
[Federal Register Volume 81, Number 32 (Thursday, February 18, 2016)]
[Notices]
[Pages 8269-8282]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03269]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77117; File No. SR-NYSEArca-2016-08]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Adopt NYSE Arca Equities Rule 8.900 To 
Permit Listing and Trading of Managed Portfolio Shares and To Permit 
Listing and Trading of Shares of Fifteen Issues of the Precidian ETFs 
Trust

February 11, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on January 27, 2016, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a new NYSE Arca Equities Rule 8.900 
to permit it to list and trade Managed Portfolio Shares, which are 
shares of actively managed exchange-traded funds (``ETFs'') for which 
the portfolio is disclosed in accordance with standard mutual fund 
disclosure rules. In addition, the Exchange proposes to list and trade 
shares of the following under proposed NYSE Arca Equities Rule 8.900: 
Precidian U.S. Managed Volatility Fund; Precidian Strategic Value; 
Precidian Large Cap Value; Precidian Focused Dividend Strategy; 
Precidian U.S. Large Cap Growth; Precidian U.S. Core Equity; Precidian 
U.S. Mid Cap Growth; Precidian Total Return; Precidian High Dividend 
Yield; Precidian Small Cap Dividend Value; Precidian Multi-factor Small 
Cap Core; Precidian Multi-factor Small Cap Growth; Precidian Large Cap 
Core Plus 130/30; Precidian Mid Cap Core Plus 130/30; and Precidian 
Small Cap Core Plus 130/30. The proposed rule change is available on 
the Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to add new NYSE Arca Equities Rule 8.900 for 
the purpose of permitting the listing and trading, or trading pursuant 
to unlisted trading privileges (``UTP''), of Managed Portfolio Shares, 
which are securities issued by an actively managed open-end investment 
management company.\3\ The Exchange also proposes to amend NYSE Arca 
Equities Rule 7.34 (Trading Sessions) to reference securities described 
in proposed NYSE Arca Equities Rule 8.900 in Rule 7.34(a)(3)(A) 
relating to securities traded in the Core Trading Session.
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    \3\ A Managed Portfolio Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3) (``Index ETFs''), seeks to provide investment results that 
correspond generally to the price and yield performance of a 
specific foreign or domestic stock index, fixed income securities 
index or combination thereof.
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    In addition to the above-mentioned proposed rule changes, the 
Exchange proposes to list and trade shares (``Shares'') of the 
following under proposed NYSE Arca Equities Rule 8.900: Precidian U.S. 
Managed Volatility Fund; Precidian Strategic Value; Precidian Large Cap 
Value; Precidian Focused Dividend Strategy; Precidian U.S. Large Cap 
Growth; Precidian U.S. Core Equity; Precidian U.S. Mid Cap Growth; 
Precidian Total Return; Precidian High Dividend Yield; Precidian Small 
Cap Dividend Value; Precidian Multi-factor Small Cap Core; Precidian 
Multi-factor Small Cap Growth; Precidian Large Cap Core Plus 130/30; 
Precidian Mid Cap Core Plus 130/30; and Precidian Small Cap Core Plus 
130/30 (each, a ``Fund'' and, collectively, the ``Funds'').
Proposed Listing Rules
    Proposed Rule 8.900 (a) provides that the Corporation will consider 
for trading, whether by listing or pursuant to UTP, Managed Portfolio 
Shares that meet the criteria of Rule 8.900.
    Proposed Rule 8.900 (b) provides that Rule 8.900 is applicable only 
to Managed Portfolio Shares and that, except to the extent inconsistent 
with Rule 8.900, or unless the context otherwise requires, the rules 
and procedures of the Corporation's Board of Directors shall be 
applicable to the trading on the Corporation of such securities. 
Proposed Rule 8.900 (b) provides further that Managed Portfolio Shares 
are included within the definition of ``security'' or ``securities'' as 
such terms are used in the Rules of the Corporation.
    Proposed Definitions. Proposed Rule 8.900(c)(1) defines the term 
``Managed

[[Page 8270]]

Portfolio Share'' as a security that (a) is issued by a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity, that invests in a 
portfolio of securities selected by the Investment Company's investment 
adviser consistent with the Investment Company's investment objectives 
and policies; and (b) when aggregated in a number of shares equal to a 
Redemption Unit or multiples thereof, may be redeemed at the request of 
an Authorized Participant (as defined in the Investment Company's Form 
N-1A filed with the SEC), which Authorized Participant will be paid 
though a confidential account established for its benefit a portfolio 
of securities and/or cash with a value equal to the next determined net 
asset value (``NAV'').
    Proposed Rule 8.900(c)(2) defines the term ``Verified Intraday 
Indicative Value (``VIIV'') as the estimated indicative value of a 
Managed Portfolio Share based on all of the issuer's holdings as of the 
close of business on the prior business day, priced and disseminated in 
one second intervals, and subject to validation by a pricing 
verification agent of the Investment Company that is responsible for 
comparing multiple independent pricing sources to establish the 
accuracy of the VIIV.
    Proposed Rule 8.900(c)(3) defines the term ``Redemption Unit'' as a 
specified number of Managed Portfolio Shares.
    Proposed Rule 8.900(c)(4) defines the term ``Reporting Authority'' 
in respect of a particular series of Managed Portfolio Shares as a 
reporting service designated by the issuer and acceptable to the 
Corporation or by the exchange that lists a particular series of 
Managed Portfolio Shares (if the Corporation is trading such series 
pursuant to UTP) as the official source for calculating and reporting 
information relating to such series, including, but not limited to, the 
VIIV, NAV, or other information relating to the issuance, redemption or 
trading of Managed Portfolio Shares. A series of Managed Portfolio 
Shares may have more than one Reporting Authority, each having 
different functions.
    Proposed Rule 8.900(d) sets forth initial and continued listing 
criteria applicable to Managed Portfolio Shares. Proposed Rule 
8.900(d)(1)(A) provides that, for each series of Managed Portfolio 
Shares, the Corporation will establish a minimum number of Managed 
Portfolio Shares required to be outstanding at the time of commencement 
of trading on the Corporation. In addition, proposed Rule 
8.900(d)(1)(B) provides that the Corporation will obtain a 
representation from the issuer of each series of Managed Portfolio 
Shares that the NAV per share for the series will be calculated daily 
and that the NAV will be made available to all market participants at 
the same time.\4\
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    \4\ NYSE Arca Equities Rule 7.34(a)(5) (``Trading Halts of 
Derivative Securities Products Listed on the NYSE Arca 
Marketplace)'' provides that, with respect to Derivative Securities 
Products listed on the NYSE Arca Marketplace for which a net asset 
value is disseminated, if the Exchange becomes aware that the net 
asset value is not being disseminated to all market participants at 
the same time, it will halt trading in the affected Derivative 
Securities Product on the NYSE Arca Marketplace until such time as 
the net asset value is available to all market participants.
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    Proposed Rule 8.900(d)(2) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the following continued listing criteria. Proposed Rule 8.900(d)(2)(A) 
provides that the VIIV for Managed Portfolio Shares will be widely 
disseminated by one or more major market data vendors every second 
during the Exchange's Core Trading Session (as defined in NYSE Arca 
Equities Rule 7.34).
    Proposed Rule 8.900(d)(2)(B) provides that the Corporation will 
consider the suspension of trading in or removal from listing of a 
series of Managed Portfolio Shares under any of the following 
circumstances: (i) If, following the initial twelve-month period after 
commencement of trading on the Exchange of a series of Managed 
Portfolio Shares, there are fewer than 50 beneficial holders of the 
series of Managed Portfolio Shares for 30 or more consecutive trading 
days; (ii) if the value of the VIIV is no longer calculated or made 
available to all market participants at the same time; (iii) if the 
Investment Company issuing the Managed Portfolio Shares has failed to 
file any filings required by the Commission or if the Corporation is 
aware that the Investment Company is not in compliance with the 
conditions of any exemptive order or no-action relief granted by the 
Commission to the Investment Company with respect to the series of 
Managed Portfolio Shares; or (iv) if such other event shall occur or 
condition exists which, in the opinion of the Corporation, makes 
further dealings on the Corporation inadvisable.
    Proposed Rule 8.900(d)(2)(C) provides that, upon notification to 
the Corporation by the Investment Company or its agent that (i) the 
prices from the multiple independent pricing sources to be validated by 
the Investment Company's pricing verification agent differ by more than 
25 basis points for 60 seconds in connection with pricing of the VIIV, 
or (ii) that the VIIV of a series of Managed Portfolio Shares is not 
being priced and disseminated in one-second intervals, as required, the 
Corporation shall halt trading in the Managed Portfolio Shares as soon 
as practicable. Such halt in trading shall continue until the 
Investment Company or its agent notifies the Corporation that the 
prices from the independent pricing sources no longer differ by more 
than 25 basis points for 60 seconds or that the VIIV is being priced 
and disseminated as required. The Investment Company or its agent shall 
be responsible for monitoring that the VIIV is being priced and 
disseminated as required and whether the prices to be validated from 
multiple independent pricing sources differ by more than 25 basis 
points for 60 seconds. With respect to series of Managed Portfolio 
Shares trading on the Corporation pursuant to unlisted trading 
privileges, if a temporary interruption occurs in the pricing or 
dissemination of the applicable Verified Intraday Indicative Value and 
the listing market halts trading in such series, the Corporation, upon 
notification by the listing market of such halt due to such temporary 
interruption, will halt trading in such series. In addition, if the 
Exchange becomes aware that the NAV with respect to a series of Managed 
Portfolio Shares is not disseminated to all market participants at the 
same time, it will halt trading in such series until such time as the 
NAV is available to all market participants.
    Proposed Rule 8.900(d)(2)(D) provides that, upon termination of an 
Investment Company, the Corporation requires that Managed Portfolio 
Shares issued in connection with such entity be removed from 
Corporation listing.
    Proposed Rule 8.900(d)(2)(E) provides that voting rights shall be 
as set forth in the applicable Investment Company prospectus.
    Proposed Rule 8.900(e), which relates to limitation of Corporation 
liability, provides that neither the Corporation, the Reporting 
Authority, nor any agent of the Corporation shall have any liability 
for damages, claims, losses or expenses caused by any errors, 
omissions, or delays in calculating or disseminating any current 
portfolio value; the VIIV; the current value of the portfolio of 
securities required to be deposited to the open-end management 
investment company in connection with issuance of Managed Portfolio 
Shares; the amount of any dividend equivalent payment or cash 
distribution to holders of Managed Portfolio Shares; NAV; or other 
information relating to the purchase, redemption, or trading of Managed 
Portfolio Shares, resulting from any negligent act or omission by

