Document ID: SEC-2019-1943-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2019-12-26T05:00Z

[Federal Register Volume 84, Number 247 (Thursday, December 26, 2019)]
[Notices]
[Pages 71057-71063]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-27732]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87791; File No. SR-NYSEArca-2019-77]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the AdvisorShares 
Pure US Cannabis ETF Under NYSE Arca Rule 8.600-E

December 18, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on December 13, 2019, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III 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 AdvisorShares 
Pure US Cannabis ETF under NYSE Arca Rule 8.600-E. The proposed 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.

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
AdvisorShares Pure US Cannabis ETF (the ``Fund'') under NYSE Arca Rule 
8.600-E, which provides generic criteria applicable to the listing and 
trading of Managed Fund Shares on the Exchange.\4\
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (the ``1940 Act'') organized 
as an open-end investment company or similar entity that invests in 
a portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company 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.
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    AdvisorShares Investments, LLC (the ``Adviser'') is the investment 
adviser for the Fund. AdvisorShares Trust (the ``Trust'') and the 
Adviser manage the Fund's investments, subject to the oversight and 
supervision by the Board of Trustees (the ``Board'') of the Trust.\5\

[[Page 71058]]

Foreside Fund Services, LLC (``Distributor''), a registered broker-
dealer, will act as the distributor for the Fund's Shares. The Bank of 
New York Mellon (``BNY Mellon'') will serve as the administrator, 
custodian, and transfer agent (``Transfer Agent'') for the Fund.
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    \5\ The Trust is registered under the 1940 Act. On August 19, 
2019, the Trust filed with the Commission Post-Effective Amendment 
No. 145 to the Trust's registration statement on Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act''), and 
under the 1940 Act relating to the Fund (File Nos. 333-157876 and 
811-22110) (``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. 29291 (May 28, 2010) 
(File No. 812-13677).
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    Commentary .06 to Rule 8.600-E provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect 
and maintain a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. In 
addition, Commentary .06 further requires that personnel who make 
decisions on the open-end fund's portfolio composition must be subject 
to procedures designed to prevent the use and dissemination of material 
non-public information regarding the open-end fund's portfolio. 
Commentary .06 to Rule 8.600-E is similar to Commentary .03(a)(i) and 
(iii) to NYSE Arca Rule 5.2-E(j)(3); however, Commentary .06 in 
connection with the establishment and maintenance of a ``fire wall'' 
between the investment adviser and the broker-dealer reflects the 
applicable open-end fund's portfolio, not an underlying benchmark 
index, as is the case with index-based funds.
    The Adviser is not registered as a broker-dealer. The Adviser is 
not affiliated with any broker-dealers. In the event (a) the Adviser 
becomes registered as a broker-dealer or newly affiliated with a 
broker-dealer, or (b) any new adviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer, it will implement and maintain 
a ``fire wall'' with respect to its relevant personnel or broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures, 
each designed to prevent the use and dissemination of material non-
public information regarding such portfolio.
AdvisorShares Pure US Cannabis ETF
Principal Investments
    According to the Registration Statement, the investment objective 
of the Fund is to seek long-term capital appreciation. The Fund will 
seek to achieve its investment objective by investing, under normal 
market conditions,\6\ at least 80% of its net assets in securities of 
companies that derive at least 50% of their net revenue from the 
marijuana and hemp business in the United States and in derivatives 
that have economic characteristics similar to such securities.\7\
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    \6\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
