Document ID: SEC-2016-0924-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc
Posted Date: 2016-05-31T04:00Z

[Federal Register Volume 81, Number 104 (Tuesday, May 31, 2016)]
[Notices]
[Pages 34388-34393]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12668]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77891; File No. SR-NYSEArca-2016-70]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Regarding Use of Rule 144A Securities by the 
Fidelity Corporate Bond ETF, Fidelity Investment Grade Bond ETF, 
Fidelity Limited Term Bond ETF, and Fidelity Total Bond ETF

May 24, 2016.
    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 May 11, 2016, 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 permit the Fidelity Corporate Bond ETF, 
Fidelity Investment Grade Bond ETF, Fidelity Limited Term Bond ETF, and 
Fidelity Total Bond ETF (each a ``Fund'' and together the ``Funds'') to 
consider securities issued pursuant to Rule 144A under the Securities 
Act of 1933 as debt securities eligible for the principal investment of 
80% of Fund assets. Shares of the Fidelity Corporate Bond ETF, Fidelity 
Limited Term Bond ETF, and Fidelity Total Bond ETF have been approved 
by the Exchange for listing and trading on the Exchange under NYSE Arca 
Equities Rule 8.600. The proposed rule change is available on the 
Exchange's Web site 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 Commission approved proposed rule changes relating to listing 
and trading on the Exchange of shares (``Shares'') of the Funds under 
NYSE Arca Equities Rule 8.600,\4\ which governs the listing and trading 
of Managed Fund Shares.\5\ The Exchange

[[Page 34389]]

