Document ID: SEC-2017-1783-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2017-10-31T04:00Z

[Federal Register Volume 82, Number 209 (Tuesday, October 31, 2017)]
[Notices]
[Pages 50461-50468]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23582]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81944; File No. SR-NYSEArca-2017-99]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the Hartford 
Schroders Tax-Aware Bond ETF Under NYSE Arca Rule 8.600-E

October 25, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on October 11, 2017, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the self-regulatory 
organization. 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 list and trade shares of the Hartford 
Schroders Tax-Aware Bond ETF under NYSE Arca Rule 8.600-E (``Managed 
Fund Shares''). 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 
Hartford Schroders Tax-Aware Bond ETF (``Fund'') under NYSE Arca Rule 
8.600-E, which governs the listing and trading of Managed Fund 
Shares.\4\ The Shares will be offered by the Hartford Funds Exchange-
Traded Trust (the ``Trust''), which is registered with the Commission 
as an open-end management investment company.\5\ The Fund is a series 
of the Trust.
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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.
    \5\ The Trust is registered under the 1940 Act. On June 26, 
2017, the Trust filed with the Commission its registration statement 
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) 
(``Securities Act''), and under the 1940 Act relating to the Funds 
[sic] (File Nos. 333-215165 and 811-23222) (``Registration 
Statement''). The description of the operation of the Trust and the 
Funds [sic] 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. 32454 (January 27, 2017) (File No. 812-
13828-01) (``Exemptive Order'').
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    Hartford Funds Management Company, LLC (``HFMC'' or ``Manager'') 
will be the investment manager to the Fund. ALPS Distributors, Inc. 
(``ALPS'' or the ``Distributor'') will be the principal underwriter to 
the Fund. HFMC is an indirect subsidiary of The Hartford Financial 
Services Group, Inc. Schroder Investment Management North America Inc. 
(``Sub-Adviser'') will be the sub-adviser to the Fund and performs the 
daily investment of the assets for the Fund.
    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 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,

[[Page 50462]]

Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. Neither the 
Manager nor Sub-Adviser is registered as a broker-dealer but each is 
affiliated with a broker-dealer. The Manager and Sub-Adviser each has 
implemented and will maintain a ``fire wall'' with respect to such 
broker-dealer affiliate regarding access to information concerning the 
composition of and/or changes to the Fund's portfolio.\7\ In the event 
(a) the Manager or Sub-Adviser becomes registered as a broker-dealer or 
newly affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser to the Fund is a registered broker-dealer or becomes affiliated 
with a broker-dealer, the applicable adviser or sub-adviser will 
implement and maintain a ``fire wall'' with respect to its relevant 
personnel or broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the Fund's 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 Manager and Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. 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.
    \7\ While the Sub-Adviser is not registered as a broker-dealer, 
it has a wholly-owned broker-dealer subsidiary. This broker-dealer 
is limited purpose and exists solely to serve as the distributor of 
pooled investment vehicles for which the Sub-Adviser acts as an 
investment adviser. This broker-dealer does not execute securities 
transactions or accept customer funds. For purposes of this filing, 
the term ``firewall'' shall mean that personnel of such broker-
dealer are subject to procedures designed to prevent the use and 
dissemination of material non-public information, including 
information regarding the Fund's portfolio.
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Hartford Schroders Tax-Aware Bond ETF
Principal Investments
    According to the Registration Statement, the Fund will seek total 
return on an after-tax basis. The Fund will seek to achieve its 
investment objective by investing in a diversified portfolio of fixed 
income debt instruments of varying maturities. Under normal market 
conditions,\8\ the Fund will invest principally (that is, more than 50% 
of its assets) in the U.S. dollar-denominated, fixed income debt 
instruments described below.
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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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    The fixed income debt instruments in which the Fund may invest as 
part of its principal investment strategy are securities issued or 
guaranteed by the U.S. government and its agencies, government-
sponsored enterprise securities, corporate bonds, agency mortgage-
backed securities (including ``to be announced'' or ``TBA'' 
transactions), agency asset-backed securities (``ABS''), ``Municipal 
Securities'' (as described below), sovereign debt and debt securities 
issued by supranational organizations. They may pay fixed, variable, or 
floating interest rates. The Fund may invest in U.S. dollar denominated 
foreign securities. The Fund may also invest in cash and cash 
equivalents.\9\
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    \9\ For purposes of this filing, cash equivalents are money 
market funds and the following short-term instruments with 
maturities of less than three months: (i) Certificates of deposit 
issued against funds deposited in a bank or savings and loan 
association; (ii) bankers' acceptances, which are short-term credit 
instruments used to finance commercial transactions; (iii) U.S. 
Government obligations or corporate debt obligations (including 
those subject to repurchase agreements); (iv) bank time deposits; 
and (v) commercial paper.
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    According to the Registration Statement, in seeking to achieve the 
Fund's investment objective, the Sub-Adviser will employ a tax-aware 
investing strategy that attempts to realize total return for 
shareholders, primarily in the form of current income and price 
appreciation, by balancing investment considerations and tax 
considerations.
    According to the Registration Statement, the Fund may invest in the 
following Municipal Securities: General obligation bonds; revenue (or 
limited obligation) bonds; private activity (or industrial development) 
bonds; bonds that are collateralized with agency and/or treasury 
securities, municipal notes; municipal lease obligations; and municipal 
inverse floaters.\10\ The Fund's investments in Municipal Securities 
will be diversified among issuers in at least 10 states and U.S. 
territories. The Fund may invest up to 40% of the Fund's total assets 
in Municipal Securities of issuers in each of California, New York and 
Texas. The Fund will limit its investments in Municipal Securities of 
any one state (except California, New York and Texas) or U.S. territory 
to 25% of the Fund's total assets.
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    \10\ Municipal inverse floaters are a type of inverse floater in 
which a municipal bond is deposited with a special purpose vehicle 
(SPV), which issues, in return, the municipal inverse floater (which 
is comprised of a residual interest in the cash flows and assets of 
the SPV) plus proceeds from the issuance by the SPV of floating rate 
certificates to third parties.
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    The Fund may hold restricted securities, which are securities that 
cannot be offered for public resale unless registered under the 
applicable securities laws or that have a contractual restriction that 
prohibits or limits their resale. Restricted securities include private 
placement securities that have not been registered under the applicable 
securities laws, such as Rule 144A securities, and securities of U.S. 
and non-U.S. issuers that are issued pursuant to Regulation S.
Other Investments
    While the Fund, under normal market conditions, will invest 
principally in the securities and financial instruments described 
above, the Fund may invest its remaining assets in the securities and 
financial instruments described below.
    The Fund may invest in non-agency ABS, which are securities backed 
by a pool of some underlying asset, including but not limited to home 
equity loans, installment sale contracts, credit card receivables or 
other assets.
    The Fund may invest in collateralized debt obligations (``CDOs''), 
which include collateralized bond obligations (``CBOs''), 
collateralized loan obligations (``CLOs'') and other similarly 
structured securities.
    The Fund may invest in non-agency mortgage-related securities.
    The Fund may invest in the securities of other registered 
investment companies, including exchange-traded funds (``ETFs'').\11\
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    \11\ For purposes of this filing, ETFs include 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). The ETFs all will be listed and traded in the U.S. on registered 
exchanges. The Fund will not invest in inverse or leveraged (e.g., 
+2x, -2X) index ETFs.
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    The Fund may engage actively in transactions in derivatives 
(futures, options, swaps and forward rate agreements), as described 
below. The Fund will normally use derivatives to supplement the 
effective management of its duration profile, to gain exposure to 
particular securities or markets, in connection with hedging 
transactions, or for purposes of efficient portfolio management, 
including managing cash flows or as part of the Fund's risk management 
process.
    The Fund may invest in U.S and foreign exchange-traded and over-the 
counter (``OTC'') put and call options. The Fund may engage in options 
transactions on any security, index or instrument in which it may 
invest.

