
[Federal Register Volume 81, Number 140 (Thursday, July 21, 2016)]
[Notices]
[Pages 47447-47457]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17198]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78345; File No. SR-NYSEArca-2016-96]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Amend NYSE Arca Equities Rule 8.700 and To 
List and Trade Shares of the Managed Emerging Markets Trust Under 
Proposed Amended NYSE Arca Equities Rule 8.700

July 15, 2016.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 1, 2016, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 amend NYSE Arca Equities Rule 8.700 to 
permit the use of swaps on equity indices, fixed income indices, 
commodity indices, commodities or interest rates, and to list and trade 
shares of the Managed Emerging Markets Trust under proposed amended 
NYSE Arca Equities Rule 8.700. 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,

[[Page 47448]]

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
    NYSE Arca Equities Rule 8.700 permits the trading of Managed Trust 
Securities either by listing or pursuant to unlisted trading privileges 
(``UTP'').\4\ The Exchange proposes to amend NYSE Arca Equities Rule 
8.700 to permit the use of swaps on equity indices, fixed income 
indices, commodity indices, commodities or interest rates. In addition, 
the Exchange proposes to list and trade the shares (the ``Shares'') of 
the Managed Emerging Markets Trust (the ``Trust'') under proposed 
amended NYSE Arca Equities Rule 8.700.
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    \4\ Managed Trust Security means a security that is registered 
under the Securities Act of 1933 (15 U.S.C. 77a), as amended (the 
``Securities Act''), is issued by a trust that (1) is a commodity 
pool as defined in the Commodity Exchange Act (7 U.S.C. 1) (the 
``CEA''), and that is managed by a commodity pool operator 
registered with the Commodity Futures Trading Commission (the 
``CFTC''), and (2) holds long and/or short positions in exchange-
traded futures contracts and/or certain currency forward contracts 
selected by the trust's advisor consistent with the trust's 
investment objectives, which will only include, exchange-traded 
futures contracts involving commodities, currencies, stock indices, 
fixed income indices, interest rates and sovereign, private and 
mortgage or asset backed debt instruments, and/or forward contracts 
on specified currencies, each as disclosed in the trust's 
prospectus; and (ii) [sic] is issued and redeemed continuously in 
specified aggregate amounts at the next applicable net asset value. 
See NYSE Arca Equities Rule 8.700(c)(1).
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Proposed Amendments to NYSE Arca Equities Rule 8.700
    The Exchange proposes to amend NYSE Arca Equities Rule 8.700(c)(1) 
to permit the use of swaps on equity indices, fixed income indices, 
commodity indices, commodities or interest rates. Permitting the use of 
such swaps would provide additional flexibility to an issuer of Managed 
Trust Securities seeking to achieve a trust's investment objective. For 
example, because the markets for certain futures contracts may be 
unavailable or cost prohibitive as compared to derivative instruments, 
suitable derivative transactions may be an efficient alternative for an 
issuer of Managed Trust Securities to obtain the desired asset 
exposure. Additionally, swaps would allow parties to replicate desired 
returns while eliminating the costs associated with acquiring or 
holding the underlying asset. As such, the increased flexibility 
afforded by the ability of an issuer of Managed Trust Securities to use 
derivatives may enhance investor returns by facilitating the ability to 
more economically seek its investment objective, thereby reducing the 
costs incurred by such issuer.
    The Exchange notes that swaps are currently permitted investments 
for issues of Trust Issued Receipts under Commentary .02 to NYSE Arca 
Equities Rule 8.200. In addition, the Commission has previously 
permitted investments in swaps for issues of Managed Fund Shares under 
NYSE Arca Equities Rule 8.600.\5\
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    \5\ See, e.g., Securities Exchange Act Release No. 71938 (April 
14, 2014), 79 FR 21981 (April 18, 2014) (SR-NYSEArca-2013-144) 
(order approving proposed rule change permit listing and trading of 
shares of the ETSpreads HY Long Credit Fund, the ETSpreads HY Short 
Credit Fund, the ETSpreads IG Long Credit Fund, and the ETSpreads IG 
Short Credit Fund under NYSE Arca Equities Rule 8.600).
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Managed Emerging Markets Trust
    The Trust is a Delaware statutory trust that will issue Shares 
representing fractional undivided beneficial interests in the Trust.\6\ 
According to the Registration Statement, the Trust will not be an 
investment company registered under the Investment Company Act of 1940 
(15 U.S.C. 80a-1), as amended (the ``1940 Act''), and will not be 
required to register under the 1940 Act.
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    \6\ See Pre-Effective Amendment No. 5, dated [sic] See Pre-
Effective Amendment No. 5, dated August 18, 2015, to the Trust's 
Registration Statement on Form S-1 (File No. 333-182772) (the 
``Registration Statement'') under the Securities Act. The 
descriptions of the Trust and the Shares contained herein are based, 
in part, on the Registration Statement.
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    The Trust is a commodity pool as defined in the CEA and the 
regulations of the CFTC. The Trust will be operated by Artivest 
Advisors LLC, a Delaware limited liability company (the ``Sponsor''), 
that is also the Trust's adviser (the ``Adviser'') and will be 
registered under the CEA as a commodity pool operator. The sole member 
of the Sponsor is Artivest Holdings, Inc., a Delaware corporation. The 
Adviser is the commodity trading advisor of the Trust and will at all 
times be either registered as a commodity trading advisor or properly 
exempt from such registration under the CEA. The Adviser is not a 
broker-dealer and is not affiliated with a broker-dealer. In the event 
(a) the Adviser or any sub-adviser becomes registered as a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new adviser 
or sub-adviser becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to such broker-dealer regarding 
access to information concerning the composition and/or changes to the 
Trust's portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.\7\
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    \7\ The activities of the Trust will be limited to (1) issuing 
Baskets (as described below) in exchange for cash, (2) paying out of 
Trust assets any Trust expenses and liabilities not assumed by the 
Sponsor, (3) delivering proceeds consisting of cash in exchange for 
Baskets surrendered for redemption, (4) depositing any required 
margin in the form of cash or other eligible assets with domestic 
futures commission merchants, foreign futures brokers or other 
financial intermediaries or dealers, and (5) investing its cash, at 
the direction of the Adviser, in a portfolio of futures contracts, 
forward contracts and swaps.
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    The Bank of New York Mellon, a New York banking corporation, is the 
trustee of the Trust (the ``Trustee''). Wilmington Trust, National 
Association, a national banking association, is the Delaware trustee of 
the Trust.
    The Bank of New York Mellon also is the administrator of the Trust 
(the ``Trust Administrator''), the custodian of the Trust (the 
``Custodian''), the processing agent of the Trust (the ``Processing 
Agent''), and the settlement agent of the Trust (the ``Settlement 
Agent''). The Trust has engaged Foreside Fund Services, LLC to act as a 
distributor on its behalf.
    The Exchange notes that the Commission has previously approved the 
listing and trading of another issue of Managed Trust Securities on the 
Exchange.\8\
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    \8\ See Securities Exchange Act Release No. 60064 (June 8, 
2009), 74 FR 28315 (June 15, 2009) (SR-NYSEArca-2009-30) (order 
approving the adoption of listing standards for Managed Trust 
Securities and the listing and trading of shares of the 
iShares[supreg] Diversified Alternatives Trust).
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Managed Emerging Markets Trust
    According to the Registration Statement, the Trust will pursue 
long-term total returns by seeking to provide both (1) a long-only 
exposure to one or more emerging markets equity indices (the ``index 
exposure'') and (2) ``alpha'' returns that are additive to, and are not 
correlated with, the index exposure (measured over rolling 5-year 
periods), while seeking to control overall downside risk and 
volatility. Total return refers to the combined income and capital 
appreciation generated by a portfolio.
    According to the Registration Statement, the assets of the Trust 
(the ``Portfolio'') will consist of positions in futures contracts on 
emerging market equity indices, foreign currency forward

