[Federal Register Volume 85, Number 197 (Friday, October 9, 2020)]
[Notices]
[Pages 64194-64212]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22377]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90091; File No. SR-NYSE-2020-77]


Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing of Proposed Rule Change To Adopt New Rule 8.601 
(Active Proxy Portfolio Shares) and Rule 8.900 (Managed Portfolio 
Shares), Amend the Preamble to Rule 8P, and Amend Section 302.00 of the 
Listed Company Manual

October 5, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on September 22, 2020, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``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 (1) adopt new Rule 8.601, (2) adopt new 
Rule 8.900, (3) amend the preamble to Rule 8P, and (4) amend Listed 
Company Manual Section 302.00. 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
    The Exchange proposes to adopt new Rules 8.601 and 8.900 to list 
Active Proxy Portfolio Shares and Managed Portfolio Shares, 
respectively, on the Exchange. These proposed rules are based on the 
NYSE Arca, Inc. (``NYSE Arca'') rules of the same number, with non-
substantive changes. The Exchange also proposes to amend the preamble 
to Rule 8P to permit the listing of Active Proxy Portfolio Shares and 
Managed Portfolio Shares on the Exchange. The Exchange also proposes to 
amend Section 302.00 of the Listed Company Manual to include Active 
Proxy Portfolio Shares and Managed Portfolio Shares listed pursuant to 
proposed Rules 8.601 and 8.900 among the securities for which the 
annual shareholders' meeting requirement does not apply.
Proposed Rule 8.601
    The Exchange proposes to add new Rule 8.601 to permit the listing 
and trading, or trading pursuant to unlisted trading privileges 
(``UTP''), of Active Proxy Portfolio Shares, which are securities 
issued by an actively managed open-end investment management company. 
Proposed Rule 8.601 is based on NYSE Arca Rule 8.601-E without any 
substantive differences.
Proposed Listing Rules
    Proposed Rule 8.601(a) provides that the Exchange would consider 
for trading, whether by listing or pursuant to UTP, Active Proxy 
Portfolio Shares that meet the criteria of Rule 8.601.
    Proposed Rule 8.601(b) provides that Rule 8.601 would be applicable 
only to Active Proxy Portfolio Shares and that, except to the extent 
inconsistent with Rule 8.601, or unless the context otherwise requires, 
the rules and procedures of the Exchange's Board of Directors shall be 
applicable to the trading on the Exchange of such securities. Proposed 
Rule 8.601(b) provides further that Active Proxy Portfolio Shares would 
be included within the definition of ``security'' or ``securities'' as 
such terms are used in the Rules of the Exchange.
    Proposed Rule 8.601(c)(1) defines the ``Active Proxy Portfolio 
Share'' as a security that (a) is issued by an investment company 
registered under the Investment Company Act of 1940 (``Investment 
Company'') organized as an open-end management investment company 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 
minimum number of shares, or multiples thereof, in return for a deposit 
by the purchaser of the Proxy Portfolio and/or cash with a value equal 
to the next determined net asset value (``NAV''); (c) when aggregated 
in the same specified minimum number of Active Proxy Portfolio Shares, 
or multiples thereof, may be redeemed at a holder's request in return 
for the Proxy Portfolio and/or cash to the holder by the issuer with a 
value equal to the next determined NAV; and (d) the portfolio holdings 
for which are disclosed within at least 60 days following the end of 
every fiscal quarter.
    Proposed Rule 8.601(c)(2) defines the term ``Actual Portfolio'' as 
the identities and quantities of the securities and other assets held 
by the Investment Company that shall form the basis for the Investment 
Company's calculation of NAV at the end of the business day.
    Proposed Rule 8.601(c)(3) defines the term ``Proxy Portfolio'' as a 
specified portfolio of securities, other financial instruments, and/or 
cash designed to track closely the daily performance of the Actual 
Portfolio of a series of Active Proxy Portfolio Shares as provided in 
the exemptive relief pursuant to the Investment Company Act of 1940 
(the ``1940 Act'') applicable to such series. The website for each 
series of Active Proxy Portfolio Shares shall disclose the information 
regarding the Proxy Portfolio as provided in the exemptive relief 
pursuant to the 1940 Act applicable to such series, including the 
following, to the extent applicable:
    (i) Ticker symbol;
    (ii) CUSIP or other identifier;
    (iii) Description of holding;
    (iv) Quantity of each security or other asset held; and
    (v) Percentage weighting of the holding in the portfolio.\4\
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    \4\ The information required in proposed Rule 8.601(c)(3) for 
the Proxy Portfolio is the same as that required in SEC Rule 6c-
11(c)(1)(i)(A) through (E) under the 1940 Act for exchange-traded 
funds operating in compliance with Rule 6c-11. See Release Nos. 33-
10695; IC-33646; File No. S7-15-18 (Exchange-Traded Funds) 
(September 25, 2019), 84 FR 57162 (October 24, 2019) (the ``Rule 6c-
11 Release''). The Exchange believes it is appropriate to require 
such information, rather than all information required under Rule 
8.600(c)(2). In adopting this requirement for funds operating in 
compliance with Rule 6c-11, the Commission stated that ``a more 
streamlined requirement will provide standardized portfolio holdings 
disclosure in a more efficient, less costly, and less burdensome 
format, while still providing market participants with relevant 
information. Accordingly, Rule 6c-11 will require an ETF to post a 
subset of the information required by the listing exchanges' current 
generic listing standards for actively managed ETFs.'' The 
Commission stated further that ``this framework will provide market 
participants with the information necessary to support an effective 
arbitrage mechanism and eliminate potential investor confusion due 
to a lack of standardization.'' See Rule 6c-11 Release, notes 249-
260 and accompanying text.

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[[Page 64195]]

    Proposed Rule 8.601(c)(4) defines the term ``Reporting Authority'' 
in respect of a particular series of Active Proxy Portfolio Shares as 
the Exchange, an institution, or a reporting service designated by the 
Exchange or by the exchange that lists a particular series of Active 
Proxy Portfolio Shares (if the Exchange is trading such series pursuant 
to UTP) as the official source for calculating and reporting 
information relating to such series, including, but not limited to, 
NAV, the Actual Portfolio, Proxy Portfolio, or other information 
relating to the issuance, redemption, or trading of Active Proxy 
Portfolio Shares. A series of Active Proxy Portfolio Shares may have 
more than one Reporting Authority, each having different functions.
    Proposed Rule 8.601(c)(5) defines the term ``normal market 
conditions'' as including, but not limited to, the absence of trading 
halts in the applicable financial markets generally; operational issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or manmade 
disaster, act of God, armed conflict, act of terrorism, riot or labor 
disruption, or any similar intervening circumstance.
    Proposed Rule 8.601(d) sets forth initial and continued listing 
criteria applicable to Active Proxy Portfolio Shares. Proposed Rule 
8.601(d)(1) provides that each series of Active Proxy Portfolio Shares 
shall be listed and traded on the Exchange subject to application of 
the following initial listing criteria:
    (A) For each series, the Exchange shall establish a minimum number 
of Active Proxy Portfolio Shares required to be outstanding at the time 
of commencement of trading on the Exchange.
    (B) The Exchange shall obtain a representation from the issuer of 
each series of Active Proxy Portfolio Shares that the NAV per share for 
the series shall be calculated daily and that the NAV, the Proxy 
Portfolio, and the Actual Portfolio shall be made publicly available to 
all market participants at the same time.
    (C) All Active Proxy Portfolio Shares shall have a stated 
investment objective, which shall be adhered to under normal market 
conditions.
    Proposed Rule 8.601(d)(2) provides that each series of Active Proxy 
Portfolio Shares shall be listed and traded subject to application of 
the following continued listing criteria: The Actual Portfolio shall be 
publicly disseminated within at least 60 days following the end of 
every fiscal quarter and shall be made publicly available to all market 
participants at the same time (proposed Rule 8.601(d)(2)(A)(i)), and 
the Proxy Portfolio will be made publicly available on the website for 
each series of Active Proxy Portfolio Shares at least once daily and 
will be made available to all market participants at the same time 
(proposed Rule 8.601(d)(2)(B)(i)).
    Proposed Rule 8.601(d)(2)(C) provides that the Exchange would 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 5.5(m) for, a series of Active Proxy Portfolio 
Shares under any of the following circumstances:
    (i) If any of the continued listing requirements set forth in Rule 
8.601 are not continuously maintained;
    (ii) if either the Proxy Portfolio or Actual Portfolio is not made 
available to all market participants at the same time;
    (iii) if, following the initial twelve-month period after 
commencement of trading on the Exchange of a series of Active Proxy 
Portfolio Shares, there are fewer than 50 beneficial holders of such 
series of Active Proxy Portfolio Shares;
    (iv) if the Exchange is notified, or otherwise becomes aware, that 
the Investment Company has failed to file any filings required by the 
Commission or is not in compliance with the conditions of any currently 
applicable exemptive order or no-action relief granted by the 
Commission or Commission staff to the Investment Company with respect 
to a series of Active Proxy Portfolio Shares;
    (v) if any of the statements or representations regarding (a) the 
description of the portfolio, (b) limitations on portfolio holdings, or 
(c) the applicability of Exchange listing rules, specified in the 
Exchange's rule filing pursuant to Section 19(b) of the Act to permit 
the listing and trading of a series of Active Proxy Portfolio Shares, 
is not continuously maintained; or
    (vi) if such other event shall occur or condition exists which, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.
    Proposed Rule 8.601(d)(2)(D) (Trading Halt) provides that (i) the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in a series of Active Proxy Portfolio Shares. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the series of Active Proxy 
Portfolio Shares inadvisable. These may include: (a) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the Proxy Portfolio and/or Actual Portfolio; or 
(b) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. If a series 
of Active Proxy Portfolio Shares is trading on the Exchange pursuant to 
UTP, the Exchange shall halt trading in that series as specified in 
Rule 7.18(d)(1). If the Exchange becomes aware that the NAV, Proxy 
Portfolio, or Actual Portfolio with respect to a series of Active Proxy 
Portfolio Shares is not made available to all market participants at 
the same time, the Exchange shall halt trading in such series until 
such time as the NAV, Proxy Portfolio or Actual Portfolio is available 
to all market participants at the same time, as applicable.
    Proposed Rule 8.601(d)(2)(E) provides that, upon termination of an 
Investment Company, the Exchange requires that Active Proxy Portfolio 
Shares issued in connection with such entity be removed from Exchange 
listing.
    Proposed Rule 8.601(d)(2)(F) provides that voting rights shall be 
as set forth in the applicable Investment Company prospectus.
    Proposed Rule 8.601(e) (Limitation of Exchange Liability) provides 
that neither the Exchange, the Reporting Authority, when the Exchange 
is acting in the capacity of a Reporting Authority, nor any agent of 
the Exchange shall have any liability for damages, claims, losses, or 
expenses caused by any errors, omissions, or delays in calculating or 
disseminating any current portfolio value; the current value of the 
portfolio of securities required to be deposited to the Investment 
Company in connection with issuance of Active Proxy Portfolio Shares; 
the amount of any dividend equivalent payment or cash distribution to 
holders of Active Proxy Portfolio Shares; NAV; or other information 
relating to the purchase, redemption, or trading of Active Proxy 
Portfolio Shares, resulting from any negligent act or omission by the 
Exchange, the Reporting Authority, when the Exchange is acting in the 
capacity of a Reporting Authority, or any agent of the

[[Page 64196]]

