[Federal Register Volume 84, Number 63 (Tuesday, April 2, 2019)]
[Notices]
[Pages 12646-12649]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06313]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85430; File No. SR-NYSEArca-2019-14]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Certain Changes Regarding
Investments of the PGIM Ultra Short Bond ETF Under NYSE Arca Rule
8.600-E
March 27, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 13, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes certain changes regarding investments of the
PGIM Ultra Short Bond ETF (the ``Fund''), a series of PGIM ETF Trust
(the ``Trust''), under NYSE Arca Rule 8.600-E (``Managed Fund
Shares''). The proposed change is available on the Exchange's website
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.
[[Page 12647]]
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes certain changes, described below under
``Application of Generic Listing Requirements,'' regarding investments
of the Fund. The shares (``Shares'') of the Fund commenced trading on
the Exchange on April 10, 2018 pursuant to the generic listing
standards under Commentary .01 to NYSE Arca Rule 8.600-E (``Managed
Fund Shares'').\4\ The Commission has previously approved two proposed
rule changes regarding certain changes that would result in the
portfolio for the Fund not meeting all of the ``generic'' listing
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to
the listing of Managed Fund Shares.\5\
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\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) (the ``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\ See Securities Exchange Act Release Nos. 83319 (May 24,
2018), 83 FR 25097 (May 31, 2018) (SR-NYSEArca-2018-15), (Order
Approving a Proposed Rule Change, as Modified by Amendment No. 1
Thereto, to Continue Listing and Trading Shares of the PGIM Ultra
Short Bond ETF under NYSE Arca Rule 8.600-E) (``First Prior
Order''); 84818 (December 13, 2018) (SR-NYSEArca-2018-75) (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) (``Second Prior Order'' and, together with the
First Prior Order, the ``Prior Orders''). The First Prior Order
stated that the Fund's portfolio would 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). The Second Prior Order stated that the Fund's portfolio
would not meet the requirements of Commentary .01(e) to NYSE Arca
Rule 8.600-E.
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PGIM Investments LLC (the ``Adviser'') is the investment adviser
for the Fund. PGIM Fixed Income (the ``Subadviser''), a unit of PGIM,
Inc., is the subadviser to the Fund. The Adviser and the Subadviser are
indirect wholly-owned subsidiaries of Prudential Financial, Inc.\6\
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\6\ The Trust is registered under the 1940 Act. On March 26,
2018, the Trust filed with the Commission Pre-Effective Amendment
No. 1 to the Trust's 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. 333-222469 and 811-23324)
(``Registration Statement''). The Trust will file an amendment to
the Registration Statement as necessary to conform to the
representations in this filing. 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. 31095 (June 24, 2014) (File No.
812-14267).
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As stated in the First Prior Order, the investment objective of the
Fund seeks to provide total return through a combination of current
income and capital appreciation, consistent with preservation of
capital. The Fund seeks to achieve its investment objective by
investing primarily in a portfolio of U.S. dollar denominated short-
term fixed, variable and floating rate debt instruments. Under normal
market conditions,\7\ the Fund invests at least 80% of its net assets
(plus any borrowings for investment purposes) in a portfolio of
financial instruments consisting of (i) the Principal Investment
Instruments (as defined in the First Prior Order) and (ii) derivatives
(as described in the Prior Orders) that (A) provide exposure to such
Principal Investment Instruments, or (B) are used to enhance returns,
manage portfolio duration, or manage the risk of securities price
fluctuations, as described in the Prior Orders.
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\7\ The term ``normal market conditions'' is defined in NYSE
Arca Rule 8.600-E(c)(5).