[[Page 47449]]

contracts, swaps providing exposure to such futures contracts and 
forward contracts, and cash and other financial instruments which may 
be used, as needed, to secure the Trust's trading obligations with 
respect to those trading positions. The Adviser will pursue the Trust's 
investment objective by utilizing a discretionary portfolio 
construction approach that is designed to provide (i) the index 
exposure, and (ii) exposure to an ``alpha'' portfolio with returns 
likely to be independent of, and uncorrelated to, the index exposure.
    The Adviser will seek to provide the index exposure by holding long 
emerging markets equity index futures positions. The Adviser will seek 
to provide alpha exposure by actively trading and investing a portfolio 
primarily composed of futures contracts and forward contracts using its 
discretion to make investment choices based on fundamental analysis of 
various macroeconomic factors.
    The Trust may hold cash necessary to cover its ordinary and 
extraordinary expenses.
Alpha Strategy
    According to the Registration Statement, the alpha strategy will 
seek to provide returns that are independent of, and uncorrelated to, 
the index exposure, by trading and investing primarily in futures 
contracts and forward contracts relating to emerging markets. The 
Adviser will pursue a strategy based on fundamental analysis and will 
make investment decisions based on its view of the fundamental value of 
various financial instruments relative to market prices and 
expectations. In certain limited circumstances, the Trust may invest in 
exchange-traded swaps, swaps accepted for central clearing (``cleared 
swaps'') and swaps which are not accepted for central clearing 
(``uncleared swaps''), as described below. The Trust will only invest 
in cleared swaps if an investment in exchange-traded swaps is 
unavailable, and the Trust will only invest in uncleared swaps if an 
investment in cleared swaps is unavailable. No more than 20% of the 
Portfolio may be invested, on both an initial and an ongoing basis, in 
over-the-counter (``OTC'') swaps.
    To construct the alpha portfolio, the Adviser will apply both 
quantitative and qualitative analysis to market and economic data to 
generate investment ideas, to trade and invest on a discretionary 
basis, and to manage portfolio risk.
    The Adviser's investment process will reflect its belief that 
macroeconomic factors drive investment returns over the medium and long 
term. These macroeconomic factors include fundamental economic and 
fundamental market factors. Examples of fundamental economic factors 
include monetary and fiscal policy, growth conditions, inflation, and 
the quality and stability of governmental and civic institutions. 
Examples of fundamental market factors include matters such as 
valuation and pricing metrics, interest rates, momentum, liquidity, and 
ease of capital formation.
    The Adviser will form conclusions regarding future economic 
conditions and future financial instruments pricing based on its review 
and analysis of macroeconomic factors. The Adviser's investment process 
will be driven by its understanding of the underlying relationships 
between asset class pricing and macroeconomic forces. The Adviser will 
evaluate markets based on both the current state of various 
macroeconomic factors (i.e., current conditions) as well as anticipated 
changes to those conditions, and will seek to understand what 
expectations regarding those changes are embedded in current market 
pricing. From time to time, the Adviser will form thematic, 
macroeconomic-based ``alpha views'' regarding its desired exposures to 
investment themes.
    The Adviser will utilize both quantitative and qualitative analysis 
in its investment process. With respect to quantitative analysis, the 
Adviser will apply a range of mathematical and statistical techniques 
to historical and real-time market and economic data that relates to 
the various macroeconomic factors, as part of an ongoing research 
process. The Adviser will analyze this historical data in an effort to 
identify how changes to current conditions and expectations about 
future conditions will affect the prices of various financial 
instruments. The quantitative analysis used by the Adviser will 
particularly focus on the volatility and correlation characteristics of 
financial instruments, as the Adviser will seek to build a diversified 
portfolio in the alpha strategy. The Adviser will seek to develop 
predictive models based on its quantitative analysis to generate and 
evaluate investment ideas. However, the Trust will trade purely on a 
discretionary basis and the Adviser will engage in a qualitative 
analysis of any investment ideas generated utilizing quantitative 
analysis.
    The Adviser also will utilize qualitative analysis which relies on 
the investment experience and views of its principals, as well as 
internally-developed frameworks for evaluating and generating 
investment ideas. The Adviser's qualitative analysis will focus on 
research relating to the subjective conditions of macroeconomic factors 
in emerging markets, the perception and expectations of market 
participants, and the risk characteristics of investment ideas.
Emerging Markets
    According to the Registration Statement, emerging markets are 
generally considered to be nations with social or business activity in 
the process of rapid growth and industrialization, typically 
characterized by increasingly liquid and broad capital markets, 
strengthening civil institutions, improving governance, strengthening 
infrastructure and increasing quality of life for citizens. Emerging 
markets are also often marked by increasingly educated and competitive 
labor forces and rapid growth in industrialization, combined with 
relatively lower consumption per capita than in more developed 
economies. These countries are often engaged in a transition from an 
underdeveloped economy into a well-capitalized, developed economy 
similar to those of the advanced industrialized countries like the 
United States, Japan or much of Western Europe.
    The Adviser will look at a variety of factors to determine whether 
a country is an ``emerging market.'' Currently, the Adviser views 
countries as ``emerging markets'' if they are considered to be 
developing, emerging or frontier by sources such as MSCI, the 
International Monetary Fund, the World Bank, the International Finance 
Corporation, the United Nations, The Economist magazine, Standard & 
Poor's and Dow Jones, or if they are countries with a stock market 
capitalization of less than 5% of the MSCI World Index.
    Emerging market countries typically are located in the following 
regions: Asia-Pacific; Eastern Europe; the Middle East; Central and 
South America; and Africa.
    Within these regions, the Trust will likely invest in financial 
instruments relating to countries such as: Argentina, Brazil, Chile, 
China, Colombia, Czech Republic, Egypt, Greece, Hong Kong, Hungary, 
India, Indonesia, Israel, Jordan, Kenya, Lebanon, Malaysia, Mexico, 
Morocco, Nigeria, Peru, Philippines, Poland, Qatar, Russia, Singapore, 
South Africa, South Korea, Taiwan, Thailand, Turkey, United Arab 
Emirates, Ukraine and Vietnam.
    This list will change from time to time based on market 
developments. The percentage of Trust assets invested in a specific 
region or country will change from time to time. The Trust will not be 
subject to any limitations on the

