Document ID: SEC-2013-1893-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-11-05T05:00Z

[Federal Register Volume 78, Number 214 (Tuesday, November 5, 2013)]
[Notices]
[Pages 66396-66405]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-26410]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70774; File No. SR-NYSEArca-2013-106]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
Relating to Listing and Trading of Shares of PIMCO Diversified Income 
Exchange-Traded Fund, PIMCO Low Duration Exchange-Traded Fund and PIMCO 
Real Return Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600

October 30, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on October 15, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. On October 29, 2013, the Exchange filed Amendment No. 1 
to the proposal.\4\ The Commission is publishing this notice to solicit 
comments on the proposed rule change, as modified by Amendment No. 1, 
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    \4\ Amendment No. 1 replaced and superseded the proposal in its 
entirety.
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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''): PIMCO 
Diversified Income Exchange-Traded Fund; PIMCO Low Duration Exchange-
Traded Fund; and PIMCO Real Return Exchange-Traded Fund. 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\ PIMCO Diversified 
Income Exchange-Traded Fund; PIMCO Low Duration Exchange-Traded Fund; 
and PIMCO Real Return Exchange-Traded Fund (each a ``Fund'' and, 
collectively, the ``Funds''). The Shares will be offered by PIMCO ETF 
Trust (the ``Trust''), a statutory trust organized under the laws of 
the State of Delaware and registered with the Commission as an open-end 
management investment company.\6\
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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 Trust is registered under the 1940 Act. On April 22, 
2013, the Trust filed with the Commission an amendment to the 
Trust's registration statement on Form N-1A under the Securities Act 
of 1933 (15 U.S.C. 77a) (the ``Securities Act'') and the 1940 Act 
relating to the Funds (File Nos. 333-155395 and 811-22250) (the 
``Registration Statement''). The description of the operation of the 
Trust and the Funds herein is based, in part, on the Registration 
Statement. In addition, the Commission has issued an order granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No. 28993 (November 10, 2009) (File 
No. 812-13571) (``Exemptive Order'').
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    The investment manager to the Funds will be Pacific Investment 
Management Company LLC (``PIMCO'' or the ``Adviser''). PIMCO 
Investments LLC will serve as the distributor for the Funds 
(``Distributor''). State Street Bank & Trust Co. will serve as the 
custodian and transfer agent for the Funds (``Custodian'' or ``Transfer 
Agent'').\7\
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    \7\ The Commission has previously approved the listing and 
trading on the Exchange of other actively managed funds under Rule 
8.600. See, e.g., Securities Exchange Act Release Nos. 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); 60981 (November 10, 2009), 74 FR 
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving 
Exchange listing and trading of five fixed income funds of the PIMCO 
ETF Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9, 2012) 
(SR-NYSEArca-2011-95) (order approving Exchange listing and trading 
of PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 
77 FR 20087 (April 3, 2012) (SR-NYSEArca-2012-09) (order approving 
Exchange listing and trading of PIMCO Global Advantage Inflation-
Linked Bond Strategy Fund).
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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 and/or 
changes to such investment company portfolio.\8\ In addition,

[[Page 66397]]

