
[Federal Register Volume 79, Number 142 (Thursday, July 24, 2014)]
[Notices]
[Pages 43108-43114]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-17398]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72641; File No. SR-NYSEArca-2014-64]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change To List and Trade Shares of the ARK 
Innovation ETF, ARK Genomic Revolution ETF, ARK Industrial Innovation 
ETF, and ARK Web x.0 ETF Under NYSE Arca Equities Rule 8.600

July 18, 2014.

I. Introduction

    On May 28, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade shares (``Shares'') of the following under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares on the Exchange: ARK Innovation ETF, ARK Genomic Revolution 
ETF, ARK Industrial Innovation ETF, and ARK Web x.0 ETF (individually, 
``Fund'' and, collectively, ``Funds''). The proposed rule change was 
published for comment in the Federal Register on June 10, 2014.\3\ The 
Commission received no comments on the proposed rule change. This order 
grants approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72314 (Jun. 4, 
2014), 79 FR 33229 (``Notice'').
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II. Description of Proposed Rule Change

    The Exchange has made the following representations and statements 
in describing each Fund and its respective investment strategies, 
including other portfolio holdings and investment restrictions.\4\
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    \4\ The Commission notes that additional information regarding 
the Trust, the Funds, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, portfolio holdings disclosure 
policies, distributions, and taxes, among other information, is 
included in the Notice and the Registration Statement, as 
applicable. See Notice and Registration Statement, supra note 3 and 
infra note 5, respectively.
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General

    The Shares will be offered by ARK ETF Trust (``Trust''), which is 
organized as a Delaware statutory trust and is registered with the 
Commission as an open-end management investment company.\5\ ARK 
Investment Management LLC (``Adviser'') will serve as the investment 
adviser to the Funds.\6\ Foreside Fund Services, LLC will be the 
principal underwriter and distributor of the Funds' Shares. The Bank of 
New York Mellon will serve as administrator, custodian and transfer 
agent.
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    \5\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). The Exchange states that on March 31, 2014, the 
Trust filed with the Commission its registration statement on Form 
N-1A under the Securities Act of 1933 (``Securities Act'') and under 
the 1940 Act relating to the Funds (File Nos. 333-191019 and 811-
22883) (``Registration Statement''). In addition, according to the 
Exchange, the Trust has obtained certain exemptive relief under the 
1940 Act. See Investment Company Act Release No. 31009 (April 7, 
2014) (File No. 812-14172).
    \6\ The Exchange states that the Adviser is not registered as a 
broker-dealer and is not affiliated with a broker-dealer. The 
Exchange states that 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 broker-dealer affiliate, as applicable, 
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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ARK Genomic Revolution ETF

    The ARK Genomic Revolution ETF's investment objective will be long-
term growth of capital.
    The Fund will invest, under normal circumstances,\7\ primarily (at 
least 80% of its assets) in domestic and foreign equity securities of 
companies that are relevant to the Fund's investment theme of genomics. 
Companies relevant to this theme are those that are focused on and are 
expected to benefit from extending and enhancing the quality of human 
and other life by incorporating technological and scientific 
developments, improvements and advancements in genetics into their 
business, such as by offering new products or services that rely on 
genetic sequencing, analysis, synthesis, or instrumentation. These 
companies may include ones that develop, produce, manufacture, or 
significantly rely on bionic devices, bio-inspired computing, 
bioinformatics, molecular medicine, and agricultural biology.
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    \7\ 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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    In selecting companies that the Adviser believes are relevant to a 
particular investment theme, it will seek

