Document ID: SEC-2021-0340-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2021-03-11T05:00Z

[Federal Register Volume 86, Number 46 (Thursday, March 11, 2021)]
[Notices]
[Pages 13930-13933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05029]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91266; File No. SR-NYSEArca-2020-104]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade 
Shares of the Stance Equity ESG Large Cap Core ETF Under NYSE Arca Rule 
8.601-E

March 5, 2021.

I. Introduction

    On November 30, 2020, 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 Stance 
Equity ESG Large Cap Core ETF (``Fund'') under NYSE Arca Rule 8.601-E 
(Active Proxy Portfolio Shares). The proposed rule change was published 
for comment in the Federal Register on December 21, 2020.\3\
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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. 90665 (Dec. 15, 
2020), 85 FR 83129.
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    On January 22, 2021, pursuant to Section 19(b)(2) of the Act,\4\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On January 22, 2021, the Exchange filed Amendment No. 1 to 
the proposed rule change, which replaced and superseded the proposed 
rule change as originally filed.\6\ On March 4, 2021, 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superseded the proposed rule change, as modified by Amendment No. 1.\7\ 
The Commission has received no comments on the proposed rule change. 
This order approves the proposed rule change, as modified by Amendment 
No. 2.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 90974, 86 FR 7446 
(Jan. 28, 2021). The Commission designated March 21, 2021, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ Amendment No. 1 is available on the Commission's website at 
https://www.sec.gov/comments/sr-nysearca-2020-104/srnysearca2020104-8276588-228099.pdf.
    \7\ In Amendment No. 2, the Exchange: (1) Updated the status of 
the application for exemptive relief filed by the Issuer (as defined 
below); (2) changed the distributor and principal underwriter of the 
Fund; (3) stated that, in connection with the creation and 
redemption of Active Proxy Portfolio Shares, such creation or 
redemption may be exchanged for a Proxy Portfolio (as defined below) 
and/or cash; (4) represented that the Proxy Portfolio will not 
include any asset that is ineligible to be in the Actual Portfolio 
(as defined below) of the Fund; (5) stated that the Fund's holdings 
will conform to the permissible investments as set forth in the 
Exemptive Order (as defined below) and that the holdings will be 
consistent with all requirements in the Exemptive Order; (6) 
supplemented its description of the Fund's investment objective; (7) 
revised the description of the availability of pricing information; 
(8) described that a creation unit will generally consist of 5,000 
shares; (9) supplemented its description of the disclosures about 
the Proxy Portfolio that the Fund will publish on its website each 
business day; (10) stated that the Exchange will obtain a 
representation from the Issuer that the net asset value per Share of 
the Fund will be calculated daily and that the net asset value, 
Portfolio Reference Basket (as defined below), and the Actual 
Portfolio (as defined below) for the Fund will be made available to 
all market participants at the same time; and (11) made conforming 
and technical changes. Because Amendment No. 2 does not materially 
alter the substance of the proposed rule change, Amendment No. 2 is 
not subject to notice and comment. Amendment No. 2 is available on 
the Commission's website at https://www.sec.gov/comments/sr-nysearca-2020-104/srnysearca2020104.htm.
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II. Summary of the Exchange's Description of the Proposed Rule Change, 
as Modified by Amendment No. 2 \8\
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    \8\ Additional information regarding the Fund, the Issuer (as 
defined below), and the Shares can be found in Amendment No. 2, 
supra note 7, and Registration Statement, supra note 9.
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    NYSE Arca Rule 8.900-E(b)(1) requires the Exchange to file separate 
proposals under Section 19(b) of the Act before listing and trading any 
series of Active Proxy Portfolio Shares on the Exchange; thus, the 
Exchange submitted this proposal to list and trade the Shares.\9\ The 
Shares of the Fund will be issued by The RBB Fund, Inc. (``Issuer''), a 
corporation organized under the laws of the State of Maryland and 
registered with the Commission as an open-end management investment 
company.\10\ Red Gate Advisers, LLC (``Adviser'') will be the 
investment adviser to the Fund. Stance Capital, LLC and Vident 
Investment Advisory, LLC will be the sub-advisers (``Sub-Advisers'') 
for the Fund. U.S. Bank, N.A. will serve as the Fund's custodian, U.S. 
Bancorp Fund Services, LLC will serve as the Fund's transfer agent, and 
Vigilant Distributors, LLC will act as the distributor and principal 
underwriter for the Fund.
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    \9\ As defined in Rule 8.601-E(c)(1), the term ``Active Proxy 
Portfolio Share'' means a security that (a) is issued by an 
investment company (``Investment Company'') registered under the 
Investment Company Act of 1940 (``1940 Act'') organized as an open-
end management investment company that invests in a portfolio of 
securities selected by the Investment Company's investment adviser 
consistent with the Investment Company's investment objectives and 
policies; (b) is issued in a specified minimum number of shares, or 
multiples thereof, in return for a deposit by the purchaser of the 
Proxy Portfolio and/or cash with a value equal to the next 
determined net asset value (``NAV''); (c) when aggregated in the 
same specified minimum number of Active Proxy Portfolio Shares, or 
multiples thereof, may be redeemed at a holder's request in return 
for the Proxy Portfolio and/or cash to the holder by the issuer with 
a value equal to the next determined NAV; and (d) the portfolio 
holdings for which are disclosed within at least 60 days following 
the end of every fiscal quarter. Rule 8.601-E(c)(2) provides that 
the term ``Actual Portfolio'' means the identities and quantities of 
the securities and other assets held by the Investment Company that 
shall form the basis for the Investment Company's calculation of NAV 
at the end of the business day.'' Rule 8.601-E(c)(3) provides that 
the term ``Proxy Portfolio'' means a specified portfolio of 
securities, other financial instruments and/or cash designed to 
track closely the daily performance of the Actual Portfolio of a 
series of Active Proxy Portfolio Shares as provided in the exemptive 
relief pursuant to the Investment Company Act of 1940 applicable to 
such series.
    \10\ The Issuer is registered under the 1940 Act. On November 
23, 2020, the Issuer filed a registration statement on Form N-1A 
under the Securities Act of 1933 (15 U.S.C. 77a), and under the 1940 
Act relating to the Fund (File Nos. 033-20827 and 811-05518) 
(``Registration Statement''). The Issuer filed an Application for an 
Order under Section 6(c) of the 1940 Act for exemptions from various 
provisions of the 1940 Act and rules thereunder (File No. 812-
15165), dated September 28, 2020 (``Application''). The Issuer filed 
an amended Application on December 10, 2020, and a second amended 
Application on January 15, 2021. On February 26, 2021, the 
Commission issued an order (``Exemptive Order'') under the 1940 Act 
granting the exemptions requested in the Application (Investment 
Company Act Release No. 34215, February 26, 2021). The Exchange 
states that investments made by the Fund will comply with the 
conditions set forth in the Application and the Exemptive Order. 
According to the Exchange, the description of the operation of the 
Fund in the proposal is based, in part, on the Registration 
Statement and the Application.

