Federal Register / Vol. 79, No. 201 / Friday, October 17, 2014 / Notices 62489 

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

2 17 CFR 240.19b–4. 

3Exchange Act Release No. 71545 (Feb. 12, 2014), 

79 FR 9535 (Feb. 19, 2014) (Notice of Filing of 

Proposed Rule Change Relating to Per Share 

Estimated Valuations for Unlisted DPP and REIT 

Securities) (‘‘Notice of Filing’’). The comment 

period closed on March 12, 2014. 

4Letters to Elizabeth Murphy, Secretary, SEC, 

from Mark Goldberg, Chairman, Investment 

Program Association, dated February 5, 2014; David 

T. Bellaire, Esq., Executive Vice President and 

General Counsel, Financial Services Institute, dated 

February 5, 2014; Mark Kosanke, President, Real 

Estate Investment Securities Association, dated 

February 11, 2014; Steven A. Wechsler, President 

and Chief Executive Officer, National Association of 

Real Estate Investment Trusts, dated February 14, 

2014; Jeff Johnson, Chief Executive Officer, 

Dividend Capital Diversified Property Fund Inc., 

dated February 28, 2014; Michael Crimmins, Chief 

Executive Officer and Managing Director, KBS 

Capital Markets Group, dated February 28, 2014; 

Scott Ilgerfritz, Immediate Past-President, Public 

Investors Arbitration Bar Association, dated March 

11, 2014; Thomas Price, Managing Director, 

Securities Industry and Financial Markets 

Association, dated March 12, 2014; Steve Morrison, 

Senior Vice President and Associate Counsel, LPL 

Financial, dated March 12, 2014; Jacob Frydman, 

Chairman and Chief Executive Officer, United 

Realty Trust Incorporated, dated March 12, 2014; 

Dechert LLP, dated March 12, 2014; David 

Hirschmann, President and Chief Executive Officer, 

Center for Capital Markets Competitiveness, U.S. 

Chamber of Commerce, dated March 12, 2014; 

Steven A. Wechsler, President and Chief Executive 

Officer, National Association of Real Estate 

Investment Trusts, dated March 12, 2014; Kirk 

Montgomery, Head of Regulatory Affairs, CNL 

Financial Group, LLC, dated March 12, 2014; Mark 

Goldberg, Chairman, Investment Program 

Association, dated March 12, 2014; David T. 

Bellaire, Esq., Executive Vice President and General 

Counsel, Financial Services Institute, dated March 

12, 2014; Martel Day, Principal, NLR Advisory 

Services, LLC, dated March 12, 2014; and Mark 

Kosanke, President, Real Estate Investment 

Securities Association, dated March 12, 2014. 

Comment letters are available at www.sec.gov. 

The Commission discussed these comments in 

the Proceedings Order. See infra note 6. 

5 15 U.S.C. 78s(b)(2)(B). 

6Exchange Act Release No. 72193 (May 20, 2014), 

79 FR 30217 (May 27, 2014) (Order Instituting 

Proceedings to Determine Whether to Approve or 

Disapprove a Proposed Rule Change Relating to Per 

Share Estimated Valuations for Unlisted DPP and 

REIT Securities) (‘‘Proceedings Order’’). The 

comment period closed on June 26, 2014. 

7Letters to Elizabeth Murphy, Secretary, SEC, 

from Kenneth Mills, dated June 24, 2014; Jason 

Doss, President, Public Investors Arbitration Bar 

Association, dated June 25, 2014; Mark Kosanke, 

President, Real Estate Investment Securities 

Association, dated June 26, 2014; Thomas F. Price, 

Managing Director, Operations, Technology and 

BCP, Securities Industry and Financial Markets 

Association, dated June 26, 2014; David T. Bellaire, 

Executive Vice President and General Counsel, 

Financial Services Institute, dated June 26, 2014; 

and Peter Peters, dated July 15, 2014. Comment 

letters are available at www.sec.gov. 

8Letter to Kevin O’Neill, Deputy Secretary, SEC, 

from Matthew E. Vitek, Associate General Counsel, 

FINRA, dated July 11, 2014 (‘‘FINRA’s First 

Response Letter’’). FINRA’s First Response Letter is 

available at www.sec.gov. 

