
[Federal Register Volume 81, Number 10 (Friday, January 15, 2016)]
[Notices]
[Pages 2282-2291]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-00639]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76862; File No. SR-BATS-2015-94]


Self-Regulatory Organizations; BATS Exchange, Inc., Notice of 
Filing of Proposed Rule Change To List and Trade Shares of the SPDR 
DoubleLine Emerging Markets Fixed Income ETF of the SSgA Active Trust

January 11, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on December 28, 2015, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II, 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\ 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 is proposing a rule change to list and trade shares of 
the SPDR[supreg] DoubleLine[supreg] Emerging Markets Fixed Income ETF 
(the ``Fund'') of the SSgA Active Trust (the ``Trust'') under BATS Rule 
14.11(i) (``Managed Fund Shares''). The shares of the Fund are 
collectively referred to herein as the ``Shares.''
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.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 Exchange 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 these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
Sections A, B, and C below, of the most significant parts of such 
statements.

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

1. Purpose
    The Exchange proposes to list and trade the Shares under BATS Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Fund will be an actively managed fund. The 
Shares will be offered by the Trust, which was established as a 
Massachusetts business trust on March 30, 2011. The Trust is registered 
with the Commission as an open-end investment company and has filed a 
registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\4\
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    \3\ The Commission approved BATS Rule 14.11(i) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ See Registration Statement on Form N-1A for the Trust, dated 
October 8, 2015 (File Nos. 333-173276 and 811-22542). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement. The 
Commission has issued an order granting certain exemptive relief to 
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-1) 
(``1940 Act'') (the ``Exemptive Order''). See Investment Company Act 
Release No. 29524 (December 13, 2010) (File No. 812-13487).
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Description of the Shares and the Fund
    SSGA Funds Management, Inc. will be the investment adviser (``SSGA 
FM'' or ``Adviser'') to the Fund. The Adviser will serve as the 
administrator for the Fund (the ``Administrator''). DoubleLine Capital 
LP will be the Fund's sub-adviser (``Sub-Adviser''). State Street 
Global Markets, LLC (the ``Distributor'') will be the principal 
underwriter and distributor of the Fund's Shares. State Street Bank and 
Trust Company (the ``Sub-Administrator'', ``Custodian'', ``Transfer 
Agent'' or ``Lending Agent'') will serve as sub-administrator, 
custodian, transfer agent, and, where applicable, lending agent for the 
Fund.

[[Page 2283]]

