
[Federal Register Volume 79, Number 249 (Tuesday, December 30, 2014)]
[Notices]
[Pages 78533-78540]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-30444]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73908; File No. SR-NYSEArca-2014-85]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to the Listing and Trading of 
Shares of the PIMCO Low Duration Investment Grade Corporate Bond Active 
Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600

December 22, 2014.

I. Introduction

    On October 23, 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'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the PIMCO Low Duration Investment Grade Corporate Bond 
Active Exchange-Traded Fund (``Fund'') under NYSE Arca Equities Rule 
8.600. The proposed rule change was published for comment in the 
Federal Register on November 14, 2014.\3\ The Commission received no 
comments on the proposal. 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. 73556 (Nov. 7, 
2014), 79 FR 68330 (``Notice'').

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[[Page 78534]]

II. Description of the Proposal

    NYSE Arca proposes to list and trade Shares of the Fund under NYSE 
Arca Equities 8.600, which governs the listing and trading of Managed 
Fund Shares on the Exchange. The Shares will be offered by PIMCO ETF 
Trust (``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.\4\ Pacific Investment Management Company 
LLC will be the investment manager to the Fund (``PIMCO'' or 
``Adviser),\5\ and PIMCO Investments LLC will serve as the distributor 
for the Fund. State Street Bank & Trust Co. will serve as the custodian 
and transfer agent for the Fund.
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). The Exchange represents that, on June 17, 2014, 
the Trust filed an amendment to its registration statement on Form 
N-1A under the Securities Act of 1933 (``1933 Act'') and the 1940 
Act relating to the Fund (File Nos. 333-155395 and 811-22250) 
(``Registration Statement''). In addition, the Exchange represents 
that the Trust has obtained from the Commission certain exemptive 
relief under the 1940 Act. See Investment Company Act Release No. 
28993 (November 10, 2009) (File No. 812-13571).
    \5\ The Exchange represents that the Adviser is not registered 
as a broker-dealer, but is affiliated with a broker-dealer, and will 
implement a ``fire wall'' with respect to its broker-dealer 
affiliate regarding access to information concerning the composition 
or changes to the Fund's portfolio. The Exchange further represents 
that, if PIMCO elects to hire a sub-adviser for the Fund that is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such sub-adviser will implement a fire wall with respect to its 
relevant personnel or its broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition or 
changes to the portfolio and will be subject to procedures designed 
to prevent the use and dissemination of material, non-public 
information regarding such portfolio. In the event (a) the Adviser 
becomes registered as a broker-dealer or newly affiliated with a 
broker-dealer, or (b) any new adviser or sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, the 
Adviser or any new adviser or sub-adviser, as the case may be, will 
implement a fire wall with respect to its relevant personnel or 
broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material, non-public information regarding the 
portfolio.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategy, including other 
portfolio holdings and investment restrictions.\6\
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    \6\ The Commission notes that additional information regarding 
the Fund, the Trust, and the Shares, including investment 
strategies, risks, creation and redemption procedures, fees, 
portfolio holdings disclosure policies, calculation of net asset 
value (``NAV''), distributions, and taxes, among other things, can 
be found in the Notice and the Registration Statement, as 
applicable. See Notice and Registration Statement, supra notes 3 and 
4, respectively.
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A. Principal Investments of the Fund