9Exchange Act Release No. 72626 (July 16, 2014); 

79 FR 42590 (July 22, 2014) (Notice of Filing of 

Amendment No. 1 to Proposed Rule Change 

Relating to Per Share Estimated Valuations for 

Unlisted DPP and REIT Securities) (‘‘Notice of 

Amendment’’). The comment period closed on 

August 12, 2014. 

10Letters to Elizabeth Murphy, Secretary, SEC, 

from Mark Goldberg, Chairman, Investment 

Program Association, dated July 28, 2014 (‘‘IPA 

Letter’’); Steven A. Wechsler, President and Chief 

Executive Office, National Association of Real 

Estate Investment Trusts, dated August 12, 2014 

(‘‘NAREIT Letter’’); Frederick P. Baerenz, President 

and Chief Executive Officer, AOG Wealth 

Management, dated August 12, 2014 (‘‘AOG 

Letter’’); Daniel R. Gilbert, Chief Investment and 

Operating Officer, NorthStar Asset Management 

Group, Inc., dated August 12, 2014 (‘‘NorthStar 

Letter’’); David T. Bellaire, Executive Vice President 

and General Counsel, Financial Services Institute, 

dated August 12, 2014 (‘‘FSI Letter’’); and Andrea 

Seidt, President, North American Securities 

Administrators Association, Inc., and 

Commissioner, Ohio Division of Securities, dated 

August 22, 2014 (‘‘NASAA Letter’’). Comment 

letters are available at www.sec.gov. 

11Letter to Brent J. Fields, Secretary, SEC, from 

Matthew E. Vitek, Associate General Counsel, 

FINRA, dated September 16, 2014 (‘‘FINRA’s 

Second Response Letter’’). FINRA’s Second 

Response Letter is available at www.sec.gov. 

12See Proposed NASD Rule 2340(c). 

13See Proposed NASD Rule 2340(c)(1). 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73339; File No. SR–FINRA– 

2014–006] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Approving 

Proposed Rule Change, as Modified by 

Amendment No. 1, Relating to Per 

Share Estimated Valuations for 

Unlisted DPP and REIT Securities 

October 10, 2014. 

I. Introduction 

On January 31, 2014, Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) (f/k/a National Association 

of Securities Dealers, Inc. (‘‘NASD’’)) 

filed with the Securities and Exchange 

Commission (‘‘SEC’’ or ‘‘Commission’’), 

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

Securities Exchange Act of 1934 (‘‘Act’’ 

or ‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

amend provisions in the NASD and 

FINRA rulebooks addressing per share 

estimated valuations for unlisted direct 

participation program (‘‘DPP’’) and real 

estate investment trust (‘‘REIT’’) 

securities. In particular, FINRA 

proposes revising NASD Rule 2340 

(Customer Account Statements) to 

modify the requirements relating to the 

inclusion of a per share estimated value 

for unlisted DPP and REIT securities on 

a customer account statement and 

FINRA Rule 2310 (Direct Participation 

Programs) to modify the requirements 

applicable to members’ participation in 

a public offering of DPP or REIT 

securities. 

The proposed rule change was 

published for comment in the Federal 

Register on February 19, 2014.3 The 

Commission received eighteen (18) 

comment letters in response to the 

Notice of Filing.4 On March 14, 2014, 

FINRA extended the time period in 

which the Commission must approve 

the proposed rule change, disapprove 

the proposed rule change, or institute 

proceedings to determine whether to 

approve or disapprove the proposed 

rule change to May 20, 2014. On May 

20, 2014, the Commission issued an 

order instituting proceedings pursuant 

to Section 19(b)(2)(B) of the Act 5 to 

determine whether to approve or 

disapprove the proposed rule change. 

The order was published for comment 

in the Federal Register on May 27, 

2014.6 The Commission received six (6) 

comment letters in response to the 

Proceedings Order.7

On July 11, 2014, FINRA filed a letter 

responding to comments and 

Amendment No. 1 to the proposed rule 

change.8 A notice of the amendment 

was published for comment in the 

Federal Register on July 22, 2014.9 The 

Commission received six (6) comment 

letters in response to the Notice of 

Amendment.10 On September 16, 2014, 

FINRA filed a letter responding to these 

comments.11

This order approves the proposed rule 

change, as modified by Amendment No. 

