Document ID: SEC-2016-1212-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Bats BZX Exchange, Inc.
Posted Date: 2016-07-14T04:00Z

[Federal Register Volume 81, Number 135 (Thursday, July 14, 2016)]
[Notices]
[Pages 45546-45554]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16615]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78264; File No. SR-BatsBZX-2016-35]

Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the 
JPMorgan Global Bond Opportunities ETF

July 8, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on July 1, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II 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\ 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 filed a proposal to list and trade shares of the 
JPMorgan Global Bond Opportunities ETF (the ``Fund'') of the J.P. 
Morgan Exchange-Traded Fund Trust (the ``Trust'') under BZX Rule 
14.11(i) (``Managed Fund Shares''). The shares of the Fund are 
collectively referred to herein as the ``Shares.''
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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 Exchange 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 these 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares under BZX Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ All statements and representations made in this 
filing regarding (a) the description of the portfolio, (b) limitations 
on portfolio holdings or reference assets, or (c) the applicability of 
Exchange rules and surveillance procedures shall constitute continued 
listing requirements for listing the Shares on the Exchange. The Fund 
will be an actively managed fund. The Shares will be offered by the 
Trust, which was established as a Delaware statutory trust on February 
25, 2010. The Trust is registered with the Commission as an open-end 
investment company and has filed a registration statement with respect 
to the Fund on Form N-1A (``Registration Statement'') with the 
Commission.\4\
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    \3\ The Commission approved BZX Rule 14.11(i) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ See Registration Statement on Form N-1A for the Trust, dated 
May 26, 2016 (File Nos. 333-191837 and 811-22903). The descriptions 
of the Fund and the Shares contained herein are based, in part, on 
information in the Registration Statement. The Commission has issued 
an order granting certain exemptive relief to the Trust under the 
Investment Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') (the 
``Exemptive Order''). See Investment Company Act Release No. 31990 
(February 9, 2016) (File No. 812-13761).
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Description of the Shares and the Fund
    J.P. Morgan Investment Management Inc. will be the investment 
adviser (``JPMIM'' or ``Adviser'') to the Fund. The Adviser will serve 
as the administrator for the Fund (the ``Administrator''). SEI 
Investments Distribution Co. (the ``Distributor'') serves as the 
distributor for the Trust. JPMorgan Chase Bank, N.A. will act as the 
custodian (the ``Custodian'') and transfer agent (``Transfer Agent'') 
for the Trust.
    BZX Rule 14.11(i)(7) provides that, if the investment adviser to 
the investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company portfolio.\5\ In addition, Rule 14.11(i)(7) further 
requires that personnel who make decisions on the investment company's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material

[[Page 45547]]

nonpublic information regarding the applicable investment company 
portfolio. Rule 14.11(i)(7) is similar to BZX Rule 14.11(b)(5)(A)(i), 
however, Rule 14.11(i)(7) in connection with the establishment of a 
``fire wall'' between the investment adviser and the broker-dealer 
reflects the applicable open-end fund's portfolio, not an underlying 
benchmark index, as is the case with index-based funds. The Adviser is 
not registered as a broker-dealer but the Adviser is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. In the event (a) 
the Adviser becomes registered as a broker-dealer or newly affiliated 
with a broker-dealer, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, it 
will implement a fire wall with respect to its relevant personnel or 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \5\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``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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JPMorgan Global Bond Opportunities ETF
    According to the Registration Statement, the Fund will seek to 
provide total return by investing across sectors in developed and 
emerging markets located around the world. The Fund is an actively-
managed fund that does not seek to replicate the performance of a 
specified index. Because the Fund is not managed to a benchmark, the 
Adviser has broad discretion to shift the Fund's exposure to 
strategies, sectors, countries or currencies based on changing market 
conditions and its view of the best mix of investment opportunities. In 
buying and selling investments for the Fund, the Adviser allocates the 
Fund's exposure to strategies, sectors, countries and currencies based 
on the Adviser's analysis of individual investments and broader 
economic conditions in individual countries, regions and the world. 
This allows the Adviser to take a conservative approach during 
uncertain periods and move into higher risk opportunities as market 
conditions improve, which may result in the Fund focusing in only a few 
markets and sectors.
    Under normal circumstances, the Fund will invest at least 80% of 
its net assets (plus the amount of borrowings for investment purposes) 
(``Assets'') in bonds. Under normal circumstances, the Fund will invest 
at least 40% of its Assets in countries other than the United States. 
The Fund may invest in developed or emerging markets. Emerging markets 
currently includes most countries in the world except Australia, 
Canada, Japan, New Zealand, the U.S., the United Kingdom and most 
western European countries and Hong Kong. In managing the Fund, the 
Adviser will seek to diversify the Fund's portfolio by investing in 
issuers in at least three countries other than the U.S. The Fund may 
invest a substantial part of its assets in just one country and is not 
required to allocate its investments in any set percentages in any 
particular countries.
    Although the Fund has the flexibility to invest without limit in 
securities that are rated below investment grade (also known as junk 
bonds or high yield securities), or the unrated equivalent, the Fund 
generally invests at least 25% of the Fund's Assets in securities that 
at the time of purchase are rated investment grade or the unrated 
equivalent. The Fund has flexibility to decrease the percentage of 
Assets invested in investment grade securities at any time to take 
advantage of higher risk opportunities when market conditions are 
improving.
    The Fund currently seeks to maintain a duration of eight years or 
less, although the Fund has the flexibility to maintain a longer 
duration under certain market conditions such as significant volatility 
in interest rates and spreads. Duration is a measure of the price 
sensitivity of a debt security or a portfolio of debt securities to 
relative changes in interest rates. For instance, a duration of three 
years means that a security's or portfolio's price would be expected to 
decrease by approximately 3% with a 1% increase in interest rates 
(assuming a parallel shift in yield curve).
    As part of its principal investment strategy and for temporary 
defensive purposes, any portion of the Fund's total assets may be 
invested in cash and cash equivalents.
Principal Holdings
    The Fund intends to achieve its investment objective by investing, 
under normal circumstances,\6\ 80% of its Assets in bonds (a debt 
security with a maturity of 90 days or more at the time of its 
issuance) (``Bonds''), subject to certain limits described below. For 
purposes of this filing, Bonds will be defined as the following 
instruments: Asset-backed securities \7\ (including mortgages,\8\ 
mortgage dollar rolls,\9\ and stripped mortgage-backed securities); 
\10\ bank obligations; commercial paper; \11\ convertible bonds; 
corporate debt securities; \12\ inflation-linked debt securities; 
inverse floating rate instruments; \13\ municipal securities; \14\

