82_FR_9883 82 FR 9858 - Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Amend IEX Rule 16.135 To Adopt Generic Listing Standards for Managed Fund Shares

82 FR 9858 - Self-Regulatory Organizations: Investors Exchange LLC; Notice of Filing of Proposed Rule Change To Amend IEX Rule 16.135 To Adopt Generic Listing Standards for Managed Fund Shares

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 25 (February 8, 2017)

Page Range9858-9865
FR Document2017-02544

Federal Register, Volume 82 Issue 25 (Wednesday, February 8, 2017)
[Federal Register Volume 82, Number 25 (Wednesday, February 8, 2017)]
[Notices]
[Pages 9858-9865]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-02544]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79940; File No. SR-IEX-2017-03]


Self-Regulatory Organizations: Investors Exchange LLC; Notice of 
Filing of Proposed Rule Change To Amend IEX Rule 16.135 To Adopt 
Generic Listing Standards for Managed Fund Shares

February 2, 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 January 19, 2017, the Investors Exchange LLC (``IEX'' or 
the ``Exchange'') 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

    Pursuant to the provisions of Section 19(b)(1) under the Securities 
Exchange Act of 1934 (``Act''),\4\ and Rule 19b-4 thereunder,\5\ 
Investors Exchange LLC (``IEX'' or ``Exchange'') is filing with the 
Commission a proposed rule change to amend IEX Rule 16.135 to adopt 
generic listing standards for Managed Fund Shares.
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    \4\ 15 U.S.C. 78s(b)(1).
    \5\ 17 CFR 240.19b-4.
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    The text of the proposed rule change is available at the Exchange's 
Web site at www.iextrading.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 the 
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 these statements may be examined at 
the places specified in Item IV below. The self-regulatory organization 
has prepared summaries, set forth in Sections A, B, and C below, of the 
most significant aspects of such statements.

[[Page 9859]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Overview
    The Exchange proposes to amend IEX Rule 16.135 to adopt generic 
listing standards for Managed Fund Shares. The proposed rule change is 
substantially identical to existing rules of the Nasdaq Stock Market 
(``Nasdaq'').
    The Exchange proposes to amend IEX Rule 16.135 to adopt generic 
listing standards for Managed Fund Shares, as well as to make 
additional changes as described below. Under the Exchange's current 
rules, a proposed rule change would need to be filed with the 
Commission for the listing and trading of each new series of Managed 
Fund Shares. The Exchange believes that it is appropriate to codify 
certain rules within Rule 16.135 that would generally eliminate the 
need for such proposed rule changes, which would create greater 
efficiency and promote uniform standards in the listing process.\6\
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    \6\ This proposed rule change is substantially identical to 
changes approved by the Commission to Nasdaq Rule 5735. See, 
Securities Exchange Act Release No. 78918 (September 23, 2016), 81 
FR 67033 (September 29, 2016) (SR-NASDAQ-2016-104).
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    The Exchange does not currently list any Managed Fund Shares. The 
proposed rule change would be applicable in the event IEX lists Managed 
Fund Shares.
Background
    Rule 16.135 sets forth certain rules related to the listing and 
trading of Managed Fund Shares.\7\ Under Rule 16.135(c)(1), the term 
``Managed Fund Share'' means a security that:
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    \7\ IEX Rule 16.135 was approved in connection with IEX's 
approval as a national securities exchange. See, Securities Exchange 
Act Release No. 34-78101 at 47 (June 17, 2016), 81 FR 41141 (June 
23, 2016) (File No. 10-222).
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    (a) Represents an interest in a registered investment company 
(``Investment Company'') organized as an open-end management investment 
company or similar entity, that invests in a portfolio of securities 
selected by the Investment Company's investment adviser (hereinafter 
``Adviser'') consistent with the Investment Company's investment 
objectives and policies;
    (b) is issued in a specified aggregate minimum number in return for 
a deposit of a specified portfolio of securities and/or a cash amount 
with a value equal to the next determined net asset value; and
    (c) when aggregated in the same specified minimum number, may be 
redeemed at a holder's request, which holder will be paid a specified 
portfolio of securities and/or cash with a value equal to the next 
determined net asset value.
    Effectively, Managed Fund Shares are securities issued by an 
actively-managed open-end Investment Company (i.e., an actively-managed 
exchange-traded fund (``ETF'')). Because Managed Fund Shares are 
actively managed, they do not seek to replicate the performance of a 
specified passive index of securities. Instead, they generally use an 
active investment strategy to seek to meet their investment objectives. 
In contrast, an open-end Investment Company that issues Index Fund 
Shares, listed and traded on the Exchange pursuant to IEX Rule 
16.105(b), seeks to provide investment results that generally 
correspond to the price and yield performance of a specific foreign or 
domestic stock index, fixed income securities index, or combination 
thereof.
    All Managed Fund Shares listed and/or traded pursuant to Rule 
16.135 (including pursuant to unlisted trading privileges) are subject 
to the full panoply of Exchange rules and procedures that currently 
govern the trading of equity securities on the Exchange.\8\
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    \8\ See Rule 11.120.
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    In addition, Rule 16.135(d) currently provides for the criteria 
that Managed Fund Shares must satisfy for initial and continued listing 
on the Exchange, including, for example, that a minimum number of 
Managed Fund Shares are required to be outstanding at the time of 
commencement of trading on the Exchange. However, the current process 
for listing and trading new series of Managed Fund Shares on the 
Exchange would require that the Exchange submit a proposed rule change 
with the Commission. In this regard, Rule 16.135(b)(1) specifies that 
the Exchange will file separate proposals under Section 19(b) of the 
Act (hereinafter, a ``proposed rule change'') before listing and 
trading shares of an issue of Managed Fund Shares.
Proposed Changes to Rule 16.135
    The Exchange proposes to amend Rule 16.135(b)(1) to specify that 
the Exchange may approve Managed Fund Shares for listing and/or trading 
(including pursuant to unlisted trading privileges) pursuant to SEC 
Rule 19b-4(e) under the Act, which pertains to derivative securities 
products (``SEC Rule 19b-4(e)'').\9\ SEC Rule 19b-4(e)(1) provides that 
the listing and trading of a new derivative securities product by a 
self-regulatory organization (``SRO'') is not deemed a proposed rule 
change, pursuant to paragraph (c)(1) of Rule 19b-4,\10\ if the 
Commission has approved, pursuant to Section 19(b) of the Act, the 
SRO's trading rules, procedures and listing standards for the product 
class that would include the new derivative securities product and the 
SRO has a surveillance program for the product class. It is the 
Exchange's understanding that this is the current method pursuant to 
which ``passive'' ETFs are listed on Nasdaq and NYSE Arca, Inc. (``NYSE 
Arca'').
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    \9\ 17 CFR 240.19b-4(e). As provided under SEC Rule 19b-4(e), 
the term ``new derivative securities product'' means any type of 
option, warrant, hybrid securities product, or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest in, an underlying instrument.
    \10\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO 
shall be deemed to be a proposed rule change unless it is reasonably 
and fairly implied by an existing rule of the SRO.
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    The Exchange would also specify within Rule 16.135(b)(1) that 
components of Managed Fund Shares listed pursuant to SEC Rule 19b-4(e) 
must satisfy, upon initial listing and on a continual basis, certain 
specific criteria, which the Exchange would include within Rule 
16.135(b)(1), as described in greater detail below. As proposed, the 
Exchange would file separate proposed rule changes before the listing 
and trading of Managed Fund Shares with components that do not satisfy 
the additional criteria described below or components other than those 
specified below. For example, if the components of a Managed Fund Share 
exceeded one of the applicable thresholds, the Exchange would file a 
separate proposed rule change before listing and trading such Managed 
Fund Share. Similarly, if the components of a Managed Fund Share 
included a security or asset that is not specified below, the Exchange 
would file a separate proposed rule change.
    The Exchange would also add to Rule 16.135(c) to provide that the 
Web site for each series of Managed Fund Shares shall disclose certain 
information regarding the Disclosed Portfolio, to the extent 
applicable. The required information includes the following, to the 
extent applicable: Ticker symbol, CUSIP or other identifier, a 
description of the holding, identity of the asset upon which the 
derivative is based, the strike price for any options, the quantity of 
each security or other asset held as

[[Page 9860]]

measured by select metrics, maturity date, coupon rate, effective date, 
market value, and percentage weight of the holding in the 
portfolio.\11\
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    \11\ Proposed rule changes for series of Managed Fund Shares 
previously listed on Nasdaq have similarly included disclosure 
requirements with respect to each portfolio holding, as applicable 
to the type of holding. See, e.g., Securities Exchange Act Release 
No. 77688 (April 22, 2016), 81 FR 25467 (April 28, 2016) (SR-NASDAQ-
2016-030) (the ``Elkhorn Dorsey Wright Commodity Rotation Portfolio 
of Elkhorn ETF Trust Approval''), generally. See also Securities 
Exchange Act Release No. 72666 (July 3, 2014), 79 FR 44224 (July 30, 
2014) (SR-NYSEArca-2013-122) (the ``PIMCO Total Return Use of 
Derivatives Approval''), generally and at 44227.
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    In addition, the Exchange would amend Rule 16.135(d) to specify 
that all Managed Fund Shares must have a stated investment objective, 
which must be adhered to under normal market conditions.\12\
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    \12\ The Exchange would also add a new defined term under Rule 
16.135(c)(5) to specify that the term ``normal market conditions'' 
includes, but is not limited to, the absence of trading halts in the 
applicable financial markets generally; operational issues (e.g., 
systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as a natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    Finally, the Exchange would also amend the continued listing 
requirements in Rule 16.135(d)(2)(A) by changing the requirement that 
an Intraday Indicative Value for Managed Fund Shares be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the time when the Managed Fund Shares trade on the 
Exchange to a requirement that an Intraday Indicative Value be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Regular Market Session (as defined in Rule 
1.160(gg)).
Proposed Managed Fund Share Portfolio Standards
    The Exchange is proposing standards that would pertain to Managed 
Fund Shares to qualify for listing and trading pursuant to SEC Rule 
19b-4(e). These standards would be grouped according to security or 
asset type. The Exchange notes that the standards proposed for a 
Managed Fund Share portfolio that holds U.S. Component Stocks, Non-U.S. 
Component Stocks, Exchange Traded Derivative Securities, and Linked 
Securities are based in large part on the existing equity security 
standards applicable to Index Fund Shares in Rule 16.105(b)(3).
    The standards proposed for a Managed Fund Share portfolio that 
holds fixed income securities are based in large part on the existing 
fixed income security standards applicable to Index Fund Shares in Rule 
16.105(b)(4). Many of the standards proposed for other types of 
holdings in a Managed Fund Share portfolio are based on previous rule 
changes by Nasdaq and NYSE Arca for specific series of Managed Fund 
Shares.\13\
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    \13\ See, e.g., Securities Exchange Act Release No. 77688 (April 
22, 2016), 81 FR 25467 (April 28, 2016) (SR-NASDAQ-2016-030) (order 
approving listing and trading of Elkhorn Dorsey Wright Commodity 
Rotation Portfolio of Elkhorn ETF Trust). See also Securities 
Exchange Act Release Nos. 72728 (July 31, 2014) 79 FR 45852 (August 
6, 2014) (SR-NASDAQ-2014-059) (order approving listing and trading 
of Global X Commodities Strategy ETF) 72506 (July 1, 2014), 79 FR 
38631 (July 8, 2014) (SR-NASDAQ-2014-050) (order approving listing 
and trading of First Trust Strategic Income ETF); 69464 (April 26, 
2013), 78 FR 25774 (May 2, 2013) (SR-NASDAQ-2013-036) (order 
approving listing and trading of First Trust Senior Loan Fund); and 
66489 (February 29, 2012), 77 FR 13379 (March 6, 2012) (SR-NASDAQ-
2012-004) (order approving listing and trading of WisdomTree 
Emerging Markets Corporate Bond Fund). See also Securities Exchange 
Act Release Nos. 66321 (February 3, 2012), 77 FR 6850 (February 9, 
2012) (SR-NYSEArca-2011-95) (the ``PIMCO Total Return Approval''); 
69244 (March 27, 2013), 78 FR 19766 (April 2, 2013) (SR-NYSEArca-
2013-08) (the ``SPDR Blackstone/GSO Senior Loan Approval''); 68870 
(February 8, 2013), 78 FR 11245 (February 15, 2013) (SR-NYSEArca-
2012-139) (the ``First Trust Preferred Securities and Income 
Approval''); 69591 (May 16, 2013), 78 FR 30372 (May 22, 2013) (SR-
NYSEArca-2013-33) (the ``International Bear Approval''); 61697 
(March 12, 2010), 75 FR 13616 (March 22, 2010) (SR-NYSEArca-2010-04) 
(the ``WisdomTree Real Return Approval''); and 67054 (May 24, 2012), 
77 FR 32161 (May 31, 2012) (SR-NYSEArca-2012-25) (the ``WisdomTree 
Brazil Bond Approval''). Certain standards proposed herein for 
Managed Fund Shares are also based on previous proposed Nasdaq rule 
changes for specific series of Index Fund Shares for which 
Commission approval for listing was required due to the Index Fund 
Shares not satisfying certain standards of Rule 5705(b)(3) and 
5705(b)(4). On NYSE Arca, similar products under NYSE Commentary .01 
and .02 to NYSE Arca Equities Rule 5.2(j)(3) are called Investment 
Company Units. See, e.g., Securities Exchange Act Release No. 69373 
(April 15, 2013), 78 FR 23601 (April 19, 2013) (SR-NYSEArca-2012-
108) (the ``NYSE Arca U.S. Equity Synthetic Reverse Convertible 
Index Fund Approval'').
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    Proposed Rule 16.135(b)(1)(A) would describe the standards for a 
Managed Fund Share portfolio that holds equity securities, which are 
defined to be U.S. Component Stocks,\14\ Non-U.S. Component Stocks,\15\ 
Exchange Traded Derivative Securities,\16\ and Linked Securities \17\ 
listed on a national securities exchange. For Exchange Traded 
Derivative Securities and Linked Securities, no more than 25% of the 
equity weight of the portfolio could include leveraged and/or inverse 
leveraged Exchange Traded Derivative Securities or Linked Securities. 
In addition, proposed Rule 16.135(b)(1)(A) would provide that, to the 
extent that a portfolio includes convertible securities, the equity 
security into which such security is converted would be required to 
meet the criteria of Rule 16.135(b)(1)(A) after converting.
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    \14\ For purposes of Rule 16.135(b)(1) and this proposal, the 
term ``U.S. Component Stocks'' would have the same meaning as 
defined in Rule 16.105(b)(1)(D).
    \15\ For purposes of Rule 16.135(b)(1) and this proposal, the 
term ``Non-U.S. Component Stocks'' would have the same meaning as 
defined in Rule 16.105(b)(1)(E).
    \16\ For the purposes of Rule 16.135(b)(1)(A) and this proposal, 
proposed Rule 16.135(c)(6) would define the term ``Exchange Traded 
Derivative Securities'' to mean the securities described in Rules 
16.105(a) (Portfolio Depository Receipts); 16.105(b) (Index Fund 
Shares); 16.120 (Trust Issued Receipts); 16.111(d) (Commodity-Based 
Trust Shares); 16.111(e) (Currency Trust Shares); 16.111(f), 
(Commodity Index Trust Shares); 16.111(g) (Commodity Futures Trust 
Shares); 16.111(h) (Partnership Units); 16.111(i) (Trust Units); 
16.135 (Managed Fund Shares); and 16.111(j) (Managed Trust 
Securities). This proposed definition is more narrow than the term 
``Derivative Securities Product,'' as defined in Rule 16.170(d)(1).
    \17\ Linked Securities are securities that qualify for Exchange 
listing and trading under Rule 16.110. The securities described in 
Rules 16.105, 16.110, and 16.135(c)(6), as referenced above, would 
include securities listed on another national securities exchange 
pursuant to substantially equivalent listing rules.
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    As proposed in Rule 16.135(b)(1)(A)(i), the component stocks of the 
equity portion of a portfolio that are U.S. Component Stocks shall meet 
the following criteria initially and on a continuing basis:
    (1) Component stocks (excluding Exchange Traded Derivative 
Securities and Linked Securities) that in the aggregate account for at 
least 90% of the equity weight of the portfolio (excluding such 
Exchange Traded Derivative Securities and Linked Securities) each must 
have a minimum market value of at least $75 million; \18\
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    \18\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(i)(b), except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
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    (2) Component stocks (excluding Exchange Traded Derivative 
Securities and Linked Securities) that in the aggregate account for at 
least 70% of the equity weight of the portfolio (excluding such 
Exchange Traded Derivative Securities and Linked Securities) each must 
have a minimum monthly trading volume of 250,000 shares or minimum 
notional volume traded per month of $25,000,000, averaged, over the 
last six months; \19\
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    \19\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(i)(c), except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
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    (3) The most heavily weighted component stock (excluding Exchange

