[Federal Register Volume 83, Number 244 (Thursday, December 20, 2018)]
[Notices]
[Pages 65386-65389]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-27509]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-84826; File No. SR-NYSEArca-2018-25]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by Amendment No. 2, Regarding the
Continued Listing and Trading of Shares of the Natixis Loomis Sayles
Short Duration Income ETF
December 14, 2018.
I. Introduction
On April 16, 2018, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934
(``Act'') \2\ and Rule 19b-4 thereunder,\3\ a proposed rule change to
amend the listing requirements applicable to the shares (``Shares'') of
the Natixis Loomis Sayles Short Duration Income ETF (``Fund''). The
proposed rule change was published for comment in the Federal Register
on May 3, 2018.\4\ On June 5, 2018, the Commission extended the time
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change to August 1, 2018.\5\ On
June 6, 2018, the Exchange filed Amendment No. 1 to the proposed rule
change, which replaced and superseded the proposed rule change as
originally filed. On July 27, 2018, the Commission noticed filing of
Amendment No. 1 and instituted proceedings to determine whether to
approve or disapprove the proposed rule change.\6\ On July 27, 2018,
pursuant to Section 19(b)(2) of the Act,\7\ the Commission designated a
longer period within which to issue an order approving or disapproving
the proposed rule change.\8\ On December 6, 2018, the Exchange filed
Amendment No. 2 to the proposed rule change, which replaced and
superseded the proposed rule change as modified by Amendment No. 1.\9\
On October 22,
[[Page 65387]]
2018, the Commission extended the time period for Commission action to
December 29, 2018.\10\ The Commission received no comments on the
proposed rule change. This order approves the proposed rule change, as
modified by Amendment No. 2.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ See Securities Exchange Act Release No. 83122 (April 27,
2018), 83 FR 19578.
\5\ See Securities Exchange Act Release No. 83385, 83 FR 27034
(June 11, 2018).
\6\ See Securities Exchange Act Release No. 83733, 83 FR 37831
(August 2, 2018).
\7\ 15 U.S.C. 78s(b)(2).
\8\ See Securities Exchange Act Release No. 84462, 83 FR 54153
(October 26, 2018). The Commission designated December 29, 2018, as
the date by which the Commission shall either approve or disapprove
the proposed rule change.
\9\ In Amendment No. 2, the Exchange: (1) Clarified the scope of
asset-backed securities (``ABSs'') in which the Fund may invest; (2)
limited the junior loans in which the Fund may invest to those that
satisfy all of the criteria in Commentary .01(b) to Rule 8.600-E;
(3) clarified the scope of mortgage-backed securities (``MBSs'') in
which the Fund may invest; (4) eliminated as permitted investments
of the Fund publicly or privately issued interests in investment
pools whose underlying assets are credit default, credit-linked,
interest rate, currency exchange, equity-linked or other types of
swap contracts and related underlying securities or securities loan
agreements; (5) established and provided support for the following
diversification requirements with respect to the Fund's investments
in non-agency ABS and MBS, which collectively may comprise up to 30%
of the weight of the Fund's ``Fixed Income Securities'' (defined
below): (a) Up to 25% of such weight may be in ABS, provided that up
to 5% of the weight of its Fixed Income Securities investments may
be in CBOs, CLOs and CDOs, in the aggregate; (b) up to 15% of its
Fixed Income Securities investments may be in MBS, including CMOs
but excluding CMBS; and (c) up to 15% of its Fixed Income Securities
investments may be in CMBS; and (6) made other technical, non-
substantive, and conforming changes. Because Amendment No. 2 makes
clarifying modifications, provides additional representations, and
eliminates a permitted category of investments, it is not subject to
notice and comment. All of the amendments to the proposed rule
change are available at: https://www.sec.gov/comments/sr-nysearca-2018-25/nysearca201825.htm.
\10\ See Securities Exchange Act Release No. 84462, 83 FR 54153
(October 26, 2018).
---------------------------------------------------------------------------
II. Description of the Proposal \11\
---------------------------------------------------------------------------
\11\ Additional information regarding the Fund, the Trust
(defined infra), and the Shares can be found in Amendment No. 2,
supra note 9, and the Registration Statement, infra note 13.
---------------------------------------------------------------------------
Pursuant to Commentary .01 to NYSE Arca Rule 8.600-E,\12\ the
Exchange listed and began trading the Shares on December 28, 2017. The
Shares are offered by Natixis ETF Trust (``Trust''), which is
registered as an open-end management investment company under the
Investment Company Act of 1940 (``1940 Act'').\13\ Natixis Advisors,
L.P. (``Adviser'') is the investment adviser for the Fund. Loomis,
Sayles & Company, L.P. is the Fund's sub-adviser (``Sub-Adviser''). The
Fund's investment objective is current income consistent with
preservation of capital. The Exchange filed this proposed rule change
because the Fund would like to invest in assets that may not satisfy
all of the requirements of Commentary .01 to NYSE Arca Rule 8.600-E, as
discussed further below.
