Document ID: SEC-2014-1337-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-08-08T04:00Z

[Federal Register Volume 79, Number 153 (Friday, August 8, 2014)]
[Notices]
[Pages 46484-46489]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18746]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72748; File No. SR-NYSEArca-2014-46]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, To List 
and Trade Shares of the Fidelity Investment Grade Bond ETF, Fidelity 
Limited Term Bond ETF, and Fidelity Total Bond ETF Under NYSE Arca 
Equities Rule 8.600

August 4, 2014.

I. Introduction

    On April 16, 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'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Fidelity Investment Grade Bond ETF, Fidelity Limited Term Bond ETF, and 
Fidelity Total Bond ETF (each a ``Fund,'' and collectively ``Funds'') 
under NYSE Arca Equities Rule 8.600. On May 1, 2014, the Exchange filed 
Amendment No. 1 to the proposed rule change, which amended and replaced 
the proposed rule change in its entirety. The proposed rule change was 
published for comment in the Federal Register on May 6, 2014.\3\ On 
June 18, 2014, the Commission designated a longer period for Commission 
action on the proposed rule change.\4\ On July 28, 2014, the Exchange 
filed Amendment No. 2 to the proposed rule change,\5\ which amended and 
replaced the proposed rule change in its entirety. The Commission 
received no comments on the proposed rule change. The Commission is 
publishing this notice to solicit comments on Amendment No. 2 from 
interested persons and is approving the proposed rule change, as 
modified by Amendment Nos. 1 and 2, on an accelerated basis.
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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. 72064 (May 1, 2014), 
79 FR 25908 (``Notice'').
    \4\ See Securities Exchange Act Release No. 72422, 79 FR 25908 
(June 24, 2014).
    \5\ In Amendment No. 2, the Exchange: (1) Noted the replacement 
of Fidelity Management & Research Company with Fidelity Investments 
Money Management, Inc. as the Funds' manager (``Manager''); (2) 
stated that the Manager will have overall responsibility for 
directing each Fund's investments and handling each Fund's business 
affairs; (3) disclosed that FMR Co., Inc. (``FMRC'') is affiliated 
with the Manager; (4) disclosed that other investment advisors are 
affiliated with the Manager; (5) specified that only senior loans 
would be included in the definition of ``Debt Securities,'' one of 
the primary investments of the Funds; (6) designated structured 
securities, junior loans, and other securities believed to have 
debt-like characteristics, including hybrid securities, as non-
primary investments; (7) specified that the Funds' junior loans, 
structured securities, and hybrid securities would be valued based 
on price quotations obtained from a broker-dealer who makes markets 
in such securities or other equivalent indications of value provided 
by a third-party pricing service; (8) stated that the Funds' 
derivative investments also may overlie hybrid securities; (9) 
specified that, in computing each Fund's net asset value (``NAV''), 
junior loans, structured securities, and hybrid securities would be 
valued based on price quotations obtained from a broker-dealer who 
makes markets in such securities or other equivalent indications of 
value provided by a third-party pricing service; (10) expanded the 
information to disclosed daily about the portfolio of each Fund on 
the Funds' Web site to include: ticker symbol, CUSIP number or other 
identifier, if any; a description of the holding (including the type 
of holding, such as the type of swap); the identity of the security, 
commodity, index, or other asset or instrument underlying the 
holding, if any; for options, the option strike price; quantity held 
(as measured by, for example, par value, notional value, or number 
of shares, contracts, or units); maturity date, if any; coupon rate, 
if any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio; and 
(11) stated that quotation information for OTC-traded derivative 
instruments may be obtained from brokers and dealers who make 
markets in such instruments or through nationally recognized pricing 
services through subscription agreements.
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II. Description of the Proposed Rule Change