    The Fund will seek to maximize total return, consistent with 
prudent investment management, by investing under normal circumstances 
\7\ at least 80% of its assets in a diversified portfolio of investment 
grade corporate ``Fixed Income Instruments'' (as described in more 
detail below) of varying maturities, which may be represented by 
certain derivative instruments, as described in more detail below 
(``80% Policy''). Corporate Fixed Income Instruments will be: Corporate 
debt securities of U.S. and non-U.S. issuers, including convertible 
securities and corporate commercial paper; \8\ inflation-indexed bonds; 
\9\ bank capital securities; \10\ trust preferred securities; and loan 
participations and assignments.\11\
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    \7\ With respect to the 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.
    \8\ The Exchange represents that, with respect to the Fund, 
while non-emerging markets corporate debt securities (excluding 
commercial paper) generally must have $100 million or more par 
amount outstanding and significant par value traded to be considered 
as an eligible investment for the Fund, at least 80% of issues of 
such securities held by the Fund must have $100 million or more par 
amount outstanding at the time of investment. See also infra note 30 
(regarding emerging market corporate debt securities).
    \9\ Inflation-indexed bonds (other than municipal inflation-
indexed bonds and certain corporate inflation-indexed bonds) are 
fixed income securities whose principal value is periodically 
adjusted according to the rate of inflation (e.g., Treasury 
Inflation Protected Securities). Municipal inflation-indexed 
securities are municipal bonds that pay coupons based on a fixed 
rate plus the Consumer Price Index for All Urban Consumers. With 
regard to municipal inflation-indexed bonds and certain corporate 
inflation-indexed bonds, the inflation adjustment is reflected in 
the semi-annual coupon payment.
    \10\ There are two common types of bank capital: Tier I and Tier 
II. Bank capital is generally, but not always, of investment grade 
quality. Tier I securities are typically exchange-traded and often 
take the form of trust preferred securities. Tier II securities are 
commonly thought of as hybrids of debt and preferred stock. Tier II 
securities are typically traded over-the-counter, are often 
perpetual (with no maturity date), callable and, under certain 
conditions, allow for the issuer bank to withhold payment of 
interest until a later date. However, such deferred interest 
payments generally earn interest.
    \11\ According to the Exchange, the Fund may invest in fixed- 
and floating-rate loans, which investments generally will be in the 
form of loan participations and assignments of portions of such 
loans.
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    The average portfolio duration of the Fund normally will vary from 
zero to 4 years based on PIMCO's forecast for interest rates.\12\ In 
furtherance of the Fund's 80% Policy, or with respect to the Fund's 
other investments, the Exchange represents that the Fund may invest in 
derivative instruments, subject to applicable law and any other 
restrictions described herein.
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    \12\ Duration is a measure used to determine the sensitivity of 
a security's price to changes in interest rates. The longer a 
security's duration, the more sensitive it will be to changes in 
interest rates.
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    According to the Exchange, the Fund may purchase or sell securities 
on a when-issued, delayed delivery or forward commitment basis and may 
engage in short sales.\13\ The Fund may, without limitation, seek to 
obtain market exposure to the securities in which it primarily invests 
by entering into a series of purchase and sale contracts or by using 
other investment techniques (such as buy backs or dollar rolls).\14\
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    \13\ The Fund may make short sales of securities to offset 
potential declines in long positions in similar securities and 
increase the flexibility of the Fund, as well as for investment 
return, and as part of a risk arbitrage strategy.
    \14\ A dollar roll is similar except that the counterparty is 
not obligated to return the same securities as those originally sold 
by the Fund but only securities that are ``substantially 
identical.''
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    In selecting investments for the Fund, PIMCO will develop an 
outlook for interest rates, currency exchange rates, and the economy; 
analyze credit and call risks; and use other investment selection 
techniques. The proportion of the Fund's assets committed to 
investments in securities with particular characteristics (such as 
quality, sector, interest rate, or maturity) will vary based on PIMCO's 
outlook for the U.S. economy and the economies of other countries in 
the world, the financial markets, and other factors.
    According to the Exchange, in seeking to identify undervalued 
currencies, PIMCO may consider many factors, with respect to the Fund, 
including but not limited to, longer-term analysis of relative interest 
rates, inflation rates, real exchange rates, purchasing power parity, 
trade account balances, and current account balances, as well as other 
factors that influence exchange rates such as flows, market technical 
trends, and government policies. With respect to fixed income 
investing, PIMCO will attempt to identify areas of the bond market that 
are undervalued relative to the rest of the market. PIMCO will identify 
these areas by grouping fixed income investments into sectors such as 
money markets, governments, corporates, mortgages, asset-backed, and 
international. Sophisticated proprietary software will then assist in 
evaluating sectors and pricing specific investments. Once investment 
opportunities are

[[Page 78535]]

identified, PIMCO will shift assets among sectors depending upon 
changes in relative valuations, credit spreads, and other factors.