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[[Page 13931]]

A. Description of the Fund

    The Exchange states that the Fund's holdings will conform to the 
permissible investments as set forth in the Application and Exemptive 
Order, and the holdings will be consistent with all requirements in the 
Application and Exemptive Order.\11\
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    \11\ Pursuant to the Application and Exemptive Order, the 
permissible investments for the Fund include only the following 
instruments: ETFs traded on a U.S. exchange, exchange-traded notes 
(``ETNs'') traded on a U.S. exchange, U.S. exchange-traded common 
stocks, U.S. exchange-traded preferred stocks, U.S. exchange-traded 
American Depositary Receipts (``ADRs''), U.S. exchange-traded real 
estate investment trusts, U.S. exchange-traded commodity pools, U.S. 
exchange-traded metals trusts, U.S. exchange-traded currency trusts, 
and U.S. exchange-traded futures; common stocks listed on a foreign 
exchange that trade on such exchange contemporaneously with the 
Fund's Shares; exchange-traded futures that are traded on a U.S. 
futures exchange contemporaneously with the Fund's Shares; and cash 
and cash equivalents (which are short-term U.S. Treasury securities, 
government money market funds, and repurchase agreements). According 
to the Exchange, the Fund will not borrow for investment purposes, 
hold short positions, or purchase any securities that are illiquid 
investments at the time of purchase.
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    According to the Exchange, the Fund's investment objective is to 
seek long-term capital appreciation. The Exchange states that the Fund 
will invest, under normal circumstances, at least 80% of the value of 
its net assets (plus the amount of any borrowings for investment 
purposes) in exchange-traded equity securities of U.S. large 
capitalization issuers that meet environmental, social, and governance 
standards, as determined by Stance Capital, LLC.

