Document ID: SEC-2019-1517-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2019-10-17T04:00Z

[Federal Register Volume 84, Number 201 (Thursday, October 17, 2019)]
[Notices]
[Pages 55665-55671]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-22596]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87278; File No. SR-NYSEArca-2019-68]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Permit the 
Listing and Trading of Shares Under NYSE Arca Rule 8.600-E of the 
Overlay Shares Large Cap Equity ETF, Overlay Shares Small Cap Equity 
ETF, Overlay Shares Foreign Equity ETF, Overlay Shares Core Bond ETF 
and Overlay Shares Municipal Bond ETF

October 10, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 27, 2019, NYSE Arca, Inc. (``NYSE Arca'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to permit the listing and trading of shares 
under NYSE Arca Rule 8.600-E of the Overlay Shares Large Cap Equity 
ETF, Overlay Shares Small Cap Equity ETF, Overlay Shares Foreign Equity 
ETF, Overlay Shares Core Bond ETF and Overlay Shares Municipal Bond 
ETF, each a series of the Listed Funds Trust, notwithstanding that the 
Funds' investments do not meet the requirements of Commentary .01(d)(2) 
to Rule 8.600-E.
    The proposed rule change is available on the Exchange's website at

[[Page 55666]]

www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to permit the listing and trading under NYSE 
Arca Rule 8.600-E (``Managed Fund Shares'') \4\ of shares (``Shares'') 
of the Overlay Shares Large Cap Equity ETF, Overlay Shares Small Cap 
Equity ETF, Overlay Shares Foreign Equity ETF, Overlay Shares Core Bond 
ETF and Overlay Shares Municipal Bond ETF (each a ``Fund'' and, 
collectively, the ``Funds''), each a series of the Listed Funds Trust 
(the ``Trust''), notwithstanding that the Funds' investments do not 
meet the requirements of Commentary .01(d)(2) to Rule 8.600-E.
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3), 
seeks to provide investment results that correspond generally to the 
price and yield performance of a specific foreign or domestic stock 
index, fixed income securities index or combination thereof.
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    The Shares are offered by the Trust, which is registered with the 
Commission as an open-end management investment company consisting of 
multiple investment series.\5\ Each Fund is a series of the Trust.
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    \5\ The Trust is registered under the 1940 Act. On June 26, 
2019, the Trust filed with the Securities and Exchange Commission 
(``SEC'' or Commission'') its registration statement on Form N-1A 
under the Securities Act of 1933 (15 U.S.C. 77a), and under the 1940 
Act relating to the Funds (File Nos. 333-215588 and 811-23226) 
(``Registration Statement''). The description of the operation of 
the Trust and of the Funds and Shares herein is based, in part, on 
the Registration Statement. There are no permissible holdings for 
the Funds that are not described in this proposal. The Commission 
has issued an order granting certain exemptive relief to the Trust 
under the 1940 Act. See Investment Company Act Release No. 33596 
(August 20, 2019) (order).
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    Liquid Strategies, LLC (the ``Adviser'') is the investment adviser 
to the Funds. Commentary .06 to Rule 8.600-E 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 and maintain 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.\6\ 
In addition, Commentary .06 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 nonpublic information regarding the applicable investment 
company portfolio. The Adviser is not a registered broker-dealer, and 
the Adviser is not affiliated with broker-dealers. In addition, the 
Adviser's personnel who make decisions regarding a Fund's portfolio are 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding a Fund's portfolio. In the 
event that (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 and maintain a fire wall with respect 
to its relevant personnel or such broker-dealer affiliate, as 
applicable, 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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    \6\ 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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    U.S. Bancorp Fund Services, LLC, doing business as U.S. Bank Global 
Fund Services, will serve as administrator and transfer agent for the 
Funds. Foreside Fund Services, LLC will serve as the Funds' 
distributor. U.S. Bank National Association is the custodian of the 
Trust (the ``Custodian'').
Investment Objective of the Funds
    According to the Registration Statement, the investment objective 
of each Fund is total return. Each Fund is an actively-managed 
exchange-traded fund (``ETF'') that seeks to achieve its objective 
principally by (1) investing in one or more other ETFs \7\ that seek to 
obtain exposure to the performance of a specific segment of the equity 
or fixed income market (e.g., large cap U.S. equities or investment-
grade corporate bonds) or directly in the securities held by such ETFs, 
and (2) selling and purchasing listed put options to generate income to 
the Fund (together, the ``Overlay Strategy'').
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    \7\ For purposes of this filing, the term ``ETFs'' means 
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca 
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca 
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a 
national securities exchange. The Funds will not invest in inverse 
or leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
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Overlay Shares Large Cap Equity ETF
    According to the Registration Statement, under normal market 
conditions,\8\ at least 80% of the Overlay Shares Large Cap Equity 
ETF's net assets, plus borrowings for investment purposes, will be 
invested in one or more other ETFs that seek to obtain exposure to 
equity securities of large-cap companies or directly in the securities 
held by such ETFs. For purposes of the foregoing, the Overlay Shares 
Large Cap Equity ETF defines ``large-cap companies'' as those within 
the range of capitalizations of the S&P 500 Index. The Overlay Shares 
Large Cap Equity ETF will count investments in ETFs that invest at 
least 80% of their net assets, plus borrowings for investment purposes, 
in equity securities of large-cap companies (as defined above) as 
investments in ETFs

