
[Federal Register Volume 80, Number 89 (Friday, May 8, 2015)]
[Notices]
[Pages 26591-26593]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-11057]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74863; File No. SR-NYSEArca-2015-01]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove Proposed Rule 
Change Amending NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 
Relating to the Listing of Investment Company Units Based on Municipal 
Bond Indexes

May 4, 2015.
    On January 16, 2015, NYSE Arca, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02 to accommodate the listing of 
certain Investment Company Units based on municipal bond indexes. The 
proposed rule change was published for comment in the Federal Register 
on February 4, 2015.\3\ On March 19, 2015, pursuant to Section 19(b)(2) 
of the Act,\4\ the Commission designated a longer period within which 
to approve the proposed rule change, disapprove the proposed rule 
change, or institute proceedings to determine whether to disapprove the 
proposed rule change.\5\ The Commission received no comment letters on 
the proposed rule change. This order institutes proceedings under 
Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or 
disapprove 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. 74175 (Jan. 29, 
2015), 80 FR 6150 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 74534, 80 FR 15834 
(Mar. 25, 2015). The Commission designated a longer period within 
which to take action on the proposed rule change and designated May 
5, 2015, as the date by which it should approve, disapprove, or 
institute proceedings to determine whether to disapprove the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Description of the Exchange's Proposal \7\
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    \7\ A complete description of the proposal can be found in the 
Notice. See Notice, supra note 3.
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    NYSE Arca Equities Rule 5.2(j)(3) permits the listing and trading 
of Investment Company Units (``Units'').\8\

[[Page 26592]]

Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3) permits the listing 
and trading of a series of Units pursuant to Rule 19b-4(e) under the 
Act \9\ based on an underlying index or portfolio of ``Fixed Income 
Securities'' \10\ meeting specified criteria.\11\ These ``generic'' 
listing criteria permit, without Commission approval pursuant to 
Section 19(b)(2) of the Act,\12\ the listing and trading on the 
Exchange of a series of Units meeting such criteria.
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    \8\ An ``Investment Company Unit'' is a security that represents 
an interest in a registered investment company that holds securities 
comprising, or otherwise based on or representing an interest in, an 
index or portfolio of securities (or holds securities in another 
registered investment company that holds securities comprising, or 
otherwise based on or representing an interest in, an index or 
portfolio of securities). See NYSE Arca Equities Rule 5.2(j)(3)(A).
    \9\ See 17 CFR 240.19b-4(e).
    \10\ ``Fixed Income Securities'' are described in NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02 as debt securities that are 
notes, bonds, debentures or evidence of indebtedness that include, 
but are not limited to, U.S. Department of Treasury securities, 
government-sponsored entity securities, municipal securities, trust 
preferred securities, supranational debt and debt of a foreign 
country or a subdivision thereof.
    \11\ See Securities Exchange Act Release No. 55783 (May 17, 
2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order 
approving generic listing standards for series of Units based on 
Fixed Income Indexes).
    \12\ 15 U.S.C. 78s(b)(2).
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    Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3) provides 
that, to be listed and traded pursuant to Rule 19b-4(e) under the Act, 
components of an index or portfolio underlying a series of Units, in 
the aggregate, that 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. The Exchange proposes to amend 
this generic listing criterion to accommodate the listing of Units 
based on indexes or portfolios that include municipal bonds.\13\
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    \13\ The Commission previously has approved proposed rule 
changes relating to listing and trading on the Exchange of Units 
based on municipal bond indexes. See, e.g., Securities Exchange Act 
Release No. 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 the iShares 2020 S&P AMT-Free Municipal 
Series under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02). See 
also Notice, supra note 3, 80 FR at 6151, n.9.
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    Specifically, the Exchange proposes to amend NYSE Arca Equities 
Rule 5.2(j)(3), Commentary .02(a)(2) to state that components that, in 
the aggregate, account for at least 75% of the weight of an index or 
portfolio shall: (A) Each shall have a minimum original principal 
amount outstanding of $100 million or more; or (B) if a municipal bond 
component, such component shall be issued in an offering with an 
aggregate size, as set forth in the offering's official statement, of 
$100 million or more. Accordingly, if an individual municipal bond 
component of an index or portfolio has an amount outstanding of less 
than $100 million, Units based on such an index or portfolio could 
still meet the generic listing standard if the municipal bond component 
were part of an overall municipal bond offering of $100 million or 
more.
    The Exchange provides that it is appropriate to calculate 
components of a municipal bond index differently from other Fixed 
Income Securities. Principally, the Exchange states that municipal 
bonds are issued with either ``serial'' or ``term'' maturities or some 
combination thereof. The official statement issued in connection with a 
municipal bond offering describes the terms of the component bonds and 
the issuer and/or obligor on the related bonds. Such an offering is 
comprised of a number of specific maturity sizes, but the entire issue 
or offering receives the same credit rating. Further, the entire issue 
or offering is based on a specified project or group of related 
projects and funded by the same revenue or other funding sources.
    According to the Exchange, because the individual municipal bond 
components of an index or portfolio may predominantly have maturities 
of less than $100 million outstanding (although part of a municipal 
bond offering of $100 million or greater), if only individual maturity 
sizes are considered, Units based on a municipal bond index may not 
qualify to be listed under the generic listing standards. Accordingly, 
the Exchange believes the proposed amendment to Commentary .02(a)(2) 
would facilitate the listing of Units based on municipal bond indexes 
by permitting the Exchange, in applying its generic listing criteria, 
to take into account the aggregate size of the municipal bond offering.
    The Exchange states that consideration of the aggregate size of the 
municipal bond offering, rather than the individual bond component, 
does not raise concerns regarding pricing or liquidity of the 
applicable municipal bond index components or of the Units overlying 
the applicable index. The Exchange states that, within a single 
municipal bond issuer, there are often multiple contemporaneous or 
sequential issuances that have the same credit rating, structure, and 
maturity. According to the Exchange, although these separate issues 
have different CUSIPs, because individual maturities share a number of 
important features, including credit rating and the purpose and terms 
of the offering as set forth in the applicable official statement, for 
investment purposes, they can be expected to be relatively fungible to 
one another. Accordingly, the Exchange believes that the proposed rule 
change is reasonable and appropriate because the pricing and liquidity 
of such maturity sizes is predominately based on the common 
characteristics of the aggregate issue.
    The Exchange also notes that major municipal bond indexes, while 
they include individual bond maturities as index components, include 
``deal size'' as a factor in the criteria for index constituents and 
additions.\14\ Finally, the Exchange also provides that the Commission 
previously has approved the listing and trading of Units where the 
applicable municipal index components did not individually meet the 75% 
requirement of NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.02(a)(2).\15\
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    \14\ In its proposal, the Exchange cites to the S&P National 
AMT-Free Municipal Bond Index, the Barclays Capital Investment-Grade 
Municipal Index, Barclays Capital High-Yield Municipal Index, and 
the Barclays Capital Enhanced State Specific Indices. See Notice, 
supra note 3, 80 FR at 6151.
    \15\ See supra note 13.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2015-01 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \16\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\17\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \18\
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    \17\ Id.
    \18\ 15 U.S.C. 78f(b)(5).

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[[Page 26593]]

III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\19\
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    \19\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by May 29, 2015. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by June 12, 
2015.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice,\20\ in addition to any other comments they may wish to 
submit about the proposed rule change. In particular, the Exchange 
concludes that individual CUSIPs comprising the municipal bond offering 
can be expected to be relatively fungible to one another and that 
consideration of the aggregate size of the municipal bond offering, 
rather than the individual bond component, does not raise concerns 
regarding pricing or liquidity of the applicable municipal bond index 
components or of the Units overlying the applicable index. With respect 
to these conclusions, the Commission seeks comment on whether the 
generic listing criterion proposed to be amended would continue to 
serve to ensure that the underlying securities of these fixed income 
indexes are sufficiently liquid and price-transparent, and that, when 
applied in conjunction with the other applicable generic listing 
requirements, would minimize potential manipulation.
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    \20\ See supra note 3.
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    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-2015-01 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 Numbers SR-NYSEArca-2015-01. 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 these filings also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2015-01 and should 
be submitted on or before May 29, 2015. Rebuttal comments should be 
submitted by June 12, 2015.
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    \21\ 17 CFR 200.30-3(a)(57).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Brent J. Fields,
Secretary.
[FR Doc. 2015-11057 Filed 5-7-15; 8:45 am]
 BILLING CODE 8011-01-P


