82 FR 4950 - Self-Regulatory Organizations; NYSEArca, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to a Change to the Underlying Index for the PowerShares Build America Bond Portfolio
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 10 (January 17, 2017)
Federal Register Volume 82, Issue 10 (January 17, 2017)
| Page Range | 4950-4953 | |
| FR Document | 2017-00780 |
[Federal Register Volume 82, Number 10 (Tuesday, January 17, 2017)] [Notices] [Pages 4950-4953] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-00780] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79767; File No. SR-NYSEArca-2016-62] Self-Regulatory Organizations; NYSEArca, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to a Change to the Underlying Index for the PowerShares Build America Bond Portfolio January 10, 2017. I. Introduction On May 3, 2016, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') filed with the Securities and Exchange Commission (``Commission''), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to: (1) Propose changes to the index underlying the PowerShares Build America Bond Portfolio (``Fund'') and the name of the Fund and (2) permit the continued listing and trading of the shares (``Shares'') of the Fund as a result of the changes to the index underlying the Fund. The proposed rule change was published for comment in the Federal Register on May 23, 2016.\3\ --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 17 CFR 240.19b-4. \3\ See Securities Exchange Act Release No. 77849 (May 17, 2016), 81 FR 32371 (``Notice''). --------------------------------------------------------------------------- On June 27, 2016, pursuant to Section 19(b)(2) of the Act,\4\ the Commission designated a longer period within which to either approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.\5\ On August 12, 2016, the Commission instituted proceedings to determine whether to approve or disapprove the proposed rule change.\6\ On October 27, 2016, the Commission issued a notice of designation of a longer period for Commission action on proceedings to determine whether to approve or disapprove the proposed rule change.\7\ On January 4, 2017, the Exchange filed Amendment No. 1 to the proposed rule change.\8\ The Commission has received no comments on the proposed rule change. This order grants approval of the proposed rule change, as modified by Amendment No. 1 thereto. --------------------------------------------------------------------------- \4\ 15 U.S.C. 78s(b)(2). \5\ See Securities Exchange Act Release No. 78157, 81 FR 43327 (July 1, 2016). \6\ See Securities Exchange Act Release No. 78564, 81 FR 55247 (Aug. 18, 2016). \7\ See Securities Exchange Act Release No. 79173, 81 FR 76400 (Nov. 2, 2016). The Commission designated January 18, 2017 as the date by which it should approve or disapprove the proposed rule change. \8\ In Amendment No. 1 to the proposed rule change, the Exchange: (a) Clarified that (i) in no event will the New Index (as defined herein) be composed of fewer than 500 issues, and (ii) FINRA (as defined herein) is able to access data obtained from the Municipal Securities Rulemaking Board relating to municipal bond trading activity for surveillance purposes in connection with trading in the Shares; (b) stated that that Adviser (as defined herein) represents that within a single municipal bond issuer, separate issues by the same issuer are likely to trade similarly to one another, and that individual CUSIPs within the New Index that share characteristics with other CUSIPs have a high yield to maturity correlation, and frequently have a correlation of one or close to one; and (c) made other technical edits and non-substantive corrections. Because Amendment No. 1 does not materially alter the substance of the proposed rule change or raise unique or novel regulatory issues, Amendment No. 1 is not subject to notice and comment. Amendment No. 1, which amended and replaced the original filing in its entirety, is available on the Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2016-62/nysearca201662-1460311-130254.pdf. --------------------------------------------------------------------------- II. Exchange's Description of the Proposal The Exchange currently lists and trades Shares of the Fund \9\ under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02, which governs the listing and trading of Investment Company Units (``Units'') based on fixed income securities indexes.\10\ The Fund is a series of the Trust. Invesco PowerShares Capital Management LLC is the investment adviser (``Adviser'') for the Fund. Invesco Distributors, Inc. is the Fund's distributor. The Bank of New York Mellon is the administrator, custodian, and fund accounting and transfer agent for the Fund. --------------------------------------------------------------------------- \9\ The Exchange states that, on February 26, 2016, PowerShares Exchange-Traded Fund Trust II (``Trust'') filed a post-effective amendment on Form 485 under the Securities Act of 1933 (``Securities Act'') to its registration statement on Form N-1A under the Securities Act and the Investment Company Act of 1940 (``1940 Act'') (File Nos. 333-138490 and 811-21977) (``Registration Statement''). The Exchange states that the Trust has obtained certain exemptive relief under the 1940 Act (File No. 812-13335) (``Exemptive Order''). \10\ The Exchange states that the PowerShares Build America Bond Portfolio was initially listed on November 17, 2009 pursuant to the generic listing criteria of Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3). --------------------------------------------------------------------------- The Fund currently seeks investment results that generally correspond to the price and yield (before fees and expenses) of The Bank of America (``BofA'') Merrill Lynch Build America Bond Index (``Build America Bond Index''). The Fund generally invests at least 80% of its total assets in taxable municipal securities eligible to participate in the Build America Bond program created under the American Recovery and Reinvestment Act of 2009 