82 FR 20656 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Shares of the Franklin Liberty Intermediate Municipal Opportunities ETF and Franklin Liberty Municipal Bond ETF Under NYSE Arca Equities Rule 8.600

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 84 (May 3, 2017)

Page Range		20656-20664
FR Document		2017-08900

Federal Register, Volume 82 Issue 84 (Wednesday, May 3, 2017)

[Federal Register Volume 82, Number 84 (Wednesday, May 3, 2017)]
[Notices]
[Pages 20656-20664]
From the Federal Register Online [www.thefederalregister.org]
[FR Doc No: 2017-08900]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80541; File No. SR-NYSEArca-2017-48]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of Shares
of the Franklin Liberty Intermediate Municipal Opportunities ETF and
Franklin Liberty Municipal Bond ETF Under NYSE Arca Equities Rule 8.600

April 27, 2017.
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 April 24, 2017, 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 list and trade shares of the Franklin
Liberty Intermediate Municipal Opportunities ETF and Franklin Liberty
Municipal Bond ETF (each a ``Fund'' and, collectively, the ``Funds'')
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''). The
proposed 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 Exchange proposes to list and trade shares (``Shares'') of each
Fund under NYSE Arca Equities Rule 8.600,\4\ which governs the listing
and trading of Managed Fund Shares.\5\ The Shares will be offered by
the Franklin Templeton ETF Trust (the ``Trust''), which is registered
with the Commission as an open-end management investment company.\6\
Each Fund is a series of the Trust.
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\4\ The Securities and Exchange Commission (``Commission'') has
approved for Exchange listing and trading shares of actively managed
funds that principally hold municipal bonds. See, e.g., Securities
Exchange Act Release Nos. 60981 (November 10, 2009), 74 FR 59594
(November 18, 2009) (SR-NYSEArca-2009-79) (order approving listing
and trading of shares of the PIMCO Short-Term Municipal Bond
Strategy Fund and PIMCO Intermediate Municipal Bond Strategy Fund);
79293 (November 10, 2016), 81 FR 81189 (November 17, 2016) (SR-
NYSEArca-2016-107) (order approving listing and trading of shares of
Cumberland Municipal Bond ETF under Rule 8.600). The Commission also
has approved listing and trading on the Exchange of shares of the
SPDR Nuveen S&P High Yield Municipal Bond Fund under Commentary .02
of NYSE Arca Equities Rule 5.2(j)(3). See Securities Exchange Act
Release No. 63881 (February 9, 2011), 76 FR 9065 (February 16, 2011)
(SR-NYSEArca-2010-120).
\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.
\6\ The Trust is registered under the 1940 Act. On March 23,
2017, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) (``Securities Act''), and under the 1940 Act
relating to the Funds (File Nos. 333-208873 and 811-23124)
(``Registration Statement''). The description of the operation of
the Trust and the Funds herein is based, in part, on the
Registration Statement. In addition, the Commission has issued an
order granting certain exemptive relief to the Trust, Franklin
Advisers, Inc. and Franklin Templeton Distributors, Inc. under the
1940 Act. See Investment Company Act Release No. 30350 (Jan. 15,
2013) (File No. 812-14042) (``Exemptive Order'').
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The investment adviser to each Fund will be Franklin Advisers, Inc.
(the ``Adviser''). Franklin Templeton Distributors, Inc. will serve as
the distributor (the ``Distributor'') of each Fund's Shares on an
agency basis. Franklin Templeton Services, LLC will serve as the
administrator and State Street Bank and Trust Company will serve as the
sub-administrator, custodian and transfer agent for each Fund.
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition,

[[Page 20657]]