[[Page 45548]]

obligations of supranational agencies; private placements, restricted 
securities, and other unregistered securities; securities issued in 
connection with reorganizations and corporate restructurings; sovereign 
obligations; structured investments; \15\ treasury receipts; \16\ trust 
preferreds; U.S. Government Agency Securities; \17\ U.S. Government 
obligations; \18\ and zero-coupon, pay-in-kind, and deferred payment 
securities.\19\ Bonds may have fixed or variable interest rates \20\ 
and be of any maturity.
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    \6\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of 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.
    \7\ Asset-backed securities (``ABS'') include securities secured 
by company receivables, home equity loans, truck and auto loans, 
leases, and credit card receivables or other securities backed by 
other types of receivables or other assets. ABS includes mortgage-
backed securities (``MBS''), which are debt obligations secured by 
real estate loans and pools of loans such as collateralized mortgage 
obligations (``CMOs''), commercial mortgage-backed securities 
(``CMBS''), and other asset-backed structures. The Fund may not 
invest more than 20% of its portfolio in a combination of: Illiquid 
ABS (as determined in footnote 31, below), and distressed or 
defaulted loans, including non-performing loans and reperforming 
loans.
    \8\ Mortgages are debt instruments secured by real property and 
include adjustable rate mortgage loans (``ARMs''), which are loans 
in a mortgage pool which provide for a fixed initial mortgage 
interest rate for a specified period of time, after which the rate 
may be subject to periodic adjustments.
    \9\ Mortgage dollar rolls involve a transaction in which the 
Fund sells securities for delivery in a current month and 
simultaneously contracts with the same party to repurchase similar 
but not identical securities on a specified future date.
    \10\ Stripped mortgage-backed securities are securities which 
are usually structured with two classes of shares that receive 
different proportions of the interest and principal from a pool of 
mortgage assets. These include Interest-Only (``IO'') and Principal-
Only (``PO'') securities issued outside a Real Estate Mortgage 
Investment Conduit (``REMIC'') or CMO structure.
    \11\ Secured and unsecured short-term promissory notes issued by 
corporations and other entities. Maturities generally vary from a 
few days to nine months.
    \12\ May include bonds and other debt securities of domestic and 
foreign issuers, including obligations of industrial, utility, 
banking and other corporate issuers [sic]. While the Fund is 
permitted to invest without restriction in corporate bonds, the 
Adviser expects that, under normal circumstances, the Fund will 
generally seek to invest in corporate bond issuances that have at 
least $100,000,000 par amount outstanding. Further, component 
corporate bonds that in the aggregate account for at least 75% of 
the weight of corporate bonds will have a minimum original principal 
outstanding of $100 million or more.
    \13\ Inverse floating rate instruments are leveraged variable 
debt instruments with interest rates that reset in the opposite 
direction from the market rate of interest to which the inverse 
floater is indexed.
    \14\ Municipal securities held by the Fund will be rated Baa3/
BBB- or higher by at least two of the following ratings agencies if 
all three agencies rate the security: Moody's, S&P and Fitch. If 
only two of the three agencies rate the security, the lower rating 
is used. If only one of the three agencies rates a security, the 
rating must be at least Baa3/BBB-. Municipal securities held by the 
Fund will have an outstanding par value of at least $7 million and 
be issued as part of a transaction of at least $75 million.
    \15\ A structured investment is a security having a return tied 
to an underlying index or other security or asset class. Structured 
investments generally are individually negotiated agreements and may 
be traded over-the-counter. Structured investments are organized and 
operated to restructure the investment characteristics of the 
underlying security.
    \16\ The Fund may purchase interests in separately traded 
interest and principal component parts of U.S. Treasury obligations 
that are issued by banks or brokerage firms and that are created by 
depositing U.S. Treasury notes and U.S. Treasury bonds into a 
special account at a custodian bank. Receipts include Treasury 
