[Federal Register Volume 82, Number 198 (Monday, October 16, 2017)]
[Notices]
[Pages 48127-48135]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22263]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81842; File No. SR-NYSEArca-2017-87


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the JPMorgan Equity 
Long/Short ETF Under NYSE Arca Rule 8.600-E

October 10, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on September 26, 2017, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to list and trade shares of the following 
under NYSE Arca Equities 8.600-E (``Managed Fund Shares''): JPMorgan 
Equity Long/Short ETF. 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 8.600-E, which governs the listing and 
trading of Managed Fund Shares \4\ on the Exchange: \5\ JPMorgan Equity 
Long/Short ETF (the ``Fund'').\6\
---------------------------------------------------------------------------

    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3), 
seeks to provide investment results that correspond generally to the 
price and yield performance of a specific foreign or domestic stock 
index, fixed income securities index or combination thereof.
    \5\ The Commission has previously approved listing and trading 
on the Exchange of other series of the Trust that are actively 
managed funds under Rule 8.600-E. See, e.g., Securities Exchange Act 
Release Nos. 79683 (December 23, 2016) (SR-NYSEArca-2016-82) (order 
approving a proposed rule change to list and trade shares of the 
JPMorgan Diversified Event Driven ETF under NYSE Arca Equities Rule 
8.600); 77904 (May 25, 2016) (SR-NYSEArca-2016-17) (order approving 
a proposed rule change to list and trade of shares of the JPMorgan 
Diversified Alternatives ETF under NYSE Arca Equities Rule 8.600).
    \6\ The Trust is registered under the 1940 Act. On July 18, 
2017, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to 
the Fund (File Nos. 333-191837 and 811-22903) (the ``Registration 
Statement''). The description of the operation of the Trust and the 
Fund herein is based, in part, on the Registration Statement. In 
addition, the Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act. See Investment 
Company Act Release No. 31990 (February 9, 2016) (``Exemptive 
Order''). Investments made by the Fund will comply with the 
conditions set forth in the Exemptive Order.
---------------------------------------------------------------------------

    The Fund is a series of J.P. Morgan Exchange-Traded Fund Trust 
(``Trust''), a Delaware statutory trust. J.P. Morgan Investment 
Management Inc. (``Adviser'' or ``Administrator'') will be the 
investment adviser to the Fund and also provide administrative services 
for and oversee the other service providers for the Fund. The Adviser 
is a wholly-owned subsidiary of JPMorgan Asset Management Holdings 
Inc., which is an indirect, wholly-owned subsidiary of JPMorgan Chase & 
Co. (``JPMorgan Chase''), a bank holding company. JPMorgan Distribution 
Services, Inc. (``Distributor'') will be the distributor of the Fund's 
Shares.
    Commentary .06 to Rule 8.600-E provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition, 
Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Adviser is not 
registered as a broker-dealer but is affiliated with a broker-dealer 
and has implemented and will maintain a fire wall with respect to such 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio. In the event (a) the 
Adviser becomes registered as a broker-dealer or

[[Page 48128]]

newly affiliated with one or more broker-dealers, or (b) any new 
adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement and maintain a fire 
wall with respect to its relevant personnel or its 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.
---------------------------------------------------------------------------

    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
---------------------------------------------------------------------------

JPMorgan Equity Long/Short ETF
    According to the Registration Statement, the Fund will seek to 
provide long-term total return. The Fund will seek to profit by 
exploiting pricing inefficiencies between equity securities by 
maintaining long and short positions. It will do so based on a 
systematic investment process. The Adviser believes it has identified 
(and will continue to identify) a set of investment return sources that 
have a low correlation to each other and to traditional markets and 
have distinct risk and return profiles (each a ``return factor'').
    Under normal market conditions,\8\ the Fund will employ the 
``Equity Long/Short'' strategy to access certain return factors. The 
strategy will involve simultaneously investing in equities (i.e., 
investing long) that the Adviser believes are attractive based on 
relevant return factors and selling equities (selling short) that the 
Adviser believes are unattractive based on the relevant return factors.
---------------------------------------------------------------------------

    \8\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
---------------------------------------------------------------------------

    Each return factor represents a potential source of investment 
return that results from, among other things, assuming a particular 
risk or taking advantage of a behavioral bias. According to the 
Registration Statement, the Adviser believes that, in general, the 
Fund's investment returns are attributable to the individual 
contributions of the various return factors. By employing this return 
factor based approach, the Fund seeks to provide positive total returns 
over time while maintaining a relatively low correlation with 
traditional markets.
    The exposure to individual return factors may vary based on the 
market opportunity of the individual return factors. For example, the 
return factors that the Adviser may utilize include, but are not 
limited to, the following:

 Value--seek to purchase ``cheap'' stocks and sell short 
``expensive'' stocks
 Momentum--seek to purchase companies with positive earnings 
revisions and strong price momentum and sell short stocks with negative 
earnings revisions and weak price momentum
 Size--seek to purchase small cap stocks and sell short large 
cap stocks
 Quality--seek to buy high quality stocks and sell short lower 
ranked stocks