Exchange, or any act, condition, or cause beyond the reasonable control 
of the Exchange, its agent, or the Reporting Authority, when the 
Exchange is acting in the capacity of a Reporting Authority, including, 
but not limited to, an act of God; fire; flood; extraordinary weather 
conditions; war; insurrection; riot; strike; accident; action of 
government; communications or power failure; equipment or software 
malfunction; or any error, omission, or delay in the reports of 
transactions in one or more underlying securities.
    Proposed Commentary .01 to Rule 8.601 provides that the Exchange 
will file separate proposals under Section 19(b) of the Act before the 
listing and trading of a series of Active Proxy Portfolio Shares. All 
statements or representations contained in such rule filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings, or (c) the applicability of Exchange listing rules specified 
in such rule filing will constitute continued listing requirements. An 
issuer of such securities must notify the Exchange of any failure to 
comply with such continued listing requirements.
    Proposed Commentary .02 provides that transactions in Active Proxy 
Portfolio Shares shall occur during the trading hours specified in Rule 
7.34(a).
    Proposed Commentary .03 provides that the Exchange will implement 
and maintain written surveillance procedures for Active Proxy Portfolio 
Shares. As part of these surveillance procedures, the Investment 
Company's investment adviser will upon request by the Exchange or the 
Financial Industry Regulatory Authority, Inc. (``FINRA''), on behalf of 
the Exchange, make available to the Exchange or FINRA the daily Actual 
Portfolio holdings of each series of Active Proxy Portfolio Shares.
    Proposed Commentary .04 provides that, if the investment adviser to 
the Investment Company issuing Active Proxy Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company's 
Actual Portfolio and/or Proxy Portfolio. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's Actual Portfolio and/or Proxy Portfolio or 
has access to non-public information regarding the Investment Company's 
Actual Portfolio and/or the Proxy Portfolio or changes thereto must be 
subject to procedures reasonably designed to prevent the use and 
dissemination of material non-public information regarding the Actual 
Portfolio and/or the Proxy Portfolio or changes thereto.
    Proposed Commentary .05 provides that any person or entity, 
including a custodian, Reporting Authority, distributor, or 
administrator, who has access to non-public information regarding the 
Investment Company's Actual Portfolio or the Proxy Portfolio or changes 
thereto, must be subject to procedures reasonably designed to prevent 
the use and dissemination of material non-public information regarding 
the applicable Investment Company Actual Portfolio or the Proxy 
Portfolio or changes thereto. Moreover, if any such person or entity is 
registered as a broker-dealer or affiliated with a broker-dealer, such 
person or entity will erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such 
Investment Company Actual Portfolio or Proxy Portfolio.
Key Features of Active Proxy Portfolio Shares
    While funds issuing Active Proxy Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares, 
Active Proxy Portfolio Shares differ from Managed Fund Shares in the 
following important respects. First, in contrast to Managed Fund 
Shares, which are actively-managed funds listed and traded under Rule 
8.600 and for which a ``Disclosed Portfolio'' is required to be 
disseminated at least once daily,\5\ the portfolio for an issue of 
Active Proxy Portfolio Shares will be publicly disclosed within at 
least 60 days following the end of every fiscal quarter in accordance 
with normal disclosure requirements otherwise applicable to open-end 
management investment companies registered under the 1940 Act.\6\ The 
composition of the portfolio of an issue of Active Proxy Portfolio 
Shares would not be available at commencement of Exchange listing and 
trading. Second, in connection with the creation and redemption of 
Active Proxy Portfolio Shares, such creation or redemption may be 
exchanged for a Proxy Portfolio with a value equal to the next-
determined NAV. A series of Active Proxy Portfolio Shares will disclose 
the Proxy Portfolio on a daily basis, which, as described above, is 
designed to track closely the daily performance of the Actual Portfolio 
of a series of Active Proxy Portfolio Shares, instead of the actual 
holdings of the Investment Company, as provided by a series of Managed 
Fund Shares.
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    \5\ Rule 8.600(c)(2) defines the term ``Disclosed Portfolio'' as 
the identities and quantities of the securities and other assets 
held by the Investment Company that will form the basis for the 
Investment Company's calculation of net asset value at the end of 
the business day. Rule 8.600(d)(2)(B)(i) requires that the Disclosed 
Portfolio will be disseminated at least once daily and will be made 
available to all market participants at the same time.
    \6\ A mutual fund is required to file with the Commission its 
complete portfolio schedules for the second and fourth fiscal 
quarters on Form N-CSR under the 1940 Act. Information reported on 
Form N-PORT for the third month of a fund's fiscal quarter will be 
made publicly available 60 days after the end of a fund's fiscal 
quarter. Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly 
basis within 60 days after fiscal quarter end. Investors can obtain 
a series of Active Proxy Portfolio Shares' Statement of Additional 
Information (``SAI''), its Shareholder Reports, its Form N-CSR, 
filed twice a year, and its Form N-CEN, filed annually. A series of 
Active Proxy Portfolio Shares' SAI and Shareholder Reports will be 
available free upon request from the Investment Company, and those 
documents and the Form N-PORT, Form N-CSR, and Form N-CEN may be 
viewed on-screen or downloaded from the Commission's website at 
www.sec.gov.
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    The Exchange believes that market makers will be able to make 
efficient and liquid markets priced near the intraday value of 
exchange-traded funds (``ETFs''), and market makers employ market 
making techniques such as ``statistical arbitrage,'' including 
correlation hedging, beta hedging, and dispersion trading, which is 
currently used throughout the financial services industry, to make 
efficient markets in ETPs.\7\ For Active Proxy Portfolio Shares, market 
makers may use the

[[Page 64197]]

knowledge of a fund's means of achieving its investment objective, as 
described in the applicable fund registration statement (the 
``Registration Statement''), as well as a fund's disclosed Proxy 
Portfolio, to construct a hedging proxy for a fund to manage a market 
maker's quoting risk in connection with trading fund shares. Market 
makers can then conduct statistical arbitrage between their hedging 
proxy (for example, the Russell 1000 Index) and shares of a fund, 
buying and selling one against the other over the course of the trading 
day. This ability should permit market makers to make efficient markets 
in an issue of Active Proxy Portfolio Shares without precise knowledge 
of a fund's underlying portfolio. This is similar to certain other 
existing exchange-traded products (for example, ETFs that invest in 
foreign securities that do not trade during U.S. trading hours), in 
which spreads may be generally wider in the early days of trading and 
then narrow as market makers gain more confidence in their real-time 
hedges.
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    \7\ Statistical arbitrage enables a trader to construct an 
accurate proxy for another instrument, allowing it to hedge the 
other instrument or buy or sell the instrument when it is cheap or 
expensive in relation to the proxy. Statistical analysis permits 
traders to discover correlations based purely on trading data 
without regard to other fundamental drivers. These correlations are 
a function of differentials, over time, between one instrument or 
group of instruments and one or more other instruments. Once the 
nature of these price deviations have been quantified, a universe of 
securities is searched in an effort to, in the case of a hedging 
strategy, minimize the differential. Once a suitable hedging proxy 
has been identified, a trader can minimize portfolio risk by 
executing the hedging basket. The trader then can monitor the 
performance of this hedge throughout the trade period making 
corrections where warranted. In the case of correlation hedging, the 
analysis seeks to find a proxy that matches the pricing behavior of 
a fund. In the case of beta hedging, the analysis seeks to determine 
the relationship between the price movement over time of a fund and 
that of another stock. Dispersion trading is a hedged strategy 
designed to take advantage of relative value differences in implied 
volatilities between an index and the component stocks of that 
index. Such trading strategies will allow market participants to 
engage in arbitrage between series of Active Proxy Portfolio Shares 
and other instruments, both through the creation and redemption 
process and strictly through arbitrage without such processes.
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Creations and Redemptions of Shares
    Active Proxy Portfolio Shares of a fund may be offered, issued, and 
sold to investors only in specified minimum size ``Creation Units'' 
through a fund's distributor (the ``Distributor'') on a continuous 
basis at the NAV per share next determined after an order in proper 
form is received. The NAV of a fund is expected to be determined at the 
end of each business day (ordinarily 4:00 p.m. E.T.). Creation Units 
will only be sold and redeemed on business days. Creation Units of a 
fund may be purchased and/or redeemed entirely for cash, as permissible 
under the procedures described below.
    The ``Creation Basket'' (as defined below) for a fund's Active 
Proxy Portfolio Shares will be based on the fund's Proxy Portfolio, 
which is designed to approximate the value and performance of the 
Actual Portfolio. All Creation Basket instruments will be valued in the 
same manner as they are valued for purposes of calculating a fund's 
NAV, and such valuation will be made in the same manner regardless of 
the identity of the purchaser or redeemer. Further, the total 
consideration paid for the purchase or redemption of a Creation Unit of 
shares will be based on the NAV of a fund.
    A fund's shares will be purchased and redeemed in Creation Units 
and generally on an in-kind basis. Accordingly, except where the 
purchase or redemption will include cash under the circumstances 
specified below, purchasers will be required to purchase Creation Units 
by making an in-kind deposit of specified instruments (``Deposit 
Instruments''), and shareholders redeeming their shares will receive an 
in-kind transfer of specified instruments (``Redemption Instruments''). 
The names and quantities of the instruments that constitute the Deposit 
Instruments and the Redemption Instruments for a fund (collectively, 
the ``Creation Basket'') will be the same as a fund's Proxy Portfolio, 
except to the extent purchases and redemptions are made entirely or in 
part on a cash basis.
    If there is a difference between the NAV attributable to a Creation 
Unit and the aggregate market value of the Creation Basket exchanged 
for the Creation Unit, the party conveying instruments with the lower 
value will also pay to the other an amount in cash equal to that 
difference (the ``Cash Amount'').
    While a fund normally will issue and redeem shares in kind, a fund 
may require purchases and redemptions to be made entirely or in part on 
a cash basis. In such an instance, a fund will announce, before the 
open of trading in the Core Trading Session (normally, 9:30 a.m. to 
4:00 p.m. E.T.) on a given business day, that all purchases, all 
redemptions, or all purchases and redemptions on that day will be made 
wholly or partly in cash. A fund may also determine, upon receiving a 
purchase or redemption order from an Authorized Participant (as defined 
below), to have the purchase or redemption, as applicable, be made 
entirely or in part in cash. Each business day, before the open of 
trading on the Exchange, a fund will cause to be published through the 
National Securities Clearing Corporation (``NSCC'') the names and 
quantities of the instruments comprising the Creation Basket, as well 
as the estimated Cash Amount (if any), for that day. The published 
Creation Basket will apply until a new Creation Basket is announced on 
the following business day, and there will be no intra-day changes to 
the Creation Basket except to correct errors in the published Creation 
Basket.
    All orders to purchase Creation Units must be placed with the 
Distributor by or through an Authorized Participant, which is either: 
(1) A ``participating party'' (i.e., a broker or other participant), in 
the Continuous Net Settlement (``CNS'') System of the NSCC, a clearing 
agency registered with the Commission and affiliated with the 
Depository Trust Company (``DTC''), or (2) a DTC Participant, which in 
any case has executed a participant agreement with the Distributor and 
the transfer agent.
Timing and Transmission of Purchase Orders
    All orders to purchase (or redeem) Creation Units, whether using 
the NSCC Process or the DTC Process, must be received by the 
Distributor no later than the NAV calculation time (``NAV Calculation 
Time'') on the date the order is placed (``Transmittal Date'') in order 
for the purchaser (or redeemer) to receive the NAV determined on the 
Transmittal Date.
Availability of Information
    The following information will be publicly available on a fund's 
website before the commencement of trading in a series of Active Proxy 
Portfolio Shares on each business day:
     The Proxy Portfolio holdings (including the identity and 
quantity of investments in the Proxy Portfolio).
     The historical ``Tracking Error'' between the fund's last 
published NAV per share and the value, on a per share basis, of the 
fund's Proxy Portfolio calculated as of the close of trading on the 
prior business day.
     The ``Proxy Overlap,'' which is the percentage weight 
overlap between the Proxy Portfolio's holdings compared to the Actual 
Portfolio's holdings that formed the basis for the fund's calculation 
of NAV at the end of the prior business day. The Proxy Overlap will be 
calculated by taking the lesser weight of each asset held in common 
between the Actual Portfolio and the Proxy Portfolio and adding the 
totals.
    Typical mutual fund-style annual, semi-annual, and quarterly 
disclosures contained in a fund's Commission filings will be provided 
on the fund's website on a current basis.\8\ Thus, each issuer of a 
series of Active Proxy Portfolio Shares will publish the portfolio 
contents of its Actual Portfolio on a periodic basis, and no less than 
60 days after the end of every fiscal quarter.
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    \8\ See note 6, supra.
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    Investors can also obtain a fund's SAI, Shareholder Reports, Form 
N-CSR, N-PORT and Form N-CEN. The prospectus, SAI, and Shareholder 
Reports are available free upon request from the Investment Company, 
and those documents and the Form N-CSR, N-PORT, and Form N-CEN may be 
viewed on-screen or downloaded from the Commission's website.
    Information regarding market price and trading volume of the shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic

[[Page 64198]]

services. Information regarding the previous day's closing price and 
trading volume information for the shares will be published daily in 
the financial section of newspapers. Quotation and last sale 
information for the shares, equity securities, and ETFs will be 
available via the Consolidated Tape Association (``CTA'') high-speed 
line or from the exchange on which such securities trade. Intraday 
pricing information for all constituents of the Proxy Portfolio that 
are exchange-traded, which includes all eligible instruments except 
cash and cash equivalents, will be available on the exchanges on which 
they are traded and through subscription services. Intraday pricing 
information for cash equivalents will be available through subscription 
services and/or pricing services.
Trading Halts
    As proposed above, the Exchange may consider all relevant factors 
in exercising its discretion to halt or suspend trading in a series of 
Active Proxy Portfolio Shares.\9\ Trading will be subject to proposed 
Rule 8.601(d)(2)(D), which sets forth circumstances under which trading 
in a series of Active Proxy Portfolio Shares will be halted.
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    \9\ See Rule 7.12.
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    Specifically, proposed Rule 8.601(d)(2)(D) provides that the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in a series of Active Proxy Portfolio Shares. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the series of Active Proxy 
Portfolio Shares inadvisable. These may include: (a) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the Proxy Portfolio and/or Actual Portfolio; or 
(b) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. If a series 
of Active Proxy Portfolio Shares is trading on the Exchange pursuant to 
UTP, the Exchange shall halt trading in that series as specified in 
Rule 7.18(d)(1). If the Exchange becomes aware that the NAV, Proxy 
Portfolio, or Actual Portfolio with respect to a series of Active Proxy 
Portfolio Shares is not disseminated to all market participants at the 
same time, the Exchange shall halt trading in such series until such 
time as the NAV, Proxy Portfolio or Actual Portfolio is available to 
all market participants at the same time.
Trading Rules
    The Exchange deems Active Proxy Portfolio Shares to be equity 
securities, thus rendering trading in the shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
Shares will trade on the Exchange in all trading sessions in accordance 
with Rule 7.34(a). As provided in Rule 7.6, the minimum price variation 
(``MPV'') for quoting and entry of orders in equity securities traded 
on the Exchange is $0.01, with the exception of securities that are 
priced less than $1.00 for which the MPV for order entry is $0.0001.
    For each series of Active Proxy Portfolio Shares, the Exchange will 
establish a minimum number of Active Proxy Portfolio Shares required to 
be outstanding at the time of commencement of trading on the Exchange. 
In addition, pursuant to proposed Rule 8.601(d)(1)(B), the Exchange, 
prior to commencement of trading in a series, will obtain a 
representation from the issuer that the NAV per share will be 
calculated daily and that the NAV, Proxy Portfolio, and the Actual 
Portfolio for a fund will be made available to all market participants 
at the same time.
    With respect to Active Proxy Portfolio Shares, all of the Exchange 
member obligations relating to product description and prospectus 
delivery requirements will continue to apply in accordance with 
Exchange rules and federal securities laws, and the Exchange and FINRA 
will continue to monitor Exchange members for compliance with such 
requirements.
Surveillance
    Trading in series of Active Proxy Portfolio Shares will be subject 
to the existing trading surveillances administered by the Exchange, as 
well as cross-market surveillances administered by FINRA on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\10\ The Exchange believes that 
these procedures are adequate to properly monitor Exchange trading of 
the shares in all trading sessions and to deter and detect violations 
of Exchange rules and federal securities laws applicable to trading on 
the Exchange.
---------------------------------------------------------------------------

