[Federal Register Volume 82, Number 244 (Thursday, December 21, 2017)]
[Notices]
[Pages 60656-60663]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-27468]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82340; File No. SR-NYSEArca-2017-112]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 2 and Order Approving on an Accelerated Basis a 
Proposed Rule Change, as Modified by Amendment No. 2, To List and Trade 
Shares of the GraniteShares Palladium Trust Under NYSE Arca Rule 8.201-
E

December 15, 2017.

I. Introduction

    On September 12, 2017, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares of the 
GraniteShares Palladium Trust under NYSE Arca Rule 8.201-E. The 
proposed rule change was published for comment in the Federal Register 
on October 3, 2017.\3\ On October 24, 2017, the Exchange filed 
Amendment No. 1 to the proposed rule change, which superseded the 
proposed rule change as originally filed. On November 16, 2017, the 
Exchange filed Amendment No. 2 to the proposed rule change, which 
superseded the proposed rule change as modified by Amendment No. 1.\4\ 
The Commission has not received any comments on the proposed rule 
change. The Commission is publishing this notice to solicit comments on 
Amendment No.2 from interested persons, and is approving the proposed 
rule change, as modified by Amendment No. 2, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 81737 (Sept. 27, 
2017), 82 FR 46106.
    \4\ In Amendment No. 2, the Exchange: (1) Clarified the 
permitted investments of the Trust (as defined herein); (2) 
supplemented its description of the duties of the Trust Custodian 
(as defined herein); (3) provided information about palladium 
futures; (4) supplemented its description of the process of Share 
(as defined herein)redemptions; (5) supplemented its description of 
how the Trust's net asset value (``NAV'') will be calculated; (6) 
increased the minimum number of Shares that the Exchange will 
require to be outstanding at the commencement of trading; (7) 
expanded the circumstances in which the Exchange would or might halt 
trading in the Shares; (8) specified that the Shares would trade in 
all of the Exchange's trading sessions; (9) represented that 
palladium futures trade on significant exchanges, including the 
NYMEX (as defined herein), which is regulated by the CFTC (as 
defined herein) and is a member of ISG (as defined herein); and (10) 
made certain technical corrections. Amendment No. 2 is available at: 
https://www.sec.gov/comments/sr-nysearca-2017-112/nysearca2017112-2693354-161503.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment 
No. 2

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

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
GraniteShares Palladium Trust (the ``Trust''), under NYSE Arca Rule 
8.201-E.\5\ Under NYSE Arca Rule 8.201-E, the Exchange may propose to 
list and/or trade pursuant to unlisted trading privileges (``UTP'') 
Commodity-Based Trust Shares.\6\
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    \5\ On September 8, 2017, the Trust submitted to the Commission 
its draft registration statement on Form S-1 (the ``Registration 
Statement'') under the Securities Act of 1933 (15 U.S.C. 77a) 
(``Securities Act''). The Jumpstart Our Business Startups Act, 
enacted on April 5, 2012, added Section 6(e) to the Securities Act. 
Section 6(e) of the Securities Act provides that an ``emerging 
growth company'' may confidentially submit to the Commission a draft 
registration statement for confidential, non-public review by the 
Commission staff prior to public filing, provided that the initial 
confidential submission and all amendments thereto shall be publicly 
filed not later than 21 days before the date on which the issuer 
conducts a road show, as such term is defined in Securities Act Rule 
433(h)(4). An emerging growth company is defined in Section 2(a)(19) 
of the Securities Act as an issuer with less than $1,000,000,000 
total annual gross revenues during its most recently completed 
fiscal year. The Trust meets the definition of an emerging growth 
company and consequently has submitted its Form S-1 Registration 
Statement on a confidential basis with the Commission.
    \6\ Commodity-Based Trust Shares are securities issued by a 
trust that represents investors' discrete identifiable and undivided 
beneficial ownership interest in the commodities deposited into the 
Trust.
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    The Trust will not be registered as an investment company under the 
Investment Company Act of 1940, as amended,\7\ and is not required to 
register under such act. The Trust is not a commodity pool for purposes 
of the Commodity Exchange Act, as amended.\8\
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    \7\ 15 U.S.C. 80a-1.
    \8\ 17 U.S.C. 1.
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    The Sponsor of the Trust is GraniteShares LLC, a Delaware limited 
liability company. The Bank of New York Mellon is the trustee of the 
Trust (the ``Trustee'') \9\ and ICBC Standard Bank PLC is the custodian 
of the Trust (the ``Custodian'').\10\
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    \9\ The Trustee is responsible for the day-to-day administration 
of the Trust. The responsibilities of the Trustee include (1) 
processing orders for the creation and redemption of Baskets; (2) 
coordinating with the Custodian the receipt and delivery of 
palladium transferred to, or by, the Trust in connection with each 
issuance and redemption of Baskets; (3) calculating the net asset 
value of the Trust on each business day; and (4) selling the Trust's 
palladium as needed to cover the Trust's expenses. The Trust does 
not have a Board of Directors or persons acting in a similar 
capacity.
    \10\ The Custodian is responsible for safekeeping the palladium 
owned by the Trust. The Custodian is appointed by the Trustee and is 
responsible to the Trustee under the Trust's palladium custody 
agreements. The Custodian will facilitate the transfer of palladium 
in and out of the Trust through the unallocated palladium accounts 
it may maintain for each Authorized Participant or unallocated 
palladium accounts that may be maintained for an Authorized 
Participant by another palladium-clearing bank approved by the 
London Palladium and Palladium Market (``LPPM''), and through the 
loco London account maintained for the Trust by the Custodian on an 
unallocated basis pursuant to the Trust unallocated account 
agreement (the ``Trust Unallocated Account''). The Custodian is 
responsible for allocating specific bars of palladium to the loco 
London account maintained for the Trust by the Custodian on an 
allocated basis pursuant to the Trust agreement (the ``Trust 
Allocated Account''). The Custodian will provide the Trustee with 
regular reports detailing the palladium transfers in and out of the 
Trust Unallocated Account with the Custodian and identifying the 
palladium bars held in the Trust Allocated Account.
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    The Commission has previously approved listing on the Exchange 
under NYSE Arca Rule 8.201-E of other precious metals and palladium-
based commodity trusts, including the ETFS Platinum Trust,\11\ the ETFS 
Palladium

