Document ID: SEC-2013-2057-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-12-04T05:00Z

[Federal Register Volume 78, Number 233 (Wednesday, December 4, 2013)]
[Notices]
[Pages 72955-72964]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-28971]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70954; File No. SR-NYSEArca-2013-127]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To 
List and Trade Under NYSE Arca Equities Rule 8.600 Shares of Nine 
Series of the IndexIQ Active ETF Trust

November 27, 2013
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on November 18, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in

[[Page 72956]]

Items I and II below, which Items have been prepared by the self-
regulatory organization. On November 26, 2013, the Exchange filed 
Amendment No. 1 to the proposed rule change.\4\ The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 clarifies (i) how certain holdings will be 
valued for purposes of calculating a fund's net asset value, and 
(ii) where investors will be able to obtain pricing information for 
certain underlying holdings.
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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 the following series of 
IndexIQ Active ETF Trust under NYSE Arca Equities Rule 8.600 (``Managed 
Fund Shares''): IQ Long/Short Alpha ETF, IQ Bear U.S. Large Cap ETF, IQ 
Bear U.S. Small Cap ETF, IQ Bear International ETF, IQ Bear Emerging 
Markets ETF, IQ Bull U.S. Large Cap ETF, IQ Bull U.S. Small Cap ETF, IQ 
Bull International ETF and IQ Bull Emerging Markets ETF. The text of 
the proposed rule change is available on the Exchange's Web site at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
IQ Long/Short Alpha ETF, IQ Bear U.S. Large Cap ETF, IQ Bear U.S. Small 
Cap ETF, IQ Bear International ETF, IQ Bear Emerging Markets ETF, IQ 
Bull U.S. Large Cap ETF, IQ Bull U.S. Small Cap ETF, IQ Bull 
International ETF and IQ Bull Emerging Markets ETF (each, a ``Fund'' 
and, collectively, the ``Funds'') under NYSE Arca Equities Rule 8.600, 
which governs the listing and trading of Managed Fund Shares \5\ on the 
Exchange.\6\ IQ Long/Short Alpha ETF, IQ Bear U.S. Large Cap ETF, IQ 
Bear U.S. Small Cap ETF, IQ Bear International ETF, IQ Bear Emerging 
Markets ETF, IQ Bull U.S. Large Cap ETF, IQ Bull U.S. Small Cap ETF, IQ 
Bull International ETF and IQ Bull Emerging Markets ETF are each a 
series of the IndexIQ Active ETF Trust (the ``Trust'').\7\
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    \5\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1), as amended (``1940 Act''), 
organized as an open-end investment company or similar entity that 
invests in a portfolio of securities selected by its investment 
adviser consistent with its investment objectives and policies. In 
contrast, an open-end investment company that issues Investment 
Company Units, listed and traded on the Exchange under NYSE Arca 
Equities Rule 5.2(j)(3), seeks to provide investment results that 
correspond generally to the price and yield performance of a 
specific foreign or domestic stock index, fixed income securities 
index or combination thereof.
    \6\ The Commission has previously approved the listing and 
trading on the Exchange of other of actively managed funds under 
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 60717 
(September 24, 2009), 74 FR 50853 (October 1, 2009) (SR-NYSEArca-
2009-74) (order approving listing of Four Grail Advisors RP 
Exchange-Traded Funds) and 67320 (June 29, 2012), 77 FR 39763 (July 
5, 2012) (SR-NYSEArca-2012-44) (order approving listing of the 
iShares Strategic Beta U.S. Large Cap Fund and iShares Strategic 
Beta U.S. Small Cap Fund).
    \7\ The Trust is registered under the 1940 Act. On September 12, 
2013, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A relating to the Funds (File Nos. 
333-183489 and 811-22739) (the ``Registration Statement''). The 
description of the operation of the Trust and the Funds herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trusts under the 1940 Act. See Investment Company Act Release 
No. 30198 (September 10, 2012) (File No. 812-13956) (the ``Exemptive 
Order'').
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    Each Fund is an actively-managed exchange-traded fund and does not 
seek to replicate the performance of a specified index.
    IndexIQ Advisors LLC (the ``Adviser'') is the investment adviser 
for the Funds.\8\ The Bank of New York Mellon (``Administrator''), is 
the administrator, custodian, transfer agent and securities lending 
agent for the Funds. ALPS Distributors Inc. (``Distributor''), is the 
distributor for the Funds.
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    \8\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). The Adviser is registered as an investment adviser under 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, the Adviser and its related personnel are subject to 
the provisions of Rule 206(4)-7 under the Advisers Act, which 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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    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio. In addition, Commentary 
.06 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. Commentary .06 to Rule 8.600 
is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 
5.2(j)(3); however, Commentary .06 in connection with the establishment 
of a ``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not a broker-dealer and is not affiliated with a broker-dealer. In the 
event (a) the Adviser becomes newly affiliated with a broker-dealer, or 
(b) any new adviser or subadviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer it will implement a firewall 
with respect to its relevant personnel or its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to a portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
IQ Long/Short Alpha ETF
    According to the Registration Statement, the IQ Long/Short Alpha 
ETF will seek capital appreciation.

