68330 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 

18See id. 

19See id. 

20See id. 

21See id. 

22See id. at 57646. 

23The Exchange also notes that the Exchange may 

halt trading during the day in which an interruption 

of the dissemination of the IFV or the value of the 

applicable futures contracts occurs. See id. 

24See id. Additionally, trading in Shares will be 

subject to trading halts caused by extraordinary 

market volatility pursuant to the Exchange’s 

‘‘circuit breaker’’ rule. See NYSE Arca Equities Rule 

7.12. 

25See Notice, supra note 3, 79 FR at 57646. 

26See id. at 57645. 

27See id. at 57646. 

28See id. 

29See id. 

30See id. 

31 15 U.S.C. 78s(b)(2). 

32 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

Quotation and last-sale information 

for the Coal Futures will be widely 

disseminated through a variety of major 

market data vendors worldwide.18 The 

spot price of coal is also available on a 

24-hour basis from major market 

vendors. The Exchange further 

represents that complete real-time price 

(and volume) data for such contracts is 

available by subscription from certain 

market data vendors.19 For Coal 

Futures, the CME also provides delayed 

futures price (and volume) information 

on current and past trading sessions and 

market news free of charge on its Web 

site.20 The closing price and settlement 

prices of Coal Futures are also readily 

available from the CME.21

The Commission believes that the 

proposal to list and trade Shares is 

reasonably designed to promote fair 

disclosure of information that may be 

necessary to price Shares appropriately 

and to prevent trading when a 

reasonable degree of transparency 

cannot be assured. If the Exchange 

becomes aware that the NAV with 

respect to the Shares is not 

disseminated to all market participants 

at the same time, it will halt trading in 

the Shares until such time as the NAV 

is available to all market participants.22

If the IFV or value of Coal Futures is not 

being disseminated as required, the 

Exchange may halt trading during the 

day in which the disruption occurs; if 

the interruption persists past the trading 

day in which it occurred, the Exchange 

will halt trading no later than the 

beginning of the trading day following 

the interruption.23 The Exchange will 

also consider halting trading for the 

following reasons: (1) The extent to 

which trading is not occurring in the 

Coal Futures; (2) if the creation or 

redemption of Shares is suspended for 

a period that, in the judgment of the 

Exchange, may detrimentally impact 

Exchange trading of the Shares; or (3) 

whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present.24

Moreover, the trading of the Shares 

will be subject to NYSE Arca Equities 

Rule 8.200, Commentary .02(e), which 

sets forth certain restrictions on Equity 

Trading Permit (‘‘ETP’’) Holders acting 

as registered market makers in TIRs to 

facilitate surveillance. The Commission 

notes that the Financial Industry 

Regulatory Authority (‘‘FINRA’’), on 

behalf of the Exchange, will 

communicate as needed regarding 

trading in the Shares and the Coal 

Futures with other markets and other 

entities that are members of the 

Intermarket Surveillance Group (‘‘ISG’’), 

and FINRA may obtain trading 

information regarding trading in the 

Shares and the Coal Futures from such 

markets and other entities that are 

members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement.25

In support of this proposal, the 

Exchange has made representations, 

including that: 

(1) A minimum of 100,000 Shares for 

the Fund will be outstanding as of the 

start of trading on the Exchange.26

(2) The Exchange has appropriate 

rules to facilitate transactions in the 

Shares during all trading sessions.27

(3) Its trading surveillance 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 

applicable federal securities laws.28

(4) CME is a member of the ISG.29

(5) Prior to commencement of trading, 

the Exchange will inform its ETP 

Holders in an Information Bulletin of 

the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Information Bulletin 

will discuss the following: (1) The risks 

involved in trading the Shares during 

the Opening and Late Trading Sessions, 

or a portion of the Core Trading Session, 

when an updated IFV will not be 

calculated or publicly disseminated; (2) 

the procedures for purchases and 

redemptions of Shares in Basket size 

(and that Shares are not individually 

redeemable); (3) NYSE Arca Equities 

Rule 9.2(a), which imposes a duty of 

due diligence on its ETP Holders to 

learn the essential facts relating to every 

customer prior to trading the Shares; (4) 

how information regarding the IFV is 

disseminated; (5) the requirement that 

ETP Holders deliver a prospectus to 

investors purchasing newly issued 

Shares prior to or concurrently with the 

confirmation of a transaction; and (6) 

trading information.30

This order is based on the Exchange’s 

representations. 

For the forgoing reasons, the 

Commission believes the Exchange’s 

proposal to list and trade the Shares is 

consistent with the Exchange Act. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Exchange Act,31

that the proposed rule change (SR– 

NYSEArca–2014–102), as modified by 

Amendment No. 1 thereto, be, and it 

hereby is, approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.32

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–26948 Filed 11–13–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73556; File No. SR– 

NYSEArca–2014–85] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of Proposed 

Rule Change Relating to the Listing 

and Trading of Shares of the PIMCO 

Low Duration Investment Grade 

Corporate Bond Active ExchangeTraded Fund Under NYSE Arca 

Equities Rule 8.600 

November 7, 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 October 

23, 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 list and 

trade shares of the following under 

NYSE Arca Equities Rule 8.600 

(‘‘Managed Fund Shares’’): PIMCO Low 

Duration Investment Grade Corporate 

Bond Active Exchange-Traded Fund. 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 68331 

4The Commission has previously approved the 

listing and trading on the Exchange of other actively 

managed funds under Rule 8.600. See, e.g., 

Securities Exchange Act Release Nos. 60981 

(November 10, 2009), 74 FR 59594 (November 18, 

2009) (SR–NYSEArca–2009–79) (order approving 

Exchange listing and trading of five fixed income 

funds of the PIMCO ETF Trust); 72666 (July 24, 

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

2013–122) (order approving proposed rule change 

relating to use of derivative instruments by the 

PIMCO Total Return Exchange Traded Fund). 

5A 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. 

6The Trust is registered under the 1940 Act. On 

June 17, 2014, the Trust filed an amendment to its 

registration statement on Form N–1A under the 

Securities Act of 1933 (15 U.S.C. 77a) (‘‘1933 Act’’) 

and the 1940 Act relating to the Fund (File Nos. 

333–155395 and 811–22250) (the ‘‘Registration 

Statement’’). The description of the operation of the 

Trust and the Fund 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’’). 

7An investment adviser to an open-end fund is 

required to be registered under the Investment 

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

result, the Adviser and its related personnel are 

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

Advisers Act relating to codes of ethics. This Rule 

requires investment advisers to adopt a code of 

ethics that reflects the fiduciary nature of the 

relationship to clients as well as compliance with 

other applicable securities laws. Accordingly, 

procedures designed to prevent the communication 

and misuse of non-public information by an 

investment adviser must be consistent with Rule 

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

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

for an investment adviser to provide investment 

advice to clients unless such investment adviser has 

(i) adopted and implemented written policies and 

procedures reasonably designed to prevent 

violations, by the investment adviser and its 

supervised persons, of the Advisers Act and the 

Commission rules adopted thereunder; (ii) 

implemented, at a minimum, an annual review 

regarding the adequacy of the policies and 

procedures established pursuant to subparagraph (i) 

above and the effectiveness of their 

implementation; and (iii) designated an individual 

(who is a supervised person) responsible for 

administering the policies and procedures adopted 

under subparagraph (i) above. 

8Many of the investment strategies of the Fund 

are discretionary, which means that PIMCO can 

decide from time to time whether to use them or 

not. 

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 Exchange proposes to list and 

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

under NYSE Arca Equities Rule 8.600,4

which governs the listing and trading of 

Managed Fund Shares: 5 PIMCO Low 

Duration Investment Grade Corporate 

Bond Active Exchange-Traded Fund 

(‘‘Fund’’). The Shares will be 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.6

The investment manager to the Fund 

will be Pacific Investment Management 

Company LLC (‘‘PIMCO’’ or the 

‘‘Adviser’’). PIMCO Investments LLC 

will serve as the distributor for the Fund 

(‘‘Distributor’’). State Street Bank & 

Trust Co. will serve as the custodian 

and transfer agent for the Fund 

(‘‘Custodian’’ or ‘‘Transfer Agent’’). 

