Document ID: SEC-2014-2067-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-12-10T05:00Z

[Federal Register Volume 79, Number 237 (Wednesday, December 10, 2014)]
[Notices]
[Pages 73377-73382]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28879]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73741; File No. SR-NYSEArca-2014-30]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1, To 
List and Trade Shares of Hull Tactical US ETF Under NYSE Arca Equities 
Rule 8.600

December 4, 2014.

I. Introduction

    On March 24, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 Hull Tactical US ETF (``Fund'') 
under NYSE Arca Equities Rule 8.600. The proposed rule change was 
published for comment in the Federal Register on April 11, 2014.\3\ On 
May 21, 2014, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to either approve 
the proposed rule change, disapprove the proposed rule change, or 
institute proceedings to determine whether to disapprove the proposed 
rule change.\5\ On July 9, 2014, the Commission instituted proceedings 
to determine whether to approve or disapprove the proposed rule 
change.\6\ The Commission received one comment letter.\7\ On October 8, 
2014, the Commission designated a longer period of time for Commission 
action on the proposed rule change.\8\ On October 23, 2014, the 
Exchange filed Amendment No. 1 to the proposal.\9\ This order grants 
approval of the proposed rule change, as modified by Amendment No. 1.
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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. 71894 (Apr. 7, 
2014), 79 FR 20273 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ Securities Exchange Act Release No. 72214 (May 21, 2014), 79 
FR 30672 (May 28, 2014). The Commission determined that it was 
appropriate to designate a longer period within which to take action 
on the proposed rule change so that it would have sufficient time to 
consider the proposed rule change. Accordingly, the Commission 
designated July 10, 2014 as the date by which it should approve, 
disapprove, or institute proceedings to determine whether to 
disapprove the proposed rule change.
    \6\ Securities Exchange Act Release No. 72571 (July 9, 2014), 79 
FR 41330 (July 15, 2014).
    \7\ See Letter from Christopher S. Jones, Associate Professor, 
University of Southern California to Elizabeth M. Murphy, Secretary, 
Commission (Sept. 16, 2014) (``Jones Letter'').
    \8\ See Securities Exchange Act Release No. 73320, 79 FR 61911 
(Oct. 15, 2014) (designating December 5, 2014 as the date by which 
the Commission must either approve or disapprove the proposed rule 
change).
    \9\ In Amendment No. 1, the Exchange clarified that the Sub-
Adviser will utilize more than one proprietary, analytical 
investment model to make investment decisions for the Fund, that the 
Sub-Adviser's determination whether to take certain long or short 
positions in S&P 500-related ETFs and S&P 500-related futures will 
depend on the investment signals delivered by the models and on the 
judgment of the Sub-Advisor, and that the Sub-Adviser may adjust the 
Fund's long and short positions when necessary to take into account 
new market conditions as well as data from the models. Because 
Amendment No. 1 provides clarification to the proposed rule change 
and does not materially affect the substance of the proposed rule 
change or raise any unique or novel regulatory issues, Amendment No. 
1 does not require notice and comment.
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II. Description of Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant 
to NYSE Arca Equities Rule 8.600, which governs the listing and trading 
of Managed Fund Shares on the Exchange. The Shares will be offered by 
the Exchange Traded Concepts Trust (``Trust''), a Delaware statutory 
trust. The Trust is registered with the Commission as an investment 
company.\10\ Exchange Traded Concepts, LLC will be the investment 
adviser (``Adviser'') to the Fund. HTAA, LLC will be the sub-adviser to 
the Fund (``Sub-Adviser'').\11\ SEI Investments Co. will serve as the 
administrator of the Fund (``Administrator''). JP Morgan Chase Bank 
N.A. will serve as the custodian, transfer agent and dividend 
disbursing agent of the Fund. SEI Investments Distribution Co. will 
serve as the distributor for the Trust.
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    \10\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). The Exchange states that on July 26, 2013, the 
Trust filed with the Commission a post-effective amendment to its 
registration statement on Form N-1A relating to the Fund (File Nos. 
333-156529 and 811-22263) (``Registration Statement''). In addition, 
the Exchange states that the Commission has issued an order granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No.30445 (Apr. 2, 2013) (File No. 
812-13969) (``Exemptive Order'').
    \11\ The Exchange states that neither the Adviser nor the Sub-
Adviser is, or is affiliated with, a broker-dealer. The Exchange 
states that, in the event (a) the Adviser or Sub-Adviser becomes, or 
becomes newly affiliated with, a broker-dealer, or (b) any new 
manager, adviser or sub-adviser is, or becomes affiliated with, a 
broker-dealer, the adviser or sub-adviser will implement a fire wall 
with respect to its relevant personnel or broker-dealer affiliate, 
as applicable, regarding access to information concerning the 
composition of or changes to the portfolio, and that adviser or sub-
adviser will be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding such 
portfolio.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment

