[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3846-3859]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-01364]



[[Page 3846]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82549; File No. SR-NYSEArca-2018-04]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Adopt a New NYSE Arca Rule 8.900-E and To 
List and Trade Shares of the Royce Pennsylvania ETF; Royce Premier ETF; 
and Royce Total Return ETF Under Proposed NYSE Arca Equities Rule 
8.900-E

January 19, 2018.
    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 January 8, 2018, 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to adopt a new NYSE Arca Rule 8.900-E to 
permit it to list and trade Managed Portfolio Shares, which are shares 
of actively managed exchange-traded funds (``ETFs'') for which the 
portfolio is disclosed in accordance with standard mutual fund 
disclosure rules. In addition, the Exchange proposes to list and trade 
shares of the following under proposed NYSE Arca Rule 8.900-E: Royce 
Pennsylvania ETF; Royce Premier ETF; and Royce Total Return ETF. The 
proposed change is available on the Exchange's website at www.nyse.com, 
at the principal office of the Exchange, and at the Commission's Public 
Reference Room.

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

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

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

1. Purpose

    The Exchange proposes to add new NYSE Arca Rule 8.900-E for the 
purpose of permitting the listing and trading, or trading pursuant to 
unlisted trading privileges (``UTP''), of Managed Portfolio Shares, 
which are securities issued by an actively managed open-end investment 
management company.\4\
---------------------------------------------------------------------------

    \4\ A Managed Portfolio Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment management company or similar entity that 
invests in a portfolio of securities selected by its investment 
adviser consistent with its investment objectives and policies.
---------------------------------------------------------------------------

    In addition to the above-mentioned proposed rule changes, the 
Exchange proposes to list and trade shares (``Shares'') of the 
following under proposed NYSE Arca Rule 8.900-E: Royce Pennsylvania 
ETF; Royce Premier ETF; and Royce Total Return ETF (each, a ``Fund'' 
and, collectively, the ``Funds'').
Proposed Listing Rules
    Proposed Rule 8.900-E (a) provides that the Exchange will consider 
for trading, whether by listing or pursuant to UTP, Managed Portfolio 
Shares that meet the criteria of Rule 8.900-E.
    Proposed Rule 8.900-E (b) provides that Rule 8.900-E is applicable 
only to Managed Portfolio Shares and that, except to the extent 
inconsistent with Rule 8.900-E, or unless the context otherwise 
requires, the rules and procedures of the Exchange's Board of Directors 
shall be applicable to the trading on the Exchange of such securities. 
Proposed Rule 8.900-E (b) provides further that Managed Portfolio 
Shares are included within the definition of ``security'' or 
``securities'' as such terms are used in the Rules of the Exchange.
Proposed Definitions
    Proposed Rule 8.900-E(c)(1) defines the term ``Managed Portfolio 
Share'' as a security that (a) represents an interest in a registered 
investment company (``Investment Company'') organized as an open-end 
management investment company or similar entity, that invests in a 
portfolio of securities selected by the Investment Company's investment 
adviser consistent with the Investment Company's investment objectives 
and policies; (b) is issued in a specified aggregate minimum number of 
shares equal to a Creation Unit, or multiples thereof, in return for a 
designated portfolio of securities (and/or an amount of cash) with a 
value equal to the next determined net asset value; and (c) when 
aggregated in the same specified aggregate number of shares equal to a 
Redemption Unit, or multiples thereof, may be redeemed at the request 
of an Authorized Participant (as defined in the Investment Company's 
Form N-1A filed with the Commission), which AP Participant will be paid 
through a confidential account established for its benefit a portfolio 
of securities and/or cash with a value equal to the next determined net 
asset value (``NAV'').
    Proposed Rule 8.900-E(c)(2) defines the term ``Verified Intraday 
Indicative Value'' (``VIIV'') as the estimated indicative value of a 
Managed Portfolio Share based on all of the holdings of a series of 
Managed Portfolio Shares as of the close of business on the prior 
business day and, for corporate actions, based on the applicable 
holdings as of the opening of business on the current business day, 
priced and disseminated in one second intervals during the Core Trading 
Session. The VIIV is monitored by an Investment Company's pricing 
verification agent responsible for processing Consolidated Tape best 
bid and offer quotation information into more than one ``Calculation 
Engines,'' each of which then calculates a separate intraday indicative 
value for comparison by the pricing verification agent based on the 
mid-point of the highest bid and lowest offer for the portfolio 
constituents of a series of Managed Portfolio Shares. A single VIIV 
will be disseminated publicly during the Core Trading Session for each 
series of Managed Portfolio Shares; and the pricing verification agent 
will continuously compare the publicly-disseminated VIIV against one or 
more non-public alternative intra-day indicative values to which the 
pricing verification agent has access.\5\
---------------------------------------------------------------------------

    \5\ Each Calculation Engine is a computer that receives a file 
from a real-time quote feed, calculates a price for the securities 
in the portfolio, and aggregates the weights of the securities in 
the portfolio to produce an intra-day indicative value.
---------------------------------------------------------------------------

    Proposed Rule 8.900-E(c)(3) defines the term ``Creation Unit'' as a 
specified minimum number of Managed Portfolio Shares issued by an 
Investment Company at the request of an Authorized Participant in 
return for a designated portfolio of securities (and/or an amount of 
cash) specified each day consistent with the Investment

[[Page 3847]]

Company's investment objectives and policies.
    Proposed Rule 8.900-E(c)(4) defines the term ``Redemption Unit'' as 
a specified minimum number of Managed Portfolio Shares that may be 
redeemed to an Investment Company at the request of an Authorized 
Participant in return for a portfolio of securities and/or cash.
    Proposed Rule 8.900-E(c)(5) defines the term ``Reporting 
Authority'' in respect of a particular series of Managed Portfolio 
Shares as the Exchange, the exchange that lists a particular series of 
Managed Portfolio Shares (if the Exchange is trading such series 
pursuant to unlisted trading privileges), an institution, or a 
reporting service designated by the issuer of a series of Managed 
Portfolio Shares as the official source for calculating and reporting 
information relating to such series, including, the net asset value, or 
other information (with the exception of the VIIV) relating to the 
issuance, redemption or trading of Managed Portfolio Shares. A series 
of Managed Portfolio Shares may have more than one Reporting Authority, 
each having different functions.
    Proposed Rule 8.900-E(c)(6) defines the term ``normal market 
conditions'' as including, but not limited to, the absence of trading 
halts in the applicable financial markets generally; operational issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or manmade 
disaster, act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance.
    Proposed Rule 8.900-E (d) sets forth initial and continued listing 
criteria applicable to Managed Portfolio Shares. Proposed Rule 8.900-
E(d)(1)(A) provides that, for each series of Managed Portfolio Shares, 
the Exchange will establish a minimum number of Managed Portfolio 
Shares required to be outstanding at the time of commencement of 
trading on the Exchange. In addition, proposed Rule 8.900-E(d)(1)(B) 
provides that the Exchange will obtain a representation from the issuer 
of each series of Managed Portfolio Shares that the NAV per share for 
the series will be calculated daily and that the NAV will be made 
available to all market participants at the same time.\6\ Proposed Rule 
8.900-E(d)(1)(C) provides that all Managed Portfolio Shares shall have 
a stated investment objective, which shall be adhered to under normal 
market conditions.
---------------------------------------------------------------------------

    \6\ NYSE Arca Rule 7.18-E(d)(2) (``Halts of Derivative 
Securities Products Listed on the NYSE Arca Marketplace'') provides 
that, with respect to Derivative Securities Products listed on the 
NYSE Arca Marketplace for which a net asset value is disseminated, 
if the Exchange becomes aware that the net asset value is not being 
disseminated to all market participants at the same time, it will 
halt trading in the affected Derivative Securities Product on the 
NYSE Arca Marketplace until such time as the net asset value is 
available to all market participants.
---------------------------------------------------------------------------

    Proposed Rule 8.900-E(d)(2) provides that each series of Managed 
Portfolio Shares will be listed and traded subject to application of 
the following continued listing criteria:
     Proposed Rule 8.900-E(d)(2)(A) provides that the VIIV for 
Managed Portfolio Shares will be widely disseminated by the Reporting 
Authority and/or by one or more major market data vendors every second 
during the Exchange's Core Trading Session (as defined in NYSE Arca 
Rule 7.34-E) and will be disseminated to all market participants at the 
same time.
     Proposed Rule 8.900-E(d)(2)(B) provides that the 
Corporation will maintain surveillance procedures for securities listed 
under this rule and will consider the suspension of trading in, and 
will commence delisting proceedings under Rule 5.5-E(m) of, a series of 
Managed Portfolio Shares under any of the following circumstances:
    (i) If, following the initial twelve-month period after 
commencement of trading on the Exchange of a series of Managed 
Portfolio Shares, there are fewer than 50 beneficial holders of the 
series of Managed Portfolio Shares;
    (ii) if the value of the Verified Intraday Indicative Value is no 
longer calculated or available to all market participants at the same 
time;
    (iii) if the Investment Company issuing the Managed Portfolio 
Shares has failed to file any filings required by the Securities and 
Exchange Commission or if the Exchange is aware that the Investment 
Company is not in compliance with the conditions of any exemptive order 
or no-action relief granted by the Securities and Exchange Commission 
to the Investment Company with respect to the series of Managed 
Portfolio Shares;
    (iv) if any of the continued listing requirements set forth in Rule 
8.900-E are not continuously maintained;
    (v) if the Exchange submits a rule filing pursuant to Section 19(b) 
of the Securities Exchange Act of 1934 to permit the listing and 
trading of a series of Managed Portfolio Shares and any of the 
statements or representations regarding (a) the description of the 
portfolio, (b) limitations on portfolio holdings, or (c) the 
applicability of Exchange listing rules specified in such rule filing 
are not continuously maintained; or
    (vi) if such other event shall occur or condition exists which, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.
    Proposed Rule 8.900-E(d)(2)(C) provides that, upon notification to 
the Exchange by the Investment Company or its agent that (i) the 
intraday indicative values calculated by more than one Calculation 
Engines to be compared by the Investment Company's pricing verification 
agent differ by more than 25 basis points for 60 seconds in connection 
with pricing of the Verified Intraday Indicative Value, or (ii) that 
the Verified Intraday Indicative Value of a series of Managed Portfolio 
Shares is not being calculated or disseminated in one-second intervals, 
as required, the Exchange shall halt trading in the Managed Portfolio 
Shares as soon as practicable. Such halt in trading shall continue 
until the Investment Company or its agent notifies the Exchange that 
the intraday indicative values calculated by the Calculation Engines no 
longer differ by more than 25 basis points for 60 seconds or that the 
Verified Intraday Indicative Value is being calculated and disseminated 
as required. The Investment Company or its agent shall be responsible 
for monitoring that the Verified Intraday Indicative Value is being 
priced and disseminated as required and whether the intraday indicative 
values to be calculated by more than one Calculation Engines differ by 
more than 25 basis points for 60 seconds. In addition, if the Exchange 
becomes aware that the net asset value with respect to a series of 
Managed Portfolio Shares is not disseminated to all market participants 
at the same time, it will halt trading in such series until such time 
as the net asset value is available to all market participants.
    Proposed Rule 8.900-E(d)(2)(D) provides that, upon termination of 
an Investment Company, the Exchange requires that Managed Portfolio 
Shares issued in connection with such entity be removed from Exchange 
listing.
    Proposed Rule 8.900-E(d)(2)(E) provides that voting rights shall be 
as set forth in the applicable Investment Company prospectus.
    Proposed Rule 8.900-E(e), which relates to limitation of Exchange 
liability, provides that Neither [sic] the Exchange, the Reporting 
Authority, nor any agent of the Exchange shall have any liability for 
damages, claims, losses or expenses caused by any errors, omissions, or 
delays in calculating or disseminating any current portfolio value; the 
current value of the portfolio