    Additional return factors may be identified over time.
    The Fund will generally invest its assets globally to gain 
exposure, either directly or through the use of derivatives, to equity 
securities (across market capitalizations) in developed markets. The 
Fund may use both long positions (held directly or through the use of 
derivative instruments) and short positions (achieved primarily through 
the use of derivative instruments). The Fund generally will maintain a 
total net long market exposure under normal market conditions, meaning 
that the Fund's aggregate exposure will be greater to instruments that 
the Adviser expects to outperform. However, the Fund may have net long 
or net short exposure to one or more industry sectors, individual 
markets and/or currencies. To the extent that the Fund hedges its 
currency exposure into the U.S. dollar, it may reduce the effects of 
currency fluctuations.
    The Adviser will make use of derivatives, including swaps, futures, 
options and forward contracts, in implementing its strategy (see ``The 
Fund's Use of Derivatives'', below). Under normal market conditions, 
the Adviser currently expects that a significant portion of the Fund's 
exposure will be attained through the use of derivatives in addition to 
its exposure through direct investment. Derivatives, which are 
instruments that have a value based on another instrument, exchange 
rate or index, will primarily be used as an efficient means of 
implementing a particular strategy in order to gain exposure to a 
desired return factor. For example, the Fund may use a total return 
swap to establish both long and short positions in order to gain the 
desired exposure rather than physically purchasing and selling short 
each instrument. Derivatives may also be used to increase gain, to 
effectively gain targeted exposure from its cash positions, to hedge 
various investments and/or for risk management. As a result of the 
Fund's use of derivatives and to serve as collateral, the Fund may hold 
significant amounts of U.S. Treasury obligations, including Treasury 
bills, bonds and notes and other obligations issued or guaranteed by 
the U.S. Treasury, obligations of other sovereign governments or 
supranational entities, other short-term investments, including money 
market funds and foreign currencies in which certain derivatives are 
denominated.
    Under normal market conditions, at least 80% of the Fund's assets 
will be invested in equity securities and in derivative instruments 
that provide exposure to equity securities. ``Assets'' means net 
assets, plus the amount of borrowings for investment purposes. The 
amount that may be invested in any one instrument will vary and 
generally depend on the return factors employed by the Adviser at that 
time. As long as the Fund meets its 80% requirement, there are no other 
stated percentage limitations on the amount that can be invested in any 
one type of instrument, and the Adviser may, at times, focus on a 
smaller number of instruments.\9\ The Fund is generally unconstrained 
by any particular capitalization, style or sector and may invest in any 
developed region or country. The Fund may have both long and short 
exposure to these instruments. Given the complexity of the investments 
and strategies of the Fund, the Adviser will make use of quantitative 
models and information and data supplied by third parties to, among 
other things, help determine the portfolio's weightings among various 
investments and construct sets of transactions and investments.
---------------------------------------------------------------------------

    \9\ The Fund's investments would be subject to any applicable 
percentage limitations in Commentary .01 to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------

    The Fund will purchase a particular instrument when the Adviser 
believes that such instrument will allow the Fund to gain the desired 
exposure to a return factor. Conversely, the Fund will consider selling 
a particular instrument when it no longer provides the desired exposure 
to a return factor. In addition, investment decisions will take into 
account a return factor's contribution to the Fund's overall 
volatility. In allocating assets, the Adviser seeks to approximately 
balance risk to the individual return factors over the long term, 
although the exposure to individual return factors will vary based on, 
among other things, the opportunity the Adviser sees in each individual 
return factor.
Principal Investments
    For purposes of calculating the percentage of principal investments 
under this proposed rule change, under normal market conditions, at 
least 80% of the Fund's assets will be invested in U.S. and foreign 
exchange-traded equity

[[Page 48129]]

securities, derivatives instruments that provide exposure to such 
equity securities, and currency forward transactions.
    The Fund may invest in the following exchange-listed equity 
securities: U.S. and foreign exchange-listed common stocks of U.S. and 
foreign corporations, U.S. and foreign exchange-listed preferred stocks 
of U.S. and foreign corporations, U.S. and foreign exchange-listed 
warrants of U.S. and foreign corporations, U.S. and foreign exchange-
listed rights of U.S. and foreign corporations, and U.S. and foreign 
exchange-listed master limited partnerships (``MLPs'').
    The Fund may purchase and sell U.S. exchange-traded futures on U.S. 
and foreign equities, U.S. exchange-traded options on U.S. and foreign 
equity futures, and U.S. exchange-traded futures on U.S. and foreign 
stock indexes.
    The Fund may invest in over-the-counter (``OTC'') and U.S. 
exchange-traded call and put options on equity securities and equity 
securities indexes.
    The Fund may invest in OTC total return swaps on U.S. and foreign 
equities and U.S. and foreign equity indices.
    The Fund may invest in forward currency transactions. Such 
investments consist of non-deliverable forwards (``NDFs''), foreign 
forward currency contracts,\10\ caps and floors.
---------------------------------------------------------------------------

    \10\ A foreign currency forward contract is a negotiated 
agreement between the contracting parties to exchange a specified 
amount of currency at a specified future time at a specified rate. 
The rate can be higher or lower than the spot rate between the 
currencies that are the subject of the contract.
---------------------------------------------------------------------------