B. Other (Non-Principal) Investments of the Fund

    The Exchange represents that the non-principal investments listed 
below would consist of investments that are not included in the Fund's 
80% Policy. Such assets may be invested in the Fixed Income Instruments 
and other instruments, as described below.
    According to the Exchange, with respect to the Fund's investments, 
Fixed Income Instruments will include any one or more of the following: 
securities issued or guaranteed by the U.S. Government, its agencies or 
government-sponsored enterprises (``U.S. Government Securities''); 
mortgage-backed and other asset-backed securities; \15\ structured 
notes, including hybrid or ``indexed'' securities and event-linked 
bonds; \16\ 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; obligations of international agencies or supranational 
entities.
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    \15\ According to the Exchange, mortgage-related and other 
asset-backed securities include collateralized mortgage obligations 
(``CMOs''), commercial mortgage-backed securities, mortgage dollar 
rolls, CMO residuals, stripped mortgage-backed securities, and other 
securities that directly or indirectly represent a participation in, 
or are secured by and payable from, mortgage loans on real property. 
A to-be-announced (``TBA'') transaction is a method of trading 
mortgage-backed securities. In a TBA transaction, the buyer and 
seller agree upon general trade parameters such as agency, 
settlement date, par amount, and price. The actual pools delivered 
generally are determined two days prior to the settlement date.
    \16\  The Exchange represents that the Fund may obtain event-
linked exposure by investing in ``event-linked bonds'' or ``event-
linked swaps'' or by implementing ``event-linked strategies.'' 
Event-linked exposure results in gains or losses that typically are 
contingent, or formulaically related to defined trigger events, 
which include hurricanes, earthquakes, weather-related phenomena, or 
statistics relating to such events. Some event-linked bonds are 
commonly referred to as ``catastrophe bonds.'' If a trigger event 
occurs, the Fund may lose a portion or its entire principal invested 
in the bond or notional amount on a swap.
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    According to the Exchange, the Fund may gain exposure to the real 
estate sector by investing in over-the-counter (``OTC'') real estate-
linked derivatives,\17\ exchange-traded and OTC real estate investment 
trusts (``REITs''), and exchange traded common, exchange-traded and OTC 
preferred, and exchange-traded and OTC convertible securities of 
issuers in real estate-related industries.\18\
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    \17\ Real estate-linked derivatives are derivative instruments 
that are tied to real estate, such as derivatives (e.g., swaps or 
options) on real-estate related indices or specific real-estate 
related companies. The value and risks associated with real estate-
linked derivative instruments are generally similar to those 
associated with direct ownership of real estate.
    \18\ See infra note 23 and accompanying text.
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    The Fund may invest in variable and floating rate securities that 
are not corporate Fixed Income Instruments. The Fund may invest in 
floaters and inverse floaters that are not corporate Fixed Income 
Instruments.
    The Fund may invest in trade claims,\19\ privately placed and 
unregistered securities, and exchange-traded and OTC-traded structured 
products,\20\ including credit-linked securities \21\ and commodity-
linked notes. The Fund also may invest in Brady Bonds.
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    \19\ Trade claims are non-securitized rights of payment arising 
from obligations that typically arise when vendors and suppliers 
extend credit to a company by offering payment terms for products 
and services. If the company files for bankruptcy, payments on these 
trade claims stop and the claims are subject to compromise along 
with the other debts of the company. Trade claims may be purchased 
directly from the creditor or through brokers.
    \20\ The Fund invest in structured products, including 
instruments such as credit-linked securities. For example, a 
structured product may combine a traditional stock, bond, or 
commodity with an option or forward contract. Generally, the 
principal amount, amount payable upon maturity or redemption, or 
interest rate of a structured product is tied (positively or 
negatively) to the price of some commodity, currency, or securities 
index or another interest rate or some other economic factor. The 
interest rate or (unlike most fixed income securities) the principal 
amount payable at maturity of a structured product may be increased 
or decreased, depending on changes in the value of the benchmark. An 
example of exchange-traded structured products would be exchange-
traded notes or ETNs, such as those listed and traded under NYSE 
Arca Equities Rule 5.2(j)(6).
    \21\ Credit-linked securities are generally a basket of 
derivative instruments, such as credit default swaps or interest 
rate swaps. Like an investment in a bond, investments in credit-
linked securities represent the right to receive periodic income 
payments (in the form of distributions) and payment of principal at 
the end of the term of the security. However, these payments are 
conditioned on the trust's receipt of payments from, and the trust's 
potential obligations to, the counterparties to the derivative 
instruments and other securities in which the trust invests.
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    The Exchange represents that the Fund may enter into repurchase 
agreements on instruments other than corporate Fixed Income 
Instruments, in addition to repurchase agreements on corporate Fixed 
Income Instruments mentioned above, in which the Fund purchases a 
security from a bank or broker-dealer, which agrees to purchase the 
security at the Fund's cost plus interest within a specified time. 
Repurchase agreements maturing in more than seven days and which may 
not be terminated within seven days at approximately the amount at 
which the Fund has valued the agreements will be considered illiquid 
securities. The Fund may enter into reverse repurchase agreements on 
instruments other than corporate Fixed Income Instruments, in addition 
to reverse repurchase agreements on corporate Fixed Income Instruments 
mentioned above, subject to the Fund's limitations on borrowings.\22\ 
The Fund will segregate or ``earmark'' assets determined to be liquid 
by PIMCO in accordance with procedures established by the Board to 
cover its obligations under reverse repurchase agreements.
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    \22\ With respect to the Fund, a reverse repurchase agreement 
involves the sale of a security by the Fund and its agreement to 
repurchase the instrument at a specified time and price.
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    The Exchange represents that the Fund may invest only up to 10% of 
its total assets in preferred stocks, convertible securities, common 
stocks, and other equity-related securities, and that this limitation 
will not include real estate-related investments, such as REITs or 
investments in common, preferred, or convertible securities of issuers 
in real estate-related industries.\23\
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    \23\ Convertible securities are generally preferred stocks and 
other securities (including fixed income securities and warrants) 
that are convertible into or exercisable for common stock at a 
stated price or rate. Equity-related investments may include 
investments in small-capitalization (``small-cap''), mid-
capitalization (``mid-cap'') and large-capitalization (``large-
cap'') companies. According to the Exchange, with respect to the 
Fund, a small-cap company will be defined as a company with a market 
capitalization of up to $1.5 billion, a mid-cap company will be 
defined as a company with a market capitalization of between $1.5 
billion and $10 billion and a large-cap company will be defined as a 
company with a market capitalization above $10 billion. Not more 
than 10% of the net assets of the Fund in the aggregate invested in 
equity securities (other than 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 Intermarket Surveillance Group 
(``ISG'') or is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement (``CSSA''). 
Furthermore, not more than 10% of the net assets of the 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 CSSA.
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    The Exchange represents that the Fund may invest up to 20% of its 
total assets in structured notes, including hybrid or ``indexed'' 
securities and

