Document ID: SEC-2017-2180-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2017-12-28T05:00Z

[Federal Register Volume 82, Number 248 (Thursday, December 28, 2017)]
[Notices]
[Pages 61641-61647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-28000]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82381; File No. SR-NYSE-2017-69]

Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Amend Rules Relating to Investment Company Units, Index-Linked 
Securities and Managed Trust Securities

December 21, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on December 15, 2017, New York Stock Exchange LLC (``NYSE'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes (1) to amend Supplementary Material .01 and 
.02 to NYSE Rule 5.2(j)(3) to provide for the inclusion of cash in an 
index underlying a series of Investment Company Units, which amendments 
conform to amendments to NYSE Arca Rule 5.2-E(j)(3) previously approved 
by the Securities and Exchange Commission (``Commission''); (2) to 
amend NYSE Rule 5.2(j)(6) to exclude Investment Company Units, 
securities defined in Section 2 of NYSE Rule 8P (Trading of Certain 
Exchange Traded Products) and Index-Linked Securities when applying the 
quantitative generic listing criteria applicable to Equity Index-Linked 
Securities, which amendments conform to amendments to NYSE Arca 5.2-
E(j)(6) previously approved by the Commission; and (3) to amend NYSE 
Rule 8.700 (``Managed Trust Securities'') to permit the use of swaps on 
stock indices, fixed income indices, commodity indices, commodities, 
currencies, currency indices, or interest rates, and to add EURO STOXX 
50 Volatility Index (VSTOXX[supreg]) futures and swaps on VSTOXX to the 
financial instruments that an issue of Managed Trust Securities may 
hold, which amendments conform to amendments to NYSE Arca Rule 8.700-E 
previously approved by the Commission. The proposed rule 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 (1) to amend Supplementary Material .01 and 
.02 to NYSE Rule 5.2(j)(3) to provide for the inclusion of cash in an 
index underlying a series of Investment Company Units (``Units''), 
which amendments conform to amendments to NYSE Arca Rule 5.2-E(j)(3) 
previously approved by the

[[Page 61642]]

