[Federal Register Volume 83, Number 198 (Friday, October 12, 2018)]
[Notices]
[Pages 51752-51758]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-22210]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84381; File No. SR-NYSEArca-2018-72]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating To Listing 
and Trading of Shares of the First Trust Ultra Short Duration Municipal 
ETF Under NYSE Arca Rule 8.600-E

October 5, 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 September 28, 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 and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the First Trust 
Ultra Short Duration Municipal ETF under NYSE Arca Rule 8.600-E 
(``Managed Fund Shares''). The proposed rule 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 list and trade shares (``Shares'') of the 
First Trust Ultra Short Duration Municipal ETF (``Fund'') under NYSE 
Arca Rule 8.600-E,\4\ which governs the listing and

[[Page 51753]]

trading of Managed Fund Shares.\5\ The Shares will be offered by First 
Trust Exchange-Traded Fund III (the ``Trust''), which is registered 
with the Commission as an open-end management investment company.\6\ 
The Fund is a series of the Trust.
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    \4\ The Securities and Exchange Commission (``Commission'') has 
approved Exchange listing and trading shares of actively managed 
funds that principally hold municipal bonds. See, e.g., Securities 
Exchange Act Release Nos. 60981 (November 10, 2009), 74 FR 59594 
(November 18, 2009) (SR-NYSEArca-2009-79) (order approving listing 
and trading of shares of the PIMCO Short-Term Municipal Bond 
Strategy Fund and PIMCO Intermediate Municipal Bond Strategy Fund); 
79293 (November 10, 2016), 81 FR 81189 (November 17, 2016) (SR-
NYSEArca-2016-107) (order approving listing and trading of shares of 
Cumberland Municipal Bond ETF under Rule 8.600); 80865 (June 6, 
2017), 82 FR 26970 (June 12, 2017) (order approving listing and 
trading of shares of the Franklin Liberty Intermediate Municipal 
Opportunities ETF and Franklin Liberty Municipal Bond ETF under NYSE 
Arca Equities Rule 8.600); 80885 (June 8, 2017), 82 FR 27302 (June 
14, 2017) (order approving listing and trading of shares of the IQ 
Municipal Insured ETF, IQ Municipal Short Duration ETF, and IQ 
Municipal Intermediate ETF under NYSE Arca Equities Rule 8.600); 
82166 (November 29, 2017), 82 FR 57497 (December 5, 2017) (SR-
NYSEArca-2017-90) (order approving listing and trading of shares of 
the Hartford Municipal Opportunities ETF Under NYSE Arca Rule 8.600-
E). The Commission also has approved listing and trading on the 
Exchange of shares of the SPDR Nuveen S&P High Yield Municipal Bond 
Fund under Commentary .02 of NYSE Arca Equities Rule 5.2(j)(3). See 
Securities Exchange Act Release No. 63881 (February 9, 2011), 76 FR 
9065 (February 16, 2011) (SR-NYSEArca-2010-120).
    \5\ A Managed Fund 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 company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3), 
seeks to provide investment results that correspond generally to the 
price and yield performance of a specific foreign or domestic stock 
index, fixed income securities index or combination thereof.
    \6\ The Trust is registered under the 1940 Act. On August 17, 
2018, the Trust filed with the Commission its registration statement 
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) 
(``Securities Act''), and under the 1940 Act relating to the Fund 
(File Nos. 333-176976 and 811-22245) (``Registration Statement''). 
The description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
30029 (April 10, 2012) (File No. 812-13795) (``Exemptive Order'').
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    First Trust Advisors L.P. will be the Fund's investment adviser 
(``Adviser''). First Trust Portfolios L.P. will be the Fund's 
distributor. Brown Brothers Harriman & Co. will serve as custodian 
(``Custodian'') and transfer agent (``Transfer Agent'') for the Fund.
    Commentary .06 to Rule 8.600-E provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect 
and maintain a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio.\7\ In 
addition, Commentary .06 further requires that personnel who make 
decisions on the open-end fund's portfolio composition must be subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the open-end fund's portfolio. The 
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 of and/or changes to the Fund's 