    BATS Rule 14.11(i)(7) provides that, if the investment adviser to 
the investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company portfolio.\5\ In addition, Rule 14.11(i)(7) further 
requires that personnel who make decisions on the investment company's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material nonpublic information regarding 
the applicable investment company portfolio. Rule 14.11(i)(7) is 
similar to BATS Rule 14.11(b)(5)(A)(i), however, Rule 14.11(i)(7) in 
connection with the establishment of a ``fire wall'' between the 
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case 
with index-based funds. The Adviser and Sub-Adviser are not registered 
as a broker-dealer but the Adviser is affiliated with a broker-dealer 
and has implemented a ``fire wall'' with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio. The Sub-Adviser is not affiliated with 
a broker-dealer. In the event (a) the Adviser or Sub-Adviser becomes 
registered as a broker-dealer or newly affiliated with a broker-dealer, 
or (b) any new adviser or sub-adviser is a registered broker-dealer or 
becomes affiliated with a broker-dealer, it will implement a fire wall 
with respect to its relevant personnel or broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
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    \5\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel as well 
as the Sub-Adviser and its related personnel are subject to the 
provisions of Rule 204A-1 under the Advisers Act relating to codes 
of ethics. This Rule requires investment advisers to adopt a code of 
ethics that reflects the fiduciary nature of the relationship to 
clients as well as compliance with other applicable securities laws. 
Accordingly, procedures designed to prevent the communication and 
misuse of non-public information by an investment adviser must be 
consistent with Rule 204A-1 under the Advisers Act. In addition, 
Rule 206(4)-7 under the Advisers Act makes it unlawful for an 
investment adviser to provide investment advice to clients unless 
such investment adviser has (i) adopted and implemented written 
policies and procedures reasonably designed to prevent violation, by 
the investment adviser and its supervised persons, of the Advisers 
Act and the Commission rules adopted thereunder; (ii) implemented, 
at a minimum, an annual review regarding the adequacy of the 
policies and procedures established pursuant to subparagraph (i) 
above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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SPDR[supreg] DoubleLine Emerging Markets Fixed Income ETF
    According to the Registration Statement, the Fund will seek to 
provide high total return from current income and capital appreciation. 
To achieve its objective, the Fund will invest, under normal 
circumstances, at least 80% of its net assets (plus the amount of 
borrowings for investment purposes) in emerging market fixed income 
securities, as described further in the Principal Holding, Other 
Portfolio Holdings, and Investment Restrictions sections below.\6\ The 
Fund is an actively-managed fund that does not seek to replicate the 
performance of a specified index.
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    \6\ Generally, as used in this proposed rule change, the terms 
debt security, debt obligation, bond, fixed income instrument and 
fixed income security are used interchangeably. These terms should 
be considered to include any evidence of indebtedness, including, by 
way of example, a security or instrument having one or more of the 
following characteristics: A security or instrument issued at a 
discount to its face value, a security or instrument that pays 
interest at a fixed, floating, or variable rate, or a security or 
instrument with a stated principal amount that requires repayment of 
some or all of that principal amount to the holder of the security. 
These terms are interpreted broadly to include any instrument or 
security evidencing what is commonly referred to as an IOU rather 
than evidencing the corporate ownership of equity unless that equity 
represents an indirect or derivative interest in one or more debt 
securities. For this purpose, the terms also include instruments 
that are intended to provide one or more of the characteristics of a 
direct investment in one or more debt securities.
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    Under normal market conditions, the Sub-Adviser intends to seek to 
construct an investment portfolio with a weighted average effective 
duration of no less than two years and no more than eight years. The 
effective duration of the portfolio may vary materially from its 
target, from time to time, and there is no assurance that the effective 
duration of the Fund's investment portfolio will not exceed its target.
    The Fund may invest without limit in investments denominated in any 
currency, but currently expects to invest a substantial amount of its 
assets in investments denominated in the U.S. dollar. Securities held 
by the Fund may be sold at any time. By way of example, sales may occur 
when the Sub-Adviser perceives deterioration in the credit fundamentals 
of the issuer, when the Sub-Adviser believes there are negative macro 
geo-political considerations that may affect the issuer, when the Sub-
Adviser determines to take advantage of a better investment 
opportunity, or the individual security has reached the Sub-Adviser's 
sell target.
    In allocating investments among various emerging market countries, 
the Sub-Adviser attempts to analyze internal political, market and 
economic factors. These factors may include public finances, monetary 
policy, external accounts, financial markets, foreign investment 
regulations, stability of exchange rate policy, and labor conditions. 
In certain situations or market conditions, the Fund may temporarily 
depart from its normal investment policies and strategies provided that 
the alternative is in the best interest of the Fund. For example, the 
Fund may hold a higher than normal proportion of its assets in cash in 
times of extreme market stress.
Principal Holdings
    The Fund intends to achieve its investment objective by investing, 
under normal circumstances,\7\ at least 80% of its net assets (plus the 
amount of borrowings for investment purposes) in fixed income 
instruments (``Fixed Income Securities''), subject to certain limits 
described below. For purposes of this filing, Fixed Income Securities 
will be, where applicable and unless otherwise noted, U.S. dollar-
denominated and are defined as the following instruments: Fixed income 
securities issued or guaranteed by foreign corporations or foreign 
governments, including securities issued or guaranteed by companies 
(including hybrid securities),\8\ financial institutions, or government 
entities in emerging market countries; corporate or government bonds; 
sovereign debt; structured securities; \9\ foreign currency

[[Page 2284]]

