Document ID: SEC-2020-1926-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2020-12-04T05:00Z

[Federal Register Volume 85, Number 234 (Friday, December 4, 2020)]
[Notices]
[Pages 78389-78391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26673]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90528; File No. SR-NYSEArca-2020-80]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade 
Shares of Alger Mid Cap 40 ETF and Alger 25 ETF Under Rule 8.900-E

November 30, 2020.

I. Introduction

    On September 1, 2020, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the Alger 
Mid Cap 40 ETF and Alger 25 ETF (individually, ``Fund,'' and 
collectively, ``Funds'') under NYSE Arca Rule 8.900-E (Managed 
Portfolio Shares). The proposed rule change was published for comment 
in the Federal Register on September 21, 2020.\3\
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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. 89869 (September 15, 
2020), 85 FR 59354.
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    On October 7, 2020, NYSE Arca filed Amendment No. 1 to the proposed 
rule change.\4\ On October 29, 2020, pursuant to Section 19(b)(2) of 
the Act,\5\ the Commission designated a longer period within which to 
approve the proposed rule change, disapprove the proposed rule change, 
or institute proceedings to determine whether to disapprove the 
proposed rule change.\6\ On November 5, 2020, NYSE Arca filed Amendment 
No. 2 to the proposed rule change.\7\ The Commission has received no 
comments on the proposal. This order grants approval of the proposed 
rule change, as modified by Amendment No. 2.
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    \4\ Amendment No. 1, which amended and replaced the proposed 
rule change in its entirety, is available on the Commission's 
website at: https://www.sec.gov/comments/sr-nysearca-2020-80/srnysearca202080.htm.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 90286, 85 FR 70216 
(November 4, 2020).
    \7\ Amendment No. 2, which amended and replaced the proposed 
rule change, as modified by Amendment No. 1, in its entirety, is 
available on the Commission's website at: https://www.sec.gov/comments/sr-nysearca-2020-80/srnysearca202080.htm.
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II. The Exchange's Description of the Proposal, as Modified by 
Amendment No. 2 \8\
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    \8\ Additional information regarding the Funds, the Trust 
(defined infra), and the Shares can be found in Amendment No. 2, 
id., and the Registration Statement, infra note 9.
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    NYSE Arca Rule 8.900-E(b)(1) requires the Exchange to file separate 
proposals under Section 19(b) of the Act before listing and trading any 
series of Managed Portfolio Shares on the Exchange. Accordingly, the 
Exchange has submitted this proposal to list and trade the Shares of 
the Funds. The Shares will be issued by The Alger ETF Trust 
(``Trust''), a business trust organized under the laws of the state of 
Massachusetts and registered with the Commission as an open-end 
management investment company.\9\ The investment adviser to each Fund 
will be Fred Alger Management, LLC (``Adviser''), and Fred Alger & 
Company, LLC will serve as the distributor of each of the Fund's 
Shares.
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    \9\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On August 17, 2020, the Trust filed a 
registration statement on Form N-1A under the Securities Act of 1933 
and the 1940 Act for the Funds (File No. 811-23603) (``Registration 
Statement''). The Commission issued an order granting exemptive 
relief to the Trust (``Exemptive Order'') under the 1940 Act on May 
19, 2020 (Investment Company Act Release No. 33869) in response to 
the Trust's application (``Exemptive Application'') for exemptive 
relief (File No. 812-15117).
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A. Description of the Funds

    Each Fund's holdings will conform to the permissible investments as 
set forth in the Exemptive Application and Exemptive Order and the 
holdings will be consistent with all requirements in the Exemptive 
Application and Exemptive Order.\10\
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    \10\ Pursuant to the Exemptive Order, the only permissible 
investments for a Fund are the following that trade on a U.S. 
exchange contemporaneously with Shares of a Fund: Exchange-traded 
funds (``ETFs''), exchange-traded notes, exchange-listed common 
stocks, exchange-traded American Depositary Receipts, exchange-
traded real estate investment trusts, exchange-traded commodity 
pools, exchange-traded metals trusts, exchange-traded currency 
trusts and exchange-traded futures, as well as cash and cash 
equivalents (short-term U.S. Treasury securities, government money 
market funds, and repurchase agreements).
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Alger Mid Cap 40 ETF
    The Fund's primary objective is to seek long-term capital 
appreciation. The Fund will primarily invest in equity securities 
listed on U.S. exchanges, including common or preferred stocks, of mid-
cap growth companies. The Fund will generally own approximately 40 
holdings.
Alger 25 ETF
    The Fund's primary objective is to seek long-term capital 
appreciation. The Fund will primarily invest in equity securities of 
growth companies of any market capitalization listed on U.S. exchanges, 
including common or preferred stocks. The Fund will generally own 
approximately 25 holdings.

