Document ID: SEC-2021-1088-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2021-08-12T04:00Z

[Federal Register Volume 86, Number 153 (Thursday, August 12, 2021)]
[Notices]
[Pages 44449-44451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-17173]

[[Page 44449]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-92595; File No. SR-NYSEArca-2021-64)]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Amend Rule 8.601-E (Active Proxy Portfolio 
Shares) To Provide for the Use of Custom Baskets

August 6, 2021.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on July 28, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 8.601-E (Active Proxy Portfolio 
Shares) to provide for the use of ``Custom Baskets'' consistent with 
the exemptive relief issued pursuant to the Investment Company Act of 
1940 applicable to a series of Active Proxy Portfolio Shares. The 
proposed rule change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to amend Rule 8.601-E (Active Proxy Portfolio 
Shares) \4\ to provide for the use of ``Custom Baskets'' consistent 
with the exemptive relief issued pursuant to the Investment Company Act 
of 1940 \5\ applicable to a series of Active Proxy Portfolio Shares.
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    \4\ NYSE Arca Rule 8.601-E(c)(1) defines the term ``Active Proxy 
Portfolio Share'' as a security that (a) is issued by an 
``Investment Company'' registered under the Investment Company Act 
of 1940 (``1940 Act'') (15 U.S.C. 80a) 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.
    \5\ 15 U.S.C. 80a et seq.
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    To effectuate this change, the Exchange proposes the following 
amendments to Rule 8.601-E.
    First, a new section 4 would be added to Rule 8.601-E(c) 
(Definitions) defining ``Custom Basket'' to mean a portfolio of 
securities that is different from the Proxy Portfolio (as defined in 
Rule 8.601-E(c)(3)) and is otherwise consistent with the exemptive 
relief issued pursuant to the Investment Company Act of 1940 applicable 
to a series of Active Proxy Portfolio Shares. Current sections (4) and 
(5) of Rule 8.601-E(c) would be renumbered (5) and (6), respectively. 
The definition of ``Active Proxy Portfolio Share'' in NYSE Arca Rule 
8.601-E(c)(1) would be amended to provide for creations of shares in 
return for a deposit by the purchaser of, and redemptions of shares at 
a holder's request in return for, a Custom Basket rather than a Proxy 
Portfolio to the extent permitted by a fund's exemptive relief. In 
addition, the definition of ``Reporting Authority'' in respect of a 
particular series of Active Proxy Portfolio Shares in current section 4 
(proposed section 5) of Rule 8.601E(c) would be amended to provide for 
Custom Baskets to the extent permitted by a fund's exemptive relief. 
Currently, ``Reporting Authority'' in respect of a particular series of 
Active Proxy Portfolio Shares means the Exchange, an institution, or a 
reporting service designated by the Exchange or by the exchange that 
lists a particular series of Active Proxy Portfolio Shares (if the 
Exchange is trading such series pursuant to unlisted trading 
privileges) as the official source for calculating and reporting 
information relating to such series, including, but not limited to, 
NAV, the Actual Portfolio, Proxy Portfolio or other information 
relating to the issuance, redemption or trading of Active Proxy 
Portfolio Shares. The rule further provides that a series of Active 
Proxy Portfolio Shares may have more than one Reporting Authority, each 
having different functions. The Exchange would add ``Custom Basket'' to 
the non-exclusive list of information relating to Active Proxy 
Portfolio Shares that a Reporting Authority calculates and reports, 
i.e., including, but not limited to, NAV, the Actual Portfolio, Proxy 
Portfolio, Custom Basket, or other information relating to the 
issuance, redemption or trading of Active Proxy Portfolio Shares.
    Second, Rule 8.601-E(d) (Initial and Continued Listing), which 
currently provides criteria that Active Proxy Portfolio Shares must 
satisfy for initial and continued listing on the Exchange, would be 
amended to incorporate specific initial and continued listing criteria 
for Custom Baskets. Specifically, current Rule 8.601-E(d)(1)(B) 
provides that the Exchange shall obtain a representation from the 
issuer of each series of Active Proxy Portfolio Shares that the NAV per 
share for the series shall be calculated daily and that the NAV, the 
Proxy Portfolio, and the Actual Portfolio shall be made publicly 
available to all market participants at the same time. These 
requirements would become proposed Rule 8.601-E(d)(1)(B)(i) & (ii). The 
Exchange proposes a third romanette providing that the Exchange shall 
also obtain a representation from the issuer of each series of Active 
Proxy Portfolio Shares that the issuer and any person acting on behalf 
of the series of Active Proxy Portfolio Shares will comply with 
Regulation Fair Disclosure under the Securities Exchange Act of 1934, 
including with respect to any Custom Basket.
    Third, a new section (d)(2)(B)(ii) would be added to Rule 8.601-E 
providing that, with respect to each Custom Basket utilized by a series 
of Active Proxy Portfolio Shares, each business day, before the opening 
of trading in the Core Trading Session (as defined in Rule 7.34-E(a)), 
the investment company shall make publicly available on its website the 
composition of any Custom Basket