Commentary .06 to Rule 8.600 

provides that, if the investment adviser 

to the investment company issuing 

Managed Fund Shares is affiliated with 

a broker-dealer, such investment adviser 

shall erect a ‘‘fire wall’’ between the 

investment adviser and the brokerdealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company portfolio.7 In addition, 

Commentary .06 further requires that 

personnel who make decisions on the 

open-end fund’s portfolio composition 

must be subject to procedures designed 

to prevent the use and dissemination of 

material nonpublic information 

regarding the open-end fund’s portfolio. 

The Adviser is not registered as a 

broker-dealer, but is affiliated with a 

broker-dealer, and will implement a 

‘‘fire wall’’ with respect to such brokerdealer affiliate regarding access to 

information concerning the composition 

and/or changes to the Fund’s portfolio. 

If PIMCO elects to hire a sub-adviser for 

the Fund that is registered as a brokerdealer or is affiliated with a brokerdealer, such sub-adviser will implement 

a fire wall with respect to its relevant 

personnel or its broker-dealer affiliate 

regarding access to information 

concerning the composition and/or 

changes to the portfolio and will be 

subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. 

In the event (a) the Adviser becomes 

registered as a broker-dealer or newly 

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

new adviser or sub-adviser is a 

registered broker-dealer or becomes 

affiliated with a broker-dealer, it will 

implement a fire wall with respect to its 

relevant personnel or its broker-dealer 

affiliate regarding access to information 

concerning the composition and/or 

changes to a portfolio, and will be 

subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. 

Characteristics of the Fund 8

According to the Registration 

Statement, in selecting investments for 

the Fund, PIMCO will develop an 

outlook for interest rates, currency 

exchange rates and the economy, 

analyze credit and call risks, and use 

other investment selection techniques. 

The proportion of the Fund’s assets 

committed to investment in securities 

with particular characteristics (such as 

quality, sector, interest rate or maturity) 

will vary based on PIMCO’s outlook for 

the U.S. economy and the economies of 

other countries in the world, the 

financial markets and other factors. 

With respect to the Fund, in seeking 

to identify undervalued currencies, 

PIMCO may consider many factors, 

including but not limited to, longer-term 

analysis of relative interest rates, 

inflation rates, real exchange rates, 

purchasing power parity, trade account 

balances and current account balances, 

as well as other factors that influence 

exchange rates such as flows, market 

technical trends and government 

policies. With respect to fixed income 

investing, PIMCO will attempt to 

identify areas of the bond market that 

are undervalued relative to the rest of 

the market. PIMCO will identify these 

areas by grouping fixed income 

investments into sectors such as money 

markets, governments, corporates, 

mortgages, asset-backed and 

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68332 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 

9With respect to the Fund, while non-emerging 

markets corporate debt securities (excluding 

commercial paper) generally must have $100 

million or more par amount outstanding and 

significant par value traded to be considered as an 

eligible investment for the Fund, at least 80% of 

issues of such securities held by the Fund must 

have $100 million or more par amount outstanding 

at the time of investment. See also note 33, infra, 

regarding emerging market corporate debt 

securities. 

10Mortgage-related and other asset-backed 

securities include collateralized mortgage 

obligations (‘‘CMO’’s), commercial mortgage-backed 

securities, mortgage dollar rolls, CMO residuals, 

stripped mortgage-backed securities and other 

securities that directly or indirectly represent a 

participation in, or are secured by and payable 

from, mortgage loans on real property. A to-beannounced (‘‘TBA’’) transaction is a method of 

trading mortgage-backed securities. In a TBA 

transaction, the buyer and seller agree upon general 

trade parameters such as agency, settlement date, 

par amount and price. The actual pools delivered 

generally are determined two days prior to the 

settlement date. 

11 Inflation-indexed bonds (other than municipal 

inflation-indexed bonds and certain corporate 

inflation-indexed bonds) are fixed income securities 

whose principal value is periodically adjusted 

according to the rate of inflation (e.g., Treasury 

Inflation Protected Securities (‘‘TIPS’’)). Municipal 

inflation-indexed securities are municipal bonds 

that pay coupons based on a fixed rate plus the 

Consumer Price Index for All Urban Consumers 

(‘‘CPI’’). With regard to municipal inflation-indexed 

bonds and certain corporate inflation-indexed 

bonds, the inflation adjustment is reflected in the 

semi-annual coupon payment. 

12The Fund may obtain event-linked exposure by 

investing in ‘‘event-linked bonds’’ or ‘‘event-linked 

swaps’’ or by implementing ‘‘event-linked 

strategies.’’ Event-linked exposure results in gains 

or losses that typically are contingent, or 

formulaically related to defined trigger events. 

Examples of trigger events include hurricanes, 

earthquakes, weather-related phenomena, or 

statistics relating to such events. Some event-linked 

bonds are commonly referred to as ‘‘catastrophe 

bonds.’’ If a trigger event occurs, the Fund may lose 

a portion or its entire principal invested in the bond 

or notional amount on a swap. 

13There are two common types of bank capital: 

Tier I and Tier II. Bank capital is generally, but not 

always, of investment grade quality. Tier I securities 

are typically exchange-traded and often take the 

form of trust preferred securities. Tier II securities 

are commonly thought of as hybrids of debt and 

preferred stock. Tier II securities are typically 

traded over-the-counter, are often perpetual (with 

no maturity date), callable and, under certain 

conditions, allow for the issuer bank to withhold 

payment of interest until a later date. However, 

such deferred interest payments generally earn 

interest. 

14The Fund may invest in fixed- and floating-rate 

loans, which investments generally will be in the 

form of loan participations and assignments of 

portions of such loans. 

15Forwards are contracts to purchase or sell 

securities for a fixed price at a future date beyond 

normal settlement time (forward commitments). 

16 In the future, in the event that there are 

exchange-traded options on swaps, the Fund may 

invest in these instruments. 

17The 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. 

18To mitigate leveraging risk, the Adviser will 

segregate or ‘‘earmark’’ liquid assets or otherwise 

cover the transactions that may give rise to such 

risk. 

international. Sophisticated proprietary 

software will then assist in evaluating 

sectors and pricing specific investments. 

Once investment opportunities are 

identified, PIMCO will shift assets 

among sectors depending upon changes 

in relative valuations, credit spreads 

and other factors. 

Fixed Income Instruments 

Among other investments described 

in more detail herein, the Fund may 

invest in Fixed Income Instruments, 

which include any one or more of the 

following: 

• Securities issued or guaranteed by 

the U.S. Government, its agencies or 

government-sponsored enterprises 

(‘‘U.S. Government Securities’’); 

• Corporate debt securities of U.S. 

and non-U.S. issuers, including 

convertible securities and corporate 

commercial paper; 9

• Mortgage-backed and other assetbacked securities; 10

• Inflation-indexed bonds issued both 

by governments and corporations; 11

• Structured notes, including hybrid 

or ‘‘indexed’’ securities and eventlinked bonds; 12

• Bank capital and trust preferred 

securities; 13

• Loans, including loan participations 

and assignments; 14

• 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 (‘‘Municipal 

Bonds’’); 

• Obligations of non-U.S. 

governments or their subdivisions, 

agencies and government-sponsored 

enterprises; and 

• Obligations of international 

agencies or supranational entities. 

Use of Derivatives by the Fund 

The Fund’s investments in derivative 

instruments will be made in accordance 

with the 1940 Act and consistent with 

the Fund’s investment objective and 

policies. With respect to the Fund, 

derivative instruments will include 

forwards; 15 exchange-traded and overthe-counter (‘‘OTC’’) options contracts; 

exchange-traded futures contracts; 

exchange-traded and OTC swap 

agreements; exchange-traded options on 

futures contracts; and OTC options on 

swap agreements.16 Generally, 

derivatives are financial contracts 

whose value 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. The 

Fund may, but is not required to, use 

derivative instruments for risk 

management purposes or as part of its 

investment strategies.17

As described further below, the 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. The Fund may also use 

derivative instruments to enhance 

returns. To limit the potential risk 

associated with such transactions, the 

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, the Fund will 

include appropriate risk disclosure in 

its offering documents, including 

leveraging risk. Leveraging risk is the 

risk that certain transactions of the 

Fund, including the Fund’s use of 

derivatives, may give rise to leverage, 

causing the Fund to be more volatile 

than if it had not been leveraged.18

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 the Fund to 

obtain the desired asset exposure. 

