Document ID: SEC-2022-1604-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2022-12-14T05:00Z

[Federal Register Volume 87, Number 239 (Wednesday, December 14, 2022)]
[Notices]
[Pages 76524-76526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-27054]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-96469; File No. SR-NYSEARCA-2022-61]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change To List and Trade the Shares of the Breakwave Tanker 
Shipping ETF

December 8, 2022.
    On September 13, 2022, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade the shares (``Shares'') of the 
Breakwave Tanker Shipping ETF (``Fund''). The proposed rule change was 
published for comment in the Federal Register on September 27, 2022.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 95853 (Sept. 21, 
2022), 87 FR 58552 (``Notice'').
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    On November 2, 2022, pursuant to Section 19(b)(2) of the Act,\4\ 
the Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ This order institutes proceedings under Section 19(b)(2)(B) 
of the Act \6\ to determine whether to approve or disapprove the 
proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 96213, 87 FR 67513 
(Nov. 8, 2022). The Commission designated December 26, 2022, as the 
date by which it should approve, disapprove, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Summary of the Exchange's Proposal

    As described in more detail in the Notice,\7\ the Exchange proposes 
to list and trade the Shares of the Fund under NYSE Arca Rule 8.200-E, 
Commentary .02, which governs the listing and trading of Trust Issued 
Receipts on the Exchange. The Fund will be a series of ETF Managers 
Group Commodity Trust I (``Trust),\8\ and the Fund and the Trust will 
be managed and controlled by their sponsor and investment manager, ETF 
Managers Capital LLC (``Sponsor'').\9\
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    \7\ See Notice, supra note 3.
    \8\ The Exchange states that, on July 1, 2022, the Trust 
submitted to the Commission on a confidential basis its draft 
registration statement on Form S-1 (``Registration Statement'') 
under the Securities Act of 1933. See Notice, 87 FR at 58552 n.5.
    \9\ The Sponsor is registered with the Commodity Futures Trading 
Commission (``CFTC'') as a commodity pool operator and is a member 
of the National Futures Association. Breakwave Advisors LLC 
(``Breakwave'') is registered as a commodity trading advisor with 
the CFTC and will serve as the Fund's commodity trading advisor. 
ETFMG Financial LLC will be the Fund's distributor, and US Bancorp 
Fund Services LLC will be the Fund's administrator and transfer 
agent (``Administrator'' and ``Transfer Agent''). See id. at 58552-
53.
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    According to the Exchange, the Fund's investment objective will be 
to provide investors with exposure to the daily change in the price of 
tanker freight futures, before expenses and liabilities of the Fund, by 
tracking the performance of a portfolio (``Benchmark Portfolio'') 
consisting of the nearest calendar quarter of futures contracts on 
specified indexes (individually, ``Reference Index'') that measure 
prices for shipping crude oil (``Freight Futures'').\10\ Each Reference 
Index is published each U.K. business day by the London-based Baltic 
Exchange \11\ and measures the charter rate for shipping crude oil in a 
specific size category of cargo ship and for a specific route. The two 
Reference Indexes are: (1) the TD3C Index: Persian Gulf to China 
270,000mt cargo (Very Large Crude Carrier or VLCC tankers); and (2) the 
TD20 Index: West Africa to Europe, 130,000mt cargo (Suezmax 
tankers).\12\ The value of each of the TD3C Index and TD20 Index is 
disseminated daily at 4:00 p.m., London Time by the Baltic Exchange. 
Such Reference Index information also is widely disseminated by 
Reuters, Bloomberg, and/or other major market data vendors.\13\
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    \10\ See id. at 58553. According to the Exchange, Freight 
Futures are primarily traded through broker members of the Forward 
Freight Agreement Brokers Association (``FFABA''). Members of the 
FFABA must be members of the Baltic Exchange and must be regulated 
by the Financial Conduct Authority if resident in the U.K., or if 
not resident in the U.K., by an equivalent body if required by the 
authorities in the jurisdiction. See id. at 58555 n.10. Freight 
Futures are quoted in U.S. dollars per metric ton, with a minimum 
lot size of 1,000 metric tons. One lot represents freight costs to 
transport in U.S. dollars. The nominal value of a contract is simply 
the product of lots and Freight Futures prices. See id. at 58555.
    \11\ The Baltic Exchange, which is a wholly-owned subsidiary of 
the Singapore Exchange, is a membership organization and an 
independent source of maritime market information for the trading 
and settlement of physical and derivative shipping contracts. See 
id. at 58553 n.6.
    \12\ See id. at 58553. The Reference Indexes are published by 
the Baltic Exchange's subsidiary company, Baltic Exchange 
Information Services Ltd (``Baltic''), which publishes a wide range 
of market reports, fixture lists and market rate indicators on a 
daily and (in some cases) weekly basis. The Baltic indices, which 
include the Reference Indexes, are an assessment of the price of 
moving the major raw materials by sea. The indices are based on 
assessments of the cost of transporting various bulk cargoes, both 
wet (e.g., crude oil and oil products) and dry (e.g., coal and iron 
ore), made by leading shipbroking houses located around the world on 
a per ton and daily hire basis. The information is collated and 
published by the Baltic Exchange. Procedures relating to 
administration of the Baltic indices are set forth in ``The Baltic 
Exchange, Guide to Market Benchmarks'' November 2016, including 
production methods, calculation, confidentiality and transparency, 
duties of panelists, code of conduct, audits, and quality control. 
See id. at 58553 n.7.
    \13\ See id. at 58553.
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    The Fund will seek to achieve its objective by purchasing Freight 
Futures.\14\ Freight Futures reflect market expectations for the future 
cost of transporting crude oil. The Fund also may hold exchange-traded 
options on Freight Futures. The principal markets for Freight Futures 
are ICE Futures Europe (``ICE'') and the Chicago Mercantile Exchange 
(``CME''). The applicable exchange acts as a counterparty for each 
member for clearing purposes. The Fund's investments in Freight Futures 
will be cleared by ICE and/or CME.\15\ According

