Document ID: SEC-2014-0428-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-03-17T04:00Z

[Federal Register Volume 79, Number 51 (Monday, March 17, 2014)]
[Notices]
[Pages 14761-14769]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-05752]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71686; File No. SR-NYSEArca-2014-20]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 2, Relating to 
the Listing and Trading of Reality Shares Isolated Dividend Growth ETF 
Under NYSE Arca Equities Rule 8.600

March 11, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on February 25, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change, which filing was amended and 
replaced in its entirety by Amendment No. 2 thereto on March 7, 2014, 
as

[[Page 14762]]

described in Items I, II, and III below, which Items have been prepared 
by the self-regulatory organization.\4\ The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 was filed on March 6, 2014 and withdrawn on 
March 7, 2014.
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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''): Reality 
Shares Isolated Dividend Growth ETF. The text of the proposed rule 
change is available on the Exchange's Web site at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
following under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares \5\ on the Exchange: Reality 
Shares Isolated Dividend Growth ETF (the ``Fund'').\6\ The Shares of 
the Fund will be offered by the Reality Shares ETF Trust (formerly, the 
ERNY Financial ETF Trust) (the ``Trust''). The Trust will be registered 
with the Commission as an open-end management investment company.\7\ 
Reality Shares Advisors, LLC (formerly, ERNY Financial Advisors, LLC) 
will serve as the investment adviser to the Fund (the ``Adviser''). 
ALPS Distributors, Inc. (the ``Distributor'') will be the principal 
underwriter and distributor of the Fund's Shares. The Bank of New York 
Mellon (the ``Administrator,'' ``Transfer Agent'' or ``Custodian'') 
will serve as administrator, custodian and transfer agent for the 
Fund.\8\
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    \5\ A 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.
    \6\ The Commission approved NYSE Arca Equities Rule 8.600 and 
has previously approved listing and trading on the Exchange of a 
number of actively managed funds under Rule 8.600. See, e.g., 
Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 
27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving Exchange 
listing and trading of twelve actively-managed funds of the 
WisdomTree Trust); 60460 (August 7, 2009), 74 FR 41468 (August 17, 
2009) (SR-NYSEArca-2009-55) (order approving listing and trading of 
Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874 (October 
18, 2010) (SR-NYSEArca-2010-79) (order approving listing and trading 
of Cambria Global Tactical ETF); 64643 (June 10, 2011) 76 FR 35062 
(June 15, 2011) (SR-NYSEArca-2011-21) (order approving listing and 
trading of WisdomTree Global Real Return Fund); 69397 (April 18, 
2013) 78 FR 24276 (April 24, 2013) (SR-NYSEArca-2013-18) (order 
approving listing and trading of fourteen actively-managed funds of 
the iShares Trust); 69591 (May 16, 2013) 78 FR 30372 (May 22, 2013) 
(SR-NYSEArca-2013-33) (order approving listing and trading of the 
International Bear ETF).
    \7\ The Trust will be registered under the 1940 Act. On November 
12, 2013, the Trust filed a registration statement on Form N-1A 
under the Securities Act of 1933 (the ``1933 Act'') (15 U.S.C. 77a), 
and under 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) (the ``Registration 
Statement''). The description of the operation of the Trust and the 
Fund herein is based, in part, on the Registration Statement. The 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. Investment Company Act Release No. 
30552 (June 10, 2013) (``Exemptive Order''). The Trust filed an 
Application for an Order under Section 6(c) of the 1940 Act for 
exemptions from various provisions of the 1940 Act and rules 
thereunder (File No. 812-14146), on April 5, 2013, as amended on May 
10, 2013 (together, the ``Exemptive Application''). Investments made 
by the Fund will comply with the conditions set forth in the 
Exemptive Application and the Exemptive Order.
    \8\ This Amendment No. 2 to SR-NYSEArca-2014-20 replaces SR-
NYSEArca-2014-20 as originally filed and supersedes such filing in 
its entirety. The Exchange has withdrawn Amendment No. 1 to SR-
NYSEArca-2014-20.
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    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 broker-dealer with 
respect to access to information concerning the composition of and/or 
changes to such investment company portfolio. 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.\9\ Commentary .06 to Rule 8.600 is 
similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 
5.2(j)(3); however, Commentary .06 in connection with the establishment 
of a ``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not registered as a broker-dealer and is not affiliated with any 
broker-dealers. In the event (a) the Adviser or any sub-adviser becomes 
registered as a broker-dealer or newly affiliated with a broker-dealer, 
or (b) any new adviser or sub-adviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer, they will implement a fire 
wall with respect to their relevant personnel or broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio.
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    \9\ An 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 
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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Principal Investments
    According to the Registration Statement, the Fund will seek to 
produce long term capital appreciation by attempting to isolate the 
value of dividends paid by a portfolio of U.S., European and Japanese 
large

