Document ID: SEC-2014-2176-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-12-24T05:00Z

[Federal Register Volume 79, Number 247 (Wednesday, December 24, 2014)]
[Notices]
[Pages 77583-77586]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30105]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73866; File No. SR-NYSEArca-2014-120]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendment No. 2 Thereto, To List 
and Trade Shares of the Sit Rising Rate Fund Under NYSE Arca Equities 
Rule 8.200

December 17, 2014.

I. Introduction

    On October 16, 2014, 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 list and trade shares 
(``Shares'') of the Sit Rising Rate Fund (``Fund''), pursuant to NYSE 
Arca Equities Rule 8.200. The proposed rule change was published for 
comment in the Federal Register on November 4, 2014.\3\ On November 6, 
2014, the Exchange filed Amendment No. 2 to the proposed rule change, 
which superseded and replaced the proposed

[[Page 77584]]

rule change as originally filed.\4\ The proposed rule change, as 
modified by Amendment No. 2, was published for comment in the Federal 
Register on November 20, 2014.\5\ The Commission received no comments 
on the proposal. This order approves the proposed rule change, as 
modified by Amendment No. 2.
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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. 73464 (Oct. 29, 
2014), 79 FR 65437.
    \4\ Amendment No. 2 replaced SR-NYSEArca-2014-120 and superseded 
such filing in its entirety. Amendment No. 1 was filed on November 
3, 2014, and withdrawn on November 6, 2014.
    \5\ See Securities Exchange Act Release No. 73602 (Nov. 14, 
2014), 79 FR 69173 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant 
to NYSE Arca Equities Rule 8.200, Commentary .02, which permits the 
listing of Trust Issued Receipts (``TIRs''). The Exchange has 
represented that the Fund will meet the initial and continued listing 
requirements applicable to TIRs in NYSE Arca Equities Rule 8.200 and 
Commentary .02 thereto.\6\ 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.\7\
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    \6\ See id. at 69173.
    \7\ See id. at 69177.
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    The Fund is a series of the ETF Managers Group Commodity Trust I 
(``Trust''), a Delaware statutory trust.\8\ The Fund's sponsor and 
investment manager is ETF Managers Capital LLC (``Sponsor''), a limited 
liability company that is a commodity pool operator that is registered 
with the Commodity Futures Trading Commission \9\ and is a member of 
the National Futures Association. U.S. Bancorp Fund Services will be 
the transfer agent, custodian, and administrator for the Fund. Esposito 
Securities LLC will provide statutory and wholesaling distribution 
services.
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    \8\ The Trust submitted a registration statement with respect to 
the Fund on Form S-1 under the Securities Act of 1933 on October 7, 
2014 (File No. 333-199190) (``Registration Statement'').
    \9\ The Sponsor is not a broker-dealer or affiliated with a 
broker-dealer. See Notice, supra note 5, 79 FR at 69178.
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    The Fund's investment objective will be to profit from rising 
interest rates by tracking the performance of a portfolio (``Benchmark 
Portfolio'') that consists of exchange traded futures contracts and 
options on futures on 2, 5 and 10-year U.S. Treasury securities 
(``Treasury Instruments'') and that is weighted to achieve a targeted 
negative 10-year average effective portfolio duration (``Benchmark 
Component Instruments''). The Fund will seek to achieve its investment 
objective by investing in the Benchmark Component Instruments currently 
constituting the Benchmark Portfolio. The Fund will invest in the 
Treasury Instruments in the same weighting as the Benchmark Portfolio.
    The Benchmark Portfolio will be maintained by Sit Fixed Income 
Advisors II, LLC (``Sit'') \10\ and will be rebalanced, reconstituted, 
or both, monthly, typically on the 15th of each month and on the next 
business day if the 15th is a holiday, weekend, or other day on which 
the national exchanges are closed, to maintain a negative 10-year 
average effective duration. The Benchmark Portfolio and the Fund will 
each maintain a short position in Treasury Instruments. The Fund will 
not use futures contracts or options to obtain leveraged investment 
results.
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    \10\ Sit is not affiliated with the Sponsor. Sit is not a 
broker-dealer or affiliated with a broker-dealer. See id. at 69174 
n. 14.
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    The Sponsor anticipates that approximately 5% to 15% of the Fund's 
assets will be used as payment for or collateral for Treasury 
Instruments. In order to collateralize its Treasury Instrument 
positions the Fund will hold such assets, from which it will post 
margin to its futures commission merchant (``FCM''), in an amount equal 
to the margin required by the relevant exchange, and transfer to its 
FCM any additional amounts that may be separately required by the 
FCM.\11\ Any assets not required to be posted as margin with the FCM 
will be held at the Fund's administrator in cash or cash equivalents.
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    \11\ When establishing positions in Treasury Instruments, the 
Fund will be required to deposit initial margin with a value of 
approximately 3% to 10% of the value of each Treasury Instrument 
position at the time it is established. These margin requirements 
are subject to change from time to time by the exchange or the FCM. 
On a daily basis, the Fund will be obligated to pay, or entitled to 
receive, variation margin in an amount equal to the change in the 
daily settlement level of its Treasury Instruments positions. See 
id. at 69174 n. 17.
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    The Fund will incur certain expenses in connection with its 
operations. The Fund will hold cash or cash equivalents such as U.S. 
Treasuries or other high credit quality, short-term fixed-income or 
similar securities (such as shares of money market funds) for direct 
investment or as collateral for the Treasury Instruments and for other 
liquidity purposes and to meet redemptions that may be necessary on an 
ongoing basis. These expenses and income from the cash and cash 
equivalent holdings may cause imperfect correlation between changes in 
the Fund's net asset value (``NAV'') and changes in the Benchmark 
Portfolio, because the Benchmark Portfolio does not reflect expenses or 
income.
    Additional information regarding the Fund, including the NAV 
calculation, operation of the Fund, the Benchmark Portfolio, 
restrictions, risks, fees, expenses, and Share creations and redemption 
can be found in the Notice and the Registration Statement, as 
applicable.\12\
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    \12\ See supra notes 5 and 8, respectively.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade Shares of the Fund is consistent with the 
Exchange Act and the rules and regulations thereunder applicable to a 
national securities exchange.\13\ In particular, the Commission finds 
that the proposed rule change is consistent with Section 6(b)(5) of the 
Exchange Act,\14\ 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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    \13\ 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).
    \14\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal is consistent with Section 
11A(a)(1)(C)(iii) of the Exchange Act,\15\ 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. Quotation and last-sale information regarding the Shares 
will be disseminated through the facilities of the Consolidated Tape 
Association (``CTA'').\16\ The Exchange will make available on its Web 
site daily trading volume of the Shares and the closing prices of the 
Shares.\17\ 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.\18\ Information regarding the previous day's closing price 
and trading volume