    The Fund may invest in exchange-traded real estate investment 
trusts (``REITs''). Exchange-listed REITs will be traded on U.S. 
national securities exchanges and on non-U.S. exchanges.
    The Fund may invest in U.S. and foreign exchange-listed and OTC 
Depositary Receipts.\11\
---------------------------------------------------------------------------

    \11\ Depositary Receipts include American Depositary Receipts 
(``ADRs''), Global Depositary Receipts (``GDRs'') and European 
Depositary Receipts (``EDRs''). ADRs are receipts typically issued 
by an American bank or trust company that evidence ownership of 
underlying securities issued by a foreign corporation. EDRs are 
receipts issued by a European bank or trust company evidencing 
ownership of securities issued by a foreign corporation. GDRs are 
receipts issued throughout the world that evidence a similar 
arrangement. ADRs, EDRs and GDRs may trade in foreign currencies 
that differ from the currency the underlying security for each ADR, 
EDR or GDR principally trades in. Generally, ADRs, in registered 
form, are designed for use in the U.S. securities markets. EDRs, in 
registered form, are used to access European markets. GDRs, in 
registered form, are tradable both in the United States and in 
Europe and are designed for use throughout the world. No more than 
10% of the net assets of the Fund will be invested in ADRs that are 
not exchange-listed.
---------------------------------------------------------------------------

    The Fund may invest in OTC-traded convertible securities (bonds or 
preferred stock that can convert to common stock).
    The Fund may engage in short sales of equity securities.
Other Investments
    While the Fund, under normal market conditions, will invest at 
least eighty percent (80%) of its assets in the securities and 
financial instruments described above, the Fund may invest its 
remaining assets in other assets and financial instruments, as 
described below.
    The Fund may invest in cash and cash equivalents which are 
investments in money market funds (including funds for which the 
Adviser and/or its affiliates may serve as investment adviser or 
administrator), bank obligations,\12\ and commercial paper.\13\
---------------------------------------------------------------------------

    \12\ Bank obligations include the following: Bankers' 
acceptances, certificates of deposit and time deposits. Bankers' 
acceptances are bills of exchange or time drafts drawn on and 
accepted by a commercial bank. Maturities are generally six months 
or less. Certificates of deposit are negotiable certificates issued 
by a bank for a specified period of time and earning a specified 
return. Time deposits are non-negotiable receipts issued by a bank 
in exchange for the deposit of funds.
    \13\ Commercial paper consists of secured and unsecured short-
term promissory notes issued by corporations and other entities. 
Maturities generally vary from a few days to nine months.
---------------------------------------------------------------------------

    The Fund may invest in OTC-traded contingent value rights 
(``CVRs'').
    The Fund may invest in U.S. Government obligations, which may 
include direct obligations of the U.S. Treasury, including Treasury 
bills, notes and bonds, all of which are backed as to principal and 
interest payments by the full faith and credit of the United States, 
and separately traded principal and interest component parts of such 
obligations that are transferable through the Federal book-entry system 
known as Separate Trading of Registered Interest and Principal of 
Securities (STRIPS) and Coupons Under Book Entry Safekeeping 
(``CUBES'').
    The Fund may invest in U.S. and foreign corporate debt.
    The Fund may invest in sovereign obligations, which are investments 
in debt obligations issued or guaranteed by a foreign sovereign 
government or its agencies, authorities or political subdivisions. The 
Fund may also invest in obligations of supranational entities including 
securities designated or supported by governmental entities to promote 
economic reconstruction or development of international banking 
institutions and related government agencies.
    The Fund may invest in spot currency transactions.
    The Fund may invest in repurchase and reverse repurchase 
agreements.
    The Fund may invest in Rule 144A securities and Regulation S 
securities.
Other Restrictions
    The Fund's investments, including derivatives, will be consistent 
with the Fund's investment objective and will not be used to enhance 
leverage (although certain derivatives and other investments may result 
in leverage). That is, while the Fund will be permitted to borrow as 
permitted under the 1940 Act, the Fund's investments will not be used 
to seek performance that is the multiple or inverse multiple (e.g., 2Xs 
and 3Xs) of the Fund's primary broad-based securities benchmark index 
(as defined in Form N-1A).\14\
---------------------------------------------------------------------------

    \14\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------

The Fund's Use of Derivatives
    The Fund proposes to seek certain exposures through transactions in 
the specific derivative instruments described above. The derivatives to 
be used are futures, swaps, forwards and call and put options. 
Derivatives, which are instruments that have a value based on another 
instrument, exchange rate or index, may also be used as substitutes for 
securities in which the Fund can invest. The Fund may use these 
derivative instruments to increase gain, to effectively gain targeted 
exposure from its cash positions, to hedge various investments and/or 
for risk management.
    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies. To limit the potential risk associated with such 
transactions, the Fund will segregate or ``earmark'' assets determined 
to be liquid by the Adviser in accordance with procedures established 
by the Trust's Board of Trustees (the ``Board'') and in accordance with 
the 1940 Act (or, as permitted by applicable regulation, enter into 
certain offsetting positions) to cover its obligations under derivative 
instruments. These procedures have been adopted consistent with Section 
18 of the 1940 Act and related Commission guidance. In addition, the 
Fund will include appropriate risk disclosure in its offering 
documents, including leveraging risk. Leveraging risk is the risk that 
certain transactions of the Fund, including the Fund's use of 
derivatives, may give rise to leverage, causing the Fund to be more 
volatile

