
[Federal Register Volume 79, Number 200 (Thursday, October 16, 2014)]
[Notices]
[Pages 62213-62221]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-24545]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 73331; File No. SR-NYSEArca-2014-104]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to Use of 
Derivative Instruments by Certain PIMCO Exchange-Traded Funds

October 9, 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 September 29, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to change the description of the means of 
achieving the investment objective applicable to the following funds 
relating to each fund's use of derivative instruments: PIMCO Build 
America Bond Exchange-Traded Fund, PIMCO Diversified Income Exchange-
Traded Fund, PIMCO Foreign Currency Strategy Exchange-Traded Fund, 
PIMCO Global Advantage[supreg] Inflation-Linked Bond Strategy Exchange-
Traded Fund, PIMCO Intermediate Municipal Bond Exchange-Traded Fund, 
PIMCO Low Duration Exchange-Traded Fund, PIMCO Real Return Exchange-
Traded Fund, PIMCO Short-Term Municipal Bond Exchange-Traded Fund and 
PIMCO Total Return Exchange-Traded Fund (each a ``Fund'' and 
collectively, the ``Funds''). In addition, the Exchange proposes 
changes to certain representations regarding (1) the limitation on each 
Fund's holdings in illiquid assets, and (2) each Fund's holdings of 
securities and financial instruments whose principal market is not a 
member of the Intermarket Surveillance Group (``ISG'') or is a market 
with which the Exchange does not have a comprehensive surveillance 
sharing agreement. The Funds have been approved by the Securities and 
Exchange Commission (``Commission'') for listing and trading on the 
Exchange and are currently listed and traded on the Exchange under NYSE 
Arca Equities Rule 8.600, except for PIMCO Real Return Exchange-Traded 
Fund, which has not yet commenced operations. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved the listing and trading on the Exchange 
of shares (``Shares'') of the PIMCO Build America Bond Exchange-Traded 
Fund, PIMCO Diversified Income Exchange-Traded Fund, PIMCO Foreign 
Currency Strategy Exchange-Traded Fund, PIMCO Global Advantage[supreg] 
Inflation-Linked Bond Strategy Exchange-Traded Fund, PIMCO Intermediate 
Municipal Bond Exchange-Traded Fund, PIMCO Low Duration Exchange-Traded 
Fund, PIMCO Real Return Exchange-Traded Fund, PIMCO Short-Term 
Municipal Bond Exchange-Traded Fund, and PIMCO Total Return Exchange-
Traded Fund \4\ under NYSE Arca Equities Rule

[[Page 62214]]

