
[Federal Register Volume 79, Number 110 (Monday, June 9, 2014)]
[Notices]
[Pages 33018-33024]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-13311]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72299; File No. SR-NYSEArca-2014-44]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading Shares of First 
Trust Long/Short Equity ETF Under NYSE Arca Equities Rule 8.600

June 3, 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 May 21, 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 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78s(b)(1).
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following 
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): First 
Trust Long/Short Equity 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 
First Trust Long/Short Equity ETF (the ``Fund'') under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares \4\ on the Exchange. The Fund will be a series of First 
Trust Exchange-Traded Fund III

[[Page 33019]]

(the ``Trust''),\5\ a registered management investment company.\6\
---------------------------------------------------------------------------

    \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), as amended (``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 Trust is registered under the 1940 Act. On April 1, 
2014, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A relating to the Fund (File Nos. 
333-176976 and 811-22245) (the ``Registration Statement''). The 
description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
28468 (October 27, 2008) (File No. 812-13477) (the ``Exemptive 
Order'').
    \6\ The Commission has previously approved the listing and 
trading on the Exchange of other actively-managed funds under Rule 
8.600. See, e.g., Securities Exchange Act Release Nos. 60717 
(September 24, 2009), 74 FR 50853 (October 1, 2009) (SR-NYSEArca-
2009-74) (order approving listing of four actively-managed exchange-
traded funds of the Grail Advisors ETF Trust) and 67320 (June 29, 
2012), 77 FR 39763 (July 5, 2012) (SR-NYSEArca-2012-44) (order 
approving listing of the iShares Strategic Beta U.S. Large Cap Fund 
and iShares Strategic Beta U.S. Small Cap Fund).
---------------------------------------------------------------------------

    The Fund will be an actively-managed exchange-traded fund and will 
not seek to replicate the performance of a specified index.
    First Trust Advisors L.P. (the ``Adviser'') will be the investment 
adviser for the Fund.\7\ Brown Brothers Harriman & Co. (``BBH'') will 
be the administrator, accounting agent, custodian and transfer agent 
for the Fund. First Trust Portfolios L.P. (``Distributor'') will be the 
principal underwriter and distributor for the Fund.
---------------------------------------------------------------------------

    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). The Adviser is registered as an investment adviser under 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, the Adviser and its related personnel are subject to 
the provisions of Rule 206(4)-7 under the Advisers Act, which 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.
---------------------------------------------------------------------------

    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. In addition, Commentary 
.06 further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the open-end fund's portfolio. 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, although it is 
affiliated with the Distributor, a broker dealer. The Adviser has 
implemented a ``fire wall'' with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio. In the event (a) the Adviser or any 
sub-adviser becomes, or becomes newly affiliated with, a broker-dealer, 
or (b) any new adviser or sub-adviser is, 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 the Fund's 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio.
First Trust Long/Short Equity ETF
Principal Investments
    According to the Registration Statement, the Fund will seek to 
provide investors with long-term total return.
    The Fund intends to pursue its investment objective by establishing 
long and short positions in a portfolio of Equity Securities (as 
defined below). Under normal market conditions,\8\ at least 80% of the 
Fund's net assets will be exposed to U.S. exchange-listed equity 
securities of U.S. and foreign companies by investing both in such 
securities directly and in U.S. exchange-traded funds (``ETFs'') \9\ 
that provide exposure to such securities. The securities of the 
companies and ETFs in which the Fund will invest are referred to 
collectively as ``Equity Securities.'' The Equity Securities held by 
the Fund may include U.S. exchange-listed equity securities of foreign 
issuers as well as investments in the equity securities of foreign 
issuers that are in the form of U.S. exchange-listed American 
Depositary Receipts (``ADRs'') or U.S. exchange-listed Global 
Depositary Receipts (``GDRs,'' and together with ADRs, ``Depositary 
Receipts'') as well as unsponsored ADRs.\10\ The Equity Securities in 
which the Fund may invest (with the exception of unsponsored ADRs) will 
be listed on a U.S. national securities exchange, all of which are 
members of the Intermarket Surveillance Group (``ISG'').
---------------------------------------------------------------------------