[[Page 77585]]

information for the Shares will be published daily in the financial 
section of newspapers.\19\
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    \15\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \16\ See Notice, supra note 5, 79 FR at 69177.
    \17\ See id.
    \18\ See id. at 69176.
    \19\ See id.
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    The Intraday Indicative Value (``IIV'') \20\ per Share will be 
widely disseminated by one or more major market data vendors at least 
every 15 seconds during the Core Trading Session on the Exchange (9:30 
a.m., Eastern Time, to 4:00 p.m., Eastern Time).\21\ The Exchange 
disseminates the IIV through the facilities of CTA/CQ High Speed 
Lines.\22\ In addition, the IIV is published on the NYSE Arca's Web 
site and is available through on-line information services such as 
Bloomberg and Reuters.\23\
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    \20\ The Exchange represents that the IIV will be calculated by 
using the Fund's prior day's closing NAV per share as a base and 
updating that value throughout the trading day to reflect changes in 
the most recently reported trade price for the Treasury Instruments. 
The net asset value of the Fund's cash and cash equivalent holdings 
will not be updated throughout the day. See id. at 69175. The 
Exchange states that there is a gap in time at the beginning and the 
end of each day during which the Fund's Shares are traded on the 
Exchange but real-time trading prices for contracts traded on the 
futures exchanges are unavailable and that, during such gaps in 
time, the IIV will be calculated based on the end of day price of 
such contracts from the futures exchanges' immediately preceding 
trading session. See id.
    \21\ See id. at 69175.
    \22\ See id.
    \23\ See id.
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    The NAV of the Fund will be calculated daily and will be released 
after 4:00 p.m. Eastern Time, the end of the Core Trading Session on 
the Exchange.\24\ The NAV for the Shares will be disseminated to all 
market participants at the same time.\25\ The Fund's Web site will 
display the applicable end of day closing NAV and will include 
additional quantitative information updated on a daily basis, including 
(a) the current NAV per Share daily and the prior Business Day's NAV 
and the reported closing price; (b) the mid-point of the bid-ask price 
in relation to the NAV as of the time the NAV is calculated (the ``Bid-
Ask Price''); (c) calculation of the premium or discount of such price 
against such NAV; (d) the Bid-Ask Price of Shares determined using the 
highest bid and lowest offer as of the time of calculation of the NAV; 
(e) data in chart form displaying the frequency distribution of 
discounts and premiums of the Bid-Ask Price against the NAV, within 
appropriate ranges for each of the four (4) previous calendar quarters; 
(f) the prospectus; and (g) other applicable quantitative 
information.\26\
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    \24\ See id. The Fund's NAV will be calculated by taking the 
current market value of its total assets, subtracting any 
liabilities, and dividing that total by the total number of 
outstanding Shares. For purposes of calculating NAV, the 
administrator will use the closing price of the Treasury Instruments 
on the U.S. exchanges on which the Treasury Instruments are traded 
(primarily on the exchanges within the Chicago Mercantile Exchange 
Group of exchanges and other national exchanges. The Administrator 
will value all other holdings of the Fund at (1) current market 
value, if quotations for such property are readily available, or (2) 
fair value, as reasonably determined by the Administrator, if the 
current market value cannot be determined. See id.
    \25\ See id. at 69177.
    \26\ See id. at 69176 and 69177.
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    The Fund will provide Web site disclosure of its portfolio holdings 
daily, which will include the names, quantity, price, and market value 
of the Treasury Instruments held by the Fund and other financial 
instruments such as Treasury Bills, if any; the characteristics of such 
instruments and cash equivalents; and the amount of cash held in the 
portfolio of the Fund.\27\ This Web site disclosure of the portfolio 