The Adviser believes that derivatives 

can be an economically attractive 

substitute for an underlying physical 

security that the Fund would otherwise 

purchase. For example, the 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 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 68333 

19With respect to the 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. 

20Corporate Fixed Income Instruments will be: 

corporate debt securities of U.S. and non-U.S. 

issuers, including convertible securities and 

corporate commercial paper, inflation-indexed 

bonds, bank capital securities, trust preferred 

securities, and loan participations and assignments. 

21 Duration is a measure used to determine the 

sensitivity of a security’s price to changes in 

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

more sensitive it will be to changes in interest rates. 

22The Fund may make short sales of securities to: 

(i) Offset potential declines in long positions in 

similar securities, (ii) to [sic] increase the flexibility 

of the Fund; (iii) for [sic] investment return; and (iv) 

as [sic] part of a risk arbitrage strategy. 

23A dollar roll is similar except that the 

counterparty is not obligated to return the same 

securities as those originally sold by the Fund but 

only securities that are ‘‘substantially identical.’’ 

24Real estate-linked derivatives are derivative 

instruments that are tied to real estate, such as 

derivatives (e.g., swaps or options) on real-estate 

related indices or specific real-estate related 

companies. The value and risks associated with real 

estate-linked derivative instruments are generally 

similar to those associated with direct ownership of 

real estate. 

25See infra, note 30 and accompanying text. 

26Trade claims are non-securitized rights of 

payment arising from obligations that typically arise 

when vendors and suppliers extend credit to a 

company by offering payment terms for products 

and services. If the company files for bankruptcy, 

payments on these trade claims stop and the claims 

are subject to compromise along with the other 

debts of the company. Trade claims may be 

purchased directly from the creditor or through 

brokers. 

27The Funds [sic] may invest in structured 

products, including instruments such as creditlinked securities. For example, a structured product 

may combine a traditional stock, bond, or 

commodity with an option or forward contract. 

Generally, the principal amount, amount payable 

upon maturity or redemption, or interest rate of a 

structured product is tied (positively or negatively) 

to the price of some commodity, currency or 

securities index or another interest rate or some 

other economic factor. The interest rate or (unlike 

most fixed income securities) the principal amount 

payable at maturity of a structured product may be 

increased or decreased, depending on changes in 

the value of the benchmark. An example of 

exchange-traded structured products would be an 

[sic] exchange-traded notes or ETNs, such as those 

listed and traded under NYSE Arca Equities Rule 

5.2(j)(6). 

28Credit-linked securities are generally a basket 

of derivative instruments, such as credit default 

swaps or interest rate swaps. Like an investment in 

a bond, investments in credit-linked securities 

represent the right to receive periodic income 

payments (in the form of distributions) and 

payment of principal at the end of the term of the 

security. However, these payments are conditioned 

on the trust’s receipt of payments from, and the 

trust’s potential obligations to, the counterparties to 

the derivative instruments and other securities in 

which the trust invests. 

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 the 

Fund. 

The 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 the Fund to increase or decrease 

exposure to specific issuers, saving 

investor capital through lower trading 

costs. The 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 the 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). 

Principal Investments 

According to the Registration 

Statement, the Fund will seek to 

maximize total return, consistent with 

prudent investment management. The 

Fund will seek to achieve its investment 

objective by investing under normal 

circumstances 19 at least 80% of its 

assets in a diversified portfolio of 

investment grade corporate Fixed 

Income Instruments 20 of varying 

maturities, which may be represented 

by forwards or derivatives such as 

options, futures contracts or swap 

agreements (the ‘‘80% Policy’’). The 

average portfolio duration of the Fund 

normally will vary from zero to 4 years 

based on PIMCO’s forecast for interest 

rates.21

In furtherance of the Fund’s 80% 

Policy, or with respect to the Fund’s 

other investments, the Fund may invest 

in derivative instruments, subject to 

applicable law and any other 

restrictions described herein. 

The Fund may purchase or sell 

securities on a when-issued, delayed 

delivery or forward commitment basis 

and may engage in short sales.22 The 

Fund may, without limitation, seek to 

obtain market exposure to the securities 

in which it primarily invests by entering 

into a series of purchase and sale 

contracts or by using other investment 

techniques (such as buy backs or dollar 

rolls).23

Other (Non-Principal) Investments 

The non-principal investments listed 

below would consist of investments that 

are not included in the Fund’s 80% 

Policy, as described above. Assets not 

invested in investment grade corporate 

Fixed Income Instruments may be 

invested in other types of Fixed Income 

Instruments and other instruments, as 

described below. 

The Fund may gain exposure to the 

real estate sector by investing in OTC 

real estate-linked derivatives 24, 

exchange-traded and OTC real estate 

investment trusts (‘‘REITs’’), and 

exchange traded common, exchangetraded and OTC preferred and 

exchange-traded and OTC convertible 

securities of issuers in real estate-related 

industries.25

The Fund may invest in variable and 

floating rate securities that are not 

corporate Fixed Income Instruments. 

The Fund may invest in floaters and 

inverse floaters that are not corporate 

Fixed Income Instruments. 

As disclosed in the Registration 

Statement, the Fund may invest in trade 

claims,26 privately placed and 

unregistered securities, and exchangetraded and OTC-traded structured 

products,27 including credit-linked 

securities,28 and commodity-linked 

notes. The Fund may invest in Brady 

Bonds. 

The Fund may enter into repurchase 

agreements on instruments other than 

corporate Fixed Income Instruments, in 

addition to repurchase agreements on 

corporate Fixed Income Instruments 

mentioned above, in which the Fund 

purchases a security from a bank or 

broker-dealer, which agrees to purchase 

the security at the Fund’s cost plus 

interest within a specified time. 

Repurchase agreements maturing in 

more than seven days and which may 

not be terminated within seven days at 

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68334 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 

29With respect to the Fund, a reverse repurchase 

agreement involves the sale of a security by the 

Fund and its agreement to repurchase the 

instrument at a specified time and price. 

30Convertible securities are generally preferred 

stocks and other securities, including fixed income 

securities and warrants, that are convertible into or 

exercisable for common stock at a stated price or 

rate. Equity-related investments may include 

investments in small-capitalization (‘‘small-cap’’), 

mid-capitalization (‘‘mid-cap’’) and largecapitalization (‘‘large-cap’’) companies. With 

respect to the Fund, a small-cap company will be 

defined as a company with a market capitalization 

of up to $1.5 billion, a mid-cap company will be 

defined as a company with a market capitalization 

of between $1.5 billion and $10 billion and a largecap company will be defined as a company with a 

market capitalization above $10 billion. Not more 

than 10% of the net assets of the Fund in the 

aggregate invested in equity securities (other than 

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 Intermarket Surveillance Group 

(‘‘ISG’’) or is a market with which the Exchange 

does not have a comprehensive surveillance sharing 

agreement. Furthermore, not more than 10% of the 

net assets of the 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. 

31With respect to the Fund, securities rated Ba or 

lower by Moody’s, or equivalently rated by S&P or 

Fitch, are sometimes referred to as ‘‘high yield 

securities’’ or ‘‘junk bonds’’, while securities rated 

Baa or higher are referred to as ‘‘investment grade.’’ 

Unrated securities may be less liquid than 

comparable rated securities and involve the risk 

that the Fund’s portfolio manager may not 

accurately evaluate the security’s comparative 

credit rating. To the extent that the Fund invests in 

unrated securities, the Fund’s success in achieving 

its investment objective may depend more heavily 

on the portfolio manager’s creditworthiness 

analysis than if the Fund invested exclusively in 

rated securities. In determining whether a security 

is of comparable quality, the Adviser will consider, 

for example, whether the issuer of the security has 

issued other rated securities; whether the 

obligations under the security are guaranteed by 

another entity and the rating of such guarantor (if 

any); whether and (if applicable) how the security 

is collateralized; other forms of credit enhancement 

(if any); the security’s maturity date; liquidity 

features (if any); relevant cash flow(s); valuation 

features; other structural analysis; macroeconomic 

analysis; and sector or industry analysis. 