[[Page 3848]]

of securities required to be deposited to the open-end management 
investment company in connection with issuance of Managed Portfolio 
Shares; the Verified Intraday Indicative Value; the amount of any 
dividend equivalent payment or cash distribution to holders of Managed 
Portfolio Shares; net asset value; or other information relating to the 
purchase, redemption, or trading of Managed Portfolio Shares, resulting 
from any negligent act or omission by the Exchange, the Reporting 
Authority or any agent of the Exchange, or any act, condition, or cause 
beyond the reasonable control of the Exchange, its agent, or the 
Reporting Authority, including, but not limited to, an act of God; 
fire; flood; extraordinary weather conditions; war; insurrection; riot; 
strike; accident; action of government; communications or power 
failure; equipment or software malfunction; or any error, omission, or 
delay in the reports of transactions in one or more underlying 
securities.
    Proposed Commentary .01 to NYSE Arca Rule 8.900-E provides that The 
[sic] Exchange will file separate proposals under Section 19(b) of the 
Securities Exchange Act of 1934 before the listing and trading of 
Managed Portfolio Shares. All statements or representations contained 
in such rule filing regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings, or (c) the applicability of Exchange 
listing rules specified in such rule filing will constitute continued 
listing requirements. An issuer of such securities must notify the 
Exchange of any failure to comply with such continued listing 
requirements.
    Proposed Commentary .02 to NYSE Arca Rule 8.900-E provides that 
transactions in Managed Portfolio Shares will occur only during the 
Core Trading Session as specified in NYSE Arca Rule 7.34-E(a)(2).
    Proposed Commentary .03 to NYSE Arca Rule 8.900-E provides that the 
Exchange will implement written surveillance procedures for Managed 
Portfolio Shares.
    Proposed Commentary .04 to NYSE Arca Rule 8.900-E provides that 
Authorized Participants (as defined in the Investment Company's Form N-
1A filed with the Commission) creating or redeeming Managed Portfolio 
Shares will sign an agreement with an agent (``AP Representative'') to 
establish a confidential account for the benefit of such Authorized 
Participant that will deliver or receive all consideration from the 
issuer in a creation or redemption. An AP Representative may not 
disclose the consideration delivered or received in a creation or 
redemption.
    Proposed Commentary .05(a) to NYSE Arca Rule 8.900-E provides that, 
if the investment adviser to the Investment Company issuing Managed 
Portfolio Shares is registered as a broker-dealer or is affiliated with 
a broker-dealer such investment adviser will erect and maintain a 
``fire wall'' between the investment adviser and personnel of the 
broker-dealer or broker-dealer affiliate, as applicable, with respect 
to access to information concerning the composition and/or changes to 
such Investment Company portfolio. Personnel who make decisions on the 
Investment Company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Investment Company 
portfolio.
    Proposed Commentary .05(b) to NYSE Arca Rule 8.900-E provides that, 
if an AP Representative, the custodian or pricing verification agent 
for an Investment Company issuing Managed Portfolio Shares, or any 
other entity that has access to information concerning the composition 
and/or changes to such Investment Company's portfolio, is registered as 
a broker-dealer or affiliated with a broker-dealer, such AP 
Representative, custodian, pricing verification agent or other entity 
will erect and maintain a ``fire wall'' between such AP Representative, 
custodian, pricing verification agent, or other entity and personnel of 
the broker-dealer or broker-dealer affiliate, as applicable, with 
respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio. Personnel who make 
decisions on the Investment Company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable Investment 
Company portfolio. \7\
---------------------------------------------------------------------------

    \7\ The Exchange will propose applicable NYSE Arca listing fees 
for Managed Portfolio Shares in the NYSE Arca Equities Schedule of 
Fees and Charges via a separate proposed rule change.
---------------------------------------------------------------------------

Key Features of Managed Portfolio Shares
    While funds issuing Managed Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares, 
Managed Portfolio Shares differ from Managed Fund Shares in the 
following important respects. First, in contrast to Managed Fund 
Shares, which are actively-managed funds listed and traded under NYSE 
Arca Rule 8.600-E \8\ and for which a ``Disclosed Portfolio'' is 
required to be disseminated at least once daily,\9\ the portfolio for 
an issue of Managed Portfolio Shares will be disclosed quarterly in 
accordance with normal disclosure requirements otherwise applicable to 
open-end investment companies registered under the 1940 Act.\10\ The 
composition of the portfolio of an issue of Managed Portfolio Shares 
would not be available at commencement of Exchange listing and trading. 
Second, in connection with the creation and redemption of shares in 
``Creation Unit'' or ``Redemption Unit'' size (as described below), the 
delivery of any portfolio securities in kind will be effected through a 
``Confidential Account'' (as described below) for the benefit of the 
redeeming AP (as described below in ``Creation and Redemption of 
Shares'') without disclosing the identity of such securities to the 
Authorized Participant (``AP'').
---------------------------------------------------------------------------

    \8\ The Commission has previously approved listing and trading 
on the Exchange of a number of issues of Managed Fund Shares under 
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801 
(May 8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) 
(order approving Exchange listing and trading of twelve actively-
managed funds of the WisdomTree Trust); 60460 (August 7, 2009), 74 
FR 41468 (August 17, 2009) (SR-NYSEArca-2009-55) (order approving 
listing of Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874 
(October 18, 2010) (SR-NYSEArca-2010-79) (order approving Exchange 
listing and trading of Cambria Global Tactical ETF); 63802 (January 
31, 2011), 76 FR 6503 (February 4, 2011) (SR-NYSEArca-2010-118) 
(order approving Exchange listing and trading of the SiM Dynamic 
Allocation Diversified Income ETF and SiM Dynamic Allocation Growth 
Income ETF). More recently, the Commission approved a proposed rule 
change to adopt generic listing standards for Managed Fund Shares. 
Securities Exchange Act Release No. 78397 (July 22, 2016), 81 FR 
49320 (July 27, 2016 (SR-NYSEArca-2015-110) (amending NYSE Arca 
Equities Rule 8.600 to adopt generic listing standards for Managed 
Fund Shares).
    \9\ NYSE Arca Rule 8.600-E(c)(2) defines the term ``Disclosed 
Portfolio'' as the identities and quantities of the securities and 
other assets held by the Investment Company that will form the basis 
for the Investment Company's calculation of net asset value at the 
end of the business day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires 
that the Disclosed Portfolio will be disseminated at least once 
daily and will be made available to all market participants at the 
same time.
    \10\ A mutual fund is required to file with the Commission its 
complete portfolio schedules for the second and fourth fiscal 
quarters on Form N-CSR under the 1940 Act, and is required to file 
its complete portfolio schedules for the first and third fiscal 
quarters on Form N-Q under the 1940 Act, within 60 days of the end 
of the quarter. Form N-Q requires funds to file the same schedules 
of investments that are required in annual and semi-annual reports 
to shareholders. These forms are available to the public on the 
Commission's website at www.sec.gov.
---------------------------------------------------------------------------

    For each series of Managed Portfolio Shares, an estimated value--
the VIIV-- that reflects an estimated intraday value of a fund's 
portfolio will be disseminated. With respect to the Funds, the VIIV 
will be based upon all of a Fund's holdings as of the close of

[[Page 3849]]

the prior business day and, for corporate actions, based on the 
applicable holdings as of the opening of business on the current 
business day, and will be widely disseminated by one or more major 
market data vendors every second during the Exchange's Core Trading 
Session (normally, 9:30 a.m. to 4:00 p.m., Eastern Time (``E.T.'')). 
The dissemination of the VIIV will allow investors to determine the 
estimated intra-day value of the underlying portfolio of a series of 
Managed Portfolio Shares and will provide a close estimate of that 
value throughout the trading day.
    The Exchange, after consulting with various Lead Market Makers that 
trade exchange-traded funds (``ETFs'') on the Exchange, believes that 
market makers will be able to make efficient and liquid markets priced 
near the VIIV as long as a VIIV is disseminated every second, and 
market makers employ market making techniques such as ``statistical 
arbitrage,'' including correlation hedging, beta hedging, and 
dispersion trading, which is currently used throughout the financial 
services industry, to make efficient markets in exchange-traded 
products.\11\ This ability should permit market makers to make 
efficient markets in an issue of Managed Portfolio Shares without 
precise knowledge of a Fund's underlying portfolio.\12\
---------------------------------------------------------------------------

