Document ID: SEC-2016-1876-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2016-10-20T04:00Z

[Federal Register Volume 81, Number 203 (Thursday, October 20, 2016)]
[Notices]
[Pages 72630-72636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25345]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79101; File No. SR-NYSEArca-2016-131]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of Shares of 
the Virtus Enhanced U.S. Equity ETF Under Commentary .01 to NYSE Arca 
Equities Rule 5.2(j)(3)

October 14, 2016.
    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 October 3, 2016, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade the shares of the Virtus 
Enhanced U.S. Equity ETF (the ``Fund''), a series of Virtus ETF Trust 
II (the ``Trust''), under Commentary .01 to NYSE Arca Equities Rule 
5.2(j)(3) (``Investment Company Units''). The proposed rule change is 
available on the Exchange's Web site at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
Virtus Enhanced U.S. Equity ETF (``Fund'') under Commentary .01 to NYSE 
Arca Equities Rule 5.2(j)(3), which governs the listing and trading of 
Investment Company Units on the Exchange.\4\ The Fund will be an index-
based exchange traded fund (``ETF''). The Shares will be offered by the 
Virtus ETF Trust II (the ``Trust''), which is registered with the 
Commission as an investment company and has filed a registration 
statement on Form N-1A (the ``Registration Statement'') with the 
Commission on behalf of the Fund.\5\
---------------------------------------------------------------------------

    \4\ NYSE Arca Equities Rule 5.2(j)(3)(A) provides that an 
Investment Company Unit is a security that represents an interest in 
a registered investment company that holds securities comprising, or 
otherwise based on or representing an interest in, an index or 
portfolio of securities (or holds securities in another registered 
investment company that holds securities comprising, or otherwise 
based on or representing an interest in, an index or portfolio of 
securities).
    \5\ See the Trust's registration statement on Form N-1A, dated 
September 1, 2016 (File Nos. 333-206600 and 811-23078). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement.
---------------------------------------------------------------------------

    The investment adviser to the Fund will be Virtus ETF Advisers LLC 
(the ``Adviser''). ETF Distributors LLC will serve as the distributor 
(the ``Distributor'') of Fund shares on an agency basis. The Bank of 
New York Mellon (the ``Administrator'') will be the administrator, 
custodian and transfer agent for the Fund.\6\
---------------------------------------------------------------------------

    \6\ The Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). See Investment Company Act 
Release No. 30825 (December 11, 2013) (File No. 812-14212) 
(``Exemptive Order''). Investments made by the Fund will comply with 
the conditions in the Exemptive Order.
---------------------------------------------------------------------------

Description of the Shares and the Fund
    As discussed in more detail below, the Fund's investment objective 
is to seek investment results that, before fees and expenses, closely 
correspond to the price and yield performance of the Rampart Enhanced 
U.S. Equity Index (the ``Index''). The Index was developed by Rampart 
Investment Management Company, LLC (the ``Index Provider''), and the 
Index is calculated and

[[Page 72631]]

maintained by NYSE Global Index Group (the ``Index Calculation 
Agent''). The Index Provider is affiliated with the Adviser and the 
Distributor. The Index Calculation Agent is not affiliated with the 
Adviser, Distributor, Administrator, or the Trust.
    Commentary .01(b)(1) to Rule 5.2(j)(3) provides that, if the 
applicable index is maintained by a fund advisor or a broker-dealer, 
such fund advisor or broker-dealer shall erect a ``fire wall'' around 
the personnel who have access to information concerning changes and 
adjustments to the index, and the index shall be calculated by a third 
party who is not a broker-dealer or fund advisor.\7\ The Index Provider 
is registered as an investment adviser, but does not serve as adviser 
or sub-adviser to the Fund, and is affiliated with one or more broker-
dealers. The Adviser is not registered as a broker-dealer. The Adviser 
and Index Provider are affiliated with one or more broker-dealers, and 
the Adviser and Index Provider each have implemented and will maintain 
a fire wall with respect to each such broker-dealer affiliate regarding 
access to information concerning the composition and/or changes to the 
portfolio and Index.\8\ In addition, Adviser personnel who make 
decisions regarding the Fund's portfolio are subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the Fund's portfolio.\9\
---------------------------------------------------------------------------