composition of the Fund will occur at the same time as the disclosure 
by the Sponsor of the portfolio composition to authorized participants 
so that all market participants are provided portfolio composition 
information at the same time.\28\ In addition, a basket composition 
file, which includes the security names and share quantities required 
to be delivered in exchange for Fund Shares, together with estimates 
and actual cash components, will be publicly disseminated daily prior 
to the opening of the Exchange via the National Securities Clearing 
Corporation.\29\
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    \27\ See id. at 69176.
    \28\ See id.
    \29\ See id.
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    The daily closing Benchmark Portfolio level and the percentage 
change in the daily closing level for the Benchmark Portfolio will be 
publicly available from one or more major market data vendors.\30\ The 
intraday value of the Benchmark Portfolio, updated every 15 seconds, 
will also be available through major market data vendors.\31\ The 
Benchmark Component Instruments constituting the Benchmark Portfolio 
and anticipated rebalancing dates, information relating to the 
weighting of Treasury Instruments in the Benchmark Portfolio, and the 
Benchmark Portfolio methodology will be available on the Web site for 
Fund.\32\
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    \30\ See id. at 69177.
    \31\ See id.
    \32\ See id. at 69174 and 69177.
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    The Exchange represents that quotation and last sale information 
for the Treasury Instruments will be widely disseminated through a 
variety of major market data vendors worldwide, such as Bloomberg and 
Reuters.\33\ In addition, the Exchange further represents that complete 
real-time price (and volume) data for such contracts is available by 
subscription from Reuters and Bloomberg.\34\ The intra-day closing 
prices and settlement prices of the Treasury Instruments are or will be 
readily available from the Web sites of the futures exchanges on which 
the Treasury Instruments are traded.\35\ The relevant futures exchanges 
trading Treasury Instruments also provide delayed futures price (and 
volume) information on current and past trading sessions and market 
news free-of-charge on their Web sites.\36\ The specific contract 
specifications for such contracts are available at the futures 
exchanges Web sites, as well as other financial informational 
sources.\37\ The price of Treasury Instruments also is available on a 
24-hour basis from major market data vendors.\38\ Similar information 
regarding the Treasury securities underlying the Treasury Instruments 
will be publicly available from various financial information service 
providers.\39\ Quotation information from brokers and dealers or major 
market data vendors will be available for U.S. Treasuries or other high 
credit quality, short-term fixed-income or similar securities (such as 
shares of money market funds).\40\
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    \33\ See id. at 69176.
    \34\ See id.
    \35\ See id. at 69177.
    \36\ See id.
    \37\ See id. at 69176.
    \38\ See id.
    \39\ See id. at 69177.
    \40\ See id.
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    The Commission believes that the proposal to list and trade Shares 
is reasonably designed to promote fair disclosure of information that 
may be necessary to price Shares appropriately and to prevent trading 
when a reasonable degree of transparency cannot be assured. The 
Exchange represents that it may halt trading during the day in which an 
interruption to the dissemination of the IIV, the Benchmark Portfolio, 
or the value of the underlying Treasury Instruments occurs.\41\ If an 
interruption to the dissemination of the IIV, the Benchmark Portfolio, 
or the value of the underlying Treasury Instruments persists past the 
trading day in which it occurred, the Exchange will halt trading no 
later than the beginning of the trading day following the 
interruption.\42\ In addition, if the Exchange becomes aware that the 
NAV with respect to the Shares is not disseminated to all market 
participants at the same time, it will halt trading in the Shares until 
such time as

