[Federal Register Volume 83, Number 13 (Friday, January 19, 2018)]
[Notices]
[Pages 2850-2855]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-00849]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82492; File No. SR-NYSEArca-2017-87]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 6, To 
List and Trade Shares of the JPMorgan Long/Short ETF Under NYSE Arca 
Rule 8.600-E

January 12, 2018.

I. Introduction

    On September 26, 2017, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
JPMorgan Long/Short ETF (``Fund'') under NYSE Arca Rule 8.600-E. The 
proposed rule change was published for comment in the Federal Register 
on October 16, 2017.\3\ On November 17, 2017, the Exchange filed 
Amendment No. 1 to the proposed rule change, and on November 27, 2017, 
the Exchange filed Amendment No. 2 to the proposed rule change. On 
November 29, 2017, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On December 4, 2017, the Exchange filed Amendment No. 3 to 
the proposed rule change. On December 6, 2017, the Exchange filed 
Amendment No. 4 to the proposed rule change. On December 26, 2017, the 
Exchange filed Amendment No. 5 to the proposed rule change. On January 
3, 2018, the Exchange filed Amendment No. 6 to the proposed rule 
change.\6\ The Commission has received no comments on the proposed rule 
change. This order approves the proposed rule change, as modified by 
Amendment No. 6.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 81842 (October 10, 
2017), 82 FR 48127.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 82176, 82 FR 57497 
(December 5, 2017). The Commission designated January 14, 2018, as 
the date by which it shall approve or disapprove, or institute 
proceedings to determine whether to disapprove, the proposed rule 
change.
    \6\ In Amendment No. 6, which amended and superseded the 
proposed rule change as modified by Amendment Nos. 1, 2, 3, 4 and 5, 
the Exchange: (1) Changed the name of the Fund; (2) represented that 
the Trust will file an amendment to the Registration Statement (as 
defined herein) as necessary to conform to the representations in 
the filing; (3) clarified the definitions of certain return factors 
the Adviser (as defined herein) may utilize as part of the Fund's 
investment strategy; (4) moved cash and cash equivalents from the 
``other investments'' category to the ``principal investments'' 
category; (5) provided that the Fund may purchase and sell foreign 
exchange-traded futures on foreign equities and foreign stock 
indexes and foreign exchange-traded options on foreign equity 
futures as part of its principal investments; (6) clarified that no 
more than 10% of the equity weight of the Fund's portfolio will be 
invested in non-exchange-traded American Depositary Receipts; (7) 
provided additional information regarding the Fund's holding of non-
exchange-traded contingent value rights, including that such 
holdings would be limited to 0.5% of the Fund's assets by market 
value and that such holdings would not meet the criteria of 
Commentary .01(a)(1)(E) and (a)(2)(E) to NYSE Arca Rule 8.600-E, as 
further described herein; (8) provided that the Fund's investment in 
sovereign obligations and obligations of supranational entities each 
is not expected to exceed 5% of the Fund's assets; (9) provided 
additional information regarding the availability of information for 
the Shares; and (10) made other clarifications, corrections, and 
technical changes. Amendment No. 6 is not subject to notice and 
comment because it does not materially alter the substance of the 
proposed rule change or raise unique or novel regulatory issues. All 
of the amendments to the proposed rule change are available at 
https://www.sec.gov/comments/sr-nysearca-2017-87/nysearca201787.htm.

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[[Page 2851]]