[[Page 72957]]

    Under normal circumstances,\9\ at least 80% of the Fund's assets 
will be exposed to equity securities of U.S. large capitalization 
companies,\10\ by investing in exchange-traded funds (``ETFs''),\11\ 
and/or swap agreements, options contracts and futures contracts with 
economic characteristics similar to those of the ETFs for which they 
are substituted (such swap agreements, options contracts and futures 
contracts, collectively, ``Financial Instruments'').\12\
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    \9\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of adverse market, economic, political or 
other conditions, including extreme volatility or trading halts in 
the fixed income markets or the financial markets generally; 
operational issues causing dissemination of inaccurate market 
information; or force majeure type events such as systems failure, 
natural or man-made disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance.
    \10\ According to the Registration Statement, the Adviser 
considers ``large capitalization companies'' to have market 
capitalizations of at least $5 billion.
    \11\ For purposes of this filing, ETFs include Investment 
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); 
Portfolio Depositary Receipts (as described in NYSE Arca Equities 
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca 
Equities Rule 8.600). The ETFs all will be listed and traded in the 
U.S. on registered exchanges. The ETFs in which the Fund may invest 
will primarily be index-based exchange-traded funds that hold 
substantially all of their assets in securities representing a 
specific index. While the Fund may invest in inverse ETFs, the Fund 
will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
    \12\ The Adviser has represented that all options contracts and 
futures contracts will be listed on a U.S. national securities 
exchange or a non-U.S. securities exchange that is a member of the 
Intermarket Surveillance Group (``ISG'') or a party to a 
comprehensive surveillance sharing agreement with the Exchange.
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    According to the Registration Statement, the Fund will take long 
and short positions in U.S.-listed ETFs registered pursuant to the 
Investment Company Act of 1940 (the ``1940 Act'') holding primarily 
U.S. large capitalization equity securities. As opposed to taking long 
positions in which an investor seeks to profit from increases in the 
price of a stock, short selling (or ``selling short'') is a technique 
that will be used by the Fund to try and profit from the falling price 
of a stock. Short selling involves selling stock that has been borrowed 
from a third party with the intention of buying identical stock back at 
a later date to return to that third party.
    The Fund's investment process will first break down all large 
capitalization U.S. companies by the sector in which they operate. 
Generally, these sectors will include Consumer Discretionary, Consumer 
Staples, Energy, Financial, Health Care, Industrial, Materials, 
Technology, Telecommunications and Utilities. The Adviser will then 
analyze each sector based on a set of common investment factors. These 
factors will include the following: Price momentum (the trend in stock 
prices for each sector); valuation (how expensive stocks in one sector 
are relative to stocks in other sectors); and relative earnings 
(earnings strength and related characteristics of stocks in one sector 
relative to stocks in other sectors). The portfolio manager of the Fund 
will then use the factors to determine which sectors will have a long 
or short position and, within the long and short groupings, the 
relative sector weights thereof.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold long and short positions in ETFs providing exposure 
to the sectors listed above.
    According to the Registration Statement, having both long and short 
positions in an equity security portfolio is a common way to create 
returns that are independent of market moves. One advantage of a long 
and short portfolio is that the long and short positions may offset one 
another in a manner that results in a market neutral portfolio, which 
is a portfolio with little to no net exposure to the direction of the 
market. In addition to the offsetting positions, it is possible that 
the long and short equity securities will outperform their respective 
long and short benchmarks.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.\13\
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    \13\ According to the Registration Statement, money market 
instruments are generally short-term cash instruments that have a 
remaining maturity of 397 days or less and exhibit high quality 
credit profiles. These include U.S. Treasury Bills and repurchase 
agreements.
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IQ Bear U.S. Large Cap ETF
    According to the Registration Statement, the IQ Bear U.S. Large Cap 
ETF will seek capital appreciation.
    Under normal circumstances, at least 80% of the Fund's assets will 
be exposed to equity securities of U.S. large capitalization issuers, 
by taking short positions in ETFs and/or Financial Instruments. 
According to the Registration Statement, the Fund will take primarily 
short positions in U.S.-listed ETFs registered pursuant to the 1940 Act 
holding primarily U.S. large capitalization equity securities.
    According to the Registration Statement, the Fund's investment 
process will first break down all large capitalization U.S. companies 
by the sector in which they operate. Generally, these sectors will 
include Consumer Discretionary, Consumer Staples, Energy, Financial, 
Health Care, Industrial, Materials, Technology, Telecommunications and 
Utilities. The Adviser will then analyze each sector based on a set of 
common investment factors. These factors will include the following: 
Price momentum (the trend in stock prices for each sector); valuation 
(how expensive stocks in one sector are relative to stocks in other 
sectors); and relative earnings (earnings strength and related 
characteristics of stocks in one sector relative to stocks in other 
sectors). The portfolio managers of the Fund will then use the factors 
to determine the magnitude of the short weighting for each sector in 
the portfolio.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold short positions in ETFs providing exposure to the 
sectors listed above.
    According to the Registration Statement, by using a dynamic 
allocation process, the Fund will seek to outperform the inverse of the 
U.S. large capitalization equity market (``U.S. Large Cap Market'') 
performance in both rising and falling markets. In other words, when 
the U.S. Large Cap Market is down in a given period, the Fund will seek 
to be up more than the inverse of the U.S. Large Cap Market during the 
same period and, conversely, when the U.S. Large Cap Market is up in a 
given period, the Fund will seek to be down less than the inverse of 
the return of the U.S. Large Cap Market during the same period.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.
IQ Bear U.S. Small Cap ETF
    According to the Registration Statement, the IQ Bear U.S. Small Cap 
ETF will seek capital appreciation.
    Under normal circumstances, at least 80% of the Fund's assets will 
be exposed to equity securities of U.S. small capitalization 
companies,\14\ by taking short positions in ETFs and/or Financial 
Instruments. According to the Registration Statement, the Fund will 
take primarily short positions in U.S.-listed ETFs registered pursuant 
to the 1940 Act holding primarily U.S. small capitalization equity 
securities.
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    \14\ According to the Registration Statement, the Adviser will 
consider ``small capitalization companies'' to have market 
capitalizations of between $300 million and $2 billion.
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    According to the Registration Statement, the Fund's investment 
process will first break down all small capitalization U.S. companies 
by the