B. Investment Restrictions

    The Exchange states that the Shares of the Fund will conform to the 
initial and continued listing criteria under Rule 8.601-E. The Fund's 
holdings will be consistent with all requirements in the Application 
and Exemptive Order. According to the Exchange, the Fund's investments, 
including derivatives, will be consistent with its investment objective 
and will not be used to enhance leverage (although certain derivatives 
and other investments may result in leverage). That is, the Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (e.g., 2X or -3X) of the Fund's primary broad-based 
securities benchmark index (as defined in Form N-1A).\12\
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    \12\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to its Registration Statement 
following the Fund's first full calendar year of performance.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, is consistent with the Act and 
rules and regulations thereunder applicable to a national securities 
exchange.\13\ In particular, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act,\14\ 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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    \13\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission 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 in the Shares when a 
reasonable degree of certain pricing transparency cannot be assured. As 
such, the Commission believes the proposal is reasonably designed to 
maintain a fair and orderly market for trading the Shares. The 
Commission also finds that the proposal is consistent with Section 
11A(a)(1)(C)(iii) of the Act, 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.
    Specifically, the Commission notes that the Exchange, prior to 
commencement of trading in the Shares, will obtain a representation 
from the Issuer that the NAV per Share will be calculated daily and 
that the NAV, Portfolio Reference Basket,\15\ and Actual Portfolio for 
the Fund will be made available to all market participants at the same 
time.\16\ 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. The 
Exchange states that quotation and last sale information for the Shares 
and U.S. exchange-traded instruments (excluding futures contracts) will 
be available via the Consolidated Tape Association (``CTA'') high-speed 
line, from the exchanges on which such securities trade, or through 
major market data vendors or subscription services. Intraday pricing 
information for all exchange-traded instruments, which includes all 
eligible instruments except cash and cash equivalents, will be 
available on the exchanges on which they trade or through major market 
data vendors or subscription services. Intraday pricing information for 
cash equivalents is available through major market data vendors, 
subscription services, and/or pricing services. The Fund's website will 
include additional information updated on a daily basis, including, on 
a per Share basis for the Fund, the prior business day's NAV, the 
closing price or bid/ask price at the time of calculation of such NAV, 
and a calculation of the premium or discount of the closing price or 
bid/ask price against such NAV. The website will also disclose the 
Guardrail Amount,\17\ which is the maximum deviation between the 
weightings of the specific securities in the Portfolio Reference Basket 
and the weightings of those specific securities in the Actual 
Portfolio, and any other information regarding premiums and discounts 
and the bid/ask spread for the Fund as may be required for other ETFs 
under Rule 6c-11 under the 1940 Act. The identity and quantity of 
investments in the Portfolio Reference Basket will be publicly 
available on the Fund's website before the commencement of trading in 
Shares on each Business Day and the Fund's website will disclose the 
information required under Rule 8.601-E(c)(3).\18\ The website and 
information will be publicly available at no charge.
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    \15\ The Exchange states that the ``Portfolio Reference Basket'' 
is the Proxy Portfolio for purposes of Rule 8.601-E(c)(3). See 
Amendment No. 2, supra note 7, at n. 9.
    \16\ See NYSE Arca Rule 8.601-E(d)(1)(B).
    \17\ See Amendment No. 2, supra note 7, at 9.
    \18\ See Rule 8.601-E(c)(3), which requires that the website for 
each series of Active Proxy Portfolio Shares shall disclose the 
information regarding the Proxy Portfolio as provided in the 
exemptive relief pursuant to the 1940 Act applicable to such series, 
including the following, to the extent applicable: (i) Ticker 
symbol; (ii) CUSIP or other identifier; (iii) description of 
holding; (iv) quantity of each security or other asset held; and (v) 
percentage weighting of the holding in the portfolio.
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    The Commission also notes that the Exchange's rules regarding 
trading halts help to ensure the maintenance of fair and orderly 
markets for the Shares. Specifically, pursuant to its rules, the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in the Shares and will halt trading in the Shares under 
the conditions specified in NYSE Arca Rule

[[Page 13932]]

