Document ID: SEC-2016-1900-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2016-10-27T04:00Z

[Federal Register Volume 81, Number 208 (Thursday, October 27, 2016)]
[Notices]
[Pages 74840-74842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25938]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79131; File No. SR-NYSEArca-2016-97]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Relating to the Listing and Trading of Shares of 
PowerShares Government Collateral Pledge Portfolio Under NYSE Arca 
Equities Rule 8.600

October 21, 2016.

I. Introduction

    On July 6, 2016, NYSE Arca, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'')\1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade 
shares (``Shares'') of the PowerShares Government Collateral Pledge 
Portfolio (``Fund''). The proposed rule change was published for 
comment in the Federal Register on July 26, 2016.\3\ On September 1, 
2016, pursuant to Section 19(b)(2) of the Act,\4\ the Commission 
designated a longer period within which to approve the proposed rule 
change, disapprove the proposed rule change, or institute proceedings 
to determine whether to disapprove the proposed rule change.\5\ The 
Commission has received no comments on the proposed rule change. This 
order institutes proceedings under Section 19(b)(2)(B) of the Act \6\ 
to determine whether to approve or disapprove the proposed rule change.
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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. 78373 (July 20, 
2016), 81 FR 48869 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 78750, 81 FR 62233 
(September 8, 2016). The Commission designated October 24, 2016 as 
the date by which the Commission shall either approve or disapprove, 
or institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Exchange's Description of the Proposal

    The Exchange proposes to list and trade the Shares of the Fund 
under NYSE Arca Equities Rule 8.600, which governs the listing and 
trading of Managed Fund Shares. The Fund is a series of the PowerShares 
Actively Managed Exchange Traded Trust (``Trust'').\7\ Invesco 
PowerShares Capital Management LLC is the investment adviser for the 
Fund (``Adviser''), and Invesco Advisers, Inc. is the sub-adviser for 
the Fund (``Sub-Adviser''). The Bank of New York Mellon (``BNYM'') will 
be the administrator, custodian, and transfer agent for the Fund. 
Invesco Distributors, Inc. will be the Fund's distributor 
(``Distributor''). The Exchange represents that, while neither the 
Adviser nor the Sub-Adviser is registered as a broker-dealer, the 
Adviser and Sub-Adviser are each affiliated with a broker-dealer. The 
Adviser and Sub-Adviser each has implemented and will maintain a fire 
wall with respect to its affiliated broker-dealer regarding access to 
information concerning the composition of, and changes to, the Fund's 
portfolio.\8\ In the event (a) the Adviser or Sub-Adviser becomes 
registered as a broker-dealer or newly affiliated with a broker-dealer, 
or (b) any new adviser or sub-adviser becomes registered as a broker-
dealer or newly affiliated with a broker-dealer, it will implement a 
fire wall with respect to its relevant personnel or such broker-dealer 
affiliate regarding access to information concerning the composition 
of, and changes to, the portfolio, and

[[Page 74841]]

will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \7\ The Exchange represents that the Trust is registered under 
the Investment Company Act of 1940 (``1940 Act''). According to the 
Exchange, on May 20, 2016, the Trust filed with the Commission an 
amendment to its registration statement on Form N-1A under the 
Securities Act of 1933 and the 1940 Act relating to the Fund (File 
Nos. 333-147622 and 811-22148) (``Registration Statement''). In 
addition, the Exchange states that the Trust and the Adviser (as 
defined herein) have obtained certain exemptive relief from the 
Commission under the 1940 Act. See Investment Company Act Release 
No. 28171 (February 27, 2008) (File No. 812-13386) (``Exemptive 
Order''). The Exchange represents that the Fund will be offered in 
reliance upon the Exemptive Order issued to the Trust and the 
Adviser.
    \8\ The Exchange further represents that an investment adviser 
to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and Sub-Adviser and their related personnel are subject to 
the provisions of Rule 204A-1 under the Advisers Act relating to 
codes of ethics. This Rule requires investment advisers to adopt a 
code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
The Exchange represents that the Adviser and its related personnel 
are subject to Advisers Act Rule 204A-1. 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 has made the following representations and statements 
in describing the Fund and its investment strategies, including the 
Fund's portfolio holdings and investment restrictions.\9\
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    \9\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, Fund holdings disclosure policies, 
distributions, and taxes, among other information, is included in 
the Notice and the Registration Statement, as applicable. See Notice 
and Registration Statement, supra notes 3 and 7, respectively.
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A. Exchange's Description of the Fund's Principal Investments