Receipts (``TRs''), Treasury Investment Growth Receipts (``TIGRs''), 
and Certificates of Accrual on Treasury Securities (``CATS'').
    \17\ U.S. Government Agency Securities include securities issued 
by agencies and instrumentalities of the U.S. government. These 
include all types of securities issued by the Government National 
Mortgage Association (``Ginnie Mae''), the Federal National Mortgage 
Association (``Fannie Mae'') and the Federal Home Loan Mortgage 
Corporation (``Freddie Mac''), including funding notes, subordinated 
benchmark notes, CMOs and REMICs.
    \18\ U.S. Government obligations include direct obligations of 
the U.S. Treasury, including Treasury bills, notes and bonds, all of 
which are backed as to principal and interest payments by the full 
faith and credit of the United States, and separately traded 
principal and interest component parts of such obligations that are 
transferable through the Federal book-entry system known as Separate 
Trading of Registered Interest and Principal of Securities 
(``STRIPS'') and Coupons Under Book Entry Safekeeping (``CUBES'').
    \19\ Zero-coupon securities are securities that are sold at a 
discount to par value and on which interest payments are not made 
during the life of the security. Pay-in-kind securities are 
securities that have interest payable by delivery of additional 
securities. Deferred payment securities are zero-coupon debt 
securities which convert on a specified date to interest bearing 
debt securities.
    \20\ A variable rate security provides for the automatic 
establishment of a new interest rate on set dates. Variable rate 
obligations whose interest is readjusted no less frequently than 
annually will be deemed to have a maturity equal to the period 
remaining until the next readjustment of the interest rate. The Fund 
may also purchase floating rate securities. A floating rate security 
provides for the automatic adjustment of its interest rate whenever 
a specified interest rate changes. Interest rates on these 
securities are ordinarily tied to, and are a percentage of, a widely 
recognized interest rate, such as the yield on 90-day U.S. Treasury 
bills or the prime rate of a specified bank. These rates may change 
as often as twice daily.
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    In addition to investing at least 80% of its Assets in Bonds, the 
Fund may also invest in the following instruments as part of its 
principal investment strategy (``Non-Bonds''): Custodial receipts; \21\ 
derivatives, including options,\22\ swaps,\23\ and futures; exchange 
traded funds (``ETFs''); \24\ foreign currency transactions; \25\ 
investment company securities that are not ETFs; \26\ preferred stock; 
and short-term funding agreements.\27\
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    \21\ The Fund may acquire securities in the form of custodial 
receipts that evidence ownership of future interest payments, 
principal payments or both on certain U.S. Treasury notes or bonds 
in connection with programs sponsored by banks and brokerage firms. 
These are not considered to be U.S. government securities. These 
notes and bonds are held in custody by a bank on behalf of the 
owners of the receipts.
    \22\ The Fund may invest in OTC and exchange-traded call and put 
options, including only the following: Fixed income securities, 
currencies, and indexes of fixed income, currencies, or credit 
default swaps. All options will be covered.
    \23\ The Fund may invest in swaps, including only the following: 
Interest rate swaps, credit default swaps, currency swaps, and total 
return swaps.
    \24\ For purposes of this filing, ETFs include Index Fund Shares 
(as described in Rule 14.11(c)); Portfolio Depositary Receipts (as 
described in Rule 14.11(b)); and Managed Fund Shares (as described 
in Rule 14.11(i)). The ETFs all will be listed and traded in the 
U.S. on registered exchanges. The Fund may invest in the securities 
of ETFs registered under the 1940 Act consistent with the 
requirements of Section 12(d)(1) of the 1940 Act, or any rule, 
regulation or order of the Commission or interpretation thereof. The 
Fund will not invest in inverse or leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
    \25\ Foreign currency transactions will be used to hedge against 
currency risks, for other risk management purposes, to increase 
income or gain to the Fund, and/or for other investment purposes 
and, in addition to the derivative strategies described above, may 