7.12-E. Trading may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable, including (1) the extent to which trading is not occurring 
in the securities and/or the financial instruments composing the Proxy 
Portfolio and/or Actual Portfolio; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present.\19\ Trading in the Shares also will be 
subject to NYSE Arca Rule 8.601-E(d)(2)(D), which sets forth additional 
circumstances under which trading in the Shares will be halted.
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    \19\ See NYSE Arca Rule 8.601-E(d)(2)(D)(i).
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    The Commission also believes that the proposal is reasonably 
designed to help prevent fraudulent and manipulative acts and 
practices. Specifically, the Exchange provides 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 such broker-dealer affiliate regarding 
access to information concerning the composition of and/or changes to 
the Fund's Actual Portfolio and/or Proxy Portfolio. The Sub-Advisers 
are not registered as broker-dealers and are not affiliated with a 
broker-dealer;
     Any person related to the Adviser, Sub-Adviser(s), or the 
Fund who makes decisions pertaining to the Fund's Actual Portfolio or 
Proxy Portfolio or who has access to non-public information regarding 
the Fund's Actual Portfolio and/or the Proxy Portfolio or changes 
thereto are subject to procedures reasonably designed to prevent the 
use and dissemination of material non-public information regarding the 
Fund's Actual Portfolio and/or the Proxy Portfolio or changes thereto;
     In the event (a) the Adviser or Sub-Adviser(s) becomes 
registered as a broker-dealer or becomes 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 Fund's 
Actual Portfolio and/or Proxy Portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the Fund's Actual Portfolio and/or 
Proxy Portfolio or changes thereto; and
     Any person or entity, including any service provider for 
the Fund, who has access to non-public information regarding the Fund's 
Actual Portfolio or the Proxy Portfolio or changes thereto will be 
subject to procedures reasonably designed to prevent the use and 
dissemination of material non-public information regarding the Fund's 
Actual Portfolio and/or the Proxy Portfolio or changes thereto, and if 
any such person or entity is registered as a broker-dealer or 
affiliated with a broker-dealer, such person or entity has erected and 
will maintain a ``fire wall'' between the person or entity and the 
broker-dealer with respect to access to information concerning the 
composition of and/or changes to the Fund's Actual Portfolio and/or 
Proxy Portfolio.
    Finally, the Exchange represents that trading in the Shares will be 
subject to the existing trading surveillances, administered by the 
Exchange, as well as cross-market surveillances administered by FINRA 
on behalf of the Exchange,\20\ and that these surveillance 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.
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    \20\ See NYSE Arca Rule 8.601-E, Commentary .03, which requires, 
as part of the surveillance procedures for Active Proxy Portfolio 
Shares, the Fund's investment adviser to, upon request by the 
Exchange or FINRA, on behalf of the Exchange, make available to the 
Exchange or FINRA the daily Actual Portfolio holdings of the Fund.
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    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.
    In support of this proposal, the Exchange represents also that: 
\21\
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    \21\ See Amendment No. 2, supra note 7.

    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.601-E.
    (2) A minimum of 100,000 Shares for the Fund will be outstanding 
at the commencement of trading on the Exchange.
    (3) The Exchange or FINRA, on behalf of the Exchange, or both, 
will communicate as needed, and may obtain information, regarding 
trading in the Shares and underlying exchange-traded instruments 
with other markets and other entities that are members of the 
Intermarket Surveillance Group (``ISG''). In addition, the Exchange 
may obtain information regarding trading in the Shares and exchange-
traded instruments from markets and other entities with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement. Any foreign common stocks held by the Fund will be traded 
on an exchange that is a member of the ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.
    (4) The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions.
    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act.\22\
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    \22\ See 17 CFR 240.10A-3.
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    (6) The Fund's holdings will conform to the permissible 
investments as set forth in the Application and Exemptive Order and 
the holdings will be consistent with all requirements set forth in 
the Application and Exemptive Order. The Fund's investments, 
including derivatives, will be consistent with its investment 
objective and will not be used to enhance leverage (although certain 
derivatives and other investments may result in leverage). The 
Fund's investments will include common stocks listed on a foreign 
exchange that trade on such exchange contemporaneously with the 
Shares and exchange-traded futures that are traded on a U.S. futures 
exchange contemporaneously with the Shares.
    (7) With respect to Active Proxy Portfolio Shares, all of the 
Exchange member obligations relating to product description and 
prospectus delivery requirements will continue to apply in 
accordance with Exchange rules and federal securities laws, and the 
Exchange and FINRA will continue to monitor Exchange members for 
compliance with such requirements.

    The Exchange also represents that all statements and 
representations made in the filing regarding: (1) The description of 
the portfolios or reference assets; (2) limitations on portfolio 
holdings or reference assets; or (3) the applicability of Exchange 
listing rules specified in the filing constitute continued listing 
requirements for listing the Shares on the Exchange. In addition, the 
Exchange represents that the Exchange will obtain a representation from 
the Adviser, prior to commencement of trading in the Shares, that the 
Adviser 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 \23\ for compliance with the continued listing requirements. If 
the Fund is not in compliance with the applicable listing requirements, 
the Exchange will

[[Page 13933]]

commence delisting procedures under NYSE Arca Rule 5.5-E(m).
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    \23\ 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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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendments No. 2, is consistent with 
Section 6(b)(5) of the Act \24\ and Section 11A(a)(1)(C)(iii) of the 
Act \25\ and the rules and regulations thereunder applicable to a 
national securities exchange.
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    \24\ 15 U.S.C. 78f(b)(5).
    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act 
\26\ that the proposed rule change (SR-NYSEArca-2020-104), as modified 
by Amendment No. 2, be, and it hereby is, approved.
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    \26\ Id.
    \27\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05029 Filed 3-10-21; 8:45 am]
BILLING CODE 8011-01-P