Document ID: SEC-2012-1434-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-08-30T04:00Z

[Federal Register Volume 77, Number 169 (Thursday, August 30, 2012)]
[Notices]
[Pages 52776-52782]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21391]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67729; File No. SR-NYSEArca-2012-92]

 Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to the Listing and Trading of iShares 
2018 S&P AMT-Free Municipal Series and iShares 2019 S&P AMT-Free 
Municipal Series Under NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.02

August 24, 2012.

    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on August 16, 2012, NYSE Arca, Inc. (``Exchange'' 
or ``NYSE Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been substantially prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade under NYSE Arca Equities 
Rule 5.2(j)(3), Commentary .02, the shares of the following two series 
of iShares Trust: iShares 2018 S&P AMT-Free Municipal Series and 
iShares 2019 S&P AMT-Free Municipal Series. 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 Exchange 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 
following two series of iShares Trust (``Trust'') under NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02, which governs the listing and 
trading of Investment Company Units (``Units'') based on fixed income 
securities indexes: iShares 2018 S&P AMT-Free Municipal Series (``2018 
Fund'') and iShares 2019 S&P AMT-Free Municipal Series \3\ (``2019 
Fund'' and, together with the 2018 Fund, ``Funds'').\4\
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    \3\ The Commission has previously approved listing and trading 
of Units based on certain fixed income indexes. See, e.g., 
Securities Exchange Act Release No. 48662 (October 20, 2003), 68 FR 
61535 (October 28, 2003) (SR-PCX-2003-41) (approving trading either 
by listing or pursuant to unlisted trading privileges of certain 
fixed income exchange-traded funds). In addition, the Commission has 
approved NYSE Arca generic listing rules for Units based on a fixed 
income index in Securities Exchange Act Release No. 55783 (May 17, 
2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36). The 
Commission has approved pursuant to Section 19(b)(2) of the Exchange 
Act the listing on the American Stock Exchange (``Amex'') of 
exchange-traded funds based on fixed income indexes. See, e.g., 
Securities Exchange Act Release No. 48534 (September 24, 2003), 68 
FR 56353 (September 30, 2003) (SR-Amex-2003-75) (order approving 
listing on Amex of eight series of iShares Lehman Bond Funds). The 
Commission has approved two actively managed funds of the PIMCO ETF 
Trust that hold municipal bonds. See Securities Exchange Act Release 
No. 60981 (November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-
NYSEArca-2009-79) (order approving listing and trading of PIMCO 
Short-Term Municipal Bond Strategy Fund and PIMCO Intermediate 
Municipal Bond Strategy Fund, among others). The Commission has 
approved listing and trading on the Exchange of the SPDR Nuveen S&P 
High Yield Municipal Bond Fund. See Securities Exchange Act Release 
No. 63881 (February 9, 2011), 76 FR 9065 (February 16, 2011) (SR-
NYSEArca-2010-120). The Commission also has issued a notice of 
filing and immediate effectiveness of a proposed rule change 
relating to listing and trading on the Exchange of the iShares 
Taxable Municipal Bond Fund. See Securities Exchange Act Release No. 
63176 (October 25, 2010), 75 FR 66815 (October 29, 2010) (SR-
NYSEArca-2010-94).
    \4\ See Post-Effective Amendment No. 745 (with respect to the 
2018 Fund, ``2018 Registration Statement'') and Post-Effective 
Amendment No. 746 (with respect to the 2019 Fund, ``2019 
Registration Statement'') to the Trust's registration statement on 
Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) and the 
Investment Company Act of 1940 (``1940 Act'') (15 U.S.C. 80a-1), 
each dated June 29, 2012 (File Nos. 333-92935 and 811-09729) 
(collectively, ``Registration Statements''). The description of the 
operation of the Trust and the Funds herein is based, in part, on 
the Registration Statements. 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. 27608 (December 21, 
2006) (File No. 812-13208) (``Exemptive Order'').
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    Blackrock Fund Advisors (``BFA'') is the investment adviser for the 
Funds. SEI Investments Distribution Co. is the Funds' distributor 
(``Distributor'').
iShares 2018 S&P AMT-Free Municipal Series
    The 2018 Fund will seek investment results that correspond 
generally to the price and yield performance, before fees and expenses, 
of the S&P AMT-Free Municipal Series 2018 Index\TM\ (``2018 
Index'').\5\ The 2018 Fund will not seek

