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###### Securities and Exchange Commission

          - [Release No. 34-73631; File No. SR-NYSEArca-2014-41]

## I. Introduction

                    On April 11, 2014, NYSE Arca, Inc. (“Exchange” or “NYSE Arca”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) [1]                                          and Rule 19b-4 thereunder,[2]                                          a proposed rule change to list and trade shares (“Shares”) of the Reality Shares DIVS Index ETF (“Fund”) under NYSE Arca Equities Rule 5.2(j)(3). The proposed rule change was published for comment in the                     **Federal Register**                     on April 30, 2014.[3]                                          On May 6, 2014, the Exchange filed Amendment No. 1 to the proposed rule change, which amended and replaced the proposed rule change in its entirety.[4]                                          On June 6, 2014, the Exchange filed Amendment No. 4 to the proposed rule change.[5]                                          On June 13, 2014, pursuant to Section 19(b)(2) of the Act,[6]                                          the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change.[7]                                          On July 29, 2014, the Commission instituted proceedings under Section 19(b)(2)(B) of the Act [8]                                          to determine whether to approve or disapprove the proposed rule change.[9]                                          In response to the Order Instituting Proceedings, the Commission received two comment letters on the proposal.[10]                                          On October 23, 2014, the Commission designated a longer period for Commission action on the Order Instituting Proceedings.[11]                                          This order grants approval of the proposed rule change, as modified by Amendments No. 1 and No. 4 thereto.                

## II. Description of the Proposal, as Modified by Amendments No. 1 and No. 4 Thereto

### A. The Fund, Generally

                    The Exchange proposes to list and trade Shares of the Fund under NYSE Arca Equities Rule 5.2(j)(3), which                           ( print page 69930)                        governs the listing and trading of Investment Company Units on the Exchange.[12]                                          The Fund is an exchange-traded fund (“ETF”) that will seek long-term capital appreciation by tracking the performance of the Reality Shares DIVS Index (“Index”). The Shares of the Fund will be offered by the Reality Shares ETF Trust (“Trust”). The Exchange represents that the Trust will be registered with the Commission as an open-end management investment company.[13]                                          Reality Shares Advisors, LLC will serve as the investment adviser to the Fund (“Adviser”).[14]                                          The Exchange states that the Adviser is not registered as a broker-dealer and is not affiliated with any broker-dealers.[15]                                          ALPS Distributors, Inc. will be the principal underwriter and distributor of the Fund's Shares. The Bank of New York Mellon will serve as administrator, custodian, and transfer agent for the Fund.                

### B. The Exchange's Description of the Fund

                    The Exchange has made the following representations and statements in describing the Fund and its investment strategy, including permitted portfolio holdings and investment restrictions.[16] 

#### Reality Shares DIVS Index ETF

                    The Index was developed and is maintained by Reality Shares, Inc.[17]                                          The Exchange states that the Index Provider is not registered as an investment adviser or broker dealer and is not affiliated with any broker-dealers.[18]                                          The Exchange states that the Index for the Fund does not meet all of the “generic” listing requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) applicable to the listing of Investment Company Units based upon an index of “US Component Stocks.” [19]                                          Specifically, Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) sets forth the requirements to be met by components of an index or portfolio of US Component Stocks. As discussed in more detail herein, the Index is calculated using a proprietary, rules-based methodology designed to track market expectations for dividend growth conveyed in real-time using bid-ask prices on exchange-listed S&P 500 Index options and exchange-listed options on exchange traded funds (“ETFs”) designed to track the S&P 500 Index.[20]                                          The Fund may also invest up to 20% of its total assets in other securities such as over-the-counter (“OTC”) options, futures, and forward contracts on the S&P 500 Index, and OTC options, futures, and forward contracts on ETFs that track the S&P 500 Index. Because the Index will consist primarily of S&P 500 Index options and options on ETFs designed to track the S&P 500 Index, and not US Component Stocks, the Index does not satisfy the requirements of Commentary .01(a)(A).[21] 

#### Principal Investments of the Fund

The Fund will seek long-term capital appreciation and will seek investment results that, before fees and expenses, generally correspond to the performance of the Index. At least 80% of the Fund's total assets (exclusive of collateral held from securities lending, if any) will be invested in the component securities of the Index. The Fund will seek a correlation of 0.95 or better between its performance and the performance of its Index (a figure of 1.00 would represent perfect correlation). The Fund generally will use a representative sampling investment strategy.

                    The Fund will buy (                    *i.e.,*                     hold a “long” position in) and sell (                    *i.e.,*                     hold a “short” position in) put and call options. The strategy of taking both a long position in a security through its ex-dividend date (the last date an investor can own the security and receive dividends paid on the security) and a corresponding short position in the same security immediately thereafter is designed to allow the Fund to isolate its exposure to the growth of the level of dividends expected to be paid on such security while minimizing its exposure to changes in the trading price of such security.                

                    The Fund will buy and sell U.S. exchange-listed options on the S&P 500 Index and U.S. exchange-listed options on ETFs designed to track the S&P 500 Index. A put option gives the purchaser of the option the right to sell, and the issuer of the option the obligation to buy, the underlying security or instrument on a specified date or during a specified period of time. A call option on a security gives the purchaser of the option the right to buy, and the writer of the option the obligation to sell, the underlying security or instrument on a specified date or during a specified period of time. The Fund will invest in a combination of put and call options designed to allow the Fund to isolate its                           ( print page 69931)                        exposure to the growth of the level of expected dividends reflected in options on the S&P 500 Index and options on ETFs tracking the S&P 500 Index, while minimizing the Fund's exposure to changes in the trading price of such securities.                

