Document ID: SEC-2014-2048-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-12-08T05:00Z

[Federal Register Volume 79, Number 235 (Monday, December 8, 2014)]
[Proposed Rules]
[Pages 72723-72730]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28643]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73716; File No. SR-NYSEArca-2014-134]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading the following 
Series of IndexIQ Active ETF Trust Under NYSE Arca Equities Rule 8.600: 
IQ Wilshire Alternative Strategies ETF

December 2, 2014.
    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, 2014, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.

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[[Page 72724]]

I. Self-Regulatory Organization's Statement of the Terms of the 
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 Wilshire Alternative Strategies 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
IQ Wilshire Alternative Strategies ETF (the ``Fund'') under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares \4\ on the Exchange.\5\ The Fund is a series of the IndexIQ 
Active ETF Trust (the ``Trust'').\6\
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1), 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.
    \5\ 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).
    \6\ The Trust is registered under the 1940 Act. On April 25, 
2014, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A relating to the Fund (File Nos. 
333-193560 and 811-22739) (the ``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. 
30198 (September 10, 2012) (File No. 812-13956) (the ``Exemptive 
Order'').
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    The 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 Fund.\7\ The Bank of New York Mellon (``Administrator''), is 
the administrator, custodian, transfer agent and securities lending 
agent for the Fund. ALPS Distributors Inc. (``Distributor''), is the 
distributor for the Fund.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). The Adviser, Wilshire and the underlying managers that are 
sub-advisers to the Fund (the ``Underlying Managers'') are each 
registered as an investment adviser under the Advisers Act. As a 
result, each of the Adviser, Wilshire and the Underlying Managers 
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, each of the 
Adviser, Wilshire and the Underlying Managers 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. In the event 
(a) any of the Adviser, Wilshire or the Underlying Managers is or 
becomes a broker-dealer or 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, then, to the extent the 
broker-dealer or affiliated broker-dealer is not a limited purpose 
broker-dealer used for marketing and not trading purposes, 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.
    According to the Registration Statement, the Fund will seek long-
term capital appreciation. Under normal circumstances,\8\ 100% of the 
Fund's assets will be allocated among the Underlying Managers and that 
will employ a variety of alternative investment strategies.\9\ In 
making these allocations, the Advisor will seek to combine the 
strategies of the Underlying Managers efficiently and systematically so 
that the Fund will generate a positive total return with relatively low 
volatility and low sensitivity or correlation to market indices.
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    \8\ 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.
    \9\ According to the Registration Statement, the investment of 
Fund assets not allocated to the Underlying Managers may be directly 
managed by the Advisor, although the Advisor does not currently 
intend to manage a significant portion of the Fund's assets 
directly, and to the extent the Advisor does manage a portion of the 
Fund's assets it would invest such assets in the same manner as the 
Underlying Managers.
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    According to the Registration Statement, Wilshire Associates

[[Page 72725]]

Incorporated (``Wilshire'') will be a sub-advisor to the Fund and, in 
that role, will evaluate and recommend strategies and Underlying 
Managers to the Advisor for use by the Fund. Additionally, according to 
the Registration Statement Wilshire will provide recommendations to the 
Advisor for allocating and reallocating Fund assets among the 
Underlying Managers. Wilshire will not directly manage any assets of 
the Fund, although it may provide the Advisor or an Underlying Manager 
with non-discretionary advice on investment decisions and underlying 
positions.
    According to the Registration Statement, the Fund and each of its 
Underlying Managers may use all or some of the following strategies in 
managing the assets of the Fund: Equity hedge (long/short) 
strategies,\10\ relative value strategies,\11\ global macro 
strategies,\12\ event driven strategies,\13\ opportunistic credit 
strategies,\14\ tactical trading strategies \15\ and liquid alternative 
beta strategies.\16\ The Fund, and each of its Underlying Managers, may 
also add additional strategies in the future. According to the 
Registration Statement, the Advisor may allocate 0 to 100 percent of 
the Fund's assets to any of these strategies or any of the Underlying 
Managers at any time.
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    \10\ According to the Registration Statement, an equity hedge 
(long/short) strategy will seek to identify equities that are 
trading under or over their perceived intrinsic value or are deemed 
to be mispriced based on fundamental, statistical, technical or 
other factors.
    \11\ According to the Registration Statement, a relative value 
strategy will seek to exploit differences in valuation through the 
simultaneous purchase and sale of related financial instruments.
    \12\ According to the Registration Statement, a global macro 
strategy will seek to analyze macroeconomic variables to identify 
global asset/security mispricings (i.e., securities that are trading 
higher or lower than their intrinsic or actual value) and forecast 
future moves in such asset/security prices on a directional or 
relative value basis.
    \13\ According to the Registration Statement, an event driven 
strategy will involve investing in securities of companies currently 
or prospectively involved in a wide variety of corporate 
transactions or other events where the investment thesis is 
predicated on the anticipated effect of such transactions or events 
(e.g., merger arbitrage strategy, which involves the simultaneous 
purchase of stock in a company being acquired and the sale of stock 
in its acquirer in an attempt to profit from the spread in prices).
    \14\ According to the Registration Statement, an opportunistic 
credit strategy will seek to deliver positive absolute returns in 
excess of cash investments regardless of economic cycle (i.e., 
downturns and upswings) or cyclical credit availability primarily by 
investing in mispriced credit securities (i.e., credit securities 
that are trading higher or lower than their intrinsic or actual 
value).
    \15\ According to the Registration Statement, a tactical trading 
strategy will relate to a variety of strategic and opportunistic 
investment strategies not captured by one of the other enumerated 
strategies, such as short-term trading opportunities.
    \16\ According to the Registration Statement, a liquid 
alternative beta strategy will seek to track the beta portion of the 
returns (i.e., that portion of the returns of hedge funds that are 
non-idiosyncratic, or unrelated to manager skill) of hedge funds 
that employ various hedge fund investment styles.
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    According to the Registration Statement, in implementing the 
aforementioned strategies, the Fund will invest in a portfolio 
consisting of some or all of the following:
Equity Securities
    The Fund may invest in exchange-traded Equity Securities, which 
will consist of:

