Document ID: SEC-2016-1155-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2016-07-07T04:00Z

[Federal Register Volume 81, Number 130 (Thursday, July 7, 2016)]
[Notices]
[Pages 44339-44348]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16108]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78218; File No. SR-NYSEArca-2016-82]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the JPMorgan 
Diversified Event Driven ETF Under NYSE Arca Equities Rule 8.600

July 1, 2016.
    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 June 20, 2016, 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. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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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 JPMorgan 
Diversified Event Driven ETF under NYSE Arca Equities Rule 8.600. 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.

[[Page 44340]]

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
following under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares \4\ on the Exchange: \5\ 
JPMorgan Diversified Event Driven ETF (the ``Fund'').
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    \4\ 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.
    \5\ The Commission has previously approved listing and trading 
on the Exchange of actively managed funds under Rule 8.600. See, 
e.g., Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 
FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving 
Exchange listing and trading of twelve actively-managed funds of the 
WisdomTree Trust); 66321 (February 3, 2012), 77 FR 6850 (February 9, 
2012) (SR-NYSEArca-2011-95) (order approving 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 
listing and trading of PIMCO Global Advantage Inflation-Linked Bond 
Strategy Fund).
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    The Fund is a series of J.P. Morgan Exchange-Traded Fund Trust 
(``Trust''), a Delaware statutory trust.\6\ J.P. Morgan Investment 
Management Inc. (``Adviser'') will be the investment adviser to the 
Fund. The Adviser is a wholly-owned subsidiary of JPMorgan Asset 
Management Holdings Inc., which is a wholly-owned subsidiary of 
JPMorgan Chase & Co. (``JPMorgan Chase''), a bank holding company. The 
Adviser will also provide administrative services for and will oversee 
the other service providers of the Fund (in such capacity, the 
``Administrator''). SEI Investments Distribution Co. (``Distributor'') 
will be the distributor of the Fund's Shares.
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    \6\ The Trust is registered under the 1940 Act. On April 22, 
2016, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to 
the Fund (File Nos. 333-191837 and 811-22903) (the ``Registration 
Statement'') to add the Fund. The Trust filed an application for an 
order under Section 6(c) of the 1940 Act for exemptions from various 
provisions of the 1940 Act and rules thereunder (File No. 812-
13761), initially filed March 10, 2010 and most recently amended on 
December 23, 2015 (``Exemptive Application''); the Exemptive 
Application was published for notice in IC Release No. 31956 on 
January 14, 2016. An order (``Exemptive Order'') was issued 
regarding the Exemptive Application on February 19, 2016 (IC Release 
No. 31990). Investments made by the Fund will comply with the 
conditions set forth in the Exemptive Order. The description of the 
operation of the Trust and the Fund herein is based, in part, on the 
Registration Statement and the Exemptive Application.
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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.\7\ In addition, 
Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Adviser is not 
registered as a broker-dealer but is affiliated with a broker-dealer 
and has implemented and will maintain a fire wall with respect to such 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio. In the event (a) the 
Adviser becomes registered as a broker-dealer or newly affiliated with 
one or more broker-dealers, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, it 
will implement and maintain a fire wall with respect to its relevant 
personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    According to the Registration Statement, the Fund will seek to 
provide long term, total return. The Fund will seek to achieve its 
investment objective by employing an event-driven investment strategy, 
primarily investing in companies that the Adviser believes will be 
impacted by pending or anticipated corporate or special situation 
events. In executing this investment strategy, the Fund will seek to 
capture the price difference between a security's market price and the 
anticipated value post-event, based on the assumption that an event or 
catalyst will affect future pricing. It will do so based on its 
systematic investment process. The Adviser believes it has identified 
(and will continue to identify) a set of event-driven investment return 
sources that have a low correlation to each other and traditional 
markets and have distinct risk and return profiles (each a ``return 
factor'').
    Each return factor represents a potential source of investment 
return that results from, among other things, assuming a particular 
risk or taking advantage of a behavioral bias. The Adviser believes 
that, in general, the Fund's event-driven investment returns will be 
attributable to the individual contributions of the various return 
factors. By employing this return factor based approach, the Fund will 
seek to provide positive total returns over time while maintaining a 
relatively low correlation with traditional markets. The exposure to 
individual return factors may vary based on the market opportunity of 
the individual return factors. Additional return factors may be 
identified over time.
    Under normal market conditions,\8\ the Fund will seek to achieve 
its investment objective by employing its investment strategy to access 
certain return factors. For example, the return factors that the 
Adviser may utilize include, but are not limited to, the following:
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    \8\ The term ``under normal market conditions'' includes, but is 
not limited to, the absence of extreme volatility or trading halts 
in the securities markets or the financial markets generally; 
circumstances under which the Fund's investments are made for 
temporary defensive purposes; operational issues (e.g., systems 
failure) causing dissemination of inaccurate market information; or 
force majeure type events such as cyber attacks, natural or man-made 
disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.