8.600, which governs the listing and trading of Managed Fund Shares. 
The Shares are offered by PIMCO ETF Trust (the ``Trust''), a statutory 
trust organized under the laws of the State of Delaware and registered 
with the Commission as an open-end management investment company.\5\ 
The investment manager to the Funds is Pacific Investment Management 
Company LLC (``PIMCO'' or the ``Adviser'').
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    \4\ See Securities Exchange Act Release Nos. 71125 (December 18, 
2013), 78 FR 77743 (December 24, 2013) (SR-NYSEArca-2013-106) (order 
approving listing and trading of PIMCO Diversified Income Exchange-
Traded Fund, PIMCO Low Duration Exchange-Traded Fund and PIMCO Real 
Return Exchange-Traded Fund); 68871 (February 8, 2013), 78 FR 11238 
(February 15, 2013) (SR-NYSEArca-2012-138) (order approving listing 
and trading of PIMCO Foreign Currency Strategy Exchange-Traded 
Fund); 66670 (March 28, 2012), 77 FR 20087 (April 3, 2013) (SR-
NYSEArca-2012-09) (order approving listing and trading of PIMCO 
Global Advantage[supreg] Inflation-Linked Bond Strategy Exchange-
Traded Fund); 62856 (September 7, 2010), 75 FR 55840 (September 14, 
2010) (SR-NYSEArca-2010-68) (order approving listing and trading of 
PIMCO Build America Bond Exchange-Traded Fund); 60981 (November 10, 
2009) 74 FR 59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order 
approving listing and trading of PIMCO Intermediate Municipal Bond 
Exchange-Traded Fund; PIMCO Short-Term Municipal Bond Exchange-
Traded Fund) (each a ``Prior Order'' and collectively, the ``Prior 
Orders''). See also, Securities Exchange Act Release No. 66321 
(February 3, 2012), 77 FR 6850 (February 9, 2012) (SR-NYSEArca-2011-
95) (order approving listing and trading of shares of the PIMCO 
Total Return Exchange-Traded Fund) (``First PIMCO Total Return 
Order''). See also Securities Exchange Act Release No. 70774 
(October 29, 2013), 78 FR 66396 (November 5, 2013) (SR-NYSEArca-
2013-106) (notice of filing of proposal relating to PIMCO 
Diversified Income Exchange-Traded Fund, PIMCO Low Duration 
Exchange-Traded Fund and PIMCO Real Return Exchange-Traded Fund); 
Securities Exchange Act Release No. 68476 (December 19, 2012), 77 FR 
76121 (December 26, 2012) (SR-NYSEArca-2012-138) (notice of filing 
of proposal relating to PIMCO Foreign Currency Strategy Exchange-
Traded Fund); Securities Exchange Act Release No. 66381 (February 
10, 2012), 77 FR 9281 (February 16, 2012) (SR-NYSEArca-2012-09) 
(notice of filing of proposal relating to PIMCO Global 
Advantage[supreg] Inflation-Linked Bond Strategy Exchange-Traded 
Fund); Securities Exchange Act Release No. 62585 (July 28, 2010), 75 
FR 47045 (August 4, 2010) (SR-NYSEArca-2010-68) (notice of filing of 
proposal relating to PIMCO Build America Bond Exchange-Traded Fund); 
Securities Exchange Act Release No. 60619, (September 3, 2009), 74 
FR 46820 (September 11, 2009) (SR-NYSEArca-2009-79) (notice of 
filing of proposal relating to PIMCO Intermediate Municipal Bond 
Strategy Exchange-Traded Fund and PIMCO Short-Term Municipal Bond 
Strategy Exchange-Traded Fund) (each a ``Prior Notice'' and 
collectively, the ``Prior Notices'', and together with the Prior 
Orders, the ``Prior Releases'').'' In addition, see Securities 
Exchange Act Release No. 65988 (December 16, 2011), 76 FR 79741 
(December 22, 2011) (SR-NYSEArca-2011-95) (notice of filing of 
proposal relating to PIMCO Total Return Exchange-Traded Fund) 
(``First PIMCO Total Return Notice'').
    \5\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On October 24, 2013 the Trust filed with the 
Commission the most recent post-effective amendment to its 
registration statement under the Securities Act of 1933 (15 U.S.C. 
77a) (``1933 Act'') and under the 1940 Act relating to the Funds 
(File Nos. 333-155395 and 811-22250), which took effect on October 
31, 2013 (the ``Registration Statement''). The description of the 
operation of the Trust and the Funds herein is based, in part, on 
the Registration Statement. In addition, the Commission has issued 
an order granting certain exemptive relief to the Trust under the 
1940 Act. See Investment Company Act Release No. 28993 (November 10, 
2009) (File No. 812-13571) (``Exemptive Order'').
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    In this proposed rule change, the Exchange proposes changing the 
description of each Fund's use of derivative instruments, as described 
below. The portions of this proposed rule change that relate to the 
Funds' proposed use of derivative instruments are identical to the 
portion of the proposed rule change approved by the Commission with 
respect to the continued listing and trading of the PIMCO Total Return 
Exchange-Traded Fund, that permitted it to use derivative 
instruments.\6\ Accordingly, this proposed rule change seeks to permit 
the Funds (other than the PIMCO Total Return Exchange-Traded Fund) to 
use derivative instruments on the same basis, and subject to the same 
conditions, as provided in the Second PIMCO Total Return Release, 
provided, however, that the Exchange also proposes to explicitly 
include options on swap agreements as derivative instruments in which 
the PIMCO Total Return Exchange-Traded Fund and all other Funds may 
invest, as described further below. In addition, the Exchange proposes 
changes to certain representations in the Prior Releases and the First 
PIMCO Total Return Release regarding (1) the limitation on each Fund's 
holdings in illiquid assets, and (2) each Fund's holdings of securities 
and financial instruments whose principal market is not a member of the 
ISG or is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement, as described further 
below.
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    \6\ See Securities Exchange Act Release Nos. 72666 (July, 24, 
2014), 79 FR 44224 (July 30, 2014) (SR-NYSEArca-2013-122) (order 
approving use of derivative instruments by the PIMCO Total Return 
Exchange-Traded Fund) (``Second PIMCO Total Return Order''); 70905 
(November 20, 2013), 78 FR 70610 (November 26, 2013) (SR-NYSEArca-
2013-122) (notice of proposal relating to use of derivatives by 
PIMCO Total Return Exchange-Traded Fund) (``Second PIMCO Total 
Return Notice'' and, together with the Second PIMCO Total Return 
Order, the ``Second PIMCO Total Return Release'').
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The Funds' Use of Derivatives
    On December 6, 2012, the staff of the Commission's Division of 
Investment Management (``Division'') issued a no-action letter (``No-
Action Letter'') relating to the use of derivatives by actively-managed 
exchange traded funds (``ETFs'').\7\ The No-Action Letter noted that, 
in March of 2010, the Commission announced in a press release that the 
staff was conducting a review to evaluate the use of derivatives by 
mutual funds, ETFs, and other investment companies and that, pending 
completion of this review, the staff would defer consideration of 
exemptive requests under the 1940 Act relating to, among others, 
actively-managed ETFs that would make significant investments in 
derivatives.
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    \7\ See No-Action Letter dated December 6, 2012 from Elizabeth 
G. Osterman, Associate Director, Office of Exemptive Applications, 
Division of Investment Management.
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    The No-Action Letter stated that Division staff will no longer 
defer consideration of exemptive requests under the 1940 Act relating 
to actively-managed ETFs that make use of derivatives provided that 
they include representations to address some of the concerns expressed 
in the Commission's March 2010 press release. These representations 
are: (i) That the ETF's board periodically will review and approve the 
ETF's use of derivatives and how the ETF's investment adviser assesses 
and manages risk with respect to the ETF's use of derivatives; and (ii) 
that the ETF's disclosure of its use of derivatives in its offering 
documents and periodic reports is consistent with relevant Commission 
and staff guidance. The No-Action Letter stated that the Division would 
not recommend enforcement action to the Commission under sections 
2(a)(32), 5(a)(1), 17(a), 22(d), and 22(e) of the 1940 Act, or rule 
22c-1 under the 1940 Act if actively-managed ETFs operating in reliance 
on specified orders (which include the Trust's Exemptive Order \8\) 
invest in options contracts, futures contracts or swap agreements 
provided that they comply with the representations stated in the No-
Action Letter, as noted above.
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    \8\ See note 5, supra.
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    In the Prior Releases for the PIMCO Diversified Income Exchange-
Traded Fund, PIMCO Foreign Currency Strategy Exchange-Traded Fund, 
PIMCO Global Advantage[supreg] Inflation-Linked Bond Exchange-Traded 
Fund, PIMCO Low Duration Exchange-Traded Fund, and PIMCO Real Return 
Exchange-Traded Fund) [sic], the Exchange stated that such Funds would 
not invest in options contracts, futures contracts or swap agreements. 
In the Prior Release for the PIMCO Build America Bond Exchange-Traded 
Fund, the Exchange stated such Fund is restricted from investing in 
derivative instruments such as options contracts, futures contracts, 
and swap agreements. The Prior Releases for the PIMCO Intermediate 
Municipal Bond Exchange-Traded Fund, and PIMCO Short-Term Municipal 
Bond Exchange-Traded Fund made no statement with respect to such Funds' 
use of derivatives. Going forward, in view of the No-Action Letter, the 
Exchange is proposing to permit the Funds to use derivative 
instruments, as described below.\9\
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    \9\ The Adviser represents that each Fund, in connection with 
its use of derivative instruments, will comply with the 
representations stated in the No-Action Letter, as noted above, 
namely: (i) That the Trust's Board of Trustees (``Board'') 
periodically will review and approve each Fund's use of derivatives 
and how the Adviser assesses and manages risk with respect to a 
Fund's use of derivatives; and (ii) that each Fund's disclosure of 
its use of derivatives in its offering documents and periodic 
reports is consistent with relevant Commission and staff guidance.
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    As summarized in the following table, the Prior Releases stated 
that the applicable Funds will invest under normal circumstances at 
least a certain percentage of their assets in certain instruments (as 
applicable to each such Fund, the ``Primary Investment Strategy'').\10\
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    \10\ As used in the Prior Releases (except for the Prior Notices 
and Prior Orders for the PIMCO Intermediate Municipal Bond Strategy 
Exchange-Traded Fund and the PIMCO Build America Bond Exchange-
Traded Fund), the term ``under normal circumstances'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the fixed income 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.