or other legislation providing for the issuance of taxable municipal securities on which the issuer receives federal support of the interest paid (``Build America Bonds'') and that comprise the Build America Bond Index. The Build America Bond Index is designed to track the performance of U.S. dollar- denominated investment grade taxable municipal debt publicly issued under the Build America Bond program by U.S. states and territories, and their political subdivisions, in the U.S. market. Qualifying securities must have a minimum amount outstanding of $1 million, at least 18 months remaining term to final maturity at the time of issuance, at least one year remaining term to final maturity, a fixed coupon schedule, and an investment grade rating (based on an average of Moody's Investors Services, Inc. (``Moody's''), Standard & Poor's, a division of The McGraw-Hill Company, Inc. (``S&P''), and Fitch Ratings, Inc. (``Fitch'')). The Trust has proposed to change the index underlying the Fund to the BofA Merrill Lynch US Taxable Municipal Securities Plus Index (``New Index'') and to change the name of the Fund to PowerShares Taxable Municipal Bond Portfolio. The Exchange represents that the New Index does not meet the generic listing criteria of NYSE Arca Equities Rule 5.2(j)(3). The Exchange submitted this proposed rule change to permit the continued listing of the Fund. The New Index meets all of the requirements of the generic listing criteria of NYSE Arca Equities Rule 5.2(j)(3), except for that set forth in Commentary .02(a)(2).\11\ Specifically, as of February 4, 2016, approximately 60.51% of the New Index weight was composed of individual maturities of $100 million or more (determined at the time of issuance). --------------------------------------------------------------------------- \11\ Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3) provides that components that in the aggregate account for at least 75% of the weight of the index or portfolio each shall have a minimum original principal amount outstanding of $100 million or more. --------------------------------------------------------------------------- A. Changes to the Index Underlying the Fund According to the Exchange, the Fund currently has a non-fundamental policy to invest at least 80% of its net assets (plus the amount of any borrowings for investment purposes) in Build America [[Page 4951]] Bonds. Moreover, as stated in the Registration Statement, the Fund complies with that non-fundamental policy because it also is required generally to invest at least 80% of the value of its total assets in the Build America Bonds that comprise the Build America Bond Index, in accordance with the terms of the relief set forth in the Trust's Exemptive Order. However, in response to a changing market environment that includes a reduction in the number of Build America Bonds, the Adviser has proposed that the Fund's underlying index be changed from one that is focused on Build America Bonds to one that is more broadly focused on taxable municipal debt in general, and which may include Build America Bonds. Changing the Fund's underlying index would require changing the non-fundamental policy set forth above. Accordingly, before the Fund can change its underlying index, the Registration Statement states that the Fund's board of trustees (``Board'') must approve the underlying index change, and the Fund must provide shareholders with sixty days written notice of the change. Thus, after this proposed rule change is approved, the Trust represents that it intends to seek to obtain Board approval and provide the requisite shareholder notice. Subject to that Board approval and shareholder notice, the Fund intends to change its underlying index to one that is composed of taxable municipal securities, including both Build America Bonds and non-Build America Bonds. Following such change, the proposed underlying index for the Fund will be the New Index. According to the Exchange, the change in the Fund's underlying index is designed to enable the Fund to expand its range of investments in light of a diminishing supply of Build America Bonds; otherwise, there is no other change to the Fund's investment strategies or objective. After such change, the Fund's investment objective will be to seek investment results that generally correspond (before fees and expenses) to the price and yield of the New Index. The Fund's new non- fundamental investment policy will be to invest at least 80% of its net assets (plus borrowings for investment purposes) in taxable municipal securities. In addition, the Fund generally will invest at least 80% of its total assets in the securities that will compose the New Index, in accordance with the terms of the Trust's Exemptive Order. However, the Fund may invest up to 20% of its total assets in securities not included in the New Index, money market instruments, including repurchase agreements or other funds that invest exclusively in money market instruments (subject to applicable limitations under the 1940 Act or exemptions therefrom), convertible securities and structured notes (notes on which the amount of principal repayment and interest payments is based on the movement of one or more specified factors, such as the movement of a particular security or securities index), all to the extent that the Adviser believes investment in such instruments will facilitate the Fund's ability to achieve its new investment objective. In addition, the Fund intends to change its name to ``PowerShares Taxable Municipal Bond Portfolio.'' \12\ --------------------------------------------------------------------------- \12\ The Exchange represents that the changes described herein with respect to use of the New Index will be effective upon: (1) Approval by the Trust's Board; (2) shareholders' receipt of sixty days written notice of the proposed change; and (3) completing a filing with the Commission of another amendment to the Trust's Registration Statement, or a prospectus supplement reflecting these changes. According to the Exchange, the Adviser has managed