[[Page 78536]]

event-linked bonds. Additionally, the Fund may invest up to 15% of its 
total assets in high yield securities (``junk bonds'') rated below BBB- 
(with a minimum level of B- at purchase) by Standard & Poor's Ratings 
Services (``S&P''), or equivalently rated by Moody's Investors Service, 
Inc. (``Moody's'') or Fitch, Inc. (``Fitch''), or, if unrated, 
determined by PIMCO to be of comparable quality (except that within 
such limitation, the Fund may invest in mortgage-related securities 
rated below B-).\24\
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    \24\ With respect to the Fund, securities rated Ba or lower by 
Moody's, or equivalently rated by S&P or Fitch, are sometimes 
referred to as ``high yield securities'' or ``junk bonds,'' while 
securities rated Baa or higher are referred to as ``investment 
grade.'' Unrated securities may be less liquid than comparable rated 
securities and involve the risk that the Fund's portfolio manager 
may not accurately evaluate the security's comparative credit 
rating. To the extent that the Fund invests in unrated securities, 
the Fund's success in achieving its investment objective may depend 
more heavily on the portfolio manager's creditworthiness analysis 
than if the Fund invested exclusively in rated securities. In 
determining whether a security is of comparable quality, the Adviser 
will consider, for example, whether the issuer of the security has 
issued other rated securities; whether the obligations under the 
security are guaranteed by another entity and the rating of such 
guarantor (if any); whether and (if applicable) how the security is 
collateralized; other forms of credit enhancement (if any); the 
security's maturity date; liquidity features (if any); relevant cash 
flow(s); valuation features; other structural analysis; 
macroeconomic analysis; and sector or industry analysis.
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C. Investments in Derivative Instruments

