Document ID: SEC-2018-1023-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2018-07-03T04:00Z

[Federal Register Volume 83, Number 128 (Tuesday, July 3, 2018)]
[Notices]
[Pages 31214-31223]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-14300]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83546; File No. SR-NYSEArca-2018-40]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Regarding Investments of the REX BKCM ETF

June 28, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on June 26, 2018, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. 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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[[Page 31215]]

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes certain changes regarding investments of the 
REX BKCM ETF, shares of which are currently listed on the Exchange 
under NYSE Arca Rule 8.600-E (``Managed Fund Shares''). The proposed 
change is available on the Exchange's website at www.nyse.com, at the 
principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose
    The Exchange proposes certain changes, described below under 
``Application of Generic Listing Requirements'', regarding investments 
of the REX BKCM ETF (``Fund''), shares (``Shares'') of which are 
currently listed and traded on the Exchange under NYSE Arca Rule 8.600-
E, which governs the listing and trading of Managed Fund Shares \4\ on 
the Exchange. Shares of the Fund commenced trading on the Exchange on 
May 16, 2018 in accordance with the generic listing standards in 
Commentary .01 to NYSE Arca Rule 8.600-E.
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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 Rule 5.2-E(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.
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    The Fund is a series of the Exchange Listed Funds Trust 
(``Trust'').\5\ Exchange Traded Concepts, LLC (``Adviser'') is the 
investment adviser to the Fund. BKCM LLC (``BKCM'') and Vident 
Investment Advisory, LLC are the sub-advisers (``Sub-Advisers'') to the 
Fund. Foreside Fund Services, LLC (``Distributor'') is the distributor 
of the Fund's Shares. BNY Mellon serves as the Fund's transfer agent 
and custodian. BNY Mellon and UMB Fund Services (``UMBFS'') serve as 
administrators to the Fund (``Administrator'').\6\
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    \5\ The Trust is registered under the 1940 Act. On May 7, 2018, 
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. 333-180871 and 811-22700) (the ``Registration 
Statement''). The description of the operation of the Trust and the 
Fund herein is based, in part, on the Registration Statement. The 
Trust will file an amendment to the Registration Statement as 
necessary to conform to representations in this filing. 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. 30445 (April 2, 2013) (``Exemptive Order''). Investments made by 
the Fund will comply with the conditions set forth in the Exemptive 
Order.
    \6\ The Commission has previously approved listing and trading 
on the Exchange of other series of Managed Fund Shares under Rule 
8.600-E. See, e.g., Securities Exchange Act Release Nos. 79683 
(December 23, 2016) (SR-NYSEArca-2016-82) (order approving a 
proposed rule change to list and trade shares of the JPMorgan 
Diversified Event Driven ETF under NYSE Arca Equities Rule 8.600); 
77904 (May 25, 2016) (SR-NYSEArca-2016-17) (order approving a 
proposed rule change to list and trade of shares of the JPMorgan 
Diversified Alternatives ETF under NYSE Arca Equities Rule 8.600).
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    Commentary .06 to Rule 8.600-E 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 and 
Sub-Advisers are not registered as broker-dealers or affiliated with a 
broker-dealer. In the event (a) the Adviser or a Sub-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 Sub-Advisers and their 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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REX BKCM ETF
Principal Investments
    According to the Registration Statement, the Fund's investment 
objective is to seek total return. The Fund will seek to achieve its 
investment objective, under normal market conditions,\8\ by obtaining 
investment exposure to an actively managed portfolio consisting of 
equity securities of cryptocurrency-related and other blockchain 
technology-related companies.
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    \8\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
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    According to the Registration Statement, in implementing the Fund's 
investment strategy, BKCM will seek to identify companies utilizing 
blockchain technologies to generate present or future revenue from 
their core business. A company will only be eligible for inclusion in 
the portfolio to the extent that BKCM determines the company has 
committed material resources to the development of such revenue stream. 
Cryptocurrency-related companies mine, trade, or promote the mainstream 
adoption of cryptocurrencies or provide trading venues for 
cryptocurrencies and other blockchain applications. Other blockchain 
technology-related companies utilize blockchain technology in 
connection with disrupting traditional financial transaction 
mechanisms, develop enterprise blockchain solutions, or use