    \7\ The Fund's investments in derivatives will include 
investments in both listed derivatives and over-the-counter 
(``OTC'') derivatives, as those terms are defined in Commentary 
.01(d) and (e) to NYSE Arca Rule 8.600-E.
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    In addition to its investment in securities of companies that 
derive a significant portion of their revenue from the marijuana and 
hemp business, and in derivatives providing exposure to such 
securities, the Fund may invest in securities of companies that, in the 
opinion of the Advisor, may have current or future revenues from 
cannabis-related business or that are registered with the United States 
Drug Enforcement Agency (DEA) specifically for the purpose of handling 
marijuana for lawful research and development of cannabis or 
cannabinoid-related products.
    According to the Registration Statement, the Fund will not invest 
directly in or hold ownership in any companies that engage in cannabis-
related business unless permitted by national and local laws of the 
relevant jurisdiction, including U.S. federal and state laws. The Fund 
has represented that this restriction does not apply to the Fund's 
investment in derivatives instruments. All of the Fund's investments, 
including derivatives instruments, would be made in accordance with all 
applicable laws, including U.S. federal and state laws. The Fund will 
concentrate at least 25% of its investments in the pharmaceuticals, 
biotechnology and life sciences industry group within the health care 
sector.
    The Fund primarily may invest in U.S. and foreign exchange-listed 
equity securities (described below), and in derivative instruments 
(described below) intended to provide exposure to such securities.
    The Fund may invest in the following types of U.S. and foreign 
exchange-listed equity securities: Common stock; preferred stock; 
warrants; Real Estate Investment Trusts (REITs); and rights.
    The Fund may invest in U.S. exchange-listed exchange-traded funds 
(``ETFs'') \8\ and in U.S. exchange-listed closed-end funds.
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    \8\ For purposes of this filing, the term ``ETFs'' includes 
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca 
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca 
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a 
national securities exchange. While the Fund may invest in inverse 
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
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    The Fund may hold cash and cash equivalents.\9\
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    \9\ For purposes of this filing, ``cash equivalents'' are the 
short-term instruments enumerated in Commentary .01(c) to NYSE Arca 
Rule 8.600-E.
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    The Fund may hold over-the-counter (``OTC'') total return swaps on 
U.S. and foreign exchange-listed equity securities.
Non-Principal Investments
    The Fund may invest in U.S. exchange-listed equity options and 
equity index options.
    The Fund may invest in Rule 144A securities.
    The Fund will not invest in securities or other financial 
instruments that have not been described in this proposed rule change.
Use of Derivatives by the Fund
    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the Fund's investment objective 
and policies.
    To limit the potential risk associated with such transactions, the 
Fund will enter into offsetting transactions or segregate or 
``earmark'' assets determined to be liquid by the Adviser in accordance 
with procedures established by the Trust's Board and in accordance with 
the 1940 Act or as permitted by applicable Commission guidance. These 
procedures have been adopted consistent with Section 18 of the 1940 Act 
and related Commission guidance. In addition, the Fund has included 
appropriate risk disclosure in its offering documents, including 
leveraging risk. Leveraging risk is the risk that certain transactions 
of the Fund, including the Fund's use of derivatives, may give rise to 
leverage, causing the Fund to be more volatile than if it had not been 
leveraged.
Other Restrictions
    The Fund's investments, including derivatives, will be consistent 
with the Fund's investment objective and will not be used to enhance 
leverage (although certain derivatives and other investments may result 
in leverage). That is, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (e.g., 2X or