[[Page 50463]]

    The Fund may invest in U.S and foreign exchange-traded and OTC 
currency options.
    The Fund may invest in U.S. and foreign exchange-traded futures 
contracts and options on futures contracts with respect to equity and 
debt securities, foreign currencies, aggregates of equity and debt 
securities (aggregates are composites of equity or debt securities that 
are not tied to a commonly known index), interest rates, indices, 
commodities and other financial instruments.
    The Fund may enter into commodity swaps, total return swaps, 
currency swaps, credit default swaps, asset swaps, inflation swaps, 
event-linked swaps, interest rate swaps, swaps on specific securities 
or indices, swaps on rates (such as mortgage prepayment rates), 
municipal credit default swaps, municipal market data derivatives rate 
locks, caps, collars, and floors. The Fund may also enter into options 
on swap agreements (``swaptions''). The Fund may also invest in the Dow 
Jones CDX (``CDX''), which is a family of indices that track credit 
derivative indices in various countries around the world. Swaps and 
swaptions can be both exchange traded and OTC.
    The Fund may enter into forward rate agreements.
    The Fund may invest in inflation-protected debt securities.
    The Fund may invest in OTC and exchange-traded convertible and 
nonconvertible preferred stock.
    The Fund may invest in when-issued and delayed delivery securities 
and forward commitments.
Disclosure of Portfolio Holdings
    On each day the NYSE Arca is open (a ``Business Day''), before 
commencement of trading in Shares on the Exchange, HFMC will disclose 
the Fund's iNAV Basket.\12\ Additionally, on each Business Day, before 
commencement of trading in Shares on the Exchange, the Fund will 
disclose on its Web site the identities and quantities of the Fund's 
portfolio holdings that will form the basis for the Fund's calculation 
of NAV at the end of the Business Day.
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    \12\ An iNAV will be based on the current market value of the 
Fund's portfolio holdings that will form the basis for the Fund's 
calculation of NAV at the end of the Business Day, as disclosed on 
the Fund's Web site prior to that Business Day's commencement of 
trading (the ``iNAV Basket'').
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Creation and Redemption of Shares
    According to the Registration Statement, the Trust will issue and 
sell Shares of the Fund only in Creation Units at the NAV next 
determined after receipt of an order in proper form on any Business 
Day. The number of Shares of the Fund that will constitute a Creation 
Unit is 50,000. The size of a Creation Unit is subject to change.
Creation of Shares
    The consideration for purchase of Creation Units will generally 
consist of ``Deposit Securities'' and the ``Cash Component'', which 
will generally correspond pro rata, to the extent practicable, to the 
Fund's securities, or, as permitted or required by the Fund, of cash. 
Together, the Deposit Securities and Cash Component constitute the 
``Fund Deposit,'' which represents the minimum initial and subsequent 
investment amount for a Creation Unit of the Fund. Creation Units of 
Shares of the Fund may be issued partially for cash.
    The Transfer Agent, through the National Securities Clearing 
Corporation (``NSCC''), will make available on each Business Day, prior 
to the Core Trading Session (subject to amendments) on the Exchange 
(currently 9:30 a.m., Eastern time), the identity and the required 
number of each Deposit Security and the amount of the Cash Component to 
be included in the current Fund Deposit (based on information at the 
end of the previous Business Day).
    To be eligible to place orders with the Distributor and to create a 
Creation Unit of the Fund, an entity must be: (i) A ``Participating 
Party,'' i.e. a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the NSCC (the 
``Clearing Process''); or (ii) a participant of Depository Trust 
Company (``DTC'') (``DTC Participant'') and must have executed an 
agreement with the Distributor (and accepted by the Transfer Agent), 
with respect to creations and redemptions of Creation Units 
(``Participant Agreement'') (discussed below). A Participating Party or 
DTC Participant who has executed a Participant Agreement is referred to 
as an ``Authorized Participant.''
    Except as described below, and in all cases subject to the terms of 
the applicable Participant Agreement, all orders to create Creation 
Units of the Fund must be received by the Transfer Agent no later than 
1:00 p.m., Eastern time) in each case on the date such order is placed 
for creation of Creation Units to be effected based on the NAV of 
shares of the Fund as next determined after receipt of an order in 
proper form. Orders requesting substitution of a ``cash-in-lieu'' 
amount or a cash creation, must be received by the Transfer Agent no 
later than 1:00 p.m., Eastern time. The date on which an order to 
create Creation Units (or an order to redeem Creation Units, as 
discussed below) is placed is referred to as the ``Transmittal Date''.
    Fund Deposits created through the Clearing Process, if available, 
must be delivered through a Participating Party that has executed a 
Participant Agreement.
    The Participant Agreement authorizes the Transfer Agent to transmit 
to NSCC on behalf of the Participating Party such trade instructions as 
are necessary to effect the Participating Party's creation order. 
Pursuant to such trade instructions from the Transfer Agent to NSCC, 
the Participating Party agrees to transfer the requisite Deposit 
Securities (or contracts to purchase such Deposit Securities that are 
expected to be delivered in a ``regular way'' manner by the second 
Business Day) and the Cash Component to the Trust, together with such 
additional information as may be required by the Transfer Agent and the 
Distributor as set forth in the Participant Agreement. An order to 
create Creation Units of the Fund through the Clearing Process is 
deemed received by the Transfer Agent on the Transmittal Date if (i) 
such order is received by the Transfer Agent not later than the Order 
Cutoff Time on such Transmittal Date and (ii) all other procedures set 
forth in the Participant Agreement are properly followed.
    Fund Deposits created outside the Clearing Process must be 
delivered through a DTC Participant that has executed a Participant 
Agreement.
Redemption of Shares
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form on a 
Business Day and only through a Participating Party or DTC Participant 
who has executed a Participant Agreement.
    With respect to the Fund, the Transfer Agent, through the NSCC, 
makes available immediately prior to the opening of business on the 
Exchange (currently 9:30 a.m., Eastern time) on each Business Day, the 
identity of the Fund's securities and/or an amount of cash that will be 
applicable (subject to possible amendment or correction) to redemption 
requests received in proper form (as described below) on that day. All 
orders are subject to acceptance by the Distributor. The Fund's 
securities received on redemption will generally correspond pro rata, 
to the extent practicable, to the Fund's securities. The Fund's 
securities received on redemption (``Fund Securities'') may not be 
identical to Deposit Securities that