portfolio. In addition, personnel who make decisions on the Fund's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material, non-public information regarding 
the Fund's portfolio. In the event (a) the Adviser becomes registered 
as a broker-dealer or newly affiliated with a broker-dealer, or (b) any 
new adviser to the Fund is a registered broker-dealer or becomes 
affiliated with a broker-dealer, the applicable adviser will implement 
and maintain a fire wall with respect to its relevant personnel or 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the Fund's portfolio, and will be subject 
to procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \7\ 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 are 
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 
violation, 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.
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First Trust Ultra Short Duration Municipal ETF
    According to the Registration Statement, the Fund will seek to 
provide federally tax-exempt income consistent with capital 
preservation. Under normal market conditions,\8\ the Fund will seek to 
achieve its investment objective by investing at least 80% of its net 
assets (including investment borrowings) in municipal debt securities 
that pay interest that is exempt from regular federal income taxes 
(collectively, ``Municipal Securities'').\9\
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    \8\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5). The Exchange represents that, on a 
temporary basis, including for defensive purposes, during the 
initial invest-up period (for purposes of this filing, i.e., the 
six-week period following the commencement of trading of Shares on 
the Exchange) and during periods of high cash inflows or outflows 
(for purposes of this filing, i.e. rolling periods of seven calendar 
days during which inflows or outflows of cash, in the aggregate, 
exceed 10% of the Fund's net assets as of the opening of business on 
the first day of such periods), the Fund may depart from its 
principal investment strategies; for example, it may hold a higher 
than normal proportion of its assets in cash. During such periods, 
the Fund may not be able to achieve its investment objectives. 
According to the Exchange, the Fund may adopt a defensive strategy 
when the Adviser believes securities in which the Fund normally 
invests have elevated risks due to political or economic factors and 
in other extraordinary circumstances.
    \9\ Municipal Securities are generally issued by or on behalf of 
states, territories or possessions of the U.S. and the District of 
Columbia and their political subdivisions, agencies, authorities and 
other instrumentalities.
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    According to the Registration Statement, the Fund may invest in the 
following Municipal Securities:
     Municipal lease obligations (and certificates of 
participation in such obligations),
     municipal general obligation bonds,
     municipal revenue bonds,
     municipal notes,
     municipal cash equivalents,
     alternative minimum tax bonds,
     private activity bonds (including without limitation 
industrial development bonds),
     securities issued by custodial receipt trusts,\10\ and
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    \10\ According to the Registration Statement, custodial receipts 
are financial instruments that are underwritten by securities 
dealers or banks and evidence ownership of future interest payments, 
principal payments or both on certain municipal securities.
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     pre-refunded and escrowed to maturity bonds.
    The Fund may purchase new issues of Municipal Securities on a when-
issued or forward commitment basis.
    The Municipal Securities in which the Fund invests may be fixed, 
variable or floating rate securities.
Other Investments
    While the Fund, under normal market conditions, will invest at 
least 80% of its net assets in Municipal Securities as described above, 
the Fund may, under normal market conditions, invest up to 20% of its 
net assets in the aggregate in the securities and financial instruments 
described below.
    The Fund may hold cash and cash equivalents.\11\ In addition, the 
Fund may hold the following fixed income securities with maturities of 
three months or more: Fixed rate and floating rate U.S. government 
securities;