    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser are subject to the provisions of 
Rule 204A-1 under the Advisers Act relating to codes of ethics. This 
Rule requires investment advisers to adopt a code of ethics that 
reflects the fiduciary nature of the relationship to clients as well 
as compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act.
    \8\ The Adviser and the Index Provider have represented that a 
fire wall exists around the respective personnel who have access to 
information concerning changes and adjustments to the Index.
    \9\ The Exchange represents that the Adviser, and its related 
personnel, are subject to Advisers Act Rule 204A-1. This rule 
specifically requires the adoption of a code of ethics by an 
investment adviser to include, at a minimum: (i) Standards of 
business conduct that reflect the firm's/personnel fiduciary 
obligations; (ii) provisions requiring supervised persons to comply 
with applicable federal securities laws; (iii) provisions that 
require all access persons to report, and the firm to review, their 
personal securities transactions and holdings periodically as 
specifically set forth in Rule 204A-1; (iv) provisions requiring 
supervised persons to report any violations of the code of ethics 
promptly to the chief compliance officer (``CCO'') or, provided the 
CCO also receives reports of all violations, to other persons 
designated in the code of ethics; and (v) provisions requiring the 
investment adviser to provide each of the supervised persons with a 
copy of the code of ethics with an acknowledgement by said 
supervised persons. In addition, Rule 206(4)-7 under the Advisers 
Act makes it unlawful for an investment adviser to provide 
investment advice to clients unless such investment adviser has (i) 
adopted and implemented written policies and procedures reasonably 
designed to prevent violation, by the investment adviser and its 
supervised persons, of the Advisers Act and the Commission rules 
adopted thereunder; (ii) implemented, at a minimum, an annual review 
regarding the adequacy of the policies and procedures established 
pursuant to subparagraph (i) above and the effectiveness of their 
implementation; and (iii) designated an individual (who is a 
supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
---------------------------------------------------------------------------

    In the event (a) the Adviser or Index Provider becomes registered 
as a broker-dealer or newly affiliated with a broker-dealer, or (b) any 
new adviser or index provider is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement 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 designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio.
    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet all of the ``generic'' listing 
requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule 
5.2(j)(3), applicable to the listing of Investment Company Units based 
upon an index of ``US Component Stocks.'' \10\ Specifically, Commentary 
.01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) sets forth the 
requirements to be met by components of an index or portfolio of US 
Component Stocks. Because, as discussed in more detail herein, the 
Index may consist partially of options on the S&P 500 Index, rather 
than entirely US Component Stocks, the Index does not satisfy the 
requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule 
5.2(j)(3).\11\
---------------------------------------------------------------------------

    \10\ NYSE Arca Equities Rule 5.2(j)(3) provides that the term 
``US Component Stock'' shall mean an equity security that is 
registered under Sections 12(b) or 12(g) of the Act and an American 
Depositary Receipt, the underlying equity securities of which is 
registered under Sections 12(b) or 12(g) of the Act.
    \11\ The Exchange notes that the S&P 500 Index has been 
previously approved by the Commission under Section 19(b)(2) of the 
Act in connection with the listing and trading of index options and 
Portfolio Depositary Receipts, as well as other securities. See, 
e.g., Securities Exchange Act Release Nos. 19907 (June 24, 1983), 48 
FR 30814 (July 5, 1983) (SR-CBOE-83-8) (approving the listing and 
trading of options on the S&P 500 Index); 31591 (December 18, 1992), 
57 FR 60253 (December 18, 1992) (SR-Amex-92-18) (approving the 
listing and trading of Portfolio Depositary Receipts based on the 
S&P 500 Index). NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.01(a)(A)(5) provides that all securities in the applicable index or 
portfolio shall be US Component Stocks listed on a national 
securities exchange and shall be NMS Stocks as defined in Rule 600 
under Regulation NMS of the Act. Each component stock of the S&P 500 
Index is a US Component Stock that is listed on a national 
securities exchange and is an NMS Stock. Options are excluded from 
the definition of NMS Stock. The Fund and the Index meet all of the 
requirements of the listing standards for Investment Company Units 
in Rule 5.2(j)(3) and the requirements of Commentary .01, except the 
requirements in Commentary .01(a)(A)(1)-(5), as the Index consists 
of options on the S&P 500 Index. The S&P 500 Index consists of US 
Component Stocks and satisfies the requirements of Commentary 
.01(a)(A)(1)-(5).
---------------------------------------------------------------------------