1. 

II. Description of the Proposal, as 

Modified by Amendment No. 1 

A. Proposed Revisions to NASD Rule 

2340 (Customer Account Statements) 

FINRA proposes to amend NASD Rule 

2340 to require general securities 

members to include in customer 

account statements a per share 

estimated value for an unlisted DPP or 

REIT security, developed in a manner 

reasonably designed to ensure that the 

per share estimated value is reliable, as 

well as to make related disclosures.12

FINRA also proposes two methodologies 

for calculating the per share estimated 

value for a DPP or REIT security that 

would be deemed to have been 

developed in a manner reasonably 

designed to ensure that it is reliable: (1) 

The net investment methodology; and 

(2) the appraised value methodology.13

Each methodology is described in 

greater detail below, along with other 

proposed revisions. 

1. Net Investment Methodology 

Under the proposal, the net 

investment methodology would reflect 

the ‘‘net investment’’ disclosed in the 

issuer’s most recent periodic or current 

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62490 Federal Register / Vol. 79, No. 201 / Friday, October 17, 2014 / Notices 

14 ‘‘This disclosure is typically included in the 

prospectus for REIT offerings and is described in 

the SEC’s Securities Act Industry Guide 5 

(Preparation of registration statements relating to 

interests in real estate limited partnerships).’’ 

Notice of Filing at note 12. 

15See Proposed NASD Rule 2340(c)(1)(A). 

16See Notice of Filing at note 20 (generally 

describing ‘‘over-distributions’’ as a return of 

investor capital as a distribution rather than the use 

of that capital to generate return on investment); see 

also Notice of Amendment (clarifying that ‘‘overdistributions’’ should be excluded from the 

calculation of ‘‘net investment’’). 

17See Proposed NASD Rule 2340(c)(2)(A). 

18 Id. 

19See Proposed NASD Rule 2340(c)(1)(A). 

20See Id. See also Notice of Filing at note 11 

(stating that ‘‘[g]enerally, offering proceeds are 

placed in escrow until the minimum conditions of 

the offering are met, at which time the issuer is 

permitted to access the offering proceeds’’). 

21See Proposed NASD Rule 2340(c)(1)(B). 

22See Notice of Amendment. 

23See Proposed NASD Rule 2340(c)(1)(B). 

24See Proposed NASD Rule 2340(c)(2)(B). 25See Notice of Amendment. 

report. More specifically, the proposal 

would require ‘‘net investment’’ to be 

based on the ‘‘amount available for 

investment’’ percentage in the 

‘‘Estimated Use of Proceeds’’ section of 

the offering prospectus; 14 alternatively, 

where ‘‘amount available for 

investment’’ is not provided, the 

proposal would require ‘‘net 

investment’’ to be based on another 

equivalent disclosure that reflects the 

estimated percentage deduction from 

the aggregate dollar amount of securities 

registered for sale to the public of sales 

commissions, dealer manager fees, and 

estimated issuer offering and 

organization expenses.15

The proposal would not require the 

calculation of ‘‘net investment’’ to 

involve the deduction from the per 

share estimated value of ‘‘overdistributions.’’ 16 The proposal would, 

however, require members that use the 

net investment methodology to provide 

a per share estimated value for a DPP or 

REIT security to disclose in the 

customer account statement the 

following statement: ‘‘IMPORTANT— 

Part of your distribution includes a 

return of capital. Any distribution that 

represents a return of capital reduces 

the estimated per share value shown on 

your account statement.’’ 17 The 

proposal would require the member to 

disclose this statement prominently and 

in proximity to the disclosure of 

distributions and the per share 

estimated value.18

In addition, the proposal would 

clarify that when an issuer provides a 

range of amounts available for 

investment, the proposal would allow a 

general securities member to use the 

maximum offering percentage unless the 

member has reason to believe that such 

percentage is unreliable. If the member 

has reason to believe that it is 

unreliable, the member must use the 

minimum offering percentage.19

Finally, the proposal would allow a 

member to use the net investment 

methodology at any time before 150 

days following the second anniversary 

of the breaking of escrow.20

2. Appraised Value Methodology 

Under the proposal, the appraised 

value methodology would consist of the 

appraised valuation disclosed in the 

issuer’s most recent periodic or current 

report. More specifically, the proposal 

would require: (1) That the valuation be 

based on valuations of the assets and 

liabilities of the DPP or REIT; and (2) 