[[Page 60657]]

Trust,\12\ and the Sprott Physical Platinum and Palladium Trust.\13\
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    \11\ Securities Exchange Act Release No. 61219 (December 22, 
2009), 74 FR 68886 (December 29, 2009) (SR-NYSEArca-2009-95).
    \12\ Securities Exchange Act Release No. 61220 (December 22, 
2009), 74 FR 68895 (December 29, 2009) (SR-NYSEArca-2009-94).
    \13\ Securities Exchange Act Release No. 68430 (December 13, 
2012), 77 FR 75239 (December 13, 2012) [sic] (SR-NYSEArca-2012-111).
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    The Exchange represents that the Shares satisfy the requirements of 
NYSE Arca Rule 8.201-E and thereby qualify for listing on the 
Exchange.\14\
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    \14\ With respect to the application of Rule 10A-3 (17 CFR 
240.10A-3) under the Act, the Trust relies on the exemption 
contained in Rule 10A-3(c)(7).
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Operation of the Trust \15\
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    \15\ The description of the operation of the Trust, the Shares 
and the palladium market contained herein are based, in part, on the 
Registration Statement. See note 5, supra.
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    The investment objective of the Trust will be for the Shares to 
reflect the performance of the price of palladium, less the expenses 
and liabilities of the Trust. The Trust will issue Shares which 
represent units of fractional undivided beneficial interest in and 
ownership of the Trust.
    The Trust will not hold or trade in any instrument or asset on any 
futures exchange or over the counter (``OTC'') other than physical 
palladium bullion. The Trust will take delivery of physical palladium 
bullion that complies with the LPPM palladium delivery rules.
    The Shares are intended to constitute a simple and cost-effective 
means of making an investment similar to an investment in palladium. 
Although the Shares are not the exact equivalent of an investment in 
palladium, they provide investors with an alternative that allows a 
level of participation in the palladium market through the securities 
market.
Operation of the Palladium Market
    The global trade in palladium consists of OTC transactions in spot, 
forwards, and options and other derivatives, together with exchange-
traded futures and options. According to the Registration Statement, 
most trading in physical palladium is conducted on the OTC market, 
predominantly in Zurich and London. The LPPM coordinates various OTC 
market activities, including clearing and vaulting, acts as the 
principal intermediary between physical palladium market participants 
and the relevant regulators, promotes good trading practices and 
develops standard market documentation. In addition, the LPPM promotes 
refining standards for the palladium market by maintaining the 
``London/Zurich Good Delivery List,'' which are the lists of LPPM 
accredited melters and assayers of palladium.
    The most significant palladium futures exchanges are the New York 
Mercantile Exchange, Inc. (``NYMEX''), a subsidiary of the Chicago 
Mercantile Exchange Group (the ``CME Group''), and the Tokyo Commodity 
Exchange.\16\ U.S. futures exchanges are registered with the 
Commodities Futures Trading Commission (``CFTC'') and seek to provide a 
neutral, regulated marketplace for the trading of derivatives contracts 
for commodities, such as futures, options and certain swaps. The 
palladium contract market is of significant size and liquidity.
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    \16\ NYMEX is a member of the Intermarket Surveillance Group 
(``ISG'').
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    The basis for settlement and delivery of a spot trade is payment 
(generally in U.S. dollars) two business days after the trade date 
against delivery. Delivery of the palladium can either be by physical 
delivery or through the clearing systems to an unallocated account. The 
