
[Federal Register Volume 80, Number 73 (Thursday, April 16, 2015)]
[Notices]
[Pages 20529-20534]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2015-08695]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74701; File No. SR-NYSEArca-2015-18]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading under NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02 of Shares of the Vanguard Tax-
Exempt Bond Index Fund

April 10, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on April 6, 2015, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I, II, and III below, which 
Items have been prepared by the Exchange. 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 list and trade under NYSE Arca Equities 
Rule 5.2(j)(3), Commentary .02, the shares of the Vanguard Tax-Exempt 
Bond Index Fund. The text of the proposed rule change is available on 
the Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
Vanguard Tax-Exempt Bond Index Fund's ETF share class (``Fund'') under 
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02, which governs the 
listing and trading of Investment Company Units (``Units'') based on 
fixed income securities indexes.\4\ The Fund is a series of the 
Vanguard Municipal Bond Funds Trust (``Trust'').\5\ The Vanguard Group, 
Inc.

[[Page 20530]]

will be the investment adviser to the Fund (``Adviser'').
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    \4\ The Commission previously has approved proposed rule changes 
relating to listing and trading on the Exchange of Units based on 
municipal bond indexes. See Securities Exchange Act Release Nos. 
67985 (October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-
NYSEArca-2012-92) (order approving proposed rule change relating to 
the listing and trading of iShares 2018 S&P AMT-Free Municipal 
Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE 
Arca Equities Rule 5.2(j)(3), Commentary .02); 67729 (August 24, 
2012), 77 FR 52776 (August 30, 2012) (SR-NYSEArca-2012-92) (notice 
of proposed rule change relating to the listing and trading of 
iShares 2018 S&P AMT-Free Municipal Series and iShares 2019 S&P AMT-
Free Municipal Series under NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02); 71232 (January 3, 2014), 79 FR 1662 (January 9, 
2014) (SR-NYSEArca-2013-118) (order approving listing and trading of 
shares of the Market Vectors Short High-Yield Municipal Index ETF 
under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02); 72523, 
(July 2, 2014), 79 FR 39016 (July 9, 2014) (SR-NYSEArca-2014-37) 
(order approving proposed rule change relating to the listing and 
trading of iShares 2020 S&P AMT-Free Municipal Series under NYSE 
Arca Equities Rule 5.2(j)(3), Commentary .02); 72172 (May 15, 2014), 
79 FR 29241 (May 21, 2014) (SR-NYSEArca-2014-37) (notice of proposed 
rule change relating to the listing and trading of iShares 2020 S&P 
AMT-Free Municipal Series under NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02). The Commission also has issued a notice of filing 
and immediate effectiveness of a proposed rule change relating to 
listing and trading on the Exchange of shares of the iShares Taxable 
Municipal Bond Fund. See Securities Exchange Act Release No. 63176 
(October 25, 2010), 75 FR 66815 (October 29, 2010) (SR-NYSEArca-
2010-94). The Commission has approved for Exchange listing and 
trading of shares of two actively managed funds of the PIMCO ETF 
Trust that principally hold municipal bonds. See Securities Exchange 
Act Release No. 60981 (November 10, 2009), 74 FR 59594 (November 18, 
2009) (SR-NYSEArca-2009-79) (order approving listing and trading of 
shares of the PIMCO Short-Term Municipal Bond Strategy Fund and 
PIMCO Intermediate Municipal Bond Strategy Fund). The Commission 
also has approved listing and trading on the Exchange of shares of 
the SPDR[supreg] Nuveen S&P High Yield Municipal Bond Fund under 
Commentary .02 of NYSE Arca Equities Rule 5.2(j)(3). See Securities 
Exchange Act Release No. 63881 (February 9, 2011), 76 FR 9065 
(February 16, 2011) (SR-NYSEArca-2010-120).