    With respect to the Fund, the Exchange represents that derivative 
instruments will include forwards; \25\ exchange-traded and 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.\26\ The Fund may, but is not required to, 
use derivative instruments for risk management purposes or as part of 
its investment strategies.\27\
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    \25\ Forwards are contracts to purchase or sell securities for a 
fixed price at a future date beyond normal settlement time (forward 
commitments).
    \26\ The Exchange represents that in the future, in the event 
that there are exchange-traded options on swaps, the Fund may invest 
in these instruments.
    \27\ According to the Exchange, the 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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    According to the Exchange, the Fund will typically use derivative 
instruments as a substitute for taking a position in the underlying 
asset and as part of a strategy designed to reduce exposure to other 
risks, such as interest rate or currency risk. The Fund may also use 
derivative instruments to enhance returns. To limit the potential risk 
associated with such transactions, the Fund will segregate or 
``earmark'' assets determined to be liquid by PIMCO in accordance with 
procedures established by the Trust's Board of Trustees (``Board'') 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. In addition, the Exchange 
represents that the Fund will include appropriate risk disclosure in 
its offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of the Fund, including the Fund's 
use of derivatives, may give rise to leverage, causing the Fund to be 
more volatile than if it had not been leveraged.\28\ According to the 
Exchange, the 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 the Fund to increase or decrease exposure to specific 
issuers, saving investor capital through lower trading costs. The 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.
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    \28\ 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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D. Investment Restrictions

    According to the Exchange, if PIMCO believes that economic or 
market conditions are unfavorable to investors or that market 
conditions are not normal, PIMCO may temporarily invest up to 100% of 
the Fund's assets in certain defensive strategies, including holding a 
substantial portion of the Fund's assets in cash, cash equivalents, or 
other highly rated, short-term securities, including securities issued 
or guaranteed by the U.S. government, its agencies, or 
instrumentalities. As noted above, the Fund may invest without limit, 
for temporary or defensive purposes, in such instruments if PIMCO deems 
it appropriate to do so.
    The Exchange represents that the Fund may invest in, to the extent 
permitted by Section 12(d)(1)(A) of the 1940 Act, other affiliated and 
unaffiliated funds, such as open-end or closed-end management 
investment companies, including other exchange-traded funds, provided 
that the Fund's investment in units or shares of investment companies 
and other open-end collective investment vehicles will not exceed 10% 
of the Fund's total assets. The Fund may invest its securities lending 
collateral in one or more money market funds to the extent permitted by 
Rule 12d1-1 under the 1940 Act, including series of PIMCO Funds.
    The Exchange represents that the Fund may invest up to 20% of its 
total assets in mortgage-related and other asset backed securities, 
although this 20% limitation will not apply to securities issued or 
guaranteed by Federal agencies and/or U.S. government sponsored 
instrumentalities. The Fund may invest up to 20% of its total assets in 
securities denominated in foreign currencies, and may invest beyond 
this limit in U.S. dollar denominated securities of foreign issuers. 
The Fund will normally limit its foreign currency exposure (from non-
U.S. dollar-denominated securities or currencies) to 10% of its total 
assets.\29\ The Fund may engage in foreign currency transactions either 
on a spot (cash) basis at the rate prevailing in the currency exchange 
market at the time or through forward currency contracts. The Exchange 
represents that the Fund may invest up to 20% of its total assets in 
securities and instruments of issuers economically tied to emerging 
market countries.\30\
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    \29\ The Exchange represents that the Fund will limit its 
investments in currencies to those currencies with a minimum average 
daily foreign exchange turnover of USD $1 billion as determined by 
the Bank for International Settlements (``BIS'') Triennial Central 
Bank Survey. As of the most recent BIS Triennial Central Bank 
Survey, at least 52 separate currencies had minimum average daily 
foreign exchange turnover of USD $1 billion. For a list of eligible 
currencies, see www.bis.org.
    \30\ According to the Exchange, PIMCO will generally consider an 
instrument to be economically tied to an emerging market country if 
the security's ``country of exposure'' is an emerging market 
country, as determined by the criteria set forth in the Registration 
Statement. Alternatively, such as when a ``country of exposure'' is 
not available or when PIMCO believes the following tests more 
accurately reflect which country the security is economically tied 
to, PIMCO may consider an instrument to be economically tied to an 
emerging market country if the issuer or guarantor is a government 
of an emerging market country (or any political subdivision, agency, 
authority or instrumentality of such government), if the issuer or 
guarantor is organized under the laws of an emerging market country, 
or if the currency of settlement of the security is a currency of an 
emerging market country. With respect to derivative instruments, 
PIMCO will generally consider such instruments to be economically 
tied to emerging market countries if the underlying assets are 
currencies of emerging market countries (or baskets or indices of 
such currencies), or instruments or securities that are issued or 
guaranteed by governments of emerging market countries or by 
entities organized under the laws of emerging market countries. 
While emerging markets corporate debt securities (excluding 
commercial paper) generally must have $200 million or more par 
amount outstanding and significant par value traded to be considered 
as an eligible investment for the Fund, at least 80% of issues of 
such securities held by the Fund must have $200 million or more par 
amount outstanding at the time of investment.