proposes to amend the representation in the Prior Corporate Bond Notice 
and Prior Total Bond Notice to provide each Fund may include Rule 144A 
securities within a Fund's principal investments in debt securities 
(i.e., debt securities in which at least 80% of a Fund's assets are 
invested).
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    \4\ See Securities Exchange Act Release Nos. 72068 (May 1, 
2014), 79 FR 25923 (May 6, 2014) (SR-NYSEArca-2014-47) (notice of 
filing of proposed rule change relating to listing and trading of 
Shares of Fidelity Corporate Bond ETF Managed Shares under NYSE Arca 
Equities Rule 8.600) (``Prior Corporate Bond Notice''); 72439 (June 
20, 2014), 79 FR 36361 (June 26, 2014) (SR-NYSEArca-2014-47) (order 
approving proposed rule change relating to listing and trading of 
Shares of Fidelity Corporate Bond ETF Managed Shares under NYSE Arca 
Equities Rule 8.600) (``Prior Corporate Bond Order'' and, together 
with the Prior Corporate Bond Notice, the ``Prior Corporate Bond 
Releases''); 72064 (May 1, 2014), 79 FR 25908 (May 6, 2014) (SR-
NYSEArca-2014-46) (notice of filing of proposed rule change relating 
to listing and trading of Shares of Fidelity Investment Grade Bond 
ETF; Fidelity Limited Term Bond ETF; and Fidelity Total Bond ETF 
under NYSE Arca Equities Rule 8.600) (``Prior Total Bond Notice); 
72748 (August 4, 2014), 79 FR 46484 (August 8, 2014) (SR-NYSEArca-
2014-46) (order approving proposed rule change relating to listing 
and trading of Shares of the Fidelity Investment Grade Bond ETF, 
Fidelity Limited Term Bond ETF, and Fidelity Total Bond ETF under 
NYSE Arca Equities Rule 8.600) (``Prior Total Bond ETF Order'' and, 
together with the Prior Total Bond Notice, the ``Prior Total Bond 
Releases'').
    \5\ 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) (``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.
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I. Description of the Funds
    Fidelity Investments Money Management, Inc. (``FIMM''), an 
affiliate of Fidelity Management & Research Company (``FMR''), is the 
manager (``Manager'') of each Fund. FMR Co., Inc. (``FMRC'') serves as 
a sub-adviser for the Fidelity Total Bond ETF. FMRC has day-to-day 
responsibility for choosing certain types of investments of foreign and 
domestic issuers for Fidelity Total Bond ETF. Other investment 
advisers, which also are affiliates of FMR, serve as sub-advisers to 
the Funds and assist FIMM with foreign investments, including Fidelity 
Management & Research (U.K.) Inc. (``FMR U.K.''), Fidelity Management & 
Research (Hong Kong) Limited (``FMR H.K.''), and Fidelity Management & 
Research (Japan) Inc. (``FMR Japan'') (each a ``Sub-Adviser'' and 
together with FMRC, ``Sub-Advisers''). Fidelity Distributors 
Corporation (``FDC'') is the distributor for the Funds' Shares.
    The Funds are funds of Fidelity Merrimack Street Trust (``Trust''), 
a Massachusetts business trust.\6\
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    \6\ The Trust is registered under the 1940 Act. On December 29, 
2015, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to 
the Funds (File Nos. 333-186372 and 811-22796) (``Registration 
Statement''). The description of the operation of the Trust and the 
Funds 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. 30513 (May 10, 2013) (``Exemptive Order'') 
(File No. 812-14104).
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    Shares of the Fidelity Corporate Bond ETF, Fidelity Limited Term 
Bond ETF, and Fidelity Total Bond ETF have been approved by the 
Exchange for listing and trading on the Exchange under NYSE Arca 
Equities Rule 8.600 and are currently trading on the Exchange.
A. Fidelity Corporate Bond ETF
    As described in the Prior Corporate Bond Notice, the Fidelity 
Corporate Bond ETF seeks a high level of current income. The Manager 
normally invests at least 80% of Fidelity Corporate Bond ETF assets in 
investment-grade corporate bonds and other corporate debt 
securities.\7\ Corporate debt securities are bonds and other debt 
securities issued by corporations and other business structures, as 
described in the Prior Corporate Bond Notice.
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    \7\ According to the Registration Statement, investment-grade 
debt securities include all types of debt instruments, including 
corporate debt securities, that are of medium and high-quality. An 
investment-grade rating means the security or issuer is rated 
investment-grade by a credit rating agency registered as a 
nationally recognized statistical rating organization (``NRSRO'') 
with the Commission (for example, Moody's Investors Service, Inc.), 
