
[Federal Register Volume 79, Number 60 (Friday, March 28, 2014)]
[Notices]
[Pages 17585-17592]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-06966]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71778; File No. SR-NYSEArca-2014-23)


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change to List and Trade Shares of the iShares 
Interest Rate Hedged Corporate Bond ETF and iShares Interest Rate 
Hedged High Yield Bond ETF Under NYSE Arca Equities Rule 8.600

March 24, 2014.
    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 March 19, 2014, 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, 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 the 
Substance of the Proposed Rule Change

    The Exchange proposes to list and trade the following under NYSE 
Arca Equities Rule 8.600 (``Managed Fund Shares''): iShares Interest 
Rate Hedged Corporate Bond ETF and iShares Interest Rate Hedged High 
Yield Bond ETF. The text of 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
following under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares \4\: iShares Interest Rate 
Hedged Corporate Bond ETF and iShares Interest Rate Hedged High Yield 
Bond ETF (each, a ``Fund'' and collectively, the ``Funds''). The Shares 
of the Funds will be offered by iShares U.S. ETF Trust (the 
``Trust'').\5\. The Trust is registered with the Commission as an open-
end management investment company.\6\ BlackRock Fund Advisors (``BFA'') 
will serve as the investment adviser to the Funds (the ``Adviser''). 
BFA is an indirect wholly-owned subsidiary of BlackRock, Inc. BlackRock 
Investments, LLC (the ``Distributor'') will be the principal 
underwriter and distributor of the Funds' Shares. State Street Bank and 
Trust Company (the

[[Page 17586]]

