'').\9\
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\9\ Nasdaq OMX-Stockholm AB, SGX, CME and ICE Futures U.S. are
members of the Intermarket Surveillance Group (``ISG''). See note
16, infra.
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The Benchmark Portfolio will initially consist of positions in the
three-month strip of the nearest calendar quarter of Freight Futures
and roll them constantly to the next calendar quarter. The four-
calendar quarters are January, February, and March (Q1), April, May,
and June (Q2), July, August, and September (Q3), and October, November
and December (Q4). The Benchmark Portfolio will initially consist of an
equal number of Freight Futures in each of the three months comprising
the nearby calendar quarter at the beginning of such quarter.
Throughout the quarter, the Fund will attempt to roll positions in
the nearby calendar quarter, on a pro rata basis. For example, if the
Fund was currently holding the Q1 calendar quarter comprising the
January, February and March monthly contracts, each week in the month
of February, the Fund will attempt to purchase Q2 contracts in an
amount equal to approximately one quarter of the expiring February
positions. As a result, by the end of February, the Fund would have
rolled the February position to Q2 contracts, leaving the Fund with
March and Q2 contracts. At the end of March, the Fund will have
completed the roll and will then hold only Q2 exposure comprising
April, May and June monthly contracts. Since Freight Futures contracts
are cash settled, the Fund need not sell out of existing contracts.
Rather, it will hold such contracts to expiration and apply the above
methodology in order acquire the nearby calendar contract.
The Benchmark Portfolio will be rebalanced annually. The Benchmark
Portfolio's initial allocation will be approximately 50% Capesize
Freight Futures contracts, 40% Panamax Freight Futures contracts and
10% Supramax Freight Futures contracts. The above allocation will be
based on contract value, not number of lots. Given each asset's
individual price movements during the year, such percentages might
deviate from the targeted allocation.
During the month of December of each year, the Fund will rebalance
its portfolio in order to bring the allocation of assets back to the
desirable levels. During this period, the Fund would purchase or sell
Freight Futures to achieve its targeted allocation.
The Sponsor anticipates that the Fund's Freight Futures positions
will be held to expiration and settle in cash against the respective
Reference Index as published by the Baltic Exchange. However, positions
may be closed out to meet orders for redemption of baskets, in which
case the proceeds from the closed positions will not be reinvested.
The Fund's portfolio will be traded with a view to reflecting the
performance of Freight Futures, whether Freight Futures are rising,
falling or flat over any particular period. To maintain the correlation
between the Fund and the change in the Benchmark Portfolio, the Sponsor
may adjust the Fund's portfolio of investments on a daily basis in
response to creation and redemption orders or otherwise as required.
Overview of the Dry Bulk Freight Industry
As stated in the Registration Statement, the following is a brief
introduction of the global dry bulk freight industry. The data
presented below is derived from information released from various
third-party sources. The third-party sources from which certain of the
information presented below include the United Nations Conference on
Trade and Development, the Baltic and International Maritime Council,
Bloomberg and others. Dry bulk shipping is a 150-plus year-old industry
focusing on the transportation of dry bulk commodities using oceangoing
vessels named dry bulk carriers. Dry bulk carriers are ships that have
cargo loaded directly into the ship's storage holds. The cargos
transported are dry commodities that do not need to be carried in
packaged form. Dry commodity cargos (mainly iron ore, coal and grains)
are homogenous and are loaded with bucket cranes, conveyors or pumps.
Crude oil and refined products, while shipped in bulk, are wet cargos
and are transported on tanker vessels, rather than dry bulk carriers.
Dry bulk carriers have an average useful life of approximately 25 years
and are measured on size or capacity in dead weight tons (``DWT'').
Dry Bulk Carriers Come in Various Sizes
Capesizes (100,000+ DWT) are the largest of the dry bulk asset
classes. Capesizes primarily transport iron ore and coal. Traditional
Capesize routes are from Australia to Asia, and from Brazil to Europe
and Asia. There are about 1,650 Capesizes worldwide. The Capesize fleet
is about 40% of the dry bulk fleet by DWT capacity.
Panamaxes (65,000-100,000 DWT) primarily transport coal, grain and
iron ore. The Panamax is the largest vessel class that can transit the
(old) Panama Canal. There are about 2,500 Panamaxes worldwide
representing 24% of the global fleet by capacity.
