83 FR 38753 - Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend Commentary .01 to NYSE Arca Rule 8.600-E Relating to Certain Generic Listing Standards for Managed Fund Shares
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 83, Issue 152 (August 7, 2018)
Federal Register Volume 83, Issue 152 (August 7, 2018)
| Page Range | 38753-38757 | |
| FR Document | 2018-16803 |
[Federal Register Volume 83, Number 152 (Tuesday, August 7, 2018)] [Notices] [Pages 38753-38757] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-16803] [[Page 38753]] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-83759; File No. SR-NYSEArca-2018-54] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend Commentary .01 to NYSE Arca Rule 8.600-E Relating to Certain Generic Listing Standards for Managed Fund Shares August 1, 2018. Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, on July 18, 2018, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') filed with the Securities and Exchange Commission (``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. --------------------------------------------------------------------------- \1\ 15 U.S.C. 78s(b)(1). \2\ 15 U.S.C. 78a. \3\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Commentary .01 to NYSE Arca Rule 8.600-E relating to certain generic listing standards for Managed Fund Shares. The proposed change is available on the Exchange's website at www.nyse.com, at the principal office of the Exchange, and at the Commission's Public Reference Room. II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization's Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change 1. Purpose Commentary .01 to NYSE Arca Rule 8.600-E sets forth generic listing standards for listing and trading of Managed Fund Shares on the Exchange.\4\ The Exchange proposes to amend certain provisions in Commentary .01, as described below.\5\ --------------------------------------------------------------------------- \4\ A Managed Fund Share is a security that represents an interest in an investment company registered under the Investment Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized as an open-end investment company or similar entity that invests in a portfolio of securities selected by its investment adviser consistent with its investment objectives and policies. In contrast, an open-end investment company that issues Investment Company Units, listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3), seeks to provide investment results that correspond generally to the price and yield performance of a specific foreign or domestic stock index, fixed income securities index or combination thereof. \5\ The Commission approved the generic listing standards in Commentary .01 to NYSE Arca Rule 8.600-E in Securities Exchange Act Release No. 78397 (July 22, 2016), 81 FR 49320 (July 27, 2016) (SR- NYSEArca-2015-110) (Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 7 Thereto, Amending NYSE Arca Equities Rule 8.600 to Adopt Generic Listing Standards for Managed Fund Shares) (``Approval Order''). --------------------------------------------------------------------------- Proposed Amendments to Commentary .01(a) to Rule 8.600-E Commentary .01(a) to NYSE Arca Rule 8.600-E sets forth generic standards applicable to equity securities included in the portfolio of a series of Managed Fund Shares.\6\ Commentary .01(a)(2) (``Non-U.S. Component Stocks'') sets forth criteria to be met initially and on a continuing basis by component stocks of the equity portion of a portfolio that are Non-U.S. Component Stocks.\7\ --------------------------------------------------------------------------- \6\ For purposes of Commentary .01(a) to Rule 8.600-E, equity securities include the following: U.S. Component Stocks (as described in Rule 5.2-E(j)(3)); Non-U.S. Component Stocks (as described in Rule 5.2-E(j)(3)); Derivative Securities Products (i.e., Investment Company Units and securities described in Section 2 of Rule 8-E); and Index-Linked Securities that qualify for Exchange listing and trading under Rule 5.2-E(j)(6). \7\ NYSE Arca Rule 5.2-E(j)(3) provides that the term ``Non-US Component Stock'' shall mean an equity security that is not registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934 and that is issued by an entity that (a) is not organized, domiciled or incorporated in the United States, and (b) is an operating company (including Real Estate Investment Trusts (REITS) and income trusts, but excluding investment trusts, unit trusts, mutual funds, and derivatives). --------------------------------------------------------------------------- Commentary .01(a)(2)(A) provides that Non-U.S. Component Stocks each shall have a minimum market value of at least $100 million. Commentary .01(a)(2)(B) provides that 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. The Exchange proposes to amend Commentary .01(a)(2)(A) to provide that Non-U.S. Component Stocks that in the aggregate account for at least 90% of the weight of the Non-U.S. Component Stocks of the equity portion of a portfolio each shall have a minimum market value of at least $100 million. In addition, the Exchange proposes to amend Commentary .01(a)(2)(B) to provide that Non-U.S. Component Stocks that in the aggregate account for at least 70% of the weight of the Non-U.S. Component Stocks of the equity portion of a portfolio 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. The proposed amendments are comparable to the current numerical requirements in Commentary .01(a)(B)(1) and Commentary .01(a)(B)(2) to NYSE Arca Rule 5.2-E(j)(3) applicable to component stocks in an index or portfolio underlying Investment Company Units. The Exchange notes that, in originally approving the generic listing criteria in Commentary .01(a)(B) to NYSE Arca Rule 5.2-E(j)(3) applicable to indexes that include only non-U.S. Component Stocks or both U.S. and Non-U.S. Component Stocks in an index or portfolio underlying a series of Investment Company Units, the Commission stated that ``[t]hese requirements are designed, among other things, to require that components of an index or portfolio underlying an ETF are adequately capitalized and sufficiently liquid, and that no one stock dominates the index.'' \8\ --------------------------------------------------------------------------- \8\ See Securities Exchange Act Release No. 55621 (April 12, 2007), 72 FR 19571 (April 18, 2007) (SR-NYSEArca-2006-86) (Notice of Filing of Proposed Rule Change and Amendments No. 1, 2, 3, and 4 Thereto and Order Granting Accelerated Approval of the Proposed Rule Change as Modified by Amendments No. 2 and 4 Thereto Adopting Generic Listing Standards for Exchange-Traded Funds Based on International or Global Indexes or Indexes Described in Exchange Rules Previously Approved by the Commission as Underlying Benchmarks for Derivative Securities). See also Securities Exchange Act Release Nos. 54739 (November 9, 2006), 71 FR 61811 [sic] (October 19 [sic], 2006) (SR-Amex-2006-78) (Order Granting Accelerated Approval to Proposed Rule Change and Amendment No. 1 Thereto and Notice of Filing and Order Granting Accelerated Approval to Amendment No. 2 Thereto Relating to Generic Listing Standards for Series of Portfolio Depositary Receipts and Index Fund Shares Based on International or Global Indexes); 55113 (January 17, 2007), 72 FR 3179 (January 24, 2007) (SR-NYSE-2006-101) (Notice of Filing and Order Granting Accelerated Approval of a Proposed Rule Change as Modified by Amendments No. 1 and 2 Thereto Adopting Generic Listing Standards for Exchange-Traded Funds Based on International or Global Indexes or Indexes Previously Approved by the Commission as Underlying Benchmarks for Derivative Securities). --------------------------------------------------------------------------- Like the requirements applicable to an index or portfolio underlying [[Page 38754]] Investment Company Units noted above, the proposed amendments to Commentary .01(a)(2)(A) and (B) would subject a substantial portion of a fund's holdings in Non-U.S. Component Stocks to specified minimum liquidity and market value requirements. Such holdings also will continue to be subject to the weighting and diversification requirements of Commentary .01(a)(2)(C) and (D), which prevent any stock or small group of stocks from dominating a fund's portfolio.\9\ The proposed amendments to Commentary .01(a)(2) to Rule 8.600-E would provide additional flexibility to series of Managed Fund Shares investing in Non-U.S. Component Stocks while continuing to apply substantial minimum criteria relating to liquidity, market capitalization and diversification. --------------------------------------------------------------------------- \9\ Commentary .01(a)(2)(C) provides that 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. Commentary .01(a)(2)(D) provides that, 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 Derivative Securities Products or Index-Linked Securities constitute, at least in part, components underlying a series of Managed Fund Shares, or (ii) one or more series of Derivative Securities Products or Index-Linked Securities account for 100% of the equity weight of the portfolio of a series of Managed Fund Shares. --------------------------------------------------------------------------- Proposed Amendment to Commentary .01(b)(5) to Rule 8.600-E Commentary .01(b) to NYSE Arca Rule 8.600-E sets forth generic standards applicable to fixed income securities included in the portfolio of a series of Managed Fund Shares.