[[Page 47450]]

percentage of its assets that may be exposed to a single region or 
country.
Portfolio Construction
    According to the Registration Statement, to construct the 
Portfolio, the Adviser expects to devote a portion of the Trust 
proceeds to establishing the emerging markets index exposure (generally 
expected to be maintained at a level equal to 100% of the Trust's net 
assets) and substantially all of the remainder to seek the alpha 
exposure (generally not to exceed a level equal to 300% of the Trust's 
net assets). The portion of Trust assets required to maintain these 
exposures will fluctuate from time to time, in particular as the margin 
requirements to maintain the Trust's futures contract positions 
fluctuate.
    According to the Registration Statement, futures contracts and 
forward contracts have an inherent degree of leverage due to the 
relatively small amounts of capital required to be deposited as margin 
for such financial instrument positions (generally 2% to 5% of the 
value of the contract). The Trust may at times trade with a significant 
degree of leverage, and the Trust's use of leverage can be expected to 
vary from time to time. The Adviser will seek to limit the notional 
exposure of the overall Portfolio to no more than 400% of the Trust's 
net assets. Notwithstanding the foregoing limitation on the Trust's use 
of leverage, the Adviser will seek to mitigate leveraging risk if the 
notional exposure of the overall Portfolio is approaching the leverage 
limitation.
    In addition, the Trust will include appropriate risk disclosure in 
its offering documents, including leveraging risk. Leveraging risk is 
the risk that certain transactions of the Trust, including the Trust's 
use of derivatives, may give rise to leverage, causing the Trust to be 
more volatile than if it had not been leveraged. Because the markets 
for certain securities, or the securities themselves, may be 
unavailable or cost prohibitive as compared to derivative instruments, 
suitable derivative transactions may be an efficient alternative for 
the Trust to obtain the desired asset exposure. To mitigate leveraging 
risk, the Adviser will segregate or ``earmark'' liquid assets or 
otherwise cover the transactions that may give rise to such risk.
Index Exposure Portfolio Construction
    According to the Registration Statement, the Trust will seek to 
maintain constant exposure to one or more emerging markets equity 
indices by holding long positions in emerging markets index futures 
contracts.\9\ Generally, the Adviser will seek to maintain an emerging 
markets index exposure to equal 100% of the Trust's net assets, 
although this may vary from time to time depending on market 
conditions. The Adviser expects the volatility for the Trust's index 
portfolio to track the volatility of major emerging markets indices 
(based on historical volatility, 20% to 25%).
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    \9\ An index futures contract is a bilateral agreement pursuant 
to which two parties agree to take or make delivery of an amount of 
cash equal to a specified dollar amount multiplied by the difference 
between the index value at the close of trading of the contract and 
the price at which the futures contract is originally struck. No 
physical delivery of the securities comprising the index will be 
made; rather, the contract will be settled in cash at the 
termination of the contract. The settlement will be equal to the 
difference between the contract price and the actual level of the 
stock index at the expiration of the contract. The Trust expects to 
settle contracts prior to their expiration date.
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    The MSCI Emerging Markets Index is the initial emerging market 
equity index that the Trust will invest in (by holding long MSCI 
Emerging Markets Index futures contracts as the index itself is not 
investable) to achieve its index exposure. The Adviser may in the 
future invest in additional or different emerging markets index futures 
contracts.
    The MSCI Emerging Markets Index is intended to measure equity 
market performance in the global emerging markets. The MSCI Emerging 
Markets Index is a free float-adjusted market capitalization index with 
a base date of December 31, 1987 and an initial value of 100. The MSCI 
Emerging Markets Index is calculated daily in U.S. dollars and 
published in real time every 60 seconds during market trading hours. 
The MSCI Emerging Markets Index spans large, mid and small cap 
securities and currently consists of the following 21 emerging market 
country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, 
Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, 
Philippines, Poland, Russia, South Africa, South Korea, Taiwan, 
Thailand, and Turkey. As of July 31, 2015, the five largest country 
weights were China (23.93), South Korea (14.18%), Taiwan (12.48%), 
India (8.37%), and South Africa (8.00%), and the five largest sector 
weights were Financials (29.49%), Information Technology (17.49%), 
Consumer Discretionary (9.03%), Consumer Staples (8.54%), and Energy 
(8.09%). The MSCI Emerging Markets Index is part of the MSCI Regional 
Equity Indices series and is an MSCI Global Investable Market Index, 
which is a family within the MSCI International Equity Indices.
    ICE Futures U.S. has been licensed to create futures contracts on 
the MSCI Emerging Markets Index, and the Adviser expects to obtain its 
emerging markets index exposure by holding long positions in these 
futures contracts.\10\
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    \10\ ICE Futures U.S. is a member of the Intermarket 
Surveillance Group (``ISG'').
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    Because the Trust's index exposure will be provided by futures 
contracts which have dated expirations, the Trust will need to 
periodically rebalance or ``roll'' its exposures by selling near-dated 
futures contracts and buying longer-dated futures contracts to replace 
them. The Adviser will rebalance the Trust's exposures on a 
discretionary, rather than systematic basis, and will seek to roll its 
index futures positions in a way that minimizes the Trust's transaction 
costs. The Adviser also will seek to avoid rolling futures contracts 
extremely close to expiry, and generally will refrain from holding 
contracts through to expiration and settlement, as described in more 
detail under ``Rebalancing'' below.
Alpha Portfolio Construction
    According to the Registration Statement, the Adviser will construct 
a portfolio of instruments for the Trust to hold by determining the 
optimal way to express its alpha views in light of pragmatic 
considerations associated with trading in financial instruments. The 
Adviser will assess trading and investment risks in selecting both 
which alpha views to express and in constructing an optimal portfolio 
accordingly. The Adviser will seek to minimize both transaction costs 
and exogenous trading risks such as liquidity or counterparty risks 
while maximizing the clarity of expression of the Adviser's alpha 
views. Some of the criteria included in this analysis for each 
instrument or market will be: Liquidity or trading volume, margin 
requirements, commission rates, bid-ask spreads and futures contracts 
curve shape.
    With respect to the alpha portfolio, the Adviser will take 
directional positions where it believes prices will move favorably over 
the medium- to long-term (i.e., over the next three months or more) as 
a result of the anticipated gap between its perceptions and the market. 
Because the alpha portfolio will seek to capture price movements 
resulting from certain changes in markets resulting from changing 
expectations about certain market fundamentals, the alpha strategy will 
be directional and an investment in Shares should not be considered 
market-neutral. The Adviser does not

[[Page 47451]]