    \10\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the shares and underlying 
exchange-traded instruments 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, may obtain 
trading information regarding trading such securities and exchange-
traded instruments from such markets and other entities. In addition, 
the Exchange may obtain information regarding trading in such 
securities and exchange-traded instruments from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\11\
---------------------------------------------------------------------------

    \11\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    As noted above, proposed Commentary .03 to Rule 8.601 provides that 
the Exchange will implement and maintain written surveillance 
procedures for Active Proxy Portfolio Shares. As part of these 
surveillance procedures, the Investment Company's investment adviser 
will upon request by the Exchange or FINRA, on behalf of the Exchange, 
make available to the Exchange or FINRA the daily Actual Portfolio 
holdings of each series of Active Proxy Portfolio Shares. The Exchange 
believes that the ability to access the information on an as needed 
basis will provide it with sufficient information to perform the 
necessary regulatory functions associated with listing and trading 
series of Active Proxy Portfolio Shares on the Exchange, including the 
ability to monitor compliance with the initial and continued listing 
requirements as well as the ability to surveil for manipulation of 
Active Proxy Portfolio Shares.
    The Exchange will utilize its existing procedures to monitor issuer 
compliance with the requirements of proposed Rule 8.601. For example, 
the Exchange will continue to use intraday alerts that will notify 
Exchange personnel of trading activity throughout the day that may 
indicate that unusual conditions or circumstances are present that 
could be detrimental to the maintenance of a fair and orderly market. 
The Exchange will require from

[[Page 64199]]

the issuer of Active Proxy Portfolio Shares, upon initial listing and 
periodically thereafter, a representation that it is in compliance with 
Rule 8.601. The Exchange notes that proposed Commentary .01 to Rule 
8.601 would require an issuer of Active Proxy Portfolio Shares to 
notify the Exchange of any failure to comply with the continued listing 
requirements of Rule 8.601. In addition, the Exchange will require 
issuers to represent that they will notify the Exchange of any failure 
to comply with the terms of applicable exemptive and no-action relief. 
As part of its surveillance procedures, the Exchange will rely on the 
foregoing procedures to become aware of any non-compliance with the 
requirements of Rule 8.601.
    The Exchange will also require each issuer of a fund to advise the 
Exchange of any failure by the fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If a fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under Rule 5.5(m).
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Proposed Rule 8.900
    The Exchange proposes to add new Rule 8.900 to permit the listing 
and trading, or trading pursuant to UTP, of Managed Portfolio Shares, 
which are securities issued by an actively managed open-end investment 
management company. Proposed Rule 8.900 is based on NYSE Arca Rule 
8.900-E without any substantive differences.
Proposed Listing Rules
    Proposed Rule 8.900(a) provides that the Exchange will consider for 
trading, whether by listing or pursuant to UTP, Managed Portfolio 
Shares that meet the criteria of Rule 8.900.
    Proposed Rule 8.900(b) provides that Rule 8.900 is applicable only 
to Managed Portfolio Shares and that, except to the extent inconsistent 
with Rule 8.900, or unless the context otherwise requires, the rules 
and procedures of the Exchange's Board of Directors shall be applicable 
to the trading on the Exchange of such securities. Proposed Rule 
8.900(b) provides further that Managed Portfolio Shares are included 
within the definition of ``security'' or ``securities'' as such terms 
are used in the Rules of the Exchange.
    Proposed Rule 8.900(b)(1) provides that the Exchange will file 
separate proposals under Section 19(b) of the Act before the listing 
and trading of a series of Managed Portfolio Shares. The proposed rule 
further provides that all statements or representations contained in 
such rule filing regarding (a) the description of the portfolio or 
reference asset, (b) limitations on portfolio holdings or reference 
assets, or (c) the applicability of Exchange listing rules specified in 
such rule filing will constitute continued listing requirements. An 
issuer of such securities must notify the Exchange of any failure to 
comply with such continued listing requirements.
    Proposed Rule 8.900(b)(2) provides that transactions in Managed 
Portfolio Shares will occur during the trading hours specified in Rule 
7.34(a).
    Proposed Rule 8.900(b)(3) provides that the Exchange will implement 
and maintain written surveillance procedures for Managed Portfolio 
Shares. As part of these surveillance procedures, the Investment 
Company's investment adviser will upon request by the Exchange or 
FINRA, on behalf of the Exchange, make available to the Exchange or 
FINRA the daily portfolio holdings of each series of Managed Portfolio 
Shares.
    Proposed Rule 8.900(b)(4) provides that, if the investment adviser 
to the Investment Company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliates, as applicable, with respect to access to information 
concerning the composition of and/or changes to such Investment Company 
portfolio and/or the Creation Basket. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to 
information regarding the Investment Company's portfolio composition or 
changes thereto or the Creation Basket must be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the applicable Investment Company portfolio or 
changes thereto or the Creation Basket.
    Proposed Rule 8.900(b)(5) provides that any person or entity, 
including an AP Representative, custodian, Reporting Authority, 
distributor, or administrator, who has access to non-public information 
regarding the Investment Company's portfolio composition or changes 
thereto or the Creation Basket, must be subject to procedures 
reasonably designed to prevent the use and dissemination of material 
non-public information regarding the applicable Investment Company 
portfolio or changes thereto or the Creation Basket. Moreover, if any 
such person or entity is registered as a broker-dealer or affiliated 
with a broker-dealer, such person or entity will erect and maintain a 
``fire wall'' between the person or entity and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio or Creation Basket.
    Proposed Rule 8.900(c)(1) defines the term ``Managed Portfolio 
Share'' as a security that (a) represents an interest in an Investment 
Company organized as an open-end management investment company, 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 Creation Unit, 
or multiples thereof, in return for a designated portfolio of 
instruments (and/or an amount of cash) with a value equal to the next 
determined net asset value and delivered to the Authorized Participant 
(as defined in the Investment Company's Form N-1A filed with the 
Commission) through a Confidential Account; (c) when aggregated into a 
Redemption Unit, or multiples thereof, may be redeemed for a designated 
portfolio of instruments (and/or an amount of cash) with a value equal 
to the next determined net asset value delivered to the Confidential 
Account for the benefit of the Authorized Participant; and (d) the 
portfolio holdings for which are disclosed within at least 60 days 
following the end of every fiscal quarter.
    Proposed Rule 8.900(c)(2) defines the term ``Verified Intraday 
Indicative Value'' (``VIIV'') as the indicative value of a Managed 
Portfolio Share based on all of the holdings of a series of Managed 
Portfolio Shares as of the close of business on the prior business day 
and, for corporate actions, based on the applicable holdings as of the 
opening of business on the current business day, priced and 
disseminated in one second intervals during the Core Trading Session by 
the Reporting Authority.
    Proposed Rule 8.900(c)(3) defines the term ``AP Representative'' as 
an unaffiliated broker-dealer, with which an Authorized Participant has 
signed an agreement to establish a Confidential Account for the benefit 
of such Authorized Participant, that will deliver or receive, on behalf 
of the Authorized

[[Page 64200]]

Participant, all consideration to or from the Investment Company in a 
creation or redemption. An AP Representative will not be permitted to 
disclose the Creation Basket to any person, including the Authorized 
Participants.
    Proposed Rule 8.900(c)(4) defines the term ``Confidential Account'' 
as an account owned by an Authorized Participant and held with an AP 
Representative on behalf of the Authorized Participant. The account 
will be established and governed by contractual agreement between the 
AP Representative and the Authorized Participant solely for the 
purposes of creation and redemption, while keeping confidential the 
Creation Basket constituents of each series of Managed Portfolio 
Shares, including from the Authorized Participant. The books and 
records of the Confidential Account will be maintained by the AP 
Representative on behalf of the Authorized Participant.
    Proposed Rule 8.900(c)(5) defines the term ``Creation Basket'' as 
on any given business day the names and quantities of the specified 
instruments (and/or an amount of cash) that are required for an AP 
Representative to deposit in-kind on behalf of an Authorized 
Participant in exchange for a Creation Unit and the names and 
quantities of the specified instruments (and/or an amount of cash) that 
will be transferred in-kind to an AP Representative on behalf of an 
Authorized Participant in exchange for a Redemption Unit, which will be 
identical and will be transmitted to each AP Representative before the 
commencement of trading.
    Proposed Rule 8.900(c)(6) defines the term ``Creation Unit'' as a 
specified minimum number of Managed Portfolio Shares issued by an 
Investment Company at the request of an Authorized Participant in 
return for a designated portfolio of instruments and/or cash.
    Proposed Rule 8.900(c)(7) defines the term ``Redemption Unit'' as a 
specified minimum number of Managed Portfolio Shares that may be 
redeemed to an Investment Company at the request of an Authorized 
Participant in return for a portfolio of instruments and/or cash.
    Proposed Rule 8.900(c)(8) defines the term ``Reporting Authority'' 
in respect of a particular series of Managed Portfolio Shares as the 
Exchange, an institution, or a reporting service designated by the 
Exchange or by the exchange that lists a particular series of Managed 
Portfolio Shares (if the Exchange is trading such series pursuant to 
UTP), as the official source for calculating and reporting information 
relating to such series, including, but not limited to, the net asset 
value, the VIIV, or other information relating to the issuance, 
redemption, or trading of Managed Portfolio Shares. A series of Managed 
Portfolio Shares may have more than one Reporting Authority, each 
having different functions.
    Proposed Rule 8.900(c)(9) provides that the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operations issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or man-made 
disaster, act of God, armed conflict, act of terrorism, riot or labor 
disruptions, or any similar intervening circumstance.
    Proposed Rule 8.900(d) sets forth initial listing criteria 
applicable to Managed Portfolio Shares. Proposed Rule 8.900(d)(1)(A) 
provides that, for each series of Managed Portfolio Shares, the 
Exchange will establish a minimum number of Managed Portfolio Shares 
required to be outstanding at the time of commencement of trading on 
the Exchange. In addition, proposed Rule 8.900(d)(1)(B) provides that 
the Exchange will obtain a representation from the issuer of each 
series of Managed Portfolio Shares that the NAV per share for the 
series will be calculated daily and that the NAV will be made available 
to all market participants at the same time. Proposed Rule 
8.900(d)(1)(C) provides that all Managed Portfolio Shares shall have a 
stated investment objective, which shall be adhered to under Normal 
Market Conditions.
    Proposed Rule 8.900(d)(2) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the following continued listing criteria. Proposed Rule 8.900(d)(2)(A) 
provides that the VIIV for Managed Portfolio Shares will be widely 
disseminated by the Reporting Authority and/or by one or more major 
market data vendors in one second intervals during the Exchange's Core 
Trading Session (as defined in Rule 7.34) and will be disseminated to 
all market participants at the same time.
    Proposed Rule 8.900(d)(2)(B) provides that the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 5.5(m) for, a series of Managed Portfolio Shares 
under any of the following circumstances: (i) If, following the initial 
twelve-month period after commencement of trading on the Exchange of a 
series of Managed Portfolio Shares, there are fewer than 50 beneficial 
holders of the series of Managed Portfolio Shares; (ii) if the Exchange 
has halted trading in a series of Managed Portfolio Shares because the 
VIIV is interrupted pursuant to Rule 8.900(d)(2)(C)(ii) and such 
interruption persists past the trading day in which it occurred or is 
no longer available; (iii) if the Exchange has halted trading in a 
series of Managed Portfolio Shares because the NAV with respect to such 
series of Managed Portfolio Shares is not disseminated to all market 
participants at the same time, the holdings of such series of Managed 
Portfolio Shares are not made available on at least a quarterly basis 
as required under the 1940 Act, or such holdings are not made available 
to all market participants at the same time pursuant to Rule 
8.900(d)(2)(C)(ii) and such issue persists past the trading day in 
which it occurred; (iv) if the Exchange has halted trading in a series 
of Managed Portfolio Shares pursuant to Rule 8.900(d)(2)(C)(i), such 
issue persists past the trading day in which it occurred; (v) if the 
Investment Company issuing the Managed Portfolio Shares has failed to 
file any filings required by the Commission or if the Exchange is aware 
that the Investment Company is not in compliance with the conditions of 
any currently applicable exemptive order or no-action relief granted by 
the Commission or Commission staff to the Investment Company with 
respect to the series of Managed Portfolio Shares; (vi) if any of the 
continued listing requirements set forth in Rule 8.900 are not 
continuously maintained; (vii) if any of the statements or 
representations regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings, or (c) the applicability of Exchange 
listing rules, specified in the Exchange's rule filing pursuant to 
Section 19(b) of the Securities Exchange Act of 1934 to permit the 
listing and trading of a series of Managed Portfolio Shares, are not 
continuously maintained; or (viii) if such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable.
    Proposed Rule 8.900(d)(2)(C)(i) provides that the Exchange may 
consider all relevant factors in exercising its discretion to halt 
trading in a series of Managed Portfolio Shares. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the series of Managed Portfolio Shares 
inadvisable. These may include: (a) The extent to which trading is not 
occurring in the securities and/or the financial instruments composing 
the

