82 FR 37936 - Self-Regulatory Organizations; NYSE American LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Amend Supplementary Material .01 and .02 to NYSE American Rule 5.2E(j)(3) To Provide for the Inclusion of Cash in an Index Underlying a Series of Investment Company Units

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 155 (August 14, 2017)

[Federal Register Volume 82, Number 155 (Monday, August 14, 2017)]
[Notices]
[Pages 37936-37939]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-17045]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81340; File No. SR-NYSEAMER-2017-03]


Self-Regulatory Organizations; NYSE American LLC; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Amend 
Supplementary Material .01 and .02 to NYSE American Rule 5.2E(j)(3) To 
Provide for the Inclusion of Cash in an Index Underlying a Series of 
Investment Company Units

August 8, 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 July 27, 2017, NYSE American LLC (the ``Exchange'' or 
``NYSE American'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Supplementary Material .01 and .02 
to NYSE American Rule 5.2E(j)(3) to provide for the inclusion of cash 
in an index underlying a series of Investment Company Units, which 
amendments conform to amendments to NYSE Arca Equities Rule 5.2(j)(3) 
previously approved by the Commission. 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 Exchange proposes (1) to amend Supplementary Material .01 and 
.02 to NYSE American Rule 5.2E(j)(3) to provide for the inclusion of 
cash in an index underlying a series of Investment Company Units 
(``Units''), which amendments conform to amendments to NYSE Arca 
Equities Rule 5.2(j)(3) previously approved by the Commission.\4\
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    \4\ See Securities Exchange Act Release No. 80777 (May 25, 2017) 
(SR-NYSEArca-2017-30) (order approving amendments to Commentary .01 
and Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3) to provide 
for the inclusion of cash in an index underlying a series of 
Investment Company Units).
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Amendments to NYSE American Rule 5.2E(j)(3)
    NYSE American Rule 5.2E(j)(3) permits the trading of Units pursuant 
to unlisted trading privileges (``UTP''). The Exchange proposes to 
amend Commentaries .01 and .02 to NYSE American Rule 5.2E(j)(3) to 
permit trading of Units based on an index or portfolio that includes 
cash as a component. While Units, like mutual funds, will generally 
hold an amount of cash, NYSE American Rule 5.2E(j)(3) currently 
provides that components of an index or portfolio underlying a series 
of Units consist of securities--namely, US Component Stocks, Non-US 
Component Stocks, Fixed Income Securities or a combination thereof. As 
described below, the proposed amendments to Supplementary Material .01 
and .02 to Rule 5.2E(j)(3) would

[[Page 37937]]