[[Page 31216]]

blockchain technology to decentralize user data and enhance privacy on 
the internet.
    The Fund, through its ``Subsidiary'', (as described below), may 
invest up to 15% of its total assets in the following over-the-counter 
(``OTC'') equity securities: shares of the Bitcoin Investment Trust 
(``GBTC'').\9\ The Subsidiary's investment in GBTC will be reflected in 
the net asset value of the Fund's Shares based on the closing price of 
GBTC on OTCQX Best Marketplace.
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    \9\ The Bitcoin Investment Trust is a private, open-ended trust 
available to accredited investors that derives its value from the 
price of bitcoin. Shares of GBTC are restricted securities that may 
not be resold except in transactions exempt from registration under 
the Securities Act. On March 4, 2016, GBTC submitted to the 
Commission an amended Form D as a business trust. Shares of GBTC 
have been quoted on OTC Markets Group, Inc.'s (``OTC Markets'') 
OTCQX Best Marketplace under the symbol ``GBTC'' since March 26, 
2015. On April 2, 2018, GBTC published an annual report for GBTC for 
the period ended December 31, 2017. Both GBTC's Form D and annual 
report can be found on OTC Market's website: http://www.otcmarkets.com/stock/GBTC/filings.
    OTC Markets is a wholly owned subsidiary of OTC Link LLC, which 
is a member of the Financial Industry Regulatory Authority 
(``FINRA'') and is registered with the Commission as an alternative 
trading system (``OTC Link ATS'').
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    The Fund expects to obtain exposure to certain investments, 
including GBTC, by investing up to 25% of its total assets, as measured 
at the end of every quarter of the Fund's taxable year, in a wholly-
owned and controlled Cayman Islands subsidiary (``Subsidiary''), as 
described below in ``Investment in the Subsidiary''.
    The Fund and the Subsidiary may invest in the securities of non-
exchange-traded open-end investment companies (i.e., mutual funds).
    As discussed below under ``Application of Generic Listing 
Requirements'' below, with the exception of the Subsidiary's holdings 
of shares of GBTC and the Fund's and the Subsidiary's investment in 
non-exchange-traded open-end investment company securities, the Fund's 
and the Subsidiary's investment in equity securities will satisfy the 
requirements of Commentary .01(a) of NYSE Arca Rule 8.600-E.
    The Fund and the Subsidiary may hold fixed income securities. Such 
holdings will comply with the criteria in Commentary .01(b) of NYSE 
Arca Rule 8.600-E.
    The Fund and the Subsidiary may hold cash and cash equivalents. 
Such holdings will comply with the criteria in Commentary .01(c) of 
NYSE Arca Rule 8.600-E.
    The Fund and the Subsidiary may hold listed derivatives.\10\ Such 
holdings will comply with the criteria in Commentary .01(d) and (f) of 
NYSE Arca Rule 8.600-E.
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    \10\ The Fund will not hold listed derivatives based on bitcoin 
or other cryptocurrencies.
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    The Fund and the Subsidiary may hold OTC derivatives.\11\ Such 
holdings will comply with the criteria in Commentary .01(e) and (f) of 
NYSE Arca Rule 8.600-E.
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    \11\ The Fund will not hold OTC derivatives based on bitcoin or 
other cryptocurrencies.
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Investment in the Subsidiary
    According to the Registration Statement, the Fund expects to obtain 
additional exposure through investment in the Subsidiary. Such 
investment may not exceed 25% of the Fund's total assets, as measured 
at the end of every quarter of the Fund's taxable year. The Subsidiary 
otherwise is subject to the same general investment policies and 
restrictions as the Fund. Except as noted, references to the investment 
strategies of the Fund for non-equity securities and other financial 
instruments include the investment strategies of the Subsidiary.
    The Subsidiary is not registered under the 1940 Act. The Board has 
oversight responsibility for the investment activities of the Fund, 
including its investments in the Subsidiary, and the Fund's role as the 
sole shareholder of the Subsidiary. Also, in managing the Subsidiary's 
portfolio, the Adviser would be subject to the same investment 
restrictions and operational guidelines that apply to the management of 
the Fund.
    Any Subsidiary will be advised by the Adviser and will be managed 
on a day-to-day basis by the Sub-Advisers, and will have the same 
investment objective as the Fund. According to the Registration 
Statement, the Fund's investment in the Subsidiary would be expected to 
provide the Fund with an effective means of obtaining exposure to 
certain cryptocurrency investments in a manner consistent with U.S. 
federal tax law requirements applicable to regulated investment 
companies.
Creations and Redemptions
    According to the Registration Statement, the Fund offers and issues 
Shares at net asset value (``NAV'') in ``Creation Unit Aggregations'' 
(or ``Creation Units''), generally in exchange for the ``Deposit 
Securities'' and the ``Cash Component'' (each as defined below). Shares 
are redeemable only in Creation Unit Aggregations and, generally, in 
exchange for the Deposit Securities and Cash Component.
    The Trust reserves the right to offer an ``all cash'' option for 
creations and redemptions of Creation Units for the Fund.\12\
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    \12\ The Adviser represents that, to the extent the Trust 
effects the creation or redemption of Shares wholly or partially in 
cash, such transactions will be effected in the same manner for all 
Authorized Participants (as defined below).
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    The Trust issues and sells Shares of the Fund only in Creation 
Units on a continuous basis through the Distributor, at their NAV next 
determined after receipt, on any business day, of an order received in 
proper form.
    The consideration for purchase of a Creation Unit of the Fund 
generally consists of an in-kind deposit of a designated portfolio of 
securities--the ``Deposit Securities''--per each Creation Unit 
constituting a substantial replication, or a representation, of the 
securities included in the Fund's portfolio and an amount of cash--the 
Cash Component. The Cash Component is an amount equal to the difference 
between the net asset value of the Shares (per Creation Unit) and the 
market value of the Deposit Securities. Together, the Deposit 
Securities and the Cash Component constitute the ``Fund Deposit,'' 
which represents the minimum initial and subsequent investment amount 
for a Creation Unit of the Fund.
    The Administrator, through the National Securities Clearing 
Corporation (``NSCC''), makes available on each business day, 
immediately 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 (based on information at the end of the previous business day) 
for the Fund. Such Fund Deposit is applicable, subject to any 
adjustments, in order to effect creations of Creation Units of the Fund 
until such time as the next-announced composition of the Deposit 
Securities is made available.
    The identity and number of shares of the Deposit Securities 
required for the Fund Deposit for the Fund changes as rebalancing 
adjustments and corporate action events are reflected from time to time 
by the Sub-Advisers with a view to the Fund's investment objective. In 
addition, the Trust reserves the right to permit or require the 
substitution of an amount of cash--i.e., a ``cash in lieu'' amount--to 
be added to the Cash Component to replace any Deposit Security which 
may not be available in sufficient quantity for delivery or which may 
not be eligible for transfer through the ``Clearing Process'' 
(discussed