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 non-public 
information regarding the open-end fund's portfolio. The Adviser is not 
a registered broker-dealer but is affiliated with a broker-dealer and 
has implemented a ``fire wall'' with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to a Fund's respective portfolio. In the event (a) the Adviser 
or any sub-adviser is a registered broker-dealer or becomes newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-adviser 
is a registered broker-dealer or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its relevant 
personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to a portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \8\ 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 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; implemented, at a 
minimum, an annual review regarding the adequacy of the policies and 
procedures established pursuant to subparagraph above and the 
effectiveness of their implementation; and designated an individual 
(who is a supervised person) responsible for administering the 
policies and procedures adopted under subparagraph (i) above.
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PIMCO Diversified Income Exchange-Traded Fund
    According to the Registration Statement, the Fund's investment 
objective will be to seek maximum total return, consistent with 
preservation of capital and prudent investment management. The Fund 
will seek to achieve its investment objective by investing under normal 
circumstances \9\ at least 65% of its total assets in a diversified 
portfolio of ``Fixed Income Instruments'' of varying maturities and 
forward contracts on such Fixed Income Instruments.
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    \9\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the fixed income markets or the financial markets generally; 
operational issues causing dissemination of inaccurate market 
information; or force majeure type events such as systems failure, 
natural or man-made disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance.
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    Fixed Income Instruments include bonds, debt securities and other 
similar instruments issued by various U.S. and non-U.S. public- or 
private-sector entities. Specifically, with respect to each of the 
Funds (except as noted below), the term ``Fixed Income Instruments'' 
includes: securities issued or guaranteed by the U.S. Government, its 
agencies or government-sponsored enterprises (``U.S. Government 
Securities''); corporate debt securities of U.S. and non-U.S. issuers, 
including convertible securities and corporate commercial paper; 
mortgage-backed and other asset-backed securities; inflation-indexed 
bonds issued both by governments and corporations; event-linked bonds; 
bank capital and trust preferred securities; loan participations and 
assignments; delayed funding loans and revolving credit facilities; 
bank certificates of deposit, fixed time deposits and bankers' 
acceptances; repurchase agreements on Fixed Income Instruments and 
reverse repurchase agreements on Fixed Income Instruments; debt 
securities issued by states or local governments and their agencies, 
authorities and other government-sponsored enterprises; obligations of 
non-U.S. governments or their subdivisions, agencies and government-
sponsored enterprises; and obligations of international agencies or 
supranational entities.\10\
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    \10\ Securities issued by U.S. Government agencies or 
government-sponsored enterprises may not be guaranteed by the U.S. 
Treasury.
    With respect to the Funds' investments in bank capital 
securities, there are two common types: Tier I and Tier II. Bank 
capital is generally, but not always, of investment grade quality. 
Tier I securities are typically exchange-traded and often take the 
form of trust preferred securities. Tier II securities are commonly 
thought of as hybrids of debt and preferred stock. Tier II 
securities are typically traded over-the-counter, are often 
perpetual (with no maturity date), are callable, and have a 
cumulative interest deferral feature. This means that under certain 
conditions, the issuer bank can withhold payment of interest until a 
later date. However, such deferred interest payments generally earn 
interest.
    According to the Registration Statement, with respect to the 
PIMCO Real Return Exchange-Traded Fund, the term Fixed Income 
Instruments does not include: event-linked bonds; bank capital and 
trust preferred securities; loan participations and assignments; and 
debt securities issued by states or local governments and their 
agencies, authorities and other government-sponsored enterprises.
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    Forwards on securities are contracts to purchase or sell securities 
for a fixed price at a future date beyond normal settlement time. 
Forwards on Fixed Income Instruments are contracts to purchase or sell 
Fixed Income Instruments for a fixed price at a future date beyond 
normal settlement time. The Adviser represents that a forward will be a 
useful tool for gaining exposure across markets, particularly in the 
U.S. Treasury, U.S. agency, non-U.S. government, and mortgage markets 
when a Fund seeks exposure to a particular issue or maturity.\11\ In 
general, forwards can be an economically attractive substitute for an 
underlying physical security that a Fund would otherwise purchase. 
Economic benefits include potentially lower transaction costs or 
attractive relative valuation of a forward versus a physical security 
(e.g., differences in yields).
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    \11\ Investments in forwards will be made in accordance with the 
1940 Act and consistent with each Fund's investment objectives and 
policies. With respect to each of the Funds, the Adviser represents 
that each Fund will typically use forwards as a substitute for 
taking a position in the underlying asset and/or as part of a 
strategy designed to reduce exposure to other risks, such as 
interest rate or currency risk. A Fund may also use forwards to 
enhance returns. To limit the potential risk associated with such 
transactions, each Fund will segregate or ``earmark'' assets 
determined to be liquid by PIMCO in accordance with procedures 
established by the Trust's Board of Trustees and in accordance with 
the 1940 Act (or, as permitted by applicable regulation, enter into 
certain offsetting positions) to cover its obligations arising from 
its use of forwards. 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 a Fund, including a Fund's use 
of derivatives, may give rise to leverage, causing a Fund to be more 
volatile than if it had not been leveraged. 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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    A common forward commitment is a mortgage ``to be announced'' 
(``TBA''), which is an important vehicle for gaining exposure to the 
mortgage pass-through market. Mortgage TBAs provide exposure to new 
mortgage pools, issued by the Government National Mortgage Association 
(``Ginnie Mae''), Federal National Mortgage Association (``Fannie 
Mae'') or Federal Home Loan Mortgage Corporation (``Freddie Mac''), 
which have a regular, once-a-month settlement. When a fund purchases a 
mortgage TBA, the underlying mortgage-related securities are delivered 
in the next settlement cycle (unless settlement is ``rolled'' to a 
future date).
    The Adviser believes that liquidity of a forward settling 
transaction depends on the underlying issue or exposure (e.g., greater 
liquidity for Treasuries as compared to a particular collateralized 
mortgage obligation). For example, the mortgage TBA market is highly 
liquid and positions can be easily added, rolled, or closed. According 
to Financial Industry Regulatory Authority (``FINRA'') Trade Reporting 
and Compliance Engine (``TRACE'') data, TBAs represented approximately 
94% of total agency trading volume in the month of April 2013.
    Forwards are marked to market daily and can be priced intraday 
based on the underlying issue or exposure. Intraday pricing of 
securities to be settled on forward basis is often available on

[[Page 66398]]