32The Fund will limit its investments in 

currencies to those currencies with a minimum 

average daily foreign exchange turnover of USD $1 

billion as determined by the Bank for International 

Settlements (‘‘BIS’’) Triennial Central Bank Survey. 

As of the most recent BIS Triennial Central Bank 

Survey, at least 52 separate currencies had 

minimum average daily foreign exchange turnover 

of USD $1 billion. For a list of eligible currencies, 

see www.bis.org. 

33PIMCO will generally consider an instrument 

to be economically tied to an emerging market 

country if the security’s ‘‘country of exposure’’ is 

an emerging market country, as determined by the 

criteria set forth in the Registration Statement. 

Alternatively, such as when a ‘‘country of 

exposure’’ is not available or when PIMCO believes 

the following tests more accurately reflect which 

country the security is economically tied to, PIMCO 

may consider an instrument to be economically tied 

to an emerging market country if the issuer or 

guarantor is a government of an emerging market 

country (or any political subdivision, agency, 

authority or instrumentality of such government), if 

the issuer or guarantor is organized under the laws 

of an emerging market country, or if the currency 

of settlement of the security is a currency of an 

emerging market country. With respect to derivative 

instruments, PIMCO will generally consider such 

instruments to be economically tied to emerging 

market countries if the underlying assets are 

currencies of emerging market countries (or baskets 

or indices of such currencies), or instruments or 

securities that are issued or guaranteed by 

governments of emerging market countries or by 

entities organized under the laws of emerging 

market countries. While emerging markets 

corporate debt securities (excluding commercial 

paper) generally must have $200 million or more 

par amount outstanding and significant par value 

traded to be considered as an eligible investment for 

the Fund, at least 80% of issues of such securities 

held by the Fund must have $200 million or more 

par amount outstanding at the time of investment. 

34 In reaching liquidity decisions, the Adviser 

may consider the following factors: the frequency 

of trades and quotes for the security; the number of 

approximately the amount at which the 

Fund has valued the agreements will be 

considered illiquid securities. The Fund 

may enter into reverse repurchase 

agreements on instruments other than 

corporate Fixed Income Instruments, in 

addition to reverse repurchase 

agreements on corporate Fixed Income 

Instruments mentioned above, subject to 

the Fund’s limitations on borrowings.29

The Fund will segregate or ‘‘earmark’’ 

assets determined to be liquid by 

PIMCO in accordance with procedures 

established by the Board to cover its 

obligations under reverse repurchase 

agreements. 

The Fund may invest only up to 10% 

of its total assets in preferred stocks, 

convertible securities, common stocks 

and other equity-related securities; such 

limit will not include real-estate related 

investments, such as REITs or 

investments in common, preferred or 

convertible securities of issuers in real 

estate-related industries.30

The Fund may invest up to 20% of its 

total assets in structured notes, 

including hybrid or ‘‘indexed’’ 

securities and event-linked bonds. 

The Fund may invest up to 15% of its 

total assets in high yield securities 

(‘‘junk bonds’’) rated below BBB- (with 

a minimum level of B- at purchase) by 

Standard & Poor’s Ratings Services 

(‘‘S&P’’), or equivalently rated by 

Moody’s Investors Service, Inc. 

(‘‘Moody’s’’) or Fitch, Inc. (‘‘Fitch’’), or, 

if unrated, determined by PIMCO to be 

of comparable quality (except that 

within such limitation, the Fund may 

invest in mortgage-related securities 

rated below B-).31

Investment Restrictions 

If PIMCO believes that economic or 

market conditions are unfavorable to 

investors or that market conditions are 

not normal, PIMCO may temporarily 

invest up to 100% of the Fund’s assets 

in certain defensive strategies, including 

holding a substantial portion of the 

Fund’s assets in cash, cash equivalents 

or other highly rated short-term 

securities, including securities issued or 

guaranteed by the U.S. government, its 

agencies or instrumentalities. As noted 

above, the Fund may invest without 

limit, for temporary or defensive 

purposes, in such instruments, if 

PIMCO deems it appropriate to do so. 

The Fund may invest in, to the extent 

permitted by Section 12(d)(1)(A) of the 

1940 Act, other affiliated and 

unaffiliated funds, such as open-end or 

closed-end management investment 

companies, including other exchangetraded funds, provided that the Fund’s 

investment in units or shares of 

investment companies and other openend collective investment vehicles will 

not exceed 10% of the Fund’s total 

assets. The Fund may invest its 

securities lending collateral in one or 

more money market funds to the extent 

permitted by Rule 12d1–1 under the 

1940 Act, including series of PIMCO 

Funds. 

The Fund may invest up to 20% of its 

total assets in mortgage-related and 

other asset backed securities, although 

this 20% limitation does not apply to 

securities issued or guaranteed by 

Federal agencies and/or U.S. 

government sponsored 

instrumentalities. The Fund may invest 

up to 20% of its total assets in securities 

denominated in foreign currencies, and 

may invest beyond this limit in U.S. 

dollar denominated securities of foreign 

issuers. The Fund will normally limit its 

foreign currency exposure (from nonU.S. dollar-denominated securities or 

currencies) to 10% of its total assets.32

The Fund may engage in foreign 

currency transactions either on a spot 

(cash) basis at the rate prevailing in the 

currency exchange market at the time or 

through forward currency contracts 

(‘‘forwards’’). 

The Fund may invest up to 20% of its 

total assets in securities and instruments 

of issuers economically tied to emerging 

market countries.33

The Fund’s investments, including 

investments in derivative instruments, 

will be subject to all of the restrictions 

under the 1940 Act, including 

restrictions with respect to illiquid 

assets; that is, the limitation that the 

Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment), including Rule 144A 

securities deemed illiquid by the 

Adviser, consistent with Commission 

guidance.34 The Fund will monitor its 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 68335 

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). 

35The Commission has stated that long-standing 

Commission guidelines have required open-end 

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

in illiquid securities and other illiquid assets. See 

Investment Company Act Release No. 28193 (March 

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

34. See also, Investment Company Act Release No. 

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

31, 1970) (Statement Regarding ‘‘Restricted 

Securities’’); Investment Company Act Release No. 

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

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

fund’s portfolio security is illiquid if it cannot be 

disposed of in the ordinary course of business 

within seven days at approximately the value 

ascribed to it by the fund. See Investment Company 

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

9773 (March 21, 1986) (adopting amendments to 

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

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

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

under the Securities Act). 

36The diversification standard is set forth in 

Section 5(b)(1) of the 1940 Act (15 U.S.C. 80e). 

37 26 U.S.C. 851. 

38See Form N–1A, Item 9. The Commission has 

taken the position that a fund is concentrated if it 

invests more than 25% of the value of its total 

assets in any one industry. See, e.g., Investment 

Company Act Release No. 9011 (October 30, 1975), 

40 FR 54241 (November 21, 1975). 

39The Fund’s broad-based securities market 

index will be identified in a future amendment to 

the Registration Statement following the Fund’s 

first full calendar year of performance. 

40Major market data vendors may include, but are 

not limited to: Thomson Reuters, JPMorgan Chase 

PricingDirect Inc., Markit Group Limited, 

Bloomberg, Interactive Data Corporation or other 

major data vendors. 

respective portfolio liquidity on an 

ongoing basis to determine whether, in 

light of current circumstances, an 

adequate level of liquidity is being 

maintained, and will consider taking 

appropriate steps in order to maintain 

adequate liquidity if, through a change 

in values, net assets, or other 

circumstances, more than 15% of the 

Fund’s net assets are held in illiquid 

assets. Illiquid assets include securities 

subject to contractual or other 

restrictions on resale and other 

instruments that lack readily available 

markets as determined in accordance 

with Commission staff guidance.35

The Fund will be diversified within 

the meaning of the 1940 Act.36

The Fund intends to qualify annually 

and elect to be treated as a regulated 

investment company under Subchapter 

M of the Internal Revenue Code.37 The 

Fund will not concentrate its 

investments in a particular industry, as 

that term is used in the 1940 Act, and 

as interpreted, modified, or otherwise 

permitted by a regulatory authority 

having jurisdiction from time to time.38

The Fund’s investments, including 

derivatives, will be consistent with the 

Fund’s investment objective and the 

Fund’s use of derivatives may be used 

to enhance leverage. However, the 

Fund’s investments will not be used to 

seek performance that is the multiple or 

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

the Fund’s broad-based securities 

market index (as defined in Form N– 

1A).39

Net Asset Value and Derivatives 

Valuation Methodology for Purposes of 

Determining Net Asset Value 

The net asset value (‘‘NAV’’) of the 

Fund’s Shares will be determined by 

dividing the total value of the Fund’s 

portfolio investments and other assets, 

less any liabilities, by the total number 

of Shares outstanding. 