[[Page 73378]]

strategies, including portfolio holdings and investment 
restrictions.\12\
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    \12\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, Fund holdings disclosure policies, 
distributions, and taxes, among other information, is included in 
the Notice and the Registration Statement, as applicable. See Notice 
and Registration Statement, supra notes 3 and 10, respectively.
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General

    The investment objective of the Fund will be to seek long-term 
capital appreciation. The Fund will be actively managed.
    Under normal market conditions,\13\ the Fund will seek to achieve 
its investment objective by taking long and short positions \14\ in one 
or more exchange traded funds (``ETFs'') \15\ that seek to track the 
performance of the S&P 500 Index (each, an ``S&P 500-related ETF''). 
The ETFs the Fund invests in all will be listed and traded in the U.S. 
on registered exchanges. Under normal market conditions, substantially 
all of the Fund's assets will be invested in one or more S&P 500-
related ETFs; ETFs that provide leveraged or inverse exposure to the 
S&P 500 Index; and, to seek the desired exposure to the S&P 500 Index, 
futures contracts. The Fund may also, as described below, invest in 
cash instruments.
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    \13\ The term ``under normal market conditions'' includes, but 
is not limited to, the absence of adverse market, economic, 
political or other conditions, including extreme volatility or 
trading halts in the equity markets or the financial markets 
generally; operational issues causing dissemination of inaccurate 
market information; and force majeure type events such as systems 
failure, natural or man-made disaster, act of God, armed conflict, 
act of terrorism, riot or labor disruption, or any similar 
intervening circumstance.
    \14\ Short sales are transactions in which the Fund sells a 
security it does not own. To complete the transaction, the Fund must 
borrow or otherwise obtain the security to make delivery to the 
buyer. The Fund is then obligated to replace the security borrowed 
by purchasing the security at the market price at the time of 
replacement. The Fund may use repurchase agreements to satisfy 
delivery obligations in short sales transactions. The Fund may use 
up to 100% of its net assets to engage in short sales transactions 
and collateralize its open short positions.
    \15\ ETFs are securities registered under the 1940 Act such as 
those listed and traded on the Exchange under NYSE Arca Equities 
Rules 5.2(j)(3) (Investment Company Units), 8.100 (Portfolio 
Depositary Receipts) and 8.600 (Managed Fund Shares).
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    The Sub-Adviser will utilize a proprietary, analytical investment 
model that examines current and historical market data to attempt to 
predict the performance of the S&P 500 Index. The model will deliver 
investment signals that the Sub-Adviser will use to make investment 
decisions for the Fund. Depending on the investment signal delivered by 
the model, the Sub-Adviser will take certain long or short positions in 
one or more S&P 500-related ETFs: (1) If the model indicates bull-
market conditions, the Sub-Adviser will take long positions; or (2) if 
the model indicates bear-market conditions, the Sub-Adviser will take 
short positions. When the Fund takes long positions, it may maintain 
long exposure of up to 200% of net assets; exposure to short positions 
will be limited to no more than 100% of net assets. The Sub-Adviser 
will adjust the Fund's long and short positions when necessary to take 
into account new data from the model that reflects changing market 
conditions. Positions may be adjusted as the model predictions 
fluctuate.
    The Fund will enter into futures contracts to seek the desired 
exposure to the S&P 500 Index.\16\ The Fund will limit its investment 
in futures contracts such that either (1) the aggregate net notional 
value of its futures investments will not exceed the value of the 
Fund's net assets, after taking into account unrealized profits and 
unrealized losses on the futures positions it has entered into; or (2) 
the aggregate initial margin and premiums required to establish 
positions in its futures investments will not exceed 5% of the Fund's 
net assets, after taking into account unrealized profits and unrealized 
losses on any such positions. The Fund will only enter into futures 