quotation services such as Bloomberg. The visibility of intraday prices 
of forwards is related to the visibility of prices of the underlying 
asset. Market participants can efficiently value forward settling 
securities as long as they have access to the relevant information, 
such as the underlying exposure.
    On behalf of the funds it manages, PIMCO maintains standardized 
Master Forward Agreements in place with various counterparties. These 
standardized agreements include procedures for periodic collateral 
movement between a fund and the applicable counterparty to reflect 
changes in the value of forwards held by a fund.
    In selecting individual Fixed Income Instruments, or in making 
broader sector allocations for the Fund, PIMCO will develop an outlook 
for interest rates, currency exchange rates and the economy, analyze 
credit and call risks and use other investment selection techniques. 
The proportion of the Fund's assets committed to an individual 
investment, or investments with particular characteristics (such as 
quality, sector, interest rate or maturity), will vary based on PIMCO's 
outlook for the U.S. economy and the economies of other countries in 
the world, the financial markets and other factors. PIMCO will attempt 
to identify areas of the bond market that are undervalued relative to 
the rest of the market. PIMCO may identify these areas by grouping 
Fixed Income Instruments into sectors such as money markets, 
governments, corporates,\12\ mortgages, asset-backed and international. 
Once investment opportunities are identified, PIMCO will shift assets 
among individual Fixed Income Instruments, or among sectors, depending 
upon changes in relative valuations, credit spreads and other factors.
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    \12\ While non-emerging markets corporate debt securities 
(excluding commercial paper) generally must have $100 million or 
more par amount outstanding and significant par value traded to be 
considered as an eligible investment for each of the Funds, at least 
80% of issues of such securities held by a Fund must have $100 
million or more par amount outstanding at the time of investment. 
See also note 15, infra, regarding emerging market corporate debt 
securities.
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    According to the Registration Statement, in managing the Fund, 
PIMCO may employ both a bottom-up and top-down approach to investment 
selection. PIMCO's bottom-up value investment style attempts to 
identify Fixed Income Instruments or sectors that are undervalued by 
the market in comparison to PIMCO's own determination of value. Using a 
top-down value investment style, PIMCO also will consider various 
qualitative and quantitative factors relating to the U.S. and non-U.S. 
economies, and financial markets. These factors may include the outlook 
and projected growth of various sectors, projected growth trends in the 
U.S. and non-U.S. economies, forecasts for interest rates and the 
relationship between short- and long-term interest rates (yield curve), 
relative valuation levels in the financial markets and various segments 
within those markets, information relating to business cycles, 
borrowing needs and the cost of capital, political trends data relating 
to trade balances, and labor information. PIMCO has the flexibility to 
reallocate the Fund's assets among individual investments or sectors 
based on its ongoing analyses.
    The average portfolio duration of the Fund normally will vary from 
three to eight years, based on PIMCO's forecast for interest rates.\13\ 
The Fund may invest in both investment grade debt securities and high 
yield debt securities (``junk bonds'') subject to a maximum of 10% of 
its total assets in debt securities rated below B by Moody's Investors 
Service, Inc. (``Moody's''), or equivalently rated by Standard & Poor's 
Rating Services (``S&P'') or Fitch, Inc. (``Fitch''), or, if unrated, 
determined by PIMCO to be of comparable quality.\14\ The Fund may 
invest in securities and instruments that are economically tied to 
emerging market countries.\15\ The Fund may invest in securities and 
instruments denominated in foreign currencies and in U.S. dollar-
denominated securities or instruments of foreign issuers. Subject to 
the Fund's investment limitations relating to high yield debt 
securities generally, the Fund may invest up to 20% of its assets in 
mortgage-backed securities or in other asset-backed securities, 
although this 20% limitation does not apply to securities issued or 
guaranteed by Federal agencies and/or U.S. government sponsored 
instrumentalities.
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    \13\ Duration is a measure used to determine the sensitivity of 
a security's price to changes in interest rates. The longer a 
security's duration, the more sensitive it will be to changes in 
interest rates.
    \14\ PIMCO utilizes sophisticated proprietary techniques in its 
creditworthiness analysis of unrated securities similar to the 
processes utilized by Moody's, S&P and Fitch in their respective 
analyses of rated securities. For example, in making a ``comparable 
quality'' determination for an unrated security, PIMCO may evaluate 
the likelihood of payment by the obligor, the nature and provisions 
of the debt obligation, and/or the protection afforded by, and 
relative position of, the debt obligation in the event of 
bankruptcy, reorganization or other arrangement under laws affecting 
creditors' rights. Upon consideration of these and other factors, 
PIMCO may determine that an unrated security is of comparable 
quality to rated securities in which the Fund may invest consistent 
with the Fund's credit quality guidelines described above.
    \15\ According to the Registration Statement, PIMCO will have 
broad discretion to identify countries that it considers to qualify 
as emerging markets. In making investments in emerging market 
securities, the Fund will emphasize those countries with relatively 
low gross national product per capita and with the potential for 
rapid economic growth. Emerging market countries are generally 
located in Asia, Africa, the Middle East, Latin America and Eastern 
Europe. PIMCO will select the country and currency composition based 
on its evaluation of relative interest rates, inflation rates, 
exchange rates, monetary and fiscal policies, trade and current 
account balances, legal and political developments and any other 
specific factors it believes to be relevant. While emerging markets 
corporate debt securities (excluding commercial paper) generally 
must have $200 million or more par amount outstanding and 
significant par value traded to be considered as an eligible 
investment for each of the Funds, at least 80% of issues of such 
securities held by a Fund must have $200 million or more par amount 
outstanding at the time of investment.
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    The Fund's portfolio or the Fund's broad-based securities market 
index (as defined in Form N-1A) will include a minimum of 13 non-
affiliated issuers (excluding a portfolio or broad-based securities 
market index consisting entirely of exempted securities).\16\ The Fund 
may purchase or sell securities on a when-issued, delayed delivery or 
forward commitment basis and may engage in short sales.\17\ The Fund 
may, without limitation, seek to obtain market exposure to the 
securities in which it invests by entering into a series of purchase 
and sale contracts or by using other investment techniques (such as buy 
backs or dollar rolls). The ``total return'' sought by the Fund will 
consist of income earned on the Fund's investments, plus capital 
appreciation, if any, which generally arises from decreases in interest 
rates, foreign currency appreciation, or improving credit fundamentals 
for a particular sector or security.
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    \16\ The Fund's broad-based securities market index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
    \17\ Each of the Funds may make short sales of securities to: 
offset potential declines in long positions in similar securities, 
to increase the flexibility of the Fund; for investment return; and 
as part of a risk arbitrage strategy.
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PIMCO Low Duration Exchange-Traded Fund
    According to the Registration Statement, the Fund's investment 
objective will be to seek maximum total return, consistent with 
preservation of capital and prudent investment management. The Fund 
will seek to achieve its investment objective by investing under normal 
circumstances at least 65% of its total assets in a diversified 
portfolio of Fixed Income Instruments of varying maturities and forward 
contracts on such Fixed Income