[[Page 55667]]

that seek to obtain exposure to equity securities of large-cap 
companies.
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    \8\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
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Overlay Shares Small Cap Equity ETF
    According to the Registration Statement, under normal market 
conditions, at least 80% of the Overlay Shares Small Cap Equity ETF's 
net assets, plus borrowings for investment purposes, will be invested 
in one or more other ETFs that seek to obtain exposure to equity 
securities of small-cap companies or directly in the securities held by 
such ETFs. For purposes of the foregoing, the Overlay Shares Small Cap 
Equity ETF defines ``small-cap companies'' as those within the range of 
capitalizations of the Russell 2000 Index. The Overlay Shares Small Cap 
Equity ETF will count investments in ETFs that invest at least 80% of 
their net assets, plus borrowings for investment purposes, in equity 
securities of small-cap companies (as defined above) as investments in 
equity securities of small-cap companies.
Overlay Shares Foreign Equity ETF
    According to the Registration Statement, under normal market 
conditions, at least 80% of the Overlay Shares Foreign Equity ETF's net 
assets, plus borrowings for investment purposes, will be invested in 
one or more other ETFs that seek to obtain exposure to equity 
securities of non-U.S. companies or directly in the securities held by 
such ETFs. For purposes of the foregoing, the Overlay Shares Foreign 
Equity ETF defines ``securities of non-U.S. companies'' as those that 
are principally traded on a non-U.S. exchange, are issued by companies 
incorporated in a non-U.S. country, or depositary receipts representing 
such securities. The Overlay Shares Foreign Equity ETF will count 
investments in ETFs that invest at least 80% of their net assets, plus 
borrowings for investment purposes, in securities of non-U.S. companies 
(as defined above) as investments in securities of non-U.S. companies.
Overlay Shares Core Bond ETF
    According to the Registration Statement, under normal market 
conditions, at least 80% of the Overlay Shares Core Bond ETF's net 
assets, plus borrowings for investment purposes, will be invested in 
one or more other ETFs that seek to obtain exposure to bonds or 
directly in the securities held by such ETFs. The Overlay Shares Core 
Bond ETF will count investments in ETFs that invest at least 80% of 
their net assets, plus borrowings for investment purposes, in bonds as 
investments in bonds.
Overlay Shares Municipal Bond ETF
    According to the Registration Statement, under normal market 
conditions, at least 80% of the Overlay Shares Municipal Bond ETF's net 
assets, plus borrowings for investment purposes, will be invested in 
one or more other ETFs that seek to obtain exposure to municipal bonds 
and will not hold municipal bonds directly. The Overlay Shares 
Municipal Bond ETF will count investments in ETFs that invest at least 
80% of their net assets, plus borrowings for investment purposes, in 
municipal bonds as investments in municipal bonds.
The Overlay Strategy
    According to the Registration Statement, the Overlay Strategy seeks 
to generate income for a Fund by utilizing a ``put spread'' consisting 
of the sale of exchange-listed put options (``Short Puts'') on the S&P 
500 Index with a notional value up to 100% of a Fund's net assets and 
the purchase of an identical number of put options (``Long Puts'') on 
the S&P 500 Index with a lower strike price with a notional value up to 
100% of a Fund's net assets. Each Fund will seek to generate income 
from the sale of put options and purchase of put options with a lower 
strike price to hedge against a decline in the U.S. equity market.
    The options sold and bought by each Fund will typically have an 
expiration date within one to two weeks of their purchase date, 
although each Fund may sell and buy options with a longer time-to-
expiration. The strike price of the Short Puts will be less than the 
value of the S&P 500 Index at the time such options are sold, and the 
strike price of the Long Puts will be less than the strike price of the 
Short Puts. The difference between such strike prices is based on the 
Adviser's judgment as to the level of expected volatility in the market 