[[Page 43109]]

to identify, using its own internal research and analysis, companies 
capitalizing on disruptive innovation or that are enabling the further 
development of a theme in the markets in which they operate. The 
Adviser's internal research and analysis will leverage insights from 
diverse sources, including external research, to develop and refine its 
investment themes and identify and take advantage of trends that have 
ramifications for individual companies or entire industries. The 
Adviser will use both ``top down'' (macro-economic and business cycle 
analysis) and ``bottom up'' (valuation, fundamental, and quantitative 
measures) approaches to select investments for the Fund.
    Under normal circumstances, substantially all of the Fund's assets 
will be invested in equity securities, including common stocks, 
partnership interests, business trust shares, and other equity 
investments or ownership interests in business enterprises.\8\
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    \8\ At least 90% of each Fund's investments in equity securities 
(including Global Depositary Receipts (``GDRs''), American 
Depositary Receipts (``ADRs''), rights, warrants, and preferred 
securities, discussed under ``Other Investments,'' below) will be in 
securities that trade in markets that are members of the Intermarket 
Surveillance Group (``ISG'') or are parties to a comprehensive 
surveillance sharing agreement with the Exchange.
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    The Fund's investments will include issuers of micro-, small-, 
medium-, and large-capitalizations. The Fund's investments in foreign 
equity securities will be in both developed and emerging markets.\9\
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    \9\ The Adviser generally considers emerging market countries to 
be developing market countries whose gross domestic product per 
person is classified below ``high income'' by the World Bank. 
Investments in emerging markets equity securities will not exceed 
20% of a Fund's total assets.
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    The Fund will be concentrated in issuers in any industry or group 
of industries in the health care sector. Issuers in the health care 
sector include manufacturers and distributors of health care equipment 
and supplies, owners and operators of health care facilities, health 
maintenance organizations and managed health care plans, health care 
providers, and issuers that provide services to health care providers.

ARK Industrial Innovation ETF

    The ARK Industrial Innovation ETF's investment objective will be 
long-term growth of capital.
    The Fund will invest, under normal circumstances,\10\ primarily (at 
least 80% of its assets) in domestic and foreign equity securities of 
companies that are relevant to the Fund's investment theme of 
industrial innovation. Companies relevant to this theme are those that 
are expected to focus on and benefit from the development of new 
products or services, technological improvements, and advancements in 
scientific research related to, among other things, disruptive 
innovation in energy (``energy transformation companies''), automation 
and manufacturing (``automation transformation companies''), materials, 
and transportation.\11\
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    \10\ See supra note 7.
    \11\ The Adviser will consider a company to be an energy 
transformation company if it seeks to capitalize on innovations or 
evolutions in: (i) Ways that energy is stored or used; (ii) the 
discovery, collection and/or implementation of new sources of 
energy, including unconventional sources of oil or natural gas; and/
or (iii) the production or development of new materials for use in 
commercial applications of energy production, use or storage. The 
Adviser will consider a company to be an automation transformation 
company if it is focused on man capitalizing on the productivity of 
machines, such as through the automation of functions, processes or 
activities previously performed by human labor, or the use of 
robotics to perform other functions, activities, or processes.
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    In selecting companies that the Adviser believes are relevant to a 
particular investment theme, it will seek to identify, using its own 
internal research and analysis, companies capitalizing on disruptive 
innovation or that are enabling the further development of a theme in 
the markets in which they operate. The Adviser's internal research and 
analysis will leverage insights from diverse sources, including 
external research, to develop and refine its investment themes and 
identify and take advantage of trends that have ramifications for 
individual companies or entire industries. The Adviser will use both 
``top down'' (macro-economic and business cycle analysis) and ``bottom 
up'' (valuation, fundamental, and quantitative measures) approaches to 
select investments for the Fund.
    Under normal circumstances, substantially all of the Fund's assets 
will be invested in equity securities, including common stocks, 
partnership interests, business trust shares, and other equity 
investments or ownership interests in business enterprises.\12\
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    \12\ See supra note 8.
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    The Fund's investments will include issuers of micro-, small-, 
medium-, and large-capitalizations. The Fund's investments in foreign 
equity securities will be in both developed and emerging markets.\13\
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    \13\ See supra note 9.
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    The Fund will be concentrated in issuers in any industry or group 
of industries in the industrials \14\ and information technology 
sectors.\15\
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    \14\ The industrials sector includes companies engaged in the 
manufacture and distribution of capital goods, such as those used in 
defense, construction and engineering, companies that manufacture 
and distribute electrical equipment and industrial machinery, and 
those that provide commercial and transportation services and 
supplies.
    \15\ The information technology sector includes software 
developers, providers of information technology consulting and 
services, and manufacturers and distributors of computers, 
peripherals, communications equipment, and semiconductors.
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ARK Innovation ETF