#### Index Methodology

                    The Index will be calculated using a proprietary, rules-based methodology designed to track market expectations for dividend growth conveyed in real-time using the mid-point of the bid-ask spread on S&P 500 Index options and options on ETFs designed to track the S&P 500 Index.[22]                                          All options included in the Index will be listed and traded on a U.S. national securities exchange. The Index will consist of a minimum of 20 components.                

                    The prices of index and ETF options reflect the market trading prices of the securities included in the applicable underlying index or ETF, as well as market expectations regarding the level of dividends to be paid on such indexes or ETFs during the term of the option. The Index constituents, and, therefore, most of the Fund's portfolio holdings, will consist of multiple corresponding near-term and long-term put and call option combinations on the same reference assets (                    *i.e.,*                     options on the S&P 500 Index or options on S&P 500 ETFs) with the same strike price. Because option prices reflect both stock price and dividend expectations, they can be used in combination to isolate either price exposure or dividend expectations. The use of near-term and long-term put and call options combinations on the same reference asset with the same strike price, but with different maturities, is designed to gain exposure to the expected dividends reflected in options on the S&P 500 Index and options on ETFs tracking the S&P 500 Index while neutralizing the impact of stock price.                

Once established, this portfolio construction of options combinations will accomplish two goals. First, the use of corresponding buy or sell positions on near and long-term options at the same strike price is designed to neutralize underlying stock price movements. In other words, the corresponding “buy” and “sell” positions on the same reference asset are designed to net against each other and eliminate the impact that changes to the stock price of the reference asset would otherwise have on the value of the Index (and Fund Shares). Second, by minimizing the impact of price fluctuations through the construct of the near- and long-term contract combinations, the strategy is designed to isolate market expectations for dividends implied between expiration dates of the near-term and long-term option contracts. Over time, the Index will increase or decrease in value as the dividend spread between the near-term and long-term options combinations increases or decreases as a result of changing market expectations for dividend growth.

#### Other Fund Investments

While, as described above, at least 80% of the Fund's total assets (exclusive of collateral held from securities lending, if any) will be invested in the component securities of the Index, the Fund may invest up to 20% of its total assets in other securities and financial instruments, as described below.

The Fund may invest in: (a) U.S. exchange-listed futures contracts based on the S&P 500 Index and ETFs designed to track the S&P 500 Index; and (b) forward contracts based on the S&P 500 Index and ETFs designed to track the S&P 500 Index. The Fund's use of exchange-listed futures contracts and forward contracts is designed to allow the Fund to isolate its exposure to the growth of the level of expected dividends reflected in options on the S&P 500 Index and options on ETFs tracking the S&P 500 Index, while minimizing the Fund's exposure to changes in the trading price of such securities. The Fund may also buy and sell OTC options on the S&P 500 Index and on ETFs designed to track the S&P 500 Index.

                    The Fund may enter into dividend and total return swap transactions (including equity swap transactions) based on the S&P 500 Index and ETFs designed to track the S&P 500 Index.[23]                                          In a typical swap transaction, one party agrees to make periodic payments to another party (“counterparty”) based on the change in market value or level of a specified rate, index, or asset. In return, the counterparty agrees to make periodic payments to the first party based on the return of a different specified rate, index, or asset. Swap transactions are usually done on a net basis, whereby the Fund would receive or pay only the net amount of the two payments. In a typical dividend swap transaction, the Fund would pay the swap counterparty a premium and would be entitled to receive the value of the actual dividends paid on the subject index during the term of the swap contract. In a typical total return swap, the Fund might exchange long or short exposures to the return of the underlying securities or index to isolate the value of the dividends paid on the underlying securities or index constituents. The Fund also may engage in interest rate swap transactions. In a typical interest rate swap transaction one stream of future interest payments is exchanged for another. Such transactions often take the form of an exchange of a fixed payment for a variable payment based on a future interest rate. The Fund intends to use interest rate swap transactions to manage or hedge exposure to interest rate fluctuations.                

                    The Fund may invest up to 20% of its assets (exclusive of collateral held from securities lending, if any) in exchange-listed equity securities and derivative instruments (specifically, futures contracts, forward contracts, and swap transactions, as noted above) [24]                                          relating to the Index and its component securities that the Adviser believes will help the Fund track the Index. For example, the Fund may buy and sell ETFs and, to a limited extent, individual large-capitalization equity securities listed and traded on a U.S. national securities exchange.                

The Fund may invest in the securities of other investment companies (including money market funds) to the extent permitted under the 1940 Act.

                    The Fund's short positions and its investments in swaps, futures contracts, forward contracts, and options based on the S&P 500 Index and ETFs designed to track the S&P 500 Index will be backed by investments in cash, high-quality short-term debt securities, and money-market instruments in an amount equal to the Fund's maximum liability under the applicable position or contract, or will otherwise be offset in accordance with Section 18 of the 1940 Act. Short-term debt securities and money market instruments include shares of fixed income or money market mutual funds, commercial paper, certificates of deposit, bankers'                           ( print page 69932)                        acceptances, U.S. government securities (including securities issued or guaranteed by the U.S. government or its authorities, agencies, or instrumentalities), repurchase agreements,[25]                                          and bonds that are rated BBB or higher. In addition to the investments described above, and in a manner consistent with its investment objective, the Fund may invest a limited portion of its net assets in high-quality, short-term debt securities and money market instruments for cash management purposes.[26] 

                    The Fund will attempt to limit counterparty risk in non-cleared swap, forward, and OTC option contracts by entering into such contracts only with counterparties the Adviser believes are creditworthy and by limiting the Fund's exposure to each counterparty. The Adviser will monitor the creditworthiness of each counterparty and the Fund's exposure to each counterparty on an ongoing basis.[27] 

                    The Fund's investments in swaps, futures contracts, forward contracts, and options will be consistent with the Fund's investment objective and with the requirements of the 1940 Act.[28] 

#### Investment Restrictions

                    To the extent the Index concentrates (                    *i.e.,*                     holds 25% or more of its total assets) in the securities of a particular industry or group of industries, the Fund will concentrate its investments to approximately the same extent as the Index.                