    \11\ Statistical arbitrage enables a trader to construct an 
accurate proxy for another instrument, allowing it to hedge the 
other instrument or buy or sell the instrument when it is cheap or 
expensive in relation to the proxy. Statistical analysis permits 
traders to discover correlations based purely on trading data 
without regard to other fundamental drivers. These correlations are 
a function of differentials, over time, between one instrument or 
group of instruments and one or more other instruments. Once the 
nature of these price deviations have been quantified, a universe of 
securities is searched in an effort to, in the case of a hedging 
strategy, minimize the differential. Once a suitable hedging proxy 
has been identified, a trader can minimize portfolio risk by 
executing the hedging basket. The trader then can monitor the 
performance of this hedge throughout the trade period making 
correction where warranted. In the case of correlation hedging, the 
analysis seeks to find a proxy that matches the pricing behavior of 
the Fund. In the case of beta hedging, the analysis seeks to 
determine the relationship between the price movement over time of 
the Fund and that of another stock.
    \12\ APs that enter into their own separate Confidential 
Accounts shall have enough information to ensure that they are able 
to comply with applicable regulatory requirements. For example, for 
purposes of net capital requirements, the maximum Securities Haircut 
applicable to the securities in a Creation Basket, as determined 
under Rule 15c3-1, will be disclosed daily on each Fund's website.
---------------------------------------------------------------------------

    On each ``Business Day'' (as defined below), before commencement of 
trading in Shares on the Exchange, the Funds will provide to an ``AP 
Representative'' (as described below) of each AP the identities and 
quantities of portfolio securities that will form the basis for a 
Fund's calculation of NAV per Share at the end of the Business Day, as 
well as the names and quantities of the instruments comprising a 
``Creation Basket'' or the ``Redemption Instruments'' and the estimated 
``Balancing Amount'' (if any) (as described below), for that day. This 
information will permit APs to purchase ``Creation Units'' or redeem 
``Redemption Units'' through an in-kind transaction with a Fund, as 
described below.
    Using various trading methodologies such as statistical arbitrage, 
both APs and ``Non-Authorized Participant Market Makers'' will be able 
to hedge exposures by trading correlative portfolios, securities or 
other proxy instruments, thereby enabling an arbitrage functionality 
throughout the trading day. For example, if an AP believes that Shares 
of a Fund are trading at a price that is higher than the value of its 
underlying portfolio based on the VIIV, the AP may sell Shares short 
and purchase securities that the AP believes will track the movements 
of a Fund's Shares until the spread narrows and the AP executes 
offsetting orders or the AP enters an order with its AP Representative 
to create Fund Shares. Upon the completion of the Creation Unit, the AP 
will unwind its correlative hedge. A non-AP Market Maker would be able 
to perform the same function but would be required to employ an AP to 
create or redeem Shares on its behalf.
    The AP Representative's execution of a Creation Unit in a 
Confidential Account,\13\ combined with the sale of Fund Shares, may 
create downward pressure on the price of Shares and/or upward pressure 
on the price of the portfolio securities, bringing the market price of 
Shares and the value of a Fund's portfolio securities closer together. 
Similarly, an AP could buy Shares and instruct the AP Representative to 
redeem Fund Shares and liquidate underlying portfolio securities in a 
Confidential Account. The AP's purchase of a Fund's Shares in the 
secondary market, combined with the liquidation of the portfolio 
securities from its Confidential Account by an AP Representative, may 
also create upward pressure on the price of Shares and/or downward 
pressure on the price of portfolio securities, driving the market price 
of Shares and the value of a Fund's portfolio securities closer 
together. The ``Adviser'' (as defined below) represents that it 
understands that, other than the confidential nature of the account, 
this process is identical to how many APs currently arbitrage existing 
traditional ETFs.
---------------------------------------------------------------------------

    \13\ A Confidential Account is a restricted account owned by an 
AP and held at a broker-dealer who will act as an AP Representative 
(execution agent acting on agency basis) on their behalf. The 
restricted account will be established and governed via contract and 
used solely for creation and redemption activity, while protecting 
the confidentiality of the portfolio constituents. For reporting 
purposes, the books and records of the Confidential Account will be 
maintained by the AP Representative and provided to the appropriate 
regulatory agency as required. The Confidential Account will be 
liquidated daily, so that the account holds no positions at the end 
of day.
---------------------------------------------------------------------------

    APs can engage in arbitrage by creating or redeeming Shares if the 
AP believes the Shares are overvalued or undervalued. As discussed 
above, the trading of a Fund's Shares and the creation or redemption of 
portfolio securities may bring the prices of a Fund's Shares and its 
portfolio assets closer together through market pressure.
    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers may use the knowledge of a Fund's means of achieving its 
investment objective, as described in the applicable Fund registration 
statement, to construct a hedging proxy for a Fund to manage a market 
maker's quoting risk in connection with trading Fund Shares. Market 
makers can then conduct statistical arbitrage between their hedging 
proxy (for example, the Russell 1000 Index) and Shares of a Fund, 
buying and selling one against the other over the course of the trading 
day. They will evaluate how their proxy performed in comparison to the 
price of a Fund's Shares, and use that analysis as well as knowledge of 
risk metrics, such as volatility and turnover, to enhance their proxy 
calculation to make it a more efficient hedge.
    Market makers have indicated to the Exchange that there will be 
sufficient data to run a statistical analysis which will lead to 
spreads being tightened substantially around the VIIV. This is similar 
to certain other existing exchange traded products (for example, ETFs 
that invest in foreign securities that do not trade during U. S. 
trading hours), in which spreads may be generally wider in the early 
days of trading and then narrow as market makers gain more confidence 
in their real-time hedges.

[[Page 3850]]

Description of the Funds and the Trust
    The Shares of each Fund will be issued by Precidian ETF Trust II 
(``Trust''), a statutory trust organized under the laws of the State of 
Delaware and registered with the Commission as an open-end management 
investment company.\14\ The investment adviser to the Trust will be 
Precidian Funds LLC (the ``Adviser''). Royce & Associates, LP 
(``Royce''), will be the Fund's investment sub-adviser (``Sub-
Adviser''). Foreside Fund Services, LLC (``Distributor'') will serve as 
the distributor of the Fund's Shares.
---------------------------------------------------------------------------

    \14\ The Trust will be registered under the 1940 Act. On April 
5, 2017, the Trust filed a registration statement on Form N-1A under 
the Securities Act of 1933 (the ``1933 Act'') (15 U.S.C. 77a), and 
under the 1940 Act relating to the Funds (File Nos. 333-217142 and 
811-23246) (the ``Registration Statement''). The Trust filed a Fifth 
Amended and Restated Application for an Order under Section 6(c) of 
the 1940 Act for exemptions from various provisions of the 1940 Act 
and rules thereunder (File No. 812-14405), dated December 4, 2017 
(``Exemptive Application''). The Shares will not be listed on the 
Exchange until an order (``Exemptive Order'') under the 1940 Act has 
been issued by the Commission with respect to the Exemptive 
Application. Investments made by the Funds will comply with the 
conditions set forth in the Exemptive Order. The description of the 
operation of the Trust and the Funds herein is based, in part, on 
the Registration Statement and the Exemptive Application.
---------------------------------------------------------------------------

    As noted above, if the investment adviser to the Investment Company 
issuing Managed Portfolio Shares is registered as a broker-dealer or is 
affiliated with a broker-dealer such investment adviser will erect and 
maintain a ``fire wall'' between the investment adviser and personnel 
of the broker-dealer or broker-dealer affiliate, as applicable, with 
respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio. Personnel who make 
decisions on the Investment Company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable Investment 
Company portfolio. Proposed Commentary .05(a) is similar to Commentary 
.03(a)(i) and (iii) to NYSE Arca Rule 5.2-E(j)(3); however, Commentary 
.05(a) in connection with the establishment of a ``fire wall'' between 
the investment adviser and the broker-dealer reflects the applicable 
open-end fund's portfolio, not an underlying benchmark index, as is the 
case with index-based funds.\15\ The Adviser is not registered as a 
broker-dealer or affiliated with a broker-dealer. The Sub-Adviser is 
not registered as a broker-dealer but is affiliated with a broker-
dealer and has implemented and will maintain a fire wall with respect 
to such broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the portfolio.
---------------------------------------------------------------------------

    \15\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel will be 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violations, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
---------------------------------------------------------------------------

    In the event (a) the Adviser or Sub-Adviser becomes registered as a 
broker-dealer or becomes newly affiliated with a broker-dealer, or (b) 
any new adviser or sub-adviser is a registered broker-dealer, or 
becomes affiliated with a broker-dealer, it will implement and maintain 
a fire wall with respect to its relevant personnel or its broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio.
    The portfolio for each Fund primarily will consist of long and/or 
short positions in U.S. exchange-listed equity securities and shares 
issued by other U.S.-listed ETFs.\16\ All exchange-listed equity 
securities in which the Funds will invest will be listed and traded on 
U.S. national securities exchanges.
---------------------------------------------------------------------------

    \16\ For purposes of this filing, ETFs include Investment 
Company Units (as described in NYSE Arca Rule 5.2-E(j)(3)); 
Portfolio Depository Receipts (as described in NYSE Arca Rule 8.100-
E); and Managed Fund Shares (as described in NYSE Arca Rule 8.600-
E). The ETFs in which a Fund will invest all will be listed and 
traded on U.S. national securities exchanges. While the Funds may 
invest in inverse ETFs, the Funds will not invest in leveraged 
(e.g., 2X, -2X, 3X or -3X) ETFs.
---------------------------------------------------------------------------