[[Page 72958]]

sector in which they operate. Generally, these sectors will include 
Consumer Discretionary, Consumer Staples, Energy, Financial, Health 
Care, Industrial, Materials, Technology, Telecommunications and 
Utilities. The Adviser will then analyze each sector based on a set of 
common investment factors. These factors will include the following: 
Price momentum (the trend in stock prices for each sector); valuation 
(how expensive stocks in one sector are relative to stocks in other 
sectors); and relative earnings (earnings strength and related 
characteristics of stocks in one sector relative to stocks in other 
sectors). The portfolio manager of the Fund will then use the factors 
to determine the magnitude of the short weighting for each sector in 
the portfolio.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold short positions in ETFs providing exposure to the 
sectors listed above.
    According to the Registration Statement, by using a dynamic 
allocation process, the Fund will seek to outperform the inverse of the 
performance of the U.S. small capitalization equity market (the ``U.S. 
Small Cap Market'') in both rising and falling markets. In other words, 
when the U.S. Small Cap Market is down in a given period, the Fund will 
seek to be up more than the inverse of the U.S. Small Cap Market during 
the same period and, conversely, when the U.S. Small Cap Market is up 
in a given period, the Fund will seek to be down less than the inverse 
of the return of the U.S. Small Cap Market during the same period.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.
IQ Bear International ETF
    According to the Registration Statement, the IQ Bear International 
ETF will seek capital appreciation.
    Under normal circumstances, at least 80% of the Fund's assets will 
be exposed to equity securities of issuers domiciled in developed 
market countries,\15\ by taking short positions in ETFs and/or 
Financial Instruments. According to the Registration Statement, the 
Fund will take primarily short positions in U.S.-listed ETFs registered 
pursuant to the 1940 Act holding primarily developed market equity 
securities.
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    \15\ According to the Registration Statement, developed market 
countries will generally include Australia, Austria, Belgium, 
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, 
Israel, Italy, Japan, the Netherlands, New Zealand, Norway, 
Portugal, Singapore, Spain, Sweden, Switzerland and the United 
Kingdom. To the extent that the Adviser believes that countries 
should be added or subtracted to the developed markets category, the 
Adviser may adjust the list of countries accordingly.
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    According to the Registration Statement, the Fund's investment 
process will first break down developed market companies by the country 
in which they are domiciled. The Adviser will then analyze each country 
based on a set of common investment factors. These factors will include 
the following: Price momentum (the trend in stock prices for each 
country); valuation (how expensive stocks in one country are relative 
to stocks in other countries); and relative earnings (earnings strength 
and related characteristics of stocks in one country relative to stocks 
in other countries). The portfolio manager of the Fund will then use 
the factors to determine the magnitude of the short weighting for each 
country in the portfolio.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold short positions in ETFs providing exposure to the 
countries listed above.
    According to the Registration Statement, by using a dynamic 
allocation process, the Fund will seek to outperform the inverse of the 
developed market segment of the international equities market (the 
``International Market'') performance in both rising and falling 
markets. In other words, when the International Market is down in a 
given period, the Fund will seek to be up more than the inverse of the 
International Market during the same period and, conversely, when the 
International Market is up in a given period, the Fund will seek to be 
down less than the inverse of the return of the International Market 
during the same period.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.
IQ Bear Emerging Markets ETF
    According to the Registration Statement, the IQ Bear Emerging 
Markets ETF will seek capital appreciation. Under normal circumstances, 
at least 80% of the Fund's assets will be exposed to equity securities 
of issuers domiciled in emerging market countries,\16\ by taking short 
positions in ETFs and/or Financial Instruments.
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    \16\ According to the Registration Statement, emerging market 
countries will generally include Brazil, Chile, China, Colombia, the 
Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, 
Morocco, Peru, the Philippines, Poland, Russia, South Africa, South 
Korea, Taiwan, Thailand and Turkey. To the extent that the Adviser 
believes that countries should be added or subtracted to the 
emerging markets category, it may adjust the list of countries 
accordingly.
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    According to the Registration Statement, the Fund will take 
primarily short positions in U.S.-listed ETFs registered pursuant to 
the 1940 Act holding primarily emerging market equity securities.
    According to the Registration Statement, the Fund's investment 
process will first break down emerging market companies by the country 
in which they are domiciled. The Adviser will then analyze each country 
based on a set of common investment factors. These factors will include 
the following: price momentum (the trend in stock prices for each 
country); valuation (how expensive stocks in one country are relative 
to stocks in other countries); and relative earnings (earnings strength 
and related characteristics of stocks in one country relative to stocks 
in other countries). The portfolio manager of the Fund will then use 
the factors to determine the magnitude of the short weighting for each 
country in the portfolio.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold short positions in ETFs providing exposure to the 
countries listed above.
    According to the Registration Statement, by using a dynamic 
allocation process, the Fund will seek to outperform the inverse of 
emerging market equities (the ``Emerging Market'') performance in both 
rising and falling markets. In other words, when the Emerging Market is 
down in a given period, the Fund will seek to be up more than the 
inverse of the Emerging Market during the same period and, conversely, 
when the Emerging Market is up in a given period, the Fund will seek to 
be down less than the inverse of the return of the Emerging Market 
during the same period.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.
IQ Bull U.S. Large Cap ETF
    According to the Registration Statement, the IQ Bull U.S. Large Cap 
ETF will seek capital appreciation. Under normal circumstances, at 
least 80% of the Fund's assets will be exposed to equity securities of 
U.S. large capitalization issuers,\17\ by investing in ETFs and/or 
Financial Instruments.
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    \17\ See note 10, supra.