B. The Funds' Investment Restrictions

    Each Fund's investments, including derivatives, will be consistent 
with its investment objective and will not be used to enhance leverage 
(although certain derivatives and other investments may result in 
leverage). That is, for each Fund, the Fund's investments will not be 
used to seek performance that is the multiple or inverse multiple 
(e.g., 2X or -3X) of the Fund's primary broad-based securities 
benchmark index (as defined in Form N-1A).\11\
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    \11\ Each Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following that Fund's first full calendar year of performance.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 2, to list and trade the Shares is 
consistent with the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\12\ In particular, the 
Commission finds that the proposed rule change, as modified by 
Amendment No. 2, is consistent with Section 6(b)(5) of the Act,\13\ 
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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    \12\ 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).
    \13\ 15 U.S.C. 78f(b)(5).
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    For each series, the Exchange will establish a minimum number of 
Shares

[[Page 78390]]

required to be outstanding at the time of commencement of trading on 
the Exchange.\14\
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    \14\ See NYSE Arca Rule 8.900-E(d)(1)(A).
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    The Adviser is not registered as a broker-dealer but is affiliated 
with a broker-dealer.\15\ The Adviser has implemented and will maintain 
a ``fire wall'' with respect to its broker-dealer affiliate regarding 
access to information concerning the composition of, and changes to, a 
Fund's portfolio and Creation Basket.\16\ Any person related to the 
Adviser or the Trust who makes decisions pertaining to a Fund's 
portfolio composition or that has access to information regarding a 
Fund's portfolio or changes thereto or the Creation Basket will be 
subject to procedures designed to prevent the use and dissemination of 
material, non-public information regarding such portfolio or changes 
thereto and the Creation Basket.\17\ Further, any person or entity, 
including an AP Representative,\18\ custodian, Reporting Authority, 
distributor, or administrator, who has access to information regarding 
the Fund's portfolio composition or changes thereto or its Creation 
Basket, must be subject to procedures designed to prevent the use and 
dissemination of material, non-public information regarding the 
applicable Fund portfolio or changes thereto or the Creation 
Basket.\19\ Moreover, if any such person or entity is registered as a 
broker-dealer or affiliated with a broker-dealer, such person or entity 
must erect and maintain a ``fire wall'' between the person or entity 
and the broker-dealer with respect to access to information concerning 
the composition of and/or changes to such Fund's portfolio or Creation 
Basket.\20\
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    \15\ See Amendment No. 2, supra note 7, at 6.
    \16\ See id. See also NYSE Arca Rule 8.900-E(c)(5) (defining 
``Creation Basket'').
    \17\ See Amendment No. 2, supra note 7, at 6. Furthermore, the 
Exchange represents that in the event that (a) the Adviser becomes 
registered as a broker-dealer or becomes newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, the 
Adviser will implement and maintain a fire wall with respect to 
personnel of the broker-dealer or broker-dealer affiliate regarding 
access to information concerning the composition and/or changes to 
the portfolio and/or Creation Basket. See id. at 6.
    \18\ See NYSE Arca Rule 8.900-E(c)(5) (defining ``AP 
Representative'').
    \19\ See NYSE Arca Rule 8.900-E(b)(5).
    \20\ See id.
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    The Exchange states that trading in the Shares will be subject to 
the Exchange's surveillance procedures for derivative products, and 
that its surveillance procedures are adequate to properly monitor the 
trading of the Shares on the Exchange during all trading sessions and 
to deter and detect violations of Exchange rules and the applicable 
federal securities laws.\21\ NYSE Arca Rule 8.900-E(b)(3) requires each 
Fund's investment adviser to, upon request by the Exchange, or the 
Financial Industry Regulatory Authority (``FINRA'') on behalf of the 
Exchange, to make available to the daily portfolio holdings of each 
series of Managed Portfolio Shares. The Exchange states that it has a 
general policy prohibiting the distribution of material, non-public 