\10\ Commentary .01(b)(5) provides that non-agency, non- GSE and privately-issued mortgage- related and other asset-backed securities (``ABS'') 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. The Exchange proposes to amend Commentary .01(b)(5) by deleting the words ``fixed income portion'' to provide that such 20% limitation would apply to the entire portfolio rather than to only the fixed income portion of the portfolio. Thus, Commentary .01(b)(5) would provide that non-agency, non-GSE and privately-issued mortgage-related and other ABS components of a portfolio shall not account, in the aggregate, for more than 20% of the weight of the portfolio. --------------------------------------------------------------------------- \10\ Commentary .01(b) provides that fixed income securities are debt securities that are notes, bonds, debentures or evidence of indebtedness that include, but are not limited to, U.S. Department of Treasury securities (``Treasury Securities''), government- sponsored entity securities (``GSE Securities''), municipal securities, trust preferred securities, supranational debt and debt of a foreign country or a subdivision thereof, investment grade and high yield corporate debt, bank loans, mortgage and asset backed securities, and commercial paper. --------------------------------------------------------------------------- This Exchange believes this amendment is appropriate because a fund's investment in non-agency, non-GSE and privately-issued mortgage- related and other ABS may provide a fund with benefits associated with increased diversification, as such investments may be less correlated to interest rates than many other fixed income securities. In addition, a fund's investment in non-agency, non-GSE and privately-issued mortgage-related and other ABS will be subject to a fund's liquidity procedures as adopted by a fund's board of directors. The Exchange notes that the Commission has previously approved the listing of actively managed exchange-traded funds that can invest 20% of their total assets in non-U.S. Government, non-agency, non-GSE and other privately issued asset-backed and mortgage-backed securities (``MBS'').\11\ In addition, the Commission has previously approved listing and trading of shares of an issue of Managed Fund Shares where such fund's investments in non-U.S. Government, non-agency, non-GSE and other privately issued ABS will, in the aggregate, not exceed more than 20% of the total assets of the fund, rather than the weight of the fixed income portion of the fund's portfolio.\12\ Therefore, the Exchange believes it is appropriate to apply the 20% limitation to a fund's investment in non-agency, non-GSE and privately-issued mortgage- related and other asset-backed securities components of a portfolio in Commentary .01(b)(5) to a fund's total assets. --------------------------------------------------------------------------- \11\ See, e.g., Securities Exchange Act Release Nos. 80946 (June 15, 2017) 82 FR 28126 (June 20, 2017) (SR-NASDAQ-2017-039) (permitting the Guggenheim Limited Duration ETF to invest up to 20% of its total assets in privately-issued, non-agency and non-GSE ABS and MBS); 76412 (November 10, 2015), 80 FR 71880 (November 17, 2015) (SR-NYSEArca-2015-111) (permitting the RiverFront Strategic Income Fund to invest up to 20% of its assets in privately-issued, non- agency and non-GSE ABS and MBS); 74814 (April 27, 2015), 80 FR 24986 (May 1, 2015) (SR-NYSEArca-2014-017 [sic]) (permitting the Guggenheim Enhanced Short Duration ETF to invest up to 20% of its assets in privately-issued, non-agency and non-GSE ABS and MBS); 74109 (January 21, 2015), 80 FR 4327 (January 27, 2015) (SR- NYSEArca-2014-134) (permitting the IQ Wilshire Alternative Strategies ETF to invest up to 20% of its total assets in MSB [sic] and other ABS, without any limit on the type of such MBS and ABS). \12\ See Securities Exchange Act Release No. 83319 (May 24, 2018) (SR-NYSEArca-2018-15) (Order Approving a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, to Continue Listing and Trading Shares of the PGIM Ultra Short Bond ETF Under NYSE Arca Rule 8.600-E). --------------------------------------------------------------------------- Proposed Amendment to Commentary .01(a)(3) to Rule 8.600-E The Exchange further proposes to add new Commentary .01(a)(3) to NYSE Arca Rule 8.600-E to provide that the portfolio of a series of Managed Fund Shares may include non-exchange-traded open-end management investment company securities, which securities shall be excluded from the equity portion of the portfolio for purposes of meeting the criteria in Commentary .01(a)(1). A fund's investment in such securities, which are registered under the 1940 Act, may be utilized, for example, to obtain income on short- term cash balances while awaiting attractive investment opportunities, to provide liquidity in preparation for anticipated redemptions or for defensive purposes.\13\ Such investments may include mutual funds that invest principally in securities and financial instruments that help the Fund meet its investment objective and/or to equitize cash in the short term.\14\ Because such securities must satisfy applicable 1940 Act diversification requirements, and have a net asset value based on the value of securities and financial instruments the investment company holds, it is both unnecessary and inappropriate to apply to such investment company securities the criteria in Commentary .01(a)(1). --------------------------------------------------------------------------- \13\ For purposes of Commentary .01(a)(3), non-exchange-traded open-end management investment company securities do not include money market funds, which are cash equivalents under Commentary .01(c) to Rule 8.600-E and for which there is no limitation in the percentage of the portfolio invested in such securities. \14\ The Commission has previously approved proposed rule changes under Section 19(b) of the Act for series of Managed Fund Shares that may invest in non-exchange traded investment company securities to the extent permitted by Section 12(d)(1) of the 1940 Act and the rules thereunder. See, e.g., Securities Exchange Act Release No. 78414 (July 26, 2016), 81 FR 50576 (August 1, 2016) (SR- NYSEArca-2016-79) (order approving listing and trading of shares of the Virtus Japan Alpha ETF under NYSE Arca Rule 8.600-E). --------------------------------------------------------------------------- The Exchange notes that Commentary .01(a)(1)(A) through (D) to Rule 8.600-E exclude certain ``Derivative Securities Products'' that are exchange-traded investment company securities, including Investment Company Units (as described in NYSE Arca Rule 5.2-E(j)(3)), Portfolio Depositary Receipts (as described in NYSE Arca Rule 8.100-E)) and Managed Fund Shares (as described in NYSE Arca Rule 8.600-E)).\15\ In its [[Page 38755]] 2008 Approval Order approving amendments to Commentary .01(a) to Rule 5.2(j)(3) to exclude Derivative Securities Products from certain provisions of Commentary .01(a) (which exclusions are similar to those in Commentary .01(a)(1) to Rule 8.600-E), the Commission stated that ``based on the trading characteristics of Derivative Securities Products, it may be difficult for component Derivative Securities Products to satisfy certain quantitative index criteria, such as the minimum market value and trading volume limitations.'' The Exchange notes that it would be difficult or impossible to apply to mutual fund shares certain of the generic quantitative criteria (e.g., market capitalization, trading volume, or portfolio criteria) in Commentary .01 (A) through (D) applicable to U.S. Component Stocks. For example, the requirements for U.S. Component Stocks in Commentary .01(a)(1)(B) that there be 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 are tailored to exchange-traded securities (i.e., U.S. Component Stocks) and not to mutual fund shares, which do not trade in the secondary market and for which no such volume information is reported. In addition, Commentary .01(a)(1)(A) relating to minimum market value of portfolio component stocks, Commentary .01(a)(1)(C) relating to weighting of portfolio component stocks, and Commentary .01(a)(1)(D) relating to minimum number of portfolio components are not appropriately applied to open-end management investment company securities; open-end investment companies hold multiple individual securities as disclosed publicly in accordance with the 1940 Act. --------------------------------------------------------------------------- \15\ The Commission initially approved the Exchange's proposed rule change to exclude ``Derivative Securities Products'' (i.e., Investment Company Units and securities described in Section 2 of Rule 8) and ``Index-Linked Securities (as described in Rule 5.2- E(j)(6)) from Commentary .01(a)(A) (1) through (4) to Rule 5.2- E(j)(3) in Securities Exchange Act Release No. 57751 (May 