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Application of Generic Listing Requirements
The Exchange proposes that, in addition to the requirement approved
by the Commission in the First Prior Order that Private ABS/MBS (as
defined below) will, in the aggregate, not exceed more than 20% of the
total assets of the Fund,\8\ the Fund will not invest more than 20% of
the Fund's total assets in U.S. or foreign collateralized debt
obligations (``CDOs'').\9\ The Exchange also proposes that Private ABS/
MBS will not be required to comply with the requirements of Commentary
.01(b)(4) to NYSE Arca Rule 8.600-E.\10\
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\8\ As described in the First Prior Order, among the Fund's
Principal Investment Instruments are asset-backed securities
(``ABS''), including mortgage-backed securities (``MBS''). The ABS
(including MBS) in which the Fund invests include both (i) ABS
(including MBS) issued by the U.S. Government, an agency of the U.S.
Government, or a government sponsored entity (``GSE'') and (ii) non-
U.S. Government, non-agency, non-GSE and other privately issued ABS
(including MBS) (``Private ABS/MBS'').
\9\ For purposes of this filing, CDOs will not be deemed to be
ABS for purposes of the restriction on the Fund's holdings of
Private ABS/MBS. See note 9, infra.
\10\ Commentary .01(b)(4) provides that component securities
that in the aggregate account for at least 90% of the fixed income
weight of the portfolio must be either: (a) From issuers that are
required to file reports pursuant to Sections 13 and 15(d) of the
Act; (b) from issuers that have a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more; (c) from issuers that have outstanding securities that are
notes, bonds debentures, or evidence of indebtedness having a total
remaining principal amount of at least $1 billion; (d) exempted
securities as defined in Section 3(a)(12) of the Act; or (e) from
issuers that are a government of a foreign country or a political
subdivision of a foreign country. In the First Prior Order, the
Commission approved an exception from Commentary .01(b)(4) to
provide that fixed income securities that do not meet any of the
criteria in Commentary .01(b)(4) will not exceed 10% of the total
assets of the Fund.
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The Fund's investments currently comply with the generic
requirements set forth in Commentary .01 to Rule 8.600-E.
The Exchange is submitting this proposed rule change because the
changes described in the preceding paragraph would not conform to the
Exchange's representations regarding the Fund's investments as stated
in the First Prior Order. In the First Prior Order, the Exchange stated
that the Fund will not comply with the requirement in Commentary
.01(b)(5) that investments in non-agency, non-government sponsored
entity and privately issued mortgage-related and other asset-backed
securities (i.e., Private ABS/MBS) not account, in the aggregate, for
more than 20% of the weight of the fixed income portion of the
portfolio, and, instead, that Private ABS/MBS, in the aggregate, may
not exceed more than 20% of the total assets of the Fund.\11\ As stated
above, the Exchange proposes to amend this representation regarding the
Fund's investments to provide that the Fund will not invest more than
20% of the Fund's total assets in Private ABS/MBS or more than 20% of
the Fund's total assets in U.S. or foreign CDOs.\12\ CDOs
[[Page 12648]]
would be excluded from the 20% limit on Private ABS/MBS but would be
subject to a separate limit of 20%, measured with respect to the total
assets of the Fund.\13\ The Exchange believes that this 20% limitation
will help the Fund maintain portfolio diversification and will reduce
manipulation risk.\14\ In addition, the Fund's investment in CDOs will
be subject to the Fund's liquidity procedures as adopted by the Board,
and the Adviser does not expect that investments in CDOs of up to 20%
of the total assets of the Fund will have any material impact on the
liquidity of the Fund's investments.
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\11\ 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. In the
First Prior Order, the Commission approved an exception from
Commentary .01(b)(5) to permit the Fund's investments in Private
ABS/MBS to not exceed 20% of the total assets of the Fund.