[[Page 50464]]

are applicable to creations of Creation Units.
    Unless cash only redemptions are available or specified for the 
Fund, the redemption proceeds for a Creation Unit will generally 
consist of Fund Securities--as announced on the Business Day of the 
request for a redemption order received in proper form--plus cash in an 
amount equal to the difference between the NAV of the Shares being 
redeemed, as next determined after a receipt of a request in proper 
form, and the value of the Fund Securities, less the redemption 
transaction fee and variable fees described below. Notwithstanding the 
foregoing, the Trust will substitute a ``cash-in-lieu'' amount to 
replace any Fund Security that is a non-deliverable instrument.
    Orders to redeem Creation Units of the Fund through the Clearing 
Process, if available, must be delivered through a Participating Party 
that has executed the Participant Agreement. An order to redeem 
Creation Units of the Fund through the Clearing Process will be deemed 
received by the Transfer Agent on the Transmittal Date if such order is 
received by the Transfer Agent not later than 1:00 p.m. Eastern time on 
such Transmittal Date and other applicable procedures are properly 
followed.
    Orders to redeem Creation Units of the Fund outside the Clearing 
Process must be delivered through a DTC Participant that has executed 
the Participant Agreement. An order to redeem Creation Units of the 
Fund outside the Clearing Process will be deemed received by the 
Transfer Agent on the Transmittal Date if such order is received by the 
Transfer Agent not later than 1:00 p.m. Eastern time on such 
Transmittal Date and other applicable procedures are properly followed.
Availability of Information
    The Fund will disclose on the Fund's Web site 
(www.hartfordfunds.com) at the start of each Business Day the 
identities and quantities of the securities and other assets held by 
the Fund that will form the basis of the Fund's calculation of its NAV 
on that Business Day. The portfolio holdings so disclosed will be based 
on information as of the close of business on the prior Business Day 
and/or trades that have been completed prior to the opening of business 
on that Business Day and that are expected to settle on the Business 
Day.
    The Web site for the Fund will contain the following information, 
on a per-Share basis, for the Fund: (1) The prior Business Day's NAV; 
(2) the reported midpoint of the bid-ask spread at the time of NAV 
calculation (the ``Bid-Ask Price''); (3) a calculation of the premium 
or discount of the Bid-Ask Price against such NAV; and (4) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the Bid-Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters (or for the 
life of the Fund if, shorter).
    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. On a daily basis, 
the Fund will disclose the information required under NYSE Arca Rule 
8.600-E(c)(2) to the extent applicable. The Fund's prospectus and 
Statement of Additional Information (``SAI'') will be available on the 
Fund's Web site. The Web site information will be publicly available at 
no charge.
    Investors can also obtain the Fund's SAI, shareholder reports, Form 
N-CSR and Form N-SAR, filed twice a year. The Fund's SAI and 
shareholder reports will be 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 publicly available and will be 
published daily in the financial section of newspapers.
    Quotation and last sale information for the Shares and ETFs will be 
available via the Consolidated Tape Association (``CTA'') high-speed 
line, and from the national securities exchanges on which they are 
listed.
    Quotation information from brokers and dealers or pricing services 
will be available for Municipal Securities. Price information for money 
market funds will be available from the applicable investment company's 
Web site and from market data vendors. Pricing information regarding 