information by its employees.\22\ The Commission notes that, similarly, 
FINRA Rule 9910(d) generally prohibits FINRA employees from 
disseminating or disclosing, for a purpose unnecessary to the 
performance of FINRA job responsibilities any nonpublic information 
obtained in the course of his or her employment.
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    \21\ See Amendment No. 2, supra note 7, at 15.
    \22\ See id.
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\23\ which sets forth Congress's 
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. The Commission believes that the proposal is reasonably 
designed to promote fair disclosure of information that may be 
necessary to price the Shares appropriately and to prevent trading in 
the Shares when a reasonable degree of certain pricing transparency 
cannot be assured. As such, the Commission believes the proposal is 
reasonably designed to maintain a fair and orderly market for trading 
the Shares.
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    \23\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Specifically, as required by NYSE Arca Rule 8.900-E(d)(1)(B), the 
Exchange will obtain a representation from the issuer that the net 
asset value (``NAV'') per Share of each Fund will be calculated daily 
and will be made available to all market participants at the same 
time.\24\ 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.\25\ 
Quotation and last-sale information for the Shares will be available 
via the Consolidated Tape Association high-speed line.\26\ In addition, 
the Verified Intraday Indicative Value (``VIIV''), as defined in NYSE 
Arca Rule 8.900-E(c)(2),\27\ will be widely disseminated by the 
Reporting Authority and/or one or more major market data vendors in one 
second intervals during the Exchange's Core Trading Session.\28\ 
Moreover, the Funds' website will include a form of the prospectus for 
each Fund that may be downloaded. The Funds' website will include 
additional quantitative information updated on a daily basis, 
including, for each Fund, the prior Business Day's NAV, market closing 
price or mid-point of the bid/ask spread at the time of calculation of 
such NAV (``Bid/Ask Price''),\29\ and a calculation of the premium and 
discount of the market closing price or Bid/Ask Price against the NAV. 
The website and information will be publicly available at no 
charge.\30\
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    \24\ See Amendment No. 2, supra note 7, at 19.
    \25\ See id. at 12.
    \26\ See id.
    \27\ NYSE Arca Rule 8.900-E(c)(2) defines the term ``Verified 
Intraday Indicative Value'' as the indicative value of a Managed 
Portfolio Share based on all of the holdings of a series of Managed 
Portfolio Shares as of the close of business on the prior business 
day and, for corporate actions, based on the applicable holdings as 
of the opening of business on the current business day, priced and 
disseminated in one second intervals during the Core Trading Session 
by the Reporting Authority. NYSE Arca Rule 8.900-E(c)(8) defines the 
term ``Reporting Authority'' with respect to a particular series of 
Managed 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 Managed 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, 
the NAV, the VIIV, or other information relating to the issuance, 
redemption, or trading of Managed Portfolio Shares. A series of 
Managed Portfolio Shares may have more than one Reporting Authority, 
each having different functions.
    \28\ See NYSE Arca Rule 8.900-E(d)(2)(A). See Amendment No. 2, 
supra note 7, at 12.
    \29\ The Bid/Ask Price of a Fund's Shares will be the mid-point 
between the current national best bid and offer at the time of 
calculation of such Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Funds or their service providers. See 
Amendment No. 2, supra note 7, at 12, n. 7.
    \30\ See id.
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    The Commission also notes that the Exchange's rules regarding 
trading halts help to ensure the maintenance of fair and orderly 
markets for the Shares. Specifically, the Exchange may consider all 
relevant factors in exercising its discretion to halt trading in the 
Shares, and will halt trading in the Shares under the conditions 
specified in NYSE Arca Rule 7.12-E. Trading in the Shares will be 
subject to NYSE Arca Rule 8.900-E(d)(2)(C), which sets forth 
circumstances under which trading in the Shares will be halted. 
Specifically, NYSE Arca Rule 8.900-E(d)(2)(C)(i) provides that the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in a series of Managed Portfolio Shares. Trading may be 
halted because of

