
[Federal Register Volume 80, Number 161 (Thursday, August 20, 2015)]
[Notices]
[Pages 50701-50707]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-20542]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75698; File No. SR-NYSEArca-2015-68]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Implementation of a Fee on 
Securities Lending and Repurchase Transactions With Respect to Shares 
of the CurrencyShares[supreg] Euro Trust and the CurrencyShares[supreg] 
Japanese Yen Trust

August 14, 2015.
    Pursuant to section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 30, 2015, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II.A, 
II.B, 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 a rule change relating to implementation of a 
fee on securities lending and repurchase transactions with respect to 
shares of the CurrencyShares[supreg] Euro Trust and the 
CurrencyShares[supreg] Japanese Yen Trust, which are currently listed 
and traded on the Exchange under NYSE Arca Equities Rule 8.202. The 
text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange lists and trades shares of the CurrencyShares[supreg] 
Euro Trust (the ``Euro Trust'' or ``FXE'') and the 
CurrencyShares[supreg] Japanese Yen Trust (the ``Yen Trust'' or ``FXY'' 
and together with the Euro Trust, the ``Trusts'') under NYSE Arca 
Equities Rule 8.202.\4\
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    \4\ Shares of the Trusts initially were approved for listing and 
trading on the New York Stock Exchange, Inc. See Securities Exchange 
Act Release Nos. 52843 (November 28, 2005), 70 FR 72486 (December 5, 
2005) (SR-NYSE-2005-65) (order approving listing and trading of 
Shares of the CurrencyShares[supreg] Euro Trust); 55268 (February 9, 
2007), 72 FR 7793 (February 20, 2007) (SR-NYSE-2007-03) (order 
approving listing and trading of Shares of the 
CurrencyShares[supreg] Japanese Yen Trust).
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    The FXE and FXY hold euros and Japanese yen, respectively, and 
issue shares in baskets of 50,000 shares (``Baskets of Shares'') in 
exchange for deposits of euros or yen, respectively. Each Trust redeems 
Baskets of Shares and distributes euros or yen, respectively. The 
shares of FXE and FXY (``Shares'') represent units of fractional 
undivided beneficial interests in the assets held by the relevant 
Trust. The investment objective of each Trust is for a Trust's Shares 
to reflect the price (in U.S. dollars (``USD'')) of the foreign 
currency held by a Trust, plus accrued interest and less the expenses 
and liabilities of such Trust. The Shares are intended to provide 
institutional and retail investors with a simple, cost-effective means 
of including in their investment portfolio economic exposure to a 
particular foreign currency to, for example, hedge foreign currency 
risk in other portfolio assets or against U.S. dollar fluctuations more 
generally.
    As Sponsor of the Trusts, Guggenheim receives a management fee, 
which is intended to compensate Guggenheim for its service as Sponsor 
and to cover certain Trust expenses. The management fee is paid monthly 
out of a Trust's assets and calculated as a percentage of the currency 
held by each Trust. With regard to the Euro Trust and Yen Trust, 
Guggenheim's fee accrues daily at an annual nominal rate of 0.40% of 
the euros and yen in each Trust, respectively. As described below, the 
management fee directly impacts the net asset value (``NAV'') of the 
Shares.
    To calculate NAV, the trustee adds to the amount of euros or yen in 
a Trust at the end of the preceding business day:
     Accrued but unpaid interest;
     euros or yen receivable under pending purchase orders; and
     the value of other Trust assets.
    From this sum, the trustee then subtracts:
     The accrued but unpaid management fee,
     euros or yen payable under pending redemption orders; and
     any other Trust expenses and liabilities.
    The value of a Trust's Shares is determined by dividing a Trust's 
NAV by the number of Shares outstanding. Because the accrued but unpaid 
management fee is subtracted from the assets in calculating NAV on a 
daily basis,\5\ the value of the Shares decreases

[[Page 50702]]

