80 FR 49281 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Holdings By the iShares Interest Rate Hedged Corporate Bond ETF and iShares Interest Rate Hedged High Yield Bond ETF

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 80, Issue 158 (August 17, 2015)

[Federal Register Volume 80, Number 158 (Monday, August 17, 2015)]
[Notices]
[Pages 49281-49283]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2015-20158]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75662; File No. SR-NYSEARCA-2015-67]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to 
Holdings By the iShares Interest Rate Hedged Corporate Bond ETF and 
iShares Interest Rate Hedged High Yield Bond ETF

August 11, 2015.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on August 3, 2015, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to reflect a change to the holdings to be 
implemented by the iShares Interest Rate Hedged Corporate Bond ETF and 
iShares Interest Rate Hedged High Yield Bond ETF relating to the use of 
interest rate futures contracts, and interest rate swaps. The text of 
the proposed rule change is available on the Exchange's Web site 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 Commission has approved a proposal to list and trade on the 
Exchange shares (``Shares'') of the iShares Interest Rate Hedged 
Corporate Bond ETF and iShares Interest Rate Hedged High Yield Bond ETF 
(each a ``Fund'' and, together, the ``Funds'') under NYSE Arca Equities 
Rule 8.600,\4\ which governs the listing and trading of Managed Fund 
Shares.\5\
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    \4\ See Securities Exchange Act Release Nos. 71778 (March 24, 
2014), 79 FR 17585 (March 28, 2014 (SR-NYSEArca-2014-23) (Notice of 
Filing of Proposed Rule Change to List and Trade Shares of the 
iShares Interest Rate Hedged Corporate Bond ETF and iShares Interest 
Rate Hedged High Yield Bond ETF under NYSE Arca Equities Rule 8.600) 
(``Prior Notice''); 72138 (May 9, 2014), 79 FR 27958 (May 15, 2014) 
(SR-NYSEArca-2014-23) (order approving listing and trading on the 
Exchange of Shares of the iShares Interest Rate Hedged Corporate 
Bond ETF and iShares Interest Rate Hedged High Yield Bond ETF under 
NYSE Arca Equities Rule 8.600) (``Prior Order'' and, together with 
the Prior Notice, the ``Prior Release'').
    \5\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
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    The Shares of the Funds are offered by iShares U.S. ETF Trust (the 
``Trust'').\6\ The Trust is registered with the Commission as an open-
end management investment company. BlackRock Fund Advisors (``BFA'') 
serves as the investment adviser to the Funds (the ``Adviser''). BFA is 
an indirect wholly-owned subsidiary of BlackRock, Inc. BlackRock 
Investments, LLC is the principal underwriter and distributor of the 
Funds' Shares. State Street Bank and Trust Company serves as 
administrator, custodian and transfer agent for the Funds. The Funds' 
Shares are currently listed and traded on the Exchange under NYSE Arca 
Equities Rule 8.600.
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    \6\ The Trust is registered under the 1940 Act. On August 22, 
2013, the Trust filed with the Commission post-effective amendments 
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) and 
under the 1940 Act relating to the iShares Interest Rate Hedged 
Corporate Bond ETF (the ``Corporate Bond Registration Statement'') 
and the iShares Interest Rate Hedged High Yield Bond ETF (the ``High 
Yield Registration Statement'' and together with the Corporate Bond 
Registration Statement, the ``Registration Statements'') (File Nos. 
333-179904 and 811-22649). In addition, the Commission has issued an 
order granting certain exemptive relief to the Trust under the 1940 
Act. See Investment Company Act Release No. 29571 (File No. 812-
13601) (``Exemptive Order'').
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    The Exchange proposes to revise the representations made in the 
Prior Release regarding the Funds' investments to accommodate use of 
interest rate futures contracts \7\ and interest rate swaps by the 
Funds, as described below, consistent with the use of such financial 
instruments permitted for other funds of the Trust previously approved 
by the Commission for Exchange listing and trading.\8\
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    \7\ As described in the Prior Release, both Funds may use U.S. 
Treasury futures contracts to mitigate interest rate risk. In this 
proposed rule change, the Exchange proposes, among other things, to 
accommodate use by the Funds of other interest rate futures to 
mitigate interest rate risk.
    \8\ See Securities Exchange Act Release No. 74058 (January 15, 
2015), 80 FR 3294 (January 22, 2015) (SR-NYSEArca-2014-114), (order 
approving listing and trading on the Exchange of shares of the 
iShares Interest Rate Hedged 0-5 Year High Yield Bond ETF, iShares 
Interest Rate Hedged 10+ Year Credit Bond ETF, and the iShares 
Interest Rate Hedged Emerging Markets Bond ETF under NYSE Arca 
Equities Rule 8.600).
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iShares Interest Rate Hedged Corporate Bond ETF
    As described in the Prior Release, according to the Corporate Bond 
Registration Statement, the Fund seeks to mitigate the interest rate 
risk of a portfolio composed of U.S. dollar-denominated, investment 
grade corporate bonds. The Fund seeks to achieve its investment 
objective by investing, under normal circumstances, at least 80% of its 
net assets in U.S. dollar-denominated investment grade bonds, in one or 
more investment companies (exchange-traded and non-exchange-traded 
funds) that principally invest in investment-grade bonds, in U.S. 
Treasury securities (or cash equivalents), and by taking short 
positions in U.S. Treasury futures and other interest rate futures 
contracts.
    The Exchange proposes to amend this statement to provide that, 
going forward, the Fund will seek to achieve its investment objective 
by investing, under normal circumstances, at least 80% of its net 
assets in U.S. dollar-denominated investment grade bonds, in one or 
more investment companies (exchange-traded and non-exchange-traded 
funds) that principally invest in investment-grade bonds, in U.S. 
Treasury securities (or cash