A. In General

    The Exchange proposes to list and trade the Shares pursuant to NYSE 
Arca Equities Rule 8.600, which governs the listing and trading of 
Managed Fund Shares. The Funds are offered by Fidelity Merrimack Street 
Trust (``Trust''), a Massachusetts business trust.\6\ Fidelity 
Investments Money Management, Inc. will be the Funds' manager and will 
have overall responsibility for directing each Fund's investments and 
handling each Fund's business affairs. \7\ FMRC, which is affiliated 
with the Manager, will serve as a sub-adviser for the Fidelity Total 
Bond ETF, and other investment advisers will serve as sub-advisers for 
the Funds (together with FMRC, ``Sub-Advisers'').\8\ Other investment 
advisers, which also are affiliates of the Manager, will assist the 
Manager with foreign investments; these investment advisers include 
Fidelity Management & Research (U.K.) Inc., Fidelity Management & 
Research (Hong Kong) Limited, and Fidelity Management & Research 
(Japan) Inc. Fidelity Distributors Corporation (``FDC'') will be the 
distributor for the Shares.\9\ Fidelity Distributors Corporation 
(``FDC'') will be the distributor for the Funds' Shares.\10\
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    \6\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). On April 17, 2014, the Trust 
filed with the Commission an amendment to its registration statement 
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) 
(``1933 Act'') and the 1940 Act relating to the Funds (File Nos. 
333-186372 and 811-22796) (the ``Registration Statement''). In 
addition, the Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act. See Investment 
Company Act Release No. 30513 (May 10, 2013) (``Exemptive Order'') 
(File No. 812-14104).
    \7\ See Amendment No. 2, supra note 5.
    \8\ See id.
    \9\ See id.
    \10\ See id.
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    The Exchange represents that the Manager and the Sub-Advisers are 
not broker-dealers but are affiliated with one or more broker-dealers, 
and that each (1) has implemented a fire wall with respect to 
affiliated broker-dealers regarding access to information concerning 
the composition of or changes to the portfolios, and (2) will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding the portfolios.\11\
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    \11\ See Commentary .06 to Rule 8.600. In the event (a) the 
Manager or any of the Sub-Advisers becomes a registered 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, the Manager or Sub-Adviser will 
implement a fire wall with respect to its relevant personnel or 
broker-dealer affiliate regarding access to information concerning 
the composition of or changes to the portfolio and will be subject 
to procedures designed to prevent the use and dissemination of 
material non-public information regarding the portfolio. See Notice, 
supra note 3, 79 FR at 25909.

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[[Page 46485]]