Securities and Exchange Commission (``Commission''); \4\ (2) to amend 
NYSE Rule 5.2(j)(6) to exclude Investment Company Units, securities 
defined in Section 2 of NYSE Rule 8P (Trading of Certain Exchange 
Traded Products) and Index-Linked Securities when applying the 
quantitative generic listing criteria applicable to Equity Index-Linked 
Securities, which amendments conform to amendments to NYSE Arca 5.2-
E(j)(6) previously approved by the Commission; \5\ and (3) to amend 
NYSE Rule 8.700 (``Managed Trust Securities'') to permit the use of 
swaps on stock indices, fixed income indices, commodity indices, 
commodities, currencies, currency indices, or interest rates, and to 
add VSTOXX futures and swaps on VSTOXX to the financial instruments 
that an issue of Managed Trust Securities may hold, which amendments 
conform to amendments to NYSE Arca Rule 8.700-E previously approved by 
the Commission.\6\
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    \4\ See Securities Exchange Act Release No. 80777 (May 25, 2017) 
(SR-NYSEArca-2017-30) (order approving proposed rule change to amend 
Commentary .01 and Commentary.02 to NYSE Arca Equities Rule 
5.2(j)(3) to provide for the inclusion of cash in an index 
underlying a series of Investment Company Units).
    \5\ See Securities Exchange Act Release No. 81442 (August 18, 
2017), 82 FR 40178 (August 24, 2017) (SR-NYSEArca-2017-54) (order 
approving a proposed rule change to amend the generic listing 
criteria applicable to Equity Index-Linked Securities).
    \6\ See Securities Exchange Act Release Nos. 80254 (March 15, 
2017), 82 FR 14548 (March 21, 2017) (SR-NYSEArca-2016-96) (order 
approving proposed rule change to amend NYSE Arca Equities Rule 
8.700 and to list and trade shares of the Managed Emerging Markets 
Trust under NYSE Arca Equities Rule 8.700); 82066 (November 13, 
2017), 82 FR 54434 (November 17, 2017) (SR-NYSEArca-2017-85) (order 
approving proposed rule change to amend NYSE Arca Rule 8.700-E and 
to list and trade shares of the ProShares European Volatility 
Futures ETF).
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Amendments to NYSE Rule 5.2(j)(3)
    NYSE Rule 5.2(j)(3) permits the trading, whether by listing or 
pursuant to unlisted trading privileges (``UTP'') of Units. The 
Exchange proposes to amend Supplementary Material .01 and .02 to NYSE 
Rule 5.2(j)(3) to permit trading of Units based on an index or 
portfolio that includes cash as a component. While Units, like mutual 
funds, will generally hold an amount of cash, Rule 5.2(j)(3) currently 
provides that components of an index or portfolio underlying a series 
of Units consist of securities--namely, US Component Stocks, Non-US 
Component Stocks, Fixed Income Securities or a combination thereof. As 
described below, the proposed amendments to Supplementary Material .01 
and .02 to Rule 5.2(j)(3) would permit inclusion of cash as an index or 
portfolio component.
    Currently, Supplementary Material .01(a)(A) provides that an 
underlying index or portfolio of US Component Stocks \7\ must meet 
specified criteria. The Exchange proposes to amend Supplementary 
Material .01(a)(A) to provide that the components of an index or 
portfolio underlying a series of Units may also include cash. In 
addition, the percentage weighting criteria in Supplementary Material 
.01(a)(A)(1) through (4) each would be amended to make clear that such 
criteria would be applied only to the US Component Stocks portion of an 
index or portfolio. For example, in applying the criteria in proposed 
Supplementary Material .01(a)(A)(1),\8\ if 85% of the weight of an 
index consists of US Component Stocks and 15% of the index weight is 
cash, the requirement that component stocks (excluding Exchange Traded 
Products) that in the aggregate account for at least 90% of the weight 
of the US Component Stocks portion of the index or portfolio (excluding 
such Exchange Traded Products) each will have a minimum market value of 
$75 million minimum would be applied only to the 85% portion consisting 
of US Component Stocks.
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    \7\ Rule 5.2(j)(3) defines ``US Component Stock'' as an equity 
security that is registered under Sections 12(b) or 12(g) of the Act 
or an American Depositary Receipt, the underlying equity security of 
which is registered under Sections 12(b) or 12(g) of the Act.
    \8\ Supplementary Material .01(a)(A)(1) provides that component 
stocks (excluding Units and Exchange Traded Products) that in the 
aggregate account for at least 90% of the weight of the US Component 
Stocks portion of the index or portfolio (excluding Units and 
securities defined in Section 2 of Rule 8P, collectively ``Exchange 
Traded Products'') each will have a minimum market value of at least 
$75 million.
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    Supplementary Material .01 (a)(B), which relates to international 
or global indexes or portfolios, would be amended to provide that 
components of an index or portfolio underlying a series of Units may 
consist of (a) only Non-US Component Stocks, (b) Non-US Component 
Stocks and cash, (c) both US Component Stocks and Non-US Component 
Stocks, or (d) US Component Stocks, Non-US Component Stocks and cash. 
In addition, the percentage weighting criteria in Supplementary 
Material .01(a)(B)(1) through (4) each would be amended to make clear 
that such criteria would be applied only to the combined US and Non-US 
Component Stocks portions of an index or portfolio.
    Supplementary Material .02 to NYSE Rule 5.2(j)(3) provides generic 
criteria applicable to trading of Units whose underlying index or 
portfolio includes Fixed Income Securities.\9\ Currently, Supplementary 
Material .02(a)(1) provides that an underlying index or portfolio must 
consist of Fixed Income Securities. The Exchange proposes to amend 
Supplementary Material .02(a)(1) to provide that the index or portfolio 
may also include cash. In addition, the percentage weighting criteria 
in Supplementary Material .02(a)(2), (a)(4) and (a)(6) each would be 
amended to make clear that such criteria would be applied only to the 
Fixed Income Securities portion of an index or portfolio. For example, 
in applying the criteria in the proposed amendments to Supplementary 
Material .01(a)(2),\10\ if 90% of the weight of an index or portfolio 
consists of Fixed Income Securities and 10% of the index weight is 
cash, the requirement that Fixed Income Security components accounting 
for at least 75% of the Fixed Income Securities portion of the weight 
of the index or portfolio each will have a minimum original principal 
amount outstanding of $100 million would be applied only to the 90% 
portion consisting of Fixed Income Securities.
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    \9\ As defined in Supplementary Material .02 to NYSE Rule 
5.2(j)(3), Fixed Income Securities are debt securities that are 
notes, bonds, debentures or evidence of indebtedness that include, 
but are not limited to, U.S. Department of Treasury securities 
(``Treasury Securities''), government-sponsored entity securities 
(``GSE Securities''), municipal securities, trust preferred 
securities, supranational debt and debt of a foreign country or a 
subdivision thereof.
    \10\ Supplementary Material .01(a)(2) provides that Fixed Income 
Security components that in aggregate account for at least 75% of 
the Fixed Income Securities portion of the weight of the index or 
portfolio each will have a minimum original principal amount 
outstanding of $100 million or more.
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    The Exchange notes that the Commission has previously approved 
Exchange rules allowing portfolios held by issues of Managed Fund 
Shares (actively-managed exchange-traded funds) to include cash.\11\ 
Like the provision in Supplementary Material .01(c) to Rule 8.600, 
which states that there is no limit to cash holdings by an issue of 
Managed Fund Shares traded under Supplementary Material .01 to Rule 
8.600, there is no proposed limit to the weighting of cash in an index 
underlying a series of Units. The Exchange believes this is appropriate 
in that cash does not, in itself, impose investment or market risk.
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    \11\ See Supplementary Material .01(c) to NYSE Rule 8.600, 
approved in Securities Exchange Act Release No. 80214 (March 10, 
2017), 82 FR 14050 (March 16, 2017) (SR-NYSE-2016-44) (order 
approving proposed rule change to allow the Exchange to trade 
pursuant to UTP any NMS Stock listed on another national securities 
exchange; establishing listing and trading requirements for Exchange 
Traded Products; and adopting new equity trading rules relating to 
trading halts of securities traded pursuant to UTP on the Pillar 
platform).