or is unrated but considered to be of equivalent quality by the 
Fidelity Corporate Bond ETF's Manager or Sub-Advisers.
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    The Fidelity Corporate Bond ETF may hold uninvested cash or may 
invest it in cash equivalents such as money market securities, or 
shares of short-term bond exchanged-traded funds registered under the 
1940 Act (``ETFs'') or mutual funds or money market funds, including 
Fidelity central funds (special types of investment vehicles created by 
Fidelity for use by the Fidelity funds and other advisory clients). The 
Manager uses the Barclays[supreg] U.S. Credit Bond Index as a guide in 
structuring the Fund and selecting its investments. FIMM manages the 
Fund to have similar overall interest rate risk to the Barclays[supreg] 
U.S. Credit Bond Index.
    As stated in the Prior Corporate Bond Releases, in buying and 
selling securities for the Fund, the Manager analyzes the credit 
quality of the issuer, security-specific features, current valuation 
relative to alternatives in the market, short-term trading 
opportunities resulting from market inefficiencies, and potential 
future valuation. In managing the Fund's exposure to various risks, 
including interest rate risk, the Manager considers, among other 
things, the market's overall risk characteristics, the market's current 
pricing of those risks, information on the Fund's competitive universe 
and internal views of potential future market conditions.
    While the Manager normally invests at least 80% of assets of the 
Fund in investment grade corporate bonds and other corporate debt 
securities, as described above, the Manager may invest up to 20% of the 
Fund's assets in other securities and financial instruments, as 
described in the Prior Corporate Bond Notice.
    According to the Registration Statement, the Fund may invest in 
restricted securities, which are subject to legal restrictions on their 
sale. Restricted securities generally can be sold in privately 
negotiated transactions, pursuant to an exemption from registration 
under the Securities Act, or in a registered public offering.
B. Fidelity Investment Grade Bond ETF, Fidelity Limited Term Bond ETF 
and Fidelity Total Bond ETF
    As described in the Prior Total Bond Notice, the Fidelity 
Investment Grade Bond ETF (which has not yet commenced operation) will 
seek a high level of current income. The Manager normally will invest 
at least 80% of the Fund's assets in investment-grade debt securities 
(those of medium and high quality). The debt securities in which the 
Fund may invest are corporate debt securities; U.S. Government 
securities; repurchase agreements and reverse repurchase agreements; 
money market securities; mortgage and other asset-backed securities; 
senior loans; loan participations and loan assignments and other 
evidences of indebtedness, including letters of credit, revolving 
credit facilities and other standby financing commitments; stripped 
securities; municipal securities; sovereign debt obligations; and 
obligations of international agencies or supranational entities 
(collectively, ``Debt Securities'').
    As described in the Prior Total Bond Notice, the Fidelity 
Investment Grade Bond ETF may hold uninvested cash or may invest it in 
cash equivalents such as repurchase agreements, shares of short term 
bond ETFs, mutual funds or money market funds, including Fidelity 
central funds (special types of investment vehicles created by Fidelity 
for use by the Fidelity funds and other advisory clients). The Manager 
will use the Barclays U.S. Aggregate Bond Index (the ``Aggregate 
Index'') as a guide in structuring the Fund and selecting its 
investments, and will manage the Fund to have similar overall interest 
rate risk to the Aggregate Index.
    As described in the Prior Total Bond Notice, the Manager will 
consider other factors when selecting the Fidelity Investment Grade 
Bond ETF's investments, including the credit quality of the issuer, 
security-specific features, current valuation relative to alternatives 
in the market, short-term trading opportunities resulting from market 
inefficiencies, and potential future valuation. In managing the 
Fidelity Investment Grade Bond ETF's exposure to various risks, 
including interest rate risk, the Manager will consider, among other 
things, the market's overall risk characteristics, the market's current 
pricing of those risks, information on the Fidelity Investment Grade 
Bond ETF's competitive universe and internal views of potential future 
market conditions.
    As described in the Prior Total Bond Notice, the Fidelity Limited 
Term Bond