    According to the Exchange, the Fund's investment objective will be 
to seek to provide as high a level of current income as is consistent 
with liquidity and minimum volatility of principal. The Fund will seek 
to achieve its investment objective by investing, under normal market 
conditions,\10\ at least 80% of its net assets in a portfolio of 
registered U.S. government money market mutual funds (``Underlying 
Funds'')\11\ and in U.S. dollar-denominated government securities and 
other money market securities eligible for investment by U.S. 
government money market funds (including indirect investments in those 
securities through the Underlying Funds).
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    \10\ The term ``under normal market conditions'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the fixed income securities markets or the financial 
markets generally; circumstances under which the Fund's investments 
are made for temporary defensive purposes; operational issues (e.g., 
systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
    \11\ According to the Exchange, each Underlying Fund is a 
``government money market fund,'' as that term is defined under Rule 
2a-7 of the 1940 Act (``Rule 2a-7''), and seeks to maintain a stable 
$1.00 NAV. Each Underlying Fund has an investment objective of 
seeking to provide current income consistent with preservation of 
capital and liquidity. The securities held by the Underlying Funds 
will comply with all requirements of Rule 2a-7 and other Commission 
rules applicable to money market funds seeking a stable NAV. Each 
Underlying Fund invests at least 99.5% of its total assets in cash, 
government securities, and/or repurchase agreements collateralized 
by cash or government securities. In addition, each Underlying Fund 
invests only in U.S. dollar-denominated securities maturing within 
397 days of the date of purchase, with certain exceptions permitted 
by applicable regulations, and maintains a dollar-weighted average 
portfolio maturity of no more than 60 days, and a dollar-weighted 
average portfolio maturity (as determined without exceptions 
regarding certain interest rate adjustments under Rule 2a-7) of no 
more than 120 days. The Exchange represents that, unlike the 
Underlying Funds, the Fund will not be a money market fund, meaning 
that the Fund will not seek to maintain a stable NAV of $1.00, nor 
will it be subject to other requirements of Rule 2a-7. However, the 
Fund will only purchase securities issued by registered government 
money market funds, or securities that comply with the quality and 
eligibility requirements of Rule 2a-7. The Fund and the Underlying 
Funds may invest in variable and floating rate instruments that are 
permitted under the requirements of Rule 2a-7, and may transact in 
securities on a when-issued, delayed delivery, or forward commitment 
basis.
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    Under normal market conditions, the Fund intends to invest a 
substantial portion of its assets in the following Underlying Funds: 
(a) Treasury Portfolio; (b) Government TaxAdvantage Portfolio; (c) 
Government & Agency Portfolio; and (d) Premier US Government Money 
Portfolio, each of which is advised by an affiliate of the Adviser. The 
Sub-Adviser may add, eliminate, or replace any or all Underlying Funds 
at any time. Any additions to or replacements of the Underlying Funds 
in the Fund's portfolio also will be registered U.S. government money 
market funds with investment characteristics that are substantially 
similar to those of the Underlying Funds. The Adviser, the Sub-Adviser, 
or their affiliates may advise some or all the Underlying Funds. In 
constructing the Fund's portfolio, the Sub-Adviser generally will 
allocate and re-allocate the Fund's assets among the Underlying Funds 
on a monthly basis on an approximate pro rata basis that is based on 
the amount of net assets of each Underlying Fund. However, the Sub-
Adviser is not required to invest the Fund's assets in any particular 
Underlying Fund or allocate any particular percentage of the Fund's 
assets to any particular Underlying Fund.

B. Exchange's Description of the Fund's Other Investments

    While the Fund, under normal circumstances, will invest at least 
80% of its net assets in the securities and financial instruments 
described above, the Fund may invest its remaining assets in other 
assets and financial instruments, as described below.
    The Fund (and the Underlying Funds) may invest in certain U.S. 
government obligations other than those referenced above, namely 
Treasury receipts where the principal and interest components are 
traded separately under the Separate Trading of Registered Interest and 
Principal of Securities (STRIPS) program. The Fund also may invest 
directly in repurchase agreements and reverse repurchase agreements.

C. Exchange's Description of the Fund's Investment Restrictions

    According to the Exchange, the Fund will be classified as ``non-
diversified.''
    The Fund intends to maintain the required level of diversification 
and otherwise conduct its operations so as to qualify as a regulated 
investment company for purposes of the U.S. Internal Revenue Code of 
1986, as amended.
    The Fund may invest up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment). 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, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
    The Fund will not invest in futures, options, swaps, or forward 
contracts.
    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (e.g., 2Xs and 3Xs) of the Fund's 
primary broad-based securities benchmark index (as defined in Form N-
1A).

III. Proceedings to Determine Whether to Approve or Disapprove SR-
NYSEArca-2016-97 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \12\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to

[[Page 74842]]

provide comments on the proposed rule change.
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    \12\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\13\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \14\
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    \13\ Id.
    \14\ 15 U.S.C. 78f(b)(5).
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    Under the proposal, BNYM will calculate the Fund's NAV at 12:00 
p.m., Eastern time, every day the New York Stock Exchange is open. In 
addition, to initiate an order for a creation unit, the Distributor or 
its agent must receive an irrevocable order from an authorized 
participant, in proper form, no later than 12:00 p.m., Eastern time, in 
each case on the date such order is placed in order to receive that 
day's NAV. Likewise, with respect to redemptions, an authorized 
participant must submit an irrevocable request to redeem shares of the 
Fund generally before 12:00 p.m., Eastern time on any business day in 
order to receive that day's NAV. The Commission notes the proposal does 
not provide any explanation for the early NAV calculation time and 
creation and redemption cut-off time. The proposal also does not 
explain whether the early NAV calculation time and creation and 
redemption cut-off time would have any impact on the trading of the 
Shares, including any impact on arbitrage. Accordingly, the Commission 
seeks commenters' views on the 12:00 p.m. NAV calculation time and 
creation and redemption cut-off time, and on whether the Exchange's 
statements relating to the NAV calculation and the creation and 
redemption process support a determination that the listing and trading 
of the Shares would be consistent with Section 6(b)(5) of the Act, 
which, among other things, requires that the rules of an exchange be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, and to protect 
investors and the public interest.

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\15\
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    \15\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by November 17, 2016. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 1, 2016. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, 
which are set forth in the Notice,\16\ in addition to any other 
comments they may wish to submit about the proposed rule change.
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    \16\ See supra note 3.
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    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-2016-97 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2016-97. 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-2016-97 and should 
be submitted on or before November 17, 2016. Rebuttal comments should 
be submitted by December 1, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(57).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-25938 Filed 10-26-16; 8:45 am]
 BILLING CODE 8011-01-P