Document ID: SEC-2014-0842-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-05-21T04:00Z

[Federal Register Volume 79, Number 98 (Wednesday, May 21, 2014)]
[Notices]
[Pages 29241-29247]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-11705]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72172; File No. SR-NYSEArca-2014-37]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
Relating to Listing and Trading of the Shares of iShares 2020 S&P AMT-
Free Municipal Series Under NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02

May 15, 2014.
    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 May 2, 2014, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca''), through its wholly-owned subsidiary NYSE Arca Equities, Inc. 
(``NYSE Arca Equities'' or ``Corporation''), 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. On May 14, 2014, the Exchange filed Amendment No. 1 to 
the proposed rule change, which amended and replaced the proposed rule 
change in its entirety. The Commission is publishing this notice to 
solicit comments on the proposed rule change, as modified by Amendment 
No. 1 thereto, 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 list and trade under NYSE Arca Equities 
Rule 5.2(j)(3), Commentary .02, the shares of the following series of 
the iShares Trust: iShares 2020 S&P AMT-Free Municipal Series. The text 
of the proposed rule change is available on the Exchange's Web site at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
following series of the iShares Trust (the ``Trust'') under NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02, which governs the listing and 
trading of Investment Company Units (``Units'') based on fixed income 
securities indexes: iShares 2020 S&P AMT-Free Municipal Series 
(``Fund'').\4\
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    \4\ The Commission previously has approved a proposed rule 
change relating to listing and trading on the Exchange of Units 
based on municipal bond indexes. See Securities Exchange Act Release 
No. 67985 (October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-
NYSEArca-2012-92) (order approving proposed rule change relating to 
the listing and trading of iShares 2018 S&P AMT-Free Municipal 
Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE 
Arca Equities Rule 5.2(j)(3), Commentary .02). The Commission also 
has issued a notice of filing and immediate effectiveness of a 
proposed rule change relating to listing and trading on the Exchange 
of the iShares Taxable Municipal Bond Fund. See Securities Exchange 
Act Release No. 63176 (October 25, 2010), 75 FR 66815 (October 29, 
2010) (SR-NYSEArca-2010-94). The Commission has approved two 
actively managed funds of the PIMCO ETF Trust that hold municipal 
bonds. See Securities Exchange Act Release No. 60981 (November 10, 
2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order 
approving listing and trading of PIMCO Short-Term Municipal Bond 
Strategy Fund and PIMCO Intermediate Municipal Bond Strategy Fund, 
among others). The Commission also has approved listing and trading 
on the Exchange of the SPDR Nuveen S&P High Yield Municipal Bond 
Fund. See Securities Exchange Act Release No.63881 (February 9, 
2011), 76 FR 9065 (February 16, 2011) (SR-NYSEArca-2010-120).
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    Blackrock Fund Advisors (``BFA'') is the investment adviser for the 
Fund.\5\ BlackRock Investments, LLC is the Fund's distributor 
(``Distributor'').\6\
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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, BFA 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.
    \6\ See Post-Effective Amendment No. 1004 to the Trust's 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) and the Investment Company Act of 1940 (``1940 
Act'') (15 U.S.C. 80a-1), dated December 16, 2013 (File Nos. 333-
92935 and 811-09729) (the ``Registration Statement''). The 
description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
27608 (December 21, 2006) (File No. 812-13208) (``Exemptive 
Order'').
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iShares 2020 S&P AMT-Free Municipal Series \7\
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    \7\ This Amendment No. 1 to SR-NYSEArca-2014-37 replaces SR-
NYSEArca-2014-37 as originally filed and supersedes such filing in 
its entirety.
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    The Fund will seek investment results that correspond generally to 
the price and yield performance, before fees and expenses, of the S&P 
AMT-Free Municipal Series 2020 Index \TM\ (the ``Index'').\8\ The Fund 
will not seek to