[[Page 34390]]

ETF seeks to provide a high rate of income. The Manager normally 
invests at least 80% of the Fidelity Limited Term Bond ETF's assets in 
investment-grade Debt Securities (those of medium and high quality). 
The Fidelity Limited Term Bond ETF may hold uninvested cash or may 
invest it in cash equivalents such as repurchase agreements, shares of 
short term bond ETFs, mutual funds or money market funds, including 
Fidelity central funds (special types of investment vehicles created by 
Fidelity for use by the Fidelity funds and other advisory clients). The 
Manager uses the Fidelity Limited Term Composite Index (the ``Composite 
Index'') as a guide in structuring the Fund and selecting its 
investments. The Manager manages the Fidelity Limited Term Bond ETF to 
have similar overall interest rate risk to the Composite Index.
    The Manager considers other factors when selecting the Fidelity 
Limited Term Bond ETF's investments, including the credit quality of 
the issuer, security-specific features, current valuation relative to 
alternatives in the market, short-term trading opportunities resulting 
from market inefficiencies, and potential future valuation. In managing 
the Fidelity Limited Term Bond ETF's exposure to various risks, 
including interest rate risk, the Manager considers, among other 
things, the market's overall risk characteristics, the market's current 
pricing of those risks, information on the Fund's competitive universe 
and internal views of potential future market conditions.
    As described in the Prior Total Bond Notice, the Fidelity Total 
Bond ETF seeks a high level of current income. The Manager normally 
invests at least 80% of the Fidelity Total Bond ETF's assets in Debt 
Securities. The Manager allocates the Fidelity Total Bond ETF's assets 
across investment-grade, high yield, and emerging market Debt 
Securities. The Manager may invest up to 20% of the Fund's assets in 
lower-quality Debt Securities. The Fidelity Total Bond ETF may hold 
uninvested cash or may invest it in cash equivalents such as repurchase 
agreements, shares of short term bond ETFs mutual funds or money market 
funds, including Fidelity central funds (special types of investment 
vehicles created by Fidelity for use by the Fidelity funds and other 
advisory clients).
    The Manager uses the Barclays U.S. Universal Bond Index (the 
``Universal Index'') as a guide in structuring and selecting the 
investments of the Fidelity Total Bond ETF and selecting its 
investments, and in allocating the Fidelity Total Bond ETF's assets 
across the investment-grade, high yield, and emerging market asset 
classes. The Manager manages the Fidelity Total Bond ETF to have 
similar overall interest rate risk to the Universal Index. The Manager 
considers other factors when selecting the Fund's investments, 
including the credit quality of the issuer, security-specific features, 
current valuation relative to alternatives in the market, short-term 
trading opportunities resulting from market inefficiencies, and 
potential future valuation. In managing the Fund's exposure to various 
risks, including interest rate risk, the Manager considers, among other 
things, the market's overall risk characteristics, the market's current 
pricing of those risks, information on the Fund's competitive universe 
and internal views of potential future market conditions.
    As described in the Prior Total Bond Notice, the Manager may invest 
the Fidelity Total Bond ETF's assets in Debt Securities of foreign 
issuers in addition to securities of domestic issuers.
    While, as described above, the Manager normally invests at least 
80% of assets of Fidelity Limited Term Bond ETF in investment-grade 
Debt Securities (and will normally invest at least 80% of assets of the 
Fidelity Investment Grade Bond ETF in investment-grade Debt 
Securities), and the Manager normally invests at least 80% of assets of 
the Fidelity Total Bond ETF in Debt Securities, the Manager may invest 
up to 20% of a Fund's assets in other securities and financial 
instruments (``Other Investments'', as described in the Prior Total 
Bond Notice).
    As described in the Prior Corporate Bond Notice and Prior Total 
Bond Notice, as part of a Fund's Other Investments, (i.e., up to 20% of 
a Fund's assets), each Fund may invest in restricted securities, which 
are subject to legal restrictions on their sale.\8\
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    \8\ Restricted securities are subject to legal restrictions on 
their sale. Restricted securities generally can be sold in privately 
negotiated transactions, pursuant to an exemption from registration 
under the Securities Act, or in a registered public offering. Rule 
144A securities are securities which, while privately placed, are 
eligible for purchase and resale pursuant to Rule 144A. Rule 144A 
permits certain qualified institutional buyers, such as a Fund, to 
trade in privately placed securities even though such securities are 
not registered under the Securities Act.
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II. Proposed Change
    The Exchange proposes that each Fund may include Rule 144A 
securities within a Fund's principal investments in debt securities 
(i.e., debt securities in which at least 80% of a Fund's assets are 
invested). As discussed below, the Exchange believes it is appropriate 
for Rule 144A securities to be included as principal investments of a 
Fund in view of (1) the high level of liquidity in the market for such 
securities compared to other debt securities asset classes, and (2) the 
high level of transparency in the market for Rule 144A securities, 
particularly in light of reporting of transaction data in such 
securities through the Trade Reporting and Compliance Engine 
(``TRACE'') operated by the Financial Industry Regulatory Authority 
(``FINRA'').
    FMR has represented to the Exchange that Rule 144A securities 
account for approximately 20% of daily trading volume in U.S. corporate 
bonds. Dealers trade and report transactions in Rule 144A securities in 
the same manner as registered corporate bonds. While the average number 
of daily trades and U.S. dollar volume in registered corporate bonds is 
much higher than in Rule 144A securities, the average lot size is 
higher for Rule 144A securities.\9\ Specifically, the average lot size 
for 144A securities for the period January 1, 2015 through August 31, 
2015 was approximately $2.2 million, compared to an average lot size 
for the same period of approximately $500,000 for registered corporate 
bonds.
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    \9\ Source: MarketAxess Trace Data. For example, for the period 
January 1, 2015 through August 31, 2015, for registered bonds and 
Rule 144A securities with $1 billion to $1.999 billion the average 
daily dollar volume outstanding was approximately $6.8 billion and 
$1.7 billion, respectively, and the average lot size was $666,647 
and $2,398,292, respectively.
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    In addition, in 2013, the Commission approved FINRA rules relating 
to dissemination of information regarding transactions in Rule 144A 
securities in TRACE.\10\ In approving FINRA's