    Except for the requirements of Commentary .01(a)(A) to NYSE Arca 
Equities Rule 5.2(j)(3), the Index meets all other requirements of 
Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3).
Virtus Enhanced U.S. Equity ETF
Index Methodology
    The Index is comprised of an equity portfolio enhanced by an 
``Options Strategy Overlay''. The equity portfolio is comprised of the 
largest 400 U.S. exchange-listed stocks as measured by market 
capitalization. The portfolio is market capitalization-weighted and is 
reconstituted and rebalanced on a quarterly basis. The Options Strategy 
Overlay uses an objective, rules-based methodology to transact in 
options linked to the S&P 500 Index (SPX). SPX options are traded on 
the Chicago Board Options Exchange. Each week, out of the money SPX put 
options and out of the money SPX call options are sold. The proceeds 
are used to buy an SPX call option. The strike prices of the options 
are systematically selected according to the prevailing volatility 
environment. In general, in higher volatility environments the short 
options will be struck farther out of the money.
Principal Investments of the Fund
    Under normal market conditions,\12\ the Fund will invest not less 
than 80% of its total assets in component securities of the Index. 
Additionally, under normal market conditions, the Fund will invest not 
less than 80% of its total assets in U.S. exchange-traded common 
stocks. The Fund will also seek

[[Page 72632]]

to generate additional income by writing SPX call options and will seek 
additional capital appreciation by purchasing SPX call options.
---------------------------------------------------------------------------

    \12\ The term ``normal market conditions'' is defined in NYSE 
Arca Equities Rule 8.600 (c)(5). On a temporary basis, including for 
defensive purposes, during the initial invest-up period and during 
periods of high cash inflows or outflows, the Fund may depart from 
its principal investment strategies; for example, it may hold a 
higher than normal proportion of its assets in cash. During such 
periods, the Fund may not be able to achieve its investment 
objectives. The Fund may adopt a defensive strategy when the Adviser 
believes securities in which the Fund normally invests have elevated 
risks due to political or economic factors and in other 
extraordinary circumstances.
---------------------------------------------------------------------------

Other Investments
    While the Fund, under normal market conditions will invest at least 
80% of its net assets 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 short-term, high quality securities issued 
or guaranteed by the U.S. government (in addition to U.S. Treasury 
securities) and non-U.S. governments, and each of their agencies and 
instrumentalities; debt securities issued by U.S. government sponsored 
enterprises; repurchase agreements backed by U.S. government and non-
U.S. government securities; money market mutual funds; and deposit and 
other obligations of U.S. and non-U.S. banks and financial institutions 
(``Money Market Instruments'').
    The Fund may invest in exchange-traded funds (``ETFs'').\13\
---------------------------------------------------------------------------

    \13\ The ETFs in which the Fund may invest are Investment 
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)), 
Portfolio Depositary Receipts (as described in NYSE Arca Equities 
Rule 8.100), and Managed Fund Shares (as described in NYSE Arca 
Equities Rule 8.600). The Fund will not invest in leveraged ETFs 
(e.g., 2X or 3X) or inverse or inverse leveraged ETFs (e.g., -1X or 
-2X).
---------------------------------------------------------------------------

    The Fund may invest in U.S. exchange-traded equity index futures 
contracts.
    The Fund may invest in U.S. exchange-traded index options (other 
than SPX) and U.S. exchange-traded options on ETFs.
    The Fund may invest in U.S. exchange-traded options on futures 
contacts and U.S. exchange-traded options on stocks.
Investment Restrictions
    The Fund will not invest in any non-U.S. equity securities. The 
Fund's investments will be consistent with the Fund's investment 
objective and will not be used to enhance leverage.\14\
---------------------------------------------------------------------------

    \14\ The Fund will include appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of a fund, including a fund's use 
of derivatives, may give rise to leverage, causing a fund to be more 
volatile than if it had not been leveraged. To mitigate leveraging 
risk, the Adviser will segregate or earmark liquid assets or 
otherwise cover the transactions that give rise to such risk. See 15 
U.S.C. 80a-18; Investment Company Act Release No. 10666 (April 18, 
1979), 44 FR 25128 (April 27, 1979); Dreyfus Strategic Investing, 
Commission No-Action Letter (June 22, 1987); Merrill Lynch Asset 
Management, L.P., Commission No-Action Letter (July 2, 1996).
---------------------------------------------------------------------------

    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\15\
---------------------------------------------------------------------------