transactions; certain derivatives; exchange-traded foreign equity 
securities and preferred securities; zero coupon bonds; credit linked 
notes; pass through notes; bank loans; \10\ perpetual maturity bonds; 
and convertible securities. Fixed Income Securities may have fixed or 
variable interest rates \11\ and any maturity.
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    \7\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the fixed income markets or the financial markets generally; 
operational issues causing dissemination of inaccurate market 
information; or force majeure type events such as systems failure, 
natural or man-made disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance.
    \8\ A third party or the Sub-Adviser may create a hybrid 
security by combining an income-producing debt security and the 
right to receive payment based on the change in the price of an 
equity security. The Fund may invest in hybrid securities related to 
emerging market countries.
    \9\ Structured securities generally includes [sic] privately-
issued and publicly-issued structured securities, including certain 
publicly-issued structured securities that are not agency 
securities. Examples include, but are not limited to: Asset-backed 
securities backed by assets such as consumer receivables, credit 
cards, student loans, and equipment leases; asset-backed commercial 
paper; credit linked notes; and secured funding notes.
    \10\ The Fund may invest up to 20% of its portfolio in junior 
bank loans.
    \11\ A variable rate security provides for the automatic 
establishment of a new interest rate on set dates. Variable rate 
obligations whose interest is readjusted no less frequently than 
annually will be deemed to have a maturity equal to the period 
remaining until the next readjustment of the interest rate. The Fund 
may also purchase floating rate securities. A floating rate security 
provides for the automatic adjustment of its interest rate whenever 
a specified interest rate changes. Interest rates on these 
securities are ordinarily tied to, and are a percentage of, a widely 
recognized interest rate, such as the yield on 90-day U.S. Treasury 
bills or the prime rate of a specified bank. These rates may change 
as often as twice daily.
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    The Fund will generally invest in Fixed Income Securities from at 
least five emerging market countries,\12\ with no more than 20% 
allocated to a single country. The Fund may invest in Fixed Income 
Securities of any credit quality, but seeks to invest no more than 20%, 
at the time of investment, in Fixed Income Securities that are unrated, 
rated BB+ or lower by Standard & Poor's Rating Service or Ba1 or lower 
by Moody's Investor Service, Inc. or the equivalent by any other 
nationally recognized statistical rating organization. Corporate bonds 
and certain other Fixed Income Securities rated below investment grade, 
or such instruments that are unrated and are determined by the Sub-
Adviser to be of comparable quality, are high yield, high risk bonds, 
commonly known as junk bonds.
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    \12\ An ``emerging market country'' is a country that, at the 
time the Fund invests in the related fixed income instruments, is 
classified as an emerging or developing economy by any supranational 
organization such as the World Bank or the United Nations, or 
related entities, or is considered an emerging market country for 
purposes of constructing a major emerging market securities index.
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    The Fund may invest in corporate bonds.\13\ The investment return 
of corporate bonds reflects interest on the bond and changes in the 
market value of the bond. The market value of a corporate bond may be 
affected by the credit rating of the corporation, the corporation's 
performance and perceptions of the corporation in the market place. 
Such corporate bonds may be investment grade or may be below investment 
grade.
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    \13\ While the Fund is permitted to invest without restriction 
in corporate bonds, the Sub-Adviser expects that, under normal 
circumstances, the Fund will generally seek to invest in corporate 
bond issuances that have at least $100,000,000 par amount 
outstanding. Further, component corporate bonds that in the 
aggregate account for at least 75% of the weight of corporate bonds 
will have a minimum original principal outstanding of $100 million 
or more.
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    The Fund may purchase exchange-traded common stocks and exchange-
traded preferred securities of foreign corporations. The Fund's 
investments in common stock of foreign corporations may also be in the 
form of American Depositary Receipts (``ADRs''), Global Depositary 
Receipts (``GDRs'') and European Depositary Receipts (``EDRs'') 
(collectively ``Depositary Receipts'').\14\
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    \14\ Depositary Receipts are receipts, typically issued by a 
bank or trust company, which evidence ownership of underlying 
securities issued by a foreign corporation. For ADRs, the depository 
is typically a U.S. financial institution and the underlying 
securities are issued by a foreign issuer. For other Depositary 
Receipts, the depository may be a foreign or a U.S. entity, and the 
underlying securities may have a foreign or a U.S. issuer. 
Depositary Receipts will not necessarily be denominated in the same 
currency as their underlying securities. Generally, ADRs, in 
registered form, are designed for use in the U.S. securities market, 
and EDRs, in bearer form, are designated for use in European 
securities markets. GDRs are tradable both in the United States and 
in Europe and are designed for use throughout the world. The Fund 
may invest in sponsored or unsponsored ADRs; however, not more than 
10% of the net assets of the Fund will be invested in unsponsored 
ADRs. All exchange-traded equity securities in which the Fund may 
invest will trade on markets that are members of the Intermarket 
Surveillance Group (``ISG'') or that have entered into a 
comprehensive surveillance agreement with the Exchange.
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    The Fund may invest in sovereign debt. Sovereign debt obligations 
are issued or guaranteed by foreign governments or their agencies. 
Sovereign debt may be in the form of conventional securities or other 
types of debt instruments such as loans or loan participations. 
Sovereign debt obligations may be either investment grade or below 
investment grade.
    The Fund may conduct foreign currency transactions on a spot (i.e., 
cash) or forward basis (i.e., by entering into forward contracts to 
purchase or sell foreign currencies). The Fund may also invest in the 
following derivatives: Foreign currency futures; credit default swaps; 
and options, swaps, futures, and forward contracts on Fixed Income 
Securities. These practices may be used to hedge the Fund's portfolio 
as well as for investment purposes; however, such practices sometimes 
may reduce returns or increase volatility. All such derivatives will be 
exchange traded or centrally cleared.
    In the case of a credit default swap (``CDS''), the contract gives 
one party (the buyer) the right to recoup the economic value of a 
decline in the value of debt securities of the reference issuer if the 
credit event (a downgrade or default) occurs. This value is obtained by 
delivering a debt security of the reference issuer to the party in 
return for a previously agreed payment from the other party 
(frequently, the par value of the debt security).\15\
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    \15\ The Fund will enter into CDS agreements only with 
counterparties that meet certain standards of creditworthiness.
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    CDSs may require initial premium (discount) payments as well as 
periodic payments (receipts) related to the interest leg of the swap or 
to the default of a reference obligation. The Fund will segregate 
assets necessary to meet any accrued payment obligations when it is the 
buyer of CDSs. In cases where the Fund is a seller of a CDS, if the CDS 
is physically settled or cash settled, the Fund will be required to 
segregate the full notional amount of the CDS. Such segregation will 
not limit the Fund's exposure to loss.
Other Portfolio Holdings
    While the Adviser and Sub-Adviser, under normal circumstances, will 
invest at least 80% of the Fund's net assets in the instruments 
described above, the Adviser and Sub-Adviser may invest up to 20% of 
the Fund's net assets in other securities and financial instruments, as 
described below.
    The Fund may invest in U.S. Government obligations. U.S. Government 
obligations are a type of bond. U.S. Government obligations include 
securities issued or guaranteed as to principal and interest by the 
U.S. Government, its agencies or instrumentalities.
    The Fund may invest in U.S. equity securities. Equity securities 
are securities that represent an ownership interest (or the right to 
acquire such an interest) in a company and include common and preferred 
stock. The Fund's investments in such U.S. equity securities may 
include securities traded over-the-counter as well as those traded on a 
securities exchange.
    The Fund may invest in repurchase agreements with commercial banks, 
brokers or dealers to generate income from its excess cash balances and 
to invest securities lending cash collateral. A repurchase agreement is 
an agreement under which a fund acquires a financial instrument (e.g., 
a security issued by the U.S. Government or an agency thereof, a 
banker's acceptance or a certificate of deposit) from a seller, subject 
to resale to the seller at an agreed upon price and date (normally, the 
next business day).

