Document ID: SEC-2018-1563-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2018-10-10T04:00Z

[Federal Register Volume 83, Number 196 (Wednesday, October 10, 2018)]
[Notices]
[Pages 51027-51030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-21901]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84348; File No. SR-NYSEArca-2018-57]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment Nos. 4 and 
6, To List and Trade Shares of the Amplify BlackSwan Growth & Treasury 
Core ETF Under Commentary .02 to NYSE Arca Rule 5.2-E(j)(3)

October 3, 2018.

I. Introduction

    On July 31, 2018, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade shares (``Shares'') of the Amplify BlackSwan Growth & 
Treasury Core ETF (``Fund'') under Commentary .02 to NYSE Arca Rule 
5.2-E(j)(3). On August 10, 2018, the Exchange filed Amendment No. 1 to 
the proposed rule change, which replaced and superseded the original 
filing in its entirety. The proposed rule change, as modified by 
Amendment No. 1, was published for comment in the Federal Register on 
August 20, 2018.\3\ On September 10, 2018, the Exchange filed Amendment 
No. 2 to the proposed rule change, which replaced and superseded the 
proposed rule change, as modified by Amendment No. 1, in its entirety. 
On September 24, 2018, the Exchange filed Amendment No. 3 to the 
proposed rule change. On September 28, 2018, the Exchange filed 
Amendment No. 4 to the proposed rule change, which replaced and 
superseded the proposed rule change, as modified by Amendment Nos. 1, 
2, and 3, in its entirety.\4\ On October 1, 2018, the Exchange 
submitted and withdrew Amendment No. 5 to the proposed rule change. On 
October 1, 2018, the Exchange also filed Amendment No. 6 to the 
proposed rule change.\5\ The Commission received no comments on the 
proposed rule change. This order grants approval of the proposed rule 
change, as modified by Amendment Nos. 4 and 6.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83845 (August 14, 
2018), 83 FR 42188 (``Notice'').
    \4\ In Amendment No. 4, the Exchange: (i) Amended the 
description of the Fund's sub-advisers, the Index Provider (as 
defined below), and the Index Committee (as defined below); (ii) 
represented that the Index Provider has implemented and will 
maintain procedures designed to prevent the use and dissemination of 
material non-public information regarding the Index (as defined 
below); (iii) amended the name of the Index; (iv) stated that the 
Exchange believes that surveillances by other exchanges on which SPY 
LEAPS trade should help to protect against market manipulation of 
the Fund's Shares and SPY LEAPS; (v) clarified that statements and 
representations in the filing regarding the description of, or 
limitations on, the Index shall constitute continued listing 
requirements for listing the Shares of the Fund on the Exchange; 
(vi) stated that the value of the Index will be widely disseminated 
by one or more major market data vendors at least once per day; 
(vii) clarified the availability of certain information on the 
Fund's website; and (viii) made certain technical and conforming 
changes. Amendment No. 4 to the proposed rule change is available 
at: https://www.sec.gov/comments/sr-nysearca-2018-57/nysearca201857.htm. Amendment No. 4 is not subject to notice and 
comment because it does not materially alter the substance of the 
