Federal Register / Vol. 81, No. 29 / Friday, February 12, 2016 / Notices 7599 

13 17 CFR [sic] § 200.30–3(a)(12) and (59). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3The Commission approved BATS Rule 14.11(i) 

in Securities Exchange Act Release No. 65225 

(August 30, 2011), 76 FR 55148 (September 6, 2011) 

(SR–BATS–2011–018). 

4See Registration Statement on Form N–1A for 

the Trust, dated October 8, 2015 (File Nos. 333– 

173276 and 811–22542). The descriptions of the 

Fund and the Shares contained herein are based, in 

part, on information in the Registration Statement. 

The Commission has issued an order granting 

certain exemptive relief to the Trust under the 

Investment Company Act of 1940 (15 U.S.C. 80a– 

1) (‘‘1940 Act’’) (the ‘‘Exemptive Order’’). See 

Investment Company Act Release No. 29524 

(December 13, 2010) (File No. 812–13487). 

5An investment adviser to an open-end fund is 

required to be registered under the Investment 

Advisers Act of 1940 (the ‘‘Advisers Act’’). As a 

result, the Adviser and its related personnel as well 

as the Sub-Adviser and its related personnel are 

subject to the provisions of Rule 204A–1 under the 

Continued 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NASDAQ–2016–014 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–NASDAQ–2016–014. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of the 

filing also will be available for 

inspection and copying at Nasdaq’s 

principal office. All comments received 

will be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NASDAQ–2016–014 and should be 

submitted on or before March 4, 2016. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.13

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2016–02837 Filed 2–11–16; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–77078; File No. SR–BATS– 

2016–04] 

Self-Regulatory Organizations; BATS 

Exchange, Inc.; Notice of Filing of a 

Proposed Rule Change to Rule 14.11(i), 

Managed Fund Shares, To List and 

Trade Shares of the SPDR DoubleLine 

Short Term Total Return Tactical ETF 

of the SSgA Active Trust 

February 8, 2016. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

4, 2016, BATS Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘BATS’’) 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 Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange is proposing a rule 

change to list and trade shares of the 

SPDRDoubleLine Short Term Total 

Return Tactical ETF (the ‘‘Fund’’) of the 

SSgA Active Trust (the ‘‘Trust’’) under 

BATS Rule 14.11(i) (‘‘Managed Fund 

Shares’’). The shares of the Fund are 

collectively referred to herein as the 

‘‘Shares.’’ 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at www.batstrading.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 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Shares under BATS Rule 

14.11(i), which governs the listing and 

trading of Managed Fund Shares on the 

Exchange.3 The Fund will be an actively 

managed fund. The Shares will be 

offered by the Trust, which was 

established as a Massachusetts business 

trust on March 30, 2011. The Trust is 

registered with the Commission as an 

open-end investment company and has 

filed a registration statement on behalf 

of the Fund on Form N–1A 

(‘‘Registration Statement’’) with the 

Commission.4

Description of the Shares and the Fund 

SSGA Funds Management, Inc. will 

be the investment adviser (‘‘SSGA FM’’ 

or ‘‘Adviser’’) to the Fund. The Adviser 

will serve as the administrator for the 

Fund (the ‘‘Administrator’’). DoubleLine 

Capital LP will be the Fund’s subadviser (‘‘Sub-Adviser’’). State Street 

Global Markets, LLC (the ‘‘Distributor’’) 

will be the principal underwriter and 

distributor of the Fund’s Shares. State 

Street Bank and Trust Company (the 

‘‘Sub-Administrator’’, ‘‘Custodian’’, 

‘‘Transfer Agent’’ or ‘‘Lending Agent’’) 

will serve as sub-administrator, 

custodian, transfer agent, and, where 

applicable, lending agent for the Fund. 

BATS Rule 14.11(i)(7) provides that, if 

the investment adviser to the 

investment company issuing Managed 

Fund Shares is affiliated with a brokerdealer, such investment adviser shall 

erect a ‘‘fire wall’’ between the 

investment adviser and the brokerdealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company portfolio.5 In addition, Rule 


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Advisers Act relating to codes of ethics. This Rule 

requires investment advisers to adopt a code of 

ethics that reflects the fiduciary nature of the 

relationship to clients as well as compliance with 

other applicable securities laws. Accordingly, 

procedures designed to prevent the communication 

and misuse of non-public information by an 

investment adviser must be consistent with Rule 

204A–1 under the Advisers Act. In addition, Rule 

206(4)–7 under the Advisers Act makes it unlawful 

for an investment adviser to provide investment 

advice to clients unless such investment adviser has 

(i) adopted and implemented written policies and 

procedures reasonably designed to prevent 

violation, by the investment adviser and its 

supervised persons, of the Advisers Act and the 

Commission rules adopted thereunder; (ii) 

implemented, at a minimum, an annual review 

regarding the adequacy of the policies and 

procedures established pursuant to subparagraph (i) 

above and the effectiveness of their 

implementation; and (iii) designated an individual 

(who is a supervised person) responsible for 

administering the policies and procedures adopted 

under subparagraph (i) above. 

6The term ‘‘under normal circumstances’’ 

includes, but is not limited to, the absence of 

extreme volatility or trading halts in the fixed 

income markets or the financial markets generally; 

operational issues causing dissemination of 

inaccurate market information; or force majeure 

type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of 

terrorism, riot or labor disruption or any similar 

intervening circumstance. 

7 Duration is a measure used to determine the 

sensitivity of a security’s price to changes in 

interest rates. The longer a security’s duration, the 

more sensitive it will be to changes in interest rates. 

8Municipal securities are securities issued by 

states, municipalities and other political 

subdivisions, agencies, authorities and 

instrumentalities of states and multi-state agencies 

or authorities. The municipal securities which the 

Portfolio Fund may purchase include general 

obligation bonds and limited obligation bonds (or 

revenue bonds), including industrial development 

bonds issued pursuant to former federal tax law. 

General obligation bonds are obligations involving 

the credit of an issuer possessing taxing power and 

are payable from such issuer’s general revenues and 

not from any particular source. Limited obligation 

bonds are payable only from the revenues derived 

from a particular facility or class of facilities or, in 

some cases, from the proceeds of a special excise 

or other specific revenue source. Also included 

within the general category of municipal securities 

are municipal leases, certificates of participation in 

such lease obligations or installment purchase 

contract obligations. 

9For example, the Fund may invest a substantial 

portion of its assets in U.S. agency mortgage passthrough securities. The term ‘‘U.S. agency mortgage 

pass-through security’’ refers to a category of passthrough securities backed by pools of mortgages and 

issued by one of several U.S. Governmentsponsored enterprises: Ginnie Mae, Fannie Mae or 

Freddie Mac. The Fund may seek to obtain 

exposure to U.S. agency mortgage pass-through 

securities through the use of ‘‘to-be-announced’’ or 

‘‘TBA transactions.’’ ‘‘TBA’’ refers to a commonly 

used mechanism for the forward settlement of U.S. 

agency mortgage pass-through securities, and not to 

a separate type of mortgage-backed security. 

Transactions in mortgage pass-through securities 

may occur through the use of TBA transactions. 

10The term NAABS is used by the Fund to 

describe securities backed by installment contracts, 

credit-card receivables or other assets but does not 

include either residential or commercial mortgagebacked securities. Both asset-backed and 

commercial mortgage-backed securities represent 

interests in ‘‘pools’’ of assets in which payments of 

both interest and principal on the securities are 

made on a regular basis. NAABS also include 

institutionally traded senior floating rate debt 

obligations issued by asset-backed pools and other 

issues, and interests therein. 

14.11(i)(7) further requires that 

personnel who make decisions on the 

investment company’s portfolio 

composition must be subject to 

procedures designed to prevent the use 

and dissemination of material 

nonpublic information regarding the 

applicable investment company 

portfolio. Rule 14.11(i)(7) is similar to 

BATS Rule 14.11(b)(5)(A)(i), however, 

Rule 14.11(i)(7) in connection with the 

establishment of a ‘‘fire wall’’ between 

the investment adviser and the brokerdealer reflects the applicable open-end 

fund’s portfolio, not an underlying 

benchmark index, as is the case with 

index-based funds. The Adviser and 

Sub-Adviser are not registered as a 

broker-dealer but the Adviser is 

affiliated with a broker-dealer and has 

implemented a ‘‘fire wall’’ with respect 

to such broker-dealer regarding access to 

information concerning the composition 

and/or changes to the Fund’s portfolio. 

The Sub-Adviser is not affiliated with a 

broker-dealer. In the event (a) the 

Adviser or Sub-Adviser becomes 

registered as a broker-dealer or newly 

affiliated with a broker-dealer, or (b) any 

new adviser or sub-adviser is a 

registered broker-dealer or becomes 

affiliated with a broker-dealer, it will 

implement a fire wall with respect to its 

relevant personnel or broker-dealer 

affiliate regarding access to information 

concerning the composition and/or 

changes to the portfolio, and will be 

subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. 