B. The Exchange's Description of the Funds

    The Exchange has made the following representations concerning the 
Fund.
Fidelity Investment Grade Bond ETF
    The Exchange states that the Fidelity Investment Grade Bond ETF 
would seek a high level of current income. The Manager would use the 
Barclays U.S. Aggregate Bond Index (``Aggregate Index'') as a guide in 
structuring the Fund and selecting its investments. The Manager would 
manage the Fund to have similar overall interest rate risk to the 
Aggregate Index.
    Normally,\12\ the Manager would invest at least 80% of the Fund's 
assets in investment-grade debt securities (those of medium and high 
quality).\13\ The debt securities in which the Fund may invest are: 
Corporate debt securities; U.S. Government securities; repurchase 
agreements and reverse repurchase agreements; \14\ money market 
securities; mortgage and other asset-backed securities; \15\ senior 
loans; loan participations and loan assignments and other evidences of 
indebtedness, including letters of credit, revolving credit facilities, 
and other standby financing commitments; stripped securities; municipal 
securities; sovereign debt obligations; and obligations of 
international agencies or supranational entities (collectively, ``Debt 
Securities'').\16\
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    \12\ The term ``normally'' includes, but is not limited to, the 
absence of adverse market, economic, political, or other conditions, 
including extreme volatility or trading halts in the fixed income 
markets or the financial markets generally; operational issues 
causing dissemination of inaccurate market information; or 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. According 
to the Registration Statement, each Fund reserves the right to 
invest without limitation in investment-grade money market or short-
term debt instruments for temporary, defensive purposes.
    \13\ Investment-grade debt securities include all types of debt 
instruments that are of medium and high-quality. An investment-grade 
rating means the security or issuer is rated investment-grade by a 
credit rating agency registered as a nationally recognized 
statistical rating organization with the Commission (for example, 
Moody's Investors Service, Inc.), or is unrated but considered to be 
of equivalent quality by the relevant Fund's Manager or Sub-Adviser.
    \14\ Investment-grade debt securities include repurchase 
agreements collateralized by U.S. Government securities as well as 
repurchase agreements collateralized by equity securities, non-
investment-grade debt, and all other instruments in which a Fund can 
perfect a security interest, provided that the repurchase agreement 
counterparty has an investment-grade rating.
    \15\ Each Fund may invest up to 20% of its total assets in 
mortgage-backed securities or in other asset-backed securities, 
although this 20% limitation will not apply to U.S. Government 
securities.
    \16\ See Amendment No. 2, supra note 5. Debt Securities may be 
fixed, variable, or floating rate securities. Variable rate 
securities provide for a specific periodic adjustment in the 
interest rate, while floating rate securities have interest rates 
that change whenever there is a change in a designated benchmark 
rate or the issuer's credit quality, sometimes subject to a cap or 
floor on the interest rate. Some variable or floating rate 
securities are structured with put features that permit holders to 
demand payment of the unpaid principal balance plus accrued interest 
from the issuers or certain financial intermediaries. In addition, 
Debt Securities may include zero coupon bonds. Investments in Debt 
Securities may have a leveraging effect on a Fund.
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    The Fund may hold uninvested cash or may invest it in cash 
equivalents such as: Repurchase agreements; shares of investment 
companies, including exchange traded funds registered under the 1940 
Act that primarily hold short-term bonds; or money market funds, 
including Fidelity central funds (special types of investment vehicles 
created by Fidelity for use by the Fidelity funds and other advisory 
clients).\17\ The Manager may invest the Fund's assets in Debt 
Securities of foreign issuers in addition to securities of domestic 
issuers.\18\
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    \17\ The Exchange states that currently it is expected that the 
Funds will only invest in Fidelity central funds that are money 
market funds. See Notice, supra note 3, 79 FR at 25910, n.22.
    \18\ The Exchange states that the Fund's holdings generally are 
expected to be U.S. dollar denominated. See id. at 25910, n.23.
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Fidelity Limited Term Bond ETF
    The Fidelity Limited Term Bond ETF would seek to provide a high 
rate of income. The Manager would use the Fidelity Limited Term 
Composite Index (``Composite Index'') as a guide in structuring the 
Fund and selecting its investments. The Manager would manage the Fund 
to have similar overall interest rate risk to the Composite Index.
    Normally, the Manager would invest at least 80% of the Fund's 
assets in investment-grade Debt Securities (those of medium and high 
quality). The Manager may invest the Fund's assets in Debt Securities 
of foreign issuers in addition to securities of domestic issuers. 
Additionally, the Fund may hold uninvested cash or may invest it in 
cash equivalents such as repurchase agreements, shares of short-term 
bond ETFs or mutual funds, or money market funds, including Fidelity 
central funds (special types of investment vehicles created by Fidelity 
for use by the Fidelity funds and other advisory clients).
Fidelity Total Bond ETF
    According to the Registration Statement, Fidelity Total Bond ETF 
would seek a high level of current income. The Manager would use the 
Barclays U.S. Universal Bond Index (``Universal Index'') as a guide in 
structuring the Fund and selecting its investments. The Manager would 
use the Universal Index as a guide in allocating the Fund's assets 
across the investment-grade, high yield, and emerging market asset 
classes (as discussed below). The Manager would manage the Fund to have 
similar overall interest rate risk to the Universal Index.
    Normally, the Manager would invest at least 80% of the Fund's 
assets in Debt Securities. The Manager would allocate the Fund's assets 
across investment-grade, high yield, and emerging market Debt 
Securities. The Manager may invest up to 20% of the Fund's assets in 
lower-quality Debt Securities.\19\ The Manager may invest the Fund's 
assets in Debt Securities of foreign issuers in addition to securities 
of domestic issuers.\20\
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    \19\ Lower-quality debt securities, also referred to as high 
yield debt securities, are those of less than investment-grade 
quality.
    \20\ The Fund's holdings may be U.S. dollar denominated and non-
dollar denominated.
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    According to the Registration Statement, the Fund may hold 
uninvested cash or may invest it in cash equivalents such as repurchase 
agreements, shares of short-term bond ETFs or mutual funds, or money 
market funds, including Fidelity central funds (special types of 
investment vehicles created by Fidelity for use by the Fidelity funds 
and other advisory clients).
    According to the Registration Statement, the Manager would allocate 
the Fund's assets among different asset classes, using the composition 
of the Universal Index as a guide, and among different market sectors 
(for example, corporate, asset-backed, or government securities) and 
different maturities based on its view of the relative value of each 
sector or maturity.
Other Investments
    As described above, although the Manager would normally invest at 
least 80% of assets of the Fidelity Investment Grade Bond ETF and 
Fidelity Limited Term Bond ETF in investment-grade Debt Securities and 
would normally invest at least 80% of assets of the Fidelity Total Bond 
ETF in Debt Securities, the Manager may invest up to 20% of a Fund's 
assets in other