Description of the Funds
Royce Pennsylvania ETF
    Under normal market conditions (as defined in proposed Rule 8.900-
E(c)(5)), the Royce Pennsylvania ETF will invest at least 65% of its 
assets in US exchange- listed equity securities of small-cap companies 
with stock market capitalizations up to $3 billion that the Sub-Adviser 
believes are trading below its estimate of their current worth. The 
Fund may invest in U.S. exchange-listed ETFs. The Fund may sell 
securities to, among other things, secure gains, limit losses, redeploy 
assets into what Royce deems to be more promising opportunities, and/or 
manage cash levels in the Fund's portfolio.
Royce Premier ETF
    Under normal market conditions, the Royce Premier ETF will invest 
at least 80% of its net assets in a limited number (generally less than 
100) of US exchange- listed equity securities of primarily small-cap 
companies with stock market capitalizations from $1 billion to $3 
billion at the time of investment. The Fund may invest in U.S. 
exchange-listed ETFs. The Fund may sell securities to, among other 
things, secure gains, limit losses, redeploy assets into what Royce 
deems to be more promising opportunities, and/or manage cash levels in 
the Fund's portfolio.
Royce Total Return ETF
    Under normal market conditions, the Royce Total Return ETF will 
invest at least 65% of its assets in dividend-paying U.S.-listed equity 
securities of small-cap companies with stock market capitalizations up 
to $3 billion that it believes are trading below its estimate of their 
current worth. The Fund may invest in U.S. exchange-listed ETFs. The 
Fund may sell securities to, among other things, secure gains, limit 
losses, redeploy assets into what Royce deems to be more promising 
opportunities, and/or manage cash levels in the Fund's portfolio.
Other Investments
    While each Fund, under normal market conditions, will invest 
primarily in U.S.-listed equity securities, as described above, each 
Fund may invest its remaining assets in other securities and financial 
instruments, as described below.
    Each Fund may invest up to 5% of its total assets in U.S. exchange-
listed warrants and rights and U.S. exchange-listed options.
    Each Fund may invest a portion of its assets in cash or cash 
equivalents.\17\
---------------------------------------------------------------------------

    \17\ For purposes of this filing, cash equivalents include 
short-term instruments (instruments with maturities of less than 3 
months) of the following types: (i) U.S. Government securities, 
including bills, notes and bonds differing as to maturity and rates 
of interest, which are either issued or guaranteed by the U.S. 
Treasury or by U.S. Government agencies or instrumentalities; (ii) 
certificates of deposit issued against funds deposited in a bank or 
savings and loan association; (iii) bankers' acceptances, which are 
short-term credit instruments used to finance commercial 
transactions; (iv) repurchase agreements and reverse repurchase 
agreements; (v) bank time deposits, which are monies kept on deposit 
with banks or savings and loan associations for a stated period of 
time at a fixed rate of interest; (vi) commercial paper, which are 
short-term unsecured promissory notes; and (vii) money market funds. 
It will be the policy of the Trust to enter into repurchase 
agreements only with recognized securities dealers, banks and Fixed 
Income Clearing Corporation, a securities clearing agency registered 
with the Commission.

---------------------------------------------------------------------------

[[Page 3851]]

    In addition to investments in U.S.-listed ETFs, as referenced 
above, each Fund may invest in the securities of other investment 
companies to the extent allowed by law.
Investment Restrictions
    The Shares of each Fund will conform to the initial and continued 
listing criteria under proposed Rule 8.900-E. The Funds will not invest 
in futures, forwards or swaps.
    Each Fund's investments will be consistent with its investment 
objective and will not be used to enhance leverage. While a Fund may 
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X, 
-2X, 3X or -3X) ETFs.
    The equity securities (other than non-exchange-listed investment 
company securities) and options in which the Funds invest will be 
listed on a U.S. national securities exchange.
Creations and Redemptions of Shares
    In connection with the creation and redemption of Creation Units 
and Redemption Units, the delivery or receipt of any portfolio 
securities in-kind will be required to be effected through a separate 
confidential brokerage account (i.e., a Confidential Account) with an 
AP Representative,\18\ which will be a bank or broker-dealer such as 
broker-dealer affiliates of JP Morgan Chase, State Street Bank and 
Trust, or Bank of New York Mellon, for the benefit of an AP.\19\ An AP 
must be a Depository Trust Company (``DTC'') Participant that has 
executed a ``Participant Agreement'' with the Distributor with respect 
to the creation and redemption of Creation Units and formed a 
Confidential Account for its benefit in accordance with the terms of 
the Participant Agreement. For purposes of creations or redemptions, 
all transactions will be effected through the respective Authorized 
Participant's Confidential Account, for the benefit of the AP without 
disclosing the identity of such securities to the AP. Each AP 
Representative will be given, before the commencement of trading each 
Business Day (defined below), the ``Creation Basket'' (as described 
below) for that day. This information will permit an AP that has 
established a Confidential Account with an AP Representative to 
instruct the AP Representative to buy and sell positions in the 
portfolio securities to permit creation and redemption of Creation 
Units and Redemption Units.
---------------------------------------------------------------------------

    \18\ Each AP shall enter into its own separate Confidential 
Account with an AP Representative.
    \19\ In the event that an AP Representative is a bank, the bank 
will be required to have an affiliated broker-dealer to accommodate 
the execution of hedging transactions on behalf of the holder of a 
Confidential Account.
---------------------------------------------------------------------------

    In the case of a creation, the Authorized Participant would enter 
into an irrevocable creation order with the Fund and then direct the AP 
Representative to purchase the necessary basket of portfolio 
securities. The AP Representative would then purchase the necessary 
securities in the Confidential Account. In purchasing the necessary 
securities, the AP Representative would be required, by the terms of 
the Confidential Account Agreement, to obfuscate the purchase by use of 
tactics such as breaking the purchase into multiple purchases and 
transacting in multiple marketplaces. Once the necessary basket of 
securities has been acquired, the purchased securities held in the 
Confidential Account would be contributed in-kind to the Fund.
    Shares of each Fund will be issued in Creation Units of 5,000 or 
more Shares. The Funds will offer and sell Creation Units and 
Redemption Units on a continuous basis at the NAV per Share next 
determined after receipt of an order in proper form. The NAV per Share 
of each Fund will be determined as of the close of regular trading on 
the New York Stock Exchange (``NYSE'') on each day that the NYSE is 
open. A ``Business Day'' is defined as any day that the Exchange is 
open for business. The Funds will sell and redeem Creation Units and 
Redemption Units only on Business Days. The Adviser anticipates that 
the initial price of a Share will range from $20 to $60, and that the 
price of a minimum Creation Unit initially will range from $100,000 to 
$300,000.
    In order to keep costs low and permit each Fund to be as fully 
invested as possible, Shares will be purchased and redeemed in Creation 
Units and Redemption Units and generally on an in-kind basis. 
Accordingly, except where the purchase or redemption will include cash 
under the circumstances described in the Registration Statement, 
purchasers will be required to purchase Creation Units by making an in-
kind deposit of specified instruments (``Deposit Instruments''), and AP 
will receive an in-kind transfer of specified instruments (``Redemption 
Instruments'') through the AP Representative in their Confidential 
Account.\20\ On any given Business Day, the names and quantities of the 
instruments that constitute the Deposit Instruments and the names and 
quantities of the instruments that constitute the Redemption 
Instruments will be identical, and these instruments may be referred 
to, in the case of either a purchase or a redemption, as the ``Creation 
Basket.'' \21\
---------------------------------------------------------------------------

    \20\ The Funds must comply with the federal securities laws in 
accepting Deposit Instruments and satisfying redemptions with 
Redemption Instruments.
    \21\ In determining whether a particular Fund will sell or 
redeem Creation Units entirely on a cash or in-kind basis, whether 
for a given day or a given order, the key consideration will be the 
benefit that would accrue to a Fund and its investors. The Adviser 
represents that the Funds do not currently anticipate the need to 
sell or redeem Creation Units or Redemption Units entirely on a cash 
basis. To the extent a Fund allows creations or redemptions to be 
conducted in cash, such transactions will be effected in the same 
manner for all APs.
---------------------------------------------------------------------------

    As noted above, each AP will be required to establish a 
Confidential Account with an AP Representative and transact with each 
Fund through that Confidential Account.\22\ Therefore, before the 
commencement of trading on each Business Day, the AP Representative of 
each AP will be provided, on a confidential basis and at the same time 
as other Authorized Participants, with a list of the names and 
quantities of the instruments comprising a Creation Basket, as well as 
the estimated Balancing Amount (if any), for that day. The published 
Creation Basket will apply until a new Creation Basket is announced on 
the following Business Day, and there will be no intra-day changes to 
the Creation Basket except to correct errors in the published Creation 
Basket. The instruments and cash that the purchaser is required to 
deliver in exchange for the

[[Page 3852]]

Creation Units it is purchasing are referred to as the ``Portfolio 
Deposit.''
---------------------------------------------------------------------------

    \22\ The Adviser represents that transacting through a 
Confidential Account is similar to transacting through any broker-
dealer account, except that the AP Representative will be bound to 
keep the names and weights of the portfolio securities confidential. 
Each service provider that has access to the identity and weightings 
of securities in a Fund's Creation Basket or portfolio securities, 
such as a Fund's Custodian or pricing verification agent, shall be 
restricted contractually from disclosing that information to any 
other person, or using that information for any purpose other than 
providing services to the Fund. To comply with certain recordkeeping 
requirements applicable to APs, the AP Representative will maintain 
and preserve, and make available to the Commission, certain required 
records related to the securities held in the Confidential Account.
---------------------------------------------------------------------------

    APs will enter into an agreement with an AP Representative to open 
a Confidential Account, for the benefit of the AP. The AP 
Representative will serve as an agent between a Fund and each AP and 
act as a broker-dealer on behalf of the AP. Each day, the Custodian 
(defined below) will transmit the Fund Constituent file to each AP 
Representative and, acting on execution instructions from AP, the AP 
Representative may purchase or sell the securities currently held in a 
Fund's portfolio for purposes of effecting in-kind creation and 
redemption activity during the day.\23\
---------------------------------------------------------------------------