1, 2008), 73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29) (Order Granting Approval of a Proposed Rule Change, as Modified by Amendment No. 1 Thereto, to Amend the Eligibility Criteria for Components of an Index Underlying Investment Company Units)(``2008 Approval Order''). See also Securities Exchange Act Release No. 57561 (March 26, 2008), 73 FR 17390 (April 1, 2008) (Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto to Amend the Eligibility Criteria for Components of an Index Underlying Investment Company Units). The Commission subsequently approved generic criteria applicable to listing and trading of Managed Fund Shares, including exclusions for Derivative Securities Products and Index-Linked Securities in Commentary .01(a)(1)(A) through (D), in Securities Exchange Act Release No. 78397 (July 22, 2016), 81 FR 49320 (July 27, 2016) (Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 7 Thereto, Amending NYSE Arca Rule 8.600-E To Adopt Generic Listing Standards for Managed Fund Shares). See also Amendment No. 7 to SR-NYSEArca-2015-110, available at https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-9.pdf. --------------------------------------------------------------------------- The Exchange notes that the Commission has previously approved listing and trading of an issue of Managed Fund Shares that may invest in equity securities that are non-exchange-traded securities of other open-end investment company securities notwithstanding that the fund would not meet the requirements of Commentary .01(a)(1)(A) through (E) to Rule 8.600-E with respect to such fund's investments in such securities.\16\ --------------------------------------------------------------------------- \16\ See note 12, supra. --------------------------------------------------------------------------- The Exchange, therefore, believes it is appropriate to exclude non- exchange-traded open-end management investment company securities from the equity portion of the portfolio for purposes of meeting the criteria in Commentary .01(a)(1). The Exchange believes the proposed amendments would provide issuers of Managed Fund Shares with additional investment choices for fund portfolios for issues permitted to list and trade on the Exchange pursuant to the Rule 19b-4(e), which would enhance competition among market participants, to the benefit of investors and the marketplace. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act,\17\ in general, and furthers the objectives of Sections [sic] 6(b)(5) of the Act,\18\ in particular, because 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 regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to, and perfect the mechanisms of, a free and open market and a national market system and, in general, to protect investors and the public interest and because it is not designed to permit unfair discrimination between customers, issuers, brokers, or dealers --------------------------------------------------------------------------- \17\ 15 U.S.C. 78f(b). \18\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- The Exchange has in place surveillance procedures that are adequate to properly monitor trading in series of Managed Fund Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. The Exchange notes that the Exchange or Financial Industry Regulatory Authority (``FINRA''), on behalf of the Exchange, or both, would communicate as needed regarding trading in Managed Fund Shares with other markets and other entities that are members of the Intermarket Surveillance Group, and the Exchange or FINRA, on behalf of the Exchange, or both, could obtain trading information regarding trading in Managed Fund Shares from such markets and other entities. In addition, the Exchange could obtain information regarding trading in Managed Fund Shares from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. With respect to the proposed amendment to Commentary .01(a)(2), the proposed amendments are comparable to the current numerical requirements in Commentary .01(a)(B)(1) and Commentary .01(a)(B)(2) to NYSE Arca Rule 5.2-E(j)(3) applicable to component stocks in an index or portfolio underlying Investment Company Units. The Exchange notes that, in originally approving the generic listing criteria in Commentary .01(a)(B) to NYSE Arca Rule 5.2-E(j)(3) applicable to indexes that include only non-U.S. Component Stocks or both U.S. and Non-U.S. Component Stocks in an index or portfolio underlying a series of Investment Company Units, the Commission stated that ``[t]hese requirements are designed, among other things, to require that components of an index or portfolio underlying an ETF are adequately capitalized and sufficiently liquid, and that no one stock dominates the index.'' \19\ --------------------------------------------------------------------------- \19\ See note 8, supra. --------------------------------------------------------------------------- Like the requirements applicable to an index or portfolio underlying Investment Company Units noted above, the proposed amendments to Commentary .01(a)(2)(A) and (B) would subject a substantial portion of a fund's holdings in Non-U.S. Component Stocks to specified minimum liquidity and market value requirements. Such holdings also will continue to be subject to the weighting and diversification requirements of Commentary .01(a)(2)(C) and (D), which prevent any stock or small group of stocks from dominating a fund's portfolio. The proposed amendments to Commentary .01(a)(2) to Rule 8.600-E would provide additional flexibility to series of Managed Fund Shares investing in Non-U.S. Component Stocks while continuing to apply substantial minimum criteria relating to liquidity, market capitalization and diversification. [[Page 38756]] With respect to the proposed amendment to Commentary .01(b)(5), the Exchange believes this amendment is appropriate because a fund's investment in non-agency, non-GSE and privately-issued mortgage-related and other ABS may provide a fund with benefits associated with increased diversification, as such investments may be less correlated to interest rates than many other fixed income securities. In addition, a fund's investment in non-agency, non-GSE and privately-issued mortgage-related and other ABS will be subject to a fund's liquidity procedures as adopted by a fund's board of directors. The Exchange notes that the Commission has previously approved the listing of actively managed exchange-traded funds that can invest 20% of their total assets in non-U.S. Government, non-agency, non-GSE and other privately issued asset-backed and MBS. In addition, the Commission has previously approved listing and trading of shares of an issue of Managed Fund Shares where such fund's investments in non-U.S. Government, non-agency, non-GSE and other privately issued ABS will, in the aggregate, not exceed more than 20% of the total assets of the fund, rather than the weight of the fixed income portion of the fund's portfolio.\20\ Therefore, the Exchange believes it is appropriate to apply the 20% limitation to a fund's investment in non-agency, non-GSE and privately-issued mortgage-related and other asset-backed securities components of a portfolio in Commentary .01(b)(5) to a fund's total assets. --------------------------------------------------------------------------- \20\ See note 11 [sic], supra. --------------------------------------------------------------------------- The Exchange further proposes to add new Commentary .01(a)(3) to NYSE Arca Rule 8.600-E to provide that the equity portion of a portfolio may include non-exchange-traded open-end management investment company securities, which securities shall be excluded from the equity portion of the portfolio for purposes of meeting the criteria in Commentary .01(a)(1). A fund's investment in such securities may be utilized, for example, to obtain income on short-term cash balances while awaiting attractive investment opportunities, to provide liquidity in preparation for anticipated redemptions or for defensive purposes. Such investments may include mutual funds that invest principally in securities and financial instruments that help the Fund meet its investment objective and/or to equitize cash in the short term. Because such securities must satisfy applicable 1940 Act diversification requirements, and have a net asset value based on the value of securities and financial instruments the investment company holds, it is both unnecessary and inappropriate to apply to such investment company securities the criteria in Commentary .01(a)(1). For the same reasons, such investment company securities are appropriately excluded from the equity portion of the portfolio for purposes of meeting the criteria in Commentary .01(a)(1). The Exchange notes that Commentary .01(a)(1)(A) through (D) to Rule 8.600-E exclude certain ``Derivative Securities Products'' that are exchange-traded investment company securities, including Investment Company Units (as described in NYSE Arca Rule 5.2-E(j)(3)), Portfolio Depositary Receipts (as described in NYSE Arca Rule 8.100-E)) and Managed Fund Shares (as described in NYSE Arca Rule 8.600-E)). In its 2008 Approval Order approving amendments to Commentary .01(a) to