expect, however, that the alpha portfolio will over time favor any 
particular market with either a long bias or a short bias.
    The alpha portfolio primarily will be composed of futures contracts 
on emerging market equity indices and foreign currency forward 
contracts, as described in more detail below. The Trust may invest in 
futures contracts and forward contracts of varying duration, from 
shorter-term contracts of one to three months to longer-term contracts 
of up to three years or more. The Trust will not use any particular 
index or benchmark to construct the alpha portfolio. Except as 
otherwise described herein, there will be no limitations on the 
commodity interests that the Trust may trade to seek its alpha 
exposure.
    According to the Registration Statement, the Adviser anticipates 
that as the Trust grows larger, it may also, in certain limited 
circumstances, invest in exchange-traded swaps, cleared swaps and 
uncleared swaps. These limited circumstances include the following:
     When futures contracts are not available or market 
conditions do not permit investing in futures contracts (for example, a 
particular futures contract may not exist or may trade only on an 
exchange that has not yet been approved by the Trust); and
     When there are position limits, price limits or 
accountability limits on futures contracts.
    Therefore, swaps would only be used by the Trust as a substitute 
for futures contracts in the limited circumstances described above when 
the Adviser has determined that it is necessary to use swaps in order 
for the Trust to remain consistent with the Trust's investment 
objective. Further, the Adviser expects that the Trust's use of swaps, 
if any, will be of a de minimis nature.
    To the extent that the Trust invests in swaps, it would first make 
use of exchange-traded swaps if such swaps are available with respect 
to futures contracts on emerging market equity indices or foreign 
currency forward contracts. If an investment in exchange-traded swaps 
is unavailable, then the Trust would invest in cleared swaps that clear 
through derivatives clearing organizations that satisfy the Trust's 
criteria if such swaps are available with respect to futures on 
emerging market equity indices or foreign currency forward contracts. 
If an investment in cleared swaps is unavailable, then the Trust would 
invest in other swaps, including uncleared swaps in the OTC market.\11\ 
However, no more than 20% of the Portfolio may be invested, on both an 
initial and an ongoing basis, in OTC swaps.
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    \11\ According to the Registration Statement, swap transactions 
generally involve contracts between two parties to exchange a stream 
of payments computed by reference to a notional amount and the price 
of the asset that is the subject of the swap. Swap contracts are 
principally traded off-exchange, although certain swap contracts are 
also being traded in electronic trading facilities and cleared 
through clearing organizations. Swaps are usually entered into on a 
net basis, that is, the two payment streams are netted out in a cash 
settlement on the payment date or dates specified in the agreement, 
with the parties receiving or paying, as the case may be, only the 
net amount of the two payments. Swaps do not generally involve the 
delivery of underlying assets or principal. Accordingly, the risk of 
loss with respect to swaps is generally limited to the net amount of 
payments that the party is contractually obligated to make. In some 
swap transactions one or both parties may require collateral 
deposits from the counterparty to support that counterparty's 
obligation under the swap agreement. If the counterparty to such a 
swap defaults, the risk of loss consists of the net amount of 
payments that the party is contractually entitled to receive less 
any collateral deposits it is holding. Some swap transactions are 
cleared through central counterparties. These transactions, known as 
cleared swaps, involve two counterparties first agreeing to the 
terms of a swap transaction, then submitting the transaction to a 
clearing house that acts as the central counterparty. Once accepted 
by the clearing house, the original swap transaction is novated and 
the central counterparty becomes the counterparty to a trade with 
each of the original parties based upon the trade terms determined 
in the original transaction. In this manner each individual swap 
counterparty reduces its risk of loss due to counterparty 
nonperformance because the clearing house acts as the counterparty 
to each transaction.
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    The Adviser generally will seek to maintain an annualized 
volatility ranging from 15% to 20% for the Trust's alpha portfolio.
Alpha Futures Contracts
    According to the Registration Statement, the Adviser expects that 
75% to 90% of the Portfolio's alpha exposure will be obtained via 
futures contracts, which can vary from time to time in the sole 
discretion of the Adviser. The Trust expects to take long or short 
positions in a wide variety of commodity futures contracts and 
financial futures contracts, as discussed in more detail below. The 
Trust expects to trade in commodity futures contracts, including 
metals, agriculturals, energies, and softs. The Trust expects to trade 
in a wide variety of financial futures contracts, including interest 
rates, currencies and currency indices, U.S. and non-U.S. equity 
indices and government bond futures contracts. With respect to futures 
contracts on emerging market equity indices, the alpha portfolio may be 
exposed to stock index futures contracts and other indices composed of 
corporate equities issued in local markets.
    If the Trust purchases or sells a listed commodity or currency 
futures contract, it will agree to purchase or sell, respectively, the 
specified commodity or currency at a specified future date. The price 
at which the purchase and sale takes place will be fixed when the Trust 
enters the contract. Margin deposits will be posted as performance 
bonds with the Trust's clearing broker and then ultimately with the 
exchange clearing corporation who ultimately serves as the counterparty 
for the listed contract (thus limiting counterparty credit risk to the 
exchange itself).
Alpha Forward Contracts
    The Trust may enter into forward contracts, which will be limited 
solely to foreign currency forward contracts,\12\ which the Adviser 
expects may comprise 10% to 25% of the Portfolio's alpha exposure 
(although this will fluctuate from time to time in the discretion of 
the Adviser). In particular, the Trust may trade foreign currency 
forward contracts (a) to gain exposure to currencies that are not 
easily or efficiently traded in futures contracts or (b) if the Adviser 
believes that a relevant forward has more favorable terms than an 
available futures contract, such as more favorable liquidity. The 
Adviser also does not currently expect to engage in any transactions 
that would be considered ``retail forex'' transactions for purposes of 
the CEA. The Trust will only enter into foreign currency forward 
contracts related to foreign currencies that have significant foreign 
exchange turnover and are included in the Bank for International 
Settlements Triennial Central Bank Survey, September 2013 (``BIS 
Survey''). Specifically, the Trust may enter into foreign currency 
forward contracts that provide exposure to such currencies, selected 
from the top 40 currencies (as measured by percentage share of average 
daily turnover for the applicable month and year) included in the BIS 
Survey.
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    \12\ A forward currency contract is a privately negotiated 
contract to purchase or sell a specific currency at a future date 
(usually less than one year) at a price set at the time of the 
contract. The Trust may enter into forward currency contracts to 
``lock in'' the exchange rate between the currency it will deliver 
and the currency it will receive for the duration of the contract. 
Forward currency contracts are traded over-the-counter and not on 
exchanges.
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    The Trust may enter into deliverable forward contracts, in which 
there is physical delivery of a specified amount of currency equivalent 
to the market value of the contract. Alternatively, the Trust may 
invest in non-deliverable forward contracts where there is no physical 
delivery of the currency at the maturity of the contract. Instead, one

[[Page 47452]]