[[Page 8271]]

the Corporation, the Reporting Authority or any agent of the 
Corporation, or any act, condition, or cause beyond the reasonable 
control of the Corporation, its agent, or the Reporting Authority, 
including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; or any error, omission, or delay in 
the reports of transactions in one or more underlying securities.
    Proposed Commentary .01 to NYSE Arca Equities Rule 8.900 provides 
that the Corporation will file separate proposals under Section 19(b) 
of the Act before the listing and trading of Managed Portfolio Shares. 
Proposed Commentary .02 to NYSE Arca Equities Rule 8.900 provides that 
transactions in Managed Portfolio Shares will occur only during the 
Core Trading Session as specified in NYSE Arca Equities Rule 
7.34(a)(3)(A).
    Proposed Commentary .03 to NYSE Arca Equities Rule 8.900 provides 
that the Exchange will implement written surveillance procedures for 
Managed Portfolio Shares.
    Proposed Commentary .04 to NYSE Arca Equities Rule 8.900 provides 
that Authorized Participants (as defined in the Investment Company's 
Form N-1A filed with the SEC) or non-Authorized Participant market 
makers redeeming Managed Portfolio Shares will sign an agreement with 
an agent (``Trusted Agent'') to establish a confidential account for 
the benefit of such Authorized Participant or non-Authorized 
Participant market maker that will receive all consideration from the 
issuer in a redemption. A Trusted Agent may not disclose the 
consideration received in a redemption except as required by law or as 
provided in the Investment Company's Form N-1A, as applicable.
    Proposed Commentary .05 to NYSE Arca Equities Rule 8.900 provides 
that, if the investment adviser to the Investment Company issuing 
Managed Portfolio Shares is affiliated with a broker-dealer, or if any 
Trusted Agent is registered as a broker-dealer or is affiliated with a 
broker-dealer, such investment adviser or Trusted Agent will erect a 
``fire wall'' between the investment adviser or Trusted Agent and (i) 
personnel of the broker-dealer or broker-dealer affiliate, as 
applicable, or (ii) the Authorized Participant or non-Authorized 
Participant market maker, as applicable, with respect to access to 
information concerning the composition and/or changes to such 
Investment Company portfolio. 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.
Other Rules
    The Exchange proposes to amend NYSE Arca Equities Rule 
7.34(a)(3)(A) to add securities described in NYSE Arca Equities Rule 
8.900 to the securities for which the Core Trading Session shall 
conclude at 1:15:00 p.m. (Pacific Time) unless otherwise determined by 
the Corporation.\5\
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    \5\ The Exchange will propose applicable NYSE Arca Equities 
listing fees for Managed Portfolio Shares in the NYSE Arca Equities 
Schedule of Fees and Charges via a separate proposed rule change.
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Key Features of Managed Portfolio Shares
    While funds issuing Managed Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares, 
Managed Portfolio Shares differ from Managed Fund Shares in the 
following important respects. First, in contrast to Managed Fund 
Shares, which are actively-managed funds listed and traded under NYSE 
Arca Equities Rule 8.600 \6\ and for which a ``Disclosed Portfolio'' is 
required to be disseminated at least once daily,\7\ the portfolio for 
an issue of Managed Portfolio Shares will be disclosed quarterly in 
accordance with normal disclosure requirements otherwise applicable to 
open-end investment companies registered under the 1940 Act.\8\ Second, 
in connection with the redemption of shares in ``Redemption Unit'' size 
(as described below), the delivery of any portfolio securities in kind 
will generally be effected through a ``Confidential Account'' (as 
described below) for the benefit of the redeeming ``Authorized 
Participant'' (as described below in ``Creation and Redemption of 
Shares'') without disclosing the identity of such securities to the 
Authorized Participant.
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    \6\ The Commission has previously approved listing and trading 
on the Exchange of a number of issues of Managed Fund Shares under 
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801 
(May 8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) 
(order approving Exchange listing and trading of twelve actively-
managed funds of the WisdomTree Trust); 60460 (August 7, 2009), 74 
FR 41468 (August 17, 2009) (SR-NYSEArca2009-55) (order approving 
listing of Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874 
(October 18, 2010) (SR-NYSEArca-2010-79) (order approving Exchange 
listing and trading of Cambria Global Tactical ETF); 63802 (January 
31, 2011), 76 FR 6503 (February 4, 2011) (SR-NYSEArca-2010-118) 
(order approving Exchange listing and trading of the SiM Dynamic 
Allocation Diversified Income ETF and SiM Dynamic Allocation Growth 
Income ETF).
    \7\ NYSE Arca Equities Rule 8.600(c)(2) defines the term 
``Disclosed Portfolio'' as the identities and quantities of the 
securities and other assets held by the Investment Company that will 
form the basis for the Investment Company's calculation of net asset 
value at the end of the business day. NYSE Arca Equities Rule 
8.600(d)(2)(B)(i) requires that the Disclosed Portfolio will be 
disseminated at least once daily and will be made available to all 
market participants at the same time.
    \8\ A mutual fund is required to file with the Commission its 
complete portfolio schedules for the second and fourth fiscal 
quarters on Form N-SAR under the 1940 Act, and is required to file 
its complete portfolio schedules for the first and third fiscal 
quarters on Form N-Q under the 1940 Act, within 60 days of the end 
of the quarter. Form N-Q requires funds to file the same schedules 
of investments that are required in annual and semi-annual reports 
to shareholders. These forms are available to the public on the 
Commission's Web site at www.sec.gov.
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    For each series of Managed Portfolio Shares, an estimated value--
the VIIV-- that reflects an estimated intraday value of a fund's 
portfolio will be disseminated. With respect to the Funds, the VIIV 
will be based upon all of a Fund's holdings as of the close of the 
prior business day and will be widely disseminated by one or more major 
market data vendors every second during the Exchange's Core Trading 
Session (normally, 9:30 a.m. to 4:00 p.m., Eastern Time (``E.T.'')). 
The dissemination of the VIIV will allow investors to determine the 
estimated intra-day value of the underlying portfolio of a series of 
Managed Portfolio Shares on a daily basis and will provide a close 
estimate of that value throughout the trading day. The VIIV should not 
be viewed as a ``real-time'' update of the NAV per Share of each Fund 
because the VIIV may not be calculated in the same manner as the NAV, 
which will be computed once a day, generally at the end of the business 
day. Unlike the VIIV, which will be based on consolidated midpoint of 
the bid ask spread, the NAV per Share will be based on the closing 
price on the primary market for each portfolio security. If there is no 
closing price for a particular portfolio security, such as when it the 
subject of a trading halt, a Fund will use fair value pricing. That 
fair value pricing will be carried over to the next day's VIIV until 
the first trade in that stock is reported unless the ``Adviser'' 
(defined below) deems a particular portfolio security to be illiquid 
and/or the available ongoing pricing information unlikely to be 
reliable. In such case, that fact will be immediately disclosed on each 
Fund's Web site, including the identity and weighting of that security 
in a Fund's portfolio, and the impact of that security on VIIV 
calculation, including the fair

[[Page 8272]]

