Document ID: SEC-2012-0894-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-06-08T04:00Z

[Federal Register Volume 77, Number 111 (Friday, June 8, 2012)]
[Notices]
[Pages 34102-34107]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13964]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67107; File No. SR-NYSEArca-2012-50]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of the First 
Trust CBOE VIX Tail Hedge Index Fund Under NYSE Arca Equities Rule 
5.2(j)(3)

June 4, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that, on May 25, 2012, NYSE Arca, Inc. (``Exchange'' or 
``NYSE Arca'' or ``Corporation'') 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 
substantially 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares (``Shares'') of the 
First Trust CBOE VIX Tail Hedge Index Fund under NYSE Arca Equities 
Rule 5.2(j)(3). The text of the proposed rule change is available on 
the Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares of the First 
Trust CBOE VIX Tail Hedge Index Fund (``Fund'') under NYSE Arca 
Equities Rule 5.2(j)(3), the Exchange's listing standards for 
Investment Company Units (``Units'').\3\
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    \3\ An Investment Company Unit is a security that represents an 
interest in a registered investment company that holds securities 
comprising, or otherwise based on or representing an interest in, an 
index or portfolio of securities (or holds securities in another 
registered investment company that holds securities comprising, or 
otherwise based on or representing an interest in, an index or 
portfolio of securities). See NYSE Arca Equities Rule 5.2(j)(3)(A).
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    The Shares will be offered by First Trust Exchange-Traded Fund 
(``Trust''), which is organized as a Massachusetts business trust and 
is registered with the Commission as an open-end management investment 
company.\4\ The investment adviser to the Fund will be First Trust 
Advisors L.P. (``Adviser'' or ``First Trust''). First Trust Portfolios 
L.P. (``Distributor'') will be the principal underwriter and 
distributor of the Fund's Shares. The Bank of New York Mellon 
Corporation (``BNY'') will serve as administrator, custodian, and 
transfer agent for the Fund (``Custodian'').
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). On October 17, 2011, the 
Trust filed with the Commission an amendment to the Trust's 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a), and under the 1940 Act relating to the Fund (File 
Nos. 333-125751 and 811-21774) (``Registration Statement''). The 
description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
27068 (September 20, 2005) (File No. 812-13000) (``Exemptive 
Order'').
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    According to the Registration Statement, the Fund will seek 
investment results that correspond generally to the price and yield, 
before the Fund's fees and expenses, of an equity index called the CBOE 
S&P VIX Tail Hedge Index (``Index''). The Fund will normally invest at 
least 90% of its net assets (plus the amount of any borrowings for 
investment purposes) in common stocks included in the Index. In 
addition, the Fund will normally invest 0.0% to 1.0% of its net assets 
in VIX call options, as described below.
    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet all of the ``generic'' listing 
requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule 
5.2(j)(3) applicable to the listing of Units based upon an index of US 
Component Stocks.\5\ Specifically, Commentary .01(a)(A) to NYSE Arca 
Equities Rule 5.2(j)(3) \6\ sets forth the requirements to be met by 
components of an index or portfolio of US Component Stocks. As 
described further below, the Index consists of an S&P 500 Index stock 
portfolio and a position in specified VIX Index (``VIX'') call 
options.\7\ The Index meets all requirements of NYSE Arca Equities Rule 
5.2(j)(3) and Commentary .01(a)(A) thereto except that the Index 
includes VIX call options, which are not NMS Stocks as defined in Rule 
600 of Regulation NMS. As described below, the Index is predominately 
S&P 500 companies and includes an exposure to

[[Page 34103]]