[[Page 62215]]



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                    Fund                                          Primary investment strategy
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PIMCO Build America Bond Exchange-Traded      The Fund will invest under normal circumstances at least 80% of
 Fund.                                         its assets in taxable municipal debt securities publicly issued
                                               under the Build America Bond program.
PIMCO Diversified Income Exchange-Traded      The Fund will invest under normal circumstances at least 65% of
 Fund.                                         its total assets in a diversified portfolio of ``Fixed Income
                                               Instruments'' (as defined below) of varying maturities and
                                               forward contracts on such Fixed Income Instruments.
PIMCO Foreign Currency Strategy Exchange-     The Fund will invest under normal circumstances at least 80% of
 Traded Fund.                                  its assets in currencies of, or Fixed Income Instruments
                                               denominated in the currencies of, foreign (non-U.S.) countries,
                                               including, but not limited to, a combination of short-term Fixed
                                               Income Instruments, money market securities, and currency
                                               forwards backed by high quality, low duration securities.
PIMCO Global Advantage[supreg] Inflation-     The Fund will invest under normal circumstances at least 80% of
 Linked Bond Exchange-Traded Fund.             its assets in a portfolio of inflation-linked bonds that is
                                               economically tied to at least three developed and/or emerging
                                               market countries (one of which may be the United States).
PIMCO Intermediate Municipal Bond Exchange-   The Fund will invest under normal circumstances at least 80% of
 Traded Fund.                                  its assets in a diversified portfolio of debt securities whose
                                               interest is, in the opinion of bond counsel for the issuer at the
                                               time of issuance, exempt from federal income tax (``Municipal
                                               Bonds'').
PIMCO Low Duration Exchange-Traded Fund.....  The Fund will invest under normal circumstances at least 65% of
                                               its total assets in a diversified portfolio of Fixed Income
                                               Instruments of varying maturities and forward contracts on such
                                               Fixed Income Instruments.
PIMCO Real Return Exchange-Traded Fund......  The Fund will invest under normal circumstances at least 80% of
                                               its net assets in inflation-indexed bonds of varying maturities
                                               issued by U.S. and non-U.S. governments, their agencies or
                                               instrumentalities, and corporations, and forward contracts on
                                               such Fixed Income Instruments.
PIMCO Short-Term Municipal Bond Exchange-     The Fund will invest under normal circumstances at least 80% of
 Traded Fund.                                  its assets in a diversified portfolio of Municipal Bonds.
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    ``Fixed Income Instruments'' include bonds, debt securities and 
other similar instruments issued by various U.S. and non-U.S. public- 
or private-sector entities.\11\ The Exchange proposes to revise each 
Fund's Primary Investment Strategy as set forth in the applicable Prior 
Release to provide that a Fund's Primary Investment Strategy may be 
represented by derivatives based on the instruments that are the 
subject of the Primary Investment Strategy.
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    \11\ The term ``Fixed Income Instruments'' is defined with 
respect to each Fund as set forth in the Prior Releases and the 
Second PIMCO Total Return Release (see notes 4 and 6, supra). 
Examples include: debt securities issued or guaranteed by the U.S. 
Government, its agencies or government-sponsored enterprises (``U.S. 
Government Securities''); corporate debt securities of U.S. and non-
U.S. issuers, including convertible securities and corporate 
commercial paper; mortgage-backed and other asset-backed securities; 
inflation-indexed bonds issued both by governments and corporations; 
structured notes, including hybrid or ``indexed'' securities and 
event-linked bonds; bank capital and trust preferred securities; 
loan participations and assignments; delayed funding loans and 
revolving credit facilities; bank certificates of deposit, fixed 
time deposits and bankers' acceptances; repurchase agreements on 
Fixed Income Instruments and reverse repurchase agreements on Fixed 
Income Instruments; debt securities issued by states or local 
governments and their agencies, authorities and other government-
sponsored enterprises; obligations of non-U.S. governments or their 
subdivisions, agencies and government-sponsored enterprises; and 
obligations of international agencies or supranational entities. 
Securities issued by U.S. Government agencies or government-
sponsored enterprises may not be guaranteed by the U.S. Treasury.
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    With respect to each Fund, derivative instruments will be forwards; 
\12\ exchange-traded and over-the-counter (``OTC'') options contracts; 
exchange-traded futures contracts; exchange-traded and OTC swap 
agreements; exchange-traded options on futures contracts; and OTC 
options on swap agreements.\13\ Generally, derivatives are financial 
contracts whose value [sic] depends upon, or is derived from, the value 
of an underlying asset, reference rate or index, and may relate to 
stocks, bonds, interest rates, currencies or currency exchange rates, 
commodities, and related indexes. Each Fund may, but will not be 
required to, use derivative instruments for risk management purposes or 
as part of its investment strategies.\14\
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    \12\ Forwards are contracts to purchase or sell securities for a 
fixed price at a future date beyond normal settlement time (forward 
commitments).
    \13\ In the future, in the event that there are exchange-traded 
options on swaps, a Fund may invest in these instruments.
    \14\ Each Fund will seek, where possible, to use counterparties 
whose financial status is such that the risk of default is reduced; 
however, the risk of losses resulting from default is still 
possible. PIMCO's Counterparty Risk Committee evaluates the 
creditworthiness of counterparties on an ongoing basis. In addition 
to information provided by credit agencies, PIMCO credit analysts 
evaluate each approved counterparty using various methods of 
analysis, including company visits, earnings updates, the broker-
dealer's reputation, PIMCO's past experience with the broker-dealer, 
market levels for the counterparty's debt and equity, the 
counterparty's liquidity and its share of market participation.
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    The Exchange notes that the Second PIMCO Total Return Release did 
not explicitly reference options on swap agreements, which are a form 
of OTC option contracts, as derivative instruments in which such Fund 
may invest. The Exchange, therefore, also proposes to explicitly 
include options on swap agreements as derivative instruments in which 
the PIMCO Total Return Exchange-Traded Fund (as well as all other 
Funds) may invest.
    Investments in derivative instruments will be made in accordance 
with the 1940 Act and consistent with the applicable Fund's investment 
objective and policies. As described further below, each Fund will 
typically use derivative instruments as a substitute for taking a 
position in the underlying asset and/or as part of a strategy designed 
to reduce exposure to other risks, such as interest rate or currency 
risk. Each Fund may also use derivative instruments to enhance returns. 
To limit the potential risk associated with such transactions, each 
Fund will segregate or ``earmark'' assets determined to be liquid by 
PIMCO in accordance with procedures established by the Trust's Board of 
Trustees and in accordance with the 1940 Act (or, as permitted by 
applicable regulation, enter into certain offsetting positions) to 
cover its obligations under derivative instruments. These procedures 
have been adopted consistent with Section 18 of the 1940 Act and 
related Commission guidance. In addition, each Fund will include 
appropriate risk disclosure in its offering documents, including 
leveraging risk. Leveraging risk is the risk that certain transactions 
of a Fund,