[[Page 78391]]

market conditions or for reasons that, in the view of the Exchange, 
make trading in the series of Managed Portfolio Shares inadvisable. 
These may include: (a) The extent to which trading is not occurring in 
the securities and/or the financial instruments composing the 
portfolio; or (b) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.\31\ NYSE Arca Rule 8.900-E(d)(2)(C)(ii) provides that, if the 
Exchange becomes aware that: (i) The VIIV of a series of Managed 
Portfolio Shares is not being calculated or disseminated in one second 
intervals, as required; (ii) the NAV with respect to a series of 
Managed Portfolio Shares is not disseminated to all market participants 
at the same time; (iii) the holdings of a series of Managed Portfolio 
Shares are not made available on at least a quarterly basis as required 
under the 1940 Act; or (iv) such holdings are not made available to all 
market participants at the same time (except as otherwise permitted 
under the applicable Exemptive Order or no-action relief granted by the 
Commission or Commission staff to the Investment Company with respect 
to the series of Managed Portfolio Shares), it will halt trading in 
such series until such time as the VIIV, the NAV, or the holdings are 
available, as required.
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    \31\ The Exemptive Application provides that the Investment 
Company or their agent will request that the Exchange halt trading 
in the applicable series of Managed Portfolio Shares where: (i) The 
intraday indicative values calculated by the calculation engines 
differ by more than 25 basis points for 60 seconds in connection 
with pricing of the VIIV; or (ii) holdings representing 10% or more 
of a series of Managed Portfolio Shares' portfolio have become 
subject to a trading halt or otherwise do not have readily available 
market quotations. Any such requests will be one of many factors 
considered in order to determine whether to halt trading in a series 
of Managed Portfolio Shares, and the Exchange retains sole 
discretion in determining whether trading should be halted. As 
provided in the Exemptive Application, each series of Managed 
Portfolio Shares would employ a pricing verification agent to 
continuously compare two intraday indicative values during regular 
trading hours in order to ensure the accuracy of the VIIV. See id. 
at 14, n. 21.
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    In support of this proposal, the Exchange has also made the 
following representations:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.900-E.
    (2) 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.\32\
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    \32\ See Amendment No. 2, supra note 7, at 14.
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    (3) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Bulletin (``Bulletin'') of the special 
characteristics and risks associated with trading the Shares.\33\
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    \33\ The Bulletin will discuss the following: (1) The procedures 
for purchases and redemptions of Shares; (2) NYSE Arca Rule 9.2-
E(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; (3) how information regarding the VIIV is 
disseminated; (4) the requirement that ETP Holders deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; (5) trading 
information; and (6) that the portfolio holdings of the Shares are 
not disclosed on a daily basis. See id. at 15.
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    (4) FINRA, on behalf of the Exchange, or the regulatory staff of 
the Exchange, or both, will communicate as needed regarding trading in 
the Shares and certain exchange-traded instruments with other markets 
and other entities that are members of the Intermarket Surveillance 
Group (``ISG''), and FINRA, on behalf of the Exchange, or the 
regulatory staff of the Exchange, or both, may obtain trading 
information regarding trading such securities from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and certain exchange-traded instruments 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.
    (5) The Exchange represents that, for initial and/or continued 
listing, each Fund will be in compliance with Rule 10A-3 under the 
Act.\34\
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    \34\ See id. at 7, n. 7.
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    This approval order is based on all of the Exchange's statements 
and representations set forth above and in Amendment No. 2 to the 
proposed rule change. Additionally, the Exchange states that all 
statements and representations made in its proposal regarding (a) the 
description of the portfolio or reference assets, (b) limitations on 
portfolio holdings or reference assets, or (c) the applicability of 
Exchange rules shall constitute continued listing requirements for 
listing the Shares on the Exchange, as provided under NYSE Arca Rule 
8.900-E(b)(1). The issuer of the Shares will be required to represent 
to the Exchange that it will advise the Exchange of any failure by a 
Fund to comply with the continued listing requirements, and, pursuant 
to its obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If a 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).\35\
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    \35\ See id. at 15.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act \36\ and Section 11A(a)(1)(C)(iii) of the Act \37\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.
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    \36\ 15 U.S.C. 78f(b)(5).
    \37\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\38\ that the proposed rule change (SR-NYSEArca-2020-80), as 
modified by Amendment No. 2, be, and it hereby is, approved.
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    \38\ 15 U.S.C. 78s(b)(2).
    \39\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-26673 Filed 12-3-20; 8:45 am]
BILLING CODE 8011-01-P