[[Page 71059]]

-3X) of the Fund's primary broad-based securities benchmark index (as 
defined in Form N-1A).\10\
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    \10\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
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Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal, if any, impact to the 
arbitrage mechanism as a result of the Fund's use of derivatives. The 
Adviser understands that market makers and participants should be able 
to value derivatives as long as the positions are disclosed with 
relevant information. The Adviser believes that the price at which 
Shares of the Fund trade will continue to be disciplined by arbitrage 
opportunities created by the ability to purchase or redeem Shares of 
the Fund at their net asset value (``NAV''), which should ensure that 
Shares of the Fund will not trade at a material discount or premium in 
relation to their NAV.
Creation of Creation Units
    The Trust issues and sells Shares of the Fund only in aggregations 
of 25,000 Shares (each aggregation is called a ``Creation Unit'') on a 
continuous basis through the Distributor at the NAV next determined 
after receipt of an order in proper form on any Business Day.\11\ The 
size of a Creation Unit is subject to change.
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    \11\ A ``Business Day'' with respect to the Fund is any day on 
which the Exchange is open for business.
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    The consideration for a purchase of Creation Units generally will 
consist of an in-kind deposit of a portfolio of securities and other 
investments (the ``Deposit Securities'') for each Creation Unit 
constituting a substantial replication, or a representation, of the 
securities included in the Fund's portfolio and an amount of cash 
computed as described below (the ``Cash Component''). The Cash 
Component together with the Deposit Securities, as applicable, are 
referred to as the ``Fund Deposit,'' which represents the minimum 
initial and subsequent investment amount for a Creation Unit of the 
Fund.
    The Cash Component would be an amount equal to the difference 
between the NAV of the Shares (per Creation Unit) and the ``Deposit 
Amount,'' which is an amount equal to the aggregate market value of the 
Deposit Securities, and serves to compensate for any differences 
between the NAV per Creation Unit and the Deposit Amount.
    The Administrator, through the National Securities Clearing 
Corporation (``NSCC''), makes available on each Business Day, 
immediately prior to the opening of business on the Exchange (currently 
9:30 a.m. E.T.), the list of the names and the required number of 
shares of each Deposit Security to be included in the current Fund 
Deposit (based on information at the end of the previous Business Day) 
for the Fund. Such Fund Deposit is applicable, subject to any 
adjustments as described below, in order to effect creations of 
Creation Units of the Fund until such time as the next-announced 
composition of the Deposit Securities is made available.
    All orders to create Creation Units generally must be received by 
the Distributor no later than 3:00 p.m. E.T. on the date such order is 
placed in order for creation of Creation Units to be effected based on 
the NAV of the Fund as determined on such date.
    In addition, the Trust reserves the right to permit or require the 
substitution of an amount of cash (i.e., a ``cash in lieu'' amount) to 
be added to the Cash Component to replace any Deposit Security which 
may, among other reasons, not be available in sufficient quantity for 
delivery, or which may not be eligible for transfer through the 
Clearing Process (defined below), or which may not be eligible for 
trading by a Participating Party (defined below).
    To be eligible to place orders with the Distributor to create 
Creation Units of the Fund, an entity must be (1) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the NSCC (the 
``Clearing Process''); or (2) a Depository Trust Company (``DTC'') 
Participant; which, in either case, must have executed an agreement 
with the Trust, the Distributor and the Transfer Agent (``Participant 
Agreement''). A Participating Party and DTC Participant are 
collectively referred to as an ``Authorized Participant.''
Redemption of Creation Units
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Distributor and only on a Business Day.
    The Administrator, through NSCC, will make available immediately 
prior to the opening of business on the Exchange (9:30 a.m. E.T.) on 
each Business Day, the securities (``Fund Securities'') that will be 
applicable (subject to possible amendment or correction) to redemption 
requests received in proper form on that day. The 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 consist of Fund Securities as announced by the 
Administrator on the Business Day of the request for redemption, plus 
cash in an amount equal to the difference between the NAV of the Shares 
being redeemed, as next determined after a receipt of a request in 
proper form, and the value of the Fund Securities, less the redemption 
transaction fee. In the event that the Fund Securities have a value 
greater than the NAV of the Shares, a compensating cash payment equal 
to the differential is required to be made by or through an Authorized 
Participant by the redeeming shareholder.
    In order to redeem Creation Units of the Fund, an Authorized 
Participant must submit an order to redeem for one or more Creation 
Units. An order to redeem Creation Units of a Fund using the Clearing 
Process generally must be received by the Administrator not later than 
3:00 p.m. E.T. on the Business Day of the request for redemption in 
order for such order to be effected based on the NAV of the Fund as 
next determined. An order to redeem Creation Units of the Fund using 
the NSCC Clearing Process made in proper form but received by the Fund 
after 3:00 p.m. E.T. will be deemed received on the next Business Day 
immediately following the day on which such order request is 
transmitted.
Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the 
portfolio for the Fund will not meet all of the ``generic'' listing 
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to 
the listing of Managed Fund Shares. The Fund's portfolio will meet all 
such requirements except for those set forth in Commentary .01(e), as 
described below.
    The Fund will not comply with the requirements set forth in 
Commentary .01(e) to NYSE Arca Rule 8.600-E with respect to the Fund's 
investments in OTC total return swaps on U.S. and foreign exchange-
listed equity securities.\12\ Specifically, the aggregate