[[Page 51754]]

certificates of deposit; bankers' acceptances; repurchase agreements; 
bank time deposits; and commercial paper.
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    \11\ For purposes of this filing, the term ``cash equivalents'' 
has the meaning specified in Commentary .01(c) to NYSE Arca Rule 
8.600-E.
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    The Fund may hold the following derivative instruments: U.S. 
Treasury futures contracts; interest rate futures; futures on fixed 
income securities or fixed income securities indexes; and exchange-
traded and over-the-counter (``OTC'') credit default swaps, interest 
rate swaps, swaps on fixed income securities and swaps on fixed income 
securities indexes.
    The Fund may invest in the securities of exchange-traded funds 
(``ETFs''), or acquire short positions in such ETFs.\12\
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    \12\ For purposes of this filing, the term ``ETFs'' includes 
Investment Company Units (as described in NYSE Arca Rule 5.2-
E(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca 
Rule 8.100-E); and Managed Fund Shares (as described in NYSE Arca 
Rule 8.600-E). All ETFs will be listed and traded in the U.S. on a 
national securities exchange. While the Fund may invest in inverse 
ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -
3X) ETFs.
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    The Fund will not invest in securities or other financial 
instruments that have not been described in this proposed rule change.
Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at NAV 
\13\ only in large blocks of Shares (``Creation Units'') in 
transactions with authorized participants, generally including broker-
dealers and large institutional investors (``Authorized 
Participants''). Creation Units generally will consist of 50,000 
Shares. The size of a Creation Unit is subject to change. As described 
in the Registration Statement, the Fund will issue and redeem Creation 
Units in exchange for an in-kind portfolio of instruments and/or cash 
in lieu of such instruments (the ``Creation Basket'').\14\ In addition, 
if there is a difference between the NAV attributable to a Creation 
Unit and the market value of the Creation Basket exchanged for the 
Creation Unit, the party conveying instruments (which may include cash-
in-lieu amounts) with the lower value will pay to the other an amount 
in cash equal to the difference (referred to as the ``Cash 
Component'').
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    \13\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange (``NYSE''), generally 4:00 p.m., 
Eastern Time (``E.T.''). NAV per Share will be calculated by 
dividing the Fund's net assets by the number of Fund Shares 
outstanding.
    \14\ It is expected that the Fund will typically issue and 
redeem Creation Units on a cash basis; however, at times, the Fund 
may issue and redeem Creation Units on an in-kind (or partially in-
kind) (or partially cash) basis.
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    Creations and redemptions must be made by or through an Authorized 
Participant that has executed an agreement that has been agreed to by 
the Distributor and the Transfer Agent with respect to creations and 
redemptions of Creation Units. All standard orders to create Creation 
Units must be received by the Transfer Agent no later than the closing 
time of the regular trading session on the NYSE (ordinarily 4:00 p.m., 
E.T.) (the ``Closing Time'') in each case on the date such order is 
placed in order for the creation of Creation Units to be effected based 
on the NAV of Shares as next determined on such date after receipt of 
the order in proper form. Shares may be redeemed only in Creation Units 
at their NAV next determined after receipt not later than the Closing 
Time of a redemption request in proper form by the Fund through the 
Transfer Agent and only on a business day. The Custodian, through the 
National Securities Clearing Corporation (``NSCC''), will make 
available on each business day, prior to the opening of business of the 
Exchange, the list of the names and quantities of the instruments 
comprising the Creation Basket, as well as the estimated Cash Component 
(if any), for that day. The published Creation Basket will apply until 
a new Creation Basket is announced on the following business day prior 
to commencement of trading in the Shares.
Availability of Information
    The Fund will disclose on the Fund's website (www.ftportfolios.com) 
at the start of each business day the identities and quantities of the 
securities and other assets held by the Fund that will form the basis 
of the Fund's calculation of its NAV on that business day. The 
portfolio holdings so disclosed will be based on information as of the 
close of business on the prior business day and/or trades that have 
been completed prior to the opening of business on that business day 
and that are expected to settle on the business day.
    The website for the Fund will contain the following information, on 
a per-Share basis, for the Fund: (1) The prior business day's NAV; (2) 
the market closing price or midpoint of the bid-ask spread at the time 
of NAV calculation (the ``Bid-Ask Price''); and (3) a calculation of 
the premium or discount of the Bid-Ask Price against such NAV.
    The Fund's portfolio holdings will be disclosed on the Fund's 
website daily after the close of trading on the Exchange and prior to 
the opening of trading on the Exchange the following day. On a daily 
basis, the Fund will disclose the information required under NYSE Arca 
Rule 8.600-E(c)(2) to the extent applicable. The website information 
will be publicly available at no charge.
    The approximate value of the Fund's investments on a per-Share 
basis, the indicative optimized portfolio value (``IOPV''), will be 
disseminated every 15 seconds during the Exchange Core Trading Session 
(ordinarily 9:30 a.m. to 4:00 p.m., E.T.).
    Investors can also obtain the Fund's Statement of Additional 
Information (``SAI'') and shareholder reports. The Fund's SAI and 
shareholder reports will be available free upon request from the Trust, 
and those documents and Form N-CSR 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, and from the Exchange. Quotation information from brokers and 
dealers or pricing services will be available for Municipal Securities. 
Price information for money market funds is available from the 
applicable investment company's website and from market data vendors. 
Price information for ETFs and exchange-traded futures and swaps held 
by the Fund is available from the applicable exchange. Price 
information for certain fixed income securities held by the Fund is 
available through the Financial Industry Regulatory Authority's (FINRA) 
Trade Reporting and Compliance Engine (``TRACE''). Price information 
for certain Municipal Securities held by the Fund is available through 
the Electronic Municipal Market Access (``EMMA'') of the Municipal 
Securities Rulemaking Board (``MSRB''). Price information for cash 
equivalents; fixed income securities with maturities of three months or 
more (as described above), and OTC swaps will be available from one or 
more major market data vendors. Pricing information regarding each 
asset class in which the Fund will invest will generally be available 
through nationally recognized data service providers through 
subscription agreements. In addition, the IOPV (which is the Portfolio 
Indicative Value, as defined in NYSE Arca Rule 8.600-E(c)(3)), will be 
widely disseminated at least every 15 seconds during the Core Trading 
Session by one or more major