Rule 5.2(j)(3) to exclude Derivative Securities Products from certain provisions of Commentary .01(a) (which exclusions are similar to those in Commentary .01(a)(1) to Rule 8.600-E), the Commission stated that ``based on the trading characteristics of Derivative Securities Products, it may be difficult for component Derivative Securities Products to satisfy certain quantitative index criteria, such as the minimum market value and trading volume limitations.'' The Exchange notes that it would be difficult or impossible to apply to mutual fund shares certain of the generic quantitative criteria (e.g., market capitalization, trading volume, or portfolio criteria) in Commentary .01 (A) through (D) applicable to U.S. Component Stocks. For example, the requirements for U.S. Component Stocks in Commentary .01(a)(1)(B) that there be 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 are tailored to exchange-traded securities (i.e., U.S. Component Stocks) and not to mutual fund shares, which do not trade in the secondary market and for which no such volume information is reported. In addition, Commentary .01(a)(1)(A) relating to minimum market value of portfolio component stocks, Commentary .01(a)(1)(C) relating to weighting of portfolio component stocks, and Commentary .01(a)(1)(D) relating to minimum number of portfolio components are not appropriately applied to open-end management investment company securities; open-end investment companies hold multiple individual securities as disclosed publicly in accordance with the 1940 Act. The proposed rule change is designed to perfect the mechanism of a free and open market and, in general, to protect investors and the public interest in that it will facilitate the listing and trading of additional types of Managed Fund Shares that will enhance competition among market participants, to the benefit of investors and the marketplace. B. Self-Regulatory Organization's Statement on Burden on Competition In accordance with Section 6(b)(8) of the Act,\21\ the Exchange believes that the proposed rule change would not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change would permit Exchange listing and trading under Rule 19b-4(e) of additional types of Managed Fund Shares, which would enhance competition among market participants, to the benefit of investors and the marketplace. --------------------------------------------------------------------------- \21\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove the proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or [[Page 38757]] Send an email to [email protected]. Please include File Number SR-NYSEArca-2018-54 on the subject line. Paper Comments Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090. All submissions should refer to File Number SR-NYSEArca-2018-54. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website (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 website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSEArca-2018-54 and should be submitted on or before August 28, 2018. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\22\ --------------------------------------------------------------------------- \22\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Robert W. Errett, Deputy Secretary. [FR Doc. 2018-16803 Filed 8-6-18; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 83, No. 152 / Tuesday, August 7, 2018 / Notices 38753
SECURITIES AND EXCHANGE standards for listing and trading of Non-U.S. Component Stocks that in the
COMMISSION Managed Fund Shares on the aggregate account for at least 90% of the
Exchange.4 The Exchange proposes to weight of the Non-U.S. Component
[Release No. 34–83759; File No. SR–
NYSEArca–2018–54]
amend certain provisions in Stocks of the equity portion of a
Commentary .01, as described below.5 portfolio each shall have a minimum
Self-Regulatory Organizations; NYSE market value of at least $100 million. In
Proposed Amendments to Commentary
Arca, Inc.; Notice of Filing of Proposed addition, the Exchange proposes to
.01(a) to Rule 8.600–E
Rule Change To Amend Commentary amend Commentary .01(a)(2)(B) to
.01 to NYSE Arca Rule 8.600–E Commentary .01(a) to NYSE Arca provide that Non-U.S. Component
Relating to Certain Generic Listing Rule 8.600–E sets forth generic Stocks that in the aggregate account for
Standards for Managed Fund Shares standards applicable to equity securities at least 70% of the weight of the Non-
included in the portfolio of a series of U.S. Component Stocks of the equity
August 1, 2018. Managed Fund Shares.6 Commentary portion of a portfolio each shall have a
Pursuant to Section 19(b)(1) 1 of the .01(a)(2) (‘‘Non-U.S. Component minimum global monthly trading
Securities Exchange Act of 1934 Stocks’’) sets forth criteria to be met volume of 250,000 shares, or minimum
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3 initially and on a continuing basis by global notional volume traded per
notice is hereby given that, on July 18, component stocks of the equity portion month of $25,000,000, averaged over the
2018, NYSE Arca, Inc. (‘‘Exchange’’ or of a portfolio that are Non-U.S. last six months.
‘‘NYSE Arca’’) filed with the Securities Component Stocks.7 The proposed amendments are
and Exchange Commission Commentary .01(a)(2)(A) provides comparable to the current numerical
(‘‘Commission’’) the proposed rule that Non-U.S. Component Stocks each requirements in Commentary
change as described in Items I and II shall have a minimum market value of .01(a)(B)(1) and Commentary .01(a)(B)(2)
below, which Items have been prepared at least $100 million. Commentary to NYSE Arca Rule 5.2–E(j)(3)
by the self-regulatory organization. The .01(a)(2)(B) provides that Non-U.S. applicable to component stocks in an
Commission is publishing this notice to Component Stocks each shall have a index or portfolio underlying
solicit comments on the proposed rule minimum global monthly trading Investment Company Units. The
change from interested persons. volume of 250,000 shares, or minimum Exchange notes that, in originally
global notional volume traded per approving the generic listing criteria in
I. Self-Regulatory Organization’s
month of $25,000,000, averaged over the Commentary .01(a)(B) to NYSE Arca
Statement of the Terms of Substance of
the Proposed Rule Change last six months. Rule 5.2–E(j)(3) applicable to indexes
The Exchange proposes to amend that include only non-U.S. Component
The Exchange proposes to amend Commentary .01(a)(2)(A) to provide that Stocks or both U.S. and Non-U.S.
Commentary .01 to NYSE Arca Rule Component Stocks in an index or
8.600–E relating to certain generic 4 A Managed Fund Share is a security that
portfolio underlying a series of
listing standards for Managed Fund represents an interest in an investment company Investment Company Units, the
Shares. The proposed change is registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (the ‘‘1940 Act’’) organized Commission stated that ‘‘[t]hese
available on the Exchange’s website at as an open-end investment company or similar requirements are designed, among other
www.nyse.com, at the principal office of entity that invests in a portfolio of securities things, to require that components of an
the Exchange, and at the Commission’s selected by its investment adviser consistent with index or portfolio underlying an ETF are
Public Reference Room. its investment objectives and policies. In contrast,
an open-end investment company that issues
adequately capitalized and sufficiently
II. Self-Regulatory Organization’s Investment Company Units, listed and traded on liquid, and that no one stock dominates
Statement of the Purpose of, and the Exchange under NYSE Arca Rule 5.2–E(j)(3), the index.’’ 8
seeks to provide investment results that correspond Like the requirements applicable to an
Statutory Basis for, the Proposed Rule generally to the price and yield performance of a
Change index or portfolio underlying
specific foreign or domestic stock index, fixed
income securities index or combination thereof.
In its filing with the Commission, the 5 The Commission approved the generic listing 8 See Securities Exchange Act Release No. 55621
self-regulatory organization included standards in Commentary .01 to NYSE Arca Rule (April 12, 2007), 72 FR 19571 (April 18, 2007) (SR–
statements concerning the purpose of, 8.600–E in Securities Exchange Act Release No. NYSEArca–2006–86) (Notice of Filing of Proposed
78397 (July 22, 2016), 81 FR 49320 (July 27, 2016) Rule Change and Amendments No. 1, 2, 3, and 4
and basis for, the proposed rule change Thereto and Order Granting Accelerated Approval
(SR–NYSEArca–2015–110) (Order Granting
and discussed any comments it received Approval of Proposed Rule Change, as Modified by of the Proposed Rule Change as Modified by
on the proposed rule change. The text Amendment No. 7 Thereto, Amending NYSE Arca Amendments No. 2 and 4 Thereto Adopting Generic
of those statements may be examined at Listing Standards for Exchange-Traded Funds
Equities Rule 8.600 to Adopt Generic Listing
Based on International or Global Indexes or Indexes
the places specified in Item IV below. Standards for Managed Fund Shares) (‘‘Approval
Described in Exchange Rules Previously Approved
Order’’).