prior to the options' expiration. Because the Long Puts will have a 
lower strike price than the Short Puts, the Long Puts are not expected 
to completely protect the Fund from a decline in the S&P 500 Index.
    Each Fund may also hold cash and cash equivalents.\9\
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    \9\ For purposes of this filing, cash equivalents means the 
securities included in Commentary .01(c) to NYSE Arca Rule 8.600-E.
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Application of Generic Listing Requirements
    The Exchange submits this proposal in order to list and trade 
Shares of each Fund and to allow each Fund to hold listed derivatives, 
in particular put options on the S&P 500 Index, in a manner that does 
not comply with Commentary .01(d)(2) to Rule 8.600-E.\10\ Otherwise, 
each Fund will comply with all other listing requirements of the 
Generic Listing Standards \11\ for Managed Fund Shares on an initial 
and continued listing basis.\12\
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    \10\ Commentary .01(d)(2) to Rule 8.600-E provides that ``the 
aggregate gross notional value of listed derivatives based on any 
five or fewer underlying reference assets shall not exceed 65% of 
the weight of the portfolio (including gross notional exposures), 
and the aggregate gross notional value of listed derivatives based 
on any single underlying reference asset shall not exceed 30% of the 
weight of the portfolio (including gross notional exposures).'' The 
Funds do not meet the generic listing standards because they fail to 
meet the requirement of Commentary .01(d)(2) that prevents the 
aggregate gross notional value of listed derivatives based on any 
single underlying reference asset from exceeding 30% of the weight 
of the portfolio (including gross notional exposures) and the 
requirement that the aggregate gross notional value of listed 
derivatives based on any five or fewer underlying reference assets 
shall not exceed 65% of the weight of the portfolio (including gross 
notional exposures).
    \11\ For purposes of this proposal, the term ``Generic Listing 
Standards'' means the generic listing rules for Managed Fund Shares 
under Commentary .01 to Rule 8.600-E.
    \12\ The Exchange notes that this proposed rule change is 
similar to previous rule changes involving Managed Fund Shares with 
similar exposures to a single underlying reference asset. See 
Securities Exchange Act Release No. 86773 (August 27, 2019), 84 FR 
46051 (September 3, 2019) (SR-CboeBZX-2019-077); Securities Exchange 
Act Release No. 83146 (May 1, 2018), 83 FR 20103 (May 7, 2018) (SR-
CboeBZX-2018-029); Securities Exchange Act Release No. 80529 (April 
26, 2017), 82 FR 20506 (May 2, 2017) (SR-BatsBZX-2017-14). See also 
Securities Exchange Act Release No. 82906 (March 20, 2018), 83 FR 
12992 (March 26, 2018) (SR-CboeBZX-2017-012) (order approving the 
listing and trading of the LHA Market State Tactical U.S. Equity 
ETF); Securities Exchange Act Release No. 83679 (July 20, 2018), 83 
FR 35505 (July 26, 2018) (SR-BatsBZX-2017-72) (Notice of Filing of 
Amendment No. 4 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 4 Thereto, to 
List and Trade Shares of the Innovator S&P 500 Buffer ETF Series, 
Innovator S&P 500 Power Buffer ETF Series, and Innovator S&P 500 
Ultra Buffer ETF Series Under Rule 14.11(i)).
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    The market for options contracts on the S&P 500 Index (``S&P 500 
Index Options'') is highly liquid.\13\ In August 2019, approximately 
1.488 million options contracts on the S&P 500 Index were traded per 
day, which is more than $430 billion in notional volume traded on a 
daily basis. The Exchange believes that the liquidity in the S&P 500 
Index Options markets mitigates the concerns that Commentary .01(d)(2) 
to Rule 8.600-E is intended to address and that such liquidity would 
prevent the Shares from being susceptible to manipulation.
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    \13\ S&P 500 Index [sic] are traded on the Cboe Exchange, Inc. 
(``Cboe Options''). The Exchange, Cboe Options and all other 
national securities exchanges are members of the Intermarket 
Surveillance Group (``ISG'').
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    In addition, the Exchange believes that sufficient protections are 
in place to