[[Page 52777]]

to return any predetermined amount at maturity.
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    \5\ Each of the 2018 Index and 2019 Index (as defined below) 
(collectively, ``Underlying Indexes'') is sponsored by an 
organization (``Index Provider'') that is independent of the Funds 
and BFA. The Index Provider determines the composition and relative 
weightings of the securities in the Underlying Indexes and publishes 
information regarding the market value of the Underlying Indexes. 
The Index Provider with respect to the Underlying Indexes is 
Standard & Poor's Financial Services LLC (a subsidiary of The 
McGraw-Hill Companies) (``S&P''). The Index Provider is not a 
broker-dealer or affiliated with a broker-dealer and has implemented 
procedures designed to prevent the use and dissemination of 
material, non-public information regarding the Underlying Indexes.
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    According to the 2018 Registration Statement, the 2018 Index 
measures the performance of investment-grade U.S. municipal bonds 
maturing in 2018. As of May 1, 2012, there were 1,443 issues in the 
2018 Index.
    The 2018 Index includes municipal bonds primarily from issuers that 
are state or local governments or agencies (including the Commonwealth 
of Puerto Rico and U.S. territories such as the U.S. Virgin Islands and 
Guam) such that the interest on the bonds is exempt from U.S. federal 
income taxes and the federal alternative minimum tax (``AMT''). Each 
bond must have a rating of at least BBB- by S&P, Baa3 by Moody's 
Investors Service, Inc. (``Moody's''), or BBB- by Fitch, Inc. and must 
have a minimum maturity par amount of $2 million to be eligible for 
inclusion in the 2018 Index. To remain in the 2018 Index, bonds must 
maintain a minimum par amount greater than or equal to $2 million as of 
each rebalancing date. All bonds in the 2018 Index will mature between 
June 1 and August 31 of 2018. When a bond matures in the 2018 Index, an 
amount representing its value at maturity will be included in the 2018 
Index throughout the remaining life of the 2018 Index, and any such 
amount will be assumed to earn a rate equal to the performance of the 
S&P's Weekly High Grade Index, which consists of Moody's Investment 
Grade-1 municipal tax-exempt notes that are not subject to federal AMT. 
By August 31, 2018, the 2018 Index is expected to consist entirely of 
cash carried in this manner. The 2018 Index is a market value weighted 
index and is rebalanced after the close on the last business day of 
each month.
    The Exchange is submitting this proposed rule change because the 
2018 Index for the 2018 Fund does not meet all of the ``generic'' 
listing requirements of Commentary .02(a) to NYSE Arca Equities Rule 
5.2(j)(3) applicable to the listing of Units based on fixed income 
securities indexes. The 2018 Index meets all such requirements except 
for those set forth in Commentary .02(a)(2).\6\ Specifically, as of May 
1, 2012, 9.95% of the weight of the 2018 Index components have a 
minimum original principal amount outstanding of $100 million or more.
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    \6\ Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3) 
provides that components that in the aggregate account for at least 
75% of the weight of the index or portfolio each shall have a 
minimum original principal amount outstanding of $100 million or 
more.
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    The 2018 Fund generally will invest at least 80% of its assets in 
the securities of the 2018 Index, except during the last months of such 
Fund's operations, as described below. The 2018 Fund may at times 
invest up to 20% of its assets in cash and cash equivalents (including 
money market funds affiliated with BFA), as well as in municipal bonds 
not included in the 2018 Index, but which BFA believes will help the 
2018 Fund track the 2018 Index. For example, the 2018 Fund may invest 
in municipal bonds not included in the 2018 Index in order to reflect 
prospective changes in the 2018 Index (such as 2018 Index 
reconstitutions, additions, and deletions). The 2018 Fund will 
generally hold municipal bond securities issued by state and local 
municipalities whose interest payments are exempt from U.S. federal 