[[Page 44450]]

transacted on the previous business day, except a Custom Basket that 
differs from the applicable Proxy Portfolio only with respect to cash. 
Rule 8.601-E(d)(2)(B), which is currently titled ``Proxy Portfolio,'' 
would be amended to read ``Proxy Portfolio and Custom Basket.''
    Finally, the Exchange would make conforming amendments to 
Commentary .04 and Commentary .05 of Rule 8.601-E, as follows.
    First, Commentary .04 to NYSE Arca Rule 8.601-E provides that, if 
the investment adviser to the Investment Company issuing Active Proxy 
Portfolio Shares is registered as a broker-dealer or is affiliated with 
a broker-dealer, such investment adviser will erect and maintain a 
``fire wall'' between the investment adviser and personnel of the 
broker-dealer or broker-dealer affiliate, as applicable, with respect 
to access to information concerning the composition and/or changes to 
such Investment Company's Actual Portfolio and/or Proxy Portfolio. 
Commentary .04 further provides that any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's Actual Portfolio and/or Proxy Portfolio, or 
has access to non-public information regarding the Investment Company's 
Actual Portfolio and/or the Proxy Portfolio, or changes thereto must be 
subject to procedures reasonably designed to prevent the use and 
dissemination of material non-public information regarding the Actual 
Portfolio and/or the Proxy Portfolio, or changes thereto.
    Commentary .04 would be amended to provide for Custom Baskets to 
the extent permitted by a fund's exemptive relief. As proposed, 
Commentary .04 would provide that if the investment adviser to the 
Investment Company issuing Active Proxy Portfolio Shares is registered 
as a broker-dealer or is affiliated with a broker-dealer, such 
investment adviser will erect and maintain a ``fire wall'' between the 
investment adviser and personnel of the broker-dealer or broker-dealer 
affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company's 
Actual Portfolio, Proxy Portfolio, and/or Custom Basket, as applicable. 
In addition, Commentary .04 would provide that any person related to 
the investment adviser or Investment Company who makes decisions 
pertaining to the Investment Company's Actual Portfolio, Proxy 
Portfolio, and/or Custom Basket, as applicable, or has access to non-
public information regarding the Investment Company's Actual Portfolio, 
the Proxy Portfolio, and/or the Custom Basket, as applicable, or 
changes thereto must be subject to procedures reasonably designed to 
prevent the use and dissemination of material non-public information 
regarding the Actual Portfolio, the Proxy Portfolio, and/or the Custom 
Basket, as applicable, or changes thereto.
    Second, Commentary .05 to Rule 8.601-E provides that any person or 
entity, including a custodian, Reporting Authority, distributor, or 
administrator, who has access to nonpublic information regarding the 
Investment Company's Actual Portfolio or the Proxy Portfolio or changes 
thereto, must be subject to procedures reasonably designed to prevent 
the use and dissemination of material non-public information regarding 
the applicable Investment Company Actual Portfolio or the Proxy 
Portfolio or changes thereto. Moreover, if any such person or entity is 
registered as a broker-dealer or affiliated with a broker-dealer, such 
person or entity will erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such 
Investment Company Actual Portfolio or Proxy Portfolio.
    Commentary .05 would similarly be amended to provide for Custom 
Baskets to the extent permitted by a fund's exemptive relief. As 
proposed, Commentary .05 would be amended to provide that any person or 
entity, including a custodian, Reporting Authority, distributor, or 
administrator, who has access to non-public information regarding the 
Investment Company's Actual Portfolio, or the Proxy Portfolio, or the 
Custom Basket, as applicable, or changes thereto, must be subject to 
procedures reasonably designed to prevent the use and dissemination of 
material non-public information regarding the applicable Investment 
Company Actual Portfolio, the Proxy Portfolio, or the Custom Basket, as 
applicable, or changes thereto. Moreover, if any such person or entity 
is registered as a broker-dealer or affiliated with a broker-dealer, 
such person or entity will erect and maintain a ``fire wall'' between 
the person or entity and the broker-dealer with respect to access to 
information concerning the composition and/or changes to such 
Investment Company Actual Portfolio, Proxy Portfolio, or Custom Basket, 
as applicable.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\6\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\7\ in particular, in that it 
is 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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    \6\ 15 U.S.C. 78f(b).
    \7\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that amending Rule 8.601-E to incorporate 
specific initial and continued listing criteria required to be met by 
Active Proxy Portfolio Shares that utilize Custom Baskets is designed 
to prevent fraudulent and manipulative acts and practices. The Exchange 
believes that the daily dissemination of the composition of any Custom 
Basket transacted on the previous day, except a Custom Basket that 
differs from the applicable Proxy Portfolio only with respect to cash, 
together with the right of Authorized Participants to create and redeem 
each day at the NAV, will enable market participants to value and trade 
shares in a manner that will not lead to significant deviations between 
the Bid/Ask Price and NAV of shares of a series of Active Proxy 
Portfolio Shares. Further, including Custom Baskets in the requirements 
of Commentaries .04 and .05 would act as a safeguard against any misuse 
and improper dissemination of nonpublic information related to a fund's 
Custom Basket or changes thereto. The requirement that any person or 
entity implement procedures reasonably designed to prevent the use and 
dissemination of material non-public information regarding a Custom 
Basket will act to prevent any individual or entity from sharing such 
information externally and the internal ``fire wall'' requirements 
applicable where an entity is a registered broker-dealer or affiliated 
with a broker-dealer will act to make sure that no entity will be able 
to misuse the data for their own purposes.
    As such, the Exchange believes that the proposed amendment of Rule 
8.601-E is designed to prevent fraudulent and manipulative acts and 
practices.
    The proposed rule change is also designed to perfect the mechanism 
of a free and open market and, in general, to protect investors and the 
public interest in that it will permit use of Custom Baskets consistent 
with an issuer's exemptive relief in a manner that will benefit 
investors by increasing efficiencies in the creation/redemption 
process. The Exchange believes this will