 Common stocks;
 Preferred stocks;
 Convertible securities;
 Rights and warrants;
 Depositary receipts;
 Exchange-traded Funds (``ETFs''); \17\
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    \17\ 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 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. 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.
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 Non-ETF exchange-traded vehicles (``ETVs''); \18\ and
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    \18\ According to the Adviser, an ETV is a non-investment 
company exchange-traded vehicle that issues equity securities, such 
as an exchange-traded commodity pool.
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 Partnership interests, including master limited partnerships.
Fixed Income Securities

    The Fund may invest in Fixed Income Securities, which will consist 
of:

 Debt issued by corporations; \19\
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    \19\ The Adviser expects that, under normal market 
circumstances, the Fund will generally seek to invest in corporate 
bond issuances in developed countries that have at least 
$100,000,000 par amount outstanding and at least $200,000,000 par 
amount outstanding with respect to corporate bond issuances in 
emerging market countries.
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 Debt issued by governments, their agencies, instrumentalities, 
sponsored entities, and political subdivisions;
 Covered bonds;
 Debt participations;
 Convertible bonds;
 Non-investment grade securities;
 Senior bank loans;
 Exchange-traded notes (``ETNs'');
 Mortgage-backed and other asset-backed securities; and
 To-be-announced securities.\20\
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    \20\ The Fund will seek to gain exposure to U.S. agency mortgage 
pass-through securities primarily through the use of ``to-be-
announced securities.'' ``To-be-announced'' refers to a commonly 
used mechanism for the forward settlement of U.S. agency mortgage 
pass-through securities, and not to a separate type of mortgage-
backed security. Most transactions in mortgage pass-through 
securities occur through the use of to-be-announced securities.

    According to the Registration Statement, the Fund may also invest 
directly in currencies.
    According to the Registration Statement, the Fund may invest in the 
following derivative instruments: Futures contracts (consisting of 
futures contracts based on equity or fixed income securities and/or 
equity or fixed income indices, commodities, interest rates and 
currencies); swap agreements on any of the following asset classes: 
Equity, fixed income, currency and interest rates (such swaps may be 
based on the price return or total return of the referenced asset); 
credit default swaps (consisting of credit default swaps in which the 
referenced asset is a single fixed income security or a group of fixed 
income securities); options (consisting of long and short positions in 
call options and put options on indices based on equities, fixed income 
securities, interest rates, currencies or commodities, individual 
securities or currencies, swaptions and options on futures contracts); 
forward contracts (consisting of forward contracts based on equity or 
fixed income securities and/or equity or fixed income indices, 
currencies, interest rates, swap forwards and non-deliverable 
forwards); and structured securities (such derivative instruments, 
collectively ``Financial Instruments'').\21\
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    \21\ According to the Registration Statement, as a result of the 
Fund's ability to invest in Financial Instruments, it may also hold 
U.S. Treasury Bills or short-term investments as collateral for the 
Financial Instruments, including money market funds, repurchase 
agreements, cash and time deposits.
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    According to the Registration Statement, the Fund may use leverage 
(e.g., through the use of Financial Instruments) to obtain exposure in 
excess of 100% in an investment. The Fund may employ leverage to 
increase exposure to the Fund's portfolio holdings by 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 up to 200% net 
exposure to its investments.
    According to the Registration Statement, the Fund may take long 
and/or short positions in Equity Securities, Fixed Income Securities, 
commodities \22\ and currencies, among others.
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    \22\ According to the Registration Statement, the Fund may gain 
exposure to commodities through investments in other investment 
companies, ETFs or ETVs.

