[Federal Register Volume 84, Number 159 (Friday, August 16, 2019)]
[Notices]
[Pages 42030-42035]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17593]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86636; File No. SR-NYSEArca-2018-98]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 4 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 4, To List and Trade 
Shares of the iShares Commodity Multi-Strategy ETF Under NYSE Arca Rule 
8.600-E

August 12, 2019.

I. Introduction

    On December 21, 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 list and trade shares (``Shares'') of the 
iShares Commodity Multi-Strategy ETF (``Fund'') under NYSE Arca Rule 
8.600-E. On February 1, 2019, pursuant to Section 19(b)(1) of the 
Act,\3\ the Commission noticed the proposed rule change and, pursuant 
to Section 19(b)(2) of the Act,\4\ designated a longer 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.\5\ On March 6, 2019, the Exchange 
filed Amendment No. 1 to the proposed rule change, which replaced and 
superseded the proposed rule change as originally filed, and on March 
14, 2019, 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change, which replaced and superseded the proposed rule change, as 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. On March 20, 2019, the Commission noticed 
the proposed rule change, as modified by Amendment No. 2, and 
instituted proceedings under Section 19(b)(2)(B) of the Act \6\ to 
determine whether to approve or disapprove the proposed rule change, as 
modified by Amendment No. 2.\7\ On March 29, 2019, the Exchange filed 
Amendment No. 3 to the proposed rule change, which replaced and 
superseded the proposed rule change, as modified by Amendment No. 2. On 
June 13, 2019, the Commission designated a longer period for Commission 
action on the proceedings to determine whether to approve or disapprove 
the proposed rule change.\8\ On August 8, 2019, the Exchange filed 
Amendment No. 4 to the proposed rule change, which replaced and 
superseded the proposed rule change, as modified by Amendment No. 3.\9\ 
The Commission has received no comment letters on the proposal.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 78s(b)(1).
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 85033, 84 FR 2618 
(February 7, 2019). The Commission designated March 21, 2019, as the 
date by which the Commission would approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to approve or disapprove the proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 85375, 84 FR 11375 
(March 26, 2019) (``Order Instituting Proceedings'').
    \8\ See Securities Exchange Act Release No. 86104, 84 FR 28602 
(June 19, 2019). The Commission extended the date by which the 
Commission shall approve or disapprove the proposed rule change to 
August 18, 2019.
    \9\ In Amendment No. 4, the Exchange: (1) Modified the 
description of the commodity futures included in the Reference 
Benchmark (as defined below); (2) modified the types of reference 
assets for the derivative instruments in which the Fund may invest; 
(3) clarified that the Fund may invest in Short-Term Fixed Income 
Securities (as defined below) other than cash equivalents on an 
ongoing basis for cash management purposes only; (4) modified the 
instruments included in the Short-Term Fixed Income Securities that 
the Fund may invest in for cash management purposes (and which would 
be excluded from the requirements of Commentary .01(b)(1)-(4) to 
NYSE Arca Rule 8.600-E); (5) represented that the Fund's holdings in 
non-convertible corporate debt securities will not exceed 30% of the 
weight of Fund's holdings in cash equivalents and Short-Term Fixed 
Income Securities, collectively; (6) specified that all exchange-
traded notes (``ETNs'') which the Fund may hold will be listed and 
traded in the U.S. on a national securities exchange and the Fund 
will not invest in inverse or leveraged ETNs; (7) amended 
representations relating to the Fund's holdings in OTC Derivatives 
(as defined below) to, among other things, (a) add a representation 
that the Fund's holdings in OTC Derivatives will comply with the 
requirements of Commentary .01(f) to NYSE Arca Rule 8.600-E; and (b) 
remove a representation that the aggregate gross notional value of 
OTC Derivatives based on any five or fewer underlying reference 
assets will not exceed 65% of the weight of the portfolio (including 
gross notional exposures), and the aggregate gross notional value of 
OTC Derivatives based on any single underlying reference asset will 
not exceed 30% of the weight of the portfolio (including gross 
notional exposures); (8) added a representation by the Adviser that 
futures on all commodities in the Reference Benchmark are traded on 
futures exchanges that are members of the Intermarket Surveillance 
Group (``ISG'') or with which the Exchange has in place a 
comprehensive surveillance sharing agreement (``CSSA''); (9) 
specified that quotation and last sale information for exchange-
traded funds (``ETFs'') and ETNs that the Fund may hold will be 
available via the Consolidated Tape Association (``CTA'') high-speed 
line; and (10) made other technical and conforming changes. 
Amendment No. 4 is available at: https://www.sec.gov/comments/sr-nysearca-2018-98/srnysearca201898-5945207-189091.pdf.
---------------------------------------------------------------------------