value price for that security being used for the calculation of that 
day's VIIV.
    The Exchange, after consulting with various Lead Market Makers that 
trade exchange-traded funds (``ETFs'') on the Exchange, believes that 
market makers will be able to make efficient and liquid markets priced 
near the VIIV as long as a VIIV is disseminated every second, market 
makers have knowledge of a Fund's means of achieving its investment 
objective even without daily disclosure of a Fund's underlying 
portfolio, and market makers are permitted to engage in ``Bona Fide 
Arbitrage'', as described below. The Exchange believes that market 
makers will employ Bona Fide Arbitrage in addition to risk-management 
techniques such as ``statistical arbitrage'', which is currently used 
throughout the financial services industry, to make efficient markets 
in exchange-traded products.\9\ This ability should permit market 
makers to make efficient markets in an issue of Managed Portfolio 
Shares without knowledge of a Fund's underlying portfolio.
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    \9\ Statistical arbitrage enables a trader to construct an 
accurate proxy for another instrument, allowing it to hedge the 
other instrument or buy or sell the instrument when it is cheap or 
expensive in relation to the proxy. Statistical analysis permits 
traders to discover correlations based purely on trading data 
without regard to other fundamental drivers. These correlations are 
a function of differentials, over time, between one instrument or 
group of instruments and one or more other instruments. Once the 
nature of these price deviations have been quantified, a universe of 
securities is searched in an effort to, in the case of a hedging 
strategy, minimize the differential. Once a suitable hedging proxy 
has been identified, a trader can minimize portfolio risk by 
executing the hedging basket. The trader then can monitor the 
performance of this hedge throughout the trade period making 
correction where warranted.
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    To enable market makers to engage in Bona Fide Arbitrage, on each 
``Business Day'' (as defined below), before commencement of trading in 
Shares on the Exchange, the Funds will provide to a ``Trusted Agent'' 
(as described below) of each Authorized Participant or ``Non-Authorized 
Participant Market Maker'' \10\ the identities and quantities of 
portfolio securities that will form the basis for a Fund's calculation 
of NAV per Share at the end of the Business Day, as well as the names 
and quantities of the instruments comprising a ``Creation Basket'' and 
the estimated ``Balancing Amount'' (if any) (as described below), for 
that day. This information will permit Authorized Participants to 
purchase ``Creation Units'' through an in-kind transaction with a Fund, 
as described below.
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    \10\ A Non-Authorized Participant Market Maker is a market 
participant that makes a market in Shares, but is not an Authorized 
Participant.
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    In addition, Authorized Participants will be able to instruct the 
Trusted Agent to buy or sell portfolio securities during the day and 
thereby engage in Bona Fide Arbitrage throughout the trading day. For 
example, if an Authorized Participant believes that Shares of a Fund 
are trading at a price that is higher than the value of its underlying 
portfolio based on the VIIV, the Authorized Participant may sell Shares 
short and instruct the Trusted Agent to buy portfolio securities for 
its Confidential Account. When the market price of a Fund's Shares 
falls in line with the value of the portfolio, the Authorized 
Participant can then close out its positions in both the Shares and the 
portfolio securities. The Authorized Participant's purchase of the 
portfolio securities into its Confidential Account, combined with the 
sale of Shares, may also create downward pressure on the price of 
Shares and/or upward pressure on the price of the portfolio securities, 
bringing the market price of Shares and the value of a Fund's portfolio 
securities closer together. Similarly, an Authorized Participant could 
buy Shares and instruct the Trusted Agent to sell the underlying 
portfolio securities from its Confidential Account in an attempt to 
profit when a Fund's Shares are trading at a discount to its portfolio. 
The Authorized Participant's purchase of a Fund's Shares in the 
secondary market, combined with the sale of the portfolio securities 
from its Confidential Account, may also create upward pressure on the 
price of Shares and/or downward pressure on the price of portfolio 
securities, driving the market price of Shares and the value of a 
Fund's portfolio securities closer together. The Adviser represents 
that it understands that, other than the confidential nature of the 
account, this process is identical to how many Authorized Participants 
currently arbitrage existing traditional ETFs.
    Because other market participants can also engage in arbitrage 
activity without using the creation or redemption processes described 
above, the Confidential Account structure will be made available to any 
Non-Authorized Participant Market Maker that is willing to establish a 
Confidential Account. In that case, if a market participant believes 
that a Fund is overvalued relative to its underlying assets, the market 
participant may sell short Shares and instruct its Trusted Agent to buy 
portfolio securities in its Confidential Account, wait for the trading 
prices to move toward parity, and then close out the positions in both 
the Shares and the portfolio securities to realize a profit from the 
relative movement of their trading prices. Similarly, a market 
participant could buy Shares and instruct the Trusted Agent to sell the 
underlying portfolio securities in an attempt to profit when a Fund's 
Shares are trading at a discount to a Fund's underlying or reference 
assets. Any investor that is willing to transact through a broker-
dealer that has established a Confidential Account with a Trusted Agent 
will have the same opportunity to engage in arbitrage activity. As 
discussed above, the trading of a Fund's Shares and the Fund's 
portfolio securities may bring the prices of a Fund's Shares and its 
portfolio assets closer together through market pressure. This type of 
arbitrage is referred to herein as ``Bona Fide Arbitrage.''
    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers, in addition to employing Bona Fide Arbitrage, may use the 
knowledge of a Fund's means of achieving its investment objective, as 
described in the applicable Fund registration statement, to construct a 
hedging proxy for a Fund to manage a market maker's quoting risk in 
connection with trading Fund Shares. Market makers can then conduct 
statistical arbitrage between their hedging proxy (for example, the 
Russell 1000 Index) and Shares of a Fund, buying and selling one 
against the other over the course of the trading day. They will 
evaluate how their proxy performed in comparison to the price of a 
Fund's Shares, and use that analysis as well as knowledge of risk 
metrics, such as volatility and turnover, to enhance their proxy 
calculation to make it a more efficient hedge.
    Market makers not intending to utilize Bona Fide Arbitrage, have 
indicated to the Exchange that, after the first few days of trading, 
there will be sufficient data to run a statistical analysis which will 
lead to spreads being tightened substantially around the VIIV. This is 
similar to certain other existing exchange traded products (for 
example, ETFs that invest in foreign securities that do not trade 
during U. S. trading hours), in which spreads may be generally wider in 
the early days of trading and then narrow as market makers gain more 
confidence in their real-time hedges.
Description of the Funds and the Trust
    The Shares of each Fund will be issued by Precidian ETFs Trust

[[Page 8273]]

(``Trust''), a statutory trust organized under the laws of the State of 
Delaware and registered with the Commission as an open-end management 
investment company.\11\ The investment adviser to the Trust will be 
Precidian Funds LLC (the ''Adviser''). Foreside Fund Services, LLC 
(``Distributor'') will serve as the distributor of the Fund's Shares.
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    \11\ The Trust will be registered under the 1940 Act. On 
September 21, 2015, the Trust filed a registration statement on Form 
N-1A under the Securities Act of 1933 (the ``1933 Act'') (15 U.S.C. 
77a), and under the 1940 Act relating to the Funds (File Nos. 333-
171987 and 811-22524) (the ``Registration Statement''). The Trust 
filed an Application for an Order under Section 6(c) of the 1940 Act 
for exemptions from various provisions of the 1940 Act and rules 
thereunder (File No. 812-14116), dated July 18, 2013 (``Exemptive 
Application''). The Shares will not be listed on the Exchange until 
an order (``Exemptive Order'') under the 1940 Act has been issued by 
the Commission with respect to the Exemptive Application. 
Investments made by the Funds will comply with the conditions set 
forth in the Exemptive Order. The description of the operation of 
the Trust and the Funds herein is based, in part, on the 
Registration Statement and the Exemptive Application.
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    As noted above, proposed Commentary .05 to NYSE Arca Equities Rule 
8.900 provides that, if the investment adviser to the Investment 
Company issuing Managed Portfolio Shares is affiliated with a broker-
dealer, or if any Trusted Agent is registered as a broker-dealer or is 
affiliated with a broker-dealer, such investment adviser or Trusted 
Agent will erect a ``fire wall'' between the investment adviser or 
Trusted Agent and (i) personnel of the broker-dealer or broker-dealer 
affiliate, as applicable, or (ii) the Authorized Participant or non-
Authorized Participant market maker, as applicable, with respect to 
access to information concerning the composition and/or changes to such 
Investment Company portfolio. 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.\12\ In addition, proposed Commentary .05 further requires 
that personnel who make decisions on the open-end fund's portfolio 
composition must be subject to procedures designed to prevent the use 
and dissemination of material nonpublic information regarding the open-
end fund's portfolio. Proposed Commentary .05 to Rule 8.900 is similar 
to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule 5.2(j)(3); 
however, Commentary .05 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 is 
not registered as a broker-dealer or affiliated with a broker-dealer.
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    \12\ 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 will be 
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 
violations, 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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    In the event (a) the Adviser or any sub-adviser becomes registered 
as a broker-dealer or becomes 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 its 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 portfolio for each Fund will consist of U.S.-listed securities 
and shares issued by other U.S.-listed ETFs \13\ All exchange-listed 
equity securities in which the Funds will invest will be listed and 
traded on U.S. national securities exchanges.
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    \13\ For purposes of this filing, ETFs include Investment 
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); 
Portfolio Depository Receipts (as described in NYSE Arca Equities 
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca 
Equities Rule 8.600). The ETFs in which a Fund will invest all will 
be listed and traded on national securities exchanges. While the 
Funds may invest in inverse ETFs, the Funds will not invest in 
leveraged (e.g., 2X, -2X, 3X or -3X)ETFs.
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Description of the Funds
Precidian U.S. Managed Volatility Fund
    The Precidian U.S. Managed Volatility Fund will typically invest 
primarily in securities of U.S. companies of all capitalization ranges. 
These securities may include common stocks, preferred stocks, ETFs and 
warrants. The Fund will seek to achieve an absolute return of the broad 
U.S. equity markets, but with a lower absolute volatility.
Precidian Strategic Value
    The Fund will pursue its investment objective by investing 
primarily in high dividend yielding common stocks with dividend growth 
potential. The Fund's security selection process involves screening and 
prioritizing stocks based on appropriate quantitative statistics. Those 
companies that rank as highly attractive in the screening process are 
closely scrutinized for inclusion in the portfolio using bottom-up 
fundamental proprietary research.
Precidian Large Cap Value
    The Fund will invest primarily in large-capitalization companies, 
seeking consistent long-term performance. The Fund will follow a 
traditional value-oriented investment philosophy using a research-
intensive approach.
Precidian Focused Dividend Strategy
    The Fund will seek total return (including capital appreciation and 
current income) by employing a ``buy and hold'' strategy involving the 
periodic selection of high dividend yielding common stocks from the 
universe of Russell 3000 stocks.
Precidian U.S. Large Cap Growth
    The Fund will seek long-term capital growth. The Fund will seek to 
achieve its investment objective by investing primarily in equities or 
groups of equities that the Adviser believes will provide higher 
returns than the Russell 1000 Growth Index.
Precidian U.S. Core Equity
    The Fund will seek high total return. The Fund will seek to achieve 
its investment objective by investing primarily in equities or groups 
of equities that the Adviser believes will provide higher returns than 
the S&P 500 Index.
Precidian U.S. Mid Cap Growth
    The Fund will invest primarily in common stocks of mid-cap 
companies with market capitalizations similar to those within the 
universe of the Russell Mid-Cap Growth Index. The Fund will seek 
companies that have a history of or the potential to achieve above-
average growth.
Precidian Total Return
    The Fund will seek total return, consisting of capital appreciation 
and