    \23\ Each Fund will identify one or more entities to enter into 
a contractual arrangement with the Fund to serve as an AP 
Representative. In selecting entities to serve as AP 
Representatives, a Fund will obtain representations from the entity 
related to the confidentiality of the Fund's Creation Basket 
portfolio securities, the effectiveness of information barriers, and 
the adequacy of insider trading policies and procedures. In 
addition, as a broker-dealer, Section 15(g) of the Act requires the 
AP Representative to establish, maintain, and enforce written 
policies and procedures reasonably designed to prevent the misuse of 
material, nonpublic information by the AP Representative or any 
person associated with the AP Representative.
---------------------------------------------------------------------------

    As with the AP, Non-Authorized Participant Market Makers will have 
the ability to facilitate efficient market making in the Shares. 
However, Non-Authorized Participant Market Makers will not have the 
ability to create or redeem shares directly with a Fund. Rather, if a 
Non-Authorized Participant Market Maker wishes to create Shares in a 
Fund, it will have to do so through an AP.
Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous 
basis at NAV. The Exchange represents that the issuance of Shares will 
operate in a manner substantially similar to that of other ETFs.
    Each Fund will issue Shares only at the NAV per Share next 
determined after an order in proper form is received.
    Shares may be purchased from a Fund by an AP for its own account or 
for the benefit of a customer. The Distributor will furnish 
acknowledgements to those placing such orders that the orders have been 
accepted, but the Distributor may reject any order which is not 
submitted in proper form, as described in a Fund's prospectus or 
Statement of Additional Information (``SAI''). Purchases of Shares will 
be settled in-kind and/or cash for an amount equal to the applicable 
NAV per Share purchased plus applicable ``Transaction Fees,'' as 
discussed below.
    The NAV of each Fund is expected to be determined once each 
Business Day at a time determined by the Trust's Board of Directors 
(``Board''), currently anticipated to be as of the close of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the 
``Valuation Time''). Each Fund will establish a cut-off time (``Order 
Cut-Off Time'') (i.e., the scheduled closing time of the regular 
trading session on the NYSE, ordinarily 4:00 p.m. E.T.) for purchase 
orders in proper form. To initiate a purchase of Shares, an AP must 
submit to the Distributor an irrevocable order to purchase such Shares 
after the most recent prior Valuation Time.
    All orders to purchase Creation Units must be received by the 
Distributor no later than the scheduled closing time of the regular 
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) in each case on 
the date such order is placed (``Transmittal Date'') in order for the 
purchaser to receive the NAV per Share determined on the Transmittal 
Date. In the case of custom orders made in connection with creations or 
redemptions in whole or in part in cash, the order must be received by 
the Distributor, no later than the order cut-off time \24\ The 
Distributor will maintain a record of Creation Unit purchases and will 
send out confirmations of such purchases.\25\
---------------------------------------------------------------------------

    \24\ A ``custom order'' is any purchase or redemption of Shares 
made in whole or in part on a cash basis, as provided in the 
Registration Statement.
    \25\ An AP Representative will provide information related to 
creations and redemption of Creation Units and Redemption Units to 
the Financial Industry Regulatory Authority (``FINRA'') upon 
request.
---------------------------------------------------------------------------

Transaction Fees
    The Trust may impose purchase or redemption transaction fees 
(``Transaction Fees'') in connection with the purchase or redemption of 
Shares from the Funds. The exact amounts of any such Transaction Fees 
will be determined by the Adviser. The purpose of the Transaction Fees 
is to protect the continuing shareholders against possible dilutive 
transactional expenses, including operational processing and brokerage 
costs, associated with establishing and liquidating portfolio 
positions, including short positions, in connection with the purchase 
and redemption of Shares.
Purchases of Shares--Secondary Market
    Only APs will be able to acquire Shares at NAV directly from a Fund 
through the Distributor. The required payment must be transferred in 
the manner set forth in a Fund's SAI by the specified time on the 
second DTC settlement day following the day it is transmitted (the 
``Transmittal Date''). These investors and others will also be able to 
purchase Shares in secondary market transactions at prevailing market 
prices.
Redemption
    Beneficial Owners may sell their Shares in the secondary market. 
Alternatively, investors that own enough Shares to constitute a 
Redemption Unit (currently, 25,000 Shares) or multiples thereof may 
redeem those Shares through the Distributor, which will act as the 
Trust's representative for redemption. The size of a Redemption Unit 
will be subject to change. Redemption orders for Redemption Units or 
multiples thereof must be placed by or through an AP.
Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or 
multiples thereof as described below. Redemption orders of Redemption 
Units must be placed by or through an AP (``AP Redemption Order''). 
Each Fund will establish an Order Cut-Off Time for redemption 
(ordinarily 4:00 p.m., E.T.) for orders of Redemption Units in proper 
form. Redemption Units of the Fund will be redeemable at their NAV per 
Share next determined after receipt of a request for redemption by the 
Trust in the manner specified below before the Order Cut-Off Time. To 
initiate an AP Redemption Order, an AP must submit to the Distributor 
an irrevocable order to redeem such Redemption Unit after the most 
recent prior Valuation Time but not later than the Order Cut-Off Time. 
The Order Cut-Off Time for a Fund will ordinarily be its Valuation 
Time, or may be prior to the Valuation Time if the Board determines 
that an earlier Order Cut-Off Time for redemption of Redemption Units 
is necessary and is in the best interests of Fund shareholders.
    In the case of a redemption, the Authorized Participant would enter 
into an irrevocable redemption order, and then immediately instruct the 
AP Representative to sell the underlying basket of securities that it 
will receive in the redemption. As with the purchase of securities, the 
AP Representative would be required to obfuscate the sale of the 
portfolio securities it will receive as redemption proceeds using 
similar tactics. The positions in the underlying portfolio securities 
sold from the Confidential Account would be covered by the in-kind 
redemption proceeds

[[Page 3853]]

received by the Confidential Account from the Fund.
    Consistent with the provisions of Section 22(e) of the 1940 Act and 
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor 
payment upon redemption delayed, except for: (1) Any period during 
which the NYSE is closed other than customary weekend and holiday 
closings, (2) any period during which trading on the NYSE is 
restricted, (3) any period during which an emergency exists as a result 
of which disposal by a Fund of securities owned by it is not reasonably 
practicable or it is not reasonably practicable for a Fund to determine 
its NAV, and (4) for such other periods as the Commission may by order 
permit for the protection of shareholders.
    Redemptions will occur primarily in-kind, although redemption 
payments may also be made partly or wholly in cash.\26\ The Participant 
Agreement signed by each AP will require establishment of a 
Confidential Account to receive distributions of securities in-kind 
upon redemption.\27\ Each AP will be required to open a Confidential 
Account with an AP Representative in order to facilitate orderly 
processing of redemptions. While a Fund will generally distribute 
securities in-kind, the Adviser may determine from time to time that it 
is not in a Fund's best interests to distribute securities in-kind, but 
rather to sell securities and/or distribute cash. For example, the 
Adviser may distribute cash to facilitate orderly portfolio management 
in connection with rebalancing or transitioning a portfolio in line 
with its investment objective, or if there is substantially more 
creation than redemption activity during the period immediately 
preceding a redemption request, or as necessary or appropriate in 
accordance with applicable laws and regulations. In this manner, a Fund 
can use in-kind redemptions to reduce the unrealized capital gains that 
may, at times, exist in a Fund by distributing low cost lots of each 
security that a Fund needs to dispose of to maintain its desired 
portfolio exposures. Shareholders of a Fund would benefit from the in-
kind redemptions through the reduction of the unrealized capital gains 
in a Fund that would otherwise have to be realized and, eventually, 
distributed to shareholders.
---------------------------------------------------------------------------

    \26\ It is anticipated that any portion of a Fund's NAV 
attributable to appreciated short positions will be paid in cash, as 
securities sold short are not susceptible to in-kind settlement. The 
value of other positions not susceptible to in-kind settlement may 
also be paid in cash.
    \27\ The terms of each Confidential Account will be set forth as 
an exhibit to the Participant Agreement, which will be signed by 
each Authorized Participant. The Authorized Participant will be free 
to choose an AP Representative for its Confidential Account from a 
list of banks and trust companies that have signed confidentiality 
agreements with the Fund.
---------------------------------------------------------------------------

    The redemption basket will consist of the same securities for all 
APs on any given day subject to the Adviser's ability to make minor 
adjustments to address odd lots, fractional shares, tradeable sizes or 
other situations.
    After receipt of a Redemption Order, a Fund's custodian 
(``Custodian'') will typically deliver securities to the Confidential 
Account on a pro rata basis (which securities are determined by the 
Adviser) with a value approximately equal to the value of the Shares 
\28\ tendered for redemption at the Cut-Off time. The Custodian will 
make delivery of the securities by appropriate entries on its books and 
records transferring ownership of the securities to the AP's 
Confidential Account, subject to delivery of the Shares redeemed. The 
AP Representative of the Confidential Account will in turn liquidate 
the securities based on instructions from the AP.\29\ The AP 
Representative will pay the liquidation proceeds net of expenses plus 
or minus any cash balancing amount to the AP through DTC.\30\ The 
redemption securities that the Confidential Account receives are 
expected to mirror the portfolio holdings of a Fund pro rata. To the 
extent a Fund distributes portfolio securities through an in-kind 
distribution to more than one Confidential Account for the benefit of 
each account's AP, each Fund expects to distribute a pro rata portion 
of the portfolio securities selected for distribution to each redeeming 
AP.
---------------------------------------------------------------------------

    \28\ If the NAV of the Shares redeemed differs from the value of 
the securities delivered to the applicable Confidential Account, the 
Fund will pay a cash balancing amount to compensate for the 
difference between the value of the securities delivered and the 
NAV.
    \29\ An AP will issue execution instructions to the AP 
Representative and be responsible for all associated profit or 
losses. Like a traditional ETF, the AP has the ability to sell the 
basket securities at any point during normal trading hours.
    \30\ Under applicable provisions of the Internal Revenue Code, 
the AP is expected to be deemed a ``substantial owner'' of the 
Confidential Account because it receives distributions from the 
Confidential Account. As a result, all income, gain or loss realized 
by the Confidential Account will be directly attributed to the AP. 
In a redemption, the AP will have a basis in the distributed 
securities equal to the fair market value at the time of the 
distribution and any gain or loss realized on the sale of those 
Shares will be taxable income to the AP.
---------------------------------------------------------------------------