that those valuations: (a) Be performed 

at least annually; (b) be conducted by, 

or with the material assistance or 

confirmation of, a third-party valuation 

expert or service; and (c) be derived 

from a methodology that conforms to 

standard industry practice. The 

proposal would allow a member to use 

the appraised value methodology at any 

time.21

The proposed rule change would, 

however, provide a different 

requirement for DPPs subject to the 

Investment Company Act of 1940 

(‘‘1940 Act’’) (e.g., business 

development companies). Specifically, 

FINRA acknowledged that business 

development companies that fall under 

the definitions of DPP are subject to the 

1940 Act, which already requires the 

issuer to determine and publish its net 

asset value on a regular basis.22 Thus, 

for these DPPs, the proposed rule would 

require the appraised value 

methodology to be consistent with the 

valuation requirements of the 1940 Act 

and the rules thereunder.23

3. General Disclosures 

The proposal would also require 

members to include specific disclosures 

on customer account statements that 

provide a per share estimated value for 

a DPP or REIT security (calculated using 

either the net investment methodology 

or the appraised value methodology). In 

particular, the proposal would require a 

member to include disclosures stating 

that the DPP or REIT security is not 

listed on a national securities exchange, 

is generally illiquid, and that, even if a 

customer is able to sell the security, the 

price received may be less than the per 

share estimated value provided in the 

statement.24

B. Proposed Revisions to FINRA Rule 

2310 (Direct Participation Programs) 

FINRA also proposes to amend FINRA 

Rule 2310(b)(5) to prohibit a member 

from participating in a public offering of 

the securities of a REIT or DPP unless 

the issuer of the DPP or REIT has agreed 

to disclose: 

(1) A per share estimated value of the 

DPP or REIT security that is: (a) 

Developed in a manner reasonably 

designed to ensure it is reliable, and (b) 

disclosed in the DPP’s or REIT’s 

periodic reports filed pursuant to 

Sections 13(a) or 15(d) of the Act; an 

explanation of the method by which the 

value was developed; and the date of 

the valuation; and 

(2) a per share estimated value of the 

DPP or REIT security that is: (a) Based 

on valuations of the assets and liabilities 

of the DPP or REIT performed at least 

annually by, or with the material 

assistance or confirmation of, a thirdparty valuation expert or service; (b) 

derived from a methodology that 

conforms to standard industry practice; 

and (c) disclosed in the DPP’s or REIT’s 

periodic reports filed pursuant to 

Sections 13(a) or 15(d) of the Act within 

150 days following the second 

anniversary of breaking escrow (and in 

each annual report thereafter); and a 

concomitant written opinion or report 

by the issuer, delivered at least annually 

to the member that explains the scope 

of the review, the valuation 

methodology used, and the basis for the 

reported value. 

The proposed rule change would, 

however, except DPPs subject to the 

1940 Act from the requirements of 

proposed Rule 2310(b)(5). As stated 

above, FINRA acknowledged that such 

DPPs are subject to an existing 

regulatory framework (the 1940 Act) 

that already requires the issuer of their 

securities to determine and publish 

their net asset value on a regular basis.25

C. Technical Change 

FINRA also proposes making a change 

to its Rules Manual to conform to the 

other revisions discussed above by 

deleting FINRA Rule 5110(f)(2)(L) 

(Corporate Financing Rule— 

Underwriting Terms and 

Arrangements). That paragraph 

currently provides that it is unfair and 

unreasonable for a member or person 

associated with a member to participate 

in a public offering of a REIT unless the 

trustee will disclose in each annual 

report distributed to investors a per 

share estimated value of the trust 

securities, the methodology by which it 

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Federal Register / Vol. 79, No. 201 / Friday, October 17, 2014 / Notices 62491 

26See supra note 7. 