[[Page 62216]]

including a Fund's use of derivatives, may give rise to leverage, 
causing a Fund to be more volatile than if it had not been 
leveraged.\15\ Because the markets for certain securities, or the 
securities themselves, may be unavailable or cost prohibitive as 
compared to derivative instruments, suitable derivative transactions 
may be an efficient alternative for a Fund to obtain the desired asset 
exposure.
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    \15\ To mitigate leveraging risk, the Adviser will segregate or 
``earmark'' liquid assets or otherwise cover the transactions that 
may give rise to such risk.
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    The Adviser believes that derivatives can be an economically 
attractive substitute for an underlying physical security that a Fund 
would otherwise purchase. For example, a Fund could purchase Treasury 
futures contracts instead of physical Treasuries or could sell credit 
default protection on a corporate bond instead of buying a physical 
bond. Economic benefits include potentially lower transaction costs or 
attractive relative valuation of a derivative versus a physical bond 
(e.g., differences in yields).
    The Adviser further believes that derivatives can be used as a more 
liquid means of adjusting portfolio duration as well as targeting 
specific areas of yield curve exposure, with potentially lower 
transaction costs than the underlying securities (e.g., interest rate 
swaps may have lower transaction costs than physical bonds). Similarly, 
money market futures can be used to gain exposure to short-term 
interest rates in order to express views on anticipated changes in 
central bank policy rates. In addition, derivatives can be used to 
protect client assets through selectively hedging downside (or ``tail 
risks'') in a Fund.
    A Fund also can use derivatives to increase or decrease credit 
exposure. Index credit default swaps (CDX) can be used to gain exposure 
to a basket of credit risk by ``selling protection'' against default or 
other credit events, or to hedge broad market credit risk by ``buying 
protection.'' Single name credit default swaps (CDS) can be used to 
allow a Fund to increase or decrease exposure to specific issuers, 
saving investor capital through lower trading costs. A Fund can use 
total return swap contracts to obtain the total return of a reference 
asset or index in exchange for paying a financing cost. A total return 
swap may be much more efficient than buying underlying securities of an 
index, potentially lowering transaction costs.
    The Adviser believes that the use of derivatives will allow a Fund 
to selectively add diversifying sources of return from selling options. 
Option purchases and sales can also be used to hedge specific exposures 
in the portfolio, and can provide access to return streams available to 
long-term investors such as the persistent difference between implied 
and realized volatility. Option strategies can generate income or 
improve execution prices (i.e., covered calls).
    In view of the Exchange's proposal to permit the Funds (other than 
the PIMCO Total Return Exchange-Traded Fund) to use derivative 
instruments, as described above, each Fund's investments in derivative 
instruments may be used to enhance leverage. However, the Funds' 
investments will not be used to seek performance that is the multiple 
or inverse multiple (e.g., 2Xs and 3Xs) of a Fund's broad-based 
securities market index.\16\
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    \16\ Each Fund's broad-based securities market index is 
identified in a Fund's Registration Statement following a Fund's 
first full calendar year of performance.
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Other Investments
    In addition to a Fund's use of derivatives in connection with its 
Primary Investment Strategy as described above, under the proposal each 
Fund may seek to invest in derivative instruments apart from a Fund's 
Primary Investment Strategy, consistent with a Fund's investment 
restrictions relating to exposure to other asset classes not related to 
a Fund's Primary Investment Strategy.
    The Prior Releases relating to the PIMCO Foreign Currency Strategy 
Exchange-Traded Fund and PIMCO Global Advantage[supreg] Inflation-
Linked Bond Exchange-Traded Fund also stated that those Funds may 
invest in debt securities and instruments that are economically tied to 
foreign (non-U.S.) countries. The Prior Releases for those Funds stated 
further that PIMCO generally considers an instrument to be economically 
tied to a non-U.S. country if the issuer is a foreign government (or 
any political subdivision, agency, authority or instrumentality of such 
government), or if the issuer is organized under the laws of a non-U.S. 
country. In the case of applicable money market instruments, such 
instruments will be considered economically tied to a non-U.S. country 
if either the issuer or the guarantor of such money market instrument 
is organized under the laws of a non-U.S. country.
    The Exchange proposes to add to this representation that, with 
respect to derivative instruments, as proposed to be used, PIMCO 
generally will consider such instruments to be economically tied to 
non-U.S. countries if the underlying assets are foreign currencies (or 
baskets or indexes of such currencies), or instruments or securities 
that are issued by foreign governments (or any political subdivision, 
agency, authority or instrumentality of such governments) or issuers 
organized under the laws of a non-U.S. country (or if the underlying 
assets are money market instruments, as applicable, if either the 
issuer or the guarantor of such money market instruments is organized 
under the laws of a non-U.S. country).
Derivatives Valuation Methodology for Purposes of Determining Net Asset 
Value
    According to the Registration Statement, the net asset value 
(``NAV'') of each Fund's Shares is determined by dividing the total 
value of a Fund's portfolio investments and other assets, less any 
liabilities, by the total number of Shares outstanding. Each Fund's 
Shares are valued as of the close of regular trading of the New York 
Stock Exchange (``NYSE'') (normally 4:00 p.m., Eastern time (``E.T.'')) 
(the ``NYSE Close'') on each day NYSE Arca is open (``Business Day''). 
Information that becomes known to the applicable Fund or its agents 
after the NAV has been calculated on a particular day will not 
generally be used to retroactively adjust the price of a portfolio 
asset or the NAV determined earlier that day. Each Fund reserves the 
right to change the time its NAV is calculated if a Fund closes 
earlier, or as permitted by the Commission. For purposes of calculating 
NAV, portfolio securities and other assets for which market quotes are 
readily available are valued at market value. Market value is generally 
determined on the basis of last reported sales prices, or if no sales 
are reported, based on quotes obtained from a quotation reporting 
system, established market makers, or pricing services. Non-exchange-
traded derivatives will normally be valued on the basis of quotes 
obtained from brokers and dealers or third party 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, futures and options 
on futures will generally be valued at the settlement price determined 
by the applicable exchange.
    Derivatives for which market quotes are readily available will be 
valued at