[[Page 66399]]

Instruments.\18\ The average portfolio duration of the Fund normally 
will vary from one to three years based on PIMCO's forecast for 
interest rates. In selecting individual Fixed Income Instruments, or in 
making broader sector allocations for the Fund, PIMCO will develop an 
outlook for interest rates, currency exchange rates and the economy, 
analyze credit and call risks and use other investment selection 
techniques.
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    \18\ See supra discussion regarding forwards.
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    The Fund will invest primarily in investment grade debt securities, 
but may invest up to 10% of its total assets in high yield debt 
securities rated B to Ba by Moody's, or equivalently rated by S&P or 
Fitch, or, if unrated, determined by PIMCO to be of comparable 
quality.\19\ The Fund may invest up to 30% of its total assets in 
securities and instruments denominated in foreign currencies, and may 
invest beyond this limit in U.S. dollar-denominated securities and 
instruments of foreign issuers, subject to the Fund's investment 
limitations relating to particular asset classes set forth herein. The 
Fund may invest up to 10% of its total assets in securities and 
instruments that are economically tied to emerging market countries, 
subject to the Fund's investment limitations relating to particular 
asset classes set forth herein.\20\ The Fund will normally limit its 
foreign currency exposure (from non-U.S. dollar-denominated securities 
or currencies) to 20% of its total assets.
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    \19\ See note 14, supra.
    \20\ See note 15, supra.
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    The Fund's portfolio or the Fund's broad-based securities market 
index (as defined in Form N-1A) will include a minimum of 13 non-
affiliated issuers (excluding a portfolio or broad-based securities 
market index consisting entirely of exempted securities).\21\ Subject 
to the Fund's 10% investment limitations relating to high yield debt 
securities, the Fund may invest up to 20% of its assets in mortgage-
backed securities or in other asset-backed securities, although this 
20% limitation does not apply to securities issued or guaranteed by 
Federal agencies and/or U.S. government sponsored instrumentalities. 
The Fund may purchase or sell securities on a when-issued, delayed 
delivery or forward commitment basis and may engage in short sales.\22\ 
The Fund may, without limitation, seek to obtain market exposure to the 
securities in which it invests by entering into a series of purchase 
and sale contracts or by using other investment techniques (such as buy 
backs or dollar rolls). The ``total return'' sought by the Fund will 
consist of income earned on the Fund's investments, plus capital 
appreciation, if any, which generally arises from decreases in interest 
rates, foreign currency appreciation, or improving credit fundamentals 
for a particular sector or security.
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    \21\ The Fund's broad-based securities market index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
    \22\ See note 17, supra.
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PIMCO Real Return Exchange-Traded Fund
    According to the Registration Statement, the Fund's investment 
objective will be to seek maximum real return, consistent with 
preservation of capital and prudent investment management. The Fund 
will seek its investment objective by investing under normal 
circumstances at least 80% of its net assets in inflation-indexed bonds 
of varying maturities issued by U.S. and non-U.S. governments, their 
agencies or instrumentalities, and corporations, and forward contracts 
on such Fixed Income Instruments.\23\ Assets not invested in inflation-
indexed bonds may be invested in other types of Fixed Income 
Instruments. Inflation-indexed bonds are fixed income securities that 
are structured to provide protection against inflation. The value of 
the bond's principal or the interest income paid on the bond is 
adjusted to track changes in an official inflation measure. The U.S. 
Treasury uses the Consumer Price Index for Urban Consumers as the 
inflation measure. Inflation-indexed bonds issued by a foreign 
government are generally adjusted to reflect a comparable inflation 
index, calculated by that government. ``Real return'' equals total 
return less the estimated cost of inflation, which is typically 
measured by the change in an official inflation measure.
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    \23\ See supra discussion regarding forwards.
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    According to the Registration Statement, because market convention 
for bonds is to use nominal yields to measure duration, duration for 
real return bonds, which are based on real yields, are converted to 
nominal durations through a conversion factor. The resulting nominal 
duration typically can range from 20% and 90% of the respective real 
duration. All security holdings will be measured in effective (nominal) 
duration terms.\24\ The effective duration of the Fund normally will 
vary within three years (plus or minus) of the effective portfolio 
duration of the securities comprising the Barclays Capital U.S. TIPS 
Index, as calculated by PIMCO, which as of January 31, 2013, as 
converted, was 6.16 years.
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    \24\ According to the Registration Statement, effective duration 
takes into account that for certain bonds expected cash flows will 
fluctuate as interest rates change and is defined in nominal yield 
terms, which is market convention for most bond investors and 
managers. The effective duration of the Barclays Capital U.S. TIPS 
Index (referenced below) will be calculated using the same 
conversion factors as the Fund.
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    The Fund will invest primarily in investment grade debt securities, 
but may invest up to 10% of its total assets in high yield debt 
securities rated B to Ba by Moody's, or equivalently rated by S&P or 
Fitch, or, if unrated, determined by PIMCO to be of comparable 
quality.\25\
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    \25\ See note 14, supra.
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    The Fund also may invest up to 30% of its total assets in 
securities denominated in foreign currencies, and may invest beyond 
this limit in U.S. dollar-denominated securities of foreign issuers, 
subject to the Fund's investment limitations relating to particular 
asset classes set forth herein. The Fund may invest up to 10% of its 
total assets in securities and instruments that are economically tied 
to emerging market countries, subject to the Fund's investment 
limitations relating to particular asset classes set forth herein.\26\ 
The Fund will normally limit its foreign currency exposure (from non-
U.S. dollar-denominated securities or currencies) to 20% of its total 
assets.
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    \26\ See note 15, supra.
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    The Fund's portfolio or the Fund's broad-based securities market 
index (as defined in Form N-1A) will include a minimum of 13 non-
affiliated issuers (excluding a portfolio or broad-based securities 
market index consisting entirely of exempted securities).\27\ Subject 
to the Fund's 10% investment limitations relating to high yield debt 
securities, the Fund may invest up to 20% of its assets in mortgage-
backed securities or in other asset-backed securities, although this 
20% limitation does not apply to securities issued or guaranteed by 
Federal agencies and/or U.S. government sponsored instrumentalities. 
The Fund may purchase or sell securities on a when-issued, delayed 
delivery or forward commitment basis and may engage in short sales.\28\ 
The Fund may, without limitation, seek to obtain market exposure to the 
securities in which it invests by entering into a series of purchase 
and sale contracts or by using other investment techniques (such as buy 
backs or dollar rolls).
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    \27\ The Fund's broad-based securities market index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
    \28\ See note 17, supra