proposed rule change or raise unique or novel regulatory issues.
    \5\ In Amendment No. 6, the Exchange: (i) Clarified that the 
Index Provider is not registered as an investment adviser and is not 
affiliated with an investment adviser; and (ii) made certain 
technical and conforming changes. Amendment No. 6 to the proposed 
rule change is available at: https://www.sec.gov/comments/sr-nysearca-2018-57/nysearca201857.htm. Amendment No. 6 is not subject 
to notice and comment because it does not materially alter the 
substance of the proposed rule change or raise unique or novel 
regulatory issues.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
Nos. 4 and 6 6
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    \6\ For more information regarding the Fund and the Shares, see 
Amendment No. 4, supra note 4 and Amendment No. 6, supra note 5.
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    The Exchange proposes to list and trade the Shares under Commentary 
.02 to NYSE Arca Rule 5.2-E(j)(3), which governs the listing and 
trading of Investment Company Units on the Exchange. The Fund will be 
an index-based exchange traded fund (``ETF''). The Shares will be 
offered by the Amplify ETF Trust (``Trust''), which is registered with 
the Commission as an investment company and has filed a registration 
statement on Form N-1A (``Registration Statement'') with the Commission 
on behalf of the Fund.\7\
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    \7\ The Exchange states that, on June 26, 2018, the Trust filed 
a Registration Statement on Form N-1A on behalf of the Fund (File 
Nos. 333-207937 and 811-23108). In addition, the Exchange states 
that the Commission has issued an order granting certain exemptive 
relief to the Trust under the Investment Company Act of 1940 Act. 
See Investment Company Act Release No. 31822 (September 14, 2015) 
(File No. 812-14424).
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    Amplify Investments LLC will be the Fund's investment adviser 
(``Adviser''). CSAT Investment Advisory, L.P., d/b/a Exponential ETFs 
and ARGI Investment Services LLC will be the Fund's sub-advisers 
(``Sub-Advisers'').\8\ U.S. Bancorp Fund Services, LLC will be the 
administrator, custodian, and fund accounting and transfer agent for 
the Fund. Quasar Distributors LLC will serve as the distributor for the 
Fund.
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    \8\ The Exchange represents that the Adviser is not registered 
as a broker-dealer but is affiliated with a broker-dealer and has 
implemented and will maintain a fire wall with respect to its 
broker-dealer affiliate regarding access to information concerning 
the composition of and/or changes to the Fund's portfolio. The 
Exchange represents that the Sub-Advisers are not registered as a 
broker-dealer or affiliated with a broker-dealer. The Exchange 
further represents that, in the event (a) the Adviser or a Sub-
Adviser becomes registered as a broker-dealer or newly affiliated 
with a broker-dealer, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, 
it will implement and maintain a fire wall with respect to its 
relevant personnel or its broker-dealer affiliate regarding access 
to information concerning the composition of 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 
the portfolio.
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A. The Fund's Underlying Index

