Document ID: SEC-2019-0601-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2019-05-03T04:00Z

[Federal Register Volume 84, Number 86 (Friday, May 3, 2019)]
[Notices]
[Pages 19141-19148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-09145]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85751; File No. SR-NYSEArca-2019-28]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the Virtus WMC 
Risk-Managed Alternative Equity ETF

April 30, 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 April 15, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') 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 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 list and trade shares of the Virtus WMC 
Risk-Managed Alternative Equity ETF under NYSE Arca Rule 8.600-E. The 
proposed change is available on the 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 list and trade shares (``Shares'') of the 
Virtus WMC Risk-Managed Alternative Equity ETF (the ``Fund'') under 
NYSE Arca Rule 8.600-E, which provides generic criteria applicable to 
the listing and trading of Managed Fund Shares on the Exchange.\4\
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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) (the ``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 Fund is a series of ETFis Series I (``Trust''). Virtus ETF 
Advisors LLC (the ``Adviser'') is the investment adviser for the Fund. 
Wellington Management Company LLP is the sub-adviser to the Fund (the 
``Sub-Adviser''). The Trust and the Adviser have engaged the Sub-
Adviser to manage the Fund's investments, subject to the oversight and 
supervision of the Adviser and the Board of Trustees of the Trust.\5\ 
ETF Distributors LLC (``Distributor''), a registered broker-dealer, 
will act as the distributor for the Fund's Shares. The Bank of New York 
Mellon (``BNY Mellon'') will serve as the custodian, administrator and 
transfer agent (``Transfer Agent'') for the Fund.
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    \5\ The Trust is registered under the 1940 Act. On February 28, 
2019, the Trust filed with the Commission Post-Effective Amendment 
No. 155 to the Trust's registration statement on Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act''), and 
under the 1940 Act relating to the Fund (File Nos. 333-187668 and 
811-22819) (``Registration Statement''). The Trust will file an 
amendment to the Registration Statement as necessary to conform to 
the representations in this filing. The description of the operation 
of the Trust and the Fund herein is based, in part, on the 
Registration Statement. In addition, the Commission has issued an 
order granting certain exemptive relief to the Trust under the1940 
Act. See Investment Company Act Release No. 30607 (July 23, 2013) 
(File No. 812-14080).
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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. In 
addition, Commentary .06 further requires that personnel who make 
decisions on the open-end fund's portfolio composition must be subject 
to procedures designed to prevent the use and dissemination of material 
non-public information

[[Page 19142]]