[[Page 64201]]

portfolio; or (b) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.
    Proposed Rule 8.900(d)(2)(C)(ii) provides that, if the Exchange 
becomes aware that: (a) The Verified Intraday Indicative Value of a 
series of Managed Portfolio Shares is not being calculated or 
disseminated in one second intervals, as required; (b) the net asset 
value with respect to a series of Managed Portfolio Shares is not 
disseminated to all market participants at the same time; (c) the 
holdings of a series of Managed Portfolio Shares are not made available 
on at least a quarterly basis as required under the 1940 Act; or (d) 
such holdings are not made available to all market participants at the 
same time (except as otherwise permitted under the currently applicable 
exemptive order or no-action relief granted by the Commission or 
Commission staff to the Investment Company with respect to the series 
of Managed Portfolio Shares), it will halt trading in such series until 
such time as the Verified Intraday Indicative Value, the net asset 
value, or the holdings are available, as required.
    Proposed Rule 8.900(d)(2)(D) provides that, upon termination of an 
Investment Company, the Exchange requires that Managed Portfolio Shares 
issued in connection with such entity be removed from Exchange listing.
    Proposed Rule 8.900(d)(2)(E) provides that voting rights shall be 
as set forth in the applicable Investment Company prospectus and/or 
statement of additional information.
    Proposed Rule 8.900(e), which relates to limitation of Exchange 
liability, provides that neither the Exchange, the Reporting Authority, 
when the Exchange is acting in the capacity of a Reporting Authority, 
nor any agent of the Exchange shall have any liability for damages, 
claims, losses or expenses caused by any errors, omissions, or delays 
in calculating or disseminating any current portfolio value; the 
current value of the portfolio of securities required to be deposited 
to the open-end management investment company in connection with 
issuance of Managed Portfolio Shares; the VIIV; the amount of any 
dividend equivalent payment or cash distribution to holders of Managed 
Portfolio Shares; NAV; or other information relating to the purchase, 
redemption, or trading of Managed Portfolio Shares, resulting from any 
negligent act or omission by the Exchange, the Reporting Authority when 
the Exchange is acting in the capacity of a Reporting Authority, or any 
agent of the Exchange, or any act, condition, or cause beyond the 
reasonable control of the Exchange, its agent, or the Reporting 
Authority, when the Exchange is acting in the capacity of a Reporting 
Authority, including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; or any error, omission, or delay in 
the reports of transactions in one or more underlying securities.
    Proposed Rule 8.900(f), which relates to disclosures, provides that 
the provisions of subparagraph (f) apply only to series of Managed 
Portfolio Shares that are the subject of an order by the Commission 
exempting such series from certain prospectus delivery requirements 
under Section 24(d) of the 1940 Act and are not otherwise subject to 
prospectus delivery requirements under the Securities Act of 1933. The 
Exchange will inform its member organizations regarding application of 
subparagraph (f) to a particular series of Managed Portfolio Shares by 
means of an information circular prior to commencement of trading in 
such series.
    The Exchange requires that member organizations provide to all 
purchasers of a series of Managed Portfolio Shares a written 
description of the terms and characteristics of those securities, in a 
form prepared by the open-end management investment company issuing 
such securities, not later than the time a confirmation of the first 
transaction in such series is delivered to such a purchaser. In 
addition, member organizations shall include such a written description 
with any sales material relating to a series of Managed Portfolio 
Shares that is provided to customers or the public. Any other written 
materials provided by a member organization to customers or the public 
making specific reference to a series of Managed Portfolio Shares as an 
investment vehicle must include a statement in substantially the 
following form: ``A circular describing the terms and characteristics 
of (the series of Managed Portfolio Shares) has been prepared by the 
(open-end management investment company name) and is available from 
your broker. It is recommended that you obtain and review such circular 
before purchasing (the series of Managed Portfolio Shares).''
    A member organization carrying an omnibus account for a non-member 
organization broker-dealer is required to inform such non-member 
organization that execution of an order to purchase a series of Managed 
Portfolio Shares for such omnibus account will be deemed to constitute 
agreement by the non-member organization to make such written 
description available to its customers on the same terms as are 
directly applicable to member organizations under this rule.
    Upon request of a customer, a member organization shall also 
provide a prospectus for the particular series of Managed Portfolio 
Shares.
Key Features of Managed Portfolio Shares
    While each series of Managed Portfolio Shares will be actively 
managed and, to that extent, will be similar to Managed Fund Shares (as 
defined in Rule 8.600), Managed Portfolio Shares differ from Managed 
Fund Shares in the following important respects. First, in contrast to 
Managed Fund Shares, which require a ``Disclosed Portfolio'' to be 
disseminated at least once daily,\12\ the portfolio for a series of 
Managed Portfolio Shares will be disclosed quarterly in accordance with 
normal disclosure requirements otherwise applicable to open-end 
investment companies registered under the 1940 Act.\13\ The composition 
of the portfolio of a series of Managed Portfolio Shares would not be 
available at commencement of Exchange listing and/or trading. Second, 
in connection with the creation and redemption of shares in Creation 
Unit or Redemption Unit size (as described below), the delivery of any 
portfolio securities in kind will be effected through a Confidential 
Account (as described below) for the benefit of the creating or 
redeeming AP (as described below in ``Creation and Redemption of 
Shares'') without disclosing the identity of such securities to the AP.
---------------------------------------------------------------------------

    \12\ See note 5, supra.
    \13\ See note 6, supra.
---------------------------------------------------------------------------

    For each series of Managed Portfolio Shares, an estimated value--
the VIIV--that reflects an estimated intraday value of a fund's 
portfolio will be disseminated. Specifically, the VIIV will be based 
upon all of a series' holdings as of the close of the prior business 
day and, for corporate actions, based on the applicable holdings as of 
the opening of business on the current business day, and will be widely 
disseminated by the Reporting Authority and/or one or more major market 
data vendors in one second intervals during the Exchange's Core Trading 
Session. The dissemination of the VIIV will allow investors to 
determine the estimated intra-day value of the underlying portfolio of 
a series of Managed Portfolio Shares and will provide a close

[[Page 64202]]

estimate of that value throughout the trading day.
    The Exchange believes that market makers will be able to make 
efficient and liquid markets priced near the ETF's intraday value as 
long as a VIIV is disseminated in one second intervals, and market 
makers employ market making techniques such as ``statistical 
arbitrage,'' including correlation hedging, beta hedging, and 
dispersion trading, which is currently used throughout the financial 
services industry, to make efficient markets in exchange-traded 
products.\14\ For Managed Portfolio Shares, market makers may use the 
knowledge of a fund's means of achieving its investment objective, as 
described in the applicable fund Registration Statement, to construct a 
hedging proxy for a fund to manage a market maker's quoting risk in 
connection with trading fund shares. Market makers can then conduct 
statistical arbitrage between their hedging proxy (for example, the 
Russell 1000 Index) and shares of a fund, buying and selling one 
against the other over the course of the trading day. This ability 
should permit market makers to make efficient markets in an issue of 
Managed Portfolio Shares without precise knowledge \15\ of a fund's 
underlying portfolio.\16\ This is similar to certain other existing 
exchange-traded products (for example, ETFs that invest in foreign 
securities that do not trade during U.S. trading hours), in which 
spreads may be generally wider in the early days of trading and then 
narrow as market makers gain more confidence in their real-time hedges.
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    \14\ See note 7, supra.
    \15\ Using the various trading methodologies described above, 
both APs and other market participants will be able to hedge 
exposures by trading correlative portfolios, securities or other 
proxy instruments, thereby enabling an arbitrage functionality 
throughout the trading day. For example, if an AP believes that 
shares of a fund are trading at a price that is higher than the 
value of its underlying portfolio based on the VIIV, the AP may sell 
shares short and purchase securities that the AP believes will track 
the movements of a fund's portfolio until the spread narrows and the 
AP executes offsetting orders or the AP enters an order through its 
AP Representative to create fund shares. Upon the completion of the 
Creation Unit, the AP will unwind its correlative hedge. Similarly, 
a non-AP market participant would be able to perform an identical 
function but, because it would not be able to create or redeem 
directly, would have to employ an AP to create or redeem shares on 
its behalf.
    \16\ APs that enter into their own separate Confidential 
Accounts shall have enough information to ensure that they are able 
to comply with applicable regulatory requirements. For example, for 
purposes of net capital requirements, the maximum Securities Haircut 
applicable to the securities in a Creation Basket, as determined 
under Rule 15c3-1, will be disclosed daily on each fund's website.
---------------------------------------------------------------------------

    To protect the identity and weightings of the portfolio holdings, a 
series of Managed Portfolio Shares would sell and redeem their shares 
in Creation Units and Redemption Units to APs only through an AP 
Representative. As such, on each business day, before commencement of 
trading in shares on the Exchange, each series of Managed Portfolio 
Shares will provide to an AP Representative of each AP the names and 
quantities of the instruments comprising a Creation Basket, i.e. the 
Deposit Instruments or ``Redemption Instruments'' and the estimated 
``Balancing Amount'' (if any),\17\ for that day (as further described 
below). This information will permit APs to purchase Creation Units or 
redeem Redemption Units through an in-kind transaction with a fund, as 
described below.
---------------------------------------------------------------------------

    \17\ The Balancing Amount is the cash amount necessary for the 
applicable fund to receive or pay to compensate for the difference 
between the value of the securities delivered as part of a 
redemption and the NAV, to the extent that such values are 
different.
---------------------------------------------------------------------------

Creation and Redemptions of Shares
    In connection with the creation and redemption of Creation Units 
and Redemption Units, the delivery or receipt of any portfolio 
securities in-kind will be required to be effected through a 
Confidential Account \18\ with an AP Representative,\19\ which will be 
a broker-dealer such as broker-dealer affiliates of JP Morgan Chase, 
State Street Bank and Trust, or Bank of New York Mellon, for the 
benefit of an AP.\20\ An AP must be a Depository Trust Company 
(``DTC'') Participant that has executed a ``Participant Agreement'' 
with the applicable distributor (the ``Distributor'') with respect to 
the creation and redemption of Creation Units and Redemption Units and 
formed a Confidential Account for its benefit in accordance with the 
terms of the Participant Agreement. For purposes of creations or 
redemptions, all transactions will be effected through the respective 
AP's Confidential Account, for the benefit of the AP without disclosing 
the identity of such securities to the AP. A fund will offer and redeem 
Creation Units and Redemption Units on a continuous basis at the NAV 
per Share next determined after receipt of an order in proper form. The 
NAV per Share of each fund will be determined as of the close of 
regular trading each business day. Funds will sell and redeem Creation 
Units and Redemption Units only on business days.
---------------------------------------------------------------------------

    \18\ Transacting through a Confidential Account is designed to 
be very similar to transacting through any broker-dealer account, 
except that the AP Representative will be bound to keep the names 
and weights of the portfolio securities confidential. Each service 
provider that has access to the identity and weightings of 
securities in a fund's Creation Basket or portfolio securities, such 
as a fund's custodian or pricing verification agent, shall be 
restricted contractually from disclosing that information to any 
other person, or using that information for any purpose other than 
providing services to the fund. To comply with certain recordkeeping 
requirements applicable to APs, the AP Representative will maintain 
and preserve, and make available to the Commission, certain required 
records related to the securities held in the Confidential Account.
    \19\ Each AP shall enter into its own separate Confidential 
Account with an AP Representative.
    \20\ Each fund will identify one or more entities to enter into 
a contractual arrangement with the fund to serve as an AP 
Representative. In selecting entities to serve as AP 
Representatives, a fund will obtain representations from the entity 
related to the confidentiality of the fund's Creation Basket and 
portfolio securities, the effectiveness of information barriers, and 
the adequacy of insider trading policies and procedures. In 
addition, as a broker-dealer, Section 15(g) of the Act requires the 
AP Representative to establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
material, non-public information by the AP Representative or any 
person associated with the AP Representative.
---------------------------------------------------------------------------