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[[Page 66400]]

Other Portfolio Holdings
    As disclosed in the Trust's Registration Statement, if PIMCO 
believes that economic or market conditions are unfavorable to 
investors, PIMCO may temporarily invest up to 100% of a Fund's assets 
in certain defensive strategies, including holding a substantial 
portion of a Fund's assets in cash, cash equivalents or other highly 
rated short-term securities, including securities issued or guaranteed 
by the U.S. government, its agencies or instrumentalities and 
affiliated money market and/or short-term bond funds.
    While the debt securities in which the Funds primarily intend to 
invest are expected to consist of Fixed Income Instruments, as 
described above, the Funds may invest their respective remaining net 
assets in other securities and financial instruments, as described 
below.
    Each of the Funds may engage in foreign currency transactions 
through forward currency contracts. A forward foreign currency exchange 
contract, which involves an obligation to purchase or sell a specific 
currency at a future date at a price set at the time of the contract, 
reduces the Fund's exposure to changes in the value of the currency it 
will deliver and increases its exposure to changes in the value of the 
currency it will receive for the duration of the contract. A Fund's 
investments in foreign currency forwards will be subject to the limit 
on a Fund's foreign currency exposure. For each of the PIMCO Low 
Duration Exchange-Traded Fund and PIMCO Real Return Exchange-Traded 
Fund, foreign currency exposure will not exceed 20% of the Fund's total 
assets. There is no limit on the PIMCO Diversified Income Fund's 
foreign currency exposure.
    The Funds may invest in equity securities. The Funds will invest 
only in U.S. and non-U.S. equity securities that trade in markets that 
are members of the Intermarket Surveillance Group (``ISG''), which 
includes all U.S. national securities exchanges and certain foreign 
exchanges, or are parties to a comprehensive surveillance sharing 
agreement with the Exchange.\29\
---------------------------------------------------------------------------

    \29\ See note 45, infra.
---------------------------------------------------------------------------

    The Funds each may invest up to 10% of its total assets in 
preferred stock, convertible securities \30\ and other equity-related 
securities.
---------------------------------------------------------------------------

    \30\ A convertible security is a bond, debenture, note, 
preferred stock, or other security that entitles the holder to 
acquire common stock or other equity securities of the same or a 
different issuer. A convertible security generally entitles the 
holder to receive interest paid or accrued until the convertible 
security matures or is redeemed, converted or exchanged.
---------------------------------------------------------------------------

    The Funds may invest in, to the extent permitted by Section 
12(d)(1) of the 1940 Act and rules thereunder, other affiliated and 
unaffiliated funds, such as open-end or closed-end management 
investment companies, including other exchange traded funds.
    The Funds may hold up to an aggregate amount of 15% of their 
respective net assets in illiquid securities (calculated at the time of 
investment), including Rule 144A securities deemed illiquid by the 
Adviser, consistent with Commission guidance.\31\ The Funds will 
monitor their portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of a Fund's 
net assets are held in illiquid securities. Illiquid securities 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.\32\
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    \31\ 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).
    \32\ 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 Securities Act.
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Investment Limitations
    The Funds will be subject to the following investment limitations:
    The Funds may not concentrate their investments in a particular 
industry, as that term is used in the 1940 Act,\33\ and as interpreted, 
modified, or otherwise permitted by regulatory authority having 
jurisdiction from time to time.\34\
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    \33\ 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).
    \34\ The Funds' policies with respect to the concentration of 
investments in a particular industry is disclosed in the Trust's 
Registration Statement.
---------------------------------------------------------------------------