    The Commission is publishing this notice and order to solicit 
comments on the proposed rule change, as modified by Amendment No. 4, 
from interested persons and is approving the proposed rule change, as 
modified by Amendment No. 4, on an accelerated basis.

II. Summary of the Exchange's Description of the Proposal, as Modified 
by Amendment No. 4 10
---------------------------------------------------------------------------

    \10\ For a complete description of the Exchange's proposal, as 
amended, see Amendment No. 4, supra note 9.
---------------------------------------------------------------------------

    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 Shares will be offered by 
iShares U.S. ETF Trust (``Trust''), which is registered with the 
Commission as an open-end management investment company.\11\ The Fund 
is a series of the Trust.
---------------------------------------------------------------------------

    \11\ According to the Exchange, on December 3, 2018, the Trust 
filed with the Commission its registration statement on Form N-1A 
under the Securities Act of 1933 and under the Investment Company 
Act of 1940 (``1940 Act'') relating to the Fund (File Nos. 333-
179904 and 811-22649) (``Registration Statement''). In addition, the 
Exchange states that the Commission has issued an order upon which 
the Trust may rely, granting certain exemptive relief under the 1940 
Act. See Investment Company Act Release No. 29571 (January 24, 2011) 
(File No. 812-13601).
---------------------------------------------------------------------------

    BlackRock Fund Advisors (``Adviser'') will be the investment 
adviser for the Fund.\12\ BlackRock Investments, LLC will be the 
distributor for the Fund's Shares. State Street Bank and Trust Company 
will serve as the administrator, custodian and transfer agent for the 
Fund.
---------------------------------------------------------------------------

    \12\ According to the Exchange, 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 its 
broker-dealer affiliate regarding access to information concerning 
the composition and/or changes to the portfolio. In the event (a) 
the Adviser becomes registered as a broker-dealer or newly 
affiliated with a broker-dealer, 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 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. The Exchange also represents 
that the Adviser and its related personnel are subject to the 
provisions of Rule 204A-1 under the Investment Advisers Act of 1940 
relating to codes of ethics.
---------------------------------------------------------------------------

A. Fund Investments

    According to the Exchange, the investment objective of the Fund 
will be to seek to provide exposure, on a total

[[Page 42031]]

return basis, to a group of commodities with characteristics of carry, 
momentum, and value. The Fund is actively managed and seeks to achieve 
its investment objective in part \13\ by, under normal market 
conditions,\14\ investing in listed and over-the-counter (``OTC'') 
total return swaps referencing the ICE BofAML Commodity Multi-Factor 
Total Return Index (``Reference Benchmark'').\15\ In connection with 
investments in swaps on the Reference Benchmark, the Fund is expected 
to establish new swaps contracts on an ongoing basis and replace 
expiring contracts.\16\ Swaps subsequently entered into by the Fund may 
have terms that differ from the swaps the Fund previously held. The 
Fund expects generally to pay a fixed payment rate and certain swap 
related fees to the swap counterparty and receive the total return of 
the Reference Benchmark, including, in the event of negative 
performance by the Reference Benchmark, negative return (i.e., a 
payment from the Fund to the swap counterparty). In seeking total 
return, the Fund additionally aims to generate interest income and 
capital appreciation through a cash management strategy consisting 
primarily of cash, cash equivalents,\17\ and fixed income securities 
other than cash equivalents, as described below.
---------------------------------------------------------------------------

    \13\ The Fund's investment objective is also achieved by 
investing in cash, cash equivalents, Commodity Investments, Fixed 
Income Securities and Short-Term Fixed Income Securities (each as 
defined or described below).
    \14\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
    \15\ Although the Fund may hold swaps on the Reference 
Benchmark, or direct investments in the same futures contracts as 
those included in the Reference Benchmark, the Fund is not obligated 
to invest in any futures contracts included in, and does not seek to 
replicate the performance of, the Reference Benchmark.
    \16\ Swaps on the Reference Benchmark are included in 
``Commodity Investments'' as defined below.
    \17\ Cash equivalents are the short-term instruments enumerated 
in Commentary .01(c) to NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------