[[Page 31217]]

below), or which may not be eligible for trading by an ``Authorized 
Participant'' (as defined below) or the investor for which it is 
acting. The Trust also reserves the right to offer an ``all cash'' 
option for creations of Creation Units for the Fund.
    In addition to the list of names and numbers of securities 
constituting the current Deposit Securities of the Fund Deposit, the 
Administrator, through the NSCC, also makes available on each business 
day, the estimated Cash Component, effective through and including the 
previous business day, per outstanding Creation Unit of the Fund.
    To be eligible to place orders with the Distributor to create a 
Creation Unit of the Fund, an entity must be (i) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the NSCC (the 
``Clearing Process''), a clearing agency that is registered with the 
Commission; or (ii) a Depository Trust Company (``DTC'') Participant, 
and, in each case, must have executed an agreement with the Trust, the 
Distributor and the Administrator with respect to creations and 
redemptions of Creation Units (``Participant Agreement''). A 
Participating Party and DTC Participant are collectively referred to as 
an ``Authorized Participant.''
    All orders to create Creation Units must be placed for one or more 
Creation Unit size aggregations of at least 50,000 Shares. The size of 
a Creation Unit is subject to change. All orders to create Creation 
Units, whether through the Clearing Process (through a Participating 
Party) or outside the Clearing Process (through a DTC Participant), 
must be placed in the manner and by the time set forth in the 
Participant Agreement and/or applicable order form. The date on which 
an order to create Creation Units (or an order to redeem Creation Units 
as discussed below) is placed is referred to as the ``Transmittal 
Date.''
    If permitted by a Sub-Adviser in its sole discretion with respect 
to the Fund, an Authorized Participant may also agree to enter into or 
arrange for an exchange of a futures contract for related position 
(``EFCRP'') or block trade with the relevant Fund or its Subsidiary 
whereby the Authorized Participant would also transfer to such Fund a 
number and type of exchange-traded futures contracts at or near the 
closing settlement price for such contracts on the purchase order date. 
Similarly, a Sub-Adviser in its sole discretion may agree with an 
Authorized Participant to use an EFCRP or block trade to effect an 
order to redeem Creation Units.\13\
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    \13\ As described in the Registration Statement, an EFCRP is a 
technique permitted by the rules of certain futures exchanges that, 
as utilized by the Fund in a Sub-Adviser's discretion, would allow 
such Fund or its Subsidiary to take a position in a futures contract 
from an Authorized Participant, or give futures contracts to an 
Authorized Participant, in the case of a redemption, rather than to 
enter the futures exchange markets to obtain such a position. An 
EFCRP by itself will not change either party's net risk position 
materially. Because the futures position that the Fund would 
otherwise need to take in order to meet its investment objective can 
be obtained without unnecessarily impacting the financial or futures 
markets or their pricing, EFCRPs can generally be viewed as 
transactions beneficial to the Fund. A block trade is a technique 
that permits certain funds to obtain a futures position without 
going through the market auction system and can generally be viewed 
as a transaction beneficial to the Fund.
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Redemption
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through the Administrator and only on a business day. The Trust 
will not redeem Shares in amounts less than Creation Units. 
Shareholders must accumulate enough Shares in the secondary market to 
constitute a Creation Unit in order to have such shares redeemed by the 
Trust.
    With respect to the Fund, the Administrator, through the NSCC, will 
make available immediately prior to the opening of business on the 
Exchange (currently 9:30 a.m., Eastern Time) on each business day, the 
``Fund Securities'' that will be applicable (subject to possible 
amendment or correction) to redemption requests received in proper form 
on that day. Fund Securities received on redemption may not be 
identical to Deposit Securities which are applicable to creations of 
Creation Units.
    Unless cash redemptions are available or specified for the Fund, 
the redemption proceeds for a Creation Unit generally consist of Fund 
Securities--as announced by the Administrator on the business day of 
the request for redemption received in proper form--plus cash in an 
amount equal to the difference between the NAV of the Shares being 
redeemed, as next determined after receipt of a request in proper form, 
and the value of the Fund Securities (the ``Cash Redemption Amount''), 
less a redemption transaction fee. In the event that the Fund 
Securities have a value greater than the NAV of the Shares, a 
compensating cash payment equal to the differential is required to be 
made by or through an Authorized Participant by the redeeming 
shareholder.
    If it is not possible to effect deliveries of the Fund Securities, 
the Trust may in its discretion exercise its option to redeem such 
Shares in cash, and the redeeming Beneficial Owner will be required to 
receive its redemption proceeds in cash. In addition, an investor may 
request a redemption in cash which the Fund may, in its sole 
discretion, permit. In either case, the investor will receive a cash 
payment equal to the NAV of its Shares based on the NAV of Shares of 
the Fund next determined after the redemption request is received in 
proper form (minus a redemption transaction fee and additional charge 
for requested cash redemptions specified above, to offset the Trust's 
brokerage and other transaction costs associated with the disposition 
of Fund Securities). The Fund may also, in its sole discretion, upon 
request of a shareholder, provide such redeemer a portfolio of 
securities which differs from the exact composition of the Fund 
Securities but does not differ in NAV.
    An Authorized Participant or an investor for which it is acting 
subject to a legal restriction with respect to a particular stock 
included in the Fund Securities applicable to the redemption of a 
Creation Unit may be paid an equivalent amount of cash. The Trust also 
reserves the right to offer an ``all cash'' option for redemptions of 
Creation Units for the Fund.\14\
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    \14\ See note 11, supra.
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Intraday Indicative Value
    Information regarding the intraday value of Shares of the Fund, 
also known as the ``intraday indicative value'' (``IIV''), will be 
disseminated every 15 seconds during the Exchange's Core Trading 
Session by market data vendors or other information providers. The IIV 
will generally be determined by using both current market quotations 
and/or price quotations obtained from broker-dealers that may trade in 
the portfolio securities and other financial instruments held by the 
Fund.
Other Restrictions
    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 and other investments may result 
in leverage). That is, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (e.g., 2X or -3X) 
of the Fund's primary broad-based

[[Page 31218]]

