Document ID: SEC-2019-1763-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2019-11-22T05:00Z

[Federal Register Volume 84, Number 226 (Friday, November 22, 2019)]
[Notices]
[Pages 64589-64595]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25320]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87556; File No. SR-NYSEArca-2019-82]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Permitting the 
Listing and Trading of Shares of the Nationwide Risk-Managed Income ETF 
Under NYSE Arca Rule 8.600-E

November 18, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on November 5, 2019, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to permit the listing and trading of shares 
under NYSE Arca Rule 8.600-E of the Nationwide Risk-Managed Income ETF, 
a series of ETF Series Solutions, notwithstanding that the fund does 
not meet the requirements of Commentary .01(d)(2) to Rule 8.600-E. The 
proposed rule change is available on the

[[Page 64590]]

Exchange's website at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to permit the listing and trading under NYSE 
Arca Rule 8.600-E (``Managed Fund Shares'') \4\ of shares (``Shares'') 
of the Nationwide Risk-Managed Income ETF (the ``Fund''), a series of 
ETF Series Solutions (the ``Trust''), notwithstanding that the Fund 
does not meet not meet the requirements of Commentary .01(d)(2) to Rule 
8.600-E.
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3), 
seeks to provide investment results that correspond generally to the 
price and yield performance of a specific foreign or domestic stock 
index, fixed income securities index or combination thereof.
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    The Shares are offered by the Trust, which is registered with the 
Commission as an open-end management investment company consisting of 
multiple investment series.\5\ The Fund is a series of the Trust. 
Nationwide Fund Advisors (the ``Adviser'') is the investment adviser to 
the Fund. Harvest Volatility Management, LLC (``Sub-Adviser'') is the 
sub-adviser for the Fund and is responsible for the day-to-day 
management of the Fund. U.S. Bank National Association is the custodian 
of the Trust (the ``Custodian''). U.S. Bancorp Fund Services, LLC will 
serve as administrator and transfer agent for the Fund. Quasar 
Distributors, LLC, will serve as the Fund's distributor.
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    \5\ The Trust is registered under the 1940 Act. On September 9, 
2019, the Trust filed with the Securities and Exchange Commission 
(``SEC'' or Commission'') a post-effective amendment to its 
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. 333-179562 and 811-22668) with respect to Shares of the Fund 
(``Registration Statement''). The description of the operation of 
the Trust and of the Fund and Shares herein is based, in part, on 
the Registration Statement. There are no permissible holdings for 
the Fund that are not described in this proposal. The Commission has 
issued an order granting certain exemptive relief to the Trust under 
the 1940 Act. See Investment Company Act Release No. 33065 (April 3, 
2018).
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    Commentary .06 to Rule 8.600-E provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect 
and maintain 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.\6\ In 
addition, Commentary .06 further requires that personnel who make 
decisions on the investment company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable investment 
company portfolio. Neither the Adviser nor the Sub-Adviser is a 
registered broker-dealer. The Sub-Adviser is not affiliated with a 
broker-dealer, but the Adviser is affiliated with a broker-dealer. In 
addition, Adviser and Sub-Adviser personnel who make decisions 
regarding a Fund's portfolio are subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the Fund's portfolio. The Adviser has implemented and will 
maintain a fire wall with respect to its relevant personnel and such 
broker-dealer affiliate, as applicable, regarding access to information 
concerning the composition and/or changes to the portfolio, and is 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio. In the event 
that (a) the Adviser or Sub-Adviser becomes registered as a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new adviser 
or sub-adviser is a registered broker-dealer or becomes affiliated with 
a broker-dealer, it will implement and maintain a fire wall with 
respect to its relevant personnel or such broker-dealer affiliate, as 
applicable, regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser, Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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Principal Investments of the Fund
    According to the Registration Statement, the investment objective 
of the Fund is current income with downside protection. The Fund is an 
actively-managed exchange-traded fund (``ETF'') \7\ that will seek, 
under normal market conditions,\8\ to achieve its objective principally 
by investing in (1) a portfolio of the stocks included in the Nasdaq-
100 Index (the ``Nasdaq-100'' or the ``Reference Index''), and (2) a 
mix of written call options and long put options on the Nasdaq-100 (the 
``Options Collar'') intended to reduce the Fund's volatility and 
provide a measure of downside protection (the ``Options Collar 
Strategy'', described more fully below).
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    \7\ For purposes of this filing, the term ``ETFs'' means 
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca 
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca 
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a 
national securities exchange. The Fund will not invest in inverse or 
leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
    \8\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
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    The Nasdaq-100 is a market capitalization weighted index comprised 
of the securities of 100 of the largest non-financial companies listed 
on The Nasdaq Stock Market LLC based on market capitalization. Such 
securities may include companies domiciled domestically or 
internationally (including in emerging markets), and may include common 
stocks, ordinary shares, depositary