    The ARK Innovation ETF's investment objective will be long-term 
growth of capital.
    The Fund will invest, under normal circumstances,\16\ primarily (at 
least 65% of its assets) in domestic and foreign equity securities of 
companies that are relevant to the Fund's investment theme of 
disruptive innovation. Companies relevant to this theme are those that 
rely on or benefit from the development of new products or services, 
technological improvements, and advancements in scientific research 
relating to the areas of genomics (``genomic companies''), industrial 
innovation (``industrial innovation companies''), or the increased use 
of shared technology, infrastructure, and services (``Web x.0 
companies'').
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    \16\ See supra note 7.
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    In selecting companies that the Adviser believes are relevant to a 
particular investment theme, it will seek to identify, using its own 
internal research and analysis, companies capitalizing on disruptive 
innovation or that are enabling the further development of a theme in 
the markets in which they operate. The Adviser's internal research and 
analysis will leverage insights from diverse sources, including 
external research, to develop and refine its investment themes and 
identify and take advantage of trends that have ramifications for 
individual companies or entire industries. The types of companies that 
the Adviser believes are genomic companies, industrial innovation 
companies, or Web x.0 companies are listed below:
     Genomics companies are companies that are focused on and 
are expected to benefit from extending and enhancing the quality of 
human and other life by incorporating technological and scientific 
developments in genetics into their business, such as by offering 
products or services that rely on genetic sequencing, analysis, 
synthesis, or instrumentation. These companies may include ones that 
develop, produce,

[[Page 43110]]

manufacture, or significantly rely on bionic devices, bio-inspired 
computing, bioinformatics, molecular medicine, and agricultural 
biology.
     Industrial innovation companies are companies that are 
focused on and are expected to benefit from the development of new 
products or services, technological improvements, and advancements in 
scientific research related to, among other things, disruptive 
innovation in energy (energy transformation companies), automation and 
manufacturing (automation transformation companies), materials, and 
transportation.\17\
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    \17\ See supra note 11.
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     Web x.0 companies are companies that are focused on and 
expected to benefit from shifting the bases of technology 
infrastructure from hardware and software to the cloud, enabling mobile 
and local services, such as companies that rely on or benefit from the 
increased use of shared technology, infrastructure, and services. These 
companies may also include ones that develop, use, or rely on 
innovative payment methodologies, big data, the internet of things, and 
social distribution and media.
    The Adviser will select investments for the Fund that represent its 
highest-conviction investment ideas within the theme of disruptive 
innovation, as described above, in constructing the Fund's portfolio. 
The Adviser's process for identifying genomic companies, industrial 
innovation companies, and Web x.0 companies will use both ``top down'' 
(macro-economic and business cycle analysis) and ``bottom up'' 
(valuation, fundamental, and quantitative measures) approaches. The 
Adviser's highest-conviction investment ideas are those that it 
believes present the best risk-reward opportunities.
    Under normal circumstances, substantially all of the Fund's assets 
will be invested in equity securities, including common stocks, 
partnership interests, business trust shares, and other equity 
investments or ownership interests in business enterprises.\18\
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    \18\ See supra note 8.
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    The Fund's investments will include issuers of micro-, small-, 
medium-, and large-capitalizations. The Fund's investments in foreign 
equity securities will be in both developed and emerging markets.\19\
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    \19\ See supra note 9.
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    The Fund will be concentrated in issuers in any industry or group 
of industries in the industrials \20\ and information technology \21\ 
sectors.
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    \20\ See supra note 14.
    \21\ See supra note 15.
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ARK Web x.0 ETF