    The Fund intends to follow a multifactor strategy reflected by the 
Reference Benchmark, which Reference Benchmark equally weights three 
sub-indices designed to provide exposure to carry, momentum, and value 
factors. The Fund will invest in financial instruments described below 
that provide exposure to commodities and not in the physical 
commodities themselves. The ``carry'' sub-index emphasizes commodities 
and contract months with the greatest degree of backwardation or lowest 
degree of contango.\18\ Second, the ``momentum'' sub-index underweights 
or overweights commodities based on the strength of performance 
patterns over multiple time periods. Third, the ``value'' sub-index 
measures value for each commodity by the ratio of its 3-month average 
spot price to its 5-year average. Sector weights are held constant 
versus a broad non-factor weighted commodity index, but within each 
sector, weights of individual commodities are tilted to favor those 
with the lowest valuation ratio. Within each sub-index, contract months 
are selected to maximize backwardation and minimize contango.
---------------------------------------------------------------------------

    \18\ According to the Exchange, in order to maintain exposure to 
a futures contract on a particular commodity, an investor must sell 
the position in the expiring contract and buy a new position in a 
contract with a later delivery month, which is referred to as 
``rolling.'' If the price for the new futures contract is less than 
the price of the expiring contract, then the market for the 
commodity is said to be in ``backwardation.'' In these markets, roll 
returns are positive, which is referred to as ``positive carry.'' 
The term ``contango'' is used to describe a market in which the 
price for a new futures contract is more than the price of the 
expiring contract. In these markets, roll returns are negative, 
which is referred to as ``negative carry.'' The ``carry'' sub-index 
seeks to employ a positive carry strategy that emphasizes 
commodities and futures contract months with the greatest degree of 
backwardation and lowest degree of contango, resulting in net gains 
through positive roll returns.
---------------------------------------------------------------------------

    The Fund expects to obtain a substantial amount of its exposure to 
the carry, momentum, and value strategies by entering into total return 
swaps that pay the returns of the commodity futures contracts 
referenced in the Reference Benchmark. The Reference Benchmark includes 
20 futures contracts on physical agricultural, energy, livestock, 
precious metals, and industrial metals listed on U.S. regulated futures 
exchanges or non-U.S. futures exchanges with which the Exchange has in 
place a CSSA.\19\
---------------------------------------------------------------------------

    \19\ The commodity futures included in the Reference Benchmark 
are traded on the CME Group, ICE U.S., ICE Europe, Inc. and the 
London Metal Exchange (``LME''). ICE U.S., ICE Europe, Inc., and CME 
are members of the ISG. The Exchange represents that it has in place 
a CSSA with the LME.
---------------------------------------------------------------------------

    The Fund (through its Subsidiary (as defined below)) may hold the 
following listed derivative instruments: Futures, options, and swaps on 
the Reference Benchmark or commodities (which commodities are from the 
same sectors as those included in the Reference Benchmark); currencies; 
U.S. and non-U.S. equity securities; fixed income securities (as 
defined in Commentary .01(b) to NYSE Arca Rule 8.600-E, but excluding 
Short-Term Fixed Income Securities (as defined below)); and interest 
rates; or a basket or index of any of the foregoing (collectively, 
``Listed Derivatives'').\20\ Listed Derivatives will comply with the 
criteria in Commentary .01(d) of NYSE Arca Rule 8.600-E.
---------------------------------------------------------------------------

    \20\ Examples of Listed Derivatives the Fund may invest in 
include: Exchange traded futures contracts similar to those found in 
the Reference Benchmark, exchange traded futures contracts on the 
Reference Benchmark, swaps on commodity futures contracts similar to 
those found in the Reference Benchmark, and futures and options that 
correlate to the investment returns of commodities without investing 
directly in physical commodities.
---------------------------------------------------------------------------