[[Page 64591]]

receipts representing interests in non-U.S. companies, and tracking 
stocks, which instruments, along with the Options Collar, will 
constitute the principal investments of the Fund.
    The Fund may hold cash and cash equivalents.\9\
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    \9\ For purposes of this filing, cash equivalents mean the 
securities described in Commentary .01(c) to NYSE Arca Rule 8.600-E.
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The Options Collar Strategy
    According to the Registration Statement, the Fund's Options Collar 
strategy consists of two components: (1) Selling call options on the 
Nasdaq-100 on up to 100% of the value of the equity securities held by 
the Fund to generate premium from such options, while (2) 
simultaneously reinvesting a portion of such premium to buy put options 
on the same reference asset to ``hedge'' or mitigate the downside risk 
associated with owning equity securities.
    The Fund will use a portion of the premium received from writing 
call options to purchase put options. Both the Fund's call and put 
options will be traded on a national securities exchange and settled in 
cash.
Non-Principal Investments
    In addition to the principal investments described above, the Fund 
may invest in U.S. exchange-listed options on reference assets other 
than the Nasdaq-100 that will comply with Commentary .01(d)(2) to Rule 
8.600-E, including but not limited to the NASDAQ-100 Equal Weight 
Index, Invesco QQQ Trust, Series 1, S&P 500 Index, and the individual 
equity securities comprising the Nasdaq-100 or S&P 500 Index.
    The Fund may also invest in U.S. exchange-listed common stocks, 
ordinary shares, and American Depositary Receipts representing 
interests in non-U.S. companies, and tracking stocks that are not 
included in the Nasdaq-100. The Fund may also invest in the securities 
of other investment companies registered under the 1940 Act, including 
money market funds, exchange traded funds (``ETFs''), and Real Estate 
Investment Trusts (``REITS''). The Fund may also invest in exchange-
traded rights and warrants.
    The Fund may also invest in U.S. Government securities, including 
bills, notes and bonds, which are either issued or guaranteed by the 
U.S. Treasury or by U.S. Government agencies or instrumentalities, with 
maturities 3 months or longer.
Application of Generic Listing Requirements
    The Exchange submits this proposal in order to list and trade 
Shares of the Fund and to allow the Fund to hold listed derivatives, in 
particular put and call options on the Nasdaq-100 Index, in a manner 
that may not comply with Commentary .01(d)(2) to Rule 8.600-E.\10\ 
Otherwise, the Fund will comply with all other listing requirements of 
the Generic Listing Standards \11\ for Managed Fund Shares on an 
initial and continued listing basis under Commentary .01 to Rule 8.600-
E.\12\
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    \10\ Commentary .01(d)(2) to Rule 8.600-E provides that ``the 
aggregate gross notional value of listed derivatives based on any 
five or fewer underlying reference assets shall not exceed 65% of 
the weight of the portfolio (including gross notional exposures), 
and the aggregate gross notional value of listed derivatives based 
on any single underlying reference asset shall not exceed 30% of the 
weight of the portfolio (including gross notional exposures).'' The 
Fund would not meet the generic listing standards because it would 
fail to meet the requirement of Commentary .01(d)(2) that prevents 
the aggregate gross notional value of listed derivatives based on 
any single underlying reference asset from exceeding 30% of the 
weight of the portfolio (including gross notional exposures) and the 
requirement that the aggregate gross notional value of listed 
derivatives based on any five or fewer underlying reference assets 
shall not exceed 65% of the weight of the portfolio (including gross 
notional exposures).
    \11\ For purposes of this proposal, the term ``Generic Listing 
Standards'' means the generic listing rules for Managed Fund Shares 
under Commentary .01 to Rule 8.600-E.
    \12\ The Exchange notes that this proposed rule change is 
similar to previous rule changes involving Managed Fund Shares with 
similar exposures to one or more underlying reference asset and U.S. 