[[Page 29242]]

return any predetermined amount at maturity.
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    \8\ The Index is sponsored by an organization (the ``Index 
Provider'', as described below), that is independent of the Fund and 
BFA. The Index Provider determines the composition and relative 
weightings of the securities in the Index and publishes information 
regarding the market value of the Index. The Index Provider with 
respect to the Index is Standard & Poor's Financial Services LLC (a 
subsidiary of The McGraw-Hill Companies) (``S&P''). The Index 
Provider is not a broker-dealer or affiliated with a broker-dealer 
and has implemented procedures designed to prevent the use and 
dissemination of material, non-public information regarding the 
Index.
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    According to the Registration Statement, the Index measures the 
performance of investment-grade U.S. municipal bonds maturing in 2020. 
As of February 28, 2014, there were 1427 issues in the Index.
    The Index includes municipal bonds primarily from issuers that are 
state or local governments or agencies such that the interest on the 
bonds is exempt from U.S. federal income taxes and the federal 
alternative minimum tax (``AMT''). Each bond must have a rating of at 
least BBB- by S&P, Baa3 by Moody's Investors Service, Inc. 
(``Moody's''), or BBB- by Fitch, Inc. and must have a minimum maturity 
par amount of $2 million to be eligible for inclusion in the Index. To 
remain in the Index, bonds must maintain a minimum par amount greater 
than or equal to $2 million as of each rebalancing date. All bonds in 
the Index will mature between June 1 and August 31 of 2020. When a bond 
matures in the Index, an amount representing its value at maturity will 
be included in the Index throughout the remaining life of the Index, 
and any such amount will be assumed to earn a rate equal to the 
performance of the S&P's Weekly High Grade Index, which consists of 
Moody's Investment Grade-1 municipal tax-exempt notes that are not 
subject to federal AMT. By August 31, 2020, the Index is expected to 
consist entirely of cash carried in this manner. The Index is a market 
value weighted index and is rebalanced after the close on the last 
business day of each month.
    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet all of the ``generic'' listing 
requirements of Commentary .02(a) to NYSE Arca Equities Rule 5.2(j)(3) 
applicable to the listing of Units based on fixed income securities 
indexes. The Index meets all such requirements except for those set 
forth in Commentary .02(a)(2).\9\ Specifically, as of February 28, 
2014, 6.25% of the weight of the Index components have a minimum 
original principal amount outstanding of $100 million or more.
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    \9\ Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3) 
provides that components that in the aggregate account for at least 
75% of the weight of the index or portfolio each shall have a 
minimum original principal amount outstanding of $100 million or 
more.
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    The Fund generally will invest at least 80% of its assets in the 
securities of the Index, except during the last months of the Fund's 
operations, as described below. The Fund may at times invest up to 20% 
of its assets in cash and cash equivalents (including money market 
funds affiliated with BFA), as well as in municipal bonds not included 
in the Index, but which BFA believes will help the Fund track the 
Index. For example, the Fund may invest in municipal bonds not included 
in the Index in order to reflect prospective changes in the Index (such 
as Index reconstitutions, additions and deletions). The Fund will 
generally hold municipal bond securities issued by state and local 
municipalities whose interest payments are exempt from U.S. federal 
income tax, the federal AMT and, effective beginning in 2013, a federal 
Medicare contribution tax of 3.8% on ``net investment income,'' 
including dividends, interest and capital gains. In addition, the Fund 
may invest any cash assets in one or more affiliated municipal money 
market funds. In the last months of operation, as the bonds held by the 
Fund mature, the proceeds will not be reinvested in bonds but instead 
