Document ID: SEC-2018-0833-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2018-05-31T04:00Z

[Federal Register Volume 83, Number 105 (Thursday, May 31, 2018)]
[Notices]
[Pages 25097-25100]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11609]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83319; File No. SR-NYSEArca-2018-15]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, As Modified by Amendment No. 1 Thereto, To 
Continue Listing and Trading Shares of the PGIM Ultra Short Bond ETF 
Under NYSE Arca Rule 8.600-E

May 24, 2018.

I. Introduction

    On March 6, 2018, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 PGIM Ultra Short Bond ETF 
(``Fund''), a series of PGIM ETF Trust (``Trust''), under NYSE Arca 
Rule 8.600-E. The proposed rule change was published for comment in the 
Federal Register on March 23, 2018.\3\ On April 25, 2018, the Exchange 
filed Amendment No. 1 to the proposal, which replaced and superseded 
the proposed rule change in its entirety.\4\ On May 4, 2018, the 
Commission extended the time the Commission designated a longer period 
within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ The Commission has received no 
comments on the proposal. This order approves the proposed rule change 
as modified by Amendment No. 1.
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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. 82899 (Mar. 19, 
2018), 83 FR 12824.
    \4\ In Amendment No. 1, the Exchange: (1) Provided additional 
information regarding certain of the Fund's permitted investments; 
(2) clarified that the Fund may invest up to 25% of its total assets 
in the Affiliated Short Term Bond Fund Shares (defined below) and 
10% of its total assets in other non-exchange-traded open-end 
management investment company securities; (3) described the 
availability of price information for certain of the Fund's 
permitted investments; and (4) made changes of a technical nature. 
Amendment No. 1 is not subject to notice and comment because it does 
not materially alter the substance of the proposed rule change or 
raise unique or novel regulatory issues. Amendment No. 1 is 
available at: https://www.sec.gov/comments/sr-nysearca-2018-15/nysearca201815-3510337-162292.pdf.
    \5\ See Exchange Act Release No. 83174, 83 FR 21794 (May 10, 
2018). The Commission designated June 21, 2018, as the date by which 
the Commission shall approve or disapprove, or institute proceedings 
to determine whether to disapprove, the proposed rule change.
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II. Description of the Proposal \6\
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    \6\ Additional information regarding, among other things, the 
Shares, the Fund, its investment objective, its permitted 
investments, its investment strategies and methodology, its 
investment restrictions, its investment adviser and subadviser, its 
fees, its creation and redemption procedures, availability of 
information, trading rules and halts, and surveillance procedures 
can be found in Amendment No. 1 and in the Registration Statement. 
See Amendment No. 1, supra note 4, and Registration Statement, infra 
note 7, respectively.
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    The Trust is registered under the 1940 Act.\7\ The Shares \8\ are 
listed and traded on the Exchange under Commentary .01 to NYSE Arca 
Rule 8.600-E,\9\ which provides generic criteria applicable to the 
listing and trading of Managed Fund Shares.\10\ However, the Fund 
intends to change its investment strategy such that the Shares would no 
longer qualify for generic listing on the Exchange. Specifically, the 
Fund's portfolio would continue to satisfy all of the generic listing 
requirements except that:
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    \7\ On January 8, 2018, the Trust filed with the Commission its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a), and under the 1940 Act relating to the Fund (File 
Nos. 333-222469 and 811-23324) (``Registration Statement''). The 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
31095 (Jun. 24, 2014) (File No. 812-14267).
    \8\ 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.
    \9\ The Shares commenced trading on the Exchange on April 10, 
2018. See Amendment No. 1, supra note 4, at 3, n.1.
    \10\ A Managed Fund Share is a security that: (1) Represents an 
interest in a registered investment company (``Investment Company'') 
organized as an open-end management investment company or similar 
entity, that invests in a portfolio of securities selected by the 
Investment Company's investment adviser consistent with the 
Investment Company's investment objectives and policies; (b) is 
issued in a specified aggregate minimum number in return for a 
deposit of a specified portfolio of securities and/or a cash amount 
with a value equal to the next determined net asset value; and (c) 
when aggregated in the same specified minimum number, may be 
redeemed at a holder's request, which holder will be paid a 
specified portfolio of securities and/or cash with a value equal to 
the next determined net asset value. See NYSE Arca Rule 8.600-
E(c)(1).
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     Investments in non-agency, non-government sponsored entity 
and privately issued mortgage-related and other asset-backed securities 
(``Private ABS/MBS'') may account for up to 20% of the total assets of 
the Fund (rather than 20% of the weight of the fixed income portion of 
the portfolio, as required under Commentary .01(b)(5));
     fixed income securities that do not meet any of the 
criteria in Commentary .01(b)(4) will not exceed 10% of the total 
assets of the Fund (rather than

