Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 62213 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4See Securities Exchange Act Release Nos. 71125 

(December 18, 2013), 78 FR 77743 (December 24, 

2013) (SR–NYSEArca-2013–106) (order approving 

listing and trading of PIMCO Diversified Income 

Exchange-Traded Fund, PIMCO Low Duration 

Exchange-Traded Fund and PIMCO Real Return 

Exchange-Traded Fund); 68871 (February 8, 2013), 

78 FR 11238 (February 15, 2013) (SR–NYSEArca2012–138) (order approving listing and trading of 

PIMCO Foreign Currency Strategy Exchange-Traded 

Fund); 66670 (March 28, 2012), 77 FR 20087 (April 

3, 2013) (SR–NYSEArca-2012–09) (order approving 

listing and trading of PIMCO Global Advantage®

Inflation-Linked Bond Strategy Exchange-Traded 

Fund); 62856 (September 7, 2010), 75 FR 55840 

(September 14, 2010) (SR–NYSEArca-2010–68) 

(order approving listing and trading of PIMCO 

Build America Bond Exchange-Traded Fund); 

60981 (November 10, 2009) 74 FR 59594 (November 

18, 2009) (SR–NYSEArca-2009–79) (order 

approving listing and trading of PIMCO 

Intermediate Municipal Bond Exchange-Traded 

Fund; PIMCO Short-Term Municipal Bond 

Exchange-Traded Fund) (each a ‘‘Prior Order’’ and 

collectively, the ‘‘Prior Orders’’). See also, 

Securities Exchange Act Release No. 66321 

(February 3, 2012), 77 FR 6850 (February 9, 2012) 

(SR–NYSEArca-2011–95) (order approving listing 

and trading of shares of the PIMCO Total Return 

Exchange-Traded Fund) (‘‘First PIMCO Total Return 

Order’’). See also Securities Exchange Act Release 

No. 70774 (October 29, 2013), 78 FR 66396 

(November 5, 2013) (SR–NYSEArca-2013–106) 

(notice of filing of proposal relating to PIMCO 

Diversified Income Exchange-Traded Fund, PIMCO 

Low Duration Exchange-Traded Fund and PIMCO 

Real Return Exchange-Traded Fund); Securities 

Exchange Act Release No. 68476 (December 19, 

2012), 77 FR 76121 (December 26, 2012) (SR– 

NYSEArca-2012–138) (notice of filing of proposal 

relating to PIMCO Foreign Currency Strategy 

Exchange-Traded Fund); Securities Exchange Act 

Release No. 66381 (February 10, 2012), 77 FR 9281 

(February 16, 2012) (SR–NYSEArca-2012–09) 

(notice of filing of proposal relating to PIMCO 

Global Advantage® Inflation-Linked Bond Strategy 

Exchange-Traded Fund); Securities Exchange Act 

Release No. 62585 (July 28, 2010), 75 FR 47045 

(August 4, 2010) (SR–NYSEArca-2010–68) (notice 

of filing of proposal relating to PIMCO Build 

America Bond Exchange-Traded Fund); Securities 

Exchange Act Release No. 60619, (September 3, 

2009), 74 FR 46820 (September 11, 2009) (SR– 

NYSEArca-2009–79) (notice of filing of proposal 

relating to PIMCO Intermediate Municipal Bond 

Strategy Exchange-Traded Fund and PIMCO ShortContinued 

Document ADAMS Accession 

No. 

NRC e-mail dated August 21, 2014, to Illinois Emergency Management Agency forwarding draft environmental assessment and Illinois Emergency Management Agency response dated August 28, 2014, to draft environmental assessment.ML14246A464. 

NUREG–1748, ‘‘Environmental Review Guidance for Licensing Actions Associated with NMSS Programs’’ ...................... ML032450279. 

Dated at Rockville, Maryland, this 3rd day 

of October, 2014. 

For the Nuclear Regulatory Commission. 

Michele Sampson, 

Chief, Licensing Branch, Division of Spent 

Fuel Storage and Transportation, Office of 

Nuclear Material Safety and Safeguards. 

[FR Doc. 2014–24640 Filed 10–15–14; 8:45 am] 

BILLING CODE 7590–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 73331; File No. SR–NYSEArca– 

2014–104] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Change Relating to Use of 

Derivative Instruments by Certain 

PIMCO Exchange-Traded Funds 

October 9, 2014. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on 

September 29, 2014, NYSE Arca, Inc. 

(the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed 

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the self-regulatory 

organization. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to change the 

description of the means of achieving 

the investment objective applicable to 

the following funds relating to each 

fund’s use of derivative instruments: 

PIMCO Build America Bond ExchangeTraded Fund, PIMCO Diversified 

Income Exchange-Traded Fund, PIMCO 

Foreign Currency Strategy ExchangeTraded Fund, PIMCO Global 

Advantage® Inflation-Linked Bond 

Strategy Exchange-Traded Fund, PIMCO 

Intermediate Municipal Bond ExchangeTraded Fund, PIMCO Low Duration 

Exchange-Traded Fund, PIMCO Real 

Return Exchange-Traded Fund, PIMCO 

Short-Term Municipal Bond ExchangeTraded Fund and PIMCO Total Return 

Exchange-Traded Fund (each a ‘‘Fund’’ 

and collectively, the ‘‘Funds’’). In 

addition, the Exchange proposes 

changes to certain representations 

regarding (1) the limitation on each 

Fund’s holdings in illiquid assets, and 

(2) each Fund’s holdings of securities 

and financial instruments whose 

principal market is not a member of the 

Intermarket Surveillance Group (‘‘ISG’’) 

or is a market with which the Exchange 

does not have a comprehensive 

surveillance sharing agreement. The 

Funds have been approved by the 

Securities and Exchange Commission 

(‘‘Commission’’) for listing and trading 

on the Exchange and are currently listed 

and traded on the Exchange under 

NYSE Arca Equities Rule 8.600, except 

for PIMCO Real Return ExchangeTraded Fund, which has not yet 

commenced operations. The text of the 

proposed rule change is available on the 

Exchange’s Web site at www.nyse.com, 

at the principal office of the Exchange, 

and at the Commission’s Public 

Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

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

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Commission has approved the 

listing and trading on the Exchange of 

shares (‘‘Shares’’) of the PIMCO Build 

America Bond Exchange-Traded Fund, 

PIMCO Diversified Income ExchangeTraded Fund, PIMCO Foreign Currency 

Strategy Exchange-Traded Fund, PIMCO 

Global Advantage® Inflation-Linked 

Bond Strategy Exchange-Traded Fund, 

PIMCO Intermediate Municipal Bond 

Exchange-Traded Fund, PIMCO Low 

Duration Exchange-Traded Fund, 

PIMCO Real Return Exchange-Traded 

Fund, PIMCO Short-Term Municipal 

Bond Exchange-Traded Fund, and 

PIMCO Total Return Exchange-Traded 

Fund 4 under NYSE Arca Equities Rule 


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62214 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 

Term Municipal Bond Strategy Exchange-Traded 

Fund) (each a ‘‘Prior Notice’’ and collectively, the 

‘‘Prior Notices’’, and together with the Prior Orders, 

the ‘‘Prior Releases’’).’’ In addition, see Securities 

Exchange Act Release No. 65988 (December 16, 

2011), 76 FR 79741 (December 22, 2011) (SR– 

NYSEArca-2011–95) (notice of filing of proposal 

relating to PIMCO Total Return Exchange-Traded 

Fund) (‘‘First PIMCO Total Return Notice’’). 