securities benchmark index (as defined in Form N-1A).\15\
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    \15\ 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
    To the extent the Fund or the Subsidiary invests in derivative 
instruments, such investments will be made consistent with the Fund's 
investment objective and policies. 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 or the Subsidiary's use of 
derivatives, may give rise to leverage, causing the Fund to be more 
volatile than if it had not been leveraged.\16\ 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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    \16\ 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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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 website the identities and 
quantities of the portfolio instruments and other assets held by the 
Fund including assets directly held by the Subsidiary, 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, one or more major market data vendors will 
disseminate an updated IIV for the Fund. 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).
Disclosed Portfolio
    The Fund's disclosure of derivative positions in the applicable 
Disclosed Portfolio will include information that market participants 
can use to value these positions intraday. On a daily basis, the Fund 
will disclose the information regarding the Disclosed Portfolio 
required under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. 
The Fund's website 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 any use by the Fund or the Subsidiary 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.
Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the 
portfolio for the Fund will not meet all of the ``generic'' listing 
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to 
the listing of Managed Fund Shares. The Fund's portfolio would meet all 
such requirements except for those set forth in Commentary .01(a)(1) to 
NYSE Arca Rule 8.600-E.
    As noted above, the Fund, through its Subsidiary, may invest up to 
15% of its total assets in OTC equity securities issued by GBTC, a 
trust that has as its investment objective for the net asset value per 
share to reflect the performance of the market price of bitcoin, less 
GBTC's expenses. The Exchange believes that it is appropriate and in 
the public interest to approve listing and trading of Shares of the 
Fund on the Exchange notwithstanding that the Fund would not meet the 
requirements of Commentary .01(a)(1)(E) to Rule 8.600-E with respect to 
the Fund's investments, through the Subsidiary, in such OTC securities. 
While the Fund's investments in GBTC would not meet the requirements of 
Commentary .01(a)(1)(E) to Rule 8.600-E, such investments satisfy 
several other important criteria. For example, shares of GBTC have a 
minimum monthly trading volume of 250,000 shares, or a minimum notional 
volume traded per month of $25 million, averaged over the last six 
months, and a market value in excess of the required $75 million. 
Shares of GBTC have been quoted on OTC Market's OTCQX Best Marketplace 
under the symbol ``GBTC'' since March 26, 2015. The Exchange 
represents, for informational purposes, that, as of May 7, 2018, 
approximately 187,572,000 shares of GBTC were outstanding, with a 
market capitalization of $2,807,952,840 based on the last traded price. 
Moreover, average trading volume for the 6 months ended May 7, 2018 was 
7,107,650 shares per day, and total trading volume for 2017 was 
1,576,551,613 shares.
    As noted above, GBTC has demonstrated significant liquidity. The 
liquid market in the shares of GBTC also alleviates many of the 
valuation concerns raised by the Staff. The substantial and sustained 
trading volume in shares of GBTC, as well as the fact that such 
investment will be limited to 15% of the Fund's assets, would help to 
limit any adverse effect on the Fund's arbitrage mechanism.
    As noted above, on February 27, 2018, GBTC submitted to the 
Commission an amended Form D as a business trust. On April 2, 2018, 
GBTC published an annual report for the period ended December 31, 2017. 
This report can be found on OTC Market's website.
    As noted above, the Fund and the Subsidiary may invest in equity 
securities that are non-exchange-traded securities of other open-end 
investment company securities (i.e., mutual funds). The Exchange 
believes that it is appropriate and in the public interest to approve 
listing and trading of Shares of the Fund on the Exchange 
notwithstanding that the Fund would not meet the requirements of 
Commentary .01(a)(1)(A) through (E) to Rule 8.600-E with respect to the 
Fund's and the Subsidiary's investments in such securities.\17\ 
Investments in such

[[Page 31219]]