The Fund’s Shares will be valued as 

of the close of regular trading (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 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. 

For purposes of calculating NAV, 

portfolio securities and other assets for 

which market quotes are readily 

available will be valued at market value. 

Market value will generally be 

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. 

Fixed Income Instruments, including 

those to be purchased under firm 

commitment agreements/delayed 

delivery basis, will generally be valued 

on the basis of quotes obtained from 

brokers and dealers or independent 

pricing services. Domestic and foreign 

fixed income securities will generally be 

valued on the basis of quotes obtained 

from brokers and dealers or 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. 

Short-term debt instruments having a 

remaining maturity of 60 days or less 

will generally be valued at amortized 

cost. 

As discussed in more detail below, 

derivatives will generally be valued on 

the basis of quotes obtained from 

brokers and dealers or pricing services 

using data reflecting the earlier closing 

of the principal markets for those assets. 

Local closing prices will be used for all 

instrument valuation purposes. Foreign 

currency-denominated derivatives will 

generally be valued as of the respective 

local region’s market close. 

With respect to specific derivatives: 

• Currency spot and forward rates 

from major market data vendors 40 will 

generally be determined as of the NYSE 

Close. 

• Exchange-traded futures will 

generally be valued at the settlement 

price of the relevant exchange. 

• A total return swap on an index 

will be valued at the publicly available 

index price. The index price, in turn, is 

determined by the applicable index 

calculation agent, which generally 

values the securities underlying the 

index at the last reported sale price. 

• Equity total return swaps will 

generally be valued using the actual 

underlying equity at local market 

closing, while bank loan total return 

swaps will generally be valued using the 

evaluated underlying bank loan price 

minus the strike price of the loan. 

• Exchange-traded non-equity 

options, (for example, options on bonds, 

Eurodollar options and U.S. Treasury 

options), index options, and options on 

futures will generally be valued at the 

official settlement price determined by 

the relevant exchange, if available. 

• OTC and exchange-traded equity 

options will generally be valued on a 

basis of quotes obtained from a 

quotation reporting system, established 

market makers, or pricing services or at 

the settlement price of the applicable 

exchange. 

• OTC FX options will generally be 

valued by pricing vendors. 

• All other swaps such as interest rate 

swaps, inflation swaps, swaptions, 

credit default swaps, and CDX/CDS will 

generally be valued by pricing services. 

Exchange-traded equity securities 

(including common stocks, exchangetraded investment companies, 

exchange-traded convertible securities, 

REITs and preferred securities, and 

exchange-traded structured products) 

will be valued at the official closing 

price or the last trading price on the 

exchange or market on which the 

security is primarily traded at the time 

of valuation. If no sales or closing prices 

are reported during the day, exchangetraded equity securities will generally 

be valued at the mean of the last 

available bid and ask quotation on the 

exchange or market on which the 

security is primarily traded, or using 

other market information obtained from 

quotation reporting systems, established 

market makers, or pricing services. 

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68336 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 

Investment company securities that are 

not exchange-traded will be valued at 

NAV. Equity securities traded OTC will 

be valued based on price quotations 

obtained from a broker-dealer who 

makes markets in such securities or 

other equivalent indications of value 

provided by a third-party pricing 

service. Money market instruments, 

trade claims, OTC REITs, privately 

placed and unregistered securities, OTC 

structured products, OTC real-estate 

linked derivatives, credit-linked 

securities, commodity-linked notes, 

Brady Bonds, variable and floating rate 

securities that are not corporate Fixed 

Income Instruments; floaters and 

inverse floaters that are not corporate 

Fixed Income Instruments and other 

types of debt securities will generally be 

valued on the basis of independent 

pricing services or quotes obtained from 

brokers and dealers. 

If a foreign security’s value has 

materially changed after the close of the 

security’s primary exchange or principal 

market but before the NYSE Close, the 

security will be valued at fair value 

based on procedures established and 

approved by the Board. Foreign 

securities that do not trade when the 

NYSE is open will also be valued at fair 

value. 

Securities and other assets for which 

market quotes are not readily available 

will be valued at fair value as 

determined in good faith by the Board 

or persons acting at their direction. The 

Board has adopted methods for valuing 

securities and other assets in 

circumstances where market quotes are 

not readily available, and has delegated 

to PIMCO the responsibility for 

applying the valuation methods. In the 

event that market quotes are not readily 

available, and the security or asset 

cannot be valued pursuant to one of the 

valuation methods, the value of the 

security or asset will be determined in 

good faith by the Valuation Committee 

of the Board of Trustees, generally based 

upon recommendations provided by 

PIMCO. 

Market quotes are considered not 

readily available in circumstances 

where there is an absence of current or 

reliable market-based data (e.g., trade 

information, bid/ask information, broker 

quotes), including where events occur 

after the close of the relevant market, 

but prior to the NYSE Close, that 

materially affect the values of the 

Fund’s securities or assets. In addition, 

market quotes are considered not 

readily available when, due to 

extraordinary circumstances, the 

exchanges or markets on which the 

securities trade do not open for trading 

for the entire day and no other market 

prices are available. The Board has 

delegated to PIMCO the responsibility 

for monitoring significant events that 

may materially affect the values of the 

Fund’s securities or assets and for 

determining whether the value of the 

applicable securities or assets should be 

re-evaluated in light of such significant 

events. 

When the Fund uses fair value pricing 

to determine its NAV, securities will not 

be priced on the basis of quotes from the 

primary market in which they are 

traded, but rather may be priced by 

another method that the Board of 

Trustees or persons acting at their 

direction believe reflects fair value. Fair 

value pricing may require subjective 

determinations about the value of a 

security. While the Trust’s policy is 

intended to result in a calculation of the 

Fund’s NAV that fairly reflects security 

values as of the time of pricing, the 

Trust cannot ensure that fair values 

determined by the Board or persons 

acting at its direction would accurately 

reflect the price that the Fund could 

obtain for a security if it were to dispose 

of that security as of the time of pricing 

(for instance, in a forced or distressed 

sale). The prices used by the Fund may 

differ from the value that would be 

realized if the securities were sold. 

For the 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 be priced using the applicable 

exchange closing price where available. 

Investments initially valued in 

currencies other than the U.S. dollar 

will be converted to the U.S. dollar 

using exchange rates obtained from 

pricing services. As a result, the NAV of 

the Fund’s Shares may be affected by 

changes in the value of currencies in 

relation to the U.S. dollar. The value of 

securities traded in markets outside the 

United States or denominated in 

currencies other than the U.S. dollar 

may be affected significantly on a day 

that the NYSE is closed. As a result, to 

the extent that the Fund holds foreign 

(non-U.S.) securities, the NAV of the 

Fund’s Shares may change when an 

investor cannot purchase, redeem or 

exchange shares. 

Derivatives Valuation Methodology for 

purposes of Determining Portfolio 

Indicative Value 

On each Business Day, before 

commencement of trading in Fund 

Shares on NYSE Arca, the Fund will 

disclose on its Web site the identities 

and quantities of the portfolio 

instruments and other assets held by the 

Fund that will form the basis for the 

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 the Fund, one or more 

major market data vendors will 

disseminate every 15 seconds through 

the facilities of the Consolidated Tape 

Association (‘‘CTA’’) or other widely 

disseminated means an updated 

Portfolio Indicative Value (‘‘PIV’’) for 

the Fund as calculated by an 

information provider or market data 

vendor. 

A third party market data provider 

will calculate the PIV for the Fund. For 

the purposes of determining the PIV, the 

third party market data provider’s 

valuation of derivatives and other assets 

are expected to be similar to its 

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). 