    If the AP would receive a security that it is restricted from 
receiving, for example if the AP is engaged in a distribution of the 
security, a Fund will deliver cash equal to the value of that security. 
APs and Non-Authorized Participant Market Makers will provide the AP 
Representative with a list of restricted securities applicable to the 
AP or Non-Authorized Participant Market Maker on a daily basis, and a 
Fund will substitute cash for those securities in the applicable 
Confidential Account.
    To address odd lots, fractional shares, tradeable sizes or other 
situations where dividing securities is not practical or possible, the 
Adviser may make minor adjustments to the pro rata portion of portfolio 
securities selected for distribution to each redeeming AP on such 
Business Day.
    The Trust will accept a Redemption Order in proper form. A 
Redemption Order is subject to acceptance by the Trust and must be 
preceded or accompanied by an irrevocable commitment to deliver the 
requisite number of Shares. At the time of settlement, an AP will 
initiate a delivery of the Shares versus subsequent payment against the 
proceeds, if any, of the sale of portfolio securities distributed to 
the applicable Confidential Account plus or minus any cash balancing 
amounts, and less the expenses of liquidation.
Independent Pricing Calculations
    According to the Exemptive Application, the Pricing Verification 
Agent, on behalf of each Fund, will utilize at least two separate 
calculation engines to calculate intra-day indicative values 
(``Calculation Engines''), based on the mid-point between the current 
national best bid and offer disseminated by the Consolidated Quotation 
System (``CQS'') and Unlisted Trading Privileges (``UTP'') Plan 
Securities Information Processor,\31\ to provide the real-time value on 
a per Share basis of each Fund's holdings every second during the 
Exchange's Core Trading Session.\32\ The Custodian will provide, on a 
daily basis, the identities and quantities of portfolio securities that

[[Page 3854]]

will form the basis for the Fund's calculation of NAV at the end of the 
Business Day,\33\ plus any cash in the portfolio, to the Pricing 
Verification Agent for purposes of pricing.
---------------------------------------------------------------------------

    \31\ According to the Exemptive Application, all Commission-
registered exchanges and market centers send their trades and quotes 
to a central consolidator where the Consolidated Tape System (CTS) 
and CQS data streams are produced and distributed worldwide. See 
https://www.ctaplan.com/index. Although there is only one source of 
market quotations, each Calculation Engine will receive the data 
directly and calculate an indicative value separately and 
independently from each other Calculation Engine.
    \32\ The Adviser represents that the dissemination of VIIV at 
one second intervals strikes a balance of providing all investors 
with useable information at a rate that can be processed by retail 
investors, does not provide so much information so as to allow 
market participants to accurately determine the constituents, and 
their weightings, of the portfolio, can be accurately calculated and 
disseminated, and still provides professional traders with per 
second data.
    \33\ Under accounting procedures followed by the Funds, trades 
made on the prior Business Day (T) will be booked and reflected in 
the NAV on the current Business Day (T+1). Thus, the VIIV calculated 
throughout the day will be based on the same portfolio as is used to 
calculate the NAV on that day.
---------------------------------------------------------------------------

    According to the Exemptive Application, it is anticipated that each 
Calculation Engine could be using some combination of different 
hardware, software and communications platforms to process the CQS 
data. Different hardware platforms' operating systems could be 
receiving and calculating the CQS data inputs differently, potentially 
resulting in one Calculation Engine processing the indicative value in 
a different time slice than another Calculation Engine's system, thus 
processing values in different sequences. The processing differences 
between different Calculation Engines will most likely be in the sub-
second range. Consequently, the frequency of occurrence of out of 
sequence values among different Calculation Engines due to differences 
in operating system environments should be minimal. Other factors that 
could result in sequencing that is not uniform among the different 
Calculation Engines are message gapping, internal system software 
design, and how the CQS data is transmitted to the Calculation Engine. 
While the expectation is that the separately calculated intraday 
indicative values will generally match, having dual streams of 
redundant data that must be compared by the Pricing Verification Agent 
will provide an additional check that the resulting VIIV is accurate.
    According to the Exemptive Application, each Fund's Board has a 
responsibility to oversee the process of calculating an accurate VIIV 
and to make an affirmative determination, at least annually, that the 
procedures used to calculate the VIIV and maintain its accuracy are, in 
its reasonable business judgment, appropriate. These procedures and 
their continued effectiveness will be subject to the ongoing oversight 
of the Fund's chief compliance officer. The specific methodology for 
calculating the VIIV will be disclosed on each Fund's website. While 
each Fund will oversee the calculation of the VIIV, a Fund will utilize 
multiple Calculation Engines, one of which may be supplied by the 
Pricing Verification Agent.
Net Asset Value
    The NAV per Share of a Fund will be computed by dividing the value 
of the net assets of a Fund (i.e. the value of its total assets less 
total liabilities) by the total number of Shares of a Fund outstanding, 
rounded to the nearest cent. Expenses and fees, including, without 
limitation, the management, administration and distribution fees, will 
be accrued daily and taken into account for purposes of determining 
NAV. Interest and investment income on the Trust's assets accrue daily 
and will be included in the Fund's total assets. The NAV per Share for 
a Fund will be calculated by a Fund's administrator (``Administrator'') 
and determined as of the close of the regular trading session on the 
NYSE (ordinarily 4:00 p.m., E.T.) on each day that the NYSE is open.
    Shares of exchange-listed equity securities and exchange-listed 
options will be valued at market value, which will generally be 
determined using the last reported official closing or last trading 
price on the exchange or market on which the securities are primarily 
traded at the time of valuation. Repurchase agreements will be valued 
based on price quotations or other equivalent indications of value 
provided by a third-party pricing service. Money market funds and other 
non-exchange-traded investment company securities will be valued based 
on price quotations or other equivalent indications of value provided 
by a third-party pricing service. Other cash equivalents will generally 
be valued on the basis of separate pricing services or quotes obtained 
from brokers and dealers.
    When last sale prices and market quotations are not readily 
available, are deemed unreliable or do not reflect material events 
occurring between the close of local markets and the time of valuation, 
investments will be valued using fair value pricing, as determined in 
good faith by the Adviser under procedures established by and under the 
general supervision and responsibility of the Trust's Board of 
Trustees. Investments that may be valued using fair value pricing 
include, but are not limited to: (1) Securities that are not actively 
traded; (2) securities of an issuer that becomes bankrupt or enters 
into a restructuring; and (3) securities whose trading has been halted 
or suspended.
    The frequency with which each Fund's investments will be valued 
using fair value pricing will primarily be a function of the types of 
securities and other assets in which the respective Fund will invest 
pursuant to its investment objective, strategies and limitations. If 
the Funds invest in open-end management investment companies registered 
under the 1940 Act (other than ETFs), they may rely on the NAVs of 
those companies to value the shares they hold of them.
    Valuing the Funds' investments using fair value pricing involves 
the consideration of a number of subjective factors and thus the prices 
for those investments may differ from current market valuations. 
Accordingly, fair value pricing could result in a difference between 
the prices used to calculate NAV and the prices used to determine a 
Fund's VIIV, which could result in the market prices for Shares 
deviating from NAV. In cases where the fair value price of the security 
is materially different from the mid-point of the bid/ask spread 
provided to the Calculation Engines and the Adviser determined that the 
ongoing pricing information is not likely to be reliable, the fair 
value will be used for calculation of the VIIV, and a Fund's Custodian 
will be instructed to disclose the identity and weight of the fair 
valued securities, as well as the fair value price being used for the 
security.
Availability of Information
    The Funds' website (www.precidianfunds.com), which will be publicly 
available prior to the listing and trading of Shares, will include a 
form of the prospectus for each Fund that may be downloaded. The Funds' 
website will include additional quantitative information updated on a 
daily basis, including, for each Fund, (1) daily trading volume, the 
prior Business Day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\34\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. The website and information will be 
publicly available at no charge.
---------------------------------------------------------------------------

    \34\ The Bid/Ask Price of a Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of a Fund's NAV. The records relating to 
Bid/Ask Prices will be retained by each Fund and its service 
providers.
---------------------------------------------------------------------------

    As noted above, a mutual fund is required to file with the 
Commission its complete portfolio schedules for the second and fourth 
fiscal quarters on Form N-CSR under the 1940 Act, and is required to 
file its complete portfolio schedules for the first and third fiscal

[[Page 3855]]