``Administrator'', ``Custodian'' or ``Transfer Agent'') will serve as 
administrator, custodian and transfer agent for the Funds.
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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) (``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 Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \5\ The Commission has previously approved listing and trading 
on the Exchange of a number of actively managed funds under Rule 
8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8, 
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order 
approving Exchange listing and trading of twelve actively-managed 
funds of the WisdomTree Trust); 60460 (August 7, 2009), 74 FR 41468 
(August 17, 2009) (SR-NYSEArca-2009-55) (order approving listing and 
trading of Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874 
(October 18, 2010) (SR-NYSEArca-2010-79) (order approving listing 
and trading of Cambria Global Tactical ETF).
    \6\ The Trust is registered under the 1940 Act. On August 22, 
2013, the Trust filed with the Commission post-effective amendments 
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) and 
under the 1940 Act relating to the iShares Interest Rate Hedged 
Corporate Bond ETF (the ``Corporate Bond Registration Statement'') 
and the iShares Interest Rate Hedged High Yield Bond ETF (the ``High 
Yield Registration Statement'' and together with the Corporate Bond 
Registration Statement, the ``Registration Statements'') (File Nos. 
333-179904 and 811-22649). The description of the operation of the 
Trust and the Funds herein is based, in part, on the Registration 
Statements. 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. 29571 (File No. 812-13601) 
(``Exemptive Order'').
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    Commentary .06 to Rule 8.600 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 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. 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 nonpublic information regarding 
the open-end fund's portfolio.\7\ Commentary .06 to Rule 8.600 is 
similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 
5.2(j)(3); however, Commentary .06 in connection with the establishment 
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 but is affiliated with multiple 
broker-dealers and has implemented a ``fire wall'' with respect to such 
broker-dealers regarding access to information concerning the 
composition and/or changes to a Fund's portfolio. In the event (a) the 
Adviser or any sub-adviser registers as a broker-dealer or becomes 
newly affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser is a registered broker-dealer, or becomes affiliated with a 
broker-dealer, it will implement a fire wall with respect to its 
relevant personnel or its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to a portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above
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iShares Interest Rate Hedged Corporate Bond ETF
    According to the Corporate Bond Registration Statement, the Fund 
will seek to mitigate the interest rate risk of a portfolio composed of 
U.S. dollar-denominated, investment grade corporate bonds. The Fund 
will seek to achieve its investment objective by investing, under 
normal circumstances,\8\ at least 80% of its net assets in U.S. dollar-
denominated investment-grade bonds, in one or more investment companies 
(exchange-traded and non-exchange-traded funds) that principally invest 
in investment-grade bonds, in U.S. Treasury securities (or cash 
equivalents), and by taking short positions in U.S. Treasury futures 
and other interest rate futures contracts.
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    \8\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the equity markets or the financial markets generally; operational 
issues causing dissemination of inaccurate market information; or 
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    According to the Corporate Bond Registration Statement, the Fund 
initially intends to invest a substantial portion of its assets in the 
iShares iBoxx $ Investment Grade Corporate Bond ETF (the ``Underlying 
Corporate Bond Fund''). The Fund will attempt to mitigate interest rate 
risk primarily through the use of U.S. Treasury futures contracts. The 
Fund may also take short positions in other interest rate futures 
contracts, including but not limited to, Eurodollar and Federal Funds 
futures. The Fund will invest only in futures contracts that are traded 
on an exchange that is a member of the Intermarket Surveillance Group 
(``ISG'') or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    BFA will utilize a model-based proprietary investment process to 
assemble an investment portfolio comprised of (i) long positions in the 
Underlying Corporate Bond Fund, (ii) long positions in U.S. dollar-
denominated investment-grade corporate bonds, (iii) long positions in 
U.S. Treasury securities and (iv) short positions in U.S. Treasury 
futures and other interest rate futures contracts. The short positions 
are expected to have, in the aggregate, approximately equivalent 
duration to the underlying securities in the Underlying Corporate Bond 
Fund and to the investment-grade corporate bonds. By taking these short 
positions, BFA will seek to mitigate the potential impact of rising 
Treasury interest rates on the performance of the Underlying Corporate 
Bond Fund and the investment-grade corporate bonds (conversely also 
limiting the potential positive impact of falling interest rates). The 
short positions will not be intended to mitigate other factors 
influencing the price of investment-grade bonds, such as credit risk, 
which may have a greater impact than rising or falling interest rates. 
Relative to a long-only investment in the same investment-grade bonds, 
the Fund's investment strategy will be designed to outperform in a 
rising interest rate environment and underperform in a falling interest 
rate environment.
iShares Interest Rate Hedged High Yield Bond ETF
    According to the High Yield Registration Statement, the Fund will 
seek to mitigate the interest rate risk of a portfolio composed of U.S. 
dollar-denominated, high yield corporate bonds. The Fund will seek to 
achieve its investment objective by investing, under normal 
circumstances, at least 80% of its net assets in U.S. dollar-
denominated high yield corporate bonds, in one or more investment 
companies (exchange-traded and non-exchange-traded funds) that 
principally invest in high yield bonds, in U.S. Treasury securities (or 
cash equivalents), and by taking short positions in U.S. Treasury 
futures and other interest rate futures contracts.
    According to the High Yield Registration Statement, the Fund 
initially intends to invest a substantial portion of its assets in the 
iShares iBoxx $ High Yield Corporate Bond ETF (the ``Underlying High 
Yield Bond Fund'' and together with the Underlying Corporate Bond Fund, 
the ``Underlying Funds''). The Fund will attempt to mitigate interest 
rate risk primarily through the use of U.S. Treasury futures contracts. 
The Fund may also take short positions in other interest rate futures 
contracts, including but not limited to, Eurodollar and Federal Funds 
futures. The Fund will invest only in futures contracts that are traded 
on an exchange that is a member of the ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.

[[Page 17587]]

