
[Federal Register Volume 81, Number 215 (Monday, November 7, 2016)]
[Notices]
[Pages 78231-78233]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-26790]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-79211; File No. SR-NYSEArca-2016-100]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change, as Modified by Amendment No. 1, To List and Trade Shares 
of the Direxion Daily Municipal Bond Taxable Bear 1X Fund Under NYSE 
Arca Equities Rule 5.2(j)(3)

November 1, 2016.

I. Introduction

    On July 13, 2016, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to list and trade shares (``Shares'') of the Direxion Daily 
Municipal Bond Taxable Bear 1X Fund (``Fund''), a series of the 
Direxion Shares ETF Trust (``Trust''). The proposed rule change was 
published for comment in the Federal Register on August 3, 2016.\3\ On 
September 14, 2016, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ On September 15, 2016, the Exchange filed Amendment No. 1 to 
the proposed rule change.\6\ The Commission received no comments on the 
proposed rule change. This order institutes proceedings under Section 
19(b)(2)(B) of the Act \7\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1.
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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. 78433 (July 28, 
2016), 81 FR 51241.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 78840, 81 FR 64552 
(September 20, 2016). The Commission designated November 1, 2016, as 
the date by which the Commission shall either approve or disapprove, 
or institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ In Amendment No. 1, which replaced the original filing in 
its entirety, the Exchange: (1) Revised the description of the 
Fund's principal investments and (2) made other technical 
amendments. Amendment No. 1 is available at https://www.sec.gov/comments/sr-nysearca-2016-100/nysearca2016100-1.pdf.
    \7\ 15 U.S.C. 78s(b)(2)(B).
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II. The Exchange's Description of the Proposal

    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02, which governs the listing and 
trading of Investment Company Units based on fixed income securities 
indexes. The Fund is a series of the Trust.\8\ Rafferty Asset 
Management, LLC would be the investment adviser to the Fund. Foreside 
Fund Services, LLC will be the distributor of the Fund's Shares. The 
Bank of New York Mellon would serve as the accounting agent, custodian, 
and transfer agent for the Fund. U.S. Bancorp Fund Services, LLC will 
serve as the Fund's administrator.\9\
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    \8\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). According to the Exchange, on February 29, 
2016, the Trust filed a registration statement on Form N-1A under 
the Securities Act of 1933 and the 1940 Act (File Nos.: 811-22201 
and 333-150525).
    \9\ Additional information regarding the Trust, the Fund, and 
the Shares, including investment strategies, risks, creation and 
redemption procedures, fees, portfolio holdings, disclosure 
policies, calculation of the 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 6 and 
Registration Statement, supra note 8.
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    The Standard & Poor's National AMT-Free Municipal Bond Index 
(``Index'') would be the Fund's benchmark.\10\ The Index is a broad, 
comprehensive, market value-weighted index designed to measure the 
performance of the tax-exempt, investment-grade U.S. municipal bond 
market. The Fund would seek daily inverse investment results of the 
Index but would not seek to achieve its stated investment objective 
over a period of time greater than one day. Further, the Fund might 
gain inverse exposure to only a representative sample of the securities 
in the Index that have aggregate characteristics similar to those of 
the Index. The Fund would gain this inverse exposure by investing in a 
combination of Financial Instruments (defined below) that provide 
inverse exposure to the underlying securities of the Index. The Fund 
would not seek income that is exempt from federal, state, or local 
income taxes.
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    \10\ The S&P Dow Jones Indices is the ``Index Provider'' with 
respect to the Index. The Index Provider is not a broker-dealer or 
affiliated with a broker-dealer and has implemented procedures 
designed to prevent the use and dissemination of material, non-
public information regarding the Index.
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A. The Fund's Principal Investments