---------------------------------------------------------------------------
\12\ NYSE Arca Rule 8.600-E governs the listing and trading of
Managed Fund Shares on the Exchange. A ``Managed Fund Share'' is a
security that (1) represents an interest in a registered investment
company (``Investment Company'') organized as an open-end management
investment company or similar entity, that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies; (2) is issued in a specified aggregate minimum number in
return for a deposit of a specified portfolio of securities and/or a
cash amount with a value equal to the next determined net asset
value (``NAV''); and (3) when aggregated in the same specified
minimum number, may be redeemed at a holder's request, which holder
will be paid a specified portfolio of securities and/or cash with a
value equal to the next determined NAV. See NYSE Arca Rule 8.600-
E(c)(1). Pursuant to Commentary .01 to NYSE Arca Rule 8.600-E, the
Exchange may approve Managed Fund Shares for listing and trading
pursuant to Rule 19b-4(e) under the Act provided that components the
actively managed fund's portfolio comply with specified criteria
upon initial listing and on a continual basis.
\13\ On December 26, 2017, the Trust filed with the Commission
its registration statement on Form N-1A under the Securities Act of
1933 (15 U.S.C. 77a), and under the 1940 Act relating to the Fund
(File Nos. 333-210156 and 811-23146) (``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. 30654 (August 20, 2013) (File No. 812-13942-
02).
---------------------------------------------------------------------------
A. The Fund's Contemplated Investments
While the Fund may hold any portion of its assets in cash (U.S.
dollars, foreign currencies or multinational currency units) and/or
cash equivalents, under normal market conditions,\14\ the Fund will
invest at least 80% of its net assets in the following:
---------------------------------------------------------------------------
\14\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5).
---------------------------------------------------------------------------
U.S. Government Securities, including U.S. Treasury Bills,
U.S. Treasury Notes and Bonds, U.S. Treasury Floating Rate Notes,
Treasury Inflation-Protected Securities, and obligations of U.S.
agencies or instrumentalities (e.g., ``Ginnie Maes'', ``Fannie Maes''
and ``Freddie Macs'');
agency and non-agency asset-backed securities (``ABS'');
\15\
---------------------------------------------------------------------------
\15\ ABSs may include collateralized bond obligations
(``CBOs''), collateralized loan obligations (``CLOs''), and other
collateralized debt obligations (``CDOs'').
---------------------------------------------------------------------------
U.S. dollar-denominated foreign securities, including
emerging market securities;
Adjustable-Rate Mortgage Securities;
junior and senior loans; \16\
---------------------------------------------------------------------------
\16\ The Fund's investment in junior loans is subject to all
criteria in Commentary .01(b) to Rule 8.600-E, including the
criteria relating to minimum original principal amount outstanding
(Commentary .01(b)(1), portfolio weighting (Commentary .01(b)(2),
and the numerical and other criteria in Commentary .01(b)(4). See
Amendment No. 2, supra note 9, at 6, n.7.
---------------------------------------------------------------------------
bank loans, loan participations and assignments;
agency and non-agency mortgage-backed securities
(``MBS''); \17\
---------------------------------------------------------------------------
\17\ MBS may include collateralized mortgage obligations
(``CMOs'') and commercial mortgage-backed securities (``CMBS'').
---------------------------------------------------------------------------
zero coupon and pay-in-kind securities;
corporate bonds;
Non-US government securities, supranational entities
obligations issued by foreign governments, or international agencies
and instrumentalities;
inflation-linked and inflation-indexed securities;
money market instruments; \18\
---------------------------------------------------------------------------
\18\ Money market instruments are short-term instruments
referenced in Commentary .01(c) to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------
mortgage-related securities (such as Government National
Mortgage Association or Federal National Mortgage Association
certificates);
mortgage dollar rolls;
variable and floating rate securities;
Rule 144A securities;
taxable municipal securities;
step-coupon securities; and
stripped securities (collectively, ``Fixed Income
Securities'').
Additionally, under normal market conditions,\19\ the Fund may
invest its remaining assets in the following:
---------------------------------------------------------------------------
\19\ See supra note 14.
---------------------------------------------------------------------------
short sales of Fixed Income Securities;
exchange-traded funds (``ETFs'') \20\ and exchange-traded
notes (``ETNs''); \21\
---------------------------------------------------------------------------
\20\ All ETFs will be listed and traded in the U.S. on a
national securities exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs. See Amendment No. 2, supra note 9, at 7, n.11.
\21\ ETNs are Index-Linked Securities as described in NYSE Arca
Rule 5.2-E(j)(6). See id. at 7, n.12.