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[[Page 72959]]

    According to the Registration Statement, the Fund will invest 
primarily in U.S.-listed ETFs registered pursuant to the 1940 Act 
holding primarily U.S. large capitalization equity securities.
    According to the Registration Statement, the Fund's investment 
process will first break down all large capitalization U.S. companies 
by the sector in which they operate. Generally, these sectors will 
include Consumer Discretionary, Consumer Staples, Energy, Financial, 
Health Care, Industrial, Materials, Technology, Telecommunications and 
Utilities. The Adviser will then analyze each sector based on a set of 
common investment factors. These factors will include the following: 
price momentum (the trend in stock prices for each sector); valuation 
(how expensive stocks in one sector are relative to stocks in other 
sectors); and relative earnings (earnings strength and related 
characteristics of stocks in one sector relative to stocks in other 
sectors). The portfolio manager of the Fund will the use the factors to 
determine the magnitude of the long weighting for each sector in the 
portfolio.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold long positions in ETFs providing exposure to the 
sectors listed above. In addition, the Fund will employ leverage 
inherent to the derivative security to increase exposure to the ETFs in 
which it is invested up to 100% of the net assets of the Fund to gain 
additional exposure to the Fund's portfolio holdings, such that the 
Fund will have 200% exposure to its investments. The leverage ratio 
will be uniform across all of the underlying ETFs, such that the 
relative weights of each sector will stay the same, but the overall 
exposure of the Fund will be increased.
    According to the Registration Statement, by using a dynamic 
allocation process combined with leverage, the Fund will seek to 
outperform by a factor of two the U.S. large capitalization equity 
market (``U.S. Large Cap Market'') performance in both rising and 
falling markets. In other words, when the U.S. Large Cap Market is up 
in a given period, the Fund will seek to be up by more than two times 
the return of the U.S. Large Cap Market during the period and, 
conversely, when the U.S. Large Cap Market is down in a given period, 
the Fund will seek to be down by less than two times the return of the 
U.S. Large Cap Market during the period.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.
IQ Bull U.S. Small Cap ETF
    According to the Registration Statement, the IQ Bull U.S. Small Cap 
ETF will seek capital appreciation. Under normal circumstances, at 
least 80% of the Fund's assets will be exposed to equity securities of 
U.S. small capitalization issuers,\18\ by investing in ETFs and/or 
Financial Instruments.
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    \18\ See note 14, supra.
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    According to the Registration Statement, the Fund will invest 
primarily in U.S.-listed ETFs registered pursuant to the 1940 Act 
holding primarily U.S. small capitalization equity securities.
    According to the Registration Statement, the Fund's investment 
process will first break down all small capitalization U.S. companies 
by the sector in which they operate. Generally, these sectors will 
include Consumer Discretionary, Consumer Staples, Energy, Financial, 
Health Care, Industrial, Materials, Technology, Telecommunications and 
Utilities. The Adviser will then analyze each sector based on a set of 
common investment factors. These factors will include the following: 
price momentum (the trend in stock prices for each sector); valuation 
(how expensive stocks in one sector are relative to stocks in other 
sectors); and relative earnings (earnings strength and related 
characteristics of stocks in one sector relative to stocks in other 
sectors). The portfolio manager of the Fund will then use the factors 
to determine the magnitude of the long weighting for each sector in the 
portfolio.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold long positions in ETFs providing exposure to the 
sectors listed above. In addition, the Fund will employ leverage 
inherent to the derivative security to increase exposure to the ETFs in 
which it is invested up to 100% of the net assets of the Fund to gain 
additional exposure to the Fund's portfolio holdings, such that the 
Fund will have 200% exposure to its investments. The leverage ratio 
will be uniform across all of the underlying ETFs, such that the 
relative weights of each sector will stay the same, but the overall 
exposure of the Fund will be increased.
    According to the Registration Statement, by using a dynamic 
allocation process combined with leverage, the Fund will seek to 
outperform by a factor of two the U.S. small capitalization equity 
market (``U.S. Small Cap Market'') performance in both rising and 
falling markets. In other words, when the U.S. Small Cap Market is up 
in a given period, the Fund will seek to be up by more than two times 
the return of the U.S. Small Cap Market during the period and, 
conversely, when the U.S. Small Cap Market is down in a given period, 
the Fund will seek to be down by less than two times the return of the 
U.S. Small Cap Market during the period.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.
IQ Bull International ETF
    According to the Registration Statement, the IQ Bull International 
ETF will seek capital appreciation.
    Under normal circumstances, at least 80% of the Fund's assets will 
be exposed to equity securities of issuers domiciled in developed 
market countries,\19\ by investing in ETFs and/or Financial 
Instruments.
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    \19\ According to the Registration Statement, developed market 
countries will generally include Australia, Austria, Belgium, 
Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, 
Israel, Italy, Japan, the Netherlands, New Zealand, Norway, 
Portugal, Singapore, Spain, Sweden, Switzerland and the United 
Kingdom. To the extent that the Adviser believes that countries 
should be added or subtracted to the developed markets category, the 
Adviser may adjust the list of countries accordingly.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund will invest 
primarily in U.S.-listed ETFs registered pursuant to the 1940 Act 
holding primarily developed market equity securities.
    According to the Registration Statement, the Fund's investment 
process will first break down developed market companies by the country 
in which they are domiciled. The Adviser will then analyze each country 
based on a set of common investment factors. These factors will include 
the following: price momentum (the trend in stock prices for each 
country); valuation (how expensive stocks in one country are relative 
to stocks in other countries); and relative earnings (earnings strength 
and related characteristics of stocks in one country relative to stocks 
in other countries). The portfolio manager for the Fund will then use 
the factors to determine the magnitude of the long weighting for each 
country in the portfolio.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold long positions in ETFs providing exposure to the 
countries listed above. In addition, the Fund will