will be held in cash and cash equivalents, including without limitation 
AMT-free tax-exempt municipal notes, variable rate demand notes and 
obligations, tender option bonds and municipal commercial paper. These 
cash equivalents may not be included in the Index. On or about August 
31, 2020, the Fund will wind up and terminate, and its net assets will 
be distributed to then-current shareholders.
    As of February 28, 2014, 76.77% of the weight of the Index 
components was comprised of individual maturities that were part of an 
entire municipal bond offering with a minimum original principal amount 
outstanding of $100 million or more for all maturities of the offering. 
In addition, the total dollar amount outstanding of issues in the Index 
was approximately $12.06 billion and the average dollar amount 
outstanding of issues in the 2018 Index was approximately $8.46 
million. Further, the most heavily weighted component represented 1.21% 
of the weight of the Index and the five most heavily weighted 
components represented 5.39% of the weight of the Index. \10\ 
Therefore, the Exchange believes that, notwithstanding that the Index 
does not satisfy the criterion in NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02 (a)(2), the Index is sufficiently broad-based to deter 
potential manipulation, given that it is comprised of approximately 
1427 issues. In addition, the Index securities are sufficiently liquid 
to deter potential manipulation in that a substantial portion (76.77%) 
of the Index weight is comprised of maturities that are part of a 
minimum original principal amount outstanding of $100 million or more, 
and in view of the substantial total dollar amount outstanding and the 
average dollar amount outstanding of Index issues, as referenced 
above.\11\
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    \10\ Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3) 
provides that no component fixed-income security (excluding Treasury 
Securities and GSE Securities, as defined therein) shall represent 
more than 30% of the weight of the index or portfolio, and the five 
most heavily weighted component fixed-income securities in the index 
or portfolio shall not in the aggregate account for more than 65% of 
the weight of the index or portfolio.
    \11\ BFA represents that when bonds are close substitutes for 
one another, pricing vendors can use executed trade information from 
all similar bonds as pricing inputs for an individual security. This 
can make individual securities more liquid, because valuations for a 
single security are better estimators of actual trading prices when 
they are informed by trades in a large group of closely related 
securities. As a result, securities are more likely to trade at 
prices close to their valuation when they need to be sold.
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    In addition, the average daily notional trading volume for Index 
components for the period December 31, 2012 to December 31, 2013 was 
$49 million and the sum of the notional trading volumes for the same 
period was approximately $12.4 billion. As of March 17, 2014, 61.14% of 
the Index weight consisted of issues with a rating of AA/Aa2 or higher.
    The Index value, calculated and disseminated at least once daily, 
as well as the components of the Index and their percentage weighting, 
will be available from major market data vendors. In addition, the 
portfolio of securities held by the Fund will be disclosed on the 
Fund's Web site at www.iShares.com.
    According to the Registration Statement, BFA expects that, over 
time, the Fund's tracking error will not exceed 5%. ``Tracking error'' 
is the difference between the performance (return) of the Fund's 
portfolio and that of the Index.
    The Exchange represents that: (1) except for Commentary .02(a)(2) 
to NYSE Arca Equities Rule 5.2(j)(3), the Shares of the Fund currently 
satisfy all of the generic listing standards under NYSE Arca Equities 
Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca 
Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply 
to the Shares; and (3) the Trust is required to comply with Rule 10A-3 
\12\ under the Act for the initial and continued listing of the Shares. 
In addition, the Exchange represents that the Shares will comply with 
all other requirements applicable to Units including, but not limited 
to, requirements relating to the