\12\ For purposes of this proposed rule change, CDOs are
excluded from the definition of ABS and, for purposes of this
proposed rule change only, are comprised exclusively of
collateralized loan obligations (``CLOs'') and collateralized bond
obligations (``CBOs''). CLOs are securities issued by a trust or
other special purpose entity that are collateralized by a pool of
loans by U.S. banks and participations in loans by U.S. banks that
are unsecured or secured by collateral other than real estate. CBOs
are securities issued by a trust or other special purpose entity
that are backed by a diversified pool of fixed income securities
issued by U.S. or foreign governmental entities or fixed income
securities issued by U.S. or corporate issuers. CDOs are
distinguishable from ABS because they are collateralized by bank
loans or by corporate or government fixed income securities and not
by consumer and other loans made by non-bank lenders, including
student loans.
\13\ The Exchange notes that the Commission has approved a
proposed rule change permitting investments by an issue of Managed
Fund Shares to exclude CDOs from the 20% limit on Private ABS/MBS
but subject CDOs to a separate limit of 10%, measured with respect
to the total assets of the fund. See Securities Exchange Act Release
No. 84047 (September 6, 2018), 83 FR 46200 (September 12, 2018) (SR-
NASDAQ-2017-128) (Notice of Filing of Amendment No. 3 and Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified
by Amendment No. 3, to List and Trade Shares of the Western Asset
Total Return ETF).
\14\ The Exchange notes that the Commission has approved a
proposed rule change permitting an issue of Managed Fund Shares to
hold up to 30% of the weight of the fixed income securities portion
of the fund's portfolio to consist of non-agency, non-GSE and
privately-issued mortgage-related and other asset-backed securities.
See Securities Exchange Act Release No. 84826 (December 14, 2018),
83 FR 65386 (December 20, 2018) (SR-NYSEArca-2018-25) (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)).
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In addition, the First Prior Order stated that the Fund will not
comply with the requirement that securities that in aggregate account
for at least 90% of the fixed income weight of the portfolio meet one
of the criteria in Commentary .01(b)(4), and, instead, fixed income
securities that do not meet any of the criteria in Commentary .01(b)(4)
will not exceed 10% of the total assets of the Fund. As stated above,
the Exchange proposes to amend this representation to state that the
Private ABS/MBS, which will be limited to 20% of the Fund's total
assets, will not be required to comply with the criteria in Commentary
.01(b)(4)(a) through (e) to NYSE Arca Rule 8.600-E. Therefore, fixed
income securities that do not meet the criteria in Commentary .01(b)(4)
will not exceed 10% of the total assets of the Fund, excluding Private
ABS/MBS.\15\ CDOs also would not be subject to the criteria in
Commentary .01(b)(4)(a) through (e) but would be subject to a limit of
20%, measured with respect to the total assets of the Fund.
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\15\ As noted above, CDOs would be excluded from the 20% limit
on Private ABS/MBS but would be subject to a separate limit of 20%,
measured with respect to the total assets of the Fund.
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The Exchange notes that the Commission has previously approved the
listing of Managed Fund Shares with similar investment objectives and
strategies without imposing requirements that a certain percentage of
such funds' securities meet one of the criteria set forth in Commentary
.01(b)(4).\16\
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\16\ See, e.g., Exchange Act Release Nos. 67894 (September 20,
2012) 77 FR 59227 (September 26, 2012) (SR-BATS-2012-033) (order
approving the listing and trading of shares of the iShares Short
Maturity Bond Fund); 70342 (September 6, 2013), 78 FR 56256
(September 12, 2013) (SR-NYSEArca-2013-71) (order approving the
listing and trading of shares of the SPDR SSgA Ultra Short Term Bond
ETF, SPDR SSgA Conservative Ultra Short Term Bond ETF and SPDR SSgA
Aggressive Ultra Short Term Bond ETF).
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Deviations from the generic requirements are necessary for the Fund
to achieve its investment objective in a manner that is cost-effective
and that maximizes investors' returns. Further, the proposed
alternative requirements are narrowly tailored to allow the Fund to
achieve its investment objective in manner that is consistent with the
principles of Section 6(b)(5) of the Act. As a result, it is in the
public interest to approve listing and trading of Shares of the Fund on
the Exchange pursuant to the requirements set forth herein.