contracts traded on a national futures exchange regulated by the CFTC. 
The Fund will trade futures when the Sub-Adviser determines that doing 
so may provide an efficient means of seeking exposure to the S&P 500 
Index that is complimentary to its investment in shares of one or more 
S&P 500-related ETFs.
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    \16\ To the extent the Fund enters into futures contracts or 
invests in underlying ETFs that invest in futures, options on 
futures or other instruments subject to regulation by the U.S. 
Commodity Futures Trading Commission (``CFTC''), it will do so in 
reliance upon and in accordance with CFTC Rule 4.5. The Exchange 
states that the Trust has filed a notice of eligibility for 
exclusion from the definition of the term ``commodity pool 
operator'' in accordance with CFTC Rule 4.5. Therefore, neither the 
Trust nor any of its series is deemed to be a ``commodity pool'' or 
``commodity pool operator'' under the Commodity Exchange Act 
(``CEA''), and they are not subject to registration or regulation as 
such under the CEA. In addition, neither the Adviser nor the Sub-
Adviser is deemed to be a ``commodity pool operator'' or ``commodity 
trading adviser'' with respect to the advisory services it provides 
to the Fund.
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    In addition to investments in the S&P 500-related ETFs and futures 
contracts, the Fund may invest up to 10% of its total assets in 
leveraged ETFs or inverse ETFs that seek to deliver multiples, or the 
inverse, of the performance of the S&P 500 Index, respectively 
(collectively with S&P 500-related ETFs, ``Underlying ETFs''). Such 
investments will be made in accordance with the 1940 Act and consistent 
with the Fund's investment objective and policies, and they will not be 
used to seek performance that is the multiple or inverse multiple 
(e.g., 2X or 3X) of any securities market index. The inverse and 
leveraged ETFs held by the Fund may utilize leverage (i.e., borrowing) 
to acquire their underlying portfolio investments.\17\
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    \17\ The use of leverage may exaggerate changes in an ETF's 
share price and the return on its investments. Inverse and leveraged 
ETFs are designed to achieve their objectives for a single day only.
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    The Fund may invest in Underlying ETFs that are primarily index-
based ETFs that hold substantially all of their assets in securities 
representing a specific index. The Fund also may invest in Underlying 
ETFs that are actively managed. The Underlying ETFs in which the Fund 
may invest may invest in equity securities. Equity securities consist 
of common stocks, preferred stocks, warrants to acquire common stock, 
securities convertible into common stock,\18\ investments in master 
limited partnerships (``MLPs'') \19\ and rights.\20\
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    \18\ Convertible securities are bonds, debentures, notes, 
preferred stocks, or other securities that may be converted or 
exchanged (by the holder or by the issuer) into shares of the 
underlying common stock (or cash or securities of equivalent value) 
at a stated exchange ratio.
    \19\ MLPs are limited partnerships in which the ownership units 
are publicly traded. MLP units are registered with the Commission 
and are freely traded on a securities exchange or in the over-the-
counter market.
    \20\ A right is a privilege granted to existing shareholders of 
a corporation to subscribe to shares of a new issue of common stock 
before it is issued. Rights normally have a short life of usually 
two to four weeks.
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    The Underlying ETFs in which the Fund may invest may engage in 
futures and options transactions. The Fund will only invest in 
Underlying ETFs that engage in futures contracts if such futures 
contracts are traded on a national futures exchange regulated by the 
CFTC. Underlying ETFs in which the Fund may invest may use futures 
contracts and related options for bona fide hedging; attempting to 
offset changes in the value of securities held or expected to be 
acquired or be disposed of; attempting to gain exposure to a particular 
market, index, or instrument; or other risk management purposes. When 
an Underlying ETF purchases or sells a futures contract, or sells an 
option thereon, it is required to cover its position in order to limit 
leveraging and related risks.