Handymaxes (40,000-65,000 DWT) are the work horse of the industry,
carrying the whole spectrum of dry bulk commodities: Grain, coal, iron
ore, and minor bulks. A sub-category of Handymaxes are vessels with
capacities of 50,000-65,000 that are called Supramaxes. There are 3,400
Handymaxes worldwide representing about 25% of the global fleet by DWT
capacity.
Handysizes (10,000-40,000 DWT) bulkers typically transport grain,
coal,
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and minor bulks. Handysize bulkers tend to trade regionally. There are
about 3,300 Handysize bulkers in the fleet, or about 11% of the global
fleet by DWT capacity.
Dry Bulk Vessel Supply
According to the Registration Statement, there are approximately
10,500 dry bulk vessels worldwide with a carrying capacity of roughly
790 million DWT and an average age of approximately 8 years. Supply of
dry bulk ships is dynamic.
Factors impacting dry bulk supply include new orders, the scrapping
of older vessels, new shipbuilding technologies, vessel congestion in
ports, closures of major waterways, including canals, and wars and
other geopolitical conflicts that can restrict access to vessels
available for shipping dry bulk freight.
Demand for Dry Bulk Freight
According to the Registration Statement, dry bulk demand has seen
steady growth over the past two decades, as the Asian economies have
exhibited robust demand for raw materials on the back of strong
economic growth. Iron ore, the main component of steel production, has
been the main driver of dry bulk freight demand growth. The higher
demand for such raw materials has led to increasing demand for dry bulk
shipping, as the regions that produce and consume raw materials are
located far apart.
Demand for dry bulk freight is generally measured in ton-miles,
which corresponds to one ton of freight carried one mile. Such measure
takes into consideration both the quantity of cargo transport but also
the distance between loading and offloading ports. Over the last 10
years, dry bulk freight demand growth for major commodities has
averaged approximately 6% per year. In 2015, dry bulk freight demand
growth for major commodities declined for the first time in at least 15
years, while in 2016, it is estimated to have increased by
approximately 2%. Weaker iron ore and coal imports to China were the
main reasons for the below trend growth.
Factors impacting demand for shipping dry bulk freight include
global economic growth, demand for iron ore, demand for metallurgical
and thermal coal, demand for grains, government regulations, taxes and
tariffs, fuel prices, vessel speeds and new trade routes.
Dry Bulk Freight Charter Rates
According to the Registration Statement, dry bulk freight ``charter
rates'' reflect the price paid for the use of the ship to transport a
bulk commodity. The most commonly used freight rate is the timecharter
rate, which is measured in U.S. Dollars per day. Dry bulk timecharter
rates have exhibited significant volatility in the last 15 years. From
2003 to 2008, faster growth rates in demand for dry bulk ships was not
matched by growth in supply of ships and thus, charter rates increased
considerably, reaching their highest point in 2008. Following the
global financial crisis, growth in supply of ships exceeded demand,
leading to a considerable drop in charter rates. Over the last five
years, rates have generally been weak compared to historical levels, as
higher supply and relatively weak demand growth led to lower
utilization rates in the industry.
A common industry measure of dry bulk rates is the Baltic Dry Index
(``BDI''). The BDI is an economic indicator issued daily by the Baltic
Exchange. The BDI provides an assessment of the price of moving the
major raw materials by sea throughout the world. Taking in 21 shipping
routes measured on a timecharter basis, the index covers Handysize,
Supramax, Panamax, and Capesize dry bulk carriers carrying a range of
commodities including coal, iron ore and grain. Each individual asset
class also has its own index (i.e., a Reference Index), which is also
published daily by the Baltic Exchange and reflects a weighted average
assessment of different standardized routes around the world.
The BDI has reflected the volatility of charter rates over the last
15 years, reaching its highest point on record in 2008 at 11,793. In
2016, it reached its lowest point on record at 290. The average price
of the BDI in the 15 years from 2001 to 2016, has been 2,567, and the
median price has been 1,747. As of March 31, 2017, the BDI stood at
1,200.