each asset class in which the Fund will invest will generally be 
available through nationally recognized data service providers through 
subscription agreements. In addition, the iNAV (which is the Portfolio 
Indicative Value, as defined in NYSE Arca Rule 8.600-E(c)(3)), will be 
widely disseminated at least every 15 seconds during the Core Trading 
Session by one or more major market data vendors or other information 
providers.\13\ One source of price information for municipal securities 
is the Electronic Municipal Market Access (``EMMA''), which is 
administered by the Municipal Securities Rulemaking Board.
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    \13\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from CTA or other data feeds.
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Investment Restrictions
    The Fund's investments will be consistent with its investment goal 
and will not be used to provide multiple returns of a benchmark or to 
produce leveraged returns.
    With respect to the Fund's investments in Municipal Securities, 
under normal market conditions, except for periods of high cash inflows 
or outflows, the Fund will satisfy the following criteria:
    i. The Fund will have a minimum of 20 non-affiliated issuers;
    ii. No single Municipal Securities issuer will account for more 
than 10% of the weight of the Fund's portfolio; \14\
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    \14\ The Exchange notes that the Commission has approved the 
listing and trading of another issue of Managed Fund Shares that 
principally holds municipal securities for which no single issuer 
would account for more than 10% of the weight of the fund's 
portfolio. See Securities Exchange Act Release No. 79293 (November 
10, 2016), 81 FR 81189 (November 17, 2016) (SR-NYSEArca-2016-107) 
(order approving listing and trading of shares of Cumberland 
Municipal Bond ETF under Rule 8.600).
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    iii. No individual bond will account for more than 5% of the weight 
of the Fund's portfolio; \15\
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    \15\ The Exchange notes that the Commission has approved the 
listing and trading of another issue of Managed Fund Shares that 
principally holds municipal securities for which no single bond 
would exceed 5% of the fund's portfolio. See Securities Exchange Act 
Release No. 80885 (June 8, 2017), 82 FR 27302 (June 14, 2017) (order 
approving listing and trading of shares of the IQ Municipal Insured 
ETF, IQ Municipal Short Duration ETF, and IQ Municipal Intermediate 
ETF under NYSE Arca Equities Rule 8.600).
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    iv. The Fund will limit its investments in Municipal Securities of 
any one state to 25% of the Fund's total assets, provided that up to 
and including 40% of the Fund's total assets may be invested in 
Municipal Securities of issuers in each of California, New York and 
Texas; \16\
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    \16\ The Exchange notes that the Commission has approved the 
listing and trading of other issues of Managed Fund Shares that 
principally hold municipal securities for which the applicable 
fund's assets in municipal securities of any one state would be 
limited to 25% of such fund's assets. See Securities Exchange Act 
Release Nos. 80885 (June 8, 2017), 82 FR 27302 (June 14, 2017) 
(order approving listing and trading of shares of the IQ Municipal 
Insured ETF, IQ Municipal Short Duration ETF, and IQ Municipal 
Intermediate ETF under NYSE Arca Equities Rule 8.600); 79293 
(November 10, 2016), 81 FR 81189 (November 17, 2016) (SR-NYSEArca-
2016-107) (order approving listing and trading of shares of 
Cumberland Municipal Bond ETF under Rule 8.600); 78913 (September 
23, 2016) (SR-Nasdaq-2016-002) (order approving listing and trading 
of the First Trust Municipal High Income ETF of First Trust 
Exchange-Traded Fund III).