--Merger arbitrage--seeks to capitalize on reactions and returns 
generated by a corporate transaction. The Fund will purchase the common 
stock of the

[[Page 44341]]

company being acquired and may short the common stock of the acquirer 
in expectation of profiting from changes in price resulting from merger 
activity;
--activism tracking--invests in companies that are the target of 
activist investors;
--share buybacks--attempts to exploit the outperformance of a company 
engaged in a share buyback program;
--parents and spinoffs--attempts to capture positive performance of a 
parent company after the spinoff announcement; this typically leads to 
a revaluation of the company;
--index arbitrage--attempts to profit from the price changes of assets 
as they are added to or deleted from indices;
--post-reorganization equities--attempts to profit from the mispricing 
of companies as they emerge from bankruptcy.

    The Fund will invest its assets globally to gain exposure to equity 
securities (across market capitalizations) in developed markets. The 
Fund may use both long and short positions (achieved primarily through 
the use of derivative instruments as described below). The Fund 
generally will maintain a total net long market exposure. However, the 
Fund may have net long or net short exposure to one or more industry 
sectors, individual markets and/or currencies.
    According to the Registration Statement, the Adviser will make use 
of derivatives (as described below), in implementing its strategies. 
Under normal market conditions, the Adviser currently expects that a 
significant portion of the Fund's exposure will be attained through the 
use of derivatives in addition to its exposure through direct 
investment. For example, the Fund may use a total return swap to 
establish both long and short positions in order to gain the desired 
exposure rather than physically purchasing and selling short each 
instrument. Derivatives may also be used to increase gain, to 
effectively gain targeted exposure from its cash positions, to hedge 
various investments and/or for risk management. As a result of the 
Fund's use of derivatives and to serve as collateral, the Fund may hold 
significant amounts of U.S. Treasury obligations, including Treasury 
bills, bonds and notes and other obligations issued or guaranteed by 
the U.S. Treasury, other short-term investments, including money market 
funds and foreign currencies in which certain derivatives are 
denominated.
    According to the Registration Statement, the amount that may be 
invested in any one instrument will vary and generally depend on the 
return factors employed by the Adviser at that time. However, with the 
exception of specified investment limitations for certain assets 
described below, there are no stated percentage limitations on the 
amount that can be invested in any one type of instrument, and the 
Adviser may, at times, focus on a smaller number of instruments. 
Moreover, the Fund will generally be unconstrained by any particular 
capitalization, style or sector and may invest in any developed region 
or country.
    The Fund will purchase a particular instrument when the Adviser 
believes that such instrument will allow the Fund to gain the desired 
exposure to a return factor. Conversely, the Fund will consider selling 
a particular instrument when it no longer provides the desired exposure 
to a return factor. In addition, investment decisions will take into 
account a return factor's contribution to the Fund's overall 
volatility.
    In addition to its main return factors, the Fund may utilize return 
factors that use debt securities. The Fund may invest, either directly 
or through financial derivative instruments, debt securities that are 
subject to a downgrade from investment grade to non-investment grade 
(also known as high yield/junk bond) status. For example, the Fund may 
invest in the bonds that have been downgraded while hedging credit risk 
more broadly by using credit default swaps indices in order to attempt 
to keep the Fund's exposure market neutral.
Principal Investments
    According to the Registration Statement, under normal market 
conditions, the Fund will invest principally (i.e., more than 50% of 
the Fund's assets) in the securities and financial instruments 
described below, which may be represented by derivatives, as discussed 
below.
    The Fund may invest in exchange-listed-and-traded common stocks, 
preferred stocks,\9\ warrants and rights \10\ of U.S. and foreign 
corporations (including emerging market securities); and U.S. and non-
U.S. real estate investment trusts (``REITs'').\11\ Exchange-listed-
and-traded common stocks, preferred stocks, warrants and rights of U.S. 
corporations and U.S. REITs will be traded on U.S. national securities 
exchanges.
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    \9\ Preferred stock is a class of stock that generally pays a 
dividend at a specified rate and has preference over common stock in 
the payment of dividends and in liquidation (U.S. and non-U.S., 
including emerging markets).
    \10\ Rights are securities, typically issued with preferred 
stock or bonds, that give the holder the right to buy a 
proportionate amount of common stock at a specified price (U.S. and 
non-U.S., including emerging markets).
    \11\ REITs are pooled investment vehicles which invest primarily 
in income producing real estate or real estate related loans or 
interest.
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    The Fund may invest in exchange-listed and over-the-counter 
(``OTC'') ``Depositary Receipts'' \12\ as described below.
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    \12\ Depositary Receipts include American Depositary Receipts 
(``ADRs''), Global Depositary Receipts (``GDRs'') and European 
Depositary Receipts (``EDRs''). ADRs are receipts typically issued 
by an American bank or trust company that evidence ownership of 
underlying securities issued by a foreign corporation. EDRs are 
receipts issued by a European bank or trust company evidencing 
ownership of securities issued by a foreign corporation. GDRs are 
receipts issued throughout the world that evidence a similar 
arrangement. ADRs, EDRs and GDRs may trade in foreign currencies 
that differ from the currency the underlying security for each ADR, 
EDR or GDR principally trades in. Generally, ADRs, in registered 
form, are designed for use in the U.S. securities markets. EDRs, in 
registered form, are used to access European markets. GDRs, in 
registered form, are tradable both in the United States and in 
Europe and are designed for use throughout the world. No more than 
10% of the net assets of the Fund will be invested in ADRs that are 
not exchange-listed.
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    The Fund may invest in the following cash and cash equivalents: 
Investments in money market funds (for which the Adviser and/or its 
affiliates serve as investment adviser or administrator), bank 
obligations,\13\ commercial paper,\14\ repurchase agreements and short-
term funding agreements.\15\
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    \13\ Bank obligations include the following: Bankers' 
acceptances, certificates of deposit and time deposits. Bankers' 
acceptances are bills of exchange or time drafts drawn on and 
accepted by a commercial bank. Maturities are generally six months 
or less. Certificates of deposit are negotiable certificates issued 
by a bank for a specified period of time and earning a specified 
return. Time deposits are non-negotiable receipts issued by a bank 
in exchange for the deposit of funds.
    \14\ Commercial paper consists of secured and unsecured short-
term promissory notes issued by corporations and other entities. 
Maturities generally vary from a few days to nine months.
    \15\ Short-term funding agreements are agreements issued by 
banks and highly rated U.S. insurance companies such as Guaranteed 
Investment Contracts (``GICs'') and Bank Investment Contracts 
(``BICs'').
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    The Fund may invest in corporate debt.\16\
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    \16\ The Adviser expects that, under normal market conditions, 
the Fund will invest at least 75% of its corporate debt securities 
in issuances that have at least $100,000,000 par amount outstanding 
in developed countries or at least $200,000,000 par amount 
outstanding in emerging market countries.
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    In addition to money market funds referenced above, the Fund may 
invest in shares of non-exchange-traded investment company securities 
including investment company securities for which the Adviser and/or 
its affiliates may serve as investment

