I. Introduction

On May 15, 2019, NYSE Arca, Inc. (“NYSE Arca” or “Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) ^[1] and Rule 19b-4 thereunder,^[2] a proposed rule ( printed page 47025) change to change the listing rule applicable to shares (“Shares”) of the Aware Ultra-Short Duration Enhanced In□come ETF (“Fund”), a series of the Tidal ETF Trust (“Trust”). The proposed rule change was published for comment in the Federal Register on June 4, 2019.^[3] On July 8, 2019, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and superseded the Notice in its entirety.^[4] On July 10, 2019, the Exchange filed Amendment No. 2 to the proposed rule change, which amended the proposed rule change as modified by Amendment No. 1.^[5] On July 19, 2019, pursuant to Section 19(b)(2) of the Act,^[6] the Commission extended the time period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to approve or disapprove the proposed rule change.^[7] The Commission has received no comments on the proposed rule change. This order approves the proposed rule change, as modified by Amendments No. 1 and No. 2.

II. Description of the Proposed Rule Change, as Modified by Amendments No. 1 and No. 2  ⁸

The Exchange states that the Shares commenced trading on the Exchange on January 29, 2019, pursuant to the generic listing standards in Commentary .01 to NYSE Arca Rule 8.600-E, which govern Managed Fund Shares,^[9] and that the Fund's investments comply with those requirements.^[10] According to the Registration Statement,^[11] the investment objective of the Fund is to seek to maximize current income while maintaining a portfolio consistent with the preservation of capital and daily liquidity.

The Exchange filed the proposed rule change to modify the listing rule applicable to the Shares. The Exchange proposes certain deviations from the generic requirements, which it states are necessary for the Fund to achieve its investment objective in a manner that is cost-effective and that maximizes investors' returns.^[12]

A. The Fund's Permitted Investments

The Fund would seek to achieve its investment objective primarily by investing in “Fixed Income Securities,” which are: U.S. government securities; agency and non-agency asset-backed securities (“ABS”) and mortgage-backed securities (“MBS”) and collateralized mortgage obligations (“CMOs”); ^[13] floating or variable rate securities; collateralized bond obligations (“CBOs”), collateralized loan obligations (“CLOs”) and other collateralized debt obligations (“CDOs” and, together with CBOs and CLOs, “CDOs/CBOs/CLOs”); ^[14] corporate debt securities; municipal securities; inflation-indexed bonds; inflation-indexed securities issued by the U.S. Treasury; commercial paper (in addition to commercial paper that are cash equivalents); ^[15] convertible securities; and structured notes. In addition, the Fund could: (1) Hold cash and cash equivalents; ^[16] (2) enter into dollar rolls and short sales of Fixed Income Securities; (3) purchase securities and other instruments under when-issued, delayed delivery, to be announced or forward commitment transactions; (4) invest in private placements and Rule 144A securities; (5) hold U.S. and non-U.S. exchange-traded common stocks, preferred stocks, rights, warrants, exchange-traded notes (“ETNs”),^[17] exchange-traded funds (“ETFs”); ^[18] and (6) hold securities of other investment companies,^[19] subject to applicable limitations under Section 12(d)(1) of the 1940 Act. Further, the Fund could hold the following U.S. and non-U.S. exchange-listed and over-the-counter (“OTC”) derivative instruments: OTC foreign currency forwards; U.S. and non-U.S. exchange-listed futures and options on stocks, Fixed Income Securities, interest rates, credit, currencies, commodities or indices on the foregoing securities and financial instruments; and OTC options on stocks, Fixed Income Securities, interest rates, credit, currencies, commodities, ( printed page 47026) or indices on the foregoing securities and financial instruments.^[20]

B. Alternative Listing and Trading Criteria for the Shares

The Exchange represents that the Fund's portfolio satisfy all the generic listing requirements of Rule 8.600-E, except as discussed below.

The Fund proposes to invest in shares of non-exchange listed open-end management investment company securities. Such investments would not comply with the requirements of Commentary .01(a)(1)(A) through (E) to NYSE Arca Rule 8.600-E (U.S. Component Stocks) ^[21] because, according to the Exchange, it would be difficult or impossible to apply certain of the generic quantitative criteria ( e.g., market capitalization, trading volume, or portfolio criteria) applicable to U.S. Component Stocks to mutual fund shares.^[22] The Fund's portfolio holdings in such investment company securities would be limited to 20% of the total assets of the Fund.^[23]

The Exchange proposes that, instead of complying with the requirement of Commentary .01(b)(1) to NYSE Arca Rule 8.600-E,^[24] the Fund's Fixed Income Securities—other than Private ABS/MBS and CDOs/CBOs/CLOs—that in the aggregate account for at least 50% of the fixed income weight of the portfolio each would have a minimum original principal amount outstanding of $50 million or more. As proposed, Private ABS/MBS, CDOs/CBOs/CLOs held by the Fund would not be subject to any minimum original principal amount outstanding requirement.