Commentary .06 further requires that personnel who make decisions on
the open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the open-end fund's portfolio. The Adviser is not
a registered broker-dealer but is affiliated with a broker-dealer. The
Adviser has implemented and will maintain a ``fire wall'' with respect
to such broker-dealer affiliate regarding access to information
concerning the composition of and/or changes to each Fund's portfolio.
In the event (a) the Adviser becomes registered as a broker-dealer or
newly affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser to a Fund is a registered broker-dealer or becomes affiliated
with a broker-dealer, the applicable adviser or sub-adviser will
implement and maintain a fire wall with respect to its relevant
personnel or broker-dealer affiliate regarding access to information
concerning the composition and/or changes to a Fund's portfolio, and
will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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Franklin Liberty Intermediate Municipal Opportunities ETF
Principal Investments
According to the Registration Statement, the investment objective
of the Fund will be to achieve a high level of current income that is
exempt from federal income taxes. Under normal market conditions,\8\
the Fund will invest at least 80% of its net assets in municipal
securities whose interest is free from federal income taxes, including
the federal alternative minimum tax.
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\8\ The term ``normal market conditions'' is defined in NYSE
Arca Equities Rule 8.600(c)(5).
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The Fund may invest in municipal securities rated in any rating
category by U.S. nationally recognized rating services (or comparable
unrated or short-term rated securities), including below investment
grade and defaulted securities and securities of issuers that are, or
are about to be, involved in reorganizations, financial restructurings,
or bankruptcy (generally referred to as ``distressed debt''). Such
investments typically involve the purchase of lower-rated or defaulted
debt securities, comparable unrated debt securities, or other
indebtedness (or participations in the indebtedness) of such issuers.
Although the Adviser will search for investments across a large number
of municipal securities that finance different types of projects, from
time to time, based on economic conditions, the Fund may have
significant positions in municipal securities that finance similar
types of projects.
According to the Registration Statement, the Funds may invest in
one or more of the following municipal securities (``Municipal
Securities''):
General obligation bonds, which are typically issued by
states, counties, cities, towns and regional districts and backed by
the issuer's pledge of its full faith, credit and taxing power for the
payment of principal and interest.
Revenue bonds, which are generally backed by the net
revenue derived from a particular facility, group of facilities, or, in
some cases, the proceeds of a special excise tax or other specific
revenue source.
Anticipation notes, including bond, revenue and tax
anticipation notes, which are issued to provide interim financing of
various municipal needs in anticipation of the receipt of other sources
of money for repayment of the notes.
Insured Municipal Securities, which are covered by
insurance policies that guarantee the timely payment of principal and
interest. When beneficial, a Fund may purchase insurance for an
uninsured bond directly from a qualified municipal bond insurer, in
which case a Fund pays the insurance premium directly to the insurance
company.
Municipal lease obligations, which generally are issued to
support a government's infrastructure by financing or refinancing
equipment or property acquisitions or the construction, expansion or
rehabilitation of public facilities. A Fund may also gain exposure to
municipal lease obligations through certificates of participation,
which represent a proportionate interest in the payments under a
specified lease or leases.
Municipal Securities that are issued on a when-issued or
delayed delivery basis.
Variable and floating rate securities, including variable
rate demand notes, municipal inflation protected securities, index-
based floating rate securities, and auction rate securities, which have
interest rates that change either at specific intervals from daily up
to semi-annually, or whenever a benchmark rate changes.
Pre-refunded bonds, which are outstanding debt securities
that are not immediately callable (redeemable) by the issuer but have
been ``pre-refunded'' by the issuer.
Zero coupon bonds (including convertible and step coupon
bonds) and deferred interest securities.
Stripped securities, which are debt securities that have
been transformed from a principal amount with periodic interest coupons
into a series of zero coupon bonds, each with a different maturity date
corresponding to one of the payment dates for interest coupon payments
or the redemption date for the principal amount.
Mandatory tender (mandatory put) Municipal Securities,
which may be sold with a requirement that a holder of a security
surrender the security to the issuer or its agent for cash at a date
prior to the stated maturity.
Callable securities, which give the issuer the right to
redeem the security on a given date or dates (known as the call dates)
prior to maturity.
Tax-exempt commercial paper, which typically represents an
unsecured short-term obligation (270 days or less) issued by a
municipality.
Tax-exempt or qualified private activity and industrial
development revenue bonds, which are typically issued by or on behalf
of public authorities to finance various privately operated facilities
which are expected to benefit the municipality and its residents, such
as business, manufacturing, housing, sports and pollution control, as
well as public facilities such as airports, mass transit systems, ports
and parking.
Franklin Liberty Municipal Bond ETF
Principal Investments
According to the Registration Statement, the investment objective
of the Fund will be to achieve a high level of current income that is
exempt from federal income taxes. Under normal market conditions, the
Fund will invest at least 80% of its net assets in Municipal Securities
whose interest is free from federal income taxes, including the federal
alternative minimum tax.
Although the Adviser will search for investments across a large
number of Municipal Securities that finance different types of
projects, from time to time, based on economic conditions, the

[[Page 20658]]