                    The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment) deemed illiquid by the Adviser, consistent with Commission guidance.[29]                                          The Fund will monitor its portfolio liquidity on an ongoing basis to determine whether, in light of current circumstances, an adequate level of liquidity is being maintained, and will consider taking appropriate steps in order to maintain adequate liquidity if, through a change in values, net assets, or other circumstances, more than 15% of the Fund's net assets are held in illiquid assets. Illiquid assets include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets as determined in accordance with Commission staff guidance.                

                    The Fund may make secured loans of its portfolio securities; however, securities loans will not be made if, as a result, the aggregate amount of all outstanding securities loans by the Fund exceeds 33                    1/3                    % of its total assets (including the market value of collateral received). To the extent the Fund engages in securities lending, securities loans will be made to broker-dealers that the Adviser believes to be of relatively high credit standing pursuant to agreements requiring that the loans continuously be collateralized by cash, liquid securities, or shares of other investment companies with a value at least equal to the market value of the loaned securities.                

The Fund will be classified as a “non-diversified” investment company under the 1940 Act. The Fund intends to qualify for and to elect treatment as a separate regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code.

The Fund's investments will be consistent with its investment objective and will not be used to provide multiple returns of a benchmark or to produce leveraged returns.

## III. Summary of Comment Letters

                    As noted above, the Commission received two comment letters in response to the Order Instituting Proceedings.[30]                                          Both comment letters, which were in favor of the proposal, sought to address certain questions, as outlined in the Order Instituting Proceedings,[31]                                          and provide additional clarification regarding the proposal.                

### A. Reality Shares Letter 1

                    In Reality Shares Letter 1, the commenter offers its responses to the Commission's questions. The commenter responds that the Fund's investment strategy is not based on the assumption that dividend growth is underpriced by the options markets, stating that it is instead based on the expected dividend value to be paid on S&P 500 securities (as implied in the price of listed S&P 500 Index options over time) and the “historical high correlation between such expected dividend values and the value of actual dividends paid on S&P 500                           ( print page 69933)                        securities.” [32]                                          The commenter then explains that as the value of actual dividends paid increases or decreases, market expectations for dividends typically move up or down in a corresponding direction, and that if the current expected dividend value of the options in the Fund's portfolio changes, the value of an investment in the Fund changes correspondingly.[33] 

                    The commenter asserts that the Fund's Registration Statement will sufficiently disclose to investors the key features of the Fund, including explanations of how the Fund's strategy works and how the Fund is expected to perform under various market conditions, and disclosures highlighting all material risks of investing in the Fund.[34]                                          The commenter believes that these disclosures and the disclosures in the Fund's marketing materials, will allow investors to understand the Fund's investment objective, strategy, risks, potential rewards, assumptions, and performance characteristics.[35]                                          Further, the commenter believes that the Exchange's rules governing sales practices are sufficient to ensure the suitability of recommendations to investors regarding the Fund's Shares.[36] 

                    With respect to IIV, the commenter responds that it believes that the market price of the Fund Shares will closely approximate the IIV of the Fund's portfolio and the intraday value of the Fund's underlying Index.[37]                                          While it believes that “the Fund's IIV and intraday Index values may reflect higher volatility than the market trading price of Fund Shares,” the commenter does not expect this will have any material impact on secondary market trading of Fund Shares or arbitrage in Fund Shares.[38]                                          The commenter expects that Authorized Participants and other institutional investors will quote and trade the option contracts held by the Fund in combination (by holding simultaneous long and short positions in the same put/call contracts) and that this combination tends to trade at tighter bid/ask spreads than do the individual contracts.[39]                                          The commenter expects that Authorized Participants and other market makers will factor the price of the combination trades into their assessment of the value of Fund Shares, which will be reflected in the trading price of Fund Shares.[40]                                          The commenter explains that the Fund's IIV and the intraday Index values are based on the intraday market price of individual option contracts and do not reflect the trading price of option contracts held in combination. So, while the commenter expects the price of Fund Shares to closely approximate the Fund's IIV and the intraday values of the Index, it also expects that the trading price of Fund shares will be less volatile than the Fund's IIV and the intraday value of the Index.[41] 

                    In times of market stress, the commenter believes that the Fund's Shares will trade within an acceptable spread to the Fund's IIV and the intraday value of the Index.[42]                                          The commenter believes that because the Fund's portfolio is transparent and the Index constituents are publicly disclosed, market participants will be able to assess the value of the Fund and the Index and access the securities necessary to hedge their position exposures, even during times of market stress.[43]                                          Further, the commenter asserts that, “[b]ecause of the transparency of the Fund's portfolio and the liquidity and transparency of the underlying listed index options . . . investors will continue to have the ability to buy and sell Shares in the secondary market at fair and representative prices should there be any material departure from the IIV.” [44] 