    The ARK Web x.0 ETF's investment objective will be long-term growth 
of capital.
    The Fund will invest, under normal circumstances,\22\ primarily (at 
least 80% of its assets) in domestic and foreign equity securities of 
companies that are relevant to the Fund's investment theme of Web x.0. 
Companies relevant to this theme are focused on and expected to benefit 
from shifting the bases of technology infrastructure from hardware and 
software to the cloud, enabling mobile and local services, such as 
companies that rely on or benefit from the increased use of shared 
technology, infrastructure, and services. These companies may also 
include ones that develop, use, or rely on innovative payment 
methodologies, big data, the internet of things, and social 
distribution and media.
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    \22\ See supra note 7.
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    In selecting companies that the Adviser believes are relevant to a 
particular investment theme, it will seek to identify, using its own 
internal research and analysis, companies capitalizing on disruptive 
innovation or that are enabling the further development of a theme in 
the markets in which they operate. The Adviser's internal research and 
analysis will leverage insights from diverse sources, including 
internal and external research, to develop and refine its investment 
themes and identify and take advantage of trends that have 
ramifications for individual companies or entire industries. The 
Adviser will use both ``top down'' (macro-economic and business cycle 
analysis) and ``bottom up'' (valuation, fundamental, and quantitative 
measures) approaches to select investments for the Fund.
    Under normal circumstances, substantially all of the Fund's assets 
will be invested in equity securities, including common stocks, 
partnership interests, business trust shares, and other equity 
investments or ownership interests in business enterprises.\23\
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    \23\ See supra note 8.
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    The Fund's investments will include issuers of micro-, small-, 
medium-, and large-capitalizations. The Fund's investments in foreign 
equity securities will be in both developed and emerging markets.\24\
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    \24\ See supra note 9.
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    The Fund will be concentrated in issuers in any group of industries 
in the information technology sector.\25\ The Fund's investments may 
include issuers in the telecommunications services sector.\26\
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    \25\ See supra note 15.
    \26\ The telecommunications services sector includes companies 
that provide fixed-line or wireless telecommunication and data 
transmission services.
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Other Investments

    While each Fund will invest, under normal circumstances, primarily 
in the equity securities described above, each Fund may invest in other 
investments, as described below. With the exception of the ARK 
Innovation ETF, under normal circumstances, such other investments will 
not exceed 20% of a Fund's assets. Regarding the ARK Innovation ETF, 
under normal circumstances, such other investments will not exceed 35% 
of the Fund's investments.
    Each Fund may invest no more than 35% of its assets in depositary 
receipts (i.e., ADRs and GDRs), rights, warrants, preferred securities, 
and convertible securities.
    ADRs and GDRs are securities typically issued by a bank or trust 
company that evidence ownership of underlying securities issued by a 
foreign corporation and entitle the holder to all dividends and capital 
gains that are paid out on the underlying foreign securities. Rights 
and warrants are option securities permitting their holders to 
subscribe for other securities. Preferred securities are contractual 
obligations that entail rights to distributions declared by the 
issuer's board of directors, but may permit the issuer to defer or 
suspend distributions for a certain period of time. ADRs may be traded 
over the counter (``OTC'').\27\
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    \27\ See supra note 8.
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    Each Fund may invest in the securities of open-end or closed-end 
investment companies, subject to applicable limitations under the 1940 
Act. A Fund's investment in other investment companies may include 
shares of exchange traded funds registered under the 1940 Act 
(``ETFs''),\28\ closed-end investment companies (which include business 
development companies), unit investment trusts, and other open-end 
investment companies. In addition, the Funds may invest in other 
exchange-traded products (``ETPs''), such as commodity pools,\29\ or 
other entities that are traded on an exchange.
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    \28\ For purposes of this filing, ETFs, which will be listed on 
a national securities exchange, include the following: 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).
    \29\ For purposes of this filing, ETPs include Trust Issued 
Receipts (as described in NYSE Arca Equities Rule 8.200); Commodity-
Based Trust Shares (as described in NYSE Arca Equities Rule 8.201); 
Currency Trust Shares (as described in NYSE Arca Equities Rule 
8.202); Commodity Index Trust Shares (as described in NYSE Arca 
Equities Rule 8.203); and Trust Units (as described in NYSE Arca 
Equities Rule 8.500).

