
[Federal Register Volume 80, Number 226 (Tuesday, November 24, 2015)]
[Notices]
[Pages 73258-73262]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-29845]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76472; File No. SR-NYSEArca-2015-68]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings to Determine Whether To Approve or Disapprove 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

November 18, 2015.
    On July 30, 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 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 trading on the Exchange under NYSE Arca Equities 
Rule 8.202. The proposed rule change was published for comment in the 
Federal Register on August 20, 2015.\3\ On September 18, 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 has not received 
any comments on the proposal.\6\ This order institutes proceedings 
under Section 19(b)(2)(B) of the Act \7\ 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. 75698 (Aug. 14, 
2015), 80 FR 50701 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 75945, 80 FR 57645 
(Sept. 24, 2015). The Commission designated a longer period within 
which to take action on the proposed rule change and designated 
November 18, 2015, as the date by which it should approve, 
disapprove, or institute proceedings to determine whether to 
disapprove the proposed rule change.
    \6\ Although the Commission has not yet received comments on the 
proposal, the Exchange represents that it issued a Regulatory 
Bulletin on this proposal on August 21, 2013 (regulatory bulletin 
available at http://www.sec.gov/rules/sro/nysearca/2015/34-75698-ex2a.pdf) and received two comment letters in response. See Notice, 
supra note 3, 80 FR at 50705 n.22. See also Letter from Daniel J. 
McCabe, President, Precidian Investments, to John Carey, Vice 
President-Legal, NYSE (Sept. 20, 2013) (supporting the proposed rule 
change); Letter from Theodore R. Lazo, Associate General Counsel, 
and Kyle Brandon, Managing Director, SIFMA, to John Carey, Vice 
President-Legal (Sept. 23, 2013) (opposing the proposal) (both 
letters available at http://www.sec.gov/rules/sro/nysearca/2015/34-75698-ex2b.pdf).
    \7\ 15 U.S.C. 78s(b)(2)(B).
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I. Description of the Exchange's Proposal \8\
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    \8\ A complete description of the proposal can be found in the 
Notice. See Notice, supra note 3 (available at: http://www.sec.gov/rules/sro/nysearca/2015/34-75698.pdf).
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A. Background

    The Exchange currently lists and trades shares (``Shares'') of the 
CurrencyShares[supreg] Euro Trust (``Euro Trust'' or ``FXE'') and the 
CurrencyShares[supreg] Japanese Yen Trust (``Yen Trust'' or ``FXY,'' 
and together with the Euro Trust, collectively, ``Trusts'') under NYSE 
Arca Equities Rule 8.202.\9\
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    \9\ 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 (Nov. 28, 2005), 70 FR 72486 (Dec. 5, 2005) 
(SR-NYSE-2005-65) (order approving listing and trading of Shares of 
FXE); and 55268 (Feb. 9, 2007), 72 FR 7793 (Feb. 20, 2007) (SR-NYSE-
2007-03) (order approving listing and trading of Shares of FXY).
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    FXE and FXY hold euros and Japanese yen, respectively, and issue 
Shares in baskets (``Baskets'') of 50,000 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 represent units of fractional undivided beneficial interests in 
the assets held by the relevant Trust. The investment objective of each 
Trust is for the Trust's shares to reflect the price in U.S. dollars 
(``USD'') of the foreign currency held by the Trust, plus accrued 
interest and minus the expenses and liabilities of such Trust. 
According to the Exchange, the Shares are intended to provide 
institutional and retail investors with economic exposure to a 
particular foreign currency so that they can, for example, hedge 
foreign currency risk in other portfolio assets or hedge against USD 
fluctuations more generally.
    The Exchange represents that, as sponsor of the Trusts, Guggenheim 
Specialized Products, LLC (``Guggenheim'' or ``Sponsor'') receives a 
management fee that 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 is calculated as a 
percentage of the currency held by each Trust. Guggenheim's fee accrues 
daily at an annual nominal rate of 0.40% of the foreign currency held 
by the trust.
    According to the Exchange, because the accrued but unpaid 
management fee is subtracted from the assets in calculating each fund's 
net asset value (``NAV'') on a daily basis,\10\ the value of the Shares 
decreases at a predictable rate independent of the value of the 
currency held by each Trust. The Exchange refers to the rate at which 
the value of a Trust falls as a result of the management fee as the 
``Management Fee Decay.''
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    \10\ 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. 
See Notice, supra note 3, at 3, 80 FR at 50701.
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    Like other equity securities, Shares may be loaned by shareholders 
to other market participants. This securities lending activity can 
facilitate short selling of Shares, as well as other investment 
strategies.\11\ Once loaned, the Shares may be (i) redeemed by the 
borrower for underlying Trust assets, or (ii) sold.
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    \11\ A short sale is any sale of a security that the seller does 
not own or any sale that 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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B. The Exchange's Description of the ``Strategy'' Allegedly Used by 
Some Market Participants to Profit From Management Fee Decay