[[Page 77586]]

the NAV is available to all market participants.\43\
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    \41\ See id.
    \42\ See id.
    \43\ See id.
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    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares.\44\ Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) the extent to 
which trading is not occurring in the underlying Treasury Instruments, 
(2) if the creation or redemption of Shares is suspended for a period 
that, in the judgment of the Exchange, may detrimentally impact 
Exchange trading of the Shares, or (3) whether other unusual conditions 
or circumstances detrimental to the maintenance of a fair and orderly 
market are present. In addition, trading in Shares will be subject to 
trading halts caused by extraordinary market volatility pursuant to the 
Exchange's ``circuit breaker'' rule \45\ or by the halt or suspension 
of trading of the underlying Treasury Instruments.\46\
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    \44\ See id.
    \45\ See NYSE Arca Equities Rule 7.12.
    \46\ See Notice, supra note 5, 79 FR at 69177.
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    The Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees.\47\ 
Moreover, the trading of the Shares will be subject to NYSE Arca 
Equities Rule 8.200, Commentary .02(e), which sets forth certain 
restrictions on Equity Trading Permit (``ETP'') Holders acting as 
registered market makers in TIRs to facilitate surveillance.\48\ The 
Financial Industry Regulatory Authority (``FINRA''), on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
and underlying Treasury Instruments with other markets and entities 
that are members of the Intermarket Surveillance Group (``ISG''), and 
FINRA, on behalf of the Exchange, may obtain trading information 
regarding trading in the Shares and underlying Treasury Instruments 
from such markets and other entities.\49\ In addition, the Exchange may 
obtain information regarding trading in the Shares and underlying 
Treasury Instruments from markets and other entities that are members 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\50\ 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.\51\ Furthermore, the Sponsor is not a broker-
dealer or affiliated with a broker-dealer and the Sponsor represents 
that it will implement and maintain procedures designed to prevent the 
use and dissemination of material non-public information.\52\ Sit, 
which maintains the Benchmark Portfolio, is not affiliated with the 
Sponsor and is not a broker-dealer or affiliated with a broker-
dealer.\53\
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    \47\ See id. at 69178.
    \48\ See id. at 69177.
    \49\ See id.
    \50\ See id. at 69177-78.
    \51\ See id. at 69178.
    \52\ See id.
    \53\ See id.
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    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Fund will meet the initial and continued listing 
requirements applicable to TIRs in NYSE Arca Equities Rule 8.200 and 
Commentary .02 thereto.\54\
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    \54\ See id. at 69176.
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    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.\55\
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    \55\ See id. at 69177.
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    (3) Trading in the Shares will be subject to the existing trading 
surveillances, administered by the FINRA on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws, and 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.\56\
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    \56\ See id.
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    (4) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Bulletin will discuss the following: (a) The 
procedures for purchases and redemptions of Shares in Creation Basket 
aggregations (and that Shares are not individually redeemable); (b) 
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence 
on its ETP Holders to learn the essential facts relating to every 
customer prior to trading the Shares; (c) the risks involved in trading 
the Shares during the Opening and Late Trading Sessions when an updated 
IIV will not be calculated or publicly disseminated; (d) how 
information regarding the IIV is disseminated; (e) the requirement that 
ETP Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.\57\
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    \57\ See id. at 69178.
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    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act,\58\ as provided by NYSE Arca 
Equities Rule 5.3.\59\
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    \58\ 17 CFR 240.10A-3.
    \59\ See Notice, supra note 5, 79 FR at 69177.
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    (6) For components traded on exchanges, not more than 10% of such 
components shall consist of components whose principal trading market 
is not a member of ISG or is a market with which the Exchange does not 
have a comprehensive surveillance sharing agreement.\60\
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    \60\ See id. at 69178.
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    (7) The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
the Fund's investments will not be used to seek performance that is a 
multiple (e.g., 2X or 3X) or inverse multiple of the Fund's Benchmark 
Portfolio.\61\
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    \61\ See id. at 69176.
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    (8) A minimum of 100,000 Shares for the Fund will be outstanding at 
the commencement of trading on the Exchange.\62\
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    \62\ See id. at 69177.
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    This order is based on the Exchange's representations above, as 
well as those in the Notice.\63\
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    \63\ See supra note 5.
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    For the forgoing reasons, the Commission believes the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\64\ that the proposed rule change (SR-NYSEArca-2014-120), 
as modified by Amendment No. 2 thereto, be, and it hereby is, approved.
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    \64\ 15 U.S.C. 78s(b)(2).
    \65\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\65\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-30105 Filed 12-23-14; 8:45 am]
BILLING CODE 8011-01-P