exchange-listed equity securities. See Securities Exchange Act 
Release No. 87108 (September 25, 2019), 84 FR 52152 (October 1, 
2019) (SR-CboeBZX-2019-067). See generally Securities Exchange Act 
Release No. 82906 (March 20, 2018), 83 FR 12992 (March 26, 2018) 
(SR-CboeBZX-2017-012) (order approving the listing and trading of 
the LHA Market State Tactical U.S. Equity ETF); Securities Exchange 
Act Release No. 83679 (July 20, 2018), 83 FR 35505 (July 26, 2018) 
(SR-BatsBZX-2017-72) (Notice of Filing of Amendment No. 4 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 4 Thereto, to List and Trade Shares of the 
Innovator S&P 500 Buffer ETF Series, Innovator S&P 500 Power Buffer 
ETF Series, and Innovator S&P 500 Ultra Buffer ETF Series Under Rule 
14.11(i)); Securities Exchange Act Release No. 86773 (August 27, 
2019), 84 FR 46051 (September 3, 2019) (SR-CboeBZX-2019-077); 
Securities Exchange Act Release No. 83146 (May 1, 2018), 83 FR 20103 
(May 2, 2017) (SR-CboeBZX-2018-29); Securities Exchange Act Release 
No. 80529 (April 26, 2017), 82 FR 20506 (May 2, 2017) (SR-BatsBZX-
2017-14).
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    The market for options contracts on the Nasdaq-100 Index (``Nasdaq-
100 Index Options'') is deep and liquid. In 2018, more than 15,000 
options contracts on the Nasdaq-100 Index were traded per day, which is 
more than $10 billion in notional volume traded on a daily basis. The 
Exchange believes that the liquidity in Nasdaq-100 Index Options 
markets mitigates the concerns that Commentary .01(d)(2) to Rule 8.600-
E is intended to address and that such liquidity would discourage 
manipulation of the Shares.
    In addition, the Exchange believes that sufficient protections are 
in place to protect against market manipulation of the Shares and 
Nasdaq-100 Index Options for several reasons: (i) The diversity, 
liquidity, and market cap of the securities underlying the Nasdaq-100 
Index; and (ii) surveillance by the Exchange, other options 
exchanges,\13\ and the Financial Industry Regulatory Authority 
(``FINRA'') designed to detect violations of the federal securities 
laws and self-regulatory organization (``SRO'') rules. The Exchange has 
in place a surveillance program for transactions in ETFs to ensure the 
availability of information necessary to detect and deter potential 
manipulations and other trading abuses. Further, the Exchange believes 
that because the Nasdaq-100 Index Options in the Fund's portfolio will 
be acquired in liquid and highly regulated markets,\14\ the Exchange 
believes that manipulation of Nasdaq-100 Index Options would be 
discouraged and that any potential manipulation would be more easily 
identified.
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    \13\ The Exchange and all nine [sic] U.S. options exchanges are 
members of the Options Regulatory Surveillance Authority, which was 
established in 2006 to provide efficiencies in looking for insider 
trading and serves as a central organization to facilitate 
collaboration in investigations for the U.S. options exchanges.
    \14\ All exchange-listed securities that the Fund may hold will 
trade on a market that is a member of the Intermarket Surveillance 
Group (``ISG'') and the Fund will not hold any non-exchange-listed 
equities or options; however, not all of the components of the 
portfolio for the Fund may trade on exchanges that are members of 
the ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. For a list of the current members of 
ISG, see www.isgportal.org.
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    As noted above, options on the Nasdaq-100 Index are among the most 
liquid options in the world and derive their value from the actively 
traded Nasdaq-100 Index components. The contracts are cash-settled with 
no delivery of stocks or ETFs, and trade in competitive auction markets 
with price and quote transparency. The Exchange believes the highly 
regulated options markets and the broad base and scope of the Nasdaq-
100 Index make securities that derive their value from that index would 
discourage market manipulation in view of market capitalization and 
liquidity of the Nasdaq-100 Index components, price and quote 
transparency, and arbitrage opportunities, and that any potential 
manipulation would be more easily identified.