    BFA will utilize a model-based proprietary investment process to 
assemble an investment portfolio comprised of (i) long positions in the 
Underlying High Yield Bond Fund, (ii) long positions in U.S. dollar-
denominated high yield corporate bonds, (iii) long positions in U.S. 
Treasury securities and (iv) short positions in U.S. Treasury futures 
and other interest rate futures contracts. The short positions are 
expected to have, in the aggregate, approximately equivalent duration 
to the underlying securities in the Underlying High Yield Bond Fund and 
to the high yield corporate bonds. By taking these short positions, BFA 
will seek to mitigate the potential impact of rising Treasury interest 
rates on the performance of the Underlying High Yield Bond Fund and the 
high yield corporate bonds (conversely also limiting the potential 
positive impact of falling interest rates). The short positions will 
not be intended to mitigate other factors influencing the price of high 
yield bonds, such as credit risk, which may have a greater impact than 
rising or falling interest rates. Relative to a long-only investment in 
the same high yield bonds, the Fund's investment strategy will be 
designed to outperform in a rising interest rate environment and 
underperform in a falling interest rate environment.
Other Investments
    While each Fund, under normal circumstances, will invest at least 
80% of its net assets in its investments as described above, a Fund may 
directly invest in certain other investments, as described below. The 
Funds may temporarily depart from its normal investment process,\9\, 
provided that the alternative, in the opinion of BFA, is consistent 
with a Fund's investment objective and is in the best interest of a 
Fund. However, BFA will not seek to actively time market movements.
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    \9\ Circumstances under which a Fund may temporarily depart from 
their normal investment process include, but are not limited to, 
extreme volatility or trading halts in the equity markets or the 
financial markets generally; operational issues causing 
dissemination of inaccurate market information; or force majeure 
type events such as systems failure, natural or man-made disaster, 
act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance.
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    A 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 Adviser, consistent with 
Commission guidance.\10\ Each Fund will monitor 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.\11\
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    \10\ In reaching liquidity decisions, the Adviser may consider 
factors including: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; the nature of the 
security and the nature of the marketplace in which it trades (e.g., 
the time needed to dispose of the security, the method of soliciting 
offers and the mechanics of transfer); any legal or contractual 
restrictions on the ability to transfer the security or asset; 
significant developments involving the issuer or counterparty 
specifically (e.g., default, bankruptcy, etc.) or the securities 
markets generally; and settlement practices, registration 
procedures, limitations on currency conversion or repatriation, and 
transfer limitations (for foreign securities or other assets).
    \11\ 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 of 1933).
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    Each Fund may invest in repurchase and reverse repurchase 
agreements. A repurchase agreement is an instrument under which the 
purchaser (i.e., a Fund or an Underlying Fund) acquires the security 
and the seller agrees, at the time of the sale, to repurchase the 
security at a mutually agreed upon time and price, thereby determining 
the yield during the purchaser's holding period. Reverse repurchase 
agreements involve the sale of securities with an agreement to 
repurchase the securities at an agreed-upon price, date and interest 
payment and have the characteristics of borrowing.
    Each Fund may invest in money market instruments on an ongoing 
basis to provide liquidity or for other reasons. Money market 
instruments are generally short-term investments that may include but 
are not limited to: (i) Shares of money market funds (including those 
advised by BFA or otherwise affiliated with BFA); (ii) obligations 
issued or guaranteed by the U.S. government, its agencies or 
instrumentalities (including government-sponsored enterprises); (iii) 
negotiable certificates of deposit (``CDs''), bankers' acceptances, 
fixed-time deposits and other obligations of U.S. and non-U.S. banks 
(including non-U.S. branches) and similar institutions; (iv) commercial 
paper rated, at the date of purchase, ``Prime-1'' by Moody's[supreg] 
Investors Service, Inc., ``F-1'' by Fitch Inc., or ``A-1'' by Standard 
& Poor's[supreg] (``S&P[supreg]''), or if unrated, of comparable 
quality as determined by BFA; (v) non-convertible corporate debt 
securities (e.g., bonds and debentures) with remaining maturities at 
the date of purchase of not more than 397 days and that satisfy the 
rating requirements set forth in Rule 2a-7 under the 1940 Act; and (vi) 
short-term U.S. dollar-denominated obligations of non-U.S. banks 
(including U.S. branches) that, in the opinion of BFA, are of 
comparable quality to obligations of U.S. banks which may be purchased 
by a Fund. Any of these instruments may be purchased on a current or 
forward-settled basis. Time deposits are non-negotiable deposits 
maintained in banking institutions for specified periods of time at 
stated interest rates.
    A Fund may invest in options that are traded on a U.S. or non-U.S. 
exchange and that reference U.S. Treasury securities. To the extent 
that a Fund invests in options, not more than 10% of such investment 
would be in options whose principal trading market is not a member of 
ISG or is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement.
    A Fund or the Underlying Funds may invest in debt securities of 
non-U.S. issuers and may invest in privately-issued debt securities.
    Each Fund will be classified as a ``diversified'' investment 
company under the 1940 Act.\12\
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    \12\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    Each Fund will not purchase the securities of issuers conducting 
their principal business activity in the same industry if, immediately 
after the purchase and as a result thereof, the value of a Fund's 
investments in that industry would equal or exceed 25% of the current 
value of a Fund's total assets, provided that this restriction does not 
limit a Fund's: (i) Investments in securities of other investment 
companies, (ii) investments in securities issued or guaranteed by the 
U.S. government, its agencies or