[[Page 76525]]

to the Exchange, the liquidity of tanker Freight Futures (clean and 
dirty) has been increasing, in lot terms, over the last five years. For 
example, in 2021, approximately 560 thousand lots in Freight Futures 
traded. As of 2022, open interest in Freight Futures stood at 
approximately 145,000 lots across all asset classes representing an 
estimated value of more than $2 billion. Major market participants in 
the tanker Freight Futures market include commodity producers, 
commodity users, commodity trading houses, ship operators, major banks, 
investment funds, and independent ship owners.\16\
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    \14\ Generally, Freight Futures trade from approximately 3:00 
a.m. Eastern Time (``E.T.'') to approximately 1:00 p.m. E.T. The 
great majority of trading volume occurs during London business 
hours, from approximately 4:00 a.m. E.T. time to approximately 12:00 
p.m. E.T. Some limited trading takes place during Asian business 
hours as well (12:00 a.m. to 3:00 a.m. E.T.). The final closing 
prices for settlement are published daily around 12:30 p.m. E.T. 
Final cash settlement occurs the first business day following the 
expiry day. See id. at 58555.
    \15\ See id. CME and ICE are members of the Intermarket 
Surveillance Group (``ISG''). See id. at 58553 n.8.
    \16\ See id. at 58556.
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    The Fund's portfolio will be traded with a view to reflecting the 
performance of the Benchmark Portfolio, whether the Benchmark Portfolio 
is rising, falling, or flat over any particular period.\17\ The 
Benchmark Portfolio, which is maintained by Breakwave and will be 
rebalanced annually, will hold long positions in Freight Futures 
corresponding to the TD3C Index and TD20 Index.\18\ The Benchmark 
Portfolio's initial allocation will be approximately 90% TD3C contracts 
and 10% TD20 contracts, based on contract value, not number of 
lots.\19\ Given each asset's individual price movements during the 
year, such percentages might deviate from the targeted allocation. The 
Benchmark Portfolio will consist of positions in the three-month strip 
of the nearest calendar quarter of Freight Futures and roll them 
constantly to the next calendar quarter. The four-calendar quarters are 
January, February, and March (Q1), April, May, and June (Q2), July, 
August, and September (Q3), and October, November, and December 
(Q4).\20\ The Benchmark Portfolio will hold all positions to maturity 
and settle them in cash. During any given calendar quarter, the 
Benchmark Portfolio will progressively increase its position to the 
next calendar quarter three-month strip, thus maintaining constant long 
exposure to the Freight Futures market as positions mature. The Fund 
maintains the right to invest in other maturities of Freight Futures if 
such strategy is deemed necessary. According to the Exchange, the 
Benchmark Portfolio will not include, and the Fund will not invest in 
swaps, non-cleared freight forwards, or other over-the-counter 
derivative instruments that are not cleared through exchanges or 
clearing houses.\21\
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    \17\ See id. at 58553.
    \18\ See id. at 58554.
    \19\ See id.
    \20\ See id.
    \21\ See id.
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    To track the Benchmark Portfolio, the Fund will attempt to roll 
positions in the nearby calendar quarter, on a pro rata basis.\22\ For 
example, if the Fund was currently holding the Q1 calendar quarter 
comprising the January, February and March monthly contracts, each week 
in the month of February, the Fund will attempt to purchase Q2 
contracts in an amount equal to approximately one quarter of the 
expiring February positions. As a result, by the end of February, the 
Fund would have rolled the February position to Q2 freight contracts, 
leaving the Fund with March and Q2 contracts. At the end of March, the 
Fund will have completed the roll and will then hold only Q2 exposure 
comprising April, May, and June monthly contracts. Since Freight 
Futures contracts are cash settled, the Fund need not close out of 
existing contracts. Rather, it will hold such contracts to expiration 
and apply the above methodology in order acquire the nearby calendar 
contract.\23\
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    \22\ See id.
    \23\ See id.
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    To maintain the correlation between the Fund and the change in the 
Benchmark Portfolio, the Sponsor may adjust the Fund's portfolio of 
investments on a daily basis in response to creation and redemption 
orders or otherwise as required. The Sponsor anticipates that the 
Fund's Freight Futures positions will be held to expiration and settle 
in cash against the respective Reference Index as published by the 
Baltic Exchange and ICE or CME.\24\
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    \24\ See id. at 58553.
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    When establishing positions in Freight Futures, the Fund will be 