The Exchange proposes that the Fund's investments in Private ABS/MBS not be required to comply with Commentary .01(b)(4) to NYSE Arca Rule 8.600-E.^[25] According to the Exchange, all other Fixed Income Securities, including the Fund's CDOs/CBOs/CLOs, would be subject to the criteria in Commentary .01(b)(4).

Additionally, the Exchange proposes that the Fund's investments not be required to comply with Commentary .01(b)(5) t NYSE Arca Rule 8.600-E.^[26] As mentioned above, the Fund would instead invest up to 20% of its total assets in Private ABS/MBS and up to 10% of its total assets in CDOs/CBOs/CLOs.

III. Discussion and Commission Findings

After careful review, the Commission finds that the proposed rule change, as modified by Amendments No. 1 and No. 2, is consistent with the Act and the rules and regulations thereunder applicable to a national securities exchange.^[27] In particular, the Commission finds that the proposed rule change, as modified by Amendments No. 1 and No. 2, is consistent with Section 6(b)(5) of the Act,^[28] which requires, among other things, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.

According to the Exchange, the Shares would continue to satisfy the initial and continued listing criteria for Managed Fund Shares pursuant to NYSE Arca Rule 8.600-E, except for the requirements of Commentary .01(a)(1), (b)(1), (b)(4), and (b)(5).

As discussed above, the Fund will not meet the requirement in Commentary .01(b)(1) of NYSE Arca Rule 8.600-E that components that in the aggregate account for at least 75% of the fixed income weight of the portfolio shall each have a minimum original principal amount outstanding of $100 million or more. Instead, the Exchange proposes that components that, in the aggregate, account for at least 50% of the fixed income weight of the portfolio each shall have a minimum original principal amount outstanding of $50 million or more. Private ABS/MBS and CDOs/CBOs/CLOs would be excluded from this requirement and would not be subject to a requirement for a minimum original principal amount outstanding. The Exchange represents that at least 50% of the fixed income weight of the Fund's portfolio would still be required to have a substantial minimum original principal amount outstanding.^[29] The Exchange asserts that not subjecting Private ABS/MBS and CDOs/CBOs/CLOs to a standard for minimum original principal amount outstanding would allow the Fund to invest in a larger variety of Private ABS/MBS and CDOs/CBOs/CLOs, which would help the Fund meet its investment objectives and diversify its holdings in such securities.^[30]

Also as discussed above, the Fund, with respect to its investments in Private ABS/MBS, will not comply with the generic listing requirement that ( printed page 47027) securities comprising at least 90% of the fixed income weight of the Fund's portfolio meet one of the criteria in Commentary .01(b)(4) to NYSE Arca Rule 8.600-E.^[31] The Exchange represents that, Fixed Income Securities, including CDOs/CBOs/CLOs, held by the Fund other than Private ABS/MBS, will continue to meet this requirement. The Exchange also represents that it will not invest more than 20% of the Fund's total assets in Private ABS/MBS. CDOs/CBOs/CLOs, which will meet the requirements of Commentary .01(b)(4), will be limited to 10% of the portfolio. The Exchange believes that this limitation will help the Fund maintain portfolio diversification and reduce manipulation risk.^[32] The Commission notes that it has previously approved the listing of Managed Fund Shares that exclude Private ABS/MBS from the provisions of rules comparable to Commentary .01(b)(4) to NYSE Arca Rule 8.600-E.^[33]

The Commission notes that CDOs/CBOs/CLOs will not be included in the definition of Private ABS/MBS and, as a result, will not be subject to the restriction on aggregate holdings of Private ABS/MBS set forth in Commentary .01(b)(5) to NYSE Arca Rule 8.600-E, which limits investments in Private ABS/MBS to 20% of the weight of the portfolio. Instead, the Fund may invest up to 20% of the Fund in Private ABS/MBS and up to 10% of the fund's total assets in CDOs/CBOs/CLOs such that, in the aggregate, they may account for up to 30% of the weight of the Fund's portfolio. The Commission notes that it has previously approved similar limitations for Private ABS/MBS and CDOs/CBOs/CLOs.^[34]

Finally, the Fund will not comply with the requirements of Commentary .01(a)(1)(A) through (E) to NYSE Arca Rule 8.600-E ^[35] in connection with the Fund's investments in non-exchange traded open-end investment company securities. The Exchange represents that investments in other non-exchange-traded open-end management investment company securities will not exceed 20% of the total assets of the Fund. The Exchange asserts that the criteria of Commentary .01(a)(1) does not need to apply to such securities because the securities must satisfy applicable 1940 Act diversification requirements, and the net asset value of the securities is based on the value of securities and financial assets the investment company holds.^[36] The Commission notes that it has previously approved a similar proposal to invest in non-exchange-traded open-end management investment company securities.^[37]

