Document ID: SEC-2018-1604-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2018-10-16T04:00Z

[Federal Register Volume 83, Number 200 (Tuesday, October 16, 2018)]
[Notices]
[Pages 52266-52272]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22428]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84396; File No. SR-NYSEARCA-2018-70]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating To Listing 
and Trading of Shares of the iShares iBond Dec 2026 Term Muni Bond ETF 
Under Commentary .02 to NYSE Arca Rule 5.2-E(j)(3)

October 10, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on September 26, 2018, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``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 iShares iBond 
Dec 2026 Term Muni Bond ETF (the ``Fund'') pursuant to NYSE Arca Rule 
5.2-E(j)(3), Commentary .02. The proposed rule change is available on 
the Exchange's website 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.

[[Page 52267]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
Fund under Commentary .02 to NYSE Arca Rule 5.2-E(j)(3), which governs 
the listing and trading of Investment Company Units (``Units'') \4\ 
based on fixed income securities indexes.\5\ As discussed below, the 
Exchange is submitting this proposed rule change because the ``Index'' 
(as defined below) does not meet all of the ``generic'' listing 
requirements of Commentary .02 to NYSE Arca Rule 5.2-E(j)(3) applicable 
to the listing of Units based on fixed income securities indexes. The 
Index meets all such requirements except for those set forth in 
Commentary .02(a)(2).\6\
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    \4\ An open-end investment company that issues 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 Commission previously has approved proposed rule changes 
relating to listing and trading of funds based on municipal bond 
indexes. See, e.g., Securities Exchange Act Release Nos. 67985 
(October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-NYSEArca-2012-
92) (order approving proposed rule change to list and trade the 
iShares 2018 S&P AMT-Free Municipal Series and iShares 2019 S&P AMT-
Free Municipal Series under NYSE Arca Rule 5.2(j)(3), Commentary 
.02) (``iShares 2018/2019 Order''); 72523 (July 2, 2014), 79 FR 
39016 (July 9, 2014) (SR-NYSEArca-2014-37) (order approving proposed 
rule change to list and trade iShares 2020 S&P AMT-Free Municipal 
Series under NYSE Arca Rule 5.2(j)(3), Commentary .02) (``iShares 
2020 Order''); and 75468 (July 16, 2015), 80 FR 43500 (July 22, 
2015) (SR-NYSEArca-2015-25) (order approving proposed rule change to 
list and trade the iShares iBonds Dec 2021 AMT-Free Muni Bond ETF 
and iShares iBonds Dec 2022 AMT-Free Muni Bond ETF under NYSE Arca 
Rule 5.2(j)(3), Commentary .02) (``iShares 2021/2022 Order'' and, 
together with the iShares 2018/2019 Order and the iShares 2020 
Order, the ``iShares Orders''); 82295 (December 12, 2017), 82 FR 
60056 (December 18, 2017) (SR-NYSEArca-2017-56) (Notice of Filing of 
Amendment No. 3 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 3, to List and 
Trade Shares of Twelve Series of Investment Company Units Pursuant 
to NYSE Arca Rule 5.2-E(j)(3)).
    \6\ Commentary .02(a)(2) provides that Fixed Income Security 
components that in aggregate account for at least 75% of the Fixed 
Income Securities portion of the weight of the index or portfolio 
each shall have a minimum original principal amount outstanding of 
$100 million or more.
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Description of the Shares and the Fund
    The Fund is a series of the iShares Trust (the ``Trust'').\7\ 
Blackrock Fund Advisors (``BFA'') will be the investment advisor for 
the Fund.\8\ State Street Bank and Trust Company will serve as the 
custodian, administrator, and transfer agent for the Fund. Blackrock 
Investments, LLC will act as the distributor for the Fund's Shares.
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    \7\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a) (``1940 Act''). On June 29, 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. 333-92935 and 811-09729) 
(``Registration Statement''). The description of the operation of 
the Trust and the Fund 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. 27661, (January 17, 2007) (File 