Fund may have significant positions in Municipal Securities that
finance similar types of projects.
According to the Registration Statement, the Fund may invest in one
or more of the Municipal Securities listed above. The Fund generally
buys Municipal Securities rated, at the time of purchase, in one of the
top four ratings categories by one or more U.S. nationally recognized
rating services (or comparable unrated or short-term rated
securities).\9\
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\9\ This limitation generally is applied at the time of purchase
and a downgrade of a particular security below one of the top four
ratings categories will not automatically cause the Fund to sell the
security. The Adviser will, however, take such downgrade into
account when analyzing the portfolio.
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Non-Principal Investments
According to the Registration Statement, while each Fund, under
normal market conditions, will invest at least 80% of its net assets in
Municipal Securities whose interest is free from federal income taxes,
including the federal alternative minimum tax, each Fund may invest up
to 20% of its net assets in the securities that pay interest that may
be subject to the federal alternative minimum tax and, although not
anticipated, in securities that pay taxable interest, as described
below.
With respect to up to 20% of its net assets, each Fund may invest
in bank obligations; \10\ taxable commercial paper; \11\ other
investment companies,\12\ including exchange-traded funds
(``ETFs'');\13\ U.S. government securities;\14\ and unrated debt
securities.\15\
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\10\ Bank obligations include fixed, floating or variable rate
certificates of deposit (CDs), letters of credit, time and savings
deposits, bank notes and bankers' acceptances. CDs are negotiable
certificates issued against funds deposited in a commercial bank for
a definite period of time and earning a specified return. Time
deposits are non-negotiable deposits that are held in a banking
institution for a specified period of time at a stated interest
rate. Savings deposits are deposits that do not have a specified
maturity and may be withdrawn by the depositor at any time. Bankers'
acceptances are negotiable drafts or bills of exchange normally
drawn by an importer or exporter to pay for specific merchandise.
\11\ Commercial paper is an unsecured, short-term loan to a
corporation, typically for financing accounts receivable and
inventory with maturities of up to 270 days. Each Fund may invest in
taxable commercial paper only for temporary defensive purposes.
\12\ Each Fund may invest in other investment companies to the
extent permitted by the 1940 Act, Commission rules thereunder and
exemptions thereto. Each Fund may also invest its cash balances in
affiliated money market funds to the extent permitted by its
investment policies and rules and exemptions granted under the 1940
Act.
\13\ The ETFs in which a Fund may invest include Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3));
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). Such ETFs all will be listed and traded in the
U.S. on registered exchanges.
\14\ U.S. government securities include obligations of, or
guaranteed by, the U.S. federal government, its agencies,
instrumentalities or sponsored enterprises. Some U.S. government
securities are supported by the full faith and credit of the U.S.
government. These include U.S. Treasury obligations and securities
issued by the Government National Mortgage Association (GNMA). A
second category of U.S. government securities are those supported by
the right of the agency, instrumentality or sponsored enterprise to
borrow from the U.S. government to meet its obligations. These
include securities issued by Federal Home Loan Banks. A third
category of U.S. government securities are those supported by only
the credit of the issuing agency, instrumentality or sponsored
enterprise. These include securities issued by the Federal National
Mortgage Association (FNMA) and Federal Home Loan Mortgage
Corporation (FHLMC).
\15\ Debt securities or their issuers which are not rated by
rating agencies, sometimes due to the size of or manner of the
securities offering, the decision by one or more rating agencies not
to rate certain securities or issuers as a matter of policy, or the
unwillingness or inability of the issuer to provide the prerequisite
information and fees to the rating agencies.
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The Franklin Liberty Intermediate Municipal Opportunities ETF may
also invest in defaulted debt securities \16\ and high-yield debt
securities.\17\
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\16\ Investments in securities of issuers that are, or are about
to be, involved in reorganizations, financial restructurings, or
bankruptcy (generally referred to as ``distressed debt'') typically
involve the purchase of lower-rated or defaulted debt securities,
comparable unrated debt securities, or other indebtedness of such
issuers. The Franklin Liberty Municipal Bond ETF may not buy
defaulted debt securities. However, the Franklin Liberty Municipal
Bond ETF is not required to sell a debt security that has defaulted
if the Adviser believes it is advantageous to continue holding the
security.
\17\ High-yield or lower-rated debt securities are securities
that have been rated by Moody's or S&P below their top four rating
categories (e.g., BB or Ba and lower) and are considered below
investment grade.
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Investment Restrictions
According to the Registration Statement, a Fund may invest up to
100% of its assets in temporary defensive investments, including cash,
cash equivalents or other high quality short-term investments, such as
short-term debt instruments, including U.S. government securities, high
grade commercial paper, repurchase agreements, negotiable certificates
of deposit, non-negotiable fixed time deposits, bankers acceptances,
and other money market equivalents. In addition, with respect to each
of the Funds, on a temporary basis, during periods of high cash inflows
or outflows,\18\ a Fund may depart from its principal investment
strategies; for example, it may hold a higher than normal proportion of
its assets in cash. During such periods, a Fund may not be able to
achieve its investment objective. To the extent allowed by exemptions
from and rules under the 1940 Act and a Fund's other investment
policies and restrictions, the Adviser also may invest a Fund's assets
in shares of one or more money market funds managed by the Adviser or
its affiliates.
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\18\ ``Periods of high cash inflows or outflows,'' as used
herein, mean rolling periods of seven calendar days during which
inflows or outflows of cash, in the aggregate, exceed 10% of a
Fund's net assets as of the opening of business on the first day of
such periods.
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Each Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
consistent with Commission guidance. Each Fund will monitor its
portfolio liquidity on an ongoing basis to determine whether, in light
of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of a Fund's net assets are held
in illiquid assets. Illiquid assets include securities subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets as determined in accordance with
Commission staff guidance.\19\
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\19\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act).
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Each Fund intends to qualify for and to elect treatment as a
separate regulated investment company under Subchapter M of the
Internal Revenue Code of 1986.\20\
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\20\ 26 U.S.C. 851.
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Each Fund's investments will be consistent with its investment
objective and will not be used to provide multiple returns of a
benchmark or to produce leveraged returns. A Fund will not necessarily
focus its investments in a particular state, and will not invest more
than 15% of its total assets in Municipal Securities of any one state
as discussed below.

[[Page 20659]]