party will agree to make periodic payments to its counterparty based on 
the change in market value or level of a specified currency. In return, 
the counterparty will make periodic payments to the first party based 
on the return of a different specified currency. Generally, these non-
deliverable forward contracts will be entered into on a net basis, 
whereby the Trust will receive or pay only the net amount of the two 
payments, representing the excess, if any, of the Trust's obligations 
over its entitlements with respect to each non-deliverable forward 
contract. These net amounts will be accrued on a daily basis and an 
amount of cash or highly liquid securities having an aggregate value at 
least equal to the accrued excess will be maintained in an account at 
the Trust's custodian. The risk of loss with respect to non-deliverable 
forward contracts generally will be limited to the net amount of 
payments that the Trust is contractually obligated to make or receive.
    The Trust's forward contracts will be collateralized to the extent 
required by the relevant counterparties. The counterparties to the 
Trust's forward contracts are expected to be brokers, dealers and other 
financial institutions. The Adviser will seek to diversify the Trust's 
counterparty exposure, but may from time to time have concentrated 
exposure to one or more counterparties. However, the Adviser represents 
that it will not concentrate risks with a single counterparty and will 
establish polices and procedures to manage counterparty concentration 
and monitor counterparty creditworthiness. The policies and procedures 
to monitor counterparty creditworthiness will consider the credit 
rating of the counterparty and any past experience with the 
counterpary.
Rebalancing
    According to the Registration Statement, the Adviser will rebalance 
the Portfolio on a discretionary basis, as described in more detail 
below.
Rebalancing of the Alpha Portfolio
    According to the Registration Statement, the Adviser will determine 
whether to maintain particular exposures, close out positions, or 
resize positions, in its discretion and in accordance with its 
investment strategy and analysis of market conditions. The Adviser will 
seek to make any such adjustments to the Portfolio in a manner that 
minimizes transaction costs and Portfolio exposure to variations in 
price that do not reflect the Adviser's intended investment exposure. 
To do so, the Adviser will analyze transaction costs, liquidity and 
margin concerns, and financial instrument pricing. The Adviser does not 
expect, under normal market conditions, to settle any futures 
contracts.
Rebalancing of the Index Portfolio
    According to the Registration Statement, with respect to the index 
exposure, the Adviser will seek to invest in longer-dated contracts to 
maintain constant exposure and minimize transaction costs. The Adviser 
will ``roll'' (i.e., regularly purchase and subsequently sell) its 
contract positions throughout the year. As a particular futures 
contract nears its expiration date (or earlier), the Adviser will roll 
the position into a new contract. The Adviser will actively manage the 
implementation of this roll process. As a result, the roll dates, terms 
and contract prices selected by the Adviser may vary based upon factors 
such as contract liquidity and duration, pricing and market risk. This 
active management of the roll process is intended to minimize the 
Trust's exposure to costs associated with market or trading 
inefficiencies.
Costs Associated With Rebalancing
    According to the Registration Statement, if futures contracts are 
trading at a lower or higher price than their expected spot price, and 
it is time for the Trust to roll its exposure by reinvesting the 
proceeds of a maturing contract in a new contract, the Trust may do so 
at higher or lower futures contracts prices, or it may determine not to 
reinvest such proceeds. When longer-dated contracts are priced lower 
than nearer-dated contracts and spot prices, the market is in 
``backwardation,'' and positive roll yield may be generated when higher 
priced nearer-dated contracts are sold to buy and hold lower priced 
longer-dated contracts. When the opposite is true and longer-dated 
contracts are priced higher than nearer-dated contracts and spot 
prices, the market is in ``contango,'' and negative roll yields may 
result from the sale of lower priced nearer-dated contracts to buy and 
hold higher priced longer-dated contracts. If the Trust invests at a 
higher price than the spot price, the Trust will bear the associated 
``roll cost'' or negative roll yield in addition to the brokerage 
transaction costs, such as commissions and clearing charges, to effect 
such roll transactions. To the extent that the Adviser determines to 
rebalance more frequently, the Portfolio will incur more substantial 
transaction charges and possible roll costs, depending on market 
conditions.
Risk Management
    The Adviser will determine the Trust's asset allocation which seeks 
to achieve a target excess return at a targeted risk level, as 
described in more detail below.
    The Adviser will have the discretion to adjust the index exposure 
above or below 100%, and may do so from time to time based on market 
conditions. The Adviser also may determine to allocate Portfolio assets 
to additional or different emerging market indices. The Adviser does 
not generally expect to hedge the index exposure.
    The Adviser will construct the alpha portfolio using a ``risk 
budget'' whereby the desired alpha views are framed as desired 
quantities of risk units. The portfolio construction process then will 
translate these desired risk unit quantities into specific financial 
instruments for the Trust to hold. The Portfolio will be assessed on at 
least a weekly basis to determine whether market movements have caused 
the Trust's actual risk exposures to drift from its desired risk 
exposures. If there is a sizeable drift that exceeds thresholds where 
it is efficient for the Adviser to rebalance the alpha portfolio 
(taking into account transaction costs and other trading frictions) 
then the Adviser will rebalance the alpha portfolio to move closer to 
the desired risk budget. However, if there is a drift that exceeds 
thresholds but it is not efficient for the Adviser to rebalance the 
alpha portfolio, then the Adviser may choose not to rebalance the alpha 
portfolio. Once purchased, instruments held by the Trust may from time 
to time be subject to stop-losses or other contingent trading orders in 
an attempt to hedge certain risks, including event or liquidity risks.
Description of the Shares and Principal Trust Investments
    According to the Registration Statement, and as noted above, in 
pursuit of the Trust's investment objective, the Trust will primarily 
trade and invest in futures on emerging market equity indices and 
foreign currency forward contracts. For more information regarding the 
types of futures contracts and forward contracts that the Trust will 
invest in, see ``Portfolio Construction'' above.
    The Trust expects to trade futures contracts on U.S. exchanges and 
non-U.S. exchanges. The U.S. exchanges on which the Trust may trade 
futures contracts include ICE Futures U.S. and other exchanges that are 
members of the ISG.\13\ In addition, the Trust may hold

[[Page 47453]]