[[Page 51755]]

market data vendors or other information providers.\15\
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    \15\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from CTA or other data feeds.
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Investment Restrictions
    The Fund's investments will be consistent with its investment goal 
and will not be used to provide multiple returns of a benchmark or to 
produce leveraged returns.
    Under normal market conditions, except for periods of high cash 
inflows or outflows,\16\ the Fund will satisfy the following criteria:
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    \16\ See note 8, supra.
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    i. The Fund will have a minimum of 20 non-affiliated issuers; \17\
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    \17\ For the avoidance of doubt, in the case of Municipal 
Securities that are issued by entities whose underlying assets are 
municipal bonds, the underlying municipal bonds will be taken into 
account. Additionally, for purposes of this restriction, each state 
and each separate political subdivision, agency, authority, or 
instrumentality of such state, each multi-state agency or authority, 
and each guarantor, if any, would be treated as separate, non-
affiliated issuers of Municipal Securities.
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    ii. No single Municipal Securities issuer will account for more 
than 10% of the weight of the Fund's portfolio; \18\
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    \18\ See note 17, supra.
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    iii. No individual bond will account for more than 5% of the weight 
of the Fund's portfolio;
    iv. The Fund will limit its investments in Municipal Securities of 
any one state to 20% of the Fund's total assets and will be diversified 
among issuers in at least 10 states;
    v. The Fund will be diversified among a minimum of five different 
industries or sectors of the municipal bond market.\19\
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    \19\ The Fund's investments in Municipal Securities will include 
investments in state and local (e.g., county, city, town) Municipal 
Securities relating to such industries or sectors as the following: 
Airports; bridges and highways; hospitals; housing; jails; mass 
transportation; nursing homes; parks; public buildings; recreational 
facilities; school facilities; streets; and water and sewer works.
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    Pre-refunded bonds will be excluded from the above limits. The 
Adviser represents that, with respect to pre-refunded bonds (also known 
as refunded or escrow-secured bonds, the issuer ``prerefunds'' the bond 
by setting aside in advance all or a portion of the amount to be paid 
to the bondholders when the bond is called. Generally, an issuer uses 
the proceeds from a new bond issue to buy high grade, interest bearing 
debt securities, including direct obligations of the U.S. government, 
which are then deposited in an irrevocable escrow account held by a 
trustee bank to secure all future payments of principal and interest on 
the pre-refunded bonds. The escrow would be sufficient to satisfy 
principal and interest on the call or maturity date and one would not 
look to the issuer for repayment. Because pre-refunded bonds' pricing 
would be valued based on the applicable escrow (generally U.S. 
government securities), such pre-refunded securities would not be 
readily susceptible to market manipulation and it would be unnecessary 
to apply the diversification and weighting criteria set forth above.
Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the 
portfolio for the Fund will not meet all of the ``generic'' listing 
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to 
the listing of Managed Fund Shares. The Fund's portfolio will meet all 
such requirements except for those set forth in Commentary 
.01(b)(1).\20\
