[Federal Register Volume 83, Number 243 (Wednesday, December 19, 2018)]
[Notices]
[Pages 65189-65190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27407]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84818; File No. SR-NYSEArca-2018-75]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Regarding
the Listing and Trading of Shares of the PGIM Ultra Short Bond ETF
December 13, 2018.
I. Introduction
On October 12, 2018, 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 modify the rule governing the listing and
trading of shares (``Shares'') of the PGIM Ultra Short Bond ETF
(``Fund''). The Commission previously approved the listing and trading
of the Shares subject to a representation that the Fund's investments
in OTC derivatives would not exceed 20% of the Fund's net assets.\3\
The Exchange now seeks to permit the Fund to invest up to 50% of its
net assets in OTC derivatives under certain circumstances.
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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. 83319 (May 24,
2018), 83 FR 25097 (May 31, 2018) (SR-NYSEArca-2018-15) (``Prior
Order'').
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The proposed rule change was published for comment in the Federal
Register on October 31, 2018.\4\ On November 7, 2018, the Exchange
filed Amendment No. 1 to the proposed rule change.\5\ The Commission
has not received any comments on the proposed rule change. This order
approves the proposed rule change, as modified by Amendment No. 1.
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\4\ See Securities Exchange Act Release No. 84486 (Oct. 25,
2018), 83 FR 54794 (``Notice'').
\5\ In Amendment No. 1, the Exchange: (1) Corrected its
description of the current listing rule applicable to the Shares;
(2) clarified the scope of the Fund's permitted investments in over-
the-counter (``OTC'') derivatives; (3) supplemented its arguments in
support of the proposed rule change; and (4) made technical changes.
Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nyseArca-2018-75/srnysearca201875-4628265-176398.pdf. Amendment No.
1 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.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1
The Shares are Managed Fund Shares that do not satisfy all of the
criteria for generic listing set forth in Commentary .01 to NYSE Arca
Rule 8.600-E. Thus, the Exchange currently lists and trades the Shares
pursuant to a rule (``Listing Rule'') approved by Commission.\6\ The
Listing Rule requires that the Fund's portfolio meet all requirements
of Commentary .01 to NYSE Arca Rule 8.600-E except for those set forth
in Commentary .01(a)(1), Commentary .01(b)(4) and Commentary
.01(b)(5).\7\ Accordingly, the Listing Rule limits the Fund's
investments in OTC derivatives to 20% of the Fund's assets and, for
purposes of calculating this limit, the portfolio's investment in OTC
derivatives is calculated using the aggregate gross notional value of
the OTC derivatives.\8\
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\6\ See Prior Order, supra note 3.
\7\ See id.
\8\ See Commentary .01(e) to NYSE Arca Rule 8.600-E.
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The Exchange proposes to allow: (1) Up to 50% of the Fund's assets
to be invested in OTC derivatives that are used to reduce currency,
interest rate, credit, or duration risk arising from the Fund's
investments (``Hedging Derivatives''); and (2) up to 20% of the Fund's
assets to be invested in OTC derivatives other than Hedging
Derivatives. For purposes of calculating the proposed alternative
limits, the portfolio's investments in OTC derivatives would be
calculated using the aggregate gross notional value of the OTC
derivatives.
According to the Exchange, the Fund's adviser and sub-adviser
believe that it is important to provide the Fund with additional
flexibility to manage risk associated with its investments and,
depending on market conditions, it may be necessary for the Fund to
utilize additional OTC derivatives for this purpose.\9\ Generally,
according to the Exchange, OTC derivatives may be customized to a
greater degree than exchange-listed derivatives, which may allow the
Fund to better hedge its assets and may mitigate trading its costs.\10\
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\9\ See Notice, supra note 3, 83 FR at 59794.
\10\ See id.
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The Exchange also states that the Commission has previously
approved an exception from the requirements of Commentary .01(e)
relating to investments in OTC derivatives similar to those proposed
with respect to the Fund.\11\
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\11\ See id., 83 FR at 54794, n.10.
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III. Discussion
After careful review, the Commission finds that the Exchange's
proposed rule change, as modified by Amendment No. 1, to amend the
Listing Rule applicable to the Shares consistent with the Act and the
rules and regulations
[[Page 65190]]
thereunder applicable to a national securities exchange.\12\ The
Exchange proposes to modify only the Listing Rule's limit on OTC
derivatives, and the proposed alternative limits are substantially
similar to OTC derivatives limits for another issue of Managed Fund
Shares that also invests principally in fixed-income securities.\13\
The Commission approved a listing rule allowing that fund to similarly
invest up to: (1) 50% of its assets in OTC derivatives to reduce
currency, interest rate, or credit risk arising from the fund's
investments; and (2) 20% of its assets in OTC derivatives other than
OTC derivatives used to hedge the fund's portfolio against currency,
interest rate, or credit risk.\14\
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\12\ 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).
\13\ See Securities Exchange Act Release No. 80657 (May 11,
2017), 82 FR 22702 (May 17, 2017) (SR-NYSEArca-2017-09). The
Commission also notes that the proposed alternative limits are
consistent with derivatives requirements in listing rules for
another issue of Managed Fund Shares. See Securities Exchange Act
Release No. 84047 (September 6, 2018), 83 FR 46200 (September 12,
2018) (SR-NASDAQ-2017-128).
\14\ See Securities Exchange Act Release No. 80657, supra note
13. The addition of duration risk to the uses of Hedging Derivative
in the current proposal does not alter the Commission's analysis.
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For the foregoing reason, the Commission finds that the proposed
rule change, as modified by Amendment No. 1, is consistent with of the
Act and the rules and regulations thereunder applicable to a national
securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act,\15\ that the proposed rule change (SR-NYSEArca-2018-75),
as modified by Amendment No. 1 be, and it hereby is, approved.
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\15\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27407 Filed 12-18-18; 8:45 am]
BILLING CODE 8011-01-P