Other than as described above, the Fund's portfolio will continue to meet all the requirements of NYSE Arca Rule 8.600-E. The Commission believes that the proposed initial and continued listing requirements are designed to mitigate the potential for manipulation of the Shares, do not raise any novel issues, and are consistent with listing requirements of other Managed Fund Shares.^[38]

The Commission finds that the proposal is consistent with Section 11A(a)(1)(C)(iii) of the Act,^[39] which sets forth Congress' finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for, and transactions in, securities. According to the Exchange, quotation and last-sale information for the Shares will be available via the Consolidated Tape Association high-speed line. Further, the Portfolio Indicative Value, as defined in NYSE Arca Rule 8.600-E(c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session (defined in NYSE Arca Rule 7.34-E(a)(2)). Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers' computer screens and other electronic services. Information regarding the previous day's closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. In addition, the Fund's website will include a form of prospectus for the Fund and additional data relating to the net asset value (“NAV”) and other applicable quantitative information.

Exchange-traded options quotation and last-sale information for options cleared via the Options Clearing Corporation are available via the Options Price Reporting Authority. Intra-day and closing price information regarding exchange-traded options will be available from the exchange on which such instruments are traded. Price information relating to OTC options and swaps will be available from major market data vendors. Intra-day price information for exchange-traded derivative instruments will be available from the applicable exchange and from major market data vendors. For exchange-traded common stocks, preferred stocks, rights, warrants, ETNs and ETFs, intraday price quotations will generally be available from broker-dealers and trading platforms (as applicable). Intraday and other price information for the Fixed Income Securities in which the Fund invests will be available through subscription services, which can be accessed by authorized participants and other market participants. Additionally, the Trade Reporting and Compliance Engine (“TRACE”) of the Financial Industry Regulatory Authority (“FINRA”) will be a source of price information for corporate bonds, privately-issued securities, MBS and ABS, to the extent transactions in such securities are reported to TRACE.^[40] Shares of money market funds are typically priced once each business day and their prices will be available through the applicable fund's website or from major market data vendors. Price information regarding U.S. government securities, repurchase agreements, reverse repurchase agreements and cash equivalents generally may be obtained from brokers and dealers who make markets in such securities or through nationally recognized pricing services through subscription agreements.

The Commission also believes that the proposal is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Exchange states that it has obtained a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio (as defined in ( printed page 47028) NYSE Rule 8.600-E(c)(2)) will be made available to all market participants at the same time.^[41] In addition, the Exchange states that on a daily basis, the Fund discloses on its website the Disclosed Portfolio of the Fund that forms the basis for the Fund's NAV calculation.^[42] Trading in the Shares also will be subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets forth circumstances under which Shares of a fund may be halted. Further, trading in the Shares may be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E have been reached, because of market conditions, or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable.^[43]

The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees.^[44] Additionally, the Commission notes that the Reporting Authority that provides the Disclosed Portfolio must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material, non-public information regarding the actual components of the portfolio.^[45]

The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities.^[46] In support of its proposal, the Exchange has made the following representations:

(1) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange.^[47]

(2) Trading in the Shares will be subject to the existing trading surveillances administered by the Exchange, as well as cross-market surveillances administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws.^[48]

(3) The Exchange or FINRA, on behalf of the Exchange, or both, (1) will communicate as needed regarding trading in the Shares, ETFs, certain exchange-traded options and certain futures with other markets and other entities that are members of the Intermarket Surveillance Group (“ISG”); and (2) may obtain trading information regarding trading in the Shares, ETFs, certain exchange-traded options and certain futures from such markets and other entities.^[49] The Exchange is able to access from FINRA, as needed, trade information for certain Fixed Income Securities held by the Fund reported to TRACE. FINRA also can access data obtained from the Municipal Securities Rulemaking Board relating to certain municipal bond trading activity for surveillance purposes in connection with trading in the Shares.^[50]

(4) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions.^[51]

(5) The Fund will be in compliance with Rule 10A-3 under the Act,^[52] as provided by NYSE Arca Rule 5.3-E for initial and continued listing of shares.^[53]

(6) All statements and representations made in the proposed rule change regarding the description of the portfolio, limitations on portfolio holdings or reference assets, or the applicability of Exchange listing rules specified in this rule filing shall constitute continued listing requirements for listing the Shares on the Exchange. In addition, the issuer has represented to the Exchange that it will advise the Exchange of any failure by the Fund to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. If the Fund is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Rule 5.5(m)-E.^[54]

This approval order is based on all of the Exchange's representations, including those set forth above and in Amendments No. 1 and No. 2.

For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendments No. 1 and No. 2, is consistent with Section 6(b)(5) of the Act ^[55] the rules and regulations thereunder applicable to a national securities exchange.

IV. Conclusion

It is therefore ordered, pursuant to Section 19(b)(2) of the Act,^[56] that the proposed rule change (SR-NYSEArca-2019-38), as modified by Amendments No. 1 and No. 2, be, and hereby is, approved.