include spot and forward foreign currency transactions (including 
non-deliverable forwards (``NDFs'') and forward rate agreements. The 
Fund may engage in such transactions in both U.S. and non-U.S. 
markets.
    \26\ Investment company securities include shares of other 
investment companies, including money market funds for which the 
Adviser and/or its affiliates serve as investment adviser or 
administrator. The Adviser will waive certain fees when investing in 
funds for which it serves as investment adviser, to the extent 
required by law or contract.
    \27\ Short-term funding agreements are agreements issued by 
banks and highly rated U.S. insurance companies such as Guaranteed 
Investment Contracts (GICs) and Bank Investment Contracts (BICs).
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Other Portfolio Holdings
    While the Adviser, under normal circumstances, will invest at least 
80% of the Fund's Assets in Bonds and may invest additionally in Non-
Bonds described above as part of its principal investment strategy, the 
Adviser may invest up to 20% of the Fund's Assets in other securities 
and financial instruments, as described below.
    The Fund may invest in auction rate securities, which include 
auction rate municipal securities and auction rate preferred securities 
issued by closed-end investment companies.
    The Fund may invest in Brady Bonds, which are securities created 
through the exchange of existing commercial bank loans to sovereign 
entities for new obligations in connection with a debt restructuring.
    The Fund may invest in commodity-related pooled investment 
vehicles, which include only the following instruments: Trust Issued 
Receipts (as defined in BATS Rule 14.11(f)); Commodity-Based Trust 
Shares (as defined in Rule 14.11(e)(4)); Currency Trust Shares (as 
defined in Rule 14.11(e)(5)); Commodity Index Trust Shares (as defined 
in Rule 14.11(e)(6)); Trust Units (as defined in Rule 14.11(e)(9)); and 
Paired Class Shares (as defined in NASDAQ Stock Market LLC Rule 5713). 
The Fund will not invest in inverse or leveraged (e.g., 2X, -2X, 3X or 
-3X) commodity-related pooled investment vehicles pooled investment 
vehicles.
    The Fund may invest in commodity-linked derivatives, which are 
derivatives for which the value derives from the price of a commodity, 
including commodity futures and commodity options.
    The Fund may invest in U.S. equity securities. Equity securities 
are securities that represent an ownership interest (or the right to 
acquire such an interest) in a company and include common and preferred 
stock, warrants, and rights. The Fund's investments in such U.S. equity 
securities may include securities traded over-the-counter as well as 
those traded on a securities exchange. The Fund may purchase such 
securities on a forward commitment or when-issued or delayed delivery 
basis, which means delivery and payment take place a number of days 
after the date of the commitment to purchase.
    The Fund may purchase exchange-traded common stocks, exchange-
traded warrants, and exchange-traded rights in foreign corporations. 
The Fund's investments in common stock of foreign corporations may also 
be in the form of American Depositary Receipts (``ADRs''), Global 
Depositary Receipts (``GDRs'') and European Depositary Receipts 
(``EDRs'') (collectively ``Depositary Receipts'').\28\
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    \28\ Depositary Receipts are receipts, typically issued by a 
bank or trust company, which evidence ownership of underlying 
securities issued by a foreign corporation. For ADRs, the depository 
is typically a U.S. financial institution and the underlying 
securities are issued by a foreign issuer. For other Depositary 
Receipts, the depository may be a foreign or a U.S. entity, and the 
underlying securities may have a foreign or a U.S. issuer. 
Depositary Receipts will not necessarily be denominated in the same 
currency as their underlying securities. Generally, ADRs, in 
registered form, are designed for use in the U.S. securities market, 
and EDRs, in bearer form, are designated for use in European 
securities markets. GDRs are tradable both in the United States and 
in Europe and are designed for use throughout the world. The Fund 
will not invest in unsponsored ADRs. All exchange-traded equity 
securities in which the Fund may invest will trade on markets that 
are members of the Intermarket Surveillance Group (``ISG'') or that 
have entered into a comprehensive surveillance agreement with the 
Exchange.