    \8\ The term ``under normal market conditions'' or ``under 
normal circumstances'' includes, but is not limited to, the absence 
of adverse market, economic, political or other conditions, 
including extreme volatility or trading halts in the equities 
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.
    \9\ For purposes of this filing, ETFs include Investment Company 
Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio 
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); 
and Managed Fund Shares (as described in NYSE Arca Equities Rule 
8.600). The ETFs all will be listed and traded in the U.S. on 
registered exchanges. The ETFs in which the Fund may invest will 
primarily be equity index-based exchange-traded funds that hold 
substantially all of their assets in securities representing a 
specific equity index. While the Fund may invest in inverse ETFs, 
the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) 
ETFs.
    \10\ The Fund will not invest more than 10% of its investments 
in Equity Securities in unsponsored ADRs.
---------------------------------------------------------------------------

    As indicated above, the Fund will take long and short positions in 
Equity Securities. As opposed to taking long positions in which an 
investor seeks to profit from increases in the price of a security, 
short selling (or ``selling short'') is a technique that will be used 
by the Fund to try and profit from the falling price of a security. 
Short selling involves selling a security that has been borrowed from a 
third party with the intention of buying an identical security back at 
a later date to return to that third party.
    The Adviser will select Equity Securities using an investment 
process that analyzes fundamental, market-related, technical and 
statistical attributes of Equity Securities to assess total return 
potential. The Adviser will then use this analysis as the basis to 
establish long and short positions within the Fund's portfolio.
    According to the Registration Statement, having both long and short 
positions in an equity security portfolio is a common way to create 
returns that are independent of market moves. One advantage of a long 
and short portfolio

[[Page 33020]]

is that the long and short positions may offset one another in a manner 
that results in a lower net exposure to the direction of the market.
    In addition, cash balances arising from the use of short selling 
typically will be held in money market instruments.\11\
---------------------------------------------------------------------------

    \11\ According to the Registration Statement, money market 
instruments will generally be short-term cash instruments that have 
a remaining maturity of 397 days or less and exhibit high quality 
credit profiles. These include U.S. Treasury Bills and repurchase 
agreements.
---------------------------------------------------------------------------

Other Investments
    According to the Registration Statement, while the Fund, under 
normal circumstances,\12\ will invest at least 80% of the Fund's net 
assets as described above, the Fund may also invest in its remaining 
assets in other investments as described below.
---------------------------------------------------------------------------

    \12\ See supra note 8.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund may invest a 
portion of its net assets in high-quality money market instruments on 
an ongoing basis. The instruments in which the Fund may invest include: 
(1) Short-term obligations issued by the U.S. government; (2) 
negotiable certificates of deposit (``CDs''), fixed time deposits and 
bankers' acceptances of U.S. and foreign banks and similar 
institutions; (3) commercial paper rated at the date of purchase 
``Prime-1'' by Moody's Investors Service, Inc. or ``A-1+'' or ``A-1'' 
by Standard & Poor's Ratings Group, Inc., a division of The McGraw-Hill 
Companies, Inc., or, if unrated, of comparable quality as determined by 
the Adviser; (4) repurchase agreements (only from or to a commercial 
bank or a broker-dealer, and only if the purchase is scheduled to occur 
within seven (7) days or less); and (5) money market mutual funds. CDs 
are short-term negotiable obligations of commercial banks. Time 
deposits are non-negotiable deposits maintained in banking institutions 
for specified periods of time at stated interest rates. Bankers' 
acceptances are time drafts drawn on commercial banks by borrowers, 
usually in connection with international transactions.
    According to the Registration Statement, the Fund may invest up to 
20% of its net assets in U.S. exchange-listed equity index futures 
contracts. All of such equity index futures contracts will be listed on 
an exchange that is a member of ISG.
    In certain situations or market conditions, the Fund may 
temporarily depart from its normal investment policies and strategies 
provided that the alternative is consistent with its investment 
objective and is in the best interest of the Fund. For example, the 
Fund may hold little or no short positions for extended periods, or the 
Fund may hold a higher than normal proportion of its net assets in cash 
in times of extreme market stress.
Investment Restrictions
    The Fund will seek to qualify for treatment as a regulated 
investment company (``RIC'') under Subchapter M of the Internal Revenue 
Code of 1986, as amended.\13\
---------------------------------------------------------------------------