5The Trust is registered under the Investment 

Company Act of 1940 (‘‘1940 Act’’). On October 24, 

2013 the Trust filed with the Commission the most 

recent post-effective amendment to its registration 

statement under the Securities Act of 1933 (15 

U.S.C. 77a) (‘‘1933 Act’’) and under the 1940 Act 

relating to the Funds (File Nos. 333–155395 and 

811–22250), which took effect on October 31, 2013 

(the ‘‘Registration Statement’’). The description of 

the operation of the Trust and the Funds herein is 

based, in part, on the Registration Statement. In 

addition, the Commission has issued an order 

granting certain exemptive relief to the Trust under 

the 1940 Act. See Investment Company Act Release 

No. 28993 (November 10, 2009) (File No. 812– 

13571) (‘‘Exemptive Order’’). 6See Securities Exchange Act Release Nos. 72666 

(July, 24, 2014), 79 FR 44224 (July 30, 2014) (SR– 

NYSEArca–2013–122) (order approving use of 

derivative instruments by the PIMCO Total Return 

Exchange-Traded Fund) (‘‘Second PIMCO Total 

Return Order’’); 70905 (November 20, 2013), 78 FR 

70610 (November 26, 2013) (SR–NYSEArca–2013– 

122) (notice of proposal relating to use of 

derivatives by PIMCO Total Return ExchangeTraded Fund) (‘‘Second PIMCO Total Return 

Notice’’ and, together with the Second PIMCO Total 

Return Order, the ‘‘Second PIMCO Total Return 

Release’’). 

7See No-Action Letter dated December 6, 2012 

from Elizabeth G. Osterman, Associate Director, 

Office of Exemptive Applications, Division of 

Investment Management. 

8See note 5, supra. 

9The Adviser represents that each Fund, in 

connection with its use of derivative instruments, 

will comply with the representations stated in the 

No-Action Letter, as noted above, namely: (i) That 

the Trust’s Board of Trustees (‘‘Board’’) periodically 

will review and approve each Fund’s use of 

derivatives and how the Adviser assesses and 

manages risk with respect to a Fund’s use of 

derivatives; and (ii) that each Fund’s disclosure of 

its use of derivatives in its offering documents and 

periodic reports is consistent with relevant 

Commission and staff guidance. 

10As used in the Prior Releases (except for the 

Prior Notices and Prior Orders for the PIMCO 

Intermediate Municipal Bond Strategy ExchangeTraded Fund and the PIMCO Build America Bond 

Exchange-Traded Fund), the 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. 

8.600, which governs the listing and 

trading of Managed Fund Shares. The 

Shares are offered by PIMCO ETF Trust 

(the ‘‘Trust’’), a statutory trust organized 

under the laws of the State of Delaware 

and registered with the Commission as 

an open-end management investment 

company.5 The investment manager to 

the Funds is Pacific Investment 

Management Company LLC (‘‘PIMCO’’ 

or the ‘‘Adviser’’). 

In this proposed rule change, the 

Exchange proposes changing the 

description of each Fund’s use of 

derivative instruments, as described 

below. The portions of this proposed 

rule change that relate to the Funds’ 

proposed use of derivative instruments 

are identical to the portion of the 

proposed rule change approved by the 

Commission with respect to the 

continued listing and trading of the 

PIMCO Total Return Exchange-Traded 

Fund, that permitted it to use derivative 

instruments.6 Accordingly, this 

proposed rule change seeks to permit 

the Funds (other than the PIMCO Total 

Return Exchange-Traded Fund) to use 

derivative instruments on the same 

basis, and subject to the same 

conditions, as provided in the Second 

PIMCO Total Return Release, provided, 

however, that the Exchange also 

proposes to explicitly include options 

on swap agreements as derivative 

instruments in which the PIMCO Total 

Return Exchange-Traded Fund and all 

other Funds may invest, as described 

further below. In addition, the Exchange 

proposes changes to certain 

representations in the Prior Releases 

and the First PIMCO Total Return 

Release regarding (1) the limitation on 

each Fund’s holdings in illiquid assets, 

and (2) each Fund’s holdings of 

securities and financial instruments 

whose principal market is not a member 

of the ISG or is a market with which the 

Exchange does not have a 

comprehensive surveillance sharing 

agreement, as described further below. 

The Funds’ Use of Derivatives 

On December 6, 2012, the staff of the 

Commission’s Division of Investment 

Management (‘‘Division’’) issued a noaction letter (‘‘No-Action Letter’’) 

relating to the use of derivatives by 

actively-managed exchange traded 

funds (‘‘ETFs’’).7 The No-Action Letter 

noted that, in March of 2010, the 

Commission announced in a press 

release that the staff was conducting a 

review to evaluate the use of derivatives 

by mutual funds, ETFs, and other 

investment companies and that, 

pending completion of this review, the 

staff would defer consideration of 

exemptive requests under the 1940 Act 

relating to, among others, activelymanaged ETFs that would make 

significant investments in derivatives. 

The No-Action Letter stated that 

Division staff will no longer defer 

consideration of exemptive requests 

under the 1940 Act relating to activelymanaged ETFs that make use of 

derivatives provided that they include 

representations to address some of the 

concerns expressed in the Commission’s 

March 2010 press release. These 

representations are: (i) That the ETF’s 

board periodically will review and 

approve the ETF’s use of derivatives and 

how the ETF’s investment adviser 

assesses and manages risk with respect 

to the ETF’s use of derivatives; and (ii) 

that the ETF’s disclosure of its use of 

derivatives in its offering documents 

and periodic reports is consistent with 

relevant Commission and staff guidance. 

The No-Action Letter stated that the 

Division would not recommend 

enforcement action to the Commission 

under sections 2(a)(32), 5(a)(1), 17(a), 

22(d), and 22(e) of the 1940 Act, or rule 

22c–1 under the 1940 Act if activelymanaged ETFs operating in reliance on 

specified orders (which include the 

Trust’s Exemptive Order 8) invest in 

options contracts, futures contracts or 

swap agreements provided that they 

comply with the representations stated 

in the No-Action Letter, as noted above. 