[[Page 48130]]

than if it had not been leveraged.\15\ Because the markets for certain 
assets, or the assets themselves, may be unavailable or cost 
prohibitive as compared to derivative instruments, suitable derivative 
transactions may be an efficient alternative for the Fund to obtain the 
desired asset exposure.
---------------------------------------------------------------------------

    \15\ To mitigate leveraging risk, the Adviser will segregate or 
``earmark'' liquid assets or otherwise cover the transactions that 
may give rise to such risk.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    The consideration for a purchase of Creation Units will generally 
be cash, but may consist of an in-kind deposit of a designated 
portfolio of equity securities and other investments (the ``Deposit 
Instruments'') and an amount of cash computed as described below (the 
``Cash Amount'') under some circumstances. The Cash Amount together 
with the Deposit Instruments, as applicable, are referred to as the 
``Portfolio Deposit,'' which represents the minimum initial and 
subsequent investment amount for a Creation Unit of the Fund. The size 
of a Creation Unit will be 50,000 Shares and will be subject to change.
    In the event the Fund requires Deposit Instruments and a Cash 
Amount in consideration for purchasing a Creation Unit, the function of 
the Cash Amount is to compensate for any differences between the net 
asset value (``NAV'') per Creation Unit and the Deposit Amount (as 
defined below). The Cash Amount would be an amount equal to the 
difference between the NAV of the Shares (per Creation Unit) and the 
``Deposit Amount,'' which is an amount equal to the aggregate market 
value of the Deposit Instruments. If the Cash Amount is a positive 
number (the NAV per Creation Unit exceeds the Deposit Amount), the 
Authorized Participant will deliver the Cash Amount. If the Cash Amount 
is a negative number (the NAV per Creation Unit is less than the 
Deposit Amount), the Authorized Participant will receive the Cash 
Amount. The Administrator, through the National Securities Clearing 
Corporation (``NSCC''), will make available on each business day, 
immediately prior to the opening of business on the Exchange (currently 
9:30 a.m. Eastern time (``E.T.'')), the list of the names and the 
required number of shares of each Deposit Instrument to be included in 
the current Portfolio Deposit (based on information at the end of the 
previous business day), as well as information regarding the Cash 
Amount for the Fund. Such Portfolio Deposit is applicable, subject to 
any adjustments as described below, in order to effect creations of 
Creation Units of the Fund until such time as the next-announced 
Portfolio Deposit composition is made available.
    The identity and number of the Deposit Instruments and Cash Amount 
required for the Portfolio Deposit for the Fund changes as rebalancing 
adjustments and corporate action events are reflected from time to time 
by the Adviser with a view to the investment objective of the Fund. In 
addition, the Trust reserves the right to accept a basket of securities 
or cash that differs from Deposit Instruments or to permit the 
substitution of an amount of cash (i.e., a ``cash in lieu'' amount) to 
be added to the Cash Amount to replace any Deposit Instrument which 
may, among other reasons, not be available in sufficient quantity for 
delivery, not be permitted to be re-registered in the name of the Trust 
as a result of an in-kind creation order pursuant to local law or 
market convention or for other reasons as described in the Registration 
Statement, or which may not be eligible for trading by a Participating 
Party (defined below). In light of the foregoing, in order to seek to 
replicate the in-kind creation order process, the Trust expects to 
purchase the Deposit Instruments represented by the cash in lieu amount 
in the secondary market.
Procedures for Creation of Creation Units
    To be eligible to place orders with the Distributor to create 
Creation Units of the Fund, an entity or person either must be (1) a 
``Participating Party,'' i.e., a broker-dealer or other participant in 
the clearing process through the Continuous Net Settlement System of 
the NSCC; or (2) a Depositary Trust Company (``DTC'') Participant, 
which, in either case, must have executed an agreement with the 
Distributor (as it may be amended from time to time in accordance with 
its terms) (``Participant Agreement''). A Participating Party and DTC 
Participant are collectively referred to as an ``Authorized 
Participant.'' All orders to create Creation Units must be received by 
the Distributor no later than the closing time of the regular trading 
session on the Exchange (``Closing Time'') (ordinarily 4:00 p.m. E.T.), 
in each case on the date such order is placed in order for creation of 
Creation Units to be effected based on the NAV of the Fund as 
determined on such date.
Redemption of Creation Units
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Distributor, only on a business day and only through a Participating 
Party or DTC Participant who has executed a Participant Agreement. The 
Trust will not redeem Shares in amounts less than Creation Units. All 
orders to redeem Creation Units must be received by the Distributor no 
later than the Exchange Closing Time (ordinarily 4:00 p.m. E.T.).
    Although the Fund will generally pay redemption proceeds in cash, 
there may be instances when it will make redemptions in-kind. In these 
instances, the Administrator, through NSCC, makes available immediately 
prior to the opening of business on the Exchange (currently 9:30 a.m. 
E.T.) on each day that the Exchange is open for business, the identity 
of the Fund's assets and/or an amount of cash that will be applicable 
(subject to possible amendment or correction) to redemption requests 
received in proper form on that day. With respect to redemptions in-
kind, the redemption proceeds for a Creation Unit generally consist of 
``Redemption Instruments'' (which are securities received on 
redemption) as announced by the Administrator on the business day of 
the request for redemption, plus cash in an amount equal to the 
difference between the NAV of the Shares being redeemed, as next 
determined after a receipt of a request in proper form, and the value 
of the Redemption Instruments, less the redemption transaction fee and 
variable fees described below.
    Should the Redemption Instruments have a value greater than the NAV 
of the Shares being redeemed, a compensating cash payment to the Trust 
equal to the differential plus the applicable redemption transaction 
fee will be required to be arranged for by or on behalf of the 
redeeming shareholder. The Fund reserves the right to honor a 
redemption request by delivering a basket of securities or cash that 
differs from the Redemption Instruments if, among other reasons, such 
instruments are not permitted to be re-registered in the name of the 
customer as a result of an in-kind redemption order pursuant to local 
law or market convention or for other reasons as described in the 
Registration Statement, or which may not be eligible for trading by a 
Participating Party.\16\
---------------------------------------------------------------------------