---------------------------------------------------------------------------
the following swaps: Interest rate, credit default, credit
default swaps index (``CDX''), commodity, equity-linked, fixed income,
credit default, credit-linked and currency exchange swaps or an index
or indexes of the foregoing;
swaptions;
the following options: U.S. exchange-traded and over-the-
counter (``OTC'') options on Fixed Income Securities, domestic and
foreign equity and fixed income indices, CDX, U.S. Treasury futures
contracts, interest rates and currencies;
futures on Fixed Income Securities, domestic and foreign
equity and fixed income indices, interest rates and CDX; and
shares of non-exchange-traded open-end investment company
securities.
B. The Contemplated Investments' Possible Non-Compliance With the
Generic Listing Requirements
The Exchange filed this proposed rule change to allow the Fund's
portfolio to not satisfy the two ``generic'' listing criteria of
Commentary .01 to NYSE Arca Rule 8.600-E going forward.
First, as noted above, the Fund desires to invest in non-exchange
traded investment company securities (e.g., mutual fund shares). Such
shares, which could comprise at most up to 20% of the Fund's net
assets, would not satisfy the requirements of Commentary .01(a)(1) to
Rule 8.600-E.\22\ According to
[[Page 65388]]
the Exchange, the Fund would utilize such investments to help the Fund
meet its investment objective and to equitize cash in the short
term.\23\
---------------------------------------------------------------------------
\22\ Commentary .01(a)(1) to Rule 8.600-E requires that the
component stocks of the equity portion of a portfolio that are U.S.
Component Stocks shall meet certain criteria initially and on a
continuing basis. Specifically: Commentary .01(a)(1)(A) requires
that component stocks (excluding Derivative Securities Products and
Index-Linked Securities) that in the aggregate account for at least
90% of the equity weight of the portfolio (excluding such Derivative
Securities Products and Index-Linked Securities) each shall have a
minimum market value of at least $75 million; Commentary
.01(a)(1)(B) requires that component stocks (excluding Derivative
Securities Products and Index-Linked Securities) that in the
aggregate account for at least 70% of the equity weight of the
portfolio (excluding such Derivative Securities Products and Index-
Linked Securities) each shall have a minimum monthly trading volume
of 250,000 shares, or minimum notional volume traded per month of
$25,000,000, averaged over the last six months; Commentary
.01(a)(1)(C) requires that the most heavily weighted component stock
(excluding Derivative Securities Products and Index-Linked
Securities) shall not exceed 30% of the equity weight of the
portfolio, and, to the extent applicable, the five most heavily
weighted component stocks (excluding Derivative Securities Products
and Index-Linked Securities) shall not exceed 65% of the equity
weight of the portfolio; Commentary .01(a)(1)(D) requires that,
where the equity portion of the portfolio does not include Non-U.S.
Component Stocks, the equity portion of the portfolio shall include
a minimum of 13 component stocks, provided that there shall be no
minimum number of component stocks if (i) one or more series of
Derivative Securities Products or Index-Linked Securities
constitute, at least in part, components underlying a series of
Managed Fund Shares, or (ii) one or more series of Derivative
Securities Products or Index-Linked Securities account for 100% of
the equity weight of the portfolio of a series of Managed Fund
Shares; and Commentary .01(a)(1)(E) requires that, except as
provided herein, equity securities in the portfolio shall be U.S.
Component Stocks listed on a national securities exchange and shall
be NMS Stocks as defined in Rule 600 of Regulation NMS under the
Securities Exchange Act of 1934.
\23\ See id.
---------------------------------------------------------------------------
Second, the Fund seeks to modify the limit on non-agency, non-
government-sponsored entity (``GSE'') and privately-issued mortgage-
related and other asset-backed securities. Instead, of the 20% limit in
Commentary .01(b)(5),\24\ the Exchange proposes that up to 30% of the
weight of the Fixed Income Securities portion of the Fund's portfolio
consist of non-agency, non-GSE and privately-issued mortgage-related
and other asset-backed securities, provided that: (1) Up to 25% of such
weight may be in ABS, provided that up to 5% of the weight of its Fixed
Income Securities investments may be in CBOs, CLOs and CDOs, in the
aggregate; (2) up to 15% of its Fixed Income Securities investments may
be in MBS, including CMOs but excluding CMBS; and (3) up to 15% of its
Fixed Income Securities investments may be in CMBS. The Exchange
asserts that these limits would provide additional diversification to
the Fund's ABS and MBS investments and reduce concerns that the Fund's
investment in such securities would be readily susceptible to market
manipulation. According to the Adviser, permitting such investments:
(1) Would be in the best interest of the Fund's shareholders because
such investments have the potential to reduce the overall risk profile
of the Fund's portfolio through diversification; and (2) would afford
the Fund greater flexibility to invest in the most liquid available
Fixed Income Securities issues.\25\
---------------------------------------------------------------------------
\24\ Commentary .01(b)(5) to Rule 8.600-E prohibits non-agency,
non-GSE and privately-issued mortgage-related and other asset-backed
securities components of a portfolio from accounting (in the
aggregate) for more than 20% of the weight of the fixed income
portion of the portfolio.