and will continue to manage the Fund in the manner described in the Registration Statement and will not implement the changes described herein until this proposed rule change is operative. --------------------------------------------------------------------------- B. Description of the New Index \13\ --------------------------------------------------------------------------- \13\ The Exchange states that the description of the New Index is based on information provided by BofA Merrill Lynch, which is the ``Index Provider'' with respect to the Underlying Index and the New Index. The Index Provider is a broker-dealer and has implemented a firewall with respect to, and will maintain procedures designed to prevent the use and dissemination of material non-public information regarding, the New Index. --------------------------------------------------------------------------- The New Index tracks the performance of U.S. dollar denominated taxable municipal debt publicly issued by U.S. states and territories, and their political subdivisions, in the U.S. domestic market. Qualifying securities must be subject to U.S. federal taxes and must have at least 18 months to maturity at point of issuance, at least one year remaining term to final maturity, a fixed coupon schedule (including zero coupon bonds), and an investment grade rating (based on an average of Moody's, S&P, and Fitch). The call date on which a pre- refunded bond will be redeemed is used for purposes of determining qualification with respect to final maturity requirements. For Build America Bonds to qualify for inclusion, the securities must have a minimum amount outstanding of $1 million and be only ``direct pay'' (i.e., a direct federal subsidy is paid to the issuer); ``tax-credit'' (i.e., where the investor receives a tax credit on the interest payments) Build America Bonds are excluded. For all other securities, minimum size requirements vary based on the initial term to final maturity at time of issuance. Securities with an initial term to final maturity greater than or equal to one year and less than five years must have a current amount outstanding of at least $10 million. Securities with an initial term to final maturity greater than or equal to five years and less than ten years must have a current amount outstanding of at least $15 million. Securities with an initial term to final maturity of ten years or more must have a current amount outstanding of at least $25 million. Local bonds issued by U.S. territories within their jurisdictions that are tax exempt within the U.S. territory but not elsewhere are excluded from the New Index. All Rule 144A securities, both with and without registration rights, and securities in legal default are excluded from the New Index. New Index constituents are capitalization-weighted based on their current amount outstanding times the market price plus accrued interest. Accrued interest is calculated assuming next-day settlement. Cash flows from bond payments that are received during the month are retained in the New Index until the end of the month and then are removed as part of the rebalancing. Cash does not earn any reinvestment income while it is held in the New Index.\14\ The New Index is rebalanced on the last calendar day of the month, based on information available up to and including the third business day before the last business day of the month. No changes are made to constituent holdings other than on month end rebalancing dates. --------------------------------------------------------------------------- \14\ Information concerning constituent bond prices, timing, and conventions is provided in the BofA Merrill Lynch Bond Index Guide, which can be accessed on Bloomberg. --------------------------------------------------------------------------- As of February 4, 2016, approximately 84.39% of the weight of the New Index components was composed of individual maturities that were part of an entire municipal bond offering with a minimum original principal amount outstanding of $100 million or more for all maturities of the offering. In addition, as of February 4, 2016, the total dollar amount outstanding of issues in the New Index was approximately $281,589,346,769, and the average dollar amount outstanding of issues in the New Index was approximately $ 27,808,547. Further, the most heavily weighted component represents 2.27% of the weight of the New Index, and the five most heavily weighted components represent 6.33% of the weight of the New Index.\15\ The [[Page 4952]] Exchange also states that the New Index is composed of approximately 10,126 issues and 1,811 unique issuers, and that in no event will the New Index be composed of fewer than 500 issues. According to the proposal, within a single municipal bond issuer, separate issues by the same issuer are likely to trade similarly to one another, and individual CUSIPs within the New Index that share characteristics with other CUSIPs have a high yield to maturity correlation, and frequently have a correlation of one or close to one. All components of the New Index have at least an investment grade composite rating of BBB3 or higher (based on an average of S&P, Moody's, and Fitch). --------------------------------------------------------------------------- \15\ Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3) provides that no component fixed-income security (excluding Treasury Securities and GSE Securities, as defined therein) shall represent more than 30% of the weight of the index or portfolio, and the five most heavily weighted component fixed-income securities in the index or portfolio shall not in the aggregate account for more than 65% of the weight of the index or portfolio. --------------------------------------------------------------------------- The Exchange represents that: (1) With respect to the New Index, except for Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3), the Shares of the New Index currently satisfy all of the generic listing standards under NYSE Arca Equities Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply to the Shares of the Fund; and (3) the Trust is required to comply with Rule 10A-3 under the Act \16\ for the initial and continued listing of the Shares of the Fund. In addition, the Exchange represents that the Shares of the Fund will comply with all other requirements applicable to Units including, but not limited to, requirements relating to the dissemination of key information such as the value of the New Index and the applicable Intraday Indicative Value (``IIV''),\17\ rules governing the trading of equity securities, trading hours, trading halts, surveillance, information barriers, and the Information Bulletin to Equity Trading Permit Holders (``ETP Holders''), as set forth in Exchange rules applicable to Units and prior Commission orders approving the generic listing rules applicable to the listing and trading of Units.