[[Page 8274]]

current income. The Fund will invest primarily in large, dividend-
yielding companies selected by a quantitative total return formula.
Precidian High Dividend Yield
    The Fund will seek to track a benchmark that provides broad 
exposure to U.S. companies that are dedicated to consistently paying 
larger-than-average dividends.
Precidian Small Cap Dividend Value
    The Fund will seek long-term capital appreciation and current 
income through investments in small cap companies that the Fund 
believes are undervalued and typically pay a dividend. Such companies 
generally will have a market capitalization below $3.5 billion at the 
time of purchase.
Precidian Multi-Factor Small Cap Core
    The Fund's investment objective will be to provide long-term 
capital appreciation by investing primarily in a diversified portfolio 
of small cap equity securities that possess both value and growth 
characteristics.
Precidian Multi-Factor Small Cap Growth
    The Fund's investment objective will be to provide long-term cap 
appreciation by primarily investing in a diversified portfolio of small 
cap equity securities.
Precidian Large Cap Core Plus 130/30
    The Fund will invest primarily in securities of large-
capitalization companies with characteristics similar to those 
comprising the Russell 1000. The Fund will take long positions in 
securities that will likely appreciate more rapidly in rising markets 
and short positions in those that will likely decline faster in 
declining markets.
Precidian Mid Cap Core Plus 130/30
    The Fund will invest primarily in equity securities of mid-cap 
companies with market capitalizations equal to those within the 
universe of the Russell Mid Cap Index. The Fund will take long 
positions in securities that will likely appreciate more rapidly in 
rising markets and short positions in those that will likely decline 
faster in declining markets.
Precidian Small Cap Core Plus 130/30
    The Fund will invest primarily in equity securities of small-cap 
companies with market capitalizations equal to those within the 
universe of the Russell Small Cap Index. The Fund will take long 
positions in securities that will likely appreciate more rapidly in 
rising markets and short positions in those that will likely decline 
faster in declining markets.
Other Investments
    While each Fund, under normal market conditions, will invest 
primarily in U.S.-listed securities, as described above, each Fund may 
invest its remaining assets in other securities and financial 
instruments, as described below.
    According to the Registration Statement, each Fund may enter into 
repurchase agreements. A repurchase agreement is an instrument under 
which the purchaser (i.e., a Fund) acquires the security and the seller 
agrees, at the time of the sale, to repurchase the security at a 
mutually agreed upon time and price, thereby determining the yield 
during the purchaser's holding period. Repurchase agreements may be 
construed to be collateralized loans by the purchaser to the seller 
secured by the securities transferred to the purchaser.
    Each Fund may 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. Generally, the effect of such 
transactions is that the Fund can recover all or most of the cash 
invested in the portfolio securities involved during the term of the 
reverse repurchase agreement, while in many cases the Fund is able to 
keep some of the interest income associated with those securities.
    Each Fund may invest a portion of its assets in cash or cash 
equivalents.\14\
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    \14\ For purposes of this filing, cash equivalents include 
short-term instruments (instruments with maturities of less than 3 
months) of the following types: (i) U.S. Government securities, 
including bills, notes and bonds differing as to maturity and rates 
of interest, which are either issued or guaranteed by the U.S. 
Treasury or by U.S. Government agencies or instrumentalities; (ii) 
certificates of deposit issued against funds deposited in a bank or 
savings and loan association; (iii) bankers' acceptances, which are 
short-term credit instruments used to finance commercial 
transactions; (iv) repurchase agreements and reverse repurchase 
agreements; (v) bank time deposits, which are monies kept on deposit 
with banks or savings and loan associations for a stated period of 
time at a fixed rate of interest; (vi) commercial paper, which are 
short-term unsecured promissory notes; and (vii) money market funds.
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    Each Fund may invest in the securities of other investment 
companies (including money market funds) to the extent allowed by law.
Investment Restrictions
    A Fund may not, with respect to 75% of its total assets, purchase 
securities of any issuer (except securities issued or guaranteed by the 
U.S. government, its agencies or instrumentalities or shares of 
investment companies) if, as a result, more than 5% of its total assets 
would be invested in the securities of such issuer; or (ii) acquire 
more than 10% of the outstanding voting securities of any one issuer 
(and for purposes of this policy, the issuer of the underlying security 
will be deemed to be the issuer of any respective depositary 
receipt).\15\
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    \15\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    A Fund may not invest 25% or more of its total assets in the 
securities of one or more issuers conducting their principal business 
activities in the same industry or group of industries. This limitation 
does not apply to investments in securities issued or guaranteed by the 
U.S. government, its agencies or instrumentalities, or shares of 
investment companies. A Fund will not invest 25% or more of its total 
assets in any investment company that so concentrates.\16\
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    \16\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    Each Fund may invest up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment),\17\ 
consistent with Commission guidance. Each 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 a Fund's net assets are 
invested 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.\18\
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    \17\ In reaching liquidity decisions, the Adviser may consider 
the following factors: 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; and 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).
    \18\ 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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[[Page 8275]]

    According to the Registration Statement, each Fund will seek to 
qualify for treatment as a Regulated Investment Company (``RIC'') under 
the Internal Revenue Code.\19\
---------------------------------------------------------------------------

    \19\ 26 U.S.C. 851.
---------------------------------------------------------------------------

    The Shares of each Fund will conform to the initial and continued 
listing criteria under proposed Rule 8.900. The Funds will not invest 
in options, futures, forwards or swaps.
    Each Fund's investments will be consistent with its investment 
objective and will not be used to enhance leverage. While a Fund may 
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X, 
-2X, 3X or -3X) ETFs.
    The Funds will not invest in non-U.S.-listed securities.
Creations and Redemptions of Shares
    In connection with the creation and redemption of Creation Units 
(defined below), the delivery or receipt of any portfolio securities 
in-kind will be required to be effected through a confidential 
brokerage account (i.e., a Confidential Account) with a Trusted Agent, 
which will be a bank or broker-dealer such as JP Morgan Chase, State 
Street Bank and Trust, or Bank of New York Mellon, for the benefit of 
an Authorized Participant.\20\ An Authorized Participant will generally 
be a Depository Trust Company (``DTC'') Participant that has executed a 
``Participant Agreement'' with the Distributor with respect to the 
creation and redemption of Creation Units and formed a Confidential 
Account for its benefit in accordance with the terms of the Participant 
Agreement. For purposes of creations or redemptions, all transactions 
will be effected through that Confidential Account, for the benefit of 
the Authorized Participant without disclosing the identity of such 
securities to the Authorized Participant. Each Trusted Agent will be 
given, before the commencement of trading each Business Day (defined 
below), both the holdings of a Fund and their relative weightings for 
that day. This information will permit an Authorized Participant, or 
other market participant that has established a Confidential Account 
with a Trusted Agent, to instruct the Trusted Agent to buy and sell 
positions in the portfolio securities to permit Bona Fide Arbitrage, as 
defined above.
---------------------------------------------------------------------------

    \20\ In the event that a Trusted Agent is a bank, the bank will 
be required to have an affiliated broker-dealer to accommodate the 
execution of hedging transactions on behalf of the holder of a 
Confidential Account.
---------------------------------------------------------------------------

    Shares of each Fund will be issued in Creation Units of 25,000 or 
more Shares. The Funds will offer and sell Creation Units through the 
Distributor on a continuous basis at the NAV per Share next determined 
after receipt of an order in proper form. The NAV per Share of each 
Fund will be determined as of the close of regular trading on the New 
York Stock Exchange (``NYSE'') on each day that the NYSE is open. A 
``Business Day'' is defined as any day that the Trust is open for 
business. The Funds will sell and redeem Creation Units only on 
Business Days. Applicants anticipate that the initially price of a 
Share will range from $20 to $30, and that the price of a Creation Unit 
initial will range from $1,000,000 to $5,000,000.\21\
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    \21\ The Adviser represents that the Funds intend to engage in 
share splits and reverse splits in order to keep the price of Shares 
generally within this range. By keeping the price of a Share in this 
range, it will dampen the impact of volatility in the prices of the 
underlying portfolio securities in a Fund, which has the effect of 
making it almost impossible to determine, based on changes in market 
prices, what securities are being held in a Fund's portfolio.
---------------------------------------------------------------------------

    In order to keep costs low and permit each Fund to be as fully 
invested as possible, Shares will be purchased and redeemed in Creation 
Units and generally on an in-kind basis. Accordingly, except where the 
purchase or redemption will include cash under the limited 
circumstances described in the Registration Statement, purchasers will 
be required to purchase Creation Units by making an in-kind deposit of 
specified instruments (``Deposit Instruments''), and shareholders 
redeeming their Shares will receive an in-kind transfer of specified 
instruments (``Redemption Instruments'').\22\ On any given Business 
Day, the names and quantities of the instruments that constitute the 
Deposit Instruments and the names and quantities of the instruments 
that constitute the Redemption Instruments will be identical, and these 
instruments may be referred to, in the case of either a purchase or a 
redemption, as the ``Creation Basket.'' \23\
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    \22\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments, including that the Deposit Instruments and 
Redemption Instruments are sold in transactions that would be exempt 
from registration under the 1933 Act.
    \23\ In determining whether a particular Fund will sell or 
redeem Creation Units entirely on a cash or in-kind basis, whether 
for a given day or a given order, the key consideration will be the 
benefit that would accrue to a Fund and its investors. The Adviser 
represents that the Funds do not currently anticipate the need to 
sell or redeem Creation Units entirely on a cash basis.
---------------------------------------------------------------------------