regarding the open-end fund's portfolio. Commentary .06 to Rule 8.600-E 
is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Rule 5.2-
E(j)(3); however, Commentary .06 in connection with the establishment 
and maintenance of a ``fire wall'' between the investment adviser and 
the broker-dealer reflects the applicable open-end fund's portfolio, 
not an underlying benchmark index, as is the case with index-based 
funds.
    The Adviser and the Sub-Adviser are not registered as broker-
dealers. The Adviser and Sub-Adviser are affiliated with one or more 
broker-dealers and have implemented and will maintain a ``fire wall'' 
with respect to each such broker-dealer regarding access to information 
concerning the composition and/or changes to the Fund's portfolio. In 
the event (a) the Adviser or the 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 broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures, 
each designed to prevent the use and dissemination of material non-
public information regarding such portfolio.
Virtus WMC Risk-Managed Alternative Equity ETF
Principal Investments
    According to the Registration Statement, the investment objective 
of the Fund is to seek to provide superior risk-adjusted total returns 
over the long term. The Fund will seek to achieve its investment 
objective, under normal market conditions,\6\ by (i) investing in a 
broadly diversified portfolio of global equity securities in both 
developed and emerging markets, and (ii) implementing a beta management 
strategy by shorting futures contracts and purchasing and selling 
options, as further described below. By combining these two strategies, 
the Sub-Adviser seeks to generate superior total returns (i.e., returns 
in excess of the average returns of broad global equity market indexes) 
over a full market cycle with significant downside equity market 
protection (i.e., protection intended to limit losses in a declining 
market), consistent with the risk/return profile of investments in 
long/short equity (also referred to as alternative equity) hedge funds. 
Although the Sub-Adviser will seek for the Fund's risk/return profile 
to be consistent with investments in long/short equity hedge funds, the 
Fund itself does not invest in hedge funds. Under normal market 
conditions, the Fund will invest at least 80% of its net assets (plus 
any borrowings for investment purposes) in equity securities (as 
discussed below), in derivatives,\7\ cash and cash equivalents and 
other instruments (as discussed below), that have economic 
characteristics similar to such investments (together, the ``Principal 
Investments'').
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    \6\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
    \7\ The Fund's investments in derivatives will include 
investments in both listed derivatives and over-the-counter 
(``OTC'') derivatives, as those terms are defined in Commentary 
.01(d) and (e) to NYSE Arca Rule 8.600-E.
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    The Fund will invest in the following U.S. and non-U.S. exchange-
listed equity securities of U.S. and non-U.S. issuers: Common stock; 
preferred stock; convertible preferred stock; rights; warrants; 
American Depositary Receipts (``ADRs'') and Global Depositary Receipts 
(``GDRs''); and real estate investment trusts (``REITs'') of U.S. and 
foreign issuers.
    The Fund may hold cash and cash equivalents.\8\
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    \8\ The term ``cash equivalents'' is defined in Commentary 
.01(c) to NYSE Arca Rule 8.600-E.
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    The Fund may hold U.S. and non-U.S. exchange-traded futures and 
options on equity securities, equity securities indices, and interest 
rates. Options held by the Fund may be either exchange-listed or traded 
over-the-counter (``OTC'').
    The Fund may invest in forward foreign currency contracts and U.S. 
and non-U.S. exchange-traded foreign currency futures contracts.
    The Fund may enter into short sales of any securities and financial 
instruments in which the Fund may invest.
    The Fund may use derivative instruments described above as a 
substitute for investing directly in an underlying security or other 
financial instrument, to seek to enhance returns, to seek to manage or 
reduce exposure/risk, or to seek to manage foreign currency risk.
Non-Principal Investments
    While the Fund, under normal market conditions, will invest at 
least 80% in the securities and financial instruments described above, 
the Fund may invest its remaining assets in the securities and 
financial instruments described below.
    The Fund may invest in exchange-traded funds (``ETFs'').\9\
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    \9\ For purposes of this filing, the term ``ETFs'' includes 
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. While the Fund may invest in inverse 
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
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    The Fund may invest in convertible bonds.
    In addition to U.S. government securities that are cash equivalents 
as defined in Commentary .01(c) to NYSE Arca Rule 8.600-E, the Fund may 
invest in other U.S. government securities, which are U.S. government 
obligations such as U.S. Treasury notes, U.S. Treasury bonds, and U.S. 
Treasury bills, obligations guaranteed by the U.S. government.
    The Fund will not invest in securities or other financial 
instruments that have not been described in this proposed rule change.
Use of Derivatives by the Fund
    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies.
    To limit the potential risk associated with such transactions, the 
Fund may enter into offsetting transactions or segregate or ``earmark'' 
assets determined to be liquid by the Adviser in accordance with 
procedures established by the Trust's Board of Trustees (the ``Board'') 
and in accordance with the 1940 Act or as permitted by applicable 
Commission guidance. These procedures have been adopted consistent with 
Section 18 of the 1940 Act and related Commission guidance. In 
addition, the Fund has included appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is the 
risk that certain transactions of the Fund, including the Fund's use of 
derivatives, may give rise to leverage, causing the Fund to be more 
volatile than if it had not been leveraged.
Other Restrictions
    The Fund's investments, including derivatives, will be consistent 
with the Fund's investment objective and will not be used to enhance 
leverage (although certain derivatives and other investments may result 
in leverage). That is, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (e.g., 2X or -3X) 
of the Fund's primary broad-based securities benchmark index (as 
defined in Form N-1A).\10\
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    \10\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.