[[Page 72960]]

employ leverage inherent to the derivative security, primarily through 
the use of total return swaps that track ETFs, to increase exposure to 
the ETFs in which it is invested up to 100% of the net assets of the 
Fund to gain additional exposure of the Fund's portfolio holdings, such 
that the Fund will have 200% exposure to its investments. The leverage 
ratio will be uniform across all of the underlying ETFs, such that the 
relative weights of each sector will stay the same, but the overall 
exposure of the Fund will be increased.
    According to the Registration Statement, by using a dynamic 
allocation process combined with leverage, the Fund seeks to outperform 
by a factor of two the developed market segment of the international 
equities market (the ``International Market'') performance in both 
rising and falling markets. In other words, when the International 
Market is up in a given period, the Fund will seek to be up by more 
than two times the return of the International Market during the period 
and, conversely, when the International Market is down in a given 
period, the Fund will seek to be down by less than two times the return 
of the International Market during the period.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.
IQ Bull Emerging Markets ETF
    According to the Registration Statement, the IQ Bull Emerging 
Markets ETF will seek capital appreciation.
    Under normal circumstances, at least 80% of the Fund's assets will 
be exposed to equity securities of issuers domiciled in emerging market 
countries,\20\ by investing in ETFs and/or Financial Instruments.
---------------------------------------------------------------------------

    \20\ See note 16, supra.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund will invest 
primarily in U.S.-listed ETFs registered pursuant to the 1940 Act 
holding primarily emerging market equity securities.
    According to the Registration Statement, the Fund's investment 
process will first break down emerging market companies by the country 
in which they are domiciled. The Adviser will then analyze each country 
based on a set of common investment factors. These factors will include 
the following: price momentum (the trend in stock prices for each 
country); valuation (how expensive stocks in one country are relative 
to stocks in other countries); and relative earnings (earnings strength 
and related characteristics of stocks in one country relative to stocks 
in other countries). The portfolio manager of the Fund will then use 
the factors to determine the magnitude of the long weighting for each 
country in the portfolio.
    According to the Registration Statement, to implement its strategy, 
the Fund will hold long positions in ETFs providing exposure to the 
countries listed above. In addition, the Fund will employ leverage 
inherent to the derivative security to increase exposure to the ETFs in 
which it is invested up to 100% of the net assets of the Fund to gain 
additional exposure to the Fund's portfolio holdings, such that the 
Fund will have 200% exposure to its investments. The leverage ratio 
will be uniform across all of the underlying ETFs, such that the 
relative weights of each sector will stay the same, but the overall 
exposure of the Fund will be increased.
    According to the Registration Statement, by using a dynamic 
allocation process combined with leverage, the Fund seeks to outperform 
by a factor of two the emerging market equities (the ``Emerging 
Market'') performance in both rising and falling markets. In other 
words, when the Emerging Market is up in a given period, the Fund will 
seek to be up by more than two times the return of the Emerging Market 
during the period and, conversely, when the Emerging Market is down in 
a given period, the Fund will seek to be down by less than two times 
the return of the Emerging Market during the period.
    In addition, cash balances arising from the use of short selling 
and derivatives typically will be held in money market instruments.
Other Investments of the Funds
    According to the Registration Statements, while each Fund will be, 
under normal circumstances,\21\ investing at least 80% of its net 
assets in securities as described above, each Fund may also invest in 
other investments, as described below.
---------------------------------------------------------------------------

    \21\ See note 9, supra.
---------------------------------------------------------------------------

