Document ID: SEC-2021-1322-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2021-09-30T04:00Z

[Federal Register Volume 86, Number 187 (Thursday, September 30, 2021)]
[Notices]
[Pages 54257-54259]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-21209]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-93120; File No. SR-NYSEArca-2021-64]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change To Amend Rule 8.601-E (Active Proxy 
Portfolio Shares) To Provide for the Use of Custom Baskets

September 24, 2021.

I. Introduction

    On July 28, 2021, 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 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to amend NYSE Arca Rule 8.601-E (Active Proxy Portfolio Shares) 
to provide for the use of custom baskets consistent with the exemptive 
relief issued pursuant to the Investment Company Act of 1940 (``1940 
Act'') \3\ applicable to a series of Active Proxy Portfolio Shares. The 
proposed rule change was published for comment in the Federal Register 
on August 12, 2021.\4\ The Commission has received no comments on the 
proposed rule change. The Commission is approving the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 15 U.S.C. 80a.
    \4\ See Securities Exchange Act Release No. 92595 (August 6, 
2021), 86 FR 44449.
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II. Description

    The Exchange proposes to amend NYSE Arca Rule 8.601-E, which 
permits the listing and trading of series of Active Proxy Portfolio 
Shares. NYSE Arca 8.601-E currently requires that Active Proxy 
Portfolio Shares be issued and redeemed in a specified minimum number 
of shares, or multiples thereof, in return for the Proxy Portfolio \5\ 
and/or cash.\6\ The Exchange proposes to amend the definition of 
``Active Proxy Portfolio Share'' in Rule 8.601-E(c)(1) to permit 
creations and redemptions of shares in return for a Custom Basket in 
addition to the Proxy Portfolio, to the extent permitted by a fund's 
exemptive relief.\7\ Further, the Exchange proposes to define the term 
``Custom Basket'' as a portfolio of securities that is different from 
the Proxy Portfolio and is otherwise consistent with the exemptive 
relief issued pursuant to the 1940 Act applicable to a series of Active 
Proxy Portfolio Shares.\8\ The Exchange also proposes to amend the 
definition of ``Reporting Authority'' in NYSE Arca Rule 8.601-E(c)(4) 
to include Custom Baskets among the types of information for which the 
Reporting Authority designated for a particular series of Active Proxy 
Portfolio Shares will be the official source for calculating and 
reporting such information.\9\
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    \5\ The term ``Proxy Portfolio'' means a specified portfolio of 
securities, other financial instruments and/or cash designed to 
track closely the daily performance of the Actual Portfolio of a 
series of Active Proxy Portfolio Shares as provided in the exemptive 
relief pursuant to the 1940 Act applicable to such series. See NYSE 
Arca Rule 8.601-E(c)(3). The term ``Actual Portfolio'' means the 
identities and quantities of the securities and other assets held by 
the Investment Company that shall form the basis for the Investment 
Company's calculation of net asset value (``NAV'') at the end of the 
business day. See NYSE Arca Rule 8.601-E(c)(2).
    \6\ See NYSE Arca Rule 8.601-E(c)(1) (defining the term ``Active 
Proxy Portfolio Share'').
    \7\ See proposed NYSE Arca Rule 8.601-E(c)(1) (defining ``Active 
Proxy Portfolio Share'' as a security that (a) is issued by an 
investment company registered under the 1940 Act (``Investment 
Company'') organized as an open-end management investment company 
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 minimum number of shares, or multiples thereof, in return 
for a deposit by the purchaser of the Proxy Portfolio or Custom 
Basket, as applicable, and/or cash with a value equal to the next 
determined NAV; (c) when aggregated in the same specified minimum 
number of Active Proxy Portfolio Shares, or multiples thereof, may 
be redeemed at a holder's request in return for the Proxy Portfolio 
or Custom Basket, as applicable, and/or cash to the holder by the 
issuer with a value equal to the next determined NAV; and (d) the 
portfolio holdings for which are disclosed within at least 60 days 
following the end of every fiscal quarter).
    \8\ See proposed NYSE Arca Rule 8.601-E(c)(4). The Exchange 
proposes to renumber the remainder of NYSE Arca Rule 8.601-E(c). See 
proposed NYSE Arca Rule 8.601-E(c)(5) and (6).
    \9\ See proposed NYSE Arca Rule 8.601-E(c)(5) (defining 
``Reporting Authority'' in respect of a particular series of Active 
Proxy Portfolio Shares as the Exchange, an institution, or a 
reporting service designated by the Exchange or by the exchange that 
lists a particular series of Active Proxy Portfolio Shares (if the 
Exchange is trading such series pursuant to unlisted trading 
privileges) as the official source for calculating and reporting 
information relating to such series, including, but not limited to, 
NAV, the Actual Portfolio, Proxy Portfolio, Custom Basket, or other 
information relating to the issuance, redemption or trading of 
Active Proxy Portfolio Shares).
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    The Exchange proposes to amend NYSE Arca Rule 8.601-E(d) to 
incorporate specific initial and continued listing criteria relating to 
Custom Baskets. Specifically, the Exchange proposes to add a new 
initial listing requirement to stipulate that the Exchange shall obtain 
a representation from the issuer of each series of Active Proxy 
Portfolio Shares that the issuer and any person acting on behalf of the 
series of Active Proxy Portfolio Shares will comply with Regulation 
Fair Disclosure under the Exchange Act