[[Page 34391]]

proposed rule change to amend its rules regarding dissemination of Rule 
144A transactions, the Commission stated:
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    \10\ See Securities Exchange Act Release Nos. 70009 (July 19, 
2013), 78 FR 44997 (July 25, 2103) (SR-FINRA-2013-029) (notice of 
filing of a proposed rule change relating to the dissemination of 
transactions in TRACE-Eligible securities effected pursuant to Rule 
144A); 70345 (September 6, 2013), 78 FR 56251 (September 12, 2013) 
(SR-FINRA-2013-029) (order approving proposed rule change relating 
to the dissemination of transactions in TRACE-Eligible securities 
effected pursuant to Rule 144A). In the proposed rule change, FINRA 
proposed to amend FINRA Rule 6750 to provide for the dissemination 
of Rule 144A transactions, provided the asset type (e.g., corporate 
bonds) currently is subject to dissemination under FINRA Rule 6750; 
to amend the dissemination protocols to extend the dissemination 
caps currently applicable to the non-Rule 144A transactions in such 
asset type (e.g., non-Rule 144A corporate bond transactions) to Rule 
144A transactions in such securities; to amend FINRA Rule 7730 to 
establish a data set for real-time Rule 144A transaction data and a 
second data set for historic Rule 144A transaction data, to amend 
the definition of ``Historic TRACE Data'' to reference the three 
data sets currently included therein and the proposed fourth data 
set; and to make other clarifying and technical amendments. FINRA 
Rule 6730(a) requires any transaction in a TRACE-Eligible security 
to be reported to TRACE as soon as practicable but no later than 
within 15 minutes of the transaction, subject to specified 
exceptions. FINRA Rule 6730(c) requires the trade report to contain 
information on size, price, time of execution, amount of commission, 
the date of settlement and other information.

    Real-time dissemination of last-sale information could aid 
dealers in deriving better quotations, because they would know the 
prices at which other market participants had recently transacted in 
the same or similar instruments. This information could aid all 
market participants in evaluating current quotations, because they 
could inquire why dealer quotations might differ from the prices of 
recently executed transactions. Furthermore, post-trade transparency 
affords market participants a means of testing whether dealer 
quotations before the last sale were close to the price at which the 
last sale was executed. In this manner, post-trade transparency can 
promote price competition between dealers and more efficient price 
discovery and ultimately lower transaction costs in the market for 
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Rule 144A securities.