In the Prior Releases for the PIMCO 

Diversified Income Exchange-Traded 

Fund, PIMCO Foreign Currency Strategy 

Exchange-Traded Fund, PIMCO Global 

Advantage® Inflation-Linked Bond 

Exchange-Traded Fund, PIMCO Low 

Duration Exchange-Traded Fund, and 

PIMCO Real Return Exchange-Traded 

Fund) [sic], the Exchange stated that 

such Funds would not invest in options 

contracts, futures contracts or swap 

agreements. In the Prior Release for the 

PIMCO Build America Bond ExchangeTraded Fund, the Exchange stated such 

Fund is restricted from investing in 

derivative instruments such as options 

contracts, futures contracts, and swap 

agreements. The Prior Releases for the 

PIMCO Intermediate Municipal Bond 

Exchange-Traded Fund, and PIMCO 

Short-Term Municipal Bond ExchangeTraded Fund made no statement with 

respect to such Funds’ use of 

derivatives. Going forward, in view of 

the No-Action Letter, the Exchange is 

proposing to permit the Funds to use 

derivative instruments, as described 

below.9

As summarized in the following table, 

the Prior Releases stated that the 

applicable Funds will invest under 

normal circumstances at least a certain 

percentage of their assets in certain 

instruments (as applicable to each such 

Fund, the ‘‘Primary Investment 

Strategy’’).10


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Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 62215 

11The term ‘‘Fixed Income Instruments’’ is 

defined with respect to each Fund as set forth in 

the Prior Releases and the Second PIMCO Total 

Return Release (see notes 4 and 6, supra). Examples 

include: debt securities issued or guaranteed by the 

U.S. Government, its agencies or governmentsponsored enterprises (‘‘U.S. Government 

Securities’’); corporate debt securities of U.S. and 

non-U.S. issuers, including convertible securities 

and corporate commercial paper; mortgage-backed 

and other asset-backed securities; inflation-indexed 

bonds issued both by governments and 

corporations; structured notes, including hybrid or 

‘‘indexed’’ securities and event-linked bonds; bank 

capital and trust preferred securities; loan 

participations and assignments; delayed funding 

loans and revolving credit facilities; bank 

certificates of deposit, fixed time deposits and 

bankers’ acceptances; repurchase agreements on 

Fixed Income Instruments and reverse repurchase 

agreements on Fixed Income Instruments; debt 

securities issued by states or local governments and 

their agencies, authorities and other governmentsponsored enterprises; obligations of non-U.S. 

governments or their subdivisions, agencies and 

government-sponsored enterprises; and obligations 

of international agencies or supranational entities. 

Securities issued by U.S. Government agencies or 

government-sponsored enterprises may not be 

guaranteed by the U.S. Treasury. 

12Forwards are contracts to purchase or sell 

securities for a fixed price at a future date beyond 

normal settlement time (forward commitments). 13 In the future, in the event that there are 

exchange-traded options on swaps, a Fund may 

invest in these instruments. 14Each Fund will seek, where possible, to use 

counterparties whose financial status is such that 

the risk of default is reduced; however, the risk of 

losses resulting from default is still possible. 

PIMCO’s Counterparty Risk Committee evaluates 

the creditworthiness of counterparties on an 

ongoing basis. In addition to information provided 

by credit agencies, PIMCO credit analysts evaluate 

each approved counterparty using various methods 

of analysis, including company visits, earnings 

updates, the broker-dealer’s reputation, PIMCO’s 

past experience with the broker-dealer, market 

levels for the counterparty’s debt and equity, the 

counterparty’s liquidity and its share of market 

participation. 

Fund Primary investment strategy 

PIMCO Build America 

Bond Exchange-Traded Fund.

The Fund will invest under normal circumstances at least 80% of its assets in taxable municipal debt securities publicly issued under the Build America Bond program. 

PIMCO Diversified Income Exchange-Traded Fund.The Fund will invest under normal circumstances at least 65% of its total assets in a diversified portfolio of ‘‘Fixed Income Instruments’’ (as defined below) of varying maturities and forward contracts on such Fixed Income Instruments. 

PIMCO Foreign Currency Strategy Exchange-Traded Fund.The Fund will invest under normal circumstances at least 80% of its assets in currencies of, or Fixed Income Instruments denominated in the currencies of, foreign (non-U.S.) countries, including, but not limited to, a combination of 

short-term Fixed Income Instruments, money market securities, and currency forwards backed by high quality, low 

duration securities. 

PIMCO Global Advantage® Inflation-Linked 

Bond Exchange-Traded Fund.

The Fund will invest under normal circumstances at least 80% of its assets in a portfolio of inflation-linked bonds that 

is economically tied to at least three developed and/or emerging market countries (one of which may be the United 

States). 

PIMCO Intermediate 

Municipal Bond Exchange-Traded Fund.

The Fund will invest under normal circumstances at least 80% of its assets in a diversified portfolio of debt securities 

whose interest is, in the opinion of bond counsel for the issuer at the time of issuance, exempt from federal income 

tax (‘‘Municipal Bonds’’). 

PIMCO Low Duration 

Exchange-Traded 

Fund.

The Fund will invest under normal circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities and forward contracts on such Fixed Income Instruments. 

PIMCO Real Return Exchange-Traded Fund.The Fund will invest under normal circumstances at least 80% of its net assets in inflation-indexed bonds of varying 

maturities issued by U.S. and non-U.S. governments, their agencies or instrumentalities, and corporations, and forward contracts on such Fixed Income Instruments. 

PIMCO Short-Term Municipal Bond Exchange-Traded Fund.The Fund will invest under normal circumstances at least 80% of its assets in a diversified portfolio of Municipal 

Bonds. 

‘‘Fixed Income Instruments’’ include 

bonds, debt securities and other similar 

instruments issued by various U.S. and 

non-U.S. public- or private-sector 

entities.11 The Exchange proposes to 

revise each Fund’s Primary Investment 

Strategy as set forth in the applicable 

Prior Release to provide that a Fund’s 

Primary Investment Strategy may be 

represented by derivatives based on the 

instruments that are the subject of the 

Primary Investment Strategy. 

With respect to each Fund, derivative 

instruments will be forwards; 12

exchange-traded and over-the-counter 

(‘‘OTC’’) options contracts; exchangetraded futures contracts; exchangetraded and OTC swap agreements; 

exchange-traded options on futures 

contracts; and OTC options on swap 

agreements.13 Generally, derivatives are 

financial contracts whose value [sic] 

depends upon, or is derived from, the 

value of an underlying asset, reference 

rate or index, and may relate to stocks, 

bonds, interest rates, currencies or 

currency exchange rates, commodities, 

and related indexes. Each Fund may, 

but will not be required to, use 

derivative instruments for risk 

management purposes or as part of its 

investment strategies.14

The Exchange notes that the Second 

PIMCO Total Return Release did not 

explicitly reference options on swap 

agreements, which are a form of OTC 

option contracts, as derivative 

instruments in which such Fund may 

invest. The Exchange, therefore, also 

proposes to explicitly include options 

on swap agreements as derivative 

instruments in which the PIMCO Total 

Return Exchange-Traded Fund (as well 

as all other Funds) may invest. 

Investments in derivative instruments 

will be made in accordance with the 

1940 Act and consistent with the 

applicable Fund’s investment objective 

and policies. As described further 

below, each Fund will typically use 

derivative instruments as a substitute 

for taking a position in the underlying 

asset and/or as part of a strategy 

designed to reduce exposure to other 

risks, such as interest rate or currency 

risk. Each Fund may also use derivative 

instruments to enhance returns. To limit 

the potential risk associated with such 

transactions, each Fund will segregate 

or ‘‘earmark’’ assets determined to be 

liquid by PIMCO in accordance with 

procedures established by the Trust’s 

Board of Trustees and in accordance 

with the 1940 Act (or, as permitted by 

applicable regulation, enter into certain 

offsetting positions) to cover its 

obligations under derivative 

instruments. These procedures have 

been adopted consistent with Section 18 

of the 1940 Act and related Commission 

guidance. In addition, each Fund will 

include appropriate risk disclosure in 

its offering documents, including 

leveraging risk. Leveraging risk is the 

risk that certain transactions of a Fund, 


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15To mitigate leveraging risk, the Adviser will 

segregate or ‘‘earmark’’ liquid assets or otherwise 

cover the transactions that may give rise to such 

risk. 