[[Page 46486]]

securities and financial instruments, as summarized below.
    According to the Registration Statement, the Funds may invest in 
securities of other investment companies (other than the short-term 
bond investment companies described above). In addition, the Funds may 
invest in other exchange-traded products (``ETPs'')--other than the 
short-term bond ETFs described above--such as commodity pools, or in 
other entities that are traded on an exchange.
    According to the Registration Statement, the Funds may invest in 
inverse ETFs (also called ``short ETFs'' or ``bear ETFs''), shares of 
which are expected to increase in value as the value of the underlying 
benchmark decreases.
    According to the Registration Statement, the Funds also may invest 
in leveraged and inverse leveraged ETFs, which seek to deliver 
multiples or inverse multiples of the performance of an index or other 
benchmark they track and which use derivatives in an effort to amplify 
the returns of the underlying index or benchmark.
    According to the Registration Statement, the Funds may invest in 
exchange traded notes (``ETNs''), which are a type of senior, 
unsecured, unsubordinated debt security issued by financial 
institutions and which combine aspects of both bonds and ETFs. The 
Funds may invest in leveraged ETNs.
    According to the Registration Statement, the Funds may invest in 
American Depositary Receipts (``ADRs'') as well as other ``hybrid'' 
forms of ADRs, including European Depositary Receipts (``EDRs'') and 
Global Depositary Receipts (``GDRs''), which are certificates 
evidencing ownership of shares of a foreign issuer.\21\
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    \21\ The Funds will invest only in ADRs, EDRs, and GDRs that are 
traded on an exchange that is a member of the Intermarket 
Surveillance Group (``ISG'') or with which the Exchange has in place 
a comprehensive surveillance sharing agreement.
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    The Funds may invest in: junior loans, by buying an assignment of 
all or a portion of the junior loan from a lender or by purchasing a 
loan participation from a lender or other purchaser of a participation; 
structured securities; \22\ and other securities believed to have debt-
like characteristics, including hybrid securities,\23\ which may offer 
characteristics similar to those of a bond security (such as stated 
maturity and preference over equity in bankruptcy).\24\
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    \22\ Structured securities (also called ``structured notes'') 
are derivative debt securities, the interest rate on or principal of 
which is determined by an unrelated indicator. The Funds may invest 
in ``indexed securities,'' which are instruments whose prices are 
indexed to the prices of other securities, securities indexes, or 
other financial indicators.
    \23\ A hybrid security generally combines both debt and equity 
characteristics. A common type of hybrid security is a convertible 
bond that has features of a debt security, until a certain date or 
triggering event, at which point the security may be converted into 
an equity security. A hybrid security may also be a warrant, 
convertible security, certificate of deposit, or other evidence of 
indebtedness.
    \24\ See Amendment No. 2, supra note 5.
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    In addition to the investment-grade Debt Securities described 
above, Fidelity Investment Grade Bond ETF and Fidelity Limited Term 
Bond ETF may invest in lower-quality Debt Securities. The Manager may 
invest up to 10% of the Fidelity Investment Grade Bond ETF's assets in 
lower-quality Debt Securities. Lower-quality Debt Securities include 
all types of debt instruments that have poor protection with respect to 
the payment of interest and repayment of principal, or may be in 
default.
    In addition to the investment grade repurchase agreements described 
above, Investment Grade Bond ETF and Limited Term Bond ETF may invest 
in repurchase agreements with repurchase agreement counterparties that 
do not have an investment-grade rating, if those repurchase agreements 
are collateralized by U.S. Government securities as well as repurchase 
agreements collateralized by equity securities, non-investment-grade 
debt, and all other instruments in which a Fund can perfect a security 
interest.
    The Funds may invest in exchange-listed and non-exchange-listed 
preferred securities, exchange-listed or non-exchange-listed real 
estate investment trusts, and restricted securities,
    The Manager may make investments in the following types of 
derivatives: Futures (both long and short positions); U.S. exchange-
traded as well as over-the-counter (``OTC'') options (including options 
on futures and swaps); \25\ forwards; and swaps,\26\ including interest 
rate swaps (exchanging a floating rate for a fixed rate), total return 
swaps (exchanging a floating rate for the total return of an index, 
security, or other instrument or investment), and credit default swaps 
(buying or selling credit default protection).\27\ The Funds' 
derivative investments would overlie Debt Securities, hybrid 
securities,\28\ interest rates, currencies, or related indexes. 
Currency-related derivatives include foreign exchange (``FX'') 
transactions such as FX forwards, non-deliverable forwards, and cross-
currency FX trades (``Currency-related Derivatives'').
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    \25\ The Funds may also buy and sell options on swaps 
(swaptions), which are generally options on interest rate swaps.
    \26\ To limit the counterparty risk involved in swap agreements, 
a Fund will enter into swap agreements only with counterparties that 
meet certain standards of creditworthiness.
    \27\ Investments in derivatives may have a leveraging effect on 
a Fund. Not more than 10% of the net assets of a Fund in the 
aggregate shall consist of futures contracts or exchange-traded 
options contracts whose principal market is not a member of ISG or 
is a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement.
    \28\ See Amendment No. 2, supra note 5.
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    The Funds may conduct foreign currency transactions on a spot 
(i.e., cash) basis or forward basis (i.e., by entering into forward 
contracts to purchase or sell foreign currencies). The Funds may invest 
in options and futures relating to foreign currencies.\29\
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    \29\ The Funds' investments in foreign currency options will be 
exchange-listed.
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    The Funds may engage in transactions with financial institutions 
that are, or may be considered to be, ``affiliated persons'' of the 
Funds under the 1940 Act.\30\ These transactions may involve repurchase 
agreements with custodian banks; short-term obligations of, and 
repurchase agreements with, the 50 largest U.S. banks (measured by 
deposits); municipal securities; U.S. Government securities with 
affiliated financial institutions that are primary dealers in these 
securities; short-term currency transactions; and short-term 
borrowings.
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    \30\ The Exchange states that, in accordance with exemptive 
orders issued by the Commission, each Fund's Board of Trustees has 
established and periodically reviews procedures applicable to 
transactions involving affiliated financial institutions. See 
Notice, supra note 3, 79 FR at 25913.
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Additional Limitations on Investments
    Each Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Manager or Sub-
Advisers.\31\ Each Fund