[[Page 29243]]

dissemination of key information such as the value of the Index and the 
Intraday Indicative Value (``IIV''), \13\ rules governing the trading 
of equity securities, trading hours, trading halts, surveillance, and 
the Information Bulletin to Equity Trading Permit Holders (``ETP 
Holders''), as set forth in Exchange rules applicable to Units and 
prior Commission orders approving the generic listing rules applicable 
to the listing and trading of Units.\14\
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    \12\ 17 CFR 240.10A-3.
    \13\ The IIV will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Core Trading Session of 9:30 a.m. to 4:00 p.m., Eastern time. 
Currently, it is the Exchange's understanding that several major 
market data vendors display and/or make widely available IIVs taken 
from the Consolidated Tape Association (``CTA'') or other data 
feeds.
    \14\ See, e.g., Securities Exchange Act Release Nos. 55783 (May 
17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order 
approving NYSE Arca generic listing standards for Units based on a 
fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19, 
2001) (SR-PCX-2001-14) (order approving generic listing standards 
for Units and Portfolio Depositary Receipts); 41983 (October 6, 
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order 
approving rules for listing and trading of Units).
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    The current value of the Index will be widely disseminated by one 
or more major market data vendors at least once per day, as required by 
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (b)(ii). The IIV for 
Shares of the Fund will be disseminated by one or more major market 
data vendors, updated at least every 15 seconds during the Exchange's 
Core Trading Session, as required by NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02 (c).
Correlation Among Municipal Bond Instruments With Common 
Characteristics
    With respect to the Fund, BFA represents that the nature of the 
municipal bond market and municipal bond instruments makes it feasible 
to categorize individual issues represented by CUSIPs (i.e., the 
specific identifying number for a security) into categories according 
to common characteristics-- specifically, rating, purpose (i.e., 
general obligation bonds, revenue bonds or ``double-barreled'' bonds), 
\15\ geographical region and maturity. Bonds that share similar 
characteristics tend to trade similarly to one another; therefore, 
within these categories, the issues may be considered fungible from a 
portfolio management perspective, allowing one CUSIP to be represented 
by another that shares similar characteristics for purposes of 
developing an investment strategy. Therefore, while 6.25% of the weight 
of the Index components have a minimum original principal amount 
outstanding of $100 million or more, the nature of the municipal bond 
market makes the issues relatively fungible for investment purposes 
when aggregated into categories such as ratings, purpose, geographical 
region and maturity. In addition, within a single municipal bond 
issuer, there are often multiple contemporaneous or sequential 
issuances that have the same rating, structure and maturity, but have 
different CUSIPs; these separate issues by the same issuer are also 
likely to trade similarly to one another.
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    \15\ General obligation (``GO'') bonds are backed by the full 
faith and credit of the issuer and by its taxing power. Revenue 
bonds (``REV'') are payable solely from net or gross non-tax 
revenues derived from a specific project. Double barreled (``DB'') 
GO bonds are secured by both a specific revenue stream and by the 
taxing power of the issuer. As of March 17, 2014, the market value 
of GO, REV and DB bonds in the Index was approximately $7.38 
billion, $6.53 billion and $ 91 million, respectively, representing 
51.3%, 45.3% and 0.36% of the Index weight, respectively.
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    BFA represents that iShares municipal bond funds are managed 
utilizing the principle that municipal bond issues are generally 
fungible in nature when sharing common characteristics, and 
specifically make use of the four categories referred to above. In 
