Document ID: SEC-2017-0178-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2017-02-07T05:00Z

[Federal Register Volume 82, Number 24 (Tuesday, February 7, 2017)]
[Notices]
[Pages 9625-9627]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-02442]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79914; File No. SR-NYSEArca-2016-120]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change, as Modified by Amendment No. 1, To List and Trade Shares 
of the ForceShares Daily 4X US Market Futures Long Fund and ForceShares 
Daily 4X US Market Futures Short Fund Under Commentary .02 to NYSE Arca 
Equities Rule 8.200

February 1, 2017.

I. Introduction

    On October 17, 2016, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
ForceShares Daily 4X US Market Futures Long Fund (``Fund'' or ``Long 
Fund'') and ForceShares Daily 4X US Market Futures Short Fund (``Fund'' 
or ``Short Fund'' and, together with the Long Fund, the ``Funds'') 
under Commentary .02 to NYSE Arca Equities Rule 8.200. The proposed 
rule change was published for comment in the Federal Register on 
November 4, 2016.\3\ On December 14, 2016, pursuant to Section 19(b)(2) 
of the Act,\4\ the Commission designated a longer period within which 
to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ On December 22, 2016, the Exchange filed 
Amendment No. 1 to the proposed rule change, which replaced and 
superseded the proposed rule change as originally filed.\6\ The 
Commission has received no comments on the proposed rule change. This 
order institutes proceedings under Section 19(b)(2)(B) of the Act \7\ 
to determine whether to approve or disapprove the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 79201 (October 31, 
2016), 81 FR 76977.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 79550, 81 FR 92892 
(December 20, 2016). The Commission designated February 2, 2017, as 
the date by which it shall approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.
    \6\ In Amendment No. 1, the Exchange: (a) Clarified the 
permissible investments of the Funds; (b) added that a creation 
basket may not differ in size from a redemption basket, and that 
basket sizes may be between 10,000 and 100,000 Shares; (c) modified 
when purchase orders may be rejected, when the right of redemption 
may be suspended, and when the redemption settlement date may be 
postponed; and (d) made various technical changes. Amendment No. 1 
is available at: https://www.sec.gov/comments/sr-nysearca-2016-120/nysearca2016120-1442225-130027.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. Exchange's Description of the Proposal, as Modified by Amendment 
No. 1

    The Exchange proposes to list and trade the Shares under Commentary 
.02 to NYSE Arca Equities Rule 8.200, which governs the listing and 
trading of Trust Issued Receipts on the Exchange. Each Fund is a 
commodity pool that is a series of the ForceShares Trust. ForceShares 
LLC will be the sponsor of the Funds (``Sponsor''). ALPS Distributors, 
Inc. will be the marketing agent for the Shares. U.S. Bank National 
Association will be the Funds' custodian (``Custodian'') and will hold 
the Funds' cash and cash equivalents. The Custodian will also be the 
registrar and transfer agent for the Shares.
    The Long Fund's primary investment objective is to seek daily 
investment

[[Page 9626]]

results, before fees and expenses, that correspond to approximately 
four times (400%) the daily performance, and the Short Fund's primary 
investment objective is to seek daily investment results, before fees 
and expenses, that correspond to approximately four times the inverse 
(-400%) of the daily performance, of the closing settlement price for 
lead month (i.e., the ``near month'' or next-to-expire) Standard & 
Poor's 500 Stock Price Index Futures contracts (``Big S&P Contracts'') 
that are traded on the Chicago Mercantile Exchange. Each Fund will not 
seek to achieve its primary investment objective over a period of time 
greater than a single day.
    Under normal market condition, each Fund will seek to achieve its 
primary investment objective by investing primarily in Big S&P 
Contracts such that daily changes in the Fund's net asset value 
(``NAV'') are expected to closely track the changes, in the case of the 
Long Fund, or the inverse of the changes, in the case of the Short 
Fund, in the closing settlement price of the lead month Big S&P 
Contracts (``Benchmark'') on a leveraged basis. Each Fund will also 
invest in E-MiniTM S&P 500[supreg] Futures contracts (``E-
Minis'' and, together with Big S&P Contracts, ``Primary S&P 
Interests'') to seek to achieve its primary investment objective where 
position limits prevent further purchases of Big S&P Contracts. Each 
Fund expects to apply approximately 10-25% of its portfolio toward 
obtaining exposure to futures contracts, all of which would be lead 
month or deferred month Primary S&P Interests. Each Fund may also 
invest in swap agreements (cleared and over-the-counter) referencing 
Primary S&P Interests or the S&P 500 Index, and over-the-counter 
forward contracts referencing Primary S&P Interests (``Other S&P 
Interests''). Each Fund may invest in Other S&P Interests in an amount 
up to 25% of its net assets.
    Each Fund may acquire or dispose of Stop Options on Primary S&P 
Interests in pursuing its secondary investment objective of recouping a 
small amount of a Fund's losses that may result from large movements in 
the Benchmark. Stop Options are expected to average less than 
approximately 5% of each Fund's portfolio.\8\
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    \8\ Not more than 10% of the net assets of each Fund in the 
aggregate invested in futures contracts or exchange-traded options 
contracts will consist of futures contracts or exchange-traded 
options contracts whose principal market is not a member of the 
Intermarket Surveillance Group or is a market with which the 
Exchange does not have a comprehensive surveillance sharing 
agreement.
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    On a day-to-day basis, each Fund will invest the remainder of its 
assets in money market funds, depository accounts with institutions 
with high quality credit ratings, or short-term debt instruments that 
have terms-to-maturity of less than 397 days and exhibit high quality 
credit profiles, including U.S. government securities and repurchase 
agreements (collectively, ``Cash Equivalents''). Cash Equivalents are 
expected to comprise approximately 70-85% of each Fund's portfolio.\9\
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    \9\ For more information regarding the Funds and the Shares, see 
Amendment No. 1, supra note 6.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2016-120 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \10\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\11\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \12\
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    \11\ Id.
    \12\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\13\
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    \13\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by February 28, 2017. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
March 14, 2017. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, 
which are set forth in Amendment No. 1,\14\ in addition to any other 
comments they may wish to submit about the proposed rule change. The 
Commission notes that the proposal sets forth certain conditions 
relating to the creation and redemption of baskets of Shares. In 
particular, under the proposal, ``[t]he Sponsor may, in its discretion, 
suspend the right of redemption, or postpone the redemption settlement 
date with respect to a Fund . . . for such other period as the Sponsor 
determines to be necessary for the protection of a Fund's Shareholders. 
. . .'' \15\ What are commenters' views on the scope of this discretion 
with respect to redemptions? Is the discretion likely to have an effect 
on the arbitrage mechanisms and, if so, how?
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    \14\ See supra note 6.
    \15\ See Amendment No. 1, supra note 6, at 21.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2016-120 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 9627]]

Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2016-120. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-120 and should 
be submitted on or before February 28, 2017. Rebuttal comments should 
be submitted by March 14, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-02442 Filed 2-6-17; 8:45 am]
BILLING CODE 8011-01-P