[[Page 71060]]

gross notional value of the Fund's investments in such OTC derivatives 
may exceed 20% of Fund assets, calculated as the aggregate gross 
notional value of such OTC derivatives.\13\ The Exchange proposes that 
up to 60% of the Fund's assets (calculated as the aggregate gross 
notional value) may be invested in such OTC derivatives. The proposed 
exception would allow the Fund to gain increased exposure to certain 
equity securities that have economic characteristics similar to 
securities listed in the principal strategies, and allow the Fund to 
obtain exposure, through the use of total return swaps, to certain 
equity securities that the Fund may not be able to invest in or choose 
not to invest in directly, in furtherance of the Fund's investment 
objective. As stated above, the only OTC derivatives that the Fund may 
invest in are OTC total return swaps on U.S. and foreign exchange-
listed equity securities.
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    \12\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that a 
portfolio may hold OTC derivatives, including forwards, options and 
swaps on commodities, currencies and financial instruments (e.g., 
stocks, fixed income, interest rates, and volatility) or a basket or 
index of any of the foregoing; however, on both an initial and 
continuing basis, no more than 20% of the assets in the portfolio 
may be invested in OTC derivatives. For purposes of calculating this 
limitation, a portfolio's investment in OTC derivatives will be 
calculated as the aggregate gross notional value of the OTC 
derivatives.
    \13\ The Adviser monitors counterparty credit risk exposure 
(including for OTC derivatives) and evaluates counterparty credit 
quality on a continuous basis.
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    The Adviser believes that it is important to provide the Fund with 
additional flexibility to manage its investments. OTC derivatives 
provide the Fund with flexibility as well as a precise means to 
effectively gain exposure to U.S. and foreign exchange-listed equities 
that the Fund otherwise would not be able to invest in or choose not to 
invest in directly. Generally, OTC derivatives can be customized to a 
greater degree and can provide equity exposure with Fund assets, as 
well as allow for control over the duration of the exposure which can 
also mitigate trading costs. Therefore, while the Fund is able to 
invest 20% of the assets in the Fund's portfolio in OTC derivatives 
pursuant to NYSE Arca Rule 8.600-E, Commentary .01(e), the Exchange 
believes it is appropriate to apply a limit of up to 60% of the Fund's 
assets to the Fund's investments in OTC total return swaps on U.S. and 
foreign exchange-listed equity securities (calculated as the aggregate 
gross notional value of such OTC derivatives), that are used for equity 
investment exposure purposes, as described above.\14\
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    \14\ The Commission has previously approved an exception from 
requirements set forth in Commentary .01(e) relating to investments 
in OTC derivatives. See e.g., Securities Exchange Act Release Nos. 
86636 (August 12, 2019), 84 FR 42030 (August 16, 2019) (SR-NYSEArca-
2018-98) (Notice of Filing of Amendment No. 4 and Order Granting 
Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment No. 4, To List and Trade Shares of the iShares Commodity 
Multi-Strategy ETF Under NYSE Arca Rule 8.600-E); and 87190 (October 
1, 2019), 84 FR 53522 (October 7, 2019) (SR-NYSEArca-2019-57) (Order 
Granting Approval of Proposed Rule Change To List and Trade Shares 
of the Franklin Liberty Systematic Style Premia ETF, a Series of the 
Franklin Templeton ETF Trust Under NYSE Arca Rule 8.600-E).
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    The Adviser represents that deviations from the generic 
requirements are necessary for the Fund to achieve its investment 
objective in a manner that is cost-effective and that maximizes 
investors' returns because OTC derivatives generally provide the Fund 
with more flexibility to negotiate the exact exposure that the Fund 
requires, and minimize trading costs because OTC derivatives are not 
