
[Federal Register Volume 81, Number 26 (Tuesday, February 9, 2016)]
[Notices]
[Pages 6916-6917]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-02440]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77045; File No. SR-NYSEArca-2015-113]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change Relating to the Index Underlying the WisdomTree 
Put Write Strategy Fund

February 3, 2016.

I. Introduction

    On December 2, 2015, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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 
proposal to change a representation the Exchange made in support of a 
prior proposed rule change. The proposed rule change was published for 
comment in the Federal Register on December 21, 2015.\3\ The Commission 
received no comments on the proposed rule change. This order approves 
the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76646 (Dec. 15, 
2015), 80 FR 79371 (``Notice'').
---------------------------------------------------------------------------

II. The Exchange's Description of the Proposed Rule Change

A. The Prior Proposal

    The Commission approved the listing and trading on the Exchange of 
shares (``Shares'') of the WisdomTree Put Write Strategy Fund 
(``Fund'') under NYSE Arca Equities Rule 5.2(j)(3), which governs the 
listing and trading of Investment Company Units.\4\ The Exchange filed 
that proposed rule change because the Fund and the Shares did not meet 
all of the ``generic'' listing requirements of Commentary .01(a)(A) to 
NYSE Arca Equities Rule 5.2(j)(3), applicable to the listing of 
Investment Company Units based upon an index of ``US Component 
Stocks.'' \5\ The Exchange represented that the Shares would conform to 
the initial and continued listing criteria under NYSE Arca Equities 
Rules 5.2(j)(3) and 5.5(g)(2), except that the underlying index, the 
CBOE S&P 500 Put Write Index (the ``Index''), would not meet the 
requirements of NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.01(a)(A)(1)-(5). The Exchange, however, also represented that the 
Index would (1) include a minimum of 20 components, and therefore (2) 
meet the numerical requirements of NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .01(a)(A)(4), which requires a minimum of 13 index or 
portfolio components.
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release Nos. 74290 (February 18, 
2015), 80 FR 9818 (February 24, 2015) (SR-NYSEArca-2015-05) (``Prior 
Notice''); 74675 (April 8, 2015), 80 FR 20038 (April 14, 2015) (SR-
NYSEArca-2015-05) (``Prior Order'' and, together with the Prior 
Notice, the ``Prior Release'').
    \5\ NYSE Arca Equities Rule 5.2(j)(3) provides that the term 
``US Component Stock'' shall mean an equity security that is 
registered under Sections 12(b) or 12(g) of the Act and an American 
Depositary Receipt, the underlying equity securities of which is 
registered under Sections 12(b) or 12(g) of the Act.
---------------------------------------------------------------------------

    The Exchange has not listed or commenced trading in the Shares.\6\
---------------------------------------------------------------------------

    \6\ See Notice, supra note 3, 80 FR at 79371.
---------------------------------------------------------------------------

B. The Instant Proposed Rule Change

    The Exchange submitted this proposal to correct two representations 
made in support of its prior proposal to list and trade the Shares. 
Specifically, the Exchange seeks to strike its representations that the 
Index will (1) include a minimum of 20 components; and (2) meet the 
numerical requirements of NYSE Arca Equities Rule 5.2(j)(3), Commentary 
.01(a)(A)(4). At any given time, the Index consists of one component, 
an ``SPX Put.'' \7\ Additionally, NYSE Arca clarifies that the 
Commentary is inapplicable because the Index contains options 
components.\8\
---------------------------------------------------------------------------

    \7\ The Index is maintained by the Chicago Board Options 
Exchange, Inc. (``CBOE'') and tracks the value of a passive 
investment strategy, which consists of overlaying of S&P 500 Index 
put options (``SPX Puts'') over a money market account, invested in 
one and three-month Treasury bills. The SPX Puts are struck at-the-
money and are sold on a monthly basis, usually the third Friday of 
the month (i.e., the ``Roll Date''), which matches the expiration 
date of the SPX Puts. All SPX Puts are standardized options traded 
on the CBOE.
    \8\ NYSE Arca Equities Rule 5.2(j)(3), Commentary .01(a)(A)(5) 
provides that all securities in the applicable index or portfolio 
shall be US Component Stocks listed on a national securities 
exchange and shall be NMS Stocks as defined in Rule 600 under 
Regulation NMS of the Act. Each component stock of the S&P 500 Index 
is a US Component Stock that is listed on a national securities 
exchange and is an NMS Stock. Options are excluded from the 
definition of NMS Stock.
---------------------------------------------------------------------------