required to deposit initial margin with a value of approximately 10% to 
40% of the notional value of each Freight Futures position at the time 
it is established.\25\ These margin requirements are established and 
subject to change from time to time by the relevant exchanges, clearing 
houses, or the Fund's futures commission merchant (``FCM''). On a daily 
basis, the Fund will be obligated to pay, or entitled to receive, 
variation margin in an amount equal to the change in the daily 
settlement level of its overall futures positions. Any assets not 
required to be posted as margin with the FCM will be held at the Fund's 
custodian in cash or cash equivalents.\26\ The Fund will place purchase 
orders for Freight Futures with an execution broker. The broker will 
identify a selling counterparty and, simultaneously with the completion 
of the transaction, will submit the block traded Freight Futures to the 
relevant exchange or clearing house for clearing, thereby completing 
and creating a cleared futures transaction. If the exchange or clearing 
house does not accept the transaction for any reason, the transaction 
will be considered null and void and of no legal effect.\27\
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    \25\ See id.
    \26\ The Fund will hold cash or cash equivalents, such as U.S. 
Treasuries or other high credit quality, short-term fixed-income or 
similar securities for direct investment or as collateral for the 
U.S. Treasuries and for other liquidity purposes, and to meet 
redemptions that may be necessary on an ongoing basis. See id. at 
58553 n.9.
    \27\ See id. at 58553.
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    The Exchange represents that not more than 10% of the net assets of 
the Fund in the aggregate invested in Freight Futures and exchange-
traded options on Freight Futures will consist of Freight Futures and 
exchange-traded options on Freight Futures whose principal market is 
not a member of the ISG or is a market with which the Exchange does not 
have in place a comprehensive surveillance sharing agreement.\28\
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    \28\ See id. at 58553-54.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEARCA-2022-61 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \29\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of proceedings is 
appropriate at this time in view of the legal and policy issues raised 
by the proposed rule change, as discussed below. Institution of 
proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comments on the proposed rule change.
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    \29\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\30\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices'' and

[[Page 76526]]

``to protect investors and the public interest.'' \31\
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    \30\ Id.
    \31\ 15 U.S.C. 78f(b)(5).
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    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice,\32\ in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Commission 
seeks comment on the following questions and asks commenters to submit 
data where appropriate to support their views:
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    \32\ See Notice, supra note 3.
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     The Exchange asserts that the proposed rule change is 
designed to prevent fraudulent and manipulative acts and practices 
because the Shares will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in NYSE Arca Rule 8.200-
E.\33\ What are commenters' views on whether the proposed Fund and 
Shares would be susceptible to manipulation? What are commenters' views 
generally on whether the Exchange's proposal is designed to prevent 
fraudulent and manipulative acts and practices?
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    \33\ See Notice, 87 FR at 58558.
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     According to the Exchange, the liquidity of tanker Freight 
Futures (clean and dirty) has been increasing, in lot terms, over the 
last five years.\34\ What are commenters' views on the Exchange's 
assertions regarding the increase in liquidity of Freight Futures and 
the data supporting such assertions?
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    \34\ See id. at 58556.
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III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, and 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\35\
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    \35\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by January 4, 2023. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
January 18, 2023.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEARCA-2022-61 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-2022-61. 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-2022-61 and should be submitted 
by January 4, 2023. Rebuttal comments should be submitted by January 
18, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2022-27054 Filed 12-13-22; 8:45 am]
BILLING CODE 8011-01-P