subject to costs of rolling that are associated with listed 
derivatives.
    The Adviser represents that it intends to engage in strategies that 
utilize total return swaps (which are traded OTC), as described above, 
based on its investment strategies. Depending on market conditions, the 
exposure due to these strategies may exceed 20% of the Fund's assets. 
The Adviser represents further that the swaps market is OTC, and, as 
such, it is not possible to implement these strategies efficiently 
using listed derivatives. In addition, use of OTC swaps may be an 
important means to reduce risk in the Fund's equity investments, or, 
depending on market conditions, to enhance returns of such investments. 
If the Fund were limited to investing up to 20% of assets in OTC 
derivatives, the Fund would have to exclude or underweight these 
strategies and would be less diversified, concentrating risk in the 
other strategies it will utilize.
    The Exchange notes that, other than Commentary .01(e), the Shares 
of the Fund will conform to the initial and continued listing criteria 
under NYSE Arca Rule 8.600-E and will meet all other requirements of 
NYSE Arca Rule 8.600-E and Commentary .01 thereto.
    The Adviser represents that the proposed exception described above 
is consistent with the Fund's investment objective, and will further 
assist the Adviser to achieve such investment objective.
Availability of Information
    The Fund's website (www.advisorshares.com) will include the 
prospectus for the Fund that may be downloaded. The Fund's website will 
include additional quantitative information updated on a daily basis 
including, for the Fund, (1) daily trading volume, closing price and 
closing NAV for the Fund; (ii) the reported midpoint of the bid-ask 
spread at the time of NAV calculation (the ``Bid-Ask Price''); \15\ 
(iii) a calculation of the premium or discount of the Bid-Ask Price 
against such NAV; and (iv) data in chart format displaying the 
frequency distribution of discounts and premiums of the Bid-Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each Business Day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Fund will disclose on its website the Disclosed Portfolio as defined in 
NYSE Arca Rule 8.600-E(c)(2) that forms the basis for the Fund's 
calculation of NAV at the end of the Business Day.\16\
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    \15\ The Bid-Ask Price of the Fund's Shares will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Fund's NAV. The 
records relating to Bid-Ask Prices will be retained by the Fund and 
its service providers.
    \16\ Under accounting procedures followed by the Fund, trades 
made on the prior Business Day (``T'') will be booked and reflected 
in NAV on the current Business Day (``T+1''). Accordingly, the Fund 
will be able to disclose at the beginning of the Business Day the 
portfolio that will form the basis for the NAV calculation at the 
end of the Business Day.
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    On a daily basis, the Fund will disclose the information required 
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The 
website information will be publicly available at no charge.
    In addition, a basket composition file, which includes the security 
names and share quantities, if applicable, required to be delivered in 
exchange for the Fund's Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the Exchange via the NSCC. The basket represents one Creation Unit of 
the Fund. Authorized Participants may refer to the basket composition 
file for information regarding any security, and any other instrument 
that may comprise the Fund's basket on a given day.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's 
Forms N-CSR and Forms N-SAR, filed twice a year. The Fund's SAI and 
Shareholder Reports will be available free upon request from the Trust, 
and those documents and the Form N-CSR, Form N-PX and Form N-SAR may be 
viewed on-screen or downloaded from the Commission's website at 
www.sec.gov.
    Intra-day and closing price information regarding U.S. exchange-
listed equity options and equity index options will be available from 
the exchange on which such instruments are traded. Price information 
relating to