income tax, the federal AMT and, effective beginning in 2013, a federal 
Medicare contribution tax of 3.8% on ``net investment income,'' 
including dividends, interest, and capital gains. In addition, the 2018 
Fund may invest any cash assets in one or more affiliated municipal 
money market funds. In the last months of operation, as the bonds held 
by the 2018 Fund mature, the proceeds will not be reinvested in bonds 
but instead will be held in cash and cash equivalents, including 
without limitation, AMT-free tax-exempt municipal notes, variable rate 
demand notes and obligations, tender option bonds, and municipal 
commercial paper. These cash equivalents may not be included in the 
2018 Index. On or about August 31, 2018, the 2018 Fund will wind up and 
terminate, and its net assets will be distributed to then-current 
shareholders.
    As of May 1, 2012, 81.50% of the weight of the 2018 Index 
components was comprised of individual maturities that were part of an 
entire municipal bond offering with a minimum original principal amount 
outstanding of $100 million or more for all maturities of the offering. 
In addition, the total dollar amount outstanding of issues in the 2018 
Index was approximately $16.59 billion and the average dollar amount 
outstanding of issues in the 2018 Index was approximately $11.50 
million. Further, the most heavily weighted component represents 4.06% 
of the weight of the 2018 Index, and the five most heavily weighted 
components represent 8.20% of the weight of the 2018 Index.\7\ 
Therefore, the Exchange believes that, notwithstanding that the 2018 
Index does not satisfy the criterion in NYSE Arca Equities Rule 
5.2(j)(3), Commentary .02(a)(2), the 2018 Index is sufficiently broad-
based to deter potential manipulation, given that it is comprised of 
approximately 1,443 issues. In addition, the 2018 Index securities are 
sufficiently liquid to deter potential manipulation in that a 
substantial portion (81.50%) of the 2018 Index weight is comprised of 
maturities that are part of a minimum original principal amount 
outstanding of $100 million or more, and in view of the substantial 
total dollar amount outstanding and the average dollar amount 
outstanding of 2018 Index issues, as referenced above.
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    \7\ Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3) 
provides that no component fixed-income security (excluding Treasury 
Securities and GSE Securities, as defined therein) shall represent 
more than 30% of the weight of the index or portfolio, and the five 
most heavily weighted component fixed-income securities in the index 
or portfolio shall not in the aggregate account for more than 65% of 
the weight of the index or portfolio.
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    In addition, the average daily notional trading volume for 2018 
Index components for the period April 1, 2011 to April 30, 2012 was 
$12,417,528, and the sum of the notional trading volumes for the same 
period was approximately $3.38 billion. As of May 1, 2012, 54.78% of 
the 2018 Index weight consisted of issues with a rating of AA/Aa2 or 
higher.
    The 2018 Index value, calculated and disseminated at least once 
daily, as well as the components of the 2018 Index and their percentage 
weightings, will be available from major market data vendors. In 
addition, the portfolio of securities held by the 2018 Fund will be 
disclosed on the Fund's Web site at www.iShares.com.
iShares 2019 S&P AMT-Free Municipal Series
    The 2019 Fund will seek investment results that correspond 
generally to the price and yield performance, before fees and expenses, 
of the S&P AMT-Free Municipal Series 2019 Index\TM\ (``2019 
Index'').\8\ The 2019 Fund will not seek to return any predetermined 
amount at maturity.
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    \8\ S&P is the 2019 Fund's Index Provider. See note 5, supra.
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    According to the 2019 Registration Statement, the 2019 Index 
measures the performance of investment-grade U.S. municipal bonds 
maturing in 2019. As of May 1, 2012, there were 1,157 issues in the 
2019 Index.
    The 2019 Index includes municipal bonds primarily from issuers that 
are state or local governments or agencies