equity securities will not be principal investments of the Fund.\18\ 
Such investments, which may include mutual funds that invest, for 
example, principally in fixed income securities, would be utilized to 
help the Fund meet its investment objective and to equitize cash in the 
short term.\19\ Because such securities have a net asset value based on 
the value of securities and financial assets the investment company 
holds, the Exchange believes it is both unnecessary and inappropriate 
to apply to such investment company securities the criteria in 
Commentary .01(a)(1).
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    \17\ Commentary .01(a) to Rule 8.600-E specifies the equity 
securities accommodated by the generic criteria in Commentary 
.01(a), namely, U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)); Non-U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)); Derivative Securities Products (i.e., Investment Company 
Units and securities described in Section 2 of Rule 8-E); and Index-
Linked Securities that qualify for Exchange listing and trading 
under Rule 5.2-E(j)(6). Commentary .01(a)(1) to Rule 8.600-E (U.S. 
Component Stocks) provides that the component stocks of the equity 
portion of a portfolio that are U.S. Component Stocks shall meet the 
following criteria initially and on a continuing basis:
    (A) Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at 
least 90% of the equity weight of the portfolio (excluding such 
Derivative Securities Products and Index-Linked Securities) each 
shall have a minimum market value of at least $75 million;
    (B) Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at 
least 70% of the equity weight of the portfolio (excluding such 
Derivative Securities Products and Index-Linked Securities) each 
shall have a minimum monthly trading volume of 250,000 shares, or 
minimum notional volume traded per month of $25,000,000, averaged 
over the last six months;
    (C) The most heavily weighted component stock (excluding 
Derivative Securities Products and Index-Linked Securities) shall 
not exceed 30% of the equity weight of the portfolio, and, to the 
extent applicable, the five most heavily weighted component stocks 
(excluding Derivative Securities Products and Index-Linked 
Securities) shall not exceed 65% of the equity weight of the 
portfolio;
    (D) Where the equity portion of the portfolio does not include 
Non-U.S. Component Stocks, the equity portion of the portfolio shall 
include a minimum of 13 component stocks; provided, however, that 
there shall be no minimum number of component stocks if (i) one or 
more series of Derivative Securities Products or Index-Linked 
Securities constitute, at least in part, components underlying a 
series of Managed Fund Shares, or (ii) one or more series of 
Derivative Securities Products or Index-Linked Securities account 
for 100% of the equity weight of the portfolio of a series of 
Managed Fund Shares;
    (E) Except as provided herein, equity securities in the 
portfolio shall be U.S. Component Stocks listed on a national 
securities exchange and shall be NMS Stocks as defined in Rule 600 
of Regulation NMS under the Securities Exchange Act of 1934; and
    (F) American Depositary Receipts (``ADRs'') in a portfolio may 
be exchange-traded or nonexchange-traded. However, no more than 10% 
of the equity weight of a portfolio shall consist of non-exchange-
traded ADRs.
    \18\ For purposes of this section of the filing, non-exchange-
traded securities of other registered investment companies do not 
include money market funds, which are cash equivalents under 
Commentary .01(c) to Rule 8.600-E and for which there is no 
limitation in the percentage of the portfolio invested in such 
securities.
    \19\ The Commission has previously approved proposed rule 
changes under Section 19(b) of the Act for series of Managed Fund 
Shares that may invest in non-exchange traded investment company 