Freight Futures
According to the Registration Statement, freight futures are
financial futures contracts that allow ship owners, charterers and
speculators to hedge against the volatility of freight rates. The
Freight Futures are built on indices composed of baskets of routes for
dry bulk freight, such as the Capesize 5TC Index, Panamax 4TC Index and
Supramax 6TC Index. Freight Futures are financial instruments that
trade off-exchange but then are cleared through an exchange. Market
participants communicate their buy or sell orders through a network of
execution brokers mainly through phone or instant messaging platforms
with specific trading instructions related to price, size, and type of
order. The execution broker receives such order and then attempts to
match it with a counterpart. Once there is a match and both parties
confirm the transaction, the execution broker submits the transaction
details including trade specifics, counterparty details and accounts to
the relevant exchange for clearing, thus completing a cleared block
futures transaction. The exchange will then require the relevant member
or FCM to submit the necessary margin to support the position similar
to other futures clearing and margin requirements.
Freight Futures are listed and cleared on the following exchanges:
Nasdaq OMX-Stockholm AB, CME, ICE Futures U.S., SGX, and EEX.
Freight Futures settle monthly over the arithmetic average of spot
index assessments in the contract month for the relevant underlying
product, rounded to one decimal place. The daily index publication,
against which Freight Futures settle, is published by the Baltic
Exchange.
Generally, Freight Futures trade from approximately 12:00 a.m.
Eastern Time (``E.T.'') to approximately 12:00 p.m. E.T. The great
majority of trading volume occurs during London business hours, from
approximately 3:00 a.m. E.T. time to approximately 12:00 p.m. E.T. Some
limited trading takes place during Asian business hours as well (12:00
a.m.-3:00 a.m. E.T.).
Exchanges have a cutoff time of 1:00 p.m. E.T. for clearing the
respective day's trades (SGX clears Freight Futures from 7:00 p.m. E.T.
to 3:00 a.m. E.T.). The final closing prices for settlement are
published daily around 1:30 p.m. E.T. Final cash settlement occurs the
first business day following the expiry day.
Freight Futures are quoted in U.S. Dollars per day, with a minimum
lot size of one. One lot represents one day of freight costs, as
freight rates are measured in U.S. Dollars per day. The nominal value
of a contract is simply the product of lots and Freight Futures prices.
There are Futures Contracts of up to 72 consecutive months, starting
with the current month, available for trading for each vessel class.
Similar to other futures, Freight Futures are subject to margin
requirements by the relevant exchanges. The Sponsor anticipates that
approximately 10% to 40% of the Fund's assets will be used as payment
for or collateral for Freight Futures contracts. In order to
collateralize its Freight Futures positions, the Fund will hold such
assets, from which it will post margin to its FCM in an amount equal to
the margin required by the relevant
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exchanges, and transfer to its FCM any additional amounts that may be
separately required by the FCM.
According to the Registration Statement, most of the daily trading
takes place over phones and instant messaging platforms.\10\ Trading
screens also exist and some trading also happens through such screens.
Brokers are required to report to the relevant exchanges each trade
that takes place. Freight Futures liquidity has remained relatively
constant, in lot terms, over the last five years with approximately 1.1
million lots trading annually. Open interest currently stands at
approximately 290,000 lots across all asset classes representing an
estimated value of more than $3 billion. Of such open interest,
Capesize contracts account for approximately 50%, Panamax for
approximately 40% and Handymax for approximately 10%. Major market
participants in Freight Futures market include: Commodity producers,
commodity users, commodity trading houses, ship operators, major banks,
investment funds and independent ship owners.
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\10\ Freight Futures are primarily traded through broker members
of the Forward Freight Agreement Brokers Association (``FFABA''),
such as Clarkson's Securities, Simpson Spence Young, Freight
Investor Services, GFI Group, BRS Group and ICAP.
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Calculating Net Asset Value (``NAV'')
The Fund's NAV will be calculated by taking the current market
value of its total assets, subtracting any liabilities; and dividing
that total by the total number of outstanding Shares.
The Administrator will calculate the NAV of the Fund once each NYSE
Arca trading day. The NAV for a particular trading day will be released
after 4:00 p.m. E.T. The Administrator will use the Baltic Exchange
closing price for the Freight Futures, but will calculate or determine
the value of all other Fund investments using market quotations, if
available, or other information customarily used to determine the fair
value of such investments as of the earlier of the close of the NYSE
Arca Core Trading Session (normally 4:00 p.m. E.T.). The information
may include costs of funding, to the extent costs of funding are not
and would not be a component of the other information being utilized.