unit of trade in London and Zurich is the troy ounce, whose conversion 
between grams is: 1,000 grams is equivalent to 32.1507465 troy ounces, 
and one troy ounce is equivalent to 31.1034768 grams.
    A good delivery palladium plate or ingot is acceptable for delivery 
in settlement of a transaction on the OTC market (a ``Good Delivery 
Palladium Plate or Ingot''). A Good Delivery Palladium Plate or Ingot 
must contain between 32 and 192 troy ounces of palladium with a minimum 
fineness (or purity) of 999.5 parts per 1,000 (99.95%), be of good 
appearance, and be easy to handle and stack. A Good Delivery Palladium 
Plate or Ingot must also bear the stamp of one of the melters and 
assayers who are on the LPPM approved list. Unless otherwise specified, 
the palladium spot price always refers to the ``Good Delivery 
Standards'' set by the LPPM.
Creation and Redemption of Shares
    The Trust will create and redeem Shares on a continuous basis in 
one or more blocks of 15,000 Shares (a block of 15,000 Shares is called 
a ``Basket''). As described below, the Trust will issue Shares in 
Baskets to certain authorized participants (``Authorized 
Participants'') on an ongoing basis. Baskets of Shares will only be 
issued or redeemed in exchange for an amount of palladium represented 
by the aggregate number of Shares issued or redeemed. No Shares will be 
issued unless the Custodian has allocated to the Trust's account the 
corresponding amount of palladium. Initially, a Basket will require 
delivery of 1,500 ounces of palladium. The amount of palladium 
necessary for the creation of a Basket, or to be received upon 
redemption of a Basket, will decrease over the life of the Trust, due 
to the payment or accrual of fees and other expenses or liabilities 
payable by the Trust.
    Baskets may be created or redeemed only by Authorized Participants. 
Orders must be placed by 3:59 p.m. Eastern Time (``ET''). The day on 
which a Trust receives a valid purchase or redemption order is the 
order date.
    Each Authorized Participant must be a registered broker-dealer, a 
participant in Depository Trust Corporation (``DTC''), have entered 
into an agreement with the Trustee (the ``Authorized Participant 
Agreement'') and have established a palladium unallocated account with 
the Custodian or another LPPM-approved palladium clearing bank. The 
Authorized Participant Agreement provides the procedures for the 
creation and redemption of Baskets and for the delivery of palladium in 
connection with such creations or redemptions.
    According to the Registration Statement, Authorized Participants, 
acting on authority of the registered holder of Shares or on their own 
account, may surrender Baskets of Shares in exchange for the 
corresponding amount of palladium (measured in ounces) announced by the 
Trustee (the ``Basket Amount''). Upon surrender of such Shares and 
payment of the Trustee's applicable fee and of any expenses, taxes or 
charges (such as stamp taxes or stock transfer taxes or fees), the 
Trustee will deliver to the order of the redeeming Authorized 
Participant the amount of palladium corresponding to the redeemed 
Baskets. Shares can only be surrendered for redemption in Baskets of 
15,000 Shares each.
    Before surrendering Baskets of Shares for redemption, an Authorized 
Participant must deliver to the Trustee a written request indicating 
the number of Baskets it intends to redeem. The date the Trustee 
receives that order determines the Basket Amount to be received in 
exchange. However, orders received by the Trustee after 3:59 p.m. ET on 
a business day or on a business day when the London Bullion Market 
Association (``LBMA'') Palladium Price PM or other applicable benchmark 
price is not announced, will not be accepted.
    The redemption distribution from the Trust will consist of a credit 
to the redeeming Authorized Participant's unallocated account 
representing the amount of the palladium held by the Trust evidenced by 
the Shares being redeemed as of the date of the redemption order.