[[Page 54258]]

(``Regulation FD''),\10\ including with respect to any Custom 
Basket.\11\ The Exchange also proposes to add a new continued listing 
requirement that, with respect to each Custom Basket utilized by a 
series of Active Proxy Portfolio Shares, each business day, before the 
opening of trading in the Core Trading Session,\12\ the Investment 
Company shall make publicly available on its website the composition of 
any Custom Basket transacted on the previous business day, except a 
Custom Basket that differs from the applicable Proxy Portfolio only 
with respect to cash.\13\
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    \10\ 17 CFR 243.100.
    \11\ See proposed NYSE Arca Rule 8.601-E(d)(1)(B)(iii). NYSE 
Arca Rule 8.601-E(d)(1)(B) currently provides that the Exchange 
shall obtain a representation from the issuer of each series of 
Active Proxy Portfolio Shares that the NAV per share for the series 
shall be calculated daily and that the NAV, the Proxy Portfolio, and 
the Actual Portfolio shall be made publicly available to all market 
participants at the same time. The Exchange proposes to renumber the 
current requirements as NYSE Arca Rule 8.601-E(d)(1)(B)(i) and (ii).
    \12\ The ``Core Trading Session'' begins for each security at 
9:30 a.m. Eastern Time and ends at the conclusion of core trading 
hours or the core closing auction, whichever comes later. See NYSE 
Arca Rule 7.34-E(a)(2).
    \13\ See proposed NYSE Arca Rule 8.601-E(d)(2)(B)(ii). The 
Exchange also proposes to amend the title of NYSE Arca Rule 8.601-
E(d)(2)(B) to ``Proxy Portfolio and Custom Basket.'' See proposed 
NYSE Arca Rule 8.601-E(d)(2)(B).
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    Finally, the Exchange proposes to amend Commentaries .04 and .05 of 
NYSE Arca Rule 8.601-E, which contain requirements that specified 
parties must erect and maintain ``fire walls'' with respect to access 
to information concerning the Actual Portfolio and Proxy Portfolio and 
enact procedures reasonably designed to prevent the use and 
dissemination of material non-public information regarding the Actual 
Portfolio and Proxy Portfolio. The Exchange proposes to amend these 
rules so that the requirements set forth therein would also cover 
information concerning Custom Baskets. As proposed to be amended, 
Commentary .04 would require that, if the investment adviser to the 
Investment Company issuing Active Proxy Portfolio Shares is registered 
as a broker-dealer or is affiliated with a broker-dealer, such 
investment adviser will erect and maintain a ``fire wall'' between the 
investment adviser and personnel of the broker-dealer or broker-dealer 
affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company's 
Actual Portfolio, Proxy Portfolio, and/or Custom Basket, as applicable. 
In addition, any person related to the investment adviser or Investment 
Company who makes decisions pertaining to the Investment Company's 
Actual Portfolio, Proxy Portfolio, and/or Custom Basket, as applicable, 
or has access to non-public information regarding the Investment 
Company's Actual Portfolio, the Proxy Portfolio, and/or the Custom 
Basket, as applicable, or changes thereto, must be subject to 
procedures reasonably designed to prevent the use and dissemination of 
material non-public information regarding the Actual Portfolio, the 
Proxy Portfolio, and/or the Custom Basket, as applicable, or changes 
thereto. As proposed to be amended, Commentary .05 would require that 
any person or entity, including a custodian, Reporting Authority, 
distributor, or administrator, who has access to non-public information 
regarding the Investment Company's Actual Portfolio, the Proxy 
Portfolio, or the Custom Basket, as applicable, or changes thereto, 
must be subject to procedures reasonably designed to prevent the use 
and dissemination of material non-public information regarding the 
applicable Actual Portfolio, the Proxy Portfolio, or the Custom Basket, 
as applicable, or changes thereto. Moreover, if any such person or 
entity is registered as a broker-dealer or affiliated with a broker-
dealer, such person or entity will erect and maintain a ``fire wall'' 
between the person or entity and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
Investment Company's Actual Portfolio, Proxy Portfolio, or Custom 
Basket, as applicable.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the Exchange Act and rules and regulations 
thereunder applicable to a national securities exchange.\14\ In 
particular, the Commission finds that the proposed rule change 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 
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 a national market system, 
and, in general, to protect investors and the public interest.
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    \14\ In approving this proposed rule change, the Commission 
notes that it 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).
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    The Commission previously approved NYSE Arca Rule 8.601-E to permit 
the listing and trading of Active Proxy Portfolio Shares.\16\ As 
discussed above, under the current rule, a series of Active Proxy 
Portfolio Shares must create or redeem shares in return for the Proxy 
Portfolio and/or cash. The Exchange is now proposing to amend NYSE Arca 
Rule 8.601-E to allow a series of Active Proxy Portfolio Shares to 
create or redeem shares in return for a Custom Basket, which is a 
portfolio of securities that is different from the Proxy Portfolio, to 
the extent consistent with an issuer's exemptive relief under the 1940 
Act.\17\ For the reasons discussed below, the Commission finds that the 
proposed amendments to NYSE Arca Rule 8.601-E to provide for the use of 
Custom Baskets for Active Proxy Portfolio Shares, to the extent 
permitted by an issuer's exemptive relief under the 1940 Act, are 
consistent with Section 6(b)(5) of the Exchange Act.
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    \16\ See Securities Exchange Act Release No. 89185 (June 29, 
2020), 85 FR 40328 (July 6, 2020) (SR-NYSEArca-2019-95) (approving 
proposal to adopt Rule 8.601-E to permit the listing and trading of 
Active Proxy Portfolio Shares and to list and trade shares of the 
Natixis U.S. Equities Opportunities ETF) (``2020 Order''). The 
Exchange must file a separate proposed rule change pursuant to 
Section 19(b) of the Exchange Act for each series of Active Proxy 
Portfolio Shares. See NYSE Arca Rule 8.601-E, Commentary .01.
    \17\ The Commission has granted exemptive relief under the 1940 
Act to certain series of Active Proxy Portfolio Shares to permit the 
creation or redemption of shares using a Custom Basket that includes 
instruments that are not included, or included with different 
weightings, in the fund's Proxy Portfolio. See, e.g., Natixis 
Advisors, L.P., et al., Investment Company Act Release No. 34192 
(February 9, 2021).
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    The Commission believes that the proposed changes to NYSE Arca Rule 
8.601-E, Commentaries .04 and .05, are consistent with the Exchange Act 
and are reasonably designed to help prevent fraudulent and manipulative 
acts and practices. The Commission notes that, because Active Proxy 
Portfolio Shares do not publicly disclose on a daily basis information 
about the holdings of the Actual Portfolio, it is vital that key 
information relating to Active Proxy Portfolio Shares, including 
information relating to Custom Baskets, be kept confidential prior to 
its public disclosure and not be subject to misuse.\18\ Accordingly, 
the Commission believes that the Exchange's proposal to amend NYSE Arca 
Rule 8.601-E, Commentaries .04 and .05,\19\ to apply the current ``fire 
wall'' and other requirements contained therein to those that have 
access to information concerning, or make decisions pertaining to, the 
composition of and/or changes to the Custom Baskets, in