securities. See, e.g., Securities Exchange Act Release No. 78414 
(July 26, 2016), 81 FR 50576 (August 1, 2016) (SR-NYSEArca-2016-79) 
(order approving listing and trading of shares of the Virtus Japan 
Alpha ETF under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    The Exchange notes that Commentary .01(a)(1)(A) through (D) to Rule 
8.600-E exclude application of those provisions to certain ``Derivative 
Securities Products'' that are exchange-traded investment company 
securities, including Investment Company Units (as described in NYSE 
Arca Rule 5.2-E(j)(3)), Portfolio Depositary Receipts (as described in 
NYSE Arca Rule 8.100-E) and Managed Fund Shares (as described in NYSE 
Arca Rule 8.600-E).\20\ In its 2008 Approval Order approving amendments 
to Commentary .01(a) to Rule 5.2(j)(3) that exclude Derivative 
Securities Products from certain provisions of Commentary .01(a) (which 
exclusions are similar to those in Commentary .01(a)(1) to Rule 8.600-
E), the Commission stated that ``based on the trading characteristics 
of Derivative Securities Products, it may be difficult for component 
Derivative Securities Products to satisfy certain quantitative index 
criteria, such as the minimum market value and trading volume 
limitations.'' The Exchange notes that it would be difficult or 
impossible to apply to non-exchange-traded investment company 
securities the generic quantitative criteria (e.g., market 
capitalization, trading volume, or portfolio criteria) in Commentary 
.01(a)(1)(A) through (D) applicable to U.S. Component Stocks. For 
example, the requirement for U.S. Component Stocks in Commentary 
.01(a)(1)(B) that there be minimum monthly trading volume of 250,000 
shares, or minimum notional volume traded per month of $25,000,000, 
averaged over the last six months is tailored to exchange-traded 
securities (e.g., U.S. Component Stocks) and not to mutual fund shares, 
which do not trade in the secondary market. Moreover, application of 
such criteria would not serve the purpose applicable with respect to 
U.S. Component Stocks, namely, to establish minimum liquidity and 
diversification criteria for U.S. Component Stocks held by series of 
Managed Fund Shares.
---------------------------------------------------------------------------

    \20\ The Commission initially approved the Exchange's proposed 
rule change to exclude ``Derivative Securities Products'' (i.e., 
Investment Company Units and securities described in Section 2 of 
Rule 8) and ``Index-Linked Securities (as described in Rule 5.2-
E(j)(6)) from Commentary .01(a)(A) (1) through (4) to Rule 5.2-
E(j)(3) in Securities Exchange Act Release No. 57751 (May 1, 2008), 
73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29) (Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, to Amend the Eligibility Criteria for Components of an 
Index Underlying Investment Company Units) (``2008 Approval 
Order''). See also, Securities Exchange Act Release No. 57561 (March 
26, 2008), 73 FR 17390 (April 1, 2008) (Notice of Filing of Proposed 
Rule Change and Amendment No. 1 Thereto to Amend the Eligibility 
Criteria for Components of an Index Underlying Investment Company 
Units). The Commission subsequently approved generic criteria 
applicable to listing and trading of Managed Fund Shares, including 
exclusions for Derivative Securities Products and Index-Linked 
Securities in Commentary .01(a)(1)(A) through (D), in Securities 
Exchange Act Release No. 78397 (July 22, 2016), 81 FR 49320 (July 
27, 2016) (Order Granting Approval of Proposed Rule Change, as 
Modified by Amendment No. 7 Thereto, Amending NYSE Arca Equities 
Rule 8.600 To Adopt Generic Listing Standards for Managed Fund 
Shares). See also, Amendment No. 7 to SR-NYSEArca-2015-110, 
available at https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-9.pdf.
---------------------------------------------------------------------------