    The Fund (through its Subsidiary) may hold the following OTC 
derivative instruments: Forwards, options, and swaps on the Reference 
Benchmark or commodities (which commodities are from the same sectors 
as those included in the Reference Benchmark); currencies; U.S. and 
non-U.S. equity securities; fixed income securities (as defined in 
Commentary .01(b) to NYSE Arca Rule 8.600-E, but excluding Short-Term 
Fixed Income Securities); and interest rates; or a basket or index of 
any of the foregoing (collectively, ``OTC Derivatives,'' \21\ and 
together with Listed Derivatives, ``Commodity Investments'').\22\
---------------------------------------------------------------------------

    \21\ As discussed below under ``Application of Generic Listing 
Requirements,'' the Fund's and the Subsidiary's holdings in OTC 
Derivatives will not comply with the criteria in Commentary .01(e) 
of NYSE Arca Rule 8.600-E.
    \22\ Examples of OTC Derivatives the Fund may invest in include 
swaps on commodity futures contracts similar to those found in the 
Reference Benchmark and options that correlate to the investment 
returns of commodities without investing directly in physical 
commodities.
---------------------------------------------------------------------------

    The Fund may hold cash, cash equivalents, and fixed income 
securities other than cash equivalents, as described further below.
    Specifically, the Fund may invest in Short-Term Fixed Income 
Securities (as defined below) other than cash equivalents on an ongoing 
basis for cash management purposes.\23\ Short-Term Fixed Income 
Securities will have a maturity of no longer than 397 days and include 
only the following: (i) Money market instruments; (ii) obligations 
issued or guaranteed by the U.S. government, its agencies or 
instrumentalities (including government-sponsored enterprises); (iii) 
negotiable certificates of deposit, bankers' acceptances, fixed-time 
deposits and other obligations of U.S. and non-U.S. banks (including 
non-U.S. branches) and similar institutions; (iv) commercial paper; (v) 
non-convertible corporate debt securities (e.g., bonds and debentures); 
(vi) repurchase agreements; and (vii) sovereign debt obligations of 
non-U.S. countries excluding emerging market countries \24\

[[Page 42032]]

(``Non-U.S. Sovereign Debt'') (collectively, ``Short-Term Fixed Income 
Securities''). Any of these securities may be purchased on a current or 
forward-settled basis.\25\
---------------------------------------------------------------------------

    \23\ As discussed under ``Application of Generic Listing 
Requirements'' below, investments in Short-Term Fixed Income 
Securities will not comply with the requirements of Commentary 
.01(b)(1)-(4) to NYSE Arca Rule 8.600-E.
    \24\ According to the Exchange, an ``emerging market country'' 
is a country that, at the time the Fund invests in the related fixed 
income instruments, is classified as an emerging or developing 
economy by any supranational organization such as the International 
Bank of Reconstruction and Development or any affiliate thereof (the 
``World Bank'') or the United Nations, or related entities, or is 
considered an emerging market country for purposes of constructing a 
major emerging market securities index.
    \25\ To the extent that the Fund and the Subsidiary invest in 
cash and Short-Term Fixed Income Securities that are cash 
equivalents (i.e., that have maturities of less than 3 months) as 
specified in Commentary .01(c) to NYSE Arca Rule 8.600-E, such 
investments will comply with Commentary .01(c) and may be held 
without limitation. Non-convertible corporate debt securities and 
Non-U.S. Sovereign Debt are not included as cash equivalents in 
Commentary .01(c).
---------------------------------------------------------------------------

    The Fund also may invest in fixed income securities as defined in 
Commentary .01(b) to NYSE Arca Rule 8.600-E,\26\ other than cash 
equivalents and Short-Term Fixed Income Securities, with remaining 
maturities longer than 397 days (``Fixed Income Securities''). Such 
Fixed Income Securities will comply with requirements of Commentary 
.01(b) to NYSE Arca Rule 8.600-E.\27\
---------------------------------------------------------------------------

    \26\ Commentary .01(b) to NYSE Arca Rule 8.600-E defines fixed 
income securities as debt securities that are notes, bonds, 
debentures or evidence of indebtedness that include, but are not 
limited to, U.S. Department of Treasury securities (``Treasury 
Securities''), government-sponsored entity securities (``GSEs''), 
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.
    \27\ Among the Fixed Income Securities in which the Fund may 
invest are commodity-linked notes.
---------------------------------------------------------------------------

    The Fund may also hold ETNs \28\ and ETFs.\29\
---------------------------------------------------------------------------