    \13\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    As part of its non-principal strategy, the Fund may hold up to an 
aggregate amount of 15% of its net assets in illiquid assets 
(calculated at the time of investment).\14\ The 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 the Fund's net assets are held 
in illiquid securities and other illiquid assets.
---------------------------------------------------------------------------

    \14\ 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. 8901 (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).
---------------------------------------------------------------------------

    The Fund will not invest 25% or more of the value of its net assets 
in securities of issuers in any one industry. This restriction will not 
apply to (a) obligations issued or guaranteed by the U.S. government, 
its agencies or instrumentalities or (b) securities of other investment 
companies.\15\
---------------------------------------------------------------------------

    \15\ 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).
---------------------------------------------------------------------------

Net Asset Value
    The Fund's net asset value (``NAV'') will be determined as of the 
close of trading (normally 4:00 p.m. Eastern time (``E.T.'')) on each 
day the New York Stock Exchange (``NYSE'') is open for business. NAV 
will be calculated for the Fund by taking the market price of the 
Fund's net assets, including interest or dividends accrued but not yet 
collected, less all liabilities, and dividing such amount by the total 
number of Shares outstanding. The result, rounded to the nearest cent, 
will be the NAV per Share. All valuations will be subject to review by 
the Board of Trustees of the Trust (``Trust Board'') or its delegate.
    The Fund's investments will be valued daily at market value or, in 
the absence of market value with respect to any investment, at fair 
value, in each case in accordance with valuation procedures (which may 
be revised from time to time) adopted by the Trust Board (the 
``Valuation Procedures'') and in accordance with the 1940 Act. A market 
valuation generally means a valuation (i) obtained from an exchange, an 
independent pricing service (``Pricing Service''), or a major market 
maker (or dealer) or (ii) based on a price quotation or other 
equivalent indication of value supplied by an exchange, a Pricing 
Service, or a major market maker (or dealer). The information 
summarized below is based on the Valuation Procedures as currently in 
effect; however, as noted above, the Valuation Procedures are amended 
from time to time and, therefore, such information is subject to 
change.
    Equity securities (including ETFs and Depositary Receipts) listed 
on any exchange other than The NASDAQ Stock Market LLC (``NASDAQ'') 
will be valued at the last sale price on the exchange on which they are 
principally traded on the business day as of which such value is being 
determined. Equity securities listed on the NASDAQ will be valued at 
the official closing price on the business day as of which such value 
is being determined. If there has been no sale on such day, or no 
official closing price in the case of securities traded on the NASDAQ, 
the securities will be valued using fair value pricing, as described 
below. Equity securities traded on more than one securities exchange 
will be valued at the last sale price or official closing price, as 
applicable, on the business day as of which such value is being 
determined at the close of the exchange representing the principal 
market for such securities.
    Exchange-traded futures contracts will be valued at the closing 
price in the market where such contracts are principally traded.
    Intra-day and closing price information regarding unsponsored ADRs 
will be available from major market data vendors such as Bloomberg and 
Reuters.

[[Page 33021]]