    \5\ On January 6, 2015, the Trust filed a registration statement 
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) 
(``1933 Act'') and the Investment Company Act of 1940 (``1940 Act'') 
(15 U.S.C. 80a-1) (File Nos. 2-57689 and 811-02687) (the 
``Registration Statement''). The description of the operation of the 
Trust and the Fund herein is based, in part, on the Registration 
Statement. In addition, the Commission has issued an order granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No. 27773 (April 2, 2007) (File No. 
812-13336) (``Exemptive Order'').
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    State Street Bank and Trust Company will serve as custodian for the 
Fund. Vanguard Marketing Corporation will be the distributor 
(``Distributor'') for the Fund's Shares.
Principal Investments
    According to the Registration Statement, the Fund will seek to 
track the performance of a benchmark index that measures the 
investment-grade segment of the U.S. municipal bond market. The Fund 
will invest by sampling its benchmark index, meaning that it holds a 
range of securities that, in the aggregate, approximates the full index 
in terms of key risk factors and other characteristics. All of the 
Fund's investments will be selected through the sampling process, and, 
under normal circumstances \6\, at least 80% of the Fund's assets will 
be invested in securities held in its benchmark index. Under normal 
circumstances, at least 80% of the Fund's income will be exempt from 
federal income taxes.
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    \6\ 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.
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    The Fund has proposed to use the Standard & Poor's National AMT-
Free Municipal Bond Index (``Index'') as its benchmark index.\7\ The 
Index includes municipal bonds from issuers that are primarily state or 
local governments or agencies whose interest is exempt from U.S. 
federal income taxes and the federal alternative minimum tax (AMT). To 
be eligible for inclusion in the Index, each bond must have a rating of 
at least investment-grade, as determined by a nationally recognized 
statistical rating organization (e.g., at least BBB- by Fitch Ratings, 
Inc.); be denominated in U.S. dollars; and have a minimum par amount of 
$25 million. In addition, to be included in the Index, each bond must 
have a minimum term to maturity and/or pre-refunded or call date 
greater than or equal to one calendar month. The following bond types 
are specifically excluded from the Index: bonds subject to the AMT; 
commercial paper; derivative securities (inverse floaters, forwards, 
swaps); housing bonds; insured conduit bonds where the obligor is a 
for-profit institution; non-insured conduit bonds; non-rated bonds; 
notes; taxable municipals; tobacco bonds; and variable rate debt. Each 
bond in the Index must be a constituent of a deal where the deal's 
original offering amount was at least $100 million. Index constituents 
normally undergo a review and rebalancing once a month. At each monthly 
rebalancing, no one issuer can represent more than 25% of the weight of 
the Index; and individual issuers that represent at least 5% of the 
weight of the Index cannot account for more than 50% of the weight of 
the Index in the aggregate.
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    \7\ S&P Dow Jones Indices (``S&P'') is the ``Index Provider'' 
with respect to the Index. The Index Provider is not a broker-dealer 
or affiliated with a broker-dealer and has implemented procedures 
designed to prevent the use and dissemination of material, non-
public information regarding the Index.
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Non-Principal Investments
    While under normal circumstances, at least 80% of the Fund's assets 
will be invested in securities held in its benchmark index, as 
described above, the Fund may invest up to 20% of its assets in other 
securities and financial instruments, as described below.
    According to the Registration Statement, up to 20% of the Fund's 
assets may be used to purchase nonpublic, investment-grade securities, 
generally referred to as 144A securities, as well as smaller public 
issues or medium-term notes not included in its benchmark index because 
of the small size of the issue. The vast majority of these securities 
will have characteristics and risks similar to those in the benchmark 
index. Subject to the same 20% limit, the Fund may also purchase other 
investments that are outside of its benchmark index or may hold bonds 
that, when acquired, were included in the benchmark index but 
subsequently were removed.
    The Fund may invest in U.S. Treasury futures contracts, exchange-
traded and over-the-counter (``OTC'') options on such futures 
contracts, exchange-traded and OTC fixed income options, centrally 
cleared and non-centrally cleared interest rate swaps, centrally 
cleared and non-centrally cleared total return swaps, and centrally 
cleared and non-centrally cleared credit default swaps.