[[Page 17588]]

instrumentalities, (iii) investments in securities of state, territory, 
possession or municipal governments and their authorities, agencies, 
instrumentalities or political subdivisions; or (iv) investments in 
repurchase agreements collateralized by any such obligations.\13\
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    \13\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    Each Fund intends to qualify for and to elect treatment as a 
separate regulated investment company (``RIC'') under Subchapter M of 
the Internal Revenue Code.\14\
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    \14\ 26 U.S.C. 851 et seq.
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    Each Fund's investments will be consistent with its investment 
objective.
The Shares
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents 
that, for initial and/or continued listing, the Funds will be in 
compliance with Rule 10A-3 \15\ under theAct, as provided by NYSE Arca 
Equities Rule 5.3. A minimum of 100,000 Shares for each Fund will be 
outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares 
that the net asset value (``NAV'') per Share of each Fund will be 
calculated daily and that the NAV and the Disclosed Portfolio as 
defined in NYSE Arca Equities Rule 8.600(c)(2) will be made available 
to all market participants at the same time.
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    \15\ 17 CFR 240.10A-3.
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Creation and Redemption of Shares
    According to the Registration Statements, each Fund will issue and 
redeem Shares on a continuous basis at NAV only in large specified 
numbers of Shares called a ``Creation Unit''.
    The consideration for purchase of Creation Units of each Fund 
generally will consist of the in-kind deposit of a designated portfolio 
of securities (including any portion of such securities for which cash 
may be substituted) (i.e., the Deposit Securities (as defined below)) 
and the Cash Component (as defined below) computed as described below. 
Together, the Deposit Securities and the Cash Component constitute the 
``Fund Deposit,'' which will be applicable (subject to possible 
amendment or correction) to creation requests received in proper form. 
The Fund Deposit represents the minimum initial and subsequent 
investment amount for a Creation Unit of a Fund.
    The Cash Component will 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 market value of the Deposit 
Securities, and serve to compensate for any differences between the NAV 
per Creation Unit and the Deposit Amount.
    BFA will make available through the National Securities Clearing 
Corporation (``NSCC'') on each business day, prior to the opening of 
business on the Exchange, the list of names and the required number or 
par value of each Deposit Security and the amount of the Cash Component 
to be included in the current Fund Deposit (based on information as of 
the end of the previous business day) for the applicable Fund. Such 
Fund Deposit is applicable, subject to any adjustments as described 
below, in order to effect purchases of Creation Units of Shares of a 
Fund until such time as the next-announced Fund Deposit is made 
available.
    The identity and number or par value of the Deposit Securities may 
change pursuant to changes in the composition of a Fund's portfolio and 
as rebalancing adjustments and corporate action events occur from time 
to time. The composition of the Deposit Securities may also change in 
response to adjustments to the weighting or composition of the 
component securities constituting a Fund's portfolio.
    The portfolio of securities required for purchase of a Creation 
Unit may not be identical to the portfolio of securities a Fund will 
deliver upon redemption of Fund Shares. The Deposit Securities and Fund 
Securities (as defined below), as the case may be, in connection with a 
purchase or redemption of a Creation Unit, generally will correspond 
pro rata to the securities held by such Fund.
    Each Fund reserves the right to permit or require the substitution 
of a ``cash in lieu'' amount to be added to the Cash Component to 
replace any Deposit Security that may not be available in sufficient 
quantity for delivery or that may not be eligible for transfer through 
the Depository Trust Company (``DTC'') or through the continuous net 
settlement system of the NSCC. Each Fund also reserves the right to 
permit or require a ``cash in lieu'' amount in certain other 
circumstances, including circumstances in which (i) the delivery of the 
Deposit Security by the authorized participant would be restricted 
under applicable securities laws or (ii) the delivery of the Deposit 
Security to the authorized participant would result in the disposition 
of the Deposit Security by the authorized participant becoming 
restricted under applicable securities laws, or in certain other 
situations. The Adviser represents that, to the extent the Trust 
permits or requires a ``cash in lieu'' amount, such transactions will 
be effected in the same or equitable manner for all authorized 
participants.
    Creation Units may be purchased only by or through a DTC 
participant that has entered into an authorized participant agreement 
(as described in the Registration Statements) with the Distributor. 
Except as noted below, all creation orders must be placed for one or 
more Creation Units and must be received by the Distributor in proper 
form no later than the closing time of the regular trading session of 
the Exchange (normally 4:00 p.m., Eastern time) in each case on the 
date such order is placed in order for creation of Creation Units to be 
effected based on the NAV of Shares of a Fund as next determined on 
such date after receipt of the order in proper form. Orders requesting 
substitution of a ``cash in lieu'' amount generally must be received by 
the Distributor no later than 4:00 p.m., Eastern time. On days when the 
Exchange or other markets close earlier than normal, a Fund may require 
orders to create Creation Units to be placed earlier in the day. A 
standard creation transaction fee will be imposed to offset the 
transfer and other transaction costs associated with the issuance of 
Creation Units.
    Shares of a Fund 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. BFA will make 
available through the NSCC, prior to the opening of business on the 
Exchange on each business day, the designated portfolio of securities 
(including any portion of such securities for which cash may be 
substituted) that will be applicable (subject to possible amendment or 
correction) to redemption requests received in proper form on that day 
(``Fund Securities''). Fund Securities received on redemption may not 
be identical to Deposit Securities that are applicable to creations of 
Creation Units.
    Unless cash redemptions are available or specified for a Fund, the 
redemption proceeds for a Creation Unit generally will consist of a 
specified amount of cash, Fund Securities, plus additional cash in an 
amount equal to the difference between the NAV of the Shares being 
redeemed, as next determined after the receipt of a request in proper 
form, and the value of the specified amount of cash and Fund