    As noted above, each Authorized Participant will be required to 
establish a Confidential Account with a Trusted Agent and transact with 
each Fund through that Confidential Account.\24\ Therefore, before the 
commencement of trading on each Business Day, the Trusted Agent of each 
Authorized Participant will be provided, on a confidential basis, with 
a list of the names and quantities of the instruments comprising a 
Creation Basket, as well as the estimated Balancing Amount (if any), 
for that day. The published Creation Basket will apply until a new 
Creation Basket is announced on the following Business Day, and there 
will be no intra-day changes to the Creation Basket except to correct 
errors in the published Creation Basket. The instruments and cash that 
the purchaser is required to deliver in exchange for the Creation Units 
it is purchasing are referred to as the ``Portfolio Deposit.''
---------------------------------------------------------------------------

    \24\ The Adviser represents that transacting through a 
Confidential Account is similar to transacting through a broker-
dealer account, except that the Trusted Agent will be bound to keep 
the names and weights of the portfolio securities confidential.
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Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous 
basis at NAV. The Exchange represents that the issuance of Shares will 
operate in a manner substantially similar to that of other ETFs.
    Each Fund will issue Shares only at the NAV per Share next 
determined after an order in proper form is received. The Trust will 
sell and redeem Shares on each such day and will not suspend the right 
of redemption or postpone the date of payment or satisfaction upon 
redemption for more than seven days, other than as provided by Section 
22(d) of the 1940 Act.
    Shares may be purchased from a Fund by an Authorized Participant 
for its own account or for the benefit of a customer. The Distributor 
will furnish acknowledgements to those placing such orders that the 
orders have been accepted, but the Distributor may reject any order 
which is not submitted in proper form, as described in a Fund's 
prospectus or Statement of Additional Information (``SAI''). Purchases 
of Shares will be settled in-kind or cash for an amount equal to the 
applicable NAV per Share purchased plus applicable ``Transaction 
Fees'', as discussed below.
    The NAV of each Fund is expected to be determined once each 
Business Day at a time determined by the Trust's

[[Page 8276]]

Board of Directors (``Board''), currently anticipated to be as of the 
close of the regular trading session on the NYSE (ordinarily 4:00 p.m. 
E.T.) (the ``Valuation Time''). Each Fund will establish a cut-off time 
(``Order Cut-Off Time'') for purchase orders in proper form. To 
initiate a purchase of Shares, an Authorized Participant must submit to 
the Distributor an irrevocable order to purchase such Shares after the 
most recent prior Valuation Time but not later than the Order Cut-Off 
Time. The Order Cut-Off Time for a Fund may be its Valuation Time, or 
may be prior to the Valuation Time if the Board determines that an 
earlier Order Cut-Off Time for purchase of Shares is necessary and is 
in the best interests of Fund shareholders.
    All orders to purchase Creation Units must be received by the 
Distributor no later than the scheduled closing time of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (``Order Cut-
Off Time'') in each case on the date such order is placed 
(``Transmittal Date'') in order for the purchaser to receive the NAV 
per Share determined on the Transmittal Date. In the case of custom 
orders, the order must be received by the Distributor, no later than 
3:00 p.m. E.T., or such earlier time as may be designated by the Funds 
and disclosed to Authorized Participants.\25\ The Distributor will 
maintain a record of Creation Unit purchases and will send out 
confirmations of such purchases.\26\
---------------------------------------------------------------------------

    \25\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis, as provided in the 
Registration Statement.
    \26\ A Trusted Agent will provide information related to 
creations and redemption of Creation Units to the Financial Industry 
Regulatory Authority (``FINRA'') upon request.
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Transaction Fees
    The Trust may impose purchase or redemption transaction fees 
(``Transaction Fees'') in connection with the purchase or redemption of 
Shares from the Funds. The exact amounts of any such Transaction Fees 
will be determined by the Adviser but will not exceed 2%. The purpose 
of the Transaction Fees is to protect the continuing shareholders 
against possible dilutive transactional expenses, including operational 
processing and brokerage costs, associated with establishing and 
liquidating portfolio positions, including short positions, in 
connection with the purchase and redemption of Shares.
Purchases of Shares--Secondary Market
    Only Authorized Participants and their customers will be able to 
acquire Shares at NAV directly from a Fund through the Distributor. The 
required payment must be transferred in the manner set forth in a 
Fund's SAI by the specified time on the third DTC settlement day 
following the day it is transmitted (the ``Transmittal Date''). These 
investors and others will also be able to purchase Shares in secondary 
market transactions at prevailing market prices. Each Fund will reserve 
the right to reject any purchase order at any time.
Redemption
    Beneficial Owners may sell their Shares in the secondary market. 
Alternatively, investors that own enough Shares to constitute a 
Redemption Unit (currently, 25,000 Shares) or multiples thereof may 
redeem those Shares through the Distributor, which will act as the 
Trust's representative for redemption. The size of a Redemption Unit 
will be subject to change. Redemption orders for Redemption Units or 
multiples thereof must be placed by or through an Authorized 
Participant.
Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by or through an Authorized Participant (``AP 
Redemption Order''). Each Fund will establish an Order Cut-Off Time for 
redemption orders of Redemption Units in proper form. Redemption Units 
of the Fund will be redeemable at their NAV per Share next determined 
after receipt of a request for redemption by the Trust in the manner 
specified below before the Order Cut-Off Time. To initiate an AP 
Redemption Order, an Authorized Participant must submit to the 
Distributor an irrevocable order to redeem such Redemption Unit after 
the most recent prior Valuation Time but not later than the Order Cut-
Off Time. The Order Cut-Off Time for a Fund may be its Valuation Time, 
or may be prior to the Valuation Time if the Board determines that an 
earlier Order Cut-Off Time for redemption of Redemption Units is 
necessary and is in the best interests of Fund shareholders.
    Consistent with the provisions of Section 22(e) of the 1940 Act and 
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor 
payment upon redemption delayed, except for: (1) Any period during 
which the NYSE is closed other than customary weekend and holiday 
closings, (2) any period during which trading on the NYSE is 
restricted, (3) any period during which an emergency exists as a result 
of which disposal by a Fund of securities owned by it is not reasonably 
practicable or it is not reasonably practicable for a Fund to determine 
its NAV, and (4) for such other periods as the Commission may by order 
permit for the protection of shareholders.
    Redemptions will occur primarily in-kind, although redemption 
payments may also be made partly or wholly in cash.\27\ The Participant 
Agreement signed by each Authorized Participant will require 
establishment of a Confidential Account to receive distributions of 
securities in-kind upon redemption.\28\ Each Authorized Participant 
will be required to appoint a Trusted Agent of its Confidential Account 
in order to facilitate orderly processing of redemptions. While a Fund 
will generally distribute securities in-kind, the Adviser may determine 
from time to time that it is not in a Fund's best interests to 
distribute securities in-kind, but rather to sell securities and/or 
distribute cash. For example, the Adviser may distribute cash to 
facilitate orderly portfolio management in connection with rebalancing 
or transitioning a portfolio in line with its investment objective, or 
if there is substantially more creation than redemption activity during 
the period immediately preceding a redemption request, or as necessary 
or appropriate in accordance with applicable laws and regulations. In 
this manner, a Fund can use in-kind redemptions to reduce the 
unrealized capital gains that may, at times, exist in a Fund by 
distributing low cost lots of each security that a Fund needs to 
dispose of to maintain its desired portfolio exposures. Shareholders of 
a Fund would benefit from the in-kind redemptions through the reduction 
of the unrealized capital gains in a Fund that would otherwise have to 
be realized and, eventually, distributed to shareholders.
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    \27\ It is anticipated that any portion of a Fund's NAV 
attributable to appreciated short positions will be paid in cash, as 
securities sold short are not susceptible to in-kind settlement. The 
value of other positions not susceptible to in-kind settlement may 
also be paid in cash.
    \28\ The terms of each Confidential Account will be set forth as 
an exhibit to the applicable Participant Agreement, which will be 
signed by each Authorized Participant. The terms of the Confidential 
Account will provide that the trust be formed under applicable state 
laws; the Custodian may act as Trusted Agent of the Confidential 
Account; and the Trusted Agent will be paid by the Authorized 
Participant a fee negotiated directly between the Authorized 
Participants and the Trusted Agent(s).
---------------------------------------------------------------------------

    The redemption basket will consist of the same securities for all 
Authorized Participants on any given day subject to the Adviser's 
ability to make minor