    According to the Exchange, the Fund will seek investment results 
that generally correspond (before fees and expenses) to the price and 
yield of the S-Network BlackSwan Core Total Return Index (``Index''). 
The Index was created and is maintained by S-Network Global Networks, 
Inc. (``Index Provider'').\9\ The Index is also compiled and calculated 
by the Index Provider.
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    \9\ According to the Exchange, the Index Provider is not 
registered as an investment adviser or broker-dealer and is not 
affiliated with an investment adviser or broker-dealer. The Exchange 
states that the Index Provider has implemented and will maintain 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the Index. In addition, the 
Exchange states that the Index Provider is not affiliated with the 
Fund, the Adviser, or the Sub-Advisers.
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    According to the Exchange, the Index is a rules-based, quantitative 
index that seeks to provide capital protection against the 
unpredictable, rare, and highly disruptive events that have come to be 
referred to as ``Black Swans.'' The Index endeavors to provide 
investment returns that correspond to those of the

[[Page 51028]]

S&P 500 Index, while mitigating against significant losses.
    The Index is composed of U.S. Treasury securities and long-dated 
call options (``LEAPS'') \10\ on the SPDR S&P 500 ETF Trust (``SPY'') 
\11\ (which options are referred to herein as ``SPY LEAPS''). Twice a 
year, in June and December, on the Index reconstitution and rebalance 
date, the Index places 90% of its index market capitalization in the 
portfolio of U.S. Treasury securities and 10% of its index market 
capitalization in the portfolio of SPY LEAPS. The U.S. Treasury 
portfolio of the Index is composed of 2-, 3-, 5-, 7-, 10-, and 30-year 
U.S. Treasury securities that cumulatively provide a portfolio duration 
that matches the initial duration of the 10-year U.S. Treasury 
security.\12\ The SPY LEAPS portfolio of the Index is composed of in-
the-money SPY LEAPS that, at the time of purchase, have expirations of 
at least one year and one day in the future and expire in either June 
or December, as applicable.\13\
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    \10\ LEAPS are long-term options traded on U.S. options 
exchanges.
    \11\ Shares of SPY are listed and traded on the Exchange.
    \12\ The Exchange states that the treasury position holds 5% of 
its allocated portion of Index market capitalization in a 
``barbell'' portfolio of 2- and 30-year treasuries, and 95% of its 
allocated portion of Index market capitalization in a core portfolio 
that invests in 3-, 5-, 7-, 10-, and 30-year treasuries.
    \13\ The Exchange states that the SPY LEAPS will generally have 
a delta of 70 at the time of purchase, and should there not be a 70-
delta option, the closest option above 70 will be utilized. The 
Exchange states that the options portion of the Index holds 5% of 
the Index market capitalization in June 70-delta SPY LEAPS and 5% in 
December 70-delta SPY LEAPS. At each June reconstitution, the Index 
liquidates its existing June SPY LEAPS and purchases SPY LEAPS that 
expire the following June. The December SPY LEAPS positions will 
remain unchanged at each June reconstitution. At each December 
reconstitution, the Index liquidates its existing December SPY LEAPS 
and purchases SPY LEAPS that expire the following December. The June 
SPY LEAPS positions will remain unchanged at each December 
reconstitution. Net gains or losses derived from the reconstitutions 
of the SPY LEAPS positions will be added to or subtracted from the 
U.S. Treasury portfolio at each reconstitution.
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    The Index is governed by a committee (``Index Committee'') that is 
responsible for overseeing the activities of the Index Provider and 
approving all changes to the Index related to its semi-annual 
reconstitutions and rebalances. According to the Exchange, all members 
of the Index Committee and their advisors must comply with the Index 
Provider's code of conduct and ethics with respect to the disclosure 
and use of material non-public information.

B. The Fund's Principal Investments

    Under normal market conditions,\14\ the Fund will invest at least 
80% of its total assets in the securities that comprise the Index, 
which, as described above, are U.S. Treasury securities and SPY LEAPS.
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    \14\ The term ``normal market conditions'' is as that term is 
defined in NYSE Arca Rule 8.600-E(c)(5).
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C. The Fund's Non-Principal Investments

    While, under normal market conditions, the Fund will invest at 
least 80% of its total assets in securities that comprise the Index, 
the Fund may also hold cash and cash equivalents.\15\
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    \15\ The term ``cash equivalents'' has the meaning specified in 
Commentary .01(c) to NYSE Arca Rule 8.600-E.
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D. Application of Generic Listing Requirements