addition, this principle is used in, and consistent with, the portfolio 
construction process for other iShares funds--namely, portfolio 
optimization. These portfolio optimization techniques are designed to 
facilitate the creation and redemption process, and to enhance 
liquidity (among other benefits, such as reducing transaction costs), 
while still allowing each fund to closely track its reference index.
    In addition, individual CUSIPs within the Index that share 
characteristics with other CUSIPs based on the four categories 
described above have a high yield to maturity correlation, and 
frequently have a correlation of one or close to one. Such correlation 
demonstrates that the CUSIPs within their respective category behave 
similarly; this reinforces the fungible nature of municipal bond issues 
for purposes of developing an investment strategy.
    The following example reflects the correlation among CUSIPs in the 
Index.\16\ This example shows the correlation of selected constituents 
that share three common characteristics: rating, purpose and 
geographical region.
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    \16\ Source: Standard and Poor's, January 1, 2013 to January 1, 
2014, daily evaluated prices, excluding three CUSIPs which lack 
daily data for the one year period. (3466226U2, 161035EU0, 
346623BU4). Evaluated prices, as defined by Standard and Poor's, are 
based on a methodology that incorporates, among other things, trade 
data, broker dealer quotes, new issue pricing, and certain 
fundamental characteristics such as credit quality and sector.
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    Example 1: Index; yield to maturity of issues sharing three common 
characteristics: Rating AAA/Aaa; \17\ Southeast Region; GO Bonds 
maturing July 1, 2020:
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    \17\ This is a composite rating among Standard & Poor's, Moody's 
and Fitch ratings. Under BFA's methodology, the median rating is 
used if all three ratings are available; the lowest rating is used 
if only two ratings are available; and, if only one rating is 
available, that one is used.

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                                            161035DF4     266778FB0     373384PM2     373384PN0     373384UE4     373384UQ7     373384VJ2     373384YK6
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161035DF4...............................          1.00  ............  ............  ............  ............  ............  ............  ............
266778FB0...............................          1.00          1.00  ............  ............  ............  ............  ............  ............
373384PM2...............................          0.89          0.89          1.00  ............  ............  ............  ............  ............
373384PN0...............................          1.00          1.00          0.89          1.00  ............  ............  ............  ............
373384UE4...............................          1.00          1.00          0.89          1.00          1.00  ............  ............  ............
373384UQ7...............................          1.00          1.00          0.89          1.00          1.00          1.00  ............  ............
373384VJ2...............................          1.00          1.00          0.88          1.00          1.00          1.00          1.00  ............
373384YK6...............................          1.00          1.00          0.89          1.00          1.00          1.00          1.00          1.00
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Creation and Redemption of Shares
    According to the Registration Statement, the Fund will issue and 
redeem Shares on a continuous basis at the net asset value per Share 
(``NAV'') only in a large specified number of Shares called a 
``Creation Unit'', or multiples thereof, with each Creation Unit 
consisting of 50,000 Shares, provided, however, that from time to time 
the Fund may change the number of Shares (or multiples thereof) 
required for each Creation Unit, if the Fund determines such a change 
would be in the best interests of the Fund.
    The consideration for purchase of Creation Units of the Fund 
generally will consist of the in-kind deposit of a