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[[Page 61643]]

    The Exchange believes the proposed amendments, by permitting 
inclusion of cash as a component of indexes underlying series of Units, 
would provide issuers of Units with additional choice in indexes 
permitted to underlie Units that are permitted to trade on the 
Exchange, which would enhance competition among market participants, to 
the benefit of investors and the marketplace. In addition, the proposed 
amendments would provide investors with greater ability to hold Units 
based on underlying indexes that may accord more closely with an 
investor's assessment of market risk, in that some investors may view 
cash as a desirable component of an underlying index under certain 
market conditions.
Amendments to NYSE Rule 5.2 (j)(6)
    The Exchange proposes to amend NYSE Rule 5.2 (j)(6) to exclude 
Investment Company Units (``Units'') and securities defined in Section 
2 of NYSE Rule 8P (collectively, together with Units, ``Derivative 
Securities Products''),\12\ as well as Index-Linked Securities,\13\ 
when applying the quantitative generic listing criteria applicable to 
Equity Index-Linked Securities.\14\
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    \12\ Units are securities that represent an interest in a 
registered investment company that could be organized as a unit 
investment trust, an open-end management investment company, or a 
similar entity, that holds securities comprising, or otherwise based 
on or representing an interest in, an index or portfolio of 
securities or securities in another registered investment company 
that holds such securities. See NYSE Rule 5.2 (j)(3). The following 
securities currently are included in Section 2 of NYSE Rule 8P: 
Portfolio Depositary Receipts (Rule 8.100); Trust Issued Receipts 
(Rule 8.200); Commodity-Based Trust Shares (Rule 8.201); Currency 
Trust Shares (Rule 8.202); Commodity Index Trust Shares (Rule 
8.203); Commodity Futures Trust Shares (Rule 8.204); Partnership 
Units (Rule 8.300); Paired Trust Shares (Rule 8.400);Trust Units 
(Rule 8.500); Managed Fund Shares (Rule 8.600); and Managed Trust 
Securities (Rule 8.700).
    \13\ Index-Linked Securities are securities that qualify for 
Exchange listing and trading under NYSE Rule 5.2(j)(6). The 
securities described in Rule 5.2(j)(3), Rule 5.2(j)(6) and Section 2 
of Rule 8P, as referenced above, would include securities listed on 
another national securities exchange pursuant to substantially 
equivalent listing rules.
    \14\ The Commission has approved amendments to NYSE Arca Rule 
5.2-E(j)(6) that are substantially identical to those proposed 
herein. See Securities Exchange Act Release No. 81442 (August 18, 
2017), 82 FR 40178 (August 24, 2017) (SR-NYSEArca-2017-54) (order 
approving a proposed rule change to amend the generic listing 
criteria applicable to Equity Index-Linked Securities).
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    Equity Index-Linked Securities are securities that provide for the 
payment at maturity (or earlier redemption) based on the performance of 
an underlying index or indexes of equity securities, securities of 
closed end management investment companies registered under the 
Investment Company Act of 1940 (``1940 Act'') \15\ and/or Units.\16\ In 
addition to certain other generic listing criteria, Equity Index-Linked 
Securities must satisfy the generic quantitative initial and continued 
listing criteria under NYSE Rule 5.2 (j)(6)(B)(I) in order to become, 
and continue to be, listed and traded on the Exchange. Certain of the 
applicable quantitative criteria specify minimum or maximum thresholds 
that must be satisfied with respect to, for example, market value, 
trading volume, and dollar weight of the index represented by a single 
component or groups of components.
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    \15\ 15 U.S.C. 80-1.
    \16\ See Rule 5.2(j)(6)(B)(I)(1).
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    The applicable initial quantitative listing criteria include (i) 
that each underlying index is required to have at least ten component 
securities; \17\ (ii) that each component security has a minimum market 
value of at least $75 million, except that for each of the lowest 
dollar weighted component securities in the index that in the aggregate 
account for no more than 10% of the dollar weight of the index, the 
market value can be at least $50 million; (iii) that component stocks 
that in the aggregate account for at least 90% of the weight of the 
index each have a minimum global monthly trading volume of 1,000,000 
shares, or minimum global notional volume traded per month of 
$25,000,000, averaged over the last six months; (iv) that no underlying 
component security represents more than 25% of the dollar weight of the 
index, and the five highest dollar weighted component securities in the 
index do not in the aggregate account for more than 50% of the dollar 
weight of the index (60% for an index consisting of fewer than 25 
component securities); and (v) that 90% of the index's numerical value 
and at least 80% of the total number of component securities meet the 
then current criteria for standardized option trading set forth in NYSE 
Arca Rule 5.3-O; except that an index will not be subject to this last 
requirement if (a) no underlying component security represents more 
than 10% of the dollar weight of the index and (b) the index has a 
minimum of 20 components.\18\ The applicable continued quantitative 
listing criteria require that (1) no single component represent more 
than 25% of the dollar weight of the index and the five highest dollar 
weighted components in the index cannot represent more than 50% (or 60% 
for indexes with less than 25 components) of the dollar weight of the 
index, need only be satisfied at the time the index is rebalanced; \19\ 
and (2) component stocks that in the aggregate account for at least 90% 
of the weight of the index each have a minimum global monthly trading 
volume of 500,000 shares, or minimum global notional volume traded per 
month of $12,500,000, averaged over the last six months.\20\
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    \17\ See Rule 5.2 (j)(6)(B)(I)(1)(a).
    \18\ See Rule 5.2 (j)(6)(B)(I)(1)(b)(i)-(iv).
    \19\ See Rule 5.2 (j)(6)(B)(I)(2)(a)(i).
    \20\ See Rule 5.2 (j)(6)(B)(I)(2)(a)(ii).
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    The Exchange proposes to amend NYSE Rule 5.2 (j)(6)(B)(I)(1)(a), 
which provides that each underlying index is required to have at least 
ten component securities, to provide that there will be no minimum 
number of component securities if one or more issues of Derivative 
Securities Products or Index-Linked Securities constitute, at least in 
part, component securities underlying an issue of Equity Index-Linked 
Securities. The proposed amendment to NYSE Rule 5.2 (j)(6)(B)(I)(1)(a) 
also would provide that the securities described in Rule 5.2 (j)(3)) 
and Section 2 of Rule 8P (that is, Derivative Securities Products), and 
Rule 5.2 (j)(6) (that is, Index-Linked Securities), as referenced in 
proposed amended Rule 5.2 (j)(6)(B)(I)(1)(b)(2) and Rule 5.2 
(j)(6)(B)(I)(2)(a) would include securities listed on another national 
securities exchange pursuant to substantially equivalent listing rules.
    The Exchange also proposes to exclude Derivative Securities 
Products and Index-Linked Securities from consideration when 
determining whether the applicable quantitative generic thresholds have 
been satisfied under the initial listing standards specified in NYSE 
Rule 5.2 (j)(6)(B)(I)(1)(b)(i)-(iv) and the continued listing standards 
specified in NYSE Rules 5.2 (j)(6)(B)(I)(2)(a)(i) and (ii).\21\ Thus, 
for example, when