\18\ --------------------------------------------------------------------------- \16\ 17 CFR 240.10A-3. \17\ The IIV will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange's Core Trading Session of 9:30 a.m. to 4:00 p.m., Eastern time. According to the Exchange, several major market data vendors display and/or make widely available IIVs taken from the Consolidated Tape Association (``CTA'') or other data feeds. \18\ See, e.g., Securities Exchange Act Release Nos. 55783 (May 17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order approving NYSE Arca generic listing standards for Units based on a fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19, 2001) (SR-PCX-2001-14) (order approving generic listing standards for Units and Portfolio Depositary Receipts); 41983 (October 6, 1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order approving rules for listing and trading of Units). --------------------------------------------------------------------------- III. Discussion and Commission's Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of Section 6 of the Act \19\ and the rules and regulations thereunder applicable to a national securities exchange.\20\ In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,\21\ which requires, among other things, that the Exchange's rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \19\ 15 U.S.C. 78f. \20\ In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). \21\ 17 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Commission also finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,\22\ which sets forth Congress' finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for, and transactions in, securities. The current value of the New Index is widely disseminated by one or more major market data vendors at least once per day, as required by NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(b)(ii). In addition, the IIV for the Shares of the Fund is disseminated by one or more major market data vendors and is updated at least every 15 seconds during the Exchange's Core Trading Session, as required by NYSE Arca Equities Rule 5.2(j)(3), Commentary .02(c). The components and percentage weightings of the New Index are available from major market data vendors, and the portfolio of securities held by the Fund is disclosed daily on the Fund's Web site. The Exchange also represents that 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, and quotation and last-sale information will be available via the CTA high-speed line. Moreover, trade price and other information relating to municipal bonds are available through the Municipal Securities Rulemaking Board's Electronic Municipal Market Access (``EMMA'') system. The Web site for the Fund will include the prospectus for the Fund and additional data relating to net asset value (``NAV'') and other applicable quantitative information. --------------------------------------------------------------------------- \22\ 15 U.S.C. 78k-1(a)(1)(C)(iii). --------------------------------------------------------------------------- The Commission believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. Prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. If the Exchange becomes aware that the NAV is not being disseminated to all market participants at the same time, it will halt trading in the Shares until such time as the NAV is available to all market participants. If the IIV and the New Index value are not being disseminated as required, the Exchange may halt trading during the day in which the interruption to the dissemination of the IIV or New Index value occurs. If the interruption to the dissemination of the IIV or New Index value persists past the trading day in which it occurred, the Exchange will halt trading. Trading in Shares of the Fund 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, and trading in the Shares will be subject to NYSE Arca Equities Rule 7.34, which sets forth circumstances under which Shares of the Fund may be halted.\23\ The Exchange states that trade price and other information relating to municipal bonds is available through the Municipal Securities Rulemaking Board's Electronic Municipal Market Access system. --------------------------------------------------------------------------- \23\ 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 the Fund. --------------------------------------------------------------------------- Based on the Exchange's representations, the Commission believes that the New Index is [[Page 4953]] sufficiently broad-based to deter potential manipulation. The Exchange represents that, as of February 4, 2016, approximately 84.39% of the weight of the New Index components was composed of individual maturities that were part of an entire municipal bond offering with a minimum original principal amount outstanding of $100 million or more for all maturities of the offering. In addition, as of February 4, 2016, the total dollar amount outstanding of issues in the New Index was approximately $281,589,346,769, and the average dollar amount outstanding of issues in the Index was approximately $ 27,808,547. Further, the most heavily weighted component represented 2.27% of the weight of the New Index, and the five most heavily weighted components represented 6.33% of the weight of the New Index.