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[[Page 72726]]

Investment Restrictions
    According to the Adviser, all Equity Securities 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; provided, however, that up to 10% 
of the assets of the Fund may be invested in non-U.S. listed Equity 
Securities that do not meet these requirements.
    The Adviser has represented that all options contracts 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.
    The Adviser has represented that not more than 20% of the Fund's 
assets will be invested, in the aggregate, in non-investment grade 
securities and structured securities.
    According to the Registration Statement, up to 10% of the weight of 
the futures contracts held by the Fund may consist of futures contracts 
whose principal trading market is not a member of ISG or a party to a 
comprehensive surveillance sharing agreement with the Exchange.
    According to the Advisor, the Fund may invest up to 20% of its 
total assets in mortgage-backed securities or in other asset-backed 
securities, although this 20% limitation will not apply to U.S. 
government securities.
    According to the Registration Statement, the Fund may hold up to an 
aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment), including Rule 144A 
securities.\23\ The Fund will monitor its 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 the Fund's net assets are held in 
illiquid assets.
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    \23\ 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).
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    The Fund will not invest more than 10% of its net assets in 
unsponsored depositary receipts.
    According to the Registration Statement, the Fund is considered 
non-diversified, which means that it can invest a higher percentage of 
assets in securities of individual issuers than a diversified fund.
Net Asset Value
    According to the Registration Statement, the net asset value 
(``NAV'') of the Shares of the 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.
    For purposes of calculating NAV, portfolio securities and other 
assets for which market quotations are readily available will be valued 
at market value. Market value will generally be determined on the basis 
of last reported sales prices, or if no sales are reported, based on 
quotes obtained from a quotation reporting system, established market 
makers, or pricing services.
    In calculating NAV, the Fund's exchange-traded Equity Securities 
will be valued at market value, which will generally be determined 
using the last reported official closing or last trading price on the 
exchange or market on which the security is primarily traded at the 
time of valuation or, if no sale has occurred, at the last quoted mid 
price on the primary market or exchange on which they are traded. 
Investment company securities (other than ETFs) will be valued at NAV.
    Unsponsored depositary receipts will be valued at the last quoted 
mid price on the primary market on which they are traded. Fixed Income 
Securities will be valued using market quotations when available or 
other equivalent indications of value provided by an independent third-
party pricing service. Short-term Fixed Income Securities having a 
remaining maturity of 60 days or less are generally valued at amortized 
cost, which approximates market value.
    A swap on an exchange-listed security or securities is valued at 
the last reported sale price of the swap's underlying security or 
securities on the exchange where the security or securities is 
primarily traded, or if no sale price is available, at the mid price of 
the security or securities underlying the swap on the exchange where 
the security is primarily traded. A swap on Fixed Income Securities 
will be valued on the price of the referenced Fixed Income Securities 
on which the swap is based (i.e., using market quotations when 
available or other equivalent indications of value provided by an 
independent third-party pricing service; short term Fixed Income 
Securities having a remaining maturity of 60 days or less are generally 
valued at amortized cost, which approximates market value). A swap on 
an index is valued based on 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.
    Currency swaps will generally be valued on the basis of quotes 
obtained from brokers and dealers or pricing services using data 
reflecting the earlier closing of the principal markets for those 
assets. Credit default swaps will be valued on the basis of market 
prices, generally the mid point between the bid/ask quotes, obtained 
from a third-party pricing service at the time the Fund calculates its 
NAV.
    Futures contracts will be valued at the settlement or closing price 
determined by the applicable exchange. Exchange-traded option 
contracts, including options on futures, will be valued at their most 
recent sale price. If no such sales are reported, these contracts will 
be valued at their last traded price.
    The Fund's OTC-traded Financial Instruments that are based on 
exchange-listed underlying securities or for which exchange pricing is 
otherwise available will generally be valued at the last reported 
official closing or last traded price of the applicable underlying 
securities. Other OTC-traded Financial Instruments will normally be 
valued on the basis of quotes obtained from a third party broker-dealer 
who makes markets in such securities or on the basis of quotes obtained 
from an independent third-party pricing service.
    Foreign securities and instruments will be valued in their local 
currency following the methodologies described above. Foreign 
securities, instruments and currencies will be translated to U.S. 
dollars, based on foreign currency exchange rate quotations supplied by 
the London Stock Exchange.
    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