27See supra note 10. 

28FSI Letter, IPA Letter, NAREIT Letter, and 

NorthStar Letter. 

29AOG Letter and NASAA Letter. 

30AOG Letter (stating that ‘‘providing sponsor 

companies with a formula and timeline . . . for 

appraising and reporting the values [other than the 

initial value] of non-traded REITS is very valuable’’ 

and ‘‘[providing] broker-dealers assurance that they 

can rely on those values is also very helpful’’). 

31 Id. 

32 Id. 

33NASAA Letter (stating that ‘‘[r]equiring 

securities to be valued on the customer account 

statement enhances transparency to the customer’’). 

34See supra note 16 and surrounding text. 

35See supra note 19 and surrounding text. 

36NASAA Letter. 

37FINRA’s Second Response Letter. See, e.g., 

FINRA’s First Response Letter (summarizing and 

responding to commenters’ concerns about 

calculating over-distributions); FINRA’s First 

Response Letter (proposed NASD Rule 

2340(c)(1)(A) (stating that if a member has reason 

to believe that the maximum offering percentage is 

unreliable, the member must use the minimum 

offering percentage); FINRA’s First Response Letter 

(extending the effective date to provide industry 

participants sufficient time to make adjustments to 

product structures and any necessary operational 

changes, as well as to limit the impact of the 

amended proposal on current offerings); and 

proposed NASD Rule 2340(c)(1)(B) (stating that the 

valuation expert or service must be a third-party). 

38FINRA’s Second Response Letter. 

39 Id. 

40 In approving the proposal, as amended, the 

Commission has considered the impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

See, e.g., Proceedings Order at 7 (noting 

commenters’ concern about the potential economic 

impact of the proposal, as originally proposed; also 

FINRA’s First Response Letter, which provided a 

detailed economic impact statement in response to 

those commenters). The Commission has received 

no additional public comment on the potential 

economic impact of the proposed rule change, as 

amended. 

41 15 U.S.C. 78o–3(b)(6). 

42See Notice of Filing at note 8 and surrounding 

text (stating that ‘‘Rule 415(a)(5) under the 

Securities Act of 1933 (‘Securities Act’) provides 

that certain types of securities offerings, including 

continuous offerings of DPPs and REITs, may 

continue for no more than three years from the 

initial effective date of the registration statement. 

Under Rule 415(a)(6), the SEC may declare another 

registration statement for a DPP or REIT effective 

such that an offering can continue for another threeyear offering period’’). 

43FINRA did not directly respond to the 

commenter’s recommendation to require disclosure 

of the name of the third-party expert or service for 

purposes of proposed NASD Rule 2340(c)(1)(B). The 

Continued 

was developed, and the date of the data 

used to develop the value. 

The text of the proposed rule change 

is available at the principal office of 

FINRA, on FINRA’s Web site at http:// 

www.finra.org, and at the Commission’s 

Public Reference Room. 

III. Description of Comments on the 

Proposal, as Amended, and FINRA’s 

Response 

A. Comments 

As stated above, the Commission 

received six (6) comment letters in 

response to the Proceedings Order.26

Those commenters generally reiterated 

concerns expressed in response to the 

Notice of Filing. 

In addition, the Commission received 

six (6) comment letters in response to 

the Notice of Amendment.27 Four (4) of 

these commenters fully supported the 

proposal.28 Two (2) other commenters, 

however, raised concerns (discussed 

below).29

One of the concerned commenters 

supported aspects of the proposal.30

This commenter, however, encouraged 

rejecting the proposal’s requirement for 

members to report initial share prices, 

stating that substituting ‘‘a flawed share 

pricing system with a different flawed 

pricing system is apt to lead to 

confusion rather than clarity.’’ 31 This 

commenter also suggested that market 

forces are sufficiently driving 

improvements in the unlisted DPP and 

REIT industry, noting changes in fee 

structures.32

The second concerned commenter 

also supported aspects of the proposal.33

This commenter, however, opposed the 

following other aspects of the proposal: 