[[Page 2285]]

    The Fund may also enter into reverse repurchase agreements, which 
involve the sale of securities with an agreement to repurchase the 
securities at an agreed-upon price, date and interest payment and have 
the characteristics of borrowing. The Fund's exposure to reverse 
repurchase agreements will be covered by securities having a value 
equal to or greater than such commitments. Under the 1940 Act, reverse 
repurchase agreements are considered borrowings. Although there is no 
limit on the percentage of Fund assets that can be used in connection 
with reverse repurchase agreements, the Fund does not expect to engage, 
under normal circumstances, in reverse repurchase agreements with 
respect to more than 10% of its net assets.
    The Fund may lend its portfolio securities in an amount not to 
exceed 33\1/3%\ of the value of its total assets via a securities 
lending program through the Lending Agent, to brokers, dealers and 
other financial institutions desiring to borrow securities to complete 
transactions and for other purposes. A securities lending program 
allows the Fund to receive a portion of the income generated by lending 
its securities and investing the respective collateral. The Fund will 
receive collateral for each loaned security which is at least equal to 
102% of the market value of that security, marked to market each 
trading day.
    The Fund may invest in convertible securities traded on an exchange 
or OTC. Convertible securities are bonds, debentures, notes, or other 
securities that may be converted or exchanged (by the holder or by the 
issuer) into shares of the underlying common stock (or cash or 
securities of equivalent value) at a stated exchange ratio.
    In addition to repurchase agreements, the Fund may invest in short-
term instruments, including money market instruments, (including money 
market funds advised by the Adviser), cash and cash equivalents, on an 
ongoing basis to provide liquidity or for other reasons. Money market 
instruments are generally short-term investments that may include but 
are not limited to: (i) Shares of money market funds (including those 
advised by the Adviser); (ii) obligations issued or guaranteed by the 
U.S. government, its agencies or instrumentalities (including 
government-sponsored enterprises); (iii) negotiable certificates of 
deposit (``CDs''), bankers' acceptances, fixed time deposits and other 
obligations of U.S. and foreign banks (including foreign branches) and 
similar institutions; (iv) commercial paper rated at the date of 
purchase ``Prime-1'' by Moody's or ``A-1'' by S&P, or if unrated, of 
comparable quality as determined by the Adviser; (v) non-convertible 
corporate debt securities (e.g., bonds and debentures) with remaining 
maturities at the date of purchase of not more than 397 days and that 
satisfy the rating requirements set forth in Rule 2a-7 under the 1940 
Act; and (vi) short-term U.S. dollar- denominated obligations of 
foreign banks (including U.S. branches) that, in the opinion of the 
Adviser, are of comparable quality to obligations of U.S. banks which 
may be purchased by the Fund. Any of these instruments may be purchased 
on a current or a forward-settled basis. Time deposits are non- 
negotiable deposits maintained in banking institutions for specified 
periods of time at stated interest rates. Bankers' acceptances are time 
drafts drawn on commercial banks by borrowers, usually in connection 
with international transactions.
    The Fund may invest in Restricted Securities. Restricted Securities 
are securities that are not registered under the Securities Act, but 
which can be offered and sold to ``qualified institutional buyers'' 
under Rule 144A under the Securities Act or securities purchased after 
the lapse of the appropriate distribution compliance period under 
Regulation S under the Securities Act.
    The Fund may invest in the securities of other investment 
companies, including affiliated funds and money market funds, subject 
to applicable limitations under Section 12(d)(1) of the 1940 Act.
Investment Restrictions
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Restricted Securities deemed illiquid by the Adviser or Sub-
Adviser \16\ under the 1940 Act.\17\ The Fund will monitor its 
portfolio liquidity on an ongoing basis to determine whether, in light 
of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
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    \16\ In reaching liquidity decisions, the Adviser and Sub-
Adviser may consider factors including: The frequency of trades and 
quotes for the security; the number of dealers wishing to purchase 
or sell the security and the number of other potential purchasers; 
dealer undertakings to make a market in the security; the nature of 
the security and the nature of the marketplace in which it trades 
(e.g., the time needed to dispose of the security, the method of 
soliciting offers, and the mechanics of transfer).
    \17\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
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    The Fund intends to qualify each year as a regulated investment 
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of 
1986, as amended.\18\ The Fund will invest its assets, and otherwise 
conduct its operations, in a manner that is intended to satisfy the 
qualifying income, diversification, and distribution requirements 
necessary to establish and maintain RIC qualification under Subchapter 
M.
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    \18\ 26 U.S.C. 851.
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    The Fund's investments will be consistent with its investment 
objective and will not be used to seek to achieve leveraged or inverse 
leveraged returns (i.e. two times or three times the Fund's benchmark).
Net Asset Value
    According to the Registration Statement, the net asset value 
(``NAV'') of the Fund's Shares generally will be calculated once daily 
Monday through Friday as of the close of regular trading on the 
Exchange, generally 4:00 p.m. Eastern Time (the ``NAV Calculation 
Time'') on each day that the Exchange is open for trading, based on 
prices at the NAV Calculation Time. NAV per Share is calculated by 
dividing the Fund's net assets by the number of Fund Shares 
outstanding. The Fund's net assets are valued primarily on the basis of 
market quotations. Expenses and fees, including the management fees, 
will be accrued daily and taken into account for purposes of 
determining NAV.
    Restricted Securities, repurchase agreements, and reverse 
repurchase agreements will generally be valued at bid prices received 
from independent pricing services as of the announced