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[[Page 43111]]

    In addition, each Fund may use derivative instruments. 
Specifically, the Funds may use options, futures, swaps, and forwards, 
for hedging or risk management purposes or as part of its investment 
practices. Derivative instruments are contracts whose value depends on, 
or is derived from, the value of an underlying asset, reference rate, 
or index. These underlying assets, reference rates, or indices may be 
any one of the following: stocks, interest rates, currency exchange 
rates, and stock indices.
    The options in which the Funds may invest may be exchanged-traded 
or OTC. The exchange-traded options in which the Funds may invest will 
trade on markets that are members of the ISG or parties to a 
comprehensive surveillance sharing agreement with the Exchange. The 
futures in which the Funds may invest will be exchange-traded. Each 
Fund will not invest more than 10% of its assets in futures that trade 
in markets that are not members of the ISG or parties to a 
comprehensive surveillance sharing agreement with the Exchange. The 
swaps in which the Funds will invest may be cleared swaps or non-
cleared. The Funds will collateralize their obligations with liquid 
assets consistent with the 1940 Act and interpretations thereunder.
    The Funds will only enter into transactions in derivative 
instruments with counterparties that the Adviser reasonably believes 
are capable of performing under the contract and will post as 
collateral as required by the counterparty. The Funds will seek, where 
possible, to use counterparties, as applicable, whose financial status 
is such that the risk of default is reduced; however, the risk of 
losses resulting from default is still possible. The Adviser will 
evaluate the creditworthiness of counterparties on a regular basis. In 
addition to information provided by credit agencies, the Adviser will 
review approved counterparties using various factors, which may include 
the counterparty's reputation, the Adviser's past experience with the 
counterparty, and the price/market actions of debt of the counterparty.
    The Funds may invest in currency forwards. A currency forward 
transaction is a contract to buy or sell a specified quantity of 
currency at a specified date in the future at a specified price, which 
may be any fixed number of days from the date of the contract agreed 
upon by the parties, at a price set at the time of the contract. 
Currency forward contracts may be used to increase or reduce exposure 
to currency price movements.
    The Funds may enter into futures contracts and options, including 
options on futures contracts. Futures contracts generally provide for 
the future sale by one party and purchase by another party of a 
specified instrument, index, or commodity at a specified future time 
and at a specified price. Futures contracts are standardized as to 
maturity date and underlying instrument and are traded on futures 
exchanges. An option is a contract that provides the holder the right 
to buy or sell shares or futures at a fixed price, within a specified 
period of time.
    The Funds may invest in participation notes (``P-Notes''). P-Notes 
are issued by banks or broker-dealers and are designed to offer a 
return linked to the performance of a particular underlying equity 
security or market. P-Notes can have the characteristics or take the 
form of various instruments, including, but not limited to, 
certificates or warrants.
    Each Fund may invest in repurchase agreements with commercial 
banks, brokers, or dealers and invest securities lending cash 
collateral. A repurchase agreement is an agreement under which a Fund 
acquires a money market instrument from a seller, subject to resale to 
the seller at an agreed upon price and date.
    The Funds may invest in structured notes. A structured note is a 
derivative security for which the amount of principal repayment and/or 
interest payments is based on the movement of one or more ``factors.'' 
These factors include, but are not limited to, currency exchange rates, 
interest rates (such as the prime lending rate or LIBOR), referenced 
bonds, and stock indices.
    Each Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser 
consistent with Commission guidance.\30\ 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 each 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.
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    \30\ In reaching liquidity decisions, the Adviser may consider 
the following factors: the frequency of trades and quotes for the 
asset; the number of dealers wishing to purchase or sell the asset 
and the number of other potential purchasers; dealer undertakings to 
make a market in the asset; and the nature of the asset and the 
nature of the marketplace in which it trades (e.g., the time needed 
to dispose of the asset, the method of soliciting offers, and the 
mechanics of transfer).
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    Each Fund will be classified as a ``non-diversified'' investment 
company under the 1940 Act and therefore may concentrate its 
investments in any particular industry or group of industries, such 
that: (i) ARK Genomic Revolution ETF will concentrate in securities of 
issuers having their principal business activities in any industry or 
group of industries in the health care sector; (ii) ARK Innovation ETF 
will concentrate in securities of issuers having their principal 
business activities in any industry or group of industries in the 
health care sector, the industrials sector, the information technology 
sector, or the telecommunications services sector; (iii) ARK Industrial 
Innovation ETF will concentrate in securities of issuers having their 
principal business activities in any industry or group of industries in 
the industrials sector or the information technology sector; and (iv) 
ARK Web x.0 ETF will concentrate in securities of issuers having their 
principal business activities in any industry or group of industries in 
the information technology sector or the telecommunications services 
sector. Each Fund will consider an issuer to have its ``principal 
business activities'' in an industry or group of industries if the 
issuer derives more than 50% of its revenues from a business considered 
to be a part of such industry or group of industries according to a 
third party's industry classification system or that of the Adviser.
    The Funds intend to qualify for and to elect treatment as a 
separate regulated investment company under Subchapter M of the 
Internal Revenue Code.
    Each Fund may take a temporary defensive position (investments in 
cash or cash equivalents) in response to adverse market, economic, 
political, or other conditions.\31\ Cash equivalents