SPDR DoubleLine Short Term Total 

Return Tactical ETF 

According to the Registration 

Statement, the Fund will seek to 

maximize current income with a dollarweighted average effective duration 

between one and three years. To achieve 

its objective, the Fund will invest, under 

normal circumstances,6 in a diversified 

portfolio of fixed income securities of 

any credit quality subject to certain 

limitations as described further below. 

The Fund is an actively-managed fund 

that does not seek to replicate the 

performance of a specified index. 

The Sub-Adviser will monitor the 

duration of the securities held by the 

Fund to seek to mitigate exposure to 

interest rate risk.7 Under normal 

circumstances, the Sub-Adviser will 

seek to maintain an investment portfolio 

with a weighted average effective 

duration between 1 and 3 years. The 

duration of the portfolio may vary 

materially from its target, from time to 

time. 

The Sub-Adviser will actively manage 

the Fund’s asset class exposure using a 

top-down approach based on analysis of 

sector fundamentals and rotate Fund 

assets among sectors in various markets 

to attempt to maximize return. 

Individual securities within asset 

classes will be selected using a bottomup approach. Under normal 

circumstances, the Sub-Adviser will use 

a controlled risk approach in managing 

the Fund’s investments. The techniques 

of this approach attempt to control the 

principal risk components of the fixed 

income markets and include 

consideration of: Security selection 

within a given sector; relative 

performance of the various market 

sectors; the shape of the yield curve; 

and fluctuations in the overall level of 

interest rates. In certain situations or 

market conditions, the Fund may 

temporarily depart from its normal 

investment policies and strategies 

provided that the alternative is in the 

best interest of the Fund. For example, 

the Fund may hold a higher than normal 

proportion of its assets in cash in times 

of extreme market stress. 

Principal Holdings 

The Fund intends to achieve its 

investment objective by investing, under 

normal circumstances, at least 80% of 

its net assets in a diversified portfolio of 

Fixed Income Securities, as defined 

below, subject to certain limits 

described below. For purposes of this 

filing, Fixed Income Securities are 

defined as the following instruments: 

Securities issued or guaranteed by the 

U.S. government or its agencies, 

instrumentalities or sponsored 

corporations; inflation protected public 

obligations of the U.S. Treasury 

(‘‘TIPS’’); securities issued or 

guaranteed by state or local 

governments or their agencies or 

instrumentalities (commonly known as 

municipal bonds); 8 asset backed 

securities (‘‘ABS’’) (which include the 

following: Agency and non-agency 

residential mortgage-backed securities 

(‘‘RMBS’’),9 agency and non-agency 

commercial mortgage-backed securities 

(‘‘CMBS’’), and any other agency and 

non-agency asset-backed securities 

(‘‘NAABS’’); 10 collateralized debt 

obligations (‘‘CDOs’’); collateralized 

loan obligations (‘‘CLOs’’); collateralized 

bond obligations (‘‘CBOs’’); 

collateralized mortgage obligations 

(‘‘CMOs’’); and Real Estate Mortgage 

Investment Conduits (‘‘REMICs’’) and 


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11A REMIC is an entity that holds a fixed pool 

of mortgages and issues multiple classes of interests 

in itself to investors and is treated like a partnership 

for federal income tax purposes with its income 

passed through to its interest holders. REMICs hold 

commercial and residential mortgages in trust and 

issue interests in those mortgages to investors 

through bonds or other securities. 

12Stripped securities are securities composed of 

the separate income of principal components of a 

debt security. For example, stripped mortgage 

securities are created when the interest and 

principal components of a mortgage security are 

separated and sold as individual securities. 

13The Fund may invest up to 20% of its portfolio 

in junior bank loans. 

14For purposes of this filing, ETPs include those 

securities described in BATS Rule 14.11. The Fund 

may invest in certain ETPs that pay fees to the 

Adviser and its affiliates for management, 

marketing or other services. The ETPs all will be 

listed and traded in the U.S. on national securities 

exchanges. While the Fund may invest in inverse 

ETPs, the Fund will not invest in leveraged or 

inverse leveraged ETPs (e.g., 2X or 3X). 

15A floating rate security provides for the 

automatic adjustment of its interest rate whenever 

a specified interest rate changes. Interest rates on 

these securities are ordinarily tied to, and are a 

percentage of, a widely recognized interest rate, 

such as the yield on 90-day US Treasury bills or the 

prime rate of a specified bank. These rates may 

change as often as twice daily. 

16 Variable rate securities are instruments issued 

or guaranteed by entities such as: (1) The U.S. 

Government, or an agency or instrumentality 

thereof; (2) states, municipalities and other political 

subdivisions, agencies, authorities and 

instrumentalities of states and multi-state agencies 

or authorities; (3) corporations; (4) financial 

institutions; (5) insurance companies; or (6) trusts 

that have a rate of interest subject to adjustment at 

regular intervals but less frequently than annually. 

A variable rate security provides for the automatic 

establishment of a new interest rate on set dates. 

Variable rate obligations whose interest is 

readjusted no less frequently than annually will be 

deemed to have a maturity equal to the period 

remaining until the next readjustment of the 

interest rate. 

17While the Fund is permitted to invest without 

restriction in corporate bonds, the Sub-Adviser 

expects that, under normal circumstances, the Fund 

will generally seek to invest in corporate bond 

issuances that have at least $100,000,000 par 

amount outstanding in developed countries and at 

least $200,000,000 par amount outstanding in 

emerging market countries. Further, component 

corporate bonds that in the aggregate account for at 

least 75% of the weight of corporate bonds will 

have a minimum original principal outstanding of 

$100 million or more. 

18See supra note 14 [sic]. 

19The Fund may invest up to 20% of its net 

assets in one or more ETPs that are qualified 

publicly traded partnerships (‘‘QPTPs’’) and whose 

principal activities are the buying and selling of 

commodities or options, futures, or forwards with 

respect to commodities. Income from QPTPs is 

generally qualifying income. A QPTP is an entity 

Continued 

Re-REMICs (which are REMICs that 

have been resecuritized) 11); stripped 

securities; 12 zero coupon securities; 

foreign (including emerging markets) 

and domestic corporate bonds; 

sovereign debt; bank loans; 13 preferred 

securities; and exchange traded 

products (‘‘ETPs’’) that invest in Fixed 

Income Securities.14 To the extent 

applicable, debt instruments that 

comprise Fixed Income Securities may 

be either fixed rate securities, floating 

securities,15 or variable rate securities.16

The Fund intends to invest at least 

25% of its net assets in mortgage-backed 

securities of any maturity or type 

guaranteed by, or secured by collateral 

that is guaranteed by, the United States 

Government, its agencies, 

instrumentalities or sponsored 

corporations. The Fund also may invest 

in privately issued mortgage-backed 

securities of any rating assigned by 

Moody’s Investor Service, Inc. 

(‘‘Moody’s’’) or Standard & Poor’s Rating 

Service (‘‘S&P’’) or assigned by any 

other nationally recognized statistical 

rating organization (‘‘NRSRO’’) or in 

unrated securities that are determined 

by the Sub-Adviser to be of comparable 

quality. 

The Fund may invest up to 20% of its 

net assets in the aggregate in non-agency 

ABS. 

The Fund may invest in U.S. 

Government obligations. U.S. 

Government obligations are a type of 

bond. U.S. Government obligations 

include securities issued or guaranteed 

as to principal and interest by the U.S. 

Government, its agencies, 

instrumentalities, or sponsored 

corporations. The Fund may also invest 

in TIPS of the U.S. Treasury. TIPS are 

a type of security issued by a 

government that are designed to provide 

inflation protection to investors. 

The Fund may invest in corporate 

bonds.17 The investment return of 

corporate bonds reflects interest on the 

bond and changes in the market value 

of the bond. The market value of a 

corporate bond may be affected by the 

credit rating of the corporation, the 

corporation’s performance and 

perceptions of the corporation in the 

market place. Such corporate bonds may 

be investment grade or may be below 

investment grade. The Fund may invest 

up to 20% of its net assets in corporate 

high yield securities (commonly known 

as ‘‘junk bonds’’). 

The Fund may invest in sovereign 

debt. Sovereign debt obligations are 

issued or guaranteed by foreign 

governments or their agencies. 

Sovereign debt may be in the form of 

conventional securities or other types of 

debt instruments such as loans or loan 

participations. Sovereign debt 

obligations may be either investment 

grade or below investment grade. 

The Fund may invest in bank loans, 

which include floating rate loans 18

Bank loan interests may be acquired 

from U.S. or foreign commercial banks, 

insurance companies, finance 

companies or other financial 

institutions that have made loans or are 

members of a lending syndicate or from 

other holders of loan interests. Bank 

loans typically pay interest at rates 

which are re-determined periodically on 

the basis of a floating base lending rate 

(such as the London Inter-Bank Offered 

Rate) plus a premium. Bank loans are 

typically of below investment grade 

quality. Bank loans generally (but not 

always) hold the most senior position in 

the capital structure of a borrower and 

are often secured with collateral. The 

Fund may invest in both secured and 

unsecured loans. 