at a predictable rate independent of the value of the currency held by 
each Trust. This predictable rate at which the value of a Trust falls 
as a result of the management fee is referred to as the ``Management 
Fee Decay''.
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    \5\ To calculate NAV, the Trustee adds to the amount of euros/
yen in the Trusts at the end of the preceding business day, accrued 
but unpaid interest, euros/yen receivable under pending purchase 
orders and the value of other Trust assets, and subtracts the 
accrued but unpaid management fee, euros/yen payable under pending 
redemption orders and other Trust expenses and liabilities, if any.
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    Like other equity securities, Shares of each Trust may be lent by 
shareholders to other market participants. This securities lending 
activity can facilitate short selling of Shares, as well as other 
investment strategies.\6\ Once loaned, such Shares may be (i) redeemed 
by the borrower for underlying Trust assets or (ii) sold.
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    \6\ A short sale is any sale of a security which the seller does 
not own or any sale which is consummated by the delivery of a 
security borrowed by, or for the account of, the seller. Short sales 
are normally settled by the delivery of a security borrowed by or on 
behalf of the investor. The investor later closes out the position 
by returning the borrowed security to the stock lender, typically by 
purchasing securities on the open market.
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    The Sponsor has represented to the Exchange that it has identified 
a strategy (``Strategy'') that permits market participants 
(``Traders'') to profit from the reduction in the NAV of the Shares 
over time associated with Management Fee Decay to the detriment of the 
value of the Shares held by shareholders who do not engage in the 
Strategy.
    Pursuant to the Strategy, a Trader borrows Shares and then either 
(1) sells the borrowed Shares, taking a short position in the 
Shares,\7\ or (2) redeems the borrowed Shares for euros or yen, as 
applicable.
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    \7\ To fully hedge the risk of changes in the value of the 
currency underlying the Shares in the Trader's short position, the 
Trader, simultaneously would acquire a long position in an amount of 
the underlying currency in the Trader's short position or buy a 
derivative that provides a comparable long exposure to the 
underlying currency. This long position would also serve as 
collateral for the borrowed Shares. For example, if a Trader borrows 
Shares of FXE and redeems them from the Euro Trust, the Trader would 
receive euros (good collateral) to finance the borrow. If the Trader 
is required to post 105% of the value of the collateral, then 100% 
of the value of the collateral would consist of the redeemed euros 
and 5% would be other collateral in the Trader's account (of which 
the 5% amount would have a 6 basis points haircut at current rates). 
The Trader's profit would be 40 basis points (the amount of the 
management fee) on 100% of the value of euros, less the 6 basis 
points haircut on 5% of the collateral. (A haircut is the percentage 
by which an asset's market value is reduced for the purpose of 
calculating capital requirement, margin and collateral levels. When 
they are used as collateral, securities will generally be devalued 
since a cushion is required by the lending parties in case the 
market value falls.)
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    Because of the Management Fee Decay, the number of units of foreign 
currency underlying the Shares the Trader has sold short is reduced 
over time. Therefore, when the Trader unwinds its short position in the 
Shares by creating Shares through delivery of the currency it held as a 
hedge, or when the Trader purchases Shares and sells the currency held 
as a hedge, it will do so at lower cost than when it sold (or 
purchased) the Shares.
    The Trader's profit from this Strategy is equal to the Management 
Fee Decay attributable to the Shares sold short, plus or minus the net 
cost of borrowing the Shares \8\ and other transaction costs. The 
following two examples explain how this operates--one where the Trader 
sells the borrowed Shares short, the other where the Trader redeems the 
borrowed Shares.
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    \8\ Collateral provided by a Trader to a lender of Shares will 
be invested by the lender. The agreement between the lender and 
Trader as to how income from invested collateral is shared will 
impact the cost of the lending arrangement. Specifically, the lender 
may assess the Trader a charge in addition to retaining any 
investment income, the lender may retain the investment income but 
not charge anything additional to the Trader, or the lender and 
Trader may split any resulting income from the investment of 
collateral.
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Example 1--Selling Short FXE
    Before the trade, there are 100 euros in the Trust for each 
outstanding Share. Assuming a USD/euro exchange rate of $1.10, FXE 
would be trading at $110 per Share. A Trader borrows 50,000 Shares of 
FXE and sells them for $5.5 million to obtain a short position of 
50,000 Shares. At the same time, to hedge the short exposure to euros, 
the Trader obtains a long position in euros by entering into a forward 
contract to purchase in one year 4.98 million euros for $5.478 million. 
The Trader holds these positions for a year, by which time the FXE has 
predictably decayed by the 40 basis point management fee, regardless of 
the change in the USD/euro exchange rate.
    Payment of the management fee by the Trust results in the sale of 
euros, causing the number of euros per Share to fall from 100 euros for 
each Share to 99.6 euros for each Share. As a result, the Trader can 
now create 50,000 Shares by depositing only 4.98 million euros, which 
the Trader can purchase for $5.478 million, and return the borrowed 
Shares. The $20,000 difference in cost to create 50,000 Shares one year 
after selling short 50,000 Shares for $5.5 million is profit. The 
Trader's transaction costs would be the cost of the forward contract, 
commissions, and any fees charged by the lender.
Example 2--Redeeming FXE
    Before the trade, there are 100 euros in the Trust for each 
outstanding Share. Assuming a USD/euro exchange rate of $1.10, FXE 
would be trading at $110 per Share. A Trader borrows 50,000 Shares of 
FXE and redeems them in exchange for 5 million euros. The Trader uses 
the proceeds of the redemption as collateral for the stock borrow. The 
Trader holds this position for a year. Regardless of whether the USD/
euro exchange rate rises or falls, the amount of euros per Share held 
by the Trust will fall because of the Management Fee Decay.
    When the Trader redeemed the Shares, there were one hundred euros 
in the Euro Trust for each outstanding Share. During the year, the Euro 
Trust has had to sell euros to pay management fees, and therefore there 
are now only 99.6 euros per outstanding Share in the Euro Trust. As a 
result, the Trader will only have to deposit 4.98 million euros to 
create 50,000 Shares of FXE. The 20,000 euros difference between the 5 
million euros received from redeeming 50,000 Shares and the 4.98 
million euros cost to create 50,000 Shares one year later is the 
Trader's profit. The Trader's transaction costs would be commissions 
and any fees charged by the lender.
    Shareholders who do not lend their Shares to Traders subsidize the 
Strategy employed by the lenders and Traders. The long holder of Shares 
agrees to pay a management fee for exposure to the underlying currency. 
When a shareholder lends its Shares, it retains the benefit of exposure 
to the euros or yen in a Trust. However, a Trader that borrows the 
Shares and redeems or sells its borrowed Shares deprives a Trust of the 
assets against which the management fee is assessed. The lender retains 
a long position in the Shares even though the assets reflecting its 
long position are no longer in a Trust and thus do not bear a 
proportional cost of managing the assets in a Trust. In this way, 
lenders and Traders that engage in the Strategy are subsidized by long 
holders of the Shares that do not lend their Shares.
    The Sponsors continue to bear the cost of providing shareholder 
services to shareholders that lend Shares to Traders, even though, 
because Traders sell these borrowed Shares or redeem them with a Trust, 
there are no assets associated with these borrowed Shares against which 
a management fee is assessed to support these services. Long holders of 
Shares that do not lend to Traders are bearing the costs associated 
with lenders' long positions in Shares that Traders redeem or sell. 
Through the