\24\ The Exchange also represents that the New Index is composed of approximately 10,126 issues and 1,811 unique issuers, and that in no event will the New Index be composed of fewer than 500 issues. --------------------------------------------------------------------------- \24\ See supra note 15. --------------------------------------------------------------------------- In support of this proposal, the Exchange has also made representations, including: (1) The Adviser has managed and will continue to manage the Fund in the manner described in the Registration Statement, and it will not implement the changes described herein until this proposed rule change is operative. (2) The Index Provider is a broker-dealer and has implemented a firewall with respect to, and will maintain procedures designed to prevent the use and dissemination of material, non-public information regarding, the New Index. (3) With respect to the New Index, except for Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3), the Shares of Fund overlying the New Index would satisfy all of the current generic listing standards under NYSE Arca Equities Rule 5.2(j)(3). (4) The continued listing standards under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply to the Shares of the Fund overlying the New Index. (5) The Trust is required to comply with Rule 10A-3 under the Act \25\ for the initial and continued listing of the Shares of the Fund overlying the New Index. --------------------------------------------------------------------------- \25\ 17 CFR 240.10A-3. --------------------------------------------------------------------------- (6) The Shares of the Fund overlying the New Index will comply with all other requirements applicable to Units including, but not limited to, requirements relating to the dissemination of key information such as the value of the New Index and the applicable IIV,\26\ rules governing the trading of equity securities, trading hours, trading halts, surveillance, information barriers, and the Information Bulletin to ETP Holders, as set forth in Exchange rules applicable to Units and prior Commission orders approving the generic listing rules applicable to the listing and trading of Units.\27\ --------------------------------------------------------------------------- \26\ See supra note 17. \27\ See supra note 18 and accompanying text. --------------------------------------------------------------------------- (7) 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 the Financial Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, which are designed to detect violations of Exchange rules and federal securities laws applicable to trading on the Exchange.\28\ 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. --------------------------------------------------------------------------- \28\ The Exchange represents that 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. --------------------------------------------------------------------------- (8) The Exchange or FINRA, on behalf of the Exchange, or both, will communicate as needed regarding trading in the Shares with other markets that are members of the Intermarket Surveillance Group (``ISG''). In addition, the Exchange will communicate as needed regarding trading in the Shares with other markets that are members of the ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. FINRA also can access data obtained from the Municipal Securities Rulemaking Board relating to municipal bond trading activity for surveillance purposes in connection with trading in the Shares. The Exchange represents that all statements and representations made in this proposal regarding (a) the description of the Fund's portfolio, (b) limitations on portfolio holdings or reference assets, or (c) the applicability of Exchange rules and surveillance procedures shall constitute continued listing requirements for listing the Shares on the Exchange. The Adviser has represented to the Exchange that it will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements.\29\ If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Equities Rule 5.5(m). This approval order is based on all of the Exchange's representations, including those set forth above and in the Notice, as modified by Amendment No. 1 thereto, and the Exchange's description of the Funds. --------------------------------------------------------------------------- \29\ The Commission notes that certain other proposals for the listing and trading of Managed Fund Shares include a representation that the exchange will ``surveil'' for compliance with the continued listing requirements. See, e.g., Securities Exchange Act Release No. 78005 (Jun. 7, 2016), 81 FR 38247 (Jun. 13, 2016) (SR-BATS-2015- 100). In the context of this representation, it is the Commission's view that ``monitor'' and ``surveil'' both mean ongoing oversight of a fund's compliance with the continued listing requirements. Therefore, the Commission does not view ``monitor'' as a more or less stringent obligation than ``surveil'' with respect to the continued listing requirements. --------------------------------------------------------------------------- For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 1 thereto, is consistent with Section 6(b)(5) of the Act \30\ and the rules and regulations thereunder applicable to a national securities exchange. --------------------------------------------------------------------------- \30\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,\31\ that the proposed rule change (SR-NYSEArca-2016-62), as modified by Amendment No. 1 thereto, be, and it hereby is, approved. --------------------------------------------------------------------------- \31\ 15 U.S.C. 78s(b)(2). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\32\ --------------------------------------------------------------------------- \32\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-00780 Filed 1-13-17; 8:45 am] BILLING CODE 8011-01-P
![4950 Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices
For the Commission, by the Division of disapprove the proposed rule change.7 (‘‘BofA’’) Merrill Lynch Build America
Trading and Markets, pursuant to delegated On January 4, 2017, the Exchange filed Bond Index (‘‘Build America Bond
authority.16 Amendment No. 1 to the proposed rule Index’’). The Fund generally invests at
Eduardo A. Aleman, change.8 The Commission has received least 80% of its total assets in taxable
Assistant Secretary, no comments on the proposed rule municipal securities eligible to
[FR Doc. 2017–00783 Filed 1–13–17; 8:45 am] change. This order grants approval of participate in the Build America Bond
BILLING CODE 8011–01–P the proposed rule change, as modified program created under the American
by Amendment No. 1 thereto. Recovery and Reinvestment Act of 2009
or other legislation providing for the
II. Exchange’s Description of the
SECURITIES AND EXCHANGE issuance of taxable municipal securities
Proposal
COMMISSION on which the issuer receives federal
The Exchange currently lists and support of the interest paid (‘‘Build
[Release No. 34–79767; File No. SR– trades Shares of the Fund 9 under NYSE America Bonds’’) and that comprise the
NYSEArca–2016–62] Arca Equities Rule 5.2(j)(3), Build America Bond Index. The Build
Commentary .02, which governs the America Bond Index is designed to track
Self-Regulatory Organizations; listing and trading of Investment the performance of U.S. dollar-
NYSEArca, Inc.; Order Granting Company Units (‘‘Units’’) based on fixed denominated investment grade taxable
Approval of Proposed Rule Change, as income securities indexes.10 The Fund municipal debt publicly issued under
Modified by Amendment No. 1 Thereto, is a series of the Trust. Invesco the Build America Bond program by
Relating to a Change to the Underlying PowerShares Capital Management LLC U.S. states and territories, and their
Index for the PowerShares Build is the investment adviser (‘‘Adviser’’) political subdivisions, in the U.S.
America Bond Portfolio for the Fund. Invesco Distributors, Inc. market. Qualifying securities must have
is the Fund’s distributor. The Bank of a minimum amount outstanding of $1
January 10, 2017. New York Mellon is the administrator, million, at least 18 months remaining
I. Introduction custodian, and fund accounting and term to final maturity at the time of
transfer agent for the Fund. issuance, at least one year remaining
On May 3, 2016, NYSE Arca, Inc. The Fund currently seeks investment term to final maturity, a fixed coupon
(‘‘NYSE Arca’’ or ‘‘Exchange’’) filed results that generally correspond to the schedule, and an investment grade
with the Securities and Exchange price and yield (before fees and rating (based on an average of Moody’s
Commission (‘‘Commission’’), pursuant expenses) of The Bank of America Investors Services, Inc. (‘‘Moody’s’’),
to Section 19(b)(1) of the Securities Standard & Poor’s, a division of The
Exchange Act of 1934 (‘‘Act’’) 1 and Rule 7 See Securities Exchange Act Release No. 79173,
McGraw-Hill Company, Inc. (‘‘S&P’’),
19b–4 thereunder,2 a proposed rule 81 FR 76400 (Nov. 2, 2016). The Commission
and Fitch Ratings, Inc. (‘‘Fitch’’)).
change to: (1) Propose changes to the designated January 18, 2017 as the date by which
it should approve or disapprove the proposed rule The Trust has proposed to change the
index underlying the PowerShares change. index underlying the Fund to the BofA
Build America Bond Portfolio (‘‘Fund’’) 8 In Amendment No. 1 to the proposed rule
Merrill Lynch US Taxable Municipal
and the name of the Fund and (2) permit change, the Exchange: (a) Clarified that (i) in no Securities Plus Index (‘‘New Index’’)
the continued listing and trading of the event will the New Index (as defined herein) be
composed of fewer than 500 issues, and (ii) FINRA and to change the name of the Fund to
shares (‘‘Shares’’) of the Fund as a result (as defined herein) is able to access data obtained PowerShares Taxable Municipal Bond
of the changes to the index underlying from the Municipal Securities Rulemaking Board Portfolio. The Exchange represents that
the Fund. The proposed rule change relating to municipal bond trading activity for the New Index does not meet the
was published for comment in the surveillance purposes in connection with trading in
the Shares; (b) stated that that Adviser (as defined generic listing criteria of NYSE Arca
Federal Register on May 23, 2016.3 herein) represents that within a single municipal Equities Rule 5.2(j)(3). The Exchange
On June 27, 2016, pursuant to Section bond issuer, separate issues by the same issuer are submitted this proposed rule change to
19(b)(2) of the Act,4 the Commission likely to trade similarly to one another, and that permit the continued listing of the
individual CUSIPs within the New Index that share
designated a longer period within which characteristics with other CUSIPs have a high yield Fund. The New Index meets all of the
to either approve the proposed rule to maturity correlation, and frequently have a requirements of the generic listing
change, disapprove the proposed rule correlation of one or close to one; and (c) made criteria of NYSE Arca Equities Rule
change, or institute proceedings to other technical edits and non-substantive 5.2(j)(3), except for that set forth in
corrections. Because Amendment No. 1 does not
determine whether to disapprove the materially alter the substance of the proposed rule Commentary .02(a)(2).11 Specifically, as
proposed rule change.5 On August 12, change or raise unique or novel regulatory issues, of February 4, 2016, approximately
2016, the Commission instituted Amendment No. 1 is not subject to notice and 60.51% of the New Index weight was
proceedings to determine whether to comment. Amendment No. 1, which amended and
replaced the original filing in its entirety, is
composed of individual maturities of
approve or disapprove the proposed available on the Commission’s Web site at: https:// $100 million or more (determined at the
rule change.6 On October 27, 2016, the www.sec.gov/comments/sr-nysearca-2016-62/ time of issuance).