[[Page 2286]]

closing time for trading in such instruments. Spot currency 
transactions will generally be valued at mid prices received from an 
independent pricing service converted into U.S. dollars at current 
market rates on the date of valuation. Foreign currency forwards 
normally will be valued on the basis of quotes obtained from broker-
dealers or third party pricing services.
    According to the Adviser, U.S. Government obligations; U.S.-
registered, dollar-denominated bonds of foreign corporations, 
governments, agencies and supra-national entities; sovereign debt; 
corporate bonds; and short-term instruments will generally be valued at 
bid prices received from independent pricing services as of the 
announced closing time for trading in such instruments in the 
respective market. In determining the value of such instruments, 
pricing services determine valuations for normal institutional-size 
trading units of such securities using valuation models or matrix 
pricing, which incorporates yield and/or price with respect to bonds 
that are considered comparable in characteristics such as rating, 
interest rate and maturity date and quotations from securities dealers 
to determine current value. Investments having a maturity of 60 days or 
less are generally valued at amortized cost.
    Listed futures will generally be valued at the settlement price 
determined by the applicable exchange. Listed options will generally be 
valued at the last sale price on the applicable exchange. Non-exchange 
traded derivatives, including OTC-traded options, swaps, forwards, and 
structured investments, will normally be valued on the basis of 
quotations or equivalent indication of value supplied by a third-party 
pricing service or broker-dealer who makes markets in such instruments. 
The Fund's OTC-traded derivative instruments will generally be valued 
at bid prices.
    Common stocks and other exchange-traded equity securities 
(including shares of preferred securities, convertible securities, and 
exchange traded investment companies (``ETPs'')) generally will be 
valued at the last reported sale price or the official closing price on 
that exchange where the security is primarily traded on the day that 
the valuation is made. Foreign equities and exchange-listed Depositary 
Receipts will be valued at the last sale or official closing price on 
the relevant exchange on the valuation date. If, however, neither the 
last sale price nor the official closing price is available, each of 
these securities will be valued at either the last reported sale price 
or official closing price as of the close of regular trading of the 
principal market on which the security is listed. Unsponsored ADRs, 
which are traded in the OTC market, will be valued at the last reported 
sale price from the OTC Bulletin Board or OTC Link LLC on the valuation 
date. OTC-traded preferred securities and OTC-traded convertible 
securities will be valued based on price quotations obtained from a 
broker-dealer who makes markets in such securities or other equivalent 
indications of value provided by a third-party pricing service. 
Securities of non-exchange traded investment companies will be valued 
at NAV.
    According to the Registration Statement, in the event that current 
market valuations are not readily available or are deemed unreliable, 
the Trust's procedures require the Oversight Committee (``Committee'') 
to determine a security's fair value, in accordance with the 1940 
Act.\19\ In determining such value, the Committee may consider, among 
other things, (i) price comparisons among multiple sources, (ii) a 
review of corporate actions and news events, and (iii) a review of 
relevant financial indicators (e.g., movement in interest rates and 
market indices). In these cases, the Fund's NAV may reflect certain 
portfolio securities' fair values rather than their market prices.
---------------------------------------------------------------------------