[[Page 73379]]

    The Underlying ETFs in which the Fund may invest may buy and sell 
index futures contracts with respect to any index that is traded on a 
recognized exchange or board of trade.
    The Underlying ETFs in which the Fund may invest may purchase and 
write (sell) put and call options on indices and enter into related 
closing transactions.\21\ All such options written on indices or 
securities must be covered by the Underlying ETF.
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    \21\ A put option on a security gives the purchaser of the 
option the right to sell, and the writer of the option the 
obligation to buy, the underlying security. A call option on a 
security gives the purchaser of the option the right to buy, and the 
writer of the option the obligation to sell, the underlying 
security. Put and call options on indices are similar to options on 
securities except that options on an index give the holder the right 
to receive, upon exercise of the option, an amount of cash if the 
closing level of the underlying index is greater than (or less than, 
in the case of puts) the exercise price of the option.
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    An Underlying ETF in which the Fund may invest may trade put and 
call options on securities, securities indices, and currencies, as the 
Underlying ETF's investment adviser determines is appropriate in 
seeking the ETF's investment objective, and except as restricted by the 
Underlying ETF's investment limitations. An Underlying ETF may purchase 
put and call options on securities to protect against a decline in the 
market value of the securities in its portfolio or to anticipate an 
increase in the market value of securities that the Fund may seek to 
purchase in the future. An Underlying ETF may write covered call 
options on securities as a means of increasing the yield on its assets 
and as a means of providing limited protection against decreases in its 
market value. An Underlying ETF may purchase and write options on an 
exchange or over-the-counter.
    The Underlying ETFs in which the Fund may invest may enter into 
swaps, including, but not limited to, total return swaps, index swaps, 
and interest rate swaps. An Underlying ETF may utilize swaps in an 
attempt to gain exposure to the securities in a market without actually 
purchasing those securities, or to hedge a position.\22\ The Underlying 
ETFs in which the Fund may invest may enter into swaps to invest in a 
market without owning or taking physical custody of the underlying 
securities in circumstances in which direct investment is restricted 
for legal reasons or is otherwise impracticable.
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    \22\ Forms of swaps include interest rate caps, under which, in 
return for a premium, one party agrees to make payments to the other 
to the extent that interest rates exceed a specified rate, or 
``cap''; interest rate floors, under which, in return for a premium, 
one party agrees to make payments to the other to the extent that 
interest rates fall below a specified level, or ``floor''; and 
interest rate collars, under which a party sells a cap and purchases 
a floor or vice versa in an attempt to protect itself against 
interest rate movements exceeding given minimum or maximum levels.
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    During periods when the Fund's assets (or portion thereof) are not 
fully invested in one or more S&P 500-related ETFs or otherwise exposed 
to the S&P 500 Index, all or a portion of the Fund may be invested in 
cash instruments (``Cash Instruments''), which include U.S. Treasury 
obligations; cash and cash equivalents including commercial paper, 
certificates of deposit and bankers' acceptances; repurchase 
agreements; \23\ shares of money market mutual funds; and high-quality, 
short-term debt instruments including, in addition to U.S. Treasury 
obligations, other U.S. government securities.\24\
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    \23\ The Fund may enter into repurchase agreements with 
financial institutions, which may be deemed to be loans. The Fund 
will effect repurchase transactions only with large, well-
capitalized, and well-established financial institutions whose 
condition will be continually monitored by the Sub-Advisor. In 
addition, the value of the collateral underlying the repurchase 
agreement will always be at least equal to the repurchase price, 
including any accrued interest earned on the repurchase agreement.
    \24\ Securities issued or guaranteed by the U.S. government or 
its agencies or instrumentalities include U.S. Treasury securities, 
which are backed by the full faith and credit of the U.S. Treasury 
and which differ only in their interest rates, maturities, and times 
of issuance. Certain U.S. government securities are issued or 
guaranteed by agencies or instrumentalities of the U.S. government, 
including, but not limited to, obligations of U.S. government 
agencies or instrumentalities such as the Federal National Mortgage 
Association (``Fannie Mae''), the Federal Home Loan Mortgage 
Corporation (``Freddie Mac''), the Government National Mortgage 
Association (``Ginnie Mae''), the Federal Home Loan Banks, and other 
agencies or instrumentalities. Some obligations issued or guaranteed 
by U.S. government agencies and instrumentalities, including, for 
example, Ginnie Mae pass-through certificates, are supported by the 
full faith and credit of the U.S. Treasury. Other obligations issued 
by or guaranteed by federal agencies or instrumentalities, such as 
those securities issued by Fannie Mae, are supported by the 
discretionary authority of the U.S. government to purchase certain 
obligations of the federal agency or instrumentality, while other 
obligations issued by or guaranteed by federal agencies or 
instrumentalities, such as those of the Federal Home Loan Banks, are 
supported by the right of the issuer to borrow from the U.S. 
Treasury. The Fund may invest in U.S. Treasury zero-coupon bonds.
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Other Investments