    With respect to the PIMCO Diversified Income Exchange-Traded Fund 
and PIMCO Low Duration Exchange-Traded Fund, the Funds may not, with 
respect to 75% of each Fund's total assets, purchase the securities of 
any issuer, except securities issued or guaranteed by the U.S. 
government or any of its agencies or instrumentalities, if, as a result 
(i) more than 5% of a Fund's total assets would be invested in the 
securities of that issuer,\35\ or (ii) a Fund would hold more than 10% 
of the outstanding voting securities of that issuer. For the purpose of 
this restriction, each state and each separate political subdivision, 
agency, authority or instrumentality of such state, each multi-state 
agency or authority, and each guarantor, if any, are treated as 
separate issuers of municipal bonds. The PIMCO Real Return Exchange-
Traded Fund will be non-diversified,\36\ which means that it may invest 
its assets in a smaller number of issuers than a diversified fund.
---------------------------------------------------------------------------

    \35\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
    \36\ A ``non-diversified company,'' as defined in Section 
5(b)(2) of the 1940 Act, means any management company other than a 
diversified company (as defined in Section 5(b)(1) of the 1940 Act).
---------------------------------------------------------------------------

    Each Fund intends to qualify annually and elect to be treated as a 
regulated investment company under Subchapter M of the Internal Revenue 
Code.\37\
---------------------------------------------------------------------------

    \37\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    The Funds will not invest in options contracts, futures contracts, 
or swap agreements.
    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 Funds that are referred to but not defined in 
this proposed rule change are defined in the Registration Statement.
Net Asset Value
    According to the Registration Statement, the net asset value 
(``NAV'') of the Funds' Shares is determined by dividing the total 
value of the applicable Fund's portfolio investments and other assets, 
less any liabilities, by the total number of Shares outstanding. Fund 
Shares will be valued as of the close of regular trading (normally 4:00 
p.m.,

[[Page 66401]]

E.T.) on each day NYSE Arca is open. On each business day, before 
commencement of trading in Fund Shares on NYSE Arca, each Fund will 
disclose on its Web site the identities and quantities of the portfolio 
instruments and other assets held by the Fund that will form the basis 
for the Fund's calculation of NAV at the end of the business day. 
Information that becomes known to a Fund or its agents after the NAV 
has been calculated on a particular day will not generally be used to 
retroactively adjust the price of a portfolio asset or the NAV 
determined earlier that day. Each Fund will reserve the right to change 
the time its NAV is calculated if the Fund closes earlier, or as 
permitted by the Commission.
    For purposes of calculating NAV, portfolio securities and other 
assets for which market quotes are readily available will be valued at 
market value. Market value will generally be determined on the basis of 
last reported sales prices, or if no sales are reported, as is the case 
for most securities traded over-the-counter, based on quotes obtained 
from a quotation reporting system, established market makers, or 
independent pricing services. For exchange-traded securities, including 
common stocks, preferred stocks, securities convertible into stocks, 
closed-end funds, exchange traded funds and other equity-related 
securities, market value also may be determined on the day that the 
valuation is made based on the applicable exchange's official closing 
price or last reported sales price. Shares of non-exchange-traded open-
end or closed-end management investment companies normally will be 
valued at their most recently calculated NAV. Fixed Income Instruments, 
including those to be purchased under firm commitment agreements (other 
than obligations having a maturity of 60 days or less), will be 
normally valued on the basis of quotes obtained from brokers and 
dealers or independent pricing services, which take into account 
appropriate factors such as institutional-sized trading in similar 
groups of securities, yield, quality, coupon rate, maturity, type of 
issue, trading characteristics, and other market data. In addition, 
Fixed Income Instruments will normally be valued using data reflecting 
the earlier closing of the principal markets for those assets.
    Forwards for which market quotes are readily available will be 
valued at market value. Local closing prices will be used for all 
instrument valuation purposes. Typically, forwards on Fixed Income 
Instruments will be marked to market daily.
    Additional information regarding the valuation of Fund investments 
in calculating a Fund's NAV is provided in the Registration Statement.
Portfolio Indicative Value
    In order to provide additional information regarding the intra-day 
value of Shares of the Funds, the NYSE Arca or a market data vendor 
will disseminate every 15 seconds through the facilities of the 
Consolidated Tape Association (``CTA'') or other widely disseminated 
means an updated Portfolio Indicative Value (``PIV'') for each Fund as 
calculated by an information provider or market data vendor. The PIV 
will be based upon the current value for the components of a Fund's 
Disclosed Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2).
    A third party market data provider will calculate the PIV for the 
Funds. For the purpose of determining a Fund's PIV, the third party 
market data provider's valuation of forwards will be similar to their 
valuation of all securities. The third party market data provider will 
generally use market quotes if available. Where market quotes are not 
available, they may fair value securities against proxies (such as swap 
or yield curves).
    Each Fund's disclosure of forward positions will include 
information that market participants can use to value these positions 
intraday. This information may include tickers or other identifiers, or 
the underlying asset or index.
Creations and Redemptions of Shares
    According to the Registration Statement, Shares of the Funds that 
trade in the secondary market will be ``created'' at NAV by authorized 
participants only in block-size Creation Units of 50,000 Shares for 
each Fund or multiples thereof. The Funds will offer and issue Shares 
at their NAV per Share generally in exchange for a basket of securities 
held by the Fund (the ``Deposit Securities'') together with a deposit 
of a specified cash payment (the ``Cash Component''). Alternatively, 
the Funds may issue Creation Units in exchange for a specified all-cash 
payment (``Cash Deposit''). Similarly, Shares can be redeemed only in 
Creation Units, generally in-kind for a portfolio of securities held by 
a Fund and/or for a specified amount of cash.
    Except when aggregated in Creation Units, Shares will not be 
redeemable by a Fund. The prices at which creations and redemptions 
occur will be based on the next calculation of NAV after an order is 
received. Requirements as to the timing and form of orders are 
described in the authorized participant agreement. PIMCO will make 
available on each business day via the National Securities Clearing 
Corporation (``NSCC'') or other method of public dissemination, prior 
to the opening of business (subject to amendments) on the Exchange 
(currently 9:30 a.m., E.T.), the identity and the required amount of 
each Deposit Security and the amount of the Cash Component (or Cash 
Deposit) to be included in the current Fund Deposit \38\ (based on 
information at the end of the previous business day). Creations and 
redemptions must be made by an Authorized Participant or through a firm 
that is either a participant in the Continuous Net Settlement System of 
the NSCC or a DTC participant, and in each case, must have executed an 
agreement with the Distributor and Transfer Agent with respect to 
creations and redemptions of Creation Unit aggregations.
---------------------------------------------------------------------------