    According to the Exchange, the Sponsor claims to have identified a 
strategy (``Strategy'') that permits certain market participants 
(``Traders'') to profit from the reduction in the NAV of the Shares 
over time associated with Management Fee Decay, to the purported 
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, or (2) redeems the borrowed Shares for euros or 
yen, as applicable.
    According to the Exchange, the number of units of foreign currency

[[Page 73259]]

underlying the Shares the Trader has sold short is reduced over time 
because of the Management Fee Decay. 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. According to the Exchange, 
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 and other transaction costs.
    According to the Exchange, the following two examples--one in which 
the Trader sells the borrowed Shares short, and the other in which the 
Trader redeems the borrowed Shares--explain how the Strategy functions.
Example 1--Selling Short FXE
    Before the trade, there are 100 euros in the Euro 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 Euro 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.

C. The Exchange's Description of the Alleged Harm Caused by the 
``Strategy''

    According to the Exchange, 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, according to the Exchange, 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, 
according to the Exchange, lenders and Traders that engage in the 
Strategy are subsidized by long holders of the Shares that do not lend 
their Shares.\12\
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    \12\ According to the Exchange, an amendment to the depositary 
trust agreement (``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. 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 
Depository Trust Company (``DTC''), the borrower also is a 
Beneficial Owner when the Beneficial Owner takes delivery of the 
Shares.
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    The Exchange represents that the Sponsor continues to bear the cost 
of providing shareholder services to shareholders that lend Shares to 
Traders, even though, because Traders sell or redeem these borrowed 
Shares, 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, according to 
the Exchange, bearing the costs associated with lenders' long positions 
in Shares that Traders redeem or sell. Through the loan arrangement, 
the Exchange alleges, 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.
    According to the Exchange, 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.
    According to the Exchange, the Strategy discussed above is 
detrimental to liquidity in the Shares. The Exchange asserts that, 
because of the large outstanding short positions in the Shares, it is 
difficult to borrow Shares, particularly for market participants that 
are not Authorized Participants \13\ that are seeking to engage in 
short selling for trading strategies other than the Strategy. According 
to the Exchange, 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. This activity, 
according to the Exchange, 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

[[Page 73260]]

wider spreads harms all investors through higher costs to buy and sell 
Shares.
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    \13\ An ``Authorized Participant'' is a 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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D. The Exchange's Proffered Justification for the Proposed Rule Change