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[[Page 50465]]

    v. The Fund's investments in Municipal Securities will be 
diversified among issuers in at least 10 states and U.S. territories; 
\17\
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    \17\ The Exchange notes that the Commission has approved the 
listing and trading of another issue of Managed Fund Shares that 
principally holds municipal securities and for which the fund's 
assets would be diversified among issuers in 10 states. See 
Securities Exchange Act Release No. 80865 (June 6, 2017), 82 FR 
26970 (June 12, 2017) (order approving listing and trading of shares 
of the Franklin Liberty Intermediate Municipal Opportunities ETF and 
Franklin Liberty Municipal Bond ETF under NYSE Arca Equities Rule 
8.600).
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    vi. The Fund will be diversified among a minimum of five different 
sectors of the Municipal Securities market.\18\
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    \18\ The Fund's investments in Municipal Securities will include 
investments in state and local (e.g., county, city, town) Municipal 
Securities relating to such sectors as the following: Airports; 
bridges and highways; hospitals; housing; jails; mass 
transportation; nursing homes; parks; public buildings; recreational 
facilities; school facilities; streets; and water and sewer works.
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    Pre-refunded bonds will be excluded from the above limits given 
that they have a high level of credit quality and liquidity.\19\
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    \19\ The Exchange notes that the Commission has approved the 
listing and trading of another issue of Managed Fund Shares that 
principally holds municipal securities for which pre-refunded bonds 
were excluded from the specified limits in the fund's municipal bond 
investments. See Securities Exchange Act Release No. 80865 (June 6, 
2017), 82 FR 26970 (June 12, 2017) (order approving listing and 
trading of shares of the Franklin Liberty Intermediate Municipal 
Opportunities ETF and Franklin Liberty Municipal Bond ETF under NYSE 
Arca Equities Rule 8.600). Pre-refunded bonds (also known as 
refunded or escrow-secured bonds) have a high level of credit 
quality and liquidity because the issuer ``pre-refunds'' the bond by 
setting aside in advance all or a portion of the amount to be paid 
to the bondholders when the bond is called. Generally, an issuer 
uses the proceeds from a new bond issue to buy high grade, interest 
bearing debt securities, including direct obligations of the U.S. 
government, which are then deposited in an irrevocable escrow 
account held by a trustee bank to secure all future payments of 
principal and interest on the pre-refunded bonds.
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Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the 
portfolio for the Fund will not meet all of the ``generic'' listing 
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to 
the listing of Managed Fund Shares. The Fund's portfolio will meet all 
such requirements except for those set forth in Commentary 
.01(b)(1).\20\
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    \20\ Commentary .01(b)(1) to NYSE Arca Rule 8.600-E provides 
that components that in the aggregate account for at least 75% of 
the fixed income weight of the portfolio each shall have a minimum 
original principal amount outstanding of $100 million or more.
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    The Exchange believes that it is appropriate and in the public 
interest to approve listing and trading of Shares of the Fund on the 
Exchange notwithstanding that the Fund would not meet the requirements 
of Commentary .01(b)(1) to Rule 8.600-E in that the Fund's investments 
in fixed income securities, including Municipal Securities, will be 
well-diversified.
    The Exchange believes that permitting Fund Shares to be listed and 
traded on the Exchange, notwithstanding that, as a result principally 
of the Fund's investments in Municipal Securities, less than 75% of the 
weight of the Fund's portfolio may consist of components with $100 
million minimum or more original principal amount outstanding, would 
provide the Fund with greater ability to select from a broad range of 
fixed income securities, including Municipal Securities, as described 
above, that would support the Fund's investment goal.
    The Exchange believes that, notwithstanding that the Fund's 
portfolio may not satisfy Commentary .01(b)(1) to Rule 8.600-E, the 
Fund will not be susceptible to manipulation. As noted above, with 
respect to the Fund's investments in Municipal Securities, such 
securities will be diversified among a minimum of 20 non-affiliated 
issuers; no single Municipal Securities issuer will account for more 
than 10% of the weight of the Fund's portfolio; no individual bond will 
account for more than 5% of the weight of the Fund's portfolio; the 
Fund will limit its investments in Municipal Securities of any one 
state to 25% of the Fund's total assets, provided that up to and 
including 40% of the Fund's total assets may be invested in Municipal 
Securities of issuers in each of California, New York and Texas; and 
the Fund's investments in Municipal Securities will be diversified 
among issuers in at least 10 states and U.S. territories and will be 
diversified among a minimum of five different sectors of the Municipal 
Securities market.
    The Exchange notes that, other than Commentary .01(b)(1) to Rule 
8.600-E, the Fund's portfolio will meet all other requirements of Rule 
8.600-E.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\21\ Trading in Shares of the 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 Fund's Shares also 
will be subject to Rule 8.600-E(d)(2)(D) (``Trading Halts'').
---------------------------------------------------------------------------