No. 812-13208).
    \8\ 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, BFA and its 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.
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S&P AMT-Free Municipal Series Dec 2026 Index\TM\
    According to the Registration Statement, the investment objective 
of the Fund is to track the investment results of an index composed of 
investment-grade U.S. municipal bonds maturing after December 31, 2025 
and before December 2, 2026. Specifically, the Fund will seek to track 
the investment results (before fees and expenses) of the S&P AMT-Free 
Municipal Series December 2026 Index\TM\ (the ``2026 Index''), which 
measures the performance of investment-grade, non-callable U.S. 
municipal bonds maturing in 2026.\9\ As of July 13, 2018, there were 
3,331 issues in the 2026 Index.
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    \9\ The 2026 Index is a product of S&P Dow Jones Indices LLC 
(the ``Index Provider''), which is independent of the Fund and BFA. 
The Index Provider determines the composition and relative 
weightings of the securities in the 2026 Index and publishes 
information regarding the market value of the 2026 Index. The Index 
Provider is not a broker-dealer or affiliated with a broker-dealer 
and has implemented procedures designed to prevent the use and 
dissemination of material, non-public information regarding the 2026 
Index.
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    The 2026 Index includes municipal bonds primarily from issuers that 
are state or local governments or agencies such that the interest on 
the bonds is exempt from U.S. federal income taxes. Each bond must 
have, inter alia, a minimum maturity par amount of $2 million to be 
eligible for inclusion in the 2026 Index. To remain in the 2026 Index, 
bonds must maintain a minimum par amount greater than or equal to $2 
million, and must not be subject to the federal alternative minimum tax 
(``AMT'') as of each rebalancing date. All bonds in the 2026 Index will 
mature after December 31, 2025 and before December 2, 2026. Bonds in 
the 2026 Index that mature or are pre-refunded in their respective year 
of maturity do not accrue interest past the maturity or pre-refund 
date. All payments related to the maturity or pre-refunding of a bond 
are reinvested in tax-exempt cash or cash equivalents for the duration 
of each month.
    The Fund will generally invest, under normal market conditions,\10\ 
at least 90% of its assets in component securities of the 2026 Index, 
except during the last months of the Fund's operations, as described 
below. From time to time when conditions warrant, however, the Fund may 
invest, under normal market conditions, at least 80% of its assets in 
the component securities of the 2026 Index.
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    \10\ The term ``under normal market conditions'' as used herein 
includes, but is not limited to, the absence of adverse market, 
economic, political or other conditions, including extreme 
volatility or trading halts in the fixed income markets or the 
financial markets generally; operational issues (such as systems 
failure) causing dissemination of inaccurate market information; or 
force majeure type events, natural or man-made disaster, act of God, 
armed conflict, act of terrorism, riot or labor disruption or any 
similar intervening circumstance.
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    The Fund may invest the remainder of its assets in interest rate 
futures, interest rate options, interest rate swaps,\11\ cash and cash 
equivalents (including shares of money market funds affiliated with 
BFA), as well as in municipal securities not included in the 2026 
Index, but which BFA believes will help the Fund track the 2026 Index. 
The Fund will generally hold municipal securities issued by state and 
local municipalities whose interest payments are exempt from U.S. 
federal income tax, the federal AMT and the federal Medicare 
contribution tax. In the last months of operation, as the bonds held by 
the Fund mature, the proceeds will not be reinvested in bonds but 
instead will be held in cash and cash equivalents, including, without 
limitation, shares of