[[Page 62217]]

market value. Local closing prices will be used for all instrument 
valuation purposes. For a Fund's 4:00 p.m. E.T. futures holdings, 
estimated prices from Reuters will be used if any cumulative futures 
margin impact is greater than $0.005 to the NAV due to futures movement 
after the fixed income futures market closes (3:00 p.m. E.T.) and up to 
the NYSE close (generally 4:00 p.m. E.T.). Swaps traded on exchanges 
such as the Chicago Mercantile Exchange (``CME'') or the 
Intercontinental Exchange (``ICE-US'') will use the applicable exchange 
closing price where available.
Derivatives Valuation Methodology for Purposes of Determining Intra-Day 
Indicative Value
    On each Business Day, before commencement of trading in a Fund's 
Shares on NYSE Arca, each Fund discloses on its Web site the identities 
and quantities of the portfolio instruments and other assets held by a 
Fund that will form the basis for a Fund's calculation of NAV at the 
end of the Business Day.
    In order to provide additional information regarding the intra-day 
value of Shares of a Fund, the NYSE Arca or a market data vendor 
disseminates every 15 seconds through the facilities of the 
Consolidated Tape Association or other widely disseminated means an 
updated Intra-day Indicative Value (``IIV'') for a Fund as calculated 
by an information provider or market data vendor.
    A third party market data provider is currently calculating the IIV 
for the Funds that have commenced operations. For the purposes of 
determining the IIV, the third party market data provider's valuation 
of derivatives is expected to be similar to their valuation of all 
securities. The third party market data provider may use market quotes 
if available or may fair value securities against proxies (such as swap 
or yield curves).
    Price information for the debt securities and other financial 
instruments held by each of the Funds, including the intra-day, closing 
settlement price for the Fixed Income Instruments and derivatives 
thereon, and other financial instruments held by each of the Funds, 
will be available through major market data vendors.
    With respect to specific derivatives:
     Foreign currency derivatives may be valued intraday using 
market quotes, or another proxy as determined to be appropriate by the 
third party market data provider.
     Futures may be valued intraday using the relevant futures 
exchange data, or another proxy as determined to be appropriate by the 
third party market data provider.
     Interest rate swaps may be mapped to a swap curve and 
valued intraday based on changes of the swap curve, or another proxy as 
determined to be appropriate by the third party market data provider.
     CDX/CDS may be valued using intraday data from market 
vendors, or based on underlying asset price, or another proxy as 
determined to be appropriate by the third party market data provider.
     Total return swaps may be valued intraday using the 
underlying asset price, or another proxy as determined to be 
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the 
relevant exchange data, or another proxy as determined to be 
appropriate by the third party market data provider.
     OTC options, including options on swaps, may be valued 
intraday through option valuation models (e.g., Black-Scholes) or using 
exchange traded options as a proxy, or another proxy as determined to 
be appropriate by the third party market data provider.
     A third party market data provider's valuation of forwards 
will be similar to its valuation of the underlying securities, or 
another proxy as determined to be appropriate by the third party market 
data provider. The third party market data provider will generally use 
market quotes if available. Where market quotes are not available, they 
may fair value securities against proxies (such as swap or yield 
curves). Each Fund's disclosure of forward positions will include 
information that market participants can use to value these positions 
intraday.
Disclosed Portfolio
    Each Fund's disclosure of derivative positions in the Disclosed 
Portfolio will include information that market participants can use to 
value these positions intraday. On a daily basis, each Fund will 
disclose on each 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 (including the type of holding, such as the type of swap); the 
identity of the security, commodity, index or other asset or instrument 
underlying the holding, if any; for options, the option strike price; 
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 each Fund's portfolio.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal, if any, impact to the 
arbitrage mechanism as a result of the use of derivatives. Market 
makers and participants should be able to value derivatives as long as 
the positions are disclosed with relevant information. The Adviser 
believes that the price at which Shares trade will continue to be 
disciplined by arbitrage opportunities created by the ability to 
purchase or redeem creation units of Shares at their NAV, which should 
ensure that Shares will not trade at a material discount or premium in 
relation to their NAV.
    The Adviser does not believe there will be any significant impacts 
to the settlement or operational aspects of a Fund's arbitrage 
mechanism due to the use of derivatives. Because derivatives generally 
are not eligible for in-kind transfer, they will typically be 
substituted with a ``cash in lieu'' amount when a Fund processes 
purchases or redemptions of creation units in-kind.
Illiquid Securities
    The Exchange proposes to amend the representations in certain of 
the Prior Releases \17\ relating to holdings of the Funds in illiquid 
assets to conform such representations to those made in the Prior 
Releases for the PIMCO Diversified Income Exchange-Traded Fund, PIMCO 
Low Duration Exchange-Traded Fund, PIMCO Real Return Exchange-Traded 
Fund, and the Second PIMCO Total Return Release, as described below.
---------------------------------------------------------------------------

    \17\ See note 4, supra.
---------------------------------------------------------------------------

    In the respective Prior Releases for the PIMCO Build America Bond 
Exchange-Traded [sic], PIMCO Intermediate Municipal Bond Exchange-
Traded Fund and PIMCO Short-Term Municipal Bond Exchange-Traded Fund 
and the First PIMCO Total Return Prior Release, the Exchange stated 
that each such Fund may invest up to 15% of its net assets in illiquid 
securities. In the Prior Release for the PIMCO Foreign Currency 
Strategy Exchange-Traded Fund, the Exchange stated that the Fund may 
hold up to an aggregate amount of 15% of its net assets in illiquid 
securities (calculated at the time of investment), and that certain 
financial instruments, including, but not limited to, Rule 144A 
securities, loan participations and assignments, delayed funding loans, 
revolving credit facilities, and fixed- and floating-rate loans will be 
included