    \19\ If a security's market price is not readily available or is 
deemed unreliable, the security will be valued by another method 
that the Board believes will better reflect fair value in accordance 
with the Trust's valuation policies and procedures and in accordance 
with the 1940 Act. The Board has delegated the process of valuing 
securities for which market quotations are not readily available or 
are deemed unreliable to the Committee. The Committee, subject to 
oversight by the Board, may use fair value pricing in a variety of 
circumstances, including but not limited to, situations when trading 
in a security has been suspended or halted. Accordingly, the Fund's 
NAV may reflect certain securities' fair values rather than their 
market prices. Fair value pricing involves subjective judgments and 
it is possible that the fair value determination for a security is 
materially different than the value that could be received on the 
sale of the security. The Committee has implemented procedures 
designed to prevent the use and dissemination of material, non-
public information regarding the Fund.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    The NAV of Shares of the Fund will be determined once each business 
day, normally 4:00 p.m. Eastern time. The Fund currently anticipates 
that a Creation Unit will consist of 50,000 Shares, though this number 
may change from time to time, including prior to the listing of the 
Fund. The exact number of Shares that will comprise a Creation Unit 
will be disclosed in the Registration Statement of the Fund. The Trust 
will issue and sell Shares of the Fund only in Creation Units on a 
continuous basis, without a sales load (but subject to transaction 
fees), at their NAV per Share next determined after receipt of an 
order, on any business day, in proper form. Creation and redemption 
will typically occur in cash, however, the Trust retains discretion to 
conduct such transactions on an in-kind basis or a combination of cash 
and in-kind, as further described below.
    The consideration for purchase of a Creation Unit of the Fund 
generally will consist of either (i) the in-kind deposit of a 
designated portfolio of securities (the ``Deposit Securities'') per 
each Creation Unit and the Cash Component (defined below), computed as 
described below, or (ii) the cash value of the Deposit Securities 
(``Deposit Cash'') and the ``Cash Component,'' computed as described 
below. When accepting purchases of Creation Units for cash, the Fund 
may incur additional costs associated with the acquisition of Deposit 
Securities that would otherwise be provided by an in-kind purchaser. 
Together, the Deposit Securities or Deposit Cash, as applicable, and 
the Cash Component constitute the ``Fund Deposit,'' which represents 
the minimum initial and subsequent investment amount for a Creation 
Unit of the Fund. The ``Cash Component'' is an amount equal to the 
difference between the NAV of the Shares (per Creation Unit) and the 
market value of the Deposit Securities or Deposit Cash, as applicable. 
If the Cash Component is a positive number (i.e., the NAV per Creation 
Unit exceeds the market value of the Deposit Securities or Deposit 
Cash, as applicable), the Cash Component shall be such positive amount. 
If the Cash Component is a negative number (i.e., the NAV per Creation 
Unit is less than the market value of the Deposit Securities or Deposit 
Cash, as applicable), the Cash Component will be such negative amount 
and the creator will be entitled to receive cash in an amount equal to 
the Cash Component. The Cash Component serves the function of 
compensating for any differences between the NAV per Creation Unit and 
the market value of the Deposit Securities or Deposit Cash, as 
applicable.
    The Custodian, through the National Securities Clearing Corporation 
(``NSCC''), will make available on each business day, prior to the 
opening of business on the Exchange, the list of the names and the 
required amount of each Deposit Security or the required amount of 
Deposit Cash, as applicable, to be included in the current Fund Deposit

[[Page 2287]]

(based on information at the end of the previous business day) for the 
Fund. Such Fund Deposit is subject to any applicable adjustments as 
described in the Registration Statement, in order to effect purchases 
of Creation Units of the Fund until such time as the next-announced 
composition of the Deposit Securities or the required amount of Deposit 
Cash, as applicable, is made available.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through the Transfer Agent and only on a business day.
    With respect to the Fund, the Custodian, through the NSCC, will 
make available immediately prior to the opening of business on the 
Exchange (9:30 a.m. Eastern time) on each business day, the list of the 
names and share quantities of the Fund's portfolio securities that will 
be applicable (subject to possible amendment or correction) to 
redemption requests received in proper form on that day (``Fund 
Securities''). Fund Securities received on redemption may not be 
identical to Deposit Securities.
    Redemption proceeds for a Creation Unit will be paid either in-kind 
or in cash or a combination thereof, as determined by the Trust. With 
respect to in-kind redemptions of the Fund, redemption proceeds for a 
Creation Unit will consist of Fund Securities as announced by the 
Custodian on the business day of the request for redemption received in 
proper form plus cash in an amount equal to the difference between the 
NAV of the Shares being redeemed, as next determined after a receipt of 
a request in proper form, and the value of the Fund Securities (the 
``Cash Redemption Amount''), less a fixed redemption transaction fee 
and any applicable additional variable charge as set forth in the 
Registration Statement. In the event that the Fund Securities have a 
value greater than the NAV of the Shares, a compensating cash payment 
equal to the differential will be required to be made by or through an 
authorized participant by the redeeming shareholder. Notwithstanding 
the foregoing, at the Trust's discretion, an authorized participant may 
receive the corresponding cash value of the securities in lieu of the 
in-kind securities value representing one or more Fund Securities.\20\
---------------------------------------------------------------------------

    \20\ The Adviser represents that, to the extent that the Trust 
permits or requires a ``cash in lieu'' amount, such transactions 
will be effected in the same or equitable manner for all Authorized 
Participants.
---------------------------------------------------------------------------