The Exchange has prepared summaries, 6 For purposes of Commentary .01(a) to Rule
by the Commission as Underlying Benchmarks for
set forth in sections A, B, and C below, Derivative Securities). See also Securities Exchange
8.600–E, equity securities include the following: Act Release Nos. 54739 (November 9, 2006), 71 FR
of the most significant parts of such U.S. Component Stocks (as described in Rule 5.2– 61811 [sic] (October 19 [sic], 2006) (SR–Amex–
statements. E(j)(3)); Non-U.S. Component Stocks (as described 2006–78) (Order Granting Accelerated Approval to
in Rule 5.2–E(j)(3)); Derivative Securities Products Proposed Rule Change and Amendment No. 1
A. Self-Regulatory Organization’s (i.e., Investment Company Units and securities Thereto and Notice of Filing and Order Granting
Statement of the Purpose of, and the described in Section 2 of Rule 8–E); and Index- Accelerated Approval to Amendment No. 2 Thereto
Linked Securities that qualify for Exchange listing
Statutory Basis for, the Proposed Rule and trading under Rule 5.2–E(j)(6).
Relating to Generic Listing Standards for Series of
Portfolio Depositary Receipts and Index Fund
Change 7 NYSE Arca Rule 5.2–E(j)(3) provides that the
Shares Based on International or Global Indexes);
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1. Purpose term ‘‘Non-US Component Stock’’ shall mean an 55113 (January 17, 2007), 72 FR 3179 (January 24,
equity security that is not registered under Sections 2007) (SR–NYSE–2006–101) (Notice of Filing and
Commentary .01 to NYSE Arca Rule 12(b) or 12(g) of the Securities Exchange Act of Order Granting Accelerated Approval of a Proposed
8.600–E sets forth generic listing 1934 and that is issued by an entity that (a) is not Rule Change as Modified by Amendments No. 1
organized, domiciled or incorporated in the United and 2 Thereto Adopting Generic Listing Standards
States, and (b) is an operating company (including for Exchange-Traded Funds Based on International
1 15 U.S.C. 78s(b)(1). Real Estate Investment Trusts (REITS) and income or Global Indexes or Indexes Previously Approved
2 15 U.S.C. 78a. trusts, but excluding investment trusts, unit trusts, by the Commission as Underlying Benchmarks for
3 17 CFR 240.19b–4. mutual funds, and derivatives). Derivative Securities).
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![38754 Federal Register / Vol. 83, No. 152 / Tuesday, August 7, 2018 / Notices
Investment Company Units noted above, income portion of the portfolio. Thus, Commentary .01(b)(5) to a fund’s total
the proposed amendments to Commentary .01(b)(5) would provide assets.
Commentary .01(a)(2)(A) and (B) would that non-agency, non-GSE and privately-
Proposed Amendment to Commentary
subject a substantial portion of a fund’s issued mortgage-related and other ABS
.01(a)(3) to Rule 8.600–E
holdings in Non-U.S. Component Stocks components of a portfolio shall not
to specified minimum liquidity and account, in the aggregate, for more than The Exchange further proposes to add
market value requirements. Such 20% of the weight of the portfolio. new Commentary .01(a)(3) to NYSE
holdings also will continue to be subject This Exchange believes this Arca Rule 8.600–E to provide that the
to the weighting and diversification amendment is appropriate because a portfolio of a series of Managed Fund
requirements of Commentary fund’s investment in non-agency, non- Shares may include non-exchange-
.01(a)(2)(C) and (D), which prevent any GSE and privately-issued mortgage- traded open-end management
stock or small group of stocks from related and other ABS may provide a investment company securities, which
dominating a fund’s portfolio.9 The fund with benefits associated with securities shall be excluded from the
proposed amendments to Commentary increased diversification, as such equity portion of the portfolio for
.01(a)(2) to Rule 8.600–E would provide investments may be less correlated to purposes of meeting the criteria in
additional flexibility to series of interest rates than many other fixed Commentary .01(a)(1).
Managed Fund Shares investing in Non- income securities. In addition, a fund’s A fund’s investment in such
U.S. Component Stocks while investment in non-agency, non-GSE and securities, which are registered under
continuing to apply substantial privately-issued mortgage-related and the 1940 Act, may be utilized, for
minimum criteria relating to liquidity, other ABS will be subject to a fund’s example, to obtain income on short-term
market capitalization and liquidity procedures as adopted by a cash balances while awaiting attractive
diversification. fund’s board of directors. The Exchange investment opportunities, to provide
notes that the Commission has liquidity in preparation for anticipated
Proposed Amendment to Commentary previously approved the listing of redemptions or for defensive
.01(b)(5) to Rule 8.600–E actively managed exchange-traded purposes.13 Such investments may
Commentary .01(b) to NYSE Arca funds that can invest 20% of their total include mutual funds that invest
Rule 8.600–E sets forth generic assets in non-U.S. Government, non- principally in securities and financial
standards applicable to fixed income agency, non-GSE and other privately instruments that help the Fund meet its
securities included in the portfolio of a issued asset-backed and mortgage- investment objective and/or to equitize
series of Managed Fund Shares.10 backed securities (‘‘MBS’’).11 In cash in the short term.14 Because such
Commentary .01(b)(5) provides that addition, the Commission has securities must satisfy applicable 1940
non-agency, non- GSE and privately- previously approved listing and trading Act diversification requirements, and
issued mortgage-related and other asset- of shares of an issue of Managed Fund have a net asset value based on the
backed securities (‘‘ABS’’) components Shares where such fund’s investments value of securities and financial
of a portfolio shall not account, in the in non-U.S. Government, non-agency, instruments the investment company
aggregate, for more than 20% of the non-GSE and other privately issued ABS holds, it is both unnecessary and
weight of the fixed income portion of will, in the aggregate, not exceed more inappropriate to apply to such
the portfolio. The Exchange proposes to than 20% of the total assets of the fund, investment company securities the
amend Commentary .01(b)(5) by rather than the weight of the fixed criteria in Commentary .01(a)(1).
deleting the words ‘‘fixed income income portion of the fund’s portfolio.12 The Exchange notes that Commentary
portion’’ to provide that such 20% Therefore, the Exchange believes it is .01(a)(1)(A) through (D) to Rule 8.600–
limitation would apply to the entire appropriate to apply the 20% limitation E exclude certain ‘‘Derivative Securities
portfolio rather than to only the fixed to a fund’s investment in non-agency, Products’’ that are exchange-traded
non-GSE and privately-issued mortgage- investment company securities,
9 Commentary .01(a)(2)(C) provides that the most
related and other asset-backed securities including Investment Company Units
heavily weighted Non-U.S. Component stock shall (as described in NYSE Arca Rule 5.2–
not exceed 25% of the equity weight of the
components of a portfolio in
portfolio, and, to the extent applicable, the five
E(j)(3)), Portfolio Depositary Receipts (as
most heavily weighted Non-U.S. Component Stocks 11 See, e.g., Securities Exchange Act Release Nos. described in NYSE Arca Rule 8.100–E))
shall not exceed 60% of the equity weight of the 80946 (June 15, 2017) 82 FR 28126 (June 20, 2017) and Managed Fund Shares (as described
portfolio. (SR–NASDAQ–2017–039) (permitting the in NYSE Arca Rule 8.600–E)).15 In its
Commentary .01(a)(2)(D) provides that, where the Guggenheim Limited Duration ETF to invest up to
equity portion of the portfolio includes Non-U.S. 20% of its total assets in privately-issued, non-
13 For purposes of Commentary .01(a)(3), non-
Component Stocks, the equity portion of the agency and non-GSE ABS and MBS); 76412
portfolio shall include a minimum of 20 component (November 10, 2015), 80 FR 71880 (November 17, exchange-traded open-end management investment
stocks; provided, however, that there shall be no 2015) (SR–NYSEArca–2015–111) (permitting the company securities do not include money market
minimum number of component stocks if (i) one or RiverFront Strategic Income Fund to invest up to funds, which are cash equivalents under
more series of Derivative Securities Products or 20% of its assets in privately-issued, non-agency Commentary .01(c) to Rule 8.600–E and for which
Index-Linked Securities constitute, at least in part, and non-GSE ABS and MBS); 74814 (April 27, there is no limitation in the percentage of the
components underlying a series of Managed Fund 2015), 80 FR 24986 (May 1, 2015) (SR–NYSEArca– portfolio invested in such securities.