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[[Page 19143]]

Impact on Arbitrage Mechanism
    The Adviser and the Sub-Adviser believe there will be minimal, if 
any, impact to the arbitrage mechanism as a result of the Fund's use of 
derivatives. The Adviser and the Sub-Adviser understand that market 
makers and participants should be able to value derivatives as long as 
the positions are disclosed with relevant information. The Adviser and 
the Sub-Adviser believe that the price at which Shares of the Fund 
trade will continue to be disciplined by arbitrage opportunities 
created by the ability to purchase or redeem Shares of the Fund at 
their net asset value (``NAV''), which should ensure that Shares of the 
Fund will not trade at a material discount or premium in relation to 
their NAV.
Creation of Creation Units
    The Trust issues and sells Shares of the Fund only in aggregations 
of 50,000 Shares (each aggregation is called a ``Creation Unit'') on a 
continuous basis through the Distributor at the NAV next determined 
after receipt of an order in proper form on any Business Day.\11\ The 
size of a Creation Unit is subject to change.
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    \11\ A ``Business Day'' with respect to the Fund is any day on 
which the Exchange is open for business.
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    The consideration for a purchase of Creation Units generally will 
consist of cash or an in-kind deposit of a portfolio of securities and 
other investments (the ``Deposit Securities'') for each Creation Unit 
constituting a substantial replication, or a representation, of the 
securities included in the Fund's portfolio and an amount of cash 
computed as described below (the ``Cash Amount''). The Cash Amount 
together with the Deposit Securities, as applicable, are referred to as 
the ``Fund Deposit,'' which represents the minimum initial and 
subsequent investment amount for a Creation Unit of the Fund.
    The Cash Amount would be an amount equal to the difference between 
the NAV of the Shares (per Creation Unit) and the ``Deposit Amount,'' 
which is an amount equal to the aggregate market value of the Deposit 
Securities, and serves to compensate for any differences between the 
NAV per Creation Unit and the Deposit Amount.
    The Fund, through the National Securities Clearing Corporation 
(``NSCC''), makes available on each Business Day, immediately prior to 
the opening of business on the Exchange (currently 9:30 a.m. E.T.), the 
list of the names and the required number of securities for each 
Deposit Security to be included in the current Fund Deposit (based on 
information at the end of the previous Business Day) for the Fund. Such 
Fund Deposit is applicable, subject to any adjustments as described 
below, in order to effect creations of Creation Units of the Fund until 
such time as the next-announced composition of the Deposit Securities 
is made available.
    All orders to create Creation Units generally must be received by 
the Distributor no later than 3:00 p.m. E.T. on the date such order is 
placed in order for creation of Creation Units to be effected based on 
the NAV of the Fund as determined on such date.
    In addition, the Trust reserves the right to permit the 
substitution of an amount of cash (i.e., a ``cash in lieu'' amount) to 
be added to the Cash Component to replace any Deposit Security which 
may, among other reasons, not be available in sufficient quantity for 
delivery, or which may not be eligible for transfer through the 
Clearing Process (defined below), or which may not be eligible for 
trading by a Participating Party (defined below).
    To be eligible to place orders with the Distributor to create 
Creation Units of the Fund, an entity or person either must be (1) a 
``Participating Party,'' i.e., a broker-dealer or other participant in 
the clearing process through the Continuous Net Settlement System of 
the NSCC (the ``Clearing Process''); or (2) a Depository Trust Company 
(``DTC'') Participant; which, in either case, must have executed an 
agreement with the Trust, the Distributor and the Transfer Agent 
(``Participant Agreement''). A Participating Party and DTC Participant 
are collectively referred to as an ``Authorized Participant.''
Redemption of Creation Units
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Distributor and only on a Business Day.
    The Trust, through NSCC, makes available immediately prior to the 
opening of business on the Exchange (9:30 a.m. E.T.) on each Business 
Day, the Deposit Securities that will be applicable (subject to 
possible amendment or correction) to redemption requests received in 
proper form on that day. The Fund's securities received on redemption 
(``Redemption Instruments'') may not be identical to Deposit Securities 
that are applicable to creations of Creation Units. Unless cash 
redemptions are permitted or required for the Fund, the redemption 
proceeds for a Creation Unit generally consist of Deposit Securities as 
announced by the Trust on the Business Day of the request for 
redemption, plus cash in an amount equal to the difference between the 
NAV of the Shares being redeemed, as next determined after a receipt of 
a request in proper form, and the value of the Deposit Securities, less 
the redemption transaction fee.
    In order to redeem Creation Units of the Fund, an Authorized 
Participant must submit an order to redeem for one or more Creation 
Units. An order to redeem Creation Units of a Fund using the Clearing 
Process generally must be received by the Trust not later than 3:00 
p.m. E.T. on the Business Day of the request for redemption in order 
for such order to be effected based on the NAV of the Fund as next 
determined. An order to redeem Creation Units of the Fund using the 
NSCC Clearing Process made in proper form but received by the Fund 
after 3:00 p.m. E.T. will be deemed received on the next Business Day 
immediately following the day on which such order request is 
transmitted.
Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the 
portfolio for the Fund will not meet all of the ``generic'' listing 
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to 
the listing of Managed Fund Shares. The Fund's portfolio will meet all 
such requirements except for those set forth in Commentary .01(e), as 
described below.
    The Fund will not comply with the requirements set forth in 
Commentary .01(e) to NYSE Arca Rule 8.600-E with respect to the Fund's 
investments in OTC derivatives.\12\ Specifically, the aggregate gross 
notional value of the Fund's investments in OTC derivatives may exceed 
20% of Fund assets, calculated as the aggregate gross notional value of 
such OTC derivatives.\13\ The Exchange proposes that up to 50% of the 
Fund's assets (calculated as the aggregate gross notional value) may be 
invested in OTC