[[Page 8277]]

adjustments to address odd lots, fractional shares, tradeable sizes or 
other situations.
    After receipt of a Redemption Order, a Fund's custodian 
(``Custodian'') will typically deliver securities to the Confidential 
Account on a pro rata basis (which securities are determined by the 
Adviser) with a value approximately equal to the value of the Shares 
\29\ tendered for redemption at the Cut-Off time. The Custodian will 
make delivery of the securities by appropriate entries on its books and 
records transferring ownership of the securities to the Authorized 
Participant's Confidential Account, subject to delivery of the Shares 
redeemed. The Trusted Agent of the Confidential Account will in turn 
liquidate, hedge or otherwise manage the securities based on 
instructions from the Authorized Participant.\30\ If the Trusted Agent 
is instructed to sell all securities received at the close on the 
redemption date, the Trusted Agent will pay the liquidation proceeds 
net of expenses plus or minus any cash balancing amount to the 
Authorized Participant through DTC.\31\ The redemption securities that 
the Confidential Account receives is expected to mirror the portfolio 
holdings of a Fund pro rata. To the extent a Fund distributes portfolio 
securities through an in-kind distribution to more than one 
Confidential Account for the benefit of that account's Authorized 
Participant, each Fund expects to distribute a pro rata portion of the 
portfolio securities selected for distribution to each redeeming 
Authorized Participant.
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    \29\ If the NAV of the Shares redeemed differs from the value of 
the securities delivered to the applicable Confidential Account, the 
Fund will pay a cash balancing amount to compensate for the 
difference between the value of the securities delivered and the 
NAV.
    \30\ An Authorized Participant will issue execution instructions 
to the Trusted Agent and be responsible for all associated profit or 
losses. Like a traditional ETF, the Authorized Participant has the 
ability to sell the basket securities at any point during normal 
trading hours.
    \31\ Under applicable provisions of the Internal Revenue Code, 
the Authorized Participant is expected to be deemed a ``substantial 
owner'' of the Confidential Account because it receives 
distributions from the Confidential Account. As a result, all 
income, gain or loss realized by the Confidential Account will be 
directly attributed to the Authorized Participant. In a redemption, 
the Authorized Participant will have a basis in the distributed 
securities equal to the fair market value at the time of the 
distribution and any gain or loss realized on the sale of those 
Shares will be taxable income to the Authorized Participant.
---------------------------------------------------------------------------

    If the Authorized Participant would receive a security that it is 
restricted from receiving, a Fund will deliver cash equal to the value 
of that security.
    To address odd lots, fractional shares, tradeable sizes or other 
situations where dividing securities is not practical or possible, the 
Adviser may make minor adjustments to the pro rata portion of portfolio 
securities selected for distribution to each redeeming Authorized 
Participant on such Business Day.
    The Trust will accept a Redemption Order in proper form. A 
Redemption Order is subject to acceptance by the Trust and must be 
preceded or accompanied by an irrevocable commitment to deliver the 
requisite number of Shares. At the time of settlement, an Authorized 
Participant will initiate a delivery of the Shares versus subsequent 
payment against the proceeds, if any, of the sale of portfolio 
securities distributed to the applicable Confidential Account plus or 
minus any cash balancing amounts, and less the expenses of liquidation.
Net Asset Value
    The NAV per Share of a Fund will be computed by dividing the value 
of the net assets of a Fund (i.e., the value of its total assets less 
total liabilities) by the total number of Shares of a Fund outstanding, 
rounded to the nearest cent. Expenses and fees, including, without 
limitation, the management, administration and distribution fees, will 
be accrued daily and taken into account for purposes of determining 
NAV. Interest and investment income on the Trust's assets accrue daily 
and will be included in the Fund's total assets. The NAV per Share for 
a Fund will be calculated by a Fund's administrator (``Administrator'') 
and determined as of the close of the regular trading session on the 
NYSE (ordinarily 4:00 p.m., E.T.) on each day that the NYSE is open.
    Shares of exchange-listed equity securities will be valued at 
market value, which will generally be determined using the last 
reported official closing or last trading price on the exchange or 
market on which the securities are primarily traded at the time of 
valuation. Repurchase and reverse repurchase agreements will be valued 
based on price quotations or other equivalent indications of value 
provided by a third-party pricing service. Money market funds will be 
valued based on price quotations or other equivalent indications of 
value provided by a third-party pricing service. Cash equivalents will 
generally be valued on the basis of independent pricing services or 
quotes obtained from brokers and dealers.
    When last sale prices and market quotations are not readily 
available, are deemed unreliable or do not reflect material events 
occurring between the close of local markets and the time of valuation, 
investments will be valued using fair value pricing as determined in 
good faith by the Adviser under procedures established by and under the 
general supervision and responsibility of the Trust's Board of 
Trustees. Investments that may be valued using fair value pricing 
include, but are not limited to: (1) Securities that are not actively 
traded; (2) securities of an issuer that becomes bankrupt or enters 
into a restructuring; and (3) securities whose trading has been halted 
or suspended.
    The frequency with which each Fund's investments will be valued 
using fair value pricing will primarily be a function of the types of 
securities and other assets in which the respective Fund will invest 
pursuant to its investment objective, strategies and limitations. If 
the Funds invest in open-end management investment companies registered 
under the 1940 Act (other than ETFs), they may rely on the NAVs of 
those companies to value the shares they hold of them.
    Valuing the Funds' investments using fair value pricing involves 
the consideration of a number of subjective factors and thus the prices 
for those investments may differ from current market valuations. 
Accordingly, fair value pricing could result in a difference between 
the prices used to calculate NAV and the prices used to determine a 
Fund's VIIV, which could result in the market prices for Shares 
deviating from NAV. In cases where the fair value price of the security 
is materially different from the pricing data provided by the 
independent pricing sources and the Adviser determined that the ongoing 
pricing information is not likely to be reliable, the fair value will 
be used for calculation of the VIIV, and a Fund's Custodian will be 
instructed to disclose the identity and weight of the fair valued 
securities, as well as the fair value price being used for the 
security.
Availability of Information
    The Funds' Web site (www.precidianfunds.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for each Fund that may be downloaded. The 
Funds' Web site will include additional quantitative information 
updated on a daily basis, including, for each Fund, (1) daily trading 
volume, the prior Business Day's reported closing price, NAV and mid-
point of the bid/ask spread at the time of calculation of such NAV (the 
``Bid/

[[Page 8278]]

Ask Price''),\32\ 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. The Web site and information will be 
publicly available at no charge.
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    \32\ The Bid/Ask Price of a Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of a Fund's NAV. The records relating to 
Bid/Ask Prices will be retained by each Fund and its service 
providers.
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    As noted above, a mutual fund is required to file with the 
Commission its complete portfolio schedules for the second and fourth 
fiscal quarters on Form N-SAR under the 1940 Act, and is required to 
file its complete portfolio schedules for the first and third fiscal 
quarters on Form N-Q under the 1940 Act, within 60 days of the end of 
the quarter. Form N-Q requires funds to file the same schedules of 
investments that are required in annual and semi-annual reports to 
shareholders. The Trust's SAI and each Fund's shareholder reports will 
be available free upon request from the Trust. These documents and 
forms may be viewed on-screen or downloaded from the Commission's Web 
site at www.sec.gov.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Updated price information for U.S. exchange-
listed equity securities is available through major market data vendors 
or securities exchanges trading such securities. The intraday, closing 
and settlement prices of money market funds, repurchase agreements, 
reverse repurchase agreements and cash equivalents will be readily 
available from published or other public sources, or major market data 
vendors such as Bloomberg and Thomson Reuters. The NAV of any 
investment company security investment will be readily available on the 
Web site of the relevant investment company and from major market data 
vendors. Quotation and last sale information for the Shares will be 
available via the Consolidated Tape Association (``CTA'') high-speed 
line. In addition, the VIIV, as defined in NYSE Arca Equities Rule 
8.900(c)(3) and as described further below, will be widely disseminated 
by one or more major market data vendors at least every second during 
the Exchange's Core Trading Session.
Dissemination of the Verified Intraday Indicative Value
    The VIIV, which is approximate value of each Fund's investments on 
a per Share basis, will be disseminated every second during the 
Exchange's Core Trading Session. The VIIV should not be viewed as a 
``real-time'' update of NAV because the VIIV may not be calculated in 
the same manner as NAV, which is computed once per day.
    The Exchange will disseminate the VIIV for each Fund in one-second 
intervals during the Core Trading Session, through the facilities of 
the CTA. The VIIV is essentially an intraday NAV calculation every 
second during the Core Trading Session. Each Fund will adopt procedures 
governing the calculation of the VIIV and will bear responsibility for 
the accuracy of its calculation. Pursuant to those procedures, the VIIV 
will include all accrued income and expenses of a Fund and will assure 
that any extraordinary expenses, booked during the day, that would be 
taken into account in calculating a Fund's NAV for that day are also 
taken into account in calculating the VIIV. For purposes of the VIIV, 
securities held by a Fund will be valued throughout the day based on 
the mid-point between the disseminated current national best bid and 
offer. The Adviser represents that, by utilizing the mid-point pricing 
for purposes of VIIV calculation, stale prices are eliminated and more 
accurate representation of the real time value of the underlying 
securities is provided to the market. Specifically, quotations based on 
the mid-point of bid/ask spreads more accurately reflect current market 
sentiment by providing real time information on where market 
participants are willing to buy or sell securities at that point in 
time. Using quotations rather than last sale information addresses 
concerns regarding the staleness of pricing information of less 
actively traded securities. Because quotations are updated more 
frequently than last sale information especially for inactive 
securities, the VIIV will be based on more current and accurate 
information. The use of quotations will also dampen the impact of any 
momentary spikes in the price of a portfolio security.
    Each Fund will utilize two independent pricing sources to provide 
two independent sources of pricing information. Each Fund will also 
utilize a ``Pricing Verification Agent'' and establish a computer-based 
protocol that will permit the Pricing Verification Agent to 
continuously compare the two data streams from the independent pricing 
agents sources on a real time basis.\33\ A single VIIV will be 
disseminated publicly for each Fund; however, the Pricing Verification 
Agent will continuously compare the public VIIV against a non-public 
alternative intra-day indicative value to which the Pricing 
Verification Agent has access. If it becomes apparent that there is a 
material discrepancy between the two data streams, the Exchange will be 
notified and have the ability to halt trading in a Fund until the 
discrepancy is resolved. Each Fund's Board will review the procedures 
used to calculate the VIIV and maintain its accuracy as appropriate, 
but not less than annually. The specific methodology for calculating 
the VIIV will be disclosed on each Fund's Web site.
---------------------------------------------------------------------------

    \33\ A Fund's Custodian will provide, on a daily basis, the 
constituent basket file comprised of all securities plus any cash to 
the independent pricing agent(s) for purposes of pricing.
---------------------------------------------------------------------------