16Each Fund’s broad-based securities market 

index is identified in a Fund’s Registration 

Statement following a Fund’s first full calendar year 

of performance. 

including a Fund’s use of derivatives, 

may give rise to leverage, causing a 

Fund to be more volatile than if it had 

not been leveraged.15 Because the 

markets for certain securities, or the 

securities themselves, may be 

unavailable or cost prohibitive as 

compared to derivative instruments, 

suitable derivative transactions may be 

an efficient alternative for a Fund to 

obtain the desired asset exposure. 

The Adviser believes that derivatives 

can be an economically attractive 

substitute for an underlying physical 

security that a Fund would otherwise 

purchase. For example, a Fund could 

purchase Treasury futures contracts 

instead of physical Treasuries or could 

sell credit default protection on a 

corporate bond instead of buying a 

physical bond. Economic benefits 

include potentially lower transaction 

costs or attractive relative valuation of a 

derivative versus a physical bond (e.g., 

differences in yields). 

The Adviser further believes that 

derivatives can be used as a more liquid 

means of adjusting portfolio duration as 

well as targeting specific areas of yield 

curve exposure, with potentially lower 

transaction costs than the underlying 

securities (e.g., interest rate swaps may 

have lower transaction costs than 

physical bonds). Similarly, money 

market futures can be used to gain 

exposure to short-term interest rates in 

order to express views on anticipated 

changes in central bank policy rates. In 

addition, derivatives can be used to 

protect client assets through selectively 

hedging downside (or ‘‘tail risks’’) in a 

Fund. 

A Fund also can use derivatives to 

increase or decrease credit exposure. 

Index credit default swaps (CDX) can be 

used to gain exposure to a basket of 

credit risk by ‘‘selling protection’’ 

against default or other credit events, or 

to hedge broad market credit risk by 

‘‘buying protection.’’ Single name credit 

default swaps (CDS) can be used to 

allow a Fund to increase or decrease 

exposure to specific issuers, saving 

investor capital through lower trading 

costs. A Fund can use total return swap 

contracts to obtain the total return of a 

reference asset or index in exchange for 

paying a financing cost. A total return 

swap may be much more efficient than 

buying underlying securities of an 

index, potentially lowering transaction 

costs. 

The Adviser believes that the use of 

derivatives will allow a Fund to 

selectively add diversifying sources of 

return from selling options. Option 

purchases and sales can also be used to 

hedge specific exposures in the 

portfolio, and can provide access to 

return streams available to long-term 

investors such as the persistent 

difference between implied and realized 

volatility. Option strategies can generate 

income or improve execution prices 

(i.e., covered calls). 

In view of the Exchange’s proposal to 

permit the Funds (other than the PIMCO 

Total Return Exchange-Traded Fund) to 

use derivative instruments, as described 

above, each Fund’s investments in 

derivative instruments may be used to 

enhance leverage. However, the Funds’ 

investments will not be used to seek 

performance that is the multiple or 

inverse multiple (e.g., 2Xs and 3Xs) of 

a Fund’s broad-based securities market 

index.16

Other Investments 

In addition to a Fund’s use of 

derivatives in connection with its 

Primary Investment Strategy as 

described above, under the proposal 

each Fund may seek to invest in 

derivative instruments apart from a 

Fund’s Primary Investment Strategy, 

consistent with a Fund’s investment 

restrictions relating to exposure to other 

asset classes not related to a Fund’s 

Primary Investment Strategy. 

The Prior Releases relating to the 

PIMCO Foreign Currency Strategy 

Exchange-Traded Fund and PIMCO 

Global Advantage® Inflation-Linked 

Bond Exchange-Traded Fund also stated 

that those Funds may invest in debt 

securities and instruments that are 

economically tied to foreign (non-U.S.) 

countries. The Prior Releases for those 

Funds stated further that PIMCO 

generally considers an instrument to be 

economically tied to a non-U.S. country 

if the issuer is a foreign government (or 

any political subdivision, agency, 

authority or instrumentality of such 

government), or if the issuer is 

organized under the laws of a non-U.S. 

country. In the case of applicable money 

market instruments, such instruments 

will be considered economically tied to 

a non-U.S. country if either the issuer or 

the guarantor of such money market 

instrument is organized under the laws 

of a non-U.S. country. 

The Exchange proposes to add to this 

representation that, with respect to 

derivative instruments, as proposed to 

be used, PIMCO generally will consider 

such instruments to be economically 

tied to non-U.S. countries if the 

underlying assets are foreign currencies 

(or baskets or indexes of such 

currencies), or instruments or securities 

that are issued by foreign governments 

(or any political subdivision, agency, 

authority or instrumentality of such 

governments) or issuers organized under 

the laws of a non-U.S. country (or if the 

underlying assets are money market 

instruments, as applicable, if either the 

issuer or the guarantor of such money 

market instruments is organized under 

the laws of a non-U.S. country). 

Derivatives Valuation Methodology for 

Purposes of Determining Net Asset 

Value 

According to the Registration 

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

of each Fund’s Shares is determined by 

dividing the total value of a Fund’s 

portfolio investments and other assets, 

less any liabilities, by the total number 

of Shares outstanding. Each Fund’s 

Shares are valued as of the close of 

regular trading of the New York Stock 

Exchange (‘‘NYSE’’) (normally 4:00 

p.m., Eastern time (‘‘E.T.’’)) (the ‘‘NYSE 

Close’’) on each day NYSE Arca is open 

(‘‘Business Day’’). Information that 

becomes known to the applicable Fund 

or its agents after the NAV has been 

calculated on a particular day will not 

generally be used to retroactively adjust 

the price of a portfolio asset or the NAV 

determined earlier that day. Each Fund 

reserves the right to change the time its 

NAV is calculated if a Fund closes 

earlier, or as permitted by the 

Commission. For purposes of 

calculating NAV, portfolio securities 

and other assets for which market 

quotes are readily available are valued 

at market value. Market value is 

generally determined on the basis of last 

reported sales prices, or if no sales are 

reported, based on quotes obtained from 

a quotation reporting system, 

established market makers, or pricing 

services. Non-exchange-traded 

derivatives will normally be valued on 

the basis of quotes obtained from 

brokers and dealers or third party 

pricing services using data reflecting the 

earlier closing of the principal markets 

for those assets. Prices obtained from 

independent pricing services use 

information provided by market makers 

or estimates of market values obtained 

from yield data relating to investments 

or securities with similar characteristics. 

Exchange-traded options, futures and 

options on futures will generally be 

valued at the settlement price 

determined by the applicable exchange. 

Derivatives for which market quotes 

are readily available will be valued at 


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17See note 4, supra. 

market value. Local closing prices will 

be used for all instrument valuation 

purposes. For a Fund’s 4:00 p.m. E.T. 

futures holdings, estimated prices from 

Reuters will be used if any cumulative 

futures margin impact is greater than 

$0.005 to the NAV due to futures 

movement after the fixed income futures 

market closes (3:00 p.m. E.T.) and up to 

the NYSE close (generally 4:00 p.m. 