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[[Page 45549]]

    The Fund may invest in convertible securities traded on an exchange 
or OTC that are not described in the Principal Holdings section above. 
Convertible securities are securities that may be converted or 
exchanged (by the holder or by the issuer) into shares of the 
underlying common stock (or cash or securities of equivalent value) at 
a stated exchange ratio. Convertible securities include contingent 
convertible securities.\29\
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    \29\ A contingent convertible security is a hybrid debt security 
typically issued by a non-U.S. bank that may be convertible into 
equity or may be written down if a pre-specified trigger event such 
as a decline in capital ratio below a prescribed threshold occurs.
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    The Fund may invest in loan assignments and participations, which 
are assignments of, or participations in, all or a portion of loans to 
corporations or to governments, including governments in less developed 
countries. The Fund may also invest in commitments to purchase loan 
assignments.
    The Fund may invest in exchange-traded master limited partnerships 
(``MLPs'').
Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its Assets in 
illiquid assets (calculated at the time of investment), including 
Restricted Securities deemed illiquid by the Adviser \30\ under the 
1940 Act.\31\ The Fund will 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 will consider 
taking appropriate steps in order to maintain adequate liquidity if, 
through a change in values, Assets, or other circumstances, more than 
15% of the Fund's Assets are held in illiquid assets. A security is 
considered illiquid if it cannot be ``sold or disposed of in the 
ordinary course of business within 7 days at approximately the value'' 
at which it is being carried by the Fund.
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    \30\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace in which it trades (e.g., 
the time needed to dispose of the security, the method of soliciting 
offers, and the mechanics of transfer).
    \31\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
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    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\32\ The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification, and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
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    \32\ 26 U.S.C. 851.
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    The Fund does not have an investment objective seeking to return 
two times or three times the Fund's benchmark.
Net Asset Value
    According to the Registration Statement, the NAV of the Fund's 
Shares generally will be calculated once daily Monday through Friday as 
of the close of regular trading on the Exchange, generally 4:00 p.m. 
Eastern Time (the ``NAV Calculation Time'') on each day that the 
Exchange is open for trading, based on prices at the NAV Calculation 
Time. NAV per Share is calculated by dividing the Fund's Assets by the 
number of Fund Shares outstanding. The Fund's Assets are valued 
primarily on the basis of market quotations. Expenses and fees, 
including the management fees, will be accrued daily and taken into 
account for purposes of determining NAV.
    Convertible bonds, ARMs, ABS, bank obligations, corporate debt 
securities, inflation-linked debt securities, inverse floating rate 
instruments, mortgage dollar rolls, municipal securities, obligations 
of supranational agencies, private placements, restricted securities, 
and other unregistered securities, securities issued in connection with 
reorganizations and corporate restructurings, short-term funding 
agreements, sovereign obligations, stripped mortgage-backed securities, 
structured investments, treasury receipts, trust preferreds, U.S. 
Government Agency Securities, U.S. Government obligations, zero-coupon, 
pay-in-kind, and deferred payment securities, commercial paper, auction 
rate securities, when-issued securities, delayed delivery securities, 
and forward commitments, loan assignments and participations, and Brady 
Bonds will be valued at prices supplied by approved pricing services 
which is generally based on bid-side quotations. Non-ARM mortgages will 
be valued based on prices received from pricing vendor who provides bid 
prices. CDS will be valued at market quotations supplied by approved 
pricing services.
    Common stocks and other exchange-traded equity securities 
(including shares of preferred securities, convertible securities, 
MLPs, commodity-related pooled investment vehicles, and ETFs) generally 
will be valued at the last sale price or official closing price on the 
primary exchange. Warrants and rights are generally valued at their 
intrinsic value. Custodial receipts are valued at their intrinsic value 
based on the terms of the receipts. Foreign equities and exchange-
listed Depositary Receipts will be valued at the last sale price or 
official market closing price on the primary exchange and is subject to 
adjustment (fair value) each day by applying a fair value factor 
provided by approved pricing services. U.S. equity securities traded 
OTC, OTC-traded preferred securities, and OTC-traded convertible 
securities will 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. 
Securities of non-exchange traded investment companies will be valued 
at NAV.
    Listed futures will generally be valued at the settlement price 
determined by the applicable exchange. Exchange-traded options on U.S. 
equity exchanges are generally valued at the composite mean price, 
using the National Best Bid and Offer quotes. Other exchange traded 
options are valued at the settlement price of the relevant exchange. 
Listed swaps will be valued on the basis of quotations or equivalent 
indication of value supplied by a third-party pricing service or 
broker-dealer who makes markets in such instruments. Non-exchange 
traded derivatives, including OTC-traded options and swaps are priced 
utilizing market quotations provided by approved pricing services. 
Foreign currency transactions will be valued based on foreign exchange 
rates obtained from an approved pricing service, using spot and forward 
rates

[[Page 45550]]