[[Page 64592]]

    The Exchange believes that the liquidity of the markets for 
securities in the Nasdaq-100 Index, Nasdaq-100 Index Options, and other 
related derivatives is sufficiently great to deter fraudulent or 
manipulative acts associated with the Fund's Shares price. The Exchange 
also believes that such liquidity is sufficient to support the creation 
and redemption mechanism. Coupled with the extensive surveillance 
programs of the SROs described above, the Exchange does not believe 
that trading in the Shares would present manipulation concerns.
Availability of Information
    The Fund's website (www.etf.nationwide.com) will include the 
prospectus for the Fund that may be downloaded. The Fund's website will 
include ticker, CUSIP and exchange information, along with additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's net asset value (``NAV'') per share 
and the market closing price or mid-point of the bid/ask spread at the 
time of calculation of such NAV per share (the ``Bid/Ask Price''),\15\ 
and a calculation of the premium or discount of the market closing 
price or Bid/Ask Price against such NAV per share; and (2) a table 
showing the number of days of such premium or discount for the most 
recently completed calendar year, and the most recently completed 
calendar quarters since that year (or the life of Fund, if shorter). On 
each business day, before commencement of trading in Shares in the Core 
Trading Session \16\ on the Exchange, the Fund will disclose on its 
website the Disclosed Portfolio as defined in NYSE Arca Rule 8.600-
E(c)(2) that forms the basis for the Fund's calculation of NAV at the 
end of the business day.
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    \15\ The Bid/Ask Price of the Fund's Shares will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Fund's NAV. The 
records relating to Bid/Ask Prices will be retained by the Fund and 
its service providers.
    \16\ The Core Trading Session begins for each security at 9:30 
a.m. Eastern time and ends at the conclusion of Core Trading Hours 
or the Core Closing Auction, whichever comes later. See NYSE Arca 
Rule 7.34-E. ``Core Trading Hours'' is defined as the hours of 9:30 
a.m. Eastern time through 4:00 p.m. (Eastern Time) or such other 
hours as may be determined by the Exchange from time to time. See 
Rule 1.1(j).
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    On a daily basis, the Fund will disclose the information required 
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The 
website information will be publicly available at no charge.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's 
Forms N-CSR and Forms N-CEN. The Fund's SAI and Shareholder Reports 
will be available free upon request from the Trust, and those documents 
and the Form N-CSR, Form N-PX, Form N-PORT and Form N-CEN may be viewed 
on-screen or downloaded from the Commission's website at www.sec.gov.
    The intra-day, closing and settlement prices of exchange-traded 
options will be readily available from the Options Price Reporting 
Authority (``OPRA''), the options exchanges, automated quotation 
systems, published or other public sources, or online information 
services such as Bloomberg or Reuters.
    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, the stocks 
included in the Nasdaq-100, and for portfolio holdings that are U.S. 
exchange-listed, including common stocks, rights, warrants, ETFs, REITS 
and ADRs will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the Portfolio Indicative Value 
(``PIV''), as defined in NYSE Arca Rule 8.600-E(c)(3), will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session. The Fund may hold up to an 
aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment), deemed illiquid by the Adviser 
or Sub-Adviser, consistent with Commission guidance.
    Price information regarding U.S. government securities and other 
cash equivalents may be obtained from brokers and dealers who make 
markets in such securities or through nationally recognized pricing 
services through subscription agreements.
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.\17\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Trading in the Fund's Shares also 
will be subject to Rule 8.600-E(d)(2)(D) (``Trading Halts'').
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    \17\ See NYSE Arca Rule 7.12-E.
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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 Rule 7.34-E (Early, Core, and Late Trading Sessions). 
The Exchange has appropriate rules to facilitate transactions in the 
Shares during all trading sessions. As provided in NYSE Arca Rule 7.6-
E, the minimum price variation (``MPV'') for quoting and entry of 
orders in equity securities traded on the NYSE Arca Marketplace is 
$0.01, with the exception of securities that are priced less than $1.00 
for which the MPV for order entry is $0.0001.
    With the exception of the requirements of Commentary .01(d)(2) 
(with respect to listed derivatives) as described above, the Shares of 
the Fund will conform to the initial and continued listing criteria 
under NYSE Arca Rule 8.600-E. Consistent with Commentary .06 of NYSE 
Arca Rule 8.600-E, the Adviser or Sub-Adviser will implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the Fund's portfolio. The Exchange represents that, for 
initial and continued listing, the Fund will be in compliance with Rule 
10A-3 \18\ under the Act, as provided by NYSE Arca Rule 5.3-E. 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 will be made available to all market 
participants at the same time.
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    \18\ 17 CFR 240.10A-3.
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Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. The Exchange 
represents that trading in the Shares will be subject to the existing 
trading surveillances, administered by FINRA on behalf of the Exchange, 
or by regulatory staff of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws. 
The Exchange