The Fund may invest in CDOs, CLOs, 

CMOs, and CBOs. A CLO is a financing 

company (generally called a Special 

Purpose Vehicle or ‘‘SPV’’), created to 

reapportion the risk and return 

characteristics of a pool of assets. While 

the assets underlying CLOs are typically 

bank loans, the assets may also include: 

(i) Unsecured loans, (ii) other debt 

securities that are rated below 

investment grade, (iii) debt tranches of 

other CLOs, and (iv) equity securities 

incidental to investments in bank loans. 

When investing in CLOs, the Fund will 

not invest in equity tranches, which are 

the lowest tranche. However, the Fund 

may invest in lower debt tranches of 

CLOs, which typically experience a 

lower recovery, greater risk of loss, or 

deferral or non-payment of interest than 

more senior debt tranches of the CLO. 

In addition, the Fund intends to invest 

in CLOs consisting primarily of 

individual bank loans of borrowers and 

not repackaged CLO obligations from 

other high risk pools. The underlying 

bank loans purchased by CLOs are 

generally performing at the time of 

purchase but may become nonperforming, distressed or defaulted. 

CLOs with underlying assets of nonperforming, distressed or defaulted 

loans are not contemplated to comprise 

a significant portion of the Fund’s 

investments in CLOs. A CBO is a trust 

which is backed by a diversified pool of 

below investment grade fixed income 

securities. CMOs are debt obligations 

collateralized by mortgage loans or 

mortgage pass-through securities. 

The Fund may purchase exchangetraded or OTC preferred securities. 

Preferred securities pay fixed or 

adjustable rate dividends to investors 

and have preference over common stock 

in the payment of dividends and the 

liquidation of a company’s assets. 

The Fund may invest in ETPs that 

invest in Fixed Income Securities, 

which include exchange traded funds 

registered under the 1940 Act and 

exchange traded notes.19 The Adviser 


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that is treated as a partnership for federal income 

tax purposes, subject to certain requirements. If 

such an ETP fails to qualify as a QPTP, the income 

generated from the Fund’s investment in the ETP 

may not be qualifying income. Examples of such 

entities are the PowerShares DB Energy Fund, 

PowerShares DB Oil Fund, PowerShares DB 

Precious Metals Fund, PowerShares DB Gold Fund, 

PowerShares DB Silver Fund, PowerShares DB Base 

Metals Fund, and PowerShares DB Agriculture 

Fund. 

20 Depositary Receipts are receipts, typically 

issued by a bank or trust company, which evidence 

ownership of underlying securities issued by a 

foreign corporation. For ADRs, the depository is 

typically a U.S. financial institution and the 

underlying securities are issued by a foreign issuer. 

For other Depositary Receipts, the depository may 

be a foreign or a U.S. entity, and the underlying 

securities may have a foreign or a U.S. issuer. 

Depositary Receipts will not necessarily be 

denominated in the same currency as their 

underlying securities. Generally, ADRs, in 

registered form, are designed for use in the U.S. 

securities market, and EDRs, in bearer form, are 

designated for use in European securities markets. 

GDRs are tradable both in the United States and in 

Europe and are designed for use throughout the 

world. The Fund may invest in sponsored or 

unsponsored ADRs; however, not more than 10% 

of the net assets of the Fund will be invested in 

unsponsored ADRs. All exchange-traded equity 

securities (e.g., exchange traded common stocks and 

exchange traded preferred securities, Depositary 

Receipts, and ETPs and certain other exchangetraded investment company securities) in which the 

Fund may invest will trade on markets that are 

members of the Intermarket Surveillance Group 

(‘‘ISG’’) or that have entered into a comprehensive 

surveillance agreement with the Exchange. 

21Swap agreements are contracts between parties 

in which one party agrees to make periodic 

payments to the other party based on the change in 

market value or level of a specified rate, index or 

asset. In return, the other party agrees to make 

payments to the first party based on the return of 

a different specified rate, index or asset. 

may receive management or other fees 

from the ETPs (‘‘Affiliated ETPs’’) in 

which the Fund may invest, as well as 

a management fee for managing the 

Fund. 

Other Portfolio Holdings 

While the Adviser and Sub-Adviser, 

under normal circumstances, will invest 

at least 80% of the Fund’s net assets in 

the instruments described above, the 

Adviser and Sub-Adviser may invest up 

to 20% of the Fund’s net assets in other 

securities and financial instruments, as 

described below. 

The Fund may invest in repurchase 

agreements with commercial banks, 

brokers or dealers to generate income 

from its excess cash balances and to 

invest securities lending cash collateral. 

A repurchase agreement is an agreement 

under which a fund acquires a financial 

instrument (e.g., a security issued by the 

U.S. Government or an agency thereof, 

a banker’s acceptance or a certificate of 

deposit) from a seller, subject to resale 

to the seller at an agreed upon price and 

date (normally, the next business day). 

The Fund may also enter into reverse 

repurchase agreements, which involve 

the sale of securities with an agreement 

to repurchase the securities at an 

agreed-upon price, date and interest 

payment and have the characteristics of 

borrowing. The Fund’s exposure to 

reverse repurchase agreements will be 

covered by securities having a value 

equal to or greater than such 

commitments. Under the 1940 Act, 

reverse repurchase agreements are 

considered borrowings. The Fund does 

not expect to engage, under normal 

circumstances, in reverse repurchase 

agreements with respect to more than 

10% of its net assets. 

The Fund may invest in both 

exchange-traded and OTC U.S. common 

stocks. The Fund may also invest in 

exchange-traded common stocks of 

foreign corporations. The Fund’s 

investments in common stock of foreign 

corporations may also be in the form of 

American Depositary Receipts 

(‘‘ADRs’’), Global Depositary Receipts 

(‘‘GDRs’’) and European Depositary 

Receipts (‘‘EDRs’’) (collectively 

‘‘Depositary Receipts’’).20

The Fund may invest in convertible 

securities traded on an exchange or 

OTC. Convertible securities are bonds, 

debentures, notes, or other securities 

that may be converted or exchanged (by 

the holder or by the issuer) into shares 

of the underlying common stock (or 

cash or securities of equivalent value) at 

a stated exchange ratio. 

The Fund may lend its portfolio 

securities in an amount not to exceed 

331⁄3% of the value of its total assets via 

a securities lending program through the 

Lending Agent, to brokers, dealers and 

other financial institutions desiring to 

borrow securities to complete 

transactions and for other purposes. A 

securities lending program allows the 

Fund to receive a portion of the income 

generated by lending its securities and 

investing the respective collateral. The 

Fund will receive collateral for each 

loaned security which is at least equal 

to 102% of the market value of that 

security, marked to market each trading 

day. 

In addition to repurchase agreements, 

the Fund may invest in short-term 

instruments, including money market 

instruments, (including money market 

funds advised by the Adviser), cash and 

cash equivalents, on an ongoing basis to 

provide liquidity or for other reasons. 

Money market instruments are generally 

short-term investments that may include 

but are not limited to: (i) Shares of 

money market funds (including those 

advised by the Adviser); (ii) obligations 

issued or guaranteed by the U.S. 

government, its agencies or 

instrumentalities (including 

government-sponsored enterprises); (iii) 

negotiable certificates of deposit 

(‘‘CDs’’), bankers’ acceptances, fixed 

time deposits and other obligations of 

U.S. and foreign banks (including 

foreign branches) and similar 

institutions; (iv) commercial paper rated 

at the date of purchase ‘‘Prime-1’’ by 

Moody’s or ‘‘A–1’’ by S&P, or if unrated, 

of comparable quality as determined by 

the Adviser; (v) non-convertible 

corporate debt securities (e.g., bonds 

and debentures) with remaining 

maturities at the date of purchase of not 

more than 397 days and that satisfy the 

rating requirements set forth in Rule 2a– 

7 under the 1940 Act; and (vi) shortterm U.S. dollar-denominated 

obligations of foreign banks (including 

U.S. branches) that, in the opinion of 

the Adviser, are of comparable quality 

to obligations of U.S. banks which may 

be purchased by the Fund. Any of these 

instruments may be purchased on a 

current or a forward-settled basis. Time 

deposits are non-negotiable deposits 

maintained in banking institutions for 

specified periods of time at stated 

interest rates. Bankers’ acceptances are 

time drafts drawn on commercial banks 

by borrowers, usually in connection 

with international transactions. 

The Fund may conduct foreign 

currency transactions on a spot (i.e., 

cash) or forward basis (i.e., by entering 

into forward contracts to purchase or 

sell foreign currencies). 

The Fund may invest in inverse 

floating rate debt instruments (‘‘inverse 

floaters’’). Inverse floaters are a type of 

instrument that bears a floating or 

variable interest rate that moves in the 

opposite direction to interest rates 

generally or the interest rate on another 

security or index. 