[[Page 43112]]

include short-term high quality debt securities and money market 
instruments, such as commercial paper, certificates of deposit, 
bankers' acceptances, U.S. Government securities, repurchase agreements 
and bonds that are rated BBB or higher, and shares of short-term fixed 
income or money market funds.
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    \31\ Circumstances under which a Fund may temporarily depart 
from its 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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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \32\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\33\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\34\ which 
requires, among other things, that the Exchange's rules be designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Commission notes that the Funds and the Shares must 
comply with the initial and continued listing criteria in NYSE Arca 
Equities Rule 8.600 for the Shares to be listed and traded on the 
Exchange.
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    \32\ 15 U.S.C. 78f.
    \33\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \34\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\35\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association (``CTA'') high-speed line. In addition, an indicative 
optimized portfolio value (``IOPV''),\36\ which is the Portfolio 
Indicative Value as defined in NYSE Arca Equities Rule 8.600(c)(3), 
relating to each Fund will be widely disseminated every fifteen seconds 
during the NYSE Arca Core Trading Session by one or more major market 
data vendors.\37\ On each business day, before commencement of trading 
in Shares in the Core Trading Session on the Exchange, the Adviser will 
disclose on its Web site the identities and quantities of the portfolio 
of securities and other assets (``Disclosed Portfolio'') held by the 
Funds that will form the basis for each Fund's calculation of NAV at 
the end of the business day.\38\ In addition, a basket composition 
file, which includes the security names and share quantities, if 
applicable, required to be delivered in exchange for a Fund's Shares, 
together with estimates and actual cash components, will be publicly 
disseminated daily prior to the opening of the New York Stock Exchange 
(``NYSE'') via the National Securities Clearing Corporation. The NAV of 
each Fund will be determined each business day as of the close of 
trading (ordinarily 4:00 p.m., Eastern Time on the NYSE.\39\ 
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 
underlying securities that are exchange-listed, including equities 
(including common stock, partnership interests, and business trust 
shares, as well as depositary receipts (excluding ADRs traded OTC and 
GDRs), rights, warrants, preferred securities, ETFs, and ETPs 
(collectively, ``Exchange Traded Equities'')), will be available via 
the CTA high-speed line and from the securities exchange on which they 
are listed. Quotation and last-sale information for GDRs will be 
available from the securities exchange on which they are listed. 
Information relating to futures and options on futures also will be 
available from the exchange on which such instruments are traded. 
Information relating to exchange-traded options will be available via 
the Options Price Reporting Authority. Quotation information from 
brokers and dealers or pricing services will be available for ADRs 
traded OTC, investment company securities (other than ETFs), including 
closed end investment companies, unit investment trusts and open-end 
investment companies, non-exchange-traded derivatives, including 
forwards, swaps, and certain options, and fixed income securities, 
including P-Notes, structured notes, debt securities, money market 
instruments, such as commercial paper, certificates of deposit, 
bankers' acceptances, U.S. Government securities, repurchase 
agreements, bonds and convertible securities, and