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[[Page 78537]]

    The Exchange represents that the Fund's investments, including 
investments in derivative instruments, will be subject to all of the 
restrictions under the 1940 Act, including restrictions with respect to 
illiquid assets. The 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.\31\ The Exchange 
represents that the Fund will monitor its respective portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of the Fund's net assets are held in 
illiquid 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.
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    \31\ According to the Exchange, in reaching liquidity decisions, 
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).
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    The Exchange represents that the Fund will be diversified within 
the meaning of the 1940 Act. In addition, the Fund intends to qualify 
annually and elect to be treated as a regulated investment company 
under Subchapter M of the Internal Revenue Code. The Fund will not 
concentrate its investments in a particular industry, as that term is 
used in the 1940 Act, and as interpreted, modified, or otherwise 
permitted by a regulatory authority having jurisdiction from time to 
time.
    The Exchange further represents that the Fund's investments, 
including derivatives, will be consistent with the Fund's investment 
objective and the Fund's use of derivatives may be used to enhance 
leverage. However, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (i.e., 2Xs and 
3Xs) of the Fund's broad-based securities market index (as defined in 
Form N-1A).

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\32\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\33\ 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.
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    \32\ 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).
    \33\ 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 
Exchange Act,\34\ 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, the Portfolio 
Indicative Value of the Fund, as defined in NYSE Arca Equities Rule 
8.600(c)(3), will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Core Trading 
Session.\35\ On each business day, before commencement of trading in 
Shares in the Core Trading Session on the Exchange, the Fund will 
disclose on the Trust's Web site the Disclosed Portfolio (as defined in 
NYSE Arca Equities Rule 8.600(c)(2)) that will form the basis for the 
Fund's calculation of NAV at the end of the business day.\36\ In 
addition, a basket composition file, which includes the security names 
and share quantities (as applicable) required to be delivered in 
exchange for the Fund's Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the Exchange via the National Securities Clearing Corporation. The NAV 
of the Fund's Shares will normally be determined as of the close of the 
regular trading session on the Exchange (ordinarily 4:00 p.m. Eastern 
time) on each business day.\37\ Information regarding market

[[Page 78538]]

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.
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    \34\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \35\ The Exchange states that several major market data vendors 
display or make widely available Portfolio Indicative Values taken 
from the CTA or other data feeds.
    \36\ On a daily basis, the Fund will disclose 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 the Fund's portfolio. The Web 
site information will be publicly available at no charge.
    \37\ The NAV per Share of the Fund will be determined by 
dividing the total value of the Fund's portfolio investments and 
other assets, less any liabilities, by the total number of Shares 
outstanding. According to the Exchange, portfolio securities and 
other assets for which market quotes are readily available will be 
valued at market value. Market value will generally be 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. Fixed Income 
Instruments, including those to be purchased under firm commitment 
agreements/delayed delivery basis, will generally be valued on the 
basis of quotes obtained from brokers and dealers or independent 
pricing services. Domestic and foreign fixed income securities will 
generally be valued on the basis of quotes obtained from brokers and 
dealers or pricing services using data reflecting the earlier 
closing of the principal markets for those assets. Short-term debt 
instruments having a remaining maturity of 60 days or less will 
generally be valued at amortized cost. Derivatives will generally be 
valued on the basis of quotes obtained from brokers and dealers or 
pricing services using data reflecting the earlier closing of the 
principal markets for those assets. Local closing prices will be 
used for all instrument valuation purposes. Foreign currency-
denominated derivatives will generally be valued as of the 
respective local region's market close. With respect to specific 
derivatives: Currency spot and forward rates from major market data 
vendors will generally be determined as of the NYSE Close; exchange-
traded futures will generally be valued at the settlement price of 
the relevant exchange; a total return swap on an index will be 
valued at the publicly available index price; equity total return 
swaps will generally be valued using the actual underlying equity at 
local market closing, while bank loan total return swaps will 
generally be valued using the evaluated underlying bank loan price 
minus the strike price of the loan; exchange-traded non-equity 
options, index options, and options on futures will generally be 
valued at the official settlement price determined by the relevant 
exchange, if available; OTC and exchange-traded equity options will 
generally be valued on a basis of quotes obtained from a quotation 
reporting system, established market makers, or pricing services or 
at the settlement price of the applicable exchange; OTC FX options 
will generally be valued by pricing vendors; all other swaps such as 
interest rate swaps, inflation swaps, swaptions, credit default 
swaps, and CDX/CDS will generally be valued by pricing services. 
Investment company securities that are not exchange-traded will be 
valued at NAV. Equity securities traded OTC will be valued based on 
price quotations obtained from a broker-dealer who makes markets in 
such securities or other equivalent indications of value provided by 
a third-party pricing service. Money market instruments, trade 
claims, OTC REITs, privately placed and unregistered securities, OTC 
structured products, OTC real-estate linked derivatives, credit-
linked securities, commodity-linked notes, Brady Bonds, variable and 
floating rate securities that are not corporate Fixed Income 
Instruments; floaters and inverse floaters that are not corporate 
Fixed Income Instruments and other types of debt securities will 
generally be valued on the basis of independent pricing services or 
quotes obtained from brokers and dealers. Securities and other 
assets for which market quotes are not readily available will be 
valued at fair value as determined in good faith by the Board or 
persons acting at their direction. The Board has adopted methods for 
valuing securities and other assets in circumstances where market 
quotes are not readily available, and has delegated to PIMCO the 
responsibility for applying the valuation methods.
---------------------------------------------------------------------------