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 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 may be valued 

intraday through option valuation 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 68337 

41The NAV of the Fund’s Shares generally will 

be calculated once daily Monday through Friday as 

of the close of trading on the New York Stock 

Exchange (‘‘NYSE’’), generally 4:00 p.m. E.T. (the 

‘‘NAV Calculation Time’’) on any Business Day. 

NAV per Share will be calculated by dividing the 

Fund’s net assets by the number of the Fund’s 

Shares outstanding. For more information regarding 

the valuation of Fund investments in calculating 

the Fund’s NAV, see the Registration Statement. 

The term ‘‘Authorized Participant’’ refers to a 

‘‘Participating Party’’ (a broker-dealer or other 

participant in the clearing process through the 

Continuous Net Settlement System of the NSCC; or 

a Depository Trust Company (‘‘DTC’’) Participant 

who has executed a Participant Agreement (an 

agreement with the Distributor and Transfer Agent 

with respect to creations and redemptions of 

Creation Units) [sic]. 

42Such purchase or redemption transactions are 

‘‘custom orders.’’ On any given Business Day, if the 

Fund accepts a custom order, the Adviser 

represents that the Fund will accept custom orders 

from all other Authorized Participants on the same 

basis. 

43The Deposit Securities and Cash Component or, 

alternatively, the Cash Deposit, will constitute the 

Fund Deposit, which will represent the investment 

amount for a Creation Unit of the Fund. 

44The Bid/Ask Price of Shares of the Fund will 

be determined using the mid-point of the highest 

Continued 

models (e.g., Black-Scholes) 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 

their 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). 

The Fund’s disclosure of forward 

positions will include information that 

market participants can use to value 

these positions intraday. 

Disclosed Portfolio 

The Fund’s disclosure of derivative 

positions in the applicable Disclosed 

Portfolio will include information that 

market participants can use to value 

these positions intraday. On a daily 

basis, the Fund will disclose 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 the Fund’s 

portfolio. 

Impact on Arbitrage Mechanism 

For the Fund, 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 of the Fund trade will 

continue to be disciplined by arbitrage 

opportunities created by the ability to 

purchase or redeem creation Shares of 

the Fund at their NAV, which should 

ensure that Shares of the Fund will not 

trade at a material discount or premium 

in relation to its NAV. 

The Adviser does not believe there 

will be any significant impacts to the 

settlement or operational aspects of the 

Fund’s arbitrage mechanism due to the 

use of derivatives. Because derivatives 

generally are not eligible for in-kind 

transfer, they will be substituted with a 

‘‘cash in lieu’’ amount (as described 

below) when the Fund processes 

purchases or redemptions of block-size 

‘‘Creation Units’’ (as described below) 

in-kind. 

Creations and Redemptions of Shares 

According to the Registration 

Statement, Shares of the Fund that trade 

in the secondary market will be 

‘‘created’’ at NAV by Authorized 

Participants only in block-size Creation 

Units of 50,000 Shares or multiples 

thereof.41 The size of a Creation Unit is 

subject to change. The Fund will offer 

and issue Shares at their NAV per Share 

generally in exchange for a basket of 

debt securities held by that Fund (the 

‘‘Deposit Securities’’) together with a 

deposit of a specified cash payment (the 

‘‘Cash Component’’), or in lieu of 

Deposit Securities, the Fund may permit 

a ‘‘cash-in-lieu’’ amount for any reason 

at the Fund’s sole discretion. 

Alternatively, the Fund may issue 

Creation Units in exchange for a 

specified all-cash payment (‘‘Cash 

Deposit’’) (together with Deposit 

Securities and Cash Component, the 

‘‘Fund Deposit’’). Similarly, Shares can 

be redeemed only in Creation Units, 

generally in-kind for a portfolio of debt 

securities held by the Fund and/or for 

a specified amount of cash (collectively, 

‘‘Redemption Instruments’’). 

On any given Business Day, purchases 

and redemptions of Creation Units will 

be made in whole or in part on a cash 

basis if an Authorized Participant 

deposits or receives (as applicable) cash 

in lieu of some or all of the Fund 

Deposit or Redemption Instruments, 

respectively, solely because such 

instruments are, in the case of the Fund 

Deposit, not available in sufficient 

quantity.42 In determining whether the 

Fund will be selling or redeeming 

Creation Units on a cash or in-kind 

basis, the key consideration will be the 

benefit which would accrue to Fund 

investors. In many cases, investors may 

benefit by the use of all cash purchase 

orders because the Adviser would 

execute trades rather than market 

makers, and the Adviser may be able to 

obtain better execution in bond 

transactions due to its size, experience 

and potentially stronger relationships in 

the fixed income markets. 

Except when aggregated in Creation 

Units, Shares will not be redeemable by 

the Fund. The prices at which creations 

and redemptions occur will be based on 

the next calculation of NAV after an 

order is received. Requirements as to the 

timing and form of orders will be 

described in the Authorized Participant 

agreement. PIMCO will make available 

on each Business Day via the National 

Securities Clearing Corporation 

(‘‘NSCC’’), prior to the opening of 

business (subject to amendments) on the 

Exchange (currently 9:30 a.m., E.T.), the 

identity and the required amount of 

each Deposit Security and the amount of 

the Cash Component (or Cash Deposit) 

to be included in the current ‘‘Fund 

Deposit’’ 43 (based on information at the 

end of the previous Business Day). 

Creations and redemptions must be 

made by an Authorized Participant. 

Additional information regarding the 

Trust, the Fund and the Shares, 

including investment strategies, risks, 

creation and redemption procedures, 

fees, portfolio holdings, disclosure 

policies, distributions and taxes is 

included in the Registration Statement. 

All terms relating to the Fund that are 

referred to but not defined in this 

proposed rule change are defined in the 

Registration Statement. 

Availability of Information 

The Trust’s Web site 

(www.pimcoetfs.com), which will be 

publicly available prior to the public 

offering of Shares of the Fund, will 

include a form of the prospectus for the 

Fund that may be downloaded. The 

Trust’s Web site will include additional 

quantitative information updated on a 

daily basis, including, for the Fund, (1) 

daily trading volume, the prior Business 

Day’s reported closing price, NAV and 

mid-point of the bid/ask spread at the 

time of calculation of such NAV (the 

‘‘Bid/Ask Price’’),44 and a calculation of 

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68338 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 

bid and the lowest offer on the Exchange as of the 

time of calculation of the Fund’s NAV. The records 

relating to Bid/Ask Prices will be retained by the 

Fund and its service providers. 

45Under accounting procedures followed by the 

Fund, trades made on the prior Business Day (‘‘T’’) 

will be booked and reflected in NAV on the current 

Business Day (‘‘T+1’’). Accordingly, the Fund will 

be able to disclose at the beginning of the Business 

Day the portfolio that will form the basis for the 

NAV calculation at the end of the Business Day. 

46Currently, it is the Exchange’s understanding 

that several major market data vendors display and/ 

or make widely available PIVs taken from CTA or 

other data feeds. 47See NYSE Arca Equities Rule 7.12. 

the premium and discount of the Bid/ 

Ask Price against the NAV, and (2) data 

in chart format displaying the frequency 

distribution of discounts and premiums 

of the daily Bid/Ask Price against the 

NAV, within appropriate ranges, for 

each of the four previous calendar 

quarters. On each Business Day, before 

commencement of trading in Shares in 

the Core Trading Session (9:30 a.m. E.T. 

to 4:00 p.m. E.T.) on the Exchange, the 

Fund will disclose on the Trust’s Web 

site the Disclosed Portfolio as defined in 

NYSE Arca Equities Rule 8.600(c)(2) 

that will form the basis for the Fund’s 

calculation of NAV at the end of the 

Business Day.45

The Fund’s disclosure of derivative 

positions in the applicable Disclosed 

Portfolio will include information that 

market participants can use to value 

these positions intraday. On a daily 

basis, the Fund will disclose 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 the Fund’s 

portfolio. The Web site information will 

be publicly available at no charge. 

In addition, a basket composition file, 

which includes the security names and 

share quantities, if applicable, required 

to be delivered in exchange for the 

Fund’s Shares, together with estimates 

and actual cash components, will be 

publicly disseminated daily prior to the 

opening of the Exchange via the NSCC. 

The basket represents one Creation Unit 

of the Fund. The NAV of Shares of the 

Fund will normally be determined as of 

the close of the regular trading session 

on the Exchange (ordinarily 4:00 p.m. 