2014–017 [sic]) (permitting the Guggenheim 14 The Commission has previously approved
Shares, or (ii) one or more series of Derivative
Securities Products or Index-Linked Securities Enhanced Short Duration ETF to invest up to 20% proposed rule changes under Section 19(b) of the
account for 100% of the equity weight of the of its assets in privately-issued, non-agency and Act for series of Managed Fund Shares that may
portfolio of a series of Managed Fund Shares. non-GSE ABS and MBS); 74109 (January 21, 2015), invest in non-exchange traded investment company
10 Commentary .01(b) provides that fixed income 80 FR 4327 (January 27, 2015) (SR–NYSEArca– securities to the extent permitted by Section
securities are debt securities that are notes, bonds, 2014–134) (permitting the IQ Wilshire Alternative 12(d)(1) of the 1940 Act and the rules thereunder.
daltland on DSKBBV9HB2PROD with NOTICES
debentures or evidence of indebtedness that Strategies ETF to invest up to 20% of its total assets See, e.g., Securities Exchange Act Release No.
include, but are not limited to, U.S. Department of in MSB [sic] and other ABS, without any limit on 78414 (July 26, 2016), 81 FR 50576 (August 1, 2016)
Treasury securities (‘‘Treasury Securities’’), the type of such MBS and ABS). (SR–NYSEArca–2016–79) (order approving listing
government-sponsored entity securities (‘‘GSE 12 See Securities Exchange Act Release No. 83319 and trading of shares of the Virtus Japan Alpha ETF
Securities’’), municipal securities, trust preferred (May 24, 2018) (SR–NYSEArca–2018–15) (Order under NYSE Arca Rule 8.600–E).
securities, supranational debt and debt of a foreign Approving a Proposed Rule Change, as Modified by 15 The Commission initially approved the
country or a subdivision thereof, investment grade Amendment No. 1 Thereto, to Continue Listing and Exchange’s proposed rule change to exclude
and high yield corporate debt, bank loans, mortgage Trading Shares of the PGIM Ultra Short Bond ETF ‘‘Derivative Securities Products’’ (i.e., Investment
and asset backed securities, and commercial paper. Under NYSE Arca Rule 8.600–E). Company Units and securities described in Section
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![Federal Register / Vol. 83, No. 152 / Tuesday, August 7, 2018 / Notices 38755
2008 Approval Order approving end investment companies hold or both, would communicate as needed
amendments to Commentary .01(a) to multiple individual securities as regarding trading in Managed Fund
Rule 5.2(j)(3) to exclude Derivative disclosed publicly in accordance with Shares with other markets and other
Securities Products from certain the 1940 Act. entities that are members of the
provisions of Commentary .01(a) (which The Exchange notes that the Intermarket Surveillance Group, and the
exclusions are similar to those in Commission has previously approved Exchange or FINRA, on behalf of the
Commentary .01(a)(1) to Rule 8.600–E), listing and trading of an issue of Exchange, or both, could obtain trading
the Commission stated that ‘‘based on Managed Fund Shares that may invest information regarding trading in
the trading characteristics of Derivative in equity securities that are non- Managed Fund Shares from such
Securities Products, it may be difficult exchange-traded securities of other markets and other entities. In addition,
for component Derivative Securities open-end investment company the Exchange could obtain information
Products to satisfy certain quantitative securities notwithstanding that the fund regarding trading in Managed Fund
index criteria, such as the minimum would not meet the requirements of Shares from markets and other entities
market value and trading volume Commentary .01(a)(1)(A) through (E) to that are members of ISG or with which
limitations.’’ The Exchange notes that it Rule 8.600–E with respect to such the Exchange has in place a
would be difficult or impossible to fund’s investments in such securities.16 comprehensive surveillance sharing
apply to mutual fund shares certain of The Exchange, therefore, believes it is agreement.
the generic quantitative criteria (e.g., appropriate to exclude non-exchange- With respect to the proposed
market capitalization, trading volume, traded open-end management amendment to Commentary .01(a)(2),
or portfolio criteria) in Commentary .01 investment company securities from the the proposed amendments are
(A) through (D) applicable to U.S. equity portion of the portfolio for comparable to the current numerical
Component Stocks. For example, the purposes of meeting the criteria in requirements in Commentary
requirements for U.S. Component Commentary .01(a)(1). .01(a)(B)(1) and Commentary .01(a)(B)(2)
Stocks in Commentary .01(a)(1)(B) that The Exchange believes the proposed to NYSE Arca Rule 5.2–E(j)(3)
there be minimum monthly trading amendments would provide issuers of applicable to component stocks in an
volume of 250,000 shares, or minimum Managed Fund Shares with additional index or portfolio underlying
notional volume traded per month of investment choices for fund portfolios Investment Company Units. The
$25,000,000, averaged over the last six for issues permitted to list and trade on Exchange notes that, in originally
months are tailored to exchange-traded the Exchange pursuant to the Rule 19b– approving the generic listing criteria in
securities (i.e., U.S. Component Stocks) 4(e), which would enhance competition Commentary .01(a)(B) to NYSE Arca
and not to mutual fund shares, which among market participants, to the Rule 5.2–E(j)(3) applicable to indexes
do not trade in the secondary market benefit of investors and the marketplace. that include only non-U.S. Component
and for which no such volume Stocks or both U.S. and Non-U.S.