[[Page 60658]]

Net Asset Value
    The NAV of the Trust will be calculated by subtracting the Trust's 
expenses and liabilities on any day from the value of the palladium 
owned by the Trust on that day; the NAV per Share will be obtained by 
dividing the NAV of the Trust on a given day by the number of Shares 
outstanding on that day. On each day on which the Exchange is open for 
regular trading, the Trustee will determine the NAV as promptly as 
practicable after 4:00 p.m. ET. The Trustee will value the Trust's 
palladium on the basis of LBMA Palladium Price PM. If there is no LBMA 
Palladium Price PM on any day, the Trustee is authorized to use the 
LBMA Palladium Price AM announced on that day. If neither price is 
available for that day, the Trustee will value the Trust's palladium 
based on the most recently announced LBMA Palladium Price PM or LBMA 
Palladium Price AM. If the Sponsor determines that such price is 
inappropriate to use, the Sponsor will identify an alternate basis for 
evaluation to be employed by the Trustee by consulting other public 
sources of pricing information. For instance, the Sponsor could use the 
palladium spot price published by Bloomberg.
    Authorized Participants will offer Shares in the secondary market 
at an offering price that will vary, depending on, among other factors, 
the price of palladium and the trading price of the Shares on the 
Exchange at the time of offer. Authorized Participants will not receive 
from the Trust, the Sponsor, the Trustee or any of their affiliates any 
fee or other compensation in connection with the offering of the 
Shares.
Secondary Market Trading
    While the Trust seeks to reflect generally the performance of the 
price of palladium less the Trust's expenses and liabilities, Shares 
may trade at, above or below their NAV. The NAV of Shares will 
fluctuate with changes in the market value of the Trust's assets. The 
trading prices of Shares will fluctuate in accordance with changes in 
their NAV as well as market supply and demand. The amount of the 
discount or premium in the trading price relative to the NAV may be 
influenced by non-concurrent trading hours between the major palladium 
markets and the Exchange. While the Shares trade on the Exchange until 
8:00 p.m. ET, liquidity in the market for palladium may be reduced 
after the close of the major world palladium markets, including London, 
Zurich and NYMEX. As a result, during this time, trading spreads, and 
the resulting premium or discount, on Shares may widen.
Availability of Information Regarding Palladium
    Currently, the Consolidated Tape Plan does not provide for 
dissemination of the spot price of a commodity such as palladium over 
the Consolidated Tape. However, there will be disseminated over the 
Consolidated Tape the last sale price for the Shares, as is the case 
for all equity securities traded on the Exchange (including exchange-
traded funds). In addition, there is a considerable amount of 
information about palladium and palladium markets available on public 
websites and through professional and subscription services.
    Investors may obtain palladium pricing information on a 24-hour 
basis based on the spot price for an ounce of palladium from various 
financial information service providers, such as Reuters and Bloomberg.
    Reuters and Bloomberg provide at no charge on their websites 
delayed information regarding the spot price of palladium and last sale 
prices of palladium futures, as well as information about news and 
developments in the palladium market. Reuters and Bloomberg also offer 
a professional service to subscribers for a fee that provides 
information on palladium prices directly from market participants. ICAP 
plc provides an electronic trading platform called EBS for the trading 
of spot palladium, as well as a feed of real-time streaming prices, 
delivered as record-based digital data from the EBS platform to its 
customer's market data platform via Bloomberg or Reuters.
    Complete real-time data for palladium futures and options prices 
traded on the NYMEX are available by subscription from Reuters and 
Bloomberg. The NYMEX also provides delayed futures and options 
information on current and past trading sessions and market news free 
of charge on its website. There are a variety of other public websites 
providing information on palladium, ranging from those specializing in 
precious metals to sites maintained by major newspapers, such as The 
Wall Street Journal.
Availability of Information
    The intraday indicative value (``IIV'') per Share for the Shares 
will be disseminated by one or more major market data vendors at least 
every 15 seconds during the Core Trading Session. The IIV will be 
calculated based on the amount of palladium held by the Trust and a 
price of palladium derived from updated bids and offers indicative of 
the spot price of palladium.\17\
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    \17\ The IIV on a per Share basis disseminated during the Core 
Trading Session should not be viewed as a real-time update of the 
NAV, which is calculated once a day.
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    The website for the Trust (www.graniteshares.com) will contain the 
following information, on a per Share basis, for the Trust: (a) The 
mid-point of the bid-ask price \18\ at the close of trading (``Bid/Ask 
Price''), and a calculation of the premium or discount of such price 
against such NAV; and (b) data in chart format displaying the frequency 
distribution of discounts and premiums of the Bid/Ask Price against the 
NAV, within appropriate ranges, for each of the four previous calendar 
quarters. The website for the Trust will also provide the Trust's 
prospectus. Finally, the Trust's website will provide the prior day's 
closing price of the Shares as traded in the U.S. market. In addition, 
information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers.
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    \18\ The bid-ask price of the Shares will be determined using 
the highest bid and lowest offer on the Consolidated Tape as of the 
time of calculation of the closing day NAV.
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Criteria for Initial and Continued Listing
    The Trust will be subject to the criteria in NYSE Arca Equities 
Rule 8.201(e) for initial and continued listing of the Shares.
    A minimum of two Baskets or 30,000 Shares will be required to be 
outstanding at the start of trading, which is equivalent to 3,000 
ounces of palladium. The Exchange believes that the anticipated minimum 
number of Shares outstanding at the start of trading is sufficient to 
provide adequate market liquidity.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Trading in the Shares 
on the Exchange will occur during all three trading sessions in 
accordance with NYSE Arca Rule 7.34-E(a). The Exchange has appropriate 
rules to facilitate transactions in the Shares during all trading 
sessions. As provided in NYSE Arca Rule 7.6-E, the minimum price 
variation (``MPV'') for quoting and