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 Funds.\34\ Trading in Shares of the Funds 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also 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) If the 
VIIV applicable to a Fund's Shares is not being disseminated as 
required; (2) the extent to which trading is not occurring in the 
securities and/or the financial instruments comprising the holdings of 
a Fund; or (3) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. Trading in the Shares will be subject to NYSE Arca Equities 
Rule 8.900(d)(2)(C), which sets forth circumstances under which Shares 
of the Funds will be halted.
---------------------------------------------------------------------------

    \34\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

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. Shares will trade on 
the NYSE Arca Marketplace only during the Core Trading Session in 
accordance with NYSE Arca Equities Rule 7.34(a)(3)(A). As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for

[[Page 8279]]

quoting and entry of orders in equity securities traded on the NYSE 
Arca Marketplace is $0.01, with the exception of securities that are 
priced less than $1.00 for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.900. The Exchange represents 
that, for initial and/or continued listing, each Fund will be in 
compliance with Rule 10A-3 under the Act,\35\ as provided by NYSE Arca 
Equities Rule 5.3. A minimum of 100,000 Shares of each Fund will be 
outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares of 
each Fund that the NAV per Share of each Fund will be calculated daily 
and will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \35\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by regulatory staff 
of the Exchange or the FINRA on behalf of the Exchange, which are 
designed to detect violations of Exchange rules and applicable federal 
securities laws.\36\ The Exchange represents 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 applicable to trading on the Exchange.
---------------------------------------------------------------------------

    \36\ FINRA surveils certain trading activity on the Exchange 
pursuant to a regulatory services agreement. The Exchange is 
responsible for FINRA's performance under this regulatory services 
agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, or the regulatory staff of the 
Exchange, will communicate as needed regarding trading in the Shares, 
underlying stocks and ETFs 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 such securities from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, underlying stocks and ETFs 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.\37\
---------------------------------------------------------------------------

    \37\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    The Funds' Adviser will make available daily to FINRA and the 
Exchange the portfolio holdings of each Fund in order to facilitate the 
performance of the surveillances referred to above.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares; 
(2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due 
diligence on its ETP Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (4) how information 
regarding the VIIV is disseminated; (5) the requirement that ETP 
Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (6) trading information.
    In addition, the Bulletin will reference that the Funds are subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\38\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\39\ in particular, in that it 
is 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.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b).
    \39\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 8.900 is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Managed Portfolio 
Shares provide specific initial and continued listing criteria required 
to be met by such securities. Proposed Rule 8.900(d) sets forth initial 
and continued listing criteria applicable to Managed Portfolio Shares. 
Proposed Rule 8.900(d)(1) provides that, for each series of Managed 
Portfolio Shares, the Corporation will establish a minimum number of 
Managed Portfolio Shares required to be outstanding at the time of 
commencement of trading. In addition, the Corporation will obtain a 
representation from the issuer of each series of Managed Portfolio 
Shares that the NAV per share for the series will be calculated daily 
and that the NAV will be made available to all market participants at 
the same time. Proposed Rule 8.900(d)(2) provides that each series of 
Managed Portfolio Shares will be listed and traded subject to 
application of the specified continued listing criteria, as described 
above. Proposed Rule 8.900(d)(2)(A) provides that the VIIV for Managed 
Portfolio Shares will be widely disseminated by one or more major 
market data vendors every second during the Exchange's Core Trading 
Session. Proposed Rule 8.900(d)(2)(C) provides that, upon notification 
to the Corporation by the Investment Company or its agent that (i) the 
prices from the multiple independent pricing sources to be validated by 
the Investment Company's pricing verification agent differ by more than 
25 basis points for 60 seconds in connection with pricing of the VIIV, 
or (ii) that the VIIV of a series of Managed Portfolio Shares is not 
being priced and disseminated in one-second intervals, as required, the 
Corporation shall halt trading in the Managed Portfolio Shares as soon 
as practicable. Such halt in trading shall continue until the 
Investment Company or its agent notifies the Corporation that the 
prices from the independent pricing sources no longer differ by more 
than 25 basis points for 60 seconds or that the VIIV is being priced 
and disseminated as required. Proposed Commentary .05 to NYSE Arca 
Equities Rule 8.900 provides that, if the investment adviser to the 
Investment Company issuing Managed Portfolio Shares is affiliated with 
a broker-dealer, or if any Trusted Agent is registered as a broker-
dealer or is affiliated with a broker-dealer, such

[[Page 8280]]

investment adviser or Trusted Agent will erect a ``fire wall'' between 
the investment adviser or Trusted Agent and (i) personnel of the 
broker-dealer or broker-dealer affiliate, as applicable, or (ii) the 
Authorized Participant or non-Authorized Participant market maker, as 
applicable, with respect to access to information concerning the 
composition and/or changes to such Investment Company portfolio. 
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 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.
    With respect to the proposed listing and trading of Shares of the 
Funds, 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 NYSE Arca Equities Rule 
8.900. Price information for the exchange-listed equity securities held 
by the Funds will be available through major market data vendors or 
securities exchanges listing and trading such securities. All exchange-
listed equity securities held by the Funds will be listed on national 
securities exchanges. The listing and trading of such securities is 
subject to rules of the exchanges on which they are listed and traded, 
as approved by the Commission. The Funds will primarily hold U.S.-
listed securities or ETFs. Further, the Funds will not invest in 
options, futures or swaps. A Fund's investments will be consistent with 
its respective investment objective and will not be used to enhance 
leverage. The Funds will not invest in non-U.S.-listed securities. 
FINRA, on behalf of the Exchange, or the regulatory staff of the 
Exchange, will communicate as needed regarding trading in the Shares 
and underlying stocks and ETFs with other markets and other entities 
that are members of the ISG, and FINRA, on behalf of the Exchange, or 
the regulatory staff of the Exchange, may obtain trading information 
regarding trading such securities from such markets and other entities. 
In addition, the Exchange may obtain information regarding trading in 
the Shares, underlying stocks and ETFs from markets and other entities 
that are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. A Trusted Agent will 
provide information related to creations and redemption of Creation 
Units to FINRA upon request. The Funds' Adviser will make available 
daily to FINRA and the Exchange the portfolio holdings of each Fund in 
order to facilitate the performance of the surveillances referred to 
above.
    The Exchange, after consulting with various Lead Market Makers that 
trade ETFs on the Exchange, believes that market makers will be able to 
make efficient and liquid markets priced near the VIIV as long as an 
accurate VIIV is disseminated every second, market makers have 
knowledge of a fund's means of achieving its investment objective even 
without daily disclosure of a fund's underlying portfolio, and are able 
to engage in Bona Fide Arbitrage. The Exchange believes that market 
makers will employ risk-management techniques such as Bona Fide 
Arbitrage in addition to ``statistical arbitrage'', which is currently 
used throughout the financial services industry, to make efficient 
markets in exchange traded products.\40\ This ability should permit 
market makers to make efficient markets in shares without knowledge of 
a fund's underlying portfolio.
---------------------------------------------------------------------------

    \40\ See note 9, supra.
---------------------------------------------------------------------------

    The Exchange understands that traders, in addition to employing 
Bona Fide Arbitrage, use statistical analysis to derive correlations 
between different sets of instruments to identify opportunities to buy 
or sell one set of instruments when it is mispriced relative to the 
others. For Managed Portfolio Shares, market makers utilizing 
statistical arbitrage use the knowledge of a fund's means of achieving 
its investment objective, as described in the applicable fund 
registration statement, to construct a hedging proxy for a fund to 
manage a market maker's quoting risk in connection with trading fund 
shares. Market makers will then conduct statistical arbitrage between 
their hedging proxy (for example, the Russell 1000 Index) and shares of 
a fund, buying and selling one against the other over the course of the 
trading day. Eventually, at the end of each day, they will evaluate how 
their proxy performed in comparison to the price of a fund's shares, 
and use that analysis as well as knowledge of risk metrics, such as 
volatility and turnover, to enhance their proxy calculation to make it 
a more efficient hedge.
    Market makers who anticipate employing statistical arbitrage more 
often than Bona Fide Arbitrage, have indicated to the Exchange that, 
after the first few days of trading, there will be sufficient data to 
run a statistical analysis which will lead to spreads being tightened 
substantially around VIIV. This is similar to certain other existing 
exchange traded products (for example, ETFs that invest in foreign 
securities that do not trade during U. S. trading hours), in which 
spreads may be generally wider in the early days of trading and then 
narrow as market makers gain more confidence in their real-time hedges.
    The Lead Market Makers also indicated that, as with some other new 
exchange-traded products, spreads may be generally wider in the early 
days of trading and would tend to narrow as market makers gain more 
confidence in the accuracy of their hedges and their ability to adjust 
these hedges in real-time relative to the published VIIV and gain an 
understanding of the applicable market risk metrics such as volatility 
and turnover, and as natural buyers and sellers enter the market. Other 
relevant factors cited by Lead Market Makers were that a fund's 
investment objectives are clearly disclosed in the applicable 
prospectus, the existence of quarterly portfolio disclosure, the 
capacity to engage in Bona Fide Arbitrage and the ability to create 
shares in creation unit size.
    The Commission's concept release regarding ``Actively Managed 
Exchange-Traded Funds'' highlighted several issues that could impact 
the Commission's willingness to authorize the operation of an actively-
managed ETF, including whether effective arbitrage of the ETF shares 
exists.\41\ The Concept Release identifies the transparency of a fund's 
portfolio and the liquidity of the securities in a fund's portfolio as 
central to effective arbitrage. With respect to the Funds, the Funds' 
use of U.S.-listed securities and the ability of market makers to 
engage in Bona Fide Arbitrage provide adequate liquidity as well as the 
ability to engage in riskless arbitrage. Additionally, certain existing 
ETFs with portfolios of foreign securities have shown their ability to 
trade efficiently in the secondary market at approximately their NAV 
even though they do not provide opportunities for riskless arbitrage 
transactions during much of the trading day.\42\ Such ETFs have been 
shown to