    Transactions executed by FINRA members became subject to 
dissemination through FINRA's TRACE on June 30, 2014, thus providing a 
level of transparency to the Rule 144A market comparable to that of 
registered bonds.\11\
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    \11\ In its June 30, 2014 press release ``FINRA Brings 144A 
Corporate Debt Transactions Into the Light'', FINRA stated: 144A 
transactions--resales of restricted corporate debt securities to 
large institutions called qualified institutional buyers (QIBs)--
account for a significant portion of the volume in corporate debt 
securities. In the first quarter of 2014, 144A transactions 
comprised nearly 13 percent of the average daily volume in 
investment-grade corporate debt, and nearly 30 percent of the 
average daily volume in high-yield corporate debt. 144A transactions 
comprised nearly 20 percent of the average daily volume in the 
corporate debt market as a whole. Through the Trade Reporting and 
Compliance Engine (TRACE), FINRA will disseminate 144A transactions 
subject to the same dissemination caps that are currently in effect 
for non-144A transactions. The same dissemination cap for 
investment-grade corporate bonds ($5 million) applies to both 144A 
and non-144A corporate bond transactions, and the $1 million 
dissemination cap for high-yield corporate bonds similarly applies 
to both 144A and non-144A transactions. 144A transactions are also 
subject to the same 15-minute reporting requirement as non-144A 
corporate debt transactions. See also, FINRA Regulatory Notice 13-35 
October 2013.
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    The Exchange notes that, while the proposed rule change would 
categorize Rule 144A securities within a Fund's principal investments 
in debt securities, any investments in Rule 144A securities, of course, 
would be required to comply with restrictions under the 1940 Act and 
rules thereunder relating to investment in illiquid assets.\12\ As 
stated in the Prior Corporate Bond Notice and Prior Total Bond Notice, 
each Fund may hold up to an aggregate amount of 15% of its net assets 
in illiquid assets (calculated at the time of investment), including 
Rule 144A securities deemed illiquid by the Manager or Sub-Advisers. 
Each Fund monitors its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of a Fund's 
net assets are held in illiquid assets. Illiquid assets include assets 
subject to contractual or other restrictions on resale and other 
instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.\13\
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    \12\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (``Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act.
    \13\ In its recent rulemaking proposal relating to open-end fund 
liquidity risk management programs, the Commission noted that 
``[s]ecurities offered pursuant to rule 144A under the Securities 
Act may be considered liquid depending on certain factors''. The 
Commission, citing to the ``Statement Regarding `Restricted 
Securities''' (see note 11, above), noted: ``The Commission stated 
[in the ``Statement Regarding `Restricted Securities'''] that 
`determination of the liquidity of Rule 144A securities in the 
portfolio of an investment company issuing redeemable securities is 
a question of fact for the board of directors to determine, based 
upon the trading markets for the specific security' and noted that 
the board should consider the unregistered nature of a rule 144A 
security as one of the factors it evaluates in determining its 
liquidity.'' See Release Nos. 33-9922; IC-31835; File Nos. S7-16-15; 
S7-08-15 (September 22, 2015); note 94.
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    Moreover, as stated in the Prior Corporate Bond Notice and Prior 
Total Bond Notice, each Fund does not currently intend to purchase any 
asset if, as a result, more than 10% of its net assets would be 
invested in assets that are deemed to be illiquid because they are 
subject to legal or contractual restrictions on resale or because they 
cannot be sold or disposed of in the ordinary course of business at 
approximately the prices at which they are valued. For purposes of a 
Fund's illiquid assets limitation discussed above, if through a change 
in values, net assets, or other circumstances, a Fund were in a 
position where more than 10% of its net assets were invested in 
illiquid assets, it would consider appropriate steps to protect 
liquidity.
    The Prior Corporate Bond Notice and Prior Total Bond Notice stated 
that various factors may be considered in determining the liquidity of 
a Fund's investments, including: (1) The frequency of trades and quotes 
for the asset; (2) the number of dealers wishing to purchase or sell 
the asset and the number of other potential purchasers; (3) dealer 
undertakings to make a market in the asset; and (4) the nature of the 
asset and the nature of the marketplace in which it trades (including 
any demand, put or tender features, the mechanics and other 
requirements for transfer, any letters of credit or other credit 
enhancement features, any ratings, the number of holders, the method of 
soliciting offers, the time required to dispose of the security, and 
the ability to assign or offset the rights and obligations of the 
asset).
    The Exchange believes that the size of the Rule 144A market 
(approximately 20% of daily trading volume in U.S. corporate bonds), 
the active participation of multiple dealers utilizing trading 
protocols that are similar to those in the corporate bond market, and 
the transparency of the 144A market resulting from reporting of Rule 
144A transactions in TRACE will deter manipulation in trading the 
Shares.
    Except for the change described above, all other representations 
made in the Prior Corporate Bond Releases and the Prior Total Bond 
Releases remain unchanged.\14\ The Funds will continue to comply with 
all initial and continued listing requirements under NYSE Arca Equities 
Rule 8.600.
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    \14\ See note 4, supra. All terms referenced but not defined 
herein are defined in the Prior Corporate Bond Notice and Prior 
Total Bond Notice.
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    The Exchange represents that the trading in the Shares will be 
subject to the existing trading surveillances, administered by the 
Exchange or FINRA, on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and applicable federal securities 
laws.\15\ 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

[[Page 34392]]