Under normal market conditions, except for periods of high cash
inflows or outflows,\21\ each Fund will satisfy the following criteria.
Each Fund will have a minimum of 35 Municipal Securities holdings.
After a Fund has at least $100 million in assets, it will have a
minimum of 75 Municipal Securities holdings. With respect to 75% of
each Fund's total assets, no single Municipal Securities issuer will
account for more than 3% of the weight of a Fund's portfolio. For the
remaining portion of each Fund's assets, no single Municipal Securities
issuer will account for more than 6% of the weight of a Fund's
portfolio. Each Fund will limit its investments in Municipal Securities
of any one state to 15% of a Fund's total assets and will be
diversified among issuers in at least 10 states. Each Fund will limit
its investments in Municipal Securities in any single sector to 25% of
a Fund's total assets.\22\ Pre-refunded bonds will be excluded from the
above limits given that they have a high level of credit quality and
liquidity.\23\
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\21\ See notes 8 and 18, supra, regarding the meaning of the
terms ``normal market conditions'' and ``periods of high cash
inflows or outflows,'' respectively.
\22\ A Fund's investments in Municipal Securities will include
investments in state and local (e.g., county, city, town) Municipal
Securities relating to such sectors as the following: Dedicated tax;
public power; tax increment; toll road; port revenue; airport
revenue; water revenue; sewer revenue; higher education (colleges
and universities); wastewater revenue; school districts; and sales
tax revenue.
\23\ Pre-refunded bonds (also known as refunded or escrow-
secured bonds) have a high level of credit quality and liquidity
because the issuer ``pre-refunds'' the bond by setting aside in
advance all or a portion of the amount to be paid to the bondholders
when the bond is called. Generally, an issuer uses the proceeds from
a new bond issue to buy high grade, interest bearing debt
securities, including direct obligations of the U.S. government,
which are then deposited in an irrevocable escrow account held by a
trustee bank to secure all future payments of principal and interest
on the pre-refunded bonds.
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Application of Generic Listing Requirements
The Exchange is submitting this proposed rule change because the
portfolios for the Funds will not meet all of the ``generic'' listing
requirements of Commentary .01 to NYSE Arca Equities Rule 8.600
applicable to the listing of Managed Fund Shares. Each Fund's portfolio
will meet all such requirements except for those set forth in
Commentary .01(b)(1).\24\
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\24\ Commentary .01(b)(1) to NYSE Arca Equities Rule 8.600
provides that components that in the aggregate account for at least
75% of the fixed income weight of the portfolio each shall have a
minimum original principal amount outstanding of $100 million or
more.
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The Exchange believes that it is appropriate and in the public
interest to approve listing and trading of Shares of the Funds on the
Exchange notwithstanding that the Funds would not meet the requirements
of Commentary .01(b)(1) to Rule 8.600 in that the Funds' investments in
Municipal Securities will be well-diversified. A Fund will not
necessarily focus its investments in a particular state, and will not
invest more than 15% of its total assets in Municipal Securities of any
one state. As noted above, under normal market conditions, except for
periods of high cash inflows or outflows,\25\ each Fund will satisfy
the following criteria. Each Fund will have a minimum of 35 Municipal
Securities holdings. After a Fund has at least $100 million in assets,
it will have a minimum of 75 Municipal Securities holdings. With
respect to 75% of each Fund's total assets, no single Municipal
Securities issuer will account for more than 3% of the weight of a
Fund's portfolio. For the remaining portion of each Fund's assets, no
single Municipal Securities issuer will account for more than 6% of the
weight of a Fund's portfolio. Each Fund will limit its investments in
Municipal Securities of any one state to 15% of a Fund's total assets
and will be diversified among issuers in at least 10 states. Each Fund
will limit its investments in Municipal Securities in any single sector
to 25% of a Fund's total assets. As noted above, pre-refunded bonds
will be excluded from the above limits given that they have a high
level of credit quality and liquidity.
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\25\ See notes 8 and 17, supra, regarding the meaning of the
terms ``normal market conditions'' and ``periods of high cash
inflows or outflows,'' respectively.
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The Exchange believes that permitting Fund Shares to be listed and
traded on the Exchange notwithstanding that less than 75% of the weight
of a Fund's portfolio may consist of components with less than $100
million minimum original principal amount outstanding would provide the
Funds with greater ability to select from a broad range of Municipal
Securities, as described above, that would support a Fund's investment
objective.
The Exchange believes that, notwithstanding that each Fund's
portfolio may not satisfy Commentary .01(b)(1) to Rule 8.600, the
Funds' portfolios will not be susceptible to manipulation. A Fund will
not invest more than 15% of its total assets in Municipal Securities of
any one state. In addition, each Fund's portfolio will be well-
diversified in that each Fund will have a specified minimum number of
Municipal Securities holdings and will be subject to percentage
limitations on a Fund's total assets invested in Municipal Securities
of individual issuers, states and sectors, as described above. The
Exchange notes that, other than Commentary .01(b)(1) to Rule 8.600,
each Fund's portfolio will meet all other requirements of Rule 8.600.
Creations and Redemptions
According to the Registration Statement, the Trust will issue and
sell Shares of a Fund only in ``Creation Units'' in aggregations of
100,000 Shares per Creation Unit on a continuous basis through the
Distributor or its agent, without a sales load, at a price based on a
Fund's NAV next determined after receipt, on any ``Business Day,'' \26\
of an order received by the Distributor or its agent in proper form. On
days when the Exchange closes earlier than normal, a Fund may require
orders to be placed earlier in the day.
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\26\ A ``Business Day'' with respect to each Fund is any day the
Exchange is open for business.
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In its discretion, the Adviser reserves the right to increase or
decrease the number of a Fund's Shares that constitute a Creation Unit.
Creation of Fund Shares
The consideration for purchase of Creation Units of a Fund may
consist of the ``Deposit Securities'' (i.e., the in-kind deposit of a
designated portfolio of securities (including any portion of such
securities for which cash may be substituted)) and the Cash Component
computed as described below. Together, the Deposit Securities and the
Cash Component constitute the ``Fund Deposit,'' which will be
applicable (subject to possible amendment or correction) to creation
requests received in proper form. The Fund Deposit represents the
minimum initial and subsequent investment amount for a Creation Unit of
a Fund. Currently, a Fund's Shares generally will be offered in
Creation Units solely for cash.
The ``Cash Component'' is an amount equal to the difference between
the NAV of the Shares (per Creation Unit) and the ``Deposit Amount,''
which is an amount equal to the market value of the Deposit Securities,
and serves to compensate for any differences between the NAV per
Creation Unit and the Deposit Amount.
Each Fund's current policy is to accept cash in substitution for
the Deposit Securities it might otherwise accept as in-kind
consideration for the purchase of Creation Units. A Fund may, at times,
elect to receive Deposit Securities (i.e., the in-kind deposit of a
designated portfolio of securities) and a Cash Component as
consideration for