    The Fund would seek to track 100% of the inverse of the daily 
performance of the Index. Under normal circumstances, the Fund would 
create net short positions by investing at least 80% of the Fund's 
assets (plus any borrowings for investment purposes) in the following 
financial instruments (``Financial Instruments''): Options on exchange-
traded funds (``ETFs'') and indices, traded on U.S. exchanges (based on 
gross notional value); swaps that provide short exposure to the 
securities included in the Index and various ETFs (based on gross 
notional value); and short positions in ETFs, as described below in 
this section, that, in combination, provide inverse exposure to the 
Index.
    The Fund might invest in options that provide short exposure to the 
Index or various ETFs, including iShares National Muni Bond ETF, SPDR 
Nuveen Barclays Municipal Bond ETF, iShares Short-term National Muni 
Bond ETF, SPDR Nuveen Barclays Short-Term Municipal Bond ETF, Market 
Vectors High-Yield Municipal Index ETF, SPDR Nuveen S&P High Yield 
Municipal Bond ETF, Market Vectors AMT-Free Intermediate Municipal 
Index ETF, PowerShares National AMT-Free Municipal Bond Portfolio, 
Vanguard Tax-Exempt Bond ETF, and the PIMCO Intermediate Municipal Bond 
Active Exchange-Traded Fund.
    The Fund might invest in swaps that provide short exposure to the 
securities included in the Index and various ETFs, including iShares 
National Muni Bond ETF, SPDR Nuveen Barclays Municipal Bond ETF, 
iShares Short-Term National Muni Bond ETF, SPDR Nuveen Barclays Short-
Term Municipal Bond ETF, Market Vectors High-Yield Municipal Index ETF, 
SPDR Nuveen S&P High Yield Municipal Bond ETF, Market Vectors AMT-Free 
Intermediate Municipal Index ETF, PowerShares

[[Page 78232]]

National AMT-Free Municipal Bond Portfolio, Vanguard Tax-Exempt Bond 
ETF, and the PIMCO Intermediate Municipal Bond Active Exchange-Traded 
Fund.
    The Fund might take direct short positions in ETFs, such as the 
iShares National Muni Bond ETF, SPDR Nuveen Barclays Municipal Bond 
ETF, iShares Short-term National Muni Bond ETF, SPDR Nuveen Barclays 
Short-Term Municipal Bond ETF, Market Vectors High-Yield Municipal 
Index ETF, SPDR Nuveen S&P High Yield Municipal Bond ETF, Market 
Vectors AMT-Free Intermediate Municipal Index ETF, PowerShares National 
AMT-Free Municipal Bond Portfolio, Vanguard Tax-Exempt Bond ETF, and 
the PIMCO Intermediate Municipal Bond Active Exchange-Traded Fund.\11\ 
The Fund would not take long positions in ETFs or invest in options 
that overlie inverse, leveraged, or inverse leveraged ETFs.
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    \11\ For purposes of this filing, ETFs are 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) and also are securities listed on another national securities 
exchange pursuant to substantially equivalent listing rules. The 
Fund will not take short positions in inverse, leveraged, or inverse 
leveraged ETFs.
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B. The Fund's Non-Principal Investments

    According to the Exchange, under normal circumstances, at least 80% 
of the Fund's assets will be invested in Financial Instruments to 
establish net short positions, as described above, and the Fund's 
remaining assets might be invested in cash and the following cash 
equivalents (in addition to cash or cash equivalents used to 
collateralize the Fund's investments in Financial Instruments): Money 
market funds, depository accounts with institutions with high quality 
credit ratings, U.S. government securities that have terms-to-maturity 
of less than 397 days, and repurchase agreements that have terms-to-
maturity of less than 397 days.