    Each AP Representative will be given, before the commencement of 
trading each business day, the Creation Basket for that day. The 
published Creation Basket will apply until a new Creation Basket is 
announced on the following business day, and there will be no intra-day 
changes to the Creation Basket except to correct errors in the 
published Creation Basket. In order to keep costs low and permit funds 
to be as fully invested as possible, shares will be purchased and 
redeemed in Creation Units and Redemption Units and generally on an in-
kind basis. Accordingly, except where the purchase or redemption will 
include cash under the circumstances required or determined permissible 
by a fund, APs will be required to purchase Creation Units by making an 
in-kind deposit of specified instruments (``Deposit Instruments''), and 
APs redeeming their shares will receive an in-kind transfer of 
Redemption Instruments through the AP Representative in their 
Confidential Account.\21\
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    \21\ Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the 1933 Act.
---------------------------------------------------------------------------

    In the case of a creation, the AP \22\ would enter into an 
irrevocable creation order with a fund and then direct the AP 
Representative to purchase the necessary basket of portfolio 
securities. The AP Representative would then purchase the necessary 
securities in the

[[Page 64203]]

Confidential Account. In purchasing the necessary securities, the AP 
Representative would use methods such as breaking the purchase into 
multiple purchases and transacting in multiple marketplaces. Once the 
necessary basket of securities has been acquired, the purchased 
securities held in the Confidential Account would be contributed in-
kind to the applicable fund.
---------------------------------------------------------------------------

    \22\ An AP will issue execution instructions to the AP 
Representative and be responsible for all associated profit or 
losses. Like a traditional ETF, the AP has the ability to sell the 
basket securities at any point during the Core Trading Session.
---------------------------------------------------------------------------

    Other market participants that are not APs will not have the 
ability to create or redeem shares directly with a fund. Rather, if 
other market participants wish to create or redeem shares in a fund, 
they will have to do so through an AP.
Placement of Purchase Orders
    Each fund will issue shares through the Distributor on a continuous 
basis at NAV. The Exchange represents that the issuance of shares will 
operate in a manner substantially similar to that of other ETFs. Each 
fund will issue shares only at the NAV per share next determined after 
an order in proper form is received.
    The Distributor will furnish acknowledgements to those placing 
orders that the orders have been accepted, but the Distributor may 
reject any order which is not submitted in proper form, as described in 
a fund's prospectus or Statement of Additional Information (``SAI''). 
The NAV of each fund is expected to be determined once each business 
day at a time determined by the board of the Investment Company 
(``Board''), currently anticipated to be as of the close of the regular 
trading session on the NYSE (ordinarily, 4:00 p.m. E.T.) (the 
``Valuation Time''). Each fund will establish a cut-off time (``Order 
Cut-Off Time'') for purchase orders in proper form. To initiate a 
purchase of shares, an AP must submit to the Distributor an irrevocable 
order to purchase such shares after the most recent prior Valuation 
Time.
    Purchases of shares will be settled in-kind and/or cash for an 
amount equal to the applicable NAV per share purchased plus applicable 
``Transaction Fees,'' as discussed below.
    Generally, all orders to purchase Creation Units must be received 
by the Distributor no later than the end of Core Trading Session on the 
date such order is placed (``Transmittal Date'') in order for the 
purchaser to receive the NAV per share determined on the Transmittal 
Date. In the case of custom orders made in connection with creations or 
redemptions in whole or in part in cash, the order must be received by 
the Distributor, no later than the Order Cut-Off Time.\23\
---------------------------------------------------------------------------

    \23\ A ``custom order'' is any purchase or redemption of shares 
made in whole or in part on a cash basis, as provided in the 
Registration Statement.
---------------------------------------------------------------------------

Authorized Participant Redemption
    The shares may be redeemed to a fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by or through an AP (``AP Redemption Order''). 
Each fund will establish an Order Cut-Off Time for redemption orders of 
Redemption Units in proper form. Redemption Units of a fund will be 
redeemable at their NAV per Share next determined after receipt of a 
request for redemption by the Investment Company in the manner 
specified below before the Order Cut-Off Time. To initiate an AP 
Redemption Order, an AP must submit to the Distributor an irrevocable 
order to redeem such Redemption Unit after the most recent prior 
Valuation Time but not later than the Order Cut-Off Time.
    In the case of a redemption, the AP would enter into an irrevocable 
redemption order, and then instruct the AP Representative to sell the 
underlying basket of securities that it will receive in the redemption. 
As with the purchase of securities, the AP Representative would be 
required to obfuscate the sale of the portfolio securities it will 
receive as redemption proceeds using similar tactics.
    Consistent with the provisions of Section 22(e) of the 1940 Act and 
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor 
payment upon redemption delayed, except for: (1) Any period during 
which the Exchange is closed other than customary weekend and holiday 
closings, (2) any period during which trading on the Exchange is 
restricted, (3) any period during which an emergency exists as a result 
of which disposal by a fund of securities owned by it is not reasonably 
practicable or it is not reasonably practicable for a fund to determine 
its NAV, and (4) for such other periods as the Commission may by order 
permit for the protection of shareholders.
    It is expected that redemptions will occur primarily in-kind, 
although redemption payments may also be made partly or wholly in cash. 
The Participant Agreement signed by each AP will require establishment 
of a Confidential Account to receive distributions of securities in-
kind upon redemption.\24\ Each AP will be required to open a 
Confidential Account with an AP Representative in order to facilitate 
orderly processing of redemptions.
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    \24\ The terms of each Confidential Account will be set forth as 
an exhibit to the applicable Participant Agreement, which will be 
signed by each AP. The Authorized Participant will be free to choose 
an AP Representative for its Confidential Account from a list of 
broker-dealers that have signed confidentiality agreements with a 
fund. The Authorized Participant will be free to negotiate account 
fees and brokerage charges with its selected AP Representative. The 
Authorized Participant will be responsible to pay all fees and 
expenses charged by the AP Representative of its Confidential 
Account.
---------------------------------------------------------------------------

    After receipt of a Redemption Order, a fund's custodian 
(``Custodian'') will typically deliver securities to the Confidential 
Account with a value approximately equal to the value of the shares 
\25\ tendered for redemption at the Cut-Off time. The Custodian will 
make delivery of the securities by appropriate entries on its books and 
records transferring ownership of the securities to the AP's 
Confidential Account, subject to delivery of the shares redeemed. The 
AP Representative of the Confidential Account will in turn liquidate 
the securities based on instructions from the AP. The AP Representative 
will pay the liquidation proceeds net of expenses plus or minus any 
cash Balancing Amount to the AP through DTC. The redemption securities 
that the Confidential Account receives are expected to mirror the 
portfolio holdings of a fund pro rata. To the extent a fund distributes 
portfolio securities through an in-kind distribution to more than one 
Confidential Account for the benefit of the accounts' respective APs, 
each fund expects to distribute a pro rata portion of the portfolio 
securities selected for distribution to each redeeming AP.
---------------------------------------------------------------------------

    \25\ If the NAV of the shares redeemed differs from the value of 
the securities delivered to the applicable Confidential Account, the 
applicable fund will receive or pay a cash Balancing Amount to 
compensate for the difference between the value of the securities 
delivered and the NAV.
---------------------------------------------------------------------------

    If the AP would receive a security that it is restricted from 
receiving, for example if the AP is engaged in a distribution of the 
security, a fund will deliver cash equal to the value of that security. 
APs will provide the AP Representative with a list of restricted 
securities applicable to the AP on a daily basis, and a fund will 
substitute cash for those securities in the applicable Confidential 
Account.
    The Investment Company will accept a Redemption Order in proper 
form. A Redemption Order is subject to acceptance by the Investment 
Company and must be preceded or accompanied by an irrevocable 
commitment to deliver the requisite number of shares. At the time of 
settlement, an AP will initiate a delivery of the shares plus or minus 
any

[[Page 64204]]

cash Balancing Amounts, and less the expenses of liquidation.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Managed Portfolio Shares on the 
Exchange during all trading sessions and to deter and detect violations 
of Exchange rules and the applicable federal securities laws. Trading 
of Managed Portfolio Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products. The 
Exchange will require the issuer of each series of Managed Portfolio 
Shares, upon initial listing and periodically thereafter, to provide a 
representation that it is in compliance with Rule 8.900. In addition, 
the Exchange will require issuers to represent that they will notify 
the Exchange of any failure to comply with the terms of applicable 
exemptive and no-action relief. As part of its surveillance procedures, 
the Exchange will rely on the foregoing procedures to become aware of 
any non-compliance with the requirements of Rule 8.900.
    The Exchange will require each issuer of a fund to represent that 
it will advise the Exchange of any failure by a fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Exchange Act, the Exchange will monitor for 
compliance with the continued listing requirements. If a fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting proceedings under Rule 5.5(m).
    Specifically, the Exchange will implement real-time surveillances 
that monitor for the continued dissemination of the VIIV. The Exchange 
will also have surveillances designed to alert Exchange personnel where 
shares of a series of Managed Portfolio Shares are trading away from 
the VIIV. As noted in proposed Rule 8.900(b)(3), the Investment 
Company's investment adviser will upon request make available to the 
Exchange and/or FINRA, on behalf of the Exchange, the daily portfolio 
holdings of each series of Managed Portfolio Shares. The Exchange 
believes that this is appropriate because it will provide the Exchange 
or FINRA, on behalf of the Exchange, with access to the daily portfolio 
holdings of any series of Managed Portfolio Shares upon request on an 
as needed basis. The Exchange believes that the ability to access the 
information on an as needed basis will provide it with sufficient 
information to perform the necessary regulatory functions associated 
with listing and trading series of Managed Portfolio Shares on the 
Exchange, including the ability to monitor compliance with the initial 
and continued listing requirements as well as the ability to surveil 
for manipulation of the shares.
    The Exchange notes that any equity instruments or futures held by a 
fund operating under an exemptive order would trade on markets that are 
a member of ISG or affiliated with a member of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.\26\ While future exemptive relief applicable to Managed 
Portfolio Shares may expand the investable universe, the Exchange notes 
that proposed Rule 8.900(b)(1) would require the Exchange to file 
separate proposals under Section 19(b) of the Act before listing and 
trading any series of Managed Portfolio Shares and such proposal would 
describe the investable universe for any such series of Managed 
Portfolio Shares along with the Exchange's surveillance procedures 
applicable to such series.
---------------------------------------------------------------------------

    \26\ For a list of the current members of ISG, see 
www.isgportal.com. The Exchange notes that cash equivalents may 
trade on markets that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    FINRA, on behalf of the Exchange, or the regulatory staff of the 
Exchange, or both, will communicate as needed regarding trading in the 
shares, underlying exchange-traded instruments with other markets and 
other entities that are members of the ISG, and FINRA, on behalf of the 
Exchange, or the regulatory staff of the Exchange, or both, may obtain 
trading information regarding trading such securities from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the shares, underlying exchange-traded instruments 
from other markets and other entities that are members of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Trading Halts
    As proposed above, the Exchange may consider all relevant factors 
in exercising its discretion to halt trading in a series of Managed 
Portfolio Shares. Trading may be halted because of market conditions or 
for reasons that, in the view of the Exchange, make trading in the 
series of Managed Portfolio Shares inadvisable. These may include: (1) 
The extent to which trading is not occurring in the securities and/or 
the financial instruments comprising the portfolio; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Additionally, the 
Exchange would halt trading as soon as practicable where the Exchange 
becomes aware that: (1) The VIIV of a series of Managed Portfolio 
Shares is not being calculated or disseminated in one second intervals, 
as required; (2) the net asset value with respect to a series of 
Managed Portfolio Shares is not disseminated to all market participants 
at the same time; (3) the holdings of a series of Managed Portfolio 
Shares are not made available on at least a quarterly basis as required 
under the 1940 Act; or (4) such holdings are not made available to all 
market participants at the same time (except as otherwise permitted 
under a currently applicable exemptive order or no-action relief 
granted by the Commission or Commission staff to the Investment Company 
with respect to the series of Managed Portfolio Shares) (collectively, 
``Availability of Information Halts''). The Exchange would halt trading 
in such series of Managed Portfolio Shares until such time as the VIIV, 
the NAV, or the holdings are available, as required.
Availability of Information
    As noted above, Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly basis 
within 60 days after fiscal quarter end. Investors can obtain a fund's 
Statement of Additional Information, its Shareholder Reports, its Form 
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's 
SAI and Shareholder Reports are available free upon request from the 
Investment Company, and those documents and the Form N-PORT, Form N-
CSR, and Form N-CEN may be viewed on-screen or downloaded from the 
Commission's website at www.sec.gov.
    Information regarding market price and trading volume of the shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
shares will be available via the CTA high-speed line. In addition, the 
VIIV, as defined in proposed Rule 8.900(c)(2), will be widely 
disseminated by the Reporting Authority and/or one or more major market 
data vendors in one second