    \21\ 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., Eastern Time in 
accordance with NYSE Arca Rule 7.34-E (Early, 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 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(b)(1) to 
Rule 8.600-E as described above in ``Application of Generic Listing 
Requirements'', the Shares of the Fund will conform to the initial and 
continued listing criteria under NYSE Arca Rule 8.600-E. Consistent 
with NYSE Arca Rule 8.600-E(d)(2)(B)(ii), the Manager 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 the Fund's portfolio. The Exchange represents 
that, for initial and continued listing, the Fund will be in compliance 
with Rule 10A-3 \22\ under the Act, as provided by NYSE Arca Rule 5.3-
E. A minimum of 100,000 Shares will be outstanding at the commencement 
of trading on the Exchange. The Exchange will obtain a representation 
from the issuer of the Shares that the NAV per Share will be calculated 
daily and that the NAV and the Disclosed Portfolio will be made 
available to all market participants at the same time. The Fund's 
investments will be consistent with its investment goal and will not be 
used to provide multiple returns of a benchmark or to produce leveraged 
returns.
---------------------------------------------------------------------------

    \22\ 17 CFR 240.10A-3.
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Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances,

[[Page 50466]]

administered by the Financial Industry Regulatory Authority (``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.\23\
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    \23\ 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.
---------------------------------------------------------------------------