[[Page 9861]]

Traded Derivative Securities and Linked Securities) must not exceed 30% 
of the equity weight of the portfolio, and, to the extent applicable, 
the five most heavily weighted component stocks (excluding Exchange 
Traded Derivative Securities and Linked Securities) must not exceed 65% 
of the equity weight of the portfolio; \20\
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    \20\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(i)(d), except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' and the addition of the reference to Linked Securities.
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    (4) Where the equity portion of the portfolio does not include Non-
U.S. Component Stocks, the equity portion of the portfolio shall 
include a minimum of 13 component stocks; provided, however, that there 
shall be no minimum number of component stocks if (a) one or more 
series of Exchange Traded Derivative Securities or Linked Securities 
constitute, at least in part, components underlying a series of Managed 
Fund Shares, or (b) one or more series of Exchange Traded Derivative 
Securities or Linked Securities account for 100% of the equity weight 
of the portfolio of a series of Managed Fund Shares; \21\
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    \21\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(i)(e), except for the 
omission of the reference to ``index,'' which is not applicable, the 
addition of the reference to Linked Securities, the substitution of 
a more narrow exclusion for ``Exchange Traded Derivative 
Securities'' instead of for ``Derivative Securities Products,'' and 
the reference to the 100% limit applying to the ``equity portion'' 
of the portfolio.
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    (5) Except as provided in proposed Rule 16.135(b)(1)(A), equity 
securities in the portfolio must be U.S. Component Stocks listed on a 
national securities exchange and must be NMS Stocks as defined in Rule 
600 of Regulation NMS; \22\ and
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    \22\ 17 CFR 240.600. This proposed text is substantively 
identical to the corresponding text of Rule 16.105(b)(3)(A)(i)(f), 
except for the addition of ``equity'' to make clear that the 
standard applies to ``equity securities,'' the exclusion of 
unsponsored ADRs, and the omission of the reference to ``index,'' 
which is not applicable.
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    (6) American Depositary Receipts (``ADRs'') may be exchange-traded 
or non-exchange-traded. However, no more than 10% of the equity weight 
of the portfolio shall consist of non-exchange-traded ADRs.\23\
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    \23\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Shareholdings to include not more than 10% of net 
assets in unsponsored ADRs (which are not exchange listed). See, 
e.g., Securities Exchange Act Release No. 73480 (October 31, 2014), 
79 FR 66022 (November 6, 2014) (SR-NASDAQ-2014-090) (order approving 
the Listing and Trading of Shares of the Validea Market Legends 
ETFs). See also Securities Exchange Act Release No. 71067 (December 
12, 2013), 78 FR 76669 (December 18, 2013) (order approving listing 
and trading of shares of the SPDR MFS Systematic Core Equity ETF, 
SPDR MFS Systematic Growth Equity ETF, and SPDR MFS Systematic Value 
Equity ETF under NYSE Arca Equities Rule 8.600).
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    As proposed in Rule 16.135(b)(1)(A)(ii), the component stocks of 
the equity portion of a portfolio that are Non-U.S. Component Stocks 
shall meet the following criteria initially and on a continuing basis:
    (1) Non-U.S. Component Stocks each shall have a minimum market 
value of at least $100 million; \24\
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    \24\ The proposed text is identical to the corresponding 
representations from the First Trust Approval Order and the SSgA 
Global Managed Volatility Release, as noted in footnote 31, below. 
The proposed text is also substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(ii)(a), except for the 
omission of the reference to ``index,'' which is not applicable, and 
that each Non-U.S. Component Stock must have a minimum market value 
of at least $100 million instead of the 90% required under Rule 
16.105(b)(3)(A)(ii)(a).
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    (2) Non-U.S. Component Stocks each shall have a minimum global 
monthly trading volume of 250,000 shares, or minimum global notional 
volume traded per month of $25,000,000, averaged over the last six 
months; \25\
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    \25\ The proposed text is identical to the corresponding 
representations from the First Trust Approval Order and the SSgA 
Global Managed Volatility Release, as noted in footnote 31, below. 
This proposed text also is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(ii)(b), except for the 
omission of the reference to ``index,'' which is not applicable.
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    (3) The most heavily weighted Non-U.S. Component Stock shall not 
exceed 25% of the equity weight of the portfolio, and, to the extent 
applicable, the five most heavily weighted Non-U.S. Component Stocks 
shall not exceed 60% of the equity weight of the portfolio; \26\
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    \26\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(ii)(c), except for the 
omission of the reference to ``index,'' which is not applicable.
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    (4) Where the equity portion of the portfolio includes Non-U.S. 
Component Stocks, the equity portion of the portfolio shall include a 
minimum of 20 component stocks; provided, however, that there shall be 
no minimum number of component stocks if (i) one or more series of 
Exchange Traded Derivative Securities or Linked Securities constitute, 
at least in part, components underlying a series of Managed Fund 
Shares, or (ii) one or more series of Exchange Traded Derivative 
Securities or Linked Securities account for 100% of the equity weight 
of the portfolio of a series of Managed Fund Shares; \27\ and
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    \27\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(3)(A)(ii)(d), except for the 
omission of the reference to ``index,'' which is not applicable, the 
substitution of a more narrow exclusion for ``Exchange Traded 
Derivative Securities'' instead of for ``Derivative Securities 
Products,'' the addition of the reference to Linked Securities, the 
reference to the equity portion of the portfolio including Non-U.S. 
Component Stocks, and the reference to the 100% limitation applying 
to the ``equity weight'' of the portfolio, which is included because 
the proposed standards in Rule 16.135(b) permit the inclusion of 
non-equity securities, whereas Rule 16.105 applies only to equity 
securities.
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    (5) Each Non-U.S. Component Stock shall be listed and traded on an 
exchange that has last-sale reporting.\28\
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    \28\ This proposed text is substantively identical to Rule 
16.105(b)(3)(A)(ii)(e). as it relates to Non-U.S. Component Stocks.
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    The Exchange notes that it is not proposing to require that any of 
the equity portion of the equity portfolio composed of Non-U.S. 
Component Stocks be listed on markets that are either a member of the 
Intermarket Surveillance Group (``ISG'') or a market with which the 
Exchange has a comprehensive surveillance sharing agreement 
(``CSSA'').\29\ However, as further detailed below, the regulatory 
staff of the Exchange, or the Financial Industry Regulatory Authority, 
Inc. (``FINRA''), on behalf of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including U.S. securities exchanges on which the 
components are traded.
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    \29\ ISG is comprised of an international group of exchanges, 
market centers, and market regulators that perform front-line market 
surveillance in their respective jurisdictions. See 
www.isgportal.org. A list of ISG members is available at 
www.isgportal.org.
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    The Exchange notes that the generic listing standards for Index 
Fund Shares based on foreign indexes in Rule 16.105 do not include 
specific ISG or CSSA requirements.\30\ In addition, the Commission has 
approved listing and trading on Nasdaq of shares of an issue of Managed 
Fund Shares under Nasdaq Rule 5735 (which is substantially identical to 
IEX Rule 16.135) where non-U.S. equity securities in such issue's 
portfolio meet specified criteria and where there is no requirement 
that such non-U.S. equity securities are traded in markets that are 
members of ISG or with which Nasdaq has in place a CSSA.\31\
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    \30\ Under Rule 16.105(b)(3), Index Fund Shares with components 
that include Non-U.S. Component Stocks can hold a portfolio that is 
entirely composed of Non-U.S. Component Stocks that are listed on 
markets that are neither members of ISG, nor with which the Exchange 
has in place a CSSA.
    \31\ See, e.g., Securities Exchange Act Release No. 77548 (April 
6, 2016), 81 FR 21626 (April 12, 2016) (SR-NASDAQ-2015-161) (order 
approving listing and trading of the Shares of the First Trust 
RiverFront Dynamic Europe ETF, First Trust RiverFront Dynamic Asia 
Pacific ETF, First Trust RiverFront Dynamic Emerging Markets ETF, 
and First Trust RiverFront Dynamic Developed International ETF of 
First Trust Exchange-Traded Fund III) (the ``First Trust Approval 
Order''). See also Securities Exchange Act Release No. 75023 (May 
21, 2015), 80 FR 30519 (May 28, 2015) (SR-NYSEArca-2014-100) (order 
approving listing and trading on the Exchange of shares of the SPDR 
SSgA Global Managed Volatility ETF under NYSE Arca Equities Rule 
8.600) (``SSgA Global Managed Volatility Release'').

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[[Page 9862]]

    Proposed Rule 16.135(b)(1)(B) would describe the standards for a 
Managed Fund Share portfolio that holds fixed income securities, which 
are debt securities \32\ 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, investment grade and high yield corporate 
debt, bank loans, mortgage and asset backed securities, and commercial 
paper.
---------------------------------------------------------------------------

    \32\ Debt securities include a variety of fixed income 
obligations, including, but not limited to, corporate debt 
securities, government securities, municipal securities, convertible 
securities, and mortgage-backed securities. Debt securities include 
investment-grade securities, non-investment-grade securities, and 
unrated securities. Debt securities also include variable and 
floating rate securities.
---------------------------------------------------------------------------

    In addition, to the extent that a portfolio includes convertible 
securities, the fixed income security into which such security is 
converted would be required to meet the criteria of Rule 
16.135(b)(1)(B) after converting.
    The components of the fixed income portion of the portfolio must 
meet the following criteria initially and on a continuing basis:
    (1) 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; \33\
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    \33\ This text of proposed Rule 16.135(b)(1)(B)(i) is based on 
the corresponding text of Rule 16.105(b)(4)(A)(ii).
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    (2) No component fixed-income security (excluding Treasury 
Securities and GSE Securities could represent more than 30% of the 
fixed income weight of the portfolio; and the five most heavily 
weighted component fixed income securities in the portfolio (excluding 
Treasury Securities and GSE Securities) must not in the aggregate 
account for more than 65% of the fixed income weight of the portfolio; 
\34\
---------------------------------------------------------------------------

    \34\ This proposed text is substantively identical to the 
corresponding text of 16.105(b)(4)(A)(iv), except for the omission 
of the reference to ``index,'' which is not applicable.
---------------------------------------------------------------------------

    (3) An underlying portfolio (excluding exempted securities) that 
includes fixed income securities must include a minimum of 13 non-
affiliated issuers; provided, however, that there shall be no minimum 
number of non-affiliated issuers required for fixed income securities 
if at least 70% of the weight of the portfolio consists of equity 
securities as described in proposed Rule 16.135(b)(1)(A); \35\
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    \35\ This proposed text is substantively identical to the 
corresponding text of Rule 16.105(b)(4)(A)(v), except for the 
omission of the reference to ``index,'' which is not applicable, the 
exclusion of the text ``consisting entirely of exempted securities'' 
and the provision that there shall be no minimum number of 
nonaffiliated issuers required for fixed income securities if at 
least 70% of the weight of the portfolio consists of equity 
securities as described in proposed Rule 16.135(b)(1)(A).
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    (4) Component securities that in aggregate account for at least 90% 
of the fixed income weight of the portfolio must be either (a) from 
issuers that are required to file reports pursuant to Sections 13 and 
15(d) of the Act; (b) from issuers that have a worldwide market value 
of outstanding common equity held by non-affiliates of $700 million or 
more; (c) from issuers that have outstanding securities that are notes, 
bonds, debentures, or evidence of indebtedness having a total remaining 
principal amount of at least $1 billion; \36\ (d) exempted securities 
as defined in Section 3(a)(12) of the Act; or (e) from issuers that are 
a government of a foreign country or a political subdivision of a 
foreign country; and
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    \36\ With respect to subparagraphs (b) and (c) above, the 
special purpose vehicle (``SPV'') that issues the fixed income 
security (e.g., an asset-backed or mortgage backed security) would 
itself be required to satisfy the $700 million and $1 billion 
criteria, respectively, and not the entity that controls, owns or is 
affiliated with the SPV.
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    (5) Non-agency, non-GSE, and privately-issued mortgage-related and 
other asset backed securities components of a portfolio shall not 
account, in the aggregate, for more than 20% of the weight of the fixed 
income portion of the portfolio.\37\
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    \37\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include up to 20% of net assets in 
non-agency, non-GSE and privately-issued mortgage related and other 
asset-backed securities. See, e.g., Securities Exchange Act Release 
No. 74742 (April 16, 2015) 80 FR 22584 (April 22, 2015) (SR-NASDAQ-
2015-011) (order approving the listing and trading of shares of the 
First Trust Strategic Floating Rate ETF of First Trust Exchange-
Traded Fund IV. See also, Securities Exchange Act Release No. 75566 
(July 30, 2015), 80 FR 46612 (August 5, 2015) (SR-NYSEArca-2015-42) 
(order approving listing and trading of shares of Newfleet Multi-
Sector Unconstrained Bond ETF under Rule 8.600).
---------------------------------------------------------------------------