[[Page 60659]]

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 quoting and order entry is 
$0.0001.
    Further, NYSE Arca Rule 8.201-E sets forth certain restrictions on 
ETP Holders \19\ acting as registered Market Makers in the Shares to 
facilitate surveillance. Under NYSE Arca Rule 8.201-E(g), an ETP Holder 
acting as a registered Market Maker in the Shares is required to 
provide the Exchange with information relating to its trading in the 
underlying palladium, related futures or options on futures, or any 
other related derivatives. Commentary .04 of NYSE Arca Rule 11.3 
requires an ETP Holder acting as a registered Market Maker in the 
Shares and its affiliates to establish, maintain and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
any material nonpublic information with respect to such products, any 
components of the related products, any physical asset or commodity 
underlying the product, applicable currencies, underlying indexes, 
related futures or options on futures, and any related derivative 
instruments (including the Shares).
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    \19\ An ``ETP Holder'' means a sole proprietorship, partnership, 
corporation, limited liability company or other organization in good 
standing that is a registered broker-dealer and has been issued an 
Equity Trading Permit by the Exchange. See NYSE Arca Rules 1.1(n) 
and (o).
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    As a general matter, the Exchange has regulatory jurisdiction over 
its ETP Holders and their associated persons, which include any person 
or entity controlling an ETP Holder. A subsidiary or affiliate of an 
ETP Holder that does business only in commodities or futures contracts 
would not be subject to Exchange jurisdiction, but the Exchange could 
obtain information regarding the activities of such subsidiary or 
affiliate through surveillance sharing agreements with regulatory 
organizations of which such subsidiary or affiliate is a member.
    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 on the Exchange in the Shares may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which conditions in the underlying palladium 
market have caused disruptions and/or lack of trading, or (2) whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present. In addition, 
trading in Shares will be subject to trading halts caused by 
extraordinary market volatility pursuant to the Exchange's ``circuit 
breaker'' rule.\20\ The Exchange will halt trading in the Shares if the 
NAV of the Trust is not calculated or disseminated daily or if not made 
available to all participants at the same time. The Exchange may halt 
trading during the day in which an interruption occurs to the 
dissemination of the IIV, as described above. If the interruption to 
the dissemination of the IIV persists past the trading day in which it 
occurs, the Exchange will halt trading no later than the beginning of 
the trading day following the interruption. The Exchange will also 
consider halting trading on a business day when the LBMA Palladium 
Price PM or other applicable benchmark price is not announced.
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    \20\ See NYSE Arca Rule 7.12-E.
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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.\21\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and federal securities laws applicable to trading on 
the Exchange.
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    \21\ 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.
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    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 with other 
markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares from markets and other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\22\
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    \22\ For a list of the current members of ISG, see 
www.isgportal.org.
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    Also, pursuant to NYSE Arca Rule 8.201-E(g), the Exchange is able 
to obtain information regarding trading in the Shares and the 
underlying palladium, palladium futures contracts, options on palladium 
futures, or any other palladium derivative, through ETP Holders acting 
as registered Market Makers, in connection with such ETP Holders' 
proprietary or customer trades through ETP Holders which they effect on 
any relevant market.
    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 or reference asset, (b) 
limitations on portfolio holdings or reference assets, or (c) the 
applicability of Exchange listing rules specified in this rule filing 
shall constitute continued listing requirements for listing the Shares 
of the Trust on the Exchange.
    The issuer 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 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 Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Bulletin will discuss the following: (1) The procedures for 
purchases and redemptions of Shares in Baskets (including noting that 
Shares are not individually redeemable); (2) NYSE Arca Rule 9.2-E(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) how information regarding the IIV is disseminated; (4) the 
requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or