2. Statutory Basis Component Stocks in an index or
information is reported. In addition,
Commentary .01(a)(1)(A) relating to The Exchange believes that the portfolio underlying a series of
minimum market value of portfolio proposed rule change is consistent with Investment Company Units, the
component stocks, Commentary Section 6(b) of the Act,17 in general, and Commission stated that ‘‘[t]hese
.01(a)(1)(C) relating to weighting of furthers the objectives of Sections [sic] requirements are designed, among other
portfolio component stocks, and 6(b)(5) of the Act,18 in particular, things, to require that components of an
Commentary .01(a)(1)(D) relating to because it is designed to prevent index or portfolio underlying an ETF are
minimum number of portfolio fraudulent and manipulative acts and adequately capitalized and sufficiently
components are not appropriately practices, to promote just and equitable liquid, and that no one stock dominates
applied to open-end management principles of trade, to foster cooperation the index.’’ 19
investment company securities; open- and coordination with persons engaged Like the requirements applicable to an
in regulating, clearing, settling, index or portfolio underlying
2 of Rule 8) and ‘‘Index-Linked Securities (as processing information with respect to, Investment Company Units noted above,
described in Rule 5.2–E(j)(6)) from Commentary and facilitating transactions in the proposed amendments to
.01(a)(A) (1) through (4) to Rule 5.2–E(j)(3) in Commentary .01(a)(2)(A) and (B) would
Securities Exchange Act Release No. 57751 (May 1, securities, to remove impediments to,
2008), 73 FR 25818 (May 7, 2008) (SR–NYSEArca– and perfect the mechanisms of, a free subject a substantial portion of a fund’s
2008–29) (Order Granting Approval of a Proposed and open market and a national market holdings in Non-U.S. Component Stocks
Rule Change, as Modified by Amendment No. 1 system and, in general, to protect to specified minimum liquidity and
Thereto, to Amend the Eligibility Criteria for
Components of an Index Underlying Investment investors and the public interest and market value requirements. Such
Company Units)(‘‘2008 Approval Order’’). See also because it is not designed to permit holdings also will continue to be subject
Securities Exchange Act Release No. 57561 (March unfair discrimination between to the weighting and diversification
26, 2008), 73 FR 17390 (April 1, 2008) (Notice of requirements of Commentary
Filing of Proposed Rule Change and Amendment customers, issuers, brokers, or dealers
No. 1 Thereto to Amend the Eligibility Criteria for The Exchange has in place .01(a)(2)(C) and (D), which prevent any
Components of an Index Underlying Investment surveillance procedures that are stock or small group of stocks from
Company Units). The Commission subsequently adequate to properly monitor trading in dominating a fund’s portfolio. The
approved generic criteria applicable to listing and proposed amendments to Commentary
trading of Managed Fund Shares, including series of Managed Fund Shares in all
exclusions for Derivative Securities Products and trading sessions and to deter and detect .01(a)(2) to Rule 8.600–E would provide
Index-Linked Securities in Commentary .01(a)(1)(A) violations of Exchange rules and additional flexibility to series of
through (D), in Securities Exchange Act Release No. applicable federal securities laws. The Managed Fund Shares investing in Non-
daltland on DSKBBV9HB2PROD with NOTICES
78397 (July 22, 2016), 81 FR 49320 (July 27, 2016)
(Order Granting Approval of Proposed Rule Change, Exchange notes that the Exchange or U.S. Component Stocks while
as Modified by Amendment No. 7 Thereto, Financial Industry Regulatory Authority continuing to apply substantial
Amending NYSE Arca Rule 8.600–E To Adopt (‘‘FINRA’’), on behalf of the Exchange, minimum criteria relating to liquidity,
Generic Listing Standards for Managed Fund market capitalization and
Shares). See also Amendment No. 7 to SR–
NYSEArca–2015–110, available at https://
16 See note 12, supra. diversification.
17 15 U.S.C. 78f(b).
www.sec.gov/comments/sr-nysearca-2015-110/
nysearca2015110-9.pdf. 18 15 U.S.C. 78f(b)(5). 19 See note 8, supra.
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![38756 Federal Register / Vol. 83, No. 152 / Tuesday, August 7, 2018 / Notices
With respect to the proposed value of securities and financial disclosed publicly in accordance with
amendment to Commentary .01(b)(5), instruments the investment company the 1940 Act.
the Exchange believes this amendment holds, it is both unnecessary and The proposed rule change is designed
is appropriate because a fund’s inappropriate to apply to such to perfect the mechanism of a free and
investment in non-agency, non-GSE and investment company securities the open market and, in general, to protect
privately-issued mortgage-related and criteria in Commentary .01(a)(1). For the investors and the public interest in that
other ABS may provide a fund with same reasons, such investment company it will facilitate the listing and trading
benefits associated with increased securities are appropriately excluded of additional types of Managed Fund
diversification, as such investments may from the equity portion of the portfolio Shares that will enhance competition
be less correlated to interest rates than for purposes of meeting the criteria in among market participants, to the
many other fixed income securities. In Commentary .01(a)(1). benefit of investors and the marketplace.
addition, a fund’s investment in non- The Exchange notes that Commentary
agency, non-GSE and privately-issued B. Self-Regulatory Organization’s
.01(a)(1)(A) through (D) to Rule 8.600– Statement on Burden on Competition
mortgage-related and other ABS will be E exclude certain ‘‘Derivative Securities
subject to a fund’s liquidity procedures Products’’ that are exchange-traded In accordance with Section 6(b)(8) of
as adopted by a fund’s board of investment company securities, the Act,21 the Exchange believes that the
directors. including Investment Company Units proposed rule change would not impose
The Exchange notes that the (as described in NYSE Arca Rule 5.2– any burden on competition that is not
Commission has previously approved E(j)(3)), Portfolio Depositary Receipts (as necessary or appropriate in furtherance
the listing of actively managed of the purposes of the Act. The
described in NYSE Arca Rule 8.100–E))
exchange-traded funds that can invest proposed rule change would permit
and Managed Fund Shares (as described
20% of their total assets in non-U.S. Exchange listing and trading under Rule
in NYSE Arca Rule 8.600–E)). In its
Government, non-agency, non-GSE and 19b–4(e) of additional types of Managed
2008 Approval Order approving
other privately issued asset-backed and Fund Shares, which would enhance
amendments to Commentary .01(a) to
MBS. In addition, the Commission has competition among market participants,
Rule 5.2(j)(3) to exclude Derivative
previously approved listing and trading to the benefit of investors and the
Securities Products from certain
of shares of an issue of Managed Fund marketplace.
provisions of Commentary .01(a) (which
Shares where such fund’s investments
exclusions are similar to those in C. Self-Regulatory Organization’s
in non-U.S. Government, non-agency,
non-GSE and other privately issued ABS Commentary .01(a)(1) to Rule 8.600–E), Statement on Comments on the
will, in the aggregate, not exceed more the Commission stated that ‘‘based on Proposed Rule Change Received From
than 20% of the total assets of the fund, the trading characteristics of Derivative Members, Participants, or Others
rather than the weight of the fixed Securities Products, it may be difficult
No written comments were solicited
income portion of the fund’s portfolio.20 for component Derivative Securities
or received with respect to the proposed
Therefore, the Exchange believes it is Products to satisfy certain quantitative
rule change.
appropriate to apply the 20% limitation index criteria, such as the minimum
to a fund’s investment in non-agency, market value and trading volume III. Date of Effectiveness of the
non-GSE and privately-issued mortgage- limitations.’’ The Exchange notes that it Proposed Rule Change and Timing for
related and other asset-backed securities would be difficult or impossible to Commission Action
components of a portfolio in apply to mutual fund shares certain of Within 45 days of the date of
Commentary .01(b)(5) to a fund’s total the generic quantitative criteria (e.g., publication of this notice in the Federal
assets. market capitalization, trading volume, Register or within such longer period
The Exchange further proposes to add or portfolio criteria) in Commentary .01 up to 90 days (i) as the Commission may
new Commentary .01(a)(3) to NYSE (A) through (D) applicable to U.S. designate if it finds such longer period
Arca Rule 8.600–E to provide that the Component Stocks. For example, the to be appropriate and publishes its
equity portion of a portfolio may requirements for U.S. Component reasons for so finding or (ii) as to which
include non-exchange-traded open-end Stocks in Commentary .01(a)(1)(B) that the self-regulatory organization
management investment company there be minimum monthly trading consents, the Commission will:
securities, which securities shall be volume of 250,000 shares, or minimum (A) By order approve or disapprove
excluded from the equity portion of the notional volume traded per month of the proposed rule change, or
portfolio for purposes of meeting the $25,000,000, averaged over the last six (B) institute proceedings to determine
criteria in Commentary .01(a)(1). A months are tailored to exchange-traded whether the proposed rule change
fund’s investment in such securities securities (i.e., U.S. Component Stocks) should be disapproved.