[[Page 71061]]

OTC swaps will be available from major market data vendors. For U.S. 
and foreign exchange-listed equity securities, intraday price 
quotations will generally be available from broker-dealers and trading 
platforms (as applicable). Price information for 144A securities will 
be available from major market data vendors. Price information for cash 
equivalents will be available from major market data vendors. Price 
information regarding U.S. government securities generally may be 
obtained from brokers and dealers who make markets in such securities 
or through nationally recognized pricing services through subscription 
agreements. Additionally, the Trade Reporting and Compliance Engine 
(``TRACE'') of the Financial Industry Regulatory Authority (``FINRA'') 
will be a source of price information for certain cash equivalents to 
the extent transactions in such securities are reported to TRACE.\17\
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    \17\ Broker-dealers that are FINRA member firms have an 
obligation to report transactions in specified debt securities to 
TRACE to the extent required under applicable FINRA rules. 
Generally, such debt securities will have at issuance a maturity 
that exceeds one calendar year. For fixed income securities that are 
not reported to TRACE, (i) intraday price quotations will generally 
be available from broker-dealers and trading platforms (as 
applicable) and (ii) price information will be available from feeds 
from market data vendors, published or other public sources, or 
online information services, as described above.
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    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, ETFs, closed-
end funds and other U.S. exchange-traded equity securities will be 
available via the Consolidated Tape Association (``CTA'') high-speed 
line. Exchange-traded options quotation and last sale information for 
options cleared via the Options Clearing Corporation (``OCC'') are 
available via the Options Price Reporting Authority (``OPRA''). In 
addition, the Portfolio Indicative Value (``PIV''), as defined in NYSE 
Arca Rule 8.600-E(c)(3), will be widely disseminated by one or more 
major market data vendors at least every 15 seconds during the Core 
Trading Session.
Trading Halts
    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 in Shares of the Fund will 
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E 
have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments comprising the Disclosed Portfolio of the Fund; or (2) 
whether other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. Trading in the 
Shares will be subject to NYSE Arca Rule 8.600-E(d)(2)(D), which sets 
forth circumstances under which Shares of the Fund may be halted.
Trading Rules
    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. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in 
accordance with NYSE Arca Rule 7.34-E (Trading Sessions). The Exchange 
has appropriate rules to facilitate transactions in the Shares during 
all trading sessions. As provided in NYSE Arca Rule 7.6-E, the minimum 
price variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
    With the exception of the requirements of Commentary .01(e) as 
described above under ``Application of Generic Listing Requirements,'' 
the Shares of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Rule 8.600-E. The Exchange represents 
that for initial and continued listing, the Fund will be in compliance 
with Rule 10A-3 under the Act, as provided by NYSE Arca Rule 5.3-E. A 
minimum of 100,000 Shares will be outstanding at the commencement of 
trading on the Exchange. The Exchange has obtained a representation 
from the issuer of the Shares that the NAV per Share will be calculated 
daily and that the NAV and the Disclosed Portfolio will be made 
available to all market participants at the same time.
Surveillance
    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 applicable federal securities laws. 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 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 
exchange-traded equity securities (including ETFs) and certain 
exchange-traded 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 exchange-
traded equity securities (including ETFs) and certain exchange-traded 
options from such markets and other entities. In addition, the Exchange 
may obtain information regarding trading in the Shares, certain 
exchange-traded equity securities (including ETFs) and certain 
exchange-traded options from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement (``CSSA''). In addition, FINRA, on 
behalf of the Exchange, is able to access, as needed, trade information 
for certain cash equivalents held by the Fund reported to FINRA's 
TRACE.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio or reference asset, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange listing rules specified in this rule filing 
shall constitute continued listing requirements for listing the Shares 
on the Exchange.
    The issuer has represented to the Exchange that it will advise the

[[Page 71062]]

Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares of the Fund. Specifically, the Bulletin will discuss 
the following: (1) The procedures for purchases and redemptions of 
Shares in Creation Units (and that Shares are not individually 
redeemable); (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) the risks involved in 
trading the Shares during the Early and Late Trading Sessions when an 
updated PIV will not be calculated or publicly disseminated; (4) how 
information regarding the PIV and the Disclosed Portfolio is 
disseminated; (5) 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 (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares of the Fund 
will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) of the Act that an exchange have 
rules that are 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, in general, to protect investors and the public interest.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.600-E. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and federal securities 
laws applicable to trading on the Exchange. The Adviser is not 
registered as a broker-dealer nor is the Adviser affiliated with a 
broker-dealer. The Exchange or FINRA, on behalf of the Exchange, or 
both, will communicate as needed regarding trading in the Shares, 
certain exchange-traded equity securities (including ETFs) and certain 
exchange-traded options with other markets and other entities that are 
members of the ISG, and the Exchange or FINRA, on behalf of the 
Exchange, or both, may obtain trading information regarding trading in 
the Shares, certain exchange-traded equity securities (including ETFs) 
and certain exchange-traded options from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares, certain exchange-traded equity securities 
(including ETFs) and certain exchange-traded options from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement. In addition, 
FINRA, on behalf of the Exchange, is able to access, as needed, trade 
information for certain cash equivalents held by the Fund reported to 
FINRA's TRACE.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. The website for the Fund 
includes a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. 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 8.600-E(d)(2)(D), which sets forth 
circumstances under which trading in the Shares of the Fund may be 
halted. In addition, as noted above, investors have ready access to 
information regarding the Fund's holdings, the PIV, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The Exchange believes that while the Fund is able to invest 20% of 
the assets in the Fund's portfolio in OTC derivatives pursuant to 
Commentary .01(e) to NYSE Arca Rule 8.600-E, it is appropriate to apply 
a limit of up to 60% of the Fund's assets to the Fund's investments in 
OTC total return swaps on U.S. and foreign exchange-listed equity 
securities (calculated as the aggregate gross notional value of such 
OTC derivatives) that are used for equity investment exposure purposes, 
as described above. While the Fund will not invest directly in or hold 
ownership in any companies that engage in cannabis-related business 
unless permitted by national and local laws of the relevant 
jurisdiction, including U.S. federal and state laws, the Adviser 
believes that it is in the best interests of the Fund's shareholders 
for the Fund to gain increased exposure to certain equity securities 
that have economic characteristics similar to securities listed in the 
principal strategies. The proposed exception would allow the Fund to 
gain increased exposure, through the use of total return swaps, to 
certain equity securities that the Fund may not be able to invest in or 
choose not to invest in directly, in furtherance of the Fund's 
investment objective. All Fund investments, including derivative 
instruments (i.e., OTC total return swaps on U.S. and foreign exchange-
listed equity securities), would be made in accordance with all 
applicable laws, including U.S. federal and state laws.
    In addition, the Fund's investments in OTC derivatives used to gain 
increased exposure in furtherance of the Fund's investment objective, 
will be limited to 60% of the assets in the Fund's portfolio, 
calculated as the aggregate gross notional value of such OTC 
derivatives. While certain derivatives can be traded on exchanges, 
total return swaps (which can be customized) are only available for 
trading on the OTC market. Accordingly, the Adviser believes that OTC 
derivatives may frequently be a more efficient investment vehicle than 
listed derivatives. Therefore, the Exchange believes that increasing 
the percentage limit in Commentary .01(e), as described above, 
applicable to the Fund's investments in OTC total return swaps on U.S. 
and foreign exchange-listed equity securities would permit the Fund to 
satisfy its investment objective and

[[Page 71063]]

reduce investment risks in a more cost-effective manner and, therefore, 
would help protect investors and the public interest.
    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 permit the listing and trading of an 
actively-managed exchange-traded product that, through permitted use of 
an increased level of OTC derivatives above that currently permitted by 
the generic listing requirements of Commentary .01 to NYSE Arca Rule 
8.600-E, will enhance competition among market participants, to the 
benefit of investors and the marketplace.
    The Exchange believes that it is appropriate and in the public 
interest to allow the Fund to exceed the 20% limit in Commentary .01(e) 
to Rule 8.600-E of portfolio assets that may be invested in OTC 
derivatives. Under Commentary .01(e), a series of Managed Fund Shares 
listed under the ``generic'' standards may invest up to 20% of its 
assets (calculated as the aggregate gross notional value) in OTC 
derivatives. Because the Fund, in furtherance of its investment 
objective, may invest a substantial percentage of its investments in 
OTC total return swaps on U.S. and foreign exchange-listed equity 
securities, the 20% limit in Commentary .01(e) to Rule 8.600-E could 
result in the Fund being unable to fully pursue its investment 
objective while attempting to sufficiently mitigate investment risks. 
The inability of the Fund to adequately increase its exposure would 
effectively limit the Fund's ability to invest in certain instruments, 
or could expose the Fund to additional investment risk.

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 permit the listing and trading of an issue of 
Managed Fund Shares that, through permitted use of an increased level 
of OTC derivatives above that currently permitted by the generic 
listing requirements of Commentary .01 to NYSE Arca Rule 8.600-E 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

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be 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 rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2019-77 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-NYSEArc-2019-77. 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-2019-77 and should be submitted 
on or before January 16, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-27732 Filed 12-23-19; 8:45 am]
 BILLING CODE 8011-01-P