    The Fund may invest in non-investment-grade securities, also 
referred to as ``high-yield securities'' or ``junk bonds'', which are 
debt securities that are rated lower than the four highest rating 
categories by a nationally recognized statistical rating organization 
(e.g., lower than Baa3/P-2 by Moody's Investors Service, Inc. 
(Moody's), or below BBB-/A-2 by Standard & Poor's) or, if unrated, are 
determined to be of comparable quality by the Adviser.
    The Fund may invest in variable and floating rate securities, which 
are debt securities that provide for periodic adjustments in the 
interest rate paid on the security. Variable rate securities provide 
for a specified periodic adjustment in the interest rate, while 
floating rate securities have interest rates that change whenever there 
is a change in a designated benchmark rate or the issuer's credit 
quality.
    The Fund may purchase shares of exchange-traded funds (``ETFs'') 
\8\, including ETF shares issued by other Vanguard funds.
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    \8\ For purposes of this filing, ETFs include Investment Company 
Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio 
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); 
and Managed Fund Shares (as described in NYSE Arca Equities Rule 
8.600). The ETFs all will be listed and traded in the U.S. on 
national securities exchanges. While the Fund may invest in inverse 
ETFs, the Fund will not invest in leveraged or inverse leveraged 
ETFs (e.g., 2X or 3X).
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    The Fund may invest in hybrid instruments.\9\
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    \9\ According to the Registration Statement, a hybrid instrument 
is an interest in an issuer that combines the characteristics of an 
equity security, a debt security, a commodity, and/or a derivative. 
Examples of hybrid instruments include exchange-traded or OTC 
convertible securities, contingent convertible securities; trust-
preferred securities, and commodity-linked bonds.
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    In addition to the municipal securities referenced in the 
``Principal Investments'' section above, the Fund may invest in other 
municipal securities, which are debt obligations issued by states, 
municipalities, U.S. jurisdictions or territories, and other political 
subdivisions and by agencies, authorities, and instrumentalities of 
states and multistate agencies or authorities (collectively, 
municipalities). Municipal securities also include a variety of 
structures geared toward accommodating municipal-issuer short-term cash 
flow requirements. These structures include, but are not limited to, 
general market notes, commercial paper, put bonds, and variable-rate 
demand obligations (``VRDOs'').
    The Fund may invest in Build America Bonds.
    The Fund may purchase certain variable-rate demand-preferred 
securities (``VRDPs'') issued by closed-end municipal bond funds, 
which, in turn, invest primarily in portfolios of tax-exempt municipal 
bonds. The Fund

[[Page 20531]]

may invest in securities issued by single-state or national closed-end 
municipal bond funds. VRDPs are issued by closed-end funds to leverage 
returns for common shareholders.
    The Fund may participate in tender option bond programs, which are 
a type of municipal bond derivative structure, which is taxed as a 
partnership for federal income tax purposes. These programs provide for 
tax-exempt income at a variable rate. In such programs, high-quality 
longer-term municipal bonds are held inside a trust and varying 
economic interests in the bonds are created and sold to investors.
Investment Restrictions
    The Fund may invest in other investment companies to the extent 
permitted by applicable law or Commission exemption and consistent with 
Section 12(d)(1) of the 1940 Act.
    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, in 
accordance with Commission guidance.\10\ The Fund will monitor its 
portfolio liquidity on an ongoing basis to determine whether, in light 
of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid securities. Illiquid securities 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.\11\
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    \10\ Several factors considered in monitoring illiquidity 
determinations include the valuation of a security; the availability 
of qualified institutional buyers, brokers, and dealers that trade 
in the security; and the availability of information about the 
security's issuer.
    \11\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the 1933 Act).