[[Page 14763]]

capitalization companies.\10\ The Adviser considers U.S. large 
capitalization companies to be those with market capitalizations within 
the range of market capitalizations of the companies included in the 
S&P 500 Index. The Adviser considers European large capitalization 
companies to be those with market capitalizations within the range of 
market capitalizations of the companies included in the Euro Stoxx 50 
Index. The Adviser considers Japanese large capitalization companies to 
be those with market capitalizations within the range of market 
capitalizations of the companies included in the Nikkei 225 Index.
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    \10\ The Fund's non-U.S. investments will be limited to listed 
securities traded in European and Japanese markets and futures 
contracts, forward contracts, options and swaps based on such 
securities. Not more than 10% of the assets of the Fund in the 
aggregate shall consist of non-U.S. equity securities 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 shall 
consist of futures contracts or exchange-traded options 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.
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    Under normal market conditions,\11\ the Fund generally will invest 
substantially all its assets in any combination of investments whose 
collective performance is designed to reflect the growth of the level 
of dividends expected to be paid on a portfolio of securities issued by 
large capitalization companies listed for trading in the United States, 
Europe and Japan (as discussed in more detail below).\12\
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    \11\ The term ``under normal market conditions'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the equity 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 man-made disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance.
    \12\ There is no guarantee that either the level of overall 
dividends paid by such companies will grow over time, or that the 
Fund's investment strategies will capture such growth. The Fund will 
include appropriate risk disclosure in its offering documents 
disclosing both of these risks.
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    The Fund may take long or short positions in the securities issued 
by large capitalization companies listed for trading in the U.S., 
Europe and Japan. A ``long'' position means to hold or be exposed to a 
security or instrument with the expectation that its value will 
increase over time. A ``short position'' means to sell or be exposed to 
a security or instrument with the expectation that it will fall in 
value. To the extent permitted under the 1940 Act, the Fund may take 
long or short positions in shares of exchange traded funds (``ETFs'') 
that provide exposure to indexes of large-capitalization equity 
securities listed for trading in the U.S., Europe and Japan, such as 
the S&P 500 Index, the Euro Stoxx 50 Index and the Nikkei 225 Index, or 
any subset of such indexes (``Underlying ETFs'').\13\ 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.
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    \13\ For purposes of this proposed rule change, Underlying ETFs 
include Investment Company Units (as described in NYSE Arca Equities 
Rule 5.2(j)(3)), Portfolio Depositary Receipts as described in NYSE 
Arca Equities Rule 8.100, and Managed Fund Shares (as described in 
NYSE Arca Equities Rule 8.600). The Underlying ETFs all will be 
listed and traded in the U.S. on registered exchanges. While the 
Fund may invest in inverse Underlying ETFs, it may not invest in 
leveraged or inverse leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
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    The Fund may buy and sell listed or over-the counter (``OTC'') 
options on indexes of large-capitalization U.S., European and Japanese 
equity securities listed for trading in the U.S., Europe and Japan, 
such as the S&P 500 Index, the Euro Stoxx 50 Index and the Nikkei 225 
Index, and the securities, or any group of securities, issued by large 
capitalization U.S., European and Japanese companies.\14\ 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 may invest in a combination of put and call options 
designed to allow the Fund to isolate its exposure to the growth of the 
level of dividends expected to be paid by the securities issued by 
large capitalization companies listed for trading in the United States, 
Europe and Japan, while minimizing the Fund's exposure to changes in 
the trading price of such securities. The Fund may invest up to 80% of 
its assets through options transactions.
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    \14\ The Fund will transact only with OTC options dealers that 
have in place an International Swaps and Derivatives Association 
(``ISDA'') agreement with the Fund.
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    The Fund may invest in exchange-listed futures contracts and 
forward contracts based on indexes of large-capitalization U.S., 
European and Japanese equity securities listed for trading in the U.S., 
Europe or Japan, such as the S&P 500 Index, the Euro Stoxx 50 Index and 
the Nikkei 225 Index, and the securities, or any group of securities, 
issued by large capitalization U.S., European and Japanese companies. A 
listed futures contract is a standardized contract traded on a 
recognized exchange in which two parties agree to exchange either a 
specified financial asset or the cash equivalent of said asset at a 
specified future date and price. A forward contract involves the 
obligation to purchase or sell either a specified financial asset or 
the cash equivalent of said asset at a future date at a price set at 
the time of the contract. The Fund's use of listed futures contracts 
and forward contracts will be designed to allow the Fund to isolate its 
exposure to the growth of the level of the dividends expected to be 
paid on the securities of large capitalization U.S., European and 
Japanese companies, while minimizing the Fund's exposure to changes in 
the trading price of such securities. The Fund also may invest in 
Eurodollar futures contracts to manage or hedge exposure to interest 
rate fluctuations. The Fund may invest up to 80% of its assets through 
futures contracts and forward transactions.
    The Fund may enter into dividend and total return swap transactions 
(including equity swap transactions) based on indexes of large-
capitalization U.S., European and Japanese equity securities listed for 
trading in the U.S., Europe and Japan, such as the S&P 500 Index, the 
Euro Stoxx 50 Index and the Nikkei 225 Index, and securities, or any 
group of securities, issued by large capitalization U.S., European and 
Japanese companies.\15\ 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, the 
Fund receiving or paying only the net amount of the two payments. In a 
typical dividend swap transaction, the Fund