[[Page 20660]]

the purchase of Creation Units. If a Fund elects to accept Deposit
Securities, a purchaser's delivery of the Deposit Securities together
with the Cash Component will constitute the ``Fund Deposit,'' which
will represent the consideration for a Creation Unit of a Fund.
The identity and number of shares of the Deposit Securities and the
amount of the Cash Component changes pursuant to changes in the
composition of a Fund's portfolio and as rebalancing adjustments and
corporate action events are reflected from time to time by the Adviser
with a view to the investment objective of a Fund. The composition of
the Deposit Securities and the amount of the Cash Component may also
change in response to adjustments to the weighting or composition of
the component securities constituting a Fund's portfolio.
Each Fund reserves the right to permit or require the substitution
of a ``cash in lieu'' amount to be added to the Cash Component to
replace any Deposit Security that may not be available in sufficient
quantity for delivery or that may not be eligible for transfer through
the facilities of Depository Trust Company (``DTC'') (``DTC
Facilities'') or the clearing process through the Continuous Net
Settlement System of the National Securities Clearing Corporation
(``NSCC'') (``NSCC Clearing Process'') (as discussed below), or that
the Authorized Participant is not able to trade due to a trading
restriction. Each Fund also reserves the right to permit or require a
``cash in lieu'' amount in certain circumstances, including
circumstances in which: (i) The delivery of the Deposit Security by the
Authorized Participant would be restricted under applicable securities
or other local laws; (ii) the delivery of the Deposit Security to the
Authorized Participant would result in the disposition of the Deposit
Security by the Authorized Participant becoming restricted under
applicable securities or other local laws; or (iii) in certain other
situations.
When partial or full cash purchases of Creation Units are available
or specified for a Fund (currently, Creation Units of each Fund are
generally offered solely for cash), they will be effected in
essentially the same manner as in-kind purchases thereof. In the case
of a partial or full cash purchase, the ``Authorized Participant'' (as
defined below) must pay the cash equivalent of the Deposit Securities
it would otherwise be required to provide through an in-kind purchase,
plus the same Cash Component required to be paid by an in-kind
purchaser.
To be eligible to place orders with the Distributor and to create a
Creation Unit of a Fund, an entity must be: (i) A ``Participating
Party,'' i.e., a broker-dealer or other participant in the NSCC
Clearing Process, or (ii) a DTC Participant, and, in either case, must
have executed an agreement with the Distributor with respect to
creations and redemptions of Creation Units (Authorized Participant
Agreement). A Participating Party or DTC Participant who has executed
an Authorized Participant Agreement is referred to as an ``Authorized
Participant.'' All Shares of a Fund, however created, will be entered
on the records of DTC in the name of Cede & Co. for the account of a
DTC Participant.
An Authorized Participant must submit an irrevocable order to
purchase Shares of a Fund, in proper form, generally before 4 p.m.,
Eastern time on any Business Day in order to receive that day's NAV.
Creation Units may be purchased only by or through an Authorized
Participant that has entered into an Authorized Participant Agreement
with the Distributor.
An Authorized Participant must submit an irrevocable order to
purchase Shares of a Fund, in proper form, generally before 4 p.m.,
Eastern time on any Business Day in order to receive that day's NAV.
Redemption of Fund Shares
Shares of a Fund may be redeemed by Authorized Participants only in
Creation Units at their NAV next determined after receipt of a
redemption request in proper form by the Distributor or its agent and
only on a Business Day. A Fund will not redeem Shares in amounts less
than Creation Units.
The Adviser will make available through the NSCC, prior to the
opening of business on the Exchange on each Business Day, the
designated portfolio of securities (including any portion of such
securities for which cash may be substituted) that will be applicable
(subject to possible amendment or correction) to redemption requests
received in proper form on that day (``Fund Securities''), and an
amount of cash as described below (``Cash Amount'') (if any). Such Fund
Securities and the corresponding Cash Amount (each subject to possible
amendment or correction) are applicable in order to effect redemptions
of Creation Units of a Fund until such time as the next announced
composition of the Fund Securities and Cash Amount is made available.
Fund Securities received on redemption may not be identical to Deposit
Securities that are applicable to creations of Creation Units under
certain circumstances.
Unless cash redemptions are available or specified for a Fund, the
redemption proceeds for a Creation Unit generally consist of Fund
Securities, plus the Cash Amount, which is an amount equal to the
difference between the NAV of the Shares being redeemed, as next
determined after the receipt of a redemption request in proper form,
and the value of Fund Securities, less a redemption transaction fee (as
described below).
Each Fund may, in its sole discretion, substitute a ``cash in
lieu'' amount to replace any Fund Security that may not be eligible for
transfer through DTC Facilities or the NSCC Clearing Process or that
the Authorized Participant is not able to trade due to a trading
restriction. Each Fund also reserves the right to permit or require a
``cash in lieu'' amount in certain circumstances, including
circumstances in which: (i) The delivery of a Fund Security to the
Authorized Participant would be restricted under applicable securities
or other local laws; (ii) the delivery of a Fund Security to the
Authorized Participant would result in the disposition of the Fund
Security by the Authorized Participant becoming restricted under
applicable securities or other local laws; or (iii) in certain other
situations. The amount of cash paid out in such cases will be
equivalent to the value of the substituted security listed as a Fund
Security. In the event that the Fund Securities have a value greater
than the NAV of the Shares, a compensating cash payment equal to the
difference is required to be made by or through an Authorized
Participant by the redeeming shareholder. When partial or full cash
redemptions of Creation Units are available or specified for a Fund
(currently, Creation Units of each Fund are generally redeemed solely
for cash), they will be effected in essentially the same manner as in-
kind redemptions thereof. In the case of partial or full cash
redemption, the Authorized Participant will receive the cash equivalent
of the Fund Securities it would otherwise receive through an in-kind
redemption, plus the same Cash Amount to be paid to an in-kind
redeemer.
Redemption requests for Creation Units of a Fund must be submitted
to the Distributor or its agent by or through an Authorized
Participant. An Authorized Participant must submit an irrevocable
request to redeem Shares of a Fund, in proper form, generally before 4
p.m., Eastern time on any Business Day, in order to receive that day's
NAV.