[[Page 60660]]

concurrently with the confirmation of a transaction; (5) the 
possibility that trading spreads and the resulting premium or discount 
on the Shares may widen as a result of reduced liquidity of palladium 
trading during the Core and Late Trading Sessions after the close of 
the major world palladium markets; and (6) trading information. For 
example, the Information Bulletin will advise ETP Holders, prior to the 
commencement of trading, of the prospectus delivery requirements 
applicable to the Trust. The Exchange notes that investors purchasing 
Shares directly from the Trust will receive a prospectus. ETP Holders 
purchasing Shares from the Trust for resale to investors will deliver a 
prospectus to such investors.
    In addition, the Information Bulletin will reference that the Trust 
is subject to various fees and expenses as will be described in the 
Registration Statement. The Information Bulletin will also reference 
the fact that there is no regulated source of last sale information 
regarding physical palladium, that the Commission has no jurisdiction 
over the trading of palladium as a physical commodity, and that the 
CFTC has regulatory jurisdiction over the trading of palladium futures 
contracts and options on palladium futures contracts.
    The Information Bulletin will also discuss any relief, if granted, 
by the Commission or the staff from any rules under the Act.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \23\ 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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    \23\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.201-E. 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 ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. The most 
significant palladium futures exchange in the U.S. is the NYMEX, which 
is a member of ISG. U.S. futures exchanges are registered with the CFTC 
and seek to provide a neutral, regulated marketplace for the trading of 
derivatives contracts for commodities, such as futures, options and 
certain swaps. The palladium contract market is of significant size and 
liquidity.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that there is a considerable amount of palladium price and palladium 
market information available on public websites and through 
professional and subscription services. Investors may obtain palladium 
pricing information on a 24-hour basis based on the spot price for an 
ounce of palladium from various financial information service 
providers. Delayed information regarding the spot price of palladium 
and last sale prices of palladium futures, as well as information about 
news and developments in the palladium market, are also available from 
financial information service providers. Information on palladium 
prices directly from market participants is also available from 
financial information service providers. An electronic trading platform 
called EBS for the trading of spot palladium, as well as a feed of 
real-time streaming prices, is also available from information service 
providers.
    The NAV of the Trust will be published by the Sponsor on each day 
that the NYSE Arca is open for regular trading and will be posted on 
the Trust's website. The IIV relating to the Shares will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session. The Trust's website will also 
provide the Trust's prospectus, as well as the two most recent reports 
to stockholders. In addition, information regarding market price and 
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services. Information regarding the previous day's closing 
price and trading volume information for the Shares will be published 
daily in the financial section of newspapers.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares and may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. In addition, as noted above, investors will have ready 
access to information regarding palladium pricing.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
proposed rule change will enhance competition by accommodating Exchange 
trading of an additional exchange-traded product relating to physical 
palladium.

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. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposed rule change, as modified by Amendment No. 2 to list and trade 
the Shares is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\24\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Exchange Act,\25\ which 
requires, among other things, that the Exchange's rules be designed to 
prevent fraudulent and manipulative acts and practices, promote just 
and equitable principles of trade, to remove impediments to and perfect 
the mechanism of a free and open market and a national market system, 
and, in general, to protect investors and the public interest. The 
Commission notes that the Exchange has represented that it will be able 
to share surveillance information with a significant, regulated market 
for trading futures on palladium.\26\ The

[[Page 60661]]

Commission also notes that it previously approved the listing and 
trading of shares of another issue of Commodity-Based Trust Shares 
overlying palladium.\27\
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    \24\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \25\ 15 U.S.C. 78f(b)(5).
    \26\ Specifically, according to the Exchange, NYMEX, which is 
regulated by the Commodity Futures Trading Commission, is a member 
of the ISG, which will allow the Exchange to obtain surveillance 
information. See Amendment No. 2, supra note 4, at 6, 14.
    \27\ See Securities Exchange Act Release No. 61220 (Dec. 22, 
2009), 74 FR 68895 (Dec. 29, 2009) (SR-NYSEArca-2009-94) (approving 
the listing and trading of the ETFS Physical Palladium Trust). See 
also Securities Exchange Act Release Nos. 62692 (Aug. 11, 2010), 75 
FR 50789 (Aug. 17, 2010) (SR-NYSEArca-2010-56) (approving the 
listing and trading of the ETFS Physical Precious Metals Basket 
Trust); 62875 (Sept. 9, 2010), 75 FR 56156 (Sept. 15, 2010) (SR-
NYSEArca-2010-71) (approving the listing and trading of the ETFS 
Physical White Metals Basket Trust); and 68101 (Oct. 24, 2012), 77 
FR 65732 (Oct. 30, 2012) (SR-NYSEArca-2012-111) (approving the 
listing and trading of the Sprott Physical Platinum and Palladium 
Trust).
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\28\ which sets forth Congress' 
finding that it is in the public interest and appropriate for the 
protection of investors and the maintenance of fair and orderly markets 
to assure the availability to brokers, dealers, and investors of 
information with respect to quotations for and transactions in 
securities. The last-sale price of the Shares will be disseminated over 
the Consolidated Tape. In addition, information regarding market price 
and trading volume of the Shares will be continually available on a 
real-time basis throughout the day on brokers' computer screens and 
other electronic services. Information regarding the previous day's 
closing price and trading volume information for the Shares will be 
published daily in the financial section of newspapers.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    The Commission believes that the proposed rule change is reasonably 
designed to promote fair disclosure of information that may be 
necessary to price the Shares appropriately. NYSE Arca Rule 8.201-
E(e)(2)(v) requires that an IIV (which is referred to in the rule as 
the ``Indicative Trust Value'') be made available at least every 15 
seconds. The IIV will be calculated based on the amount of palladium 
held by the Trust and a price of palladium derived from updated bids 
and offers indicative of the spot price of palladium.\29\ The Exchange 
states that the IIV relating to the Shares will be widely disseminated 
by one or more major market data vendors at least every 15 seconds 
during the Core Trading Session.\30\ According to the Exchange, there 
is a considerable amount of information about palladium markets 
available on public websites and through professional and subscription 
services. Investors may obtain palladium pricing information on a 24-
hour basis based on the spot price for an ounce of palladium from 
various financial information service providers.\31\
---------------------------------------------------------------------------

