[Federal Register Volume 84, Number 162 (Wednesday, August 21, 2019)]
[Notices]
[Pages 43638-43640]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17986]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86687; File No. SR-NYSE-2019-35]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Supplementary Material .01(b)(5) to NYSE Rule 8.600 Relating to 
Generic Listing Standards for Managed Fund Shares

August 15, 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 August 1, 2019, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II 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 to amend Supplementary Material .01(b)(5) to 
NYSE Rule 8.600 relating to generic listing standards for Managed Fund 
Shares applicable to holdings in fixed income securities. The proposed 
rule 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.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    Supplementary Material .01 to NYSE Rule 8.600 sets forth generic 
listing standards for Managed Fund Shares.\4\ Managed Fund Shares may 
be listed on the Exchange or traded pursuant to unlisted trading 
privileges (``UTP''). The Exchange proposes to amend Supplementary 
Material .01(b)(5) to Rule 8.600, as described below. \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 management 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 management investment company that issues 
Investment Company Units that may be traded on the Exchange under 
NYSE Rule 5.2(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\ Managed Fund Shares are currently traded on the Exchange 
pursuant to UTP and are not listed on the Exchange. Therefore, this 
proposed rule change would only apply to Exchange-listed Managed 
Fund Shares in the event the Exchange determines to list such 
securities in the future.
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Proposed Amendment to Supplementary Material .01(b)(5) to Rule 8.600
    Supplementary Material .01(b) to NYSE Rule 8.600 sets forth generic 
listing standards applicable to fixed income securities included in the 
portfolio of a series of Managed Fund Shares.\6\ Supplementary Material 
.01(b)(5) provides that non-agency, non- GSE and privately-issued 
mortgage-related and other asset-backed securities (``ABS'' and, 
collectively, ``non-agency ABS'') 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 
Supplementary Material .01(b)(5) by deleting the words ``fixed income 
portion'' to provide that such 20% limitation would apply to the entire 
portfolio rather than to only the fixed income portion of the 
portfolio. Thus, Supplementary Material .01(b)(5) would provide that 
non-agency, non-GSE and privately-issued mortgage-related and other ABS 
components of a portfolio shall not account, in the aggregate, for more 
than 20% of the weight of the portfolio.
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    \6\ Supplementary Material .01(b) 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 (``Treasury Securities''), 
government-sponsored entity securities (``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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    The Exchange believes this amendment is appropriate because a 
fund's investment in non-agency, non-GSE and privately-issued mortgage-
related and other ABS may provide a fund with benefits associated with 
increased diversification, as such investments may be less correlated 
to interest rates than many other fixed income securities. The Exchange 
notes that application of the 20% limitation only to the fixed income 
portion of a fund's portfolio may impose a much more restrictive 
percentage limit on permitted holdings of non-agency ABS for funds that 
have a more diversified investment portfolio than for funds that hold 
principally or exclusively fixed income securities. For example, a fund 
holding 100% of its assets in fixed income securities can hold 20% of 
its entire portfolio's weight in non-agency ABS. 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 is limited to a 
5% (25% * 20% = 5%) allocation to non-agency ABS. The Exchange, 
therefore, believes application of the 20% limitation to a fund's 
entire portfolio would be more equitable for Managed Fund Shares 
issuers with different investment objectives and holdings.
    The Commission has previously approved a proposed rule change by 
NYSE Arca, Inc. that is substantively identical to the amendment to 
NYSE Rule 8.600, Supplementary Material .01(b)(5) proposed herein.\7\ 
Therefore, the Exchange believes it is appropriate to apply the 20% 
limitation to a fund's investment in non-agency, non-GSE and privately-
issued mortgage-related and other ABS components of a portfolio in 
Supplementary Material .01(b)(5) to a fund's total assets. Non-agency 
ABS would otherwise satisfy all generic listing requirements of Rule 
8.600, Supplementary Material .01(b).
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    \7\ Securities Exchange Act Release No. 86017 (June 3, 2019), 84 
FR 26711 (June 7, 2019) (SR-NYSEArca-2019-06) (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).
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    The Exchange believes the proposed amendments would provide issuers 
of Managed Fund Shares with additional investment choices for fund 
portfolios for issues permitted to list and trade on