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    \20\ Commentary .01(b)(1) to NYSE Arca Rule 8.600-E provides 
that components that in the aggregate account for at least 75% of 
the fixed income weight of the portfolio each shall have a minimum 
original principal amount outstanding of $100 million or more.
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    The Exchange believes that it is appropriate and in the public 
interest to approve listing and trading of Shares of the Fund on the 
Exchange notwithstanding that the Fund would not meet the requirements 
of Commentary .01(b)(1) to Rule 8.600-E in that the Fund's investments 
in municipal securities will be well-diversified.
    The Exchange believes that permitting Fund Shares to be listed and 
traded on the Exchange notwithstanding that less than 75% of the weight 
of the Fund's portfolio may consist of components with $100 million 
minimum original principal amount outstanding would provide the Fund 
with greater ability to select from a broad range of Municipal 
Securities, as described above, that would support the Fund's 
investment goal.
    The Exchange believes that, notwithstanding that the Fund's 
portfolio may not satisfy Commentary .01(b)(1) to Rule 8.600-E, the 
Fund's portfolio will not be susceptible to manipulation. As noted 
above, the Fund's investments, excluding pre-refunded bonds, as 
described above, will be diversified among a minimum of 20 non-
affiliated municipal issuers; no single Municipal Securities issuer 
will account for more than 10% of the weight of the Fund's portfolio; 
no individual bond will account for more than 5% of the weight of the 
Fund's portfolio; the Fund will limit its investments in Municipal 
Securities of any one state to 20% of the Fund's total assets and will 
be diversified among municipal issuers in at least 10 states; and the 
Fund will be diversified among a minimum of five different industries 
or sectors of the municipal bond market.
    The Exchange notes that the Commission has previously approved an 
exception from requirements set forth in Commentary .01(b) relating to 
municipal securities similar to those proposed with respect to the 
Fund.\21\
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    \21\ See Securities Exchange Act Release Nos. 82974 (March 30, 
2018), 83 FR 14698 (April 5, 2018) (SR-NYSEArca-2017-99) (Notice of 
Filing of Amendment No. 3 and Order Granting Accelerated Approval of 
a Proposed Rule Change, as Modified by Amendment No. 3, to List and 
Trade Shares of the Hartford Schroders Tax-Aware Bond ETF Under NYSE 
Arca Rule 8.600-E); 82166 (November 29, 2017), 82 FR 57497 (December 
5, 2017) (SR-NYSEArca-2017-90) (Order Approving a Proposed Rule 
Change, as Modified by Amendment No. 2, to List and Trade Shares of 
the Hartford Municipal Opportunities ETF Under NYSE Arca Rule 8.600-
E). See also, Securities Exchange Act Release 83982 (August 29, 
2018) (SR-NYSEArca-2018-62) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Relating to Listing and 
Trading of Shares of the American Century Diversified Municipal Bond 
ETF under NYSE Arca Rule 8.600-E).
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    The Exchange notes that, other than Commentary .01(b)(1) to Rule 
8.600-E, the Fund's portfolio will meet all other requirements of Rule 
8.600-E.
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 Fund.\22\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
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    \22\ See NYSE Arca Rule 7.12-E.
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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 
NYSE Arca from 4 a.m. to 8 p.m., E.T. in accordance with NYSE Arca Rule 
7.34-E (Early, Core, and Late Trading Sessions). The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in NYSE Arca Rule 7.6-E, the minimum 
price variation (``MPV'') for quoting and entry of orders in equity 
securities traded on NYSE Arca is $0.01, with the exception of 
securities that are priced less than

[[Page 51756]]