[[Page 52268]]

money market funds affiliated with BFA, AMT-free tax-exempt municipal 
notes, variable rate demand notes and obligations, tender option bonds 
and municipal commercial paper. These cash equivalents may not be 
included in the 2026 Index. Around December 2, 2026, the Fund will wind 
up and terminate, and its net assets will be distributed to then 
current shareholders.
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    \11\ The interest rate futures, interest rate options, and 
interest rate swaps will be centrally cleared and they will be 
collateralized.
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    For informational purposes, as of April 30, 2018, 76.30% of the 
weight of the 2026 Index components was comprised of individual 
maturities that were part of an entire municipal bond offering with a 
minimum original principal amount outstanding of $100 million or more 
for all maturities of the offering. In addition, the total dollar 
amount outstanding of issues in the 2026 Index was approximately $30.8 
billion, the total market value of issues in the 2026 Index was $35.2 
billion, and the average dollar amount outstanding of issues in the 
2026 Index was approximately $10,579,000. Further, the most heavily 
weighted component represented 1.36% of the weight of the 2026 Index 
and the five most heavily weighted components represented 4.24% of the 
weight of the 2026 Index.\12\ Therefore, the Exchange believes that, 
notwithstanding that the 2026 Index does not satisfy the criterion in 
NYSE Arca Rule 5.2-E(j)(3), Commentary .02(a)(2), the 2026 Index is 
sufficiently broad-based to deter potential manipulation, given that it 
is comprised of approximately 3,331 issues.
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    \12\ Commentary .02(a)(4) to NYSE Arca Rule 5.2-E(j)(3) provides 
that no component fixed-income security (excluding Treasury 
Securities and GSE Securities, as defined therein) shall represent 
more than 30% of the weight of the index or portfolio, and the five 
most heavily weighted component fixed-income securities in the index 
or portfolio shall not in the aggregate account for more than 65% of 
the weight of the index or portfolio.
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    The Exchange is submitting this proposed rule change because the 
2026 Index for the Fund does not meet all of the ``generic'' listing 
requirements of Commentary .02(a) to NYSE Arca Rule 5.2-E(j)(3) 
applicable to the listing of Units based on fixed income securities 
indexes. The 2026 Index meets all such requirements except for those 
set forth in Commentary .02(a)(2).\13\ Specifically, as of April 30, 
2018, 9.43% of the weight of the 2026 Index components have a minimum 
original principal amount outstanding of $100 million or more.
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    \13\ Commentary .02(a)(2) to NYSE Arca Rule 5.2-E(j)(3) provides 
that components that in the aggregate account for at least 75% of 
the weight of the index or portfolio each shall have a minimum 
original principal amount outstanding of $100 million or more.
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Requirement for Index Constituents
    On a continuous basis, (1) the Index will contain at least 500 
components; and (2) each of the components of the Index will have an 
outstanding par value of at least $2 million.
    The Exchange notes that, in the iShares Orders, the Commission 
approved Exchange listing and trading of Units for which each bond in 
the applicable underlying index must have a minimum maturity par amount 
of $2 million to be eligible for inclusion in such index, and each such 
index included at least 500 components.\14\
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    \14\ See note 5, supra.
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    In addition, the Exchange represents that: (1) Except for 
Commentary .02(a)(2) to Rule 5.2-E(j)(3), the 2026 Index currently 
satisfies all of the generic listing standards under NYSE Arca Rule 
5.2-E(j)(3); (2) the continued listing standards under Commentary .02 
to NYSE Arca Rule 5.2-E(j)(3), as applicable to Units based on fixed 
income securities, will apply to the Shares of the Fund; and (3) the 
issuer of the Fund is required to comply with Rule 10A-3 \15\ under the 
Act for the initial and continued listing of the Shares. The Exchange 