E.T.) on each Business Day. Authorized 

Participants may refer to the basket 

composition file for information 

regarding Fixed Income Instruments, 

and any other instrument that may 

comprise the Fund’s basket on a given 

day. 

Investors can also obtain the Trust’s 

SAI, the Fund’s Shareholder Reports, 

and the Fund’s Forms N–CSR and 

Forms N–SAR, filed twice a year. The 

Fund’s SAI and Shareholder Reports 

will be available free upon request from 

the Trust, and those documents and the 

Form N–CSR, Form N–PX and Form N– 

SAR may be viewed on-screen or 

downloaded from the Commission’s 

Web site at www.sec.gov. Intra-day and 

closing price information regarding 

exchange-traded equity securities, 

including common stocks, preferred 

stocks, securities convertible into 

stocks, closed-end funds, exchangetraded funds, exchange-traded 

structured products (including ETNs), 

exchange-traded REITs, and other 

equity-related securities, will be 

available from the exchange on which 

such securities are traded. Intra-day and 

closing price information regarding 

exchange-traded options (including 

options on futures) and futures will be 

available from the exchange on which 

such instruments are traded. Intra-day 

and closing price information regarding 

Fixed Income Instruments and other 

forms of debt securities also will be 

available from major market data 

vendors. Price information relating to 

forwards, spot currency, OTC options 

and swaps will be available from major 

market data vendors. Price information 

regarding, money market instruments, 

OTC REITs, private activity bonds, trade 

claims, privately placed and 

unregistered securities, OTC real estatelinked derivatives, OTC structured 

products, credit-linked securities, 

commodity-linked notes, Brady Bonds, 

variable and floating rate securities that 

are not corporate Fixed Income 

Instruments and floaters and inverse 

floaters that are not corporate Fixed 

Income Instruments will be available 

from major market data vendors. Price 

information regarding other investment 

company securities will be available 

from on-line information services and 

from the Web site for the applicable 

investment company security. 

Information regarding market price and 

trading volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 

computer screens and other electronic 

services. Information regarding the 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. Quotation and 

last sale information for the Shares will 

be available via the CTA high-speed 

line. Exchange-traded options quotation 

and last sale information for options 

cleared via the Options Clearing 

Corporation (‘‘OCC’’) is available via the 

Options Price Reporting Authority 

(‘‘OPRA’’). Price information relating to 

equity securities traded OTC will be 

available from major market data 

vendors. In addition, the PIV, as defined 

in NYSE Arca Equities Rule 8.600 (c)(3), 

will be widely disseminated by one or 

more major market data vendors at least 

every 15 seconds during the Core 

Trading Session.46 The dissemination of 

the PIV, together with the Disclosed 

Portfolio, may allow investors to 

determine an approximate value of the 

underlying portfolio of the Fund on a 

daily basis and to provide an estimate 

of that value throughout the trading day. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares of 

the Fund.47 Trading in Shares of the 

Fund will be halted if the circuit breaker 

parameters in NYSE Arca Equities Rule 

7.12 have been reached. Trading also 

may be halted because of market 

conditions or for reasons that, in the 

view of the Exchange, make trading in 

the Shares inadvisable. These may 

include: (1) The extent to which trading 

is not occurring in the securities and/or 

the financial instruments comprising 

the Disclosed Portfolio of the Fund; or 

(2) whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. Trading in the 

Shares will be subject to NYSE Arca 

Equities Rule 8.600(d)(2)(D), which sets 

forth circumstances under which Shares 

of the Fund may be halted. 

Trading Rules 

The Exchange deems the Shares to be 

equity securities, thus rendering trading 

in the Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. Shares will trade on 

the NYSE Arca Marketplace from 4 a.m. 

to 8 p.m. E.T. in accordance with NYSE 

Arca Equities Rule 7.34 (Opening, Core, 

and Late Trading Sessions). The 

Exchange has appropriate rules to 

facilitate transactions in the Shares 

during all trading sessions. As provided 

in NYSE Arca Equities Rule 7.6, 

Commentary .03, the minimum price 

variation (‘‘MPV’’) for quoting and entry 

of orders in equity securities traded on 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 68339 

48 17 CFR 240.10A–3. 

49FINRA surveils trading on the Exchange 

pursuant to a regulatory services agreement. The 

Exchange is responsible for FINRA’s performance 

under this regulatory services agreement. 

50For a list of the current members of ISG, see 

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

components of the Disclosed Portfolio for the Fund 

may trade on markets that are members of ISG or 

with which the Exchange has in place a 

comprehensive surveillance sharing agreement. 51 15 U.S.C. 78f(b)(5). 

the NYSE Arca Marketplace is $0.01, 

with the exception of securities that are 

priced less than $1.00 for which the 

MPV for order entry is $0.0001. 

The Shares will conform to the initial 

and continued listing criteria under 

NYSE Arca Equities Rule 8.600. 

Consistent with NYSE Arca Equities 

Rule 8.600(d)(2)(B)(ii), the Fund’s 

Reporting Authority will implement and 

maintain, or be subject to, procedures 

designed to prevent the use and 

dissemination of material non-public 

information regarding the actual 

components of the Fund’s portfolio. The 

Exchange represents that, for initial 

and/or continued listing, the Fund will 

be in compliance with Rule 10A–3 48

under the Act, as provided by NYSE 

Arca Equities Rule 5.3. A minimum of 

100,000 Shares for the Fund will be 

outstanding at the commencement of 

trading on the Exchange. The Exchange 

will obtain a representation from the 

issuer of the Shares of the Fund that the 

NAV per Share will be calculated daily 

and that the NAV and the Disclosed 

Portfolio will be made available to all 

market participants at the same time. 

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.49 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 

options, exchange-traded equities 

(including common stocks, exchangetraded investment companies, 

exchange- traded convertibles and 

preferred securities, exchange-traded 

REITs, and exchange-traded structured 

products, including ETNs), futures and 

options on futures 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 options, 

exchange-traded equities, futures and 

options on futures from such markets or 

entities. In addition, the Exchange may 

obtain information regarding trading in 

the Shares, exchange-traded options, 

exchange-traded equities, futures and 

options on futures from markets or other 

entities that are members of ISG or with 

which the Exchange has in place a 

comprehensive surveillance sharing 

agreement.50 FINRA, on behalf of the 

Exchange, is able to access, as needed, 

trade information for certain fixed 

income securities held by the 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. 

Not more than 10% of the net assets 

of the Fund in the aggregate invested in 

equity securities (other than nonexchange-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, not more than 

10% of the net assets of the 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. 

In addition, the Exchange also has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

Information Bulletin 

Prior to the commencement of 

trading, the Exchange will inform its 

Equity Trading Permit (‘‘ETP’’) Holders 

in an Information Bulletin (‘‘Bulletin’’) 

of the special characteristics and risks 

associated with trading the Shares. 

Specifically, the Bulletin will discuss 

the following: (1) The procedures for 

purchases and redemptions of Shares in 

Creation Unit aggregations (and that 

Shares are not individually redeemable); 

(2) NYSE Arca Equities Rule 9.2(a), 

which imposes a duty of due diligence 

on its ETP Holders to learn the essential 

facts relating to every customer prior to 

trading the Shares; (3) the risks involved 

in trading the Shares during the 

Opening and Late Trading Sessions 

when an updated PIV will not be 

calculated or publicly disseminated; (4) 

how information regarding the PIV and 

the Disclosed Portfolio is disseminated; 

(5) the requirement that ETP Holders 

deliver a prospectus to investors 

purchasing newly issued Shares prior to 

or concurrently with the confirmation of 

a transaction; and (6) trading 

information. 