[[Page 44451]]

enhance competition among market participants, to the benefit of 
investors and the marketplace. Similarly, the Exchange believes that 
the proposed initial and continued listing standards are designed to 
promote disclosure and transparency with respect to the use of Custom 
Baskets consistent with an issuer's exemptive relief. Specifically, the 
Exchange believes that requiring as an initial listing condition that 
an issuer and any person acting on behalf of the series of Active Proxy 
Portfolio Shares comply with Regulation Fair Disclosure under the 
Securities Exchange Act of 1934, including with respect to any Custom 
Basket, would further the full and fair disclosure objectives of 
Regulation Fair Disclosure to the benefit of the investing public and 
all market participants. Further, the Exchange believes that requiring 
as a continued listing condition that, with respect to each Custom 
Basket utilized by a series of Active Proxy Portfolio Shares, each 
business day, before the opening of trading in the Core Trading Session 
(as defined in Rule 7.34-E(a)), an investment company make publicly 
available on its website the composition of any Custom Basket 
transacted on the previous business day, except a Custom Basket that 
differs from the applicable Proxy Portfolio only with respect to cash, 
also furthers the goals of transparency and full and fair disclosure, 
to the benefit of investors and the public interest.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
proposed rule change, by permitting use of Custom Baskets consistent 
with an issuer's exemptive relief, would introduce additional 
competition among various ETF products to the benefit of investors.

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2021-64 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2021-64. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2021-64, and should be 
submitted on or before September 2, 2021.
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    \8\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\8\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17173 Filed 8-11-21; 8:45 am]
BILLING CODE 8011-01-P