[[Page 64205]]

intervals during the Exchange's Core Trading Session.
Trading Rules
    The Exchange deems Managed Portfolio Shares to be equity 
securities, thus rendering trading in the shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
Managed Portfolio Shares will trade on the Exchange only during the 
trading hours specified in Rule 7.34(a). As provided in Rule 7.6, the 
MPV for quoting and entry of orders in equity securities traded on the 
Exchange is $0.01, with the exception of securities that are priced 
less than $1.00 for which the MPV for order entry is $0.0001.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
member organizations in an Information Bulletin of the special 
characteristics and risks associated with trading the shares. 
Specifically, the Bulletin will discuss the following: (1) The 
procedures for purchases and redemptions of shares; (2) how information 
regarding the VIIV is disseminated; (3) the requirement that member 
organizations deliver a prospectus to investors purchasing newly issued 
shares prior to or concurrently with the confirmation of a transaction; 
(4) trading information; and (5) that the portfolio holdings of the 
shares are not disclosed on a daily basis.
    In addition, the Bulletin will reference that funds are subject to 
various fees and expenses described in the Registration Statement. The 
Bulletin will discuss any exemptive, no-action, and interpretive relief 
granted by the Commission from any rules under the Act. The Bulletin 
will also disclose that the NAV for the shares will be calculated after 
4:00 p.m., E.T. each trading day.
Rule 8P Preamble
    The Exchange proposes that a security listed on the Exchange under 
either proposed Rule 8.601 or 8.900 would trade no differently than 
other securities listed on the Exchange, including that such securities 
would be assigned to a designated market maker (``DMM'') pursuant to 
Rule 103B.
    As described above, the portfolios of both Active Proxy Portfolio 
Shares and Managed Portfolio Shares are not disclosed on a real-time 
basis and therefore market participants, including the DMM, would not 
know whether a specific NYSE-listed security would be included in the 
portfolio of such products. Because DMMs would not know whether an 
NYSE-listed security would be a component of a series of Active Proxy 
Portfolio Shares or Managed Portfolio Shares, the Exchange proposes to 
revise the preamble to Rule 8P, governing the trading of certain 
exchange traded products (``ETPs''). The preamble currently states that 
the Exchange will not list pursuant to Rule 8P any ETPs that have any 
component NMS Stock that is listed on the Exchange or that is based on, 
or represents an interest in, an underlying index or reference asset 
that includes an NMS Stock listed on the Exchange. To reflect that the 
portfolios of ETPs that are Active Proxy Portfolio Shares and Managed 
Portfolio Shares would not be publicly available in real-time and to 
permit the listing and trading of such ETPs on the Exchange, the 
Exchange proposes to revise the preamble to state that it would not 
apply to ETPs listed pursuant to proposed Rules 8.601 and 8.900 and 
therefore such products could be listed and traded on the Exchange.
Listed Company Manual Section 302.00
    The Exchange proposes to amend Section 302.00 of the Listed Company 
Manual to include Active Proxy Portfolio Shares listed pursuant to 
proposed Rule 8.601 and Managed Portfolio Shares listed pursuant to 
proposed Rule 8.900 among the securities to which the requirements of 
Section 302.00 regarding annual shareholders' meetings do not apply. 
The proposed change would also align Section 302.00 with NYSE Arca Rule 
5.3-E.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\27\ in general, and furthers the objectives of Section 
6(b)(5),\28\ 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 facilitating transactions in securities, 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. In addition to the reasons 
enumerated below, the Exchange believes that the proposed changes would 
promote just and equitable principles of trade, remove impediments to, 
and perfect the mechanism of, a free and open market and a national 
market system, and protect investors and the public interest because 
the proposed rules are based on rules of the Exchange's affiliated 
market, NYSE Arca, that have been approved by the Commission. 
Accordingly, the proposed rule changes promote continuity across 
affiliated exchanges, permitting series of Active Proxy Portfolio 
Shares and Managed Portfolio Shares to list and trade on the Exchange 
by meeting the same listing standards as on the Exchange's affiliated 
market.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b).
    \28\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

Proposed Rule 8.601
    The Exchange believes that proposed Rule 8.601 is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Active Proxy 
Portfolio Shares provide specific initial and continued listing 
criteria required to be met by such securities.
    Proposed Rule 8.601(d) sets forth initial and continued listing 
criteria applicable to Active Proxy Portfolio Shares. Proposed Rule 
8.601(d)(1)(A) provides that, for each series of Active Proxy Portfolio 
Shares, the Exchange will establish a minimum number of Active Proxy 
Portfolio Shares required to be outstanding at the time of commencement 
of trading on the Exchange. In addition, proposed Rule 8.601(d)(1)(B) 
provides, and the Exchange represents, that the Exchange will obtain a 
representation from the issuer of each series of Active Proxy Portfolio 
Shares that the NAV per share for the series will be calculated daily 
and that the NAV, Proxy Portfolio, and Actual Portfolio will be made 
available to all market participants at the same time. Proposed Rule 
8.601(d)(1)(C) provides that all Active Proxy Portfolio Shares shall 
have a stated investment objective, which shall be adhered to under 
normal market conditions. Proposed Rule 8.601(d)(2) provides that each 
series of Active Proxy Portfolio Shares will be listed and traded 
subject to application of specified continued listing criteria, as set 
forth above.
    Proposed Rule 8.601(d)(2)(D)(i) provides that the Exchange may 
consider all relevant factors in exercising its discretion to halt 
trading in a series of Active Proxy Portfolio Shares. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the series of Active Proxy Portfolio 
Shares inadvisable. These may include: (a) The extent to which trading 
is not occurring in the securities and/or the financial instruments 
composing the Proxy Portfolio and/or Actual Portfolio; or (b) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Proposed Rule

[[Page 64206]]

8.601(d)(2)(D)(iii) provides that, if the Exchange becomes aware that 
the NAV, Proxy Portfolio, or Actual Portfolio with respect to a series 
of Active Proxy Portfolio Shares is not made available to all market 
participants at the same time, the Exchange shall halt trading in such 
series until such time as the NAV, Proxy Portfolio, or Actual Portfolio 
is available to all market participants at the same time, as 
applicable. The Exchange believes that these proposed halt procedures 
will help ensure that market participants have fair and uniform access 
to information regarding a fund's NAV, Proxy Portfolio, or Actual 
Portfolio and, therefore, reduce the potential for manipulation and 
help ensure a fair and orderly market in trading of Active Proxy 
Portfolio Shares.
    Proposed Commentary .01 to Rule 8.601 provides that the Exchange 
will file separate proposals under Section 19(b) of the Act before the 
listing and trading of Active Proxy Portfolio Shares. All statements or 
representations contained in such rule filing regarding (a) the 
description of the portfolio, (b) limitations on portfolio holdings, or 
(c) the applicability of Exchange listing rules specified in such rule 
filing will constitute continued listing requirements. An issuer of 
such securities must notify the Exchange of any failure to comply with 
such continued listing requirements.
    Proposed Commentary .03 to Rule 8.601 provides that the Exchange 
will implement and maintain written surveillance procedures for Active 
Proxy Portfolio Shares. As part of these surveillance procedures, the 
Investment Company's investment adviser will, upon request by the 
Exchange or FINRA, on behalf of the Exchange, make available to the 
Exchange or FINRA the daily Actual Portfolio holdings of each series of 
Active Proxy Portfolio Shares.
    Proposed Commentary .04 provides that, if the investment adviser to 
the Investment Company issuing Active Proxy Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company's 
Actual Portfolio and/or Proxy Portfolio. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's Actual Portfolio and/or Actual Portfolio or 
has access to non-public information regarding the Investment Company's 
Actual Portfolio and/or the Proxy Portfolio or changes thereto must be 
subject to procedures reasonably designed to prevent the use and 
dissemination of material non-public information regarding the Actual 
Portfolio or to the Proxy Portfolio and/or changes thereto.
    Proposed Commentary .05 provides that any person or entity, 
including a custodian, Reporting Authority, distributor, or 
administrator, who has access to non-public information regarding the 
Investment Company's Actual Portfolio or the Proxy Portfolio or changes 
thereto, must be subject to procedures reasonably designed to prevent 
the use and dissemination of material non-public information regarding 
the applicable Investment Company Actual Portfolio or the Proxy 
Portfolio or changes thereto. Moreover, if any such person or entity is 
registered as a broker-dealer or affiliated with a broker-dealer, such 
person or entity will erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such 
Investment Company Actual Portfolio or Proxy Portfolio.
    The Exchange believes proposed Commentary .04 and proposed 
Commentary .05 will act as a safeguard against any misuse and improper 
dissemination of non-public information related to a fund's Actual 
Portfolio or Proxy Portfolio or changes thereto. The requirement that 
any person or entity implement procedures reasonably designed to 
prevent the use and dissemination of material non-public information 
regarding the Actual Portfolio or Proxy Portfolio will act to prevent 
any individual or entity from sharing such information externally and 
the internal ``fire wall'' requirements applicable where an entity is a 
registered broker-dealer or affiliated with a broker-dealer will act to 
make sure that no entity will be able to misuse the data for their own 
purpose. As such, the Exchange believes that this proposal is designed 
to prevent fraudulent and manipulative acts and practices.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in series of Active Proxy 
Portfolio Share and underlying exchange-traded instruments with other 
markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading such securities and exchange-
traded instruments from such markets and other entities. In addition, 
the Exchange may obtain information regarding trading in such 
securities and exchange-traded instruments from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
    The Exchange believes that market makers will be able to make 
efficient and liquid markets priced near the ETF's intraday value, and 
market makers employ market making techniques such as ``statistical 
arbitrage,'' including correlation hedging, beta hedging, and 
dispersion trading, which is currently used throughout the financial 
services industry, to make efficient markets in exchange-traded 
products.\29\ For Active Proxy Portfolio Shares, market makers may use 
the knowledge of a fund's means of achieving its investment objective, 
as described in the applicable fund Registration Statement, as well as 
a fund's disclosed Proxy Portfolio, to construct a hedging proxy for a 
fund to manage a market maker's quoting risk in connection with trading 
fund shares. Market makers can then conduct statistical arbitrage 
between their hedging proxy and shares of a fund, buying and selling 
one against the other over the course of the trading day. This ability 
should permit market makers to make efficient markets in an issue of 
Active Proxy Portfolio Shares without precise knowledge of a fund's 
underlying portfolio. This is similar to certain other existing 
exchange-traded products (for example, ETFs that invest in foreign 
securities that do not trade during U.S. trading hours), in which 
spreads may be generally wider in the early days of trading and then 
narrow as market makers gain more confidence in their real-time hedges.
---------------------------------------------------------------------------

    \29\ See note 7, supra.
---------------------------------------------------------------------------

    The daily dissemination of the identity and quantity of Proxy 
Portfolio component investments, together with the right of Authorized 
Participants to create and redeem each day at the NAV, will be 
sufficient for market participants to value and trade shares in a 
manner that will not lead to significant deviations between the Bid/Ask 
Price and NAV of shares of a series of Active Proxy Portfolio Shares.
    The pricing efficiency with respect to trading a series of Active 
Proxy Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the shares and a fund's portfolio, in 
addition to the ability of market participants to assess a fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in shares effectively. Professional traders can buy 
shares that

[[Page 64207]]

they perceive to be trading at a price less than that which will be 
available at a subsequent time and sell shares they perceive to be 
trading at a price higher than that which will be available at a 
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to shares by the Exchange, 
off-exchange market makers, firms that specialize in electronic 
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being 
``long'' or ``short'' shares through such trading and will hedge such 
risk wholly or partly by simultaneously taking positions in correlated 
assets \30\ or by netting the exposure against other, offsetting 
trading positions--much as such firms do with existing ETFs and other 
equities. Disclosure of a fund's investment objective and principal 
investment strategies in its prospectus and SAI should permit 
professional investors to engage easily in this type of hedging 
activity.
---------------------------------------------------------------------------

    \30\ Price correlation trading is used throughout the financial 
industry. It is used to discover both trading opportunities to be 
exploited, such as currency pairs and statistical arbitrage, as well 
as for risk mitigation such as dispersion trading and beta hedging. 
These correlations are a function of differentials, over time, 
between one or multiple securities pricing. Once the nature of these 
price deviations have been quantified, a universe of securities is 
searched in an effort to, in the case of a hedging strategy, 
minimize the differential. Once a suitable hedging basket has been 
identified, a trader can minimize portfolio risk by executing the 
hedging basket. The trader then can monitor the performance of this 
hedge throughout the trade period, making corrections where 
warranted.
---------------------------------------------------------------------------