represents that the Fund will comply with all other requirements 
applicable to Units, including, but not limited to, requirements 
relating to the dissemination of key information such as the value of 
the Index and the Intraday Indicative Value (``IIV''),\16\ rules 
governing the trading of equity securities, trading hours, trading 
halts, surveillance, information barriers and the Information Bulletin, 
as set forth in the Exchange rules applicable to Units and prior 
Commission orders approving the generic listing rules applicable to the 
listing and trading of Units.\17\
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    \15\ 17 CFR 240.10A-3.
    \16\ The IIV will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Core Trading Session (normally, 9:30 a.m. to 4:00 p.m., E.T.). 
Currently, it is the Exchange's understanding that several major 
market data vendors display and/or make widely available IIV taken 
from CTA or other data feeds.
    \17\ See, e.g., Securities Exchange Act Release Nos. 55783 (May 
17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order 
approving NYSE Arca generic listing standards for Units based on a 
fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19, 
2001) (SR-PCX-2001-14) (order approving generic listing standards 
for Units and Portfolio Depositary Receipts); 41983 (October 6, 
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order 
approving rules for listing and trading of Units).
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Additional Information
    The current value of the Index will be widely disseminated by one 
or more major market data vendors at least once per day, as required by 
Commentary .02(b)(ii) to NYSE Arca Rule 5.2-E(j)(3). The portfolio of 
securities held by the Fund will be disclosed daily on the Fund's 
website www.iShares.com.
Creation and Redemption of Shares
    According to the Registration Statement, the Fund will issue and 
redeem Shares on a continuous basis at the net asset value per Share 
(``NAV'') only in a large specified number of Shares called a 
``Creation Unit'', or multiples thereof, with each Creation Unit 
consisting of 50,000 Shares, provided, however, that from time to time 
the Fund may change the number of Shares (or multiples thereof) 
required for each Creation Unit if the Fund determines such a change 
would be in the best interests of the Fund.
    The consideration for purchase of Creation Units of the Fund 
generally will consist of the in-kind deposit of a designated portfolio 
of securities (including any portion of such securities for which cash 
may be substituted), which constitutes a representative sample of the 
securities of the 2026 Index \18\ (the ``Deposit Securities'') and a 
cash component (the ``Cash Component'') computed as described below. 
Together, the Deposit Securities and the Cash Component constitute the 
``Fund Deposit,'' which represents the minimum initial and subsequent 
investment amount for a Creation Unit of the Fund.
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    \18\ According to the Registration Statement, ``representative 
sampling'' is an indexing strategy that involves investing in a 
representative sample of securities that collectively has an 
investment profile similar to the 2026 Index. The securities 
selected are expected to have, in the aggregate, investment 
characteristics (based on factors such as market capitalization and 
industry weightings), fundamental characteristics (such as return 
variability, duration, maturity or credit ratings and yield) and 
liquidity measures similar to those of the Index. The Fund may or 
may not hold all of the securities in the 2026 Index.
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    The portfolio of securities required for purchase of a Creation 
Unit may not be identical to the portfolio of securities the Fund will 
deliver upon redemption of the Fund's Shares. The Deposit Securities 
and Fund Securities (as defined below), as the case may be, in 
connection with a purchase or redemption of a Creation Unit, generally 
will correspond pro rata, to the extent practicable, to the securities 
held by the Fund. As the planned termination date of the Fund 
approaches, and particularly as the bonds held by the Fund begin to 
mature, the Fund would expect to effect both creations and redemptions 
increasingly for cash.
    The Cash Component will be an amount equal to the difference 
between