[[Page 19144]]

derivatives, that is, forwards and OTC options, that are used to reduce 
currency, interest rate or credit risk arising from the Fund's 
investments (that is, ``hedge''). The Fund's investments in OTC 
derivatives, other than OTC derivatives used to hedge the Fund's 
portfolio against currency, interest rate, or credit risk, will be 
limited to 20% of the assets in the Fund's portfolio, calculated as the 
aggregate gross notional value of such OTC derivatives.
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    \12\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that a 
portfolio may hold OTC derivatives, including forwards, options and 
swaps on commodities, currencies and financial instruments (e.g., 
stocks, fixed income, interest rates, and volatility) or a basket or 
index of any of the foregoing; however, on both an initial and 
continuing basis, no more than 20% of the assets in the portfolio 
may be invested in OTC derivatives. For purposes of calculating this 
limitation, a portfolio's investment in OTC derivatives will be 
calculated as the aggregate gross notional value of the OTC 
derivatives.
    \13\ The Adviser and Sub-Adviser monitor counterparty credit 
risk exposure (including for OTC derivatives) and evaluate 
counterparty credit quality on a continuous basis.
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    The Adviser and Sub-Adviser believe that it is important to provide 
the Fund with additional flexibility to manage risk associated with its 
investments. Depending on market conditions, it may be critical that 
the Fund be able to utilize available OTC derivatives for this purpose 
to attempt to reduce impact of currency, interest rate, or credit 
fluctuations on Fund assets. OTC derivatives provide the Fund with 
additional flexibility as well as a more precise means to effectively 
attempt to reduce currency, interest rate, or credit fluctuations on 
Fund assets. Generally, OTC derivatives can be customized to a greater 
degree than exchange-traded derivatives and can provide a better hedge 
on Fund assets, as well as allow for more control over the duration of 
the hedge which can also mitigate trading costs. Therefore, in addition 
to the Fund's ability to invest 20% of the assets in the Fund's 
portfolio in OTC derivatives pursuant to NYSE Arca Rule 8.600-E, 
Commentary .01(e), the Exchange believes it is appropriate to apply a 
limit of up to 50% of the Fund's assets to the Fund's investments in 
OTC derivatives (calculated as the aggregate gross notional value of 
such OTC derivatives), including forwards and options, that are used 
for hedging purposes, as described above.\14\
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    \14\ The Commission has previously approved an exception from 
requirements set forth in Commentary .01(e) relating to investments 
in OTC derivatives similar to those proposed with respect to the 
Fund in Securities Exchange Act Release Nos. 80657 (May 11, 2017), 
82 FR 22702 (May 17, 2017) (SR-NYSEArca-2017-09) (Notice of Filing 
of Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, Regarding 
Investments of the Janus Short Duration Income ETF Listed Under NYSE 
Arca Equities Rule 8.600). See also, Securities Exchange Act Release 
Nos. 84047 (September 6, 2018), 83 FR 46200 (September 12, 2018) 
(SR-NASDAQ-2017-128) (Notice of Filing of Amendment No. 3 and Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified 
by Amendment No. 3, to List and Trade Shares of the Western Asset 
Total Return ETF), in which the Nasdaq Stock Market LLC proposed 
that there would be no limit on the fund's investments in Interest 
Rate and Currency Derivatives, and that the aggregate weight of all 
OTC Derivatives other than Interest Rate and Currency Derivatives 
will not exceed 10% of the fund's assets); 84818 (December 13, 
2018), 83 FR 65189 (December 19, 2018) (SR-NYSEArca-2018-75) (Order 
Approving a Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, Regarding the Listing and Trading of Shares of the PGIM 
Ultra Short Bond ETF), note 13; 85022 (January 31, 2019), 84 FR 2265 
(February 6, 2019) (SR-Nasdaq-2018-080) (Notice of Filing of 
Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change to List and Trade Shares of the Brandywine 
GLOBAL-Global Total Return ETF).
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    The Adviser and Sub-Adviser represent that deviations from the 