[[Page 46487]]

would monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained and would 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 assets. Illiquid assets include assets 
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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    \31\ The Exchange states that each Fund currently does not 
intend to purchase any asset if, as a result, more than 10% of its 
net assets would be invested in assets that are deemed to be 
illiquid because they are subject to legal or contractual 
restrictions on resale or because they cannot be sold or disposed of 
in the ordinary course of business at approximately the prices at 
which they are valued. For purposes of a Fund's illiquid assets 
limitation discussed above, if through a change in values, net 
assets, or other circumstances, the Fund were in a position where 
more than 10% of its net assets were invested in illiquid assets, it 
would consider appropriate steps to protect liquidity. According to 
the Registration Statement, various factors may be considered in 
determining the liquidity of the Fund's investments, including: (1) 
The frequency of trades and quotes for the asset; (2) the number of 
dealers wishing to purchase or sell the asset and the number of 
other potential purchasers; (3) dealer undertakings to make a market 
in the asset; and (4) the nature of the asset and the nature of the 
marketplace in which it trades (including any demand, put or tender 
features, the mechanics and other requirements for transfer, any 
letters of credit or other credit enhancement features, any ratings, 
the number of holders, the method of soliciting offers, the time 
required to dispose of the security, and the ability to assign or 
offset the rights and obligations of the asset).
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    Any foreign equity securities in which a Fund may invest would be 
limited to securities that trade in markets that are members of ISG, 
which includes all U.S. national securities exchanges and certain 
foreign exchanges, or that are parties to a comprehensive surveillance 
sharing agreement with the Exchange.