    \28\ ETNs are securities as described in NYSE Arca Rule 5.2-
E(j)(6) (Equity Index-Linked Securities, Commodity-Linked 
Securities, Currency-Linked Securities, Fixed Income Index-Linked 
Securities, Futures-Linked Securities and Multifactor Index-Linked 
Securities). All ETNs will be listed and traded in the U.S. on a 
national securities exchange. The Fund will not invest in inverse or 
leveraged (e.g., 2X, -2X, 3X or -3X) ETNs.
    \29\ For purposes of the filing, the term ``ETFs'' includes 
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca 
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca 
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a 
national securities exchange. The Fund will not invest in inverse or 
leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
---------------------------------------------------------------------------

    The Fund's exposure to Commodity Investments is obtained by 
investing through a wholly-owned subsidiary organized in the Cayman 
Islands (``Subsidiary'').\30\ The Fund controls the Subsidiary, and the 
Subsidiary is advised by the Adviser and has the same investment 
objective as the Fund. In compliance with the requirements of Sub-
Chapter M of the Internal Revenue Code of 1986, the Fund may invest up 
to 25% of its total assets in the Subsidiary. The Subsidiary is not an 
investment company registered under the 1940 Act and is a company 
organized under the laws of the Cayman Islands. The Trust's Board of 
Trustees (``Board'') has oversight responsibility for the investment 
activities of the Fund, including its investment in the Subsidiary, and 
the Fund's role as sole shareholder of the Subsidiary.
---------------------------------------------------------------------------

    \30\ The Exchange represents that all statements related to the 
Fund's investments and restrictions are applicable to the Fund and 
Subsidiary collectively.
---------------------------------------------------------------------------

    The Fund's Commodity Investments held in the Subsidiary are 
intended to provide the Fund with exposure to broad commodities. The 
Subsidiary may hold cash and cash equivalents.

B. Investment Restrictions

    The Fund and the Subsidiary will not invest in securities or other 
financial instruments that have not been described in the proposed rule 
change.
    The Fund's holdings in non-convertible corporate debt securities 
shall not exceed 30% of the weight of Fund's holdings in cash 
equivalents and Short-Term Fixed Income Securities, collectively.
    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, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (e.g., 2X or -3X) 
of the Fund's Reference Benchmark.

C. Use of Derivatives by the Fund

    Investments in derivative instruments will be made in accordance 
with the Fund's investment objective and policies. To limit the 
potential risk associated with such transactions, the Fund will enter 
into offsetting transactions or segregate or ``earmark'' assets 
determined to be liquid by the Adviser in accordance with procedures 
established by the Board). In addition, the Fund has included 
appropriate risk disclosure in its offering documents, including 
leveraging risk. Leveraging risk is the risk that certain transactions 
of the Fund, including the Fund's use of derivatives, may give rise to 
leverage, causing the Fund to be more volatile than if it had not been 
leveraged.
    The Adviser believes there will be minimal, if any, impact to the 
arbitrage mechanism as a result of the Fund's use of derivatives. The 
Adviser understands that market makers and participants should be able 
to value derivatives as long as the positions are disclosed with 
relevant information. The Adviser believes that the price at which 
Shares of the Fund trade will continue to be disciplined by arbitrage 
opportunities created by the ability to purchase or redeem Shares of 
the Fund at their net asset value (``NAV''), which should ensure that 
Shares of the Fund will not trade at a material discount or premium in 
relation to their NAV.
    The Exchange states that the Adviser does not believe there will be 
any significant impacts to the settlement or operational aspects of the 
Fund's arbitrage mechanism due to the use of derivatives.

D. Application of Generic Listing Requirements

    The Exchange represents that the portfolio for the Fund will not 
meet all of the ``generic'' listing requirements of Commentary .01 to 
NYSE Arca Rule 8.600-E applicable to the listing of Managed Fund 
Shares. The Exchange represents that, other than Commentary .01(b)(1)-
(4) (with respect to Short-Term Fixed Income Securities) and .01(e) 
(with respect to OTC Derivatives) to NYSE Arca Rule 8.600-E, as 
described below, the Fund's portfolio will meet all other requirements 
of NYSE Arca Rule 8.600-E.\31\
---------------------------------------------------------------------------