    The Exchange asserts that the deletion of its prior representations 
would not adversely affect investors or the public interest, because 
the Index is based on CBOE-traded puts on the S&P 500, which are highly 
liquid.\9\ The Exchange further estimates that, on the launch date, the 
Fund would hold approximately $2.5-$5.0 million in cash and cash 
equivalents. The Exchange also believes that sufficient protections are 
in place to protect against market manipulation of the Fund's Shares 
and SPX Puts because: (i) Trading in the Shares and the underlying Fund 
instruments are subject to the federal securities laws and to the 
Exchange's, CBOE's, and the Financial Industry Regulatory Authority's 
rules and surveillance programs, which are designed to detect 
violations; (ii) assets in the portfolio--which will primarily be 
short-term U.S. Treasury bills \10\ and SPX Puts--will be acquired in 
extremely liquid and highly regulated markets; and (iii) the exchange-
traded fund creation/redemption and arbitrage mechanisms are tied to 
the large pool of liquidity of each of the Fund's underlying 
investments.
---------------------------------------------------------------------------

    \9\ See Notice, supra note 3, at 79372 and 79373 for the 
Exchange's representation of the average daily trading volume of at-
the-money 30-day SPX Puts, the trading volume of the at-the-money 
SPX Puts, and the daily high, low and last reported sales prices on 
each of the Roll Dates for SPX Puts at-the-money.
    \10\ See Notice, supra note 3, at 79373. The Exchange states 
that the short-term Treasury securities that the Fund will acquire 
as part of its strategy are not readily susceptible to market 
manipulation due to the liquidity and extensive oversight associated 
with the short-term U.S. Treasury market.
---------------------------------------------------------------------------

    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances and that these procedures are 
adequate to properly monitor Exchange trading of the Shares in all 
trading sessions and to deter and detect violations of Exchange rules 
and federal securities laws. Furthermore, the Financial Industry

[[Page 6917]]

Regulatory Authority (``FINRA''), on behalf of the Exchange, or the 
regulatory staff of the Exchange, will communicate as needed regarding 
trading in the Shares and SPX Index options with other markets and 
other entities that are members of the Intermarket Surveillance Group 
(``ISG''), and FINRA, on behalf of the Exchange, or the regulatory 
staff of the Exchange, may obtain trading information regarding trading 
in the portfolio securities from these markets and other entities. In 
addition, the regulatory staff of the Exchange may obtain information 
regarding trading in the portfolio securities from markets and other 
entities that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the exchange's 
proposal is consistent with the requirements of Section 6 of the Act 
\11\ and the rules and regulations thereunder applicable to a national 
securities exchange.\12\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\13\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78f.
    \12\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \13\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission believes that it would be difficult to manipulate 
the price of the Shares by manipulating the prices of its underlying 
assets. The Fund's portfolio will comprise cash, short-term U.S. 
Treasury bills, and SPX Puts.\14\ The Exchange contends that neither 
short-term Treasury securities nor SPX Puts are readily susceptible to 
market manipulation due to the deep liquidity in\15\ and extensive 
oversight of those markets.\16\ With respect to SPX Puts, specifically, 
the Exchange has provided data demonstrating that the average daily 
trading volume (through expiration) of recent SPX Puts compares 
favorably to the average daily trading volumes of at-the-money put 
options on other major indexes and is, in fact, higher than that of at-
the-money puts on the Russell 2000 index.\17\
---------------------------------------------------------------------------

    \14\ See Notice, supra note 3, 80 FR at 79373.
    \15\ The Exchange states: ``According to Federal Reserve Bank of 
New York data as of September 2015, average daily trading volume for 
U.S. Treasury bills totaled $67.8 billion. . . . SPX options are 
among the most liquid index options in the U.S. and derive their 
value from the actively traded S&P 500 Index components. SPX options 
are cash-settled with no delivery of stocks or ETFs, and trade in 
competitive auction markets with price and quote transparency. The 
Exchange believes that the highly regulated S&P 500 options markets, 
and the broad base and scope of the S&P 500 Index, make securities 
that derive their value from that index, including S&P 500 options, 
less susceptible to potential market manipulation in view of market 
capitalization and liquidity of the S&P 500 Index components, price 
and quote transparency, and arbitrage opportunities.'' Id.
    \16\ The Exchange states: ``In addition, the Treasury market and 
its participants are subject to a wide range of oversight and 
regulations, including requirements designed to prevent market 
manipulation and other abuses. For example, Treasury market 
participants and the Treasury market, itself, are subject to 
significant oversight by a number of regulatory authorities, 
including the Treasury, the Commission, federal bank regulators, and 
the Financial Industry Regulatory Authority.'' Id., n.15. The 
Exchange represents that the SPX Puts will be subject to CBOE and 
FINRA surveillance programs. See id., 80 FR at 79374.
    \17\ See id., 80 FR at 79372-73.
---------------------------------------------------------------------------

    For these reasons, the Commission believes that it would be 
difficult to manipulate the price of the Shares by manipulating the 
prices of its underlying assets. The Commission also notes that, except 
as discussed above, all other representations made in support of the 
Prior Release remain unchanged.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \18\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-NYSEArca-2015-113), be, and 
it hereby is, approved.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78s(b)(2).
    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-02440 Filed 2-8-16; 8:45 am]
 BILLING CODE 8011-01-P