III. 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 \32\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\33\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\34\ 
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. The Commission notes that the Funds and the Shares must 
comply with the requirements of NYSE Arca Equities Rule 8.600 for the 
Shares to be listed and traded on the Exchange.
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    \32\ 15 U.S.C. 78f.
    \33\ 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).
    \34\ 15 U.S.C. 78f(b)(5).
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    The Commission 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,\35\ 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. According to the 
Exchange, quotation and last-sale information for the Shares and 
underlying securities that are U.S. exchange listed, including ETFs, 
ETPs, ETNs, ADRs, EDRs, GDRs, exchange-traded REITs, exchange-traded 
preferred securities, and exchange-traded convertible securities, will 
be available via the Consolidated Tape Association (``CTA'') high-speed 
line.\36\ Quotation and last-sale information for such U.S. exchange-
listed securities as well as futures will be available from the 
exchange on which they are listed.\37\ Quotation and last-sale 
information for exchange-listed options will be available via the 
Options Price Reporting Authority.\38\ Quotation information for OTC-
Traded Securities and investment company securities (excluding ETFs), 
as well as for OTC-traded derivative instruments (such as options, 
swaps, forwards, and Currency-related Derivatives), may be obtained 
from brokers and dealers who make markets in such securities or through 
nationally recognized pricing services through subscription 
agreements.\39\ In addition, the Portfolio Indicative Value, 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.\40\ On each business day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, each Fund would disclose on its Web site the Disclosed 
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that 
would form the basis for such Fund's calculation of NAV at the end of 
the business day.\41\ The NAV of each Fund normally would be determined 
once daily Monday through Friday, generally as of the regularly 
scheduled close of business of the New York Stock Exchange (normally 
4:00 p.m. Eastern Time) on each day the New York Stock Exchange is open 
for trading. A basket composition file, which would include the 
security names and share quantities required to be delivered in 
exchange for each Fund's Shares, together with estimates and actual 
cash components, would be publicly disseminated daily prior to the 
opening of the New York Stock Exchange via the National Securities 
Clearing Corporation. Information regarding market price and trading 
volume of the Shares would 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 would be published 
daily in the financial section of newspapers. The Web site for the 
Funds would include a form of the prospectus for the Funds and 
additional data relating to NAV and other applicable quantitative 
information.
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    \35\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \36\ See Notice, supra note 3, 79 FR at 25916.
    \37\ See id.
    \38\ See id.
    \39\ See Amendment No. 2, supra note 5.
    \40\ The Exchange states that several major market data vendors 
display or make widely available Portfolio Indicative Values taken 
from the CTA or other data feeds. See Notice, supra note 3, 79 FR at 
25916, n.58.
    \41\ On a daily basis, each Fund will disclose for each 
portfolio security and other financial instrument of the Fund the 
following information: Ticker symbol, CUSIP number or other 
identifier, if any; a description of the holding (including the type 
of holding, such as the type of swap); the identity of the security, 
commodity, index, or other asset or instrument underlying the 
holding, if any; for options, the option strike price; quantity held 
(as measured by, for example, par value, notional value, or number 
of shares, contracts or units); maturity date, if any; coupon rate, 
if any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. See 
Amendment No. 2, supra note 5. The Web site information will be 
publicly available at no charge. See Notice, supra note 3, 79 FR at 
25916.
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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 Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share of 
each Fund will be calculated daily and that the NAV and the Disclosed 
Portfolio will be made available to all market participants at the same 
time.\42\ In addition, trading in the Shares would be subject to NYSE 
Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares of a Fund may be halted. The Exchange may halt trading in 
the Shares if trading is not occurring in the securities or financial 
instruments constituting the Disclosed Portfolio of a Fund, or if other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.\43\ Further, the

[[Page 46488]]

