[Federal Register Volume 84, Number 110 (Friday, June 7, 2019)]
[Notices]
[Pages 26711-26712]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-11933]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-86017; File No. SR-NYSEArca-2019-06]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change, as Modified by Amendment No. 1, To Amend Certain
Generic Listing Standards for Managed Fund Shares Applicable to
Holdings of Fixed Income Securities
June 3, 2019.
I. Introduction
On February 14, 2019, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') 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 amend certain generic listing standards for
Managed Fund Shares applicable to holdings of fixed income securities.
The proposed rule change was published for comment in the Federal
Register on March 6, 2019.\3\ On April 18, 2019, 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 May 15, 2019, the Exchange
filed Amendment No. 1 to the proposed rule change, which amended and
superseded the original filing in its entirety.\6\ The Commission has
received no comments on the proposed rule change. This order approves
the proposed rule change, as modified by Amendment No. 1.
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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. 85220 (February 28,
2019), 84 FR 8138.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 85690, 84 FR 17204
(April 24, 2019). The Commission designated June 4, 2019 as the date
by which the Commission shall approve the proposed rule change,
disapprove the proposed rule change, or institute proceedings to
determine whether to disapprove the proposed rule change.
\6\ In Amendment No. 1, the Exchange: (1) Clarified that non-
agency, non-GSE, and privately-issued mortgage-related and other
asset-backed securities in the portfolio of a series of generically-
listed Managed Fund Shares would satisfy all of the generic listing
standards of Commentary .01(b) to NYSE Arca Rule 8.600-E, as
amended; (2) modified its argument supporting its proposed change;
and (3) made other technical changes. Because Amendment No. 1 does
not materially alter the substance of the proposed rule change or
raise unique or novel regulatory issues, Amendment No. 1 is not
subject to notice and comment. Amendment No. 1 is available at
https://www.sec.gov/comments/sr-nysearca-2019-06/srnysearca201906-5524002-185227.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1 7
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\7\ For a more detailed description of the proposal, see
Amendment No. 1, supra note 6.
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Commentary .01 to NYSE Arca Rule 8.600-E sets forth the generic
listing standards for Managed Fund Shares.\8\ Commentary .01(b) to NYSE
Arca Rule 8.600-E sets forth the generic listing standards applicable
to fixed income securities \9\ in the portfolio of a series of Managed
Fund Shares. Commentary .01(b)(5) currently provides that non-agency,
non-GSE, and privately-issued mortgage-related and other asset-backed
securities components of a portfolio shall not account, in the
aggregate, for more than 20% of the weight of the fixed income portion
of the portfolio. The Exchange proposes to amend Commentary .01(b)(5)
by deleting the reference to the ``fixed income portion of the''
portfolio, such that non-agency, non-GSE, 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 whole portfolio.
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\8\ The term ``Managed Fund Share'' means a security that (a)
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; (b) 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; and (c) 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 net asset value. See NYSE Arca Rule 8.600-
E(c)(1).
\9\ Commentary .01(b) to NYSE Arca Rule 8.600-E provides that
fixed income securities are debt securities that are notes, bonds,
debentures or evidence of indebtedness that include, but are not
limited to, U.S. Department of Treasury securities, government-
sponsored entity (``GSE'') securities, municipal securities, trust
preferred securities, supranational debt and debt of a foreign
country or a subdivision thereof, investment grade and high yield
corporate debt, bank loans, mortgage and asset backed securities,
and commercial paper.
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III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1, is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\10\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\11\
which requires, among other things, that the rules of a national
securities exchange be 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 a national market system, and, in general, to protect
investors and the public interest.
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\10\ 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).
\11\ 15 U.S.C. 78f(b)(5).
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The Commission believes that the generic listing standards for
Managed Fund Shares, as proposed to be amended, would continue to be
designed to prevent manipulation. As noted above, the Exchange proposes
to amend Commentary .01(b)(5) to NYSE Arca Rule 8.600-E to allow non-
agency, non-GSE, and privately-issued mortgage-related and other asset-
backed
[[Page 26712]]
securities to account for no more than 20% of the weight of the whole
portfolio (rather than the fixed income portion of the portfolio).
Therefore, the proposed rule change would allow the Exchange to
generically list and trade series of Managed Fund Shares that hold more
non-agency, non-GSE, and privately-issued mortgage-related and other
asset-backed securities than is currently allowed under the generic
listing standards (if assets other than fixed income securities are in
the portfolio).\12\ According to the Exchange, the proposal would allow
increased portfolio diversification.\13\ The Exchange also states that
it has in place surveillance procedures that are adequate to properly
monitor trading in series of Managed Fund Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws.\14\ The Commission notes that, as
proposed, non-agency, non-GSE, and privately-issued mortgage-related
and other asset-backed securities must meet all the generic listing
standards in Commentary .01(b) to NYSE Arca Rule 8.600-E.\15\ In
addition, the Commission notes that it has previously approved the
listing and trading of Managed Fund Shares that could hold up to 20% of
their total assets in non-agency, non-GSE, and privately-issued asset-
backed and mortgage-backed securities.\16\
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\12\ As the Exchange notes, currently, a fund holding 100% of
its assets in fixed income securities could hold 20% of its entire
portfolio's weight in non-agency, non-GSE, and privately-issued
mortgage-related and other asset-backed securities. See Amendment
No. 1, supra note 6, at 5. In contrast, a fund holding 25% of its
assets in fixed income securities, 25% in U.S. component stocks, and
50% in cash and cash equivalents could only hold 5% its entire
portfolio's weight in non-agency, non-GSE, and privately-issued
mortgage-related and other asset-backed securities. See id. Under
the proposal, each of these funds could hold 20% of its entire
portfolio's weight in non-agency, non-GSE, and privately-issued
mortgage-related and other asset-backed securities.
\13\ See id., at 4-5.
\14\ See id., at 6. The Exchange or the Financial Industry
Regulatory Authority (``FINRA''), on behalf of the Exchange, or
both, would communicate as needed regarding trading in Managed Fund
Shares 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, could obtain trading information
regarding trading in Managed Fund Shares from such markets and other
entities. See id. In addition, the Exchange could obtain information
regarding trading in Managed Fund Shares from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. See id.
\15\ See id., at 5.
\16\ See, e.g., Securities Exchange Act Release Nos. 83319 (May
24, 2018), 83 FR 25097 (May 31, 2018) (SR-NYSEArca-2018-15); 80946
(June 15, 2017), 82 FR 28126 (June 20, 2017) (SR-NASDAQ-2017-039);
74814 (April 27, 2015), 80 FR 24986 (May 1, 2015) (SR-NYSEArca-2014-
107).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-NYSEArca-2019-06), as
modified by Amendment No. 1, be, and hereby is, approved.
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\17\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-11933 Filed 6-6-19; 8:45 am]
BILLING CODE 8011-01-P