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    The Fund is classified as diversified within the meaning of the 
1940 Act.\12\
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    \12\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund intends to maintain the required level of diversification 
and otherwise conduct its operations so as to qualify as a ``regulated 
investment company'' for purposes of the Internal Revenue Code of 
1986.\13\
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    \13\ 26 U.S.C. 851.
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    The Exchange is submitting this proposed rule change because the 
Index for the Fund does not meet all of the ``generic'' listing 
requirements of Commentary .02(a) to NYSE Arca Equities Rule 5.2(j)(3) 
applicable to the listing of Units based on fixed income securities 
indexes. The Index meets all such requirements except for those set 
forth in Commentary .02(a)(2).\14\ Specifically, as of February 7, 
2015, 33.69% of the weight of the Index components have a minimum 
original principal amount outstanding of $100 million or more.
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    \14\ Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3) 
provides that components that in the aggregate account for at least 
75% of the weight of the index or portfolio each shall have a 
minimum original principal amount outstanding of $100 million or 
more.
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    As of February 7, 2015, 98.72% of the weight of the Index 
components was composed of individual maturities that were part of an 
entire municipal bond offering with a minimum original principal amount 
outstanding of $100 million or more for all maturities of the offering. 
In addition, the total dollar amount outstanding of issues in the Index 
was approximately $2.424 billion and the average dollar amount 
outstanding of issues in the Index was approximately $60 million. 
Further, the most heavily weighted component represents 0.27% of the 
weight of the Index and the five most heavily weighted components 
represent 0.96% of the weight of the Index.\15\ In addition, the 
average daily notional trading volume for Index components for the 
period from January 2, 2014 to December 31, 2014 was $1,272,356,609 and 
the sum of the notional trading volumes for the same period was 
$318,089,152,147.
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    \15\ Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3) 
provides that no component fixed-income security (excluding Treasury 
Securities and GSE Securities, as defined therein) shall represent 
more than 30% of the weight of the index or portfolio, and the five 
most heavily weighted component fixed-income securities in the index 
or portfolio shall not in the aggregate account for more than 65% of 
the weight of the index or portfolio.
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    Therefore, the Exchange believes that, notwithstanding that the 
Index does not satisfy the criterion in NYSE Arca Equities Rule 
5.2(j)(3), Commentary .02 (a)(2), the Index is sufficiently broad-based 
to deter potential manipulation, given that it is composed of 
approximately 10,015 issues and 969 unique issuers. In addition, the 
Index securities are sufficiently liquid to deter potential 
manipulation in that a substantial portion (98.72%) of the Index weight 
is composed of maturities that are part of an entire municipal bond 
offering with a minimum original principal amount outstanding of $100 
million or more, and in view of the substantial total dollar amount 
outstanding and the average dollar amount outstanding of Index issues, 
as referenced above.
Purchase and Issuance of Shares in Creation Units
    The Fund will issue and sell Shares only in ``Creation Units'' 
through the Distributor, without a sales load, at its net asset value 
(``NAV'') next determined after receipt of an order in proper form on 
any business day.
    The consideration for purchase of a Creation Unit from the Fund 
generally will consist of the in-kind deposit of a designated portfolio 
of securities (Deposit Securities) and an amount of cash (``Cash 
Component'') consisting of a purchase balancing amount and a 
transaction fee (both described in the following paragraphs). Together, 
the Deposit Securities and the Cash Component constitute the ``Fund 
Deposit''.
    The purchase balancing amount is an amount equal to the difference 
between the NAV of a Creation Unit and the market value of the Deposit 
Securities (Deposit Amount). It ensures that the NAV of a Fund Deposit 
(not including the transaction fee) is identical to the NAV of the 
Creation Unit it is used to purchase. If the purchase balancing amount 
is a positive number (i.e., the NAV per Creation Unit exceeds the 
market value of the Deposit Securities), then that amount will be paid 
by the purchaser to the Fund in cash. If the purchase balancing amount 
is a negative number (i.e., the NAV per Creation Unit is less than the 
market value of the Deposit Securities), then that amount will be paid 
by the Fund to the purchaser in cash (except as offset by the 
transaction fee).