[[Page 50703]]

loan arrangement, the lender and Trader share the economics of the 
predictable fall in the value of the Shares due to the Management Fee 
Decay. Long holders of Shares that do not lend their Shares are 
subsidizing this Strategy through their assets against which the 
management fee is assessed.
    This Strategy is not available with asset classes other than 
exchange-traded products because shares of operating companies do not 
charge management fees or provide investors with the ability to redeem 
their shares in exchange for the underlying assets. Thus, shares of a 
company do not have a decay that is extrinsic to the value of the 
company or a structure that provides the ability for the holder of a 
short interest to perfectly hedge its short position.
    The Sponsor further represents that the Strategy discussed above is 
detrimental to liquidity in the Shares. Because of the large 
outstanding short positions in the Shares, the Sponsor represents that 
it is difficult to borrow Shares, particularly for market participants 
that are not Authorized Participants \9\ that are seeking to engage in 
short selling for trading strategies other than the Strategy. The 
availability of the Strategy provides an incentive for third parties to 
short the Shares of the Trusts, thereby depleting the pool of Shares 
potentially available to be borrowed by market participants that are 
not Authorized Participants. Such activity impedes the ability of 
market makers that are not Authorized Participants to provide liquidity 
by taking short positions in the Shares, potentially resulting in 
market makers' public quotes being wider than would be the case if 
Shares were more readily borrowable. A lack of liquidity and wider 
spreads harms all investors through higher costs to buy and sell 
Shares.
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    \9\ An Authorized Participant is a Depository Trust Company 
(``DTC'') Participant that is a registered broker-dealer or other 
securities market participant such as a bank or other financial 
institution that is not required to register as a broker-dealer to 
engage in securities transactions and has entered into a Participant 
Agreement with the Trustee. Only Authorized Participants may place 
orders to create or redeem Baskets.
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    As described in an April 8, 2013, amendment to the depositary trust 
agreement (``Trust Agreement'') governing the administration of each 
Trust,\10\ the Sponsor has determined and advised the Trustee that 
Traders have been borrowing substantial numbers of Shares and either 
selling them short or redeeming them with a Trust. The amendment to the 
depositary trust agreement states that the impact on Beneficial Owners 
(as defined in each Trust Agreement) is that they may be subsidizing 
short positions to their disadvantage.\11\
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    \10\ See Global Amendments to Certain Depositary Trust 
Agreements filed as Exhibit 10.1 to Current Reports on Form 8-K 
filed by the Trusts and incorporated by reference into the 
Registration Statements: http://www.sec.gov/Archives/edgar/data/1353613/000119312513147214/d518785d8k.htm (Form 8-K filed April 8, 
2013 by the Japanese Yen Trust); http://www.sec.gov/Archives/edgar/data/1353613/000119312513147214/d518785dex101.htm (Exhibit 10.1, 
Global Amendment to Certain Depositary Trust Agreements); http://www.sec.gov/Archives/edgar/data/1328598/000119312513147205/d518761d8k.htm (Form 8-K filed April 8, 2013 by the Euro Trust); and 
http://www.sec.gov/Archives/edgar/data/1328598/000119312513147205/d518761dex101.htm (Exhibit 10.1, Global Amendment to Certain 
Depositary Trust Agreements).
    \11\ The Trust Agreement defines ``Beneficial Owner'' consistent 
with Article 8 of the Uniform Commercial Code as ``any Person 
owning, through DTC, a DTC Participant, or an Indirect Participant, 
a Share.'' The lender of Shares would be the Beneficial Owner and 
would be required to pay the ``ETF Loan Fee'', as described below. 
If the borrower sells the Shares, the buyer would be a Beneficial 
Owner under this definition. Because the loan would also be recorded 
on the books of DTC, the borrower also is a Beneficial Owner when 
the Beneficial Owner takes delivery of the Shares.
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    For this reason, the Exchange is filing this proposed rule change 
relating to a fee (the ``ETF Loan Fee'') on securities lending and 
repurchase transactions with respect to the Shares, which are currently 