quarters on Form N-Q under the 1940 Act, within 60 days of the end of 
the quarter. Form N-Q requires funds to file the same schedules of 
investments that are required in annual and semi-annual reports to 
shareholders. The Trust's SAI and each Fund's shareholder reports will 
be available free upon request from the Trust. These documents and 
forms may be viewed on-screen or downloaded from the Commission's 
website at www.sec.gov.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the VIIV, as defined in NYSE 
Arca Rule 8.900-E (c)(3) and as described further below, will be widely 
disseminated by one or more major market data vendors every second 
during the Exchange's Core Trading Session.
Dissemination of the Verified Intraday Indicative Value
    The VIIV, which is approximate value of each Fund's investments on 
a per Share basis, will be disseminated every second during the 
Exchange's Core Trading Session. The VIIV should not be viewed as a 
``real-time'' update of NAV because the VIIV may not be calculated in 
the same manner as NAV, which is computed once per day.
    The VIIV for each Fund will be disseminated by one or more major 
market data vendors in one-second intervals during the Core Trading 
Session. The VIIV is an intraday approximation of the Fund's value 
calculated every second during the Core Trading Session. Each Fund will 
adopt procedures governing the calculation of the VIIV. Pursuant to 
those procedures, the VIIV will include all accrued income and expenses 
of a Fund and will assure that any extraordinary expenses booked during 
the day that would be taken into account in calculating a Fund's NAV 
for that day are also taken into account in calculating the VIIV. For 
purposes of the VIIV, securities held by a Fund will be valued 
throughout the day based on the mid-point between the disseminated 
current national best bid and offer. If the Adviser determines that the 
mid-point of the bid/ask spread is inaccurate, a Fund will use fair 
value pricing. That fair value pricing will be carried over to the next 
day's VIIV until the first trade in that stock is reported unless the 
Adviser deems a particular portfolio security to be illiquid and/or the 
available ongoing pricing information unlikely to be reliable. In such 
case, that fact will be disclosed as soon as practicable on each Fund's 
website, including the identity and weighting of that security in a 
Fund's portfolio, and the impact of that security on VIIV calculation, 
including the fair value price for that security being used for the 
calculation of that day's VIIV.
    The Adviser represents that, by utilizing the mid-point pricing for 
purposes of VIIV calculation, stale prices are eliminated and more 
accurate representation of the real time value of the underlying 
securities is provided to the market. Specifically, quotations based on 
the mid-point of bid/ask spreads more accurately reflect current market 
sentiment by providing real time information on where market 
participants are willing to buy or sell securities at that point in 
time. Using quotations rather than last sale information addresses 
concerns regarding the staleness of pricing information of less 
actively traded securities. Because quotations are updated more 
frequently than last sale information especially for inactive 
securities, the VIIV will be based on more current and accurate 
information. The use of quotations will also dampen the impact of any 
momentary spikes in the price of a portfolio security.
    Each Fund will utilize two separate pricing feeds to provide two 
separate sources of pricing information. Each Fund will also utilize a 
``Pricing Verification Agent'' and establish a computer-based protocol 
that will permit the Pricing Verification Agent to continuously compare 
the multiple intraday indicative values from the Calculation Engines on 
a real time basis.\35\ A single VIIV will be disseminated publicly for 
each Fund; however, the Pricing Verification Agent will continuously 
compare the public VIIV against a non-public alternative intra-day 
indicative value to which the Pricing Verification Agent has access. 
Upon notification to the Exchange by the issuer of a series of Managed 
Portfolio Shares or its agent that the public VIIV and non-public 
alternative intra-day indicative value differ by more than 25 basis 
points for 60 seconds, the Exchange will halt trading as soon as 
practicable in a Fund until the discrepancy is resolved.\36\ Each 
Fund's Board will review the procedures used to calculate the VIIV and 
maintain its accuracy as appropriate, but not less than annually. The 
specific methodology for calculating the VIIV will be disclosed on each 
Fund's website.
---------------------------------------------------------------------------

    \35\ A Fund's Custodian will provide, on a daily basis, the 
identities and quantities of portfolio securities that will form the 
basis for a Fund's calculation of NAV at the end of the Business 
Day, plus any cash in the portfolio, to the Pricing Verification 
Agent for purposes of pricing.
    \36\ For the period January 1, 2017, to October 31, 2017, the 
average bid/ask spread on actively managed equity ETFs (Managed Fund 
Shares) traded on NYSE Arca, as a percentage, was 38 basis points. 
For the same period, the spread on all exchange-traded products 
traded on NYSE Arca, as a percentage, was 54 basis points. A 
continuous deviation for sixty seconds could indicate an error in 
the feed or in a Calculation Engine. The Trust reserves the right to 
change these thresholds to the extent deemed appropriate and 
approved by a Fund's Board.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Funds. Trading in Shares of the Funds will 
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E 
have been reached.\37\ Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Trading in the Shares will be 
subject to NYSE Arca Rule 8.900-E(d)(2)(C), which sets forth 
circumstances under which Shares of the Funds will be halted.
---------------------------------------------------------------------------

    \37\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace only during the Core Trading Session in 
accordance with NYSE Arca Rule 7.34-E (a)(2). As provided in NYSE Arca 
Rule 7.6-E, 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.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.900-E. The Exchange represents that, 
for initial and/or continued listing, each Fund will be in compliance 
with Rule 10A-3 under the Act,\38\ as provided by NYSE Arca Rule 5.3-E. 
A minimum of 100,000 Shares of each Fund will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a

[[Page 3856]]

representation from the issuer of the Shares of each Fund that the NAV 
per Share of each Fund will be calculated daily and will be made 
available to all market participants at the same time.
---------------------------------------------------------------------------

    \38\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Exchange, as 
well as cross-market surveillances administered by FINRA on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\39\ 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.
---------------------------------------------------------------------------

    \39\ 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, common stocks, 
rights, warrants, ETFs and exchange-listed options with other markets 
and other entities that are members of the Intermarket Surveillance 
Group (``ISG''), and the Exchange or FINRA, on behalf of the Exchange, 
or both, may obtain trading information regarding trading such 
securities from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in such securities 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.\40\
---------------------------------------------------------------------------

    \40\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    The Funds' Adviser will make available daily to FINRA and the 
Exchange the portfolio holdings of each Fund in order to facilitate the 
performance of the surveillances referred to above.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares; 
(2) NYSE Arca 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 VIIV is 
disseminated; (4) the requirement that ETP Holders deliver a prospectus 
to investors purchasing newly issued Shares prior to or concurrently 
with the confirmation of a transaction; and (5) trading information.
    In addition, the Bulletin will reference that the Funds are subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\41\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\42\ in particular, in that it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b).
    \42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 8.900-E is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Managed Portfolio 
Shares provide specific initial and continued listing criteria required 
to be met by such securities. Proposed Rule 8.900-E(d) sets forth 
initial and continued listing criteria applicable to Managed Portfolio 
Shares. Proposed Rule 8.900-E (d)(1) provides that, for each series of 
Managed Portfolio Shares, the Exchange will establish a minimum number 
of Managed Portfolio Shares required to be outstanding at the time of 
commencement of trading. In addition, the Exchange will obtain a 
representation from the issuer of each series of Managed Portfolio 
Shares that the NAV per share for the series will be calculated daily 
and that the NAV will be made available to all market participants at 
the same time. Proposed Rule 8.900-E (d)(2) provides that each series 
of Managed Portfolio Shares will be listed and traded subject to 
application of the specified continued listing criteria, as described 
above. Proposed Rule 8.900-E (d)(2)(A) provides that the VIIV for 
Managed Portfolio Shares will be widely disseminated by one or more 
major market data vendors every second during the Exchange's Core 
Trading Session. Proposed Rule 8.900-E (d)(2)(B) provides that the 
Exchange will maintain surveillance procedures for securities listed 
under Rule 8.900 and will consider the suspension of trading in, and 
will commence delisting proceedings under Rule 5.5-E (m) of a series of 
Managed Portfolio Shares under any of the circumstances set forth in 
proposed Rules 8.900-E (d)(2)(B)(i) through (vi), as described above, 
including if any of the continued listing requirements set forth in 
Rule 8.900-E are not continuously maintained (proposed Rule 8.900-E 
(d)(2)(B)(iv)), and if the Exchange submits a rule filing pursuant to 
Section 19(b) of the Act to permit the listing and trading of a series 
of Managed Portfolio Shares and any of the statements or 
representations regarding (a) the description of the portfolio, (b) 
limitations on portfolio holdings, or (c) the applicability of Exchange 
listing rules specified in such rule filing are not continuously 
maintained (proposed Rule 8.900-E (d)(2)(B)(v)). Proposed Rule 8.900-E 
(d)(2)(C) provides that, upon notification to the Corporation by the 
Investment Company or its agent that (i) the intraday indicative values 
calculated from more than one Calculation Engines to be compared by the 
Investment Company's pricing verification agent differ by more than 25 
basis points for 60 seconds in connection with pricing of the VIIV, or 
(ii) that the VIIV of a series of Managed Portfolio Shares is not being 
calculated or disseminated in one-second intervals, as required, the 
Exchange shall halt trading in the Managed Portfolio Shares as soon as 
practicable. Such halt in trading shall continue until the Investment 
Company or its agent notifies the Exchange that the intraday indicative 
values no longer differ by more than 25 basis points for

[[Page 3857]]

60 seconds or that the VIIV is being calculated and disseminated as 
required. Proposed Commentary .05(a) to NYSE Arca Rule 8.900-E provides 
that, if the investment adviser to the Investment Company issuing 
Managed Portfolio Shares is registered as a broker-dealer or is 
affiliated with a broker-dealer such investment adviser will erect and 
maintain a ``fire wall'' between the investment adviser and personnel 
of the broker-dealer or broker-dealer affiliate, as applicable, with 
respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio. Proposed Commentary 
.05(b) provides that, if an AP Representative, the custodian or pricing 
verification agent for an Investment Company issuing Managed Portfolio 
Shares, or any other entity that has access to information concerning 
the composition and/or changes to such Investment Company's portfolio, 
is registered as a broker-dealer or affiliated with a broker-dealer, 
such AP Representative, custodian, pricing verification agent or other 
entity will erect and maintain a ``fire wall'' between such AP 
Representative, custodian, pricing verification agent, or other entity 
and personnel of the broker-dealer or broker-dealer affiliate, as 
applicable, with respect to access to information concerning the 
composition and/or changes to such Investment Company portfolio. With 
respect to both Commentary .05(a) and .05(b), personnel who make 
decisions on the Investment Company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination of 
material nonpublic information regarding the applicable Investment 
Company portfolio.
    With respect to the proposed listing and trading of Shares of the 
Funds, the Exchange believes that the proposed rule change is designed 
to prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.900-E. Price 
information for the exchange-listed equity securities held by the Funds 
will be available through major market data vendors or securities 
exchanges listing and trading such securities. All exchange-listed 
equity securities held by the Funds will be listed on U.S. national 
securities exchanges. The listing and trading of such securities is 
subject to rules of the exchanges on which they are listed and traded, 
as approved by the Commission. The Funds will primarily hold U.S.-
listed equity securities and shares issued by other U.S.-listed ETFs. 
All exchange-listed equity securities in which the Funds will invest 
will be listed and traded on U.S. national securities exchanges. A 
Fund's investments will be consistent with its respective investment 
objective and will not be used to enhance leverage. The Funds will not 
invest in non-U.S.-listed securities. The Exchange or FINRA, on behalf 
of the Exchange, or both, will communicate as needed regarding trading 
in the Shares and underlying stocks and ETFs with other markets and 
other entities that are members of the ISG, and the Exchange or FINRA, 
on behalf of the Exchange, or both, may obtain trading information 
regarding trading such securities from such markets and other entities. 
In addition, the Exchange may obtain information regarding trading in 
the Shares, underlying stocks and ETFs from markets and other entities 
that are members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. An AP Representative will 
provide information related to creations and redemption of Creation 
Units and Redemption Instruments to FINRA upon request. The Funds' 
Adviser will make available daily to FINRA and the Exchange the 
portfolio holdings of each Fund in order to facilitate the performance 
of the surveillances referred to above.
    The Exchange, after consulting with various Lead Market Makers that 
trade ETFs on the Exchange, believes that market makers will be able to 
make efficient and liquid markets priced near the VIIV, market makers 
have knowledge of a fund's means of achieving its investment objective 
even without daily disclosure of a fund's underlying portfolio. The 
Exchange believes that market makers will employ risk-management 
techniques to make efficient markets in exchange traded products.\43\ 
This ability should permit market makers to make efficient markets in 
shares without knowledge of a fund's underlying portfolio.
---------------------------------------------------------------------------