[[Page 29244]]

designated portfolio of securities (including any portion of such 
securities for which cash may be substituted) (i.e., the Deposit 
Securities), which constitutes a representative sample of the 
securities of the Index, \18\ and the Cash Component computed as 
described below. Together, the Deposit Securities and the Cash 
Component constitute the ``Fund Deposit,'' which represents the minimum 
initial and subsequent investment amount for a Creation Unit of the 
Fund.
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    \18\ According to the Registration Statement, ``representative 
sampling'' is an indexing strategy that involves investing in a 
representative sample of securities that collectively has an 
investment profile similar to the Index. The securities selected are 
expected to have, in the aggregate, investment characteristics 
(based on factors such as market capitalization and industry 
weightings), fundamental characteristics (such as return 
variability, duration, maturity or credit ratings and yield) and 
liquidity measures similar to those of the Index. The Fund may or 
may not hold all of the securities in the Index.
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    The portfolio of securities required for purchase of a Creation 
Unit may not be identical to the portfolio of securities the Fund will 
deliver upon redemption of Fund Shares. The Deposit Securities and Fund 
Securities (as defined below), as the case may be, in connection with a 
purchase or redemption of a Creation Unit, generally will correspond 
pro rata, to the extent practicable, to the securities held by such 
Fund. As the planned termination date of the Fund approaches, and 
particularly as the bonds held by the Fund begin to mature, the Fund 
would expect to effect both creations and redemptions increasingly for 
cash.
    The Cash Component will be an amount equal to the difference 
between the NAV of the Shares (per Creation Unit) and the ``Deposit 
Amount,'' which will be an amount equal to the market value of the 
Deposit Securities, and serve to compensate for any differences between 
the NAV per Creation Unit and the Deposit Amount. The Fund currently 
will offer Creation Units for in-kind deposits but reserves the right 
to utilize a ``cash'' option in lieu of some or all of the applicable 
Deposit Securities for creation of Shares.
    BFA will make available through the National Securities Clearing 
Corporation (``NSCC'') on each business day, prior to the opening of 
business on the Exchange, the list of names and the required number or 
par value of each Deposit Security and the amount of the Cash Component 
to be included in the current Fund Deposit (based on information as of 
the end of the previous business day) for the Fund.
    The identity and number or par value of the Deposit Securities will 
change pursuant to changes in the composition of the Fund's portfolio 
and as rebalancing adjustments and corporate action events will be 
reflected from time to time by BFA with a view to the investment 
objective of the Fund. The composition of the Deposit Securities may 
also change in response to adjustments to the weighting or composition 
of the component securities constituting the Index.
    The Fund reserves the right to permit or require the substitution 
of a ``cash in lieu'' amount to be added to the Cash Component to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the Depository Trust Company (``DTC'').
    Creation Units may be purchased only by or through a DTC 
participant that has entered into an ``Authorized Participant 
Agreement'' (as described in the Registration Statement) with the 
Distributor (an ``Authorized Participant''). Except as noted below, all 
creation orders must be placed for one or more Creation Units and must 
be received by the Distributor in proper form no later than the closing 
time of the regular trading session of the Exchange (normally 4:00 
p.m., Eastern time) in each case on the date such order is placed in 
order for creation of Creation Units to be effected based on the NAV of 
Shares of the Fund as next determined on such date after receipt of the 
order in proper form. Orders requesting substitution of a ``cash in 
lieu'' amount generally must be received by the Distributor no later 
than 2:00 p.m., Eastern time. On days when the Exchange or the bond 
markets close earlier than normal, the Fund may require orders to 
create Creation Units to be placed earlier in the day.
    Fund Deposits must be delivered through the Federal Reserve System 
(for cash and government securities) and through DTC (for corporate and 
municipal securities) by an Authorized Participant. The Fund Deposit 
transfer must be ordered by the DTC participant in a timely fashion so 
as to ensure the delivery of the requisite number of Deposit Securities 
through DTC to the account of the Fund by no later than 3:00 p.m., 
Eastern time, on the ``Settlement Date''. The Settlement Date is 
generally the third business day after the transmittal date.
    A standard creation transaction fee will be imposed to offset the 
transfer and other transaction costs associated with the issuance of 
Creation Units.
    Shares of the Fund may be redeemed only in Creation Units at the 
NAV next determined after receipt of a redemption request in proper 
form by the Distributor and only on a business day. BFA will make 
available through the NSCC, prior to the opening of business on the 
Exchange on each business day, the designated portfolio of securities 
(including any portion of such securities for which cash may be 
substituted) 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 that are applicable to creations of 
Creation Units.
    Unless cash redemptions are available or specified for the Fund, 
the redemption proceeds for a Creation Unit generally will consist of a 
specified amount of cash, Fund Securities, plus additional cash in an 
amount equal to the difference between the NAV of the Shares being 
redeemed, as next determined after the receipt of a request in proper 
form, and the value of the specified amount of cash and Fund 
Securities, less a redemption transaction fee. The Fund currently will 
redeem Shares for Fund Securities, but the Fund reserves the right to 
utilize a ``cash'' option for redemption of Shares.
    A standard redemption transaction fee will be imposed to offset 
transfer and other transaction costs that may be incurred by the Fund.
    Redemption requests for Creation Units of the Fund must be 
submitted to the Distributor by or through an Authorized Participant no 
later than 4:00 p.m. Eastern time on any business day, in order to 
receive that day's NAV. The Authorized Participant must transmit the 
request for redemption in the form required by the Fund to the 
Distributor in accordance with procedures set forth in the Authorized 
Participant Agreement.
    Detailed descriptions of the Fund, the Index, procedures for 
creating and redeeming Shares, transaction fees and expenses, 
dividends, distributions, taxes, risks, and reports to be distributed 
to beneficial owners of the Shares can be found in the Registration 
Statement or on the Web site for the Fund (www.iShares.com), as 
applicable.
Net Asset Value
    The NAV of the Fund will be calculated by dividing the value of the 
net assets of the Fund (i.e., the value of its total assets less total 
liabilities) by the total number of outstanding shares of the Fund, 
generally rounded to the nearest cent. The NAV of the Fund normally 
will be determined once each business day as of the regularly scheduled 
close of business of the New York Stock Exchange (``NYSE'')