    The Exchange represents that it has submitted the proposed rule 
change because the Index does not meet all of the generic listing 
requirements of Commentary .02(a) to NYSE Arca Rule 5.2-E(j)(3). 
Specifically, because the Index includes SPY LEAPS, the Index does not 
satisfy the requirement set forth in Commentary .02(a)(1) to NYSE Arca 
Rule 5.2-E(j)(3), which states that the index or portfolio underlying a 
series of Investment Company Units must consist of (i) only Fixed 
Income Securities \16\ or (ii) Fixed Income Securities and cash. The 
Exchange represents that, with the exception of the requirement in 
Commentary .02(a)(1) to NYSE Arca Rule 5.2-E(j)(3), the Index and the 
Fund will meet each of the initial and continued listing criteria in 
NYSE Arca Rule 5.2-E(j)(3) and NYSE Arca Rule 5.5-E(g)(2).
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    \16\ Commentary .02 to NYSE Arca Rule 5.2-E(j)(3) states that 
``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, government-
sponsored entity securities, municipal securities, trust preferred 
securities, supranational debt and debt of a foreign country or a 
subdivision thereof.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment Nos. 4 and 6, is consistent with the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\17\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment Nos. 4 and 6, is 
consistent with Section 6(b)(5) of the Act,\18\ which requires, among 
other things, that the Exchange's rules be 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 a national market system and, 
in general, to protect investors and the public interest.
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    \17\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
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    As discussed above, the Shares do not qualify for generic listing 
under Commentary .02 to NYSE Arca Rule 5.2-E(j)(3) because the Index 
includes SPY LEAPS. The Commission notes that the Exchange represents 
that, other than Commentary .02(a)(1) to NYSE Arca Rule 5.2-E(j)(3), 
the Shares will meet the initial and continued listing criteria under 
NYSE Arca Rules 5.2-E(j)(3) and 5.5-E(g)(2). The Commission also notes 
that SPY LEAPS are traded on U.S. options exchanges, SPY is listed and 
traded on the Exchange, and SPY is based on the S&P 500 Index.\19\
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    \19\ The Exchange also notes that the S&P 500 Index would meet 
the generic listing standards applicable to an index composed of 
U.S. Component Stocks in Commentary .01(a) to NYSE Arca Rule 5.2-
E(j)(3).
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\20\ which sets forth Congress's 
finding that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in 
securities.
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    \20\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Quotation and last sale information for the Shares will be 
available via the Consolidated Tape Association high-speed line. 
Information regarding market price and trading volume for the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. In addition, the Intraday Indicative Value 
(``IIV'') (as defined in NYSE Arca Rule 5.2-E(j)(3), Commentary .02(c)) 
will be widely disseminated at least every 15 seconds during the Core 
Trading Session by one or more major market data vendors.\21\ The value 
of the Index will be widely disseminated by one or more major market 
data vendors at least once per day. Information about the Index 
constituents, the weighting of the

[[Page 51029]]