futures traded on the Kansas City Board of Trade (``KBT''). The non-
U.S. exchanges on which the Trust may trade futures contracts include, 
but are not limited to, the following: The London Metal Exchange 
(``LME''), ASX Limited, Dubai Mercantile Exchange Limited, Euronext 
Amsterdam NV, and Osaka Securities Exchange Co., Ltd.\14\
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    \13\ See ``Surveillance,'' infra.
    \14\ The Exchange has entered into a comprehensive surveillance 
agreement with KBT and LME relating to applicable futures contracts. 
ASX Limited is regulated by the Australian Securities and 
Investments Commission, which is a member of ISG. Japan Exchange 
Regulation (``JPX-R''), an affiliate of the Osaka Securities 
Exchange that conducts self-regulatory functions on behalf of the 
Osaka Securities Exchange, is a member of the Intermarket 
Surveillance Group and information relating to transactions in 
futures contracts traded on the Osaka Securities Exchange is 
available through JPX-R. See ``Surveillance,'' infra.
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Other Trust Investments
    The Trust's Portfolio may contain cash which may be used, as 
needed, to secure the Trust's trading obligations with respect to its 
trading positions. Although the Trust's investment objective is not 
primarily to hold significant amounts of cash, cash may comprise a 
significant portion of the net asset value (``NAV'') of the Trust.
    In order to collateralize futures contracts and forward contracts, 
the Trust may invest in U.S. government debt instruments, which are 
U.S. Treasury bills, notes and bonds of varying maturities that are 
backed by the full faith and credit of the United States government, or 
other short-term securities (in each case that are eligible as margin 
deposits under the rules of the Exchange), which may include money 
market instruments (``Short-Term Securities''). Although the Trust's 
investment objective is not primarily to trade and invest in Short-Term 
Securities, Short-Term Securities may comprise a significant portion of 
the NAV of the Trust.\15\
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    \15\ ``NAV of the Trust'' means the total assets of the Trust 
including all cash and cash equivalents or other debt securities 
less total liabilities of the Trust, each determined on the basis of 
United States generally accepted accounting principles, consistently 
applied under the accrual method of accounting. In particular, NAV 
of the Trust includes any unrealized profit or loss on open forward 
contracts and futures contracts, and any other credit or debit 
accruing to the Trust but unpaid or not received by the Trust. ``NAV 
per Share'' means the Trust's NAV per Share.
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Issuance and Redemption of the Shares
    According to the Registration Statement, the Trust intends to issue 
and redeem Shares on a continuous basis only in one or more blocks of 
100,000 Shares (``Baskets''). Baskets will be issued and redeemed only 
in exchange for consideration in cash equal to the ``Basket Amount'' 
\16\ announced by the Trust on the first ``Business Day'' \17\after the 
purchase or redemption order is received by the Trust. Baskets may be 
created and redeemed only by ``Authorized Participants''. Only 
institutions that enter into an agreement with the Trust to become 
Authorized Participants may purchase or redeem Baskets.
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    \16\ ``Basket Amount'' means, as of any date, an amount equal to 
the product of the NAV per Share on such date and the number of 
Shares constituting a Basket on such date.
    \17\ ``Business Day'' means any day other than (a) a Saturday or 
Sunday; (b) a day on which the Exchange is closed for regular 
trading; (c) a day on which any of he [sic] Adviser, the Processing 
Agent, the Settlement Agent, the Trust Administrator, the Sponsor or 
the Trustee is authorized or required by law or regulation to remain 
closed; or (d) a day on which the Federal Reserve wire transfer 
system is closed for cash wire transfers.
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Creation of Baskets
    On any ``Eligible Business Day'',\18\ an Authorized Participant may 
place a purchase order with the Processing Agent to create one or more 
Baskets. Purchase orders must be placed by 1:15 p.m. (E.T.) or the 
close of regular trading on the New York Stock Exchange, whichever is 
earlier (``Purchase Order Cutoff Time''). Purchase orders received 
after the Purchase Order Cutoff Time on an Eligible Business Day, or on 
a day that is not an Eligible Business Day will be treated as received 
on the next following Eligible Business Day. The day on which the 
Processing Agent receives a valid purchase order is referred to as the 
purchase order date. By placing a purchase order, an Authorized 
Participant agrees to deposit cash with the Trust, as described below.
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    \18\ ``Eligible Business Day'' means any Business Day other than 
a Business Day which immediately precedes two or more days on which 
there is no scheduled exchange trading session for one or more of 
the futures contracts purchased or sold, or that may be purchased or 
sold, by the Trust on such day.
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Determination of the Creation Deposit Amount
    The total deposit required to create each Basket (``Creation 
Deposit Amount'') will be the amount of cash that is in the same 
proportion to the NAV of the Trust (net of estimated accrued but unpaid 
fees, expenses and other liabilities) on the purchase order date as the 
number of Shares to be created under the purchase order is in 
proportion to the total number of Shares outstanding on the purchase 
order date.
Delivery of the Creation Deposit Amount
    An Authorized Participant who places a purchase order will be 
responsible for transferring to the Settlement Agent the required 
amount of cash by 6:00 p.m. (E.T.) on the next Business Day following 
the purchase order date or by the end of such later Business Day, not 
to exceed three Business Days after the purchase order date, as agreed 
to between the Authorized Participant and the Settlement Agent when the 
purchase order is placed (the ``Purchase Settlement Date''), and give 
notice of such deposit to the Settlement Agent via facsimile or 
electronic mail message. Upon receipt of the Creation Deposit Amount, 
the Settlement Agent will direct the Depository Trust Company ('' 
DTC'') to credit the number of Baskets ordered to the Authorized 
Participant's DTC account on the Purchase Settlement Date. If the 
Settlement Agent does not receive the Creation Deposit Amount on a 
timely basis, the purchase order will be automatically cancelled.
Rejection of Purchase Orders
    The Sponsor will have the absolute right to reject any purchase 
order, including, without limitation, (1) purchase orders that the 
Processing Agent determines are not in proper form, (2) purchase orders 
that the Sponsor determines would have adverse tax or other 
consequences to the Trust, (3) purchase orders the acceptance of which 
would, in the opinion of counsel to the Sponsor, result in a violation 
of law, (4) purchase orders in respect of which the Settlement Agent 
has not received the corresponding Creation Deposit Amount by 6:00 p.m. 
(E.T.) on the Purchase Settlement Date, or (5) during any period in 
which circumstances make transactions in, or settlement or delivery of, 
Shares or components of the Portfolio impossible or impractical. The 
Sponsor may suspend the creation of Baskets, or postpone the issuance 
date, for as long as it considers necessary for any reason. None of the 
Sponsor, the Processing Agent, the Settlement Agent or the Trustee, the 
Trust or any of their agents are liable to any person for such 
suspension or postponement.
Redemption of Baskets
    The procedures by which an Authorized Participant can redeem one or 
more Baskets mirror the procedures for the creation of Baskets. On any 
Eligible Business Day, an Authorized Participant may place an order 
with the Processing Agent to redeem one or more Baskets. Redemption 
orders must be placed by 1:15 p.m. (E.T.) or the close of regular 
trading on the New York Stock Exchange, whichever is earlier 
(``Redemption Order Cutoff Time''). Redemption orders received after 
the Redemption Order Cutoff Time on an

[[Page 47454]]

Eligible Business Day, or on a day that is not an Eligible Business Day 
will be treated as received on the next following Eligible Business 
Day. A redemption order so received will be effective on the date it is 
received in satisfactory form by the Processing Agent. The day on which 
the Processing Agent receives a valid redemption order is referred to 
as the redemption order date.
Determination of the Redemption Deposit Amount
    The Redemption Deposit Amount from the Trust will consist of a 
transfer to the redeeming Authorized Participant of an amount of cash 
that is in the same proportion to the NAV of the Trust (net of 
estimated accrued but unpaid fees, expenses and other liabilities) on 
the redemption order date as the number of Shares to be redeemed under 
the redemption order is in proportion to the total number of Shares 
outstanding on the redemption order date.
Delivery of the Redemption Deposit Amount
    The redemption distribution due from the Trust will be delivered to 
the Authorized Participant on the Redemption Settlement Date if the 
Trust's DTC account has been credited with the Baskets to be redeemed. 
If the Trust's DTC account has not been credited with all of the 
Baskets to be redeemed by 6:00 p.m. (E.T.) of such date, the redemption 
distribution will be delivered to the extent of whole Baskets received.
Computation of the Trust's NAV
    According to the Registration Statement, on each Business Day, as 
soon as practicable after the close of regular trading of the Shares on 
the Exchange (normally 4:00 p.m. E.T.), the Sponsor will determine the 
NAV of the Trust, the NAV per Share and the Basket Amount as of that 
date.
    On each day on which the Sponsor must determine the NAV of the 
Trust, the NAV per Share and the Basket Amount, the Trust Administrator 
will value all assets in the Portfolio and communicate that valuation 
to the Sponsor for use by the Sponsor in the determination of the 
Trust's NAV. The Sponsor will subtract the Trust's accrued fees (other 
than fees computed by reference to the value of the Trust or its 
assets), accrued expenses and other liabilities on that day from the 
value of the Trust's assets as of the time of calculation on that 
Business Day. The result is the Trust's ``Adjusted Net Asset Value.'' 
Fees computed by reference to the value of the Trust or its assets 
(including the Sponsor's Fee \19\) will be calculated on the Adjusted 
Net Asset Value. The Sponsor will subtract the fees so calculated from 
the Adjusted Net Asset Value of the Trust to determine the Trust's NAV.
---------------------------------------------------------------------------