                    The commenter states that the liquidity of the longer-dated option contracts in the Fund's portfolio will not differ materially from the liquidity of the shorter-dated option contracts.[45]                                          Further, the commenter explains that the liquidity characteristics of the option contracts held by the Fund will not negatively impact the Fund's operation, the calculation of the Index value, the calculation of the Fund's IIV, or the calculation of the Fund's NAV.[46]                                          The commenter believes that the options contracts provide “sufficient and ample liquidity . . . for Authorized Participants and other investors to engage in efficient hedging activity, to value Fund Shares and to make markets in Fund Shares.” [47] 

### B. Reality Shares Letter 2

                    In Reality Shares Letter 2, the commenter seeks to address whether the Fund's strategy will produce positive returns for buy-and-hold investors over the longer term in light of the efficient nature of markets and the ability of astute market participants to predict dividend growth.[48]                                          The commenter claims that the historical returns of the Fund's strategy have been positive over long periods of time and that an investor can reasonably expect returns in the future that are non-zero and positive in the long term.[49] 

                    In support of this claim, the commenter argues that all investments, even in perfectly efficient markets, are expected to have, at minimum, a risk-free rate associated with them.[50]                                          For example, Treasury Bills (theoretically risk-free assets) are discounted by the risk-free rate in order to entice investors to purchase them.[51]                                          Thus, even in a perfectly efficient market such as the one for Treasury Bills, an investment in a riskless asset will produce a long-term return greater than zero.[52]                                          In addition, the commenter adds that, if any uncertainty surrounds the future payoff of an investment, one would expect a risk premium to be attached to the investment.[53]                                          This would be quantified as the amount of money by which the expected return on the asset exceeds the known return of a risk-free asset.[54]                                          This risk premium compensates investors for the uncertainty in their investment in a risky asset.[55]                                          If the dividend risk premium were low, one would expect the strategy to earn less than the actual growth of dividends; if dividend risk premium were high, one would expect the strategy to earn more than actual dividend growth.[56]                                          The commenter notes that, while expected dividend returns may not match dividend growth exactly, the rate of return would (at a minimum) be expected to be equal to the risk free rate, plus the risk premium.[57] 

                    The commenter further asserts that, beyond the theoretical analogy stated above, an investment in the expected dividend implied in the options markets has historically produced positive returns and that the Fund's strategy can                           ( print page 69934)                        be expected to produce future positive long-term returns.[58]                                          While the commenter believes that it is possible for implied dividend strategies to outperform equity returns, as well as actual dividend growth, the commenter argues that the foundation of the Fund's investment strategy is predicated on its conclusion that implied dividends carry risk and that, in an efficient market, this risk will be reflected in the form of a dividend risk premium.[59] 

## IV. Discussion and Commission Findings

                    The Commission has carefully considered the proposal and the comments submitted in response to the questions raised by the Commission in the Order Instituting Proceedings. For the reasons discussed below, the Commission finds that the Exchange's proposal to list and trade the Shares is consistent with the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.[60]                                          In particular, the Commission finds that the proposed rule change, as modified by Amendments No. 1 and No. 4 thereto, is consistent with Section 6(b)(5) of the Exchange Act,[61]                                          which requires, among other things, that the Exchange's rules be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest.                

                    The Commission also finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Exchange Act,[62]                                          which sets forth Congress' finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. Quotation and last-sale information for the Shares will be available via the Consolidated Tape Association (“CTA”) high-speed line. The value of the Index will be published by one or more major market data vendors every 15 seconds during the NYSE Arca Core Trading Session of 9:30 a.m. E.T. to 4:00 p.m. E.T. Information about the Index constituents, the weighting of the constituents, the Index's methodology, and the Index's rules will be available at no charge on the Index Provider's Web site at                     *www.realityshares.com.*                     In addition, the Intraday Indicative Value (“IIV”) as defined in NYSE Arca Equities Rule 5.2(j)(3), Commentary 01(c), will be widely disseminated at least every 15 seconds during the Core Trading Session by one or more major market data vendors.[63]                                          On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Fund will disclose on its Web site the “Disclosed Portfolio” (as such term is 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.[64]                                          In addition, a portfolio composition file, which includes the security names and quantities, as 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 New York Stock Exchange (“NYSE”) via the National Securities Clearing Corporation. The portfolio composition file will represent one Creation Unit of Shares of the Fund. The Fund will calculate its NAV by: (i) Taking the current market value of its total assets; (ii) subtracting any liabilities; and (iii) dividing that amount by the total number of Shares outstanding. The Fund will calculate NAV once each business day as of the regularly scheduled close of trading on the NYSE (normally, 4:00 p.m., Eastern Time).[65]                                          The intra-day, closing, and settlement prices of the portfolio securities and other Fund investments, including futures and exchange-traded equities, ETFs, and exchange-traded options,[66]                                          will also be readily available from the national securities exchanges trading such securities, automated quotation systems, published or other public sources, and, with respect to OTC options, swap transactions, and forward transactions, from third party pricing sources, or on-line information services such as Bloomberg or Reuters. The intra-day, closing, and settlement prices of debt securities and money market instruments will be readily available from published and other public sources or on-line information services. Price information regarding investment company securities, including ETFs, 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. The Fund's Web site will include a form of the prospectus for the Fund that may be downloaded and additional data relating to NAV and other applicable quantitative information.                