Third parties supplying quotations or market data may include, without
limitation, dealers in the relevant markets, end-users of the relevant
product, information vendors, brokers and other sources of market
information.
Indicative Fund Value
In order to provide updated information relating to the Fund for
use by investors and market professionals, an updated indicative fund
value (``IFV'') will be made available through on-line information
services throughout the Exchange Core Trading Session (normally 9:30
a.m. to 4:00 p.m., E.T.) on each trading day. The IFV will be
calculated by using the prior day's closing NAV per Share of the Fund
as a base and updating that value throughout the trading day to reflect
changes in the most recently reported trade price for the futures and/
or options held by the Fund. The IFV disseminated during NYSE Arca Core
Trading Session hours should not be viewed as an actual real time
update of the NAV, because the NAV will be calculated only once at the
end of each trading day based upon the relevant end of day values of
the Fund's investments.
The IFV will be disseminated on a per Share basis every 15 seconds
during regular NYSE Arca Core Trading Session hours of 9:30 a.m. E.T.
to 4:00 p.m. E.T. The customary trading hours of the Freight Futures
trading are 3:00 a.m. E.T. to 12:00 p.m. E.T. This means that there is
a gap in time at the end of each day during which the Fund's Shares
will be traded on the NYSE Arca, but real-time trading prices for
contracts are not available. During such gaps in time the IFV will be
calculated based on the end of day price of such contracts from the
Baltic Exchange's immediately preceding trading session. In addition,
other investments and U.S. Treasuries held by the Fund will be valued
by the Administrator using rates and points received from client-
approved third party vendors (such as Reuters and WM Company) and
broker-dealer quotes. These investments will not be included in the
IFV.
Dissemination of the IFV provides additional information that is
not otherwise available to the public and is useful to investors and
market professionals in connection with the trading of the Fund's
Shares on the NYSE Arca. Investors and market professionals are able
throughout the trading day to compare the market price of Fund Shares
and the IFV. If the market price of the Fund Shares diverges
significantly from the IFV, market professionals will have an incentive
to execute arbitrage trades. For example, if the Fund's Shares appears
to be trading at a discount compared to the IFV, a market professional
could buy the Fund's Shares on the NYSE Arca and take the opposite
position in Freight Futures. Such arbitrage trades can tighten the
tracking between the market price of the Fund's Shares and the IFV and
thus can be beneficial to all market participants.
Creation and Redemption of Shares
According to the Registration Statement, the Fund will create and
redeem Shares from time to time in one or more ``Creation Baskets'' or
``Redemption Baskets'' (collectively, the ``Baskets''). A Basket
consists of 50,000 Shares. The creation and redemption of Baskets will
only be made in exchange for delivery to the Fund or the distribution
by the Fund of the amount of Treasuries and any cash represented by the
Baskets being created or redeemed, the amount of which is based on the
combined NAV of the number of Shares included in the Baskets being
created or redeemed determined as of 4:00 p.m. E.T. on the day the
order to create or redeem Baskets is properly received.
``Authorized Participants'' are the only persons that may place
orders to create and redeem Baskets. Authorized Participants must be
(1) registered broker-dealers or other securities market participants,
such as banks and other financial institutions, that are not required
to register as broker-dealers to engage in securities transactions
described below, and (2) Depository Trust Company (``DTC'')
participants.
Creation Procedures
On any business day, an Authorized Participant may place an order
with the Transfer Agent to create one or more Baskets. For purposes of
processing purchase and redemption orders, a ``business day'' means any
day other than a day when any of the NYSE Arca, the Baltic Exchange or
the New York Stock Exchange is closed for regular trading. Purchase
orders must be placed by 1:00 p.m. E.T. or the close of the Core
Trading Session on NYSE Arca, whichever is earlier. The day on which a
valid purchase order is received in accordance with the terms of the
``Authorized Participant Agreement'' is referred to as the purchase
order date. Purchase orders are irrevocable.