[[Page 52778]]

(including the Commonwealth of Puerto Rico and U.S. territories such as 
the U.S. Virgin Islands and Guam) such that the interest on the bonds 
is exempt from U.S. federal income taxes and the federal AMT. Each bond 
must have a rating of at least BBB- by S&P, Baa3 by Moody's, or BBB- by 
Fitch, Inc. and must have a minimum maturity par amount of $2 million 
to be eligible for inclusion in the 2019 Index. To remain in the 2019 
Index, bonds must maintain a minimum par amount greater than or equal 
to $2 million as of each rebalancing date. All bonds in the 2019 Index 
will mature between June 1 and August 31 of 2019. When a bond matures 
in the 2019 Index, an amount representing its value at maturity will be 
included in the 2019 Index throughout the remaining life of the 2019 
Index, and any such amount will be assumed to earn a rate equal to the 
performance of the S&P's Weekly High Grade Index, which consists of 
Moody's Investment Grade-1 municipal tax-exempt notes that are not 
subject to federal AMT. By August 31, 2019, the 2019 Index is expected 
to consist entirely of cash carried in this manner. The 2019 Index is a 
market value weighted index and is rebalanced after the close on the 
last business day of each month.
    The Exchange is submitting this proposed rule change because the 
2019 Index for the 2019 Fund does not meet all of the ``generic'' 
listing requirements of Commentary .02(a) to NYSE Arca Equities Rule 
5.2(j)(3) applicable to listing of Units based on fixed income 
securities indexes. The 2019 Index meets all such requirements except 
for those set forth in Commentary .02(a)(2).\9\ Specifically, as of May 
1, 2012, 9.62% of the weight of the 2019 Index components have a 
minimum original principal amount outstanding of $100 million or more.
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    \9\ See note 6, supra.
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    The 2019 Fund generally will invest at least 80% of its assets in 
the securities of the 2019 Index, except during the last months of the 
2019 Fund's operations, as described below. The Fund may at times 
invest up to 20% of its assets in cash and cash equivalents (including 
money market funds affiliated with BFA), as well as in municipal bonds 
not included in the 2019 Index, but which BFA believes will help the 
2019 Fund track the 2019 Index. For example, the 2019 Fund may invest 
in municipal bonds not included in the 2019 Index in order to reflect 
prospective changes in the 2019 Index (such as 2019 Index 
reconstitutions, additions, and deletions). The 2019 Fund will 
generally hold municipal bond securities issued by state and local 
municipalities whose interest payments are exempt from U.S. federal 
income tax, the federal AMT and, effective beginning in 2013, a federal 
Medicare contribution tax of 3.8% on ``net investment income,'' 
including dividends, interest, and capital gains. In addition, the 2019 
Fund may invest any cash assets in one or more affiliated municipal 
money market funds. In the last months of operation, as the bonds held 
by the 2019 Fund mature, the proceeds will not be reinvested in bonds 
but instead will be held in cash and cash equivalents, including 
without limitation, AMT-free tax-exempt municipal notes, variable rate 
demand notes and obligations, tender option bonds, and municipal 
commercial paper. These cash equivalents may not be included in the 
2019 Index. On or about August 31, 2019, the 2019 Fund will wind up and 
terminate, and its net assets will be distributed to then-current 
shareholders.
    As of May 1, 2012, 81.66% of the weight of the 2019 Index 
components was comprised of individual maturities that were part of an 
entire municipal bond offering with a minimum original principal amount 
outstanding of $100 million or more for all maturities of the offering. 
In addition, the total dollar amount outstanding of issues in the 2019 
Index was approximately $13.50 billion, and the average dollar amount 
outstanding of issues in the 2019 Index was approximately $11.67 
million. Further, the most heavily weighted component represents 3.67% 
of the weight of the 2019 Index, and the five most heavily weighted 
components represent 9.62% of the weight of the 2019 Index.\10\ 
Therefore, the Exchange believes that, notwithstanding that the 2019 
Index does not satisfy the criterion in NYSE Arca Equities Rule 
5.2(j)(3), Commentary .02(a)(2), the 2019 Index is sufficiently broad-
based to deter potential manipulation, given that the 2019 Index is 
comprised of approximately 1,157 issues. In addition, the 2019 Index 
securities are sufficiently liquid to deter potential manipulation in 
that a substantial portion (81.66%) of the 2019 Index weight is 
comprised of maturities that are part of a minimum original principal 
amount outstanding of $100 million or more, and in view of the 
substantial total dollar amount outstanding and the average dollar 
amount outstanding of 2019 Index issues, as referenced above.
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    \10\ See note 7, supra.
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    In addition, the average daily notional trading volume for 2019 
Index components for the period April 1, 2011 to April 30, 2012 was 
$14,434,454, and the sum of the notional trading volumes for the same 
period was approximately $3.93 billion. As of May 1, 2012, 52.52% of 
the 2019 Index weight consisted of issues with a rating of AA/Aa2 or 
higher.
    The 2019 Index value, calculated and disseminated at least once 
daily, as well as the components of the 2019 Index and their percentage 
weightings, will be available from major market data vendors. In 
addition, the portfolio of securities held by the 2019 Fund will be 
disclosed on the Fund's Web site at www.iShares.com.
    According to the Registration Statements, BFA expects that, over 
time, each Fund's tracking error will not exceed 5%. ``Tracking error'' 
is the difference between the performance (return) of a Fund's 
portfolio and that of the applicable Underlying Index.
    The Exchange represents that: (1) Except for Commentary .02(a)(2) 
to NYSE Arca Equities Rule 5.2(j)(3), the Shares of the Funds currently 
satisfy all of the generic listing standards under NYSE Arca Equities 
Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca 
Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply 
to the Shares; and (3) the Trust is required to comply with Rule 10A-3 
under the Exchange Act \11\ for the initial and continued listing of 
the Shares. In addition, the Exchange represents that the Shares will 
comply with all other requirements applicable to Units including, but 
not limited to, requirements relating to the dissemination of key 
information such as the value of the Underlying Indexes and the 
applicable Intraday Indicative Value (``IIV''),\12\ rules governing the 
trading of equity securities, trading hours, trading halts, 
surveillance, and the Information Bulletin to Equity Trading Permit 
Holders (``ETP Holders''), as set forth in Exchange rules applicable to 
Units and prior Commission orders approving the generic listing rules 
applicable to the listing and trading of Units.\13\
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    \11\ 17 CFR 240.10A-3.
    \12\ The IIV will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Core Trading Session of 9:30 a.m. to 4 p.m. Eastern Time. Currently, 
it is the Exchange's understanding that several major market data 
vendors display and/or make widely available IIVs taken from the 
Consolidated Tape Association (``CTA'') or other data feeds.
    \13\ See, e.g., Securities Exchange Act Release Nos. 55783 (May 
17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order 
approving NYSE Arca generic listing standards for Units based on a 
fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19, 
2001) (SR-PCX-2001-14) (order approving generic listing standards 
for Units and Portfolio Depositary Receipts); 41983 (October 6, 
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order 
approving rules for listing and trading of Units).