    In addition to the investments described above, the Fund may invest 
in other investments, as described below.
    In the absence of normal market conditions,\25\ the Fund may invest 
100% of its assets, without limitation, in Cash Instruments. The Fund 
may be invested in this manner for extended periods, depending on the 
Sub-Adviser's assessment of market conditions.
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    \25\ See note 13, supra.
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    In addition to the Underlying ETFs discussed above, which are 
primary investments of the Fund, the Fund will invest in money market 
mutual funds, to the extent that such an investment would be consistent 
with the requirements of Section 12(d)(1) of the 1940 Act, or any rule, 
regulation, or order of the Commission or interpretation thereof.

Restrictions on Investment

    The Fund may not purchase or sell commodities or commodity 
contracts unless acquired as a result of ownership of securities or 
other instruments issued by persons that purchase or sell commodities 
or commodities contracts, but this shall not prevent the Fund from 
entering into futures contracts.
    The Fund will not directly enter into swaps or engage in options 
transactions.
    The Fund may not, with respect to 75% of its total assets, purchase 
securities of any issuer (except securities issued or guaranteed by the 
U.S. government, its agencies, or its instrumentalities or shares of 
investment companies) if, as a result, more than 5% of its total assets 
would be invested in the securities of such issuer.
    The Fund may not acquire more than 10% of the outstanding voting 
securities of any one issuer.
    The Fund may not invest 25% or more of its total assets in the 
securities of one or more issuers conducting their principal business 
activities in the same industry or group of industries. This limitation 
does not apply to investments in securities issued or guaranteed by the 
U.S. government, its agencies or instrumentalities, or shares of 
investment companies.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including securities deemed illiquid by the Adviser or Sub-Adviser 
consistent with Commission guidance \26\ and repurchase agreements that 
do not mature within seven days. The Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of

[[Page 73380]]

liquidity is being maintained and will consider taking appropriate 
steps in order to maintain adequate liquidity, if through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid securities. Illiquid securities include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
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    \26\ In reaching liquidity decisions, the Adviser and Sub-
Adviser may consider the following factors: The frequency of trades 
and quotes for the security; the number of dealers wishing to 
purchase or sell the security and the number of other potential 
purchasers; dealer undertakings to make a market in the security; 
and the nature of the security and the nature of the marketplace in 
which it trades (e.g., the time needed to dispose of the security, 
the method of soliciting offers, and the mechanics of transfer).
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    The Fund intends to qualify each year as a regulated investment 
company under Subchapter M of the Internal Revenue Code of 1986, as 
amended.