[[Page 14764]]

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 80% of its assets through swap transactions.\16\
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    \15\ The Fund will transact only with swap dealers that have in 
place an ISDA agreement with the Fund.
    \16\ 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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    The Fund's short positions and its investments in swaps, futures 
contracts, forward contracts and options will be backed by investments 
in U.S. Government Securities or other liquid assets in an amount equal 
to the Fund's maximum liability under the applicable position or 
contract. U.S. Government Securities include securities issued or 
guaranteed by the U.S. government or its authorities, agencies, or 
instrumentalities.
    The Fund will attempt to limit counterparty risk by entering into 
swap, forward and option 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.\17\
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    \17\ 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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    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.\18\
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    \18\ 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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Other Investments
    In addition to the investments described above, the Fund may invest 
up to 20% of its net assets in high-quality, short-term debt securities 
and money market instruments.\19\ Debt securities and money market 
instruments include shares of fixed income or money market mutual 
funds, commercial paper, certificates of deposit, bankers' acceptances, 
U.S. Government securities (including securities issued or guaranteed 
by the U.S. government or its authorities, agencies, or 
instrumentalities), repurchase agreements \20\ and bonds that are rated 
BBB or higher.
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    \19\ The Fund may invest in shares of money market mutual funds 
to the extent permitted by the 1940 Act.
    \20\ 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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    The Fund will not purchase the securities of issuers conducting 
their principal business activity in the same industry if, immediately 
after the purchase and as a result thereof, the value of the Fund's 
investments in that industry would equal or exceed 25% of the current 
value of the Fund's total assets, provided that this restriction does 
not limit the Fund's: (i) Investments in securities of other investment 
companies, (ii) investments in securities issued or guaranteed by the 
U.S. government, its agencies or instrumentalities, or (iii) 
investments in repurchase agreements collateralized by U.S. Government 
securities.\21\
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    \21\ See 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).
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    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.\22\ 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.\23\
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    \22\ 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).
    \23\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the 1933 Act).
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    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 will be classified as a ``non-diversified'' investment 
company under the 1940 Act.\24\
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    \24\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    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.\25\
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    \25\ 26 U.S.C. 851 et seq.
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    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