[[Page 55668]]

protect against market manipulation of the Shares and S&P 500 Index 
Options for several reasons: (i) The diversity, liquidity, and market 
cap of the securities underlying the S&P 500 Index; (ii) the 
significant liquidity in the market for S&P 500 Index Options; and 
(iii) surveillance by the Exchange, options exchanges \14\ and the 
Financial Industry Regulatory Authority (``FINRA'') designed to detect 
violations of the federal securities laws and self-regulatory 
organization (``SRO'') rules. The Exchange has in place a surveillance 
program for transactions in ETFs to ensure the availability of 
information necessary to detect and deter potential manipulations and 
other trading abuses, thereby making the Shares less readily 
susceptible to manipulation. Further, the Exchange believes that 
because the S&P 500 Index Options in each Fund's portfolio will be 
acquired in extremely liquid and highly regulated markets,\15\ the 
Shares are less readily susceptible to manipulation.
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    \14\ The Exchange and all nine U.S. options exchanges are 
members of the Option Regulatory Surveillance Authority, which was 
established in 2006 to provide efficiencies in looking for insider 
trading and serves as a central organization to facilitate 
collaboration in insider trading investigations for the U.S. options 
exchanges.
    \15\ All exchange-listed securities that the Funds may hold will 
trade on a market that is a member of the ISG and the Funds will not 
hold any non-exchange-listed equities or options. For a list of the 
current members of ISG, see www.isgportal.org. See also note 13, 
supra.
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    As noted above, S&P 500 Index Options are among the most liquid 
options in the world and derive their value from the actively traded 
S&P 500 Index components. The contracts are cash-settled with no 
delivery of stocks or ETFs, and trade in competitive auction markets 
with price and quote transparency. The Exchange believes the highly 
regulated options markets and the broad base and scope of the S&P 500 
Index make securities that derive their value from that index less 
susceptible to market manipulation in view of market capitalization and 
liquidity of the S&P 500 Index components, price and quote 
transparency, and arbitrage opportunities.
    The Exchange believes that the liquidity of the markets for 
securities in the S&P 500 Index and S&P 500 Index Options is 
sufficiently great to deter fraudulent or manipulative acts associated 
with the Funds' Shares price. Coupled with the extensive surveillance 
programs of the Exchange and other SROs described below, the Exchange 
does not believe that trading in the Shares would present manipulation 
concerns.
    All of the options contracts held by the Funds will trade on Cboe 
Options, a member of ISG.
Availability of Information
    The Funds' website (www.overlayshares.com) will include the 
prospectus for each of the Funds that may be downloaded. The Funds' 
website will include ticker, CUSIP and exchange information, along with 
additional quantitative information updated on a daily basis, 
including, for each Fund: (1) The prior Business Day's net asset value 
(``NAV'') per share and the market closing price or mid-point of the 
bid/ask spread at the time of calculation of such NAV per share (the 
``Bid/Ask Price''),\16\ and a calculation of the premium or discount of 
the market closing price or Bid/Ask Price against such NAV per share; 
and (2) a table showing the number of days of such premium or discount 
for the most recently completed calendar year, and the most recently 
completed calendar quarters since that year (or the life of Fund, if 
shorter). On each business day, before commencement of trading in 
Shares in the Core Trading Session on the Exchange, each Fund will 
disclose on its website the Disclosed Portfolio as defined in NYSE Arca 
Rule 8.600-E(c)(2) that forms the basis for each Fund's calculation of 
NAV at the end of the business day.
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    \16\ The Bid/Ask Price of a Fund's Shares will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the NAV. The records 
relating to Bid/Ask Prices will be retained by a Fund and its 
service providers.
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    On a daily basis, the Funds will disclose the information required 
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The 
website information will be publicly available at no charge.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Funds' Shareholder Reports, and the Funds' 
Forms N-CSR and Forms N-CEN. The Funds' SAI and Shareholder Reports 
will be available free upon request from the Trust, and those documents 
and the Form N-CSR, Form N-PX, Form N-PORT and Form N-CEN may be viewed 
on-screen or downloaded from the Commission's website at www.sec.gov.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding 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 and ETFs and 
other exchange traded equities will be available via the Consolidated 
Tape Association (``CTA'') high-speed line. In addition, the Portfolio 
Indicative Value (``PIV''), as defined in NYSE Arca Rule 8.600-E(c)(3), 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session.
    The intra-day, closing and settlement prices of exchange-traded 
options will be readily available from the Options Price Reporting 
Authority (``OPRA''), Cboe Options' website, automated quotation 
systems, published or other public sources, or online information 
services such as Bloomberg or Reuters.
    Additionally, FINRA's Trade Reporting and Compliance Engine 
(``TRACE'') will be a source of price information for certain fixed 
income securities to the extent transactions in such securities are 
reported to TRACE.
    Price information regarding U.S. government securities and other 
cash equivalents generally may be obtained from brokers and dealers who 
make markets in such securities or through nationally recognized 
pricing services through subscription agreements.
    Quotation and last sale information for equity securities of non-
U.S. companies will be available from the exchanges on which they trade 
and from major market data vendors, as applicable.
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 a Fund.\17\ Trading in Shares of each Fund 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Trading in the Funds' Shares also 
will be subject to Rule 8.600-E(d)(2)(D) (``Trading Halts'').
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    \17\ See NYSE Arca Rule 7.12-E.
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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. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m., E.T. in accordance 
with NYSE Arca Rule 7.34-E (Early, Core, and Late

[[Page 55669]]

Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Rule 7.6-E, the minimum price variation (``MPV'') for quoting 
and entry of orders in equity securities traded on the NYSE Arca 
Marketplace is $0.01, with the exception of securities that are priced 
less than $1.00 for which the MPV for order entry is $0.0001.
    With the exception of the requirements of Commentary .01(d)(2) 
(with respect to listed derivatives) as described above, the Shares of 
each Fund will conform to the initial and continued listing criteria 
under NYSE Arca Rule 8.600-E. Consistent with Commentary .06 of NYSE 
Arca Rule 8.600-E, the Adviser will implement and maintain, or be 
subject to, procedures designed to prevent the use and dissemination of 
material non-public information regarding the actual components of each 
Fund's portfolio. The Exchange represents that, for initial and 
continued listing, the Funds will be in compliance with Rule 10A-3 \18\ 
under the Act, as provided by NYSE Arca Rule 5.3-E. The Exchange will 
obtain a representation from the issuer of the Shares that the NAV per 
Share for each Fund will be calculated daily and that the NAV and the 
Disclosed Portfolio for each Fund will be made available to all market 
participants at the same time.
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    \18\ 17 CFR 240.10A-3.
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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. The Exchange 
represents that trading in the Shares will be subject to the existing 
trading surveillances, administered by FINRA on behalf of the Exchange 
or by regulatory staff of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws. 
The Exchange represents that these procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and federal securities 
laws applicable to trading on the Exchange.\19\
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    \19\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, exchange-traded 
options and equities with other markets and other entities that are 
members of the ISG, and the Exchange or FINRA, on behalf of the 
Exchange, or both, may obtain trading information regarding trading in 
such securities and financial instruments from such markets and other 
entities. The Exchange may obtain information regarding trading in such 
securities and financial instruments from markets and other entities 
that are members of ISG. In addition, the Exchange also has a general 
policy prohibiting the distribution of material, non-public information 
by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio or reference assets, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange listing rules specified in this rule filing 
shall constitute continued listing requirements for listing the Shares 
of the Funds on the Exchange.
    The issuer must notify the Exchange of any failure by the Funds to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements. If a 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-E 
(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'') 
of the special characteristics and risks associated with trading the 
Shares. Specifically, the Bulletin will discuss the following: (1) The 
procedures for purchases and redemptions of Shares in Creation Unit 
aggregations (and that Shares are not individually redeemable); (2) 
NYSE Arca Rule 9.2-E(a), which imposes a duty of due diligence on its 
Equity Trading Permit Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (3) the risks involved in 
trading the Shares during the Early and Late Trading Sessions when an 
updated PIV will not be calculated or publicly disseminated; (4) how 
information regarding the PIV and the Disclosed Portfolio is 
disseminated; (5) the requirement that Equity Trading Permit Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (6) 
trading information.
    In addition, the Bulletin will reference that the Funds are subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m., Eastern time each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \20\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \20\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change 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 in that the Shares will meet 
each of the initial and continued listing criteria in Commentary .01 to 
NYSE Arca Rule 8.600-E, with the exception of Commentary .01(d)(2) to 
NYSE Arca Rule 8.600-E, which requires that the aggregate gross 
notional value of listed derivatives based on any five or fewer 
underlying reference assets shall not exceed 65% of the weight of the 
portfolio (including gross notional exposures), and the aggregate gross 
notional value of listed derivatives based on any single underlying 
reference asset shall not exceed 30% of the weight of the portfolio 
(including gross notional

[[Page 55670]]