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[[Page 52779]]

    The current value of the 2018 Index and 2019 Index will be widely 
disseminated by one or more major market data vendors at least once per 
day, as required by NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.02(b)(ii). The IIV for Shares of each Fund will be disseminated by one 
or more major market data vendors, updated at least every 15 seconds 
during the Exchange's Core Trading Session, as required by NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02(c).
Correlation Among Municipal Bond Instruments With Common 
Characteristics
    With respect to each of the Funds, BFA represents that the nature 
of the municipal bond market and municipal bond instruments makes it 
feasible to categorize individual issues represented by CUSIPs (i.e., 
the specific identifying number for a security) into categories 
according to common characteristics--specifically, rating, purpose 
(i.e., general obligation bonds, revenue bonds, or ``double-barreled'' 
bonds),\14\ geographical region, and maturity. Bonds that share similar 
characteristics tend to trade similarly to one another; therefore, 
within these categories, the issues may be considered fungible from a 
portfolio management perspective, allowing one CUSIP to be represented 
by another that shares similar characteristics for purposes of 
developing an investment strategy. Therefore, while 9.95% of the weight 
of the 2018 Index components and 9.62% of the weight of the 2019 Index 
have a minimum original principal amount outstanding of $100 million or 
more, the nature of the municipal bond market makes the issues 
relatively fungible for investment purposes when aggregated into 
categories such as ratings, purpose, geographical region, and maturity. 
In addition, within a single municipal bond issuer, there are often 
multiple contemporaneous or sequential issuances that have the same 
rating, structure, and maturity, but have different CUSIPs; these 
separate issues by the same issuer are also likely to trade similarly 
to one another.
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    \14\ General obligation (``GO'') bonds are backed by the full 
faith and credit of the issuer and by its taxing power. Revenue 
bonds (``REV'') are payable solely from net or gross non-tax 
revenues derived from a specific project. Double-barreled (``DB'') 
GO bonds are secured by both a specific revenue stream and by the 
taxing power of the issuer. As of May 1, 2012, the market value of 
GO, REV, and DB bonds in the 2018 Index was approximately $6.1 
billion, $6.56 billion, and $1.26 billion, respectively, 
representing 36.21%, 39.53%, and 7.62% of the 2018 Index weight, 
respectively. As of May 1, 2012, the market value of GO, REV, and DB 
bonds in the 2019 Index was approximately $4.82 billion, $5.21 
billion, and $1.16 billion, respectively, representing 43.11%, 
46.54%, and 10.34% of the 2019 Index weight, respectively.
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    BFA represents that iShares municipal bond funds are managed 
utilizing the principle that municipal bond issues are generally 
fungible in nature when sharing common characteristics, and 
specifically make use of the four categories referred to above. In 
addition, this principle is used in, and consistent with, the portfolio 
construction process for other iShares funds--namely, portfolio 
optimization. These portfolio optimization techniques are designed to 
facilitate the creation and redemption process, and to enhance 
liquidity (among other benefits, such as reducing transaction costs), 
while still allowing each fund to closely track its reference index.
    In addition, individual CUSIPs within the 2018 and 2019 Indexes 
that share characteristics with other CUSIPs based on the four 
categories described above have a high yield to maturity correlation, 
and frequently have a correlation of one or close to one. Such 
correlation demonstrates that the CUSIPs within their respective 
category behave similarly; this reinforces the fungible nature of 
municipal bond issues for purposes of developing an investment 
strategy.
    The following examples, which are based on the top 100 index 
constituents in the 2018 Index and 2019 Index, respectively, by weight 
and sampling of each category, reflect the yield to maturity 
correlation among CUSIPs in each Index.\15\ These examples show the 
correlation of selected constituents in each Index that share three 
common characteristics: rating, purpose, and geographical region.
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    \15\ The correlation data below is based on data from Bloomberg, 
reflecting yield to maturity over a one year period from May 1, 2011 
to May 1, 2012.
    \16\ This is a composite rating among Standard & Poor's, Moody's 
and Fitch ratings. Under BFA's methodology, the median rating is 
used if all three ratings are available; the lowest rating is used 
if only two ratings are available; and, if only one rating is 
available, that one is used.
[GRAPHIC] [TIFF OMITTED] TN30AU12.056