[[Page 44342]]

adviser or administrator, to the extent permitted by Section 12(d)(1) 
\17\ of the 1940 Act and the rules thereunder.
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    \17\ 15 U.S.C. 80a-12(d)(1).
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    The Fund may invest in exchange traded funds (``ETFs'').\18\
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    \18\ The ETFs in which the Fund may invest will be registered 
under the 1940 Act and include Investment Company Units (as 
described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio 
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); 
and Managed Fund Shares (as described in NYSE Arca Equities Rule 
8.600). Such ETFs all will be listed and traded in the U.S. on 
registered exchanges. While the Fund may invest in inverse ETFs, the 
Fund will not invest in leveraged or inverse leveraged (e.g., 2X, -
2X, 3X or -3X) ETFs.
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    The Fund may purchase and sell futures contracts on indexes of 
securities.
    The Fund may invest in swaps as follows: Credit default swaps 
(``CDSs''), CDS indices and total return swaps on equity securities, 
equity indexes, fixed income securities, and fixed income futures.
    The Fund may invest in forward and spot currency transactions.\19\ 
Such investments consist of non-deliverable forwards (``NDFs''), 
foreign forward currency contracts, and spot currency transactions.
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    \19\ The Fund will limit its investments in currencies to those 
currencies with a minimum average daily foreign exchange turnover of 
USD $1 billion as determined by the Bank for International 
Settlements (``BIS'') Triennial Central Bank Survey. As of the most 
recent BIS Triennial Central Bank Survey, at least 52 separate 
currencies had minimum average daily foreign exchange turnover of 
USD $1 billion. For a list of eligible BIS currencies, see 
www.bis.org.
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    The Fund may invest in OTC and exchange-traded call and put options 
on equities, fixed income securities and currencies or options on 
indexes of equities, fixed income securities and currencies.
    The Fund may invest in U.S. Government obligations, which may 
include direct obligations of the U.S. Treasury, including Treasury 
bills, notes and bonds, all of which are backed as to principal and 
interest payments by the full faith and credit of the United States, 
and separately traded principal and interest component parts of such 
obligations that are transferable through the Federal book-entry system 
known as Separate Trading of Registered Interest and Principal of 
Securities (``STRIPS'') and Coupons Under Book Entry Safekeeping 
(``CUBES'').
Other Investments
    While the Fund, under normal market conditions, will invest at 
least fifty percent (50%) of its assets in the securities and financial 
instruments described above, the Fund may invest its remaining assets 
in other assets and financial instruments, as described below.
    The Fund may invest in U.S. and non-U.S. convertible securities, 
which are bonds or preferred stock that can convert to common stock.
    The Fund may invest in reverse repurchase agreements.
    The Fund may invest in sovereign obligations, which are investments 
in debt obligations issued or guaranteed by a foreign sovereign 
government or its agencies, authorities or political subdivisions.
    The Fund may invest no more than 5% of its assets in equity and 
debt securities that are restricted securities (Rule 144A securities), 
in addition to Rule 144A securities deemed illiquid by the Adviser, as 
referenced below.
    Under normal market conditions, the Fund may invest no more than 5% 
of its assets in OTC common stocks, preferred stocks, warrants, rights 
and contingent value rights (``CVRs'') of U.S. and foreign corporations 
(including emerging market securities).
Other Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser, 
consistent with Commission guidance. The Fund will monitor its 
portfolio liquidity on an ongoing basis to determine whether, in light 
of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.\20\
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    \20\ 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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    The Fund may invest in other investment companies to the extent 
permitted by Section12(d)(1) of the 1940 Act and rules thereunder and/
or any applicable exemption or exemptive order under the 1940 Act with 
respect to such investments.
    The Fund may invest in securities denominated in U.S. dollars, 
major reserve currencies, and currencies of other countries in which 
the Fund may invest.
    The Fund may invest in both investment grade and high yield debt 
securities.
    The Fund intends to qualify for and to elect treatment as a 
separate regulated investment company (``RIC'') under Subchapter M of 
the Internal Revenue Code.\21\ Furthermore, the Fund may not 
concentrate investments in a particular industry or group of 
industries, as concentration is defined under the 1940 Act, the rules 
or regulations thereunder or any exemption therefrom, as such statute, 
rules or regulations may be amended or interpreted from time to 
time.\22\
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    \21\ 26 U.S.C. 851 et seq.
    \22\ The Registration Statement states that, for purposes of the 
Fund's fundamental investment policy regarding industry 
concentration, ``to concentrate'' generally means to invest more 
than 25% of the Fund's total assets, taken at market value at the 
time of investment.
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    The Fund is a diversified series of the Trust. The Fund intends to 
meet the diversification requirements of the 1940 Act.\23\
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    \23\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund's investments, including derivatives, will be consistent 
with the Fund's investment objective and will not be used to enhance 
leverage (although certain derivatives may result in leverage). That 
is, while the Fund will be permitted to borrow as permitted under the 
1940 Act, the Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the 
Fund's primary broad-based securities benchmark index (as defined in 
Form N-1A).\24\
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    \24\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
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The Fund's Use of Derivatives
    The Fund proposes to seek certain exposures through transactions in 
the specific derivative instruments described above. The derivatives to 
be used are futures, swaps, NDFs, foreign forward currency contracts, 
and call and put options. Derivatives, which are

