Document ID: SEC-2015-0570-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2015-04-02T04:00Z

[Federal Register Volume 80, Number 63 (Thursday, April 2, 2015)]
[Notices]
[Pages 17795-17797]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-07517]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74595; File No. SR-NYSEArca-2015-04]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving 
Proposed Rule Change, as Modified by Amendment No. 1, Relating to the 
Listing and Trading of Shares of the Innovator IBD[supreg] 50 Fund 
Under NYSE Arca Equities Rule 8.600

March 27, 2015.
    On January 30, 2015, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Innovator IBD[supreg] 50 Fund (``Fund''). On February 12, 2015, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and replaced the proposal in its entirety. The proposed rule 
change was published for comment in the Federal Register on February 
20, 2015.\3\ No comments on the proposal have been received. This order 
approves the proposed rule change, as modified by Amendment No. 1.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 74278 (February 13, 
2015), 80 FR 9294.
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I. The Exchange's Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares on the Exchange. The Shares will be offered by Academy 
Funds Trust (the ``Trust''), an open-end management investment 
company.\4\ The Fund will issue and sell Shares only in ``Creation 
Unit'' size at the NAV next determined after receipt, on any business 
day, of an order in proper form.\5\
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    \4\ The Trust is registered under the 1940 Act. On October 9, 
2014 and on December 19, 2014, the Trust filed with the Commission 
amendments to its registration statement on Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act'') and 
under the 1940 Act relating to the Fund (File Nos. 333-146827 and 
811-22135) (``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. 31248 
(September 9, 2014) (File No. 812-14308) (``Exemptive Order'').
    \5\ A Creation Unit consists of 25,000 Shares, and the size of a 
Creation Unit is subject to change. See Notice, supra note 3, 80 FR 
at 9296.
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    The investment adviser to the Fund will be Innovator Management LLC 
(the ``Adviser''). Penserra Capital Management LLC will be the Fund's 
sub-adviser (``Sub-Adviser''). Neither the Adviser nor the Sub-Adviser 
is registered as a broker-dealer. The Adviser is not affiliated with a 
broker-dealer. The Sub-Adviser 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 of or 
changes to the Fund's portfolio.\6\ U.S. Bank, N.A.(the 
``Administrator'' or ``Custodian'') will serve as the administrator, 
custodian and transfer agent for the Fund. Quasar Distributors, LLC 
will be the principal underwriter and distributor of the Shares.
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    \6\ 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. In 
addition, Commentary .06 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. 
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 Exchange states that, in the 
event (a) the Adviser or the Sub-Adviser becomes a registered 
broker-dealer or becomes newly affiliated with a broker-dealer, or 
(b) any new adviser or any 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 the Fund's 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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    The investment objective of the Fund will be to seek long-term 
capital appreciation. Under normal circumstances,\7\ the Fund will 
invest at least 80% of its net assets in companies included in the 
IBD[supreg] 50 Index (``Index'') and in U.S. exchange-traded 
equities.\8\ Typically, the Fund will hold U.S. exchange-traded common 
stocks as well as U.S. exchange-traded master limited partnerships 
(``MLPs''), real estate investment trusts (``REITs''), royalty trusts 
and business development companies (``BDCs''). It will invest primarily 
in U.S. equity securities but may, to a lesser extent, invest in equity 
securities of foreign companies in both developed and emerging markets, 
generally through American depositary receipts (``ADRs''). The Fund may 
invest in companies of any size.
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    \7\ The term ``under normal circumstances'' means, without 
limitation, 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.
    \8\ The Index is a computer-generated stock index published by 
Investor's Business Daily[supreg] (``IBD[supreg]''). IBD[supreg] 
uses proprietary fundamental and technical ratings to compile what 
IBD[supreg] considers the 50 leading growth companies that trade on 
U.S. national securities exchanges. Companies included in the Index 
must meet minimum earnings, sales, profit margin, volume and 
technical requirements.
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    Other Portfolio Holdings. The Fund may invest in money market 
securities for liquidity and cash management purposes or if the Adviser 
or Sub-Adviser determines that securities meeting the Fund's investment 
objective and policies are not otherwise readily available for 
purchase. Money market securities include (i) short-term U.S. 
government securities; (ii) commercial paper rated in the highest 
short-term rating category by a nationally recognized statistical 
ratings

[[Page 17796]]

organization (``NRSRO''), such as Standard & Poor's or Moody's, or 
determined by the Adviser or Sub-Adviser to be of comparable quality at 
the time of purchase; (iii) short-term bank obligations (certificates 
of deposit, time deposits and bankers' acceptances) of U.S. domestic 
banks, foreign banks and foreign branches of domestic banks, and 
commercial banks with assets of at least $1 billion as of the end of 
their most recent fiscal year; (iv) repurchase agreements involving 
such securities; and (v) money market mutual funds.
    The Fund may invest in securities of other investment companies 
(other than BDCs), including shares of the following: (1) Exchange-
traded funds (``ETFs''), unit investment trusts, and closed-end 
investment companies, each of which will be listed and traded on a U.S. 
national securities exchange, and (2) non-exchange-listed open-end 
investment companies.