[[Page 43113]]

shares of short-term fixed income or money market funds. Pricing 
information regarding each asset class in which the Funds will invest 
is generally available through nationally recognized data services 
providers through subscription agreements. The Funds' Web site will 
include a form of the prospectus for the Funds and additional data 
relating to NAV and other applicable quantitative information for each 
Fund.
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    \35\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \36\ According to the Exchange, the IOPV calculations are 
estimates of the value of the Funds' NAV per Share using market data 
converted into U.S. dollars at the current currency rates. The IOPV 
price is 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 is calculated 
only once a day.
    \37\ According to the Exchange, several major market data 
vendors display and/or make widely available IOPVs published on CTA 
or other data feeds.
    \38\ On a daily basis, the Adviser will disclose for each 
portfolio security and other financial instrument of the Funds the 
following information on the Funds' Web site: Ticker symbol (if 
applicable), name of security and/or financial instrument, number of 
shares, if applicable, and dollar value of financial instruments and 
securities 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.
    \39\ The NAV per Share for each Fund will be computed by 
dividing the value of the net assets of the Fund (the value of its 
total assets less total liabilities) by the total number of Shares 
outstanding. Expenses and fees will be accrued daily and taken into 
account for purposes of determining NAV. According to the Exchange, 
price information for exchange-traded equity securities, including 
equity securities of domestic and foreign companies, such as common 
stock, partnership interests, business trust shares, ETFs and ETPs, 
as well as depositary receipts (excluding ADRs traded OTC), rights, 
warrants, and preferred securities, will be taken from the exchange 
where the security or asset is primarily traded. ADRs traded OTC 
will be valued on the basis of the market closing price on the 
exchange where the stock of the foreign issuer that underlies the 
ADR is listed. Investment company securities (other than ETFs), 
including closed end investment companies, unit investment trusts, 
and other open-end investment companies, will be valued at NAV, 
utilizing pricing services. Non-exchange-traded derivatives, 
including forwards, swaps, and certain options, will normally be 
valued on the basis of quotes obtained from brokers and dealers or 
independent pricing services using data reflecting the earlier 
closing of the principal markets for those assets. Prices obtained 
from independent pricing services use information provided by market 
makers or estimates of market values obtained from yield data 
relating to investments or securities with similar characteristics. 
Exchange-traded options (excluding options on futures) will be 
valued at market closing price. Futures and options on futures will 
be valued at the settlement price determined by the applicable 
exchange. Fixed income securities generally trade in the OTC market 
rather than on a securities exchange. A Fund will generally value 
these portfolio securities, including P-Notes, structured notes, 
debt securities, money market instruments, such as commercial paper, 
certificates of deposit, bankers' acceptances, U.S. Government 
securities, repurchase agreements, bonds and convertible securities, 
and shares of short-term fixed income or money market funds by 
relying on independent pricing services. A Fund's pricing services 
will use valuation models or matrix pricing to determine current 
value. In general, pricing services use information with respect to 
comparable bond and note transactions, quotations from bond dealers, 
or by reference to other securities that are considered comparable 
in such characteristics as rating, interest rate, maturity date, 
option adjusted spread models, prepayment projections, interest rate 
spreads, and yield curves. Matrix price is an estimated price or 
value for a fixed-income security and is considered a form of fair 
value pricing.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Exchange will obtain a representation from the issuer of 
the Shares that the NAV per Share for 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. Trading 
in Shares of the Funds 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,\40\ and trading in the Shares will 
be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
additional circumstances under which trading in the Shares of a Fund 
may be halted. The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. Consistent with NYSE Arca Equities Rule 8.600(d)(2)(B)(ii), 
the Reporting Authority must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the actual components of a Fund's 
portfolio. In addition, the Exchange states that the Adviser is not 
registered as, nor affiliated with, a broker-dealer.\41\ 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.\42\ The Exchange further represents that these 
procedures are adequate to properly monitor Exchange-trading of the 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and federal securities laws applicable to trading on the 
Exchange. Moreover, prior to the commencement of trading, the Exchange 
states that it will inform its Equity Trading Permit Holders in an 
Information Bulletin of the special characteristics and risks 
associated with trading the Shares.
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    \40\ These reasons 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 Funds; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. 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.
    \41\ See supra note 6. The Exchange states that an investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``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.
    \42\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement and that the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including the following:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and underlying Exchange Traded 
Equities, exchange traded options and futures with other markets and 
other entities that are members of the ISG, and FINRA, on behalf of the 
Exchange, may obtain trading information regarding trading in the 
Shares and underlying Exchange Traded Equities, exchange traded options 
and futures from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares and 
underlying Exchange Traded Equities, exchange traded options and 
futures from markets and other entities that are members of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.
    (4) At least 90% of each Fund's investments in equity securities 
(including GDRs and ADRs) will be in securities that trade in markets 
that are members of the ISG or are parties to a comprehensive 
surveillance sharing agreement with the Exchange. The exchange-traded 
options in which the Funds may invest will trade on markets that are 
members of the ISG or parties to a comprehensive surveillance sharing 
agreement with the Exchange. Each Fund will not invest more than 10% of 
its assets in futures that trade in markets that are not members of the 
ISG or parties to a comprehensive surveillance sharing agreement with 
the Exchange.
    (5) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares in creation 
units (and that Shares are not individually redeemable); (b) NYSE Arca 
Equities Rule 9.2(a), which imposes a duty of due diligence on its 
Equity Trading Permit Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (c) 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; (d) how information regarding the Portfolio Indicative 
Value is disseminated; (e) the requirement that Equity Trading Permit 
Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (6) For initial and continued listing, the Funds will be in 
compliance with Rule 10A-3 under the Act,\43\ as provided by NYSE Arca 
Equities Rule 5.3.
---------------------------------------------------------------------------