    \38\ The Deposit Securities and Cash Component or, 
alternatively, the Cash Deposit, constitute the ``Fund Deposit,'' 
which represents the investment amount for a Creation Unit of a 
Fund.
---------------------------------------------------------------------------

Impact of Use of Forwards on Arbitrage Mechanism
    The Adviser believes there will be minimal, if any, impact to the 
arbitrage mechanism as a result of the use of forwards. Market makers 
and participants should be able to value forwards as long as the 
positions are disclosed with relevant information. The Adviser believes 
that the price at which Shares will trade will be disciplined by 
arbitrage opportunities created by the ability to purchase or redeem 
creation Shares at their NAV, which should ensure that Shares will not 
trade at a material discount or premium in relation to their NAV.
    The Adviser does not believe there will be any significant impacts 
to the settlement or operational aspects of a Fund's arbitrage 
mechanism due to the use of forwards. To the extent forwards are not 
eligible for in-kind transfer, they will typically be substituted with 
a ``cash in lieu'' amount when a Fund processes purchases or 
redemptions of creation units in-kind.
Availability of Information
    The Trust's Web site (www.pimcoetfs.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Funds that may be downloaded. The Trust's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Funds, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-

[[Page 66402]]

point of the bid/ask spread at the time of calculation of such NAV (the 
``Bid/Ask Price''),\39\ 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 
(9:30 a.m., E.T. to 4:00 p.m., E.T.) on the Exchange, each Fund will 
disclose on the Trust's Web site the Disclosed Portfolio that will form 
the basis for a Fund's calculation of NAV at the end of the business 
day.\40\
---------------------------------------------------------------------------

    \39\ The Bid/Ask Price of a Fund's Shares 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 a Fund's NAV. The records 
relating to Bid/Ask Prices will be retained by the Funds and their 
service providers.
    \40\ Under accounting procedures followed by the Funds, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Funds 
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, each Fund will disclose for each portfolio 
security and other financial instrument of a Fund the following 
information: Ticker symbol (if applicable), name of security and 
financial instrument, number of shares, if applicable, and dollar value 
of securities and financial instruments held in the portfolio, and 
percentage weighting of the security and financial instrument in the 
portfolio. As noted above, each Fund's disclosure of forward positions 
will include information that market participants can use to value 
these positions intraday, and this information may include tickers or 
other identifiers, or the underlying asset or index. The Web site 
information will be publicly available at no charge.
    In addition, a basket composition file, which will include the 
security names and quantities of securities required to be delivered in 
exchange for Fund Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the NYSE via the NSCC. The basket will represent one Creation Unit of a 
Fund. The NAV of the Funds will normally be determined as of the close 
of the regular trading session on the NYSE (ordinarily 4:00 p.m., E.T.) 
on each business day. Authorized participants may refer to the basket 
composition file for information regarding Fixed Income Instruments, 
and any other instrument that may comprise a Fund's basket on a given 
day.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Funds' Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports will be 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. Intra-day and 
closing price information regarding equity securities traded on a 
national securities exchange, including common stocks, preferred 
stocks, securities convertible into stocks, closed-end funds, exchange 
traded funds and other equity-related securities, will be available 
from the exchange on which such securities are traded. Price 
information regarding non-exchange-traded open-end or closed-end 
management investment companies will be available from major market 
data vendors. Intra-day and closing price information regarding Fixed 
Income Instruments also will be available from major market data 
vendors. Price information relating to forwards will be available from 
major market data vendors. 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 of each Fund will 
be published daily in the financial section of newspapers. Quotation 
and last sale information for the Shares of each Fund will be available 
via the CTA high-speed line. In addition, the PIV for each Fund, as 
defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session.\41\ The dissemination of the 
PIV, together with the Disclosed Portfolio, will allow investors to 
determine the approximate value of the underlying portfolio of a Fund 
on a daily basis and to provide a close estimate of that value 
throughout the trading day.
---------------------------------------------------------------------------

    \41\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available PIVs 
taken from CTA or other data feeds.
---------------------------------------------------------------------------