(1) The commenter opposed 

excluding over-distribution from the 

valuation calculation under the net 

investment methodology, stating that 

excluding it would decrease the 

accuracy and transparency of the 

disclosed values of DPP and REIT 

securities.34

(2) The commenter also expressed 

concern that members could use the net 

investment methodology’s requirements 

concerning offering and organization 

expenses to manipulate valuation of 

DPP and REIT securities.35

(3) In addition, the commenter 

recommended that FINRA require 

disclosure of the identity of the thirdparty valuation expert or service used to 

obtain a valuation under the appraised 

value methodology and clarify that such 

third-party must be independent. 

(4) Finally, the commenter opposed 

the extension of the effective date of the 

proposal, as amended, stating that 

‘‘industry should not need an additional 

year-and-a-half to make the necessary 

changes’’ and ‘‘[investors] should not be 

forced to wait another year for more 

transparent price reporting.’’ 36

B. FINRA’s Response 

In its response letter, FINRA stated 

that it has considered the concerns 

raised by the two concerned 

commenters.37 FINRA also stated, 

however, that it believes that the 

proposal, as amended, ‘‘significantly 

improves the transparency of the per 

share estimated value of DPP and REIT 

securities on customer account 

statements.’’ 38 Accordingly, FINRA 

declined making any additional changes 

in response to commenters’ concerns 

but stated that it would ‘‘continue to 

monitor practices in this area to 

determine whether additional changes 

are necessary.’’ 39

IV. Discussion and Commission 

Findings 

The Commission has carefully 

considered the proposal, as amended; 

the comments received; and FINRA’s 

responses to the comments. Based on its 

review of the record, the Commission 

finds that the proposal is consistent 

with the requirements of the Act and the 

rules and regulations thereunder 

applicable to a national securities 

association.40 In particular, the 

Commission finds that the proposed 

rule change is consistent with the 

provisions of Section 15A(b)(6) of the 

Act, which requires, among other 

things, that FINRA’s rules be designed 

to prevent fraudulent and manipulative 

acts and practices; promote just and 

equitable principles of trade; and, in 

general, protect investors and the public 

interest.41

The proposal, as amended, is 

designed to address longstanding 

concerns with the current industry 

practice of displaying a DPP or REIT 

security’s immutable offering price as its 

per share estimated value on customer 

account statements throughout the 

offering period (which can last several 

years),42 despite the fact that the value 

of the DPP or REIT security fluctuates. 

FINRA’s proposed rule change would 

require members to include in customer 

account statements per share estimated 

values of unlisted DPP and REIT 

securities that are developed in a 

manner reasonably designed to ensure 

they are reliable. The Commission 

believes that the proposal would, 

therefore, greatly improve the accuracy 

and transparency of the value of DPP 

and REIT securities and, in turn, better 

protect the investing public. 

As discussed above, the Commission 

received eighteen (18) comment letters 

in response to the Notice of Filing, six 

(6) comment letters in response to the 

Proceedings Order, six (6) comment 

letters in response to the Notice of 

Amendment, and two (2) response 

letters from FINRA. The Commission 

appreciates the points raised by the 

commenters, and the Commission 

believes that FINRA responded 

appropriately to their concerns.43 The 

mstockstill on DSK4VPTVN1PROD with NOTICES

62492 Federal Register / Vol. 79, No. 201 / Friday, October 17, 2014 / Notices 

Commission notes, however, that this information 

may be available in an issuer’s prospectus. 

44AOG Letter. 

45NASAA Letter. 

46See FINRA’s First Response Letter. 

47 Id. 

48See, e.g., FINRA’s First Response Letter 

(discussing the economic impact of requiring 

‘‘independent valuations’’). 

49NASAA Letter. 

50FINRA’s First Response Letter. 

51 15 U.S.C. 78s(b)(2). 

52 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78s(b)(1). 

3 17 CFR 240.19b–4. 