                    The Commission also believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be                           ( print page 69935)                        necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Exchange represents that 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.[67]                                          In addition, if the IIV, the Index Value or the value of the Index Components 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 day in which it occurred, the Exchange will halt trading no later than the beginning of the trading day following the interruption. The Exchange will obtain a representation from the Fund that the NAV for the Fund will be calculated daily and will be made available to all market participants at the same time. Under NYSE Arca Equities Rule 7.34(a)(5), if the Exchange becomes aware that the NAV for the Fund is not being 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.                

                    The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees. The Commission notes that the Index Provider is not registered as an investment adviser or broker dealer and is not affiliated with any broker-dealers, and the Adviser is not registered as a broker-dealer and is not affiliated with any broker-dealers.[68]                                          Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. The Financial Industry Regulatory Authority (“FINRA”), on behalf of the Exchange,[69]                                          will communicate as needed regarding trading in the Shares, exchange-listed equity securities, ETFs, futures contracts, and exchange-traded options contracts with other markets and other entities that are members of the Intermarket Surveillance Group (“ISG”), and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares, exchange-listed equity securities, ETFs, futures contracts, and exchange-traded options contracts from such markets and other entities. In addition, the Exchange may obtain information regarding trading in the Shares, exchange-listed equity securities, ETFs, futures contracts, and exchange-traded options contracts from markets and other entities that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.[70]                                          All exchange-listed equity securities, ETFs, futures contracts and options held by the Fund will be traded on U.S. exchanges, all of which are members of ISG or are exchanges with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, FINRA, on behalf of the Exchange, is able to access, as needed, trade information for certain fixed income securities held by the Fund reported to FINRA's Trade Reporting and Compliance Engine.                

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. In support of this proposal, the Exchange has made representations, including:

(1) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions (Opening, Core, and Late Trading Sessions).

                    (2) The Shares will conform to the initial and continued listing criteria under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2), except that the Index will not meet the requirements of NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(A)(1)-(5) in that the Index will consist of options based on US Component Stocks (                    *i.e.,*                     ETFs based on the S&P 500 Index) and options on an index of US Component Stocks (                    *i.e.,*                     S&P 500 Index options), rather than US Component Stocks themselves. The Index will include a minimum of 20 components and, therefore, would meet the numerical requirement of NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(A)(4) (a minimum of 13 index or portfolio components).                

(3) Trading in the Shares will be subject to the existing trading surveillances, administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws, and that these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to detect and help deter violations of Exchange rules and federal securities laws applicable to trading on the Exchange.

                    (4) Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Unit aggregations (and that Shares are not individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its Equity Trading Permit Holders to learn the essential facts relating to every customer prior to trading the Shares; (c) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated IIV or Index value will not be calculated or publicly disseminated; (d) how information regarding the IIV and Index value will be disseminated; (e) the requirement that Equity Trading Permit Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information.                          ( print page 69936)    

                    (5) For initial and continued listing, the Fund will be in compliance with Rule 10A-3 under the Exchange Act,[71]                                          as provided by NYSE Arca Equities Rule 5.3.                

(6) At least 80% of the Fund's total assets (exclusive of collateral held from securities lending, if any) will be invested in the component securities of the Index. The Fund will seek a correlation of 0.95 or better between its performance and the performance of its Index. A figure of 1.00 would represent perfect correlation. All options included in the Index will be listed and traded on a U.S. national securities exchange.

                    (7) The Fund's investments in swaps, futures contracts, forward contracts and options will be consistent with the Fund's investment objective and with the requirements of the 1940 Act. To limit the potential risk associated with such transactions, the Fund will segregate or “earmark” assets determined to be liquid by the Adviser 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 arising from such transactions. 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. To mitigate leveraging risk, the Adviser will segregate or “earmark” liquid assets or otherwise cover the transactions that may give rise to such risk. The Fund may not invest in leveraged or inverse leveraged (                    *e.g.,*                     2X, −2X, 3X, or −3X) ETFs or options on such ETFs. The Fund's investments will be consistent with its investment objective and will not be used to provide multiple returns of a benchmark or to produce leveraged returns.                

(8) The Fund will transact only with swap dealers that have in place an ISDA agreement with the Fund. Where practicable, the Fund intends to invest in Cleared Swaps. The Fund will attempt to limit counterparty risk in non-cleared swap, forward, and OTC option contracts by entering into such contracts only with counterparties the Adviser believes are creditworthy and by limiting the Fund's exposure to each counterparty. The Adviser will monitor the creditworthiness of each counterparty and the Fund's exposure to each counterparty on an ongoing basis. The Fund will seek, where possible, to use counterparties, as applicable, whose financial status is such that the risk of default is reduced. The Adviser will evaluate the creditworthiness of counterparties on an ongoing basis. In addition to information provided by credit agencies, the Adviser will evaluate each approved counterparty using various methods of analysis, such as, for example, the counterparty's liquidity in the event of default, the counterparty's reputation, the Adviser's past experience with the counterparty, and the counterparty's share of market participation.

(9) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment) deemed illiquid by the Adviser, consistent with Commission guidance.

(10) A minimum of 100,000 Shares for the Fund will be outstanding at the commencement of trading on the Exchange.

                    (11) The Fund will include appropriate risk disclosure in its offering documents, which will be available on the Commission's Web site and on the Fund's Web site,                     *www.realityshares.com.*

This approval order is based on all of the Exchange's representations, including those set forth above and in the Notice, and the Exchange's description of the Fund.