    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.\24\
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    \24\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, ETFs, certain 
exchange-traded options and certain exchange-traded futures 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 the Shares, ETFs, certain 
exchange-traded options and certain exchange-traded futures from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, ETFs, certain exchange-
traded options and certain exchange-traded futures from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement. In addition, 
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''). 
FINRA also can access data obtained from the Municipal Securities 
Rulemaking Board (``MSRB'') relating to municipal bond trading activity 
for surveillance purposes in connection with trading in the Shares.
    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, (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 Fund on the 
Exchange.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under 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 iNAV will not be calculated or publicly disseminated; (4) how 
information regarding the iNAV 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 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) \25\ 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.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.600-E. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws. The Exchange or FINRA, on behalf of the Exchange, or 
both, will communicate as needed regarding trading in the Shares, ETFs, 
certain exchange-traded options and certain exchange-traded futures 
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 the Shares, ETFs, certain 
exchange-traded options and certain exchange-traded futures from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, ETFs, certain exchange-
traded options and certain exchange-traded futures from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement. In addition, 
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 TRACE. FINRA also can access data obtained from the MSRB 
relating to municipal bond trading activity for surveillance purposes 
in connection with trading in the Shares. Neither the Manager nor Sub-
Adviser is registered as a broker-dealer but each is affiliated with a 
broker-dealer. The Manager and Sub-Adviser each has implemented a 
``fire wall'' with respect to such broker-dealer affiliate regarding 
access to information concerning the composition of and/or changes to 
the Fund's portfolio.\26\
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    \26\ See note 7, supra.

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[[Page 50467]]

    The Exchange believes that it is appropriate and in the public 
interest to approve listing and trading of Shares of the Fund on the 
Exchange notwithstanding that the Fund would not meet the requirements 
of Commentary .01(b)(1) to Rule 8.600-E in that the Fund's investments 
in Municipal Securities will be well-diversified.
    The Exchange believes that permitting Fund Shares to be listed and 
traded on the Exchange notwithstanding that, as a result principally of 
the Fund's investments in Municipal Securities, less than 75% of the 
weight of the Fund's portfolio may consist of components with $100 
million minimum or more original principal amount outstanding would 
provide the Fund with greater ability to select from a broad range of 
Municipal Securities, as described above, that would support the Fund's 
investment goal.
    The Exchange believes that, notwithstanding that the Fund's 
portfolio may not satisfy Commentary .01(b)(1) to Rule 8.600-E, the 
Fund's portfolio will not be susceptible to manipulation. As noted 
above, with respect to the Fund's investments in Municipal Securities, 
such securities will be diversified among a minimum of 20 non-
affiliated issuers; no single Municipal Securities issuer will account 
for more than 10% of the weight of the Fund's portfolio; no individual 
bond will account for more than 5% of the weight of the Fund's 
portfolio; the Fund will limit its investments in Municipal Securities 
of any one state to 25% of the Fund's total assets, provided that up to 
and including 40% of the Fund's total assets may be invested in 
Municipal Securities of issuers in each of California, New York and 
Texas; and the Fund's investments in Municipal Securities will be 
diversified among issuers in at least 10 states and will be diversified 
among a minimum of five different sectors of the Municipal Securities 
market. The Exchange notes that, other than Commentary .01(b)(1) to 
Rule 8.600-E, the Fund's portfolio will meet all other requirements of 
Rule 8.600-E.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Quotation and last sale 
information for the Shares and ETFs will be available via the CTA high-
speed line, and from the national securities exchanges on which they 
are listed. Prior to the commencement of trading, the Exchange will 
inform its Equity Trading Permit Holders in an Information Bulletin of 
the special characteristics and risks associated with trading the 
Shares. Trading in Shares of the Fund will be halted if the circuit 
breaker parameters in NYSE Arca Rule 7.12-E have been reached or 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable. Trading in the Shares 
will be subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets forth 
circumstances under which Shares of the Funds [sic] may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the iNAV, the Disclosed 
Portfolio, 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 actively-managed exchange-traded product that 
principally will hold fixed income securities 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, as noted above, investors will have ready 
access to information regarding the Fund's holdings, iNAV, Disclosed 
Portfolio, 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 an 
additional type of actively-managed exchange-traded product that 
principally will hold fixed income 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 [email protected]. Please include 
File Number SR-NYSEArca-2017-99 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-2017-99. 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

[[Page 50468]]

provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change. 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-2017-99 and should 
be submitted on or before November 21, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\

    \27\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-23582 Filed 10-30-17; 8:45 am]
 BILLING CODE 8011-01-P