    \19\ ``Sponsor's Fee'' means an allocation to be paid by the 
Trust to the Sponsor monthly in arrears and will accrue daily at an 
annualized rate equal to a certain percentage of the Adjusted Net 
Asset Value of the Trust.
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    The Sponsor will determine the NAV per Share by dividing the NAV of 
the Trust on a given day by the number of Shares outstanding at the 
time the calculation is made. The Sponsor will then determine the 
Basket Amount corresponding to that date by multiplying the NAV by the 
number of Shares in a Basket (i.e., 100,000). The NAV and NAV per Share 
for each Business Day will be distributed through major market data 
vendors and published online at www.artivestfunds.com, or any successor 
thereto. The Sponsor will update the NAV and NAV per Share as soon as 
practicable after each subsequent NAV per Share is calculated.
    The current market value of an open futures contract, whether 
traded on a U.S. exchange or a non-U.S. exchange, will be determined by 
the Trust Administrator based upon the settlement price for such 
futures contract traded on the applicable exchange on the date with 
respect to which NAV is being determined; provided that if such futures 
contract could not be liquidated on such day, due to the operation of 
daily limits (if applicable) or other rules, procedures or actions of 
the exchange upon which that position is traded or otherwise, the 
settlement price on the most recent day on which the position could 
have been liquidated may be the basis for determining the market value 
of the position for that day.
    The current market value of all Short-Term Securities that have not 
yet matured will be determined by the Trust Administrator based upon 
the current market prices for such securities; provided that if current 
market prices are not available, then the current market value will be 
based on the amortized value for such securities.
    The current market value of all open forward contracts and swaps 
will be based upon the prices determined by the Trust Administrator 
utilizing data from an internationally recognized valuation service for 
those types of assets.
    The Sponsor may in its discretion (and, under extraordinary 
circumstances, will) value any asset of the Trust pursuant to other 
principles that it deems fair and equitable so long as those principles 
are consistent with industry standards and are in compliance with all 
applicable regulatory requirements. In this context, ``extraordinary 
circumstances'' includes, for example, periods during which a valuation 
price for a forward contract or a settlement price of a futures 
contract is not available due to 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 or due to a trading disruption in the futures 
markets or in forward contracts or swaps or a trading or other 
restriction imposed by an exchange on which the forward contract, 
futures contract or swap is traded.
Availability of Information Regarding the Shares
    According to the Registration Statement, the Adviser's Web site, 
which will be publicly accessible at no charge, will contain the 
following information: (a) The daily NAV of the Trust, the daily NAV 
per Share, the prior business day's NAV per Share and the reported 
daily closing price; (b) the daily composition of the Disclosed 
Portfolio, as defined in NYSE Arca Equities Rule 8.700(c)(2); \20\ (c) 
the midpoint of the bid-ask price in relation to the NAV per Share as 
of the time the NAV per Share is calculated (the ``Bid-Ask Price''); 
(d) the calculation of the premium or discount of such price against 
such NAV per Share; (e) the bid-ask price of Shares determined using 
the highest bid and lowest offer as of the time of calculation of the 
NAV; (f) data in chart form displaying the frequency distribution of 
discounts and premiums of the Bid-Ask Price against the NAV, within 
appropriate ranges for each of the four (4) previous calendar quarters; 
(g) the current prospectus of the Trust, included in the Registration 
Statement; and (h) other applicable quantitative information.
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    \20\ NYSE Arca Equities Rule 8.700(c)(2) provides that the term 
``Disclosed Portfolio'' means ``the identities and quantities of the 
securities and other assets held by the Trust that will form the 
basis for the Trust's calculation of net asset value at the end of 
the business day''.
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    On a daily basis, the Trust will disclose on its Web site 
(www.artivestfunds.com) for each futures contract, forward contract, 
swap or other financial instrument in the Disclosed Portfolio the 
following information: name, ticker symbol (if applicable), number of 
shares or dollar value, percentage weighting, the

[[Page 47455]]

underlying assets (if applicable), and the expiration date (if 
applicable). The Web site information will be publicly available at no 
charge. In addition, price information for the futures contracts, 
forward contracts, swaps and other financial instruments held by the 
Trust will be available through major market data vendors and/or the 
exchange on which they are listed and traded, as applicable.
    As noted above, the Trust's NAV and the NAV per Share will be 
calculated and disseminated daily.\21\ The Exchange will disseminate 
for the Trust on a daily basis by means of the Consolidated Tape 
Association (the ``CTA'') high-speed line information with respect to 
the recent NAV per Share, the number of Shares outstanding and the 
Basket Amount. The Exchange also will make available on its Web site 
daily trading volume, closing prices and the NAV per Share.
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    \21\ The Exchange will obtain a representation from the Trust 
that the NAV and the NAV per Share will be calculated daily and that 
the NAV, the NAV per Share and the composition of the Disclosed 
Portfolio will be made available to all market participants at the 
same time.
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    Pricing for futures contracts will be available from the relevant 
exchange on which such futures contracts trade and pricing for forward 
contracts and swaps will be available from major market data vendors. 
Price information for Short-Term Securities will be available from 
major market data vendors.
    The Intraday Indicative Value (the ``IIV'') will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Exchange's Core Trading Session (as defined under 
NYSE Arca Equities Rule 7.34).\22\
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    \22\ Currently, it is the Exchange's understanding that several 
major market data vendors widely disseminate IIVs taken from the CTA 
high-speed line or other data feeds.
---------------------------------------------------------------------------

    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. The 
previous day's closing price and trading volume information for the 
Shares will be published daily in the financial section of newspapers. 
Quotation and last sale information for the Shares will be available 
via the CTA high-speed line.
    The current trading price per Share will be published continuously 
as trades occur throughout each trading day through CTA, or through 
major market data vendors.
Criteria for Initial and Continued Listing
    The Trust will be subject to the criteria in NYSE Arca Equities 
Rule 8.700 for initial and continued listing of the Shares.
    The anticipated minimum number of Shares to be outstanding at the 
start of trading will be 100,000 Shares. The Exchange believes that 
this anticipated minimum number of Shares to be outstanding at the 
start of trading is sufficient to provide adequate market liquidity and 
to further the objectives of the Trust. The Exchange represents that, 
for the initial and continued listing of the Shares, the Trust must be 
in compliance with NYSE Arca Equities Rule 5.3 and Rule 10A-3 under the 
Exchange Act.\23\
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    \23\ 17 CFR 240.10A-3.
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Trading Rules
    Under NYSE Arca Equities Rule 8.700(b), Managed Trust Securities 
are included within the Exchange's definition of ``securities.'' 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. Commentary .02 to NYSE Arca 
Equities Rule 8.700 provides that transactions in Managed Trust 
Securities will occur during the trading hours specified in NYSE Arca 
Equities Rule 7.34. Therefore, in accordance with NYSE Arca Equities 
Rule 7.34, the Shares will trade on the NYSE Arca Marketplace from 4:00 
a.m. to 8:00 p.m. E.T. The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, the minimum price variation (``MPV'') for 
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.
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. Trading in the Shares will be halted if the 
circuit breaker parameters under NYSE Arca Equities Rule 7.12 are 
reached. Trading may also be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) The extent to which trading is not 
occurring in the underlying futures contracts, forward contracts or 
swaps, or (2) 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 8.700(e)(2)(D), which sets forth circumstances under which trading 
in the Shares may be halted.
    In addition, if the Exchange becomes aware that the NAV, the NAV 
per Share and/or the Disclosed Portfolio with respect to a series of 
Managed Trust Securities is not disseminated to all market participants 
at the same time, it will halt trading in such series until such time 
as the NAV, the NAV per Share and/or the Disclosed Portfolio is 
available to all market participants.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances administered by the Exchange, as 
well as cross-market surveillances administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\24\ 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 applicable federal securities laws.
---------------------------------------------------------------------------