VIX call options ranging from 0.00% to 1.00% of the weight of the 
Index. All securities in the S&P 500 Index are listed and traded on a 
national securities exchange. Options on the VIX are traded on the 
Chicago Board Options Exchange (``CBOE''). Notwithstanding that the 
Index does not meet all of the generic listing requirements of 
Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3), the Exchange 
believes that the Index is sufficiently broad-based to deter potential 
manipulation in that the S&P 500 Index stocks are among the most 
actively traded, highly capitalized stocks traded in the U.S. In 
addition, VIX call options are highly liquid, with trading volume on 
the CBOE during the first quarter of 2012 of 257,220 contracts per day. 
VIX call options would represent, at most, only 1% of the total weight 
of the Index. All Index components are traded on exchanges that are 
members of the Intermarket Surveillance Group (``ISG''), and the 
Exchange, therefore, is able to share surveillance information with 
such exchanges with respect to trading in all Index components.
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    \5\ NYSE Arca Equities Rule 5.2(j)(3) provides that the term 
``US Component Stock'' shall mean an equity security that is 
registered under Sections 12(b) or 12(g) of the Exchange Act or an 
American Depositary Receipt, the underlying equity security of which 
is registered under Sections 12(b) or 12(g) of the Exchange Act.
    \6\ Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) 
states, in part, that the components of an index of US Component 
Stocks, upon the initial listing of a series of Units pursuant to 
Rule 19b-4(e) under the Exchange Act, shall be NMS Stocks as defined 
in Rule 600 of Regulation NMS under the Exchange Act.
    \7\ According to the Registration Statement, the VIX Index is a 
measure of estimated near-term future volatility based upon the 
weighted average of the implied volatilities of near-term put and 
call options on the S&P 500.
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The CBOE S&P VIX Tail Hedge Index

    The Index is rules-based and is owned and was developed by Standard 
& Poor's Financial Services LLC (``S&P'' or ``Index Provider'').\8\ The 
Index Provider will calculate and maintain the Index. The Index is 
designed to provide a benchmark for investors interested in hedging 
tail risk in an S&P 500 portfolio.\9\ Index components are reviewed 
quarterly for eligibility, and the weights are re-set according to that 
distribution. As of the Index rebalance on March 21, 2012, the Index 
was comprised of 99.0% S&P 500 stocks and 1.00% VIX call options. The 
Index consists of an S&P 500 stock portfolio (with dividends 
reinvested), and an amount of one-month, 30-delta VIX call options that 
is determined by the level of forward volatility. On the day of the 
monthly expiration of VIX call options, previously purchased VIX call 
options are cash-settled and new VIX call options are purchased at the 
10:00 a.m., Central Time asking price. The percent of money allocated 
to VIX call options depends on the level of forward volatility at the 
next call expiration as measured by the opening price of VIX futures 
with the same expiration as the VIX call options as follows:
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    \8\ The Index Provider is not a broker-dealer and has 
implemented procedures designed to prevent the use and dissemination 
of material, non-public information regarding the Index.
    \9\ According to the Registration Statement, tail hedging, in 
the context used by the Index Provider, is the practice of trying to 
hedge the portfolio from extreme market moves that are the result of 
random, unexpected, and unpredictable events. Unexpected events of 
this nature often result in rapid increases in market volatility, 
both realized and implied volatility. The Fund will utilize a tail 
hedging strategy which attempts to profit from the sudden rise in 
implied volatility due to any unexpected event. The gains from the 
``tail hedge'' would then hopefully offset some of the losses 
incurred in the common stock portfolio due to the unexpected events.
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     VIX futures price less than or equal to 15,\10\ no VIX 
call options are purchased;
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    \10\ VIX futures represent the level of expected future 30-day 
volatility as measured in standard deviation units, expressed in 
percent terms (expected volatility multiplied by 100). For example, 
assume that on September 21, 2011, the September VIX call options 
expired and new call options expiring on October 19, 2011 were 
included within the Index. The amount or weighting assigned to the 
October VIX call options within the Index would have been determined 
by the opening price on September 21 of the October 2011 VIX futures 
contract. CBOE data indicate that the opening price was 31.15. 
Because the opening price of the October VIX futures contract was 
greater than 30.00 but less than or equal to 50.00, the allocation 
to VIX call options within the Index would have been equal to 0.50% 
and the S&P 500 weighting would have been 99.50%. If the opening 
futures price had been equal to or below 15.0 or greater than 50.0, 
the allocation to the call options would have been 0% and the 
Index's composition would have been equal to the S&P 500's 
weightings. If the opening futures price had been greater than 15.0 
but less than or equal to 30.0, the allocation to VIX call options 
within the Index would have been equal to 1.0% and the S&P 500 
weighting would have been equal to 99.0%.
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     VIX futures price greater than 15 and less than or equal 
to 30, 1% Index weight in VIX call options;
     VIX futures price greater than 30 and less than or equal 
to 50, 0.50% Index weight in VIX call options; and
     VIX futures price above 50, no VIX call options are 
purchased.
    According to the Registration Statement, this dynamic allocation to 
VIX call options is designed to reduce hedging costs by limiting the 
number of VIX call options that are purchased during periods of 
expected low volatility, and also has the effect of taking VIX call 
option profits when extreme volatility levels are reached. The Index is 
reconstituted and rebalanced monthly.
    The Index Provider will, in most cases, use the quantitative 
ranking and screening system described herein. However, subjective 
screening based on fundamental analysis or other factors may be used, 
if, in the opinion of the Index Provider, certain components should be 
included or excluded from the Index.
    The Fund intends to qualify annually and to elect to be treated as 
a regulated investment company (``RIC'') under the Internal Revenue 
Code of 1986, as amended.\11\
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    \11\ 26 U.S.C. 851. According to the Registration Statement, to 
qualify for the favorable U.S. federal income tax treatment 
generally accorded to RICs, the Fund must, among other things, (a) 
derive in each taxable year at least 90% of its gross income from 
dividends, interest, payments with respect to securities loans and 
gains from the sale or other disposition of stock, securities or 
foreign currencies or other income derived with respect to its 
business of investing in such stock, securities or currencies, or 
net income derived from interests in certain publicly traded 
partnerships; (b) diversify its holdings so that, at the end of each 
quarter of the taxable year, (i) at least 50% of the market value of 
the Fund's assets is represented by cash and cash items (including 
receivables), U.S. Government securities, the securities of other 
RICs and other securities, with such other securities of any one 
issuer generally limited for the purposes of this calculation to an 
amount not greater than 5% of the value of the Fund's total assets 
and not greater than 10% of the outstanding voting securities of 
such issuer, and (ii) not more than 25% of the value of its total 
assets is invested in the securities (other than U.S. Government 
securities or the securities of other RICs) of any one issuer, or 
two or more issuers which the Fund controls which are engaged in the 
same, similar or related trades or businesses, or the securities of 
one or more of certain publicly traded partnerships; and (c) 
distribute at least 90% of its investment company taxable income 
(which includes, among other items, dividends, interest and net 
short-term capital gains in excess of net long-term capital losses) 
and at least 90% of its net tax-exempt interest income each taxable 
year. There are certain exceptions for failure to qualify if the 
failure is for reasonable cause or its [sic] de minimis, and certain 
action is taken and certain tax payments are made by the Fund.
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    The Exchange represents that, for initial and/or continued listing, 
the Fund will be in compliance with Rule 10A-3 under the Act,\12\ as 
provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares 
for 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 that the net asset value (``NAV'') per Share will be 
calculated daily and will be made available to all market participants 
at the same time.
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    \12\ 17 CFR 240.10A-3.
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Creations and Redemptions