[[Page 52780]]

[GRAPHIC] [TIFF OMITTED] TN30AU12.057

Creation and Redemption of Shares
    According to the Registration Statements, the Funds will issue and 
redeem Shares on a continuous basis at the net asset value per Share 
(``NAV'') only in a large specified number of Shares called a 
``Creation Unit,'' or multiples thereof, with each Creation Unit 
consisting of 50,000 Shares, provided, however, that from time to time 
a Fund may change the number of Shares (or multiples thereof) required 
for each Creation Unit, if such Fund determines such a change would be 
in the best interests of such Fund.
    The consideration for purchase of Creation Units of each Fund 
generally will consist of the in-kind deposit of a designated portfolio 
of securities (including any portion of such securities for which cash 
may be substituted) (i.e., Deposit Securities), which constitutes a 
representative sample of the securities of the applicable Underlying 
Index,\17\ and the ``Cash Component'' computed as described below. 
Together, the Deposit Securities and the Cash Component constitute the 
``Fund Deposit,'' which represents the minimum initial and subsequent 
investment amount for a Creation Unit of the respective Fund.
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    \17\ According to the Registration Statements, ``representative 
sampling'' is an indexing strategy that involves investing in a 
representative sample of securities that collectively has an 
investment profile similar to the applicable Underlying Index. The 
securities selected are expected to have, in the aggregate, 
investment characteristics (based on factors such as market 
capitalization and industry weightings), fundamental characteristics 
(such as return variability, duration, maturity or credit ratings 
and yield), and liquidity measures similar to those of the 
applicable Underlying Index. The Funds may or may not hold all of 
the securities in the applicable Underlying Index.
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    The portfolio of securities required for purchase of a Creation 
Unit may not be identical to the portfolio of securities the respective 
Fund will deliver upon redemption of Fund shares. The Deposit 
Securities and Fund Securities (as defined below), as the case may be, 
in connection with a purchase or redemption of a Creation Unit, 
generally will correspond pro rata, to the extent practicable, to the 
securities held by such Fund. As the planned termination date of a Fund 
approaches, and particularly as the bonds held by the respective Fund 
begin to mature, such Fund would expect to effect both creations and 
redemptions increasingly for cash.
    The Cash Component will be an amount equal to the difference 
between the NAV of the respective Shares (per Creation Unit) and the 
``Deposit Amount,'' which will be an amount equal to the market value 
of the Deposit Securities, and serve to compensate for any differences 
between the NAV per Creation Unit and the Deposit Amount. Each Fund 
currently will offer Creation Units for in-kind deposits but reserves 
the right to utilize a ``cash'' option in lieu of some or all of the 
applicable Deposit Securities for creation of Shares.
    BFA will make available through the National Securities Clearing 
Corporation (``NSCC'') on each business day, prior to the opening of 
business on the Exchange, the list of names and the required number or 
par value of each Deposit Security and the amount of the Cash Component 
to be included in the current Fund Deposit (based on information as of 
the end of the previous business day) for each Fund.
    The identity and number or par value of the Deposit Securities will 
change pursuant to changes in the composition of the respective Fund's 
portfolio and as rebalancing adjustments and corporate action events 
will be reflected from time to time by BFA with a view to the 
investment objective of each Fund. The composition of the Deposit 
Securities may also change in response to adjustments to the weighting 
or composition of the component securities constituting the applicable 
Underlying Index.
    Each Fund reserves the right to permit or require the substitution 
of a ``cash in lieu'' amount to be added to the Cash Component to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the Depository Trust Company (``DTC'').
    Creation Units may be purchased only by or through a DTC 
participant that has entered into an ``Authorized Participant 
Agreement'' (as described in the Registration Statements) with the 
Distributor (``Authorized Participant''). Except as noted below, all 
creation orders must be placed for one or more Creation Units and must 
be received by the Distributor in proper form no later than the closing 
time of the regular trading session of the Exchange (normally 4 p.m. 
Eastern Time) in each case on the date such order is placed in order 
for creation of Creation Units to be effected based on the NAV of 
Shares of the respective Fund as next determined on such date after 
receipt of the order in proper form. Orders requesting substitution of 
a ``cash in lieu'' amount generally must be received by the Distributor 
no later than 2 p.m. Eastern Time. On days when the Exchange or the 
bond markets close earlier than normal, the Funds may require orders to 
create Creation Units to be placed earlier in the day.
    Fund Deposits must be delivered through the Federal Reserve System 
(for cash and government securities) and through DTC (for corporate and 
municipal securities) by an Authorized Participant. The Fund Deposit 
transfer must be ordered by the DTC participant in a timely fashion so 
as to ensure the delivery of the requisite number of Deposit Securities 
through DTC to the account of each Fund by no later than 3 p.m. Eastern 
Time, on the ``Settlement Date.'' The Settlement Date is generally the 
third business day after the transmittal date.
    A standard creation transaction fee will be imposed to offset the 
transfer and other transaction costs associated with the issuance of 
Creation Units.
    Shares of the Funds may be redeemed only in Creation Units at their 
NAV next determined after receipt of a redemption request in proper 
form by the