may be utilized, for example, to obtain and not to mutual fund shares, which
income on short-term cash balances do not trade in the secondary market IV. Solicitation of Comments
while awaiting attractive investment and for which no such volume Interested persons are invited to
opportunities, to provide liquidity in information is reported. In addition, submit written data, views, and
preparation for anticipated redemptions Commentary .01(a)(1)(A) relating to arguments concerning the foregoing,
or for defensive purposes. Such minimum market value of portfolio including whether the proposed rule
investments may include mutual funds component stocks, Commentary change is consistent with the Act.
that invest principally in securities and .01(a)(1)(C) relating to weighting of Comments may be submitted by any of
financial instruments that help the Fund portfolio component stocks, and the following methods:
daltland on DSKBBV9HB2PROD with NOTICES
meet its investment objective and/or to Commentary .01(a)(1)(D) relating to
equitize cash in the short term. Because minimum number of portfolio Electronic Comments
such securities must satisfy applicable components are not appropriately • Use the Commission’s internet
1940 Act diversification requirements, applied to open-end management comment form (http://www.sec.gov/
and have a net asset value based on the investment company securities; open- rules/sro.shtml); or
end investment companies hold
20 See note 11 [sic], supra. multiple individual securities as 21 15 U.S.C. 78f(b)(8).
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![Federal Register / Vol. 83, No. 152 / Tuesday, August 7, 2018 / Notices 38757
• Send an email to rule-comments@ SECURITIES AND EXCHANGE forth in Sections A, B, and C below, of
sec.gov. Please include File Number SR– COMMISSION the most significant parts of such
NYSEArca–2018–54 on the subject line. statements.
[Release No. 34–83758; File No. SR–
Paper Comments CboeBYX–2018–015] A. Self-Regulatory Organization’s
Statement of the Purpose of, and
• Send paper comments in triplicate Self-Regulatory Organizations; Cboe Statutory Basis for, the Proposed Rule
to Secretary, Securities and Exchange BYX Exchange, Inc.; Notice of Filing Change
Commission, 100 F Street NE, and Immediate Effectiveness of a
Proposed Rule Change To Extend the 1. Purpose
Washington, DC 20549–1090.
Pilot Period for the Exchange’s Retail The purpose of the proposed rule
All submissions should refer to File Price Improvement Program change is to extend the pilot period for
Number SR–NYSEArca–2018–54. This
August 1, 2018. the Exchange’s Retail Price
file number should be included on the
Pursuant to Section 19(b)(1) of the Improvement Program (the ‘‘Program’’),
subject line if email is used. To help the
Securities Exchange Act of 1934 (the which is set to expire on July 31, 2018,
Commission process and review your until the earlier of approval of the filing
comments more efficiently, please use ‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 30, to make the Program permanent or
only one method. The Commission will December 31, 2018.5
post all comments on the Commission’s 2018, Cboe BYX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BYX’’) filed with the Background
internet website (http://www.sec.gov/
Securities and Exchange Commission
rules/sro.shtml). Copies of the In November 2012, the Commission
(‘‘Commission’’) the proposed rule
submission, all subsequent approved the Program on a pilot basis.6
change as described in Items I and II
amendments, all written statements below, which Items have been prepared The Program is designed to attract retail
with respect to the proposed rule by the Exchange. The Exchange has order flow to the Exchange, and allows
change that are filed with the designated this proposal as a ‘‘non- such order flow to receive potential
Commission, and all written controversial’’ proposed rule change price improvement. The Program is
communications relating to the pursuant to Section 19(b)(3)(A) of the currently limited to trades occurring at
proposed rule change between the Act 3 and Rule 19b–4(f)(6)(iii) prices equal to or greater than $1.00 per
Commission and any person, other than thereunder,4 which renders it effective share. Under the Program, all Exchange
those that may be withheld from the upon filing with the Commission. The Users 7 are permitted to provide
public in accordance with the Commission is publishing this notice to potential price improvement for Retail
provisions of 5 U.S.C. 552, will be solicit comments on the proposed rule Orders 8 in the form of non-displayed
available for website viewing and change from interested persons. interest that is better than the national
printing in the Commission’s Public best bid that is a Protected Quotation
I. Self-Regulatory Organization’s (‘‘Protected NBB’’) or the national best
Reference Room, 100 F Street NE, Statement of the Terms of Substance of
Washington, DC 20549 on official offer that is a Protected Quotation
the Proposed Rule Change (‘‘Protected NBO’’, and together with the
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the The Exchange filed a proposal to Protected NBB, the ‘‘Protected NBBO’’).9
filing also will be available for extend the pilot period for the
inspection and copying at the principal Exchange’s Retail Price Improvement 5 The Exchange has filed to make the pilot
Program, which is currently scheduled program permanent. See Cboe–BYX–2018–014
office of the Exchange. All comments (pending publication).
to expire on July 31, 2018, until the
received will be posted without change. 6 See Securities Exchange Act Release No. 68303
earlier of approval of the filing to make (November 27, 2012), 77 FR 71652 (December 3,
Persons submitting comments are
the Program permanent or December 31, 2012) (‘‘RPI Approval Order’’) (SR–BYX–2012–019).
cautioned that we do not redact or edit 2018. 7 A ‘‘User’’ is defined in BYX Rule 1.5(cc) as any
personal identifying information from The text of the proposed rule change member or sponsored participant of the Exchange
comment submissions. You should is available at the Exchange’s website at who is authorized to obtain access to the System.
submit only information that you wish www.markets.cboe.com, at the principal
8 A ‘‘Retail Order’’ is defined in Rule 11.24(a)(2)
as an agency order that originates from a natural
to make available publicly. All office of the Exchange, and at the person and is submitted to the Exchange by a RMO,
submissions should refer to File Commission’s Public Reference Room. provided that no change is made to the terms of the
Number SR–NYSEArca–2018–54 and order with respect to price or side of market and
should be submitted on or before II. Self-Regulatory Organization’s the order does not originate from a trading
August 28, 2018. Statement of the Purpose of, and algorithm or any computerized methodology. See
Statutory Basis for, the Proposed Rule Rule 11.24(a)(2).
9 The term Protected Quotation is defined in BYX
For the Commission, by the Division of Change Rule 1.5(t) and has the same meaning as is set forth
Trading and Markets, pursuant to delegated
In its filing with the Commission, the in Regulation NMS Rule 600(b)(58). The terms
authority.22 Protected NBB and Protected NBO are defined in
Exchange included statements BYX Rule 1.5(s). The Protected NBB is the best-
Robert W. Errett,
concerning the purpose of and basis for priced protected bid and the Protected NBO is the
Deputy Secretary. the proposed rule change and discussed best-priced protected offer. Generally, the Protected
[FR Doc. 2018–16803 Filed 8–6–18; 8:45 am] any comments it received on the NBB and Protected NBO and the national best bid
(‘‘NBB’’) and national best offer (‘‘NBO’’, together
BILLING CODE 8011–01–P proposed rule change. The text of these with the NBB, the ‘‘NBBO’’) will be the same.
statements may be examined at the
daltland on DSKBBV9HB2PROD with NOTICES
However, a market center is not required to route
places specified in Item IV below. The to the NBB or NBO if that market center is subject
Exchange has prepared summaries, set to an exception under Regulation NMS Rule
611(b)(1) or if such NBB or NBO is otherwise not
1 15
available for an automatic execution. In such case,
U.S.C. 78s(b)(1). the Protected NBB or Protected NBO would be the
2 17 CFR 240.19b–4. best-priced protected bid or offer to which a market
3 15 U.S.C. 78s(b)(3)(A).
center must route interest pursuant to Regulation
22 17 CFR 200.30–3(a)(12). 4 17 CFR 240.19b–4(f)(6)(iii). NMS Rule 611.
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Document Created: 2018-11-06 10:38:23
Document Modified: 2018-11-06 10:38:23
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 83 FR 38753 |
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