[[Page 62218]]

in the 15% limitation on illiquid securities. In the Prior Release for 
the PIMCO Global Advantage[supreg] Inflation-Linked Bond Strategy 
Exchange-Traded Fund, the Exchange stated that the Fund may hold in the 
aggregate up to 15% of its net assets in: (1) Illiquid securities, 
which include delayed funding loans, revolving credit facilities, 
fixed- and floating-rate loans and loan participations and assignments, 
and (2) Rule 144A securities.
    The Exchange proposes that each of such representations in such 
Prior Releases be replaced and superseded by the representation in the 
respective Prior Releases for the PIMCO Diversified Income Exchange-
Traded Fund, PIMCO Low Duration Exchange-Traded Fund, PIMCO Real Return 
Exchange-Traded Fund and the Second PIMCO Total Return Release relating 
to investments in illiquid assets,\18\ namely, that 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,\19\ consistent with Commission 
guidance.\20\ Such illiquid assets, therefore, could include, in 
addition to Rule 144A securities, financial instruments such as delayed 
funding loans, revolving credit facilities, fixed- and floating-rate 
loans and loan participations and assignments deemed illiquid by the 
Adviser, consistent with Commission guidance.
---------------------------------------------------------------------------

    \18\ See notes 4 and 6, supra.
    \19\ In reaching liquidity decisions with respect to Rule 144A 
securities, the Adviser may consider the following factors: the 
frequency of trades and quotes for the security; the number of 
dealers willing to purchase or sell the security and the number of 
other potential purchasers; dealer undertakings to make a market in 
the security; and the nature of the security and the nature of the 
marketplace trades (e.g., the time needed to dispose of the 
security, the method of soliciting offers, and the mechanics of 
transfer).
    \20\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the 1933 Act).
---------------------------------------------------------------------------

    The Exchange notes that each Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of a Fund's net assets are held in 
illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.\21\
---------------------------------------------------------------------------

    \21\ See note 20, supra.
---------------------------------------------------------------------------

Fund Holdings in Non-U.S. Equity Securities and Other Financial 
Instruments
    The Exchange proposes to amend the representations made in the 
Prior Releases regarding holdings by the Funds in non-U.S. equity 
securities, as described below. In the Prior Release for the PIMCO 
Diversified Income Exchange-Traded Fund, PIMCO Low Duration Exchange-
Traded Fund and PIMCO Real Return Exchange-Traded Fund, the Exchange 
stated that such Funds will invest only in U.S. and non-U.S. equity 
securities that trade in markets that are members of the ISG or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange. In the Prior Releases for the PIMCO Intermediate Municipal 
Bond Strategy Exchange-Traded Fund, PIMCO Short-Term Municipal Bond 
Strategy Exchange-Traded Fund and PIMCO Build America Bond Exchange-
Traded Fund, the Exchange stated that such Funds will not invest in 
non-U.S. equity securities. In the Prior Release for the PIMCO Foreign 
Currency Strategy Exchange-Traded Fund and First PIMCO Total Return 
Notice,\22\ the Exchange stated that such Funds will not invest in any 
non-U.S. registered equity securities, except if such securities are 
traded on exchanges that are members of the ISG. In the Prior Release 
for the PIMCO Global Advantage[supreg] Inflation-Linked Bond Strategy 
Exchange-Traded Fund, the Exchange stated that, with respect to its 
equity securities investments, the Fund will invest only in U.S. 
registered equity securities and non-U.S.-registered equity securities 
that trade in markets that are members of the ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.\23\ The 
Exchange proposes to amend such statements in the Prior Releases to 
provide that not more than 10% of the net assets of a Fund in the 
aggregate invested in equity securities (excluding non-exchange-traded 
investment company securities) shall consist of equity securities, 
including stocks into which a convertible security is converted, whose 
principal market is not a member of the ISG or is a market with which 
the Exchange does not have a comprehensive surveillance sharing 
agreement. Furthermore, the Exchange proposes that not more than 10% of 
the net assets of a Fund in the aggregate invested in futures contracts 
or exchange-traded options contracts shall consist of futures contracts 
or exchange-traded options contracts whose principal market is not a 
member of ISG or is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    \22\ See note 4, supra.
    \23\ See note 26, infra.
---------------------------------------------------------------------------

    The Exchange notes that the Commission has previously approved 
similar percentage limitations for other funds listed on the Exchange 
under NYSE Arca Equities Rule 8.600.\24\ Such a representation assures 
that most applicable exchange-traded assets of a Fund will be assets 
whose principal market is an ISG member or a market with which the 
Exchange has a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    \24\ See Securities Exchange Act Release Nos. 69915 (July 2, 
2013), 78 FR 41145 (July 9, 2013) (SR-NYSEArca-2013-56) (order 
approving listing and trading of shares of the PowerShares China A-
Share Portfolio under NYSE Arca Equities Rule 8.600); 72665 (July 
24, 2014), 79 FR 44236 (July 30, 2014) (SR-NYSEArca-2014-59) (order 
approving listing and trading of shares of the AdvisorShares Athena 
High Dividend ETF under NYSE Arca Equities Rule 8.600; 72882 (August 
20, 2014) (SR-NYSEArca-2014-58) (order approving listing and trading 
of shares of PIMCO Short-Term Exchange-Traded Fund and PIMCO 
Municipal Bond Exchange-Traded Fund under NYSE Arca Equities Rule 
8.600); 72853 (August 15, 2014) (SR-NYSEArca-2014-57) (order 
approving listing and trading of shares of the PIMCO Foreign Bond 
Exchange-Traded Fund (U.S. Dollar-Hedged), PIMCO Foreign Bond 
Exchange-Traded Fund (Unhedged), PIMCO Global Advantage Bond 
Exchange-Traded Fund, and PIMCO International Advantage Bond 
Exchange-Traded Fund under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    The changes described herein will be effective upon (i) the 
effectiveness of an amendment to the Trust's Registration Statement 
disclosing the Funds' intended use of derivative instruments and (ii) 
when this proposed rule change has become operative. The Adviser 
represents that the Adviser has managed and will continue to manage 
those Funds that have commenced operations in the manner described in 
the applicable Prior Release, and will not implement the changes 
described herein until this proposed rule change is operative.