[[Page 44343]]

instruments that have a value based on another instrument, exchange 
rate or index, may also be used as substitutes for securities in which 
the Fund can invest. The Fund may use these derivative instruments to 
increase gain, to effectively gain targeted exposure from its cash 
positions, to hedge various investments and/or for risk management.
    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies. To limit the potential risk associated with such 
transactions, the Fund will segregate or ``earmark'' assets determined 
to be liquid by the Adviser in accordance with procedures established 
by the Trust's Board of Trustees (the ``Board'') and in accordance with 
the 1940 Act (or, as permitted by applicable regulation, enter into 
certain offsetting positions) to cover its obligations under derivative 
instruments. These procedures have been adopted consistent with Section 
18 of the 1940 Act and related Commission guidance. In addition, the 
Fund will include appropriate risk disclosure in its offering 
documents, including leveraging risk. Leveraging risk is the risk that 
certain transactions of the Fund, including the Fund's use of 
derivatives, may give rise to leverage, causing the Fund to be more 
volatile than if it had not been leveraged.\25\ Because the markets for 
certain assets, or the assets themselves, may be unavailable or cost 
prohibitive as compared to derivative instruments, suitable derivative 
transactions may be an efficient alternative for the Fund to obtain the 
desired asset exposure.
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    \25\ 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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Creation and Redemption of Shares
    According to the Registration Statement, the consideration for a 
purchase of Creation Units will generally be cash, but may consist of 
an in-kind deposit of a designated portfolio of equity securities and 
other investments (the ``Deposit Instruments'') and an amount of cash 
computed as described below (the ``Cash Amount'') under some 
circumstances. The size of a Creation Unit will be 100,000 Shares and 
will be subject to change. The Cash Amount together with the Deposit 
Instruments, as applicable, are referred to as the ``Portfolio 
Deposit'', which represents the minimum initial and subsequent 
investment amount for a Creation Unit of the Fund.
    In the event the Fund requires Deposit Instruments and a Cash 
Amount in consideration for purchasing a Creation Unit, the function of 
the Cash Amount is to compensate for any differences between the net 
asset value (``NAV'') per Creation Unit and the Deposit Amount (as 
defined below). The Cash Amount would be an amount equal to the 
difference between the NAV of the Shares (per Creation Unit) and the 
``Deposit Amount,'' which is an amount equal to the aggregate market 
value of the Deposit Instruments. If the Cash Amount is a positive 
number (the NAV per Creation Unit exceeds the Deposit Amount), the 
``Authorized Participant'' (as defined below) will deliver the Cash 
Amount. If the Cash Amount is a negative number (the NAV per Creation 
Unit is less than the Deposit Amount), the Authorized Participant will 
receive the Cash Amount. The Administrator, through the National 
Securities Clearing Corporation (``NSCC''), will make available on each 
business day, immediately prior to the opening of business on the 
Exchange (currently 9:30 a.m. Eastern time (``E.T.'')), the list of the 
names and the required number of shares of each Deposit Instrument to 
be included in the current Portfolio Deposit (based on information at 
the end of the previous business day), as well as information regarding 
the Cash Amount for the Fund. Such Portfolio Deposit is applicable, 
subject to any adjustments as described below, in order to effect 
creations of Creation Units of the Fund until such time as the next-
announced Portfolio Deposit composition is made available.
    The identity and number of the Deposit Instruments and Cash Amount 
required for the Portfolio Deposit for the Fund changes as rebalancing 
adjustments and corporate action events are reflected from time to 
time. In addition, the Trust reserves the right to accept a basket of 
securities or cash that differs from Deposit Instruments or to permit 
the substitution of an amount of cash (i.e., a ``cash in lieu'' amount) 
to be added to the Cash Amount to replace any Deposit Instrument which 
may, among other reasons, not be available in sufficient quantity for 
delivery, not be permitted to be re-registered in the name of the Trust 
as a result of an in-kind creation order pursuant to local law or 
market convention or for other reasons as described in the Registration 
Statement, or which may not be eligible for trading by a Participating 
Party (defined below). In light of the foregoing, in order to seek to 
replicate the in-kind creation order process, the Trust expects to 
purchase the Deposit Instruments represented by the cash in lieu amount 
in the secondary market.
    In addition to the list of names and numbers of securities 
constituting the current Deposit Instruments of a Portfolio Deposit, 
the Administrator, through the NSCC, also will make available on each 
business day, the estimated Cash Component adjusted through the close 
of the trading day.
Procedures for Creation of Creation Units
    To be eligible to place orders with the Distributor to create 
Creation Units of the Fund, an entity or person either must be (1) a 
``Participating Party,'' i.e., a broker-dealer or other participant in 
the clearing process through the Continuous Net Settlement System of 
the NSCC; or (2) a Depositary Trust Company (``DTC'') Participant, 
which, in either case, must have executed an agreement with the 
Distributor (as it may be amended from time to time in accordance with 
its terms) (``Participant Agreement'') (discussed below). A 
Participating Party and DTC Participant are collectively referred to as 
an ``Authorized Participant.'' All orders to create Creation Units must 
be received by the Distributor no later than the closing time of the 
regular trading session on the Exchange (``Closing Time'') (ordinarily 
4:00 p.m. E.T.), in each case on the date such order is placed in order 
for creation of Creation Units to be effected based on the NAV of the 
Fund as determined on such date.
Redemption of Creation Units
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Distributor, only on a business day and only through an Authorized 
Participant. The Trust will not redeem Shares in amounts less than 
Creation Units.
    Although the Fund will generally pay redemption proceeds in cash, 
there may be instances when it will make redemptions in-kind. In these 
instances, the Administrator, through NSCC, will make available 
immediately prior to the opening of business on the Exchange (currently 
9:30 a.m. E.T.) on each day that the Exchange is open for business, the 
identity of the Fund's assets and/or an amount of cash that will be 
applicable (subject to possible amendment or correction) to redemption 
requests received in proper form on that day. Unless cash redemptions 
are permitted or required for the Fund, the redemption proceeds for a 
Creation Unit generally consist of ``Redemption Instruments'' as 
announced by the Administrator on the