III. Summary of Comment Letter Received

    The Commission received one comment letter supporting the 
Exchange's proposal.\27\ The commenter states that tactical asset 
allocation strategies are beneficial to investors, may have positive 
effects on market stability, and should be encouraged both by 
investment advisors and regulators.\28\ The commenter states his belief 
that there is nothing inherently risky about tactical asset allocation, 
especially for strategies limited to holding cash and a market 
index.\29\ Furthermore, the commenter states that the managers of the 
Fund have allowed him to see the equity exposures that have arisen from 
their model since 2001, and based on this the commenter believes the 
Fund should be ``noticeably less risky than a standard equity index 
fund.'' \30\
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    \27\ See Jones Letter, supra note 7.
    \28\ Id. at 2. The commenter states that maintaining constant 
exposures to different asset classes is suboptimal, that investors 
can reap greater long-term rewards without increasing risk by 
increasing exposure to an asset class when its future returns are 
predicted to be above average and by trimming or shorting an asset 
class when its future returns are predicted to be poor, and that 
there is strong evidence from the finance literature that these 
tactical asset allocation strategies have significant value to 
investors who use them. Id. at 1.
    \29\ Id. at 2.
    \30\ Id.
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IV. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \31\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\32\ In particular, the Commission finds that the 
proposal, as modified by Amendment No. 1., is consistent with Section 
6(b)(5) of the Act,\33\ which requires, among other things, that the 
Exchange's rules be designed 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. The Commission also finds 
that the proposal to list and trade the Shares on the Exchange is 
consistent with Section 11A(a)(1)(C)(iii) of the Act,\34\ which sets 
forth the finding of Congress 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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    \31\ 15 U.S.C. 78f.
    \32\ 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).
    \33\ 15 U.S.C. 78f(b)(5).
    \34\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission notes that the Exchange has represented that the 
Shares are deemed to be equity securities, thus rendering trading in 
the Shares subject to the Exchange's existing rules governing the 
trading of equity securities. The Commission also notes that, in 
support of this proposal, the Exchange has made the following 
representations:
    (1) The Shares will be subject to Rule 8.600, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and underlying equity securities 
(including, without limitation, ETFs) and futures contracts with other 
markets and other entities that are members of the Intermarket 
Surveillance Group (``ISG'') and FINRA, on behalf of the Exchange, may 
obtain trading information regarding trading in the Shares and 
underlying equity securities (including, without limitation, ETFs) and 
futures contracts from such markets and other entities. In addition, 
the Exchange may obtain information regarding trading in the Shares and 
underlying equity securities (including, without limitation, ETFs) and 
futures contracts from markets and other entities that are members of 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. In addition, FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income securities held by the Fund reported to FINRA's Trade 
Reporting and Compliance Engine (``TRACE'').
    (4) The ETFs the Fund invests in all will be listed and traded in 
the U.S. on registered exchanges. The Fund will only enter into futures 
contracts traded on a national futures exchange regulated by the CFTC.
    (5) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares in creation unit 
aggregations (and that Shares are not individually redeemable); (b) 
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence 
on its Equity Trading Permit Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (c) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (d) how information regarding the 
Portfolio Indicative Value is disseminated; (e) the requirement that 
Equity Trading Permit Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (f) trading information.
    (6) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act,\35\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \35\ 17 CFR 240.10A-3.
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    (7) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including securities deemed illiquid by the Adviser or Sub-Adviser, 
consistent with Commission guidance.
    (8) Under normal market conditions, substantially all of the Fund's 
assets will be invested in one or more S&P 500-related ETFs; ETFs that 
provide leveraged or inverse exposure to the S&P 500 Index; and, to 
seek the desired exposure to the S&P 500 Index, futures contracts. The 
Fund may also invest in Cash Instruments.
    (9) The Fund will limit its investment in futures contracts such 
that either (1) the aggregate net notional value of its futures 
investments will not exceed the value of the Fund's net assets, after 
taking into account unrealized profits and unrealized losses on the 
futures positions it has entered into; or (2) the aggregate initial 
margin and premiums

[[Page 73381]]