                    For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendments No. 1 and No. 4 thereto, is consistent with Section 6(b)(5) of the Act [72]                                          and the rules and regulations thereunder applicable to a national securities exchange.                

## V. Conclusion

                    It is therefore ordered, pursuant to Section 19(b)(2) of the Act,[73]                                          that the proposed rule change (SR-NYSEArca-2014-41), as modified by Amendments No. 1 and No. 4 thereto, be, and it hereby is, approved.                

                        For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.[74] 

Kevin M. O'Neill,

Deputy Secretary.

# Footnotes

1.                             15 U.S.C. 78s(b)(1).                    
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2.                             17 CFR 240.19b-4.                    
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3.                                                     *See*                         Securities Exchange Act Release No. 72015 (Apr. 24, 2014), 79 FR 24475 (“Notice”).                    
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4.                             In Amendment No. 1, the Exchange clarified the valuation of investments for purposes of calculating net asset value, provided additional details regarding the dissemination of the Disclosed Portfolio, and made other minor technical edits to the proposed rule change. Amendment No. 1 provided clarification to the proposed rule change, and because it does not materially affect the substance of the proposed rule change or raise novel or unique regulatory issues, Amendment No. 1 is not subject to notice and comment.                    
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5.                             The Exchange filed Amendment No. 2 on June 4, 2014 and withdrew it on June 5, 2014, and filed Amendment No. 3 on June 5, 2014 and withdrew it on June 6, 2014. Amendment No. 4 supersedes both Amendments No. 2 and No. 3. In Amendment No. 4, the Exchange amended the proposal to reflect a change to the name of the Fund and the underlying index. Specifically, the Exchange replaced each reference in the proposal to the “Reality Shares Isolated Dividend Growth Index ETF” (the original name of the Fund) with a reference to the “Reality Shares DIVS Index ETF.” Similarly, the Exchange replaced each reference in the proposal to the “Reality Shares Isolated Dividend Growth Index” with a reference to the “Reality Shares DIVS Index.” Amendment No. 4 is a technical amendment and is not subject to notice and comment as it does not materially affect the substance of the filing.                    
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6.                             15 U.S.C. 78s(b)(2).                    
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7.                                                     *See*                         Securities Exchange Act Release No. 72385, 79 FR 35205 (Jun. 19, 2014). The Commission designated a longer period within which to take action on the proposed rule change and designated July 29, 2014, as the date by which it should approve, disapprove, or institute proceedings to determine whether to disapprove the proposed rule change.                    
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8.                             15 U.S.C. 78s(b)(2)(B).                    
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9.                                                     *See*                         Securities Exchange Act Release No. 72714, 79 FR 45574 (Aug. 5, 2014) (“Order Instituting Proceedings”). Specifically, the Commission instituted proceedings to allow for additional analysis of the proposed rule change's consistency with Section 6(b)(5) of the Act, which requires, among other things, that the rules of a national securities exchange be “designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade,” and “to protect investors and the public interest.”                         *See id.*
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10.                                                     *See*                         Letter from Eric R. Ervin, President, Reality Shares ETF Trust and Reality Shares Advisors, LLC, and President and CEO, Reality Shares, Inc., to Kevin M. O'Neill, Deputy Secretary, Commission, dated August 22, 2014 (“Reality Shares Letter 1”); Letter from Eric R. Ervin, President, Reality Shares ETF Trust and Reality Shares Advisors, LLC, and President and CEO, Reality Shares, Inc., to Arun Manoharan, Financial Economist, Commission, dated October 21, 2014 (“Reality Shares Letter 2”).                    
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11.                                                     *See*                         Securities Exchange Act Release No. 73417, 79 FR 64430 (Oct. 29, 2014).                    
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12.                             NYSE Arca Equities Rule 5.2(j)(3)(A) provides that an Investment Company Unit is a security that represents an interest in a registered investment company that holds securities comprising, or otherwise based on or representing an interest in, an index or portfolio of securities (or holds securities in another registered investment company that holds securities comprising, or otherwise based on, or representing an interest in, an index or portfolio of securities).                    
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13.                             According to the Exchange, the Trust will be registered under the Investment Company Act of 1940 (“1940 Act”). On February 6, 2014, the Trust filed a registration statement on Form N-1A under the Securities Act of 1933 and the 1940 Act relating to the Fund, as amended by Pre-Effective Amendment Number 1, filed with the Commission on February 6, 2014 (File Nos. 333-192288 and 811-22911) (“Registration Statement”). In addition, the Exchange states that the Trust has obtained certain exemptive relief under the 1940 Act. Investment Company Act Release No. 30678 (Aug. 27, 2013) (“Exemptive Order”). The Exchange represents that investments made by the Fund will comply with the conditions set forth in the Exemptive Order.                    
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14.                             The Adviser is a wholly-owned subsidiary of Reality Shares, Inc. (“Index Provider”).                    
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15.                             According to the Exchange, the Adviser and the Index Provider have represented that a fire wall exists around the respective personnel who have access to information concerning changes and adjustments to the Index. The Exchange further represents that in the event (a) the Adviser, any sub-adviser, or the Index Provider becomes registered as a broker-dealer or newly affiliated with a broker-dealer, or (b) any new adviser, sub-adviser, or Index Provider is a registered broker-dealer or becomes affiliated with a broker-dealer, it will implement a fire wall with respect to the relevant personnel or broker-dealer affiliate regarding access to information concerning the composition 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.                    
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16.                             Additional information regarding the Trust, the Fund, and the Shares, including investment strategy, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions, and taxes, among other things, is included in the Notice, Registration Statement, and Exemptive Order, as applicable.                         *See*                         Notice,                         *supra*                         note 3;                         *see also*                         Registration Statement and Exemptive Order,                         *supra*                         note 13.                    
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17.                             The Index will be calculated by International Data Corporation (“IDC”), which is not affiliated with the Adviser or Index Provider, and which is not a broker-dealer or fund advisor.                    
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18.                                                     *See supra*                         note 15.                    
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19.                             NYSE Arca Equities Rule 5.2(j)(3) defines the term “US Component Stock” as an equity security that is registered under Sections 12(b) or 12(g) of the Act or an American Depositary Receipt, the underlying equity security of which is registered under Sections 12(b) or 12(g) of the Act.                    