    The creation/redemption order cut-off time for the Fund is expected 
to be 4:00 p.m. Eastern time. Creation/redemption order cut-off times 
may be earlier on any day that the Securities Industry and Financial 
Markets Association (``SIFMA'') (or applicable exchange or market on 
which the Fund's investments are traded) announces an early closing 
time. On days when the Exchange closes earlier than normal, the Fund 
may require orders for Creation Units to be placed earlier in the day.
Availability of Information
    The Fund's Web site, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. The Web site will include additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior business day's reported NAV, mid-point of the bid/
ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\21\ daily trading volume, and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. Daily trading 
volume information for the Fund will also be available in the financial 
section of newspapers, through subscription services such as Bloomberg, 
Thomson Reuters, and International Data Corporation, which can be 
accessed by authorized participants and other investors, as well as 
through other electronic services, including major public Web sites. On 
each business day, before commencement of trading in Shares during 
Regular Trading Hours \22\ on the Exchange, the Fund will disclose on 
its Web site the identities and quantities of the portfolio of 
securities and other assets (the ``Disclosed Portfolio'') held by the 
Fund that will form the basis for the Fund's calculation of NAV at the 
end of the business day.\23\ The Disclosed Portfolio will include, as 
applicable: The ticker symbol; CUSIP number or other identifier, if 
any; a description of the holding (including the type of holding, such 
as the type of swap); the identity of the security, commodity, index or 
other asset or instrument underlying the holding, if any; for options, 
the option strike price; quantity held (as measured by, for example, 
par value, notional value or number of shares, contracts, or units); 
maturity date, if any; coupon rate, if any; effective date, if any; 
market value of the holding; and the percentage weighting of the 
holding in the Fund's portfolio. The Web site and information will be 
publicly available at no charge.
---------------------------------------------------------------------------

    \21\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \22\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \23\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    In addition, for the Fund, an estimated value, defined in BATS Rule 
14.11(i)(3)(C) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the Intraday Indicative Value will be based upon the current 
value for the components of the Disclosed Portfolio and will be updated 
and widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Regular Trading Hours.\24\ 
In addition, the quotations of certain of the Fund's holdings may not 
be updated during U.S. trading hours if such holdings do not trade in 
the United States or if updated prices cannot be ascertained.
---------------------------------------------------------------------------

    \24\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the Consolidated Tape 
Association (``CTA'') or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and provide a 
close estimate of that value throughout the trading day.
    Intraday, closing, and settlement prices of common stocks and other 
exchange-listed instruments (including Depositary Receipts, preferred 
securities, convertible securities, common stock, and ETPs) will be 
readily available from the national securities exchanges trading such 
securities as well as automated quotation systems, published or other 
public sources, or online information services such as Bloomberg or 
Reuters. Intraday and closing price information for exchange-traded 
options and futures will be available from the applicable exchange and 
from major market data vendors. In addition, price information for U.S. 
exchange-traded options will be available from the Options Price 
Reporting Authority. Quotation

[[Page 2288]]

information from brokers and dealers or pricing services will be 
available for Fixed Income Securities. Price information regarding spot 
currency transactions and OTC-traded derivative instruments, including 
options, swaps, and forward currency transactions, as well as non-
exchange listed equity securities traded in the OTC market, including 
Restricted Securities, repurchase and reverse repurchase agreements, 
OTC equity securities, OTC-traded preferred securities, and OTC-traded 
convertible securities, is available from major market data vendors.
    Information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information for the Shares will 
be published daily in the financial section of newspapers. Quotation 
and last sale information for the Shares will be available on the 
facilities of the CTA.
Initial and Continued Listing
    The Shares will be subject to BATS Rule 14.11(i), which sets forth 
the initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Fund must be in compliance with Rule 10A-3 under the 
Act.\25\ A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \25\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in BATS Rule 11.18. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the Disclosed 
Portfolio of the Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. Trading in the Shares also will be subject to Rule 
14.11(i)(4)(B)(iv), which sets forth circumstances under which Shares 
of the Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. BATS will allow 
trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BATS Rule 14.11(i)(2)(C), 
the minimum price variation for quoting and entry of orders in Managed 
Fund Shares traded on the Exchange is $0.01.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including Managed Fund Shares. The 
Exchange may obtain information regarding trading in the Shares and the 
underlying shares in exchange traded investment companies, U.S. equity 
securities, foreign securities, futures, and options via the ISG, from 
other exchanges who are members or affiliates of the ISG, or with which 
the Exchange has entered into a comprehensive surveillance sharing 
agreement.\26\ In addition, the Exchange is able to access, as needed, 
trade information for certain fixed income instruments reported to 
FINRA's Trade Reporting and Compliance Engine (``TRACE''). The Exchange 
prohibits the distribution of material non-public information by its 
employees.
---------------------------------------------------------------------------

    \26\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Exchange 
also notes that all exchange-traded instruments, including 
investment company securities, futures, and options will trade on 
markets that are a member of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BATS Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Opening \27\ and After Hours Trading Sessions \28\ when an updated 
Intraday Indicative Value will not be calculated or publicly 
disseminated; (5) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (6) trading information.
---------------------------------------------------------------------------

    \27\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \28\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV Calculation Time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
Web site. In addition, the Information Circular will reference that the 
Trust is subject to various fees and expenses described in the Fund's 
Registration Statement.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \29\ in general and Section 6(b)(5) of the Act \30\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and

[[Page 2289]]

coordination with persons engaged in facilitating transactions in 
securities, 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.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f.
    \30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in BATS Rule 14.11(i). The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. If the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser to the investment company 
shall erect a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. The 
Adviser is not a registered broker-dealer, but is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. In the event (a) 
the Adviser or Sub-Adviser becomes registered as a broker-dealer or 
newly affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser is a registered broker-dealer or becomes affiliated with a 
broker-dealer, it will implement a fire wall with respect to its 
relevant personnel or broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio. The Exchange may obtain information regarding trading in the 
Shares and the underlying shares in Depositary Receipts that are not 
OTC ADRs and exchange traded investment companies, U.S. equity 
securities, futures, and options via the ISG, from other exchanges who 
are members or affiliates of the ISG, or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement.\31\ In 
addition, the Exchange is able to access, as needed, trade information 
for certain fixed income instruments reported to FINRA's TRACE.
---------------------------------------------------------------------------