    \31\ The Exchange states that the Adviser represents, in 
particular, that the Fund's holdings in OTC Derivatives will comply 
with the requirements of Commentary .01(f) to NYSE Arca Rule 8.600-
E, which provides, in part, that to the extent that OTC derivatives 
are used to gain exposure to individual equities and/or fixed income 
securities, or to indexes of equities and/or indexes of fixed income 
securities, the aggregate gross notional value of such exposure will 
meet the generic listing criteria applicable to equities and fixed 
income securities (including gross notional exposures) set forth in 
Commentary .01(a) and .01(b) to NYSE Arca Rule 8.600-E, 
respectively.
---------------------------------------------------------------------------

    According to the Exchange, the Fund's investments in Short-Term 
Fixed Income Securities will not comply with the requirements set forth 
in Commentary .01(b)(1)-(4) to NYSE Arca Rule 8.600-E.\32\ The Exchange 
states

[[Page 42033]]

that while the requirements set forth in Commentary .01(b)(1)-(4) 
include rules intended to ensure that the fixed income securities 
included in a fund's portfolio are sufficiently large and diverse, and 
have sufficient publicly available information regarding the issuances, 
the Exchange believes that any concerns, regarding non-compliance are 
mitigated by the types of instruments that the Fund would hold. The 
Exchange represents that the Fund's Short-Term Fixed Income Securities 
primarily would include those instruments that are included in the 
definition of cash and cash equivalents,\33\ but are not considered 
cash and cash equivalents because they have maturities of three months 
or longer. The Exchange believes, however, that, all Short-Term Fixed 
Income Securities, including non-convertible corporate debt securities 
\34\ and Non-U.S. Sovereign Debt (which are not cash equivalents as 
enumerated in Commentary .01(c) to NYSE Arca Rule 8.600-E), are less 
susceptible than other types of fixed income instruments both to price 
manipulation and volatility and that the holdings as proposed are 
generally consistent with the policy concerns which Commentary 
.01(b)(1)-(4) is intended to address. Because the Short-Term Fixed 
Income Securities will consist of high-quality fixed income securities 
described above, the Exchange believes that the policy concerns that 
Commentary .01(b)(1)-(4) are intended to address are otherwise 
mitigated and that the Fund should be permitted to hold these 
securities in a manner that may not comply with Commentary .01(b)(1)-
(4).
---------------------------------------------------------------------------

    \32\ Commentary .01(b)(1)-(4) to NYSE Arca Rule 8.600-E requires 
that the components of the fixed income portion of a portfolio meet 
the following criteria initially and on a continuing basis: (1) 
Components that in the aggregate account for at least 75% of the 
fixed income weight of the portfolio each shall have a minimum 
original principal amount outstanding of $100 million or more; (2) 
no component fixed-income security (excluding Treasury Securities 
and GSEs) shall represent more than 30% of the fixed income weight 
of the portfolio, and the five most heavily weighted component fixed 
income securities in the portfolio (excluding Treasury Securities 
and GSEs) shall not in the aggregate account for more than 65% of 
the fixed income weight of the portfolio; (3) an underlying 
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); and (4) component securities that in 
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.
    \33\ See supra note 17.
    \34\ The Exchange notes that the Fund's holdings in non-
convertible corporate debt securities will not exceed 30% of the 
weight of the Fund's holdings in cash equivalents and Short-Term 
Fixed Income Securities, collectively.
---------------------------------------------------------------------------

    The Exchange represents that the Fund's portfolio with respect to 
OTC Derivatives will not comply with the requirements set forth in 
Commentary .01(e) to NYSE Arca Rule 8.600-E.\35\ Specifically, the 
Exchange states that up to 60% of the Fund's assets (calculated as the 
aggregate gross notional value) may be invested in OTC Derivatives. The 
Exchange states that the Adviser believes 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 
critical that the Fund be able to utilize available OTC Derivatives to 
efficiently gain exposure to the multiple commodities that underlie the 
Reference Benchmark, as well as commodity futures contracts similar to 
those found in the Reference Benchmark. The Exchange states that OTC 
Derivatives can be tailored to provide specific exposure to the Fund's 
Reference Benchmark, as well as commodity futures contracts similar to 
those found in the Reference Benchmark, allowing the Fund to more 
efficiently meet its investment objective.\36\ The Exchange further 
states that if the Fund were to gain commodity exposure exclusively 
through the use of listed futures, the Fund's holdings in Listed 
Derivatives would be subject to position limits and accountability 
levels established by an exchange, and such limitations would restrict 
the Fund's ability to gain efficient exposure to the commodities in the 
Reference Benchmark, or futures contracts similar to those found in the 
Reference Benchmark, thereby impeding the Fund's ability to satisfy its 
investment objective.
---------------------------------------------------------------------------