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20.                             For purposes of this proposed rule change, ETFs include Investment Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)) and Portfolio Depositary Receipts (as described in NYSE Arca Equities Rule 8.100). The ETFs all will be listed and traded in the U.S. on registered exchanges. The Fund may not invest in leveraged or inverse leveraged (                        *e.g.,*                         2X, -2X, 3X, or -3X) ETFs or options on such ETFs.                    
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21.                             NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(A)(5) provides that all securities in the applicable index or portfolio shall be US Component Stocks listed on a national securities exchange and shall be NMS Stocks as defined in Rule 600 under Regulation NMS of the Act. The Exchange states that each component stock of the S&P 500 Index is a US Component Stock that is listed on a national securities exchange and is an NMS Stock. Options, however, are excluded from the definition of NMS Stock. The Exchange represents that the Fund and the Index meet all of the requirements of the listing standards for Investment Company Units in Rule 5.2(j)(3) and the requirements of Commentary .01, except the requirements in Commentary .01(a)(A)(1)-(5), because the Index includes options on US Component Stocks.                    
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22.                             The Exchange notes that there is no guarantee that either the level of overall dividends paid by such companies will grow over time, or that the Index or Fund's investment strategies will capture such growth. The Fund will include appropriate risk disclosure in its offering documents disclosing these risks, which will be available for free on the Commission's Web site and on the Fund's Web site,                         *www.realityshares.com.*
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23.                             The Fund will transact only with swap dealers that have in place an ISDA agreement with the Fund.                    
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24.                             Where practicable, the Fund intends to invest in swaps cleared through a central clearing house (“Cleared Swaps”). Currently, only certain of the interest rate swaps in which the Fund intends to invest are Cleared Swaps, while the dividend and total return swaps (including equity swaps) in which the Fund may invest are currently not Cleared Swaps.                    
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25.                             The Fund may enter into repurchase agreements with banks and broker-dealers. A repurchase agreement is an agreement under which securities are acquired by a fund from a securities dealer or bank subject to resale at an agreed upon price on a later date. The acquiring fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and the fund is delayed or prevented from exercising its rights to dispose of the collateral securities.                    
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26.                             The Fund may invest in shares of money market mutual funds to the extent permitted by the 1940 Act.                    
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27.                             The Fund will seek, where possible, to use counterparties, as applicable, whose financial status is such that the risk of default is reduced; however, the risk of losses resulting from default is still possible. The Adviser will evaluate the creditworthiness of counterparties on an ongoing basis. In addition to information provided by credit agencies, the Adviser will evaluate each approved counterparty using various methods of analysis, such as, for example, the counterparty's liquidity in the event of default, the counterparty's reputation, the Adviser's past experience with the counterparty, and the counterparty's share of market participation.                    
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28.                             To limit the potential risk associated with such transactions, the Fund will segregate or “earmark” assets determined to be liquid by the Adviser 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 arising from such transactions. 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. To mitigate leveraging risk, the Adviser will segregate or “earmark” liquid assets or otherwise cover the transactions that may give rise to such risk.                    
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29.                             In reaching liquidity decisions, the Adviser may consider the following factors: The frequency of trades and quotes for the security; the number of dealers wishing to purchase or sell the security and the number of other potential purchasers; dealer undertakings to make a market in the security; and the nature of the security and the nature of the marketplace in which it trades (                        *e.g.,*                         the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer).                    
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30.                                                     *See*                         Reality Shares Letter 1; Reality Shares Letter 2,                         *supra*                         note 10.                    
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31.                             In the Order Instituting Proceedings, the Commission sought comment on the following questions: (a) Because the Index is designed to reflect changes in market expectations of future dividend growth, rather than to track actual dividend growth, is the Fund's investment strategy fundamentally based on an assumption that the options markets systemically underprice dividend growth? What are commenters' views regarding whether investors would be able to understand the strategy, risks, potential rewards, assumptions, and expected performance of the Fund's strategy? (b) With respect to the trading of the Shares on the Exchange, do commenters believe that the Exchange's rules governing sales practices are adequately designed to ensure the suitability of recommendations regarding the Shares? Why or why not? If not, should the Exchange's rules governing sales practices be enhanced? If so, in what ways? (c) How closely do commenters think the market price of the Shares will track the Fund's intraday indicative value (“IIV”) or the intraday value of the Index? Are certain of these values likely to be more volatile than others? If so, how would this affect trading in the Shares? Are the Shares likely to trade with a significant premium or discount to IIV? What are commenters' views of how effectively the IIV of the Fund would represent the Fund's portfolio? What are commenters' views of how the Shares' market price, the Fund's IIV, and the intraday value of the Index will relate to one another during times of market stress? and (d) Does the liquidity of the long-dated options in which the Fund will invest differ materially from that of the short-dated options in which the Fund will invest? If so, how would that affect the ability of market makers to engage in arbitrage or to hedge their positions while making a market in the Shares? Would the liquidity characteristics of the Index components or of the options in the Fund's portfolio affect the calculation of the Index value, the calculation of the Fund's IIV, the calculation of the Fund's NAV, or the ability of market makers or other market participants to value the Shares? If so, how?                    
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32.                                                     *See*                         Reality Shares Letter 1,                         *supra*                         note 10, at 2-3.                    
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33.                                                     *See id.,*                         at 3.                    
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34.                                                     *See id.,*                         at 3-4.                    
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35.                                                     *See id.,*                         at 4.                    
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36.                                                     *See id.,*                         at 5.                    
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37.                                                     *See*                         Reality Shares Letter 1,                         *supra*                         note 10, at 6.                    
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38.                                                     *See id.*
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39.                                                     *See id.*