\25\ See id.
---------------------------------------------------------------------------
The Exchange would require the Shares to satisfy all the other
requirements of Rule 8.600-E.\26\
---------------------------------------------------------------------------
\26\ See id. at 15.
---------------------------------------------------------------------------
III. Discussion and Commission Findings
After careful review, the Commission finds that the Exchange's
proposal to amend the listing requirements applicable to the Shares is
consistent with the Act and the rules and regulations thereunder
applicable to a national securities exchange.\27\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 2, is consistent with Section 6(b)(5) of the Act,\28\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices,
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.
---------------------------------------------------------------------------
\27\ 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).
\28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
As mentioned above, the Shares would continue to satisfy all of the
generic listing criteria except for the requirements of Commentary
.01(b)(5) to NYSE Arca Rule 8.600-E,\29\ and Commentary .01(a)(1)(A)
through (E) to Rule 8.600-E.
---------------------------------------------------------------------------
\29\ Commentary .01(b)(5) to NYSE Arca Rule 8.600-E provides
that non-agency, non-government sponsored entity and privately
issued mortgage-related and other asset-backed securities components
of a portfolio may not account, in the aggregate, for more than 20%
of the weight of the fixed income portion of the portfolio.
---------------------------------------------------------------------------
The Commission believes that permitting the Fund to invest up to
20% of its net assets in non-exchange traded investment company
securities would not render the Shares susceptible to manipulation. The
Commission has previously approved listing rules for other series of
Managed Fund Shares that permit investments in such securities.\30\
---------------------------------------------------------------------------
\30\ See, e.g., Securities Exchange Act Release No. 78414 (July
26, 2016), 81 FR 50576 (August 1, 2016) (SR-NYSEArca-2016-79)
(approving the listing and trading of shares of the Virtus Japan
Alpha ETF under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------
With respect to the proposed 30% limit on non-agency, non-GSE and
privately-issued mortgage-related and other asset-backed securities,
the Commission believes that the proposed sub-limits described above,
are sufficient to diversify the Fund's portfolio of such securities and
mitigate manipulation concerns. The Commission notes that it recently
approved a similar limit for an issue of Managed Fund Shares permitted
to invest in fixed income securities.\31\
---------------------------------------------------------------------------
\31\ See Securities Exchange Act Release No. 84047 (September 6,
2018), 83 FR 46200 (September 12, 2018) (SR-Nasdaq-2017-128)
(approving the listing and trading of shares of the Western Asset
Total Return ETF).
---------------------------------------------------------------------------
In support of this proposal, the Exchange has also made the
following representations:
(1) The Fund will only purchase U.S. dollar denominated non-agency
ABS and MBS that are settled through DTC.\32\
---------------------------------------------------------------------------
\32\ See Amendment No. 2, supra note 9, at 12.
---------------------------------------------------------------------------
(2) 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.\33\
---------------------------------------------------------------------------
\33\ See id. at 19.
---------------------------------------------------------------------------
(3) The issuer 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(m)-E.\34\
---------------------------------------------------------------------------
\34\ See id.
---------------------------------------------------------------------------
(4) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.\35\
---------------------------------------------------------------------------
\35\ See id. at 17.
---------------------------------------------------------------------------
(5) The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
federal securities laws applicable to trading on the Exchange.\36\
---------------------------------------------------------------------------
\36\ See id. at 18.
---------------------------------------------------------------------------
(6) For continued listing, the Fund will be in compliance with Rule
10A-3 under the Act, as provided by NYSE Arca Rule 5.3-E.\37\
---------------------------------------------------------------------------
\37\ See id. at 18. See also 17 CFR 240.10A-3.
---------------------------------------------------------------------------
This approval order is based on all of the Exchange's representations,
including those set forth above and in the Amendment No. 2.
For the foregoing reasons, the Commission finds that the proposed
[[Page 65389]]
rule change, as modified by Amendment No. 2, is consistent with Section
6(b)(5) of the Act \38\ and the rules and regulations thereunder
applicable to a national securities exchange.
---------------------------------------------------------------------------
\38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\39\ that the proposed rule change (SR-NYSEArca-2018-25), as
modified by Amendment No. 2, be, and it hereby is, approved.
---------------------------------------------------------------------------
\39\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
---------------------------------------------------------------------------
\40\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2018-27509 Filed 12-19-18; 8:45 am]
BILLING CODE 8011-01-P