    \15\ 26 U.S.C. 851.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at net 
asset value (``NAV''),\16\ only in large blocks of Shares (``Creation 
Units''), in transactions with ``Authorized Participants'' (as 
described below). Creation Units generally will consist of 50,000 
Shares, though the size of a Creation Unit may change from time to 
time.
---------------------------------------------------------------------------

    \16\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m. 
Eastern Time (``E.T.'') (the ``NAV Calculation Time''). NAV per 
Share will be calculated by dividing the Fund's net assets by the 
number of Fund Shares outstanding.
---------------------------------------------------------------------------

    The consideration for purchase of a Creation Unit of the Fund 
generally will consist of either (i) the in-kind deposit of a 
designated portfolio of securities (the ``Deposit Securities'') per 
Creation Unit and the ``Cash Component'' (defined below), computed as 
described below, or (ii) the cash value of the Deposit Securities 
(``Deposit Cash'') and the ``Cash Component,'' computed as described 
below. Because certain listed derivatives are not currently eligible 
for in-kind transfer, they will be substituted with an amount of cash 
of equal value (i.e., Deposit Cash) when the Fund processes purchases 
of Creation Units in-kind. Specifically, the Fund will not accept 
exchange-traded options as Deposit Securities.
    When accepting purchases of Creation Units for cash, the Fund may 
incur additional costs associated with the acquisition of Deposit 
Securities that would otherwise be provided by an in-kind purchase. 
Together, the Deposit Securities or Deposit Cash, as applicable, and 
the Cash Component constitute the ``Fund Deposit,'' which represents 
the minimum initial and subsequent investment amount for a Creation 
Unit of the Fund. The Cash Component is an amount equal to the 
difference between the NAV of the Shares (per Creation Unit) and the 
market value of the Deposit Securities or Deposit Cash, as applicable. 
The Cash Component serves the function of compensating for any 
difference between the NAV per Creation Unit and the market value of 
the Deposit Securities or Deposit Cash, as applicable.
    A portfolio composition file, to be sent via the National 
Securities Clearing Corporation (``NSCC''), will be made available on 
each business day, prior to the opening of business on the Exchange 
(currently 9:30 a.m. E.T.) containing a list of the names and the 
required amount of each security in the Deposit Securities to be 
included in the current Fund Deposit for the Fund (based on information 
about the Fund's portfolio at the end of the previous business day). In 
addition, on each business day, the estimated Cash Component, effective 
through and including the previous business day, will be made available 
through NSCC.
    The Fund Deposit will be applicable for purchases of Creation Units 
of the Fund until such time as the next-announced Fund Deposit is made 
available.
    All purchase orders must be placed by an ``Authorized 
Participant.'' An Authorized Participant must be either a broker-dealer 
or other participant in the Continuous Net Settlement System 
(``Clearing Process'') of the NSCC or a participant in The Depository 
Trust Company (``DTC'') with access to the DTC system, and must execute 
an agreement with the Distributor that governs transactions in the 
Fund's Creation Units. In-kind portions of purchase orders will be 
processed though the Clearing Process when it is available.
    Shares of the Fund may be redeemed only in Creation Units at their 
NAV next determined after receipt of a redemption request in proper 
form by the Fund through the Distributor and only on a business day. 
The Fund, through the NSCC, will make available immediately prior to 
the opening of business on each business day, the list of the names and 
quantities of the Fund's portfolio securities that will be applicable 
(subject to possible amendment or correction) to redemption requests 
received in proper form on that day (``Fund Securities''). Redemption 
proceeds for a Creation Unit will be paid either in-kind or in cash or 
a combination thereof, as determined by the Trust. With respect to in-
kind redemptions of the Fund, redemption proceeds for a Creation Unit 
will consist of Fund Securities 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 Fund Securities (the ``Cash Redemption Amount''). In the event 
that the Fund Securities have a value greater than the NAV of the 
Shares, a compensating cash payment equal to the differential will be 
required to be made by or through an Authorized Participant by the 
redeeming shareholder. Notwithstanding the foregoing, at the

[[Page 72633]]

Trust's discretion, an Authorized Participant may receive the 
corresponding cash value of the securities in lieu of the in-kind 
securities representing one or more Fund Securities.\17\
---------------------------------------------------------------------------

    \17\ The Adviser represents that, to the extent the Trust 
effects the redemption of Shares in cash, such transactions will be 
effected in the same manner for all Authorized Participants.
---------------------------------------------------------------------------