permit inclusion of cash as an index or portfolio component.
    Currently, Supplementary Material .01(a)(A) to NYSE American Rule 
5.2E(j)(3) provides that an underlying index or portfolio of US 
Component Stocks \5\ must meet specified criteria. The Exchange 
proposes to amend Supplementary Material .01(a)(A) to provide that the 
components of an index or portfolio underlying a series of Units may 
also include cash. In addition, the percentage weighting criteria in 
Supplementary Material .01(a)(A)(1) through (4) each would be amended 
to make clear that such criteria would be applied only to the US 
Component Stocks portion of an index or portfolio. For example, in 
applying the criteria in proposed Supplementary Material 
.01(a)(A)(1),\6\ if 85% of the weight of an index consists of US 
Component Stocks and 15% of the index weight is cash, the requirement 
that component stocks (excluding Exchange Traded Products) that in the 
aggregate account for at least 90% of the weight of the US Component 
Stocks portion of the index or portfolio (excluding such Exchange 
Traded Products) each will have a minimum market value of $75 million 
minimum would be applied only to the 85% portion consisting of US 
Component Stocks.
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    \5\ Rule 5.2E(j)(3) defines ``US Component Stock'' as an equity 
security that is registered under Sections 12(b) or 12(g) of the Act 
or an American Depositary Receipt, the underlying equity security of 
which is registered under Sections 12(b) or 12(g) of the Act.
    \6\ Supplementary Material .01(a)(A)(1) provides that component 
stocks (excluding Units and securities defined in Section 2 of Rule 
8E, collectively, ``Exchange Traded Products'') that in the 
aggregate account for at least 90% of the weight of the US Component 
Stocks portion of the index or portfolio (excluding such Exchange 
Traded Products) each shall have a minimum market value of at least 
$75 million.
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    Supplementary Material .01 (a)(B) to NYSE American Rule 5.2E(j)(3), 
which relates to international or global indexes or portfolios, would 
be amended to provide that components of an index or portfolio 
underlying a series of Units may consist of (a) only Non-US Component 
Stocks, (b) Non-US Component Stocks and cash, (c) both US Component 
Stocks and Non-US Component Stocks, or (d) US Component Stocks, Non-US 
Component Stocks and cash. In addition, the percentage weighting 
criteria in Supplementary Material .01(a)(B)(1) through (4) each would 
be amended to make clear that such criteria would be applied only to 
the combined US and Non-US Component Stocks portions of an index or 
portfolio.
    Supplementary Material .02 to NYSE American Rule 5.2E(j)(3) 
provides generic criteria applicable to trading of Units whose 
underlying index or portfolio includes Fixed Income Securities.\7\ 
Currently, Commentary .02(a)(1) provides that an underlying index or 
portfolio must consist of Fixed Income Securities. The Exchange 
proposes to amend Commentary .02(a)(1) to provide that the index or 
portfolio may also include cash. In addition, the percentage weighting 
criteria in Supplementary Material .02(a)(2), (a)(4) and (a)(6) each 
would be amended to make clear that such criteria would be applied only 
to the Fixed Income Securities portion of an index or portfolio. For 
example, in applying the criteria in proposed Supplementary Material 
.02(a)(2),\8\ if 90% of the weight of an index or portfolio consists of 
Fixed Income Securities and 10% of the index weight is cash, the 
requirement that Fixed Income Security components accounting for at 
least 75% of the Fixed Income Securities portion of the weight of the 
index or portfolio each will have a minimum original principal amount 
outstanding of $100 million would be applied only to the 90% portion 
consisting of Fixed Income Securities.
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    \7\ As defined in Supplementary Material .02 to NYSE American 
Rule 5.2E(j)(3), Fixed Income Securities are debt securities that 
are notes, bonds, debentures or evidence of indebtedness that 
include, but are not limited to, U.S. Department of Treasury 
securities (``Treasury Securities''), government-sponsored entity 
securities (``GSE Securities''), municipal securities, trust 
preferred securities, supranational debt and debt of a foreign 
country or a subdivision thereof.
    \8\ Supplementary Material .02(a)(2) provides that Fixed Income 
Security components that in aggregate account for at least 75% of 
the Fixed Income Securities portion of the weight of the index or 
portfolio each shall have a minimum original principal amount 
outstanding of $100 million or more.
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    The Exchange notes that the Commission has previously approved NYSE 
Arca rules allowing portfolios held by issues of Managed Fund Shares 
(actively-managed exchange-traded funds) under Commentary .01 to NYSE 
Arca Equities Rule 8.600 to include cash.\9\ Like the provision in 
Supplementary Material .01(c) to Exchange Rule 8.600E (which is similar 
to Commentary .01(c) to NYSE Arca Equities Rule 8.600), which states 
that there is no limit to cash holdings by an issue of Managed Fund 
Shares traded under Supplementary Material .01 to Exchange Rule 8.600E, 
there is no proposed limit to the weighting of cash in an index 
underlying a series of Units. The Exchange believes this is appropriate 
in that cash does not, in itself, impose investment or market risk.
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    \9\ See Commentary .01(c) to NYSE Arca Equities Rule 8.600.
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    The Exchange also proposes to make a non-substantive change to 
Supplementary Material .02 to Exchange Rule 5.2E(j)(3) to change 
``shall'' to ``will'' in one place to conform to other usages in Rule 
5.2E(j)(3).
    The Exchange believes the proposed amendments, by permitting 
inclusion of cash as a component of indexes underlying series of Units, 
would provide issuers of Units with additional choice in indexes 
permitted to underlie Units that are permitted to trade on the Exchange 
pursuant to the Rule 19b-4(e), which would enhance competition among 
market participants, to the benefit of investors and the marketplace. 
In addition, the proposed amendments would provide investors with 
greater ability to hold Units based on underlying indexes that may 
accord more closely with an investor's assessment of market risk, in 
that some investors may view cash as a desirable component of an 
underlying index under certain market conditions.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \10\ 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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    \10\ 15 U.S.C. 78f(b)(5).
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    The proposed rule changes are designed to perfect the mechanism of 
a free and open market and, in general, to protect investors and the 
public interest. The basis under the Exchange Act for this proposed 
rule change is the requirement under Section 6(b)(5) 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.
    With respect to the proposed amendments to Supplementary Material 
.01(a)(B)(1) through (4) to Rule 5.2E(j)(3), as described above, the 
percentage weighting criteria in Supplementary Material .01(a)(B)(1) 
through (4) to Rule 5.2E(j)(3) each would be amended to make clear that 
such criteria would be applied only to the combined US and Non-US 
Component Stocks portions of an index or portfolio. The percentage 
weighting criteria in Supplementary Material