[[Page 20661]]

Net Asset Value
The NAV of each Fund will be determined by deducting a Fund's
liabilities from the total assets of the portfolio. The NAV per Share
will be determined by dividing the total NAV of a Fund by the number of
Shares outstanding.
Each Fund will calculate its NAV per Share each Business Day as of
1 p.m. Pacific time which normally coincides with the close of trading
on the New York Stock Exchange (``NYSE''). Each Fund will not calculate
its NAV on days the NYSE is closed for trading. If the NYSE has a
scheduled early close or unscheduled early close, a Fund's Share price
would still be determined as of 1 p.m. Pacific time/4 p.m. Eastern
time. Each Fund's NAV per Share will be available online at
www.libertyshares.com.
Municipal Securities generally trade in the over-the-counter
(``OTC'') market rather than on a securities exchange. Each Fund's
pricing services will use valuation models or matrix pricing to
determine current value. In general, they will use information with
respect to comparable bond and note transactions, quotations from bond
dealers or by reference to other securities that are considered
comparable in such characteristics as rating, interest rate and
maturity date. Matrix pricing is considered a form of fair value
pricing.
Each Fund generally will use two independent pricing services to
assist in determining a current market value for each security. If
market quotations are readily available for portfolio securities listed
on a securities exchange, a Fund will value those securities at the
last quoted sale price or the official closing price of the day,
respectively, in accordance with valuation procedures approved by the
Board of Trustees, or, if there is no reported sale, within the range
of the most recent quoted bid and ask prices. Short-term debt
instruments, including U.S. government securities, high grade
commercial paper, repurchase agreements, negotiable certificates of
deposit, non-negotiable fixed time deposits, bankers acceptances, and
other money market equivalents will be valued at prices supplied by
approved pricing services which are generally within the range of the
most recent bid and ask prices.
Generally, trading in U.S. government securities and money market
equivalents is substantially completed each day at various times before
1 p.m. Pacific time. The value of these securities used in computing
the NAV will be determined as of such times. Each Fund will rely on
third-party pricing vendors to provide evaluated prices that reflect
current fair market value as of 1 p.m. Pacific time.
Each Fund has procedures, approved by the Board of Trustees, to
determine the fair value of individual securities and other assets for
which market prices are not readily available or which may not be
reliably priced (such as in the case of trade suspensions or halts,
price movement limits set by certain foreign markets, and thinly traded
or illiquid securities). Some methods for valuing these securities may
include: Fundamental analysis (earnings multiple, etc.), matrix
pricing, discounts from market prices of similar securities, or
discounts applied due to the nature and duration of restrictions on the
disposition of the securities. The Board of Trustees oversees the
application of fair value pricing procedures.
ETFs will be valued at market value, which will generally be
determined using the last reported official closing or last trading
price on the exchange or market on which the security is primarily
traded at the time of valuation or, if no sale has occurred, at the
last quoted bid price on the primary market or exchange on which they
are traded. If market prices are unavailable or a Fund believes that
they are unreliable, or when the value of a security has been
materially affected by events occurring after the relevant market
closes, a Fund will price those securities at fair value as determined
in good faith using methods approved by the Funds' Board of Trustees.
Shares of non-exchange-traded open-end investment companies will be
valued at their current day NAV published by the relevant fund.
Indicative Optimized Portfolio Value
Information regarding the intraday value of Shares of a Fund (the
Indicative Optimized Portfolio Value'' or ``IOPV'') will be
disseminated every 15 seconds during the Exchange's Core Trading
Session (normally 9:30 a.m. to 4:00 p.m. Eastern Time) by market data
vendors or other information providers. The IOPV will be based on the
current market value of the Fund's portfolio holdings that will form
the basis for the Fund's calculation of NAV at the end of the Business
Day, as disclosed on the Fund's Web site prior to that Business Day's
commencement of trading. The IOPV will generally be determined by using
both current market quotations and/or price quotations obtained from
broker-dealers that may trade in the portfolio securities held by a
Fund. A Fund's IOPV disseminated during the Exchange's Core Trading
Session should not be viewed as a real-time update of a Fund's NAV,
which is calculated only once a day.
Availability of Information
Each Fund's Web site (www.libertyshares.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the prospectus for the Funds that may be downloaded. Each
Fund's Web site will include additional quantitative information
updated on a daily basis, including, for each Fund, (1) daily trading
volume, the prior Business Day's NAV and market closing price or mid-
point of the bid/ask spread at the time of calculation of such NAV (the
``Bid/Ask Price''),\27\ and a calculation of the premium or discount of
the market closing price or Bid/Ask Price against the NAV, and (2) data
in chart format displaying the frequency distribution of discounts and
premiums of the daily market closing price or Bid/Ask Price against the
NAV, within appropriate ranges, for the most recently completed
calendar year, and the most recently completed calendar quarters since
that year (or the life of a Fund, if shorter). On each Business Day,
before commencement of trading in Shares in the Core Trading Session on
the Exchange (ordinarily 9:30 a.m., Eastern Time), each Fund's Web site
will disclose the Disclosed Portfolio \28\ that will form the basis for
a Fund's calculation of its NAV at the end of the Business Day.\29\
---------------------------------------------------------------------------