listed and traded on the Exchange. Guggenheim Specialized Products, LLC 
(``Guggenheim'' or the ``Sponsor''), the sponsor of the Trusts,\12\ 
would receive the proceeds of the ETF Loan Fee, less an amount equal to 
20 percent of such fee, which would be paid to Precidian Investments, 
LLC (``Precidian''), the Loan Fee Administrator. Precidian has in turn 
engaged BNY Mellon to act as Loan Fee Collection Agent on its behalf. 
The Loan Collection Agent would be paid by Precidian and would not 
further reduce the proceeds paid to the Sponsor. Guggenheim would use 
the net proceeds from the ETF Loan Fee to offset management fees 
otherwise payable to it by the Trusts or to pay other Trust-related 
expenses.\13\
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    \12\ See the registration statement for the Euro Trust on Form 
S-3 under the Securities Act of 1933 (the ``Euro Registration 
Statement'') dated February 4, 2013 (File No. 333-186440) and the 
Yen Trust on Form S-3 under the Securities Act of 1933 dated January 
1, 2014 (File No. 333-193514) (the ``Yen Registration Statement'' 
and, together with the Euro Registration Statement, the 
``Registration Statements'').
    \13\ See Global Amendments to Certain Depositary Trust 
Agreements cited at note 10, supra.
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    The Sponsor believes and has advised the Trustee that it is in the 
best interest of the Beneficial Owners to impose an ``ETF Loan Fee'' 
\14\ on such transactions. The Sponsor believes the ETF Loan Fee would 
benefit the Trusts and Beneficial Owners because ETF Loan Fee proceeds 
received (net of amounts retained by the Loan Fee Administrator) would 
be used to offset management fees.\15\ The Exchange believes that the 
ETF Loan Fee would compensate for the loss of a management fee against 
long positions held by lenders of Shares to Traders. Because Traders 
redeem or sell such Shares, no assets remain in a Trust against which a 
management fee is assessed. Nevertheless, the lender retains a long 
position in the Shares. Thus the ETF Loan Fee is intended to fairly 
reflect the cost to a Trust and Beneficial Owners of the Strategy.
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    \14\ The term ``ETF Loan Fee'' means that amount, accrued daily 
and payable monthly, equal to the annual management fee, which is an 
annual nominal rate of 0.40% (or such lower annual nominal rate as 
may be determined by the Sponsor from time to time) of the aggregate 
market value of the Shares involved in the ``Permissible Stock 
Loan'' (as defined below) based on the closing price each day from 
the inception date of such transaction through the termination of 
such transaction. Based on current market valuations, the ETF Loan 
Fee for Shares of the Euro Trust would be approximately \1/8\ cent 
per Share per day and for Shares of the Yen Trust would be 
approximately \1/11\ cent per Share per day as of March 27, 2015. 
The ETF Loan Fee would be implemented upon effectiveness of 
amendments to the depository trust agreements and approval of this 
Rule 19b-4 filing by the Commission and after sixty days' notice to 
shareholders. The ETF Loan Fee will apply to any Shares loaned or 
sold subject to an agreement to repurchase after the sixty day 
notification period.
    \15\ The Exchange has relied on materials and information 
provided by Guggenheim and Precidian, including amendments to the 
Registration Statements, for the description of the proposed ETF 
Loan Fee and its justification contained herein.
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    The procedures proposed by the Trusts would prohibit any 
shareholder from lending any Shares to another person (a ``Loan 
Transaction''), or selling any Shares to another person subject to an 
agreement to repurchase Shares (a ``Repurchase Transaction'' and, 
collectively with a Loan Transaction, a ``Permissible Stock Loan''), 
unless such shareholder notifies the custodian or its designee of such 
transaction on or prior to the inception of the Permissible Stock Loan. 
A shareholder engaging in a Permissible Stock Loan (a ``Loaning 
Shareholder'') also would be required to notify the custodian or its 
designee of the termination of the Permissible Stock Loan on or prior 
to the termination of such transaction. For the pendency of the 
Permissible Stock Loan, the Loaning Shareholder would be obligated to 
pay the custodian the ETF Loan Fee with respect to that transaction. 
The ETF Loan Fee would be applicable to Loan Transactions occurring 
following Commission approval of this proposed rule change and after 
sixty days' notice

[[Page 50704]]

