
[Federal Register Volume 81, Number 71 (Wednesday, April 13, 2016)]
[Notices]
[Pages 21916-21921]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08422]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77549; File No. SR-NYSEArca-2016-14]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade 
Shares of the WBI Tactical Rotation Shares Under NYSE Arca Equities 
Rule 8.600

April 7, 2016.

I. Introduction

    On February 3, 2016, NYSE Arca, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'' or 
``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to list and trade shares (``Shares'') of the WBI Tactical 
Rotation Shares (``Fund'') under NYSE Arca Equities Rule 8.600. The 
Commission published notice of the proposed rule change in the Federal 
Register on February 23, 2016.\3\ The Commission received no comments 
on the proposed rule change. On March 28, 2016, the Exchange filed 
Amendment No. 1 to the proposed rule change.\4\ The Commission is 
publishing this notice to solicit comment on Amendment No. 1 to the 
proposed rule change from interested persons, and is approving the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 77160 (February 17, 
2016), 81 FR 9029.
    \4\ In Amendment No. 1, which replaced the original filing in 
its entirety, the Exchange: (1) Clarified a reference to debt 
securities is to ``Debt Instruments,'' as described in the filing; 
(2) represented that, under normal market conditions, the Fund will 
invest at least 75% of its corporate debt securities that have at 
least $1,000,000 par amount outstanding in developed countries or at 
least $200,000,000 in emerging markets countries; (3) stated that 
the Fund's assets invested in Debt Instruments would meet certain 
criteria for index-based fixed-income ETFs contained in Exchange 
Rule 5.2(j)(3), Commentary .02; (4) stated where price information 
could be found for non-exchange listed ADRs, RMBS, CMBS, ABS, and 
municipal securities; (5) clarified that all statements and 
representations made in the filing regarding the description of the 
portfolio, limitations on portfolio holdings or reference assets, or 
the applicability of Exchange rules and surveillance procedures 
constitute continued listing requirements for listing the Shares on 
the Exchange; (6) stated that the issuer has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund 
to comply with the continued listing requirements, and, pursuant to 
its obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements, and 
if the Fund is not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
NYSE Arca Equities Rule 5.5(m); and (7) made other clarifying and 
technical amendments. Amendment No. 1 is available at: http://www.sec.gov/comments/sr-nysearca-2016-14/nysearca201614-1.pdf.
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II. The Exchange's Description of the Proposal 5
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    \5\ The Commission notes that additional information regarding 
the Fund, the Trust (as defined below), and the Shares, including 
investment strategies, risks, creation and redemption procedures, 
fees, portfolio holdings, disclosure policies, calculation of net 
asset value (``NAV''), distributions, and taxes, among other things, 
can be found in Amendment No. 1 and the Registration Statement, as 
applicable. See Amendment No. 1, supra note 4, and Registration 
Statement, infra note 6.
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    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares on the Exchange. The Shares will be offered by the Absolute 
Shares Trust (``Trust''), a statutory trust organized under the laws of 
the State of Delaware and registered with the Commission as an open-end 
management investment

[[Page 21917]]