    Intra-day and closing price information regarding exchange-traded 
equity securities, including common stocks, preferred stocks, 
securities convertible into stocks, closed-end funds, exchange-traded 
funds, exchange-traded structured products (including ETNs), exchange-
traded REITs, and other equity-related securities, will be available 
from the exchange on which such securities are traded. Intra-day and 
closing price information regarding exchange-traded options (including 
options on futures) and futures will be available from the exchange on 
which such instruments are traded. Intra-day and closing price 
information regarding Fixed Income Instruments and other forms of debt 
securities also will be available from major market data vendors. 
Pricing information relating to forwards, spot currency, OTC options 
and swaps will be available from major market data vendors. Pricing 
information regarding money market instruments, OTC REITs, private 
activity bonds, trade claims, privately placed and unregistered 
securities, OTC real estate-linked derivatives, OTC structured 
products, credit-linked securities, commodity-linked notes, Brady 
Bonds, variable and floating rate securities that are not corporate 
Fixed Income Instruments and floaters and inverse floaters that are not 
corporate Fixed Income Instruments will be available from major market 
data vendors. Pricing information regarding other investment company 
securities will be available from on-line information services and from 
the Web site for the applicable investment company security. Exchange-
traded options quotation and last-sale information for options cleared 
via the Options Clearing Corporation is available via the Options Price 
Reporting Authority. Pricing information relating to equity securities 
traded OTC will be available from major market data vendors. The 
Trust's Web site will include a form of the prospectus for the Fund and 
additional data relating to NAV and other applicable quantitative 
information.
    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 of the Fund that the NAV per Share will be calculated daily 
and that the NAV and the Disclosed Portfolio will be made available to 
all market participants at the same time. Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. In addition, trading in the Shares of the 
Fund may be halted because of other market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable.\38\ Trading in the Shares also will be subject to NYSE 
Arca Equities Rule 8.600(d)(2)(D), which sets forth additional 
circumstances under which trading in Shares of the Fund may be halted.
---------------------------------------------------------------------------

    \38\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities and financial instruments 
comprising the Disclosed Portfolio of the Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance 
of a fair and orderly market are present. With respect to trading 
halts, the Exchange may consider all relevant factors in exercising 
its discretion to halt or suspend trading in the Shares of the Fund.
---------------------------------------------------------------------------

    The Exchange represents 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 Fund's 
``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 the Fund's 
portfolio. The Exchange represents that the Adviser is not registered 
as a broker-dealer, but is affiliated with a broker-dealer, and will 
implement a ``fire wall'' with respect to such broker-dealer affiliate 
regarding access to information concerning the composition or changes 
to the Fund's portfolio.\39\ 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. The Exchange further 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.\40\
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    \39\ See supra note 5. 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 Sub-Adviser and their 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.
    \40\ 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.
---------------------------------------------------------------------------

    The Exchange represents that it deems the Shares to be equity 
securities, thus rendering the trading of 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:

[[Page 78539]]