    The right of redemption may be suspended or the date of payment 
postponed: (i) For any period during which the NYSE is closed (other 
than customary weekend and holiday closings); (ii) for any period 
during which trading on the NYSE is suspended or restricted; (iii) for 
any period during which an emergency exists as a result of which 
disposal of the Shares or determination of the Fund's NAV is not 
reasonably practicable; or (iv) in such other circumstances as 
permitted by the Commission.
    For an order involving a Creation Unit to be effectuated at the 
Fund's NAV on a particular day, it must be received by the Distributor 
by or before the deadline for such order (``Order Cut-Off Time''). The 
Order Cut-Off Time for creation and redemption orders for the Fund will 
be 4:00 p.m. E.T. Order for creations or redemptions of Creation Units 
for cash generally must be submitted by 4:00 p.m. E.T. A standard 
creation or redemption transaction fee (as applicable) will be imposed 
to offset transfer and other transaction costs that may be incurred by 
the Fund.
    The Fund Securities received on a redemption will generally 
correspond pro rata, to the extent practicable, to the securities in 
the Fund's portfolio. Fund Securities received on redemption may not be 
identical to Deposit Securities that are applicable to creations of 
Creation Units.
    Because certain listed derivatives are not eligible for in-kind 
transfer, they will be substituted with an amount of cash of equal 
value when the Fund processes redemptions of Creation Units in-kind. 
Specifically, the Fund will transfer the corresponding cash value of 
exchange-traded options in lieu of in-kind securities.
Net Asset Value
    The Fund will calculate its NAV at the close of the Exchange's Core 
Trading Session \18\ of each business day (normally 4:00 p.m. E.T.) 
using the values of the Fund's portfolio securities. The Fund will 
calculate its NAV by: (i) Taking the current market value of its total 
assets; (ii) subtracting any liabilities; and (iii) dividing that 
amount by the total amount of Shares outstanding.
---------------------------------------------------------------------------

    \18\ The Core Trading Session is 9:30 a.m. to 4:00 p.m. E.T.
---------------------------------------------------------------------------

    In valuing its securities, the Fund will use market quotes or 
official closing prices if they are readily available. In cases where 
quotes are not readily available, the Fund may value securities based 
on fair values developed using methods approved by the Fund's Board of 
Trustees (``Board''), as discussed below. When valuing Money Market 
Instruments with remaining maturities of 60 days or less, the Fund may 
use the security's amortized cost, which approximates the security's 
market value.
    ETFs, index options, options on ETFs, equity index futures 
contracts, options on futures contracts, and options on stocks will be 
valued at the last reported sale price or the official closing price on 
that exchange where the security or other instrument is primarily 
traded on the day that the valuation is made. With respect to 
derivative instruments, if, however, neither the last sales price nor 
the official closing price is available, each of these derivative 
instruments will be valued based on the midpoint of bid-ask prices.
    Money Market Instruments (except for money market mutual funds) 
will generally be valued based on the midpoint of bid-ask prices 
received from independent pricing services as of the announced closing 
time for trading in fixed-income instruments in the market in which 
they trade. In determining the value of such a Money Market Instrument, 
pricing services determine valuations for normal institutional-size 
trading units of such securities using valuation models or matrix 
pricing, which incorporates yield and/or price with respect to bonds 
that are considered comparable in characteristics such as rating, 
interest rate and maturity date and quotations from securities dealers 
to determine current value. Money market mutual funds will be valued at 
their respective NAV.
Availability of Information
    The Fund's Web site (www.virtus.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Web site 
will include additional quantitative information updated on a daily 
basis, including, for the Fund: (1) The prior business day's reported 
NAV, mid-point of the bid/ask spread at the time of calculation of such 
NAV (the ``Bid/Ask Price''),\19\ and a calculation of the premium and 
discount of the Bid/Ask Price against the NAV; and (2) data in chart 
format displaying the frequency distribution of discounts and premiums 
of the daily Bid/Ask Price against the NAV, within appropriate ranges, 
for each of the four previous calendar quarters.
---------------------------------------------------------------------------

    \19\ The Bid/Ask Price of the Fund's Shares will be determined 
using the midpoint of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Fund's NAV. The 
records relating to Bid/Ask Prices will be retained by the Fund and 
its service providers.
---------------------------------------------------------------------------