securities laws applicable to trading on the Exchange. The Exchange or 
FINRA, on behalf of the Exchange, communicate as needed regarding 
trading in the Shares and exchange-listed equity securities (including 
ADRs) with other markets and other entities that are members of the 
ISG, and FINRA, on behalf of the Exchange, may obtain trading 
information regarding trading in the Shares and exchange-listed equity 
securities (including ADRs) from such markets and other entities. The 
Exchange may obtain information regarding trading in the Shares and 
exchange-listed equity securities (including ADRs) from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement.\16\ In 
addition, as stated in the Prior Corporate Bond Releases and the Prior 
Total Bond Releases, investors have ready access to information 
regarding the Funds' holdings, the Portfolio Indicative Value, the 
Disclosed Portfolio, and quotation and last sale information for the 
Shares
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    \15\ 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.
    \16\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all of the components 
of the portfolio for a Fund may trade on exchanges that are members 
of the ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5)\17\ 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.
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    \17\ 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 will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange believes it is appropriate for Rule 144A securities 
to be included as principal investments of a Fund in view of (1) the 
high level of liquidity in the market for such securities compared to 
other debt securities asset classes, and (2) the high level of 
transparency in the market for Rule 144A securities, particularly in 
light of reporting of transaction data in such securities through 
TRACE. 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. FINRA, 
on behalf of the Exchange, is able to access, as needed, trade 
information for certain fixed income securities held by the Funds 
reported to TRACE. The Manager and the Sub-Advisers are not broker-
dealers but are affiliated with one or more broker-dealers and have 
each implemented a fire wall with respect to such broker-dealers 
regarding access to information concerning the composition and/or 
changes to the portfolios, and will be subject to procedures designed 
to prevent the use and dissemination of material non-public information 
regarding the portfolios. Each Fund may hold up to an aggregate amount 
of 15% of its net assets in illiquid assets (calculated at the time of 
investment), including Rule 144A securities deemed illiquid by the 
Manager or Sub-Advisers.
    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 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. FINRA, 
on behalf of the Exchange, is able to access, as needed, trade 
information for certain fixed income securities held by the Funds 
reported to TRACE. 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 Funds and the 
Shares, thereby promoting market transparency. Transaction information 
relating to Rule 144A securities will be available via TRACE. Moreover, 
the Portfolio Indicative Value with respect to Shares of each Fund will 
be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Core Trading Session. On 
each business day, before commencement of trading in Shares in the Core 
Trading Session on the Exchange, each Fund will disclose on the Trust's 
Web site the Disclosed Portfolio that will form the basis for a Fund's 
calculation of NAV at the end of the business day. The Trust's Web site 
will include a form of the prospectus for the Funds and additional data 
relating to NAV and other applicable quantitative information. Trading 
in Shares of a Fund will be halted if the circuit breaker parameters in 
NYSE Arca Equities Rule 7.12 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 Equities Rule 8.600(d)(2)(D), which sets forth 
circumstances under which Shares of a Fund may be halted. In addition, 
as noted above, investors will have ready access to information 
regarding each Fund's holdings, the Portfolio Indicative Value, the 
Disclosed Portfolio, 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. The Exchange believes that the size of the Rule 144A 
market (approximately 20% of daily trading volume in U.S. corporate 
bonds), the active participation of multiple dealers utilizing trading 
protocols that are similar to those in the corporate bond market, and 
the transparency of the Rule 144A market resulting from reporting of 
Rule 144A transactions in TRACE will deter manipulation in trading the 
Shares. Any investments in Rule 144A securities would be required to 
comply with restrictions under the 1940 Act and rules thereunder 
relating to investment in illiquid assets. Each Fund does not currently 
intend to purchase any asset if, as a result, more than 10% of its net 
assets would be invested in assets that are deemed to be illiquid 
because they are subject to legal or contractual restrictions on resale 
or because they cannot be sold or disposed of in the ordinary course of 
business at approximately the prices at which they are valued. Various 
factors may be considered in determining the liquidity of a Fund's 
investments, including: (1) The frequency of trades and quotes for the 
asset; (2) the number of dealers wishing to purchase or sell the asset 
and the number of other potential purchasers; (3) dealer undertakings 
to make a market in the asset; and (4) the nature of the asset and the 
nature of the marketplace in which it trades (including any demand, put 
or tender features, the mechanics and other requirements for transfer, 
any letters of credit or other credit enhancement features, any 
ratings, the number of holders, the method of soliciting offers, the 
time required to dispose of the security, and the ability to assign or 
offset the rights and obligations of the asset). The Exchange has in 
place

[[Page 34393]]

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, as noted above, investors 
have ready access to information regarding each Fund's holdings, the 
Portfolio Indicative Value, the Disclosed Portfolio, and quotation and 
last sale information for the Shares.

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 believes the 
proposed rule change is designed to allow the Funds to invest in a 
broader range of debt securities thereby helping the Funds to achieve 
their respective investment objective.

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 within such longer period 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-2016-70 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-2016-70. 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 Web site (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 Web site 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; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-70, and should 
be submitted on or before June 21, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\18\
Robert W. Errett,
Deputy Secretary.
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    \18\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2016-12668 Filed 5-27-16; 8:45 am]
 BILLING CODE 8011-01-P