[[Page 61644]]

determining compliance with NYSE Rule 5.2 (j)(6)(B)(I)(1)(b)(ii), 
component stocks, excluding Derivative Securities Products or Index-
Linked Securities, that in the aggregate account for at least 90% of 
the remaining index weight would be required to have a minimum global 
monthly trading volume of 1 million shares, or minimum global notional 
volume traded per month of 25 million, averaged over the last six 
months.
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    \21\ NYSE Rules 5.2 (j)(6)(B)(I)(2)(a)(i) and (ii) provide that 
the Exchange will maintain surveillance procedures for securities 
listed under Rule 5.2 (j)(6) and may halt trading in such securities 
and will initiate delisting proceedings pursuant to Rule 5.5(m) 
(unless the Commission has approved the continued trading of the 
subject Index-Linked Security), if any of the standards set forth in 
Rules 5.2 (j)(6)(B)(I)(1)(a) and 5.2 (j)(6)(B)(I)(1)(b)(2) are not 
continuously maintained, except that: (i) The criteria that no 
single component represent more than 25% of the dollar weight of the 
index and the five highest dollar weighted components in the index 
cannot represent more than 50% (or 60% for indexes with less than 25 
components) of the dollar weight of the index, need only be 
satisfied at the time the index is rebalanced (Rule 5.2 
(j)(6)(B)(I)(2)(a)(i)), and (ii) component stocks that in the 
aggregate account for at least 90% of the weight of the index each 
will have a minimum global monthly trading volume of 500,000 shares, 
or minimum global notional volume traded per month of $12,500,000, 
averaged over the last six months (Rule 5.2 (j)(6)(B)(I)(2)(a)(ii)).
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    The Exchange proposes further to provide that the weighting 
limitation for the five highest weighted component securities in an 
index in NYSE Rules 5.2 (j)(6)(B)(I)(1)(b)(iii) and 5.2 
(j)(6)(B)(I)(2)(a)(i) would apply ``to the extent applicable.'' \22\ 
When considered in conjunction with the proposed amendment to NYSE Rule 
5.2 (j)(6)(B)(I)(1)(a) referenced above, this language would make clear 
that an index that includes Derivative Securities Products or Index-
Linked Securities may include fewer than five component securities.
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    \22\ The phrase ``to the extent applicable'' also is included in 
Supplementary Material .01(a)(A)(3) to NYSE Rule 5.2 (j)(3) for 
Investment Company Units and Supplementary Material .01(a)(1)(C) to 
NYSE Rule 8.600 for Managed Fund Shares.
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    The Exchange believes that it is appropriate to exclude Derivative 
Securities Products and Index-Linked Securities from the generic 
listing and continued listing criteria specified above for Equity 
Index-Linked Securities because Derivative Securities Products and 
Index-Linked Securities that may be included in an index or portfolio 
underlying a series of Equity Index-Linked Securities are themselves 
subject to specific initial and continued listing requirements of the 
exchange on which they are listed. Also, Derivative Securities Products 
and Index-Linked Securities would have been listed and traded on an 
exchange pursuant to a filing submitted under Sections 19(b)(2) or 
19(b)(3)(A) of the Act,\23\ or would have been listed by an exchange 
pursuant to the requirements of Rule 19b-4(e) under the Act.\24\ 
Derivative Securities Products and Index-Linked Securities are 
derivatively priced, and, therefore, the Exchange does not believe that 
it is necessary to apply the generic quantitative criteria (e.g., 
market capitalization, trading volume, or component weighting) 
applicable to securities that are not Derivative Securities Products or 
Index-Linked Securities (e.g., common stocks) to such products. 
Finally, by way of comparison, Derivative Securities Products are 
excluded from consideration when determining whether the components of 
Units satisfy the applicable listing criteria in Rule 5.2 (j)(3),\25\ 
and both Derivative Securities Products and Index-Linked Securities are 
excluded from the applicable listing criteria for Managed Fund Shares 
holding equity securities in Supplementary Material .01 to Rule 
8.600.\26\
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    \23\ 15 U.S.C. 78s(b)(2); 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(e).
    \25\ See Supplementary Material .01 to NYSE Rule 5.2 (j)(3). See 
also, Securities Exchange Act Release No. 57751 (May 1, 2008), 73 FR 
25818 (May 7, 2008) (SR-NYSEArca-2008-29) (order approving 
amendments to the eligibility criteria for components of an index 
underlying Investment Company Units).
    \26\ See Supplementary Material .01 to NYSE Rule 8.600. See 