    Proposed Rule 16.135(b)(1)(C) would describe the standards for a 
Managed Fund Share portfolio that holds cash and cash equivalents.\38\ 
Specifically, the portfolio may hold short-term instruments with 
maturities of less than 3 months. There would be no limitation on the 
percentage of the portfolio invested in such holdings. Short-term 
instruments would include the following: \39\
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    \38\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include cash and cash equivalents. 
See, e.g., note 13 supra.
    \39\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly specified short-term instruments 
with respect to their inclusion in Managed Fund Share holdings. See, 
e.g., note 13 supra.
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    (1) U.S. Government securities, including bills, notes, and bonds 
differing as to maturity and rates of interest, which are either issued 
or guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities;
    (2) certificates of deposit issued against funds deposited in a 
bank or savings and loan association;
    (3) bankers' acceptances, which are short-term credit instruments 
used to finance commercial transactions;
    (4) repurchase agreements and reverse repurchase agreements;
    (5) bank time deposits, which are monies kept on deposit with banks 
or savings and loan associations for a stated period of time at a fixed 
rate of interest;
    (6) commercial paper, which are short-term unsecured promissory 
notes; and
    (7) money market funds.
    Proposed Rule 16.135(b)(1)(D) would describe the standards for a 
Managed Fund Share portfolio that holds listed derivatives, including 
futures, options, and swaps on commodities, currencies, and financial 
instruments (e.g., stocks, fixed income, interest rates, and 
volatility) or a basket or index of any of the foregoing.\40\ There 
would be no limitation on the percentage of the portfolio invested in 
such holdings, subject to the following requirements:
---------------------------------------------------------------------------

    \40\ Proposed rule changes for previously-listed series of 
Managed Fund Shares have similarly included the ability for such 
Managed Fund Share holdings to include listed derivatives. See, 
e.g., note 13 supra.
---------------------------------------------------------------------------

    (1) In the aggregate, at least 90% of the weight of such holdings 
invested in futures, exchange-traded options, and listed swaps shall, 
on both an initial and continuing basis, consist of futures, options, 
and swaps for which the Exchange may obtain information via the ISG 
from other members or affiliates of the ISG or for which the principal 
market is a market with which the Exchange has a comprehensive 
surveillance sharing agreement (for purposes of calculating this 
limitation, a portfolio's investment in listed derivatives will be 
calculated as the aggregate gross notional value of the listed 
derivatives); and

[[Page 9863]]

    (2) the aggregate gross notional value of listed derivatives based 
on any five or fewer underlying reference assets shall not exceed 65% 
of the weight of the portfolio (including gross notional exposures), 
and the aggregate gross notional value of listed derivatives based on 
any single underlying reference asset shall not exceed 30% of the 
weight of the portfolio (including gross notional exposures).
    Proposed Rule 16.135(b)(1)(E) would describe the standards for a 
Managed Fund Share portfolio that holds over the counter (``OTC'') 
derivatives, including forwards, options and swaps on commodities, 
currencies and financial instruments (e.g., stocks, fixed income, 
interest rates, and volatility) or a basket or index of any of the 
foregoing.\41\ Proposed Rule 16.135(b)(1)(E) would provide that, on 
both an initial and continuing basis, no more than 20% of the assets in 
the portfolio may be invested in OTC derivatives. For purposes of 
calculating this limitation, a portfolio's investment in OTC 
derivatives will be calculated as the aggregate gross notional value of 
the OTC derivatives.
---------------------------------------------------------------------------

    \41\ A proposed rule change for series of Index Fund Shares 
previously listed and traded on Nasdaq pursuant to Nasdaq Rule 5705 
similarly included the ability for such Index Fund Shares' holdings 
to include OTC derivatives, specifically OTC down-and-in put 
options, which are not NMS Stocks as defined in Rule 600 of 
Regulation NMS and therefore did not satisfy the requirements of 
Nasdaq Rule 5705. See, e.g., note 13 supra, regarding NYSE Arca U.S. 
Equity Synthetic Reverse Convertible Index Fund Approval.
---------------------------------------------------------------------------

    Proposed Rule 16.135(b)(1)(F) would provide that, to the extent 
that listed or OTC derivatives are used to gain exposure to individual 
equities and/or fixed income securities, or to indexes of equities and/
or fixed income securities, the aggregate gross notional value of such 
exposure shall meet the criteria set forth in Rules 16.135(b)(1)(A) and 
(B) (including gross notional exposures), respectively.
    The following examples illustrate how certain of the proposed 
generic criteria of Rule 16.135 would be applied:
    1. An actively managed ETF holds non-agency MBS that represent 15% 
of the weight of the fixed income portion of the portfolio. The fixed 
income portion of the portfolio meets all the requirements of Rule 
16.135(b)(1)(B). The ETF also holds an OTC swap on a non-agency MBS 
Index that represents 10% of the fixed income weight of the portfolio 
calculated on a notional value basis. Separately, the OTC swap and 
fixed income portion of the portfolio would meet the requirements of 
Rule 16.135(b)(1). However, when the 15% weight in non-agency MBS and 
the 10% weight in the non-agency MBS Index OTC swap are combined, as 
required by proposed 16.135(b)(1)(F), the 25% total weight would exceed 
the 20% limit for non-agency GSE and privately-issued mortgage-related 
securities in Rule 16.135(b)(1)(B)(v). The portfolio, therefore, would 
not meet the proposed generic criteria of Rule 16.135.
    2. An actively managed ETF holds a portfolio of non-U.S. equity 
securities, S&P 500 Index and gold futures. S&P 500 Index futures and 
the gold futures held by the fund are listed on an ISG member exchange. 
The equity portion of the portfolio consists of developed and emerging 
markets equity securities with a current aggregate market value of $15 
million and all components meet the requirements under Rule 
16.135(b)(1)(A)(ii). The gold futures contract trading unit size is 100 
troy ounces and an ounce of gold is currently worth $1200. The fund 
holds 500 gold futures contracts with a notional value of $60 million 
(500*100*$1200). One S&P 500 contract represents 250 units of the S&P 
500 Index and the S&P 500 Index is trading at $2,000. The portfolio 
holds 50 contracts, so the notional value of the S&P 500 Index futures 
position is $25 million (50*250*$2000). The S&P 500 Index futures meet 
the requirement under Rule 16.135(b)(1)(F), that is, the S&P 500 Index 
meets the criteria in Rule 16.135(b)(1)(A). The weights of the 
components are as follows; equity securities represent 15% of the 
portfolio, gold futures represent 60% of the portfolio and S&P 500 
Index futures represent 25% of the portfolio. The gold futures 
represent 60% of the portfolio and exceeds the 30% concentration 
limitation on any single underlying reference asset as outlined in 
proposed Rule 16.135(b)(1)(D)(ii). The portfolio, therefore, would not 
meet the proposed generic criteria of Rule 16.135.
    3. An actively managed ETF holds a portfolio of equity securities 
and call option contracts on company XYZ. The equity portion of the 
portfolio meets the requirements under Rule 16.135(b)(1)(A). Company 
XYZ represents 20% of the weight of the equity portion of the 
portfolio. The equity portion of the fund has a market value of $100 
million and the market value of the fund's holdings in company XYZ has 
a market value of $20 million. The fund also holds 10,000 call option 
contracts on company XYZ which has a current market price of $50 a 
share and, therefore, a notional value of $50 million (50*100*10,000) 
(that is, the $50 market price per share times the multiplier of 100 
times 10,000 contracts). The option contracts are traded on an ISG 
member exchange. The total exposure to company XYZ is therefore $70 
million and represents 46.7% ($70 million/$150 million=46.7%) of the 
portfolio. This fund would not meet the requirements of Rule 16.135 
because the exposure to XYZ at 46.7% exceeds the 30% concentration 
limitation of proposed Rule 16.135(b)(1)(D)(ii).
    The Exchange believes that the proposed standards would ensure 
transparency surrounding the listing process for Managed Fund Shares. 
Additionally, the Exchange believes that the proposed portfolio 
standards for listing and trading Managed Fund Shares, many of which 
track existing Exchange rules relating to Index Fund Shares, are 
reasonably designed to promote a fair and orderly market for such 
Managed Fund Shares. These proposed standards would also work in 
conjunction with the existing initial and continued listing criteria 
related to surveillance procedures and trading guidelines.
    In support of this proposal, the Exchange represents that:
    1. Any Managed Fund Shares listed and traded on IEX will conform to 
the initial and continued listing criteria under Rule 16.135;
    2. the Exchange's surveillance procedures are adequate to continue 
to properly monitor the trading of the Managed Fund Shares in all 
trading sessions and to deter and detect violations of Exchange rules. 
Specifically, the Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products, which will include 
Managed Fund Shares, to monitor trading in the Managed Fund Shares;
    3. prior to the commencement of trading of a particular series of 
Managed Fund Shares, the Exchange will inform its members in an 
information circular (``Circular'') of the special characteristics and 
risks associated with trading the Managed Fund Shares, including 
procedures for purchases and redemptions of Managed Fund Shares, 
suitability requirements under Rules 3.150 and 3.170, the risks 
involved in trading the Managed Fund Shares during the Pre-Market and 
Post-Market Sessions when an updated Intraday Indicative Value will not 
be calculated or publicly disseminated, information regarding the 
Intraday Indicative Value and the Disclosed Portfolio, prospectus 
delivery requirements, and other trading information. In addition, the 
Circular will disclose that the Managed Fund Shares are subject to 
various fees and expenses, as described in the applicable registration 
statement, and will discuss

[[Page 9864]]

any exemptive, no-action, and interpretive relief granted by the 
Commission from any rules under the Act. Finally, the Circular will 
disclose that the net asset value for the Managed Fund Shares will be 
calculated after 4 p.m., ET, each trading day; and
    4. the issuer of a series of Managed Fund Shares will be required 
to comply with Rule 10A-3 under the Act for the initial and continued 
listing of Managed Fund Shares, as provided under the IEX Rule Series 
14.400.
    The Exchange, on a periodic basis and no less than annually, will 
review issues of Managed Fund Shares generically listed pursuant to 
Rule 16.135, and will provide a report to the Regulatory Oversight 
Committee of the Exchange's Board of Directors regarding the Exchange's 
findings. In addition, the Exchange will provide the Commission staff 
with a report each calendar quarter that includes the following 
information for issues of Managed Fund Shares listed during such 
calendar quarter under Rule 16.135(b)(1): (1) Trading symbol and date 
of listing on the Exchange; (2) the number of active authorized 
participants and a description of any failure of an issue of Managed 
Fund Shares or of an authorized participant to deliver shares, cash, or 
cash and financial instruments in connection with creation or 
redemption orders; and (3) a description of any failure of an issue of 
Managed Fund Shares to comply with Rule 16.135.
    Prior to listing pursuant to proposed amended Rule 16.135(b)(1), an 
issuer would be required to represent to the Exchange that it will 
advise the Exchange of any failure by a series of Managed Fund Shares 
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 the 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under IEX Rule Series 
14.500.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and that the Exchange is not aware 
of any problems that members or issuers would have in complying with 
the proposed change.
2. Statutory Basis
    IEX believes that the proposed rule change is consistent with 
Section 6(b) \42\ of the Act in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\43\ in particular, in that it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest.
---------------------------------------------------------------------------

    \42\ 15 U.S.C. 78f(b).
    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed change to adopt generic 
listing standards for Managed Fund Shares is designed to perfect the 
mechanism of a free and open market and, in general, to protect 
investors and the public interest because it would facilitate the 
potential listing and trading of Managed Fund Shares on the Exchange, 
which would enhance competition among market participants, to the 
benefit of investors and the marketplace. The proposed change would 
codify in Rule 16.135 specified criteria that have been the basis for 
proposed rule filings by Nasdaq and NYSE Arca with the Commission for 
the listing and trading of each new series of Managed Fund Shares. The 
Exchange believes that such codification is appropriate in that it 
would facilitate the listing and trading of additional types of Managed 
Fund Shares that have investment portfolios that are similar to 
investment portfolios for Index Fund Shares, which have been approved 
for listing and trading, thereby creating greater efficiencies in the 
listing process for the Exchange and the Commission should the Exchange 
seek to list Managed Fund Shares. Moreover, the proposed generic 
standards for Managed Fund Shares are substantially identical to those 
that the Commission approved for Nasdaq, finding that such standards 
are consistent with the Section 6(b)(5) of the Act, noting that 
Nasdaq's proposal in turn was substantially identical to proposals the 
Commission had recently approved for NYSE Arca and Bats BZX Exchange 
(previously BATS Exchange).\44\
---------------------------------------------------------------------------

    \44\ See, Securities Exchange Act Release No. 78918 (September 
23, 2016), 81 FR 67033 (September 29, 2016) (SR-NASDAQ-2016-104).
---------------------------------------------------------------------------