    The Exchange has filed this proposed rule change to reflect a 
proposed fee (``ETF Loan Fee'') to be imposed on securities lending and 
repurchase transactions with respect to the Shares. The Sponsor would 
receive the proceeds of the ETF Loan Fee, minus an amount equal to 20 
percent of the fee, which would be paid to Precidian Investments, LLC 
(``Precidian'' or ``Loan Fee Administrator''). Precidian has in turn 
engaged BNY Mellon to act as ``Loan Fee Collection Agent'' on its 
behalf. The Loan Fee Collection Agent would be paid by Precidian and 
would not further reduce the proceeds paid to the Sponsor. According to 
the Exchange, 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.
    According to the Exchange, 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\ 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. 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 borrowed Shares, no assets 
relating to the borrowed Shares remain in the Trusts against which the 
management fee can be assessed. Nevertheless, the lender retains a long 
position in the Shares. Thus, according to the Exchange, 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\ According to the Exchange, 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. The Exchange states 
that, 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 Exchange states 
that the proposed ETF Loan Fee would be implemented upon 
effectiveness of amendments to the Trust Agreements and approval of 
this proposed rule change and after sixty days' notice to 
shareholders (``ETF Loan Fee Effective Date''). The ETF Loan Fee 
would apply to any Shares loaned or sold subject to an agreement to 
repurchase after the sixty day notification period.
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    The procedures proposed by the Trusts would prohibit any 
shareholder from lending any Shares to another person (``Loan 
Transaction''), or selling any Shares to another person subject to an 
agreement to repurchase Shares (``Repurchase Transaction'' and, 
together with a Loan Transaction, collectively, ``Permissible Stock 
Loan''), unless the shareholder notifies the custodian or its designee 
of the transaction on or prior to the inception of the Permissible 
Stock Loan. A shareholder engaging in a Permissible Stock Loan 
(``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. 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.
    Upon 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 the Loan Fee Collection 
Agent \15\ 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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    \15\ 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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    According to the Exchange, the ETF Loan Fee is expected to equal 
Guggenheim's management fee on a per Share basis.\16\ The Exchange 
states that 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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    \16\ According to the Exchange, Guggenheim has informed the 
Exchange that it expects the ETF Loan Fee to be 40 basis points per 
annum.
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    According to the Exchange, 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 participants based on their loan transactions or the loan 
transactions of their clients and distribute the net ETF Loan Fee to 
Guggenheim.\17\
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    \17\ According to the Exchange, the administration and 
collection of the ETF Loan Fee, as a fee of the Trusts, would be the 
responsibility of the Sponsor, the Loan Fee Administrator and the 
Loan Fee Collection Agent. The Exchange would have no role in the 
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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    The Exchange represents that, because 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. According to the Exchange, 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. According to the Exchange, these lenders are freeriding on 
the

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management fee paid by those shareholders that do not lend Shares.
    The Exchange represents that, 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 would be used to offset Trust 
expenses, bringing down the management fee.
    The Exchange states that 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. According to the Exchange, 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).

II. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2015-68 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \18\ 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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    \18\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\19\ 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.'' \20\
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    \19\ Id.
    \20\ 15 U.S.C. 78f(b)(5).
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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.\21\
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    \21\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 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 December 15, 2015. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 29, 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,\22\ in addition to any other 
comments they may wish to submit about the proposed rule change. In 
particular, the Commission seeks comment on the following:
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    \22\ See supra note 3.
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    1. In general, do commenters believe that the proposal is 
consistent with the requirements of Section 6 of the Act applicable to 
a national securities exchange, and in particular, Section 6(b)(5) of 
the Act, which requires that the rules of a national securities 
exchange be designed, among other things, to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in 
general, to protect investors and the public interest and Section 
6(b)(8) of the Act, which requires that the rules of an exchange not 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act?
    2. According to the Exchange, ``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.'' \23\ Do commenters 
agree with this assertion? What, if any, broader policy implications do 
commenters think this assertion raises?
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    \23\ See Notice, supra note 3 at 7, 80 FR at 50702.
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    3. The Exchange states: ``Long holders of Shares that do not lend 
to Traders are bearing the costs associated with lenders' long position 
in Shares that Traders redeem or sell.'' Do commenters agree with this 
assertion? What, if any, broader policy implications do commenters 
think this assertion raises?
    4. According to the Exchange, the Strategy permits certain 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. The 
Exchange further represents that, 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, the Exchange asserts, have a positive impact on shareholders 
that do not lend their Shares because the ETF Loan Fees would be used 
to offset Trust expenses, bringing down the management fee. Do 
commenters agree with the Exchange's assertions? What, if any, broader 
policy implications do commenters think these assertions raise?
    5. The Exchange asserts that the Strategy discussed above is 
detrimental to liquidity in the Shares and that the Strategy 
potentially results wider spreads, harming all investors through higher 
costs to buy and sell Shares. Based on the trading history of the 
Shares, do commenters agree with the Exchange's assertions? Are these 
assertions by the Exchange consistent with the Exchange's statement 
elsewhere in the Notice that it ``believes that imposition of the ETF 
Loan Fee would not materially impact trading of the Shares''? \24\
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    \24\ See id. at 15, 80 FR at 50705.
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    6. The Exchange states that eliminating the economic distortion 
allegedly created by the Strategy would facilitate pricing of FXE and 
FXY on parity with the underlying asset (i.e., euros or yen). Based on 
past and current spreads between the market price per