required to establish positions in its futures investments will not 
exceed 5% of the Fund's net assets, after taking into account 
unrealized profits and unrealized losses on any such positions.
    (10) The Fund may invest up to 10% of its total assets in leveraged 
ETFs or inverse ETFs that seek to deliver multiples, or the inverse, of 
the performance of the S&P 500 Index, respectively. Such investments 
will be made in accordance with the 1940 Act and consistent with the 
Fund's investment objective and policies, and they will not be used to 
seek performance that is the multiple or inverse multiple (e.g., 2X or 
3X) of any securities market index.
    (11) The Fund will not directly enter into swaps or engage in 
options transactions.
    (12) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    Quotation and last-sale information for the Shares will be 
available via the Consolidated Tape Association (``CTA'') high-speed 
line. In addition, the Portfolio Indicative Value \36\ as defined in 
NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated at 
least every 15 seconds during the Core Trading Session by one or more 
major market data vendors.\37\ On each business day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities and other assets (``Disclosed 
Portfolio'') held by the Fund that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\38\ The 
Administrator, through the National Securities Clearing Corporation 
(``NSCC''), will make available on each business day, immediately prior 
to the opening of business on the Exchange (currently 9:30 a.m., E.T.), 
the list of the names and the required number of shares of each 
security, and amount of cash, to be delivered in exchange for a 
creation unit of the Fund. The NAV of the Fund will be calculated once 
each business day as of the regularly scheduled close of normal trading 
on the Exchange (normally, 4:00 p.m., Eastern Time).\39\ Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. The intra-day, closing, and settlement prices of 
the Fund investments will be readily available from the exchanges 
trading such securities, automated quotation systems, published or 
other public sources, or on-line information services such as Bloomberg 
or Reuters. Quotation and last sale information for underlying U.S. 
exchange-traded equities, including the Underlying ETFs, will be 
available via the CTA high-speed line and from the national securities 
exchange on which they are listed. Quotations and last sale information 
for the Fund's futures investments will be available from the futures 
exchange on which the futures are listed. Quotation information from 
brokers and dealers or pricing services will be available for Cash 
Instruments and non-exchange traded securities of money market mutual 
funds held by the Fund. Pricing information regarding each asset class 
in which the Fund will invest is generally available through nationally 
recognized data service providers through subscription arrangements. 
The Fund's Web site will include a form of the prospectus for the Fund 
and additional data relating to NAV and other applicable quantitative 
information.
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    \36\ According to the Exchange, the Portfolio Indicative Value 
will be calculated using the estimates of the value of the Fund's 
NAV per Share using market data converted into U.S. dollars at the 
current currency rates. The Portfolio Indicative Value will be based 
upon the current value for the components of the Disclosed 
Portfolio. The Portfolio Indicative Value will be based on quotes 
and closing prices from the securities' local market and may not 
reflect events that occur subsequent to the local market's close. 
Premiums and discounts between the Portfolio Indicative Value and 
the market price may occur. The Portfolio Indicative Value should 
not be viewed as a ``real-time'' update of the NAV per Share of the 
Fund, which is calculated once per day. All asset classes in which 
the Fund will invest will be included in the calculation of the 
Portfolio Indicative Value.
    \37\ According to the Exchange, several major market data 
vendors display or make widely available Portfolio Indicative Values 
published on CTA or other data feeds.
    \38\ The Disclosed Portfolio will include each portfolio 
security and other financial instruments of the Fund with the 
following information on the Fund's Web site: Ticker symbol (if 
applicable), name of security and financial instrument, number of 
shares (if applicable) and dollar value of securities and financial 
instruments held in the Fund, and percentage weighting of the 
security and financial instrument in the Fund. The Web site 
information will be publicly available at no charge.
    \39\ The Fund will calculate NAV by: (i) Taking the current 
market value of its total assets; (ii) subtracting any liabilities; 
and (iii) dividing that amount by the total number of Shares owned 
by shareholders.
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    The Commission further believes that the proposal to list and trade 
the Shares 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. 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. Trading in Shares of a 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 in the Shares 
inadvisable,\40\ and trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth additional circumstances 
under which trading in the Shares of a Fund may be halted. The Exchange 
states that it has a general policy prohibiting the distribution of 
material, non-public information by its employees. Consistent with NYSE 
Arca Equities Rule 8.600(d)(2)(B)(ii), the Reporting Authority must 
implement and maintain, or be subject to, procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the actual components of the Fund's portfolio. In addition, 
the Exchange states that neither the Adviser nor the Sub-Adviser is or 
is affiliated with a broker-dealer.\41\

[[Page 73382]]

The Exchange represents that trading in the Shares will be subject to 
the existing trading 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.\42\ The Exchange further 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 applicable federal securities laws. 
Moreover, prior to the commencement of trading, the Exchange states 
that it will inform its Equity Trading Permit Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares.
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    \40\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities or financial instruments 
composing the Disclosed Portfolio of the Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance 
of a fair and orderly market are present. With respect to trading 
halts, the Exchange may consider all relevant factors in exercising 
its discretion to halt or suspend trading in the Shares of the Fund.
    \41\ See supra note 11. The Exchange states that an investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and the Sub-Adviser and their related personnel 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. 
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.
    \42\ The Exchange states that FINRA surveils trading on 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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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act,\43\ Section 11A(a)(1)(C)(iii) of the Act,\44\ and 
the rules and regulations thereunder applicable to a national 
securities exchange.
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    \43\ 15 U.S.C. 78f(b)(5).
    \44\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\45\ that the proposed rule change (SR-NYSEArca-2014-30), as 
modified by Amendment No. 1, be, and it hereby is, approved.\46\
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    \45\ 15 U.S.C. 78s(b)(2).
    \46\ This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Notice, 
and the Exchange's description of the Fund.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28879 Filed 12-9-14; 8:45 am]
BILLING CODE 8011-01-P