[[Page 52269]]

the NAV of the Shares (per Creation Unit) and the ``Deposit Amount,'' 
which will be an amount equal to the market value of the Deposit 
Securities, and serve to compensate for any differences between the NAV 
per Creation Unit and the Deposit Amount. The Fund currently will offer 
Creation Units for in-kind deposits but reserves the right to utilize a 
``cash'' option in lieu of some or all of the applicable Deposit 
Securities for creation of Shares.
    BFA will make available through the National Securities Clearing 
Corporation (``NSCC'') on each business day, prior to the opening of 
business on the Exchange, the list of names and the required number or 
par value of each Deposit Security and the amount of the Cash Component 
to be included in the current Fund Deposit (based on information as of 
the end of the previous business day) for the Fund.
    The identity and number or par value of the Deposit Securities 
change pursuant to changes in the composition of the Fund's portfolio 
and as rebalancing adjustments and corporate action events are 
reflected from time to time by BFA with a view to the investment 
objective of the Fund. The composition of the Deposit Securities may 
also change in response to adjustments to the weighting or composition 
of the component securities constituting the 2026 Index.
    The Fund reserves the right to permit or require the substitution 
of a ``cash in lieu'' amount to be added to the Cash Component to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the Depository Trust Company (``DTC'') or the clearing process through 
the Continuous Net Settlement System of the NSCC or that the Authorized 
Participant is not able to trade due to a trading restriction.
    Creation Units may be purchased only by or through a DTC 
participant that has entered into an ``Authorized Participant 
Agreement'' (as described in the Registration Statement) with the 
Distributor (an ``Authorized Participant''). All creation orders must 
be placed for one or more Creation Units and must be received by the 
Distributor in proper form no later than the closing time of the 
regular trading session of the Exchange (normally 4:00 p.m., Eastern 
time (``E.T.'')) in each case on the date such order is placed in order 
for creation of Creation Units to be effected based on the NAV of 
Shares of the Fund as next determined on such date after receipt of the 
order in proper form.
    Shares of the Fund may be redeemed only in Creation Units at the 
NAV next determined after receipt of a redemption request in proper 
form by the Distributor and only on a business day. BFA will make 
available through the NSCC, prior to the opening of business on the 
Exchange on each business day, the designated portfolio of securities 
(including any portion of such securities for which cash may be 
substituted) that will be applicable (subject to possible amendment or 
correction) to redemption requests received in proper form on that day 
(the ``Fund Securities''). Fund Securities received on redemption may 
not be identical to Deposit Securities that are applicable to creations 
of Creation Units.
    Unless cash redemptions are available or specified for the Fund, 
the redemption proceeds for a Creation Unit generally will consist of a 
specified amount of cash, Fund Securities, plus additional cash in an 
amount equal to the difference between the NAV of the Shares being 
redeemed, as next determined after the receipt of a request in proper 
form, and the value of the specified amount of cash and Fund 
Securities, less a redemption transaction fee. The Fund currently will 
redeem Shares for Fund Securities, but reserves the right to utilize a 
``cash'' option for redemption of Shares.
    Redemption requests for Creation Units of the Fund must be 
submitted to the Distributor by or through an Authorized Participant no 
later than 4:00 p.m. E.T. on any business day, in order to receive that 
day's NAV. The Authorized Participant must transmit the request for 
redemption in the form required by the Fund to the Distributor in 
accordance with procedures set forth in the Authorized Participant 
Agreement.
Availability of Information
    On each business day, the Fund will disclose on its website 
(www.iShares.com) the portfolio that will form the basis for the Fund's 
calculation of NAV at the end of the business day.
    On a daily basis, the Fund will disclose for each portfolio 
security or other financial instrument of the Fund the following 
information on the Fund's website: Ticker symbol (if applicable), name 
of security and financial instrument, a common identifier such as CUSIP 
or ISIN (if applicable), number of shares (if applicable), and dollar 
value of securities and financial instruments held in the portfolio, 
and percentage weighting of the security and financial instrument in 
the portfolio. The website information will be publicly available at no 
charge. The current value of the Index will be widely disseminated by 
one or more major market data vendors at least once per day, as 
required by NYSE Arca Rule 5.2-E(j)(3), Commentary .02(b)(ii).
    The IIV for Shares of the Fund will be disseminated by one or more 
major market data vendors, updated at least every 15 seconds during the 
Exchange's Core Trading Session, as required by NYSE Arca Rule 5.2-
E(j)(3), Commentary .02(c). The current value of the Index would be 
widely disseminated by one or more major market data vendors at least 
once per day, as required by NYSE Arca Rule 5.2-(j)(3), Commentary .02 
(b)(ii). In addition, the portfolio of securities held by the Fund will 
be disclosed daily on the Fund's website.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are 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 website 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 published daily in the financial 
section of newspapers.
    Quotation and last sale information for the Shares of the Fund will 
be available via the Consolidated Tape Association (``CTA'') high speed 
line. Quotation information for investment company securities may be 
obtained through nationally recognized pricing services through 
subscription agreements or from brokers and dealers who make markets in 
such securities. Price information regarding municipal bonds is 
available from third party pricing services and major market data 
vendors. Trade price and other information relating to municipal bonds 
is available through the Municipal Securities Rulemaking Board's 
Electronic Municipal Market Access (``EMMA'') system.
    Quotation information for OTC swaps agreements may be obtained from 
brokers and dealers who make markets in such instruments. Quotation 
information for exchange-traded swaps, futures and options will be 
available from the applicable exchange and/or major market vendors.