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the Exchange pursuant to Rule 19b-4(e),\8\ which would enhance 
competition among market participants, to the benefit of investors and 
the marketplace.
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    \8\ See note 5, supra.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to, and 
perfect the mechanisms of, a free and open market and a national market 
system and, in general, to protect investors and the public interest 
and because it is not designed to permit unfair discrimination between 
customers, issuers, brokers, or dealers.
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    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Exchange 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. The Exchange notes that the 
Exchange or 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, 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. 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.
    With respect to the proposed amendment to Supplementary Material 
.01(b)(5), the Exchange believes this amendment is appropriate because 
a fund's investment in non-agency, non-GSE and privately-issued 
mortgage-related and other ABS may provide a fund with benefits 
associated with increased diversification, as such investments may be 
less correlated to interest rates than many other fixed income 
securities. As noted above, application of the 20% limitation to only 
the fixed income portion of a fund's portfolio may impose a much lower 
percentage limit on permitted holdings of non-agency ABS for funds that 
have a more diversified investment portfolio than for funds that hold 
principally or exclusively fixed income securities. The Exchange, 
therefore, believes application of the 20% limitation to a fund's 
entire portfolio would be more equitable for Managed Fund Shares 
issuers with different investment objectives and holdings.
    The Exchange notes that the Commission has previously approved a 
proposed rule change by NYSE Arca, Inc. that is substantively identical 
to the amendment to NYSE Rule 8.600, Supplementary Material .01(b)(5) 
proposed herein.\11\ Therefore, the Exchange believes it is appropriate 
to apply the 20% limitation to a fund's investment in non-agency, non-
GSE and privately-issued mortgage-related and other ABS components of a 
portfolio in Supplementary Material .01(b)(5) to a fund's total assets. 
Non-agency ABS would otherwise satisfy all generic listing requirements 
of Rule 8.600, Supplementary Material .01(b).
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    \11\ See note 7, supra.
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    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of Managed Fund Shares that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

B. Self-Regulatory Organization's Statement on Burden on Competition

    In accordance with Section 6(b)(8) of the Act,\12\ the Exchange 
believes that the proposed rule change would not impose any burden on 
competition that is not necessary or appropriate in furtherance of the 
purposes of the Act. The proposed rule change will facilitate the 
listing and trading of additional types of Managed Fund Shares that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace.
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    \12\ 15 U.S.C. 78f(b)(8).
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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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative prior to 30 days from the date on which it was filed, 
or such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \13\ and Rule 19b-
4(f)(6) thereunder.\14\
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    \13\ 15 U.S.C. 78s(b)(3)(A).
    \14\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \15\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\16\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has 
requested that the Commission waive the 30-day operative delay so that 
the proposal may become operative upon filing, which would allow the 
Exchange to apply the proposed rule to Managed Fund Shares in the event 
the Exchange determines to list such securities before the end of the 
30-day operative delay period. The Exchange also noted that the 
Commission has previously approved a substantively identical proposal 
by another national securities exchange.\17\ The Commission believes 
that waiving the 30-day operative delay is consistent with the 
protection of investors and the public interest. Accordingly, the 
Commission waives the 30-day operative delay and designates the 
proposed rule change operative upon filing.\18\
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    \15\ 17 CFR 240.19b-4(f)(6).
    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ See supra note 7.
    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the

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Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule change should be 
approved or 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-NYSE-2019-35 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-NYSE-2019-35. 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-NYSE-2019-35 and should be submitted on 
or before September 11, 2019.
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    \19\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-17986 Filed 8-20-19; 8:45 am]
 BILLING CODE 8011-01-P