[[Page 25098]]

such securities not comprising more than 10% of the fixed income weight 
of the portfolio, as prescribed by that criterion); and
     the Fund's investments in non-exchange-traded open-end 
management investment company securities, including ``Affiliated Short 
Term Bond Fund Shares,'' \11\ would not meet the requirements of 
Commentary .01(a)(1)(A) through (E) to Rule 8.600-E.\12\
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    \11\ ``Affiliated Short Term Bond Fund Shares'' are shares of 
the Prudential Core Ultra Short Bond Fund or, if the Prudential Core 
Ultra Short Bond Fund is no longer offered with the same investment 
objective, shares of any successor fund or other affiliated open-end 
investment company registered under the 1940 Act with a 
substantially similar investment objective. See Amendment No. 1, 
supra note 4, at 6-7.
    \12\ Investments in Affiliated Short Term Bond Fund Shares will 
not exceed 25% of the total assets of the Fund, and investments in 
other non-exchange-traded open-end management investment company 
securities will not exceed 10% of the total assets of the Fund. See 
id. at 15.
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    According to the Exchange, these deviations from the generic 
requirements are necessary for the Fund to achieve its investment 
objective in a manner that is cost-effective and that maximizes 
investors' returns.\13\
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    \13\ See id. at 13.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\14\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Exchange Act,\15\ which requires, among 
other things, that the Exchange's rules be designed to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. As mentioned 
above, the Fund's portfolio would continue to meet all of the generic 
listing criteria except for the requirements of Commentary .01(b)(5) to 
NYSE Arca Rule 8.600-E,\16\ Commentary .01(b)(4) to NYSE Arca Rule 
8.600-E,\17\ and Commentary .01(a)(1) to NYSE Arca Rule 8.600-E.\18\ 
The Commission believes that Fund's proposed maximum level of 
investment in Private ABS/MBS is consistent with the Commission's 
previous approval of the listing of shares of other actively managed 
ETFs that could invest up to 20% of their total assets in non-U.S. 
Government, non-agency, non-GSE and other privately issued ABS and 
MBS.\19\
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    \14\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition and 
capital formation. See 15 U.S.C. 78c(f).
    \15\ 15 U.S.C. 78f(b)(5).
    \16\ Commentary .01(b)(5) to NYSE Arca Rule 8.600-E provides 
that non-agency, non-government sponsored entity and privately 
issued mortgage-related and other asset-backed securities components 
of a portfolio may not account, in the aggregate, for more than 20% 
of the weight of the fixed income portion of the portfolio.
    \17\ Commentary .01(b)(4) provides that component securities 
that in the aggregate account for at least 90% of the fixed income 
weight of the portfolio must be either: (a) From issuers that are 
required to file reports pursuant to Sections 13 and 15(d) of the 
Act; (b) from issuers that have a worldwide market value of its 
outstanding common equity held by non-affiliates of $700 million or 
more; (c) from issuers that have outstanding securities that are 
notes, bonds debentures, or evidence of indebtedness having a total 
remaining principal amount of at least $1 billion; (d) exempted 
securities as defined in Section 3(a)(12) of the Act; or (e) from 
issuers that are a government of a foreign country or a political 
subdivision of a foreign country.
    \18\ Commentary .01(a)(1) to Rule 8.600-E provides that the 
component stocks of the equity portion of a portfolio that are U.S. 
Component Stocks shall meet the following criteria initially and on 
a continuing basis:
    (A) Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at 
least 90% of the equity weight of the portfolio (excluding such 
Derivative Securities Products and Index-Linked Securities) each 
shall have a minimum market value of at least $75 million;
    (B) Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at 
least 70% of the equity weight of the portfolio (excluding such 
Derivative Securities Products and Index-Linked Securities) each 
shall have a minimum monthly trading volume of 250,000 shares, or 