[[Page 44344]]

business day of the request for redemption, plus cash in an amount 
equal to the difference between the NAV of the Shares being redeemed, 
as next determined after a receipt of a request in proper form, and the 
value of the Redemption Instruments, less the redemption transaction 
fee and variable fees described below.
    Should the Redemption Instruments have a value greater than the NAV 
of the Shares being redeemed, a compensating cash payment to the Trust 
equal to the differential plus the applicable redemption transaction 
fee will be required to be arranged for by or on behalf of the 
redeeming shareholder. The Fund reserves the right to honor a 
redemption request by delivering a basket of securities or cash that 
differs from the Redemption Instruments.\26\
---------------------------------------------------------------------------

    \26\ The Adviser represents that, to the extent the Trust 
effects the creation or redemption of Shares in cash, such 
transactions will be effected in the same manner for all Authorized 
Participants.
---------------------------------------------------------------------------

Valuation Methodology for Purposes of Determining Net Asset Value
    The NAV of Shares, under normal market conditions, will be 
calculated each business day as of the close of the Exchange, which is 
typically 4:00 p.m. E.T. On occasion, the Exchange will close before 
4:00 p.m. E.T. When that happens, NAV will be calculated as of the time 
the Exchange closes. The price at which a purchase of a Creation Unit 
is effected will be based on the next calculation of NAV after the 
order is received in proper form.
    Securities for which market quotations are readily available will 
generally be valued at their current market value. Other securities and 
assets, including securities for which market quotations are not 
readily available or market quotations are determined not to be 
reliable; or, if their value has been materially affected by events 
occurring after the close of trading on the exchange or market on which 
the security is principally traded but before the Fund's NAV is 
calculated, may be valued at fair value in accordance with policies and 
procedures adopted by the Trust's Board of Trustees. Fair value 
represents a good faith determination of the value of a security or 
other asset based upon specifically applied procedures. Fair valuation 
may require subjective determinations.
    U.S. exchange-traded common stocks, preferred stocks, warrants, 
rights, REITs, and Depositary Receipts will be valued at the last sale 
price or official market closing price on the primary exchange on which 
such security trades. Exchange-traded non-U.S. equity securities will 
be valued at the last sale price or official market closing price on 
the primary exchange on which such security trades.
    OTC equity securities will be priced utilizing market quotations 
provided by approved pricing services or by broker quotation. For OTC 
warrants, rights and CVRs, if no pricing service or broker quotation is 
available, then the warrant, right or CVR will be valued intrinsically 
based on the terms of issuance.
    Shares of non-exchange-traded open-end investment companies will be 
valued at their current day NAV published by the relevant fund. ETFs 
will be valued at the last sale price or official market closing price 
on the primary exchange on which such ETF trades.
    CDS and total return swaps will be priced utilizing market 
quotations provided by approved pricing services.
    Forward and spot currency transactions will be valued based on 
foreign exchange rates obtained from an approved pricing service, using 
spot and forward rates available at the time NAV of the Fund is 
calculated.
    Commercial paper will be valued at prices supplied by approved 
pricing services which is generally based on bid-side quotations.
    Options traded on U.S. exchanges will be valued at the composite 
mean price, using the National Best Bid and Offer quotes (``NBBO'') on 
the valuation date. NBBO consists of the highest bid price and lowest 
ask price across any of the exchanges on which an option is quoted.
    Options traded on foreign exchanges will be valued at the settled 
price on the valuation date, or if no settled price is available, at 
the last sale price available prior to the calculation of the Fund's 
NAV.
    Futures traded on U.S. and foreign exchanges are valued at the 
settled price, or if no settled price is available, at the last sale 
price as of the close of the exchanges on the valuation date.
    OTC derivatives will be priced utilizing market quotations provided 
by approved pricing services.
    In addition, non-Western Hemisphere equity securities or 
derivatives involving non-Western Hemisphere equity reference 
obligations will normally be subject to adjustment (fair value) each 
day by applying a fair value factor provided by approved pricing 
services to the values obtained as described above.