E.T.). Swaps traded on exchanges such 

as the Chicago Mercantile Exchange 

(‘‘CME’’) or the Intercontinental 

Exchange (‘‘ICE–US’’) will use the 

applicable exchange closing price where 

available. 

Derivatives Valuation Methodology for 

Purposes of Determining Intra-Day 

Indicative Value 

On each Business Day, before 

commencement of trading in a Fund’s 

Shares on NYSE Arca, each Fund 

discloses on its Web site the identities 

and quantities of the portfolio 

instruments and other assets held by a 

Fund that will form the basis for a 

Fund’s calculation of NAV at the end of 

the Business Day. 

In order to provide additional 

information regarding the intra-day 

value of Shares of a Fund, the NYSE 

Arca or a market data vendor 

disseminates every 15 seconds through 

the facilities of the Consolidated Tape 

Association or other widely 

disseminated means an updated Intraday Indicative Value (‘‘IIV’’) for a Fund 

as calculated by an information provider 

or market data vendor. 

A third party market data provider is 

currently calculating the IIV for the 

Funds that have commenced operations. 

For the purposes of determining the IIV, 

the third party market data provider’s 

valuation of derivatives is expected to 

be similar to their valuation of all 

securities. The third party market data 

provider may use market quotes if 

available or may fair value securities 

against proxies (such as swap or yield 

curves). 

Price information for the debt 

securities and other financial 

instruments held by each of the Funds, 

including the intra-day, closing 

settlement price for the Fixed Income 

Instruments and derivatives thereon, 

and other financial instruments held by 

each of the Funds, will be available 

through major market data vendors. 

With respect to specific derivatives: 

• Foreign currency derivatives may 

be valued intraday using market quotes, 

or another proxy as determined to be 

appropriate by the third party market 

data provider. 

• Futures may be valued intraday 

using the relevant futures exchange 

data, or another proxy as determined to 

be appropriate by the third party market 

data provider. 

• Interest rate swaps may be mapped 

to a swap curve and valued intraday 

based on changes of the swap curve, or 

another proxy as determined to be 

appropriate by the third party market 

data provider. 

• CDX/CDS may be valued using 

intraday data from market vendors, or 

based on underlying asset price, or 

another proxy as determined to be 

appropriate by the third party market 

data provider. 

• Total return swaps may be valued 

intraday using the underlying asset 

price, or another proxy as determined to 

be appropriate by the third party market 

data provider. 

• Exchange listed options may be 

valued intraday using the relevant 

exchange data, or another proxy as 

determined to be appropriate by the 

third party market data provider. 

• OTC options, including options on 

swaps, may be valued intraday through 

option valuation models (e.g., BlackScholes) or using exchange traded 

options as a proxy, or another proxy as 

determined to be appropriate by the 

third party market data provider. 

• A third party market data provider’s 

valuation of forwards will be similar to 

its valuation of the underlying 

securities, or another proxy as 

determined to be appropriate by the 

third party market data provider. The 

third party market data provider will 

generally use market quotes if available. 

Where market quotes are not available, 

they may fair value securities against 

proxies (such as swap or yield curves). 

Each Fund’s disclosure of forward 

positions will include information that 

market participants can use to value 

these positions intraday. 

Disclosed Portfolio 

Each Fund’s disclosure of derivative 

positions in the Disclosed Portfolio will 

include information that market 

participants can use to value these 

positions intraday. On a daily basis, 

each Fund will disclose on each Fund’s 

Web site the following information 

regarding each portfolio holding, as 

applicable to the type of holding: 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 each Fund’s 

portfolio. 

Impact on Arbitrage Mechanism 

The Adviser believes there will be 

minimal, if any, impact to the arbitrage 

mechanism as a result of the use of 

derivatives. Market makers and 

participants should be able to value 

derivatives as long as the positions are 

disclosed with relevant information. 

The Adviser believes that the price at 

which Shares trade will continue to be 

disciplined by arbitrage opportunities 

created by the ability to purchase or 

redeem creation units of Shares at their 

NAV, which should ensure that Shares 

will not trade at a material discount or 

premium in relation to their NAV. 

The Adviser does not believe there 

will be any significant impacts to the 

settlement or operational aspects of a 

Fund’s arbitrage mechanism due to the 

use of derivatives. Because derivatives 

generally are not eligible for in-kind 

transfer, they will typically be 

substituted with a ‘‘cash in lieu’’ 

amount when a Fund processes 

purchases or redemptions of creation 

units in-kind. 

Illiquid Securities 

The Exchange proposes to amend the 

representations in certain of the Prior 

Releases 17 relating to holdings of the 

Funds in illiquid assets to conform such 

representations to those made in the 

Prior Releases for the PIMCO Diversified 

Income Exchange-Traded Fund, PIMCO 

Low Duration Exchange-Traded Fund, 

PIMCO Real Return Exchange-Traded 

Fund, and the Second PIMCO Total 

Return Release, as described below. 

In the respective Prior Releases for the 

PIMCO Build America Bond ExchangeTraded [sic], PIMCO Intermediate 

Municipal Bond Exchange-Traded Fund 

and PIMCO Short-Term Municipal Bond 

Exchange-Traded Fund and the First 

PIMCO Total Return Prior Release, the 

Exchange stated that each such Fund 

may invest up to 15% of its net assets 

in illiquid securities. In the Prior 

Release for the PIMCO Foreign Currency 

Strategy Exchange-Traded Fund, the 

Exchange stated that the Fund may hold 

up to an aggregate amount of 15% of its 

net assets in illiquid securities 

(calculated at the time of investment), 

and that certain financial instruments, 

including, but not limited to, Rule 144A 

securities, loan participations and 

assignments, delayed funding loans, 

revolving credit facilities, and fixedand floating-rate loans will be included 


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62218 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 

18See notes 4 and 6, supra. 

19 In reaching liquidity decisions with respect to 

Rule 144A securities, the Adviser may consider the 

following factors: the frequency of trades and 

quotes for the security; the number of dealers 

willing to purchase or sell the security and the 

number of other potential purchasers; dealer 

undertakings to make a market in the security; and 

the nature of the security and the nature of the 

marketplace trades (e.g., the time needed to dispose 

of the security, the method of soliciting offers, and 

the mechanics of transfer). 

20The 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 1933 Act). 

21See note 20, supra. 

22See note 4, supra. 

23See note 26, infra. 

24See Securities Exchange Act Release Nos. 