minimum notional volume traded per month of $25,000,000, averaged 
over the last six months;
    (C) The most heavily weighted component stock (excluding 
Derivative Securities Products and Index-Linked Securities) shall 
not exceed 30% of the equity weight of the portfolio, and, to the 
extent applicable, the five most heavily weighted component stocks 
(excluding Derivative Securities Products and Index-Linked 
Securities) shall not exceed 65% of the equity weight of the 
portfolio;
    (D) Where the equity portion of the portfolio does not include 
Non-U.S. Component Stocks, the equity portion of the portfolio shall 
include a minimum of 13 component stocks; provided, however, that 
there shall be no minimum number of component stocks if (i) one or 
more series of Derivative Securities Products or Index-Linked 
Securities constitute, at least in part, components underlying a 
series of Managed Fund Shares, or (ii) one or more series of 
Derivative Securities Products or Index-Linked Securities account 
for 100% of the equity weight of the portfolio of a series of 
Managed Fund Shares; and
    (E) Except as provided herein, equity securities in the 
portfolio shall be U.S. Component Stocks listed on a national 
securities exchange and shall be NMS Stocks as defined in Rule 600 
of Regulation NMS under the Securities Exchange Act of 1934.
    \19\ See, e.g., Securities Exchange Act Release No. 80946 (June 
15, 2017) 82 FR 28126 (June 20, 2017) (SR-NASDAQ-2017-039); 
Securities Exchange Act Release No. 76412 (November 10, 2015), 80 FR 
71880 (November 17, 2015) (SR-NYSEArca-2015-111).
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    With respect to the Fund's investments in shares of non-exchange-
traded open-end management investment company securities, including 
``Affiliated Short Term Bond Fund Shares,'' the Commission notes that: 
(1) Such securities must satisfy applicable 1940 Act diversification 
requirements; and (2) the value of such securities is based on the 
value of securities and financial assets held by those investment 
companies.\20\ The Commission therefore believes that the Fund's 
investments in non-exchange-traded open-end management investment 
company securities,\21\ including ``Affiliated Short Term Bond Fund 
Shares,'' would not make the Shares susceptible to fraudulent or 
manipulative acts and practices. Similarly, the Commission believes 
that the level of investment by the Fund in securities that do not 
satisfy the requirements of Commentary .01(b)(4) to NYSE Arca Rule 
8.600-E, i.e., no more than 10% of the Fund's net assets, would not 
make the Shares susceptible to fraudulent or manipulative acts and 
practices.
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    \20\ See Amendment No. 1, supra note 4, at 16.
    \21\ See supra note 12.
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    The Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees. The 
Exchange represents that the Fund's investment adviser and subadviser 
are not registered as broker-dealers but are affiliated with the Fund's 
distributor, which is a broker-dealer, and have implemented and will 
maintain a ``fire wall'' with respect to such broker-dealer regarding 
access to information concerning the composition or changes to the 
Fund's portfolio.\22\
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    \22\ See id. at 5. Additionally, the Exchange represents that, 
in the event (a) the adviser or the subadviser becomes registered as 
a broker-dealer or newly affiliated with a broker-dealer, or (b) any 
new adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement and maintain a 
``fire wall'' with respect to its relevant personnel or broker-
dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio, and will be subject to 
procedures, each designed to prevent the use and dissemination of 
material non-public information regarding such portfolio. See id.
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    Trading in the Shares will be subject to the existing trading 
surveillances administered by the Exchange, as well as cross-market 
surveillances administered by Financial Industry Regulatory Authority 
(``FINRA'') on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws. 
The Exchange may obtain information regarding trading in the Shares, 
certain exchange-traded