    The Exchange believes that Active Proxy Portfolio Shares will 
provide investors with a greater choice of active portfolio managers 
and active strategies through which they can manage their assets in an 
ETF structure. This greater choice of active asset management is 
expected to be similar to the diversity of active managers and 
strategies available to mutual fund investors. Unlike mutual fund 
investors, investors in Active Proxy Portfolio Shares would also accrue 
the benefits derived from the ETF structure, such as lower fund costs, 
tax efficiencies, intraday liquidity, and pricing that reflects current 
market conditions rather than end-of-day pricing.
    The Exchange believes that Active Proxy Portfolio Shares will 
provide the platform for many more asset managers to launch ETFs, 
increasing the investment choices for consumers of actively managed 
funds, which should lead to a greater competitive landscape that can 
help to reduce the overall costs of active investment management for 
retail investors. Unlike mutual funds, Active Proxy Portfolio Shares 
would be able to use the efficient share settlement system in place for 
ETFs today, translating into a lower cost of maintaining shareholder 
accounts and processing transactions.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of a 
series of Active Proxy Portfolio Shares that the NAV per share of a 
fund will be calculated daily and that the NAV, Proxy Portfolio, and 
Actual Portfolio will be made available to all market participants at 
the same time. Investors can also obtain a fund's SAI, Shareholder 
Reports, Form N-CSR, N-PORT, and Form N-CEN. The prospectus, SAI, and 
Shareholder Reports are available free upon request from a fund, and 
those documents and the Form N-CSR, N-PORT, and Form N-CEN may be 
viewed on-screen or downloaded from the Commission's website.
    Information regarding market price and trading volume of the shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services.
    Information regarding the previous day's closing price and trading 
volume information for the shares will be published daily in the 
financial section of newspapers. Quotation and last sale information 
for the shares, equity securities, and ETFs will be available via the 
CTA high-speed line or from the exchange on which such securities 
trade. Intraday pricing information for all constituents of the Proxy 
Portfolio that are exchange-traded, which includes all eligible 
instruments except cash and cash equivalents, will be available on the 
exchanges on which they are traded and through subscription services. 
Intraday pricing information for cash equivalents will be available 
through subscription services and/or pricing services.
    Trading in a series of Active Proxy Portfolio Shares will be halted 
if the circuit breaker parameters in Rule 7.12 have been reached or 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the shares inadvisable. Trading in the shares 
will be subject to proposed Rule 8.601(d)(2)(D), which sets forth 
circumstances under which shares of a fund will be halted.
    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 
an additional type of actively-managed ETP that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the shares and may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. In addition, as noted above, investors will have ready 
access to information regarding quotation and last sale information for 
the shares.
Proposed Rule 8.900
    The Exchange believes that proposed Rule 8.900 is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Managed Portfolio 
Shares provide specific initial and continued listing criteria required 
to be met by such securities. Proposed Rule 8.900(d) sets forth initial 
and continued listing criteria applicable to Managed Portfolio Shares. 
Proposed Rule 8.900(d)(1)(A) provides that, for each series of Managed 
Portfolio Shares, the Exchange will establish a minimum number of 
Managed Portfolio Shares required to be outstanding at the time of 
commencement of trading. In addition, proposed Rule 8.900(d)(1)(B) 
provides that the Exchange will obtain a representation from the 
Investment Company that issues each series of Managed Portfolio Shares 
that the NAV per share for the series will be calculated daily and that 
the NAV will be made available to all market participants at the same 
time.\31\ Proposed Rule 8.900(d)(2) provides that each series of 
Managed Portfolio Shares will be listed and traded subject to 
application of the specified continued listing criteria, as described 
above. Proposed Rule 8.900(d)(2)(A) provides that the VIIV for Managed 
Portfolio Shares will be widely disseminated by the Reporting Authority 
and/or one or more major market data vendors in one second intervals 
during the Exchange's Core Trading Session, and will be disseminated to 
all market participants at the same time. Proposed Rule 8.900(d)(2)(B) 
provides that the Exchange will consider the suspension of trading in, 
and will commence

[[Page 64208]]

delisting proceedings under Rule 5.5(m) for, a series of Managed 
Portfolio Shares under any of the following circumstances: (a) If, 
following the initial twelve-month period after commencement of trading 
on the Exchange of a series of Managed Portfolio Shares, there are 
fewer than 50 beneficial holders of the series of Managed Portfolio 
Shares; (b) if the Exchange has halted trading in a series of Managed 
Portfolio Shares because the Verified Intraday Indicative Value is 
interrupted pursuant to Rule 8.900(d)(2)(C)(ii) and such interruption 
persists past the trading day in which it occurred or is no longer 
available; (c) if the Exchange has halted trading in a series of 
Managed Portfolio Shares because the net asset value with respect to 
such series of Managed Portfolio Shares is not disseminated to all 
market participants at the same time, the holdings of such series of 
Managed Portfolio Shares are not made available on at least a quarterly 
basis as required under the 1940 Act, or such holdings are not made 
available to all market participants at the same time pursuant to Rule 
8.900(d)(2)(C)(ii) and such issue persists past the trading day in 
which it occurred; (d) if the Exchange has halted trading in a series 
of Managed Portfolio Shares pursuant to Rule 8.900(d)(2)(C)(i), such 
issue persists past the trading day in which it occurred; (e) if the 
Investment Company issuing the Managed Portfolio Shares has failed to 
file any filings required by the Commission or if the Exchange is aware 
that the Investment Company is not in compliance with the conditions of 
any currently applicable exemptive order or no-action relief granted by 
the Commission or Commission staff to the Investment Company with 
respect to the series of Managed Portfolio Shares; (f) if any of the 
continued listing requirements set forth in Rule 8.900 are not 
continuously maintained; (g) if any of the statements or 
representations regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings, or (c) the applicability of Exchange 
listing rules, specified in the Exchange's rule filing pursuant to 
Section 19(b) of the Securities Exchange Act of 1934 to permit the 
listing and trading of a series of Managed Portfolio Shares, are not 
continuously maintained; or (h) if such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable. Proposed Rule 5.900(d)(2)(C)(i) 
provides that the Exchange may consider all relevant factors in 
exercising its discretion to halt trading in the series of Managed 
Portfolio Shares. Trading may be halted because of market conditions or 
for reasons that, in the view of the Exchange, make trading in the 
series of Managed Portfolio Shares inadvisable. These may include: (a) 
The extent to which trading is not occurring in the securities and/or 
the financial instruments composing the portfolio; or (b) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.
---------------------------------------------------------------------------

    \31\ Proposed Rule 8.900(d)(2)(C)(ii) provides that if the 
Exchange becomes aware that the NAV with respect to a series of 
Managed Portfolio Shares is not disseminated to all market 
participants at the same time, it will halt trading in such series 
until such time as the NAV is available to all market participants 
at the same time.
---------------------------------------------------------------------------

    Proposed Rule 8.900(d)(2)(C)(ii) provides that, if the Exchange 
becomes aware that: (a) The VIIV of a series of Managed Portfolio 
Shares is not being calculated or disseminated in one second intervals, 
as required; (b) the net asset value with respect to a series of 
Managed Portfolio Shares is not disseminated to all market participants 
at the same time; (c) the holdings of a series of Managed Portfolio 
Shares are not made available on at least a quarterly basis as required 
under the 1940 Act; or (d) such holdings are not made available to all 
market participants at the same time (except as otherwise permitted 
under the currently applicable exemptive order or no-action relief 
granted by the Commission or Commission staff to the Investment Company 
with respect to the series of Managed Portfolio Shares), it will halt 
trading in such series until such time as the VIIV, the net asset 
value, or the holdings are available, as required. Proposed Rule 
8.900(d)(2)(D) provides that, upon termination of an Investment 
Company, the Exchange requires that Managed Portfolio Shares issued in 
connection with such entity be removed from Exchange listing. Proposed 
Rule 8.900(d)(2)(E) provides that voting rights shall be as set forth 
in the applicable Investment Company prospectus and/or SAI.
    Proposed Rule 8.900(b)(4) provides that, if the investment adviser 
to the Investment Company issuing Managed Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliates, as applicable, with respect to access to information 
concerning the composition of and/or changes to such Investment Company 
portfolio and/or the Creation Basket. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to 
information regarding the Investment Company's portfolio composition or 
changes thereto or the Creation Basket must be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the applicable Investment Company portfolio or 
changes thereto or the Creation Basket. Proposed Rule 8.900(b)(5) 
provides that, any person or entity, including an AP Representative, 
custodian, Reporting Authority, distributor, or administrator, who has 
access to non-public information regarding the Investment Company's 
portfolio composition or changes thereto or the Creation Basket, must 
be subject to procedures reasonably designed to prevent the use and 
dissemination of material non-public information regarding the 
applicable Investment Company portfolio or changes thereto or the 
Creation Basket. Moreover, if any such person or entity is registered 
as a broker-dealer or affiliated with a broker-dealer, such person or 
entity will erect and maintain a ``fire wall'' between the person or 
entity and the broker-dealer with respect to access to information 
concerning the composition and/or changes to such Investment Company 
portfolio or Creation Basket.
    The Exchange believes that these proposed rules are designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares because they provide 
meaningful requirements about both the data that will be made publicly 
available about the shares as well as the information that will only be 
available to certain parties and the controls on such information. 
Specifically, the Exchange believes that the requirements related to 
information protection enumerated under proposed Rule 8.900(b)(5) will 
act as a strong safeguard against any misuse and improper dissemination 
of non-public information related to a fund's portfolio composition, 
the Creation Basket, or changes thereto. The requirement that any 
person or entity implement procedures reasonably designed to prevent 
the use and dissemination of material non-public information regarding 
the portfolio or Creation Basket will act to prevent any individual or 
entity from sharing such information externally and the internal ``fire 
wall'' requirements applicable where an entity is a registered broker-
dealer or affiliated with a broker-dealer will act to make sure that no 
entity will be able to misuse the data for their own purpose. As such, 
the Exchange believes that this proposal is designed to prevent 
fraudulent and manipulative acts and practices.

[[Page 64209]]

    The Exchange believes that market makers will be able to make 
efficient and liquid markets priced near the VIIV, as long as market 
makers have knowledge of a fund's means of achieving its investment 
objective, even without daily disclosure of a fund's underlying 
portfolio. The Exchange believes that market makers will employ risk-
management techniques to make efficient markets in exchange traded 
products. This ability should permit market makers to make efficient 
markets in shares without knowledge of a fund's underlying portfolio.
    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers utilizing statistical arbitrage use the knowledge of a fund's 
means of achieving its investment objective, as described in the 
applicable fund Registration Statement, to construct a hedging proxy 
for a fund to manage a market maker's quoting risk in connection with 
trading fund shares. Market makers will then conduct statistical 
arbitrage between their hedging proxy (for example, the Russell 1000 
Index) and shares of a fund, buying and selling one against the other 
over the course of the trading day. Eventually, at the end of each day, 
they will evaluate how their proxy performed in comparison to the price 
of a fund's shares, and use that analysis as well as knowledge of risk 
metrics, such as volatility and turnover, to enhance their proxy 
calculation to make it a more efficient hedge.
    Market makers have indicated to the Exchange that there will be 
sufficient data to run a statistical analysis which will lead to 
spreads being tightened substantially around the VIIV. This is similar 
to certain other existing exchange-traded products (for example, ETFs 
that invest in foreign securities that do not trade during U.S. trading 
hours), in which spreads may be generally wider in the early days of 
trading and then narrow as market makers gain more confidence in their 
real-time hedges.
    As with some other new ETPs, spreads would tend to narrow as market 
makers gain more confidence in the accuracy of their hedges and their 
ability to adjust these hedges in real-time relative to the published 
VIIV and gain an understanding of the applicable market risk metrics 
such as volatility and turnover, and as natural buyers and sellers 
enter the market. Other relevant factors cited by market makers were 
that a fund's investment objectives are clearly disclosed in the 
applicable prospectus, the existence of quarterly portfolio disclosure 
and the ability to create shares in creation unit size or redeem in 
redemption unit size through an AP.
    The real-time dissemination of a fund's VIIV together with the 
right of APs to create and redeem each day at the NAV will be 
sufficient for market participants to value and trade shares in a 
manner that will not lead to significant deviations between the shares' 
bid/ask price and NAV.
    The pricing efficiency with respect to trading a series of Managed 
Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the shares and a fund's portfolio, in 
addition to the ability of market participants to assess a fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in shares effectively. Professional traders can buy 
shares that they perceive to be trading at a price less than that which 
will be available at a subsequent time, and sell shares they perceive 
to be trading at a price higher than that which will be available at a 
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to shares by the Exchange, 
off-exchange market makers, firms that specialize in electronic 
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being 
``long'' or ``short'' shares through such trading and will hedge such 
risk wholly or partly by simultaneously taking positions in correlated 
assets \32\ or by netting the exposure against other, offsetting 
trading positions--much as such firms do with existing ETFs and other 
equities. Disclosure of a fund's investment objective and principal 
investment strategies in its prospectus and SAI, along with the 
dissemination of the VIIV in one second intervals, should permit 
professional investors to engage easily in this type of hedging 
activity.\33\
---------------------------------------------------------------------------