[[Page 29245]]

(normally, 4:00 p.m. Eastern time) on each day the NYSE is open for 
trading.
    The value of the securities and other assets and liabilities held 
by the Fund will be determined pursuant to valuation policies and 
procedures approved by the Fund's Board of Trustees (``Board'').
    The Fund will value fixed income portfolio securities, including 
municipal bonds, AMT-free tax-exempt municipal notes, variable rate 
demand notes and obligations, tender option bonds and municipal 
commercial paper using prices provided directly from independent third-
party pricing services which may use matrix pricing and valuation 
models to derive values or from one or more broker-dealers or market 
makers. Certain short-term debt securities may be valued on the basis 
of amortized cost. Shares of municipal money market funds will be 
valued at NAV.
    When market quotations are not readily available or are believed by 
BFA to be unreliable, the Fund's investments will be valued at fair 
value. Fair value determinations are made by BFA in accordance with 
policies and procedures approved by the Fund's Board. BFA may conclude 
that a market quotation is not readily available or is unreliable if a 
security or other asset or liability does not have a price source due 
to its lack of liquidity, if a market quotation differs significantly 
from recent price quotations or otherwise no longer appears to reflect 
fair value, where the security or other asset or liability is thinly 
traded, or where there is a significant event subsequent to the most 
recent market quotation. A ``significant event'' is an event that, in 
the judgment of BFA, is likely to cause a material change to the 
closing market price of the asset or liability held by the Fund.
    Fair value represents a good faith approximation of the value of an 
asset or liability. The fair value of an asset or liability held by the 
Fund is the amount the Fund might reasonably expect to receive from the 
current sale of that asset or the cost to extinguish that liability in 
an arm's-length transaction.
Availability of Information
    On each business day, before commencement of trading in Shares in 
the Core Trading Session on the Exchange, the Fund will disclose on its 
Web site the portfolio that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\19\
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    \19\ Under accounting procedures 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.
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    On a daily basis, the Fund will disclose for each portfolio 
security or other financial instrument of the Fund the following 
information on the Fund's Web site: Ticker symbol (if applicable), name 
of security and financial instrument, a common identifier such as CUSIP 
or ISIN (if applicable), number of shares (if applicable), and dollar 
value of securities and financial instruments held in the portfolio, 
and percentage weighting of the security and financial instrument in 
the portfolio. The Web site information will be publicly available at 
no charge.
    The current value of the Index will be widely disseminated by one 
or more major market data vendors at least once per day, as required by 
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (b)(ii). The Intraday 
Indicative Value (``IIV'') for Shares of the Fund will be disseminated 
by one or more major market data vendors, updated at least every 15 
seconds during the Exchange's Core Trading Session, as required by NYSE 
Arca Equities Rule 5.2(j)(3), Commentary .02 (c).
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site 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 will be 
available via the Consolidated Tape Association (``CTA'') high speed 
line. Quotation information for investment company securities 
(excluding ETFs) may be obtained through nationally recognized pricing 
services through subscription agreements or from brokers and dealers 
who make markets in such securities. Price information regarding 
municipal bonds, AMT-free tax-exempt municipal notes, variable rate 
demand notes and obligations, tender option bonds and municipal 
commercial paper is available from third party pricing services and 
major market data vendors.
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 4:00 a.m. to 8:00 p.m. Eastern time in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, 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.
    The Shares of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Equities Rules 5.2(j)(3) and 
5.5(g)(2), respectively (except for those set forth in Commentary 
.02(a)(2)). The Exchange represents that, for initial and/or continued 
listing, the Fund will be in compliance with Rule 10A-3 \20\ under the 
Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 
Shares for the Fund 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 of the Fund will be 
calculated daily and that the NAV per Share will be made available to 
all market participants at the same time.
---------------------------------------------------------------------------

    \20\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    The Exchange will halt trading in the Shares if the circuit breaker 
parameters of NYSE Arca Equities Rule 7.12 have been reached. In 
exercising its discretion to halt or suspend trading in the Shares, the 
Exchange may consider factors such as the extent to which trading in 
the underlying securities is not occurring or whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present, in addition to other factors that may 
be relevant. If the IIV (as defined in Commentary .01 to Rule 
5.2(j)(3)) or the Index value is not being disseminated as required, 
the Exchange may halt trading during the day in which the interruption 
to the dissemination of the IIV or the Index value occurs. If the 
interruption to the

[[Page 29246]]

dissemination of the IIV or the Index value persists past the trading 
day in which it occurred, the Exchange will halt trading.
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 Equities Rule 9.2(a), which imposes a duty of due diligence 
on its Equity Trading Permit Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated IIV will not be calculated or publicly 
disseminated; (4) how information regarding the IIV 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 Fund is 
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) \21\ 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.
---------------------------------------------------------------------------