    Repurchase agreements will be valued as follows: Overnight 
repurchase agreements will be valued at cost. Term repurchase 
agreements (i.e., those whose maturity exceeds seven days) will be 
valued at the average of the bid quotations obtained daily from at 
least two recognized dealers.
    Certain securities in which the Fund may invest will not be listed 
on any securities exchange or board of trade. Such securities will 
typically be bought and sold by institutional investors in individually 
negotiated private transactions that function in many respects like an 
over-the-counter secondary market, although typically no formal market 
makers will exist. Certain securities, particularly debt securities, 
will have few or no trades, or trade infrequently, and information 
regarding a specific security may not be widely available or may be 
incomplete. Accordingly, determinations of the fair value of debt 
securities may be based on infrequent and dated information. Because 
there is less reliable, objective data available, elements of judgment 
may play a greater role in valuation of debt securities than for other 
types of securities. Typically, debt securities (other than those 
described in the next sentence) will be valued using information 
provided by a Pricing Service. Money market instruments having a 
remaining maturity of 60 days or less when purchased will be valued at 
cost adjusted for amortization of premiums and accretion of discounts.
    Certain assets may not be able to be priced by pre-established 
pricing methods. Such assets may be valued by the Trust Board or its 
delegate at fair value. The use of fair value pricing by the Fund will 
be governed by the Valuation Procedures and conducted in accordance 
with the provisions of the 1940 Act. Valuing the Fund's assets using 
fair value pricing will result in using prices for those securities 
that may differ from current market valuations or official closing 
prices on the applicable exchange.
Creations and Redemptions of Shares
    The Fund will issue and redeem Shares on a continuous basis at NAV 
only in large blocks of Shares (``Creation Units'') in transactions 
with authorized participants, generally including broker-dealers and 
large institutional investors (``Authorized Participants''). Creation 
Units generally will consist of 50,000 Shares, although this may change 
from time to time. Creation Units, however, are not expected to consist 
of less than 50,000 Shares. As described in the Registration Statement 
and consistent with the Exemptive Order, the Fund will issue and redeem 
Creation Units in exchange for an in-kind portfolio of instruments and/
or cash in lieu of such instruments (the ``Creation Basket''). In 
addition, if there is a difference between the NAV attributable to a 
Creation Unit and the market value of the Creation Basket exchanged for 
the Creation Unit, the party conveying instruments with the lower value 
will pay to the other an amount in cash equal to the difference 
(referred to as the ``Cash Component'').
    Creations and redemptions must be made by an Authorized Participant 
or through a firm that is either a member of the National Securities 
Clearing Corporation (``NSCC'') or a Depository Trust Company 
participant that, in each case, must have executed an agreement that 
has been agreed to by the Distributor and BBH with respect to creations 
and redemptions of Creation Units.
    All standard orders to create Creation Units must be received by 
the transfer agent no later than the closing time of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the ``Closing 
Time''), in each case on the date such order is placed, in order for 
the creation of Creation Units to be effected based on the NAV of 
Shares as next determined on such date after receipt of the order in 
proper form. The Fund's custodian, through the NSCC, will make 
available on each business day, prior to the opening of business on the 
Exchange, the list of the names and the required number of shares of 
the securities to be included in the Creation Basket with respect to 
purchases. In addition, the Fund's custodian, through the NSCC, will 
also make available on each business day the estimated Cash Component 
(if any) for that day.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt not later than the Closing Time of a 
redemption request in proper form by the Fund through the transfer 
agent and only on a business day. The Fund's custodian, through the 
NSCC, will make available on each business day, prior to the opening of 
business on the Exchange, the identity of the securities that will be 
applicable to redemption requests received in proper form on that day.
Availability of Information
    The Fund's Web site, www.ftportfolios.com, which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) daily trading volume, 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.
---------------------------------------------------------------------------

    \16\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
---------------------------------------------------------------------------

    On a daily basis, the Adviser, on behalf of the Fund, will disclose 
on the Fund's Web site the following information regarding each 
portfolio holding, as applicable to the type of holding: Ticker symbol, 
CUSIP number or other identifier, if any; a description of the holding; 
the identity of the security, index, or other asset or instrument 
underlying the holding, if any; quantity held (as measured by, for 
example, par value, notional value or number of shares, contracts or 
units); maturity date, if any; coupon rate, if any; effective date, if 
any; market value of the holding; and the percentage weighting of the 
holding in the Fund's portfolio. The Web site information will be 
publicly available at no charge.
    In addition, a basket composition file, which will include the 
security names and share quantities required to be delivered in 
exchange for the Fund's Shares, together with estimates and actual Cash 
Components, will be publicly disseminated daily prior to the opening of 
the NYSE via the NSCC. The basket will represent one Creation Unit of 
the Fund.
    Investors can also obtain the Fund's Statement of Additional 
Information (``SAI''), Shareholder Reports and Form N-CSR. The Fund's 
SAI and Shareholder Reports will be available free upon request from 
the Fund, and those documents and the Form N-CSR 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 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 and the