    \32\ See note 30, supra.
    \33\ With respect to trading in the shares, market participants 
would manage risk in a variety of ways. It is expected that market 
participants will be able to determine how to trade shares at levels 
approximating the VIIV without taking undue risk by gaining 
experience with how various market factors (e.g., general market 
movements, sensitivity of the VIIV to intraday movements in interest 
rates or commodity prices, etc.) affect VIIV, and by finding hedges 
for their long or short positions in shares using instruments 
correlated with such factors. Market participants will likely 
initially determine the VIIV's correlation to a major large 
capitalization equity benchmark with active derivative contracts, 
such as the Russell 1000 Index, and the degree of sensitivity of the 
VIIV to changes in that benchmark. For example, using hypothetical 
numbers for illustrative purposes, market participants should be 
able to determine quickly that price movements in the Russell 1000 
Index predict movements in a fund's VIIV 95% of the time (an 
acceptably high correlation) but that the VIIV generally moves 
approximately half as much as the Russell 1000 Index with each price 
movement. This information is sufficient for market participants to 
construct a reasonable hedge--buy or sell an amount of futures, 
swaps or ETFs that track the Russell 1000 equal to half the opposite 
exposure taken with respect to shares. Market participants will also 
continuously compare the intraday performance of their hedge to a 
fund's VIIV. If the intraday performance of the hedge is correlated 
with the VIIV to the expected degree, market participants will feel 
comfortable they are appropriately hedged and can rely on the VIIV 
as appropriately indicative of a fund's performance.
---------------------------------------------------------------------------

    With respect to trading of the shares, the ability of market 
participants to buy and sell shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for a fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
a fund's actual portfolio holdings, (2) the securities in which a fund 
plans to invest are generally highly liquid and actively traded and 
therefore generally have accurate real time pricing available, and (3) 
market participants will have a daily opportunity to evaluate whether 
the VIIV at or near the close of trading is indeed predictive of the 
actual NAV.
    In a typical index-based ETF, it is standard for APs to know what 
securities must be delivered in a creation or will be received in a 
redemption. For Managed Portfolio Shares, however, APs do not need to 
know the securities comprising the portfolio of a fund since creations 
and redemptions are handled through the Confidential Account mechanism. 
In-kind creations and redemptions through a Confidential Account are 
expected to preserve the integrity of the active investment strategy 
and reduce the potential for ``free riding'' or ``front-running,'' 
while still providing investors with the advantages of the ETF 
structure.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the Investment 
Company that issues each series of Managed Portfolio Shares that the 
NAV per share of a fund will be calculated daily and that the NAV will 
be made available to all market participants at the same time. 
Investors can also obtain a fund's SAI, its

[[Page 64210]]

Shareholder Reports, its Form N-CSR, filed twice a year, and its Form 
N-CEN, filed annually. A fund's SAI and Shareholder Reports are 
available free upon request from the Investment Company, and those 
documents and the Form N-PORT, Form N-CSR, and Form N-CEN may be viewed 
on-screen or downloaded from the Commission's website at www.sec.gov. 
In addition, a large amount of information will be publicly available 
regarding a funds and its shares, thereby promoting market 
transparency. Quotation and last sale information for the shares will 
be available via the CTA high-speed line. Information regarding the 
VIIV will be widely disseminated in one second intervals throughout the 
Core Trading Session by the Reporting Authority and/or one or more 
major market data vendors. The website for each fund will include a 
form of the prospectus for the fund that may be downloaded, and 
additional data relating to NAV and other applicable quantitative 
information, updated on a daily basis. Moreover, prior to the 
commencement of trading, the Exchange will inform its members in an 
Information Bulletin of the special characteristics and risks 
associated with trading the shares.
    The Exchange further believes that the proposal is designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Managed Portfolio Shares and to promote just and 
equitable principles of trade and to protect investors and the public 
interest in that the Exchange would halt trading under certain 
circumstances under which trading in the shares of a fund may be 
inadvisable. Specifically, the Exchange may consider all relevant 
factors in exercising its discretion to halt trading in a series of 
Managed Portfolio Shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the series of Managed Portfolio Shares inadvisable. These 
may include: (a) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the portfolio; or 
(b) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Additionally, 
the Exchange would halt trading as soon as practicable where the 
Exchange becomes aware that: (a) The VIIV of a series of Managed 
Portfolio Shares is not being calculated or disseminated in one second 
intervals, as required; (b) the net asset value with respect to a 
series of Managed Portfolio Shares is not disseminated to all market 
participants at the same time; (c) the holdings of a series of Managed 
Portfolio Shares are not made available on at least a quarterly basis 
as required under the 1940 Act; or (d) such holdings are not made 
available to all market participants at the same time, (except as 
otherwise permitted under a currently applicable exemptive order or no-
action relief granted by the Commission or Commission staff to the 
Investment Company with respect to the series of Managed Portfolio 
Shares). The Exchange would halt trading in such series of Managed 
Portfolio Shares until such time as the VIIV, the NAV, or the holdings 
are available, as required.
    The Exchange is proposing to retain discretion to halt trading in a 
series of Managed Portfolio Shares based on market conditions or where 
the Exchange determines that trading in such series is inadvisable 
(each a ``Discretionary Halt'') and is also proposing the four 
Availability of Information Halts described above. The Exchange 
believes that retaining discretion to implement a Discretionary Halt as 
specified is consistent with the Act. The proposed rule retaining 
discretion related to halts is designed to ensure the maintenance of a 
fair and orderly market and protect investors and the public interest 
in that it provides the Exchange with the ability to halt when it 
determines that trading in the shares is inadvisable. This could be 
based on the Exchange's own analysis of market conditions being 
detrimental to a fair and orderly market and/or information provided by 
the Investment Company or its agent. There are certain circumstances 
related to the trading and dissemination of information related to the 
underlying holdings of a series of Managed Portfolio Shares, such as 
the extent to which trading is not occurring in the securities and/or 
financial instruments composing the portfolio, that the Exchange may 
not be in a position to know or become aware of as expeditiously as the 
Investment Company or its agent. There are certain circumstances where 
the Investment Company or its agent may request that the Exchange halt 
trading in the applicable series of Managed Portfolio Shares. Upon 
receipt of information and/or a request from the Investment Company, 
the Exchange would consider the information and/or circumstances 
leading to the request as well as other factors both specific to such 
issue of Managed Portfolio Shares and the broader market in determining 
whether trading in the series of Managed Portfolio Shares is 
inadvisable and that halting trading is necessary in order to maintain 
a fair and orderly market. As such, the Exchange believes that the 
proposal to provide the Exchange with discretion to implement a 
Discretionary Halt is consistent with the Act.
    The Exchange believes that the proposed Availability of Information 
Halts to halt trading in shares of a series of Managed Portfolio Shares 
are consistent with the Act because: (i) The Commission has already 
determined that the requirement that the VIIV be disseminated every 
second is appropriate; (ii) the other Availability of Information Halts 
are generally consistent with and designed to address the same concerns 
about asymmetry of information that Rule 8.600(d)(2)(D) related to 
trading halts in Managed Fund Shares \34\ is intended to address, 
specifically that the availability of such information is intended to 
reduce the potential for manipulation and help ensure a fair and 
orderly market in Managed Portfolio Shares; and (iii) the quarterly 
disclosure of portfolio holdings is a fundamental component of Managed 
Portfolio Shares that allows market participants to better understand 
the strategy of a fund and to monitor how closely trading in a fund is 
tracking the value of the underlying portfolio and when such 
information is not being disclosed as required, trading in the shares 
is inadvisable and it is necessary and appropriate to halt trading.
---------------------------------------------------------------------------

    \34\ Rule 8.600(d)(2)(D) provides that ``If the Portfolio 
Indicative Value (as defined in Rule 8.600(c)(3)) of a series of 
Managed Fund Shares is not being disseminated as required, the 
Exchange may halt trading during the day in which the interruption 
to the dissemination of the Portfolio Indicative Value occurs. If 
the interruption to the dissemination of the Portfolio Indicative 
Value persists past the trading day in which it occurred, the 
Exchange will halt trading no later than the beginning of the 
trading day following the interruption. If a series of Managed Fund 
Shares is trading on the Exchange pursuant to unlisted trading 
privileges, the Exchange will halt trading in that series as 
specified in Rule 7.34(a). In addition, if the Exchange becomes 
aware that the net asset value or the Disclosed Portfolio with 
respect to a series of Managed Fund Shares is not disseminated to 
all market participants at the same time, it will halt trading in 
such series until such time as the net asset value or the Disclosed 
Portfolio is available to all market participants.'' These are 
generally consistent with the proposed Availability of Information 
Halts, specifically as it relates to whether the NAV or Disclosed 
Portfolio is not being made available to all market participants at 
the same time.
---------------------------------------------------------------------------

    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 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors

[[Page 64211]]

and the marketplace. As noted above, the Exchange has in place 
surveillance procedures relating to trading in the shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. Additionally, any equity instruments or 
futures held by a fund operating under an exemptive order would trade 
on markets that are a member of ISG or affiliated with a member of ISG 
or with which the Exchange has in place a comprehensive surveillance 
sharing agreement.\35\ While future exemptive relief applicable to 
Managed Portfolio Shares may expand the investable universe, the 
Exchange notes that proposed Rule 8.900(b)(1) would require the 
Exchange to file separate proposals under Section 19(b) of the Act 
before listing and trading any series of Managed Portfolio Shares and 
such proposal would describe the investable universe for any such 
series of Managed Portfolio Shares along with the Exchange's 
surveillance procedures applicable to such series. In addition, as 
noted above, investors will have ready access to information regarding 
the VIIV and quotation and last sale information for the shares.
---------------------------------------------------------------------------

    \35\ The Exchange notes that cash equivalents may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

Rule 8P Preamble
    The Exchange believes that the proposed change to the preamble to 
Rule 8P would remove impediments to, and perfect the mechanism of, a 
free and open market and a national market system because it would 
facilitate the listing and trading of additional types of actively-
managed ETPs on the Exchange, thereby enhancing competition among both 
market participants and listing venues, to the benefit of investors and 
the marketplace. Because the portfolios of Active Proxy Portfolio 
Shares and Managed Portfolio Shares are not disclosed on a real-time 
basis, the Exchange believes that the issues raised by side-by-side 
trading \36\ are not implicated, and excepting ETPs listed pursuant to 
proposed Rules 8.601 and 8.900 from the preamble would be consistent 
with the protection of investors and the public interest.
---------------------------------------------------------------------------

    \36\ ``Side-by-side trading'' refers to the trading of an equity 
security and its related derivative product at the same physical 
location, though ``not necessarily by the same specialist or 
specialist firm.'' Securities Exchange Act Release No. 46213 (July 
16, 2002), 67 FR 48232, 48233 (July 23, 2002) (SR-Amex-2002-21) 
(``Release No. 46213'') (order approving side-by-side trading and 
integrated market making of broad index-based ETFs and related 
options); see also Securities Exchange Act Release No. 45454 
(February 15, 2002), 67 FR 8567, 8568 n. 7 (February 25, 2002) (SR-
NYSE-2001-43) (order approving approved person of a specialist to 
act as a specialist or primary market maker with respect to an 
option on a stock in which the NYSE specialist is registered on the 
Exchange).
---------------------------------------------------------------------------

    More specifically, given that the portfolios of series of Active 
Proxy Portfolio Shares and Managed Portfolio Shares would not be 
disclosed on a real-time basis and, at most, would be disclosed on a 
quarterly basis, the Exchange believes that series of Active Proxy 
Portfolio Shares and Managed Portfolio Shares would not be susceptible 
to any potential manipulation that could result from such ETPs having a 
component NMS Stock that is listed on the Exchange or that is based on, 
or represents an interest in, an underlying index or reference asset 
that includes an NMS Stock listed on the Exchange. The Exchange also 
believes that excluding ETPs listed pursuant to proposed Rules 8.601 
and 8.900 from the preamble would be consistent with the protection of 
investors and the public interest because series of Active Proxy 
Portfolio Shares and Managed Portfolio Shares would require a rule 
filing with the Commission prior to commencement of Exchange listing or 
trading, and in order for a rule proposal to be consistent with the 
Act, it must, among other things, further the objectives of Section 
6(b)(5) of the Act \37\ in that it is designed to prevent fraudulent 
and manipulative acts and practices.
---------------------------------------------------------------------------

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

Listed Company Manual Section 302.00
    The Exchange believes that its proposal to amend Listed Company 
Manual Section 302.00 to include Active Proxy Portfolio Shares listed 
pursuant to proposed Rule 8.601 and Managed Portfolio Shares listed 
pursuant to proposed Rule 8.900 among the securities exempted from the 
annual shareholders' meeting requirement is designed to prevent 
fraudulent and manipulative acts and practices and to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system because Active Proxy Portfolio Shares and 
Managed Portfolio Shares would be subject to the same requirements 
currently applicable to other 1940 Act-registered investment company 
securities (e.g., Investment Company Units, Managed Fund Shares, and 
Portfolio Depositary Receipts). The proposed change would also make 
Section 302.00 consistent with NYSE Arca Rule 5.3-E, which sets forth 
substantially similar requirements with respect to annual meetings.

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 purposes of the Act. The Exchange believes that 
the proposed rules facilitate the listing and trading of additional 
types of actively-managed ETPs on the Exchange, thereby enhancing 
competition among both market participants and listing venues, 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 within such longer period 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-NYSE-2020-77 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-2020-77. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your

[[Page 64212]]

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-2020-77 and should be submitted on or before October 30, 2020.
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    \38\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22377 Filed 10-8-20; 8:45 am]
BILLING CODE 8011-01-P