    \21\ 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 in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
5.2(j)(3). The Exchange represents that trading in the Shares will be 
subject to the existing trading surveillances, administered by the 
Financial Industry Regulatory Authority (``FINRA'') on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\22\ 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. FINRA, on behalf of the Exchange, will communicate as 
needed regarding trading in the Shares with other markets or other 
entities that are members of the Intermarket Surveillance group 
(``ISG''), and FINRA may obtain trading information regarding trading 
in the Shares from such markets or entities. FINRA also can access data 
obtained from the Municipal Securities Rulemaking Board relating to 
municipal bond trading activity for surveillance purposes in connection 
with trading in the Shares. FINRA, on behalf of the Exchange, is able 
to access, as needed, trade information for certain fixed income 
securities held by the Fund reported to FINRA's Trade Reporting and 
Compliance Engine (``TRACE''). In addition, the Exchange may obtain 
information regarding trading in the Shares from markets or other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
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    \22\ FINRA surveils trading on 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 Index Provider is not a broker-dealer or affiliated with a 
broker-dealer and has implemented procedures designed to prevent the 
use and dissemination of material, non-public information regarding the 
Index. With respect to the Fund, as of February 28, 2014, there were 
1,427 issues in the Index. As of February 28, 2014, 76.77% of the 
weight of the Index components was comprised of individual maturities 
that were part of an entire municipal bond offering with a minimum 
original principal amount outstanding of $100 million or more for all 
maturities of the offering. In addition, the total dollar amount 
outstanding of issues in the Index was approximately $ 12.06 billion 
and the average dollar amount outstanding of issues in the Index was 
approximately $ 8.46 million. Further, the most heavily weighted 
component represents 1.21% of the weight of the Index and the five most 
heavily weighted components represent 5.39% of the weight of the Index. 
Therefore, the Index is sufficiently broad-based and sufficiently 
liquid to deter potential manipulation. The Index value, calculated and 
disseminated at least once daily, as well as the components of the 
Index and its percentage weightings, will be available from major 
market data vendors. In addition, the portfolio of securities held by 
the Fund will be disclosed on the Fund's Web site at www.iShares.com. 
The IIV for Shares of the Fund will be disseminated by one or more 
major market data vendors, updated at least every 15 seconds during the 
Exchange's Core Trading Session. According to the Registration 
Statement, BFA expects that, over time, the Fund's tracking error will 
not exceed 5%. BFA represents that bonds that share similar 
characteristics, as described above, tend to trade similarly to one 
another; therefore, within these categories, the issues may be 
considered fungible from a portfolio management perspective. Within a 
single municipal bond issuer, BFA represents that separate issues by 
the same issuer are also likely to trade similarly to one another. In 
addition, BFA represents that individual CUSIPs within the Index that 
share characteristics with other CUSIPs based on the four categories 
described above have a high yield to maturity correlation, and 
frequently have a correlation of one or close to one.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that a large amount of information will be publicly available regarding 
the Fund and the Shares, thereby promoting market transparency. The 
Fund's portfolio holdings will be disclosed on the Fund's Web site 
daily after the close of trading on the Exchange and prior to the 
opening of trading on the Exchange the following day. Moreover, the IIV 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Core Trading Session. The 
current value of the Index will be disseminated by one or more major 
market data vendors at least once per day. 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, and quotation and last sale information will 
be available via the CTA high-speed line. The Web site for the Fund 
will include the prospectus for the Fund and additional data relating 
to NAV and other applicable quantitative information. Moreover, prior 
to the commencement of trading, the Exchange

[[Page 29247]]

will inform its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. If the 
Exchange becomes aware that the NAV is not being disseminated to all 
market participants at the same time, it will halt trading in the 
Shares until such time as the NAV is available to all market 
participants. 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. 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. If the IIV or the Index values 
are not being disseminated as required, the Corporation may halt 
trading during the day in which the interruption to the dissemination 
of the IIV or Index value occurs. If the interruption to the 
dissemination of the IIV or Index value persists past the trading day 
in which it occurred, the Corporation will halt trading. Trading in 
Shares of the Fund will be halted if the circuit breaker parameters in 
NYSE Arca Equities Rule 7.12 have been reached or because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable, and trading in the Shares will be 
subject to NYSE Arca Equities Rule 7.34, which sets forth circumstances 
under which Shares of the Fund may be halted. In addition, investors 
will have ready access to information regarding the IIV, and quotation 
and last sale information for the Shares.
    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 exchange-traded fund that holds municipal bonds 
and 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, investors 
will have ready access to information regarding the IIV and quotation 
and last sale information for the Shares.

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 another 
exchange-traded product that holds municipal securities and 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

    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 the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2014-37 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-2014-37. 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 Section, 100 F Street 
NE., Washington, DC 20549, on official business days between 10:00 a.m. 
and 3:00 p.m. Copies of the filing will also be available for 
inspection and copying at the principal office of NYSE. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2014-37 and should 
be submitted on or before June 11, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-11705 Filed 5-20-14; 8:45 am]
BILLING CODE 8011-01-P