    \43\ See note 11, supra.
---------------------------------------------------------------------------

    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Managed Portfolio Shares, market 
makers utilizing statistical arbitrage use the knowledge of a fund's 
means of achieving its investment objective, as described in the 
applicable fund registration statement, to construct a hedging proxy 
for a fund to manage a market maker's quoting risk in connection with 
trading fund shares. Market makers will then conduct statistical 
arbitrage between their hedging proxy (for example, the Russell 1000 
Index) and shares of a fund, buying and selling one against the other 
over the course of the trading day. Eventually, at the end of each day, 
they will evaluate how their proxy performed in comparison to the price 
of a fund's shares, and use that analysis as well as knowledge of risk 
metrics, such as volatility and turnover, to enhance their proxy 
calculation to make it a more efficient hedge.
    The Lead Market Makers also indicated that, as with some other new 
exchange-traded products, spreads would tend to narrow as market makers 
gain more confidence in the accuracy of their hedges and their ability 
to adjust these hedges in real-time relative to the published VIIV and 
gain an understanding of the applicable market risk metrics such as 
volatility and turnover, and as natural buyers and sellers enter the 
market. Other relevant factors cited by Lead Market Makers were that a 
fund's investment objectives are clearly disclosed in the applicable 
prospectus, the existence of quarterly portfolio disclosure and the 
ability to create shares in creation unit size.
    The real-time dissemination of a fund's VIIV, together with the 
right of APs to create and redeem each day at the NAV, will be 
sufficient for market participants to value and trade shares in a 
manner that will not lead to significant deviations between the shares' 
Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed 
Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the shares and a fund's portfolio, in 
addition to the ability of market participants to assess a fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in shares effectively. Professional traders can buy 
shares that they perceive to be trading at a price less than that which 
will be available at a subsequent time, and sell shares they perceive 
to be trading at a price higher than that which will be available at a 
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to shares by the Exchange, 
off-exchange market makers, firms that specialize in electronic 
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being 
``long'' or ``short'' shares through such

[[Page 3858]]

trading and will hedge such risk wholly or partly by simultaneously 
taking positions in correlated assets \44\ or by netting the exposure 
against other, offsetting trading positions--much as such firms do with 
existing ETFs and other equities. Disclosure of a fund's investment 
objective and principal investment strategies in its prospectus and 
SAI, along with the dissemination of the VIIV every second, should 
permit professional investors to engage easily in this type of hedging 
activity.\45\
---------------------------------------------------------------------------

    \44\ Price correlation trading is used throughout the financial 
industry. It is used to discover both trading opportunities to be 
exploited, such as currency pairs and statistical arbitrage, as well 
as for risk mitigation such as dispersion trading and beta hedging. 
These correlations are a function of differentials, over time, 
between one or multiple securities pricing. Once the nature of these 
price deviations have been quantified, a universe of securities is 
searched in an effort to, in the case of a hedging strategy, 
minimize the differential. Once a suitable hedging basket has been 
identified, a trader can minimize portfolio risk by executing the 
hedging basket. The trader then can monitor the performance of this 
hedge throughout the trade period, making corrections where 
warranted.
    \45\ With respect to trading in Shares of the Funds, market 
participants would manage risk in a variety of ways. It is expected 
that market participants will be able to determine how to trade 
Shares at levels approximating the VIIV without taking undue risk by 
gaining experience with how various market factors (e.g., general 
market movements, sensitivity of the VIIV to intraday movements in 
interest rates or commodity prices, etc.) affect VIIV, and by 
finding hedges for their long or short positions in Shares using 
instruments correlated with such factors. The Adviser expects that 
market participants will initially determine the VIIV's correlation 
to a major large capitalization equity benchmark with active 
derivative contracts, such as the Russell 1000 Index, and the degree 
of sensitivity of the VIIV to changes in that benchmark. For 
example, using hypothetical numbers for illustrative purposes, 
market participants should be able to determine quickly that price 
movements in the Russell 1000 Index predict movements in a Fund's 
VIIV 95% of the time (an acceptably high correlation) but that the 
VIIV generally moves approximately half as much as the Russell 1000 
Index with each price movement. This information is sufficient for 
market participants to construct a reasonable hedge--buy or sell an 
amount of futures, swaps or ETFs that track the Russell 1000 equal 
to half the opposite exposure taken with respect to Shares. Market 
participants will also continuously compare the intraday performance 
of their hedge to a Fund's VIIV. If the intraday performance of the 
hedge is correlated with the VIIV to the expected degree, market 
participants will feel comfortable they are appropriately hedged and 
can rely on the VIIV as appropriately indicative of a Fund's 
performance.
---------------------------------------------------------------------------

    With respect to trading of Shares of the Funds, the ability of 
market participants to buy and sell Shares at prices near the VIIV is 
dependent upon their assessment that the VIIV is a reliable, indicative 
real-time value for a Fund's underlying holdings. Market participants 
are expected to accept the VIIV as a reliable, indicative real-time 
value because (1) the VIIV will be calculated and disseminated based on 
a Fund's actual portfolio holdings, (2) the securities in which the 
Funds plan to invest are generally highly liquid and actively traded 
and therefore generally have accurate real time pricing available, and 
(3) market participants will have a daily opportunity to evaluate 
whether the VIIV at or near the close of trading is indeed predictive 
of the actual NAV.
    The real-time dissemination of a Fund's VIIV, together with the 
ability of APs to create and redeem each day at the NAV, will be 
crucial for market participants to value and trade Shares in a manner 
that will not lead to significant deviations between the Shares' Bid/
Ask Price and NAV.\46\
---------------------------------------------------------------------------

    \46\ The statements in the Statutory Basis section of this 
filing relating to pricing efficiency, arbitrage, and activities of 
market participants, including market makers and APs, are based on 
representations by the Adviser and review by the Exchange.
---------------------------------------------------------------------------

    In a typical index-based ETF, it is standard for APs to know what 
securities must be delivered in a creation or will be received in a 
redemption. For Managed Portfolio Shares, however, APs do not need to 
know the securities comprising the portfolio of a Fund since creations 
and redemptions are handled through the Confidential Account mechanism. 
The Adviser represents that the in-kind creations and redemptions 
through a Confidential Account will preserve the integrity of the 
active investment strategy and reduce the potential for ``free riding'' 
or ``front-running,'' while still providing investors with the 
advantages of the ETF structure.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of an 
issue of Managed Portfolio Shares that the NAV per share of a fund will 
be calculated daily and that the NAV will be made available to all 
market participants at the same time. Investors can also obtain a 
fund's SAI, shareholder reports, and its Form N-CSR, Form N-Q and Form 
N-SAR. A fund's SAI and shareholder reports will be available free upon 
request from the applicable fund, and those documents and the Form N-
CSR, Form N-Q and Form N-SAR may be viewed on-screen or downloaded from 
the Commission's website. In addition, with respect to the Funds, a 
large amount of information will be publicly available regarding the 
Funds and the Shares, thereby promoting market transparency. Quotation 
and last sale information for the Shares will be available via the CTA 
high-speed line. Information regarding the intra-day value of the 
Shares of a Fund, which is the VIIV as defined in proposed NYSE Arca 
Rule 8.900-E (c)(3), will be widely disseminated every second 
throughout the Exchange's Core Trading Session by one or more major 
market data vendors. The website for the Funds will include a form of 
the prospectus for the Funds that may be downloaded, and additional 
data relating to NAV and other applicable quantitative information, 
updated on a daily basis. Moreover, prior to the commencement of 
trading, the Exchange will inform its ETP Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares. Trading in Shares of a Fund will be halted if the 
circuit breaker parameters in NYSE Arca Rule 7.12-E have been reached 
or because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable. Trading in the Shares 
will be subject to NYSE Arca Rule 8.900-E (d)(2)(C), which sets forth 
circumstances under which Shares of the Funds will be halted. In 
addition, as noted above, investors will have ready access to the VIIV, 
and quotation and last sale information for the Shares. The Shares will 
conform to the initial and continued listing criteria under proposed 
Rule 8.900-E. The Funds will not invest in futures, forwards or swaps. 
Each Fund's investments will be consistent with its investment 
objective and will not be used to enhance leverage. While a Fund may 
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X, 
-2X, 3X or -3X) ETFs. The Funds will not invest in non-U.S. listed 
securities.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the VIIV and quotation 
and last sale information for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose

[[Page 3859]]

any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange believes the 
proposed rule change would permit listing and trading of another type 
of actively-managed ETF that has characteristics different from 
existing actively-managed and index ETFs, and would introduce 
additional competition among various ETF products to the benefit of 
investors.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or up to 90 days (i) as the Commission may designate 
if it finds such longer period to be appropriate and publishes its 
reasons for so finding or (ii) as to which the self-regulatory 
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2018-04 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-2018-04. 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 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. 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-2018-04 and should be submitted 
on or before February 16, 2018.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\47\
---------------------------------------------------------------------------

    \47\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01364 Filed 1-25-18; 8:45 am]
 BILLING CODE 8011-01-P