Determination of Required Payment
The total payment required to create each Creation Basket is the
NAV of 50,000 Shares on the purchase order date, but only if the
required payment is timely received. To calculate the NAV, the
Administrator will use the Baltic Exchange settlement price (typically
determined after 2:00 p.m. E.T.) for the Freight Futures. Because
orders to purchase Baskets must be placed no later than 1:00 p.m.,
E.T., but
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the total payment required to create a Basket typically will not be
determined until after 2:00 p.m., E.T., on the date the purchase order
is received, Authorized Participants will not know the total amount of
the payment required to create a Basket at the time they submit an
irrevocable purchase order.
Delivery of Required Payment
An Authorized Participant who places a purchase order shall
transfer to the Administrator the required amount of Freight Futures,
U.S. Treasuries and/or cash, or a combination of them, by the end of
the next business day following the purchase order date. Upon receipt
of the deposit amount, the Administrator will direct DTC to credit the
number of Baskets ordered to the Authorized Participant's DTC account
on the next business day following the purchase order date.
Redemption Procedures
According to the Registration Statement, the procedures by which an
Authorized Participant can redeem one or more Baskets will mirror the
procedures for the creation of Baskets. On any business day, an
Authorized Participant may place an order with the Transfer Agent, and
accepted by the Distributor, to redeem one or more Baskets. Redemption
orders must be placed by 1:00 p.m. E.T. or the close of the Core
Trading Session on the NYSE Arca, whichever is earlier. A redemption
order so received will be effective on the date it is received in
satisfactory form in accordance with the terms of the Authorized
Participant Agreement. The day on which the Marketing Agent receives a
valid redemption order is the redemption order date. Redemption orders
are irrevocable. By placing a redemption order, an Authorized
Participant agrees to deliver the baskets to be redeemed through DTC's
book-entry system to the Fund not later than 1:00 p.m., E.T., on the
next business day immediately following the redemption order date.
Determination of Redemption Proceeds
The redemption proceeds from the Fund will consist of a cash
redemption amount equal to the NAV of the number of Baskets requested
in the Authorized Participant's redemption order on the redemption
order date.
Because orders to redeem Baskets must be placed no later than 1:00
p.m., E.T., but the total amount of redemption proceeds typically will
not be determined until after 2:00 p.m., E.T., on the date the
redemption order is received, Authorized Participants will not know the
total amount of the redemption proceeds at the time they submit an
irrevocable redemption order.
The redemption proceeds due from the Fund will be delivered to the
Authorized Participant at 1:00 p.m., E.T., on the next business day
immediately following the redemption order date if, by such time, the
Fund's DTC account has been credited with the Baskets to be redeemed.
Availability of Information
The NAV for the Fund's Shares will be disseminated daily to all
market participants at the same time. The intraday, closing prices, and
settlement prices of the Freight Futures 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 Freight Futures is available by
subscription through on-line information services. Quotation and last-
sale information regarding the Shares will be disseminated through the
facilities of the Consolidated Tape Association (``CTA''). The IFV will
be available through on-line information services. The Freight Futures
trading prices will be disseminated by one or more major market data
vendors during the NYSE Arca Core Trading Session of 9:30 a.m. to 4:00
p.m. E.T. Nasdaq OMX-Stockholm AB, SGX, CME, ICE Futures US and EEX
provide on a daily basis, transaction volumes, transaction prices,
trade time, and open interest on their respective Web sites. In
addition, historical data also exists for volumes and open interest.
Daily settlement prices and historical settlement prices are available
through a subscription service to the Baltic Exchange, which maintains
the licensing rights of relevant freight data. However, the exchanges
provide the daily settlement price change of Freight Futures on their
respective Web sites. Certain Freight Futures brokers provide real time
pricing information to the general public either through their Web
sites or through data vendors such as Bloomberg or Reuters. Most
Freight Futures brokers provide, upon request, individual electronic
screens that market participants can use to transact, place orders or
only monitor Freight Futures market price levels.
In addition, the Fund's Web site, www.drybulketf.com, will display
the applicable end of day closing NAV. The Freight Futures currently
constituting the Benchmark Portfolio, as well as the daily holdings of
the Fund will be available on the Fund's Web site. The daily holdings
of the Benchmark Portfolio and the Fund will be available on the Fund's
Web site before 9:30 a.m. E.T. each day. The Web site disclosure of
portfolio holdings will be made daily and will include, as applicable,
(i) the composite value of the total portfolio, (ii) 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 an option, its strike price, (iii) the value of each
Freight Futures (in U.S. dollars), (iv) the type (including maturity,
ticker symbol, or other identifier) and value of each Treasury security
and cash equivalent, and (v) the amount of cash held in the Fund's
portfolio. The Fund's Web site will be publicly accessible at no
charge.