    (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) Trading in the Shares will be subject to the existing trading 
surveillances, administered by FINRA on behalf of the Exchange, which 
are designed to detect violations of Exchange rules and applicable 
federal securities laws, and 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.
    (4) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the exchange-traded options, exchange-traded 
equities (including common stocks, exchange-traded investment 
companies, exchange- traded convertibles and preferred securities, 
exchange-traded REITs, and exchange-traded structured products, 
including ETNs), futures, and options on futures 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 
options, exchange-traded equities, futures, and options on futures from 
such markets or entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, exchange-traded options, 
exchange-traded equities, futures, and options on futures from markets 
or other entities that are members of ISG or with which the Exchange 
has in place a CSSA.\41\ The Exchange states that FINRA, on behalf of 
the Exchange, is able to access, as needed, trade information for 
certain fixed income securities held by the Fund that is reported to 
FINRA's Trade Reporting and Compliance Engine, and that 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.
---------------------------------------------------------------------------

    \41\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a CSSA.
---------------------------------------------------------------------------

    (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 unit 
aggregations (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 Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\42\ as provided by 
NYSE Arca Equities Rule 5.3.
---------------------------------------------------------------------------

    \42\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (7) The Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the 
Fund's broad-based securities market index (as defined in Form N-1A).
    (8) The 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 Advisor or Sub-
Advisor, in accordance with Commission guidance.
    (9) The Fund will seek, where possible, to use counterparties whose 
financial status is such that the risk of default is reduced. 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.
    (10) The Fund may invest only up to 10% of its total assets in 
preferred stocks, convertible securities, common stocks, and other 
equity-related securities; such limit will not include real-estate 
related investments, such as REITs or investments in common, preferred, 
or convertible securities of issuers in real estate-related industries.
    (11) Not more than 10% of the net assets of the Fund in the 
aggregate invested in equity securities (other than 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 CSSA.
    (12) Not more than 10% of the net assets of the 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 CSSA.
    (13) The Fund shall invest at least 80% of its assets in corporate 
debt securities of U.S. and non-U.S. issuers (which may be represented 
by certain derivatives), including convertible securities and corporate 
commercial paper; inflation-indexed bonds; bank capital securities; 
trust preferred securities; and loan participations and assignments.
    (14) The Fund may invest up to 20% of its total assets in mortgage-
related and other asset backed securities (not including securities 
issued or guaranteed by Federal agencies and U.S. government sponsored 
instrumentalities).
    (15) The Fund may invest up to 20% of its total assets in 
structured notes, including hybrid or ``indexed'' securities and event-
linked bonds.
    (16) The Fund may invest up to 15% of its total assets in high 
yield securities rated below BBB- (with a minimum level of B- at 
purchase) by S&P, or equivalently rated by Moody's or Fitch, or, if 
unrated, determined by PIMCO to be of comparable quality (except that 
within such limitation, the Fund may invest in mortgage-related 
securities rated below B-).
    (17) The Fund may invest up to 20% of its total assets in 
securities and instruments of issuers economically tied to emerging 
market countries.
    (18) While non-emerging markets corporate debt securities 
(excluding commercial paper) generally must have $100 million or more 
par amount outstanding and significant par value traded to be 
considered as an eligible investment for the Fund, at least 80% of 
issues of such securities held by the Fund must have $100 million or 
more par amount outstanding at the time of investment. In addition, 
while emerging markets corporate debt securities (excluding commercial 
paper) generally must have $200 million or more par amount outstanding 
and significant par value traded to be considered as an

[[Page 78540]]

eligible investment for the Fund, at least 80% of issues of such 
securities held by the Fund must have $200 million or more par amount 
outstanding at the time of investment.
    (19) To mitigate leveraging risk as result of certain transactions 
of the Fund, including transactions in derivative instruments, the 
Adviser will segregate or ``earmark'' liquid assets or otherwise cover 
the transactions that may give rise to such risk.
    (20) A minimum of 100,000 Shares 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 Fund. The Commission notes that the 
Fund and the Shares must comply with the requirements of NYSE Arca 
Equities Rule 8.600 to be listed and traded on the Exchange.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \43\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\44\ that the proposed rule change (SR-NYSEArca-2014-85) 
be, and it hereby is, approved.
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    \44\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\45\
---------------------------------------------------------------------------

    \45\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2014-30444 Filed 12-29-14; 8:45 am]
BILLING CODE 8011-01-P