    \29\ See Amendment No. 2, supra note 4, at 9-10.
    \30\ See id. at 9.
    \31\ See Amendment No. 2, supra note 4, at 9. The Exchange 
states that Reuters and Bloomberg, for example, provide at no charge 
on their websites delayed information regarding the spot price of 
palladium and last sale prices of palladium, as well as information 
about news and developments in the palladium market. Reuters and 
Bloomberg also offer a professional service to subscribers for a fee 
that provides information on palladium prices directly from market 
participants. ICAP plc provides an electronic trading platform 
called EBS for the trading of spot palladium, as well as a feed of 
real-time streaming prices, delivered as record-based digital data 
from the EBS platform to its customer's market data platform via 
Bloomberg or Reuters. Complete real-time data for palladium futures 
and options prices traded on the New York Mercantile Exchange, Inc. 
(``NYMEX'') are available by subscription from Reuters and 
Bloomberg. There are a variety of other public websites providing 
information on palladium, ranging from those specializing in 
precious metals to sites maintained by major newspapers. See id.
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    Additionally, the NAV of the Trust will be published by the Sponsor 
on each day that the NYSE Arca is open for regular trading and will be 
posted on the Trust's website.\32\ The Trust also will publish the 
following information on its website: (1) The mid-point of the Bid/Ask 
Price as of close of trading, and a calculation of the premium or 
discount of such price against the NAV; (2) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
Bid/Ask Price against the NAV, within appropriate ranges, for each of 
the four previous calendar quarters; (3) the Trust's prospectus, as 
well as the two most recent reports to stockholders; and (4) the prior 
day's closing price of the Shares as traded in the U.S. market.\33\
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    \32\ See id. at 14.
    \33\ See id. at 10, 14.
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    The Commission also believes that the proposal is reasonably 
designed to prevent trading when a reasonable degree of transparency 
cannot be assured. 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 on the Exchange in the Shares 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which conditions in the underlying palladium 
market have caused disruptions or lack of trading, or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present. In addition, trading in Shares 
will be subject to trading halts caused by extraordinary market 
volatility pursuant to the Exchange's ``circuit breaker'' rule.\34\ The 
Exchange will halt trading in the Shares if the NAV of the Trust is not 
calculated or disseminated daily or if not made available to all 
participants at the same time.\35\ The Exchange may halt trading during 
the day in which an interruption occurs to the dissemination of the 
IIV; if the interruption to the dissemination of the IIV persists past 
the trading day in which it occurs, the Exchange will halt trading no 
later than the beginning of the trading day following the 
interruption.\36\
---------------------------------------------------------------------------

    \34\ See id. at 11, n.18 and accompanying text.
    \35\ See id. at 11.
    \36\ See id. at 11-12.
---------------------------------------------------------------------------

    Additionally, the Commission notes that market makers in the Shares 
would be subject to the requirements of NYSE Arca Rule 8.201-E(g), 
which allow the Exchange to ensure that they do not use their positions 
to violate the requirements of Exchange rules or applicable federal 
securities laws.\37\
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    \37\ Commentary .04 of NYSE Arca Equities Rule 11.3 requires 
that an ETP Holder acting as a registered market maker in the 
Shares, and its affiliates, establish, maintain and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
any material nonpublic information with respect to such products, 
any components of the related products, any physical asset or 
commodity underlying the product, applicable currencies, underlying 
indexes, related futures or options on futures, and any related 
derivative instruments.
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    In support of this proposal, the Exchange has made the following 
additional representations:
    (1) The Shares will be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in NYSE Arca Rule 8.201-
E.\38\
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    \38\ See Amendment No. 2, supra note 4, at 14.
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    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.\39\
---------------------------------------------------------------------------