In addition to ETPs that invest in 

Fixed Income Securities as described in 

the Principal Holdings, the Fund may 

also invest in the securities of other 

non-exchange traded investment 

companies, including affiliated funds 

and money market funds, subject to 

applicable limitations under Section 

12(d)(1) of the 1940 Act. 

The Fund may invest in the securities 

of exchange-traded and OTC real estate 

investment trusts (‘‘REITs’’). 

The Fund may invest up to 20% of its 

assets in the following derivatives: 

Exchange-traded futures on Treasuries 

or Eurodollars; U.S. exchange-traded or 

OTC put and call options contracts and 

OTC or exchange-traded swap 

agreements on Fixed Income Securities 

and/or derivatives on indices based on 

Fixed Income Securities 21 (including 

interest rate swaps, total return swaps, 


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22The Fund will enter into CDS agreements only 

with counterparties that meet certain standards of 

creditworthiness. 

23 ‘‘Restricted Securities,’’ for purposes of this 

filing, are defined as Rule 144A securities and may 

include both mortgage-backed and non-mortgage 

144A securities. To the extent that the Fund’s 

holding of Restricted Securities include any of the 

assets subject to limitations described below, such 

holdings will be subject to those limitations, as 

applicable. 

24 In reaching liquidity decisions, the Adviser and 

Sub-Adviser may consider factors including: The 

frequency of trades and quotes for the security; the 

number of dealers wishing to purchase or sell the 

security and the number of other potential 

purchasers; dealer undertakings to make a market 

in the security; the nature of the security and the 

nature of the marketplace in which it trades (e.g., 

the time needed to dispose of the security, the 

method of soliciting offers, and the mechanics of 

transfer). 

25The Commission has stated that long-standing 

Commission guidelines have required open-end 

funds to hold no more than 15% of their net assets 

in illiquid securities and other illiquid assets. See 

Investment Company Act Release No. 28193 (March 

11, 2008), 73 FR 14618 (March 18, 2008), footnote 

34. See also, Investment Company Act Release No. 

5847 (October 21, 1969), 35 FR 19989 (December 

31, 1970) (Statement Regarding ‘‘Restricted 

Securities’’); Investment Company Act Release No. 

18612 (March 12, 1992), 57 FR 9828 (March 20, 

1992) (Revisions of Guidelines to Form N–1A). A 

fund’s portfolio security is illiquid if it cannot be 

disposed of in the ordinary course of business 

within seven days at approximately the value 

ascribed to it by the fund. See Investment Company 

Act Release No. 14983 (March 12, 1986), 51 FR 

9773 (March 21, 1986) (adopting amendments to 

Rule 2a–7 under the 1940 Act); Investment 

Company Act Release No. 17452 (April 23, 1990), 

55 FR 17933 (April 30, 1990) (adopting Rule 144A 

under the Securities Act of 1933). 

26 26 U.S.C. 851. 

27The Fund generally considers an issuer to be 

economically tied to an emerging market country if: 

(i) The issuer is organized under the laws of an 

emerging country; (ii) the issuer’s securities are 

traded principally in an emerging country; or (iii) 

during the issuer’s most recent fiscal year it derived 

at least 50% of its revenues, earnings before 

interest, taxes, depreciation, and amortization, or 

profits from goods produced or sold by, investments 

made in, or services performed in emerging 

countries, or it had at least 50% of its assets in 

emerging countries. 

excess return swaps, and credit default 

swaps). The Fund will segregate cash 

and/or appropriate liquid assets if 

required to do so by Commission or 

Commodity Futures Trading 

Commission (‘‘CFTC’’) regulation or 

interpretation. 

In the case of a credit default swap 

(‘‘CDS’’), the contract gives one party 

(the buyer) the right to recoup the 

economic value of a decline in the value 

of debt securities of the reference issuer 

if the credit event (a downgrade or 

default) occurs. This value is obtained 

by delivering a debt security of the 

reference issuer to the party in return for 

a previously agreed payment from the 

other party (frequently, the par value of 

the debt security).22

CDSs may require initial premium 

(discount) payments as well as periodic 

payments (receipts) related to the 

interest leg of the swap or to the default 

of a reference obligation. The Fund will 

segregate assets necessary to meet any 

accrued payment obligations when it is 

the buyer of CDSs. In cases where the 

Fund is a seller of a CDS, if the CDS is 

physically settled or cash settled, the 

Fund will be required to segregate the 

full notional amount of the CDS. Such 

segregation will not limit the Fund’s 

exposure to loss. 

The Fund may also invest in 

Restricted Securities.23 Restricted 

Securities are securities that are not 

registered under the Securities Act, but 

which can be offered and sold to 

‘‘qualified institutional buyers’’ under 

Rule 144A under the Securities Act. 

Investment Restrictions 

The Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment), including Restricted 

Securities deemed illiquid by the 

Adviser or Sub-Adviser 24 under the 

1940 Act.25 The Fund will monitor its 

portfolio liquidity on an ongoing basis 

to determine whether, in light of current 

circumstances, an adequate level of 

liquidity is being maintained, and will 

consider taking appropriate steps in 

order to maintain adequate liquidity if, 

through a change in values, net assets, 

or other circumstances, more than 15% 

of the Fund’s net assets are held in 

illiquid assets. Illiquid assets include 

securities subject to contractual or other 

restrictions on resale and other 

instruments that lack readily available 

markets as determined in accordance 

with Commission staff guidance. 

The Fund intends to qualify each year 

as a regulated investment company (a 

‘‘RIC’’) under Subchapter M of the 

Internal Revenue Code of 1986, as 

amended.26 The Fund will invest its 

assets, and otherwise conduct its 

operations, in a manner that is intended 

to satisfy the qualifying income, 

diversification, and distribution 

requirements necessary to establish and 

maintain RIC qualification under 

Subchapter M. 

The Fund’s investments will be 

consistent with its investment objective 

and will not be used to seek to achieve 

leveraged or inverse leveraged returns 

(i.e. two times or three times the Fund’s 

benchmark). 

Under normal circumstances, the 

combined total of corporate, sovereign, 

non-agency and all other debt rated 

below investment grade will not exceed 

40% of the Fund’s net assets. The SubAdviser will strive to allocate below 

investment grade securities broadly by 

industry and issuer in an attempt to 

reduce the impact of negative events on 

an industry or issuer. Below investment 

grade securities are instruments that are 

rated BB+ or lower by S&P or Fitch Inc. 

or Ba1 or lower by Moody’s or 

equivalent ratings by another registered 

NRSRO or, if unrated by a NRSRO, of 

comparable quality in the opinion of the 

Sub-Adviser. 

The Fund may invest up to 15% of its 

net assets in securities denominated in 

foreign currencies, and may invest 

beyond this limit in U.S. dollardenominated securities of foreign 

issuers. The Fund may invest up to 20% 

of its net assets in securities and 

instruments that are economically tied 

to emerging market countries.27

Net Asset Value 

According to the Registration 

Statement, the net asset value (‘‘NAV’’) 

of the Fund’s Shares generally will be 

calculated once daily Monday through 

Friday as of the close of regular trading 

on the Exchange, generally 4:00 p.m. 

Eastern Time (the ‘‘NAV Calculation 

Time’’) on each day that the Exchange 

is open for trading, based on prices at 

the NAV Calculation Time. NAV per 

Share is calculated by dividing the 

Fund’s net assets by the number of Fund 

Shares outstanding. The Fund’s net 

assets are valued primarily on the basis 

of market quotations. Expenses and fees, 

including the management fees, will be 

accrued daily and taken into account for 

purposes of determining NAV. 

Common stocks and other exchangetraded equity securities (including 

shares of preferred securities, 

convertible securities, REITs, and ETPs) 

generally will be valued at the last 

reported sale price or the official closing 

price on that exchange where the 

security is primarily traded on the day 

that the valuation is made. Foreign 

equities and exchange-listed Depositary 

Receipts will be valued at the last sale 

or official closing price on the relevant 

exchange on the valuation date. If, 

however, neither the last sale price nor 

the official closing price is available on 

the valuation date, each of these 

securities will be valued at either the 

last reported sale price or official 

closing price as of the close of regular 

trading of the principal market on 

which the security is listed. 

Unsponsored ADRs, which are traded 

in the OTC market, will be valued at the 

last reported sale price from the OTC 

Bulletin Board or OTC Link LLC on the 

valuation date. Equity securities traded 

OTC will be valued based on price 


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7604 Federal Register / Vol. 81, No. 29 / Friday, February 12, 2016 / Notices 

28 If a security’s market price is not readily 

available or is deemed unreliable, the security will 

be valued by another method that the Board 

believes will better reflect fair value in accordance 

with the Trust’s valuation policies and procedures 

and in accordance with the 1940 Act. The Board 

has delegated the process of valuing securities for 

which market quotations are not readily available 

or are deemed unreliable to the Committee. The 

Committee, subject to oversight by the Board, may 

use fair value pricing in a variety of circumstances, 

including but not limited to, situations when 

trading in a security has been suspended or halted. 