    The Fund will issue and redeem Shares on a continuous basis, at 
NAV, only in large specified blocks each consisting of 50,000 Shares 
(each such block of Shares called a ``Creation Unit''). Each group of 
Creation Units of such specified number of individual Fund Shares is 
referred to as a ``Creation Unit Aggregation.'' The Creation Units will 
be issued and redeemed for securities in which the Fund invests, cash 
or both securities and cash.
    The consideration for purchase of Creation Unit Aggregations of the 
Fund may consist of (i) cash in lieu of all or a portion of the Deposit 
Securities, as defined below, and/or (ii) a designated portfolio of 
equity securities determined by First Trust--the ``Deposit 
Securities''--per each Creation Unit Aggregation (``Fund Securities'') 
and

[[Page 34104]]

generally an amount of cash--the ``Cash Component.'' Together, the 
Deposit Securities and the Cash Component (including the cash in lieu 
amount) constitute the ``Fund Deposit,'' which represents the minimum 
initial and subsequent investment amount for a Creation Unit 
Aggregation of the Fund.
    BNY, through the National Securities Clearing Corporation 
(``NSCC'') (as discussed below), will make available on each business 
day, prior to the opening of business of the New York Stock Exchange 
(``NYSE'') (currently 9:30 a.m., Eastern Time (``E.T.'')), 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.
    In addition to the list of names and numbers of securities 
constituting the current Deposit Securities of a Fund Deposit, BNY, 
through the NSCC, also will make available, on each business day, the 
estimated Cash Component, effective through and including the previous 
business day, per outstanding Creation Unit Aggregation of the Fund.
    All orders to create Creation Unit Aggregations must be received by 
the transfer agent no later than the closing time of the regular 
trading session on the NYSE (``Closing Time'') (ordinarily 4 p.m., 
E.T.) in each case on the date such order is placed in order for 
creation of Creation Unit Aggregations to be effected based on the NAV 
of Shares of the Fund as next determined on such date after receipt of 
the order in proper form.
    Fund Shares may be redeemed only in Creation Unit Aggregations at 
their NAV next determined after receipt of a redemption request in 
proper form by the Fund through the transfer agent and only on a 
business day. The Fund will not redeem Shares in amounts less than 
Creation Unit Aggregations. With respect to the Fund, the Custodian, 
through the NSCC, will make available prior to the opening of business 
on the NYSE (currently 9:30 a.m., E.T.) on each business day, the 
identity of the Fund Securities that will be applicable to redemption 
requests received in proper form on that day.