company.\6\ Millington Securities, Inc. (``Adviser''), a wholly-owned 
subsidiary of WBI Trading Company, Inc., will be the investment advisor 
to the Fund, and WBI Investments, Inc. (``Sub-Adviser''), an affiliate 
of WBI Trading Company, Inc., will act as Sub-Adviser to the Fund.\7\ 
U.S. Bancorp Fund Services, LLC will serve as the administrator, 
transfer agent, and index receipt agent. U.S. Bank, National 
Association will serve as the Fund's custodian and securities lending 
agent. Foreside Fund Services, LLC will serve as the distributor for 
the Fund on an agency basis.
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    \6\ The Trust is registered under the 1940 Act. On August 24, 
2015, the Trust filed with the Commission a registration statement 
on Form N-1A, and on November 6, 2015 filed an amendment thereto, 
under the Securities Act of 1933 (15 U.S.C. 77a) (``Securities 
Act'') and the 1940 Act relating to the Fund (File Nos. 333-192733 
and 811-22917) (as amended, the ``Registration Statement''). The 
description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
30543 (May 29, 2013) (File No. 812-13886) (``Exemptive Order'').
    \7\ The Adviser is a registered broker-dealer and is affiliated 
with a broker-dealer. The Sub-Adviser is not registered as a broker-
dealer but is affiliated with a broker-dealer. In such capacity, the 
Adviser and Sub-Adviser have implemented a firewall with respect to 
their relevant personnel and their respective broker-dealer 
affiliates regarding access to information concerning the 
composition and/or changes to a portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio. In the event (a) 
the Adviser becomes newly affiliated with a broker-dealer or Sub-
Adviser becomes registered as a broker-dealer or newly affiliated 
with a broker-dealer, as applicable, or (b) any new adviser or sub-
adviser is a broker-dealer or becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to its personnel 
or such broker-dealer regarding access to information concerning the 
composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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A. The Fund's Principal Investments

    According to the Exchange, the Fund's investment objective is to 
seek long term capital appreciation while also seeking to protect 
principal during unfavorable market conditions.\8\
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    \8\ The Sub-Adviser's proprietary portfolio selection process 
used for the Fund attempts to identify investments that can provide 
consistent, attractive returns net of expenses with potentially less 
volatility and risk to capital than traditional approaches, whatever 
market conditions may be.
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    The Fund, under normal market conditions,\9\ will seek to invest 
primarily (more than 50% of its total assets) in the principal 
investments discussed in this section. The Fund will invest directly in 
equity securities, debt instruments and ``Financial Instruments'' (as 
described below) or will invest in them indirectly by investing in the 
equity securities of other registered investment companies (including 
exchange traded funds (``ETFs''),\10\ mutual funds, unit investment 
trusts, exchange-traded and over-the counter (``OTC'') closed-end funds 
(``CEFs'') and exchange-traded and OTC business development companies), 
equity securities of exchange-traded pooled vehicles not required to be 
registered under the 1940 Act and issuing equity securities 
(``ETPVs''),\11\ exchange-traded notes (``ETNs''),\12\ equity-linked 
notes (``ELNs''),\13\ and index-linked exchangeable notes (``ILENs'') 
\14\ (collectively, ETFs, ETPVs, ETNs, ELNs and ILENs are referred to 
as ``exchange traded products'' or ``ETPs,'' and collectively, ETFs, 
mutual funds, unit investment trusts, CEFs, and business development 
companies are referred to as ``Registered Funds'').
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    \9\ The term ``under normal market conditions'' includes, but is 
not limited to, the absence of extreme volatility or trading halts 
in the equity markets or the financial markets generally; 
operational issues causing dissemination of inaccurate market 
information; or force majeure type events such as systems failure, 
natural or man-made disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance.