[[Page 52781]]

Distributor and only on a business day. BFA will make available through 
the NSCC, prior to the opening of business on the Exchange on each 
business day, the designated portfolio of securities (including any 
portion of such securities for which cash may be substituted) that will 
be applicable (subject to possible amendment or correction) to 
redemption requests received in proper form on that day (``Fund 
Securities''). Fund Securities received on redemption may not be 
identical to Deposit Securities that are applicable to creations of 
Creation Units.
    Unless cash redemptions are available or specified for the 
respective Fund, the redemption proceeds for a Creation Unit generally 
will consist of a specified amount of cash, Fund Securities, plus 
additional cash in an amount equal to the difference between the NAV of 
the Shares being redeemed, as next determined after the receipt of a 
request in proper form, and the value of the specified amount of cash 
and Fund Securities, less a redemption transaction fee. Each Fund 
currently will redeem Shares for Fund Securities, but each Fund 
reserves the right to utilize a ``cash'' option for redemption of 
Shares.
    A standard redemption transaction fee will be imposed to offset 
transfer and other transaction costs that may be incurred by the Funds.
    Redemption requests for Creation Units of the Funds must be 
submitted to the Distributor by or through an Authorized Participant no 
later than 4 p.m. Eastern Time on any business day, in order to receive 
that day's NAV. The Authorized Participant must transmit the request 
for redemption in the form required by each Fund to the Distributor in 
accordance with procedures set forth in the Authorized Participant 
Agreement.
    Detailed descriptions of the Funds, the Underlying Indexes, 
procedures for creating and redeeming Shares, transaction fees and 
expenses, dividends, distributions, taxes, risks, and reports to be 
distributed to beneficial owners of the Shares can be found in the 
Registration Statements or on the Web site for the Funds 
(www.iShares.com), as applicable.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5) \18\ 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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    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
5.2(j)(3). The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange may obtain information 
via the Intermarket Surveillance Group (``ISG'') from other exchanges 
that are members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. The Index Provider is not 
a broker-dealer or affiliated with a broker-dealer and has implemented 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the Underlying Indexes. With respect 
to the 2018 Fund, as of May 1, 2012, there were 1,443 issues in the 
2018 Index. As of May 1, 2012, 81.50% of the weight of the 2018 Index 
components was comprised of individual maturities that were part of an 
entire municipal bond offering with a minimum original principal amount 
outstanding of $100 million or more for all maturities of the offering. 
In addition, the total dollar amount outstanding of issues in the 2018 
Index was approximately $16.59 billion and the average dollar amount 
outstanding of issues in the 2018 Index was approximately $11.50 
million. Further, the most heavily weighted component represents 4.06% 
of the weight of the 2018 Index and the five most heavily weighted 
components represent 8.20% of the weight of the 2018 Index. Therefore, 
the 2018 Index is sufficiently broad-based and sufficiently liquid to 
deter potential manipulation. With respect to the 2019 Fund, as of May 
1, 2012, there were 1,157 issues in the 2019 Index. As of May 1, 2012, 
81.66% of the weight of the 2019 Index components was comprised of 
individual maturities that were part of an entire municipal bond 
offering with a minimum original principal amount outstanding of $100 
million or more for all maturities of the offering. In addition, the 
total dollar amount outstanding of issues in the 2019 Index was 
approximately $13.50 billion and the average dollar amount outstanding 
of issues in the 2019 Index was approximately $11.67 million. Further, 
the most heavily weighted component represents 3.67% of the weight of 
the 2019 Index and the five most heavily weighted components represent 
9.62% of the weight of the 2019 Index. Therefore, the 2019 Index is 
sufficiently broad-based and sufficiently liquid to deter potential 
manipulation. The 2018 Index value and 2019 Index value, calculated and 
disseminated at least once daily, as well as the components of the 2018 
Index and 2019 Index and their respective percentage weightings, will 
be available from major market data vendors. In addition, the portfolio 
of securities held by the 2018 Fund and 2019 Fund will be disclosed on 
the Funds' Web site at www.iShares.com. The IIV for Shares of each Fund 
will be disseminated by one or more major market data vendors, updated 
at least every 15 seconds during the Exchange's Core Trading Session. 
According to the Registration Statements, BFA expects that, over time, 
each Fund's tracking error will not exceed 5%. BFA represents that 
bonds that share similar characteristics, as described above, tend to 
trade similarly to one another; therefore, within these categories, the 
issues may be considered fungible from a portfolio management 
perspective. Within a single municipal bond issuer, BFA represents that 
separate issues by the same issuer are also likely to trade similarly 
to one another. In addition, BFA represents that individual CUSIPs 
within the 2018 and 2019 Indexes that share characteristics with other 
CUSIPs based on the four categories described above have a high yield 
to maturity correlation, and frequently have a correlation of one or 
close to one.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest. 
In addition, a large amount of information is publicly available 
regarding the Funds and the Shares, thereby promoting market 
transparency. The Funds' portfolio holdings will be disclosed on the 
Funds' 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 IIV will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Core Trading Session. The current value of the Underlying Indexes will 
be disseminated by one or more major market data vendors at least once 
per day. 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