II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 6 \7\
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    \7\ For more information regarding the Fund and the Shares, see 
Amendment No. 6, supra note 6.
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    The Exchange proposes to list and trade Shares of the Fund under 
NYSE Arca Rule 8.600-E, which governs the listing and trading of 
Managed Fund Shares on the Exchange. The Fund is a series of J.P. 
Morgan Exchange-Traded Fund Trust (``Trust''), a Delaware statutory 
trust.\8\ J.P. Morgan Investment Management Inc. (``Adviser'') will be 
the investment adviser to the Fund and will also provide administrative 
services for and oversee the other service providers for the Fund.\9\ 
JPMorgan Distribution Services, Inc. will be the distributor of the 
Fund's Shares.
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    \8\ The Trust is registered under the Investment Company Act of 
1940 (``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 and the 1940 Act relating to the 
Fund (File Nos. 333-191837 and 811-22903) (``Registration 
Statement''). The Exchange represents that the Trust will file an 
amendment to the Registration Statement as necessary to conform to 
representations in the Exchange's filing. 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''). The Exchange 
represents that investments made by the Fund will comply with the 
conditions set forth in the Exemptive Order.
    \9\ The Adviser is a wholly-owned subsidiary of JPMorgan Asset 
Management Holdings Inc., which is an indirect, wholly-owned 
subsidiary of JPMorgan Chase & Co., a bank holding company. 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 of and/or changes to the 
Fund's portfolio. In the event (a) the Adviser becomes registered as 
a broker-dealer or 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 of and/or changes to the portfolio, and will be 
subject to procedures designed to prevent the use and dissemination 
of material non-public information regarding such portfolio.
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    According to the Exchange, the Fund will seek to provide long-term 
total return. Under normal market conditions,\10\ the Fund will employ 
the ``Equity Long/Short'' strategy to access certain return 
factors.\11\ The strategy will involve simultaneously investing in 
equities (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 relevant return 
factors. 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.\12\
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    \10\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
    \11\ 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. 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: Value (seek to purchase ``cheap'' stocks based on the 
ratios of their price to certain company characteristics and sell 
short stocks that are relatively more expensive based on the same 
considerations); Momentum (seek to capture the tendency that a 
security's recent performance may continue in the near future); 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).
    \12\ 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 will primarily be used as an 
efficient means of implementing a particular strategy in order to 
gain exposure to a desired return factor. Derivatives may also be 
used to increase gain, to effectively gain targeted exposure from 
cash positions, to hedge various investments, and/or for risk 
management.
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A. Principal Investments

    According to the Exchange, under normal market conditions, at least 
80% of the Fund's assets will be invested in the securities and 
financial instruments described below.
    The Fund may invest in 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, foreign exchange-traded futures on foreign equities and 
foreign stock indexes, and foreign exchange-traded options on foreign 
equity futures.
    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, foreign forward 
currency contracts, caps, and floors.
    The Fund may invest in exchange-listed real estate investment 
trusts (``REITs'') that 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.\13\
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    \13\ Depositary Receipts include American Depositary Receipts 
(``ADRs''), Global Depositary Receipts, and European Depositary 
Receipts. No more than 10% of the equity weight of the Fund's 
portfolio will be invested in non-exchange traded ADRs.
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    The Fund may invest in OTC-traded convertible securities (bonds or 
preferred stock that can convert to common stock).
    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,\14\ and commercial paper.
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    \14\ Bank obligations include bankers' acceptances, certificates 
of deposit, and time deposits.
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B. Other Investments

    While the Fund, under normal market conditions, will invest at 
least 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 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 and Coupons Under Book Entry Safekeeping.
    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.

[[Page 2852]]

    The Fund may hold non-exchange-traded contingent value rights 
(``CVRs'').\15\
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    \15\ The Exchange states that, for the purposes of the filing, 
CVRs are rights provided to shareholders of a company in connection 
with a corporate restructuring or acquisition. These rights relate 
to additional benefits to shareholders if a certain event occurs. 
CVRs frequently have an expiration date relating to the times that 
contingent events must occur. CVRs related to a company's stock are 
generally related to the price performance of such stock.
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    The Fund may invest in Rule 144A securities and Regulation S 
securities.

C. Investment 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).\16\
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    \16\ 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.
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D. Application of Generic Listing Requirements