    Vanguard, through the National Securities Clearing Corporation 
(``NSCC''), will make available after the close of each business day a 
list of the names and the number of shares of each Deposit Security to 
be included in the next business day's Fund Deposit for the Fund 
(subject to possible amendment or correction). The Fund reserves the 
right

[[Page 20532]]

to accept a nonconforming Fund Deposit.
    The identity and number of shares of the Deposit Securities 
required for a Fund Deposit may change from one day to another to 
reflect rebalancing adjustments, corporate actions, and interest 
payments on underlying bonds or to respond to adjustments to the 
weighting or composition of the component securities of the Index.
    In addition, the Fund reserves the right to permit or require the 
substitution of an amount of cash--referred to as ``cash-in-lieu''--to 
be added to the Cash Component to replace any Deposit Security. This 
might occur, for example, if a Deposit Security is not available in 
sufficient quantity for delivery, is not eligible for transfer through 
the applicable clearance and settlement system, or is not eligible for 
trading by an ``Authorized Participant'' or the investor for which an 
Authorized Participant is acting.
    To initiate a purchase order for a Creation Unit, an Authorized 
Participant must submit an order in proper form to the Distributor and 
such order must be received by the Distributor prior to the closing 
time of regular trading of the New York Stock Exchange (``NYSE'') 
(Closing Time) (ordinarily 4 p.m. Eastern time) to receive that day's 
NAV. Authorized Participants must transmit orders using a transmission 
method acceptable to the Distributor pursuant to procedures set forth 
in the ``Participant Agreement''.
Redemption of Shares in Creation Units
    Redemption orders must be placed by an Authorized Participant. 
Shares may be redeemed only in Creation Units.
    Unless cash redemptions are available or specified for the Fund, an 
investor tendering a Creation Unit generally will receive redemption 
proceeds consisting of (1) a basket of ``Redemption Securities''; plus 
(2) a redemption balancing amount in cash equal to the difference 
between (x) the NAV of the Creation Unit being redeemed, as next 
determined after receipt of a request in proper form, and (y) the value 
of the Redemption Securities; less (3) a transaction fee. If the 
Redemption Securities have a value greater than the NAV of a Creation 
Unit, the redeeming investor will pay the redemption balancing amount 
in cash to the Fund rather than receive such amount from the Fund.
    Vanguard, through the NSCC, will make available after the close of 
each business day a list of the names and the number of shares of each 
Redemption Security to be included in the next business day's 
redemption basket for the Fund (subject to possible amendment or 
correction). The basket of Redemption Securities provided to an 
investor redeeming a Creation Unit may not be identical to the basket 
of Deposit Securities required of an investor purchasing a Creation 
Unit. If the Fund and a redeeming investor mutually agree, the Fund may 
provide the investor with a basket of Redemption Securities that 
differs from the composition of the redemption basket published through 
the NSCC.
    The Fund reserves the right to deliver cash in lieu of any 
Redemption Security for the same reason it might accept cash in lieu of 
a Deposit Security, or if the Fund could not lawfully deliver the 
security or could not do so without first registering such security 
under federal or state law.
    If an Authorized Participant, or a redeeming investor acting 
through an Authorized Participant, is subject to a legal restriction 
with respect to a particular security included in the basket of 
Redemption Securities, such investor may be paid an equivalent amount 
of cash in lieu of the security.
    The right of redemption may be suspended or the date of payment 
postponed with respect to the Fund (1) for any period during which the 
NYSE or the Exchange is closed (other than customary weekend and 
holiday closings), (2) for any period during which trading on the NYSE 
or the Exchange is suspended or restricted, (3) for any period during 
which an emergency exists as a result of which disposal of the Fund's 
portfolio securities or determination of its NAV is not reasonably 
practical, or (4) in such other circumstances as the Commission 
permits.
    A creation and redemption transaction fee will be imposed to offset 
transfer and other transaction costs that may be incurred by the Fund.