Availability of Information

    The Fund's Web site (www.ftportfolios.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (``Bid/Ask 
Price''),\13\ 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 
Fund will disclose on its Web site the portfolio of securities and 
financial instruments that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\14\
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    \13\ The Bid/Ask Price of the Fund 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.
    \14\ Under accounting procedures 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.
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    On a daily basis, the Adviser will disclose for each portfolio 
security and other financial instrument of the Fund the following 
information on the Fund's Web site: ticker symbol (if applicable), name 
of security and financial instrument, number of shares or dollar value 
of financial instruments held in the portfolio, and percentage 
weighting of the security and financial instrument in the portfolio. 
The Web site information will be publicly available at no charge.
    In addition, a basket composition file, which includes the security 
names and share quantities required to be delivered in exchange for the 
Fund's Shares, together with estimates and actual cash components, will 
be publicly disseminated daily prior to the opening of the NYSE via 
NSCC. The basket represents one Creation Unit of the Fund.
    In addition, an Intraday Indicative Value (``IIV'') for the Shares 
will be widely disseminated at least every 15 seconds during the Core 
Trading Session (9:30 a.m. to 4 p.m., E.T.) by one or more major market 
data vendors.\15\ The IIV should not be viewed as a ``real-time'' 
update of the NAV per Share of the Fund because the IIV may not be 
calculated in the same manner as the NAV, which is computed once a day, 
generally at the end of the business day.
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    \15\ Currently, it is the Exchange's understanding that several 
major market data vendors widely disseminate IIVs taken from the 
Consolidated Tape Association (``CTA'') or other data feeds.
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    In addition, the Index value will be widely disseminated at least 
every 15 seconds during the Core Trading Session by one or more major 
market data vendors such as Bloomberg. Additional information regarding 
the Index and the underlying components (S&P 500 stock portfolio (with 
dividends reinvested) and the allocation of VIX call options) will be 
available at www.cboe.com.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's 
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and 
Shareholder Reports will be available free upon request from the Trust, 
and those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov. 
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 will be available via the CTA high-speed line and, for the 
securities, including VIX call options, held by the Fund, will be 
available from the exchange on which they are listed. The intra-day, 
closing, and settlement prices of the portfolio securities will also be 
readily available from the securities exchanges trading such 
securities, automated quotation systems, published or other public 
sources, or on-line information services such as Bloomberg or Reuters.
    The Exchange represents that the continued listing standards under 
NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units 
shall apply to the Shares. The Exchange further represents that the VIX 
options components of the Index, if any, must remain listed and traded 
on a national securities exchange. In addition, the Exchange represents 
that the Fund and the Shares will comply with all other requirements 
applicable to Units including, but not limited to, requirements 
relating to the dissemination of key information such as the value of 
the Index, IIV, and NAV, rules governing the trading of equity 
securities, trading hours, trading halts, surveillance, information 
barriers, and Information Bulletin to Equity Trading Permit (``ETP'') 
Holders (each as

[[Page 34105]]

described in more detail herein), as set forth in Exchange rules 
applicable to Units and prior Commission orders approving the generic 
listing rules applicable to the listing and trading of Units.\16\
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    \16\ See, e.g ., Securities Exchange Act Release No. 44551 (July 
12, 2001), 66 FR 37716 (July 19, 2001) (SR-PCX-2001-14) (order 
approving generic listing standards for ICUs and Portfolio 
Depositary Receipts); Securities Exchange Act Release No. 41983 
(October 6, 1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) 
(order approving rules for listing and trading of ICUs).
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    The Fund's NAV will be determined as of the close of trading 
(normally 4 p.m., E.T.) on each day the NYSE is open for business. NAV 
will be calculated for the Fund by taking the market price of the 
Fund's total assets, including interest or dividends accrued but not 
yet collected, less all liabilities, and dividing such amount by the 
total number of Shares outstanding. The result, rounded to the nearest 
cent, will be the NAV per Share. All valuations will be subject to 
review by the Trust's Board of Trustees (``Board'') or its 
delegate.\17\
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    \17\ The Fund's investments will be valued at market value or, 
in the absence of market value with respect to any portfolio 
securities, at fair value in accordance with valuation procedures 
adopted by the Board and in accordance with the 1940 Act.
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    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, 
distributions, and taxes is included in the Registration Statement. All 
terms relating to the Fund that are referred to, but not defined in, 
this proposed rule change are defined in the Registration Statement.