    The Exchange further believes that the proposed rule change is 
designed to protect investors and the public interest because Managed 
Fund Shares listed and traded pursuant to Rule 16.135, including 
pursuant to the proposed new portfolio standards, would continue to be 
subject to the full panoply of Exchange rules and procedures that 
currently govern the trading of equity securities on the Exchange.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices because the 
Managed Fund Shares will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in Rule 16.135. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Managed Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. FINRA, on behalf of the Exchange, 
or the regulatory staff of the Exchange, will communicate as needed 
regarding trading in Managed Fund Shares with other markets that are 
members of the ISG, including all U.S. securities exchanges and futures 
exchanges on which the components are traded.
    In addition, the Exchange may obtain information regarding trading 
in Managed Fund Shares from other markets that are members of the ISG, 
including all U.S. securities exchanges and futures exchanges on which 
the components are traded, or with which the Exchange has in place a 
CSSA.
    The Exchange also believes that the proposed rule change would 
fulfill the intended objective of Rule 19b-4(e) under the Act by 
allowing Managed Fund Shares that satisfy the proposed listing 
standards to be listed and traded without separate Commission approval. 
However, as proposed, the Exchange would continue to file separate 
proposed rule changes before the listing and trading of Managed Fund 
Shares that do not satisfy the additional criteria described above.
    The Exchange, on a periodic basis and no less than annually, will 
review issues of Managed Fund Shares listed pursuant to Rule 
16.135(b)(1), and will provide a report to the Regulatory Oversight 
Committee of the Exchange's Board of Directors regarding the Exchange's 
findings. In addition, the Exchange will provide the Commission staff 
with a report each calendar quarter that includes the following 
information for issues of Managed Fund Shares listed during such 
calendar quarter under Rule 16.135(b)(1): (1) Trading symbol and date 
of listing on the Exchange; (2) the number of active authorized 
participants and a description of any failure of an issue of Managed 
Fund Shares listed pursuant to Rule 16.135(b)(1) or of an authorized 
participant to deliver shares, cash, or cash and financial instruments 
in connection with creation or redemption orders; and (3) a description 
of any

[[Page 9865]]

failure of an issue of Managed Fund Shares to comply with Rule 16.135.
    Prior to listing pursuant to proposed amended Rule 16.136(b)(1), an 
issuer would be required to represent to the Exchange that it will 
advise the Exchange of any failure by a series of Managed Fund Shares 
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 the 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under IEX Rule Series 
14.500.
    Accordingly, based on the foregoing, the Exchange believes that the 
proposed generic listing standards for Managed Fund Shares are 
consistent with Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    IEX does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
    The Exchange believes that the proposed change would facilitate the 
listing and trading of additional types of Managed Fund Shares and 
result in a significantly more efficient process for the listing and 
trading of Managed Fund Shares, thereby enhancing competition among 
market participants, including issuers and exchanges. Further, the 
Exchange believes that applying uniform and transparent listing 
standards would make the process for listing Managed Fund Shares more 
competitive.

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

    Written comments were neither solicited nor received.

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 such 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-IEX-2017-03 in 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-IEX-2017-03. This file 
number should be included in 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 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-IEX-2017-03 and should be 
submitted on or before March 1, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
---------------------------------------------------------------------------

    \45\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-02544 Filed 2-7-17; 8:45 am]
 BILLING CODE 8011-01-P



                                                    9858                        Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices

                                                    the purposes of the Act.’’ 34 To the                     Comments may be submitted by any of                    SECURITIES AND EXCHANGE
                                                    extent that this proposal implements,                    the following methods:                                 COMMISSION
                                                    interprets or clarifies the Plan and
                                                    applies specific requirements to                         Electronic Comments
                                                                                                                                                                    [Release No. 34–79940; File No. SR–IEX–
                                                    Industry Members, the Exchange                             • Use the Commission’s Internet                      2017–03]
                                                    believes that this proposal furthers the                 comment form (http://www.sec.gov/
                                                    objectives of the Plan, as identified by                 rules/sro.shtml); or                                   Self-Regulatory Organizations:
                                                    the SEC, and is therefore consistent with                                                                       Investors Exchange LLC; Notice of
                                                    the Act.                                                   • Send an email to rule-comments@                    Filing of Proposed Rule Change To
                                                                                                             sec.gov. Please include File Number SR–                Amend IEX Rule 16.135 To Adopt
                                                    (B) Self-Regulatory Organization’s                       BatsBYX–2017–02 on the subject line.                   Generic Listing Standards for Managed
                                                    Statement on Burden on Competition
                                                                                                             Paper Comments                                         Fund Shares
                                                       The Exchange does not believe that
                                                                                                                                                                    February 2, 2017.
                                                    the proposed rule change will result in                    • Send paper comments in triplicate
                                                    any burden on competition that is not                                                                              Pursuant to Section 19(b)(1) 1 of the
                                                                                                             to Secretary, Securities and Exchange
                                                    necessary or appropriate in furtherance                                                                         Securities Exchange Act of 1934 (the
                                                                                                             Commission, 100 F Street NE.,
                                                    of the purposes of the Act. The                                                                                 ‘‘Act’’) 2 and Rule 19b–4 thereunder,3
                                                                                                             Washington, DC 20549–1090.
                                                    Exchange notes that the proposed rule                                                                           notice is hereby given that, on January
                                                    change implements provisions of the                      All submissions should refer to File                   19, 2017, the Investors Exchange LLC
                                                    CAT NMS Plan, and is designed to                         Number SR–BatsBYX–2017–02. This                        (‘‘IEX’’ or the ‘‘Exchange’’) filed with the
                                                    assist the Exchange in meeting its                       file number should be included on the                  Securities and Exchange Commission
                                                    regulatory obligations pursuant to the                   subject line if email is used. To help the             (the ‘‘Commission’’) the proposed rule
                                                    Plan. The Exchange also notes that the                   Commission process and review your                     change as described in Items I and II
                                                    Proposed Rules 4.5 through 4.16                          comments more efficiently, please use                  below, which Items have been prepared
                                                    implement provisions of the CAT NMS                      only one method. The Commission will                   by the self-regulatory organization. The
                                                    Plan will apply equally to all firms that                post all comments on the Commission’s                  Commission is publishing this notice to
                                                    trade NMS Securities and OTC Equity                      Internet Web site (http://www.sec.gov/                 solicit comments on the proposed rule
                                                    Securities. In addition, all national                    rules/sro.shtml). Copies of the                        change from interested persons.
                                                    securities exchanges and FINRA are                       submission, all subsequent                             I. Self-Regulatory Organization’s
                                                    proposing similar rules to apply the                     amendments, all written statements                     Statement of the Terms of Substance of
                                                    requirements of the CAT NMS Plan to                      with respect to the proposed rule                      the Proposed Rule Change
                                                    their members. Therefore, this is not a                  change that are filed with the
                                                    competitive rule filing, and, therefore, it                                                                        Pursuant to the provisions of Section
                                                                                                             Commission, and all written                            19(b)(1) under the Securities Exchange
                                                    does not impose a burden on                              communications relating to the
                                                    competition.                                                                                                    Act of 1934 (‘‘Act’’),4 and Rule 19b–4
                                                                                                             proposed rule change between the                       thereunder,5 Investors Exchange LLC
                                                    (C) Self-Regulatory Organization’s                       Commission and any person, other than                  (‘‘IEX’’ or ‘‘Exchange’’) is filing with the
                                                    Statement on Comments on the                             those that may be withheld from the                    Commission a proposed rule change to
                                                    Proposed Rule Change Received From                       public in accordance with the                          amend IEX Rule 16.135 to adopt generic
                                                    Members, Participants or Others                          provisions of 5 U.S.C. 552, will be                    listing standards for Managed Fund
                                                                                                             available for Web site viewing and                     Shares.
                                                      Written comments were neither
                                                                                                             printing in the Commission’s Public                       The text of the proposed rule change
                                                    solicited nor received.
                                                                                                             Reference Room, 100 F Street NE.,                      is available at the Exchange’s Web site
                                                    III. Date of Effectiveness of the                        Washington, DC 20549 on official                       at www.iextrading.com, at the principal
                                                    Proposed Rule Change and Timing for                      business days between the hours of                     office of the Exchange, and at the
                                                    Commission Action                                        10:00 a.m. and 3:00 p.m. Copies of the                 Commission’s Public Reference Room.
                                                       Within 45 days of the date of                         filing also will be available for                      II. Self-Regulatory Organization’s
                                                    publication of this notice in the Federal                inspection and copying at the principal                Statement of the Purpose of, and the
                                                    Register or within such longer period (i)                office of the Exchange. All comments                   Statutory Basis for, the Proposed Rule
                                                    as the Commission may designate up to                    received will be posted without change;                Change
                                                    90 days of such date if it finds such                    the Commission does not edit personal
                                                                                                             identifying information from                             In its filing with the Commission, the
                                                    longer period to be appropriate and                                                                             self-regulatory organization included
                                                    publishes its reasons for so finding or                  submissions. You should submit only
                                                                                                                                                                    statements concerning the purpose of
                                                    (ii) as to which the Exchange consents,                  information that you wish to make
                                                                                                                                                                    and basis for the proposed rule change
                                                    the Commission will: (a) By order                        available publicly. All submissions
                                                                                                                                                                    and discussed any comments it received
                                                    approve or disapprove such proposed                      should refer to File Number SR–                        on the proposed rule change. The text
                                                    rule change, or (b) institute proceedings                BatsBYX–2017–02 and should be                          of these statements may be examined at
                                                    to determine whether the proposed rule                   submitted on or before March 1, 2017.                  the places specified in Item IV below.
                                                    change should be disapproved.                              For the Commission, by the Division of               The self-regulatory organization has
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                                                    IV. Solicitation of Comments                             Trading and Markets, pursuant to delegated             prepared summaries, set forth in
                                                                                                             authority.35                                           Sections A, B, and C below, of the most
                                                      Interested persons are invited to                                                                             significant aspects of such statements.
                                                                                                             Robert W. Errett,
                                                    submit written data, views, and
                                                    arguments concerning the foregoing,                      Deputy Secretary.
                                                                                                                                                                      1 15 U.S.C. 78s(b)(1).
                                                    including whether the proposed rule                      [FR Doc. 2017–02549 Filed 2–7–17; 8:45 am]
                                                                                                                                                                      2 15 U.S.C. 78a.
                                                    change is consistent with the Act.                       BILLING CODE 8011–01–P                                   3 17 CFR 240.19b–4.
                                                                                                                                                                      4 15 U.S.C. 78s(b)(1).
                                                      34 Approval   Order at 84697.                            35 17   CFR 200.30–3(a)(12).                           5 17 CFR 240.19b–4.




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                                                                               Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices                                                       9859