    According to the Exchange, the Fund's portfolio will not meet all 
of the generic listing requirements of Commentary .01 to NYSE Arca Rule 
8.600-E. Specifically, the Fund will meet all the requirements of NYSE 
Arca Rule 8.600-E except for those set forth in Commentary .01(a)(1)(E) 
and Commentary .01(a)(2)(E) relating to non-exchange-traded CVRs, 
Commentary .01(e), and Commentary .01(b)(3).
    Commentary .01(a)(1)(E) to NYSE Arca Rule 8.600-E requires that, on 
both an initial and continuing basis, the component stocks of the 
equity portion of a portfolio that are U.S. Component Stocks (as 
described in NYSE Arca Rule 5.2-E(j)(3)) be listed on a national 
securities exchange and be NMS Stocks as defined in Rule 600 of 
Regulation NMS under the Act.\17\ Commentary .01(a)(2)(E) to NYSE Arca 
Rule 8.600-E requires that, on both an initial and continuing basis, 
the component stocks of the equity portion of a portfolio that are Non-
U.S. Component Stocks (as described in NYSE Arca Rule 5.2-E(j)(3)) be 
listed and traded on an exchange that has last-sale reporting. The 
Exchange states that the non-exchange-traded CVRs that the Fund may 
hold would not be listed on a national securities exchange or an 
exchange with last sale reporting, and therefore would not meet the 
criteria of Commentary .01(a)(1)(E) and Commentary .01(a)(2)(E). The 
Exchange states that the Adviser represents that the Fund may at times 
hold a de minimis amount of the Fund's assets (less than 0.5% by market 
value) in non-exchange-traded CVRs. The Exchange also states that the 
Adviser represents that the Fund will not actively invest in non-
exchange-traded CVRs but may, at times, receive a distribution of such 
securities in connection with the Fund's holdings in other securities. 
According to the Exchange, therefore, the Fund's holdings in non-
exchange-traded CVRs, if any, would not be utilized to further the 
Fund's investment objective and would not be acquired as the result of 
the Fund's voluntary investment decisions.
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    \17\ Commentary .01(a)(1)(F) to NYSE Arca Rule 8.600-E provides 
that ADRs in a portfolio may be exchange-traded or non-exchange-
traded, but no more than 10% of the equity weight of a portfolio may 
consist of non-exchange-traded ADRs.
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    Commentary .01(e) to NYSE Arca Rule 8.600-E requires that, on both 
an initial and continuing basis, no more than 20% of the assets in the 
Fund's portfolio may be invested in OTC derivatives (calculated as the 
aggregate gross notional value of the OTC derivatives). The Exchange 
states that the aggregate gross notional value of the Fund's 
investments in OTC derivatives may exceed this limit. The Exchange 
states that the Adviser intends to engage in strategies that utilize 
OTC foreign currency forward transactions, OTC total return swaps, and 
OTC options. According to the Exchange, because foreign currency 
forward transactions and total return swaps will be traded OTC, it 
would not be 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 such investments. The Exchange states 
that 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. In addition, the Exchange states that 
the Adviser represents that the Fund will follow an investment strategy 
utilized within the JP Morgan Diversified Alternative ETF, shares of 
which have previously been approved by the Commission for Exchange 
listing and trading.\18\
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    \18\ See Securities Exchange Act Release No. 77904 (May 25, 
2016), 81 FR 35101 (June 1, 2016) (SR-NYSEArca-2016-17) (order 
approving listing and trading of shares of the JPMorgan Diversified 
Alternative ETF under NYSE Arca Equities Rule 8.600).
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    Commentary .01(b)(3) to NYSE Arca Rule 8.600-E provides that a 
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 NYSE Arca Rule 8.600-E. The Exchange 
states that the Fund's investment in fixed income securities will not 
meet this requirement. However, the Exchange represents that the Fund's 
investment in corporate debt will not exceed 5% of the Fund's assets, 
the Fund's investment in OTC-traded convertible securities also will 
not exceed 5% of the Fund's assets, and the Fund's investment in 
sovereign obligations and obligations of supranational entities each is 
not expected to exceed 5% of the Fund's assets. The Exchange also 
states the Adviser's belief that it is appropriate to permit a small 
investment in corporate debt, OTC-traded convertible securities, 
sovereign obligations, and obligations of supranational entities in 
order to permit the Fund to diversify its investments to enhance 
investor returns. According to the Exchange, because such investments 
would be limited and are not expected to exceed 20% of the Fund's 
assets in the aggregate, it would 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.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 6, is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\19\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 6, is consistent 
with Section 6(b)(5) of the Act,\20\ which requires, among other 
things, that the Exchange's rules be designed to prevent fraudulent and 
manipulative acts and

[[Page 2853]]