    \10\ For purposes of this filing, ETFs consist of Investment 
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); 
Portfolio Depositary Receipts (as described in NYSE Arca Equities 
Rule 8.100; and Managed Fund Shares (as described in NYSE Arca 
Equities Rule 8.600). All ETFs will be listed and traded in the U.S. 
on a national securities exchange. While the Fund may invest in 
inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 
3X or -3X) ETFs.
    \11\ For purposes of this filing, the ``exchange-traded pooled 
vehicles'' or ``ETPVs'' consist of Trust Issued Receipts (as 
described in NYSE Arca Equities Rule 8.200); Commodity-Based Trust 
Shares (as described in NYSE Arca Equities Rule 8.201); Currency 
Trust Shares (as described in NYSE Arca Equities Rule 8.202); 
Commodity Index Trust Shares (as described in NYSE Arca Equities 
Rule 8.203); and Commodity Futures Trust Shares (as described in 
NYSE Arca Equities Rule 8.204).
    \12\ ETNs include Index-Linked Securities (as described in NYSE 
Arca Equities Rule 5.2(j)(6)).
    \13\ Equity Linked Notes are described in NYSE Arca Equities 
Rule 5.2(j)(2).
    \14\ Index-Linked Exchangeable Notes are described in NYSE Arca 
Equities Rule 5.2(j)(4).
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    The Fund may invest in the following exchange-traded and OTC U.S. 
and foreign equity securities (other than non-exchange-traded 
investment company securities): Common stocks, preferred stocks, 
rights, warrants, convertibles, master limited partnerships (exchange-
traded businesses organized as partnerships (``MLPs'')), Depositary 
Receipts (``DRs'', as described below),\15\ and exchange-traded real 
estate investment trusts (``REITs'').
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    \15\ For purposes of this filing, DRs means the following: 
American Depositary Receipts (``ADRs''), American Depositary Shares 
(``ADSs''), European Depositary Receipts (``EDRs''), Global 
Depositary Receipts (``GDRs'') and International Depositary Receipts 
(``IDRs''). ADSs are issued by depository banks in the United States 
under an agreement with the foreign issuer, and the entire issuance 
is called an ADR and the individual shares are referred to as ADSs. 
ADRs may be purchased through ``sponsored'' or ``unsponsored'' 
facilities. Not more than 10% of the Fund's assets will be invested 
in non-exchange-listed ADRs.
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    As part of the Fund's principal investment strategy, up to 20% of 
the Fund's net assets may be invested in exchange-traded or OTC 
``Financial Instruments,'' which are the following: Foreign exchange 
forward contracts; futures on equity securities, debt securities (i.e., 
``Debt Securities'' defined below), equity indices, fixed income 
indices, commodity indices, currencies, commodities, and interest 
rates; exchange-traded and OTC options on equity indices, currencies, 
and equity and debt securities; exchange-traded and OTC options on 
futures contracts; exchange-traded and OTC interest rate swaps, cross-
currency swaps, total return swaps on fixed income and equity 
securities, inflation swaps and credit default swaps; and options on 
such swaps (``swaptions'').\16\ Financial Instruments will be utilized 
in connection with option strategies used by the Fund, including 
writing (selling) covered calls, buying puts, using combinations of 
calls and puts, and using combinations of calls and combinations of put 
options (``puts''). The Fund may also use options on indices and on 
futures, such as by writing a call on a futures contract.\17\ The Fund 
may enter cap, floor and collar agreements as a part of its option 
strategies.
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    \16\ Options on swaps are traded OTC. In the future, in the 
event that there are exchange-traded options on swaps, the Fund may 
invest in these instruments.
    \17\ The Fund may directly write call options on stocks and 
stock indices if the calls are ``covered'' throughout the life of 
the option. The Fund may also write and purchase puts.
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    As part of its principal investment strategy, the Fund may invest 
in the following types of debt securities (``Debt Instruments''): 
Corporate debt securities; \18\ corporate debt securities that are 
convertible into common stock or interests; U.S. Government securities; 
\19\ debt securities of foreign