69915 (July 2, 2013), 78 FR 41145 (July 9, 2013) 

(SR–NYSEArca–2013–56) (order approving listing 

and trading of shares of the PowerShares China AShare Portfolio under NYSE Arca Equities Rule 

8.600); 72665 (July 24, 2014), 79 FR 44236 (July 30, 

2014) (SR–NYSEArca–2014–59) (order approving 

listing and trading of shares of the AdvisorShares 

Athena High Dividend ETF under NYSE Arca 

Equities Rule 8.600; 72882 (August 20, 2014) (SR– 

NYSEArca–2014–58) (order approving listing and 

trading of shares of PIMCO Short-Term ExchangeTraded Fund and PIMCO Municipal Bond 

Exchange-Traded Fund under NYSE Arca Equities 

Rule 8.600); 72853 (August 15, 2014) (SR– 

NYSEArca–2014–57) (order approving listing and 

trading of shares of the PIMCO Foreign Bond 

Exchange-Traded Fund (U.S. Dollar-Hedged), 

PIMCO Foreign Bond Exchange-Traded Fund 

(Unhedged), PIMCO Global Advantage Bond 

Exchange-Traded Fund, and PIMCO International 

Advantage Bond Exchange-Traded Fund under 

NYSE Arca Equities Rule 8.600). 

in the 15% limitation on illiquid 

securities. In the Prior Release for the 

PIMCO Global Advantage® InflationLinked Bond Strategy Exchange-Traded 

Fund, the Exchange stated that the Fund 

may hold in the aggregate up to 15% of 

its net assets in: (1) Illiquid securities, 

which include delayed funding loans, 

revolving credit facilities, fixed- and 

floating-rate loans and loan 

participations and assignments, and (2) 

Rule 144A securities. 

The Exchange proposes that each of 

such representations in such Prior 

Releases be replaced and superseded by 

the representation in the respective 

Prior Releases for the PIMCO Diversified 

Income Exchange-Traded Fund, PIMCO 

Low Duration Exchange-Traded Fund, 

PIMCO Real Return Exchange-Traded 

Fund and the Second PIMCO Total 

Return Release relating to investments 

in illiquid assets,18 namely, that each 

Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment), including Rule 144A 

securities deemed illiquid by the 

Adviser,19 consistent with Commission 

guidance.20 Such illiquid assets, 

therefore, could include, in addition to 

Rule 144A securities, financial 

instruments such as delayed funding 

loans, revolving credit facilities, fixedand floating-rate loans and loan 

participations and assignments deemed 

illiquid by the Adviser, consistent with 

Commission guidance. 

The Exchange notes that each 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 a 

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.21

Fund Holdings in Non-U.S. Equity 

Securities and Other Financial 

Instruments 

The Exchange proposes to amend the 

representations made in the Prior 

Releases regarding holdings by the 

Funds in non-U.S. equity securities, as 

described below. In the Prior Release for 

the PIMCO Diversified Income 

Exchange-Traded Fund, PIMCO Low 

Duration Exchange-Traded Fund and 

PIMCO Real Return Exchange-Traded 

Fund, the Exchange stated that such 

Funds will invest only in U.S. and nonU.S. equity securities that trade in 

markets that are members of the ISG or 

are parties to a comprehensive 

surveillance sharing agreement with the 

Exchange. In the Prior Releases for the 

PIMCO Intermediate Municipal Bond 

Strategy Exchange-Traded Fund, PIMCO 

Short-Term Municipal Bond Strategy 

Exchange-Traded Fund and PIMCO 

Build America Bond Exchange-Traded 

Fund, the Exchange stated that such 

Funds will not invest in non-U.S. equity 

securities. In the Prior Release for the 

PIMCO Foreign Currency Strategy 

Exchange-Traded Fund and First 

PIMCO Total Return Notice,22 the 

Exchange stated that such Funds will 

not invest in any non-U.S. registered 

equity securities, except if such 

securities are traded on exchanges that 

are members of the ISG. In the Prior 

Release for the PIMCO Global 

Advantage® Inflation-Linked Bond 

Strategy Exchange-Traded Fund, the 

Exchange stated that, with respect to its 

equity securities investments, the Fund 

will invest only in U.S. registered equity 

securities and non-U.S.-registered 

equity securities that trade in markets 

that are members of the ISG or are 

parties to a comprehensive surveillance 

sharing agreement with the Exchange.23

The Exchange proposes to amend such 

statements in the Prior Releases to 

provide that not more than 10% of the 

net assets of a Fund in the aggregate 

invested in equity securities (excluding 

non-exchange-traded investment 

company securities) shall consist of 

equity securities, including stocks into 

which a convertible security is 

converted, whose principal market is 

not a member of the ISG or is a market 

with which the Exchange does not have 

a comprehensive surveillance sharing 

agreement. Furthermore, the Exchange 

proposes that not more than 10% of the 

net assets of a Fund in the aggregate 

invested in futures contracts or 

exchange-traded options contracts shall 

consist of futures contracts or exchangetraded options contracts whose 

principal market is not a member of ISG 

or is a market with which the Exchange 

does not have a comprehensive 

surveillance sharing agreement. 

The Exchange notes that the 

Commission has previously approved 

similar percentage limitations for other 

funds listed on the Exchange under 

NYSE Arca Equities Rule 8.600.24 Such 

a representation assures that most 

applicable exchange-traded assets of a 

Fund will be assets whose principal 

market is an ISG member or a market 

with which the Exchange has a 

comprehensive surveillance sharing 

agreement. 

The changes described herein will be 

effective upon (i) the effectiveness of an 

amendment to the Trust’s Registration 

Statement disclosing the Funds’ 

intended use of derivative instruments 

and (ii) when this proposed rule change 

has become operative. The Adviser 

represents that the Adviser has managed 

and will continue to manage those 

Funds that have commenced operations 

in the manner described in the 

applicable Prior Release, and will not 

implement the changes described herein 

until this proposed rule change is 

operative. 


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Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 62219 

25FINRA surveils trading on the Exchange 

pursuant to a regulatory services agreement. The 

Exchange is responsible for FINRA’s performance 

under this regulatory services agreement. 

26For a list of the current members of ISG, see 

www.isgportal.org. The Exchange notes that not all 

components of the Disclosed Portfolio for a Fund 

may trade on markets that are members of ISG or 

with which the Exchange has in place a 

comprehensive surveillance sharing agreement. 

27 15 U.S.C. 78a. 

28 15 U.S.C. 78f(b)(5). 29See note 16, supra. 

The Adviser represents that there is 

no change to each Fund’s investment 

objective. Each Fund will continue to 

comply with all initial and continued 

listing requirements under NYSE Arca 

Equities Rule 8.600, as applicable. 

Except for the changes noted in this 

filing, all other facts presented and 

representations made in the Prior 

Releases remain unchanged. 

All terms referenced but not defined 

herein are defined in the Prior Releases. 

Surveillance 

The Exchange represents that trading 

in the Shares will be subject to the 

existing trading surveillances, 

administered by the Financial Industry 

Regulatory Authority (‘‘FINRA’’) on 

behalf of the Exchange, which are 

designed to detect violations of 

Exchange rules and applicable federal 

securities laws.25 The Exchange 

represents that these procedures are 

adequate to properly monitor Exchange 

trading of the Shares in all trading 

sessions and to deter and detect 

violations of Exchange rules and federal 

securities laws applicable to trading on 

the Exchange. 

The surveillances referred to above 

generally focus on detecting securities 

trading outside their normal patterns, 

which could be indicative of 

manipulative or other violative activity. 

When such situations are detected, 

surveillance analysis follows and 

investigations are opened, where 

appropriate, to review the behavior of 

all relevant parties for all relevant 

trading violations. 