    Convertible securities will be valued at prices supplied by 
approved pricing services which is generally based on bid-side 
quotations.
    Corporate debt securities will be valued at prices supplied by 
approved pricing services which is generally based on bid-side 
quotations.
    Bank obligations, short-term funding agreements, repurchase 
agreements, reverse repurchase agreements, U.S. Government obligations, 
sovereign obligations, and Rule 144A securities will be valued at 
prices supplied by approved pricing services which is generally based 
on bid-side quotations.
Derivatives Valuation Methodology for Purposes of Determining Intra-Day 
Indicative Value
    On each business day, before commencement of trading in Fund Shares 
on NYSE Arca, the Fund will disclose on its Web site the identities and 
quantities of the portfolio instruments and other assets held by the 
Fund that will form the basis for the Fund's calculation of NAV at the 
end of the business day.
    In order to provide additional information regarding the intra-day 
value of Shares of the Fund, the NYSE Arca or a market data vendor will 
disseminate every 15 seconds through the facilities of the Consolidated 
Tape Association or other widely disseminated means an updated Intra-
Day Indicative Value (``IIV'') for the Fund as calculated by a third 
party market data provider.
    A third party market data provider will calculate the IIV for the 
Fund. The third party market data provider may use market quotes if 
available or may fair value securities against proxies (such as swap or 
yield curves).
    With respect to specific derivatives:
     NDFs and foreign forward currency contracts may be valued 
intraday using market quotes, or another proxy as determined to be 
appropriate by the third party market data provider.
     Futures may be valued intraday using the relevant futures 
exchange data, or another proxy as determined to be appropriate by the 
third party market data provider.
     CDS and CDS indices swaps may be valued using intraday 
data from market vendors, or based on underlying asset price, or 
another proxy as determined to be appropriate by the third party market 
data provider.
     Total return swaps may be valued intraday using the 
underlying asset price, or another proxy as determined to be 
appropriate by the third party market data provider.
     Exchange-listed options may be valued intraday using the 
relevant exchange data, or another proxy as determined to be 
appropriate by the third party market data provider.

[[Page 44345]]

     OTC options may be valued intraday through option 
valuation models (e.g., Black-Scholes) or using exchange traded options 
as a proxy, or another proxy as determined to be appropriate by the 
third party market data provider.
Disclosed Portfolio
    The Fund's disclosure of derivative positions in the Disclosed 
Portfolio will include information that market participants can use to 
value these positions intraday. On a daily basis, the Adviser will 
disclose on the Fund's Web site the following information regarding 
each portfolio holding, as applicable to the type of holding: Ticker 
symbol, CUSIP number or other identifier, if any; a description of the 
holding (including the type of holding, such as the type of swap); the 
identity of the security, index or other asset or instrument underlying 
the holding, if any; for options, the option strike price; quantity 
held (as measured by, for example, par value, notional value or number 
of shares, contracts or units); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. The Web 
site information will be publicly available at no charge.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal impact to the arbitrage 
mechanism as a result of the use of derivatives. Market makers and 
participants should be able to value derivatives as long as the 
positions are disclosed with relevant information. The Adviser believes 
that the price at which Shares trade will continue to 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 the Fund's arbitrage 
mechanism due to the use of derivatives. Because derivatives generally 
are not eligible for in-kind transfer, they will typically be 
substituted with a ``cash in lieu'' amount when the Fund processes 
purchases or redemptions of creation units in-kind.
Availability of Information
    The Fund's Web site (www.jpmorganfunds.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) daily trading volume, the 
prior business day's reported closing price, NAV or mid-point of the 
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\27\ 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 (normally, 9:30 a.m. 
to 4:00 p.m., E.T.) on the Exchange, the Adviser will disclose on the 
Fund's Web site the Disclosed Portfolio for the Fund as defined in NYSE 
Arca Equities Rule 8.600(c)(2) that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\28\
---------------------------------------------------------------------------