[[Page 21918]]

issuers; sovereign debt securities; repurchase agreements; municipal 
securities; sovereign debt obligations; obligations of international 
agencies or supranational agencies; sovereign, quasi-sovereign, 
supranational or local authority debt obligations issued by non-U.S. 
governments; Treasury Inflation-Protected Securities; and zero coupon 
bonds. Debt Instruments may be of all maturities, from less than one 
year to more than thirty years (if available). Debt Instruments may be 
fixed, variable or floating rate securities.\20\
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    \18\ Such corporate debt securities also include debt securities 
sold pursuant to Rule 144A under the Securities Act. Under normal 
market conditions, the Fund will invest at least 75% of its 
corporate debt securities in issuances that have at least 
$100,000,000 par amount outstanding in developed countries or at 
least $200,000,000 par amount outstanding in emerging market 
countries.
    \19\ The Fund may invest in U.S. Government obligations and 
other quasi government related obligations. Such obligations include 
Treasury bills, certificates of indebtedness, notes and bonds, and 
issues of such entities as the Government National Mortgage 
Association, Federal Home Loan Banks, Federal Intermediate Credit 
Banks, Federal Farm Credit Banks, Federal Housing Administration, 
Federal National Mortgage Association, Federal Home Loan Mortgage 
Corporation, and the Student Loan Marketing Association.
    \20\ The Fund's assets invested in Debt Instruments will meet 
certain criteria for index-based, fixed-income ETFs contained in 
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02. See NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02 governing fixed-income-based 
Investment Company Units. The requirements of Rule 5.2(j)(3), 
Commentary .02(a) that will be met include the following: (i) The 
index or portfolio must consist of ``Fixed Income Securities'' as 
defined in Rule 5.2(j)(3), Commentary .02(a)(1); (ii) components 
that in the aggregate account for at least 75% of the weight of the 
index or portfolio each must have a minimum original principal 
amount outstanding of $100 million or more; (iii) a component may be 
a convertible security, but once the convertible security converts 
to an underlying equity security, the component is removed from the 
index or portfolio; (iv) no component fixed income security 
(excluding Treasury Securities) will represent more than 30% of the 
weight of the index or portfolio, and the five highest weighted 
component fixed-income securities do not in the aggregate account 
for more than 65% of the weight of the index or portfolio; (v) an 
underlying index or portfolio (excluding exempted securities) must 
include securities from a minimum of 13 non-affiliated issuers; and 
(vi) component securities that in aggregate account for at least 90% 
of the weight of the index or portfolio must be either (a) from 
issuers that are required to file reports pursuant to Sections 13 
and 15(d) of the Act; (b) from issuers that have a worldwide market 
value of its outstanding common equity held by non-affiliates of 
$700 million or more; (c) from issuers that have outstanding 
securities that are notes, bonds, debentures, or evidence of 
indebtedness having a total remaining principal amount of at least 
$1 billion; (d) exempted securities as defined in Section 3(a)(12) 
of the Act; or (e) from issuers that are a government of a foreign 
country or a political subdivision of a foreign country.
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    The Fund may invest in and hold cash or ``Cash Equivalents'' \21\ 
as part of the normal operation of its principal investment strategy.
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    \21\ ``Cash Equivalents'' means: High-quality short-term debt 
securities; money market instruments, certificates of deposit issued 
by commercial banks as well as savings banks or savings and loan 
associations; bankers' acceptances; time deposits; and commercial 
paper and short-term notes rated at the time of purchase ``A-2'' or 
higher by Standard & Poor's, ``Prime-1'' by Moody's Investors 
Services Inc., or similarly rated by another nationally recognized 
statistical rating organization, or, if unrated, will be determined 
by the Sub-Adviser to be of comparable quality, as well as U.S. 
Government obligations.
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    For investments in Registered Funds, the Fund may invest in excess 
of the limits contained in the 1940 Act.\22\
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    \22\ The Exchange states that the Commission has granted 
exemptive relief to the Trust under Section 12(d)(1)(J) of the 1940 
Act permitting the Fund to operate as a ``fund of funds'' and invest 
in other investment companies without complying with the limitations 
set forth in Section 12(d)(1) of the 1940 Act, subject to certain 
terms and limitations that are contained in the Exemptive Order.
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B. The Fund's Other Investments

    While the Fund, under normal market conditions, will seek to invest 
primarily (at least 50% of its total assets) in the securities 
described above, the Fund may invest as part of its non-principal 
investment strategy (less than 50% of the Fund's assets) in short 
positions in equity securities and in agency and non-agency residential 
mortgage-backed securities (``RMBS''); agency and non-agency commercial 
mortgage-backed securities (``CMBS''); and agency and non-agency asset-
backed securities (``ABS'').