[[Page 73262]]

Share for the Trusts and their respective NAVs, do commenters agree 
with the Exchange's assertions? Have commenters observed any problems 
with respect to the trading or valuation of FXE or FXY? For example, do 
commenters believe that the markets prices for these products closely 
track the underlying values of their portfolios?
    7. Have commenters observed the Strategy being employed with 
respect to FXE or FXY, and if so, have commenters observed any 
deleterious effects of the Strategy?
    8. The Exchange asserts that the Strategy is not available with 
asset classes other than exchange-traded products.\25\ Do commenters 
agree with this assertion? If commenters believe that the Strategy is 
available for exchange-traded products, do commenters believe that 
certain exchange-traded products or types of exchange-traded products 
are more susceptible to the Strategy than others? For example, would an 
exchange-traded product be susceptible to Management Fee Decay if the 
returns on its portfolio exceeded its management fee? Does the nature 
of the assets held by an exchange-traded product affect its 
vulnerability to the alleged Strategy?
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    \25\ See id. at 7, 80 FR at 50703.
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    9. The Exchange states that the sponsor represents that, ``because 
of large outstanding short positions in the shares . . . it is 
difficult to borrow shares, particularly for market participants that 
are not Authorized Participants that are seeking to engage in short 
selling for trading strategies other than the Strategy.'' \26\ What are 
commenters' views of these assertions?
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    \26\ See id. at 8, 80 FR at 50703.
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    10. What are the prevailing securities lending rates that 
commenters have observed for shares of FXE and FXY? Do commenters have 
a view regarding whether the Strategy is viable under these observed 
securities lending rates?
    11. The Exchange states that, 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.'' \27\ What are commenters' views concerning 
this assertion? For example, what are commenters' views about the 
effect of the proposed rule change on investors who wish to express a 
bearish view on either the euro or the yen, or to hedge a long position 
in euros or yen, by holding a short position in shares of the Trusts 
over some period of time?
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    \27\ See id. at 16, 80 FR at 50705.
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    12. The proposal would prohibit any holder of the Shares from 
lending its shares or from entering into an agreement to repurchase the 
shares unless the holder (a) self-reports to an agent of the sponsor of 
the Trusts and (b) remits a fee to that agent equal to the sponsor's 
management fee. What are commenters' views regarding the policy 
implications of permitting an issuer of securities to place such 
restrictions on the transfer of shares that it has issued in a public 
offering and that are listed and traded on a national securities 
exchange? In particular, are such restrictions consistent with Sections 
6(b)(5) and 6(b)(8) of the Act? What are commenters' views on whether a 
fee based on self-reporting of lending or repurchase activity can be 
administered in a manner consistent with Section 6(b)(5) of 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 Numbers 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 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-2015-68 and should 
be submitted on or before December 15, 2015. Rebuttal comments should 
be submitted by December 29, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
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    \28\ 17 CFR 200.30-3(a)(57).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-29845 Filed 11-23-15; 8:45 am]
 BILLING CODE 8011-01-P