\27\ The Bid/Ask Price of a Fund's Shares will be determined
using the mid-point of the highest bid and the lowest offer on the
Exchange as of the time of calculation of a Fund's NAV. The records
relating to Bid/Ask Prices will be retained by each Fund and its
service providers.
\28\ The term ``Disclosed Portfolio'' is defined in NYSE Arca
Equities Rule 8.600(c)(2).
\29\ Under accounting procedures followed by the Funds, trades
made on the prior Business Day (``T'') will be booked and reflected
in NAV on the current Business Day (``T+1''). Accordingly, the Funds
will be able to disclose at the beginning of the Business Day the
portfolio that will form the basis for the NAV calculation at the
end of the Business Day.
---------------------------------------------------------------------------

On a daily basis, the Funds will disclose the information required
under NYSE Arca Equities Rule 8.600(c)(2) to the extent applicable. The
Web site information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities, if applicable, required to be delivered in
exchange for a Fund's Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the Exchange via the NSCC. The basket represents one Creation Unit of a
Fund. The NAV of Shares of a Fund

[[Page 20662]]

will normally be determined as of the close of the Core Trading Session
on the Exchange (ordinarily 4 p.m. Eastern time) on each Business Day.
Authorized Participants may refer to the basket composition file for
information regarding securities and financial instruments that may
comprise a Fund's basket on a given day.
Investors can also obtain each Fund's Statement of Additional
Information (``SAI''), shareholder reports, Form N-CSR and Form N-SAR,
filed twice a year. The Funds' SAI and shareholder reports will be
available free upon request from the Trust, and those documents and the
Form N-CSR and Form N-SAR may be viewed on-screen or downloaded from
the Commission's Web site 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 and for ETFs
will be available via the Consolidated Tape Association (``CTA'') high-
speed line, and from the national securities exchange on which they are
listed.
Quotation information from brokers and dealers or pricing services
will be available for Municipal Securities, unrated debt securities,
defaulted debt securities, high yield debt securities, and cash
equivalents or other high quality short-term investments, including
U.S. government securities, bank obligations and taxable commercial
paper. Price information for money market funds and other investment
companies will be available from the applicable investment company's
Web site and from market data vendors. Pricing information regarding
each other asset class in which a Fund will invest will generally be
available through nationally recognized data service providers through
subscription agreements. In addition, the IOPV (which is the Portfolio
Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3)),
will be widely disseminated at least every 15 seconds during the Core
Trading Session (ordinarily 9:30 a.m. to 4:00 p.m., Eastern Time) by
one or more major market data vendors or other information
providers.\30\
---------------------------------------------------------------------------

\30\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IOPVs
taken from CTA or other data feeds.
---------------------------------------------------------------------------

Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of a Fund. Trading in Shares of a Fund will be
halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
Trading Rules
The Exchange deems the 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 NYSE Arca Marketplace from 4 a.m. to 8 p.m., Eastern Time in
accordance with NYSE Arca Equities Rule 7.34 (Early, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, the minimum price variation (``MPV'') for
quoting and entry of orders in equity securities traded on the NYSE
Arca Marketplace 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.
The Shares of each Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. Consistent with
NYSE Arca Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement
and maintain, or be subject to, procedures designed to prevent the use
and dissemination of material non-public information regarding the
actual components of a Fund's portfolio. The Exchange represents that,
for initial and/or continued listing, a Fund will be in compliance with
Rule 10A-3 \31\ under the Act, as provided by NYSE Arca Equities Rule
5.3. A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.
Each Fund's investments will be consistent with a Fund's investment
objective and will not be used to enhance leverage.
---------------------------------------------------------------------------

\31\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Exchange, as
well as cross-market surveillances administered by Financial Industry
Regulatory Authority (``FINRA'') on behalf of the Exchange, which are
designed to detect violations of Exchange rules and applicable federal
securities laws. The Exchange represents 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.\32\
---------------------------------------------------------------------------

\32\ 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.\33\
---------------------------------------------------------------------------

\33\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
---------------------------------------------------------------------------

The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and ETFs 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 in the Shares and ETFs from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares and ETFs from markets and
other entities that are members of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement. In addition,
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by a Fund reported
to FINRA's Trade Reporting and Compliance Engine (``TRACE''). FINRA
also can access data obtained from the Municipal Securities Rulemaking
Board (``MSRB'') relating to municipal bond trading activity for
surveillance purposes in connection with trading in the Shares.