constituents, the Index's methodology, and the Index's rules will be 
available on the Index Provider's website. Quotation and last sale 
information for SPY LEAPS will be available from the exchange on which 
they are traded and through the Options Price Reporting Authority. The 
intraday, closing, and settlement prices of exchange-traded options 
also will be available from the options exchanges, automated quotation 
systems, published or other public sources, or online information 
services. Price information on U.S. Treasury securities and cash 
equivalents will be available from major broker-dealer firms or market 
data vendors, automated quotation systems, published or other public 
sources, or online information services.
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    \21\ The Exchange states that all Fund holdings will be included 
in calculating the IIV.
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    The Fund's website, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund and additional data relating to the net asset value (``NAV'') 
and other applicable quantitative information. On each business day, 
before commencement of trading in Shares in the Core Trading Session on 
the Exchange, the Fund will disclose on its website information 
regarding each portfolio holding of the Fund. 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 National Securities Clearing Corporation.
    The Commission also believes that the proposal is reasonably 
designed to promote fair disclosure of information that may be 
necessary to price the Shares appropriately and to prevent trading when 
a reasonable degree of transparency cannot be assured. Trading in 
Shares of the Fund will be halted if the circuit breaker parameters in 
NYSE Arca Rule 7.12-E 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, trading in the Shares will be subject 
to NYSE Arca Rule 5.5-E(g)(2)(b), which sets forth circumstances under 
which Shares of the Fund may and/or will be halted. The Exchange will 
obtain a representation from the issuer of the Shares that the NAV will 
be calculated daily every day the New York Stock Exchange is open and 
that the NAV will be made available to all market participants at the 
same time. Under NYSE Arca Rule 7.18-E(d)(2), if the Exchange becomes 
aware that the NAV is not being disseminated to all market participants 
at the same time, it will halt trading until such time as the NAV is 
available to all market participants.
    In support of this proposal, the Exchange represents that:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rules 5.2-E(j)(3) and 5.5(E)(g)(2), except 
that the Index will not meet the requirements of NYSE Arca Rule 5.2-
E(j)(3), Commentary .02(a)(1) in that the Index will include SPY LEAPS.
    (2) The Shares will comply with all other requirements applicable 
to Investment Company Units, including the dissemination of key 
information such as the Index value, the NAV, and the IIV, rules 
governing the trading of equity securities, trading hours, trading 
halts, firewalls for the Index Provider, Adviser and Sub-Advisers, 
surveillance, and the Information Bulletin, as set forth in Exchange 
rules applicable to Investment Company Units and the orders approving 
such rules.
    (3) The Shares will be subject to the existing trading 
surveillances administered by the Exchange and Financial Industry 
Regulatory Authority (``FINRA'') on behalf of the Exchange, which are 
designed to deter and detect violations of Exchange rules and 
applicable federal securities laws relating to trading on the 
Exchange.\22\
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    \22\ The Exchange states that FINRA conducts cross-market 
surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement, and that the Exchange is responsible for FINRA's 
performance under this regulatory services agreement.
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    (4) The Exchange, or FINRA on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and SPY LEAPS 
with other markets and other entities that are members of the 
Intermarket Surveillance Group (``ISG''), and the Exchange, or FINRA on 
behalf of the Exchange, or both, may obtain trading information 
regarding trading in the Shares and SPY LEAPS from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and SPY LEAPS from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Moreover, FINRA, 
on behalf of the Exchange, is able to access, as needed, trade 
information for certain fixed income securities held by the Fund 
reported to FINRA's Trade Reporting and Compliance Engine.
    (5) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares.
    (6) The Fund's investments will be consistent with its investment 
objective and will not be used to enhance leverage. The Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (e.g., 2x or -2x) of the Index.
    (7) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act.\23\
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    \23\ 17 CFR 240.10A-3.
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    (8) A minimum of 100,000 Shares for the Fund will be outstanding at 
the commencement of trading on the Exchange.
    (9) All statements and representations made in the filing regarding 
(a) the description of the Index, portfolio or reference asset, (b) 
limitations on the Index or portfolio holdings or reference assets, or 
(c) the applicability of Exchange listing rules specified in the rule 
filing shall constitute continued listing requirements for listing the 
Shares of the Fund on the Exchange. In addition, the issuer is required 
to notify the Exchange of any failure by the Fund to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will monitor \24\ for 
compliance with the continued listing requirements. If the Fund is not 
in compliance with the applicable listing requirements, the Exchange 
will commence delisting procedures under NYSE Arca Rule 5.5-E(m).
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    \24\ The Commission notes that certain proposals for the listing 
and trading of exchange-traded products include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Securities Exchange Act Release No. 
77499 (April 1, 2016), 81 FR 20428, 20432 (April 7, 2016) (SR-BATS-
2016-04). In the context of this representation, it is the 
Commission's view that ``monitor'' and ``surveil'' both mean ongoing 
oversight of compliance with the continued listing requirements. 
Therefore, the Commission does not view ``monitor'' as a more or 
less stringent obligation than ``surveil'' with respect to the 
continued listing requirements.
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    This approval order is based on all of the Exchange's statements 
and representations, including those set forth above and in Amendment 
Nos. 4 and 6.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment Nos. 4 and 6, is consistent with 
Section 6(b)(5) of the Act \25\ and Section 11A(a)(1)(C)(iii) of the 
Act \26\ and the rules and regulations thereunder applicable to a 
national securities exchange.
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    \25\ 15 U.S.C. 78f(b)(5).
    \26\ 15 U.S.C. 78k-1(a)(1)(C)(iii).

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[[Page 51030]]

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (SR-NYSEArca-2018-57), as 
modified by Amendment Nos. 4 and 6 be, and hereby is, approved.
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    \27\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21901 Filed 10-9-18; 8:45 am]
 BILLING CODE 8011-01-P