also, Securities Exchange Act Release No. 78397 (July 22, 2016), 81 
FR 49320 (July 27, 2016) (SR-NYSEArca-2015-110) (order approving 
amendments to NYSE Arca Equities Rule 8.600 to adopt generic listing 
standards for Managed Fund Shares).
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    The Exchange also proposes (1) to replace ``investment company 
units'' with ``Investment Company Units'' in two places in NYSE Rule 
5.2 (j)(6)(B)(I)(1) in order to conform to other usages of this term in 
Exchange rules; and (2) to replace the word ``Index'' with ``index'' in 
two places in Rule 5.2 (j)(6)(B)(I)(2)(a)(i) to conform to other usages 
of this word in Rule 5.2 (j)(6)(B)(I)(2).
Amendments to NYSE Rule 8.700
    NYSE Rule 8.700 permits the trading, whether by listing or pursuant 
to UTP, of Managed Trust Securities pursuant to UTP. The Exchange 
proposes to amend NYSE Rule 8.700 to permit the use of swaps on stock 
indices, fixed income indices, commodity indices, commodities, 
currencies, currency indices, or interest rates, and to add VSTOXX 
futures and swaps on VSTOXX to the financial instruments that an issue 
of Managed Trust Securities may hold. The proposed amendments are 
substantially identical to amendments to NYSE Arca Rule 8.700-E 
approved by the Commission for issues of Managed Trust Securities 
listed and traded on NYSE Arca, Inc.\27\
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    \27\ See note 6, supra.
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    The Exchange proposes to amend NYSE Rule 8.700(c)(1) to specify 
that the trust issuing a series of Managed Trust Securities, or any 
series of such trust, is not registered or required to be registered as 
an investment company. This change makes clear that issuers of Managed 
Trust Securities are not investment companies under the 1940 Act, and, 
therefore, distinguishes issuances of Managed Trust Securities from, 
for example, Managed Fund Shares traded pursuant to NYSE Rule 8.600 or 
Investment Company Units traded pursuant to NYSE Rule 5.2(j)(3).
    Permitting the use of swaps as referenced above would provide 
additional flexibility to an issuer of Managed Trust Securities seeking 
to achieve its investment objective. For example, because the markets 
for certain futures contracts may be unavailable or cost prohibitive as 
compared to other derivative instruments, swaps may be an efficient 
alternative for an issuer of Managed Trust Securities to obtain the 
desired asset exposure. Additionally, swaps would allow parties to 
replicate desired returns. As such, the increased flexibility afforded 
by the ability of an issuer of Managed Trust Securities to use swaps 
may enhance investor returns by facilitating the ability to more 
economically seek its investment objective, thereby reducing the costs 
incurred by such issuer. Permitting the use of such futures would 
provide additional flexibility to an issuer of Managed Trust Securities 
seeking to achieve its investment objective by allowing such issuer to 
gain additional asset exposure to currencies and commodities. The 
Exchange also proposes to amend NYSE Rule 8.700(c)(1) to specify cash 
and cash equivalents as permitted trust holdings. Such instruments 
would be held, as needed, to secure a trust's trading obligations with 
respect to its positions in other financial instruments.
    With respect to adding futures or swaps on VSTOXX to the financial 
instruments in which an issue of Managed Trust Securities may hold, the 
Exchange believes that the proposed amendment to will provide investors 
with the ability to better diversify and hedge their portfolios using 
an exchange traded security without having to trade directly in 
underlying futures contracts, and will facilitate the listing and 
trading on the Exchange of additional Managed Trust Securities that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace.\28\
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    \28\ The VSTOXX is based on EURO STOXX 50 Index (``Index'') 
real-time option prices that are listed on the Eurex Exchange and 
are designed to reflect the market expectations of near-term up to 
long-term volatility by measuring the square root of the implied 
variances across all options of a given time to expiration. The 
Index includes 50 stocks that are among the largest free-float 
market capitalization stocks from 11 Eurozone countries. For 
additional information regarding VSTOXX, see Securities Exchange Act 
Release No. 82066 (November 13, 2017), 82 FR 54434 (November 17, 
2017) (SR-NYSEArca-2017-85) (order approving proposed rule change to 
amend NYSE Arca Rule 8.700-E and to list and trade shares of the 
ProShares European Volatility Futures ETF).
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement

[[Page 61645]]

under Section 6(b)(5) \29\ 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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    \29\ 15 U.S.C. 78f(b)(5).
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    The proposed rule changes are designed to perfect the mechanism of 
a free and open market and, in general, to protect investors and the 
public interest. The basis under the Exchange Act for this proposed 
rule change is the requirement under Section 6(b)(5) 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.
    With respect to the proposed amendments to NYSE Rule 5.2(j)(3), the 
Exchange notes that, as described above, the percentage weighting 
criteria in Supplementary Material .01(a)(B)(1) through (4) to Rule 
5.2(j)(3) each would be amended to make clear that such criteria would 
be applied only to the combined US and Non-US Component Stocks portions 
of an index or portfolio. The percentage weighting criteria in 
Supplementary Material .02(a)(2), (a)(4) and (a)(6) to NYSE Rule 
5.2(j)(3) each would be amended to make clear that such criteria would 
be applied only to the Fixed Income Securities portion of an index or 
portfolio. Such applications of the proposed amendments would assure 
that the weighting requirements in Supplementary Material .01 and .02 
would continue to be applied only to securities in an index or 
portfolio, and would not be diluted as a result of inclusion of a cash 
component. In addition, the addition of cash as a permitted component 
of indexes underlying Units traded on the Exchange pursuant to Rule 
19b-4(e) does not raise regulatory issues because cash does not, in 
itself, impose investment or market risk and is not susceptible to 
manipulation.
    The Exchange believes these proposed amendments to NYSE Rule 
5.2(j)(3), by permitting inclusion of cash as a component of indexes 
underlying series of Units, would provide issuers of Units with 
additional choice in indexes permitted to underlie Units that are 
permitted to trade on the Exchange pursuant to UTP, which would enhance 
competition among market participants, to the benefit of investors and 
the marketplace. In addition, the proposed amendments would provide 
investors with greater ability to hold Units based on underlying 
indexes that may accord more closely with an investor's assessment of 
market risk.
    With respect to the proposed amendments to NYSE Rule 5.2(j)(6), the 
Exchange believes that the proposed change would facilitate the listing 
and trading of additional types of Equity Index-Linked Securities, 
which would enhance competition among market participants, to the 
benefit of investors and the marketplace. The proposed change would 
also result in greater efficiencies in the listing process with respect 
to Equity Index-Linked Securities by eliminating an unnecessary 
consideration regarding underlying components, which would therefore 
remove impediments to, and perfect the mechanism of, a free and open 
market. In addition, the proposed amendment to the Equity Index-Linked 
Securities listing criteria is intended to protect investors and the 
public interest in that it is consistent with the manner in which 
Derivative Securities Products are also excluded from consideration 
when determining whether the components of an index or portfolio 
underlying an issue of Units satisfy the applicable listing 
criteria,\30\ and both Derivative Securities Products and Index-Linked 
Securities are excluded from the applicable listing criteria for 
Managed Fund Shares holding equity securities in Supplementary Material 
.01 to Rule 8.600.\31\ Additionally, Equity Index-Linked Securities 
would remain subject to all existing listing standards, thereby 
maintaining existing levels of investor protection. The Exchange 
believes that the proposed rule change is designed to prevent 
fraudulent and manipulative acts and practices because the Equity 
Index-Linked Securities would continue to be listed and traded on the 
Exchange pursuant to the initial and continued listing criteria in Rule 
5.2 (j)(6). Further, the proposed change would not impact the existing 
listing process for Derivative Securities Products and Index-Linked 
Securities, whereby the exchanges on which such securities are listed 
must, for example, submit proposed rule changes with the Commission 
prior to listing and trading.
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    \30\ See supra, note 18.
    \31\ See supra, note 19.
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    The Exchange believes that it is appropriate to exclude Derivative 
Securities Products and Index-Linked Securities from the generic 
criteria specified above for Equity Index-Linked Securities because 
Derivative Securities Products and Index-Linked Securities that may be 
included in an index or portfolio underlying a series of Equity Index-
Linked Securities are themselves subject to specific initial and 
continued listing requirements of the exchange on which they are 
listed. For example, Units listed and traded on the Exchange are 
subject to the listing standards specified under NYSE Rule 5.2 (j)(3). 
Also, such Derivative Securities Products and Index-Linked Securities 
would have been listed and traded on an exchange pursuant to a filing 
submitted under Sections 19(b)(2) or 19(b)(3)(A) of the Act,\32\ or 
would have been listed by an exchange pursuant to the requirements of 
Rule 19b-4(e) under the Act.\33\ The Exchange believes that 
quantitative factors--such as market value, global monthly trading 
volume, or weighting--when applied to index components (such as common 
stocks) underlying a series of Equity Index-Linked Securities, are 
relevant criteria in establishing that such series is sufficiently 
broad-based to minimize potential manipulation.\34\ Derivative 
Securities Products and Index-Linked Securities, however, are 
derivatively priced, and, therefore, the Exchange does not believe that 
it is necessary to apply the generic quantitative criteria applicable 
to securities that are not Derivative Securities Products and Index-
Linked Securities (e.g., common stocks) to such products. Derivative 
Securities Products are excluded from consideration on NYSE when 
determining whether the components of Units satisfy the applicable 
listing criteria,\35\ and both Derivative Securities