Accordingly, the Fund’s NAV may reflect certain 

securities’ fair values rather than their market 

prices. Fair value pricing involves subjective 

judgments and it is possible that the fair value 

determination for a security is materially different 

than the value that could be received on the sale 

of the security. The Committee has implemented 

procedures designed to prevent the use and 

dissemination of material, non-public information 

regarding the Fund. 

quotations obtained from a brokerdealer who makes markets in such 

securities or other equivalent 

indications of value provided by a thirdparty pricing service. Securities of nonexchange traded investment companies 

will be valued at NAV. Restricted 

Securities, repurchase agreements, and 

reverse repurchase agreements will 

generally be valued at bid prices 

received from independent pricing 

services as of the announced closing 

time for trading in such instruments. 

Spot currency transactions will 

generally be valued at mid prices 

received from an independent pricing 

service converted into U.S. dollars at 

current market rates on the date of 

valuation. Foreign currency forwards 

normally will be valued on the basis of 

quotes obtained from broker-dealers or 

third party pricing services. 

Listed futures will generally be valued 

at the settlement price determined by 

the applicable exchange. Listed options 

will generally be valued at the last sale 

price on the applicable exchange. Listed 

swaps will be valued on the basis of 

quotations or equivalent indication of 

value supplied by a third-party pricing 

service or broker-dealer who makes 

markets in such instruments. Nonexchange traded derivatives, including 

OTC-traded options, swaps, and 

forwards, will normally be valued on 

the basis of quotations or equivalent 

indication of value supplied by a thirdparty pricing service or broker-dealer 

who makes markets in such 

instruments. The Fund’s OTC-traded 

derivative instruments will generally be 

valued at bid prices. 

According to the Adviser, U.S. 

Government obligations; TIPS; 

sovereign debt; foreign and domestic 

corporate bonds; ABS; TBA 

transactions; inverse floaters and bank 

loans; stripped securities; zero coupon 

securities; and short-term instruments 

will generally be valued at bid prices 

received from independent pricing 

services as of the announced closing 

time for trading in such instruments in 

the respective market. In determining 

the value of such instruments, pricing 

services determine valuations for 

normal institutional-size trading units of 

such securities using valuation models 

or matrix pricing, which incorporates 

yield and/or price with respect to bonds 

that are considered comparable in 

characteristics such as rating, interest 

rate and maturity date and quotations 

from securities dealers to determine 

current value. Investments having a 

maturity of 60 days or less are generally 

valued at amortized cost. 

According to the Registration 

Statement, in the event that current 

market valuations are not readily 

available or are deemed unreliable, the 

Trust’s procedures require the Oversight 

Committee (‘‘Committee’’) to determine 

a security’s fair value, in accordance 

with the 1940 Act.28 In determining 

such value the Committee may consider, 

among other things, (i) price 

comparisons among multiple sources, 

(ii) a review of corporate actions and 

news events, and (iii) a review of 

relevant financial indicators (e.g., 

movement in interest rates and market 

indices). In these cases, the Fund’s NAV 

may reflect certain portfolio securities’ 

fair values rather than their market 

prices. 

Creation and Redemption of Shares 

The NAV of Shares of the Fund will 

be determined once each business day, 

normally 4:00 p.m. Eastern time. The 

Fund currently anticipates that a 

Creation Unit will consist of 50,000 

Shares, though this number may change 

from time to time, including prior to the 

listing of the Fund. The exact number of 

Shares that will comprise a Creation 

Unit will be disclosed in the 

Registration Statement of the Fund. The 

Trust will issue and sell Shares of the 

Fund only in Creation Units on a 

continuous basis, without a sales load 

(but subject to transaction fees), at their 

NAV per Share next determined after 

receipt of an order, on any business day, 

in proper form. Creation and 

redemption will typically occur in cash, 

however, the Trust retains discretion to 

conduct such transactions on an in-kind 

basis or a combination of cash and inkind, as further described below. 

The consideration for purchase of a 

Creation Unit of the Fund generally will 

consist of either (i) the in-kind deposit 

of a designated portfolio of securities 

(the ‘‘Deposit Securities’’) per each 

Creation Unit and the Cash Component 

(defined below), computed as described 

below, or (ii) the cash value of the 

Deposit Securities (‘‘Deposit Cash’’) and 

the ‘‘Cash Component,’’ computed as 

described below. When accepting 

purchases of Creation Units for cash, the 

Fund may incur additional costs 

associated with the acquisition of 

Deposit Securities that would otherwise 

be provided by an in-kind purchaser. 

Together, the Deposit Securities or 

Deposit Cash, as applicable, and the 

Cash Component constitute the ‘‘Fund 

Deposit,’’ which represents the 

minimum initial and subsequent 

investment amount for a Creation Unit 

of the Fund. The ‘‘Cash Component’’ is 

an amount equal to the difference 

between the NAV of the Shares (per 

Creation Unit) and the market value of 

the Deposit Securities or Deposit Cash, 

as applicable. If the Cash Component is 

a positive number (i.e., the NAV per 

Creation Unit exceeds the market value 

of the Deposit Securities or Deposit 

Cash, as applicable), the Cash 

Component shall be such positive 

amount. If the Cash Component is a 

negative number (i.e., the NAV per 

Creation Unit is less than the market 

value of the Deposit Securities or 

Deposit Cash, as applicable), the Cash 

Component will be such negative 

amount and the creator will be entitled 

to receive cash in an amount equal to 

the Cash Component. The Cash 

Component serves the function of 

compensating for any differences 

between the NAV per Creation Unit and 

the market value of the Deposit 

Securities or Deposit Cash, as 

applicable. 

The Custodian, through the National 

Securities Clearing Corporation 

(‘‘NSCC’’), will make available on each 

business day, prior to the opening of 

business on the Exchange, the list of the 

names and the required amount of each 

Deposit Security or the required amount 

of Deposit Cash, as applicable, to be 

included in the current Fund Deposit 

(based on information at the end of the 

previous business day) for the Fund. 

Such Fund Deposit is subject to any 

applicable adjustments as described in 

the Registration Statement, in order to 

effect purchases of Creation Units of the 

Fund until such time as the nextannounced composition of the Deposit 

Securities or the required amount of 

Deposit Cash, as applicable, is made 

available. 

Shares may be redeemed only in 

Creation Units at their NAV next 

determined after receipt of a redemption 

request in proper form by the Fund 

through the Transfer Agent and only on 

a business day. 

With respect to the Fund, the 

Custodian, through the NSCC, will make 


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29The Adviser represents that, to the extent that 

the Trust permits or requires a ‘‘cash in lieu’’ 

amount, such transactions will be effected in the 

same or equitable manner for all Authorized 

Participants. 

30The Bid/Ask Price of the Fund will be 

determined using the midpoint of the highest bid 

and the lowest offer on the Exchange as of the time 

of calculation of the Fund’s NAV. The records 

relating to Bid/Ask Prices will be retained by the 

Fund and its service providers. 

31Regular Trading Hours are 9:30 a.m. to 4:00 

p.m. Eastern Time. 

32Under accounting procedures to be followed by 

the Fund, trades made on the prior business day 

(‘‘T’’) will be booked and reflected in NAV on the 

current business day (‘‘T+1’’). Accordingly, the 

Fund will be able to disclose at the beginning of the 

business day the portfolio that will form the basis 

for the NAV calculation at the end of the business 

day. 

33Currently, it is the Exchange’s understanding 

that several major market data vendors display and/ 

or make widely available Intraday Indicative Values 

published via the Consolidated Tape Association 

(‘‘CTA’’) or other data feeds. 

available immediately prior to the 

opening of business on the Exchange 

(9:30 a.m. Eastern time) on each 

business day, the list of the names and 

share quantities of the Fund’s portfolio 

securities that will be applicable 

(subject to possible amendment or 

correction) to redemption requests 

received in proper form on that day 

(‘‘Fund Securities’’). Fund Securities 

received on redemption may not be 

identical to Deposit Securities. 

Redemption proceeds for a Creation 

Unit will be paid either in-kind or in 

cash or a combination thereof, as 

determined by the Trust. With respect to 

in-kind redemptions of the Fund, 

redemption proceeds for a Creation Unit 

will consist of Fund Securities as 

announced by the Custodian on the 

business day of the request for 

redemption received in proper form 

plus cash in an amount equal to the 

difference between the NAV of the 

Shares being redeemed, as next 

determined after a receipt of a request 

in proper form, and the value of the 

Fund Securities (the ‘‘Cash Redemption 

Amount’’), less a fixed redemption 

transaction fee and any applicable 

additional variable charge as set forth in 

the Registration Statement. In the event 

that the Fund Securities have a value 

greater than the NAV of the Shares, a 

compensating cash payment equal to the 

differential will be required to be made 

by or through an authorized participant 

by the redeeming shareholder. 