    On each business day, before commencement of trading in Shares in 
the Core Trading Session on the Exchange, the Trust will disclose on 
its Web site the following information regarding each portfolio 
holding, as applicable to the type of holding: Ticker symbol, CUSIP 
number or other identifier, if any; a description of the holding 
(including the type of holding); the identity of the security, index or 
other asset or instrument underlying the holding, if any; for options, 
the option strike price; quantity held (as measured by, for example, 
par value, notional value or number of shares, contracts or units); 
maturity date, if any; coupon rate, if any; market value of the 
holding; and the percentage weighting of the holding in the Fund's 
portfolio. The Web site information will be publicly available at no 
charge.
    In addition, a portfolio composition file, which will include the 
security names and quantities of securities and other assets required 
to be delivered in exchange for the Fund's Shares, together with 
estimates and actual cash components, will be publicly disseminated 
prior to the opening of the Exchange via the NSCC. The portfolio will 
represent one Creation Unit of the Fund. Authorized Participants may 
refer to the portfolio composition file for information regarding 
options, short-term U.S. Treasury Securities, Money Market Instruments, 
and any other instrument that may comprise the Fund's portfolio on a 
given day.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports will be available free upon request from the Trust, and those 
documents and the Form N-CSR may be viewed on screen or downloaded from 
the Commission's Web site at www.sec.gov.
    Information regarding market price and trading volume for the 
Shares will be continually available on a real-time basis throughout 
the day on brokers'

[[Page 72634]]

computer screens and other electronic services. Information regarding 
the previous day's closing price and trading volume information for the 
Shares will be published daily in the financial section of newspapers. 
Quotation and last sale information for the Shares and U.S. exchange-
traded common stocks will be available via the Consolidated Tape 
Association (``CTA'') high-speed line. Quotation and last sale 
information for U.S. exchange-listed options contracts cleared by The 
Options Clearing Corporation will be available via the Options Price 
Reporting Authority.
    In addition, the value of the Index will be published by one or 
more major market data vendors every 15 seconds during the Core Trading 
Session. In addition, the Intraday Indicative Value (``IIV'') as 
defined in NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(c) will be 
widely disseminated at least every 15 seconds during the Core Trading 
Session by one or more major market vendors.\20\ All Fund holdings will 
be included in calculating the IIV.
---------------------------------------------------------------------------

    \20\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIV's 
taken from the CTA or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the IIV is intended to allow investors to 
determine the value of the underlying portfolio of the Fund on a daily 
basis and to approximate that value throughout the trading day. The 
intra-day, closing and settlement prices of the portfolio securities 
and other Fund investments, including common stocks and options, will 
also be readily available from the exchanges trading such instruments, 
automated quotation systems, published or other public sources. The 
intra-day, closing and settlement prices of Money Market Instruments 
will be readily available from published and other public sources or 
on-line information services.
Initial and Continued Listing
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2), except 
that the Index will not meet the requirements of NYSE Arca Equities 
Rule 5.2(j)(3), Commentary .01(a)(A)(1-5) in that the Index will 
include options. The Exchange represents that, for initial and/or 
continued listing, the Fund must be in compliance with Rule 10A-3 \21\ 
under the Act. A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \21\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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 a Fund. Shares of the Fund will be halted if 
the ``circuit breaker'' parameters in NYSE Arca Equities Rule 7.12 are 
reached. Trading 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 of the 
Fund; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.
    If the IIV, Index value or the value of the Index components is not 
being disseminated as required, the Exchange may halt trading during 
the day in which the disruption occurs; if the interruption persists 
past the day in which it occurred, the Exchange will halt trading no 
later than the beginning of the trading day following the interruption. 
The Exchange will obtain a representation from the Fund that the NAV 
for the Fund will be calculated daily and will be made available to all 
market participants at the same time. Under NYSE Arca Equities Rule 
7.34(a)(5), if the Exchange becomes aware that the NAV for the Fund is 
not being disseminated to all market participants at the same time, it 
will halt trading in the Shares until such time as the NAV is available 
to all market participants.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
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 the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\22\ 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.
---------------------------------------------------------------------------

    \22\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    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, ETFs, options 
and futures with 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, ETFs, options and futures from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, ETFs, options and futures 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.\23\ The Exchange is able to access from FINRA, as needed, 
trade information for certain fixed income securities held by the Fund 
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \23\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.