In addition, the Fund's investment in Private ABS/MBS and CDOs will
be subject to the Fund's liquidity risk management program as approved
by the Fund's board of directors.\17\ The liquidity procedures
generally include public disclosure by the Fund of its liquidity and
redemption practices. The Fund's holdings in Private ABS/MBS and CDOs
would be encompassed within the Fund's liquidity risk management
program.
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\17\ Rule 22e-4(b) under the 1940 Act requires, among other
things, that a fund ``adopt and implement a written liquidity risk
management program that is reasonably designed to assess and manage
its liquidity risk.'' The rule is ``designed to promote effective
liquidity risk management throughout the open-end investment company
industry, thereby reducing the risk that funds will be unable to
meet their redemption obligations and mitigating dilution of the
interests of fund shareholders.'' See Release Nos. 33-10233; IC-
32315; File No. S7-16-15 (October 13, 2016).
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Except for the changes noted above, all other representations made
in the Prior Orders remain unchanged. All terms referenced but not
defined in this proposed rule change are defined in the Prior Orders.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) of the Act 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.
As described above, deviations from the generic requirements of
Commentary .01(b) to Rule 8.600-E are necessary for the Fund to achieve
its investment objective in a manner that is cost-effective and that
maximizes investors' returns. Further, the proposed alternative
requirements are narrowly tailored to allow the Fund to achieve its
investment objective in manner that is consistent with the principles
of Section 6(b)(5) of the Act. As a result, it is in the public
interest to approve continued listing and trading of Shares of the Fund
on the Exchange pursuant to the requirements set forth herein.
The Fund will not meet the requirement that at least 90% of the
fixed income weight of the Fund's portfolio meet one of the criteria in
Commentary .01(b)(4)(a) through (e) to Rule 8.600-E because some
Private ABS/MBS cannot satisfy the criteria in Commentary .01(b)(4)(a)
through (e). The Exchange proposes, in the alternative, to require that
Fund's investments in fixed income securities that do not meet the
criteria in Commentary .01(b)(4) will not exceed 10% of the total
assets of the Fund, excluding Private ABS/MBS.\18\ CDOs also would not
be subject to the criteria in Commentary .01(b)(4)(a) through (e) but
would be subject to a limit of 20% measured with respect to the total
assets of the Fund. The Exchange believes that this alternative
limitation is appropriate because the criteria in Commentary
.01(b)(4)(a) through (e) do not appear to be designed for structured
finance vehicles such as Private ABS/MBS, and the overall weight of
Private ABS/MBS held by the Fund will be limited to 20% of the total
assets of the Fund's portfolio, as described above.
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\18\ See note 13, supra.
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As discussed above, the Exchange proposes that CDOs will not be
deemed to be included in the definition of ABS for purposes of the
limitation in Commentary .01(b)(5) to NYSE Arca Rule 8.600-E and, as a
result, will not be subject to the restriction on aggregate holdings of
Private ABS/MBS. However, the Fund's holdings in CDOs will be limited
such that they do not account, in the aggregate, for more than 20% of
the total assets of the Fund. The Exchange believes that the 20% limit
on the Fund's holdings in CDOs will help to ensure that the Fund
maintains a
[[Page 12649]]
diversified portfolio and will mitigate the risk of manipulation. In
addition, the Fund's investment in CDOs will be subject to the Fund's
liquidity procedures as adopted by the Board,\19\ and the Adviser does
not expect that investments in CDOs of up to 20% of the total assets of
the Fund will have any material impact on the liquidity of the Fund's
investments.
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\19\ See note 15, supra.
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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 believes that
the proposed rule change will facilitate listing and trading of shares
of another actively managed ETF that principally holds fixed income
securities, 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 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-2019-14 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-2019-14. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2019-14 and should be submitted
on or before April 23, 2019.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-06313 Filed 4-1-19; 8:45 am]
BILLING CODE 8011-01-P