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.\18\ If the IIV or the Index value is 
not being disseminated as required, the Corporation may halt trading 
during the day in which the interruption to the dissemination of the 
applicable IIV or Index value occurs. If the interruption to the 
dissemination of the applicable IIV or Index value persists past the 
trading day in which it occurred, the Corporation will halt trading. 
Trading in Shares of the Fund will be halted if the circuit breaker 
parameters in NYSE Arca Equities Rule 7.12 have been reached. Trading 
also may be halted because of market conditions or for reasons that, in 
the view of the Exchange, make trading 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 Fund's 
portfolio; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. In addition, if the Exchange becomes aware that the NAV is not 
being disseminated to all market participants at the same time, it will 
halt trading in the Shares on the Exchange until such time as the NAV 
is available to all market participants.
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    \18\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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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.

Surveillance

    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which include Investment 
Company Units) to monitor trading in the Shares. 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's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. 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 may obtain information via the ISG from other 
exchanges that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\19\ The equity 
securities and VIX options in which the Fund will invest will trade in 
markets that are ISG members or are parties to comprehensive 
surveillance sharing agreements with the Exchange.
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    \19\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Fund's portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    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 
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 
IIV will not be calculated or publicly disseminated; (4) how 
information regarding the IIV 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 will be 
calculated after 4 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) \20\ 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.
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    \20\ 15 U.S.C. 78f(b)(5).
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    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

[[Page 34106]]

pursuant to the initial and continued listing criteria in NYSE Arca 
Equities Rule 5.2(j)(3). The Exchange has in place surveillance 
procedures that are adequate to properly monitor trading in the Shares 
in all trading sessions and to deter and detect violations of Exchange 
rules and applicable federal securities laws. The Index Provider is not 
a broker-dealer and has implemented procedures designed to prevent the 
use and dissemination of material, non-public information regarding the 
Index. The Index is predominately S&P 500 companies and includes an 
exposure to VIX call options. All securities in the S&P 500 Index are 
listed and traded on a national securities exchange. Options on the VIX 
are traded on the CBOE. All components of the Index have active, liquid 
markets on national securities exchanges. 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. The equity securities and VIX options in which the 
Fund will invest will trade in markets that are ISG members or are 
parties to comprehensive surveillance sharing agreements with the 
Exchange.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
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. 
Moreover, the IIV and the Index value will be widely disseminated by 
one or more major market data vendors at least every 15 seconds during 
the Exchange's Core Trading Session. If the IIV or the Index value is 
not being disseminated as required, the Corporation may halt trading 
during the day in which the interruption to the dissemination of the 
applicable IIV or Index value occurs. If the interruption to the 
dissemination of the applicable IIV or Index value persists past the 
trading day in which it occurred, the Corporation will halt trading. In 
addition, if the Exchange becomes aware that the NAV is not being 
disseminated to all market participants at the same time, it will halt 
trading in the Shares on the Exchange until such time as the NAV is 
available to all market participants. On each business day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Fund will disclose on its Web site the securities and 
other financial instruments in the Fund's portfolio that will form the 
basis for the Fund's calculation of NAV at the end of the business day. 
Information regarding market price and trading volume of the Shares is 
and 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 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. Trading in Shares of the Fund will 
be halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached or because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. In addition, as noted above, investors will have ready 
access to information regarding the Fund's holdings, the IIV, Index 
value, 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 
an additional type of Units 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 Fund's holdings, the IIV, Index value, 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 purposes of the Act.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2012-50 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2012-50. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than

[[Page 34107]]

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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2012-50 and should 
be submitted on or before June 29, 2012.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13964 Filed 6-7-12; 8:45 am]
BILLING CODE 8011-01-P