III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2016-100 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \12\ to determine whether the proposed rule 
change, as modified by Amendment No. 1, should be approved or 
disapproved. Institution of such proceedings is appropriate at this 
time in view of the legal and policy issues raised by the proposed rule 
change. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to any of the 
issues involved. Rather, as stated below, the Commission seeks and 
encourages interested persons to provide comments on the proposed rule 
change.
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    \12\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\13\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade'' and ``to protect investors and the public 
interest.'' \14\ The Exchange has submitted the proposed rule change 
because the Shares do not meet all of the ``generic'' listing 
requirements of Commentary .02(a) to NYSE Arca Equities Rule 5.2(j)(3). 
Namely, Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3) 
provides that, for an index or portfolio that underlies a series of 
Investment Company Units, components that in the aggregate account for 
at least 75% of the weight of such index or portfolio each shall have a 
minimum original principal amount outstanding of $100 million or more. 
Although the Index that underlies the Shares does not satisfy this 
requirement, the Exchange states that the Index is nonetheless 
sufficiently broad-based to deter potential manipulation because: (1) 
It is composed of approximately 3,063 issues and 474 unique issuers; 
(2) a substantial portion (95.87%) of the Index weight is composed of 
maturities that are part of an entire municipal bond offering with a 
minimum original principal amount outstanding of $100 million or more; 
and (3) the total ($248 billion) and the average ($81 million) dollar 
amount outstanding of Index issues are ``substantial.'' \15\
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    \13\ Id.
    \14\ 15 U.S.C. 78f(b)(5).
    \15\ Namely, according to the Exchange, as of May 23, 2016, the 
total dollar amount outstanding of issues in the Index was 
approximately $248 billion and the average dollar amount outstanding 
of issues in the Index was approximately $81 million. Further, as of 
May 23, 2016, the most heavily weighted component represents 0.43% 
of the weight of the Index and the five most heavily weighted 
components represent 1.88% of the weight of the Index.
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    The Commission seeks comment on whether the Index characteristics 
the Exchange has identified, as noted above, provide sufficient basis 
for the Commission to determine that the Index, and thereby the Shares 
that overlie it, is not susceptible to manipulation. In this regard, 
the Commission notes that it recently approved a proposal to list and 
trade shares of an actively managed municipal bond ETF,\16\ where the 
listing exchange made a number of other representations regarding the 
type of municipal bonds that the fund would hold. For example, the 
exchange, in that instance, stated that the fund's investments in 
municipal securities would provide exposure to at least 15 different 
states, with no more than 30% of the value of the fund's net assets 
comprising municipal securities that provide exposure to any single 
state. Further, the exchange also noted that the fund would include 
securities from a minimum of 13 non-affiliated issuers.\17\ Although in 
this filing, the Fund would seek an inverse investment result of an 
index rather than actively manage a portfolio of municipal securities, 
the concerns regarding the susceptibility of the Index underlying the 
Shares to manipulation is similar to the concerns regarding the 
susceptibility of a portfolio to manipulation. Accordingly, the 
Commission seeks comment on whether the Exchange has demonstrated that 
its proposal is consistent with Section 6(b)(5) of the Act, and 
specifically whether the price of the Shares is susceptible to 
manipulation.
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    \16\ See Securities Exchange Act Release No. 78913 (Sep. 23, 
2016), 81 FR 69109 (Oct. 5, 2016) (SR-NASDAQ-2016-002).
    \17\ For purposes of this restriction, the exchange provided 
that ``non-affiliated issuers'' are issuers that are not 
``affiliated persons'' within the meaning of Section 2(a)(3) of the 
1940 Act. Additionally, each state and each separate political 
subdivision, agency, authority, or instrumentality of such state, 
each multi-state agency or authority, and each guarantor, if any, 
would be treated as separate issuers of municipal securities.
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any

[[Page 78233]]

request for an opportunity to make an oral presentation.\18\
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    \18\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Pub. L. 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by November 28, 2016. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
December 12, 2016. The Commission asks that commenters address the 
sufficiency of the Exchange's statements in support of the proposal, 
which are set forth in Amendment No. 1 to the proposed rule change, in 
addition to any other comments they may wish to submit about the 
proposed rule change.
    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-2016-100 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 Numbers SR-NYSEArca-2016-100. 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 these filings 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-2016-100 and should 
be submitted on or before November 28, 2016. Rebuttal comments should 
be submitted by December 12, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(57).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-26790 Filed 11-4-16; 8:45 am]
 BILLING CODE 8011-01-P