C. The Fund's Investment Restrictions

    The Fund may invest up to 40% of its net assets in Debt Instruments 
rated below investment grade.
    The Fund will not invest more than 50% of its net assets in 
securities of issuers in emerging markets, which could consist of DRs, 
dollar-denominated foreign securities or non-U.S. dollar denominated 
foreign securities.
    Investments in non-agency mortgage and asset backed securities will 
be limited to 20% of the Fund's total assets in the aggregate.
    The Fund may invest up to 30% of its total assets in securities 
denominated in non-U.S. Dollars, but this limitation will not apply to 
securities of non-U.S. issuers that are denominated in U.S. Dollars. 
The Fund may invest up to 50% of the Fund's principal investments in 
the securities of issuers in emerging markets.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser. The Fund 
will monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.\23\
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    \23\ 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. 31835 (September 22, 2015), 
discussions at footnotes 92 and 93; 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 
1933 Act).
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    The Fund will be non-diversified under the 1940 Act.\24\
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    \24\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
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    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's 
primary broad-based securities benchmark index (as defined in Form N-
1A).\25\
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    \25\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
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III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\26\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Exchange Act,\27\ which requires, among 
other things, that the Exchange's rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to remove impediments to and perfect the

[[Page 21919]]

mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The 
Commission also finds that the proposal to list and trade the Shares on 
the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Exchange Act,\28\ which sets forth the finding of Congress that it is 
in the public interest and appropriate for the protection of investors 
and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities.
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    \26\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    According to the Exchange, quotation and last-sale information for 
the Shares, and U.S. exchange-traded common stocks, preferred stocks, 
rights, warrants, convertibles, MLPs, DRs, REITs, CEFs, ETFs, ETPs and 
ETNs will be available via the Consolidated Tape Association (``CTA'') 
high-speed line. Intra-day price information for foreign exchange-
traded common stocks, preferred stocks, rights, warrants, convertibles, 
MLPs, DRs and REITs, will be available from the applicable foreign 
exchange and from major market data vendors. Price information for OTC 
common stocks, OTC CEFs, non-exchange listed ADRs, RMBS, CMBS, ABS, and 
OTC Financial Instruments will be available from major market data 
vendors. Intra-day and closing price information for exchange-traded 
Financial Instruments will be available from the applicable exchange 
and from major market data vendors. In addition, price information for 
U.S. exchange-traded options is available from the Options Price 
Reporting Authority. Intra-day price information for Cash Equivalents 
will be available from major market data vendors. Price information for 
municipal securities is available from the Municipal Securities 
Rulemaking Board's (``MSRB'') Electronic Municipal Market Access 
system.
    In addition, the Portfolio Indicative Value, as defined in NYSE 
Arca Equities Rule 8.600 (c)(3), will be widely disseminated by one or 
more major market data vendors at least every 15 seconds during the 
Core Trading Session.\29\ On each business day, before commencement of 
trading in Shares in the Core Trading Session on the Exchange, the Fund 
will disclose on its Web site the Disclosed Portfolio, as defined in 
NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for the 
Fund's calculation of NAV at the end of the business day.\30\
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    \29\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from CTA or other data feeds.
    \30\ On a daily basis, the Adviser will disclose on the Fund's 
Web site the following information regarding each portfolio holding, 
as applicable to the type of holding: Ticker symbol, CUSIP number or 
other identifier, if any; a description of the holding (including 
the type of holding, such as the type of swap); the identity of the 
security, commodity, index or other asset or instrument underlying 
the holding, if any; for options, the option strike price; quantity 
held (as measured by, for example, par value, notional value or 
number of shares, contracts or units); maturity date, if any; coupon 
rate, if any; effective date, if any; market value of the holding; 
and the percentage weighting of the holding in the Fund's portfolio. 
The Web site information will be publicly available at no charge. 
The Fund's disclosure of derivative positions in the Disclosed 
Portfolio will include information that market participants can use 
to value these positions intraday.
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    The NAV for the Shares will be calculated after 4:00 p.m. Eastern 
Time each trading day. A basket composition file, which will include 
the security names and share quantities required to be delivered in 
exchange for Fund Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the New York Stock Exchange via the National Securities Clearing 
Corporation. Information regarding market price and trading volume for 
the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services. The Web site for the Fund will include a form of the 
prospectus for the Fund and additional data relating to NAV and other 
applicable quantitative information.
    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.\31\ 
Trading in Shares of the Fund 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.\32\ 
Trading in the Shares also will be subject to NYSE Arca Equities Rule 
8.600(d)(2)(D), which sets forth circumstances under which Shares of 
the Fund may be halted. The Exchange represents that it has a general 
policy prohibiting the distribution of material, non-public information 
by its employees. The Adviser is a registered broker-dealer and is 
affiliated with a broker-dealer, and the Sub-Adviser is not registered 
as a broker-dealer but is affiliated with a broker-dealer. In such 
capacity, the Adviser and Sub-Adviser have implemented a firewall with 
respect to their relevant personnel and their respective broker-dealer 
affiliates regarding access to information concerning the composition 
and/or changes to a portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio.\33\ Further, the Commission notes 
that the Reporting Authority that provides the Disclosed Portfolio of 
the Fund must implement and maintain, or be subject to, procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the actual components of the portfolio.\34\
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    \31\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \32\ These may include: (1) The extent to which trading is not 
occurring in the securities or the financial instruments 
constituting the Disclosed Portfolio of the Fund; or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.
    \33\ See supra note 7. The Exchange represents that an 
investment adviser to an open-end fund is required to be registered 
under the Investment Advisers Act of 1940.
    \34\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit Holders (``ETP Holders'') in an Information 
Bulletin (``Bulletin'') of the special characteristics and risks 
associated with trading the Shares. The Exchange represents that 
trading in the Shares will be subject to the existing trading 
surveillances, administered by the Financial Industry Regulatory 
Authority (``FINRA'') on behalf of the Exchange, or by regulatory staff 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws.\35\
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    \35\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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    The Exchange represents that it 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. 
In support of this proposal, the Exchange has also made the following 
representations:

[[Page 21920]]

    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading in the Shares will be subject to the existing trading 
surveillances, administered by regulatory staff of the Exchange, or 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws, 
and 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.
    (4) The Exchange has represented that all statements and 
representations made in this filing regarding (a) the description of 
the portfolio, (b) limitations on portfolio holdings or reference 
assets, or (c) the applicability of Exchange rules and surveillance 
procedures shall constitute continued listing requirements for listing 
the Shares on the Exchange. The issuer has represented to the Exchange 
that it will advise the Exchange of any failure by the Fund to comply 
with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements.\36\ If 
the Fund is not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under NYSE Arca 
Equities Rule 5.5(m).
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    \36\ The Commission notes that certain other proposals for the 
listing and trading of managed fund shares include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Notice of Filing of Amendment No. 
2, and Order Granting Accelerated Approval of a Proposed Rule 
Change, as Modified by Amendment No. 2, to List and Trade Shares of 
the SPDR DoubleLine Short Duration Total Return Tactical ETF of the 
SSgA Active Trust, available at: http://www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In the context of this representation, it is the 
Commission's view that ``monitor'' and ``surveil'' both mean ongoing 
oversight of the Fund's compliance with the continued listing 
requirements. Therefore, the Commission does not view ``monitor'' as 
a more or less stringent obligation than ``surveil'' with respect to 
the continued listing requirements.
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    (5) FINRA, on behalf of the Exchange, and regulatory staff of the 
Exchange, will communicate as needed regarding trading in the Shares, 
certain exchange-traded options and futures, certain exchange-traded 
equities (including ETFs, ETPs. ETNs, CEFs, certain common stocks and 
certain REITs) with other markets or other entities that are members of 
the Intermarket Surveillance Group (``ISG''),\37\ and FINRA and 
regulatory staff of the Exchange may obtain trading information 
regarding trading in the Shares, certain exchange-traded options and 
futures, certain exchange-traded equities (including ETFs, ETPs. ETNs, 
CEFs, certain common stocks and certain REITs) from such markets or 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares, certain exchange-traded options and futures, 
certain exchange-traded equities (including ETFs, ETPs. ETNs, CEFs, 
certain common stocks and certain REITs) from markets or other entities 
that are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. FINRA, on behalf of the 
Exchange, is able to access, as needed, trade information for certain 
fixed income securities held by the Fund reported to FINRA's Trade 
Reporting and Compliance Engine. FINRA also can access data obtained 
from the MSRB relating to municipal bond trading activity for 
surveillance purposes in connection with trading in the Shares.
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    \37\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    (6) Prior to the commencement of trading of the Shares, the 
Exchange will inform its ETP Holders in a Bulletin of the special 
characteristics and risks associated with trading the Shares. The 
Bulletin will discuss the following: (a) The procedures for purchases 
and redemptions of Shares in creation units (and that Shares are not 
individually redeemable); (b) 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; 
(c) the risks involved in trading the Shares during the Opening and 
Late Trading Sessions when an updated Portfolio Indicative Value will 
not be calculated or publicly disseminated; (d) how information 