---------------------------------------------------------------------------

[[Page 72635]]

    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 
rules and surveillance procedures 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 Equities Rule 5.5(m).
Information Bulletin
    Prior to the commencement of trading of Shares in the Fund, the 
Exchange will inform its ETP Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit aggregations (and that Shares are not individually 
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated IIV or Index value will not be calculated or 
publicly disseminated; (4) how information regarding the IIV and Index 
value will be disseminated; (5) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (6) 
trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \24\ in general and Section 6(b)(5) of the Act \25\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
---------------------------------------------------------------------------

    \24\ 15 U.S.C. 78f.
    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
5.2(j)(3), except that the Index will partially consist of options on 
the S&P 500 Index. The Exchange believes that its surveillance 
procedures are adequate to properly monitor the trading of the Shares 
on the Exchange during all trading sessions and to deter and detect 
violations of Exchange rules and the applicable federal securities 
laws.
    The 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 every day the 
NYSE is open, and that the NAV will be made available to all market 
participants at the same time. In addition, a large amount of publicly 
available information will be publicly available regarding the Fund and 
the Shares, thereby promoting market transparency. The Index consists 
entirely of US Component Stocks and SPX options, which are traded on 
the Chicago Board Options Exchange.
    Moreover, the IIV will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Core Trading Session. Information regarding market price and trading 
volume of the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and quotations and last sale information will be available 
via the CTA high-speed line. Quotation and last sale information for 
the Shares, ETFs, and U.S. exchange traded common stocks will be 
available via the CTA high-speed line. Quotation and last sale 
information for U.S. exchange-listed options contracts cleared by The 
Options Clearing Corporation will be available via the Options Price 
Reporting Authority. The intra-day, closing and settlement prices of 
exchange-traded portfolio assets, including common stocks and options 
will be readily available from the securities exchanges trading such 
securities, automated quotation systems, published or other public 
sources, or online information services such as Bloomberg or Reuters. 
The Fund's Web site, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. On each business day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Trust will disclose on its Web site the following 
information regarding each portfolio holding, as applicable to the type 
of holding: Ticker symbol, CUSIP number or other identifier, if any; a 
description of the holding (including the type of holding); the 
identity of the security, index or other asset or instrument underlying 
the holding, if any; for options, the option strike price; quantity 
held (as measured by, for example, par value, notional value or number 
of shares, contracts or units); maturity date, if any; coupon rate, if 
any; market value of the holding; and the percentage weighting of the 
holding in the Fund's portfolio. In addition, a portfolio composition 
file, which will include the security names and quantities of 
securities and other assets required to be delivered in exchange for 
the Fund's Shares, together with estimates and actual cash components, 
will be publicly disseminated prior to the opening of the Exchange via 
the NSCC. Authorized Participants may refer to the portfolio 
composition file for information regarding options, short-term U.S. 
Treasury Securities, Money Market Instruments, and any other instrument 
that may comprise the Fund's portfolio on a given day. Moreover, prior 
to commencement of trading, the Exchange will inform its ETP Holders in 
an Information Bulletin of the special characteristics and risks 
associated with trading the Shares. Trading in Shares of the Fund will 
be halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached or because of market conditions or for reasons 
that, in the view of the Exchange, make trading the Shares inadvisable. 
In addition, as noted above, investors will have ready access to 
information regarding the Fund's

[[Page 72636]]

holdings, the IIV, the Fund's portfolio, and quotation and last sale 
information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Shares will be subject to the 
existing trading surveillances administered by the Exchange and FINRA 
on behalf of the Exchange. The Exchange or FINRA, on behalf of the 
Exchange, or both, will communicate as needed regarding trading in the 
Shares, US Component Stocks and options with other markets and other 
entities that are members of ISG, and the Exchange and FINRA, on behalf 
of the Exchange, or both, may obtain trading information in the Shares, 
US Component Stocks and options from such markets and other entities. 
In addition, the Exchange may obtain information regarding trading in 
the Shares, US Component Stocks and options 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, as 
noted above, investors will have ready access to information regarding 
the Fund's holdings, the IIV, and quotation and last sale information 
for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will facilitate the listing and trading of an 
additional type of exchange-traded fund that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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

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

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

    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-2016-131 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-2016-131. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-131 and should 
be submitted on or before November 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
---------------------------------------------------------------------------

    \26\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-25345 Filed 10-19-16; 8:45 am]
 BILLING CODE 8011-01-P