generic requirements are necessary for the Fund to achieve its 
investment objective in a manner that is cost-effective and that 
maximizes investors' returns because OTC derivatives generally provide 
the Fund with more flexibility to negotiate the exact exposure that the 
Fund requires, and minimize trading costs because OTC derivatives are 
not subject to costs of rolling that are associated with listed 
derivatives.
    The Adviser and Sub-Adviser represent that they intend to engage in 
strategies that utilize foreign currency forward transactions (which 
may be traded OTC) and OTC options, as described above, based on its 
investment strategies. Depending on market conditions, the exposure due 
to these strategies may exceed 20% of the Fund's assets. The Adviser 
represents further that the foreign exchange forward market is OTC, 
and, as such, it is not possible to implement these strategies 
efficiently using listed derivatives. In addition, use of OTC options 
on U.S. and non-U.S. exchange-listed equity securities may be an 
important means to reduce risk in the Fund's equity investments, or, 
depending on market conditions, to enhance returns of such investments. 
If the Fund were limited to investing up to 20% of assets in OTC 
derivatives, the Fund would have to exclude or underweight these 
strategies and would be less diversified, concentrating risk in the 
other strategies it will utilize.
    In addition, by applying the 20% limitation in Commentary .01(e) to 
Rule 8.600-E, the Fund would be less able to protect its holdings from 
more than one risk simultaneously. For example, if the Fund's assets 
(on a gross notional basis) were $100 million and the Fund held $20 
million in Principal Investments with two types of risks (e.g., 
currency and credit risk) which could not be hedged using listed 
derivatives, the Fund would be faced with the choice of either holding 
$20 million aggregate gross notional value in OTC derivatives to 
mitigate one of the risks while passing the other risk to its 
shareholders, or, for example, holding $10 million aggregate gross 
notional value in OTC derivatives on each of the risks while passing 
the remaining portion of each risk to the Fund's shareholders.
    The Exchange notes that, other than Commentary .01(e), the Shares 
of the Fund will conform to the initial and continued listing criteria 
under NYSE Arca Rule 8.600-E and will meet all other requirements of 
NYSE Arca Rule 8.600-E.
    The Adviser and Sub-Adviser represent that the proposed exception 
described above is consistent with the Fund's investment objective, and 
will further assist the Adviser and Sub-Adviser to achieve such 
investment objective.
Availability of Information
    The Fund's website (www.virtusetfs.com) will include the prospectus 
for the Fund that may be downloaded. The Fund's website will include 
additional quantitative information updated on a daily basis including, 
for the Fund, (1) the prior Business Day's NAV; (ii) the reported 
midpoint of the bid-ask spread at the time of NAV calculation (the 
``Bid-Ask Price''); \15\ (iii) a calculation of the premium or discount 
of the Bid-Ask Price against such NAV; and (iv) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
Bid-Ask Price against the NAV, within appropriate ranges, for each of 
the four previous calendar quarters. On each Business Day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Fund will disclose on its 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.\16\
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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\ Under accounting procedures followed by the Fund, trades 
made on the prior Business Day (``T'') will be booked and reflected 
in NAV on the current Business Day (``T+1''). Accordingly, the Fund 
will be able to disclose at the beginning of the Business Day the 
portfolio that will form the basis for the NAV calculation at the 
end of the Business Day.
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    On a daily basis, the Fund will disclose 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.
    In addition, a basket composition file, which includes the security 
names and share quantities, if applicable, required to be delivered in 
exchange for the Fund's Shares, together with estimates