regarding the Portfolio Indicative Value and the Disclosed Portfolio is 
disseminated; (e) 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 (f) trading information.
    (7) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\38\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \38\ 17 CFR 240.10A-3.
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    (8) A minimum of 100,000 Shares for the Fund will be outstanding at 
the commencement of trading on the Exchange.
    (9) While the Fund may invest in inverse ETFs, the Fund will not 
invest in leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
    (10) Not more than 10% of the net assets of the Fund in the 
aggregate invested in futures contracts or exchange-traded options 
contracts shall consist of futures contracts or exchange-traded options 
contracts whose principal market is not a member of ISG or is a market 
with which the Exchange does not have a comprehensive surveillance 
sharing agreement.
    (11) Under normal market conditions, the Fund will invest at least 
75% of its corporate debt securities in issuances that have at least 
$100,000,000 par amount outstanding in developed countries or at least 
$200,000,000 par amount outstanding in emerging market countries.
    (12) The Fund may not invest more than 30% of its total assets in 
securities denominated in non-U.S. Dollars, but this limitation will 
not apply to securities of non-U.S. issuers that are denominated in 
U.S. Dollars.
    (13) The Fund may not invest more than 40% of its net assets in 
Debt Instruments rated below investment grade (also known as ``junk 
bonds'').
    (14) The Fund will not invest more than 50% of its net assets in 
securities of issuers in emerging markets, which could consist of DRs, 
dollar-denominated foreign securities or non-U.S. dollar denominated 
foreign securities.
    (15) Investments in non-agency mortgage and asset backed securities 
will be limited to 20% of the Fund's total assets in the aggregate.
    (16) The Fund may not invest more than 50% of the Fund's principal 
investments in the securities of issuers in emerging markets.
    (17) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser, in 
accordance with Commission staff guidance.
    (18) The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's 
primary broad-based

[[Page 21921]]

securities benchmark index (as defined in Form N-1A).
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Amendment 
No. 1. The Commission notes that the Fund and the Shares must comply 
with the requirements of NYSE Arca Equities Rule 8.600 to be initially 
and continuously listed and traded on the Exchange.

IV. Solicitation of Comments on Amendment No. 1

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether Amendment No. 1 
to 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-2016-14 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2016-14. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-14 and should 
be submitted on or before May 4, 2016.

V. Accelerated Approval of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 1, prior to the thirtieth day 
after the date of publication of Amendment No. 1 in the Federal 
Register. The additional information in Amendment No. 1, among other 
things, helped the Commission to evaluate the Shares' susceptibility to 
manipulation and the Exchange's ability to investigate possible 
manipulative activity. Accordingly, the Commission finds good cause for 
approving the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis, pursuant to Section 19(b)(2) of the Act.\39\
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    \39\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\40\ that the proposed rule change (SR-NYSEArca-2016-14), 
as modified by Amendment No. 1 thereto, be, and it hereby is, approved 
on an accelerated basis.
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    \40\ 15 U.S.C. 78s(b)(2).
    \41\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08422 Filed 4-12-16; 8:45 am]
BILLING CODE 8011-01-P