practices, to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
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    \19\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \20\ 15 U.S.C. 78f(b)(5).
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    As noted above, the Fund's investment in non-exchange-traded CVRs 
would not comply with either Commentary .01(a)(1)(E) to NYSE Arca Rule 
8.600-E, which requires the U.S. Component Stocks in the portfolio to 
be listed on a national securities exchange and to be NMS Stocks, or 
Commentary .01(a)(2)(E) to NYSE Arca Rule 8.600-E, which requires the 
Non-U.S. Component Stocks in the portfolio to be listed and traded on 
an exchange with last sale reporting. As proposed, the Fund may at 
times hold a de minimis amount of the Fund's assets (less than 0.5% by 
market value) in non-exchange-traded CVRs. Also, the Fund will not 
actively invest in non-exchange-traded CVRs but may, at times, receive 
a distribution of such securities in connection with the Fund's 
holdings in other securities.
    In addition, as noted above, the aggregate gross notional value of 
the Fund's investments in OTC derivatives may exceed the 20% limit in 
Commentary .01(e) to NYSE Arca Rule 8.600-E.\21\ The Exchange states 
that the 20% limit could result in the Fund being unable to fully 
pursue its investment objective while attempting to sufficiently 
mitigate investment risks. According to the Exchange, if the Fund were 
limited to investing up to 20% of its assets in OTC derivatives, the 
Fund would have to exclude or underweight the strategies utilizing OTC 
derivatives and the Fund would be less diversified, concentrating risk 
in the other strategies it plans to utilize.\22\ In addition, the 
Exchange states that 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. The Exchange also states that suitable derivative transactions 
may be an efficient alternative for the Fund to obtain the desired 
asset exposure because the markets for certain assets, or the assets 
themselves, may be unavailable or cost prohibitive as compared to 
derivative instruments. Furthermore, the Exchange states that OTC 
derivatives may be tailored more specifically than the available listed 
derivatives to the assets held by the Fund.\23\ As proposed, on a daily 
basis, the Fund will disclose on its website the information regarding 
the Disclosed Portfolio required under NYSE Arca Rule 8.600-E(c)(2) to 
the extent applicable.\24\ The website information will be publicly 
available at no charge. The Exchange represents that the Fund's 
disclosure of derivative positions in the Disclosed Portfolio will 
include information that market participants can use to value the 
derivative positions intraday.
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    \21\ The Exchange states that 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 of Trustees 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. 
The Exchange states that 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.
    \22\ The Exchange states that the Adviser represents that it is 
not possible to implement its strategies efficiently using listed 
derivatives because the foreign currency forward transactions and 
total return swaps in which the Fund may invest will be traded OTC. 
The Exchange also states that 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.
    \23\ As noted above, the Adviser represents that the Fund will 
follow an investment strategy utilized by the JP Morgan Diversified 
Alternative ETF, shares of which were previously approved for 
Exchange listing and trading by the Commission. See supra note 18 
and accompanying text.
    \24\ NYSE Arca Rule 8.600-E(c)(2) requires that the website for 
each series of Managed Fund Shares disclose the following 
information regarding the Disclosed Portfolio, to the extent 
applicable: (A) Ticker symbol; (B) CUSIP or other identifier; (C) 
description of the holding; (D) with respect to holdings in 
derivatives, the identity of the security, commodity, index or other 
asset upon which the derivative is based; (E) the strike price for 
any options; (F) the quantity of each security or other asset held 
as measured by (i) par value, (ii) notional value, (iii) number of 
shares, (iv) number of contracts, and (v) number of units; (G) 
maturity date; (H) coupon rate; (I) effective date; (J) market 
value; and (K) percentage weighting of the holding in the portfolio.
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    Finally, as noted above, the Fund's investment in fixed income 
securities will not meet the requirement for 13 non-affiliated issuers 
in Commentary .01(b)(3) to NYSE Arca Rule 8.600-E. As proposed, the 
Fund's investment in corporate debt will not exceed 5% of the Fund's 
assets, the Fund's investment in OTC-traded convertible securities will 
not exceed 5% of the Fund's assets, and the Fund's investment in 
sovereign obligations and obligations of supranational entities each is 
not expected to exceed 5% of the Fund's assets. According to the 
Exchange, because these investments would be limited and are not 
expected to exceed 20% of the Fund's assets in the aggregate, it would 
be difficult for the Fund to diversify such investments in order to 
comply this requirement. The Exchange also states the Adviser's belief 
that it is appropriate to permit a small investment in corporate debt, 
OTC-traded convertible securities, sovereign obligations, and 
obligations of supranational entities in order to permit the Fund to 
diversify its investments to enhance investor returns.
    The Commission notes that, other than Commentary .01(a)(1)(E) and 
Commentary .01(a)(2)(E) relating to non-exchange-traded CVRs, 
Commentary .01(e), and Commentary .01(b)(3), the Fund will meet all the 
requirements of NYSE Arca Rule 8.600-E.
    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\25\ which sets forth Congress's 
finding that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for, and transactions in, 
securities. Quotation and last-sale information for the Shares will be 
available via the CTA high-speed line. The Portfolio Indicative Value 
(``PIV'') for the Fund, 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 Exchange's Core Trading Session.\26\ 
Information regarding market price and trading volume for the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers.
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    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \26\ 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.
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    Quotation and last sale information for portfolio holdings of the 
Fund that are U.S. exchange-listed, including 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. 
and foreign exchange-traded futures and options on futures, will be 
available from the exchanges 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.