[[Page 17589]]

Securities, less a redemption transaction fee. Each Fund currently will 
redeem Shares for Fund Securities, but each Fund reserves the right to 
utilize a ``cash'' option for redemption of Shares.
    A standard redemption transaction fee will be imposed to offset 
transfer and other transaction costs that may be incurred by a Fund.
    Redemption requests for Creation Units of a Fund must be submitted 
to the Distributor by or through an authorized participant no later 
than 4:00 p.m. Eastern time on any business day, in order to receive 
that day's NAV. The authorized participant must transmit the request 
for redemption in the form required by a Fund to the Distributor in 
accordance with procedures set forth in the authorized participant 
agreement.
Determination of Net Asset Value
    According to the Registration Statements, the NAV of each Fund 
normally will be determined once each business day, generally as of the 
regularly scheduled close of business of the New York Stock Exchange 
(``NYSE'') (normally 4:00 p.m., Eastern time) on each day that the NYSE 
is open for trading, based on prices at the time of closing provided 
that (a) any Fund assets or liabilities denominated in currencies other 
than the U.S. dollar are translated into U.S. dollars at the prevailing 
market rates on the date of valuation as quoted by one or more data 
service providers, and (b) U.S. fixed-income assets may be valued as of 
the announced closing time for trading in fixed-income instruments in a 
particular market or exchange. The NAV per Share of each Fund will be 
calculated by dividing the value of the net assets of each Fund (i.e., 
the value of its total assets less total liabilities) by the total 
number of outstanding Shares of a Fund, generally rounded to the 
nearest cent.
    The value of the securities and other assets and liabilities held 
by each Fund will be determined pursuant to valuation policies and 
procedures approved by the Trust's Board of Directors (``Board'').
    Except as described below, each Fund will value fixed-income 
portfolio securities, including money market instruments and U.S. 
government securities, using prices provided directly from one or more 
broker-dealers, market makers, or independent third-party pricing 
services which may use matrix pricing and valuation models, as well as 
recent market transactions for the same or similar assets, to derive 
values. Certain money market instruments with maturities of 60 days or 
less will generally be valued on the basis of amortized cost. 
Repurchase agreements and reverse repurchase agreements are generally 
valued at par.
    Exchange-traded options are generally valued at the mean of the 
last bid and ask prices as quoted on the exchange or the board of trade 
on which such options are traded. Futures contracts, including U.S. 
Treasury futures contracts, will be valued at their last sale price or 
settle price as of the close of such exchange.
    Investments in other investment companies will be valued using 
market valuations. Investment companies that are exchange traded will 
generally be valued using the last reported official closing price or 
last trading price on the exchange or other market on which the fund is 
primarily traded at the time of valuation. Investment companies that 
are not exchange traded will be valued at their net asset value.
    Generally, trading in U.S. Treasury futures, non-U.S. securities, 
U.S. government securities, money market instruments and certain fixed-
income securities is substantially completed each day at various times 
prior to the close of business on the NYSE. The values of such 
securities used in computing the NAV of each Fund are determined as of 
such times.
    When market quotations are not readily available or are believed by 
BFA to be unreliable, each Fund's investments will be valued at fair 
value. Fair value determinations will be made by BFA in accordance with 
policies and procedures approved by the Trust's Board. BFA may conclude 
that a market quotation is not readily available or is unreliable if a 
security or other asset or liability does not have a price source due 
to its lack of liquidity, if a market quotation differs significantly 
from recent price quotations or otherwise no longer appears to reflect 
fair value, where the security or other asset or liability is thinly 
traded, or where there is a significant event subsequent to the most 
recent market quotation. A ``significant event'' is an event that, in 
the judgment of BFA, is likely to cause a material change to the 
closing market price of the asset or liability held by the Fund.
Availability of Information
    The Funds' Web site (www.ishares.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for a Fund that may be downloaded. The Funds' Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Funds, (1) the prior business day's 
reported closing price, NAV and mid-point of the bid/ask spread at the 
time of calculation of such NAV (the ``Bid/Ask Price''),\16\ and a 
calculation of the premium and discount of the Bid/Ask Price against 
the NAV, and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily 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, each 
Fund will disclose on its Web site the Disclosed Portfolio that will 
form the basis for such Fund's calculation of NAV at the end of the 
business day.\17\
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    \16\ The Bid/Ask Price of each Fund 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 a Fund's NAV. The records relating to 
Bid/Ask Prices will be retained by the Funds and their service 
providers.
    \17\ Under accounting procedures followed by the Funds, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Funds 
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 for each portfolio 
security or other financial instrument of each Fund the following 
information on the Funds' Web site: ticker symbol (if applicable), name 
of security or financial instrument, number of shares (if applicable) 
and dollar value of securities and financial instruments held in the 
portfolio, and percentage weighting of the security and financial 
instrument in the portfolio. The Web site information will be publicly 
available at no charge.
    In addition, a basket composition file, which includes the security 
names and share quantities required to be delivered in exchange for 
each Fund's Shares, together with estimates and actual cash components, 
will be publicly disseminated daily prior to the opening of the NYSE 
via NSCC. The basket represents one Creation Unit of a Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), each Fund's Shareholder Reports, and the Trust's 
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and 
Shareholder Reports are available free upon request from the Trust, and 
those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov. 
Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout

[[Page 17590]]

the day on brokers' computer screens and other electronic services. 
Information regarding the previous day's closing price and trading 
volume information for the Shares will be published daily in the 
financial section of newspapers. Quotation and last sale information 
for the Shares of each Fund and the shares of the Underlying Funds and 
any ETFs held by each Fund will be available via the Consolidated Tape 
Association (``CTA'') high-speed line. Quotation and last sale 
information for exchange-listed options contracts will be available via 
the Options Price Reporting Authority. In addition, the Indicative 
Optimized Portfolio Value (``IOPV''),\18\ which is the Portfolio 
Indicative Value as defined in NYSE Arca Equities Rule 8.600 (c)(3), 
will be widely disseminated at least every 15 seconds during the Core 
Trading Session by one or more major market data vendors.\19\ The 
dissemination of the IOPV, together with the Disclosed Portfolio, will 
allow investors to determine the value of the underlying portfolio of 
each Fund on a daily basis and to provide a close estimate of that 
value throughout the trading day. The intra-day, closing and settlement 
prices of exchange-traded portfolio assets, including investment 
companies, money market instruments, futures and options will be 
readily available from the securities exchanges and futures exchanges 
trading such securities and futures, as the case may be, automated 
quotation systems, published or other public sources, or on-line 
information services such as Bloomberg or Reuters. Such price 
information on fixed income portfolio securities, including money 
market instruments, and other Fund assets traded in over-the-counter 
markets including bonds and money market instruments is available from 
major broker-dealer firms or market data vendors, as well as from 
automated quotation systems, published or other public sources, or 
online information services.
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    \18\ According to the Registration Statements, the IOPV 
calculations will be estimates of the value of each Fund's NAV per 
Share using market data converted into U.S. dollars at the current 
currency rates. The IOPV price will be based on quotes and closing 
prices from the securities' local market and may not reflect events 
that occur subsequent to the local market's close. Premiums and 
discounts between the IOPV and the market price may occur. This 
should not be viewed as a ``real-time'' update of the NAV per Share 
of the Funds, which will be calculated only once a day. The 
quotations of certain Fund holdings may not be updated during U.S. 
trading hours if such holdings do not trade in the United States.
    \19\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IOPVs 
taken from CTA or other data feeds.
---------------------------------------------------------------------------