    \43\ 17 CFR 240.10A-3.
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    (7) Each Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the

[[Page 43114]]

Adviser consistent with Commission guidance.
    (8) Under normal market circumstances, ARK Genomic Revolution ETF, 
ARK Industrial Innovation ETF, and ARK Web x.0 ETF will each invest at 
least 80% of its assets in equity securities. Under normal market 
circumstances, ARK Innovation ETF will invest at least 65% of its 
assets in equity securities.
    (9) Investments in emerging markets equity securities will not 
exceed 20% of a Fund's total assets.
    (10) Each Fund's investments will be consistent with its respective 
investment objective in accordance with the 1940 Act and will not be 
used to enhance leverage. Each Fund's investments will not be used to 
seek performance that is the multiple or inverse multiple (i.e., 2Xs or 
3Xs) of the Fund's broad-based securities market index (as defined in 
Form N-1A).
    (11) The Funds will only enter into transactions in derivative 
instruments with counterparties that the Adviser reasonably believes 
are capable of performing under the contract and will post as 
collateral as required by the counterparty. The Funds will seek, where 
possible, to use counterparties, as applicable, whose financial status 
is such that the risk of default is reduced; however, the risk of 
losses resulting from default is still possible. The Adviser will 
evaluate the creditworthiness of counterparties on a regular basis. In 
addition to information provided by credit agencies, the Adviser will 
review approved counterparties using various factors, which may include 
the counterparty's reputation, the Adviser's past experience with the 
counterparty and the price/market actions of debt of the counterparty.
    (12) A minimum of 100,000 Shares for each Fund will be outstanding 
at the commencement of trading on the Exchange.

This approval order is based on all of the Exchange's representations, 
including those set forth above and in the Notice, and the Exchange's 
description of the Funds.

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \44\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \44\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\45\ that the proposed rule change (SR-NYSEArca-2014-64) be, and it 
hereby is, approved.

    \45\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-17398 Filed 7-23-14; 8:45 am]
BILLING CODE 8011-01-P