FINRA, on behalf of the Exchange, 

will communicate as needed regarding 

trading in the Shares, exchange traded 

equities, options, futures, options on 

futures and other exchange-traded assets 

with other markets or other entities that 

are members of the Intermarket 

Surveillance Group (‘‘ISG’’), and FINRA 

may obtain trading information 

regarding trading in the Shares, 

exchange traded equities, options, 

futures, options on futures and other 

exchange-traded assets from such 

markets or entities. In addition, the 

Exchange may obtain information 

regarding trading in the Shares, 

exchange traded equities, options, 

futures, options on futures and other 

exchange-traded assets from markets or 

other entities that are members of ISG or 

with which the Exchange has in place 

a comprehensive surveillance sharing 

agreement.26 In addition, FINRA, on 

behalf of the Exchange, is able to access, 

as needed, trade information for certain 

fixed income securities held by a Fund 

reported to FINRA’s Trade Reporting 

and Compliance Engine (‘‘TRACE’’). 

FINRA also can access data obtained 

from the Municipal Securities 

Rulemaking Board relating to municipal 

bond trading activity for surveillance 

purposes in connection with trading in 

the Shares. 

In addition, the Exchange also has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

2. Statutory Basis 

The basis under the Act 27 for this 

proposed rule change is the requirement 

under Section 6(b)(5) 28 that an 

exchange have rules that are 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, in general, to protect investors and 

the public interest. 

The Exchange believes that the 

proposed rule change is designed to 

prevent fraudulent and manipulative 

acts and practices in that the Shares will 

continue to be listed and traded on the 

Exchange pursuant to the initial and 

continued listing criteria in NYSE Arca 

Equities Rule 8.600. Each Fund will 

continue to comply with all initial and 

continued listing requirements under 

NYSE Arca Equities Rule 8.600, as 

applicable. The Exchange represents 

that these procedures are adequate to 

properly monitor Exchange trading of 

the Shares in all trading sessions and to 

deter and detect violations of Exchange 

rules and federal securities laws 

applicable to trading on the Exchange. 

FINRA, on behalf of the Exchange, will 

communicate as needed regarding 

trading in the Shares, exchange traded 

equities, options, futures, options on 

futures and other exchange-traded assets 

with other markets or other entities that 

are members of the ISG, and FINRA may 

obtain trading information regarding 

trading in the Shares, exchange traded 

equities, options, futures, options on 

futures and other exchange-traded assets 

from such markets or entities. In 

addition, the Exchange may obtain 

information regarding trading in the 

Shares, exchange traded equities, 

options, futures, options on futures and 

other exchange-traded assets from 

markets or other entities that are 

members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. In 

addition, FINRA, on behalf of the 

Exchange, is able to access, as needed, 

trade information for certain fixed 

income securities held by a Fund 

reported to FINRA’s TRACE. FINRA 

also can access data obtained from the 

Municipal Securities Rulemaking Board 

relating to municipal bond trading 

activity for surveillance purposes in 

connection with trading in the Shares. 

Each Fund’s investments will be 

consistent with its investment objective, 

which remains unchanged. The 

proposed amendments permitting the 

Funds to invest in derivative 

instruments, such as options contracts, 

futures contracts and swap agreements, 

promotes just and equitable principals 

of trade and furthers the protection of 

investors and the public interest. Each 

Fund’s investments will not be used to 

seek performance that is the multiple or 

inverse multiple (e.g., 2Xs and 3Xs) of 

a Fund’s broad-based securities market 

index.29

Permitting the use of derivatives will 

provide additional flexibility to the 

Adviser in seeking to achieve each 

Fund’s investment objective. For 

example, because the markets for certain 

securities, or the securities themselves, 

may be unavailable or cost prohibitive 

as compared to derivative instruments, 

suitable derivative transactions may be 

an efficient alternative for a Fund to 

obtain the desired asset exposure. 

Additionally, derivatives allow parties 

to replicate desired returns while 

eliminating the costs associated with 

acquiring or holding the underlying 

asset. As such, the increased flexibility 

afforded by the ability to use derivatives 

may enhance investor returns by 

facilitating a Fund’s ability to more 

economically seek its investment 

objectively, thereby reducing the costs— 

actual, opportunity or otherwise— 

incurred by a Fund. 

With respect to the representation 

above that the Exchange proposes to 

explicitly include options on swap 

agreements as derivative instruments in 

which the PIMCO Total Return 

Exchange-Traded Fund and all other 

Funds may invest, the Exchange 

believes such inclusion will not 

adversely impact investors and serves to 

protect investors and the public interest 

for the following reasons. The proposed 

revised representations are similar to 


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62220 Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 

30See, e.g., Securities Exchange Act Release Nos. 

[sic] 7882 (August 20, 2014) (SR–NYSEArca–2014– 

58) (order approving listing and trading on the 

Exchange of shares of the PIMCO Short-Term 

Exchange-Traded Fund and the PIMCO Municipal 

Bond Exchange-Traded Fund under NYSE Arca 

Equities Rule 8.600). 

31See note 30, supra. 

32See Securities Exchange Act Release Nos. 

69915 (July 2, 2013), 78 FR 41145 (July 9,2013) (SR– 

NYSEArca-2013–56) (order approving listing and 

trading of shares of the PowerShares China A-Share 

Portfolio under NYSE Arca Equities Rule 8.600); 

72665 (July 24, 2014), 79 FR 44236 (July 30, 2014) 

(SR–NYSEArca–2014–59) (order approving listing 

and trading of shares of the AdvisorShares Athena 

High Dividend ETF under NYSE Arca Equities Rule 

8.600 [sic]; 72882 (August 20, 2014) (SR– 

NYSEArca-2014–58) (order approving listing and 

trading of shares of PIMCO Short-Term ExchangeTraded Fund and PIMCO Municipal Bond 

Exchange-Traded Fund under NYSE Arca Equities 

Rule 8.600); 72853 (August 15, 2014) (SR– 

NYSEArca–2014–57) (order approving listing and 

trading of shares of the PIMCO Foreign Bond 

Exchange-Traded Fund (U.S. Dollar-Hedged), 

PIMCO Foreign Bond Exchange-Traded Fund 

(Unhedged), PIMCO Global Advantage Bond 

Exchange-Traded Fund, and PIMCO International 

Advantage Bond Exchange-Traded Fund under 

NYSE Arca Equities Rule 8.600). 33See notes 4 and 6, supra. 

those previously approved by the 

Commission for other exchange-traded 

funds listed and traded on the Exchange 

pursuant to NYSE Arca Equities Rule 

8.600.30 In the case of OTC swaps and 

OTC options, the Adviser represents 

that it has implemented policies and 

procedures which govern the selection 

of counterparties to reduce the risks 

associated with swaps, including, but 

not limited to, counterparty risk and 

concentration risk. In addition, as 

described further below, a Fund’s 

investments in derivative instruments 

will be made in accordance with the 

1940 Act and consistent with a Fund’s 

investment objectives and policies. To 

limit the potential risk associated with 

transactions in derivative instruments, 

each Fund will segregate or ‘‘earmark’’ 

assets determined to be liquid by 

PIMCO in accordance with procedures 

established by the Trust’s Board of 

Trustees and in accordance with the 

1940 Act. 

With respect to the representation 

above that, with respect to derivative 

instruments, as proposed to be used, 

PIMCO generally will consider such 

instruments to be economically tied to 

non-U.S. countries if the underlying 

assets are foreign currencies, or 

instruments or securities that are issued 

by foreign governments or issuers 

organized under the laws of a non-U.S. 