[[Page 25099]]

options and certain futures from markets and other entities that are 
members of Intermarket Surveillance Group (``ISG'') or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
The Exchange is able to access from FINRA, as needed, trade information 
for certain fixed income securities held by the Fund reported to the 
Trade Reporting and Compliance Engine (``TRACE'') of FINRA. FINRA also 
can access data obtained from the Municipal Securities Rulemaking Board 
relating to certain municipal bond trading activity for surveillance 
purposes in connection with trading in the Shares.
    The Commission also finds that the proposal to list and trade the 
Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of 
the Exchange Act,\23\ which sets forth Congress' finding that it is in 
the public interest and appropriate for the protection of investors and 
the maintenance of fair and orderly markets to assure the availability 
to brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities. Intra-day and closing 
price information regarding exchange-traded options will be available 
from the exchange on which such instruments are traded. Intra-day and 
closing price information regarding the Principal Investment 
Instruments \24\ also will be available from major market data vendors. 
Price information relating to over-the-counter options and swaps will 
be available from major market data vendors. Intra-day price 
information for exchange-traded derivative instruments will be 
available from the applicable exchange and from major market data 
vendors. For exchange-listed securities (including ETFs), intraday 
price quotations will generally be available from broker-dealers and 
trading platforms (as applicable). Intraday and other price information 
for the fixed income securities in which the Fund invests will be 
available through subscription services, such as Bloomberg, Markit and 
Thomson Reuters, which can be accessed by Authorized Participants and 
other market participants. Additionally, TRACE will be a source of 
price information for corporate bonds, privately-issued securities, MBS 
and ABS, to the extent transactions in such securities are reported to 
TRACE.\25\ Money market funds and the Affiliated Short Term Bond Fund 
are typically priced once each Business Day and their prices will be 
available through the applicable fund's website or from major market 
data vendors.\26\ Electronic Municipal Market Access (``EMMA'') will be 
a source of price information for municipal bonds. Price information 
regarding U.S. government securities, repurchase agreements, reverse 
repurchase agreements and cash equivalents generally may be obtained 
from brokers and dealers who make markets in such securities or through 
nationally recognized pricing services through subscription agreements.
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    \23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \24\ The term ``Principal Investment Instruments'' is defined in 
Amendment No. 1, supra note 4, at 6.
    \25\ Broker-dealers that are FINRA member firms have an 
obligation to report transactions in specified debt securities to 
TRACE to the extent required under applicable FINRA rules. 
Generally, such debt securities will have at issuance a maturity 
that exceeds one calendar year. For fixed income securities that are 
not reported to TRACE, (i) intraday price quotations will generally 
be available from broker-dealers and trading platforms (as 
applicable) and (ii) price information will be available from feeds 
from market data vendors, published or other public sources, or 
online information services, as described above.
    \26\ The Fund's website (www.pgiminvestments.com) will include 
the prospectus for the Fund that may be downloaded. The Fund's 
website will include additional quantitative information updated on 
a daily basis.
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    The Commission believes that the proposal to list and trade the 
Shares is reasonably designed to promote fair disclosure of information 
that may be necessary to price the Shares appropriately and to prevent 
trading when a reasonable degree of transparency cannot be assured. On 
each Business Day, before commencement of trading in Shares in the Core 
Trading Session on the Exchange,\27\ the Fund discloses on its website 
the Disclosed Portfolio as defined in NYSE Arca Rule 8.600-E(c)(2) that 
forms the basis for the Fund's calculation of the net asset value 
(``NAV'') at the end of the Business Day.\28\ The Exchange has obtained 
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.
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    \27\ The ``Core Trading Session'' is defined in NYSE Arca Rule 
7.34-E(a)(2).
    \28\ 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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    In addition, the Portfolio Indicative Value, as defined in NYSE 
Arca Rule 8.600-E(c)(3), will be widely disseminated by one or more 
major market data vendors at least every 15 seconds during the Core 
Trading Session. The Transfer Agent, through the National Securities 
Clearing Corporation, makes available on each Business Day, immediately 
prior to the opening of business on the Exchange (currently 9:30 a.m. 
E.T.), the list of the names and the required number of securities for 
each Deposit Instrument to be included in the current Portfolio Deposit 
(based on information at the end of the previous Business Day), as well 
as information regarding the Cash Amount for the Fund. Such Portfolio 
Deposit is applicable, subject to any adjustments as described below, 
in order to effect creations of Creation Units of the Fund until such 
time as the next-announced Portfolio Deposit composition is made 
available.
    The Exchange represents that trading in Shares 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.\29\ NYSE Arca Rule 8.600-E(d)(2)(D) also sets forth 
circumstances under which trading in the Shares may be halted.
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    \29\ These may include: (1) The extent to which trading is not 
occurring in the securities and/or the financial instruments 
comprising the Disclosed Portfolio of the Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance 
of a fair and orderly market are present. See Amendment No. 1, supra 
note 4, at 20.
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    In support of this proposal, the Exchange has also made the 
following representations:
    (1) The Shares will be subject to NYSE Arca Rule 8.600-E, which 
sets forth the initial and continued listing criteria applicable to 
Managed Fund Shares.\30\
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    \30\ See id. at 21.
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    (2) 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 on the 
Exchange.\31\
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    \31\ See id. at 22.
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    (3) The issuer 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(m)-E.\32\
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    \32\ See id.

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[[Page 25100]]

    (4) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.\33\
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    \33\ See id. at 21.
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    (5) 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 
federal securities laws applicable to trading on the Exchange.\34\
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    \34\ See id.
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    (6) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act, as provided by NYSE Arca Rule 
5.3-E.\35\
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    \35\ See id. at 21. See also 17 CFR 240.10A-3.
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    (7) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.\36\
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    \36\ See id. at 21.
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    (8) Investments in the Affiliated Short Term Bond Fund will not 
exceed 25% of the total assets of the Fund.\37\
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    \37\ See id. at 15.
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    (9) The Fund may invest up to 10% of the total assets of the Fund 
in shares of other non-exchange-traded open-end management investment 
company securities.\38\
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    \38\ See id. at 8-9.
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    This approval order is based on all of the Exchange's 
representations, including those set forth above and in Amendment No. 
1.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act \39\ and the rules and regulations thereunder 
applicable to a national securities exchange.
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    \39\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act, that the proposed rule change (SR-NYSEArca-2018-15), as 
modified by Amendment No. 1, is hereby approved.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
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    \40\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-11609 Filed 5-30-18; 8:45 am]
 BILLING CODE 8011-01-P