    According to the Registration Statements, each Fund may invest a 
portion of its assets in high-quality money market instruments on an 
ongoing basis. The instruments in which each Fund may invest include: 
(1) Short-term obligations issued by the U.S. government; (2) 
negotiable certificates of deposit (``CDs''), fixed time deposits and 
bankers' acceptances of U.S. and foreign banks and similar 
institutions; (3) commercial paper rated at the date of purchase 
``Prime-1'' by Moody's Investors Service, Inc. or ``A-1+'' or ``A-1'' 
by Standard & Poor's Ratings Group, Inc., a division of The McGraw-Hill 
Companies, Inc., or, if unrated, of comparable quality as determined by 
the Adviser; (4) repurchase agreements (only from or to a commercial 
bank or a broker-dealer, and only if the purchase is scheduled to occur 
within seven (7) days or less); and (5) money market mutual funds. CDs 
are short-term negotiable obligations of commercial banks. Time 
deposits are non-negotiable deposits maintained in banking institutions 
for specified periods of time at stated interest rates. Bankers' 
acceptances are time drafts drawn on commercial banks by borrowers, 
usually in connection with international transactions.
    According to the Registration Statement, in addition to 
implementing its strategy by taking long or short positions in the 
underlying ETFs, as the case may be, each Fund may, from time to time, 
invest directly in non-ETF equity securities, including U.S.-listed and 
non-U.S. listed equity securities; provided, however, that all equity 
securities in which the Funds may invest will be listed on a U.S. 
national securities exchange or a non-U.S. securities exchange that is 
a member of the ISG or a party to a comprehensive surveillance sharing 
agreement with the Exchange.
    In addition to ETFs, the Funds may invest in U.S.-listed exchange-
traded notes \22\ and other U.S.-listed exchange-traded products.\23\
---------------------------------------------------------------------------

    \22\ Exchange-traded notes are securities such as those listed 
and traded on the Exchange under NYSE Arca Equities Rule 5.2(j)(6).
    \23\ For purposes of this filing, other U.S.-listed exchange-
traded products include Trust Issued Receipts (as described in NYSE 
Arca Equities Rule 8.200); Commodity-Based Trust Shares (as 
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares 
(as described in NYSE Arca Equities Rule 8.202); Commodity Index 
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and 
Trust Units (as described in NYSE Arca Equities Rule 8.500).
---------------------------------------------------------------------------

    Certain Funds may use American depositary receipts, European 
depositary receipts and Global depositary receipts when, in the 
discretion of the Adviser, the use of such securities is warranted for 
liquidity, pricing, timing or other reasons. No Fund will invest more 
than 10% of its net assets in unsponsored depositary receipts.
    In certain situations or market conditions, a Fund may temporarily 
depart from its normal investment policies and strategies provided that 
the alternative is consistent with the Fund's

[[Page 72961]]

investment objective and is in the best interest of the Fund. For 
example, a Fund that typically takes short positions may hold little or 
no short positions for extended periods, or a Fund may hold a higher 
than normal proportion of its assets in cash in times of extreme market 
stress.
Investment Restrictions
    Each Fund will seek to qualify for treatment as a regulated 
investment company (``RIC'') under Subchapter M of the Internal Revenue 
Code of 1986, as amended.\24\
---------------------------------------------------------------------------

    \24\ 26 U.S.C. 151.
---------------------------------------------------------------------------

    A Fund may hold up to an aggregate amount of 15% of its net assets 
in illiquid securities (calculated at the time of investment), 
including Rule 144A Securities.\25\ The Funds will monitor their 
portfolio liquidity on an ongoing basis to determine whether, in the 
light of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of a Fund's net assets are held 
in illiquid securities and other illiquid assets.
---------------------------------------------------------------------------

    \25\ 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. 8901 (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 ETF. 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 of 1933).
---------------------------------------------------------------------------

    According to the Registration Statement, the strategy of 
overweighting and underweighting sectors to maximize opportunities for 
capital appreciation may result in a Fund investing greater than 25% of 
its total assets, directly or indirectly, through underlying ETFs, in 
the equity securities of companies operating in one or more sectors. 
Sectors are comprised of multiple individual industries. According to 
the Registration Statement, a Fund will not invest more than 25% of its 
total assets, directly or indirectly, through underlying ETFs, in an 
individual industry, as defined by the Standard Industrial 
Classification Codes utilized by the Division of Corporate Finance of 
the Commission.\26\ This limitation does not apply to investments in 
securities issued or guaranteed by the U.S. Government, its agencies or 
instrumentalities, or shares of investment companies.
---------------------------------------------------------------------------

    \26\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
---------------------------------------------------------------------------