    \16\ The Adviser represents that, to the extent the Trust 
effects the creation or redemption of Shares in cash, such 
transactions will be effected in the same manner for all Authorized 
Participants.

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

[[Page 48131]]

Derivatives Valuation Methodology for Purposes of Determining Intra-Day 
Indicative Value
    On each business day, before commencement of trading in Fund Shares 
on NYSE Arca, the Fund will disclose on its Web site the identities and 
quantities of the portfolio instruments and other assets held by the 
Fund that will form the basis for the Fund's calculation of NAV at the 
end of the business day.
    In order to provide additional information regarding the intra-day 
value of Shares of the Fund, one or more major market data vendors will 
disseminate every 15 seconds, during the Exchange's Core Trading 
Session, through the facilities of the Consolidated Tape Association 
(``CTA'') or other widely disseminated means, an updated Portfolio 
Indicative Value (``PIV'') for the Fund as calculated by a third party 
market data provider.
    A third party market data provider will calculate the PIV for the 
Fund. The third party market data provider may use market quotes if 
available or may fair value securities against proxies (such as swap or 
yield curves).
    With respect to specific derivatives:
     NDFs and foreign forward currency contracts may be valued 
intraday using market quotes, or another proxy as determined to be 
appropriate by the third party market data provider.
     Futures may be valued intraday using the relevant futures 
exchange data, or another proxy as determined to be appropriate by the 
third party market data provider.
     Total return swaps may be valued intraday using the 
underlying asset price, or another proxy as determined to be 
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the 
relevant exchange data, or another proxy as determined to be 
appropriate by the third party market data provider.
     OTC options may be valued intraday through option 
valuation models (e.g., Black-Scholes) or using exchange traded options 
as a proxy, or another proxy as determined to be appropriate by the 
third party market data provider.
Disclosed Portfolio
    The Fund's disclosure of derivative positions in the applicable 
Disclosed Portfolio includes information that market participants can 
use to value these positions intraday. On a daily basis, the Fund will 
disclose the information regarding the Disclosed Portfolio required 
under NYSE Arca Rule 8.600-E (c)(2) to the extent applicable. The 
Fund's Web site information will be publicly available at no charge.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal impact to the arbitrage 
mechanism as a result of the use of derivatives. Market makers and 
participants should be able to value derivatives as long as the 
positions are disclosed with relevant information. The Adviser believes 
that the price at which Shares trade will continue to be disciplined by 
arbitrage opportunities created by the ability to purchase or redeem 
creation Shares at their NAV, which should ensure that Shares will not 
trade at a material discount or premium in relation to their NAV.
    The Adviser does not believe there will be any significant impacts 
to the settlement or operational aspects of the Fund's arbitrage 
mechanism due to the use of derivatives. Because derivatives generally 
are not eligible for in-kind transfer, they will typically be 
substituted with a ``cash in lieu'' amount when the Fund processes 
purchases or redemptions of creation units in-kind.
Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the 
portfolio for the Fund will not meet all of the ``generic'' listing 
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to 
the listing of Managed Fund Shares. The Fund's portfolio would meet all 
such requirements except for those set forth in Commentary .01(e) to 
NYSE Arca Rule 8.600-E \17\ and Commentary .01(b)(3) to NYSE Arca Rule 
8.600-E.\18\
---------------------------------------------------------------------------