    \39\ See id. at 10.
---------------------------------------------------------------------------

    (3) The Exchange deems the Shares to be equity securities.\40\
---------------------------------------------------------------------------

    \40\ See id. The Commission notes that, as a result, trading of 
the Shares will be subject to the Exchange's existing rules 
governing the trading of equity securities.
---------------------------------------------------------------------------

    (4) The Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.\41\
---------------------------------------------------------------------------

    \41\ See id. at 12-13.
---------------------------------------------------------------------------

    (5) Trading in the Shares will be subject to the existing trading 
surveillances administered by the Exchange, as well as cross-market 
surveillances administered by FINRA on behalf of the Exchange, which 
are designed to detect violations of

[[Page 60662]]

Exchange rules and applicable federal securities laws, and that these 
procedures are adequate to properly monitor Exchange trading of the 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and federal securities laws applicable to trading on the 
Exchange.\42\
---------------------------------------------------------------------------

    \42\ 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. See id. at 12, n.19.
---------------------------------------------------------------------------

    (6) The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares with other 
markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, or both, may obtain 
trading information regarding trading in the Shares from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares from markets and other entities that 
are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\43\
---------------------------------------------------------------------------

    \43\ See id. at 12.
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    (7) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (1) 
The procedures for purchases and redemptions of Shares in Baskets 
(including noting 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) how information regarding the 
IIV is disseminated; (4) ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; (5) the possibility that trading spreads 
and the resulting premium or discount on the Shares may widen as a 
result of reduced liquidity of palladium trading during the Core and 
Late Trading Sessions after the close of the major world palladium 
markets; and (6) trading information.\44\
---------------------------------------------------------------------------

    \44\ See id. at 13.
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    (8) All statements and representations made in the Exchange's 
filing regarding (a) the description of the portfolio or reference 
asset, (b) limitations on portfolio holdings or reference assets, or 
(c) the applicability of Exchange listing rules specified in this rule 
filing shall constitute continued listing requirements for listing the 
Shares of the Trust on the Exchange.\45\
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    \45\ See id.
---------------------------------------------------------------------------

    (9) The issuer 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 Act, the Exchange will monitor \46\ 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 the NYSE Arca Rule 5.5-E(m).\47\
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    \46\ The Commission notes that certain proposals for the listing 
and trading of exchange-traded products include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Securities Exchange Act Release No. 
77499 (April 1, 2016), 81 FR 20428, 20432 (April 7, 2016) (SR-BATS-
2016-04). In the context of this representation, it is the 
Commission's view that ``monitor'' and ``surveil'' both mean ongoing 
oversight of compliance with the continued listing requirements. 
Therefore, the Commission does not view ``monitor'' as a more or 
less stringent obligation than ``surveil'' with respect to the 
continued listing requirements.
    \47\ See id.
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    This approval order is based on all of the Exchange's 
representations--including those set forth above and in Amendment No. 
2--and the Exchange's description of the Trust.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) of the Act \48\ and the rules and regulations thereunder 
applicable to a national securities exchange.
---------------------------------------------------------------------------

    \48\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Solicitation of Comments on Amendment No. 2 to the Proposed Rule 
Change

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 2 to 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 [email protected]. Please include 
File Number SR-NYSEArca-2017-112 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-2017-112. 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 website (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 website 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 this filing will also be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2017-112 and should be 
submitted on or before January 11, 2018.

V. Accelerated Approval of Proposed Rule Change, as Modified by 
Amendment No. 2

    The Commission finds good cause to approve the proposed rule 
change, as modified by Amendment No. 2, prior to the 30th day after the 
date of publication of notice of Amendment No. 2 in the Federal 
Register. Amendment No. 2 supplements the proposal by providing 
additional information regarding the Trust and the palladium futures 
market, and by expanding the circumstances in which the Exchange would 
or might halt trading in the Shares. These changes assisted the 
Commission in evaluating the Shares' susceptibility to manipulation, 
and in determining that the listing and trading of the Shares is 
consistent with the protection of investors and the public interest. 
Accordingly, the Commission finds good cause, pursuant to Section 
19(b)(2) of the Exchange Act,\49\ to approve the proposed rule change, 
as

[[Page 60663]]

modified by Amendment No. 2, on an accelerated basis.
---------------------------------------------------------------------------

    \49\ 15 U.S.C. 78s(b)(2).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\50\ that the proposed rule change (SR- NYSEArca-2017-
112), as modified by Amendment No. 2 be, and it hereby is, approved on 
an accelerated basis.
---------------------------------------------------------------------------

    \50\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\51\
---------------------------------------------------------------------------

    \51\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-27468 Filed 12-20-17; 8:45 am]
 BILLING CODE 8011-01-P