    According to the Registration Statement, a Fund may not purchase or 
sell commodities or commodity contracts unless acquired as a result of 
ownership of securities or other instruments issued by persons that 
purchase or sell commodities or commodities contracts, but this shall 
not prevent the Fund from purchasing, selling and entering into 
financial futures contracts (including futures contracts on indices of 
securities, interest rates and currencies), options on financial 
futures contracts (including futures contracts on indices of 
securities, interest rates and currencies), warrants, swaps, forward 
contracts, foreign currency spot and forward contracts or other 
derivative instruments that are not related to physical commodities.
Net Asset Value
    According to the Registration Statement, the net asset value 
(``NAV'') of the Shares of a Fund will be equal to the Fund's total 
assets minus the Fund's total liabilities divided by the total number 
of shares outstanding. The NAV that is published will be rounded to the 
nearest cent; however, for purposes of determining the price of 
Creation Units, the NAV will be calculated to five decimal places.
    Equities, ETFs and other exchange-traded products, depositary 
receipts, futures and options traded on any recognized national or 
foreign stock exchange are valued at the last reported sale price on 
the exchange where the security is primarily traded, or if no sale 
price is available, at the bid price. A swap on an index is valued at 
the publicly available index price. The index price, in turn is 
determined by the applicable index calculation agent, which generally 
values the securities underlying the index at the last reported sale 
price.
    When market quotations are not readily available, are deemed 
unreliable or do not reflect material events occurring between the 
close of local markets and the time of valuation, investments will be 
valued using fair value pricing as determined in good faith by the 
Adviser under procedures established by and under the general 
supervision and responsibility of the Trust's Board of Trustees. 
According to the Registration Statement, the NAV will be calculated by 
the Administrator and determined each Business Day as of the close of 
regular trading on the Exchange (ordinarily 4:00 p.m., Eastern time 
(``E.T.''). The Shares of the Funds will not be priced on days on which 
the Exchange is closed for trading.
Indicative Intra-Day Value
    According to the Registration Statement, an independent third party 
calculator will calculate the Indicative Intra-Day Value (``IIV'') for 
each Fund during hours of trading on the Exchange by dividing the 
``Estimated Fund Value'' as of the time of the calculation by the total 
number of outstanding Shares of that Fund. ``Estimated Fund Value'' is 
the sum of the estimated amount of cash held in a Fund's portfolio, the 
estimated amount of accrued interest owed to the Fund and the estimated 
value of the securities held in the Fund's portfolio, minus the 
estimated amount of the Fund's liabilities. The IIV will be calculated 
based on the same portfolio holdings disclosed on the Trust's Web site. 
All assets held by a Fund will be included in the IIV calculation.
    According to the Registration Statement, the Funds will provide the 
independent third party calculator with information to calculate the 
IIV, but the Funds will not be involved in the actual calculation of 
the IIV and are not responsible for the calculation or dissemination of 
the IIV. The Funds make no warranty as to the accuracy of the IIV. The 
IIV should not be viewed as a ``real-time'' update of NAV because the 
IIV may not be calculated in the same manner as NAV, which is computed 
once per day.
Creations and Redemptions of Shares
    According to the Registration Statement, each Fund will issue and 
redeem Shares on a continuous basis, at their NAV next determined after 
receipt, on any business day, for a creation order or redemption 
request received in proper form. Each Fund will issue and redeem Shares 
only in blocks of 50,000 Shares or whole multiples thereof (``Creation 
Units'').
    According to the Registration Statement, Creation Units (a) for the 
IQ Long/Short Alpha ETF and the ``Bull'' Funds (together, ``Standard 
Creation Funds'') will be sold in exchange for an in-kind basket of a 
designated portfolio of securities and a cash component and (b) for the 
``Bear'' Funds (``Cash Creation Funds'') will be sold in exchange for 
only cash. All orders to create Creation

[[Page 72962]]

Units must be received by the Distributor no later than 3:00 p.m. E.T. 
for the Cash Creation Funds or ordinarily 4:00 p.m. E.T. (3:00 p.m. 
E.T. in the case of custom orders) for the Standard Creation Funds, in 
each case on the date such order is placed, in order for the creation 
of Creation Units to be effected based on the NAV of Shares of a Fund 
as next determined on such date after receipt of the order in proper 
form.
    According to the Registration Statement, beneficial owners must 
accumulate enough Shares in the secondary market to constitute a 
Creation Unit in order to have such Shares redeemed by the Trust. The 
redemption proceeds for a Creation Unit will consist of consideration 
in an amount equal to the NAV of the Shares being redeemed, as next 
determined after receipt of a request in proper form less a redemption 
transaction fee. Creation Units will be redeemed principally in-kind 
for securities included in the relevant Fund but also including cash 
based on the then-current value of the securities sold short by the 
relevant Fund (as applicable). With respect to the Funds, the 
Administrator, through the National Securities Clearing Corporation 
(``NSCC''), will make available immediately prior to the opening of 
business on the Exchange (currently 9:30 a.m., E.T.) on each business 
day, the designated portfolio of securities (the ``Fund Securities'') 
or cash component, as applicable, per Creation Unit that will be 
applicable to redemption requests received in proper form on that day. 
An order to redeem Creation Units must be received by the Administrator 
not later than 3:00 p.m., E.T.
Availability of Information
    The Funds' Web site (www.indexiq.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Funds that may be downloaded. The Funds' Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Funds, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-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.
---------------------------------------------------------------------------

    \27\ The Bid/Ask Price of the Funds will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Funds' NAV. The records relating 
to Bid/Ask Prices will be retained by the Funds and their service 
providers.
---------------------------------------------------------------------------

    On each business day, before commencement of trading in Shares in 
the Core Trading Session (9:30 a.m. E.T. to 4:00 p.m. E.T.) on the 
Exchange, the Funds will disclose on their Web site the Disclosed 
Portfolio that will form the basis for the Funds' calculation of NAV at 
the end of the business day.\28\ The Web site information will be 
publicly available at no charge.
---------------------------------------------------------------------------

    \28\ Under accounting procedures followed by the Funds, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Funds 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business day.
---------------------------------------------------------------------------