[[Page 19145]]

and actual cash components, will be publicly disseminated daily prior 
to the opening of the Exchange via the NSCC. The basket represents one 
Creation Unit of the Fund. Authorized Participants may refer to the 
basket composition file for information regarding any security, and any 
other instrument that may comprise the Fund's basket on a given day.
    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-SAR, filed twice a year. 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 and Form N-SAR may be 
viewed on-screen or downloaded from the Commission's website at 
www.sec.gov.
    Intra-day and closing price information regarding U.S. and non-U.S. 
exchange-traded options and futures will be available from the exchange 
on which such instruments are traded. Price information relating to OTC 
options will be available from major market data vendors. Intra-day 
price information for U.S. and non-U.S. exchange-traded options on 
futures will be available from the applicable exchange and from major 
market data vendors. For U.S. and non-U.S. exchange-listed equity 
securities, intraday price quotations will generally be available from 
broker-dealers and trading platforms (as applicable). Price information 
for cash equivalents and convertible bonds will be available from major 
market data vendors. Price information regarding U.S. government 
securities generally may be obtained from brokers and dealers who make 
markets in such securities or through nationally recognized pricing 
services through subscription agreements. Additionally, the Trade 
Reporting and Compliance Engine (``TRACE'') of the Financial Industry 
Regulatory Authority (``FINRA'') will be a source of price information 
for certain fixed income securities to the extent transactions in such 
securities are reported to TRACE.\17\
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    \17\ Broker-dealers that are FINRA member firms have an 
obligation to report transactions in specified debt securities to 
TRACE to the extent required under applicable FINRA rules. 
Generally, such debt securities will have at issuance a maturity 
that exceeds one calendar year. For fixed income securities that are 
not reported to TRACE, (i) intraday price quotations will generally 
be available from broker-dealers and trading platforms (as 
applicable) and (ii) price information will be available from feeds 
from market data vendors, published or other public sources, or 
online information services, as described above.
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    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, ETFs, and other 
U.S. exchange-traded equity securities will be available via the 
Consolidated Tape Association (``CTA'') high-speed line. Exchange-
traded options quotation and last sale information for options cleared 
via the Options Clearing Corporation (``OCC'') are available via the 
Options Price Reporting Authority (``OPRA''). 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.
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. 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. These may include: (1) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments comprising the Disclosed Portfolio of the Fund; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in the 
Shares will be subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets 
forth circumstances under which Shares of the Fund may be halted.
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 4:00 a.m. to 8:00 p.m. E.T. in 
accordance with NYSE Arca Rule 7.34-E (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(e) as 
described above under ``Application of Generic Listing Requirements,'' 
the Shares of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Rule 8.600-E. The Exchange represents 
that for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act, as provided by NYSE Arca Rule 
5.3-E. A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange has obtained 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.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances administered by the Exchange, as 
well as cross-market surveillances administered by FINRA on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws. The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and federal securities laws applicable to trading on 
the Exchange.
    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, certain 
exchange-traded equity securities (including ETFs), certain exchange-
traded options and certain futures with other markets and other 
entities that are members of the Intermarket Surveillance Group 
(``ISG''), and the Exchange or FINRA, on behalf of the Exchange, or 
both, may obtain trading information regarding trading in the Shares, 
certain exchange-traded equity securities (including ETFs), certain 
exchange-traded options and certain futures from such markets