$1.00 for which the MPV for order entry is $0.0001.
    The Shares of the Fund will conform to the initial and continued 
listing criteria under NYSE Arca Rule 8.600-E. Consistent with NYSE 
Arca Rule 8.600-E(d)(2)(B)(ii), the Adviser will implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the Fund's portfolio. The Exchange represents that, for 
initial and/or continued listing, the Fund will be in compliance with 
Rule 10A-3 \23\ under the Act, as provided by NYSE Arca Rule 5.3-E. A 
minimum of 100,000 Shares will be outstanding at the commencement of 
trading on the Exchange. The Exchange will obtain a representation from 
the issuer of the Shares that the NAV per Share will be calculated 
daily and that the NAV and the Disclosed Portfolio will be made 
available to all market participants at the same time. The Fund's 
investments will be consistent with the Fund's investment goal and will 
not be used to enhance leverage.
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    \23\ 17 CFR 240.10A-3.
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Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by FINRA on behalf 
of the Exchange, or by regulatory staff of the Exchange, which are 
designed to detect violations of Exchange rules and applicable federal 
securities laws. 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.\24\
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    \24\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares, ETFs and certain 
futures 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 in the Shares, ETFs and certain futures from such 
markets and other entities.\25\ In addition, the Exchange may obtain 
information regarding trading in the Shares, ETFs and certain futures 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement. In addition, FINRA, on behalf of the Exchange, is able to 
access, as needed, trade information for certain fixed income 
securities held by the Fund reported to FINRA's TRACE. FINRA also can 
access data obtained from the MSRB relating to municipal bond trading 
activity for surveillance purposes in connection with trading in the 
Shares.
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    \25\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
listing rules specified in this rule filing shall constitute continued 
listing requirements for listing the Shares of the Fund on the 
Exchange.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit 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 in Creation Unit 
aggregations (and that Shares are not individually redeemable); (2) 
NYSE Arca Rule 9.2-E(a), which imposes a duty of due diligence on its 
Equity Trading Permit Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (3) the risks involved in 
trading the Shares during the Early and Late Trading Sessions when an 
updated IOPV will not be calculated or publicly disseminated; (4) how 
information regarding the IOPV and the Disclosed Portfolio is 
disseminated; (5) the requirement that Equity Trading Permit Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (6) 
trading information.
    In addition, the Bulletin will reference that the Fund is 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 basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \26\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \26\ 15 U.S.C. 78f(b)(5).
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    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 8.600-E. The 
Exchange has in place surveillance procedures that are adequate to 
properly monitor trading in the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws. The Exchange or FINRA, on behalf of the Exchange, or 
both, will communicate as needed regarding trading in the Shares, ETFs 
and certain futures with other markets and other entities that are 
members of the ISG, and the Exchange or FINRA, on behalf of the 
Exchange, or both, may obtain trading information regarding trading in 
the Shares, ETFs and certain futures from such markets and other 
entities. In addition, the Exchange may obtain

[[Page 51757]]