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40.                                                     *See id.,*                         at 7.                    
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41.                                                     *See id.*
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42.                                                     *See*                         Reality Shares Letter 1,                         *supra*                         note 10, at 9.                    
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43.                                                     *See id.*
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44.                                                     *See id.,*                         at 10.                    
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45.                                                     *See id.*
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46.                                                     *See id.,*                         at 11.                    
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47.                                                     *See*                         Reality Shares Letter 1,                         *supra*                         note 10, at 12.                    
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48.                                                     *See*                         Reality Shares Letter 2,                         *supra*                         note 10, at 1.                    
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49.                                                     *See id.*
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50.                                                     *See id.*
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51.                                                     *See id.*
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52.                                                     *See id.*
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53.                                                     *See*                         Reality Shares Letter 2,                         *supra*                         note 10, at 2.                    
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54.                                                     *See id.*
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55.                                                     *See id.*
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56.                                                     *See id.*
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57.                                                     *See id.*
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58.                                                     *See*                         Reality Shares Letter 2,                         *supra*                         note 10, at 2.                    
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59.                                                     *See id.,*                         at 3.                    
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60.                             In approving this proposed rule change, the Commission has considered the proposed rule's impact on efficiency, competition, and capital formation.                         *See*15 U.S.C. 78c(f).                    
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61.                             15 U.S.C. 78f(b)(5).                    
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62.                             15 U.S.C. 78k-1(a)(1)(C)(iii).                    
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63.                             According to the Exchange, several major market data vendors display and/or make widely available IIVs taken from the CTA or other data feeds.                    
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64.                             Under accounting procedures to be followed by the Fund, trades made on the prior business day (“T”) will be booked and reflected in NAV on the current business day (“T+1”). Accordingly, the Fund will be able to disclose at the beginning of the business day the portfolio that will form the basis for the NAV calculation at the end of the business day. On a daily basis, the Adviser, on behalf of the Fund, will disclose on the Fund's Web site the following information regarding each portfolio holding, as applicable to the type of holding: Ticker symbol, CUSIP number or other identifier, if any; a description of the holding (including the type of holding, such as the type of swap); the identity of the security, commodity, index, or other asset or instrument underlying the holding, if any; for options, the option strike price; quantity held (as measured by, for example, par value, notional value or number of shares, contracts or units); maturity date, if any; coupon rate, if any; effective date, if any; market value of the holding; and the percentage weighting of the holding in the Fund's portfolio. The Web site information will be publicly available at no charge.                    
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65.                             The Trust will generally value exchange-listed equity securities (which include common stocks and ETFs) and exchange-listed options, including options on the S&P 500 Index and options on ETFs, at market closing prices. Market closing price is generally determined on the basis of last reported sales prices on the applicable exchange, or if no sales are reported, based on the mid-point between the last reported bid and ask. The Trust will generally value exchange-listed futures at the settlement price determined by the applicable exchange. Non-exchange-traded derivatives, including OTC options, swap transactions, and forward transactions, will normally be valued on the basis of quotations or equivalent indication of value supplied by an independent pricing service or major market makers or dealers. Debt securities and money market instruments generally will be valued based on prices provided by independent pricing services, which may use valuation models or matrix pricing to determine current value. Investment company securities (other than ETFs) will be valued at NAV. The Trust generally will use amortized cost to value fixed income or money market securities that have a remaining maturity of 60 days or less.                    
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66.                             Information relating to U.S. exchange-listed options is available via the Options Price Reporting Authority.                    
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67.                             These reasons may include: (1) The extent to which trading is not occurring in the securities 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. The Exchange represents that it may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund.                    
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68.                                                     *See supra*                         note 15 and accompanying text. The Exchange states that an investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (“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 violation, by the investment adviser and its supervised persons, of the Advisers Act and the Commission rules adopted thereunder; (ii) implemented, at a minimum, an annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph (i) above and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted under subparagraph (i) above.                    
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69.                             The Exchange states that FINRA surveils trading on the Exchange pursuant to a regulatory services agreement. The Exchange is responsible for FINRA's performance under this regulatory services agreement.                    
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70.                             For a list of the current members of ISG, see                         *www.isgportal.org.*                         The Exchange notes that not all components of the 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.                    
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71.                             17 CFR 240.10A-3.                    
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72.                             15 U.S.C. 78f(b)(5).                    
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73.                                                     *Id.*
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74.                                 17 CFR 200.30-3(a)(12).                        
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[FR Doc. 2014-27707 Filed 11-21-14; 8:45 am]

BILLING CODE 8011-01-P