                                                    A. Self-Regulatory Organization’s                          (c) when aggregated in the same                     Rule 19b–4(e)’’).9 SEC Rule 19b–4(e)(1)
                                                    Statement of the Purpose of, and                        specified minimum number, may be                       provides that the listing and trading of
                                                    Statutory Basis for, the Proposed Rule                  redeemed at a holder’s request, which                  a new derivative securities product by a
                                                    Change                                                  holder will be paid a specified portfolio              self-regulatory organization (‘‘SRO’’) is
                                                                                                            of securities and/or cash with a value                 not deemed a proposed rule change,
                                                    1. Purpose
                                                                                                            equal to the next determined net asset                 pursuant to paragraph (c)(1) of Rule
                                                    Overview                                                value.                                                 19b–4,10 if the Commission has
                                                       The Exchange proposes to amend IEX                      Effectively, Managed Fund Shares are                approved, pursuant to Section 19(b) of
                                                    Rule 16.135 to adopt generic listing                    securities issued by an actively-                      the Act, the SRO’s trading rules,
                                                    standards for Managed Fund Shares.                      managed open-end Investment                            procedures and listing standards for the
                                                    The proposed rule change is                             Company (i.e., an actively-managed                     product class that would include the
                                                    substantially identical to existing rules               exchange-traded fund (‘‘ETF’’)). Because               new derivative securities product and
                                                    of the Nasdaq Stock Market (‘‘Nasdaq’’).                Managed Fund Shares are actively                       the SRO has a surveillance program for
                                                       The Exchange proposes to amend IEX                   managed, they do not seek to replicate                 the product class. It is the Exchange’s
                                                    Rule 16.135 to adopt generic listing                    the performance of a specified passive                 understanding that this is the current
                                                                                                            index of securities. Instead, they                     method pursuant to which ‘‘passive’’
                                                    standards for Managed Fund Shares, as
                                                                                                            generally use an active investment                     ETFs are listed on Nasdaq and NYSE
                                                    well as to make additional changes as
                                                                                                            strategy to seek to meet their investment              Arca, Inc. (‘‘NYSE Arca’’).
                                                    described below. Under the Exchange’s                                                                             The Exchange would also specify
                                                    current rules, a proposed rule change                   objectives. In contrast, an open-end
                                                                                                            Investment Company that issues Index                   within Rule 16.135(b)(1) that
                                                    would need to be filed with the                                                                                components of Managed Fund Shares
                                                    Commission for the listing and trading                  Fund Shares, listed and traded on the
                                                                                                            Exchange pursuant to IEX Rule                          listed pursuant to SEC Rule 19b–4(e)
                                                    of each new series of Managed Fund                                                                             must satisfy, upon initial listing and on
                                                    Shares. The Exchange believes that it is                16.105(b), seeks to provide investment
                                                                                                            results that generally correspond to the               a continual basis, certain specific
                                                    appropriate to codify certain rules                                                                            criteria, which the Exchange would
                                                    within Rule 16.135 that would generally                 price and yield performance of a
                                                                                                            specific foreign or domestic stock index,              include within Rule 16.135(b)(1), as
                                                    eliminate the need for such proposed                                                                           described in greater detail below. As
                                                    rule changes, which would create                        fixed income securities index, or
                                                                                                            combination thereof.                                   proposed, the Exchange would file
                                                    greater efficiency and promote uniform                                                                         separate proposed rule changes before
                                                    standards in the listing process.6                         All Managed Fund Shares listed and/
                                                                                                                                                                   the listing and trading of Managed Fund
                                                       The Exchange does not currently list                 or traded pursuant to Rule 16.135
                                                                                                                                                                   Shares with components that do not
                                                    any Managed Fund Shares. The                            (including pursuant to unlisted trading
                                                                                                                                                                   satisfy the additional criteria described
                                                    proposed rule change would be                           privileges) are subject to the full
                                                                                                                                                                   below or components other than those
                                                    applicable in the event IEX lists                       panoply of Exchange rules and
                                                                                                                                                                   specified below. For example, if the
                                                    Managed Fund Shares.                                    procedures that currently govern the
                                                                                                                                                                   components of a Managed Fund Share
                                                                                                            trading of equity securities on the
                                                    Background                                                                                                     exceeded one of the applicable
                                                                                                            Exchange.8
                                                                                                                                                                   thresholds, the Exchange would file a
                                                       Rule 16.135 sets forth certain rules                    In addition, Rule 16.135(d) currently
                                                                                                                                                                   separate proposed rule change before
                                                    related to the listing and trading of                   provides for the criteria that Managed
                                                                                                                                                                   listing and trading such Managed Fund
                                                    Managed Fund Shares.7 Under Rule                        Fund Shares must satisfy for initial and
                                                                                                                                                                   Share. Similarly, if the components of a
                                                    16.135(c)(1), the term ‘‘Managed Fund                   continued listing on the Exchange,
                                                                                                                                                                   Managed Fund Share included a
                                                    Share’’ means a security that:                          including, for example, that a minimum
                                                                                                                                                                   security or asset that is not specified
                                                       (a) Represents an interest in a                      number of Managed Fund Shares are
                                                                                                                                                                   below, the Exchange would file a
                                                    registered investment company                           required to be outstanding at the time of
                                                                                                                                                                   separate proposed rule change.
                                                    (‘‘Investment Company’’) organized as                   commencement of trading on the                            The Exchange would also add to Rule
                                                    an open-end management investment                       Exchange. However, the current process                 16.135(c) to provide that the Web site
                                                    company or similar entity, that invests                 for listing and trading new series of                  for each series of Managed Fund Shares
                                                    in a portfolio of securities selected by                Managed Fund Shares on the Exchange                    shall disclose certain information
                                                    the Investment Company’s investment                     would require that the Exchange submit                 regarding the Disclosed Portfolio, to the
                                                    adviser (hereinafter ‘‘Adviser’’)                       a proposed rule change with the                        extent applicable. The required
                                                    consistent with the Investment                          Commission. In this regard, Rule                       information includes the following, to
                                                    Company’s investment objectives and                     16.135(b)(1) specifies that the Exchange               the extent applicable: Ticker symbol,
                                                    policies;                                               will file separate proposals under                     CUSIP or other identifier, a description
                                                       (b) is issued in a specified aggregate               Section 19(b) of the Act (hereinafter, a               of the holding, identity of the asset upon
                                                    minimum number in return for a                          ‘‘proposed rule change’’) before listing               which the derivative is based, the strike
                                                    deposit of a specified portfolio of                     and trading shares of an issue of                      price for any options, the quantity of
                                                    securities and/or a cash amount with a                  Managed Fund Shares.                                   each security or other asset held as
                                                    value equal to the next determined net
                                                                                                            Proposed Changes to Rule 16.135
                                                    asset value; and                                                                                                  9 17 CFR 240.19b–4(e). As provided under SEC
                                                                                                               The Exchange proposes to amend                      Rule 19b–4(e), the term ‘‘new derivative securities
                                                      6 This proposed rule change is substantially          Rule 16.135(b)(1) to specify that the                  product’’ means any type of option, warrant, hybrid
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                                                    identical to changes approved by the Commission         Exchange may approve Managed Fund                      securities product, or any other security, other than
                                                    to Nasdaq Rule 5735. See, Securities Exchange Act                                                              a single equity option or a security futures product,
                                                    Release No. 78918 (September 23, 2016), 81 FR
                                                                                                            Shares for listing and/or trading                      whose value is based, in whole or in part, upon the
                                                    67033 (September 29, 2016) (SR–NASDAQ–2016–             (including pursuant to unlisted trading                performance of, or interest in, an underlying
                                                    104).                                                   privileges) pursuant to SEC Rule 19b–                  instrument.
                                                      7 IEX Rule 16.135 was approved in connection
                                                                                                            4(e) under the Act, which pertains to                     10 17 CFR 240.19b–4(c)(1). As provided under

                                                    with IEX’s approval as a national securities            derivative securities products (‘‘SEC                  SEC Rule 19b–4(c)(1), a stated policy, practice, or
                                                    exchange. See, Securities Exchange Act Release No.                                                             interpretation of the SRO shall be deemed to be a
                                                    34–78101 at 47 (June 17, 2016), 81 FR 41141 (June                                                              proposed rule change unless it is reasonably and
                                                    23, 2016) (File No. 10–222).                              8 See   Rule 11.120.                                 fairly implied by an existing rule of the SRO.



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                                                    9860                        Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices

                                                    measured by select metrics, maturity                    Index Fund Shares in Rule 16.105(b)(4).                  Securities 17 listed on a national
                                                    date, coupon rate, effective date, market               Many of the standards proposed for                       securities exchange. For Exchange
                                                    value, and percentage weight of the                     other types of holdings in a Managed                     Traded Derivative Securities and Linked
                                                    holding in the portfolio.11                             Fund Share portfolio are based on                        Securities, no more than 25% of the
                                                       In addition, the Exchange would                      previous rule changes by Nasdaq and                      equity weight of the portfolio could
                                                    amend Rule 16.135(d) to specify that all                NYSE Arca for specific series of                         include leveraged and/or inverse
                                                    Managed Fund Shares must have a                         Managed Fund Shares.13                                   leveraged Exchange Traded Derivative
                                                    stated investment objective, which must                   Proposed Rule 16.135(b)(1)(A) would                    Securities or Linked Securities. In
                                                    be adhered to under normal market                       describe the standards for a Managed                     addition, proposed Rule 16.135(b)(1)(A)
                                                    conditions.12                                           Fund Share portfolio that holds equity                   would provide that, to the extent that a
                                                       Finally, the Exchange would also                     securities, which are defined to be U.S.                 portfolio includes convertible securities,
                                                    amend the continued listing                             Component Stocks,14 Non-U.S.                             the equity security into which such
                                                    requirements in Rule 16.135(d)(2)(A) by                 Component Stocks,15 Exchange Traded                      security is converted would be required
                                                    changing the requirement that an                        Derivative Securities,16 and Linked                      to meet the criteria of Rule
                                                    Intraday Indicative Value for Managed                                                                            16.135(b)(1)(A) after converting.
                                                    Fund Shares be widely disseminated by                      13 See, e.g., Securities Exchange Act Release No.        As proposed in Rule
                                                    one or more major market data vendors                   77688 (April 22, 2016), 81 FR 25467 (April 28,           16.135(b)(1)(A)(i), the component stocks
                                                    at least every 15 seconds during the                    2016) (SR–NASDAQ–2016–030) (order approving              of the equity portion of a portfolio that
                                                                                                            listing and trading of Elkhorn Dorsey Wright
                                                    time when the Managed Fund Shares                       Commodity Rotation Portfolio of Elkhorn ETF              are U.S. Component Stocks shall meet
                                                    trade on the Exchange to a requirement                  Trust). See also Securities Exchange Act Release         the following criteria initially and on a
                                                    that an Intraday Indicative Value be                    Nos. 72728 (July 31, 2014) 79 FR 45852 (August 6,        continuing basis:
                                                    widely disseminated by one or more                      2014) (SR–NASDAQ–2014–059) (order approving                 (1) Component stocks (excluding
                                                    major market data vendors at least every                listing and trading of Global X Commodities
                                                                                                            Strategy ETF) 72506 (July 1, 2014), 79 FR 38631
                                                                                                                                                                     Exchange Traded Derivative Securities
                                                    15 seconds during the Regular Market                    (July 8, 2014) (SR–NASDAQ–2014–050) (order               and Linked Securities) that in the
                                                    Session (as defined in Rule 1.160(gg)).                 approving listing and trading of First Trust Strategic   aggregate account for at least 90% of the
                                                                                                            Income ETF); 69464 (April 26, 2013), 78 FR 25774         equity weight of the portfolio (excluding
                                                    Proposed Managed Fund Share Portfolio                   (May 2, 2013) (SR–NASDAQ–2013–036) (order
                                                    Standards                                               approving listing and trading of First Trust Senior
                                                                                                                                                                     such Exchange Traded Derivative
                                                                                                            Loan Fund); and 66489 (February 29, 2012), 77 FR         Securities and Linked Securities) each
                                                      The Exchange is proposing standards                   13379 (March 6, 2012) (SR–NASDAQ–2012–004)               must have a minimum market value of
                                                    that would pertain to Managed Fund                      (order approving listing and trading of WisdomTree       at least $75 million; 18
                                                    Shares to qualify for listing and trading               Emerging Markets Corporate Bond Fund). See also             (2) Component stocks (excluding
                                                    pursuant to SEC Rule 19b–4(e). These                    Securities Exchange Act Release Nos. 66321
                                                                                                            (February 3, 2012), 77 FR 6850 (February 9, 2012)        Exchange Traded Derivative Securities
                                                    standards would be grouped according                    (SR–NYSEArca–2011–95) (the ‘‘PIMCO Total                 and Linked Securities) that in the
                                                    to security or asset type. The Exchange                 Return Approval’’); 69244 (March 27, 2013), 78 FR        aggregate account for at least 70% of the
                                                    notes that the standards proposed for a                 19766 (April 2, 2013) (SR–NYSEArca–2013–08) (the         equity weight of the portfolio (excluding
                                                    Managed Fund Share portfolio that                       ‘‘SPDR Blackstone/GSO Senior Loan Approval’’);
                                                                                                            68870 (February 8, 2013), 78 FR 11245 (February          such Exchange Traded Derivative
                                                    holds U.S. Component Stocks, Non-U.S.                   15, 2013) (SR–NYSEArca–2012–139) (the ‘‘First            Securities and Linked Securities) each
                                                    Component Stocks, Exchange Traded                       Trust Preferred Securities and Income Approval’’);       must have a minimum monthly trading
                                                    Derivative Securities, and Linked                       69591 (May 16, 2013), 78 FR 30372 (May 22, 2013)         volume of 250,000 shares or minimum
                                                    Securities are based in large part on the               (SR–NYSEArca–2013–33) (the ‘‘International Bear
                                                                                                            Approval’’); 61697 (March 12, 2010), 75 FR 13616         notional volume traded per month of
                                                    existing equity security standards                      (March 22, 2010) (SR–NYSEArca–2010–04) (the              $25,000,000, averaged, over the last six
                                                    applicable to Index Fund Shares in Rule                 ‘‘WisdomTree Real Return Approval’’); and 67054          months; 19
                                                    16.105(b)(3).                                           (May 24, 2012), 77 FR 32161 (May 31, 2012) (SR–             (3) The most heavily weighted
                                                      The standards proposed for a                          NYSEArca–2012–25) (the ‘‘WisdomTree Brazil
                                                                                                                                                                     component stock (excluding Exchange
                                                    Managed Fund Share portfolio that                       Bond Approval’’). Certain standards proposed
                                                                                                            herein for Managed Fund Shares are also based on
                                                    holds fixed income securities are based                 previous proposed Nasdaq rule changes for specific       16.111(g) (Commodity Futures Trust Shares);
                                                    in large part on the existing fixed                     series of Index Fund Shares for which Commission         16.111(h) (Partnership Units); 16.111(i) (Trust
                                                    income security standards applicable to                 approval for listing was required due to the Index       Units); 16.135 (Managed Fund Shares); and
                                                                                                            Fund Shares not satisfying certain standards of Rule     16.111(j) (Managed Trust Securities). This proposed
                                                       11 Proposed rule changes for series of Managed       5705(b)(3) and 5705(b)(4). On NYSE Arca, similar         definition is more narrow than the term ‘‘Derivative
                                                                                                            products under NYSE Commentary .01 and .02 to            Securities Product,’’ as defined in Rule 16.170(d)(1).
                                                    Fund Shares previously listed on Nasdaq have
                                                                                                            NYSE Arca Equities Rule 5.2(j)(3) are called               17 Linked Securities are securities that qualify for
                                                    similarly included disclosure requirements with
                                                                                                            Investment Company Units. See, e.g., Securities          Exchange listing and trading under Rule 16.110.
                                                    respect to each portfolio holding, as applicable to
                                                                                                            Exchange Act Release No. 69373 (April 15, 2013),         The securities described in Rules 16.105, 16.110,
                                                    the type of holding. See, e.g., Securities Exchange
                                                    Act Release No. 77688 (April 22, 2016), 81 FR           78 FR 23601 (April 19, 2013) (SR–NYSEArca–2012–          and 16.135(c)(6), as referenced above, would
                                                    25467 (April 28, 2016) (SR–NASDAQ–2016–030)             108) (the ‘‘NYSE Arca U.S. Equity Synthetic              include securities listed on another national
                                                    (the ‘‘Elkhorn Dorsey Wright Commodity Rotation         Reverse Convertible Index Fund Approval’’).              securities exchange pursuant to substantially
                                                                                                               14 For purposes of Rule 16.135(b)(1) and this         equivalent listing rules.
                                                    Portfolio of Elkhorn ETF Trust Approval’’),
                                                    generally. See also Securities Exchange Act Release     proposal, the term ‘‘U.S. Component Stocks’’ would         18 This proposed text is substantively identical to

                                                    No. 72666 (July 3, 2014), 79 FR 44224 (July 30,         have the same meaning as defined in Rule                 the corresponding text of Rule 16.105(b)(3)(A)(i)(b),
                                                    2014) (SR–NYSEArca–2013–122) (the ‘‘PIMCO               16.105(b)(1)(D).                                         except for the omission of the reference to ‘‘index,’’
                                                                                                               15 For purposes of Rule 16.135(b)(1) and this         which is not applicable, the substitution of a more
                                                    Total Return Use of Derivatives Approval’’),
                                                    generally and at 44227.                                 proposal, the term ‘‘Non-U.S. Component Stocks’’         narrow exclusion for ‘‘Exchange Traded Derivative
                                                                                                            would have the same meaning as defined in Rule           Securities’’ instead of for ‘‘Derivative Securities
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                                                       12 The Exchange would also add a new defined

                                                    term under Rule 16.135(c)(5) to specify that the        16.105(b)(1)(E).                                         Products,’’ and the addition of the reference to
                                                    term ‘‘normal market conditions’’ includes, but is         16 For the purposes of Rule 16.135(b)(1)(A) and       Linked Securities.
                                                    not limited to, the absence of trading halts in the     this proposal, proposed Rule 16.135(c)(6) would            19 This proposed text is substantively identical to

                                                    applicable financial markets generally; operational     define the term ‘‘Exchange Traded Derivative             the corresponding text of Rule 16.105(b)(3)(A)(i)(c),
                                                    issues (e.g., systems failure) causing dissemination    Securities’’ to mean the securities described in         except for the omission of the reference to ‘‘index,’’
                                                    of inaccurate market information; or force majeure      Rules 16.105(a) (Portfolio Depository Receipts);         which is not applicable, the substitution of a more
                                                    type events such as a natural or man-made disaster,     16.105(b) (Index Fund Shares); 16.120 (Trust Issued      narrow exclusion for ‘‘Exchange Traded Derivative
                                                    act of God, armed conflict, act of terrorism, riot or   Receipts); 16.111(d) (Commodity-Based Trust              Securities’’ instead of for ‘‘Derivative Securities
                                                    labor disruption or any similar intervening             Shares); 16.111(e) (Currency Trust Shares);              Products,’’ and the addition of the reference to
                                                    circumstance.                                           16.111(f), (Commodity Index Trust Shares);               Linked Securities.