[[Page 62219]]

    The Adviser represents that there is no change to each Fund's 
investment objective. Each Fund will continue to comply with all 
initial and continued listing requirements under NYSE Arca Equities 
Rule 8.600, as applicable.
    Except for the changes noted in this filing, all other facts 
presented and representations made in the Prior Releases remain 
unchanged.
    All terms referenced but not defined herein are defined in the 
Prior Releases.
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.\25\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and federal securities laws applicable to trading on 
the Exchange.
---------------------------------------------------------------------------

    \25\ 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, exchange traded equities, options, 
futures, options on futures and other exchange-traded assets with other 
markets or other entities that are members of the Intermarket 
Surveillance Group (``ISG''), and FINRA may obtain trading information 
regarding trading in the Shares, exchange traded equities, options, 
futures, options on futures and other exchange-traded assets from such 
markets or entities. In addition, the Exchange may obtain information 
regarding trading in the Shares, exchange traded equities, options, 
futures, options on futures and other exchange-traded assets from 
markets or other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.\26\ In addition, FINRA, on behalf of the Exchange, is able 
to access, as needed, trade information for certain fixed income 
securities held by a Fund reported to FINRA's Trade Reporting and 
Compliance Engine (``TRACE''). FINRA also can access data obtained from 
the Municipal Securities Rulemaking Board relating to municipal bond 
trading activity for surveillance purposes in connection with trading 
in the Shares.
---------------------------------------------------------------------------

    \26\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for a Fund may trade on markets that are members 
of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
2. Statutory Basis
    The basis under the Act \27\ for this proposed rule change is the 
requirement under Section 6(b)(5) \28\ 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.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78a.
    \28\ 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 continue to be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in NYSE Arca Equities 
Rule 8.600. Each Fund will continue to comply with all initial and 
continued listing requirements under NYSE Arca Equities Rule 8.600, as 
applicable. The Exchange represents that these procedures are adequate 
to properly monitor Exchange trading of the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
federal securities laws applicable to trading on the Exchange. FINRA, 
on behalf of the Exchange, will communicate as needed regarding trading 
in the Shares, exchange traded equities, options, futures, options on 
futures and other exchange-traded assets with other markets or other 
entities that are members of the ISG, and FINRA may obtain trading 
information regarding trading in the Shares, exchange traded equities, 
options, futures, options on futures and other exchange-traded assets 
from such markets or entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, exchange traded equities, 
options, futures, options on futures and other exchange-traded assets 
from markets or other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement. In addition, FINRA, on behalf of the Exchange, is able to 
access, as needed, trade information for certain fixed income 
securities held by a Fund reported to FINRA's TRACE. FINRA also can 
access data obtained from the Municipal Securities Rulemaking Board 
relating to municipal bond trading activity for surveillance purposes 
in connection with trading in the Shares.
    Each Fund's investments will be consistent with its investment 
objective, which remains unchanged. The proposed amendments permitting 
the Funds to invest in derivative instruments, such as options 
contracts, futures contracts and swap agreements, promotes just and 
equitable principals of trade and furthers the protection of investors 
and the public interest. Each Fund's investments will not be used to 
seek performance that is the multiple or inverse multiple (e.g., 2Xs 
and 3Xs) of a Fund's broad-based securities market index.\29\
---------------------------------------------------------------------------

    \29\ See note 16, supra.
---------------------------------------------------------------------------

    Permitting the use of derivatives will provide additional 
flexibility to the Adviser in seeking to achieve each Fund's investment 
objective. For example, because the markets for certain securities, or 
the securities themselves, may be unavailable or cost prohibitive as 
compared to derivative instruments, suitable derivative transactions 
may be an efficient alternative for a Fund to obtain the desired asset 
exposure. Additionally, derivatives allow parties to replicate desired 
returns while eliminating the costs associated with acquiring or 
holding the underlying asset. As such, the increased flexibility 
afforded by the ability to use derivatives may enhance investor returns 
by facilitating a Fund's ability to more economically seek its 
investment objectively, thereby reducing the costs--actual, opportunity 
or otherwise--incurred by a Fund.
    With respect to the representation above that the Exchange proposes 
to explicitly include options on swap agreements as derivative 
instruments in which the PIMCO Total Return Exchange-Traded Fund and 
all other Funds may invest, the Exchange believes such inclusion will 
not adversely impact investors and serves to protect investors and the 
public interest for the following reasons. The proposed revised 
representations are similar to

[[Page 62220]]

those previously approved by the Commission for other exchange-traded 
funds listed and traded on the Exchange pursuant to NYSE Arca Equities 
Rule 8.600.\30\ In the case of OTC swaps and OTC options, the Adviser 
represents that it has implemented policies and procedures which govern 
the selection of counterparties to reduce the risks associated with 
swaps, including, but not limited to, counterparty risk and 
concentration risk. In addition, as described further below, a Fund's 
investments in derivative instruments will be made in accordance with 
the 1940 Act and consistent with a Fund's investment objectives and 
policies. To limit the potential risk associated with transactions in 
derivative instruments, each Fund will segregate or ``earmark'' assets 
determined to be liquid by PIMCO in accordance with procedures 
established by the Trust's Board of Trustees and in accordance with the 
1940 Act.
---------------------------------------------------------------------------

    \30\ See, e.g., Securities Exchange Act Release Nos. [sic] 7882 
(August 20, 2014) (SR-NYSEArca-2014-58) (order approving listing and 
trading on the Exchange of shares of the PIMCO Short-Term Exchange-
Traded Fund and the PIMCO Municipal Bond Exchange-Traded Fund under 
NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    With respect to the representation above that, with respect to 
derivative instruments, as proposed to be used, PIMCO generally will 
consider such instruments to be economically tied to non-U.S. countries 
if the underlying assets are foreign currencies, or instruments or 
securities that are issued by foreign governments or issuers organized 
under the laws of a non-U.S. country (or if the underlying assets are 
money market instruments, as applicable, if either the issuer or the 
guarantor of such money market instruments is organized under the laws 
of a non-U.S. country), the Exchange believes such consideration will 
not adversely impact investors and serves to protect investors and the 
public interest for the following reasons. The proposed revised 
representations are similar to those previously approved by the 
Commission for other exchange-traded funds listed and traded on the 
Exchange pursuant to NYSE Arca Equities Rule 8.600.\31\ In addition, as 
described further below, a Fund's investments in derivative instruments 
will be made in accordance with the 1940 Act and consistent with a 
Fund's investment objectives and policies. To limit the potential risk 
associated with transactions in derivative instruments, each Fund will 
segregate or ``earmark'' assets determined to be liquid by PIMCO in 
accordance with procedures established by the Trust's Board of Trustees 
and in accordance with the 1940 Act.
---------------------------------------------------------------------------

    \31\ See note 30, supra.
---------------------------------------------------------------------------