[[Page 52270]]

Surveillance
    The Exchange represents that trading in the Shares of the Fund will 
be subject to the existing trading surveillances, 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 of the Fund in all 
trading sessions and to deter and detect violations of Exchange rules 
and federal securities laws applicable to trading on the Exchange.\19\
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    \19\ 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.
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    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.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, certain futures 
and certain options with other markets and other entities that are 
members of the Intermarket Surveillance Group (``ISG''), and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares, certain futures 
and certain options from such markets and other entities. In addition, 
the Exchange may obtain information regarding trading in the Shares, 
certain futures and certain options from markets and other entities 
that are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. FINRA also can access 
data obtained from the Municipal Securities Rulemaking Board relating 
to municipal bond trading activity for surveillance purposes in 
connection with trading in the Shares.
    The Exchange represents that at least 90% of the weight of Fund 
holdings invested in exchange-traded futures contracts and exchange-
traded options will be traded on an exchange that is a member of the 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \20\ in general and Section 6(b)(5) of the Act \21\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, 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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    \20\ 15 U.S.C. 78f.
    \21\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares of the Fund will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in NYSE Arca Rule 5.2-
E(j)(3), except for the requirement in Commentary .02(a)(2) that the 
component fixed income securities, in the aggregate, account for at 
least 75% of the weight of the index each shall have a minimum 
principal amount outstanding of $100 million or more. The Exchange 
represents that trading in the Shares will be subject to the existing 
trading surveillances administered by the Exchange as well as cross-
market surveillances administered by FINRA on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange.\22\ 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. The Exchange or FINRA, on behalf 
of the Exchange, or both, will communicate as needed regarding trading 
in the Shares, certain futures and certain options with other markets 
that are members of the ISG. In addition, the Exchange will communicate 
as needed regarding trading in the Shares, certain futures and certain 
options with other markets that are members of the ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement. FINRA also can access data obtained from the Municipal 
Securities Rulemaking Board relating to municipal bond trading activity 
for surveillance purposes in connection with trading in the Shares of 
the Fund. At least 90% of the weight of Fund holdings invested in 
exchange-traded futures contracts and exchange-traded options will be 
traded on an exchange that is a member of the ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement.
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    \22\ 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.
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    As discussed above, the Exchange believes that the Index is 
sufficiently broad-based to deter potential manipulation. For 
informational purposes, as of April 30, 2018, 76.30% of the weight of 
the 2026 Index components was comprised of individual maturities that 
were part of an entire municipal bond offering with a minimum original 
principal amount outstanding of $100 million or more for all maturities 
of the offering. In addition, the total dollar amount outstanding of 
issues in the 2026 Index was approximately $30.8 billion, the total 
market value of issues in the 2026 Index was $35.2 billion, and the 
average dollar amount outstanding of issues in the 2026 Index was 
approximately $10,579,000. Further, the most heavily weighted component 
represented 1.36% of the weight of the 2026 Index and the five most 
heavily weighted components represented 4.24% of the weight of the 2026 
Index.\23\ Therefore, the Exchange believes that, notwithstanding that 
the 2026 Index does not satisfy the criterion in NYSE Arca Rule 5.2-
E(j)(3), Commentary .02(a)(2), the 2026 Index is sufficiently broad-
based to deter potential manipulation, given that it is comprised of 
approximately 3,331 issues.
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    \23\ Commentary .02(a)(4) to NYSE Arca Rule 5.2-E(j)(3) provides 
that no component fixed-income security (excluding Treasury 
Securities and GSE Securities, as defined therein) shall represent 
more than 30% of the weight of the index or portfolio, and the five 
most heavily weighted component fixed-income securities in the index 
or portfolio shall not in the aggregate account for more than 65% of 
the weight of the index or portfolio.
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    On a continuous basis, (1) the Index will contain at least 500 
components; and (2) each of the components of the Index will have an 
outstanding par value of at least $2 million. As noted above, in the 
iShares Orders, the Commission approved Exchange listing and trading of 
Units for which each bond in the applicable underlying index must have 
a minimum maturity par amount of $2 million to be eligible for 
inclusion in such index, and each such index included at least 500 
components.\24\ In each of the iShares Orders, the Commission stated 
that the