Notwithstanding the foregoing, at the 

Trust’s discretion, an authorized 

participant may receive the 

corresponding cash value of the 

securities in lieu of the in-kind 

securities value representing one or 

more Fund Securities.29

The creation/redemption order cut-off 

time for the Fund is expected to be 4:00 

p.m. Eastern time. Creation/redemption 

order cut-off times may be earlier on any 

day that the Securities Industry and 

Financial Markets Association 

(‘‘SIFMA’’) (or applicable exchange or 

market on which the Fund’s 

investments are traded) announces an 

early closing time. On days when the 

Exchange closes earlier than normal, the 

Fund may require orders for Creation 

Units to be placed earlier in the day. 

Availability of Information 

The Fund’s Web site, which will be 

publicly available prior to the public 

offering of Shares, will include a form 

of the prospectus for the Fund that may 

be downloaded. The Web site will 

include additional quantitative 

information updated on a daily basis, 

including, for the Fund: (1) The prior 

business day’s reported NAV, mid-point 

of the bid/ask spread at the time of 

calculation of such NAV (the ‘‘Bid/Ask 

Price’’),30 daily trading volume, and a 

calculation of the premium and 

discount of the Bid/Ask Price against 

the NAV; and (2) data in chart format 

displaying the frequency distribution of 

discounts and premiums of the daily 

Bid/Ask Price against the NAV, within 

appropriate ranges, for each of the four 

previous calendar quarters. Daily 

trading volume information for the 

Shares will also be available in the 

financial section of newspapers, through 

subscription services such as 

Bloomberg, Thomson Reuters, and 

International Data Corporation, which 

can be accessed by authorized 

participants and other investors, as well 

as through other electronic services, 

including major public Web sites. On 

each business day, before 

commencement of trading in Shares 

during Regular Trading Hours 31 on the 

Exchange, the Fund will disclose on its 

Web site the identities and quantities of 

the portfolio of securities and other 

assets (the ‘‘Disclosed Portfolio’’) held 

by the Fund that will form the basis for 

the Fund’s calculation of NAV at the 

end of the business day.32 The Disclosed 

Portfolio will include, as applicable: 

The ticker symbol; CUSIP number or 

other identifier, if any; a description of 

the holding (including the type of 

holding, such as the type of swap); the 

identity of the security, commodity, 

index or other asset or instrument 

underlying the holding, if any; for 

options, the option strike price; quantity 

held (as measured by, for example, par 

value, notional value or number of 

shares, contracts, or units); maturity 

date, if any; coupon rate, if any; 

effective date, if any; market value of the 

holding; and the percentage weighting 

of the holding in the Fund’s portfolio. 

The Web site and information will be 

publicly available at no charge. 

In addition, for the Fund, an 

estimated value, defined in BATS Rule 

14.11(i)(3)(C) as the ‘‘Intraday Indicative 

Value,’’ that reflects an estimated 

intraday value of the Fund’s portfolio, 

will be disseminated. Moreover, the 

Intraday Indicative Value will be based 

upon the current value for the 

components of the Disclosed Portfolio 

and will be updated and widely 

disseminated by one or more major 

market data vendors at least every 15 

seconds during the Exchange’s Regular 

Trading Hours.33 In addition, the 

quotations of certain of the Fund’s 

holdings may not be updated during 

U.S. trading hours if such holdings do 

not trade in the United States or if 

updated prices cannot be ascertained. 

The dissemination of the Intraday 

Indicative Value, together with the 

Disclosed Portfolio, will allow investors 

to determine the value of the underlying 

portfolio of the Fund on a daily basis 

and provide a close estimate of that 

value throughout the trading day. 

The intra-day, closing, and settlement 

prices of exchange-listed instruments 

(including exchange traded Depositary 

Receipts, preferred securities, 

convertible securities, common stock, 

futures, ETPs, and QPTPs) will be 

readily available from the exchanges 

trading such instruments as well as 

automated quotation systems, published 

or other public sources, or online 

information services such as Bloomberg 

or Reuters. Intraday and closing price 

information for exchange-traded options 

and futures will be available from the 

applicable exchange and from major 

market data vendors. In addition, price 

information for U.S. exchange-traded 

options will be available from the 

Options Price Reporting Authority. 

Quotation information from brokers and 

dealers or pricing services will be 

available for Fixed Income Securities. 

Price information regarding spot 

currency transactions and OTC-traded 

derivative instruments, including 

options, swaps, and forward currency 

transactions, as well as equity securities 

traded in the OTC market, including 

Restricted Securities, inverse floaters, 

short-term instruments, OTC-traded 

preferred securities, OTC-traded ADRs, 

and OTC-traded convertible securities, 

is available from major market data 

vendors. Repurchase and reverse 

repurchase agreements will generally be 

available through nationally recognized 

data service providers through 

subscription arrangements. 


asabaliauskas on DSK9F6TC42PROD with NOTICES2
7606 Federal Register / Vol. 81, No. 29 / Friday, February 12, 2016 / Notices 

34See 17 CFR 240.10A–3. 

35For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. The 

Exchange notes that not all components of the 

Disclosed Portfolio for the Fund may trade on 

markets that are members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. The Exchange also 

notes that all of the exchange-listed investment 

company securities, common stocks, preferred 

securities, futures, and options will trade on 

markets that are a member of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. 

36The Pre-Opening Session is from 8:00 a.m. to 

9:30 a.m. Eastern Time. 

37The After Hours Trading Session is from 4:00 

p.m. to 5:00 p.m. Eastern Time. 

38 15 U.S.C. 78f. 

39 15 U.S.C. 78f(b)(5). 

Information regarding market price 

and volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. The previous day’s closing 

price and trading volume information 

for the Shares will be published daily in 

the financial section of newspapers. 

Quotation and last sale information for 

the Shares will be available on the 

facilities of the CTA. Information 

regarding U.S. exchange-listed equities 

will also be available on the facilities of 

the CTA. 

Initial and Continued Listing 

The Shares will be subject to BATS 

Rule 14.11(i), which sets forth the initial 

and continued listing criteria applicable 

to Managed Fund Shares. The Exchange 

represents that, for initial and continued 

listing, the Fund must be in compliance 

with Rule 10A–3 under the Act.34 A 

minimum of 100,000 Shares will be 

outstanding at the commencement of 

trading on the Exchange. The Exchange 

will obtain 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 

will be made available to all market 

participants at the same time. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares of 

the Fund. The Exchange will halt 

trading in the Shares under the 

conditions specified in BATS Rule 

11.18. Trading may be halted because of 

market conditions or for reasons that, in 

the view of the Exchange, make trading 

in the Shares inadvisable. These may 

include: (1) The extent to which trading 

is not occurring in the securities and/or 

the financial instruments composing the 

Disclosed Portfolio of the Fund; or (2) 

whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. Trading in the 

Shares also will be subject to Rule 

14.11(i)(4)(B)(iv), which sets forth 

circumstances under which Shares of 

the Fund may be halted. 

Trading Rules 

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. BATS will allow 

trading in the Shares from 8:00 a.m. 

until 5:00 p.m. Eastern Time. The 

Exchange has appropriate rules to 

facilitate transactions in the Shares 

during all trading sessions. As provided 

in BATS Rule 14.11(i)(2)(C), the 

minimum price variation for quoting 

and entry of orders in Managed Fund 

Shares traded on the Exchange is $0.01. 

Surveillance 

The Exchange believes that its 

surveillance procedures are adequate to 

properly monitor the trading of the 

Shares on the Exchange during all 

trading sessions and to deter and detect 

violations of Exchange rules and the 

applicable federal securities laws. 

Trading of the Shares through the 

Exchange will be subject to the 

Exchange’s surveillance procedures for 

derivative products, including Managed 

Fund Shares. The Exchange may obtain 

information regarding trading in the 

Shares and the underlying shares in 

exchange traded investment companies, 

equity securities, futures, and options 

via the ISG, from other exchanges who 

are members or affiliates of the ISG, or 

with which the Exchange has entered 

into a comprehensive surveillance 

sharing agreement.35 In addition, the 

Exchange is able to access, as needed, 

trade information for certain fixed 

income instruments reported to FINRA’s 

Trade Reporting and Compliance Engine 

(‘‘TRACE’’). FINRA also can access data 

obtained from the Municipal Securities 

Rulemaking Board (‘‘MSRB’’) relating to 

municipal bond trading activity for 

surveillance purposes in connection 

with trading in the Shares. The 

Exchange prohibits the distribution of 

material non-public information by its 

employees. 

Information Circular 

Prior to the commencement of 

trading, the Exchange will inform its 

members in an Information Circular of 

the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Circular 

will discuss the following: (1) The 

procedures for purchases and 

redemptions of Shares in Creation Units 

(and that Shares are not individually 

redeemable); (2) BATS Rule 3.7, which 

imposes suitability obligations on 

Exchange members with respect to 

recommending transactions in the 

Shares to customers; (3) how 

information regarding the Intraday 

Indicative Value and the Disclosed 

Portfolio is disseminated; (4) the risks 

involved in trading the Shares during 

the Pre-Opening 36 and After Hours 

Trading Sessions 37 when an updated 

Intraday Indicative Value will not be 

calculated or publicly disseminated; (5) 

the requirement that members deliver a 

prospectus to investors purchasing 

newly issued Shares prior to or 

concurrently with the confirmation of a 

transaction; and (6) trading information. 