to shareholders.\16\ For these Loan Transactions, the ETF Loan Fee 
would accrue from the effective date of the ETF Loan Fee until the Loan 
Transaction is terminated.
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    \16\ See note 14, supra.
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    Upon effectiveness of amendments to the Trusts' depository trust 
agreements and Commission approval of this proposed rule change, and 
after sixty days' notice to shareholders (the ``ETF Loan Fee Effective 
Date''), holders of Shares would be prohibited from lending Shares or 
selling Shares subject to an agreement to repurchase, without notifying 
BNY Mellon, as the ETF Loan Fee collection agent of the Trusts (the 
``Loan Fee Collection Agent''),\17\ and agreeing to pay the ETF Loan 
Fee. Self-reporting to the Loan Fee Collection Agent would be made by a 
shareholder's custodian, broker-dealer or lending agent via a web 
portal and would not require identification of the individual 
shareholder.
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    \17\ Holders will be required to notify the Loan Fee Collection 
Agent at the inception and termination of all Share lending and 
repurchase transactions. Each Trust's Web site will specify the form 
and manner of delivery for notices to the Loan Fee Collection Agent.
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    The ETF Loan Fee is expected to equal Guggenheim's management fee 
on a per Share basis.\18\ Guggenheim has asserted that it is not 
permitted to contribute revenue collected via the ETF Loan Fee to the 
Trusts, but has stated that it intends to offset all fees received 
against management fees otherwise owed to it by the Trusts.
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    \18\ Guggenheim has informed the Exchange that it expects the 
ETF Loan Fee to be 40 basis points per annum.
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    To facilitate administration and collection of the ETF Loan Fee, 
Guggenheim intends to engage Precidian to serve as Administrator of the 
ETF Loan Fee. Once the ETF Loan Fee Collection Agent is notified of a 
transaction subject to the ETF Loan Fee, it would convey such 
information to Precidian, which would accrue the ETF Loan Fee on a 
daily basis and report it to each Trust. On a monthly basis, Precidian 
or its agent would bill Depository Trust & Clearing Corporation 
(``DTCC'') participants based on their loan transactions or the loan 
transactions of their clients and distribute the net ETF Loan Fee to 
Guggenheim.\19\
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    \19\ As a fee of the Trusts, the administration and collection 
of the ETF Loan Fee would be the responsibility of the Sponsor, the 
Loan Fee Administrator and the Loan Fee Collection Agent. The 
Exchange would have no role in such administration or collection and 
would not monitor the billing, collection or payment of the ETF Loan 
Fee with respect to any market participant.
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    Given that the proposed ETF Loan Fee is equal to the annual 
management fee, the proposed ETF Loan Fee should not affect the market 
in the Shares, including market makers' ability to arbitrage. If, for 
example, FXE Shares are trading at a premium to euros, an arbitrageur, 
in an attempt to profit from the difference between the price of a euro 
and a Share of FXE, could sell FXE short, simultaneously buy euros, 
exchange euros for one or more Baskets of 50,000 FXE Shares, and then 
close out the short position with the Basket or Baskets of FXE Shares. 
To minimize market risk, an arbitrageur typically would not carry a 
position in to the next trading day. Thus, because the short position 
was closed out the same day, the arbitrageur would not incur the ETF 
Loan Fee. If FXE Shares are trading at a discount to euros, an 
arbitrageur could buy one or more Baskets of FXE Shares and 
simultaneously sell euros short, redeem the FXE Shares for euros at the 
end-of-day NAV, and close out the euro short position with the euros 
received on redemption. In this case, because the arbitrageur did not 
acquire a short position in FXE Shares, no ETF Loan Fee would be 
incurred.
    The Exchange also notes that market makers can create new Shares 
and redeem Shares if needed to facilitate market making activity.
    The Exchange believes that the Strategy has had a negative impact 
on shareholders who do not lend their Shares because lenders of Shares 
maintain a long exposure to the Trust while profiting from a Strategy 
that eliminates the assets in trust against which a management fee is 
assessed. These lenders are freeriding on the management fee paid by 
those shareholders that do not lend Shares.
    As a consequence of the Strategy, the issuer cannot achieve 
economies of scale necessary to reduce management fees charged to 
shareholders, which are being paid only by those shareholders who do 
not lend their Shares. Assessing the ETF Loan Fee would have a positive 
impact on shareholders that do not lend their Shares because the ETF 
Loan Fees collected would be used to offset Trust expenses, bringing 
down the management fee.
    The ETF Loan Fee would eliminate the economic incentive for market 
participants to engage in the Strategy. Market participants could still 
sell FXE and FXY short, but the Traders who borrow those Shares would 
not be subsidized by those shareholders who do not lend their Shares. 
Eliminating the economic distortion created by the Strategy, would 
facilitate pricing of FXE and FXY on parity with the underlying asset 
(i.e., euros or yen).
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under section 6(b)(5) \20\ 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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    \20\ 15 U.S.C. 78f(b)(5).
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    The Sponsor has represented that short interest in Shares of the 
Euro Trust exceeded the number of outstanding Shares by a ratio of 2.6 
to 1 as of March 27, 2015. Short interest in the Shares of the Yen 
Trust was 1.6 to 1 as of March 27, 2015. Because of this large short 
interest, Guggenheim asserts that it is difficult to borrow Shares and, 
thus, the cost of borrowing Shares increases. The ETF Loan Fee would 
make the Strategy less economically desirable and, therefore, would be 
expected to reduce costs associated with borrowing of Shares by market 
participants engaged in short selling.\21\
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    \21\ The Sponsor has represented that, because of the large 
number of short positions in Shares, FXE and FXY are consistently 
hard to borrow securities. The cost of borrowing hard to borrow 
securities is generally higher than the cost to borrow easy to 
borrow securities. The Sponsor believes that imposition of the Loan 
Fee will cause a large reduction in the outstanding short positions, 
thereby potentially reducing the cost of borrowing even after 
payment of the Loan Fee.
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    In addition, the Sponsor has stated an intention to credit ETF Loan 
Fees that it receives against management fees otherwise owed to it by 
the Trusts and other Trust-related expenses, which will inure to the 
benefit of Beneficial Owners of Shares.
    The Exchange notes that the ETF Loan Fee, as described above, would 
be imposed on Loaning Shareholders at an annual rate of 0.40% (or such 
lower annual nominal rate as may be determined by the Sponsor from time 
to time). The imposition of the ETF Loan Fee is not expected to have a 
significant impact on the market for the Shares.
    The Exchange believes that the proposed rule change is designed to 
prevent abusive and manipulative acts and practices in that the ETF 
Loan Fee is not expected to have a disparate impact on the arbitrage 
mechanics as they relate to the Shares and should not impact market 
makers' ability to arbitrage. As noted above, to minimize market risk, 
an arbitrageur, in connection with an arbitrage transaction, typically 
would not carry a position in to the next trading day, and, because a 
short position would be