    \17\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that a 
portfolio may hold OTC derivatives, including forwards, options and 
swaps on commodities, currencies and financial instruments (e.g., 
stocks, fixed income, interest rates, and volatility) or a basket or 
index of any of the foregoing; however, on both an initial and 
continuing basis, no more than 20% of the assets in the portfolio 
may be invested in OTC derivatives. For purposes of calculating this 
limitation, a portfolio's investment in OTC derivatives will be 
calculated as the aggregate gross notional value of the OTC 
derivatives.
    \18\ Commentary .01(b)(3) to NYSE Arca 8.600-E provides that an 
underlying portfolio (excluding exempted securities) that includes 
fixed income securities shall include a minimum of 13 non-affiliated 
issuers, provided, however, that there shall be no minimum number of 
non-affiliated issuers required for fixed income securities if at 
least 70% of the weight of the portfolio consists of equity 
securities as described in Commentary .01(a) to Rule 8.600-E.
---------------------------------------------------------------------------

    With respect to Commentary .01(e), the aggregate gross notional 
value of the Fund's investments in OTC derivatives may exceed 20% of 
Fund assets, calculated based on the aggregate gross notional value of 
such OTC derivatives.
    The Adviser represents that it intends to engage in strategies that 
utilize foreign currency forward transactions, total return swaps on 
equities (which swaps may be traded OTC) and OTC options (as described 
above) based on its investment strategies. Depending on market 
conditions, the exposure due to these strategies may exceed 20% of the 
Fund's assets. The Adviser represents further that the foreign exchange 
forward market is OTC and total return swaps will be traded OTC, and, 
as such, it is not possible to implement these strategies efficiently 
using listed derivatives. In addition, use of OTC options on equity 
securities and equity securities indexes may be an important means to 
reduce risk in the Fund's equity investments, or, depending on market 
conditions, to enhance returns of the such investments. If the Fund 
were limited to investing up to 20% of assets in OTC derivatives, the 
Fund would have to exclude or underweight these strategies and would be 
less diversified, concentrating risk in the other strategies it will 
utilize.
    The Adviser represents that the Fund will follow an investment 
strategy utilized within the JP Morgan Diversified Alternatives ETF, 
shares of which have previously been approved by the Commission for 
Exchange listing and trading.\19\ As noted above, the Fund may use the 
derivative instruments described above to increase gain, to effectively 
gain targeted exposure from its cash positions, to hedge various 
investments and/or for risk management.
---------------------------------------------------------------------------

    \19\ See note 5, supra.
---------------------------------------------------------------------------

    With respect to Commentary .01(b)(3), the Fund's investment in 
fixed income securities, including corporate debt and OTC-traded 
convertible securities, will not meet the requirement that a portfolio 
(excluding exempted securities) that includes fixed income securities 
shall include a minimum of 13 non-affiliated issuers. The Fund's 
investment in corporate debt will not exceed 5% of the Fund's assets 
and the Fund's investment in OTC-traded convertible securities also 
will not exceed 5% of the Fund's assets. The Adviser believes that it 
is appropriate to permit a small investment in corporate debt and OTC-
traded convertible securities in order to permit the Fund to diversify 
its investments to enhance investor returns. Because such investments 
would be de minimis, it would be difficult for the Fund to

[[Page 48132]]

diversify such investments in order to comply with the requirement that 
fixed income securities include at least 13 non-affiliated issuers.
    The Exchange notes that, other than Commentary .01(e) and 
Commentary .01(b)(3) to Rule 8.600-E, the Fund will meet all other 
requirements of Rule 8.600-E.
Availability of Information
    The Fund's Web site (www.jpmorganfunds.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\20\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Adviser will disclose on the Fund's Web site the Disclosed Portfolio 
for the Fund as defined in NYSE Arca Rule 8.600-E(c)(2) that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day.\21\
---------------------------------------------------------------------------

    \20\ The Bid/Ask Price of the Fund's Shares will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Fund's NAV. The 
records relating to Bid/Ask Prices will be retained by the Fund and 
its service providers.
    \21\ 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.
---------------------------------------------------------------------------

    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at www.sec.gov.
    Quotation and last sale information for the Shares and for 
portfolio holdings of the Fund that are U.S. exchange-listed, including 
certain options (as described above), common stocks, warrants, rights, 
MLPs, preferred stocks, REITs, and Depositary Receipts will be 
available via the CTA high speed line. Quotation and last sale 
information for such U.S. exchange-listed securities, as well as U.S. 
exchange-traded futures will be available from the exchange on which 
they are listed. Quotation and last sale information for exchange-
listed options cleared via the Options Clearing Corporation will be 
available via the Options Price Reporting Authority. Quotation and last 
sale information for foreign exchange-listed equity securities will be 
available from the exchanges on which they trade and from major market 
data vendors, as applicable. Price information for preferred stocks 
will be available from one or more major market data vendors or from 
broker-dealers.
    Quotation information for OTC options, cash equivalents, swaps, 
obligations of supranational agencies, money market funds, U.S. 
Government obligations, U.S. Government agency obligations, sovereign 
obligations, repurchase and reverse repurchase agreements, and U.S. and 
foreign corporate debt may be obtained from brokers and dealers who 
make markets in such securities or through nationally recognized 
pricing services through subscription agreements. The U.S. dollar value 
of foreign securities, instruments and currencies can be derived by 
using foreign currency exchange rate quotations obtained from 
nationally recognized pricing services. Forwards and spot currency 
price information will be available from major market data vendors. 
Price information for OTC Depositary Receipts, CVRs, convertible 
securities, 144A securities and Regulation S securities is available 
from major market data vendors.
    In addition, the PIV, as defined in NYSE Arca Rule 8.600-E(c)(3), 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session.\22\ The 
dissemination of the PIV, together with the Disclosed Portfolio, will 
allow investors to determine the approximate value of the underlying 
portfolio of the Fund on a daily basis and will provide a close 
estimate of that value throughout the trading day.
---------------------------------------------------------------------------