[[Page 61646]]

Products and Index-Linked Securities are excluded from the applicable 
listing criteria for Managed Fund Shares holding equity securities in 
Supplementary Material .01 to Rule 8.600. Moreover, for shares of 
Derivative Securities Products that are not listed on an exchange 
pursuant to an exchange's generic listing rules, the Commission must 
first approve an exchange's proposed rule change under Section 19(b) of 
the Act regarding a particular Derivative Securities Product or Index-
Linked Securities, which is subject to the representations and 
restrictions included in such proposed rule change.
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    \32\ 15 U.S.C. 78s(b)(2); 15 U.S.C. 78s(b)(3)(A).
    \33\ 17 CFR 240.19b-4(e).
    \34\ See, e.g., Securities Exchange Act Release No. 54739 
(November 9, 2006), 71 FR 66693 (SR-Amex-2006-78) (order approving 
generic listing standards for Portfolio Depositary Receipts and 
Index Fund Shares based on international or global indexes), in 
which the Commission stated that ``these standards are reasonably 
designed to ensure that stocks with substantial market 
capitalization and trading volume account for a substantial portion 
of any underlying index or portfolio, and that when applied in 
conjunction with the other applicable listing requirements, will 
permit the listing only of ETFs that are sufficiently broad-based in 
scope to minimize potential manipulation.''
    \35\ See Supplementary Material .01 to NYSE Rule 5.2 (j)(3). See 
also Securities Exchange Act Release No. 57751 (May 1, 2008), 73 FR 
25818 (May 7, 2008) (SR-NYSEArca-2008-29) (order approving 
amendments to eligibility criteria for components of an index 
underlying Investment Company Units), in which the Commission noted 
that ``based on the trading characteristics of Derivative Securities 
Products, it may be difficult for component Derivative Securities 
Products to satisfy certain quantitative index criteria, such as the 
minimum market value and trading volume limitations. However, 
because Derivative Securities Products are themselves subject to 
specific initial and continued listing requirements, the Commission 
believes that it would be reasonable to exclude Derivative 
Securities Products, as components, from certain index component 
eligibility criteria for [Investment Company] Units.''
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    The Exchange also believes it is appropriate to exclude Derivative 
Securities Products and Index-Linked Securities from the requirement 
under NYSE Rule 5.2 (j)(6)(B)(I)(1)(b)(iv) that 90% of the applicable 
index's numerical value and at least 80% of the total number of 
component securities will meet the criteria for standardized option 
trading set forth in NYSE Arca Rule 5.3-O. NYSE Arca Rule 5.3-O 
includes criteria for securities underlying option contracts approved 
for listing and trading on NYSE Arca. The Exchange does not believe 
that criteria in NYSE Arca Rule 5.3-O should be applied to Derivative 
Securities Products and Index-Linked Securities because such securities 
are subject to separate numerical and other criteria included in the 
applicable exchange listing rules, including both generic listing rules 
permitting listing pursuant to Rule 19b-4(e) and non-generic listing 
rules. Derivative Securities Products and Index-Linked Securities that 
are the subject of a Commission approval order under Section 19(b) of 
the Act also are subject to specific representations made in the 
applicable Rule 19b-4 filing. These include representations regarding 
the existence of comprehensive surveillance agreements between the 
applicable exchange and the principal markets for certain financial 
instruments underlying Derivative Securities Products, or percentage 
limitations on assets (e.g., non-U.S. stocks, futures and options) 
whose principal market is not a member of the Intermarket Surveillance 
Group (``ISG'').\36\
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    \36\ See, e.g., Securities Exchange Act Release No. 76719 
(December 21, 2015), 80 FR 80859 (December 28, 2015) (order 
approving Exchange listing and trading of shares of the Guggenheim 
Total Return Bond ETF (``Fund'') under NYSE Arca Equities Rule 
8.600), which filing stated: ``Not more than 10% of the net assets 
of the Fund in the aggregate invested in equity securities (other 
than non-exchange-traded investment company securities) will consist 
of equity securities whose principal market is not a member of the 
ISG or is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement. In addition, not more 
than 10% of the net assets of the Fund in the aggregate invested in 
futures contracts or exchange-traded options contracts will consist 
of futures contracts or exchange-traded options contracts whose 
principal market is not a member of ISG or is a market with which 
the Exchange does not have a comprehensive surveillance sharing 
agreement.''
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    The Exchange believes it is appropriate to provide that the 
weighting limitation for the five highest weighted component securities 
in an index in NYSE Rules 5.2 (j)(6)(B)(I)(1)(b)(iii) and 5.2 
(j)(6)(B)(I)(2)(a)(i) would apply ``to the extent applicable.'' When 
considered in conjunction with the proposed amendment to NYSE Rule 5.2 