[[Page 50705]]

closed out the same day, the arbitrageur would not incur the ETF Loan 
Fee. If an arbitrageur did not acquire a short position in the Shares 
in connection with an arbitrage transaction, no ETF Loan Fee would be 
incurred. In addition, market makers can create and redeem Shares if 
needed to facilitate market making activity.
    The ETF Loan Fee is intended to eliminate the economic incentive 
for market participants to short sell FXE and FXY that the Management 
Fee Decay creates. The ETF Loan Fee would be imposed only on market 
participants that have made the business decision to assume and 
maintain a short position in the Shares. The Exchange notes that short 
positions can be closed out by creating new Shares pursuant to 
applicable FXE and FXY creation procedures. Market participants could 
avoid imposition of the ETF Loan Fee by creating new Shares to cover 
short positions.
    The Exchange believes that imposition of the ETF Loan Fee would not 
materially impact trading of the Shares. The 40 basis point management 
fee currently is assessed against assets in the Trust. Like fees of 
other pooled investments, the accrued management fee is deducted from 
the NAV calculated daily. A long position in the CurrencyShares Euro 
Trust, for example, represents a long exposure to euros and a 
simultaneous short exposure to U.S. dollars. Conversely, a short 
position in the CurrencyShares Euro Trust represents a short exposure 
to euros and a simultaneous long exposure in U.S. dollars. As a given 
currency must be priced in terms of a different currency (that is, if 
priced in its own currency, the currency will always equal itself 
whether it appreciates or declines), for a Trust, entering a long 
position is economically similar to entering a short position in so far 
as both positions effectively constitute a simultaneous long and a 
short position of one of the applicable currencies in the cross rate. 
One side (i.e., the long side) of these mirrored positions already 
imposes a 40 basis point management fee. Because the long and short 
positions would be symmetrical after imposition of the ETF Loan Fee, 
the imposition of a 40 basis points fee on short positions would not be 
expected to have a different market impact from that resulting from the 
current management fee.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to perfect the mechanism of a free and open 
market and to protect investors and the public interest. According to 
the Sponsor, the ETF Loan Fee is not expected to negatively affect 
short selling generally, but rather only affect certain types of short 
selling activities conducted by certain market participants (namely the 
Strategy) at the expense of long investors. As a result of imposing the 
ETF Loan Fee, the Sponsor anticipates that more Shares will be 
available for lending which is expected to reduce the overall cost of 
lending and borrowing the Shares and positively affect liquidity to the 
benefit of investors and the public interest. As noted above, the 
Sponsor believes the ETF Loan Fee would benefit the Trusts and 
Beneficial Owners because ETF Loan Fee proceeds received (net of 
amounts retained by the Loan Fee Administrator and Loan Fee Collection 
Agent) would be used to offset management fees. The Exchange believes 
that the ETF Loan Fee promotes just and equitable principles of trade 
because it is intended to reflect the cost to the Trusts and Beneficial 
Owners of the Strategy. Because the Sponsor will reduce management fees 
owed to it by the Trusts in amounts equal to the net ETF Loan Fees 
collected, investors and the public should be positively affected.

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 purpose of the ETF Loan 
Fee is to reduce borrowing costs by reducing short interest in the 
Shares, which currently far exceeds the number of Shares outstanding. 
In addition, the Exchange notes that ETF Loan Fee proceeds received 
(net of amounts retained by the Loan Fee Administrator and Loan Fee 
Collection Agent) would be used to offset management fees. The ETF Loan 
Fee will be imposed only on market participants that have made the 
business decision to assume and maintain a short position in the 
Shares, which short positions can be closed out by creating new Shares 
pursuant to applicable FXE and FXY creation procedures.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others \22\
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    \22\ See Form 19b-4, sections 5 and 11; see also Exhibits 2a 
(Regulatory Bulletin RB-13-17) and 2b (Precidian Letter and SIFMA 
Letter, each as defined herein) to the proposed rule change. 
Although the Exchange failed to transcribe this Item II.C in its 
Exhibit 1, the following summary of the comments it received on the 
proposed rule change is as prepared and submitted by the Exchange on 
its Form 19b-4.
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    On August 21, 2013, NYSE Regulation, Inc. issued a Regulatory 
Bulletin (RB-13-72 or ``Regulatory Bulletin'') requesting comment on 
the proposed ETF Loan Fee.\23\ Comment was requested on the following 
issues, as discussed further below: (1) Regulation SHO and short 
selling; (2) impact on arbitrage of the ETF Loan Fee and impact on 
administration of the Trusts; (3) fair application of the ETF Loan Fee; 
(4) logistical matters; and (5) general matters regarding application 
and implementation of the ETF Loan Fee.
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    \23\ See Regulatory Bulletin RB-13-72, dated August 21, 2013, 
from NYSE Regulation, Inc. to all NYSE Arca, Inc. Equity Trading 
Permit Holders and Issuers with Securities Listed on NYSE Arca, Inc.
---------------------------------------------------------------------------