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 a Fund.\42\ Trading in Shares of a 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 of a Fund 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 a 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 of the Funds will be subject to NYSE Arca Equities Rule 
8.600(d)(2)(D), which sets forth circumstances under which Shares of a 
Fund may be halted.
---------------------------------------------------------------------------

    \42\ 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., E.T. in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on 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 of each Fund 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 Funds will 
be in compliance with Rule 10A-3 under the Act,\43\ as provided by NYSE 
Arca Equities Rule 5.3. A minimum of 100,000 Shares for each Fund will 
be outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares of 
each Fund that the NAV per Share will be calculated daily and that the 
NAV and the Disclosed Portfolio for each Fund will be made available to 
all market participants at the same time.
---------------------------------------------------------------------------

    \43\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances,

[[Page 66403]]

administered by FINRA on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and applicable federal securities 
laws.\44\ 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 applicable 
federal securities laws.
---------------------------------------------------------------------------

    \44\ 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 and exchange-traded securities held by 
the Funds 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 and exchange-traded 
securities held by the Funds from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and exchange-traded securities held by the Funds from markets 
and other entities that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.\45\ In 
addition, FINRA, on behalf of the Exchange, is able to access, as 
needed, trade information for certain Fixed Income Instruments reported 
to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \45\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    With respect to their equity securities investments, the Funds will 
invest only in U.S. and non-U.S. equity securities that trade in 
markets that are members of the ISG, which includes all U.S. national 
securities exchanges and certain foreign exchanges, or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares of each Fund. 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 each 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 of each Fund 
will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \46\ 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.
---------------------------------------------------------------------------

    \46\ 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 of each Fund will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in NYSE Arca Equities 
Rule 8.600. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and exchange-traded securities held by 
the Funds 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 and exchange-traded 
securities held by the Funds from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and exchange-traded securities held by the Funds from markets 
and other entities that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. In 
addition, FINRA, on behalf of the Exchange, is able to access, as 
needed, trade information for certain Fixed Income Instruments reported 
to TRACE. The Adviser is not a broker-dealer but is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to a Fund's portfolio. In addition, the 
Funds will implement and maintain, or be subject to, procedures 
designed to prevent the use and dissemination of material non-public 
information regarding a Fund's portfolio holdings. While emerging 
markets corporate debt securities (excluding commercial paper) 
generally must have $200 million or more par amount outstanding and 
significant par value traded to be considered as an eligible investment 
for each of the Funds, at least 80% of issues of such securities held 
by a Fund must have $200 million or more par amount outstanding at the 
time of investment. The Diversified Income Exchange-Traded Fund may 
invest in both investment grade debt securities and high yield debt 
securities subject to a maximum of 10% of its total assets in debt 
securities rated below B by Moody's, or equivalently rated by S&P or 
Fitch, or, if unrated, determined by PIMCO to be of comparable quality. 
The Low Duration Exchange-Traded Fund and Real Return Exchange-Traded 
Fund will each invest primarily in investment grade debt securities, 
but may invest up to 10% of its total assets in high yield debt 
securities rated B to Ba by Moody's, or equivalently rated by S&P or 
Fitch, or, if unrated, determined by PIMCO to be of comparable quality. 
The Funds will invest only in U.S. and non-U.S. equity securities that 
trade in markets that are members of the ISG, which includes all U.S. 
national

[[Page 66404]]

securities exchanges and certain foreign exchanges, or are parties to a 
comprehensive surveillance sharing agreement with the Exchange. The 
Funds may hold up to an aggregate amount of 15% of their respective net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser, 
consistent with Commission guidance. Each Fund may invest up to 20% of 
its assets in mortgage-backed securities or in other asset-backed 
securities, although this 20% limitation does not apply to securities 
issued or guaranteed by Federal agencies and/or U.S. government 
sponsored instrumentalities. The Funds will not invest in options 
contracts, futures contracts, or swap agreements.
    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 Funds 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 Funds will disclose on the Trust's Web 
site the Disclosed Portfolio that will form the basis for such 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. Intra-day and closing price information regarding equity 
securities traded on a national securities exchange, including common 
stocks, preferred stocks, securities convertible into stocks, closed-
end funds, exchange traded funds and other equity-related securities, 
will be available from the exchange on which such securities are 
traded. Price information regarding non-exchange-traded open-end or 
closed-end management investment companies will be available from major 
market data vendors. Intra-day and closing price information regarding 
Fixed Income Instruments also will be available from major market data 
vendors. Price information relating to forwards will be available from 
major market data vendors. The Trust's Web site will include a form of 
the prospectus for the Funds 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 a 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 a Fund may be halted. In addition, as noted above, 
investors will have ready access to information regarding the Funds' 
holdings, the PIV, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of actively-managed exchange-traded products that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Funds' holdings, 
the PIV, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.

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 
additional types of actively-managed exchange-traded products that 
invest primarily in debt securities, which 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, as modified by Amendment No. 1 thereto, 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-2013-106 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2013-106. 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

[[Page 66405]]

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 Section, 100 F Street NE., 
Washington, DC 20549 on official business days between 10:00 a.m. and 
3:00 p.m. Copies of the filing will also be available for inspection 
and copying at the NYSE's principal office and on its Internet Web site 
at www.nyse.com. 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-2013-106 and should be submitted on or before November 26, 
2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-26410 Filed 11-4-13; 8:45 am]
BILLING CODE 8011-01-P