[[Page 54259]]

addition to the existing requirements relating to the Actual Portfolio 
and the Proxy Portfolio, is designed to prevent fraud and manipulation 
with respect to Active Proxy Portfolio Shares.
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    \18\ See 2020 Order, supra note 16, 85 FR at 40339.
    \19\ See supra Section II, describing proposed NYSE Arca Rule 
8.601, Commentaries .04 and .05.
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    The Commission also believes that the proposed amendments to the 
initial and continued listing requirements for Active Proxy Portfolio 
Shares are adequate to ensure transparency of information relating to 
Custom Baskets utilized by a fund and to ensure that such information 
is available to the rest of the market participants at the same time. 
Specifically, prior to the opening of trading on each business day, the 
Investment Company will make publicly available on its website the 
composition of any Custom Basket transacted on the previous business 
day, except a Custom Basket that differs from the applicable Proxy 
Portfolio only with respect to cash.\20\ In addition, prior to the 
initial listing of the Active Proxy Portfolio Shares, the Exchange will 
be required to obtain a representation from the issuer of each series 
of Active Proxy Portfolio Shares that the issuer and any person acting 
on behalf of the series of Active Proxy Portfolio Shares will comply 
with Regulation FD, including with respect to any Custom Basket.\21\ 
These measures help to mitigate concerns that certain information 
regarding the funds will be available only to select market 
participants and thereby helps to prevent fraud and manipulation.
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    \20\ See proposed NYSE Arca Rule 8.601-E(d)(2)(B)(ii).
    \21\ See proposed NYSE Arca Rule 8.601-E(d)(1)(B)(iii). The 
Commission notes that a fund's use of, or conversations with 
authorized participants about, Creation Baskets that would result in 
selective disclosure of non-public information would effectively be 
limited by the funds' obligation to comply with Regulation Fair 
Disclosure. See, e.g., Natixis ETF Trust II, et al., Investment 
Company Act Release No. 34171 (January 12, 2021).
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    The Commission notes that, as set forth in the definition of 
``Custom Basket,'' a series of Active Proxy Portfolio Shares may only 
utilize Custom Baskets to the extent consistent with the exemptive 
relief issued pursuant to the 1940 Act applicable to such series.\22\ 
The Commission further notes that all series of Active Proxy Portfolio 
Shares will continue to be subject to the existing rules and procedures 
that govern the listing and trading of Active Proxy Portfolio Shares 
and the trading of equity securities on the Exchange.
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    \22\ See proposed NYSE Arca Rule 8.601-E(c)(4).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act \23\ that the proposed rule change (SR-NYSEArca-2021-64), 
be, and it hereby is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).
    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21209 Filed 9-29-21; 8:45 am]
BILLING CODE 8011-01-P