    1. Regulation SHO and Short Selling. NYSE Regulation requested 
comment as to whether the proposed ETF Loan Fee is consistent with, and 
in furtherance of, the purposes of Regulation SHO,\24\ and, 
specifically, whether the proposed ETF Loan Fee would serve as a 
disincentive to short selling; whether the proposed ETF Loan Fee would 
make it more difficult for market participants to satisfy the 
``locate'' requirement of Regulation SHO or increase the likelihood of 
failed deliveries; and, given that Shares can be created on any day and 
liquidity is therefore not dependent upon borrowing Shares, whether the 
proposed ETF Loan Fee would negatively impact trading in the securities 
or impede market making.
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    \24\ Rule 203(b)(1) of Regulation SHO, 17 CFR 242.203(b)(1), 
requires broker-dealers, prior to accepting a short sale order in an 
equity security from another person, or effecting a short-sale in an 
equity security for their own account, to borrow the security, enter 
into a bona-fide arrangement to borrow the security, or have 
reasonable grounds to believe that the security can be borrowed so 
that such security can be delivered on the date delivery is due.
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    The Exchange received two comment letters in response to RB-13-72. 
In a letter dated September 23, 2013, the Securities Industry and 
Financial Markets Association (``SIFMA'') stated its belief that 
imposition of the ETF Loan Fee would raise significant legal, 
regulatory, logistical and trading issues.\25\
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    \25\ See letter dated September 23, 2013 from Theodore R. Lazo, 
Managing Director and Associate General Counsel, SIFMA, and Kyle 
Brandon, Managing Director, Director of Research, SIFMA, to John 
Carey, Vice President--Legal, NYSE Regulation, Inc. (``SIFMA 
Letter'').
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    In a letter dated September 20, 2013, Precidian stated that, 
notwithstanding that shares of exchange-traded funds can be created at 
will, thereby eliminating the need to fail on settlement, ETFs have 
substantially larger short interest than traditional corporate issuers 
because of the

[[Page 50706]]

Management Fee Decay described in RB-13-72.\26\ Precidian stated that 
this decay meant that persons short selling ETF shares have an economic 
advantage over persons short selling shares of other issuers. Precidian 
stated that the inherent decay in the price of ETF shares in relation 
to the underlying basket of securities is unique and that, as Precidian 
understands the ETF Loan Fee proposal, the ETF Loan Fee is designed to 
put short sellers of ETF shares on equal footing with short sellers of 
other types of securities, and, as such, would not seem to be in 
conflict with the purposes of Regulation SHO. Moreover, the ability of 
market participants to create shares at will provides an unlimited 
number of shares that can be located and borrowed. Precidian stated 
that market making would not be impacted by the ETF Loan Fee since 
market makers are not required to locate securities before short 
selling and can create or redeem shares at will, and therefore are 
capable of limiting their risk.
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    \26\ See letter dated September 20, 2013 from Daniel J. McCabe, 
President, Precidian Funds, LLC, to John Carey, Vice President--
Legal, NYSE Regulation, Inc. (``Precidian Letter'').
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    2. Impact on arbitrage/administration of the Trusts. The Regulatory 
Bulletin requested comment on any perceived impact that application of 
the ETF Loan Fee will have upon arbitrage or administration of the 
Trusts; any possible impact on creation/redemption or arbitrage 
mechanisms; whether the ETF Loan Fee would impact any relief granted by 
the Commission's 2006 Commodity-Based Investment Vehicle Class Letter 
\27\ or the 2005 Euro Trust Letter,\28\ including with respect to 
Regulation M under the Act; and, given that the proposed ETF Loan Fee 
is approximately 1/7 per Share per day \29\ and the current creation/
redemption fee for Shares of the Trusts is 1 cent per Share for the 
first 250,000 Shares, whether the proposed ETF Loan Fee would have a 
disparate impact on the market compared to the creation/redemption fee.
---------------------------------------------------------------------------