information regarding trading in the Shares, ETFs and certain futures 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement. In addition, FINRA, on behalf of the Exchange, is able to 
access, as needed, trade information for certain fixed income 
securities held by the Fund reported to TRACE. FINRA also can access 
data obtained from the MSRB relating to municipal bond trading activity 
for surveillance purposes in connection with trading in the Shares. The 
Adviser is not a registered broker-dealer but is affiliated with a 
broker-dealer. The Adviser has implemented and will maintain a ``fire 
wall'' with respect to such broker-dealer affiliate regarding access to 
information concerning the composition of and/or changes to the Fund's 
portfolio.
    The Exchange believes that it is appropriate and in the public 
interest to approve listing and trading of Shares of the Fund on the 
Exchange notwithstanding that the Fund would not meet the requirements 
of Commentary .01(b)(1) to Rule 8.600-E in that the Fund's investments 
in municipal securities will be well-diversified. As noted above, the 
Fund's investments will be well-diversified in that the Fund, excluding 
pre-refunded bonds, as described above, will have a minimum of 20 non-
affiliated municipal issuers; no single municipal issuer will account 
for more than 10% of the weight of the Fund's portfolio; no individual 
bond will account for more than 5% of the weight of the Fund's 
portfolio; the Fund will limit its investments in Municipal Securities 
of any one state to 20% of the Fund's total assets and will be 
diversified among municipal issuers in at least 10 states; and the Fund 
will be diversified among a minimum of five different industries or 
sectors of the municipal bond market. With respect to the proposed 
exclusion for pre-refunded bonds described above, generally, an issuer 
uses the proceeds from a new bond issue to buy high grade, interest 
bearing debt securities, including direct obligations of the U.S. 
government, which are then deposited in an irrevocable escrow account 
held by a trustee bank to secure all future payments of principal and 
interest on the pre-refunded bonds. The escrow would be sufficient to 
satisfy principal and interest on the call or maturity date and one 
would not look to the issuer for repayment. Because pre-refunded bonds' 
pricing would be valued based on the applicable escrow (generally U.S. 
government securities), such pre-refunded securities would not be 
readily susceptible to market manipulation and it would be unnecessary 
to apply the diversification and weighting criteria set forth above in 
``Investment Restrictions.''
    The Exchange believes that permitting Fund Shares to be listed and 
traded on the Exchange notwithstanding that less than 75% of the weight 
of the Fund's portfolio may consist of components with $100 million 
minimum original principal amount outstanding would provide the Fund 
with greater ability to select from a broad range of municipal 
securities, as described above, that would support the Fund's 
investment objective.
    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 the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Quotation and last sale 
information for the Shares will be available via the CTA high-speed 
line, and from the national securities exchange on which they are 
listed. Quotation information from brokers and dealers or pricing 
services will be available for Municipal Securities. Price information 
for money market funds is available from the applicable investment 
company's website and from market data vendors. Price information for 
ETFs and exchange-traded futures and swaps held by the Fund is 
available from the applicable exchange. Price information for certain 
fixed income securities held by the Fund is available through FINRA's 
TRACE. Price information for certain Municipal Securities held by the 
Fund is available through EMMA of the MSRB. Price information for cash 
equivalents; fixed income securities with maturities of three months or 
more (as described above), and OTC swaps will be available from one or 
more major market data vendors. Pricing information regarding each 
asset class in which the Fund will invest will generally be available 
through nationally recognized data service providers through 
subscription agreements.
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. Trading 
in Shares of the 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 8.600-E(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the IOPV, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
principally holds municipal securities and 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 Fund's holdings, IOPV, Disclosed 
Portfolio, and quotation and last sale information for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded product that 
principally holds municipal securities and that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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

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

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

    The Exchange has filed the proposed rule change pursuant to Section

[[Page 51758]]

19(b)(3)(A)(iii) of the Act \27\ and Rule 19b-4(f)(6) thereunder.\28\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\29\
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    \27\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \28\ 17 CFR 240.19b-4(f)(6).
    \29\ 17 CFR 240.19b-4(f)(6) (iii). As required under Rule 19b-
4(f)(6)(iii), the Exchange provided the Commission with written 
notice of its intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission.
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    A proposed rule change filed under Rule 19b-4(f)(6)\30\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b4(f)(6)(iii),\31\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Exchange states that 
the waiver of the 30-day delayed operative date is consistent with the 
protection of investors and the public interest because the Commission 
has previously approved an exception from requirements set forth in 
Commentary .01(b) relating to municipal securities similar to those 
proposed with respect to the Fund.\32\ Additionally, the Exchange 
asserts that waiver will permit the prompt listing and trading of an 
additional issue of Managed Fund Shares that principally holds 
municipal securities, which will enhance competition among issuers, 
investment advisers and other market participants with respect to 
listing and trading of issues of Managed Fund Shares that hold 
municipal securities. The Commission believes that waiver of the 30-day 
operative delay is consistent with the protection of investors and the 
public interest because the proposed continuing listing standards for 
the Shares are substantially similar to those applicable to others 
approved by the Commission for similar funds. Accordingly, the 
Commission hereby waives the 30-day operative delay and designates the 
proposed rule change operative upon filing.\33\
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    \30\ 17 CFR 240.19b-4(f)(6).
    \31\ 17 CFR 240.19b-4(f)(6)(iii).
    \32\ See note 21, supra.
    \33\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B)\34\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

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-2018-72 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-2018-72. 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-2018-72, and should be 
submitted on or before November 2, 2018.
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    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-22210 Filed 10-11-18; 8:45 am]
 BILLING CODE 8011-01-P