    The Exchange represents that: (1) Except for Commentary .02(a)(2) 
to NYSE Arca Equities Rule 5.2(j)(3), the Shares of the Fund currently 
satisfy all of the generic listing standards under NYSE Arca Equities 
Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca 
Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply 
to the Shares; and (3) the Trust is required to comply with Rule 10A-3 
under the Act \16\ for the initial and continued listing of the Shares. 
In addition, the Exchange represents that the Shares will comply with 
all other requirements applicable to Units including, but not limited 
to, requirements relating to the dissemination of key information such 
as the value of the Index and the applicable Intraday Indicative Value 
(``IIV''),\17\ rules governing the trading of equity securities, 
trading hours, trading halts, surveillance, and the Information 
Bulletin to Equity Trading Permit Holders (``ETP Holders''), as set 
forth in Exchange rules applicable to Units and prior Commission orders 
approving the generic listing rules applicable to the listing and 
trading of Units.\18\
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    \16\ 17 CFR 240.10A-3.
    \17\ The IIV will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Core Trading Session of 9:30 a.m. to 4:00 p.m., Eastern time. 
Currently, it is the Exchange's understanding that several major 
market data vendors display and/or make widely available IIVs taken 
from the Consolidated Tape Association (``CTA'') or other data 
feeds.
    \18\ See, e.g., Securities Exchange Act Release Nos. 55783 (May 
17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order 
approving NYSE Arca generic listing standards for Units based on a 
fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19, 
2001) (SR-PCX-2001-14) (order approving generic listing standards 
for Units and Portfolio Depositary Receipts); 41983 (October 6, 
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order 
approving rules for listing and trading of Units).
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    The current value of the Index will be widely disseminated by one 
or more major market data vendors at least once per day, as required by 
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (b)(ii). The IIV for 
Shares of the Fund will be disseminated by one or more major market 
data vendors, updated at least every 15 seconds during the Exchange's 
Core Trading Session, as required by NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02(c).
    The Index value, calculated and disseminated at least once daily, 
as well as the components of the Index and their percentage weighting, 
will be available from major market data vendors. In addition, as 
disclosed in the Registration Statement, the portfolio of securities 
held by the Fund will be disclosed monthly on the Fund's Web site at 
www.vanguard.com.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5)\19\ 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.
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    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will

[[Page 20533]]

be listed and traded on the Exchange pursuant to the initial and 
continued listing criteria in NYSE Arca Equities Rule 5.2(j)(3). The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances, administered by the Financial Industry 
Regulatory Authority (``FINRA'') on behalf of the Exchange, which are 
designed to detect violations of Exchange rules and applicable federal 
securities laws.\20\ The Exchange represents that these procedures are 
adequate to properly monitor Exchange trading of the Shares in all 
trading sessions and to deter and detect violations of Exchange rules 
and federal securities laws applicable to trading on the Exchange. 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 with other 
markets that are members of the Intermarket Surveillance Group 
(``ISG'') or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. 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. The Index Provider is not a broker-dealer or 
affiliated with a broker-dealer and has implemented procedures designed 
to prevent the use and dissemination of material, non-public 
information regarding the Index. As of February 7, 2015, there were 
approximately 10,015 issues in the Index. The Index meets all such 
requirements except for those set forth in Commentary .02(a)(2).\21\ 
Specifically, as of February 7, 2015, 33.69% of the weight of the Index 
components have a minimum original principal amount outstanding of $100 
million or more.
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    \20\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
    \21\ See note 14, supra.
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    As of February 7, 2015, 98.72% of the weight of the Index 
components was composed of individual maturities that were part of an 
entire municipal bond offering with a minimum original principal amount 
outstanding of $100 million or more for all maturities of the offering. 
In addition, the total dollar amount outstanding of issues in the Index 
was approximately $2.424 billion and the average dollar amount 
outstanding of issues in the Index was approximately $60 million. 