country (or if the underlying assets are 

money market instruments, as 

applicable, if either the issuer or the 

guarantor of such money market 

instruments is organized under the laws 

of a non-U.S. country), the Exchange 

believes such consideration will not 

adversely impact investors and serves to 

protect investors and the public interest 

for the following reasons. The proposed 

revised representations are similar to 

those previously approved by the 

Commission for other exchange-traded 

funds listed and traded on the Exchange 

pursuant to NYSE Arca Equities Rule 

8.600.31 In addition, as described further 

below, a Fund’s investments in 

derivative instruments will be made in 

accordance with the 1940 Act and 

consistent with a Fund’s investment 

objectives and policies. To limit the 

potential risk associated with 

transactions in derivative instruments, 

each Fund will segregate or ‘‘earmark’’ 

assets determined to be liquid by 

PIMCO in accordance with procedures 

established by the Trust’s Board of 

Trustees and in accordance with the 

1940 Act. 

With respect to the representation in 

‘‘Surveillance’’ above that (1) not more 

than 10% of the net assets of a Fund in 

the aggregate invested in equity 

securities (excluding non-exchangetraded investment company securities) 

shall consist of equity securities, 

including stocks into which a 

convertible security is converted, whose 

principal market is not a member of the 

ISG or is a market with which the 

Exchange does not have a 

comprehensive surveillance sharing 

agreement, and (2) not more than 10% 

of the net assets of a Fund in the 

aggregate invested in futures contracts 

or exchange-traded options contracts 

shall consist of futures contracts or 

exchange-traded options contracts 

whose principal market is not a member 

of ISG or is a market with which the 

Exchange does not have a 

comprehensive surveillance sharing 

agreement, the Exchange believes such 

limitation of assets will not adversely 

impact investors and serves to protect 

investors and the public interest for the 

following reasons. The Commission has 

previously approved such limitations 

for other funds listed on the Exchange 

under NYSE Arca Equities Rule 8.600.32

Such a representation assures that most 

applicable exchange-traded assets of a 

Fund will be assets whose principal 

market is an ISG member or a market 

with which the Exchange has a 

comprehensive surveillance sharing 

agreement. 

With respect to the proposed changes 

to certain representations in the Prior 

Releases and the Second PIMCO Total 

Return Release, relating to limitations 

on investments in illiquid assets, the 

Exchange believes such limitation of 

assets will not adversely impact 

investors and serves to protect investors 

and the public interest for the following 

reasons. The Exchange notes that the 

proposed revised representations are 

similar to those previously approved by 

the Commission in the Prior Releases for 

the PIMCO Diversified Income 

Exchange-Traded Fund, PIMCO Low 

Duration Exchange-Traded Fund, 

PIMCO Real Return Exchange-Traded 

Fund and the Second PIMCO Total 

Return Release relating to investments 

in illiquid assets.33 In addition, the 

Exchange notes that each 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 a 

Fund’s net assets are held in illiquid 

assets. 

Investor protection and the public 

interest are further advanced as a result 

of the following factors: 

• Each Fund’s compliance with the 

requirements of the federal securities 

laws, in particular, the restrictions 

under the 1940 Act regarding limitation 

on investments in illiquid securities; 

• The central clearing of U.S. 

exchange-traded futures and options 

contracts and certain swaps; 

• In the case of OTC swaps and OTC 

options, the Adviser represents that it 

has implemented policies and 

procedures which govern the selection 

of counterparties to reduce the risks 

associated with swaps, including, but 

not limited to, counterparty risk and 

concentration risk. 

• The Adviser represents that each 

Fund will comply with the 

representations stated in the No-Action 

Letter, as stated above. In addition, all 

other representations in the Prior 

Releases and the Total Return Release, 

with the exceptions noted above, remain 

as stated therein and no other changes 

are being made. 

• Investments in derivative 

instruments will be made in accordance 

with the 1940 Act and consistent with 

a Fund’s investment objectives and 

policies. To limit the potential risk 

associated with transactions in 

derivative instruments, each Fund will 

segregate or ‘‘earmark’’ assets 

determined to be liquid by PIMCO in 

accordance with procedures established 

by the Trust’s Board of Trustees and in 

accordance with the 1940 Act (or, as 

permitted by applicable regulation, 

enter into certain offsetting positions) to 

cover its obligations under derivative 


asabaliauskas on DSK5VPTVN1PROD with NOTICES
Federal Register / Vol. 79, No. 200 / Thursday, October 16, 2014 / Notices 62221 

34 15 U.S.C. 78s(b)(3)(A). 

35 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 

4(f)(6) requires a self-regulatory organization to give 

the Commission written notice of its intent to file 

the proposed rule change at least five business days 

prior to the date of filing of the proposed rule 

change, or such shorter time as designated by the 

Commission. The Exchange has satisfied this 

requirement. 36 17 CFR 200.30–3(a)(12). 

instruments. These procedures have 

been adopted consistent with Section 18 

of the 1940 Act and related Commission 

guidance. In addition, each Fund will 

include appropriate risk disclosure in 

its offering documents, including 

leveraging risk. 

• The listing and trading of Shares of 

a Fund is governed by Exchange initial 

and continued listing rules as approved 

by the Commission, including NYSE 

Arca Equities Rule 8.600. 

• As described in the Prior Releases 

under ‘‘Availability of Information’’, the 

Funds’ Web site discloses specified 

quantitative information updated on a 

daily basis, as well as the Disclosed 

Portfolio as defined in NYSE Arca 

Equities Rule 8.600(c)(2) that will form 

the basis for a Fund’s calculation of 

NAV at the end of the business day. On 

a daily basis, each Fund will disclose on 

each Fund’s Web site the following 

information regarding each portfolio 

holding, as applicable to the type of 

holding: 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 each Fund’s portfolio. 

• The proposed rule change helps to 

perfect the mechanism of a free and 

open market by enhancing investor 

choice and providing investors a cost 

effective and efficient means to access 

an asset class through a diversified 

vehicle that is listed and traded on an 

exchange. 

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 purposes of the Act. The 

proposed rule change will allow each 

Fund to use derivative instruments as a 

more efficient substitute for taking a 

position in the underlying asset and/or 

as part of a strategy designed to reduce 

exposure to risks (such as interest rate 

or currency risk) or to enhance 

investment returns. The proposed 

change, therefore, will provide 

additional flexibility to the Adviser to 

seek each Fund’s investment objective 

and will enhance each Fund’s ability to 

compete with other actively managed 

exchange-traded funds and mutual 

funds. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the foregoing proposed rule 

change does not: (i) Significantly affect 

the protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate, if 

consistent with the protection of 

investors and the public interest, the 

proposed rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 34 and Rule 19b–4(f)(6)(iii) 

thereunder.35

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEArca–2014–104 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2014–104. 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 Number SR– 

NYSEArca–2014–104 and should be 

submitted on or before November 6, 

2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.36

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–24545 Filed 10–15–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73332 ; File No. SR– 

FINRA–2014–043] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change to Adopt as Permanent 

the Limited Fee Waiver Pilot Program 

Pursuant to FINRA Rule 7730 

October 9, 2014. 

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

Securities Exchange Act of 1934 


asabaliauskas on DSK5VPTVN1PROD with NOTICES