    \27\ The Bid/Ask Price of the 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 the Fund's NAV. The 
records relating to Bid/Ask Prices will be retained by the Fund and 
its service providers.
    \28\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    The Fund's portfolio holdings will be disclosed on its Web site 
daily after the close of trading on the Exchange and prior to the 
opening of trading on the Exchange the following day.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at www.sec.gov.
    Quotation and last sale information for the Shares and for 
portfolio holdings of the Fund that are U.S. exchange listed, including 
common stocks, preferred stocks, warrants, rights, ETFs, REITs, and 
U.S. exchange-traded ADRs will be available via the Consolidated Tape 
Association (``CTA'') high speed line. Quotation and last sale 
information for such U.S. exchange-listed securities, as well as 
futures will be available from the exchange on which they are listed. 
Quotation and last sale information for exchange-listed options cleared 
via the Options Clearing Corporation will be available via the Options 
Price Reporting Authority. Quotation and last sale information for non-
U.S. equity securities (including GDRs and EDRs) will be available from 
the exchanges on which they trade and from major market data vendors, 
as applicable. Price information for OTC common stocks (including 
certain OTC ADRs), preferred stocks, warrants, rights and CVRs will be 
available from one or more major market data vendors or broker dealers 
in the securities.
    Quotation information for OTC options, cash equivalents, swaps, 
money market funds, non-exchange-listed investment company securities 
(other than money market funds), Rule 144A securities, U.S. Government 
obligations, U.S. Government agency obligations, sovereign obligations, 
corporate debt, and reverse repurchase agreements may be obtained from 
brokers and dealers who make markets in such securities or through 
nationally recognized pricing services through subscription agreements. 
The U.S. dollar value of foreign securities, instruments and currencies 
can be derived by using foreign currency exchange rate quotations 
obtained from nationally recognized pricing services. Forwards and spot 
currency price information will be available from major market data 
vendors.
    In addition, the IIV, which is the Portfolio Indicative Value, 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.\29\ The dissemination of the 
IIV, together with the Disclosed Portfolio, will allow investors to 
determine the approximate value of the underlying portfolio of the Fund 
on a daily basis and will provide a close estimate of that value 
throughout the trading day.
---------------------------------------------------------------------------

    \29\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIVs 
taken from the 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 the Fund.\30\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the

[[Page 44346]]

view of the Exchange, make trading in the Shares of the 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 the Fund; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. Trading in the Shares will be subject 
to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund may be halted.
---------------------------------------------------------------------------

    \30\ 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, 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 the 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 Fund will be 
in compliance with Rule 10A-3 \31\ under the Act, as provided by NYSE 
Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be 
outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares of 
the Fund that the NAV and the Disclosed Portfolio will be made 
available to all market participants at the same time.
---------------------------------------------------------------------------

    \31\ 17 CFR 240 10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances administered by the Exchange as 
well as cross-market surveillances administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\32\ 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.
---------------------------------------------------------------------------

    \32\ FINRA conducts cross-market surveillances on behalf of 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.
    The Exchange, or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, certain 
exchange-listed equity securities (including Depositary Receipts, ETFs, 
REITs, common and preferred stocks, warrants, rights, certain futures, 
and certain exchange-traded options with other markets and other 
entities that are members of the Intermarket Surveillance Group 
(``ISG''), and the Exchange or FINRA, on behalf of the Exchange, or 
both, may obtain trading information regarding trading such securities 
and financial instruments from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in such 
securities and financial instruments from markets and other entities 
that are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\33\ FINRA, on behalf of 
the Exchange, is able to access, as needed, trade information for 
certain fixed income securities held by the Fund reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \33\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    Not more than 10% of the net assets of the Fund in the aggregate 
invested in equity securities (other than non-exchange-traded 
investment company securities) shall consist of equity securities 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. Not more than 10% of the net assets of the Fund in the 
aggregate invested in futures contracts or exchange-traded options 
shall consist of futures contracts or options whose principal market is 
not a member of ISG or is a market with which the Exchange does not 
have a comprehensive surveillance sharing agreement.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
rules and surveillance procedures shall constitute continued listing 
requirements for listing the Shares on the Exchange.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Equities Rule 5.5(m).
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 the Fund. Specifically, the Bulletin will discuss 
the following: (1) The procedures for purchases and redemptions of 
Shares in Creation Units (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 IIV will not be calculated or publicly 
disseminated; (4) how information regarding the IIV and the Disclosed 
Portfolio is disseminated; (5) the requirement that ETP Holders deliver 
a prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (6) trading 
information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the

[[Page 44347]]