II. Discussion

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act and 
the rules and regulations thereunder applicable to a national 
securities exchange.\9\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act, 
which requires, among other things, that the Exchange's rules be 
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 a national 
market system, and, in general, to protect investors and the public 
interest. The Commission also finds that the proposal to list and trade 
the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) 
of the Act, which sets forth Congress's finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities.
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    \9\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
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    Quotation and last-sale information for the Shares and U.S. 
exchange-listed equity securities will be available via the 
Consolidated Tape Association (``CTA'') high-speed line, and will be 
available from the national securities exchange on which they are 
listed.\10\ The Exchange represents that intra-day and closing price 
information relating to the investments of the Fund will be available 
from major market data vendors and from securities exchanges, as 
applicable.\11\ Further, the Portfolio Indicative Value, as defined in 
NYSE Arca Equities Rule 8.600(c)(3), based on current information 
regarding the value of the securities and other assets in the Disclosed 
Portfolio, will be widely disseminated at least every 15 seconds during 
the Core Trading Session by one or more major market data vendors.\12\ 
The Custodian, through the National Securities Clearing Corporation 
(``NSCC'') will make available on each business day, prior to the 
opening of business on the Exchange (currently 9:30 a.m., Eastern 
time), the list of the names and the required number of shares of each 
Deposit Security to be included in the current Fund Deposit \13\ (based 
on information at the end of the previous business day) for the 
Fund.\14\ In addition, a basket composition file, which includes the 
security names and share quantities (as applicable) required to be 
delivered in exchange for Shares, together with estimates and actual 
cash components, will be publicly disseminated daily prior to the 
opening of the NYSE via the NSCC.\15\ The NAV of the Fund will be 
calculated at the close of regular trading (ordinarily 4:00 p.m. 
Eastern time) every day the New York Stock Exchange is open for 
trading.\16\ Information regarding market price and trading of the 
Shares will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services.\17\ 
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.\18\
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    \10\ See Notice, supra note 3, 80 FR at 9298.
    \11\ See id. Price information regarding money market mutual 
funds will be available from on-line sources and from the Web site 
for the applicable fund. See id.
    \12\ The Exchange understands that several major market data 
vendors display or make widely available Portfolio Indicative Values 
taken from CTA or other data feeds. See id., n.26.
    \13\ The ``Fund Deposit'' is the consideration for purchase of 
Creation Units of the Fund, which generally will consist of the in-
kind deposit of a designated portfolio of equity securities and an 
amount of cash. See id. at 9296-97.
    \14\ See id. at 9297.
    \15\ See id. at 9298.
    \16\ See id. at 9296.
    \17\ See id. at 9298.
    \18\ See id.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share of 
the Fund 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, trading in the Shares would be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which set forth circumstances under which 
trading in the Shares may be halted. Trading may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable.\19\ Further, the Commission 
notes that the Adviser, as the Reporting Authority, that provides the 
Disclosed Portfolio must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the actual components of the Fund's 
portfolio.\20\ In addition, the Exchange may obtain information 
regarding trading in the Shares and underlying exchange-traded equity 
securities from markets and other entities that are members of 
Intermarket Surveillance Group (``ISG'') or with which the Exchange has 
in place a comprehensive surveillance sharing agreement.\21\ The 
Exchange represents that it prohibits the distribution of material non-
public information by its employees. The Exchange represents that the 
Adviser is not a registered broker-dealer and is not affiliated with 
any broker-dealers. The Exchange represents that the Sub-Adviser 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 of or changes to the Fund's portfolio.\22\
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    \19\ 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. See id.
    \20\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \21\ 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.
    \22\ The Exchange also represents that, in the event that (a) 
the Adviser or the Sub-Adviser becomes a registered broker-dealer or 
becomes newly affiliated with a broker-dealer, or (b) any new 
adviser or any 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 the Fund's portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio. See Notice, supra note 3, 80 
FR at 9300.

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[[Page 17797]]

    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. Additionally, in 
support of its proposal, the Exchange has made the following 
representations:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) 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.
    (4) Financial Industry Regulatory Authority (``FINRA''), on behalf 
of the Exchange, will communicate as needed regarding trading in the 
Shares and underlying exchange-traded equity securities 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, underlying exchange-traded equity securities, 
from such markets and other entities.
    (5) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit aggregations (and that Shares are not individually 
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its Equity Trading Permit 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 Portfolio Indicative Value will 
not be calculated or publicly disseminated; (4) how information 
regarding the Portfolio Indicative Value is disseminated; (5) the 
requirement that Equity Trading Permit Holders deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (6) trading information.
    (6) The Exchange represents that, for initial and continued 
listing, the Fund will be in compliance with Rule 10A-3 \23\ under the 
Act, as provided by NYSE Arca Equities Rule 5.3.
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    \23\ 17 CFR 240.10A-3.
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    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets (calculated at the time of investment) in assets deemed illiquid 
by the Adviser, consistent with Commission guidance.
    (8) A minimum of 100,000 Shares of each Fund will be outstanding at 
the commencement of trading on the Exchange.
    (9) Not more than 10% of the net assets of the Fund in the 
aggregate invested in exchange-traded equity securities shall consist 
of equity securities whose principal market is not a member of the ISG 
or is a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement.
    (10) The Fund will not invest in options, futures contracts or 
swaps agreements.
    (11) The Fund will not invest in leveraged or inverse leveraged 
(e.g., 2X, -2X, 3X or -3X) ETFs.
    This approval order is based on all of the Exchange's 
representations and description of the Funds.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act and the rules and regulations thereunder applicable 
to a national securities exchange.

III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-NYSEArca-2015-04), as modified by 
Amendment No. 1, be, and it hereby is, approved.
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    \24\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Brent J. Fields,
Secretary.
[FR Doc. 2015-07517 Filed 4-1-15; 8:45 am]
BILLING CODE CODE 8011-01-P