[[Page 52271]]

applicable index was sufficiently broad-based and liquid to deter 
potential manipulation.\25\
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    \24\ See note 5, supra.
    \25\ See the iShares Orders, note 5, supra.
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    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that a large amount of information will be publicly available regarding 
the Fund and the Shares, thereby promoting market transparency. The 
Fund's portfolio holdings will be disclosed on the Fund's website daily 
after the close of trading on the Exchange. Moreover, the IIV will be 
widely disseminated by one or more major market data vendors at least 
every 15 seconds during the Exchange's Core Trading Session. The 
current value of the Index will be disseminated by one or more major 
market data vendors at least once per day. 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, and quotation and last sale information will 
be available via the CTA high-speed line. The website for the Fund will 
include the prospectus for the Fund and additional data relating to NAV 
and other applicable quantitative information. Moreover, 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.
    If the Exchange becomes aware that the NAV is not being 
disseminated to all market participants at the same time, it will halt 
trading in the Shares until such time as the NAV is available to all 
market participants. 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. 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. If the IIV or the 
Index value is not being disseminated as required, the Exchange may 
halt trading during the day in which the interruption to the 
dissemination of the IIV or Index value occurs. If the interruption to 
the dissemination of the IIV or Index value persists past the trading 
day in which it occurred, the Exchange will halt trading. 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, and trading in the Shares will be subject to NYSE 
Arca Rule 7.34-E, which sets forth circumstances under which Shares of 
the Fund may be halted. In addition, investors will have ready access 
to information regarding the IIV, 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 exchange-traded fund that holds municipal bonds 
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, investors 
will have ready access to information regarding the IIV and quotation 
and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.\26\
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    \26\ 15 U.S.C. 78f(b)(5).
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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 Units based on a municipal bond index 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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \27\ and Rule 19b-
4(f)(6) thereunder.\28\
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    \27\ 15 U.S.C. 78s(b)(3)(A).
    \28\ 17 CFR 240.19b-4(f)(6). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and the text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \29\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \30\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Exchange states that waiver of the 30-day delayed operative date is 
consistent with the protection of investors and the public interest 
because the Commission has previously approved listing and trading of 
Units based on indexes with similar characteristics as those of the 
Index.\31\ Additionally, the Exchange asserts that waiver will permit 
the prompt listing and trading of an additional issue of Units that 
principally holds municipal securities, which will enhance competition 
among issuers, investment advisers and other market participants with 
respect to listing and trading of issues of Units that hold municipal 
securities. The Commission believes that the proposal raises no new or 
novel regulatory issues and waiver of the 30-day operative delay is 
consistent with the protection of investors and the public interest. 
The Commission therefore waives the 30-day operative delay and 
designates the proposed rule change to be operative upon filing.\32\
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    \29\ 17 CFR 240.19b-4(f)(6).
    \30\ 17 CFR 240.19b-4(f)(6)(iii).
    \31\ See supra note 5.
    \32\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the

[[Page 52272]]

Commission takes such action, the Commission shall institute 
proceedings to determine whether the proposed rule change should be 
approved or 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-2018-70 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-2018-70. 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 website (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 website 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-2018-70, and should be 
submitted on or before November 6, 2018.
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    \33\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22428 Filed 10-15-18; 8:45 am]
BILLING CODE 8011-01-P