[[Page 19146]]

and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares, certain exchange-traded equity 
securities (including ETFs), certain exchange-traded options and 
certain futures from markets and other entities that are members of ISG 
or with which the Exchange has in place a comprehensive surveillance 
sharing agreement (``CSSA''). In addition, FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income securities held by the Fund reported to FINRA's TRACE.
    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, (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 on the Exchange.
    The issuer has represented to the Exchange that it will advise 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(m)-E.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares of the Fund. Specifically, the Bulletin will discuss 
the following: (1) The procedures for purchases and redemptions of 
Shares in Creation Units (and that Shares are not individually 
redeemable); (2) NYSE Arca 9.2-E(a), which imposes a duty of due 
diligence on its ETP Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (3) the risks involved in 
trading the Shares during the 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 ETP Holders deliver a prospectus 
to investors purchasing newly issued Shares prior to or concurrently 
with the confirmation of a transaction; and (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares of the Fund 
will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) of the Act 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.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600-E. 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 
federal securities laws applicable to trading on the Exchange. The 
Adviser and the Sub-Adviser are not registered as a broker-dealer but 
both the Adviser and the Sub-Adviser are affiliated with a broker-
dealer and have implemented and will maintain a ``fire wall'' with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the Fund's portfolio. The 
Exchange or FINRA, on behalf of the Exchange, or both, will communicate 
as needed regarding trading in the Shares, certain exchange-traded 
options and certain futures 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 
the Shares, certain exchange-traded options and certain futures from 
such markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, certain exchange-traded 
options and certain futures 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, FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income securities held by the Fund reported to FINRA's TRACE.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. The website for the Fund 
includes a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. Trading 
in Shares of the Fund will be halted if the circuit breaker parameters 
in NYSE Arca Equities Rule 7.12-E have been reached or because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to NYSE Arca Equities Rule 8.600-E(d)(2)(D), which sets 
forth circumstances under which trading in the Shares of the Fund may 
be halted. In addition, as noted above, investors have ready access to 
information regarding the Fund's holdings, the PIV, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The Exchange believes that it is appropriate and in the public 
interest to allow the Fund, for hedging purposes only, to exceed the 
20% limit in Commentary .01(e) to Rule 8.600-E of portfolio assets that 
may be invested in OTC derivatives to a maximum of 50% of Fund assets 
(calculated as the gross notional value). As noted above, the Adviser 
and Sub-Adviser believe that it is in the best interests of the Fund's 
shareholders for the Fund to be allowed to reduce the currency, 
interest rate, or credit risk arising from the Fund's investments using 
the most efficient financial instruments. The proposed alternative 
requirements are narrowly tailored to allow the Fund to achieve its 
investment objective. In addition, the Fund's investments in OTC 
derivatives, other than OTC derivatives used to hedge the Fund's 
portfolio against currency, interest rate, or credit risk will be 
limited to 20% of the assets in the Fund's portfolio, calculated as the 
aggregate gross notional value of such OTC derivatives. While certain 
risks can be hedged via listed derivatives, OTC derivatives (such as 
forwards and options) can be customized to hedge