Commission notes that the Reporting Authority that provides the 
Disclosed Portfolio of each Fund 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 
portfolio.\44\ In addition, the Exchange may obtain information 
regarding trading in the Shares and underlying exchange-traded options, 
futures, exchange traded-equity securities (including ADRs, EDRs, and 
GDRs), and other exchange-traded instruments from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Commission 
also notes that FINRA, on behalf of the Exchange, is able to access, as 
needed, trade information for certain fixed income securities held by 
the Funds reported to FINRA's Trade Reporting and Compliance 
Engine.\45\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees.\46\ The Exchange represents that the Manager and the Sub-
Advisers are not broker-dealers but are affiliated with one or more 
broker-dealers, and that each (1) has implemented a firewall with 
respect to affiliated broker-dealers regarding access to information 
concerning the composition of or changes to the portfolios, and (2) 
would be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
portfolios.\47\
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    \42\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \43\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing 
additional considerations for the suspension of trading in or 
removal from listing of Managed Fund Shares on the Exchange). 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 each Fund. Trading in Shares of a Fund will be halted 
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 
have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
    \44\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \45\ See Notice, supra note 3, 79 FR at 25917.
    \46\ See id.
    \47\ See supra note 11. 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 its 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.
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    The Exchange represents 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.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Shares of each Fund will conform to the initial and 
continued listing criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading in the Shares will be subject to the existing 
surveillance procedures administered by FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws, and these procedures are adequate 
to properly monitor Exchange trading of the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
federal securities laws applicable to trading on the Exchange.
    (4) 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 
Units (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.
    (5) For initial and continued listing, the Funds will be in 
compliance with Rule 10A-3 under the Exchange Act,\48\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \48\ 17 CFR 240.10A-3.
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    (6) A Fund may hold up to an aggregate amount of 15% of its net 
assets (calculated at the time of investment) in assets deemed illiquid 
by the Adviser, consistent with Commission guidance.
    (7) A minimum of 100,000 Shares of each Fund will be outstanding at 
the commencement of trading on the Exchange.
    (8) Each Fund will invest no more than 20% of its total assets in 
mortgage-backed securities or in other asset-backed securities, 
provided that this limitation does not apply to U.S. Government 
securities.
    (9) The Funds will invest only in ADRs, EDRs, and GDRs that are 
traded on an exchange that is a member of the ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement.
    (10) Not more than 10% of the net assets of a Fund in the aggregate 
shall consist of futures contracts or exchange-traded options contracts 
whose principal market is not a member of ISG or is a market with which 
the Exchange does not have a comprehensive surveillance sharing 
agreement.
    (11) The Funds' investments in foreign currency options will be 
exchange-listed. This approval order is based on all of the Exchange's 
representations and description of the Funds, including those set forth 
above and in the Notice.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment Nos. 1 and 2, is consistent with 
Section 6(b)(5) of the Act \49\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \49\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments on Amendment No. 2

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 2 
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-2014-46 on the subject line.

[[Page 46489]]

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-2014-46. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml 
). Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2014-46 and should 
be submitted on or before August 29, 2014.

V. Accelerated Approval of Proposed Rule Change as Modified by 
Amendment Nos. 1 and 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment Nos. 1 and 2, prior to the thirtieth 
day after the date of publication of notice of Amendment No. 2 in the 
Federal Register. Amendment No. 2 supplements the proposed rule change 
by, among other things: (1) Re-designating certain asset classes (i.e., 
junior loans, structured securities, and securities believed to have 
debt-like characteristics, including hybrid securities) as non-primary 
investments; (2) providing additional information regarding the NAV 
valuation of Funds' junior loans, structured securities, and hybrid 
securities; (3) expanding the information to be disclosed daily about 
the portfolio of each Fund on the Funds' Web site; and (4) providing 
information regarding the availability of price information for OTC-
traded derivative instruments, which may be held by the Funds. The 
Commission believes that this additional information should aid in the 
pricing of the Shares. Accordingly, the Commission finds good cause, 
pursuant to Section 19(b)(2) of the Act,\50\ to approve the proposed 
rule change, as modified by Amendment Nos. 1 and 2, on an accelerated 
basis.
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    \50\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the 
Act,\51\ that the proposed rule change (SR-NYSEArca-2014-46), as 
modified by Amendment Nos. 1 and 2, be, and it hereby is, approved on 
an accelerated basis.
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    \51\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\52\
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    \52\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18746 Filed 8-7-14; 8:45 am]
BILLING CODE 8011-01-P