available at the time net asset values of the fund is calculated.
Creation and Redemption of Shares
    The NAV of Shares of the Fund will be determined once each business 
day, normally 4:00 p.m. Eastern time. The Fund currently anticipates 
that a Creation Unit will consist of 100,000 Shares, though this number 
may change from time to time, including prior to the listing of the 
Fund. The exact number of Shares that will comprise a Creation Unit 
will be disclosed in the Registration Statement of the Fund. The Trust 
will issue and sell Shares of the Fund only in Creation Units on a 
continuous basis, without a sales load (but subject to transaction 
fees), at their NAV per Share next determined after receipt of an 
order, on any business day, in proper form. Creation and redemption 
will typically occur in cash, however, the Trust retains discretion to 
conduct such transactions on an in-kind basis or a combination of cash 
and in-kind, as further described below.
    The consideration for purchase of a Creation Unit of the Fund 
generally will consist of either (i) the in-kind deposit of a 
designated portfolio of securities (the ``Deposit Securities'') per 
each Creation Unit and the Cash Component (defined below), computed as 
described below, or (ii) the cash value of the Deposit Securities 
(``Deposit Cash'') and the ``Cash Component,'' computed as described 
below. When accepting purchases of Creation Units for cash, the Fund 
may incur additional costs associated with the acquisition of Deposit 
Securities that would otherwise be provided by an in-kind purchaser. 
Together, the Deposit Securities or Deposit Cash, as applicable, and 
the Cash Component constitute the ``Fund Deposit,'' which represents 
the minimum initial and subsequent investment amount for a Creation 
Unit of the Fund. The ``Cash Component'' is an amount equal to the 
difference between the NAV of the Shares (per Creation Unit) and the 
market value of the Deposit Securities or Deposit Cash, as applicable. 
If the Cash Component is a positive number (i.e., the NAV per Creation 
Unit exceeds the market value of the Deposit Securities or Deposit 
Cash, as applicable), the Cash Component shall be such positive amount. 
If the Cash Component is a negative number (i.e., the NAV per Creation 
Unit is less than the market value of the Deposit Securities or Deposit 
Cash, as applicable), the Cash Component will be such negative amount 
and the creator will be entitled to receive cash in an amount equal to 
the Cash Component. The Cash Component serves the function of 
compensating for any differences between the NAV per Creation Unit and 
the market value of the Deposit Securities or Deposit Cash, as 
applicable.
    The Custodian, through the National Securities Clearing Corporation 
(``NSCC''), will make available on each business day, prior to the 
opening of business on the Exchange, the list of the names and the 
required amount of each Deposit Security or the required amount of 
Deposit Cash, as applicable, to be included in the current Fund Deposit 
(based on information at the end of the previous business day) for the 
Fund. Such Fund Deposit is subject to any applicable adjustments as 
described in the Registration Statement, in order to effect purchases 
of Creation Units of the Fund until such time as the next-announced 
composition of the Deposit Securities or the required amount of Deposit 
Cash, as applicable, is made available.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through the Transfer Agent and only on a business day.
    With respect to the Fund, the Custodian, through the NSCC, will 
make available immediately prior to the opening of business on the 
Exchange (9:30 a.m. Eastern time) on each business day, the list of the 
names and share quantities of the Fund's portfolio securities that will 
be applicable (subject to possible amendment or correction) to 
redemption requests received in proper form on that day (``Fund 
Securities''). Fund Securities received on redemption may not be 
identical to Deposit Securities.
    Redemption proceeds for a Creation Unit will be paid either in-kind 
or in cash or a combination thereof, as determined by the Trust. With 
respect to in-kind redemptions of the Fund, redemption proceeds for a 
Creation Unit will consist of Fund Securities as announced by the 
Custodian on the business day of the request for redemption received in 
proper form plus cash in an amount equal to the difference between the 
NAV of the Shares being redeemed, as next determined after a receipt of 
a request in proper form, and the value of the Fund Securities (the 
``Cash Redemption Amount''), less a fixed redemption transaction fee 
and any applicable additional variable charge as set forth in the 
Registration Statement. In the event that the Fund Securities have a 
value greater than the NAV of the Shares, a compensating cash payment 
equal to the differential will be required to be made by or through an 
authorized participant by the redeeming shareholder. Notwithstanding 
the foregoing, at the Trust's discretion, an authorized participant may 
receive the corresponding cash value of the securities in lieu of the 
in-kind securities value representing one or more Fund Securities.\33\
---------------------------------------------------------------------------

    \33\ The Adviser represents that, to the extent that the Trust 
permits or requires a ``cash in lieu'' amount, such transactions 
will be effected in the same or equitable manner for all Authorized 
Participants.
---------------------------------------------------------------------------

    The creation/redemption order cut-off time for the Fund is expected 
to be 4:00 p.m. Eastern time. Creation/redemption order cut-off times 
may be earlier on any day that the Securities Industry and Financial 
Markets Association (``SIFMA'') (or applicable exchange or market on 
which the Fund's investments are traded) announces an early closing 
time. On days when the Exchange closes earlier than normal, the Fund 
may require orders for Creation Units to be placed earlier in the day.
Availability of Information
    The Fund's Web site, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. The Web site will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's reported NAV, mid-point of the bid/
ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\34\ daily trading volume, and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. Daily trading 
volume information for the Fund will also be available through 
subscription services such as Bloomberg, Thomson Reuters, and 
International Data Corporation, which can be accessed by authorized 
participants and other investors, as well as through other electronic 
services, including major public Web sites. On each business day, 
before commencement of trading in Shares during Regular Trading Hours 
\35\ on the

[[Page 45551]]

Exchange, the Fund will disclose on its Web site the identities and 
quantities of the portfolio of securities and other assets (the 
``Disclosed Portfolio'') held by the Fund that will form the basis for 
the Fund's calculation of NAV at the end of the business day.\36\ The 
Disclosed Portfolio will include, as applicable: The 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. The Web site and information will be publicly available at 
no charge.
---------------------------------------------------------------------------

    \34\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \35\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \36\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T + 1''). 
Accordingly, the Fund will be able to disclose at the beginning of 
the business day the portfolio that will form the basis for the NAV 
calculation at the end of the business day.
---------------------------------------------------------------------------

    In addition, for the Fund, an estimated value, defined in BZX Rule 
14.11(i)(3)(C) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the Intraday Indicative Value will be based upon the current 
value for the components of the Disclosed Portfolio and will be updated 
and widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Regular Trading Hours.\37\ 
In addition, the quotations of certain of the Fund's holdings may not 
be updated during U.S. trading hours if such holdings do not trade in 
the United States or if updated prices cannot be ascertained.
---------------------------------------------------------------------------