In addition, the Bulletin will 

reference that the Fund is subject to 

various fees and expenses described in 

the Registration Statement. The Bulletin 

will discuss any exemptive, no-action, 

and interpretive relief granted by the 

Commission from any rules under the 

Act. The Bulletin will also disclose that 

the NAV for the Shares will be 

calculated after 4:00 p.m. E.T. each 

trading day. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(5) 51 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 

be listed and traded on the Exchange 

pursuant to the initial and continued 

listing criteria in NYSE Arca Equities 

Rule 8.600. The Exchange has in place 

surveillance procedures that are 

adequate to properly monitor trading in 

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 

options, exchange-traded equities 

(including common stocks, exchangemstockstill on DSK4VPTVN1PROD with NOTICES

68340 Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 

traded investment companies, 

exchange-traded convertibles and 

preferred securities, exchange-traded 

REITs, and exchange-traded structured 

products, including ETNs), futures and 

options on futures 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 options, 

exchange-traded equities, futures and 

options on futures from such markets or 

entities. In addition, the Exchange may 

obtain information regarding trading in 

the Shares, exchange-traded options, 

exchange-traded equities, futures and 

options on futures from markets or other 

entities that are members of ISG or with 

which the Exchange has in place a 

comprehensive surveillance sharing 

agreement. FINRA, on behalf of the 

Exchange, is able to access, as needed, 

trade information for certain fixed 

income securities held by the 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. 

While emerging markets corporate debt 

securities (excluding commercial paper) 

generally must have $200 million or 

more par amount outstanding and 

significant par value traded to be 

considered as an eligible investment for 

the Fund, at least 80% of issues of such 

securities held by the Fund must have 

$200 million or more par amount 

outstanding at the time of investment. 

Furthermore, not more than 10% of the 

net assets of the Fund in the aggregate 

invested in equity securities (other than 

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, not more than 

10% of the net assets of the 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 Fund’s investments, including 

derivatives, will be consistent with the 

Fund’s investment objective and the 

Fund’s use of derivatives may be used 

to enhance leverage. However, the 

Fund’s investments will not be used to 

seek performance that is the multiple or 

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

the Fund’s broad-based securities 

market index (as defined in Form N– 

1A). The Fund’s investments will be 

subject to all of the restrictions under 

the 1940 Act, including restrictions with 

respect to investments in illiquid assets, 

that is, the limitation that a 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. PIMCO’s 

Counterparty Risk Committee will 

evaluate the creditworthiness of swaps 

counterparties on an ongoing basis. 

The proposed rule change is designed 

to promote just and equitable principles 

of trade and to protect investors and the 

public interest in that the Exchange will 

obtain a representation from the issuer 

of the Shares that the NAV per Share 

will be calculated daily and that the 

NAV and the Disclosed Portfolio will be 

made available to all market 

participants at the same time. In 

addition, a large amount of information 

is publicly available regarding the Fund 

and the Shares, thereby promoting 

market transparency. Moreover, the PIV 

will be widely disseminated by one or 

more major market data vendors at least 

every 15 seconds during the Exchange’s 

Core Trading Session. On each Business 

Day, before commencement of trading in 

Shares in the Core Trading Session on 

the Exchange, the Fund will disclose on 

the Trust’s Web site the Disclosed 

Portfolio that will form the basis for the 

Fund’s calculation of NAV at the end of 

the Business Day. Information regarding 

market price and trading volume of the 

Shares will be continually available on 

a real-time basis throughout the day on 

brokers’ computer screens and other 

electronic services, and quotation and 

last sale information will be available 

via the CTA high-speed line. Exchangetraded options quotation and last sale 

information for options cleared via the 

OCC is available OPRA. Price 

information for the debt securities and 

other financial instruments held by the 

Fund, including the intra-day closing 

settlement price for the Fixed Income 

Instruments, including Municipal 

Bonds, and derivatives thereon, and 

other financial instruments held by the 

Fund, will be available through major 

market data vendors. The Fund’s 

investments, including derivatives, will 

be consistent with the Fund’s 

investment objective. The Trust’s Web 

site will include a form of the 

prospectus for the Fund and additional 

data relating to NAV and other 

applicable quantitative information. 

Moreover, prior to the commencement 

of trading, the Exchange will inform its 

ETP Holders in an Information Bulletin 

of the special characteristics and risks 

associated with trading the Shares. 

Trading in Shares of the Fund will be 

halted if the circuit breaker parameters 

in NYSE Arca Equities Rule 7.12 have 

been reached or because of market 

conditions or for reasons that, in the 

view of the Exchange, make trading in 

the Shares inadvisable, and trading in 

the Shares will be subject to NYSE Arca 

Equities Rule 8.600(d)(2)(D), which sets 

forth circumstances under which Shares 

of the Fund may be halted. In addition, 

as noted above, investors will have 

ready access to information regarding 

the Fund’s holdings, the PIV, the 

Disclosed Portfolio, and quotation and 

last sale information for the Shares. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of an additional type of activelymanaged exchange-traded product that 

will enhance competition among market 

participants, to the benefit of investors 

and the marketplace. As noted above, 

the Exchange has in place surveillance 

procedures relating to trading in the 

Shares and may obtain information via 

ISG from other exchanges that are 

members of ISG or with which the 

Exchange has entered into a 

comprehensive surveillance sharing 

agreement. The Adviser is not a brokerdealer but is affiliated with a brokerdealer and has implemented a ‘‘fire 

wall’’ with respect to such broker-dealer 

regarding access to information 

concerning the composition and/or 

changes to the Fund’s portfolio. In 

addition, the Fund’s Reporting 

Authority will implement and maintain, 

or be subject to, procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding the actual components of the 

Fund’s portfolio. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change will 

facilitate the listing and trading of an 

additional type of actively-managed 

exchange-traded product that, under 

normal circumstances, will invest 

principally in fixed income securities 

and that will enhance competition with 

respect to such products among market 

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Federal Register / Vol. 79, No. 220 / Friday, November 14, 2014 / Notices 68341 

52 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

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

4 17 CFR 240.19b–4(f)(2). 

5The term ‘‘Member’’ is defined as ‘‘any 

registered broker or dealer, or any person associated 

with a registered broker or dealer, that has been 

admitted to membership in the Exchange. A 

Member will have the status of a ‘‘member’’ of the 

Exchange as that term is defined in Section 3(a)(3) 

of the Act.’’ See Exchange Rule 1.5(n). 

participants, to the benefit of investors 

and the marketplace. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 45 days of the date of 

publication of this notice in the Federal 

Register or within such longer period 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rulecomments@sec.gov. Please include File 

Number SR–NYSEArca–2014–85 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–2014–85. 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–2014–85 and should be 

submitted on or before December 5, 

2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.52

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–26944 Filed 11–13–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73563; File No. SR–EDGX– 

2014–26] 

Self-Regulatory Organizations; EDGX 

Exchange, Inc.; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change Related to Fees for Use 

of EDGX Exchange, Inc. 

November 7, 2014. 

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

Securities Exchange Act of 1934 (the 

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

notice is hereby given that on October 

31, 2014, EDGX Exchange, Inc. (the 

‘‘Exchange’’ or ‘‘EDGX’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II and III 

below, which Items have been prepared 

by the Exchange. The Exchange has 

designated the proposed rule change as 

one establishing or changing a member 

due, fee, or other charge imposed by the 

Exchange under Section 19(b)(3)(A)(ii) 

of the Act 3 and Rule 19b–4(f)(2) 

thereunder,4 which renders the 

proposed rule change effective upon 

filing with the Commission. 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 filed a proposal to 

amend the fee schedule applicable to 

Members 5 and non-members of the 

Exchange pursuant to EDGX Rules 

15.1(a) and (c). Changes to the fee 

schedule pursuant to this proposal are 

effective upon filing. 

The text of the proposed rule change 

is available at the Exchange’s Web site 

at http://www.directedge.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange included statements 

concerning the purpose of and basis for 

the proposed rule change and discussed 

any comments it received on the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Exchange has prepared summaries, set 

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

the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend its 

Fee Schedule to decrease the fee for 

orders yielding Flag K, which routes to 

PSX using ROUC or ROUE routing 

strategies. In securities priced at or 

above $1.00, the Exchange currently 

assesses a fee of $0.0026 per share for 

Members’ orders that yield Flag K. The 

Exchange proposes to amend its Fee 

Schedule to decrease this fee to $0.0024 

per share from $0.0026 per share. The 

proposed change represents a pass 

through of the rate that Direct Edge ECN 

LLC (d/b/a DE Route) (‘‘DE Route’’), the 

Exchange’s affiliated routing brokerdealer, is charged for routing orders to 

PSX when it does not qualify for a 

volume tiered reduced fee. The 

proposed change is in response to PSX’s 

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