[[Page 64593]]

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 federal securities laws 
applicable to trading on the Exchange.\19\
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    \19\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, options and ETFs 
with other markets and other entities that are members of the ISG, and 
the Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in such securities and financial 
instruments from such markets and other entities. The Exchange may 
obtain information regarding trading in such securities and financial 
instruments from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. In addition, the Exchange also has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio or reference assets, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange listing rules specified in this rule filing 
shall constitute continued listing requirements for listing the Shares 
of the Fund on the Exchange.
    The issuer must notify the Exchange of any failure by the Fund to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements. If the 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit 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 Rule 9.2-E(a), which imposes a duty of due diligence on its 
Equity Trading Permit Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (3) the risks involved in 
trading the Shares during the Early and Late Trading Sessions when an 
updated PIV will not be calculated or publicly disseminated; (4) how 
information regarding the PIV and the Disclosed Portfolio is 
disseminated; (5) the requirement that Equity Trading Permit 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 are subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m., Eastern time 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, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system and, in general, to 
protect investors and the public interest in that the Shares will meet 
each of the initial and continued listing criteria in Commentary .01 to 
NYSE Arca Rule 8.600-E, with the exception of Commentary .01(d)(2) to 
NYSE Arca Rule 8.600-E, which requires that the aggregate gross 
notional value of listed derivatives based on any five or fewer 
underlying reference assets shall not exceed 65% of the weight of the 
portfolio (including gross notional exposures), and the aggregate gross 
notional value of listed derivatives based on any single underlying 
reference asset shall not exceed 30% of the weight of the portfolio 
(including gross notional exposures).\21\ Commentary .01(d)(2) to NYSE 
Arca Rule 8.600-E, is intended to ensure that a fund is not subject to 
manipulation by virtue of significant exposure to a manipulable 
underlying reference asset by establishing concentration limits among 
the underlying reference assets for listed derivatives held by a 
particular fund. The Exchange notes that this proposed rule change is 
similar to previous rule changes involving Managed Fund Shares with 
similar exposure to one or more underlying reference asset and U.S. 
exchange-listed equity securities.\22\
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    \21\ As noted above, the Exchange is submitting this proposal 
because the Fund does not meet the requirements of Rule 
14.11(i)(4)(C)(iv)(b) [sic] which prevents the aggregate gross 
notional value of listed derivatives based on any single underlying 
reference asset from exceeding 30% of the weight of the portfolio 
(including gross notional exposures) and the aggregate gross 
notional value of listed derivatives based on any five or fewer 
underlying reference assets from exceeding 65% of the weight of the 
portfolio (including gross notional exposures).
    \22\ See note 12, supra.
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    The market for Nasdaq-100 Index Options is deep and liquid. In 
2018, more than 15,000 options contracts on the Nasdaq-100 Price Index 
were traded per day, which is more than $10 billion in notional volume 
traded on a daily basis. The Exchange believes that the liquidity in 
the Nasdaq-100 Index Options markets mitigates the concerns that 
Commentary .01(d)(2) to Rule 8.600-E is intended to address and that 
such liquidity would discourage manipulation of the Shares.
    In addition, the Exchange believes that sufficient protections are 
in place to protect against market manipulation of the Shares and 
Nasdaq-100 Index Options for several reasons: (i) The diversity, 
liquidity, and market cap of the securities underlying the Nasdaq-100 
Index; and (ii) surveillance by the Exchange, other options exchanges, 
and FINRA designed to detect violations of the federal securities laws 
and SRO rules. The Exchange has in place a surveillance program for 
transactions in