[[Page 14765]]

leveraged returns. 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 primary broad-based securities benchmark index (as 
defined in Form N-1A).\26\ The Trust's Exemptive Order does not place 
any limit on the amount of derivatives in which the Fund can invest 
(other than adherence to the requirements of the 1940 Act and the rules 
thereunder).
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    \26\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
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Creation and Redemption of Shares
    According to the Registration Statement, the Fund will issue and 
redeem Shares only in Creation Units at the net asset value (``NAV'') 
next determined after receipt of an order on a continuous basis every 
business day. Creation Unit sizes are 25,000 Shares or more per 
Creation Unit. The Creation Unit size for the Fund may change.
    The consideration for purchase of a Creation Unit of the Fund 
generally will consist of either (i) the in-kind deposit of a 
designated portfolio of securities (the ``Deposit Securities'') per 
each Creation Unit and the ``Cash Component'' (defined below), computed 
as described below or (ii) the cash value of the Deposit Securities 
(``Deposit Cash'') and the Cash Component, computed as described below. 
Because non-exchange traded derivatives are not eligible for in-kind 
transfer, they will be substituted with an amount of cash of equal 
value (i.e., Deposit Cash) when the Fund processes purchases of 
Creation Units in-kind. Specifically, the Fund will not accept OTC 
options, forward contracts, dividend swap transactions, total return 
swap transactions and interest rate swap transactions as Deposit 
Securities. When accepting purchases of Creation Units for cash, the 
Fund may incur additional costs associated with the acquisition of 
Deposit Securities that would otherwise be provided by an in-kind 
purchaser. Together, the Deposit Securities or Deposit Cash, as 
applicable, and the Cash Component constitute the ``Fund Deposit,'' 
which represents the minimum initial and subsequent investment amount 
for a Creation Unit of the Fund. The ``Cash Component'' is an amount 
equal to the difference between the NAV of the Shares (per Creation 
Unit) and the market value of the Deposit Securities or Deposit Cash, 
as applicable. The Cash Component serves the function of compensating 
for any differences between the NAV per Creation Unit and the market 
value of the Deposit Securities or Deposit Cash, as applicable.
    A portfolio composition file, to be sent via the National 
Securities Clearing Corporation (``NSCC''), will be made available on 
each business day, prior to the opening of business on the Exchange 
(currently 9:30 a.m., Eastern time) containing a list of the names and 
the required number of shares of each security in the Deposit 
Securities to be included in the current Fund Deposit for the Fund 
(based on information about the Fund's portfolio at the end of the 
previous business day). In addition, on each business day, the 
estimated Cash Component, effective through and including the previous 
business day, will be made available through NSCC.
    The Fund Deposit is applicable for purchases of Creation Units of 
the Fund until such time as the next-announced Fund Deposit is made 
available. In accordance with the Exemptive Order, the Fund reserves 
the right to accept a nonconforming Fund Deposit. In addition, the 
composition of the Deposit Securities may change as, among other 
things, corporate actions and investment decisions by the Adviser are 
implemented for the Fund's portfolio.
    All purchase orders must be placed by or through an ``Authorized 
Participant''. An Authorized Participant must be either a broker-dealer 
or other participant in the Continuous Net Settlement System 
(``Clearing Process'') of the NSCC or a participant in The Depository 
Trust Company (``DTC'') with access to the DTC system, and must execute 
an agreement with the Distributor that governs transactions in the 
Fund's Creation Units. In-kind portions of purchase orders will be 
processed through the Clearing Process when it is available.
    Fund Shares may be redeemed only in Creation Units at their NAV 
next determined after receipt of a redemption request in proper form by 
the Fund through the Distributor and only on a business day. The Fund, 
through the NSCC, will make available immediately prior to the opening 
of business on the Exchange on each business day, the list of the names 
and quantities of the Fund's portfolio securities that will be 
applicable (subject to possible amendment or correction) to redemption 
requests received in proper form on that day (``Fund Securities''). 
Redemption proceeds for a Creation Unit will be paid either in-kind or 
in cash or a combination thereof, as determined by the Trust. With 
respect to in-kind redemptions of the Fund, redemption proceeds for a 
Creation Unit will consist of Fund Securities plus cash in an amount 
equal to the difference between the NAV of the Shares being redeemed, 
as next determined after a receipt of a request in proper form, and the 
value of the Fund Securities (the ``Cash Redemption Amount''). In the 
event that the Fund Securities have a value greater than the NAV of the 
Shares, a compensating cash payment equal to the differential will be 
required to be made by or through an Authorized Participant by the 
redeeming shareholder. Notwithstanding the foregoing, at the Trust's 
discretion, an Authorized Participant may receive the corresponding 
cash value of the securities in lieu of the in-kind securities 
representing one or more Fund Securities.\27\ Because non-exchange 
traded derivatives are not eligible for in-kind transfer, they will be 
substituted with an amount of cash of equal value when the Fund 
processes redemptions of Creation Units in-kind. Specifically, the Fund 
will transfer the corresponding cash value of OTC options, forward 
contracts, dividend swap transactions, total return swap transactions 
and interest rate swap transactions in lieu of in-kind securities. In 
accordance with the Exemptive Order, the Fund also reserves the right 
to distribute to the Authorized Participant non-conforming Fund 
Securities.
---------------------------------------------------------------------------