[[Page 37938]]

.02(a)(2), (a)(4) and (a)(6) to Rule 5.2E(j)(3) each would be amended 
to make clear that such criteria would be applied only to the Fixed 
Income Securities portion of an index or portfolio. Such applications 
of the proposed amendments would assure that the weighting requirements 
in Supplementary Material .01 and .02 would continue to be applied only 
to securities in an index or portfolio, and would not be diluted as a 
result of inclusion of a cash component. In addition, the addition of 
cash as a permitted component of indexes underlying Units traded on the 
Exchange pursuant to Rule 19b-4(e) does not raise regulatory issues 
because cash does not, in itself, impose investment or market risk and 
is not susceptible to manipulation. The non-substantive change to 
Supplementary Material .02 to Exchange Rule 5.2E(j)(3) to change 
``shall'' to ``will'' conforms to other usages in Rule 5.2E(j)(3).
    The Exchange believes these proposed amendments, by permitting 
inclusion of cash as a component of indexes underlying series of Units, 
would provide issuers of Units with additional choice in indexes 
permitted to underlie Units that are permitted to trade on the Exchange 
pursuant to UTP, which would enhance competition among market 
participants, to the benefit of investors and the marketplace. In 
addition, the proposed amendments would provide investors with greater 
ability to hold Units based on underlying indexes that may accord more 
closely with an investor's assessment of market risk.

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 will enhance intermarket competition by allowing 
trading on the Exchange pursuant to UTP of the above-described 
securities pursuant to rules that have been previously approved by the 
Commission for NYSE Arca, Inc.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \11\ and Rule 19b-
4(f)(6) thereunder.\12\
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    \11\ 15 U.S.C. 78s(b)(3)(A).
    \12\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative prior to 30 days after the date of filing. 
However, Rule 19b-4(f)(6)(iii)T \13\ permits the Commission to 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. As noted above, the 
Exchange believes that the proposed rule change would provide 
additional choices to issuers of Units and investors in Units. The 
Exchange also noted that the amendments it is proposing to Rule 
5.2E(j)(3) conform to amendments to NYSE Arca Equities Rule 5.2(j)(3) 
that the Commission previously approved,\14\ and that this proposed 
rule change may enhance competition between the exchanges. The 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Therefore, the Commission hereby waives the 30-day operative delay and 
designates the proposed rule change to be operative upon filing.\15\
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    \13\ 17 CFR 240.19b-4(f)(6)(iii).
    \14\ See supra note 4.
    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEAMER-2017-03 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-NYSEAMER-2017-03. 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-NYSEAMER-2017-03 and should 
be submitted on or before September 5, 2017.


[[Page 37939]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
Eduardo A. Aleman,
Assistant Secretary.
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    \16\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2017-17045 Filed 8-11-17; 8:45 am]
 BILLING CODE 8011-01-P