exposures).\21\ Commentary .01(d)(2) to NYSE Arca Rule 8.600-E is 
intended to ensure that a fund is not subject to manipulation by virtue 
of significant exposure to a manipulable underlying reference asset by 
establishing concentration limits among the underlying reference assets 
for listed derivatives held by a particular fund. The Exchange notes 
that this proposed rule change is similar to previous rule changes 
involving Managed Fund Shares with similar exposures to a single 
underlying reference asset.\22\
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    \21\ As noted above, the Exchange is submitting this proposal 
because the Funds would not meet the requirements of Commentary 
.01(d)(2) to Rule 8.600-E which prevents the aggregate gross 
notional value of listed derivatives based on any single underlying 
reference asset from exceeding 30% of the weight of the portfolio 
(including gross notional exposures) and the aggregate gross 
notional value of listed derivatives based on any five or fewer 
underlying reference assets from exceeding 65% of the weight of the 
portfolio (including gross notional exposures).
    \22\ See note 12, supra.
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    The market for S&P 500 Index Options is highly liquid. In August 
2019, approximately 1.488 million options contracts on the S&P 500 
Index were traded per day, which is more than $430 billion in notional 
volume traded on a daily basis. The Exchange believes that the 
liquidity in the S&P 500 Index Options markets mitigates the concerns 
that Commentary .01(d)(2) to Rule 8.600-E is intended to address and 
that such liquidity would prevent the Shares from being susceptible to 
manipulation.
    In addition, the Exchange believes that sufficient protections are 
in place to protect against market manipulation of the Shares and S&P 
500 Index Options for several reasons: (i) The diversity, liquidity, 
and market cap of the securities underlying the S&P 500 Index; (ii) the 
significant liquidity in the market for S&P 500 Index Options; and 
(iii) surveillance by the Exchange, options exchanges and FINRA 
designed to detect violations of the federal securities laws and SRO 
rules. The Exchange has in place a surveillance program for 
transactions in ETFs to ensure the availability of information 
necessary to detect and deter potential manipulations and other trading 
abuses, thereby making the Shares less readily susceptible to 
manipulation. Further, the Exchange believes that because the S&P 500 
Index Options in each Fund's portfolio will be acquired in extremely 
liquid and highly regulated markets, the Shares are less readily 
susceptible to manipulation.
    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. The Exchange or 
FINRA, on behalf of the Exchange, or both, will communicate as needed 
regarding trading in the Shares, exchange-traded options and equities 
with other markets and other entities that are members of the ISG, and 
the Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in such securities and financial 
instruments from such markets and other entities. The Exchange may 
obtain information regarding trading in such securities and financial 
instruments from markets and other entities that are members of ISG. In 
addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    As noted above, S&P 500 Index Options are highly liquid and derive 
their value from the actively traded S&P 500 Index components. The 
Exchange believes the highly regulated options markets and the broad 
base and scope of the S&P 500 Index make securities that derive their 