    \27\ http://www.sec.gov/divisions/marketreg/mr-noaction/currencyshares062106-10a1.pdf.
    \28\ http://www.sec.gov/divisions/marketreg/mr-noaction/eurocurrency120505.htm.
    \29\ The representation regarding the proposed Loan Fee being 
approximately 1/7 per Share per day was as of the August 21, 2013 
date of the Regulatory Bulletin. As noted above, the ETF Loan Fee 
for Shares of the Euro Trust would be approximately 1/8 cent per 
Share per day and for Shares of the Yen Trust would be approximately 
1/11 cent per Share per day as of March 27, 2015.
---------------------------------------------------------------------------

    In the Precidian Letter, Precidian stated that the proposed ETF 
Loan Fee is only a fraction of the amount of the creation and 
redemption fee, and, therefore, would presumably have far less impact 
on arbitrage than the creation and redemption fee itself. Any market 
participant seeing that Shares are trading above indicative intraday 
value will immediately sell shares, which will move the price back to 
its normal value, at which point the market participant will buy the 
shares back. Precidian stated that such a trade does not involve any 
type of arbitrage.
    3. Fair application of the ETF Loan Fee. The Regulatory Bulletin 
stated that successful implementation and collection of the ETF Loan 
Fee requires shareholders to self-report Share lending and repurchase 
activity to the Loan Fee Collection Agent. The Regulatory Bulletin 
requested comment as to whether reliance upon a self-reporting process 
is appropriate to ensure that the ETF Loan Fee is collected fairly and 
appropriately. Additionally, the Regulatory Bulletin requested comment 
as to whether a fee based upon self-reporting compliance (and where the 
only recourse for non-compliance is the collections process) is 
consistent with section 6(b)(5) of the Act.
    The Precidian Letter states that, as Precidian understands the 
issue Guggenheim is trying to address, sophisticated market 
participants are taking advantage of the decay inherent in ETF shares 
to the disadvantage of fund managers, service providers and 
shareholders. Precidian believes the lack of a procedure permitting an 
ETF Loan Fee is inconsistent with the objectives of section 6(b)(5) of 
the Act in that the current situation (whereby certain market 
participants are implementing the Strategy, as described above) is 
inconsistent with the public interest and permits discrimination 
between sophisticated investors (who can take advantage of the 
situation) and the general public.
    4. Logistical Matters. The Regulatory Bulletin requested comment on 
any identifiable logistical issues with respect to the implementation 
and collection of the ETF Loan Fee, including additional burdens, if 
any, that imposition of the ETF Loan Fee would impose upon market 
participants (including, for example, implementation of procedures 
relating to systems, reporting, data collection and record keeping).
    In the Precidian Letter, Precidian stated that it did not see any 
meaningful additional burden that imposition of the ETF Loan Fee would 
impose on shareholders.
    5. General Matters. The Regulatory Bulletin requested comment on 
whether market participants agree that the Strategy enables Traders to 
profit from Management Fee Decay, and, specifically, whether Traders 
have the ability to profit from the reduction in value of the Shares 
resulting from the Management Fee Decay while maintaining a riskless, 
fully hedged position. The Regulatory Bulletin also requested comment 
on whether certain types of exchange-traded products are particularly 
susceptible to the Strategy and, if so, whether the proposed ETF Loan 
Fee would be appropriate only for such securities; whether it would 
impact the Strategy; whether and how the Strategy is beneficial or 
detrimental to the market for the Shares, including with respect to any 
impact on asset growth and on short selling generally; whether the 
proposed ETF Loan Fee would be effective in discouraging the Strategy; 
and how the proposed ETF Loan Fee could or could not be viewed as a 
burden on competition not necessary in furtherance of the Act and is 
consistent with section 6(b) of the Act.
    In the SIFMA Letter, SIFMA stated its belief that the ETF Loan Fee 
is potentially inconsistent with the requirements of section 6(b)(5) of 
the Act. SIFMA also questioned the description of the underlying 
strategy cited by Guggenheim as the basis for its request, as well as 
the assertion that the Strategy is only available to professional 
investors. For example, it said, the description of the Strategy does 
not seem to account for the cost associated with the borrowing of the 
ETF.
    In the Precidian Letter, Precidian stated that the existence of 
large short positions that exceed the number of shares outstanding 
negatively affects the market by making it far more expensive for 
legitimate short sellers to borrow shares. The proposed ETF Loan Fee 
should actually reduce the cost of borrowing ETF shares by eliminating 
the artificial demand to borrow shares. The proposed ETF Loan Fee 
should eliminate the profit in the Strategy and therefore will 
eliminate the practice for the Trusts. The Strategy negatively impacts 
the ability of market participants that want to maintain a net short 
position, as opposed to a fully-hedged position, by making it more 
expensive to borrow Shares. Precidian stated that the ability of market 
participants to implement the Strategy and the current inability of 
fund sponsors to protect themselves from the negative impact of the 
Strategy is a burden on competition that is inconsistent with the Act.

[[Page 50707]]

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-2015-68 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-2015-68. 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 Section, 100 F Street 
NE., Washington, DC 20549 on official business days between 10:00 a.m. 
and 3:00 p.m. Copies of the filing will also be available for 
inspection and copying at the NYSE's principal office 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-2015-68 and should be submitted on or before 
September 10, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-20542 Filed 8-19-15; 8:45 am]
BILLING CODE 8011-01-P