    \35\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that, 
on an initial and continuing basis, no more than 20% of the assets 
in the portfolio may be invested in OTC derivatives (calculated as 
the aggregate gross notional value of the OTC derivatives).
    \36\ As an example, the Exchange states that the Reference 
Benchmark is composed of 20 futures contracts across 20 physical 
commodities, which may not be sufficiently liquid and would not 
provide the commodity exposure the Fund requires to meet its 
investment objective if the Fund were to invest in the futures 
directly. The Exchange states that a total return swap can be 
structured to provide exposure to the same futures contracts as 
exist in the Reference Benchmark, as well as commodity futures 
contracts similar to those found in the Reference Benchmark, while 
providing sufficient efficiency to allow the Fund to more easily 
meet its investment objective.
---------------------------------------------------------------------------

    The Exchange represents that the Adviser and its affiliates 
actively monitor counterparty credit risk exposure (including for OTC 
derivatives) and evaluate counterparty credit quality on a continuous 
basis. With respect to the Fund's (and the Subsidiary's) investments in 
derivatives on the Reference Benchmark or commodities (which 
commodities are from the same sectors as those included in the 
Reference Benchmark), the Exchange states that the Reference Benchmark 
provides broad-based exposure to commodities as an asset class, as it 
includes at least 20 futures contracts on physical agricultural, 
energy, livestock, precious metals, and industrial metals. In addition, 
the Exchange states that the Adviser represents that futures on all 
commodities in the Reference Benchmark are traded on futures exchanges 
that are members of the ISG or with which the Exchange has in place a 
CSSA.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 4, is consistent with the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\37\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 4, is consistent 
with Section 6(b)(5) of the Act,\38\ which requires, among other 
things, that the Exchange's rules 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.
---------------------------------------------------------------------------

    \37\ 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).
    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    According to the Exchange, other than Commentary .01(b)(1)-(4) with 
respect to Short-Term Fixed Income Securities and Commentary .01(e), 
the Fund's portfolio will meet all other requirements of Commentary .01 
to NYSE Arca Rule 8.600-E, and the Shares of the Fund will conform to 
the initial and continued listing criteria under NYSE Arca Rule 8.600-
E.
    The Fund's investments in Short-Term Fixed Income Securities will 
not meet the requirements for fixed income securities set forth in 
Commentary .01(b)(1)-(4) to NYSE Arca Rule 8.600-E.\39\ The Commission, 
however, believes that the limited nature of the Fund's investment in, 
and certain restrictions on, the Short Term Fixed Income Securities 
helps to mitigate concerns regarding the Shares being susceptible to 
manipulation because of the Fund's investment in the Short Term Fixed

[[Page 42034]]

Income Securities.\40\ Specifically, the Exchange states that Short-
Term Fixed Income Securities primarily will include instruments that 
are included in the definition of cash equivalents,\41\ but are not 
considered cash equivalents because they have maturities of three 
months or longer. As proposed, the Fund's investments in Short-Term 
Fixed Income Securities will also include non-convertible corporate 
debt securities, but such holdings would be limited to 30% of the 
weight of Fund's holdings in cash equivalents and Short-Term Fixed 
Income Securities, collectively. In addition, the Fund's investments in 
Short-Term Fixed Income Securities would include sovereign debt, but 
they exclude sovereign debt obligations of emerging market countries. 
Further, the Fund will invest in Short Term Fixed Income Securities for 
cash management purposes only, and the Short Term Fixed Income 
Securities in which the Fund may invest will have maturities of no 
longer than 397 days.\42\
---------------------------------------------------------------------------

    \39\ See supra note 32.
    \40\ The Commission notes that all the fixed income securities 
the Fund may invest in other than those included in Short-Term Fixed 
Income Securities and cash equivalents will comply with the 
requirements of Commentary .01(b) to NYSE Arca Rule 8.600-E, and the 
cash equivalents the Fund may invest in will comply with the 
requirements of Commentary .01(c). See supra Section II.A.
    \41\ See supra note 17.
    \42\ See supra Section II.A.
---------------------------------------------------------------------------