[[Page 72727]]

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 Fund 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 
the 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 the Fund's portfolio, 
the estimated amount of accrued interest owed to the Fund and the 
estimated value of the assets 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 the Fund will be included in the IIV calculation.
    According to the Registration Statement, the Fund will provide the 
independent third party calculator with information to calculate the 
IIV, but the Fund will not be involved in the actual calculation of the 
IIV and is not responsible for the calculation or dissemination of the 
IIV. The Fund makes 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, the 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. The 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 will be 
sold in exchange for an in-kind basket of a designated portfolio of 
securities and a cash component. All orders to create Creation Units 
must be received by the Distributor no later than 3:00 p.m. E.T. 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 the 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 Fund but also including cash based on 
the then-current value of the securities sold short by the Fund and/or 
the Financial Instruments used by the 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 Fund's 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 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 (the ``Bid/Ask 
Price''),\24\ 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.
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    \24\ The Bid/Ask Price of the Fund 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 Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
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    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 Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day.\25\ The Web site information will be 
publicly available at no charge.
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    \25\ 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 Fund will disclose on www.indexiq.com the 
following information regarding each portfolio holding, as applicable 
to the type of holding: Ticker symbol, CUSIP number or other 
identifier, if any; a description of the holding (including the type of 
holding, such as the type of swap); the identity of the security, 
commodity, index or other asset or instrument underlying the holding, 
if any; for options, the option strike price; quantity held (as 
measured by, for example, par value, notional value or number of 
shares, contracts or units); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio.
    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 the 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 underlying 
securities that are U.S. exchange listed will be

[[Page 72728]]

available via the Consolidated Tape Association (``CTA'') high-speed 
line. Quotation and last sale information for such U.S. exchange-listed 
securities as well as futures will be available from the exchange on 
which they are listed. Quotation and last sale information for options 
contracts will be available via the Options Price Reporting Authority.
    Quotation information for OTC-traded securities and OTC-traded 
Financial Instruments (such as forwards, swaps and currency-related 
derivatives), and investment company securities (excluding ETFs), may 
be obtained from brokers and dealers who make markets in such 
securities or through nationally recognized pricing services through 
subscription agreements. Quotation information from brokers and dealers 
or pricing services will be available for spot and forward currency 
transactions held by the Fund.
    In addition, the Portfolio Indicative Value of the Fund, 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.\26\ 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 
Fund on a daily basis and to provide a close estimate of that value 
throughout the trading day.
---------------------------------------------------------------------------

    \26\ 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 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.\27\ 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 Disclosed Portfolio of the Fund; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of the Fund may be 
halted.
---------------------------------------------------------------------------

    \27\ 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 
\28\ 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.
---------------------------------------------------------------------------

    \28\ 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.\29\ 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.
---------------------------------------------------------------------------

    \29\ 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, Equity Securities, exchange-traded 
options, futures contracts and options on futures contracts with other 
markets that are members of the ISG and FINRA, on behalf of the 
Exchange, may obtain trading information regarding trading in the 
Shares, exchange-traded equities, exchange-traded options, futures 
contracts and options on futures contracts from such markets. In 
addition, the Exchange may obtain information regarding trading in the 
Shares, exchange-traded equities, exchange-traded options, futures 
contracts and options on futures contracts from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\30\ FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain fixed income securities held by the Fund reported to 
FINRA's Trade Reporting and Compliance Engine (``TRACE'').
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    \30\ 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

[[Page 72729]]

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 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 4:00 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) \31\ 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.
---------------------------------------------------------------------------

    \31\ 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 Fund will 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; 
provided, however, that up to 10% of the assets of the Fund may be 
invested in non-U.S. listed equity securities that do not meet these 
requirements. The Adviser has represented that not more than 20% of the 
Fund's assets will be invested, in the aggregate, in non-investment 
grade securities and structured securities. The Fund's investments 
will, under normal circumstances, be consistent with its investment 
objective. The 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 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 Fund and the Shares, thereby promoting 
market transparency. The Fund's portfolio holdings will be disclosed on 
its Web site daily after the close of trading on the Exchange and prior 
to the opening of trading on the Exchange the following day. 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 Fund will include a form 
of the prospectus for the Fund and additional data relating to the 
Fund's 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 Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached or because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable, and trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted. In addition, as noted above, 
investors will have ready access to information regarding the Fund's 
holdings, the 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 Fund's 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.

[[Page 72730]]

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2014-134 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2014-134. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of 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 Number SR-NYSEArca-2014-134, and 
should be submitted on or before December 29, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
---------------------------------------------------------------------------

    \32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28643 Filed 12-5-14; 8:45 am]
BILLING CODE 8011-01-P