    \27\ The Adviser represents that, to the extent the Trust 
effects the redemption of Shares in cash, such transactions will be 
effected in the same manner for all Authorized Participants.
---------------------------------------------------------------------------

    The right of redemption may be suspended or the date of payment 
postponed: (i) For any period during which the New York Stock Exchange 
(``NYSE'') is closed (other than customary weekend and holiday 
closings); (ii) for any period during which trading on the NYSE is 
suspended or restricted; (iii) for any period during which an emergency 
exists as a result of which disposal of the Shares or determination of 
the Fund's NAV is not reasonably practicable; or (iv) in such other 
circumstances as permitted by the Commission.
    For an order involving a Creation Unit to be effectuated at the 
Fund's NAV on a particular day, it must be received by the Distributor 
by or before the deadline for such order (``Order Cut-Off Time''). The 
Order Cut-Off Time for creation and redemption orders for the Fund is 
generally expected to be 4:00 p.m. Eastern Time. Orders for creation or 
redemption of Creation Units for cash generally must be submitted by 
4:00 p.m. Eastern Time. A standard creation or redemption transaction 
fee (as

[[Page 14766]]

applicable) will be imposed to offset transfer and other transaction 
costs that may be incurred by the Fund.
    Detailed descriptions of the Fund's procedures for creating and 
redeeming Shares, transaction fees and expenses, dividends, 
distributions, taxes, risks, and reports to be distributed to 
beneficial owners of the Shares can be found in the Registration 
Statement or on the Web site for the Fund (which will be publicly 
available prior to the public offering of Shares), as applicable.
Determination of Net Asset Value
    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) as described in its Registration Statement.
    In calculating the Fund's NAV per Share, the Fund's investments 
will be valued in accordance with procedures approved by the Trust's 
Board of Trustees. These procedures, which may be changed by the 
Trust's Board of Trustees from time to time, generally require 
investments to be valued using market valuations. A market valuation 
generally means a valuation (i) obtained from an exchange, an 
independent pricing service, or a major market maker (or dealer), (ii) 
based on a price quotation or other equivalent indication of value 
supplied by an exchange, an independent pricing service, or a major 
market maker (or dealer) or (iii) based on amortized cost. The Trust 
may use various independent pricing services, or discontinue the use of 
any independent pricing service, as determined by the Trust's Board of 
Trustees from time to time.
    The Trust will generally value exchange-listed equity securities 
(which include common stocks and Underlying ETFs) and exchange-listed 
options on such securities at market closing prices. Market closing 
price is generally determined on the basis of last reported sales 
prices, or if no sales are reported, based on the last reported quotes. 
The Trust will generally value listed futures at the settlement price 
determined by the applicable exchange. Non-exchange-traded derivatives, 
such as forwards, OTC options and swap 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. Investment company securities (other than Underlying ETFs) 
will be valued at NAV. 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. The Trust generally will use amortized cost to 
value debt securities and money market instruments that have a 
remaining maturity of 60 days or less.
    In the event that current market valuations are not readily 
available or the Trust or Adviser believes such valuations do not 
reflect current market value, the Trust's procedures require that a 
security's fair value be determined.\28\ In determining such value the 
Trust or the Adviser may consider, among other things, (i) price 
comparisons among multiple sources, (ii) a review of corporate actions 
and news events, and (iii) a review of relevant financial indicators 
(e.g., movement in interest rates, market indices, and prices from the 
Fund's index providers). In these cases, the Fund's NAV may reflect 
certain portfolio securities' fair values rather than their market 
prices. Fair value pricing involves subjective judgments and it is 
possible that the fair value determination for a security is materially 
different than the value that could be realized upon the sale of the 
security.
---------------------------------------------------------------------------