    With respect to the representation in ``Surveillance'' above that 
(1) not more than 10% of the net assets of a Fund in the aggregate 
invested in equity securities (excluding non-exchange-traded investment 
company securities) shall consist of equity securities, including 
stocks into which a convertible security is converted, whose principal 
market is not a member of the ISG or is a market with which the 
Exchange does not have a comprehensive surveillance sharing agreement, 
and (2) not more than 10% of the net assets of a Fund in the aggregate 
invested in futures contracts or exchange-traded options contracts 
shall consist of futures contracts or exchange-traded options contracts 
whose principal market is not a member of ISG or is a market with which 
the Exchange does not have a comprehensive surveillance sharing 
agreement, the Exchange believes such limitation of assets will not 
adversely impact investors and serves to protect investors and the 
public interest for the following reasons. The Commission has 
previously approved such limitations for other funds listed on the 
Exchange under NYSE Arca Equities Rule 8.600.\32\ Such a representation 
assures that most applicable exchange-traded assets of a Fund will be 
assets whose principal market is an ISG member or a market with which 
the Exchange has a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    \32\ See Securities Exchange Act Release Nos. 69915 (July 2, 
2013), 78 FR 41145 (July 9,2013) (SR-NYSEArca-2013-56) (order 
approving listing and trading of shares of the PowerShares China A-
Share Portfolio under NYSE Arca Equities Rule 8.600); 72665 (July 
24, 2014), 79 FR 44236 (July 30, 2014) (SR-NYSEArca-2014-59) (order 
approving listing and trading of shares of the AdvisorShares Athena 
High Dividend ETF under NYSE Arca Equities Rule 8.600 [sic]; 72882 
(August 20, 2014) (SR-NYSEArca-2014-58) (order approving listing and 
trading of shares of PIMCO Short-Term Exchange-Traded Fund and PIMCO 
Municipal Bond Exchange-Traded Fund under NYSE Arca Equities Rule 
8.600); 72853 (August 15, 2014) (SR-NYSEArca-2014-57) (order 
approving listing and trading of shares of the PIMCO Foreign Bond 
Exchange-Traded Fund (U.S. Dollar-Hedged), PIMCO Foreign Bond 
Exchange-Traded Fund (Unhedged), PIMCO Global Advantage Bond 
Exchange-Traded Fund, and PIMCO International Advantage Bond 
Exchange-Traded Fund under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    With respect to the proposed changes to certain representations in 
the Prior Releases and the Second PIMCO Total Return Release, relating 
to limitations on investments in illiquid assets, the Exchange believes 
such limitation of assets will not adversely impact investors and 
serves to protect investors and the public interest for the following 
reasons. The Exchange notes that the proposed revised representations 
are similar to those previously approved by the Commission in the Prior 
Releases for the PIMCO Diversified Income Exchange-Traded Fund, PIMCO 
Low Duration Exchange-Traded Fund, PIMCO Real Return Exchange-Traded 
Fund and the Second PIMCO Total Return Release relating to investments 
in illiquid assets.\33\ In addition, the Exchange notes that each Fund 
will monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of a Fund's 
net assets are held in illiquid assets.
---------------------------------------------------------------------------

    \33\ See notes 4 and 6, supra.
---------------------------------------------------------------------------

    Investor protection and the public interest are further advanced as 
a result of the following factors:
     Each Fund's compliance with the requirements of the 
federal securities laws, in particular, the restrictions under the 1940 
Act regarding limitation on investments in illiquid securities;
     The central clearing of U.S. exchange-traded futures and 
options contracts and certain swaps;
     In the case of OTC swaps and OTC options, the Adviser 
represents that it has implemented policies and procedures which govern 
the selection of counterparties to reduce the risks associated with 
swaps, including, but not limited to, counterparty risk and 
concentration risk.
     The Adviser represents that each Fund will comply with the 
representations stated in the No-Action Letter, as stated above. In 
addition, all other representations in the Prior Releases and the Total 
Return Release, with the exceptions noted above, remain as stated 
therein and no other changes are being made.
     Investments in derivative instruments will be made in 
accordance with the 1940 Act and consistent with a Fund's investment 
objectives and policies. To limit the potential risk associated with 
transactions in derivative instruments, each Fund will segregate or 
``earmark'' assets determined to be liquid by PIMCO in accordance with 
procedures established by the Trust's Board of Trustees and in 
accordance with the 1940 Act (or, as permitted by applicable 
regulation, enter into certain offsetting positions) to cover its 
obligations under derivative

[[Page 62221]]

instruments. These procedures have been adopted consistent with Section 
18 of the 1940 Act and related Commission guidance. In addition, each 
Fund will include appropriate risk disclosure in its offering 
documents, including leveraging risk.
     The listing and trading of Shares of a Fund is governed by 
Exchange initial and continued listing rules as approved by the 
Commission, including NYSE Arca Equities Rule 8.600.
     As described in the Prior Releases under ``Availability of 
Information'', the Funds' Web site discloses specified quantitative 
information updated on a daily basis, as well as the Disclosed 
Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) that will 
form the basis for a Fund's calculation of NAV at the end of the 
business day. On a daily basis, each Fund will disclose on each 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 (including the type of 
holding, such as the type of swap); the identity of the security, 
commodity, index or other asset or instrument underlying the holding, 
if any; for options, the option strike price; 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 each Fund's portfolio.
     The proposed rule change helps to perfect the mechanism of 
a free and open market by enhancing investor choice and providing 
investors a cost effective and efficient means to access an asset class 
through a diversified vehicle that is listed and traded on an exchange.

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 purposes of the Act. The proposed rule change 
will allow each Fund to use derivative instruments as a more efficient 
substitute for taking a position in the underlying asset and/or as part 
of a strategy designed to reduce exposure to risks (such as interest 
rate or currency risk) or to enhance investment returns. The proposed 
change, therefore, will provide additional flexibility to the Adviser 
to seek each Fund's investment objective and will enhance each Fund's 
ability to compete with other actively managed exchange-traded funds 
and mutual funds.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, if consistent with 
the protection of investors and the public interest, the proposed rule 
change has become effective pursuant to Section 19(b)(3)(A) of the Act 
\34\ and Rule 19b-4(f)(6)(iii) thereunder.\35\
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(3)(A).
    \35\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act.

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-2014-104 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-2014-104. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also 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-2014-104 and should 
be submitted on or before November 6, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-24545 Filed 10-15-14; 8:45 am]
BILLING CODE 8011-01-P