    \37\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the Consolidated Tape 
Association (``CTA'') or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and provide a 
close estimate of that value throughout the trading day.
    Intraday, closing, and settlement prices of common stocks and other 
exchange-listed instruments (including futures, options, Depositary 
Receipts, preferred securities, convertible securities, warrants, 
rights, MLPs, commodity-related pooled investment vehicles, and ETFs) 
will be readily available from the exchanges trading such securities as 
well as automated quotation systems, published or other public sources, 
or online information services such as Bloomberg or Reuters. In 
addition, price information for U.S. exchange-traded options will be 
available from the Options Price Reporting Authority. Quotation 
information from brokers and dealers or pricing services will be 
available for Fixed Income Securities and U.S. government obligations. 
Quotation and price information for convertible bonds, ARMs, ABS, bank 
obligations, custodial receipts, corporate debt securities, inflation-
linked debt securities, inverse floating rate instruments, mortgage 
dollar rolls, municipal securities, obligations of supranational 
agencies, private placements, restricted securities, and other 
unregistered securities, securities issued in connection with 
reorganizations and corporate restructurings, short-term funding 
agreements, sovereign obligations, stripped mortgage-backed securities, 
structured investments, treasury receipts, trust preferreds, U.S. 
Government Agency Securities, U.S. Government obligations, zero-coupon, 
pay-in-kind, and deferred payment securities, commercial paper, auction 
rate securities, when-issued securities, delayed delivery securities, 
and forward commitments, loan assignments and participations, Brady 
Bonds, mortgages, common stock warrants and rights, CDS, and foreign 
currency transactions will be available via major market data vendors 
or broker dealers that make markets in such instruments.
    Information regarding market price and 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 previous 
day's closing price and trading volume information for the Shares will 
be published daily in the financial section of newspapers. Quotation 
and last sale information for the Shares will be available on the 
facilities of the CTA.
Initial and Continued Listing
    The Shares will be subject to BZX Rule 14.11(i), which sets forth 
the initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Fund must be in compliance with Rule 10A-3 under the 
Act.\38\ A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \38\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in BZX Rule 11.18. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted.
Trading Rules
    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. The Exchange will 
allow trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern 
Time. The Exchange has appropriate rules to facilitate transactions in 
the Shares during all trading sessions. As provided in BZX Rule 
14.11(i)(2)(C), the minimum price variation for quoting and entry of 
orders in Managed Fund Shares traded on the Exchange is $0.01.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. The 
issuer has represented to the Exchange that it 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 Exchange Act, the Exchange will surveil

[[Page 45552]]

for compliance with the continued listing requirements. If the Fund is 
not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under Exchange Rule 14.12. 
The Exchange may obtain information regarding trading in the Shares and 
the underlying shares in exchange traded investment companies, U.S. 
equity securities, foreign equity securities, futures, and options via 
the ISG, from other exchanges who are members or affiliates of the ISG, 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement.\39\ In addition, the Exchange is able 
to access, as needed, trade information for certain fixed income 
instruments reported to FINRA's Trade Reporting and Compliance Engine 
(``TRACE''). The Exchange can also access municipal bond trading 
activity for surveillance purposes in connection with trading in the 
Shares through the Electronic Municipal Market Access (``EMMA'') \40\ 
of the Municipal Securities Rulemaking Board (``MSRB''). The Exchange 
prohibits the distribution of material non-public information by its 
employees.
---------------------------------------------------------------------------

    \39\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Exchange 
also notes that all exchange-traded instruments, including ETFs, 
commodity-related pooled investment vehicles, futures, and options 
will trade on markets that are a member of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.
    \40\ Information available from EMMA includes next-day 
information regarding municipal securities transactions and par 
amounts traded.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Opening \41\ and After Hours Trading Sessions \42\ when an updated 
Intraday Indicative Value will not be calculated or publicly 
disseminated; (5) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (6) trading information.
---------------------------------------------------------------------------

    \41\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \42\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV Calculation Time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
Web site. In addition, the Information Circular will reference that the 
Trust is subject to various fees and expenses described in the Fund's 
Registration Statement.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \43\ in general and Section 6(b)(5) of the Act \44\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, 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.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f.
    \44\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in BZX Rule 14.11(i). The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. If the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser to the investment company 
shall erect a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. The 
Adviser is not a registered broker-dealer, but is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. In the event (a) 
the Adviser becomes registered as a broker-dealer or newly affiliated 
with a broker-dealer, or (b) any new adviser or sub-adviser is a 
registered broker-dealer or becomes affiliated with a broker-dealer, it 
will implement a fire wall with respect to its relevant personnel or 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio. The Exchange may 
obtain information regarding trading in the Shares and the underlying 
Depositary Receipts, exchange traded shares of investment companies, 
U.S. equity securities, futures, and exchange listed options via the 
ISG, from other exchanges who are members or affiliates of the ISG, or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement.\45\ In addition, the Exchange is able to access, as 
needed, trade information for certain fixed income instruments reported 
to FINRA's TRACE.
---------------------------------------------------------------------------