    \22\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available PIVs 
taken from the CTA or other data feeds.
---------------------------------------------------------------------------

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.\23\ 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.
---------------------------------------------------------------------------

    \23\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    Trading in the Shares will be subject to NYSE Arca Rule 8.600-
E(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted.
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 4:00 a.m. to 8:00 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 of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Rule 8.600-E. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 \24\ under the Act, as provided by NYSE Arca 
Rule 5.3-E. A minimum of 100,000 Shares of the Fund will be outstanding 
at the commencement of trading on the Exchange. The Exchange will 
obtain a representation from the issuer of the Shares of the Fund that 
the NAV and the Disclosed Portfolio will be made available to all 
market participants at the same time.
---------------------------------------------------------------------------

    \24\ 17 CFR 240 10A-3.
---------------------------------------------------------------------------

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.\25\ The Exchange

[[Page 48133]]

represents that these procedures are adequate to properly monitor 
Exchange trading of the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.
---------------------------------------------------------------------------

    \25\ 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.
---------------------------------------------------------------------------

    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, certain 
exchange-listed equity securities, certain futures, and certain 
exchange-traded options with other markets and other entities that are 
members of the Intermarket Surveillance Group (``ISG''), and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading such securities and financial 
instruments from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in such securities 
and financial instruments from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\26\ FINRA, on behalf of the Exchange, 
is able to access, as needed, trade information for certain fixed 
income securities held by the Fund reported to FINRA's Trade Reporting 
and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \26\ For a list of the current members of ISG, see 
www.isgportal.org. 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.
---------------------------------------------------------------------------

    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 portfolio, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
listing rules specified in this rule 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 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares of the Fund. Specifically, the Bulletin will discuss 
the following: (1) The procedures for purchases and redemptions of 
Shares in Creation Units (and that Shares are not individually 
redeemable); (2) NYSE Arca 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; (3) the risks involved in 
trading the Shares during the Early and Late Trading Sessions when an 
updated PIV will not be calculated or publicly disseminated; (4) how 
information regarding the PIV and the Disclosed Portfolio is 
disseminated; (5) 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 (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares of the Fund 
will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \27\ 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.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 8.600-E. The 
Adviser is not registered as a broker-dealer but is affiliated with a 
broker-dealer and has implemented and will maintain a fire wall with 
respect to such broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the portfolio. 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 FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws. The Exchange represents that these 
procedures are adequate to properly monitor Exchange trading of the 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and applicable federal securities laws. The Exchange or 
FINRA, on behalf of the Exchange, or both, will communicate as needed 
regarding trading in the Shares, certain exchange-listed equity 
securities, certain futures, and certain exchange-traded options 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 such securities and financial 
instruments from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in such securities 
and financial instruments from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. FINRA, on behalf of the Exchange, is 
able to access, as needed, trade information for certain fixed income 
securities held by the Fund reported to FINRA's TRACE.
    The PIV, as defined in NYSE Arca Rule 8.600-E(c)(3), will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session. The Fund may hold up to an 
aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment), deemed illiquid by the Adviser, 
consistent with Commission guidance.
    The Shares of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Rule 8.600-E. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act, as provided by NYSE

[[Page 48134]]