[[Page 19147]]

against precise risks. Accordingly, the Adviser and Sub-Adviser believe 
that OTC derivatives may frequently be a more efficient hedging vehicle 
than listed derivatives. Depending on market conditions, it may be 
critical that the Fund be able to utilize available OTC derivatives for 
this purpose to attempt to reduce impact of currency, interest rate, or 
credit fluctuations on Fund assets. Therefore, the Exchange believes 
that increasing the percentage limit in Commentary .01(e), as described 
above, to the Fund's investments in OTC derivatives, including forwards 
and options, that are used specifically for hedging purposes would 
permit the Fund to satisfy its investment objective and reduce 
investment risks in a more cost-effective manner and, therefore, would 
help protect investors and the public interest.\18\
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    \18\ The Exchange notes that the Commission has previously 
approved listing and trading of Managed Fund Shares the investments 
of which are similar to those proposed herein for the Fund. See, 
e.g., Securities Exchange Act Release No. 82492 (January 12, 2018) 
83 FR 2850 (January 19, 2018) (SR-NYSEArca-2017-87) (approving 
listing of shares of the JP Morgan Long/Short ETF).
---------------------------------------------------------------------------

    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 continued listing and 
trading of an actively-managed exchange-traded product that, through 
permitted use of an increased level of OTC derivatives above than 
currently permitted by the generic listing requirements of Commentary 
.01 to NYSE Arca Rule 8.600-E, will enhance competition among market 
participants, to the benefit of investors and the marketplace.
    The Exchange believes that it is appropriate and in the public 
interest to allow the Fund, for hedging purposes only, to exceed the 
20% limit in Commentary .01(e) to Rule 8.600-E of portfolio assets that 
may be invested in OTC derivatives. Under Commentary .01(e), a series 
of Managed Fund Shares listed under the ``generic'' standards may 
invest up to 20% of its assets (calculated as the aggregate gross 
notional value) in OTC derivatives. Because the Fund, in furtherance of 
its investment objective, may invest a substantial percentage of its 
investments in Principal Investments, the 20% limit in Commentary 
.01(e) to Rule 8.600-E could result in the Fund being unable to fully 
pursue its investment objective while attempting to sufficiently 
mitigate investment risks. The inability of the Fund to adequately 
hedge its holdings would effectively limit the Fund's ability to invest 
in certain instruments, or could expose the Fund to additional 
investment risk. For example, if the Fund's assets (on a gross notional 
value basis) were $100 million and no listed derivative were suitable 
to hedge the Fund's risk, under the generic standards the Fund would be 
limited to holding up to $20 million gross notional value in OTC 
derivatives ($100 million * 20%). Accordingly, the maximum amount the 
Fund would be able to invest in Principal Investments while remaining 
adequately hedged would be $20 million. The Fund then would hold $60 
million in assets that could not be hedged, other than with listed 
derivatives, which, as noted above, might not be sufficiently tailored 
to the specific instruments to be hedged.\19\
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    \19\ Implicit in expanding the ability of the Fund to enter into 
OTC derivatives solely for hedging purposes is that OTC derivatives 
will never be 100% of the Fund's portfolio because there will always 
be an underlying asset that is being hedged.
---------------------------------------------------------------------------

    In addition, by applying the 20% limitation in Commentary .01(e) to 
Rule 8.600-E, the Fund would be less able to protect its holdings from 
more than one risk simultaneously. For example, if the Fund's assets 
(on a gross notional basis) were $100 million and the Fund held $20 
million in Principal Investments and Non-Principal Investments with two 
types of risks (e.g., currency and credit risk) which could not be 
hedged using listed derivatives, the Fund would be faced with the 
choice of either holding $20 million aggregate gross notional value in 
OTC derivatives to mitigate one of the risks while passing the other 
risk to its shareholders, or, for example, holding $10 million 
aggregate gross notional value in OTC derivatives on each of the risks 
while passing the remaining portion of each risk to the Fund's 
shareholders.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
issue of Managed Fund Shares that, through permitted use of an 
increased level of OTC derivatives above that currently permitted by 
the generic listing requirements of Commentary .01 to NYSE Arca 
Equities Rule 8.600-E will enhance competition among market 
participants, to the benefit of investors and the marketplace.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2019-28 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-2019-28. 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

[[Page 19148]]

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-2019-28 and should 
be submitted on or before May 24, 2019.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-09145 Filed 5-2-19; 8:45 am]
 BILLING CODE 8011-01-P