[[Page 49282]]

equivalents), and by taking short positions in U.S. Treasury futures, 
other interest rate futures contracts, and interest rate swaps.\9\
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    \9\ The Funds will invest only in futures contracts that are 
traded on an exchange that is a member of the Intermarket 
Surveillance Group (``ISG'') or with which the Exchange has in place 
a comprehensive surveillance sharing agreement. Swaps will be 
centrally cleared. All derivatives held by the Funds will be 
collateralized.
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    The Prior Release also stated that, according to the Corporate Bond 
Registration Statement, the Fund initially intends to invest a 
substantial portion of its assets in the iShares iBoxx $ Investment 
Grade Corporate Bond ETF (the ``Underlying Corporate Bond Fund''). The 
Fund attempts to mitigate interest rate risk primarily through the use 
of U.S. Treasury futures contracts.
    The Exchange proposes to amend the statement in the last sentence 
of the preceding paragraph to state that, going forward, the Fund will 
attempt to mitigate interest rate risk primarily through the use of 
U.S. Treasury futures contracts, interest rate futures, and interest 
rate swaps.
    The Prior Release stated that BFA will utilize a model-based 
proprietary investment process to assemble an investment portfolio 
comprised of (i) long positions in the Underlying Corporate Bond Fund, 
(ii) long positions in U.S. dollar-denominated investment-grade 
corporate bonds, (iii) long positions in U.S. Treasury securities and 
(iv) short positions in U.S. Treasury futures and other interest rate 
futures contracts.
    The Exchange proposes to amend the statement in item (iv) of the 
preceding paragraph to provide that, going forward, the investment 
portfolio referred to in the preceding paragraph may be comprised of 
short positions in U.S. Treasury futures, other interest rate futures 
contracts, and interest rate swaps.
iShares Interest Rate Hedged High Yield Bond ETF
    According to the High Yield Registration Statement, the Fund seeks 
to mitigate the interest rate risk of a portfolio composed of U.S. 
dollar-denominated, high yield corporate bonds. The Fund seeks to 
achieve its investment objective by investing, under normal 
circumstances, at least 80% of its net assets in U.S. dollar-
denominated high yield corporate bonds, in one or more investment 
companies (exchange-traded and non-exchange-traded funds) that 
principally invest in high yield bonds, in U.S. Treasury securities (or 
cash equivalents), and by taking short positions in U.S. Treasury 
futures and other interest rate futures contracts.
    The Exchange proposes to amend this statement to provide that, 
going forward, the Fund will seek to achieve its investment objective 
by investing, under normal circumstances, at least 80% of its net 
assets in U.S. dollar-denominated high yield corporate bonds, in one or 
more investment companies (exchange-traded and non-exchange-traded 
funds) that principally invest in high yield bonds, in U.S. Treasury 
securities (or cash equivalents), and by taking short positions in U.S. 
Treasury futures, other interest rate futures contracts, and interest 
rate swaps.\10\
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    \10\ See note 9, supra.
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    The Prior Release also stated that, according to the High Yield 
Registration Statement, the Fund initially intends to invest a 
substantial portion of its assets in the iShares iBoxx $ High Yield 
Corporate Bond ETF. The Fund will attempt to mitigate interest rate 
risk primarily through the use of U.S. Treasury futures contracts.
    The Exchange proposes to amend the last sentence of the preceding 
paragraph to provide that, going forward, the Fund will attempt to 
mitigate interest rate risk primarily through the use of U.S. Treasury 
futures contracts, other interest rate futures contracts, and interest 
rate swaps.
    The Prior Release stated that BFA will utilize a model-based 
proprietary investment process to assemble an investment portfolio 
comprised of (i) long positions in the Underlying High Yield Bond Fund, 
(ii) long positions in U.S. dollar-denominated high yield corporate 
bonds, (iii) long positions in U.S. Treasury securities and (iv) short 
positions in U.S. Treasury futures and other interest rate futures 
contracts.
    The Exchange proposes to amend the statement in item (iv) of the 
preceding paragraph to provide that, going forward, the investment 
portfolio referred to in the preceding paragraph may be comprised of 
short positions in U.S. Treasury futures, other interest rate futures 
contracts, and interest rate swaps.
    The section ``Determination of Net Asset Value'' in the Prior 
Release did not include reference to swaps. The Exchange proposes to 
state that swaps and other derivatives will generally be valued based 
upon quotations from market makers or by a pricing service in 
accordance with valuation procedures approved by Trust's Board of 
Directors.
    On a daily basis, each of the Funds will disclose for each 
portfolio security or other financial instrument the following 
information on the Funds' Web site: Ticker symbol, if any; CUSIP number 
or other identifier, if any; a description of the holding (including 
the type of holding, such as the type of swap); the identity of the 
security or other asset or instrument underlying the holding, if any; 
for options, the option strike price; quantity held (as measured by, 
for example, par value, notional value or number of shares, contracts 
or units); maturity date, if any; coupon rate, if any; market value of 
the holding; and the percentage weighting of the holding in the 
portfolio. The Web site information will be publicly available at no 
charge.
    The Adviser represents that the proposed changes relating to the 
Funds' holdings in interest rate swaps, as described above, are 
consistent with the Fund's investment objective, and will further 
assist the Adviser to achieve such investment objective. In addition, 
such proposed changes are consistent with the use of swaps permitted 
for shares of other funds of the Trust previously approved by the 
Commission for Exchange listing and trading.\11\
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    \11\ See note 8, supra.
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    Except for the changes noted above, all other representations made 
in the Prior Release remain unchanged. The Funds will continue to 
comply with all initial and continued listing requirements under NYSE 
Arca Equities Rule 8.600.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under section 6(b)(5) \12\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Funds will invest only in futures contracts that are traded 
on an exchange that is a member of the ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. Swaps will 
be centrally cleared. All derivatives held by the Funds will be 
collateralized.
    The proposed rule change is designed to promote just and equitable 
principles