[[Page 52782]]

services, and quotation and last-sale information will be available via 
the CTA high-speed line. The Web site for the Funds will include the 
prospectus for the Funds and additional data relating to NAV and other 
applicable quantitative information. Moreover, prior to the 
commencement of trading, the Exchange will inform its ETP Holders in an 
Information Bulletin of the special characteristics and risks 
associated with trading the Shares. If the Exchange becomes aware that 
the NAV is not being disseminated to all market participants at the 
same time, it will halt trading in the Shares until such time as the 
NAV is available to all market participants. With respect to trading 
halts, the Exchange may consider all relevant factors in exercising its 
discretion to halt or suspend trading in the Shares of the Funds. 
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. If the IIV or the Underlying Index values are not being 
disseminated as required, NYSE Arca Equities, Inc. (``Corporation'') 
may halt trading during the day in which the interruption to the 
dissemination of the applicable IIV or Underlying Index value occurs. 
If the interruption to the dissemination of the applicable IIV or 
Underlying Index value persists past the trading day in which it 
occurred, the Corporation will halt trading. Trading in Shares of the 
Funds will be halted if the circuit breaker parameters in NYSE Arca 
Equities Rule 7.12 have been reached or because of market conditions or 
for reasons that, in the view of the Exchange, make trading in the 
Shares inadvisable, and trading in the Shares will be subject to NYSE 
Arca Equities Rule 7.34, which sets forth circumstances under which 
Shares of the Funds may be halted. In addition, investors will have 
ready access to information regarding the IIV, 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 exchange-traded funds 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, investors will have ready access to information 
regarding the IIV and quotation and last-sale information for the 
Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission shall:
    (A) By order approve or disapprove such 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-2012-92 on the subject line.

Paper Comments

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

    All submissions should refer to File Number SR-NYSEArca-2012-92. 
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 a.m. and 3 p.m. Copies of the filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NYSEArca-2012-92 and should be 
submitted on or before September 20, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21391 Filed 8-29-12; 8:45 am]
BILLING CODE 8011-01-P