[[Page 8281]]

have pricing characteristics very similar to ETFs that can be 
arbitraged in this manner. For example, index-based ETFs containing 
securities that trade during different trading hours than the ETF, such 
as ETFs that hold Asian stocks, have demonstrated efficient pricing 
characteristics notwithstanding the inability of market professionals 
to engage in ``riskless arbitrage'' with respect to the underlying 
portfolio for most, or even all, of the U.S. trading day when Asian 
markets are closed. Pricing for shares of such ETFs is efficient 
because market professionals are still able to hedge their positions 
with offsetting, correlated positions in derivative instruments during 
the entire trading day.
---------------------------------------------------------------------------

    \41\ See Investment Company Act Release No. 25258 (November 8, 
2001) (the ``Concept Release'').
    \42\ The Adviser represents that the mechanics of arbitrage and 
hedging differ. Prior Rule 10a-1 and Regulation T under the Act both 
describe arbitrage as either buying and selling the same security in 
two different markets or buying and selling two different 
securities, one of which is convertible into the other. This is also 
known as a ``riskless arbitrage'' transaction in that the 
transaction is risk free since it generally consists of buying an 
asset at one price and simultaneously selling that same asset at a 
higher price, thereby generating a profit on the difference. 
Hedging, on the other hand, involves managing risk by purchasing or 
selling a security or instrument that will track or offset the value 
of another security or instrument. Arbitrage and hedging are both 
used to manage risk; however, they involve different trading 
strategies.
---------------------------------------------------------------------------

    The real-time dissemination of a fund's VIIV, the ability for 
market makers to engage is riskless arbitrage through the Bona Fide 
Arbitrage mechanism, together with the right of Authorized Participants 
to create and redeem each day at the NAV, will be sufficient for market 
participants to value and trade shares in a manner that will not lead 
to significant deviations between the shares' Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed 
Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the shares and a fund's portfolio, in 
addition to the ability of market participants to assess a fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in shares effectively. Professional traders not 
employing Bona Fide Arbitrage can buy shares that they perceive to be 
trading at a price less than that which will be available at a 
subsequent time, and sell shares they perceive to be trading at a price 
higher than that which will be available at a subsequent time. It is 
expected that, as part of their normal day-to-day trading activity, 
market makers assigned to shares by the Exchange, off-exchange market 
makers, firms that specialize in electronic trading, hedge funds and 
other professionals specializing in short-term, non-fundamental trading 
strategies will assume the risk of being ``long'' or ``short'' shares 
through such trading and will hedge such risk wholly or partly by 
simultaneously taking positions in correlated assets \43\ or by netting 
the exposure against other, offsetting trading positions--much as such 
firms do with existing ETFs and other equities. Disclosure of a fund's 
investment objective and principal investment strategies in its 
prospectus and SAI, along with the dissemination of the VIIV every 
second, should permit professional investors to engage easily in this 
type of hedging activity.\44\
---------------------------------------------------------------------------

    \43\ Price correlation trading is used throughout the financial 
industry. It is used to discover both trading opportunities to be 
exploited, such as currency pairs and statistical arbitrage, as well 
as for risk mitigation such as dispersion trading and beta hedging. 
These correlations are a function of differentials, over time, 
between one or multiple securities pricing. Once the nature of these 
price deviations have been quantified, a universe of securities is 
searched in an effort to, in the case of a hedging strategy, 
minimize the differential. Once a suitable hedging basket has been 
identified, a trader can minimize portfolio risk by executing the 
hedging basket. The trader then can monitor the performance of this 
hedge throughout the trade period, making corrections where 
warranted.
    \44\ With respect to trading in Shares of the Funds, market 
participants would manage risk in a variety of ways. In addition to 
Bona Fide Arbitrage, it is expected that market participants will be 
able to determine how to trade Shares at levels approximating the 
VIIV without taking undue risk by gaining experience with how 
various market factors (e.g., general market movements, sensitivity 
of the VIIV to intraday movements in interest rates or commodity 
prices, etc.) affect VIIV, and by finding hedges for their long or 
short positions in Shares using instruments correlated with such 
factors. The Adviser expects that market participants will initially 
determine the VIIV's correlation to a major large capitalization 
equity benchmark with active derivative contracts, such as the 
Russell 1000 Index, and the degree of sensitivity of the VIIV to 
changes in that benchmark. For example, using hypothetical numbers 
for illustrative purposes, market participants should be able to 
determine quickly that price movements in the Russell 1000 Index 
predict movements in a Fund's VIIV 95% of the time (an acceptably 
high correlation) but that the VIIV generally moves approximately 
half as much as the Russell 1000 Index with each price movement. 
This information is sufficient for market participants to construct 
a reasonable hedge--buy or sell an amount of futures, swaps or ETFs 
that track the Russell 1000 equal to half the opposite exposure 
taken with respect to Shares. Market participants will also 
continuously compare the intraday performance of their hedge to a 
Fund's VIIV. If the intraday performance of the hedge is correlated 
with the VIIV to the expected degree, market participants will feel 
comfortable they are appropriately hedged and can rely on the VIIV 
as appropriately indicative of a Fund's performance.
---------------------------------------------------------------------------

    With respect to trading of Shares of the Funds, the ability of 
market participants to buy and sell Shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for a Fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
a Fund's actual portfolio holdings, (2) the securities in which the 
Funds plan to invest are generally highly liquid and actively traded 
and therefore generally have accurate real time pricing available, and 
(3) market participants will have a daily opportunity to evaluate 
whether the VIIV at or near the close of trading is indeed predictive 
of the actual NAV.
    The real-time dissemination of a Fund's VIIV, the ability for 
market makers to engage is riskless arbitrage through the Bona Fide 
Arbitrage mechanism, together with the ability of Authorized 
Participants to create and redeem each day at the NAV, will be crucial 
for market participants to value and trade Shares in a manner that will 
not lead to significant deviations between the Shares' Bid/Ask Price 
and NAV.\45\
---------------------------------------------------------------------------

    \45\ The statements in the Statutory Basis section of this 
filing relating to pricing efficiency, arbitrage, and activities of 
market participants, including market makers and Authorized 
Participants, are based on representations by the Adviser and review 
by the Exchange.
---------------------------------------------------------------------------

    In a typical index-based ETF, it is standard for Authorized 
Participants to know what securities must be delivered in a creation or 
will be received in a redemption. For Managed Portfolio Shares, 
however, Authorized Participants do not need to know the securities 
comprising the portfolio of a Fund since creations and redemptions are 
handled through the Confidential Account mechanism. The Adviser 
represents that the in-kind creations and redemptions through a 
Confidential Account will preserve the integrity of the active 
investment strategy and eliminate the potential for ``free riding'' or 
``front-running'', while still providing investors with the advantages 
of the ETF structure.
    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 an 
issue of Managed Portfolio Shares that the NAV per share of a fund will 
be calculated daily and that the NAV and will be made available to all 
market participants at the same time. Investors can also obtain a 
fund's SAI, shareholder reports, and its Form N-CSR and Form N-SAR. A 
fund's SAI and shareholder reports will be available free upon request 
from the applicable fund, and those documents and the Form N-CSR and 
Form N-SAR may be viewed on-screen or downloaded from the Commission's 
Web site. In addition, with respect to

[[Page 8282]]

the Funds, a large amount of information will be publicly available 
regarding the Funds and the Shares, thereby promoting market 
transparency. Quotation and last sale information for the Shares will 
be available via the CTA high-speed line. Information regarding the 
intra-day value of the Shares of a Fund, which is the VIIV as defined 
in proposed NYSE Arca Equities Rule 8.900(c)(3), will be widely 
disseminated every second throughout the Exchange's Core Trading 
Session by one or more major market data vendors. The Web site for the 
Funds will include a form of the prospectus for the Funds that may be 
downloaded, and additional data relating to NAV and other applicable 
quantitative information, updated on a daily basis. Moreover, prior to 
the commencement of trading, the Exchange will inform its ETP Holders 
in an Information Bulletin of the special characteristics and risks 
associated with trading the Shares. Trading in Shares of a Fund will be 
halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached or because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable. Trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.900(d)(2)(C), which sets forth circumstances under 
which Shares of the Funds will be halted. In addition, as noted above, 
investors will have ready access to the VIIV, and quotation and last 
sale information for the Shares. The Shares will conform to the initial 
and continued listing criteria under proposed Rule 8.900. The Funds 
will not invest in options, futures, forwards or swaps. Each Fund's 
investments will be consistent with its investment objective and will 
not be used to enhance leverage. While a Fund may invest in inverse 
ETFs, a Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) 
ETFs. The Funds will not invest in non-U.S. listed securities.
    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 VIIV and quotation 
and last sale information for the Shares.

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 purposes of the Act. The Exchange believes the 
proposed rule change would permit listing and trading of another type 
of actively-managed ETF that has characteristics different from 
existing actively-managed and index ETFs, and would introduce 
additional competition among various ETF products to the benefit of 
investors.

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

    No written comments were solicited or received with respect to 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 up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2016-08 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2016-08. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549 on official business days between 10:00 a.m. 
and 3:00 p.m. Copies of the filing will also be available for 
inspection and copying at the Exchange's principal office. 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-2016-08 and should 
be submitted on or before March 10, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-03269 Filed 2-17-16; 8:45 am]
 BILLING CODE 8011-01-P