Commission issued a notice of nysearca201662-1460311-130254.pdf.
designation of a longer period for 9 The Exchange states that, on February 26, 2016, A. Changes to the Index Underlying the
Commission action on proceedings to PowerShares Exchange-Traded Fund Trust II Fund
(‘‘Trust’’) filed a post-effective amendment on Form
determine whether to approve or 485 under the Securities Act of 1933 (‘‘Securities According to the Exchange, the Fund
Act’’) to its registration statement on Form N–1A currently has a non-fundamental policy
16 17 CFR 200.30–3(a)(12). under the Securities Act and the Investment to invest at least 80% of its net assets
Company Act of 1940 (‘‘1940 Act’’) (File Nos. 333–
sradovich on DSK3GMQ082PROD with NOTICES
1 15 U.S.C. 78s(b)(1).
138490 and 811–21977) (‘‘Registration Statement’’).
(plus the amount of any borrowings for
2 17 CFR 240.19b–4.
The Exchange states that the Trust has obtained investment purposes) in Build America
3 See Securities Exchange Act Release No. 77849
certain exemptive relief under the 1940 Act (File
(May 17, 2016), 81 FR 32371 (‘‘Notice’’). No. 812–13335) (‘‘Exemptive Order’’). 11 Commentary .02(a)(2) to NYSE Arca Equities
4 15 U.S.C. 78s(b)(2). 10 The Exchange states that the PowerShares Rule 5.2(j)(3) provides that components that in the
5 See Securities Exchange Act Release No. 78157,
Build America Bond Portfolio was initially listed on aggregate account for at least 75% of the weight of
81 FR 43327 (July 1, 2016). November 17, 2009 pursuant to the generic listing the index or portfolio each shall have a minimum
6 See Securities Exchange Act Release No. 78564, criteria of Commentary .02 to NYSE Arca Equities original principal amount outstanding of $100
81 FR 55247 (Aug. 18, 2016). Rule 5.2(j)(3). million or more.
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![Federal Register / Vol. 82, No. 10 / Tuesday, January 17, 2017 / Notices 4953
sufficiently broad-based to deter dissemination of key information such pursuant to its obligations under
potential manipulation. The Exchange as the value of the New Index and the Section 19(g)(1) of the Act, the Exchange
represents that, as of February 4, 2016, applicable IIV,26 rules governing the will monitor for compliance with the
approximately 84.39% of the weight of trading of equity securities, trading continued listing requirements.29 If the
the New Index components was hours, trading halts, surveillance, Fund is not in compliance with the
composed of individual maturities that information barriers, and the applicable listing requirements, the
were part of an entire municipal bond Information Bulletin to ETP Holders, as Exchange will commence delisting
offering with a minimum original set forth in Exchange rules applicable to procedures under NYSE Arca Equities
principal amount outstanding of $100 Units and prior Commission orders Rule 5.5(m). This approval order is
million or more for all maturities of the approving the generic listing rules
based on all of the Exchange’s
offering. In addition, as of February 4, applicable to the listing and trading of
representations, including those set
2016, the total dollar amount Units.27
(7) The Exchange represents that forth above and in the Notice, as
outstanding of issues in the New Index
was approximately $281,589,346,769, trading in the Shares will be subject to modified by Amendment No. 1 thereto,
and the average dollar amount the existing trading surveillances and the Exchange’s description of the
outstanding of issues in the Index was administered by the Exchange, as well Funds.
approximately $ 27,808,547. Further, as cross-market surveillances For the foregoing reasons, the
the most heavily weighted component administered by the Financial Industry Commission finds that the proposed
represented 2.27% of the weight of the Regulatory Authority (‘‘FINRA’’) on rule change, as modified by Amendment
New Index, and the five most heavily behalf of the Exchange, which are No. 1 thereto, is consistent with Section
weighted components represented designed to detect violations of 6(b)(5) of the Act 30 and the rules and
6.33% of the weight of the New Index.24 Exchange rules and federal securities regulations thereunder applicable to a
The Exchange also represents that the laws applicable to trading on the national securities exchange.