The daily closing Benchmark Portfolio level and the percentage
change in the daily closing level for the Benchmark Portfolio will be
publicly available from one or more major market data vendors. The
intraday value of the Benchmark Portfolio, updated every 15 seconds,
will also be available through major market data vendors.
This Web site disclosure of the Benchmark Portfolio's and the
Fund's daily holdings will occur at approximately 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 approximately the same time. Therefore, the
same holdings information will be provided on the public Web site as
well as in electronic files provided to Authorized Participants.
Accordingly, each investor will have access to the current daily
holdings of the Fund through the Fund's Web site.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\11\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E 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 of the Fund inadvisable.
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\11\ See NYSE Arca Rule 7.12-E.
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The Exchange may halt trading during the day in which an
interruption to the dissemination of the IFV or the value of the
Benchmark Portfolio occurs. If the interruption to the dissemination of
the IFV, or the value of the Benchmark Portfolio persists past the
trading day in which it occurred, the Exchange will
[[Page 45347]]
halt trading no later than the beginning of the trading day following
the interruption. In addition, 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.
Trading Rules
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. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Rule 7.34-E (Early, Core, and Late Trading Sessions). The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in NYSE Arca Rule 7.6-E, the
minimum price variation (``MPV'') for quoting and entry of orders in
equity securities traded on the NYSE Arca Marketplace is $0.01, with
the exception of securities that are priced less than $1.00 for which
the MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.200-E. The trading of the Shares will
be subject to NYSE Arca Rule 8.200-E, Commentary .02(e), which sets
forth certain restrictions on Equity Trading Permit (``ETP'') Holders
acting as registered Market Makers in Trust Issued Receipts to
facilitate surveillance. The Exchange represents that, for initial and/
or continued listing, the Funds will be in compliance with Rule 10A-
3\12\ under the Act, as provided by NYSE Arca Rule 5.3-E. A minimum of
100,000 Shares will be outstanding at the commencement of trading on
the Exchange.
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\12\ 17 CFR 240.10A-3.
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Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances administered by the Exchange, as
well as cross-market surveillances administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\13\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares of the Funds in all trading sessions and to deter and detect
violations of Exchange rules and federal securities laws applicable to
trading on the Exchange.
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\13\ FINRA conducts cross-market surveillances on behalf of 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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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and Freight
Futures 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 Freight
Futures from such markets and other entities. In addition, the Exchange
may obtain information regarding trading in the Shares and Freight
Futures from markets and other entities that are members of ISG or with
which the Exchange has in place a comprehensive surveillance sharing
agreement (``CSSA'').\14\
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\14\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Funds may trade on markets that are members of ISG or with which the
Exchange has in place a CSSA.
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Not more than 10% of the net assets of the Fund in the aggregate
invested in Freight Futures shall consist of Freight Futures whose
principal market is not a member of the ISG or is a market with which
the Exchange does not have a CSSA.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolios, (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.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Fund 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. If the Fund is not in compliance with
the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
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: (1) The risks involved
in trading the Shares during the Early and Late Trading Sessions when
an updated IFV will not be calculated or publicly disseminated; (2) the
procedures for purchases and redemptions of Shares in Creation Baskets
and Redemption Baskets (and that Shares are not individually
redeemable); (3) NYSE Arca Rule 9.2-E(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; (4) how information
regarding the IFV is disseminated; (5) how information regarding
portfolio holdings is disseminated; (6) 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 (7) trading information.
In addition, the Information Bulletin will advise ETP Holders,
prior to the commencement of trading, of the prospectus delivery
requirements applicable to the Fund. The Exchange notes that investors
purchasing Shares directly from the Fund will receive a prospectus. ETP
Holders purchasing Shares from the Fund for resale to investors will
deliver a prospectus to such investors. The Information Bulletin will
also discuss any exemptive, no-action, and interpretive relief granted
by the Commission from any rules under the Act. In addition, the
Information Bulletin will reference that the Fund is subject to various
fees and expenses described in the Registration Statement. The
Information Bulletin will also reference that the CFTC has regulatory
jurisdiction over the trading of Freight Futures traded on U.S.
markets.