[[Page 49283]]

of trade and to protect investors and the public interest. The Adviser 
represents that the proposed changes relating to the Funds' holdings in 
U.S. Treasury futures, other interest rate futures contracts, and 
interest rate swaps, as described above, are consistent with each 
Fund's investment objective, and will further assist the Adviser to 
achieve each such investment objective. In addition, such proposed 
changes are consistent with the use of U.S. Treasury futures, other 
interest rate futures contracts, and interest rate swaps permitted for 
shares of other funds of the Trust previously approved by the 
Commission for Exchange listing and trading.\13\
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    \13\ See note 8, supra.
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    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest. The Adviser represents that the proposed changes 
relating to the Funds' holdings in U.S. Treasury futures, other 
interest rate futures contracts, and interest rate swaps, as described 
above, are consistent with each Fund's investment objective, and will 
further assist the Adviser to achieve each such investment objective. 
In addition, such proposed changes are consistent with the use of U.S. 
Treasury futures, other interest rate futures contracts, and interest 
rate swaps permitted for shares of other funds of the Trust previously 
approved by the Commission for Exchange listing and trading.\14\ Such 
changes would enhance the ability of the Funds to mitigate interest 
rate risk. The Funds will invest only in futures contracts that are 
traded on an exchange that is a member of the ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
Swaps will be centrally cleared. All derivatives held by the Funds will 
be collateralized. The Adviser represents that the investment objective 
of each Fund has not changed. Except for the changes noted above, all 
other representations made in the Prior Release remain unchanged. The 
Funds will continue to comply with all initial and continued listing 
requirements under NYSE Arca Equities Rule 8.600.
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    \14\ See note 8, supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange believes the 
proposed rule change, in permitting each Fund to utilize other interest 
rate futures and interest rate swaps as part of its portfolio to 
achieve its investment objective, will enhance competition among issues 
of Managed Fund Shares that invest principally in fixed income 
securities.

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

    The Exchange has filed the proposed rule change pursuant to section 
19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2015-67 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2015-67. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (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 Web site 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 such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2015-67 and should 
be submitted on or before September 8, 2015.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-20158 Filed 8-14-15; 8:45 am]
 BILLING CODE 8011-01-P