    \28\ The Trust's Board of Trustees has established Fair Value 
Procedures, in accordance with the 1940 Act, governing the valuation 
of any portfolio investments for which market quotations or prices 
are not readily available. The Fund has implemented procedures 
designed to prevent the use and dissemination of material, non-
public information regarding valuation of any portfolio investments.
---------------------------------------------------------------------------

Availability of Information
    The Fund's Web site, www.realityshares.com, which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) 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''),\29\ and a 
calculation of the premium and discount of the Bid/Ask Price against 
the NAV, and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. 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.\30\
---------------------------------------------------------------------------

    \29\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \30\ 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 will disclose for each portfolio 
security and other financial instrument of the Fund the following 
information on the Fund's Web site: Ticker symbol (if applicable), name 
of security and financial instrument, number of shares or dollar value 
[sic] securities and of financial instruments held in the portfolio, 
and percentage weighting of the security and financial instrument in 
the portfolio. The Web site information will be publicly available at 
no charge.
    In addition, a portfolio composition file, which includes the 
security names and share quantities 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 NYSE via NSCC. The portfolio composition file will represent one 
Creation Unit of Shares of the Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's 
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and 
Shareholder Reports are available free upon request from the Trust, and 
those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov. 
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 Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the Portfolio Indicative Value

[[Page 14767]]

(``PIV'') as defined in NYSE Arca Equities Rule 8.600(c)(3), will be 
widely disseminated at least every 15 seconds during the Core Trading 
Session by one or more major market data vendors.\31\ The dissemination 
of the PIV, together with the Disclosed Portfolio, will allow investors 
to determine the value of the underlying portfolio of the Fund on a 
daily basis and will provide a close estimate of that value throughout 
the trading day. The intra-day, closing and settlement prices of the 
portfolio securities and other Fund investments, including Underlying 
ETFs, futures and exchange-traded equities and options, 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, swaps and forwards, from 
third party pricing sources, or on-line information services such as 
Bloomberg or Reuters. Price information regarding investment company 
securities other than Underlying ETFs will be available from on-line 
information services and from the Web site for the applicable 
investment company security. 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.
---------------------------------------------------------------------------

    \31\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available PIVs 
taken from the CTA or other data feeds.
---------------------------------------------------------------------------

    Additional information regarding the Trust 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.
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.\32\ 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.
---------------------------------------------------------------------------

    \32\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

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 4:00 a.m. to 8:00 p.m. Eastern Time 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 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. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 \33\ 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 
that the NAV per Share will be calculated daily and that the NAV and 
the Disclosed Portfolio as defined in NYSE Arca Equities Rule 
8.600(c)(2) will be made available to all market participants at the 
same time.
---------------------------------------------------------------------------

    \33\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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.\34\ 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.
---------------------------------------------------------------------------