Commission from any rules under the Act. The Bulletin will also 
disclose that the NAV for the Shares of the 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)\34\ 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.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Adviser is not registered as a broker-dealer but is 
affiliated with a broker-dealer and has implemented and will maintain a 
fire wall with respect to such broker-dealer affiliate regarding access 
to information concerning the composition and/or changes to the 
portfolio. The Exchange represents that trading in the Shares will be 
subject to the existing trading surveillances administered by the 
Exchange, as well as cross-market surveillances administered by FINRA 
on behalf of the Exchange, which are designed to detect violations of 
Exchange rules and applicable federal securities laws. 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. The Exchange, or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, certain 
exchange-listed equity securities, certain futures, and certain 
exchange-traded options with other markets and other entities that are 
members of the ISG, and the Exchange or FINRA, on behalf of the 
Exchange, or both, may obtain trading information regarding trading 
such securities and financial instruments from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in such securities and financial instruments from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement. FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income securities held by the Fund reported to 
FINRA's TRACE. Not more than 10% of the net assets of the Fund in the 
aggregate invested in equity securities (other than non-exchange-traded 
investment company securities) shall consist of equity securities 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. Not more than 10% of the net assets of the Fund in the 
aggregate invested in futures contracts or exchange-traded options 
shall consist of futures contracts or options whose principal market is 
not a member of ISG or is a market with which the Exchange does not 
have a comprehensive surveillance sharing agreement.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
rules and surveillance procedures shall constitute continued listing 
requirements for listing the Shares on the Exchange.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Equities Rule 5.5(m).
    The IIV will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Core Trading Session. 
The Fund may hold up to an aggregate amount of 15% of its net assets in 
illiquid assets (calculated at the time of investment), including Rule 
144A securities deemed illiquid by the Adviser, consistent with 
Commission guidance.
    The Shares of the 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 Fund will be 
in compliance with Rule 10A-3 under the Act, as provided by NYSE Arca 
Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be 
outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares of 
the Fund that the NAV per Share will be calculated daily and that the 
NAV and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the respective 
Shares, thereby promoting market transparency. The Fund's portfolio 
holdings will be disclosed on its Web site daily after the close of 
trading on the Exchange and prior to the opening of trading on the 
Exchange the following day. On a daily basis, the Fund will disclose on 
its Web site the following information regarding each portfolio 
holding, as applicable to the type of holding: Ticker symbol, CUSIP 
number or other identifier, if any; a description of the holding 
(including the type of holding); the identity of the security, index or 
other asset or instrument underlying the holding, if any; quantity held 
(as measured by, for example, par value, notional value or number of 
shares, contracts or units); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. The Web 
site information will be publicly available at no charge.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at www.sec.gov. Quotation and 
last sale information for the Shares and for portfolio holdings of the 
Fund that are U.S. exchange listed, including common stocks, preferred 
stocks, warrants, rights, ETFs, REITs, and U.S. exchange-traded ADRs 
will be available via the CTA high speed line. Quotation and last sale 
information for such U.S. exchange-listed securities, as well as 
futures will be available from the exchange on which they are listed. 
Quotation and last sale information for exchange-listed options cleared 
via the Options Clearing Corporation will be available via the Options 
Price Reporting Authority. Quotation and last sale information for non-
U.S. equity securities will be available from the exchanges on which 
they trade and from major market data vendors.
    Quotation information for OTC options, cash equivalents, swaps, 
money market funds, Rule 144A securities, U.S. Government obligations, 
U.S. Government agency obligations,

[[Page 44348]]

sovereign obligations, corporate debt, and reverse repurchase 
agreements may be obtained from brokers and dealers who make markets in 
such securities or through nationally recognized pricing services 
through subscription agreements. The U.S. dollar value of foreign 
securities, instruments and currencies can be derived by using foreign 
currency exchange rate quotations obtained from nationally recognized 
pricing services. Forwards and spot currency price information will be 
available from major market data vendors.
    The Web site for the Fund will include a form of the prospectus for 
the Fund and additional data relating to NAV and other applicable 
quantitative information. Moreover, prior to the commencement of 
trading, the Exchange will inform its ETP Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares of the Fund. Trading in Shares of the Fund will be 
halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached or because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable, and trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted. In addition, as noted above, 
investors will have ready access to information regarding the Fund's 
holdings, the IIV, the Disclosed Portfolio, and quotation and last sale 
information for the Shares. The Fund's investments, including 
derivatives, will be consistent with the Fund's investment objective 
and will not be used to enhance leverage (although certain derivatives 
may result in leverage). That is, while the Fund will be permitted to 
borrow as permitted under the 1940 Act, the Fund's investments will not 
be used to seek performance that is the multiple or inverse multiple 
(i.e., 2Xs and 3Xs) of the Fund's primary broad-based securities 
benchmark index (as defined in Form N-1A).
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares of the 
Fund 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 
Fund's holdings, the IIV, the Disclosed Portfolio for the Fund, and 
quotation and last sale information for the Shares of the Fund.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded product that holds 
fixed income and equity securities and that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2016-82 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2016-82. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-82 and should 
be submitted on or before July 28, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-16108 Filed 7-6-16; 8:45 am]
 BILLING CODE 8011-01-P