In addition, the Information Circular 

will advise members, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to the Fund. Members 

purchasing Shares from the Fund for 

resale to investors will deliver a 

prospectus to such investors. The 

Information Circular will also discuss 

any exemptive, no-action, and 

interpretive relief granted by the 

Commission from any rules under the 

Act. 

In addition, the Information Circular 

will reference that the Fund is subject 

to various fees and expenses described 

in the Registration Statement. The 

Information Circular will also disclose 

the trading hours of the Shares of the 

Fund and the applicable NAV 

Calculation Time for the Shares. The 

Information Circular will disclose that 

information about the Shares of the 

Fund will be publicly available on the 

Fund’s Web site. In addition, the 

Information Circular will reference that 

the Trust is subject to various fees and 

expenses described in the Fund’s 

Registration Statement. 

2. Statutory Basis 

The Exchange believes that the 

proposal is consistent with Section 6(b) 

of the Act 38 in general and Section 

6(b)(5) of the Act 39 in particular in that 

it is designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to foster cooperation and 

coordination with persons engaged in 

facilitating transactions in securities, to 

remove impediments to and perfect the 

mechanism of a free and open market 

and a national market system and, in 

general, to protect investors and the 

public interest. 


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40For a list of the current members and affiliate 

members of ISG, see www.isgportal.com. The 

Exchange notes that not all components of the 

Disclosed Portfolio for the Fund may trade on 

markets that are members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. The Exchange also 

notes that all of the exchange-listed investment 

company securities, common stocks, preferred 

securities, futures, and options will trade on 

markets that are a member of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. 

41 In reaching liquidity decisions, the Adviser and 

Sub-Adviser may consider factors including: The 

frequency of trades and quotes for the security; the 

number of dealers wishing to purchase or sell the 

security and the number of other potential 

purchasers; dealer undertakings to make a market 

in the security; the nature of the security and the 

nature of the marketplace in which it trades (e.g., 

the time needed to dispose of the security, the 

method of soliciting offers, and the mechanics of 

transfer). 

42The Commission has stated that long-standing 

Commission guidelines have required open-end 

funds to hold no more than 15% of their net assets 

in illiquid securities and other illiquid assets. See 

Investment Company Act Release No. 28193 (March 

11, 2008), 73 FR 14618 (March 18, 2008), footnote 

34. See also, Investment Company Act Release No. 

5847 (October 21, 1969), 35 FR 19989 (December 

31, 1970) (Statement Regarding ‘‘Restricted 

Securities’’); Investment Company Act Release No. 

18612 (March 12, 1992), 57 FR 9828 (March 20, 

1992) (Revisions of Guidelines to Form N–1A). A 

fund’s portfolio security is illiquid if it cannot be 

disposed of in the ordinary course of business 

within seven days at approximately the value 

ascribed to it by the fund. See Investment Company 

Act Release No. 14983 (March 12, 1986), 51 FR 

9773 (March 21, 1986) (adopting amendments to 

Rule 2a-7 under the 1940 Act); Investment 

Company Act Release No. 17452 (April 23, 1990), 

55 FR 17933 (April 30, 1990) (adopting Rule 144A 

under the Securities Act of 1933). 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

be listed and traded on the Exchange 

pursuant to the initial and continued 

listing criteria in BATS Rule 14.11(i). 

The Exchange believes that its 

surveillance procedures are adequate to 

properly monitor the trading of the 

Shares on the Exchange during all 

trading sessions and to deter and detect 

violations of Exchange rules and the 

applicable federal securities laws. If the 

investment adviser to the investment 

company issuing Managed Fund Shares 

is affiliated with a broker-dealer, such 

investment adviser to the investment 

company shall erect a ‘‘fire wall’’ 

between the investment adviser and the 

broker-dealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company portfolio. The Adviser is not a 

registered broker-dealer, but is affiliated 

with a broker-dealer and has 

implemented a ‘‘fire wall’’ with respect 

to such broker-dealer regarding access to 

information concerning the composition 

and/or changes to the Fund’s portfolio. 

In the event (a) the Adviser or SubAdviser becomes registered as a brokerdealer or newly affiliated with a brokerdealer, or (b) any new adviser or subadviser is a registered broker-dealer or 

becomes affiliated with a broker-dealer, 

it will implement a fire wall with 

respect to its relevant personnel or 

broker-dealer affiliate regarding access 

to information concerning the 

composition and/or changes to the 

portfolio, and will be subject to 

procedures designed to prevent the use 

and dissemination of material nonpublic information regarding such 

portfolio. The Exchange may obtain 

information regarding trading in the 

Shares and the underlying shares in 

exchange traded investment companies, 

equity securities, futures, and options 

via the ISG, from other exchanges who 

are members or affiliates of the ISG, or 

with which the Exchange has entered 

into a comprehensive surveillance 

sharing agreement.40 In addition, the 

Exchange is able to access, as needed, 

trade information for certain fixed 

income instruments reported to FINRA’s 

TRACE. FINRA also can access data 

obtained from the MSRB relating to 

municipal bond trading activity for 

surveillance purposes in connection 

with trading in the Shares. 

According to the Registration 

Statement, the Fund intends to achieve 

its investment objective by investing, 

under normal circumstances, at least 

80% of its net assets in a diversified 

portfolio of Fixed Income Securities of 

any credit quality. The Fund’s 

investments will be consistent with the 

Fund’s investment objective and will 

not be used to achieve leveraged or 

inverse leveraged returns, as stated 

above. While the Fund is permitted to 

invest without restriction in corporate 

bonds, the Sub-Adviser expects that, 

under normal circumstances, the Fund 

will generally seek to invest in corporate 

bond issuances that have at least 

$100,000,000 par amount outstanding in 

developed countries and at least 

$200,000,000 par amount outstanding in 

emerging market countries. 

In addition to the holdings in Fixed 

Income Securities described above as 

part of the Fund’s principal investment 

strategy, the Fund may also, to a limited 

extent (under normal circumstances, 

less than 20% of the Fund’s net assets) 

and as further described above, engage 

in transactions in the following: 

Repurchase agreements, reverse 

repurchase agreements, U.S. common 

stocks, exchange-traded foreign 

common stocks, Depositary Receipts, 

convertible securities, securities 

lending, short-term instruments, foreign 

currency transactions, inverse floaters, 

the securities of other investment 

companies, REITs, Restricted Securities, 

and certain options, futures, and swaps. 

The Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment), including Restricted 

Securities deemed illiquid by the 

Adviser or Sub-Adviser 41 under the 

1940 Act.42 The Fund will monitor its 

portfolio liquidity on an ongoing basis 

to determine whether, in light of current 

circumstances, an adequate level of 

liquidity is being maintained, and will 

consider taking appropriate steps in 

order to maintain adequate liquidity if, 

through a change in values, net assets, 

or other circumstances, more than 15% 

of the Fund’s net assets are held in 

illiquid assets. Illiquid assets include 

securities subject to contractual or other 

restrictions on resale and other 

instruments that lack readily available 

markets as determined in accordance 

with Commission staff guidance. 

The proposed rule change is designed 

to promote just and equitable principles 

of trade and to protect investors and the 

public interest in that the Exchange will 

obtain 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 will be 

made available to all market 

participants at the same time. In 

addition, a large amount of information 

is publicly available regarding the Fund 

and the Shares, thereby promoting 

market transparency. Moreover, the 

Intraday Indicative Value will be 

disseminated by one or more major 

market data vendors at least every 15 

seconds during Regular Trading Hours. 

On each business day, before 

commencement of trading in Shares 

during Regular Trading Hours, the Fund 

will disclose on its Web site the 

Disclosed Portfolio that will form the 

basis for the Fund’s calculation of NAV 

at the end of the business day. Pricing 

information will be available on the 

Fund’s Web site including: (1) The prior 

business day’s reported NAV, the Bid/ 

Ask Price of the Fund, and a calculation 

of the premium and discount of the Bid/ 

Ask Price against the NAV; and (2) data 

in chart format displaying the frequency 

distribution of discounts and premiums 

of the daily Bid/Ask Price against the 

NAV, within appropriate ranges, for 

each of the four previous calendar 

quarters. Additionally, information 

regarding market price and trading of 

the Shares will be continually available 

on a real-time basis throughout the day 

on brokers’ computer screens and other 


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7608 Federal Register / Vol. 81, No. 29 / Friday, February 12, 2016 / Notices 

electronic services, and quotation and 

last sale information for the Shares will 

be available on the facilities of the CTA. 