    In addition, the Commission has previously approved listing and 
trading of an issue of Managed Fund Shares that may invest in equity 
securities that are non-exchange-traded securities of other open-end 
investment company securities notwithstanding that the fund would not 
meet the requirements of Commentary .01(a)(1)(A) through (E) to Rule 
8.600-E with respect to such fund's investments in such securities.\21\ 
Thus, the Exchange believes that it is appropriate to permit the Fund 
and the Subsidiary to invest in non-exchange-traded open-end management 
investment company securities, as described above.
---------------------------------------------------------------------------

    \21\ See Securities Exchange Act Release No. 83319 (May 24, 
2018) (SR-NYSEArca-2018-15) (Order Approving a Proposed Rule Change, 
as Modified by Amendment No. 1 Thereto, to Continue Listing and 
Trading Shares of the PGIM Ultra Short Bond ETF Under NYSE Arca Rule 
8.600-E).
---------------------------------------------------------------------------

    The Exchange notes that, other than Commentary .01(a)(1) to Rule 
8.600-E, the Fund will meet all other requirements of Rule 8.600-E.
Availability of Information
    The Fund's website (www.rexshares.com), which is publicly 
available, includes a form of the prospectus for the Fund that may be 
downloaded. The Fund's website 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 and mid-point of the bid/ask spread at the time of calculation of 
such NAV (the ``Bid/Ask Price''),\22\ and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV, and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. On each 
business day, before commencement of trading in Shares in the Core 
Trading Session on the Exchange, the Adviser will disclose on the 
Fund's website the Disclosed Portfolio for the Fund as defined in NYSE 
Arca Rule 8.600-E(c)(2) that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\23\
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    \22\ 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.
    \23\ 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.

---------------------------------------------------------------------------

[[Page 31220]]

    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 website at www.sec.gov.
    Quotation and last sale information for the Shares and U.S. 
exchange-traded equity securities will be available via the CTA high 
speed line. Quotation and last sale information for futures, exchange-
traded options and non-U.S. exchange-traded equity securities will be 
available from the exchange on which they are listed. Information 
regarding market price and trading volume for the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers.
    Price information for fixed income securities, cash equivalents, 
non-exchange-traded investment company securities (other than money 
market funds), shares of GBTC, listed derivatives and OTC derivatives 
may be obtained from brokers and dealers who make markets in such 
securities or through nationally recognized pricing services through 
subscription agreements. Price information for money market funds and 
other non-exchange-traded investment company securities also will be 
available from the applicable investment company's website and from 
market data vendors.
    In addition, the IIV, as defined in NYSE Arca Rule 8.600-E(c)(3), 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session.\24\ 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.
---------------------------------------------------------------------------

    \24\ 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.\25\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares of the Fund inadvisable.
---------------------------------------------------------------------------

    \25\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    Trading in the Shares will be subject to NYSE Arca Rule 8.600-
E(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted.
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 Rule 7.34-E (Early, 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 Rule 7.6-E, 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 Rule 8.600-E. The Exchange represents 
that, for initial and continued listing, the Fund will be in compliance 
with Rule 10A-3 \26\ under the Act, as provided by NYSE Arca Rule 5.3-
E. 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.
---------------------------------------------------------------------------

    \26\ 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 FINRA on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\27\ 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.
---------------------------------------------------------------------------

    \27\ 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-traded equity securities, certain futures and certain 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.\28\
---------------------------------------------------------------------------

    \28\ 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.
---------------------------------------------------------------------------

    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 or reference assets, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange listing rules specified in this rule filing 
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

[[Page 31221]]

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 Rule 5.5-E(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 Rule 9.2-E(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 Early 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 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) \29\ 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.
---------------------------------------------------------------------------