[[Page 2854]]

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 and non-exchange-traded CVRs 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, convertible securities, 144A 
securities and Regulation S securities is available from major market 
data vendors. In addition, the Fund's website, which will be publicly 
available prior to the public offering of the Shares, will include a 
form of the prospectus for the Fund and additional data relating to NAV 
and other applicable quantitative information.
    The Commission also believes that the proposal is reasonably 
designed to promote fair disclosure of information that may be 
necessary to price the Shares appropriately and to prevent trading when 
a reasonable degree of transparency cannot be assured. The Exchange 
will obtain a representation from the issuer of the Shares that the NAV 
per Share will be calculated daily and that the NAV and the Disclosed 
Portfolio will be made available to all market participants at the same 
time. Trading in the Shares 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 inadvisable. Moreover, 
trading in the Shares will be subject to NYSE Arca Rule 8.600-
E(d)(2)(D), which sets forth circumstances under which Shares may be 
halted.
    The Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees. The 
Exchange states that 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 that broker-dealer affiliate 
regarding access to information concerning the composition of and/or 
changes to the Fund's portfolio.\27\ Further, the Commission notes that 
the Reporting Authority that provides the Disclosed Portfolio must 
implement and maintain, or be subject to, procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the actual components of the portfolio.\28\
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    \27\ The Exchange also represents that an investment adviser to 
an open-end fund is required to be registered under the Investment 
Advisers Act of 1940.
    \28\ See NYSE Arca Rule 8.600-E(d)(2)(B)(ii).
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    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. In support of this 
proposal, the Exchange represents that:

    (1) Other than Commentary .01(a)(1)(E) and Commentary 
.01(a)(2)(E) with respect to investments in non-exchange-traded 
CVRs, Commentary .01(e), and Commentary .01(b)(3), the Fund will 
meet all other requirements of NYSE Arca Rule 8.600-E.
    (2) A minimum of 100,000 Shares of the Fund will be outstanding 
at the commencement of trading on the Exchange.
    (3) Trading in the Shares will be subject to the existing 
trading surveillances administered by the Exchange, as well as 
cross-market surveillances administered by the Financial Industry 
Regulatory Authority (``FINRA'') on behalf of the Exchange, and 
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.\29\
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    \29\ The Exchange states that FINRA conducts cross-market 
surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement, and that the Exchange is responsible for FINRA's 
performance under this regulatory services agreement.
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    (4) 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. 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.
    (5) 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. Specifically, the Information Bulletin will discuss: (a) The 
procedures for purchases and redemptions of Shares in creation units 
(and that Shares are not individually redeemable); (b) NYSE Arca 
Rule 9.2-E(a), which imposes a duty of due diligence on its Equity 
Trading Permit Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (c) the risks involved 
in trading the Shares during the Early and Late Trading Sessions 
when an updated PIV will not be calculated or publicly disseminated; 
(d) how information regarding the PIV and the Disclosed Portfolio is 
disseminated; (e) the requirement that Equity Trading Permit Holders 
deliver a prospectus to investors purchasing newly issued Shares 
prior to or concurrently with the confirmation of a transaction; and 
(f) trading information.
    (6) The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions.
    (7) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act.\30\
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    \30\ See 17 CFR 240.10A-3.
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    (8) The Fund's investments, including derivatives, will be 
consistent with the Fund's investment objective and will not be used 
to enhance 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 Exchange represents that all statements and representations 
made in the filing regarding: (1) The description of the portfolio 
holdings or reference assets; (2) limitations on portfolio holdings or 
reference assets; or (3) the applicability of Exchange listing rules 
specified in the rule filing constitute continued listing requirements 
for listing the Shares on the Exchange. In addition, the issuer has 
represented to the Exchange that it will advise the Exchange of any 
failure by the 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 \31\ for

[[Page 2855]]

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).
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    \31\ The Commission notes that certain proposals for the listing 
and trading of exchange-traded products include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Securities Exchange Act Release No. 
77499 (April 1, 2016), 81 FR 20428, 20432 (April 7, 2016) (SR-BATS-
2016-04). In the context of this representation, it is the 
Commission's view that ``monitor'' and ``surveil'' both mean ongoing 
oversight of compliance with the continued listing requirements. 
Therefore, the Commission does not view ``monitor'' as a more or 
less stringent obligation than ``surveil'' with respect to the 
continued listing requirements.
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    This approval order is based on all of the Exchange's statements 
and representations, including those set forth above and in Amendment 
No. 6.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 6, is consistent with Section 
6(b)(5) of the Act \32\ and Section 11A(a)(1)(C)(iii) of the Act \33\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.
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    \32\ 15 U.S.C. 78f(b)(5).
    \33\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\34\ that the proposed rule change (SR-NYSEArca-2017-87), as 
modified by Amendment No. 6, be, and it hereby is, approved.
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    \34\ 15 U.S.C. 78s(b)(2).
    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-00849 Filed 1-18-18; 8:45 am]
 BILLING CODE 8011-01-P