    On a daily basis, the Funds will disclose on www.indexiq.com for 
each portfolio security and other financial instrument of the Funds the 
following information: ticker symbol, name of security and financial 
instrument, number of shares (if applicable) and dollar value of each 
security and financial instrument held in the portfolio, and percentage 
weighting of each security and financial instrument in the portfolio.
    In addition, a basket composition file, which includes the security 
names and share quantities required to be delivered in exchange for 
Fund Shares, together with estimates and actual cash components, will 
be publicly disseminated daily prior to the opening of the NYSE via the 
NSCC. The basket represents one Creation Unit of each Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), Shareholder Reports and Form N-CSR. The Trust's 
SAI and Shareholder Reports are available free upon request from the 
Trust, and those documents and the Form N-CSR may be viewed on-screen 
or downloaded from the Commission's Web site at www.sec.gov. 
Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares and the ETF shares underlying the Shares will be available via 
the Consolidated Tape Association (``CTA'') high-speed line. Quotation 
and last sale information for options contracts will be available via 
the Options Price Reporting Authority. Information regarding the equity 
securities and other portfolio securities held by each Fund will be 
available from the national securities exchange trading such 
securities, automated quotation systems, published or other public 
sources, or on-line information services such as Bloomberg or Reuters 
or any future service provider. Given that any swap used by a Fund will 
be priced based on underlying securities that are publicly traded, the 
pricing information for such underlying securities also will be 
available from the national securities exchange trading such 
securities, automated quotation systems, published or other public 
sources, or on-line information services such as Bloomberg or Reuters 
or any future service provider. In addition, the Portfolio Indicative 
Value of the Funds, 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 Portfolio Indicative Value, together with the 
Disclosed Portfolio, will allow investors to determine the value of the 
underlying portfolio of the Funds on a daily basis and to 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 
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees (including money manager and other advisory or 
management fees), portfolio holdings disclosure policies, distributions 
and taxes is included in the Registration Statement. All terms relating 
to the Funds that are referred to, but not defined in, this proposed 
rule change are defined in the Registration Statements.
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 Funds.\30\ Trading in Shares of the Funds 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading

[[Page 72963]]

in the Shares inadvisable. These may include: (1) The extent to which 
trading is not occurring in the securities and/or the financial 
instruments comprising the Disclosed Portfolio of a Fund; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in the 
Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which 
sets forth circumstances under which Shares of the Funds may be halted.
---------------------------------------------------------------------------

    \30\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

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 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
    The Shares will be subject to NYSE Arca Equities Rule 8.600, which 
sets forth the initial and continued listing criteria applicable to 
Managed Fund Shares. The Exchange represents that, for initial and/or 
continued listing, each Trust 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 will be outstanding at the commencement of 
trading on the Exchange. The Exchange will obtain a representation from 
the issuer of the Shares that the NAV per Share will be calculated 
daily and that the NAV and the Disclosed Portfolio as defined in NYSE 
Arca Equities Rule 8.600(c)(2) will be made available to all market 
participants at the same time.
---------------------------------------------------------------------------

    \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 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 detect and help deter 
violations of Exchange rules and applicable federal securities laws.
---------------------------------------------------------------------------

    \32\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations. FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
the Shares with other markets and other entities that are members of 
the ISG and FINRA, on behalf of the Exchange, may obtain trading 
information regarding trading in the Shares from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares from markets and other entities that are members 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\33\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit aggregations (and that Shares are not individually 
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (4) how information regarding the 
Portfolio Indicative Value 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 Funds are subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. 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 Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange 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. All of the equity securities in which the Funds may invest 
will be listed on a U.S. national securities exchange or a non-U.S. 
securities exchange that is a member of ISG or a party to a 
comprehensive surveillance sharing agreement with the Exchange. Each 
Fund's investments will, under normal circumstances, be consistent with 
its investment objective. Each Fund will not hold more than 15% of its 
net assets in illiquid securities, including Rule 144A securities. The 
Adviser is not a broker-dealer and is not affiliated with a broker-
dealer. In the event (a) the Adviser becomes newly affiliated with a 
broker-dealer, or (b) any new adviser or subadviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer it will 
implement a firewall with respect to its relevant

[[Page 72964]]

personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to a portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Adviser is not affiliated with broker-dealers. The Exchange 
will obtain a representation from the issuer of the Shares that the 
NAVs per Share will be calculated daily and that the NAVs and the 
Disclosed Portfolio will be made available to all market participants 
at the same time. In addition, a large amount of information is 
publicly available regarding the Funds and the Shares, thereby 
promoting market transparency. The Funds' portfolio holdings will be 
disclosed on their Web site daily after the close of trading on the 
Exchange and prior to the opening of trading on the Exchange the 
following day. Moreover, the Portfolio Indicative Value will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session. Information regarding market 
price and trading volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services, and quotation and last sale information will 
be available via the CTA high-speed line. The Web site for the Funds 
will include a form of the prospectus for the Funds and additional data 
relating to the Funds' NAVs and other applicable quantitative 
information. Moreover, prior to the commencement of trading, the 
Exchange will inform its ETP Holders in an Information Bulletin of the 
special characteristics and risks associated with trading the Shares. 
Trading in Shares of the Funds 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 Funds may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Funds' holdings, the Portfolio Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of actively-managed exchange-traded products that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Funds' holdings, 
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.

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

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

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period 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 No. SR-NYSEArca-2013-127 on the subject line.

Paper Comments

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

All submissions should refer to File No. SR-NYSEArca-2013-127. 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 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 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; 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 No. SR-NYSEArca-2013-127 and should be 
submitted on or before December 26, 2013.
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    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-28971 Filed 12-3-13; 8:45 am]
BILLING CODE 8011-01-P