4A Managed Fund Share is a security that 

represents an interest in an investment company 

registered under the Investment Company Act of 

1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as 

an open-end investment company or similar entity 

that invests in a portfolio of securities selected by 

its investment adviser consistent with its 

investment objectives and policies. In contrast, an 

open-end investment company that issues 

Investment Company Units, listed and traded on 

the Exchange under NYSE Arca Equities Rule 

5.2(j)(3), seeks to provide investment results that 

correspond generally to the price and yield 

performance of a specific foreign or domestic stock 

index, fixed income securities index or combination 

thereof. 

Commission notes that, while one 

commenter on the amended proposal 

suggested market forces should be 

sufficient to drive improvements in the 

unlisted DPP and REIT industry,44 given 

current industry practice with respect to 

disclosure of DPP and REIT values, the 

Commission believes that FINRA’s 

amended proposal is warranted. 

Also, given commenters’ concern 

regarding the complexity of calculating 

over-distributions, the Commission 

supports FINRA’s amended approach of 

requiring enhanced disclosure 

surrounding them. More specifically, 

the Commission believes that, at this 

time, this approach would improve 

investor awareness and understanding 

in a practical manner. 

In addition, one commenter on the 

amended proposal expressed concern 

that members could use the net 

investment methodology’s requirements 

concerning offering and organization 

expenses to manipulate DPP and REIT 

values.45 Under the amended proposal, 

however, if a member has reason to 

believe a calculation of the offering and 

organization expenses using the 

maximum offering percentage is 

unreliable, the member must use the 

minimum offering percentage.46

The same commenter further 

recommended that FINRA require 

disclosure of the identity of the service 

used to obtain a valuation under the 

appraised value methodology and 

clarify that such service must be 

independent.47 Regarding disclosure of 

the valuation service’s identity, the 

Commission notes that this information 

may be available through an issuer’s 

prospectus. Regarding the independence 

of the service, the amended proposal 

requires the use of a ‘‘third-party 

valuation expert,’’ which both the 

Commission and FINRA interpret as 

being an independent entity.48

Finally, the commenter opposed the 

extension of the effective date under the 

amended proposal, stating that investors 

should not have to wait for more 

transparent price reporting.49 FINRA 

extended the effective date, however, to 

provide industry participants sufficient 

time to make adjustments to product 

structures and any necessary 

operational changes, as well as to limit 

the impact of the amended proposal on 

current offerings.50

In sum, the Commission believes that 

the proposal, as amended, represents a 

significant improvement to current 

industry practice concerning the 

disclosure of the value of unlisted DPP 

and REIT securities. As amended, the 

proposal would help ensure that 

investors receive more accurate 

information regarding the nature and 

worth of their holdings of DPP and REIT 

securities. While the Commission 

believes that this outcome would 

improve accuracy and transparency and, 

consequently, investor protection, it 

will continue to monitor the activity in 

this market for potential abuses. 

For the reasons stated above, the 

Commission finds that the proposed 

rule change, as amended, is consistent 

with the Act and the rules and 

regulations thereunder. 

V. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,51 that the 

proposed rule change (SR–FINRA– 

2014–006), as modified by Amendment 

No. 1, be, and hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.52

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–24681 Filed 10–16–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73342; File No. SR– 

NYSEArca–2014–114] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of Proposed 

Rule Change To List and Trade Shares 

of the iShares Interest Rate Hedged 0– 

5 Year High Yield Bond ETF, iShares 

Interest Rate Hedged 10+ Year Credit 

Bond ETF, and the iShares Interest 

Rate Hedged Emerging Markets Bond 

ETF Under NYSE Arca Equities Rule 

8.600 

October 10, 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 the Substance 

of the Proposed Rule Change 

The Exchange proposes to list and 

trade the following under NYSE Arca 

Equities Rule 8.600 (‘‘Managed Fund 

Shares’’): iShares Interest Rate Hedged 

0–5 Year High Yield Bond ETF; iShares 

Interest Rate Hedged 10+ Year Credit 

Bond ETF; and the iShares Interest Rate 

Hedged Emerging Markets Bond ETF. 

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 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade shares (‘‘Shares’’) of the following 

under NYSE Arca Equities Rule 8.600, 

which governs the listing and trading of 

Managed Fund Shares: 4 iShares Interest 

Rate Hedged 0–5 Year High Yield Bond 

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