The Web site for the Fund will include 

a form of the prospectus for the Fund 

and additional data relating to NAV and 

other applicable quantitative 

information. Trading in Shares of the 

Fund will be halted under the 

conditions specified in BATS Rule 

11.18. Trading may also be halted 

because of market conditions or for 

reasons that, in the view of the 

Exchange, make trading in the Shares 

inadvisable. Finally, trading in the 

Shares will be subject to BATS Rule 

14.11(i)(4)(B)(iv), which sets forth 

circumstances under which Shares of 

the Fund may be halted. In addition, the 

Exchange is able to access, as needed, 

trade information for certain fixed 

income instruments reported to FINRA’s 

TRACE. FINRA also can access data 

obtained from the MSRB relating to 

municipal bond trading activity for 

surveillance purposes in connection 

with trading in the Shares. As noted 

above, investors will also have ready 

access to information regarding the 

Fund’s holdings, the Intraday Indicative 

Value, the Disclosed Portfolio, and 

quotation and last sale information for 

the Shares. 

The intra-day, closing, and settlement 

prices of exchange-listed instruments 

(including exchange traded Depositary 

Receipts, preferred securities, 

convertible securities, common stock, 

futures, ETPs, and QPTPs) will be 

readily available from the exchanges 

trading such instruments as well as 

automated quotation systems, published 

or other public sources, or online 

information services such as Bloomberg 

or Reuters. Intraday and closing price 

information for exchange-traded options 

and futures will be available from the 

applicable exchange and from major 

market data vendors. In addition, price 

information for U.S. exchange-traded 

options will be available from the 

Options Price Reporting Authority. 

Quotation information from brokers and 

dealers or pricing services will be 

available for Fixed Income Securities. 

Price information regarding spot 

currency transactions and OTC-traded 

derivative instruments, including 

options, swaps, and forward currency 

transactions, as well as equity securities 

traded in the OTC market, including 

Restricted Securities, inverse floaters, 

short-term instruments, OTC-traded 

preferred securities, OTC-traded ADRs, 

and OTC-traded convertible securities, 

is available from major market data 

vendors. Repurchase and reverse 

repurchase agreements will generally be 

available through nationally recognized 

data service providers through 

subscription arrangements. 

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 an additional type of activelymanaged exchange-traded product that 

will enhance competition among market 

participants, to the benefit of investors 

and the marketplace. As noted above, 

the Exchange has in place surveillance 

procedures relating to trading in the 

Shares and may obtain information via 

ISG from other exchanges that are 

members of ISG or with which the 

Exchange has entered into a 

comprehensive surveillance sharing 

agreement. In addition, as noted above, 

investors will have ready access to 

information regarding the Fund’s 

holdings, the Intraday Indicative Value, 

the Disclosed Portfolio, and quotation 

and last sale information for the Shares. 

For the above reasons, the Exchange 

believes that the proposed rule change 

is consistent with the requirements of 

Section 6(b)(5) of the Act. 

(B) Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change will 

facilitate the listing and trading of an 

additional actively-managed exchangetraded product that will enhance 

competition among market participants, 

to the benefit of investors and the 

marketplace. 

(C) Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants or Others 

The Exchange has neither solicited 

nor received written comments on 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 proposal is 

consistent with the Act. Comments may 

be submitted by any of the following 

methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File No. SR– 

BATS–2016–04 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 No. 

SR–BATS–2016–04. This file number 

should be included on the subject line 

if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing will also be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File No. SR–BATS– 

2016–04 and should be submitted on or 

before March 4, 2016. 


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Federal Register / Vol. 81, No. 29 / Friday, February 12, 2016 / Notices 7609 

43 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3 15 U.S.C. 78s(b)(3)(A)(iii). 

4 17 CFR 240.19b–4(f)(6). 

5Compare Rule 8.85(a)(i) (‘‘[Each DPM shall] 

provide continuous electronic quotes . . . in at 

least 99% of the non-adjusted options series or 

100% of the non-adjusted option series minus one 

call-put pair . . .’’) with Rule 8.7(d)(ii)(B) (‘‘A 

Market-Maker will be required to maintain 

continuous electronic quotes . . . in 60% of the 

non-adjusted option series of the Market-Maker’s 

appointed classes that have a time to expiration of 

less than nine months.’’). 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.43

Robert W. Errett, 

Deputy Secretary. 

[FR Doc. 2016–02838 Filed 2–11–16; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–77081; File No. SR–CBOE– 

2016–007] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change Relating To Adopting a 

Principles-Based Approach To Prohibit 

the Misuse of Material Nonpublic 

Information by Designated Primary 

Market-Makers (‘‘DPMs’’) and Lead 

Market-Makers (‘‘LMMs’’) 

February 8, 2016. 

Pursuant to section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on February 

1, 2016, Chicago Board Options 

Exchange, Incorporated (the ‘‘Exchange’’ 

or ‘‘CBOE’’) filed with the Securities 

and Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

prepared by the Exchange. The 

Exchange filed the proposal as a ‘‘noncontroversial’’ proposed rule change 

pursuant to section 19(b)(3)(A)(iii) of the 

Act 3 and Rule 19b–4(f)(6) thereunder.4

The Commission is publishing this 

notice to solicit comments on the 

proposed rule change from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The text of the proposed rule change 

is available on the Exchange’s Web site 

(http://www.cboe.com/AboutCBOE/

CBOELegalRegulatoryHome.aspx), at 

the Exchange’s Office of the Secretary, 

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 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

forth in sections A, B, and C below, of 

the most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to adopt a 

principles-based approach to prohibit 

the misuse of material, nonpublic 

information by DPMs and LMMs by 

deleting Rule 8.91, sub-paragraph (b)(5) 

of Rule 8.15 and paragraph(b)(vii) of 

Rule 8.15A. In so doing, the Exchange 

would harmonize its rules related to the 

preventing the misuse of material, 

nonpublic information for every Trading 

Permit Holder (‘‘TPH’’). The Exchange 

believes that Rule 8.91, Rule 8.15(b)(5) 

and Rule 8.15A(b)(vii) are no longer 

necessary because all TPH, including 

DPMs and LMMs are subject to the 

Exchange’s general principles-based 

requirements governing the protection 

against misuse of material, nonpublic 

information, pursuant to Rule 4.18 

(Prevention of the Misuse of Material, 

Nonpublic Information), which obviates 

the need for separately prescribed 

requirements for a subset of market 

participants on the Exchange. 

Background 

The Exchange has three classes of 

registered Market-Makers. Pursuant to 

Rule 8.1, a Market-Maker is an 

individual TPH or TPH organization 

that is registered with the Exchange for 

the purpose of making transactions as a 

dealer-specialist on the Exchange. All 

Market-Makers are subject to the 

requirements of Rule 8.7, which set 

forth the obligations of Market-Makers, 

including quoting activity. 

Rule 8.85 outlines the obligations of 

DPM’s, which, in addition to the 

Market-Maker obligations of Rule 8.7, 

must fulfill a number of increased 

obligations including providing 

continuous electronic quotes, assuring 

that each of the displayed market 

quotations is honored, and complying 

heightened with bid/ask differential 

requirements.5

Rule 8.15 states that the Exchange 

may appoint, in an option class for 

which a DPM has not been appointed, 

one or more Market-Makers in good 

standing as LMMs and Supplemental 

Market-Makers (‘‘SMMs’’) to participate 

in opening rotation procedures for 

Hybrid 3.0 classes and/or to determine 

a formula for generating updated market 

quotations during the trading day. 

LMM’s in Hybrid 3.0 classes are 

obligated to quote a firm two-sided 

market of sufficient size to 

accommodate a relatively active 

opening within the bid/ask differential 

requirements determined by the 

Exchange. 

Rule 8.15A states the Exchange may 

appoint one or more Market-Makers in 

good standing with an appointment in 

a Hybrid-Trading system option class 

for which a DPM has not been 

appointed as LMMs. Much like DPMs 

LMMs in Hybrid Classes are subject to 

increased obligations that include 

providing continuous electronic quotes 

that comply with the bid/ask differential 

requirements determined by the 

Exchange. 

Pursuant to Rules 8.15B and 8.87, the 

exchange may establish participation 

entitlements for LMM’s and DPMs 

appointed pursuant to the 

aforementioned Rules. DPM’s and 

LMM’s must meet specific obligations 

prior to being awarded a participation 

entitlements [sic]. 

Whether operating on the CBOE 

Trading Floor or from a remote location, 

all Market-Makers, including DPMs and 

LMMs, have access to the same 

information in the Consolidated Book 

that is available to all other market 

participants. Moreover, none of the 

Exchange’s Market-Makers have agency 

obligations to the Exchange’s Order 

Book. As such, the primary distinctions 

between Market-Makers and DPMs and 

LMMs are the increased quoting 

requirements and allocation 

entitlements. 

Despite the fact that Market-Makers, 

DPMs and LMMs have access to the 

same trading information as all other 

market participants on the Exchange, 

the Exchange has distinct rules 

governing how DPMs and LMMs may 

operate. Rule 8.91(a) specifies that a 

DPM shall maintain information barriers 

that are reasonably designed to prevent 

the misuse of material, nonpublic 

information with any affiliates that may 

conduct a brokerage business in option 

classes allocated to the DPM or act as a 


asabaliauskas on DSK9F6TC42PROD with NOTICES2