Arca Rule 5.3-E. A minimum of 100,000 Shares of the Fund will be 
outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares of 
the Fund that the NAV per Share will be calculated daily and that the 
NAV and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. The Fund's portfolio holdings 
will be disclosed on its Web site daily after the close of trading on 
the Exchange and prior to the opening of trading on the Exchange the 
following day. On a daily basis, the Fund will disclose the information 
regarding the Disclosed Portfolio required under NYSE Arca Rule 8.600-E 
(c)(2) to the extent applicable. The Fund's Web site information will 
be publicly available at no charge.
    Investors can also obtain the Trust's SAI, the Fund's Shareholder 
Reports, and its Form N-CSR and Form N-SAR, filed twice a year. The 
Trust's SAI and Shareholder Reports are available free upon request 
from the Trust, and those documents and the Form N-CSR and Form N-SAR 
may be viewed on-screen or downloaded from the Commission's Web site at 
www.sec.gov. Quotation and last sale information for the Shares and for 
portfolio holdings of the Fund that are U.S. exchange listed, including 
common stocks, preferred stocks, MLPs, REITs, and U.S. exchange-traded 
ADRs will be available via the CTA high speed line.
    The Exchange believes that it is appropriate and in the public 
interest to allow the Fund to exceed the 20% limit in Commentary .01(e) 
to Rule 8.600-E of portfolio assets that may be invested in OTC 
derivatives. Because the Fund, in furtherance of its investment 
objective, may invest a substantial percentage of its investments in 
foreign currency forward transactions, total return swaps on equities 
(which will be traded OTC) and OTC options (as described above), the 
20% limit in Commentary .01(e) to Rule 8.600 could result in the Fund 
being unable to fully pursue its investment objective while attempting 
to sufficiently mitigate investment risks. The inability of the Fund to 
adequately hedge its holdings would effectively limit the Fund's 
ability to invest in certain instruments, or could expose the Fund to 
additional investment risk. In addition, use of OTC options on equity 
securities and equity securities indexes may be an important means to 
reduce risk in the Fund's equity investments. As noted above, the 
Fund's investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies. To limit the potential risk associated with such 
transactions, the Fund will segregate or ``earmark'' assets determined 
to be liquid by the Adviser in accordance with procedures established 
by the Trust's Board and in accordance with the 1940 Act (or, as 
permitted by applicable regulation, enter into certain offsetting 
positions) to cover its obligations under derivative instruments. These 
procedures have been adopted consistent with Section 18 of the 1940 Act 
and related Commission guidance. In addition, the Fund will include 
appropriate risk disclosure in its offering documents, including 
leveraging risk. To mitigate leveraging risk, the Adviser will 
segregate or ``earmark'' liquid assets or otherwise cover the 
transactions that may give rise to such risk. Because the markets for 
certain assets, or the assets themselves, may be unavailable or cost 
prohibitive as compared to derivative instruments, suitable derivative 
transactions may be an efficient alternative for the Fund to obtain the 
desired asset exposure. In addition, OTC derivatives may be tailored 
more specifically to the assets held by the Fund than available listed 
derivatives. If the Fund were limited to investing up to 20% of assets 
in OTC derivatives, the Fund would have to exclude or underweight these 
strategies and would be less diversified, concentrating risk in the 
other strategies it will utilize. The Adviser also represents that the 
Fund will follow an investment strategy utilized within the JP Morgan 
Diversified Alternatives ETF, shares of which have previously been 
approved by the Commission for Exchange listing and trading pursuant to 
Section 19(b)(2) of the Act.\28\ The Exchange further believes that the 
Fund would be placed at a competitive disadvantage to the JP Morgan 
Diversified Alternatives ETF other, [sic] if the Fund's portfolio could 
not exceed the 20% limit in Commentary .01(e) to Rule 8.600 of 
portfolio assets that may be invested in OTC derivatives, as described 
above.
---------------------------------------------------------------------------

    \28\ See note 5, supra.
---------------------------------------------------------------------------

    With respect to Commentary .01(b)(3) to Rule 8.600-E, the Exchange 
believes that it is appropriate and in the public interest to allow the 
Fund to hold fixed income securities that include fewer than 13 non-
affiliated issuers because the Fund's investment in corporate debt will 
not exceed 5% of the Fund's assets and the Fund's investment in OTC-
traded convertible securities also will not exceed 5% of the Fund's 
assets. Such investments would be de minimis and, therefore, it could 
be difficult for the Fund to diversify such investments in order to 
comply with the requirement that fixed income securities include at 
least 13 non-affiliated issuers. Because the Fund's investment in such 
fixed income securities would constitute only a small portion of the 
Fund's portfolio, the Exchange believes the Fund would not be 
susceptible to manipulation.
    The Exchange notes that, other than Commentary .01(e) and 
Commentary .01(b)(3) to Rule 8.600-E, the Fund will meet all other 
requirements of Rule 8.600-E.
    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. Moreover, 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 of the Fund. 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, and 
trading in the Shares will be subject to NYSE Arca Rule 8.600-
E(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted. In addition, as noted above, investors will have 
ready access to information regarding the Fund's holdings, the PIV, the 
Disclosed Portfolio, and quotation and last sale information for the 
Shares. The Fund's investments, including derivatives, will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage (although certain derivatives and other investments 
may result in leverage). That is, while the Fund will be permitted to 
borrow as permitted under the 1940 Act, the Fund's investments will not 
be used to seek performance that is the multiple or inverse multiple 
(e.g., 2Xs and 3Xs) of the Fund's primary broad-based securities 
benchmark index (as defined in Form N-1A).
    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 
an additional type of actively-managed exchange-traded product that 
that holds fixed income securities, equity securities and derivatives 
and that will enhance competition among market participants, to the 
benefit of

[[Page 48135]]

investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares of the 
Fund and may obtain information via ISG from other exchanges that are 
members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the PIV, the Disclosed Portfolio for the Fund, and 
quotation and last sale information for the Shares of the Fund.

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 an 
additional type of actively-managed exchange-traded product that holds 
fixed income securities, equity securities and derivatives 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, 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-2017-87 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-2017-87. 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-2017-87 and should 
be submitted on or before November 6, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
---------------------------------------------------------------------------

    \29\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-22263 Filed 10-13-17; 8:45 am]
BILLING CODE 8011-01-P