value from the S&P 500 Index less susceptible to market manipulation in 
view of market capitalization and liquidity of the components of the 
S&P 500 Index, price and quote transparency, and arbitrage 
opportunities.
    The Exchange believes that the liquidity of the markets for 
securities in the S&P 500 Index, S&P 500 Index Options, and other 
related derivatives is sufficiently great to deter fraudulent or 
manipulative acts associated with the Funds' Shares price. The Exchange 
also believes that such liquidity is sufficient to support the creation 
and redemption mechanism. Coupled with the extensive surveillance 
programs of the SROs described above, the Exchange does not believe 
that trading in the Funds' Shares would present manipulation concerns.
    All of the options contracts held by the Funds will trade on Cboe 
Options, a member of ISG.
    The Exchange represents that, except as described above, the Funds 
will meet and be subject to all other requirements of the Generic 
Listing Standards and other applicable continued listing requirements 
for Managed Fund Shares under Rule 8.600-E, including those 
requirements regarding the Disclosed Portfolio, Portfolio Indicative 
Value, suspension of trading or removal, trading halts, disclosure, and 
firewalls. The Trust is required to comply with Rule 10A-3 under the 
Act for the initial and continued listing of the Shares of each Fund.
    For the above reasons, the Exchange believes that the proposed rule 
change 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 permit the listing and trading of additional 
types of Managed Fund Shares 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

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \23\ and Rule 19b-
4(f)(6) thereunder.\24\
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    \23\ 15 U.S.C. 78s(b)(3)(A).
    \24\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.

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[[Page 55671]]

    A proposed rule change filed under Rule 19b-4(f)(6) \25\ normally 
does not become operative for 30 days after the date of the filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\26\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
the Funds currently intend to begin trading under the Generic Listing 
Standards on or about October 1, 2019, and waiver of the 30-day 
operative delay would allow the Funds to immediately fully employ the 
Overlay Strategy. In addition, the Exchange notes that the proposal 
would allow the Funds to hold listed derivatives based on a single 
underlying reference asset in a manner that is similar to previous rule 
changes involving Managed Fund Shares.\27\ For these reasons, the 
Commission believes that waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission waives the 30-day operative delay and 
designates the proposed rule change operative upon filing.\28\
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    \25\ 17 CFR 240.19b-4(f)(6).
    \26\ 17 CFR 240.19b-4(f)(6)(iii).
    \27\ See supra note 12.
    \28\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2019-68 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-2019-68. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of 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. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2019-68 and should be submitted 
on or before November 7, 2019.
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    \29\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-22596 Filed 10-16-19; 8:45 am]
BILLING CODE 8011-01-P