    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, distributions 
and taxes is included in the Registration Statements. All terms 
relating to the Funds that are referred to, but not defined in, this 
proposed rule change are defined in the Registration Statements.
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 Funds.\20\ Trading in Shares of a Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 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 a 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 Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of a Fund may be 
halted.
---------------------------------------------------------------------------

    \20\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

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. Eastern time in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, 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.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing surveillance procedures administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\21\ 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 applicable federal securities laws.
---------------------------------------------------------------------------

    \21\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. 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.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares of the Funds, as well as underlying 
equity securities, futures and options contracts 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 of the Funds as well as underlying equity securities and futures 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares of the Funds from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.\22\ The Exchange may obtain information regarding trading in 
the Shares of the Funds as well as underlying equity securities, 
futures and exchange-traded options contracts from ISG member markets 
or markets 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 
fixed income instruments reported to FINRA's Trade Reporting and 
Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \22\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for a Fund may trade on markets that are members 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.

[[Page 17591]]

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. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit aggregations (and that Shares are not individually 
redeemable); (2) NYSE Arca Equities Rule 9.2(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 Opening and Late Trading 
Sessions when an updated IOPV will not be calculated or publicly 
disseminated; (4) how information regarding the IOPV 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 each Fund is subject 
to various fees and expenses described in the Registration Statements. 
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 will be 
calculated after 4:00 p.m. Eastern time each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \23\ 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 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 
applicable federal securities laws. The Adviser has implemented a 
``fire wall'' with respect to its affiliated broker-dealers regarding 
access to information concerning the composition and/or changes to a 
Fund's portfolios. FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares of the Funds, as well as 
underlying equity securities, futures and options contracts 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 of the Funds as well as underlying equity 
securities and futures from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares of the Funds from markets and other entities that are members of 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. The Exchange may obtain information 
regarding trading in the Shares of the Funds as well as underlying 
equity securities, futures and options contracts from ISG member 
markets or markets with which the Exchange has in place a comprehensive 
surveillance sharing agreement. A 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 Adviser. With respect to its exchange-listed equity securities 
investments, a Fund will invest only in equity securities that trade in 
markets that are members of the ISG or are parties to a comprehensive 
surveillance sharing agreement with the Exchange. To the extent that a 
Fund invests in options, not more than 10% of such investment would be 
in options whose principal trading market is not a member of ISG or is 
a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement.
    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 of each Fund will be calculated daily and 
that the NAV and the Disclosed Portfolio for each Fund 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. Moreover, the 
IOPV 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, the Funds will disclose on 
their Web site the Disclosed Portfolio that will form the basis for a 
Fund's calculation of NAV at the end of the business day. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last sale information will be available via the CTA high-speed 
line. The Web site for the Funds will include a form of the prospectus 
for the Funds and additional data relating to NAV and other applicable 
quantitative information. Moreover, prior to the commencement of 
trading, the Exchange will inform its ETP Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares. 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 a Fund's holdings, the IOPV, 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 in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
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 from such markets and other entities. 
In addition, the Exchange may obtain information regarding trading in 
the Shares 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, as noted above, investors will have 
ready access to information regarding a Fund's holdings, the IOPV, the 
Disclosed

[[Page 17592]]

Portfolio, and quotation and last sale information for the Shares. The 
proposed rule change would benefit investors by providing them with 
additional choice of transparent and tradable products.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of other 
actively-managed exchange-traded products that hold equity securities 
and 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 within such longer period (i) as the Commission may 
designate up to 90 days of such date 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-2014-23 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-2014-23. 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 such 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-2014-23, and should 
be submitted on or before April 18, 2014.

For the Commission, by the Division of Trading and Markets, pursuant 
to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06966 Filed 3-27-14; 8:45 am]
BILLING CODE 8011-01-P