[[Page 33022]]

underlying U.S. exchange-traded Equity Securities will be available via 
the Consolidated Tape Association (``CTA'') high-speed line. 
Information regarding the Equity Securities and U.S. exchange-traded 
futures contracts held by the Fund will be available from the national 
exchanges trading such securities and futures contracts, respectively, 
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters or any future 
such service provider. In addition, quotation information from brokers 
and dealers or pricing services will be available for fixed income 
securities, including U.S. government obligations, other money market 
instruments, and repurchase agreements. Moreover, the Portfolio 
Indicative Value of the Fund, as defined in NYSE Arca Equities Rule 
8.600(c)(3), will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Core Trading 
Session.\17\ The dissemination of the Portfolio Indicative Value, 
together with the Disclosed Portfolio, will allow investors to 
determine the value of the underlying portfolio of the Fund on a daily 
basis and to provide a close estimate of that value throughout the 
trading day.
---------------------------------------------------------------------------

    \17\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings disclosure policies, distributions and taxes is 
included in the Registration Statement. All terms relating to the Fund 
that are referred to, but not defined in, this proposed rule change are 
defined in the Registration Statement.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\18\ Trading in Shares of the 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 the Fund; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of the Fund may be 
halted.
---------------------------------------------------------------------------

    \18\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

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 a.m. to 8 p.m. E.T. 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.
    The Shares will be subject to NYSE Arca Equities Rule 8.600, which 
sets forth the initial and continued listing criteria applicable to 
Managed Fund Shares. The Exchange represents that, for initial and/or 
continued listing, the Fund will be in compliance with Rule 10A-3 \19\ 
under the Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 
100,000 Shares 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 NAV per Share 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.
---------------------------------------------------------------------------

    \19\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, 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.\20\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to detect and help deter 
violations of Exchange rules and applicable federal securities laws 
applicable to trading on the Exchange.
---------------------------------------------------------------------------

    \20\ 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 surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and underlying Equity Securities and 
equity index futures contracts with other markets and other entities 
that are members of ISG and FINRA, on behalf of the Exchange, may 
obtain trading information regarding trading in the Shares, Equity 
Securities and equity index futures contracts from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and underlying Equity Securities and 
equity index futures contracts from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\21\
---------------------------------------------------------------------------

    \21\ 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 the 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.
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 Portfolio Indicative Value will not be 
calculated or publicly disseminated; (4) how information regarding the 
Portfolio Indicative Value and Disclosed Portfolio is disseminated; (5) 
the requirement that ETP Holders

[[Page 33023]]

deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (6) 
trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \22\ 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.
---------------------------------------------------------------------------

    \22\ 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 Exchange 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. All of the Equity Securities and equity index futures 
contracts in which the Fund may invest will be listed on a U.S. 
national exchange that is a member of ISG. The Fund's investments will, 
under normal circumstances, be consistent with its investment 
objective. As part of its non-principal strategy, the Fund will not 
hold more than 15% of its net assets in illiquid securities (calculated 
at the time of investment). The Adviser is not registered as a broker-
dealer, although it is affiliated with the Distributor, a broker-
dealer, and has implemented a ``fire wall'' with respect to its broker-
dealer affiliate regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. In the event (a) 
the Adviser or any sub-adviser becomes, or becomes newly affiliated 
with, a broker-dealer, or (b) any new adviser or sub-adviser is, 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 the Fund's portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. The Fund's portfolio 
holdings will be disclosed on its Web site daily after the close of 
trading on the Exchange and prior to the opening of trading on the 
Exchange the following day. Moreover, the Portfolio Indicative Value 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session. 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 Fund will include a form of the prospectus 
for the Fund and additional data relating to the Fund's 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 the 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 the Fund may be halted. In addition, as noted above, 
investors will have ready access to information regarding the 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 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, the Exchange has in 
place 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 
will have ready access to information regarding the 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 notes that the 
proposed rule change 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.

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.

[[Page 33024]]

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-2014-44 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-2014-44. 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-2014-44 and should 
be submitted on or before June 30, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-13311 Filed 6-6-14; 8:45 am]
BILLING CODE 8011-01-P