    \29\ 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 Rule 8.600-E. The 
Adviser and Sub-Advisers are not registered as broker-dealers or 
affiliated with a broker-dealer. 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-traded equity securities, certain futures and 
certain 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. The Exchange is also able 
to obtain information regarding trading in the Shares, the commodity 
underlying futures or options on futures through ETP Holders, in 
connection with such ETP Holders' proprietary or customer trades which 
they effect through ETP Holders on any relevant market. The IIV, as 
defined in NYSE Arca Rule 8.600-E(c)(3), will be widely disseminated by 
one or more major market data vendors at least every 15 seconds during 
the Core Trading Session.
    The Shares of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Rule 8.600-E. The Exchange represents 
that, for initial and continued listing, the Fund will be in compliance 
with Rule 10A-3 under the Act, as provided by NYSE Arca Rule 5.3-E. 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 Shares, thereby promoting market 
transparency. The Fund's portfolio holdings will be disclosed on its 
website 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 the information regarding the Disclosed 
Portfolio required under NYSE Arca Rule 8.600-E(c)(2) to the extent 
applicable. The Fund's website information will be publicly available 
at no charge. With respect to the Fund's holdings of shares of GBTC, on 
March 4, 2016, GBTC submitted to the Commission an amended Form D as a 
business trust. Shares of GBTC have been quoted on OTC Market's OTCQX 
Best Marketplace under the symbol ``GBTC'' since March 26, 2015. On 
April 2, 2018, GBTC published an annual report for the period ended 
December 31, 2017. Such reports are available on OTC Market's website.
    Investors can also obtain the Trust's 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 website at 
www.sec.gov.
    The Exchange believes that it is appropriate and in the public 
interest to approve listing and trading of Shares of the Fund on the 
Exchange notwithstanding that the Fund would not meet the requirements 
of Commentary .01(a)(1)(A) through (E) to Rule 8.600-E with respect to 
the Fund's investments in non-exchange-traded open-end investment 
company securities. Investments in such equity securities will not be 
principal investments of the Fund. Such investments, which may include 
mutual funds that invest, for example, principally in fixed income 
securities, would be utilized to help the Fund meet its investment 
objective and to equitize cash in the short term. Because such 
securities have a net asset value based on the value of securities and 
financial assets the investment company holds, the Exchange believes it 
is both unnecessary and inappropriate to apply to such investment 
company securities the criteria in Commentary .01(a)(1).
    The Exchange notes that Commentary .01(a)(1)(A) through (D) to Rule 
8.600-E exclude application of those provisions to certain ``Derivative 
Securities Products'' that are exchange-

[[Page 31222]]

traded investment company securities, including Investment Company 
Units (as described in NYSE Arca Rule 5.2-E(j)(3)), Portfolio 
Depositary Receipts (as described in NYSE Arca Rule 8.100-E) and 
Managed Fund Shares (as described in NYSE Arca Rule 8.600-E). In its 
2008 Approval Order approving amendments to Commentary .01(a) to Rule 
5.2(j)(3) that exclude Derivative Securities Products from certain 
provisions of Commentary .01(a) (which exclusions are similar to those 
in Commentary .01(a)(1) to Rule 8.600-E), the Commission stated that 
``based on the trading characteristics of Derivative Securities 
Products, it may be difficult for component Derivative Securities 
Products to satisfy certain quantitative index criteria, such as the 
minimum market value and trading volume limitations.'' The Exchange 
notes that it would be difficult or impossible to apply to non-
exchange-traded investment company securities the generic quantitative 
criteria (e.g., market capitalization, trading volume, or portfolio 
criteria) in Commentary .01(a)(1) (A) through (D) applicable to U.S. 
Component Stocks. Moreover, application of such criteria would not 
serve the purpose served with respect to U.S. Component Stocks, namely, 
to establish minimum liquidity and diversification criteria for U.S. 
Component Stocks held by series of Managed Fund Shares.
    In addition, the Commission has previously approved listing and 
trading of an issue of Managed Fund Shares that may invest in equity 
securities that are non-exchange-traded securities of other open-end 
investment company securities notwithstanding that the fund would not 
meet the requirements of Commentary .01(a)(1)(A) through (E) to Rule 
8.600-E with respect to such fund's investments in such securities.\30\ 
Thus, the Exchange believes that it is appropriate to permit the Fund 
to invest in non-exchange-traded open-end management investment company 
securities, as described above.
---------------------------------------------------------------------------

    \30\ See note 21, supra.
---------------------------------------------------------------------------

    As noted above, the Fund's investments in derivative instruments 
will be consistent with the Fund's investment objective and policies. 
In addition, the Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. To mitigate leveraging 
risk, the Adviser will segregate or ``earmark'' liquid assets or 
otherwise cover the transactions that may give rise to such risk. 
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. In 
addition, OTC derivatives may be tailored more specifically to the 
assets held by the Fund than available listed derivatives.
    The Exchange notes that, other than Commentary .01(a)(1) to Rule 
8.600-E, the Fund will meet all other requirements of Rule 8.600-E.
    The website 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 Rule 7.12-E 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 Rule 8.600-
E(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 and other investments 
may result in leverage). That is, the Fund's investments will not be 
used to seek performance that is the multiple or inverse multiple 
(e.g., 2X or -3X) 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 
holds fixed income securities, equity securities and derivatives and 
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 another 
type of actively-managed exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or 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 [email protected]. Please include 
File Number SR-NYSEArc-2018-40 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.

[[Page 31223]]

    All submissions should refer to File Number SR-NYSEArca-2018-40. 
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 website (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 website 
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 such filing also will be 
available for inspection and copying at the principal office of the 
Exchange. All comments received will be posted without change. Persons 
submitting comments are cautioned that we do not redact or edit 
personal identifying information from comment submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2018-40, and should 
be submitted on or before July 24, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
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    \31\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-14300 Filed 7-2-18; 8:45 am]
 BILLING CODE 8011-01-P