The Information Bulletin will also disclose the trading hours of
the Shares and that the NAV for the Shares will be calculated after
4:00 p.m. E.T. each trading day. The Information Bulletin will disclose
that information about the Shares will be publicly available on the
Fund's Web site.
Prior to the commencement of trading, the Exchange will inform its
ETP Holders of the suitability requirements of NYSE Arca Rule 9.2-E(a)
in an Information Bulletin. Specifically, ETP Holders will be
[[Page 45348]]
reminded in the Information Bulletin that, in recommending transactions
in the Shares, they must have a reasonable basis to believe that (1)
the recommendation is suitable for a customer given reasonable inquiry
concerning the customer's investment objectives, financial situation,
needs, and any other information known by such ETP Holder, and (2) the
customer can evaluate the special characteristics, and is able to bear
the financial risks, of an investment in the Shares. In connection with
the suitability obligation, the Information Bulletin will also provide
that ETP Holders must make reasonable efforts to obtain the following
information: (1) The customer's financial status; (2) the customer's
tax status; (3) the customer's investment objectives; and (4) such
other information used or considered to be reasonable by such ETP
Holder or registered representative in making recommendations to the
customer.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \15\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\15\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.200-E. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Shares of the Fund in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange or FINRA, on behalf of
the Exchange, or both, will communicate as needed regarding trading in
the Shares and Freight Futures 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 Freight Futures from such markets and other entities.
In addition, the Exchange may obtain information regarding trading in
the Shares and Freight Futures from markets and other entities that are
members of ISG or with which the Exchange has in place a CSSA.\16\ Not
more than 10% of the net assets of the Fund in the aggregate invested
in Freight Futures shall consist of Freight Futures whose principal
market is not a member of the ISG or is a market with which the
Exchange does not have a CSSA. The Exchange will make available on its
Web site daily trading volume of each of the Shares, closing prices of
such Shares, and number of Shares outstanding. The intraday, closing
prices, and settlement prices of Freight Futures will be readily
available from the Baltic Exchange Web site, automated quotation
systems, published or other public sources, or on-line information
services.
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\16\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
funds may trade on markets that are members of ISG or with which the
Exchange has in place a CSSA
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Complete real-time data for the Freight Futures is available by
subscription from on-line information services. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. The IFV will be available through on-line
information services. The Freight Futures trading prices will be
disseminated by one or more major market data vendors every 15 seconds
during the NYSE Arca Core Trading Session of 9:30 a.m. to 4:00 p.m.
E.T. Nasdaq OMX-Stockholm AB, SGX, CME, ICE Futures US and EEX provide
on a daily basis, transaction volumes, transaction prices, trade time,
and open interest on their respective Web sites. In addition, the
Fund's Web site, will display the applicable end of day closing NAV.
The daily holdings of the Fund will be disclosed on the Fund's Web site
before 9:30 a.m. E.T. each day. The daily holdings of the Fund will be
available on the Fund's Web site before 9:30 a.m. E.T. each day. The
Fund's Web site disclosure of portfolio holdings will be made daily and
will include, as applicable, (i) the composite value of the total
portfolio, (ii) 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 an option, its strike
price, (iii) the value of each Freight Futures (in U.S. dollars), (iv)
the type (including maturity, ticker symbol, or other identifier) and
value of each Treasury security and cash equivalent, and (v) the amount
of cash held in the Fund's portfolio.
Moreover, prior to the commencement of trading, the Exchange will
inform its Equity Trading Permit Holders in an Information Bulletin of
the special characteristics and risks associated with trading the
Shares. Trading in Shares of the Fund will be halted if the circuit
breaker parameters in NYSE Arca Rule 7.12-E have been reached or
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
Trust Issued Receipts based on Freight Futures that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures that are adequate to properly monitor trading in the Shares
in all trading sessions and to deter and detect violations of Exchange
rules and applicable federal securities laws.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of a new
type of Trust Issued Receipts based on Freight Futures and that will
enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing,
[[Page 45349]]
including whether the proposed rule change is consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2017-107 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2017-107. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2017-107, and
should be submitted on or before October 19, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Eduardo A. Aleman,
Assistant Secretary.
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\17\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-20751 Filed 9-27-17; 8:45 am]
BILLING CODE 8011-01-P