    In addition, the Fund's investments in OTC Derivatives will not 
comply with Commentary .01(e) to NYSE Arca Rule 8.600-E, which requires 
that no more than 20% of the assets of the Fund be invested in OTC 
derivatives (calculated as the aggregate gross notional value of such 
OTC derivatives). In the alternative, the Exchange proposes that up to 
60% of the Fund's assets (calculated as the aggregate gross notional 
value) may be invested in OTC Derivatives.\43\ The Exchange states that 
it may be necessary for the Fund to utilize OTC Derivatives in order to 
more efficiently hedge its portfolio or to meet its investment 
objective.\44\
---------------------------------------------------------------------------

    \43\ The Exchange represents that the Adviser and its affiliates 
actively monitor counterparty credit risk exposure for OTC 
derivatives and evaluate counterparty credit quality on a continuous 
basis. See supra Section II.D. Moreover, the Exchange states that 
investments in derivative instruments will be made in accordance 
with the Fund's investment objective and policies. To limit the 
potential risk associated with such transactions, the Fund will 
enter into offsetting transactions or segregate or ``earmark'' 
assets determined to be liquid by the Adviser in accordance with 
procedures established by the Trust's Board of Trustees. In 
addition, the Fund has included appropriate risk disclosure in its 
offering documents, including leveraging risk. See supra Section II. 
C.
    \44\ See supra Section II.D.
---------------------------------------------------------------------------

    The Commission, however, believes that certain factors help to 
mitigate concerns that the Fund's investment in OTC Derivatives will 
make the Shares more susceptible to manipulation. Specifically, with 
respect to OTC Derivatives on the Reference Benchmark (or on the 
commodities underlying the futures contracts included in the Reference 
Benchmark), the Exchange represents that the Reference Benchmark 
includes at least 20 futures contracts on physical agricultural, 
energy, livestock, precious metals, and industrial metals, and that 
futures on all of the commodities in the Reference Benchmark are traded 
on futures exchanges that are members of the ISG or with which the 
Exchange has in place a CSSA. Moreover, on a daily basis, the Fund will 
be required to disclose on its website the information regarding the 
Disclosed Portfolio required under NYSE Arca Rule 8.600-E(c)(2), to the 
extent applicable,\45\ and the website information will be publicly 
available at no charge.\46\
---------------------------------------------------------------------------

    \45\ 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.
    \46\ See Amendment No. 4, supra note 9, at 17.
---------------------------------------------------------------------------

    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 Exchange 
represents that the issuer must notify 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 \47\ 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-E(m).
---------------------------------------------------------------------------

    \47\ 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.
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 4, is consistent with Section 
6(b)(5) of the Act \48\ and the rules and regulations thereunder 
applicable to a national securities exchange.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 4 to the Proposed Rule 
Change

    Interested persons are invited to submit written views, data, and 
arguments concerning whether Amendment No. 4 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-2018-98 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-2018-98. 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.

[[Page 42035]]

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-2018-98 and should 
be submitted on or before September 6, 2019.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 4

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 4, prior to the thirtieth day 
after the date of publication of notice of the filing of Amendment No. 
4 in the Federal Register. The Commission notes that Amendment No. 4 
clarified the permitted investments of the Fund and the application of 
NYSE Arca Rule 8.600-E, Commentary .01 to the Fund's investments. 
Amendment No. 4 also provided other clarifications and additional 
information to the proposed rule change. The changes and additional 
information in Amendment No. 4 assist the Commission in evaluating the 
Exchange's proposal and in determining that the listing and trading of 
the Shares is consistent with the Act. Accordingly, the Commission 
finds good cause, pursuant to Section 19(b)(2) of the Act,\49\ to 
approve the proposed rule change, as modified by Amendment No. 4, on an 
accelerated basis.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\50\ that the proposed rule change (SR-NYSEArca-2018-98), as 
modified by Amendment No. 4 thereto, be, and it hereby is, approved on 
an accelerated basis.
---------------------------------------------------------------------------

    \50\ Id.
    \51\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17593 Filed 8-15-19; 8:45 am]
 BILLING CODE 8011-01-P