Further, the most heavily weighted component represents 0.27% of the 
weight of the Index and the five most heavily weighted components 
represent 0.96% of the weight of the Index.\22\ Therefore, the Exchange 
believes that, notwithstanding that the Index does not satisfy the 
criterion in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (a)(2), 
the Index is sufficiently broad-based to deter potential manipulation, 
given that it is composed of approximately 10,015 issues and 969 unique 
issuers. The Index securities are sufficiently liquid to deter 
potential manipulation in that a substantial portion (98.72%) of the 
Index weight is composed of maturities that are part of an entire 
municipal bond offering with a minimum original principal amount 
outstanding of $100 million or more, and in view of the substantial 
total dollar amount outstanding and the average dollar amount 
outstanding of Index issues, as referenced above. In addition, the 
average daily notional trading volume for Index components for the 
period from January 2, 2014 to December 31, 2014 was $1,272,356,609 and 
the sum of the notional trading volumes for the same period was 
$318,089,152,147.
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    \22\ See note 15, supra.
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    The Index value, calculated and disseminated at least once daily, 
as well as the components of the Index and their respective percentage 
weightings, will be available from major market data vendors. In 
addition, as disclosed in the Registration Statement, the portfolio of 
securities held by the Fund will be disclosed on the Fund's Web site. 
The IIV for Shares of the Fund will be disseminated by one or more 
major market data vendors, updated at least every 15 seconds during the 
Exchange's Core Trading Session. The Adviser represents that, within a 
single municipal bond issuer, separate issues by the same issuer are 
also likely to trade similarly to one another. In addition, the Adviser 
represents that individual CUSIPs within the Index that share 
characteristics with other CUSIPs have a high yield to maturity 
correlation, and frequently have a correlation of one or close to one.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest. 
In addition, a large amount of information is publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. As disclosed in the Registration Statement, the Fund's 
portfolio holdings will be periodically disclosed on the Fund's Web 
site. Moreover, the IIV will be widely disseminated by one or more 
major market data vendors at least every 15 seconds during the 
Exchange's Core Trading Session. The current value of the Index will be 
disseminated by one or more major market data vendors at least once per 
day. Information regarding market price and trading volume of the 
Shares will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services, and 
quotation and last sale information will be available via the CTA high-
speed line. The Web site for the Fund will include the prospectus for 
the Fund and additional data relating to NAV and other applicable 
quantitative information. Moreover, prior to the commencement of 
trading, the Exchange will inform its ETP Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares. If the Exchange becomes aware that the NAV is not 
being disseminated to all market participants at the same time, it will 
halt trading in the Shares until such time as the NAV is available to 
all market participants. 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. Trading also may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. If the IIV or the 
Index values are not being disseminated as required, the Corporation 
may halt trading during the day in which the interruption to the 
dissemination of the applicable IIV or Index value occurs. If the 
interruption to the dissemination of the applicable IIV or Index value 
persists past the trading day in which it occurred, the Corporation 
will halt trading. Trading in Shares of the Fund will be halted if the 
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been 
reached or because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable, and 
trading in the Shares will be subject to NYSE Arca Equities Rule 7.34, 
which sets forth circumstances under which Shares of the Fund may be 
halted. In addition, investors will have ready access to information 
regarding the IIV, and

[[Page 20534]]

quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of exchange-traded product that invests principally 
in municipal securities and that will enhance competition among market 
participants, to the benefit of investors and the marketplace. As noted 
above, the Exchange has in place surveillance procedures relating to 
trading in the Shares and may obtain information via ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. In 
addition, investors will have ready access to information regarding the 
IIV and quotation and last sale information for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of exchange-traded product that invests principally in 
municipal securities and that will enhance competition among market 
participants, to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2015-18 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-2015-18. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal offices of the Exchange and 
on its Internet Web site at www.nyse.com. 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-2015-18, and should be 
submitted on or before May 7, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-08695 Filed 4-15-15; 8:45 am]
 BILLING CODE 8011-01-P