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                                                                                Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices                                                          9861

                                                    Traded Derivative Securities and Linked                     As proposed in Rule                                      (5) Each Non-U.S. Component Stock
                                                    Securities) must not exceed 30% of the                   16.135(b)(1)(A)(ii), the component                       shall be listed and traded on an
                                                    equity weight of the portfolio, and, to                  stocks of the equity portion of a                        exchange that has last-sale reporting.28
                                                    the extent applicable, the five most                     portfolio that are Non-U.S. Component                       The Exchange notes that it is not
                                                    heavily weighted component stocks                        Stocks shall meet the following criteria                 proposing to require that any of the
                                                    (excluding Exchange Traded Derivative                    initially and on a continuing basis:                     equity portion of the equity portfolio
                                                    Securities and Linked Securities) must                      (1) Non-U.S. Component Stocks each                    composed of Non-U.S. Component
                                                    not exceed 65% of the equity weight of                   shall have a minimum market value of                     Stocks be listed on markets that are
                                                    the portfolio; 20                                        at least $100 million; 24                                either a member of the Intermarket
                                                       (4) Where the equity portion of the                      (2) Non-U.S. Component Stocks each                    Surveillance Group (‘‘ISG’’) or a market
                                                    portfolio does not include Non-U.S.                      shall have a minimum global monthly                      with which the Exchange has a
                                                    Component Stocks, the equity portion of                  trading volume of 250,000 shares, or                     comprehensive surveillance sharing
                                                    the portfolio shall include a minimum                    minimum global notional volume traded                    agreement (‘‘CSSA’’).29 However, as
                                                    of 13 component stocks; provided,                        per month of $25,000,000, averaged over                  further detailed below, the regulatory
                                                    however, that there shall be no                          the last six months; 25                                  staff of the Exchange, or the Financial
                                                    minimum number of component stocks                          (3) The most heavily weighted Non-                    Industry Regulatory Authority, Inc.
                                                    if (a) one or more series of Exchange                    U.S. Component Stock shall not exceed                    (‘‘FINRA’’), on behalf of the Exchange,
                                                    Traded Derivative Securities or Linked                   25% of the equity weight of the                          will communicate as needed regarding
                                                    Securities constitute, at least in part,                 portfolio, and, to the extent applicable,                trading in Managed Fund Shares with
                                                    components underlying a series of                        the five most heavily weighted Non-U.S.                  other markets that are members of the
                                                    Managed Fund Shares, or (b) one or                       Component Stocks shall not exceed                        ISG, including U.S. securities exchanges
                                                    more series of Exchange Traded                           60% of the equity weight of the                          on which the components are traded.
                                                    Derivative Securities or Linked                          portfolio; 26                                               The Exchange notes that the generic
                                                    Securities account for 100% of the                          (4) Where the equity portion of the                   listing standards for Index Fund Shares
                                                    equity weight of the portfolio of a series               portfolio includes Non-U.S. Component                    based on foreign indexes in Rule 16.105
                                                    of Managed Fund Shares; 21                               Stocks, the equity portion of the                        do not include specific ISG or CSSA
                                                       (5) Except as provided in proposed                    portfolio shall include a minimum of 20                  requirements.30 In addition, the
                                                    Rule 16.135(b)(1)(A), equity securities in               component stocks; provided, however,                     Commission has approved listing and
                                                    the portfolio must be U.S. Component                     that there shall be no minimum number                    trading on Nasdaq of shares of an issue
                                                    Stocks listed on a national securities                   of component stocks if (i) one or more                   of Managed Fund Shares under Nasdaq
                                                    exchange and must be NMS Stocks as                       series of Exchange Traded Derivative                     Rule 5735 (which is substantially
                                                    defined in Rule 600 of Regulation                        Securities or Linked Securities                          identical to IEX Rule 16.135) where
                                                    NMS; 22 and                                              constitute, at least in part, components                 non-U.S. equity securities in such
                                                       (6) American Depositary Receipts                      underlying a series of Managed Fund                      issue’s portfolio meet specified criteria
                                                    (‘‘ADRs’’) may be exchange-traded or                     Shares, or (ii) one or more series of                    and where there is no requirement that
                                                    non-exchange-traded. However, no more                    Exchange Traded Derivative Securities                    such non-U.S. equity securities are
                                                    than 10% of the equity weight of the                     or Linked Securities account for 100%                    traded in markets that are members of
                                                    portfolio shall consist of non-exchange-                 of the equity weight of the portfolio of                 ISG or with which Nasdaq has in place
                                                    traded ADRs.23                                           a series of Managed Fund Shares; 27 and                  a CSSA.31

                                                       20 This proposed text is substantively identical to   Securities Exchange Act Release No. 71067                Securities’’ instead of for ‘‘Derivative Securities
                                                    the corresponding text of Rule 16.105(b)(3)(A)(i)(d),    (December 12, 2013), 78 FR 76669 (December 18,           Products,’’ the addition of the reference to Linked
                                                    except for the omission of the reference to ‘‘index,’’   2013) (order approving listing and trading of shares     Securities, the reference to the equity portion of the
                                                    which is not applicable, the substitution of a more      of the SPDR MFS Systematic Core Equity ETF,              portfolio including Non-U.S. Component Stocks,
                                                    narrow exclusion for ‘‘Exchange Traded Derivative        SPDR MFS Systematic Growth Equity ETF, and               and the reference to the 100% limitation applying
                                                    Securities’’ instead of for ‘‘Derivative Securities      SPDR MFS Systematic Value Equity ETF under               to the ‘‘equity weight’’ of the portfolio, which is
                                                    Products,’’ and the addition of the reference to         NYSE Arca Equities Rule 8.600).                          included because the proposed standards in Rule
                                                    Linked Securities.                                         24 The proposed text is identical to the               16.135(b) permit the inclusion of non-equity
                                                       21 This proposed text is substantively identical to   corresponding representations from the First Trust       securities, whereas Rule 16.105 applies only to
                                                    the corresponding text of Rule 16.105(b)(3)(A)(i)(e),    Approval Order and the SSgA Global Managed               equity securities.
                                                    except for the omission of the reference to ‘‘index,’’   Volatility Release, as noted in footnote 31, below.         28 This proposed text is substantively identical to

                                                    which is not applicable, the addition of the             The proposed text is also substantively identical to     Rule 16.105(b)(3)(A)(ii)(e). as it relates to Non-U.S.
                                                    reference to Linked Securities, the substitution of a    the corresponding text of Rule 16.105(b)(3)(A)(ii)(a),   Component Stocks.
                                                    more narrow exclusion for ‘‘Exchange Traded              except for the omission of the reference to ‘‘index,’’      29 ISG is comprised of an international group of

                                                    Derivative Securities’’ instead of for ‘‘Derivative      which is not applicable, and that each Non-U.S.          exchanges, market centers, and market regulators
                                                    Securities Products,’’ and the reference to the 100%     Component Stock must have a minimum market               that perform front-line market surveillance in their
                                                    limit applying to the ‘‘equity portion’’ of the          value of at least $100 million instead of the 90%        respective jurisdictions. See www.isgportal.org. A
                                                    portfolio.                                               required under Rule 16.105(b)(3)(A)(ii)(a).              list of ISG members is available at
                                                       22 17 CFR 240.600. This proposed text is                25 The proposed text is identical to the               www.isgportal.org.
                                                    substantively identical to the corresponding text of     corresponding representations from the First Trust          30 Under Rule 16.105(b)(3), Index Fund Shares

                                                    Rule 16.105(b)(3)(A)(i)(f), except for the addition of   Approval Order and the SSgA Global Managed               with components that include Non-U.S. Component
                                                    ‘‘equity’’ to make clear that the standard applies to    Volatility Release, as noted in footnote 31, below.      Stocks can hold a portfolio that is entirely
                                                    ‘‘equity securities,’’ the exclusion of unsponsored      This proposed text also is substantively identical to    composed of Non-U.S. Component Stocks that are
                                                    ADRs, and the omission of the reference to ‘‘index,’’    the corresponding text of Rule 16.105(b)(3)(A)(ii)(b),   listed on markets that are neither members of ISG,
                                                    which is not applicable.                                 except for the omission of the reference to ‘‘index,’’   nor with which the Exchange has in place a CSSA.
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                       23 Proposed rule changes for previously-listed        which is not applicable.                                    31 See, e.g., Securities Exchange Act Release No.
                                                                                                               26 This proposed text is substantively identical to
                                                    series of Managed Fund Shares have similarly                                                                      77548 (April 6, 2016), 81 FR 21626 (April 12, 2016)
                                                    included the ability for such Managed Fund               the corresponding text of Rule 16.105(b)(3)(A)(ii)(c),   (SR–NASDAQ–2015–161) (order approving listing
                                                    Shareholdings to include not more than 10% of net        except for the omission of the reference to ‘‘index,’’   and trading of the Shares of the First Trust
                                                    assets in unsponsored ADRs (which are not                which is not applicable.                                 RiverFront Dynamic Europe ETF, First Trust
                                                    exchange listed). See, e.g., Securities Exchange Act       27 This proposed text is substantively identical to    RiverFront Dynamic Asia Pacific ETF, First Trust
                                                    Release No. 73480 (October 31, 2014), 79 FR 66022        the corresponding text of Rule 16.105(b)(3)(A)(ii)(d),   RiverFront Dynamic Emerging Markets ETF, and
                                                    (November 6, 2014) (SR–NASDAQ–2014–090)                  except for the omission of the reference to ‘‘index,’’   First Trust RiverFront Dynamic Developed
                                                    (order approving the Listing and Trading of Shares       which is not applicable, the substitution of a more      International ETF of First Trust Exchange-Traded
                                                    of the Validea Market Legends ETFs). See also            narrow exclusion for ‘‘Exchange Traded Derivative                                                    Continued




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                                                    9862                        Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices

                                                       Proposed Rule 16.135(b)(1)(B) would                   no minimum number of non-affiliated                      instruments with maturities of less than
                                                    describe the standards for a Managed                     issuers required for fixed income                        3 months. There would be no limitation
                                                    Fund Share portfolio that holds fixed                    securities if at least 70% of the weight                 on the percentage of the portfolio
                                                    income securities, which are debt                        of the portfolio consists of equity                      invested in such holdings. Short-term
                                                    securities 32 that are notes, bonds,                     securities as described in proposed Rule                 instruments would include the
                                                    debentures, or evidence of indebtedness                  16.135(b)(1)(A); 35                                      following: 39
                                                    that include, but are not limited to, U.S.                  (4) Component securities that in                         (1) U.S. Government securities,
                                                    Department of Treasury securities                        aggregate account for at least 90% of the                including bills, notes, and bonds
                                                    (‘‘Treasury Securities’’), government-                   fixed income weight of the portfolio                     differing as to maturity and rates of
                                                    sponsored entity securities (‘‘GSE                       must be either (a) from issuers that are                 interest, which are either issued or
                                                    Securities’’), municipal securities, trust               required to file reports pursuant to                     guaranteed by the U.S. Treasury or by
                                                    preferred securities, supranational debt                 Sections 13 and 15(d) of the Act; (b)                    U.S. Government agencies or
                                                    and debt of a foreign country or a                       from issuers that have a worldwide                       instrumentalities;
                                                    subdivision thereof, investment grade                    market value of outstanding common                          (2) certificates of deposit issued
                                                    and high yield corporate debt, bank                      equity held by non-affiliates of $700                    against funds deposited in a bank or
                                                    loans, mortgage and asset backed                         million or more; (c) from issuers that                   savings and loan association;
                                                    securities, and commercial paper.                        have outstanding securities that are                        (3) bankers’ acceptances, which are
                                                       In addition, to the extent that a                     notes, bonds, debentures, or evidence of                 short-term credit instruments used to
                                                    portfolio includes convertible securities,               indebtedness having a total remaining                    finance commercial transactions;
                                                    the fixed income security into which                     principal amount of at least $1 billion; 36                 (4) repurchase agreements and reverse
                                                    such security is converted would be                      (d) exempted securities as defined in                    repurchase agreements;
                                                    required to meet the criteria of Rule                    Section 3(a)(12) of the Act; or (e) from                    (5) bank time deposits, which are
                                                    16.135(b)(1)(B) after converting.                        issuers that are a government of a                       monies kept on deposit with banks or
                                                       The components of the fixed income                    foreign country or a political                           savings and loan associations for a
                                                    portion of the portfolio must meet the                   subdivision of a foreign country; and                    stated period of time at a fixed rate of
                                                    following criteria initially and on a                       (5) Non-agency, non-GSE, and                          interest;
                                                    continuing basis:                                        privately-issued mortgage-related and                       (6) commercial paper, which are
                                                       (1) Components that in the aggregate                  other asset backed securities                            short-term unsecured promissory notes;
                                                    account for at least 75% of the fixed                    components of a portfolio shall not                      and
                                                    income weight of the portfolio each                      account, in the aggregate, for more than                    (7) money market funds.
                                                    shall have a minimum original principal                  20% of the weight of the fixed income                       Proposed Rule 16.135(b)(1)(D) would
                                                    amount outstanding of $100 million or                    portion of the portfolio.37                              describe the standards for a Managed
                                                    more; 33                                                    Proposed Rule 16.135(b)(1)(C) would
                                                       (2) No component fixed-income                                                                                  Fund Share portfolio that holds listed
                                                                                                             describe the standards for a Managed
                                                    security (excluding Treasury Securities                                                                           derivatives, including futures, options,
                                                                                                             Fund Share portfolio that holds cash
                                                    and GSE Securities could represent                       and cash equivalents.38 Specifically, the                and swaps on commodities, currencies,
                                                    more than 30% of the fixed income                        portfolio may hold short-term                            and financial instruments (e.g., stocks,
                                                    weight of the portfolio; and the five                                                                             fixed income, interest rates, and
                                                    most heavily weighted component fixed                       35 This proposed text is substantively identical to   volatility) or a basket or index of any of
                                                    income securities in the portfolio                       the corresponding text of Rule 16.105(b)(4)(A)(v),       the foregoing.40 There would be no
                                                    (excluding Treasury Securities and GSE
                                                                                                             except for the omission of the reference to ‘‘index,’’   limitation on the percentage of the
                                                                                                             which is not applicable, the exclusion of the text       portfolio invested in such holdings,
                                                    Securities) must not in the aggregate                    ‘‘consisting entirely of exempted securities’’ and the
                                                    account for more than 65% of the fixed                   provision that there shall be no minimum number          subject to the following requirements:
                                                    income weight of the portfolio; 34                       of nonaffiliated issuers required for fixed income          (1) In the aggregate, at least 90% of
                                                       (3) An underlying portfolio (excluding                securities if at least 70% of the weight of the          the weight of such holdings invested in
                                                                                                             portfolio consists of equity securities as described     futures, exchange-traded options, and
                                                    exempted securities) that includes fixed                 in proposed Rule 16.135(b)(1)(A).
                                                    income securities must include a                            36 With respect to subparagraphs (b) and (c)          listed swaps shall, on both an initial and
                                                    minimum of 13 non-affiliated issuers;                    above, the special purpose vehicle (‘‘SPV’’) that        continuing basis, consist of futures,
                                                    provided, however, that there shall be                   issues the fixed income security (e.g., an asset-        options, and swaps for which the
                                                                                                             backed or mortgage backed security) would itself be      Exchange may obtain information via
                                                                                                             required to satisfy the $700 million and $1 billion
                                                    Fund III) (the ‘‘First Trust Approval Order’’). See      criteria, respectively, and not the entity that
                                                                                                                                                                      the ISG from other members or affiliates
                                                    also Securities Exchange Act Release No. 75023           controls, owns or is affiliated with the SPV.            of the ISG or for which the principal
                                                    (May 21, 2015), 80 FR 30519 (May 28, 2015) (SR–             37 Proposed rule changes for previously-listed        market is a market with which the
                                                    NYSEArca–2014–100) (order approving listing and          series of Managed Fund Shares have similarly             Exchange has a comprehensive
                                                    trading on the Exchange of shares of the SPDR SSgA       included the ability for such Managed Fund Share
                                                    Global Managed Volatility ETF under NYSE Arca                                                                     surveillance sharing agreement (for
                                                                                                             holdings to include up to 20% of net assets in non-
                                                    Equities Rule 8.600) (‘‘SSgA Global Managed              agency, non-GSE and privately-issued mortgage            purposes of calculating this limitation, a
                                                    Volatility Release’’).                                   related and other asset-backed securities. See, e.g.,    portfolio’s investment in listed
                                                       32 Debt securities include a variety of fixed
                                                                                                             Securities Exchange Act Release No. 74742 (April         derivatives will be calculated as the
                                                    income obligations, including, but not limited to,       16, 2015) 80 FR 22584 (April 22, 2015) (SR–
                                                    corporate debt securities, government securities,
                                                                                                                                                                      aggregate gross notional value of the
                                                                                                             NASDAQ–2015–011) (order approving the listing
                                                    municipal securities, convertible securities, and        and trading of shares of the First Trust Strategic       listed derivatives); and
                                                    mortgage-backed securities. Debt securities include      Floating Rate ETF of First Trust Exchange-Traded
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                    investment-grade securities, non-investment-grade        Fund IV. See also, Securities Exchange Act Release         39 Proposed rule changes for previously-listed
                                                    securities, and unrated securities. Debt securities      No. 75566 (July 30, 2015), 80 FR 46612 (August 5,        series of Managed Fund Shares have similarly
                                                    also include variable and floating rate securities.      2015) (SR–NYSEArca–2015–42) (order approving             specified short-term instruments with respect to
                                                       33 This text of proposed Rule 16.135(b)(1)(B)(i) is   listing and trading of shares of Newfleet Multi-         their inclusion in Managed Fund Share holdings.
                                                    based on the corresponding text of Rule                  Sector Unconstrained Bond ETF under Rule 8.600).         See, e.g., note 13 supra.
                                                    16.105(b)(4)(A)(ii).                                        38 Proposed rule changes for previously-listed          40 Proposed rule changes for previously-listed
                                                       34 This proposed text is substantively identical to   series of Managed Fund Shares have similarly             series of Managed Fund Shares have similarly
                                                    the corresponding text of 16.105(b)(4)(A)(iv), except    included the ability for such Managed Fund Share         included the ability for such Managed Fund Share
                                                    for the omission of the reference to ‘‘index,’’ which    holdings to include cash and cash equivalents. See,      holdings to include listed derivatives. See, e.g., note
                                                    is not applicable.                                       e.g., note 13 supra.                                     13 supra.



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                                                                               Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices                                            9863

                                                       (2) the aggregate gross notional value               weight in non-agency MBS and the 10%                  traded on an ISG member exchange. The
                                                    of listed derivatives based on any five or              weight in the non-agency MBS Index                    total exposure to company XYZ is
                                                    fewer underlying reference assets shall                 OTC swap are combined, as required by                 therefore $70 million and represents
                                                    not exceed 65% of the weight of the                     proposed 16.135(b)(1)(F), the 25% total               46.7% ($70 million/$150
                                                    portfolio (including gross notional                     weight would exceed the 20% limit for                 million=46.7%) of the portfolio. This
                                                    exposures), and the aggregate gross                     non-agency GSE and privately-issued                   fund would not meet the requirements
                                                    notional value of listed derivatives                    mortgage-related securities in Rule                   of Rule 16.135 because the exposure to
                                                    based on any single underlying                          16.135(b)(1)(B)(v). The portfolio,                    XYZ at 46.7% exceeds the 30%
                                                    reference asset shall not exceed 30% of                 therefore, would not meet the proposed                concentration limitation of proposed
                                                    the weight of the portfolio (including                  generic criteria of Rule 16.135.                      Rule 16.135(b)(1)(D)(ii).
                                                    gross notional exposures).                                2. An actively managed ETF holds a                     The Exchange believes that the
                                                       Proposed Rule 16.135(b)(1)(E) would                  portfolio of non-U.S. equity securities,              proposed standards would ensure
                                                    describe the standards for a Managed                    S&P 500 Index and gold futures. S&P                   transparency surrounding the listing
                                                    Fund Share portfolio that holds over the                500 Index futures and the gold futures                process for Managed Fund Shares.
                                                    counter (‘‘OTC’’) derivatives, including                held by the fund are listed on an ISG                 Additionally, the Exchange believes that
                                                    forwards, options and swaps on                          member exchange. The equity portion of                the proposed portfolio standards for
                                                    commodities, currencies and financial                   the portfolio consists of developed and               listing and trading Managed Fund
                                                    instruments (e.g., stocks, fixed income,                emerging markets equity securities with               Shares, many of which track existing
                                                    interest rates, and volatility) or a basket             a current aggregate market value of $15               Exchange rules relating to Index Fund
                                                    or index of any of the foregoing.41                     million and all components meet the                   Shares, are reasonably designed to
                                                    Proposed Rule 16.135(b)(1)(E) would                     requirements under Rule                               promote a fair and orderly market for
                                                    provide that, on both an initial and                    16.135(b)(1)(A)(ii). The gold futures                 such Managed Fund Shares. These
                                                    continuing basis, no more than 20% of                   contract trading unit size is 100 troy                proposed standards would also work in
                                                    the assets in the portfolio may be                      ounces and an ounce of gold is currently              conjunction with the existing initial and
                                                    invested in OTC derivatives. For                        worth $1200. The fund holds 500 gold                  continued listing criteria related to
                                                    purposes of calculating this limitation, a              futures contracts with a notional value               surveillance procedures and trading
                                                    portfolio’s investment in OTC                           of $60 million (500*100*$1200). One                   guidelines.
                                                    derivatives will be calculated as the                   S&P 500 contract represents 250 units of                 In support of this proposal, the
                                                    aggregate gross notional value of the                   the S&P 500 Index and the S&P 500                     Exchange represents that:
                                                    OTC derivatives.                                        Index is trading at $2,000. The portfolio                1. Any Managed Fund Shares listed
                                                       Proposed Rule 16.135(b)(1)(F) would                  holds 50 contracts, so the notional value             and traded on IEX will conform to the
                                                    provide that, to the extent that listed or              of the S&P 500 Index futures position is              initial and continued listing criteria
                                                    OTC derivatives are used to gain                        $25 million (50*250*$2000). The S&P                   under Rule 16.135;
                                                    exposure to individual equities and/or                  500 Index futures meet the requirement                   2. the Exchange’s surveillance
                                                    fixed income securities, or to indexes of               under Rule 16.135(b)(1)(F), that is, the              procedures are adequate to continue to
                                                    equities and/or fixed income securities,                S&P 500 Index meets the criteria in Rule              properly monitor the trading of the
                                                    the aggregate gross notional value of                   16.135(b)(1)(A). The weights of the                   Managed Fund Shares in all trading
                                                    such exposure shall meet the criteria set               components are as follows; equity                     sessions and to deter and detect
                                                    forth in Rules 16.135(b)(1)(A) and (B)                  securities represent 15% of the                       violations of Exchange rules.
                                                    (including gross notional exposures),                   portfolio, gold futures represent 60% of              Specifically, the Exchange intends to
                                                    respectively.                                           the portfolio and S&P 500 Index futures               utilize its existing surveillance
                                                       The following examples illustrate                    represent 25% of the portfolio. The gold              procedures applicable to derivative
                                                    how certain of the proposed generic                     futures represent 60% of the portfolio                products, which will include Managed
                                                    criteria of Rule 16.135 would be                        and exceeds the 30% concentration                     Fund Shares, to monitor trading in the
                                                    applied:                                                limitation on any single underlying                   Managed Fund Shares;
                                                       1. An actively managed ETF holds                     reference asset as outlined in proposed                  3. prior to the commencement of
                                                    non-agency MBS that represent 15% of                    Rule 16.135(b)(1)(D)(ii). The portfolio,              trading of a particular series of Managed
                                                    the weight of the fixed income portion                  therefore, would not meet the proposed                Fund Shares, the Exchange will inform
                                                    of the portfolio. The fixed income                      generic criteria of Rule 16.135.                      its members in an information circular
                                                    portion of the portfolio meets all the                    3. An actively managed ETF holds a                  (‘‘Circular’’) of the special
                                                    requirements of Rule 16.135(b)(1)(B).                   portfolio of equity securities and call               characteristics and risks associated with
                                                    The ETF also holds an OTC swap on a                     option contracts on company XYZ. The                  trading the Managed Fund Shares,
                                                    non-agency MBS Index that represents                    equity portion of the portfolio meets the             including procedures for purchases and
                                                    10% of the fixed income weight of the                   requirements under Rule                               redemptions of Managed Fund Shares,
                                                    portfolio calculated on a notional value                16.135(b)(1)(A). Company XYZ                          suitability requirements under Rules
                                                    basis. Separately, the OTC swap and                     represents 20% of the weight of the                   3.150 and 3.170, the risks involved in
                                                    fixed income portion of the portfolio                   equity portion of the portfolio. The                  trading the Managed Fund Shares
                                                    would meet the requirements of Rule                     equity portion of the fund has a market               during the Pre-Market and Post-Market
                                                    16.135(b)(1). However, when the 15%                     value of $100 million and the market                  Sessions when an updated Intraday
                                                                                                            value of the fund’s holdings in company               Indicative Value will not be calculated
                                                                                                            XYZ has a market value of $20 million.                or publicly disseminated, information
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                      41 A proposed rule change for series of Index

                                                    Fund Shares previously listed and traded on             The fund also holds 10,000 call option                regarding the Intraday Indicative Value
                                                    Nasdaq pursuant to Nasdaq Rule 5705 similarly
                                                    included the ability for such Index Fund Shares’
                                                                                                            contracts on company XYZ which has a                  and the Disclosed Portfolio, prospectus
                                                    holdings to include OTC derivatives, specifically       current market price of $50 a share and,              delivery requirements, and other trading
                                                    OTC down-and-in put options, which are not NMS          therefore, a notional value of $50                    information. In addition, the Circular
                                                    Stocks as defined in Rule 600 of Regulation NMS         million (50*100*10,000) (that is, the $50             will disclose that the Managed Fund
                                                    and therefore did not satisfy the requirements of
                                                    Nasdaq Rule 5705. See, e.g., note 13 supra,
                                                                                                            market price per share times the                      Shares are subject to various fees and
                                                    regarding NYSE Arca U.S. Equity Synthetic Reverse       multiplier of 100 times 10,000                        expenses, as described in the applicable
                                                    Convertible Index Fund Approval.                        contracts). The option contracts are                  registration statement, and will discuss


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                                                    9864                          Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices

                                                    any exemptive, no-action, and                              objectives of Section 6(b)(5) of the Act,43           currently govern the trading of equity
                                                    interpretive relief granted by the                         in particular, in that it is designed to              securities on the Exchange.
                                                    Commission from any rules under the                        prevent fraudulent and manipulative                      The Exchange believes that the
                                                    Act. Finally, the Circular will disclose                   acts and practices, to promote just and               proposed rule change is designed to
                                                    that the net asset value for the Managed                   equitable principles of trade, to foster              prevent fraudulent and manipulative
                                                    Fund Shares will be calculated after 4                     cooperation and coordination with                     acts and practices because the Managed
                                                    p.m., ET, each trading day; and                            persons engaged in facilitating                       Fund Shares will be listed and traded
                                                       4. the issuer of a series of Managed                    transactions in securities, to remove                 on the Exchange pursuant to the initial
                                                    Fund Shares will be required to comply                     impediments to and perfect the                        and continued listing criteria in Rule
                                                    with Rule 10A–3 under the Act for the                      mechanism of a free and open market                   16.135. The Exchange has in place
                                                    initial and continued listing of Managed                   and a national market system and, in                  surveillance procedures that are
                                                    Fund Shares, as provided under the IEX                     general, to protect investors and the                 adequate to properly monitor trading in
                                                    Rule Series 14.400.                                        public interest.                                      the Managed Fund Shares in all trading
                                                       The Exchange, on a periodic basis and                                                                         sessions and to deter and detect
                                                                                                                  The Exchange believes that the
                                                    no less than annually, will review issues                                                                        violations of Exchange rules and
                                                                                                               proposed change to adopt generic listing
                                                    of Managed Fund Shares generically                                                                               applicable federal securities laws.
                                                                                                               standards for Managed Fund Shares is
                                                    listed pursuant to Rule 16.135, and will                                                                         FINRA, on behalf of the Exchange, or
                                                                                                               designed to perfect the mechanism of a
                                                    provide a report to the Regulatory                                                                               the regulatory staff of the Exchange, will
                                                                                                               free and open market and, in general, to
                                                    Oversight Committee of the Exchange’s                                                                            communicate as needed regarding
                                                                                                               protect investors and the public interest             trading in Managed Fund Shares with
                                                    Board of Directors regarding the                           because it would facilitate the potential
                                                    Exchange’s findings. In addition, the                                                                            other markets that are members of the
                                                                                                               listing and trading of Managed Fund                   ISG, including all U.S. securities
                                                    Exchange will provide the Commission                       Shares on the Exchange, which would
                                                    staff with a report each calendar quarter                                                                        exchanges and futures exchanges on
                                                                                                               enhance competition among market                      which the components are traded.
                                                    that includes the following information                    participants, to the benefit of investors                In addition, the Exchange may obtain
                                                    for issues of Managed Fund Shares                          and the marketplace. The proposed                     information regarding trading in
                                                    listed during such calendar quarter                        change would codify in Rule 16.135                    Managed Fund Shares from other
                                                    under Rule 16.135(b)(1): (1) Trading                       specified criteria that have been the                 markets that are members of the ISG,
                                                    symbol and date of listing on the                          basis for proposed rule filings by                    including all U.S. securities exchanges
                                                    Exchange; (2) the number of active                         Nasdaq and NYSE Arca with the                         and futures exchanges on which the
                                                    authorized participants and a                              Commission for the listing and trading                components are traded, or with which
                                                    description of any failure of an issue of                  of each new series of Managed Fund                    the Exchange has in place a CSSA.
                                                    Managed Fund Shares or of an                               Shares. The Exchange believes that such                  The Exchange also believes that the
                                                    authorized participant to deliver shares,                  codification is appropriate in that it                proposed rule change would fulfill the
                                                    cash, or cash and financial instruments                    would facilitate the listing and trading              intended objective of Rule 19b–4(e)
                                                    in connection with creation or                             of additional types of Managed Fund                   under the Act by allowing Managed
                                                    redemption orders; and (3) a description                   Shares that have investment portfolios                Fund Shares that satisfy the proposed
                                                    of any failure of an issue of Managed                      that are similar to investment portfolios             listing standards to be listed and traded
                                                    Fund Shares to comply with Rule                            for Index Fund Shares, which have been                without separate Commission approval.
                                                    16.135.                                                    approved for listing and trading, thereby             However, as proposed, the Exchange
                                                       Prior to listing pursuant to proposed                   creating greater efficiencies in the listing          would continue to file separate
                                                    amended Rule 16.135(b)(1), an issuer                       process for the Exchange and the                      proposed rule changes before the listing
                                                    would be required to represent to the                      Commission should the Exchange seek                   and trading of Managed Fund Shares
                                                    Exchange that it will advise the                           to list Managed Fund Shares. Moreover,                that do not satisfy the additional criteria
                                                    Exchange of any failure by a series of                     the proposed generic standards for                    described above.
                                                    Managed Fund Shares to comply with                         Managed Fund Shares are substantially                    The Exchange, on a periodic basis and
                                                    the continued listing requirements, and,                   identical to those that the Commission                no less than annually, will review issues
                                                    pursuant to its obligations under                          approved for Nasdaq, finding that such                of Managed Fund Shares listed pursuant
                                                    Section 19(g)(1) of the Act, the Exchange                  standards are consistent with the                     to Rule 16.135(b)(1), and will provide a
                                                    will monitor for compliance with the                       Section 6(b)(5) of the Act, noting that               report to the Regulatory Oversight
                                                    continued listing requirements. If the                     Nasdaq’s proposal in turn was                         Committee of the Exchange’s Board of
                                                    Fund is not in compliance with the                         substantially identical to proposals the              Directors regarding the Exchange’s
                                                    applicable listing requirements, the                       Commission had recently approved for                  findings. In addition, the Exchange will
                                                    Exchange will commence delisting                           NYSE Arca and Bats BZX Exchange                       provide the Commission staff with a
                                                    procedures under IEX Rule Series                           (previously BATS Exchange).44                         report each calendar quarter that
                                                    14.500.                                                                                                          includes the following information for
                                                                                                                  The Exchange further believes that the
                                                       The Exchange notes that the proposed                    proposed rule change is designed to                   issues of Managed Fund Shares listed
                                                    change is not otherwise intended to                        protect investors and the public interest             during such calendar quarter under Rule
                                                    address any other issues and that the                      because Managed Fund Shares listed                    16.135(b)(1): (1) Trading symbol and
                                                    Exchange is not aware of any problems                      and traded pursuant to Rule 16.135,                   date of listing on the Exchange; (2) the
                                                    that members or issuers would have in                                                                            number of active authorized
asabaliauskas on DSK3SPTVN1PROD with NOTICES




                                                                                                               including pursuant to the proposed new
                                                    complying with the proposed change.                        portfolio standards, would continue to                participants and a description of any
                                                                                                               be subject to the full panoply of                     failure of an issue of Managed Fund
                                                    2. Statutory Basis
                                                                                                               Exchange rules and procedures that                    Shares listed pursuant to Rule
                                                      IEX believes that the proposed rule                                                                            16.135(b)(1) or of an authorized
                                                    change is consistent with Section 6(b) 42                    43 15
                                                                                                                                                                     participant to deliver shares, cash, or
                                                                                                                      U.S.C. 78f(b)(5).
                                                    of the Act in general, and furthers the                      44 See,                                             cash and financial instruments in
                                                                                                                        Securities Exchange Act Release No. 78918
                                                                                                               (September 23, 2016), 81 FR 67033 (September 29,      connection with creation or redemption
                                                      42 15   U.S.C. 78f(b).                                   2016) (SR–NASDAQ–2016–104).                           orders; and (3) a description of any


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                                                                               Federal Register / Vol. 82, No. 25 / Wednesday, February 8, 2017 / Notices                                                  9865

                                                    failure of an issue of Managed Fund                       B. institute proceedings to determine                 For the Commission, by the Division of
                                                    Shares to comply with Rule 16.135.                      whether the proposed rule change                      Trading and Markets, pursuant to delegated
                                                                                                            should be disapproved.                                authority.45
                                                       Prior to listing pursuant to proposed
                                                                                                                                                                  Robert W. Errett,
                                                    amended Rule 16.136(b)(1), an issuer                    IV. Solicitation of Comments
                                                    would be required to represent to the                                                                         Deputy Secretary.
                                                    Exchange that it will advise the                                                                              [FR Doc. 2017–02544 Filed 2–7–17; 8:45 am]
                                                                                                              Interested persons are invited to
                                                    Exchange of any failure by a series of                  submit written data, views and                        BILLING CODE 8011–01–P
                                                    Managed Fund Shares to comply with                      arguments concerning the foregoing,
                                                    the continued listing requirements, and,                including whether the proposed rule
                                                    pursuant to its obligations under                                                                             SECURITIES AND EXCHANGE
                                                                                                            change is consistent with the Act.
                                                    Section 19(g)(1) of the Act, the Exchange                                                                     COMMISSION
                                                                                                            Comments may be submitted by any of
                                                    will monitor for compliance with the                    the following methods:                                [Release No. 34–79947; File No. SR–
                                                    continued listing requirements. If the                                                                        PEARL–2017–03]
                                                    Fund is not in compliance with the                      Electronic Comments
                                                    applicable listing requirements, the                                                                          Self-Regulatory Organizations; MIAX
                                                    Exchange will commence delisting                          • Use the Commission’s Internet                     PEARL, LLC; Notice of Filing and
                                                    procedures under IEX Rule Series                        comment form (http://www.sec.gov/                     Immediate Effectiveness of a Proposed
                                                    14.500.                                                 rules/sro.shtml); or                                  Rule Change To Amend MIAX PEARL
                                                       Accordingly, based on the foregoing,                   • Send an email to rule-comments@                   Rules 100, 404, 519C and Adopt MIAX
                                                    the Exchange believes that the proposed                 sec.gov. Please include File Number SR–               PEARL 1018
                                                    generic listing standards for Managed                   IEX–2017–03 in the subject line.                      February 2, 2017.
                                                    Fund Shares are consistent with Section                 Paper Comments:                                          Pursuant to the provisions of Section
                                                    6(b)(5) of the Act.                                                                                           19(b)(1) of the Securities Exchange Act
                                                    B. Self-Regulatory Organization’s                         • Send paper comments in triplicate                 of 1934 (‘‘Act’’) 1 and Rule 19b–4
                                                    Statement on Burden on Competition                      to Secretary, Securities and Exchange                 thereunder,2 notice is hereby given that
                                                                                                            Commission, 100 F Street NE.,                         on January 24, 2017, MIAX PEARL, LLC
                                                       IEX does not believe that the                        Washington, DC 20549–1090.                            (‘‘MIAX PEARL’’ or ‘‘Exchange’’) filed
                                                    proposed rule change will result in any                                                                       with the Securities and Exchange
                                                    burden on competition that is not                       All submissions should refer to File
                                                                                                                                                                  Commission (‘‘Commission’’) a
                                                    necessary or appropriate in furtherance                 Number SR–IEX–2017–03. This file
                                                                                                                                                                  proposed rule change as described in
                                                    of the purposes of the Act.                             number should be included in the
                                                                                                                                                                  Items I and II below, which Items have
                                                                                                            subject line if email is used. To help the
                                                       The Exchange believes that the                                                                             been prepared by the Exchange. The
                                                                                                            Commission process and review your                    Commission is publishing this notice to
                                                    proposed change would facilitate the
                                                    listing and trading of additional types of              comments more efficiently, please use                 solicit comments on the proposed rule
                                                    Managed Fund Shares and result in a                     only one method. The Commission will                  change from interested persons.
                                                    significantly more efficient process for                post all comments on the Commission’s
                                                                                                            Internet Web site (http://www.sec.gov/                I. Self-Regulatory Organization’s
                                                    the listing and trading of Managed Fund
                                                                                                            rules/sro.shtml). Copies of the                       Statement of the Terms of Substance of
                                                    Shares, thereby enhancing competition
                                                                                                            submission, all subsequent                            the Proposed Rule Change
                                                    among market participants, including
                                                    issuers and exchanges. Further, the                     amendments, all written statements                       The Exchange is filing a proposal to
                                                    Exchange believes that applying                         with respect to the proposed rule                     amend MIAX PEARL Rules 100, 404,
                                                    uniform and transparent listing                         change that are filed with the                        519C, and to adopt new MIAX PEARL
                                                    standards would make the process for                    Commission, and all written                           Rule 1018, in order to bring MIAX
                                                    listing Managed Fund Shares more                        communications relating to the                        PEARL Rules up to date with recent
                                                    competitive.                                            proposed rule change between the                      changes that have been made to the
                                                                                                            Commission and any person, other than                 rules of the Exchange’s affiliate, Miami
                                                    C. Self-Regulatory Organization’s                       those that may be withheld from the                   International Securities Exchange, LLC
                                                    Statement on Comments on the                            public in accordance with the                         (‘‘MIAX Options’’).
                                                    Proposed Rule Change Received From                      provisions of 5 U.S.C. 552, will be                      The text of the proposed rule change
                                                    Members, Participants, or Others                        available for Web site viewing and                    is available on the Exchange’s Web site
                                                      Written comments were neither                         printing in the Commission’s Public                   at http://www.miaxoptions.com/rule-
                                                    solicited nor received.                                 Reference Room, 100 F Street NE.,                     filings/pearl at MIAX PEARL’s principal
                                                                                                            Washington, DC 20549, on official                     office, and at the Commission’s Public
                                                    III. Date of Effectiveness of the                       business days between the hours of                    Reference Room.
                                                    Proposed Rule Change and Timing for                     10:00 a.m. and 3:00 p.m. Copies of the
                                                    Commission Action                                                                                             II. Self-Regulatory Organization’s
                                                                                                            filing will also be available for                     Statement of the Purpose of, and
                                                      Within 45 days of the date of                         inspection and copying at the principal               Statutory Basis for, the Proposed Rule
                                                    publication of this notice in the Federal               office of the Exchange. All comments                  Change
                                                    Register or within such longer period                   received will be posted without change;
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                                                                                                            the Commission does not edit personal                   In its filing with the Commission, the
                                                    up to 90 days (i) as the Commission may
                                                                                                            identifying information from                          Exchange included statements
                                                    designate if it finds such longer period
                                                                                                            submissions. You should submit only                   concerning the purpose of and basis for
                                                    to be appropriate and publishes its
                                                                                                                                                                  the proposed rule change and discussed
                                                    reasons for so finding or (ii) as to which              information that you wish to make
                                                                                                                                                                  any comments it received on the
                                                    the self-regulatory organization                        available publicly. All submissions
                                                    consents, the Commission will:                          should refer to File Number SR–IEX–                     45 17 CFR 200.30–3(a)(12).
                                                      A. By order approve or disapprove                     2017–03 and should be submitted on or                   1 15 U.S.C. 78s(b)(1).
                                                    such proposed rule change; or                           before March 1, 2017.                                   2 17 CFR 240.19b-4.




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Document Created: 2017-02-08 02:59:30
Document Modified: 2017-02-08 02:59:30
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionNotices
FR Citation82 FR 9858 

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