New Index is composed of Exchange.28 The Exchange represents
approximately 10,126 issues and 1,811 that these procedures are adequate to IV. Conclusion
unique issuers, and that in no event will properly monitor Exchange trading of
the Shares in all trading sessions and to It is therefore ordered, pursuant to
the New Index be composed of fewer
than 500 issues. deter and detect violations of Exchange Section 19(b)(2) of the Act,31 that the
In support of this proposal, the rules and federal securities laws proposed rule change (SR–NYSEArca–
Exchange has also made applicable to trading on the Exchange. 2016–62), as modified by Amendment
representations, including: (8) The Exchange or FINRA, on behalf No. 1 thereto, be, and it hereby is,
(1) The Adviser has managed and will of the Exchange, or both, will approved.
continue to manage the Fund in the communicate as needed regarding
For the Commission, by the Division of
manner described in the Registration trading in the Shares with other markets
Trading and Markets, pursuant to delegated
Statement, and it will not implement that are members of the Intermarket authority.32
the changes described herein until this Surveillance Group (‘‘ISG’’). In addition,
proposed rule change is operative. the Exchange will communicate as
Eduardo A. Aleman,
(2) The Index Provider is a broker- needed regarding trading in the Shares
dealer and has implemented a firewall with other markets that are members of Assistant Secretary.
with respect to, and will maintain the ISG or with which the Exchange has [FR Doc. 2017–00780 Filed 1–13–17; 8:45 am]
procedures designed to prevent the use in place a comprehensive surveillance BILLING CODE 8011–01–P
and dissemination of material, non- sharing agreement. FINRA also can
public information regarding, the New access data obtained from the Municipal
Index. Securities Rulemaking Board relating to
(3) With respect to the New Index, municipal bond trading activity for
except for Commentary .02(a)(2) to surveillance purposes in connection
NYSE Arca Equities Rule 5.2(j)(3), the with trading in the Shares.
Shares of Fund overlying the New Index The Exchange represents that all
would satisfy all of the current generic statements and representations made in
listing standards under NYSE Arca this proposal regarding (a) the
Equities Rule 5.2(j)(3). description of the Fund’s portfolio, (b)
(4) The continued listing standards limitations on portfolio holdings or
under NYSE Arca Equities Rules reference assets, or (c) the applicability
5.2(j)(3) and 5.5(g)(2) applicable to Units of Exchange rules and surveillance 29 The Commission notes that certain other
shall apply to the Shares of the Fund procedures shall constitute continued proposals for the listing and trading of Managed
overlying the New Index. listing requirements for listing the Fund Shares include a representation that the
(5) The Trust is required to comply Shares on the Exchange. The Adviser exchange will ‘‘surveil’’ for compliance with the
with Rule 10A–3 under the Act 25 for the has represented to the Exchange that it continued listing requirements. See, e.g., Securities
initial and continued listing of the will advise the Exchange of any failure Exchange Act Release No. 78005 (Jun. 7, 2016), 81
Shares of the Fund overlying the New FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In
by the Fund to comply with the
the context of this representation, it is the
Index. continued listing requirements, and, Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
sradovich on DSK3GMQ082PROD with NOTICES
(6) The Shares of the Fund overlying both mean ongoing oversight of a fund’s compliance
the New Index will comply with all 26 Seesupra note 17. with the continued listing requirements. Therefore,
other requirements applicable to Units 27 Seesupra note 18 and accompanying text. the Commission does not view ‘‘monitor’’ as a more
28 The Exchange represents that FINRA conducts
including, but not limited to, or less stringent obligation than ‘‘surveil’’ with
cross-market surveillances on behalf of the
requirements relating to the Exchange pursuant to a regulatory services
respect to the continued listing requirements.
30 15 U.S.C. 78f(b)(5).
agreement. The Exchange is responsible for
24 See 31 15 U.S.C. 78s(b)(2).
supra note 15. FINRA’s performance under this regulatory services
25 17 CFR 240.10A–3. agreement. 32 17 CFR 200.30–3(a)(12).
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Document Created: 2017-01-14 01:44:50
Document Modified: 2017-01-14 01:44:50
| 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 4950 |
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