[[Page 20663]]

In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolio, (b) limitations on portfolio
holdings or reference assets, or (c) applicability of Exchange listing
rules specified in this filing shall constitute continued listing
requirements for listing the Shares of a Fund on the Exchange.
The issuer has represented to the Exchange 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 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 NYSE Arca Equities Rule 5.5(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin (``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 in Creation Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its Equity Trading Permit Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated IOPV will not be calculated or publicly
disseminated; (4) how information regarding the IOPV and the Disclosed
Portfolio is disseminated; (5) the requirement that Equity Trading
Permit Holders deliver a prospectus to investors purchasing newly
issued Shares prior to or concurrently with the confirmation of a
transaction; and (6) trading information.
In addition, the Bulletin will reference that each Fund is 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., Eastern Time each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \34\ 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.
---------------------------------------------------------------------------

\34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange or FINRA, on behalf of
the Exchange, or both, will communicate as needed regarding trading in
the Shares and ETFs 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 in
the Shares and ETFs from such markets and other entities. In addition,
the Exchange may obtain information regarding trading in the Shares and
ETFs from markets and other entities that are members of ISG or with
which the Exchange has in place a comprehensive surveillance sharing
agreement. In addition, FINRA, on behalf of the Exchange, is able to
access, as needed, trade information for certain fixed income
securities held by a Fund reported to TRACE. FINRA also can access data
obtained from the MSRB relating to municipal bond trading activity for
surveillance purposes in connection with trading in the Shares. Each
Fund may not purchase illiquid assets if, in the aggregate, more than
15% of its net assets would be invested in illiquid assets. Each Fund
will monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of a Fund's
net assets are held in illiquid assets. The Adviser is not registered
as a broker-dealer but is affiliated with a broker-dealer and will
implement and maintain a fire wall with respect to each of its relevant
personnel or broker-dealer affiliate regarding access to information
concerning the composition and/or changes to the portfolios.
The Exchange believes that it is appropriate and in the public
interest to approve listing and trading of Shares of the Funds on the
Exchange notwithstanding that the Funds would not meet the requirements
of Commentary .01(b)(1) to Rule 8.600 in that the Funds' investments in
Municipal Securities will be well-diversified. As noted above, under
normal market conditions, except for periods of high cash inflows or
outflows, each Fund will satisfy the following criteria. Each Fund will
have a minimum of 35 Municipal Securities holdings. After a Fund has at
least $100 million in assets, it will have a minimum of 75 Municipal
Securities holdings. With respect to 75% of each Fund's total assets,
no single Municipal Securities issuer will account for more than 3% of
the weight of a Fund's portfolio. For the remaining portion of each
Fund's assets, no single Municipal Securities issuer will account for
more than 6% of the weight of a Fund's portfolio. Each Fund will limit
its investments in Municipal Securities of any one state to 15% of a
Fund's total assets and will be diversified among issuers in at least
10 states. Each Fund will limit its investments in Municipal Securities
in any single sector to 25% of a Fund's total assets. The Exchange
believes it would be appropriate to exclude pre-refunded bonds from the
above limits given that they have a high level of credit quality and
liquidity. In addition, other than Commentary .01(b)(1) to Rule 8.600,
each Fund's portfolio will meet all other requirements of Rule 8.600.
The Exchange believes that permitting Fund Shares to be listed and
traded on the Exchange notwithstanding that less than 75% of the weight
of a Fund's portfolio may consist of components with less than $100
million minimum original principal amount outstanding would provide the
Funds with greater ability to select from a broad range of Municipal
Securities, as described above, that would support a Fund's investment
objective. The Exchange believes further that, notwithstanding that
each Fund's portfolio may not satisfy Commentary .01(b)(1) to Rule
8.600, the Funds' portfolios will not be susceptible to manipulation. A
Fund will not invest more than 15% of its total assets in Municipal
Securities of any one state. In addition, each Fund's portfolio will be
well-diversified in that

[[Page 20664]]

each Fund will have a specified minimum number of Municipal Securities
holdings and will be subject to percentage limitations on a Fund's
total assets invested in Municipal Securities of individual issuers,
states and sectors, as described above.
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 the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding each Fund and the Shares,
thereby promoting market transparency. Quotation and last sale
information for the Shares and ETFs will be available via the CTA high-
speed line, and from the national securities exchange on which they are
listed. Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Trading in Shares of the Funds will be halted if the circuit breaker
parameters in NYSE Arca Equities 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 NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Funds may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Funds' holdings, the IOPV, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that
principally hold municipal bonds and 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 each Fund's holdings, IOPV, Disclosed
Portfolio, and quotation and last sale information for the Shares.

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 notes that the
proposed rule change will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that
principally hold municipal bonds and that will enhance competition
among market participants, 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-NYSEArca-2017-48 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-2017-48. 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 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; 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-2017-48 and should
be submitted on or before May 24, 2017.
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\35\ 17 CFR 200.30-3(a)(12).

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08900 Filed 5-2-17; 8:45 am]
BILLING CODE 8011-01-P

Document Created: 2018-11-08 08:36:16
Document Modified: 2018-11-08 08:36:16

Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		82 FR 20656