    \24\ FINRA conducts cross-market surveillances on behalf of 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.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and certain 
futures contracts with other markets or other entities that are members 
of the ISG, and the Exchange or FINRA, on behalf of the Exchange, or 
both, [sic] may obtain trading information regarding trading in the 
Shares and certain futures contracts from such markets or entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and certain futures contracts from markets or other entities 
that are members of ISG or with which the

[[Page 47456]]

Exchange has in place a comprehensive surveillance sharing 
agreement.\25\
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    \25\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    Not more than 10% of the net assets of the Fund in the aggregate 
invested in futures contracts shall consist of futures 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.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    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 Trust has represented to the Exchange that it will advise the 
Exchange of any failure by the Trust to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Exchange Act, the Exchange will monitor for compliance 
with the continued listing requirements. If the Trust is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures under NYSE Arca Equities Rule 5.5(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders (as defined under NYSE Arca Equities Rule 1.1(n)) 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 in Baskets (and that Shares are not individually 
redeemable); (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; (3) the 
requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (4) how information regarding the IIV 
and the Disclosed Portfolio is disseminated; (5) the risks involved in 
trading the Shares during the opening and late trading sessions when an 
updated IIV will not be calculated or publicly disseminated; and (6) 
trading information. In addition, the Bulletin will reference that the 
Trust is subject to various fees and expenses described in the 
Registration Statement.
    The Bulletin also will reference the fact that there is no 
regulated source of last sale information regarding physical 
commodities and many of the asset classes that the Trust may hold and 
that the Commission has no jurisdiction over the trading of certain 
futures contracts.
    The Bulletin also will discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Exchange Act. The Bulletin also will disclose that the NAV and NAV per 
Share will be calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5) \26\ that an exchange have rules 
that are 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, in general, to protect investors and the public interest.
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    \26\ 15 U.S.C. 78f(b)(5).
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    In permitting the use of specified swaps, the proposed amendment to 
NYSE Arca Equities Rule 8.700 would provide additional flexibility to 
an issuer of Managed Trust Securities seeking to achieve a trust's 
investment objective. For example, because the markets for certain 
futures contracts may be unavailable or cost prohibitive as compared to 
derivative instruments, suitable derivative transactions may be an 
efficient alternative for an issuer of Managed Trust Securities to 
obtain the desired asset exposure. Additionally, swaps would allow 
parties to replicate desired returns while eliminating the costs 
associated with acquiring or holding the underlying asset. As such, the 
increased flexibility afforded by the ability of an issuer of Managed 
Trust Securities to use derivatives may enhance investor returns by 
facilitating the ability to more economically seek its investment 
objective, thereby reducing the costs incurred by such issuer.
    The use of swaps by the Trust is consistent with the protection of 
investors because swaps would only be used in certain limited 
circumstances. Swaps would only be used by the Trust when (1) futures 
contracts are not available or market conditions do not permit 
investing in futures contracts (for example, a particular futures 
contract may not exist or may trade only on an exchange that has not 
yet been approved by the issuer); or (2) there are position limits, 
price limits or accountability limits on futures contracts. In 
addition, an issuer of Managed Trust Securities would invest in 
exchange-traded swaps before investing in centrally cleared swaps and 
would invest in centrally cleared swaps before investing in uncleared 
swaps. The use of exchange-traded swaps and centrally cleared swaps 
before uncleared swaps would protect investors because exchange-traded 
swaps and centrally cleared swaps provide more transparency. More 
importantly, swaps are subject to a strict regulatory framework, 
including margin requirements (initial and variation) and record 
keeping requirements. No more than 20% of the Trust's Portfolio may be 
invested, on both an initial and an ongoing basis, in OTC swaps. 
Furthermore, the Trust is a regulated entity subject to registration 
requirements, ongoing compliance requirements and regulatory oversight 
by the CFTC and the National Futures Association (NFA).
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices because the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.700. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange may obtain information 
via the ISG from other exchanges that are members of the ISG or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement. The Trust will only enter into foreign currency 
forward contracts related to foreign currencies that have significant 
foreign exchange turnover and are included in the BIS Survey. 
Specifically, the Trust may enter into foreign currency forward 
contracts that provide exposure to such currencies, selected from the 
top 40 currencies (as measured by percentage share of average daily 
turnover for the applicable month and year) included in the BIS Survey. 
The NAV of the Trust, the NAV per Share and the Disclosed Portfolio 
will be disseminated to all market participants at the same time. The 
Trust will provide Web site disclosure of portfolio holdings daily. The 
IIV per Share (quoted in U.S. dollars) will be widely disseminated at

[[Page 47457]]

least every 15 seconds during the Exchange's Core Trading Session by 
major market data vendors. Pricing for futures contracts will be 
available from the relevant exchange on which such futures contracts 
trade and pricing for forward contracts and swaps will be available 
from major market data vendors. Quotation and last-sale information 
regarding the Shares will be disseminated through the CTA high-speed 
line.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest 
given that a large amount of information will be publicly available 
regarding the Trust and the Shares, thereby promoting market 
transparency. To the extent that the Trust invests in futures contracts 
traded on foreign exchanges, not more than 10% of the weight of such 
futures contracts in the aggregate shall consist of futures contracts 
whose principal trading market is not a member of the ISG or is a 
market with which the Exchange does not have a comprehensive 
surveillance sharing agreement. As provided in NYSE Arca Equities Rule 
8.700(e)(2)(D), the Exchange may halt trading during the day in which 
an interruption to the dissemination of the IIV occurs, or the value of 
the underlying futures contracts occurs. If the interruption to the 
dissemination of the IIV or the value of the underlying futures 
contracts persists past the trading day in which it occurred, the 
Exchange will halt trading no later than the beginning of the trading 
day following the interruption. If the Exchange becomes aware that the 
NAV, the NAV per Share and/or the Disclosed Portfolio with respect to a 
series of Managed Trust Securities is not disseminated to all market 
participants at the same time, it will halt trading in such series 
until such time as the NAV, the NAV per Share and/or the Disclosed 
Portfolio is available to all market participants. Trading in Shares of 
the Trust will be halted if the circuit breaker parameters under 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. Moreover, prior to the commencement 
of trading, the Exchange will inform its ETP Holders in the Bulletin of 
the special characteristics and risks associated with trading the 
Shares.
    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 given that it will facilitate the listing and trading 
of an additional type of 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 the ISG from other exchanges that are members of the 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 IIV 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 Exchange Act. The Exchange notes 
that the proposed rule change will facilitate the listing and trading 
of an additional type of actively-managed exchange-traded product that 
will principally hold futures contracts, swaps and forward contracts, 
and that will enhance competition among market participants, to the 
benefit of investors and the marketplace.

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

    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-2016-96 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-2016-96. 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-2016-96 and should 
be submitted on or before August 11, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-17198 Filed 7-20-16; 8:45 am]
 BILLING CODE 8011-01-P