    \31\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Disclosed Portfolio for the Fund may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. The Exchange 
also notes that all of the exchange-listed investment company 
securities, futures, and options will trade on markets that are a 
member of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund intends to 
achieve its investment objective by investing, under normal 
circumstances, at least 80% of its net assets in Fixed Income 
Securities from at least five emerging market countries, with no more 
than 20% allocated to a single country. The Fund's investments will be 
consistent with the Fund's investment objective and will not be used to 
achieve leveraged or inverse leveraged returns, as stated above. While 
the Fund is permitted to invest without restriction in corporate bonds, 
the Sub-Adviser expects that, under normal circumstances, the Fund will 
generally seek to invest in corporate bond issuances that have at least 
$100,000,000 par amount outstanding. Further, component corporate bonds 
that in the aggregate account for at least 75% of the weight of 
corporate bonds will have a minimum original principal outstanding of 
$100 million or more.
    In addition to the holdings in Fixed Income Securities described 
above as part of the Fund's principal investment strategy, the Fund may 
also, to a limited extent (under normal circumstances, less than 20% of 
the Fund's net assets) and as further described above, engage in 
transactions in the following:
    U.S. Government obligations, U.S. equity securities, repurchase 
agreements, reverse repurchase agreements, portfolio lending, 
convertible securities, short-term instruments, Restricted Securities, 
and securities of other investment companies.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Restricted Securities deemed illiquid by the Adviser or Sub-
Adviser \32\ under the 1940 Act.\33\ The Fund will monitor its 
portfolio liquidity on an ongoing basis to determine whether, in light 
of current circumstances, an adequate level of liquidity is being 
maintained, and will consider taking appropriate steps in order to 
maintain adequate liquidity if, through a change in values, net assets, 
or other circumstances, more than 15% of the Fund's net assets are held 
in illiquid assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.
---------------------------------------------------------------------------

    \32\ In reaching liquidity decisions, the Adviser and Sub-
Adviser may consider factors including: The frequency of trades and 
quotes for the security; the number of dealers wishing to purchase 
or sell the security and the number of other potential purchasers; 
dealer undertakings to make a market in the security; the nature of 
the security and the nature of the marketplace in which it trades 
(e.g., the time needed to dispose of the security, the method of 
soliciting offers, and the mechanics of transfer).
    \33\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Moreover, the Intraday 
Indicative Value will be disseminated by one or more major market data 
vendors at least every 15 seconds during Regular Trading Hours. On each 
business day, before commencement of trading in Shares during Regular 
Trading Hours, the Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. Pricing information will be available on 
the Fund's Web site including: (1) The prior business day's reported 
NAV, the Bid/Ask Price of the Fund, and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the

[[Page 2290]]

NAV, within appropriate ranges, for each of the four previous calendar 
quarters. Additionally, information regarding market price and trading 
of the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and quotation and last sale information for the Shares will 
be available on the facilities of the CTA. The Web site for the Fund 
will include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. Trading 
in Shares of the Fund will be halted under the conditions specified in 
BATS Rule 11.18. Trading may also be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Finally, trading in the Shares will 
be subject to BATS Rule 14.11(i)(4)(B)(iv), which sets forth 
circumstances under which Shares of the Fund may be halted. In 
addition, the Exchange is able to access, as needed, trade information 
for certain fixed income instruments reported to FINRA's TRACE. As 
noted above, investors will also have ready access to information 
regarding the Fund's holdings, the Intraday Indicative Value, the 
Disclosed Portfolio, and quotation and last sale information for the 
Shares.
    Intraday, closing, and settlement prices of common stocks and other 
exchange-listed instruments (including Depositary Receipts, preferred 
securities, convertible securities, common stock, and ETPs) will be 
readily available from the national securities exchanges trading such 
securities as well as automated quotation systems, published or other 
public sources, or online information services such as Bloomberg or 
Reuters. Intraday and closing price information for exchange-traded 
options and futures will be available from the applicable exchange and 
from major market data vendors. In addition, price information for U.S. 
exchange-traded options will be available from the Options Price 
Reporting Authority. Quotation information from brokers and dealers or 
pricing services will be available for Fixed Income Securities. Price 
information regarding spot currency transactions and OTC-traded 
derivative instruments, including options, swaps, and forward currency 
transactions, as well as non-exchange listed equity securities traded 
in the OTC market, including Restricted Securities, repurchase and 
reverse repurchase agreements, OTC equity securities, OTC-traded 
preferred securities, and OTC-traded convertible securities, is 
available from major market data vendors.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Intraday Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

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

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

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period 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-BATS-2015-94 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-BATS-2015-94. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also 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-BATS-2015-94 and should be 
submitted on or before February 5, 2016.


[[Page 2291]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-00639 Filed 1-14-16; 8:45 am]
 BILLING CODE 8011-01-P