[[Page 64594]]

ETFs to ensure the availability of information necessary to detect and 
deter potential manipulations and other trading abuses. Further, the 
Exchange believes that because the Nasdaq-100 Index Options in the 
Fund's portfolio will be acquired in highly regulated markets, 
manipulation of Nasdaq-100 Index Options would be discouraged and that 
any potential manipulation would be more easily identified.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, options and ETFs 
with other markets and other entities that are members of the ISG, and 
the Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in such securities and financial 
instruments from such markets and other entities.
    The Exchange may obtain information regarding trading in such 
securities and financial instruments from markets and other entities 
that are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. In addition, the Exchange 
also has a general policy prohibiting the distribution of material, 
non-public information by its employees.
    As noted above, Nasdaq-100 Index Options are liquid and derive 
their value from the actively traded Nasdaq-100 Index components. The 
Exchange believes the highly regulated options markets and the broad 
base and scope of the Nasdaq-100 Index make securities that derive 
their value from the Nasdaq-100 Index would discourage market 
manipulation in view of market capitalization and liquidity of the 
Nasdaq-100 Index components, price and quote transparency, and 
arbitrage opportunities, and that any potential manipulation would be 
more easily identified.
    The Exchange believes that the liquidity of the markets for 
securities in the Nasdaq-100 Index Options and other related 
derivatives is sufficiently great to deter fraudulent or manipulative 
acts associated with the Fund's Shares price. The Exchange also 
believes that such liquidity is sufficient to support the creation and 
redemption mechanism. Coupled with the extensive surveillance programs 
of the SROs described above, the Exchange does not believe that trading 
in the Fund's Shares would present manipulation concerns.
    All of the options contracts held by the Fund will trade on markets 
that are a member of ISG or affiliated with a member of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.
    The Exchange represents that, except as described above, the Fund 
will meet and be subject to all other requirements of the Generic 
Listing Standards and other applicable continued listing requirements 
for Managed Fund Shares under Rule 8.600-E, including those 
requirements regarding the Disclosed Portfolio, Portfolio Indicative 
Value, suspension of trading or removal, trading halts, disclosure, and 
firewalls. The Trust is required to comply with Rule 10A-3 under the 
Act for the initial and continued listing of the Shares of the Fund.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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 permit the listing and trading of an 
additional type of Managed Fund Shares that holds U.S. exchange-traded 
options and that will enhance competition among market participants, to 
the benefit of investors and the marketplace.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \23\ and Rule 19b-4(f)(6) thereunder.\24\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \23\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \24\ 17 CFR 240.19b-4(f)(6).
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    A proposed rule change filed under Rule 19b-4(f)(6) \25\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\26\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Fund is seeking an 
exception from the generic listing requirements of Commentary .01(d)(2) 
to Rule 8.600-E similar to exceptions sought by other exchange-traded 
funds with exposure to a single underlying reference asset, and which 
have been approved by the Commission.\27\ The Exchange also notes that 
the underlying Nasdaq-100 Index Options will be acquired in liquid and 
highly regulated markets, which may protect against market manipulation 
of such options. Therefore, the Commission believes that the proposal 
does not raise new or novel issues, and that waiver of the 30-day 
operative delay would permit the Fund to list and trade without undue 
delay. For these reasons, the Commission hereby waives the 30-day 
operative delay requirement and designates the proposed rule change as 
operative upon filing.\28\
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    \25\ 17 CFR 240.19b-4(f)(6).
    \26\ 17 CFR 240.19b-4(f)(6)(iii).
    \27\ See supra note 12.
    \28\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
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:

[[Page 64595]]

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-2019-82 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2019-82. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2019-82 and should be submitted 
on or before December 13, 2019.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25320 Filed 11-21-19; 8:45 am]
 BILLING CODE 8011-01-P