    \45\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Exchange 
also notes that all of the ETFs, commodity-related pooled investment 
vehicles, futures, and options will trade on markets that are a 
member of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    The Fund's investments will be consistent with the Fund's 
investment objective and the Fund does not have an investment objective 
seeking to return two times or three times the Fund's benchmark, as 
stated above.
    In addition to the holdings in Bonds and Non-Bonds described above 
as part of the Fund's principal investment

[[Page 45553]]

strategy, the Fund may also, to a limited extent (under normal 
circumstances, less than 20% of the Fund's Assets) and as further 
described above, engage in transactions in the following:
    Auction rate securities, Brady Bonds, commodity-related pooled 
investment vehicles, commodity-linked derivatives, U.S. equity 
securities, exchange-traded common stocks of foreign corporations, 
exchange-traded warrants of foreign corporations, exchange-traded 
rights in foreign corporations, ADRs, GDRs, EDRS, convertible 
securities, and MLPs.
    The Fund may hold up to an aggregate amount of 15% of its Assets in 
illiquid assets (calculated at the time of investment), including 
Restricted Securities deemed illiquid by the Adviser \46\ under the 
1940 Act.\47\ The Fund will 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 will consider 
taking appropriate steps in order to maintain adequate liquidity if, 
through a change in values, Assets, or other circumstances, more than 
15% of the Fund's Assets are held in illiquid assets. A security is 
considered illiquid if it cannot be ``sold or disposed of in the 
ordinary course of business within 7 days at approximately the value'' 
at which it is being carried by the fund.
---------------------------------------------------------------------------

    \46\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace in which it trades (e.g., 
the time needed to dispose of the security, the method of soliciting 
offers, and the mechanics of transfer).
    \47\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Moreover, the Intraday 
Indicative Value will be disseminated by one or more major market data 
vendors at least every 15 seconds during Regular Trading Hours. On each 
business day, before commencement of trading in Shares during Regular 
Trading Hours, the Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. Pricing information will be available on 
the Fund's Web site including: (1) The prior business day's reported 
NAV, the Bid/Ask Price of the Fund, and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. Additionally, 
information regarding market price and trading of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last sale information for the Shares will be available on the 
facilities of the CTA. The Web site for the Fund will include a form of 
the prospectus for the Fund and additional data relating to NAV and 
other applicable quantitative information. Trading in Shares of the 
Fund will be halted under the conditions specified in BZX Rule 11.18. 
Trading may also be halted because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. Finally, trading in the Shares will be subject to BZX Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted. In addition, the Exchange is able to access, 
as needed, trade information for certain fixed income instruments 
reported to FINRA's TRACE. As noted above, investors will also have 
ready access to information regarding the Fund's holdings, the Intraday 
Indicative Value, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.
    Intraday, closing, and settlement prices of common stocks and other 
exchange-listed instruments (including futures, options, Depositary 
Receipts, preferred securities, convertible securities, warrants, 
rights, MLPs, commodity-related pooled investment vehicles, and ETFs) 
will be readily available from the exchanges trading such securities as 
well as automated quotation systems, published or other public sources, 
or online information services such as Bloomberg or Reuters. In 
addition, price information for U.S. exchange-traded options will be 
available from the Options Price Reporting Authority. Quotation 
information from brokers and dealers or pricing services will be 
available for Fixed Income Securities and U.S. government obligations. 
Quotation and price information for convertible bonds, ARMs, ABS, bank 
obligations, custodial receipts, corporate debt securities, inflation-
linked debt securities, inverse floating rate instruments, mortgage 
dollar rolls, municipal securities, obligations of supranational 
agencies, private placements, restricted securities, and other 
unregistered securities, securities issued in connection with 
reorganizations and corporate restructurings, short-term funding 
agreements, sovereign obligations, stripped mortgage-backed securities, 
structured investments, treasury receipts, trust preferreds, U.S. 
Government Agency Securities, U.S. Government obligations, zero-coupon, 
pay-in-kind, and deferred payment securities, commercial paper, auction 
rate securities, when-issued securities, delayed delivery securities, 
and forward commitments, loan assignments and participations, Brady 
Bonds, mortgages, common stock warrants and rights, CDS, and foreign 
currency transactions will be available via major market data vendors 
or broker dealers that make markets in such instruments.
    The proposed rule change is 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 facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Intraday Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change

[[Page 45554]]

is consistent with the requirements of Section 6(b)(5) of the Act.

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 purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional actively-managed exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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

    The Exchange has neither solicited nor received written comments on 
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 within such longer period 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 such 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-BatsBZX-2016-35 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-BatsBZX-2016-35. 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 such filing will also 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-BatsBZX-2016-35 and should 
be submitted on or before August 4, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\48\
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    \48\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2016-16615 Filed 7-13-16; 8:45 am]
 BILLING CODE 8011-01-P