    \34\ 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.
---------------------------------------------------------------------------

    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, certain equity securities, Underlying 
ETFs, and certain futures contracts and exchange-listed options 
contracts with other markets and other entities that are members of the 
ISG, and FINRA, on behalf of the Exchange, may obtain trading 
information regarding trading in the Shares, certain equity securities, 
Underlying ETFs, and certain futures contracts and exchange-listed 
options contracts from such markets and other entities. In addition, 
the Exchange may obtain information regarding trading in the Shares, 
certain equity securities, Underlying ETFs, and certain futures 
contracts and exchange-listed 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.\35\
---------------------------------------------------------------------------

    \35\ For 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.
---------------------------------------------------------------------------

    Not more than 10% of the assets of the Fund in the aggregate shall 
consist of non-U.S. equity securities 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. Furthermore, not more 
than 10% of the net assets of the Fund in the aggregate shall consist 
of futures contracts or exchange-traded options 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'')

[[Page 14768]]

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 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. Eastern time each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \36\ 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.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 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 federal 
securities laws applicable to trading on the Exchange. The Adviser is 
not registered as a broker-dealer and is not affiliated with any 
broker-dealers. In the event (a) the Adviser or any sub-adviser becomes 
registered as a broker-dealer or newly affiliated with a broker-dealer, 
or (b) any new adviser or sub-adviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer, they will implement a fire 
wall with respect to their relevant personnel or broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio. 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. FINRA, on behalf of the Exchange, will 
communicate as needed regarding trading in the Shares, certain equity 
securities, Underlying ETFs, and certain futures contracts and 
exchange-listed options contracts with other markets and other entities 
that are members of the ISG, and FINRA, on behalf of the Exchange, may 
obtain trading information regarding trading in the Shares, certain 
equity securities, Underlying ETFs, and certain futures contracts and 
exchange-listed options contracts from such markets and other entities. 
In addition, the Exchange may obtain information regarding trading in 
the Shares, certain equity securities, Underlying ETFs, and certain 
futures contracts and exchange-listed 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. Not more 
than 10% of the assets of the Fund in the aggregate shall consist of 
non-U.S. equity securities 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. Furthermore, not more 
than 10% of the net assets of the Fund in the aggregate shall consist 
of futures contracts or exchange-traded options 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 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 its Web site the 
Disclosed Portfolio that will form the basis for the Fund's calculation 
of NAV at the end of the business day. 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. The intra-day, closing and 
settlement prices of the portfolio securities and other Fund 
investments, including Underlying ETFs, futures and exchange-traded 
equities and options, 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, swaps and forwards, from third party pricing sources, or on-
line information services such as Bloomberg or Reuters. Price 
information regarding investment company securities other than 
Underlying ETFs will be available from on-line information services and 
from the Web site for the applicable investment company security. 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. The Web site for the 
Fund will include 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.

[[Page 14769]]

    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 actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, 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 federal securities laws applicable to trading on the 
Exchange. FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares, equity securities, Underlying ETFs, 
and certain futures contracts and exchange-listed options contracts 
with other markets and other entities that are members of the ISG, and 
FINRA, on behalf of the Exchange, may obtain trading information 
regarding trading in the Shares, equity securities, Underlying ETFs, 
and certain futures contracts and exchange-listed options contracts 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares, equity securities, 
Underlying ETFs, and certain futures contracts and exchange-listed 
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. Not more than 10% of the assets of the 
Fund in the aggregate shall consist of non-U.S. equity securities 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. 
Furthermore, not more than 10% of the net assets of the Fund in the 
aggregate shall consist of futures contracts or exchange-traded options 
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. 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 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. 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 primary broad-based 
securities benchmark index (as defined in Form N-1A).

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 will 
enhance competition among market participants, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    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 (i) as the Commission may 
designate up to 90 days of such date 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2014-20 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-2014-20. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at 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-2014-20 and should 
be submitted on or before April 7, 2014.
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-05752 Filed 3-14-14; 8:45 am]
BILLING CODE 8011-01-P