(j)(6)(B)(I)(1)(a) referenced above, this language would make clear 
that an index that includes Derivative Securities Products or Index-
Linked Securities may include fewer than five component securities. In 
addition, the phrase ``to the extent applicable'' is included in 
Supplementary Material .01(a)(A)(3) to NYSE Rule 5.2 (j)(3) for 
Investment Company Units and Supplementary Material .01(a)(1)(C) to 
NYSE Rule 8.600 for Managed Fund Shares.
    The proposed replacement of ``investment company units'' with 
``Investment Company Units'' in two places in NYSE Rule 5.2 
(j)(6)(B)(I)(1) is appropriate as such changes conform to other usages 
of this term in Exchange rules. The proposed replacement of the word 
``Index'' with ``index'' in two places in Rule 5.2 
(j)(6)(B)(I)(2)(a)(i) is appropriate as such changes would conform to 
other usages of this word in Rule 5.2 (j)(6)(B)(I)(2).
    The proposed amendment to NYSE Rule 8.700(c)(1) to specify that the 
trust issuing a series of Managed Trust Securities is not an investment 
company or similar entity makes clear that issuers of Managed Trust 
Securities are not investment companies under the 1940 Act, and, 
therefore, distinguishes issuances of Managed Trust Securities from, 
for example, Managed Fund Shares traded under NYSE Rule 8.600 or 
Investment Company Units traded under NYSE Rule 5.2(j)(3). In 
permitting the use of specified swaps, the proposed amendment to NYSE 
Rule 8.700 would provide additional flexibility to an issuer of Managed 
Trust Securities seeking to achieve its investment objective. 
Additionally, swaps would allow parties to replicate desired returns. 
As such, the increased flexibility afforded by the ability of an issuer 
of Managed Trust Securities to use swaps may enhance investor returns 
by facilitating the ability to more economically seek its investment 
objective, thereby reducing the costs incurred by such issuer. The 
Exchange's proposal to amend NYSE Rule 8.700(c)(1) to specify cash and 
cash equivalents as permitted trust holdings is appropriate in that 
such holdings would be held, as needed, to secure its trading 
obligations with respect to its positions in other financial 
instruments, and, therefore, may assist a trust in fulfilling its 
investment objective. Permitting the use of futures on currency indices 
and commodity indices would provide additional flexibility to an issuer 
of Managed Trust Securities seeking to achieve its investment objective 
by allowing such issuer to gain additional asset exposure to currencies 
and commodities. With respect to adding futures or swaps on VSTOXX to 
the financial instruments in which an issue of Managed Trust Securities 
may hold, the Exchange believes that the proposed amendment to will 
provide investors with the ability to better diversify and hedge their 
portfolios using an exchange traded security without having to trade 
directly in underlying futures contracts.
    The Exchange has in place surveillance procedures that are adequate 
to properly monitor trading in Investment Company Units, Index-Linked 
Securities and Managed Trust Securities in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws. Such procedures will continue to be adequate to 
properly monitor trading in Investment Company Units, Index-Linked 
Securities and Managed Trust Securities in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws following implementation of the rule changes proposed 
in this filing. Investment Company Units, Index-Linked Securities and 
Managed Trust Securities listed and traded pursuant to NYSE Rules 
5.2(j)(3), 5.2 (j)(6) and 8.700, respectively, are included within the 
definition of ``security'' or ``securities'' as such terms are used in 
the Exchange rules and, as such, are subject to Exchange rules and 
procedures that currently govern the trading of securities on the 
Exchange. Trading in the securities will be halted under the conditions 
specified in NYSE Rules 5.5(g)(2)(b), 5.2 (j)(6)(E) and 8.700(e)(2)(D), 
respectively.
    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

[[Page 61647]]

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 believes the 
proposed rule change will enhance competition by permitting Exchange 
trading of additional types of Units, Index-Linked Securities and 
Managed Trust Securities, which would enhance competition among market 
participants, to the benefit of investors and the marketplace.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \37\ and Rule 19b-4(f)(6) thereunder.\38\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\39\
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    \37\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \38\ 17 CFR 240.19b-4(f)(6).
    \39\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \40\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \40\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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 [email protected]. Please include 
File Number SR-NYSE-2017-69 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-NYSE-2017-69. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSE-2017-69 and should be submitted on 
or before January 18, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-28000 Filed 12-27-17; 8:45 am]
 BILLING CODE 8011-01-P