
[Federal Register Volume 84, Number 39 (Wednesday, February 27, 2019)]
[Notices]
[Pages 6451-6456]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-03331]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-85170; File No. SR-NYSEArca-2019-04]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Amending NYSE Arca Rule 5.2-E(j)(3) To Adopt 
Generic Listing Standards for Investment Company Units Based on an 
Index of Municipal Bond Securities

February 21, 2019.
    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 February 8, 2019, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Rule 5.2-E(j)(3) (``Rule 
5.2-E(j)(3)'') to adopt generic listing standards for Investment 
Company Units (``Units'') based on an index of municipal bond 
securities. 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
    NYSE Arca Rule 5.2-E(j)(3) permits the Exchange to list a series of 
Units based on an index or portfolio of underlying securities. 
Currently, Rule 5.2-E(j)(3) includes generic listing standards for 
Units based on an index or portfolio of equity or fixed income 
securities or a combination thereof. The Exchange proposes to amend 
Rule 5.2-E(j)(3) to add a new Commentary .02A to provide generic 
listing standards for Units based on an index or portfolio of Municipal 
Securities.\4\
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    \4\ The term ``Municipal Securities'' has the definition given 
to it in Section 3(a)(29) of the Securities Exchange Act of 1934.
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    An index of Municipal Securities typically does not meet the 
generic listing requirements for Units based on an index of fixed-
income securities.\5\ Nonetheless, the Commission has previously 
approved proposed rule changes relating to listing and trading on the 
Exchange of Units based on an index of Municipal Securities.\6\ Given

[[Page 6452]]

the large number of prior approvals by the Commission, the Exchange now 
proposes to adopt generic listing standards for Units based on an index 
of Municipal Securities that do not meet the generic listing standards 
for Units based on an index of fixed-income securities.
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    \5\ See Commentary .02(a)(2) to NYSE Arca Rule 5.2-E(j)(3). 
Municipal Securities are typically issued in with individual 
maturities of relatively small size, although they generally are 
constituents of a much larger municipal bond offering. Therefore, an 
index of Municipal Securities will typically be unable to satisfy 
the requirement that component fixed income securities that, in the 
aggregate, account for at least 75% of the weight of the index each 
shall have a minimum principal amount outstanding of $100 million or 
more.
    \6\ See Securities Exchange Act Release Nos. 67985 (October 4, 
2012), 77 FR 61804 (October 11, 2012) (SR-NYSEArca-2012-92) (order 
approving proposed rule change relating to the listing and trading 
of iShares 2018 S&P AMT-Free Municipal Series and iShares 2019 S&P 
AMT-Free Municipal Series under NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02); 67729 (August 24, 2012), 77 FR 52776 (August 30, 
2012) (SR-NYSEArca-2012-92) (notice of proposed rule change relating 
to the listing and trading of iShares 2018 S&P AMT-Free Municipal 
Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE 
Arca Equities Rule 5.2(j)(3), Commentary .02); 72523, (July 2, 
2014), 79 FR 39016 (July 9, 2014) (SR-NYSEArca-2014-37) (order 
approving proposed rule change relating to the listing and trading 
of iShares 2020 S&P AMT-Free Municipal Series under NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02); 72172 (May 15, 2014), 79 
FR 29241 (May 21, 2014) (SR-NYSEArca-2014-37) (notice of proposed 
rule change relating to the listing and trading of iShares 2020 S&P 
AMT-Free Municipal Series under NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02); 72464 (June 25, 2014), 79 FR 37373 (July 1, 2014) 
(File No. SR-NYSEArca-2014-45) (order approving proposed rule change 
governing the continued listing and trading of shares of the 
PowerShares Insured California Municipal Bond Portfolio, PowerShares 
Insured National Municipal Bond Portfolio, and PowerShares Insured 
New York Municipal Bond Portfolio); 75468 (July 16, 2015), 80 FR 
43500 (July 22, 2015) (SR-NYSEArca-2015-25) (order approving 
proposed rule change relating to the listing and trading of iShares 
iBonds Dec 2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 
AMT-Free Muni Bond ETF under NYSE Arca Equities Rule 5.2(j)(3)); 
74730 (April 15, 2015), 76 FR 22234 (April 21, 2015) (notice of 
proposed rule change relating to the listing and trading of iShares 
iBonds Dec 2021 AMT-Free Muni Bond ETF and iShares iBonds Dec 2022 
AMT-Free Muni Bond ETF under NYSE Arca Equities Rule 5.2(j)(3), 
Commentary .02); 74730 75376 (July 7, 2015), 80 FR 40113 (July 13, 
2015) (SR-NYSEArca-2015-18) (order approving proposed rule change 
relating to the listing and trading of Vanguard Tax-Exempt Bond 
Index Fund under NYSE Arca Equities Rule 5.2(j)(3)).
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    In the Exchange's experience, indices of Municipal Securities are 
able to satisfy all of the generic listing requirements applicable to 
fixed-income indices contained in Commentary .02 to Rule 5.2-E(j)(3) 
except the requirement that component securities in an index have a 
minimum original principal amount outstanding. Specifically, Municipal 
Securities are generally issued with individual maturities of 
relatively small size, although they generally are constituents of a 
much larger municipal bond offering. Therefore, Municipal Securities 
are unable to satisfy the rule's requirement that ``at least 75% of the 
Fixed Income Securities portion of the weight of the index or portfolio 
each shall have a minimum original principal amount outstanding of $100 
million or more.'' Notwithstanding the inability of a Municipal 
Securities index to meet this aspect of the generic listing standards, 
the Commission has previously approved for listing and trading a series 
of Units based on such indices where the Exchange has demonstrated an 
index is not susceptible to manipulation.\7\
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    \7\ See Footnote 5 [sic], supra.
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    The Exchange would apply existing Commentary .02 to Rule 5.2-
E(j)(3) and proposed Commentary .02A to Rule 5.2-E(j)(3) in a 
``waterfall'' manner. Specifically, every series of Units based on an 
index of fixed-income securities and cash (including an index that 
contains Municipal Securities) would initially be evaluated against the 
generic listing standards of existing Commentary .02 to Rule 5.2-
E(j)(3). If the index underlying a series of Units satisfied the 
existing criteria of Commentary .02 to Rule 5.2-E(j)(3), the Exchange 
would proceed with listing the Units. The Exchange would apply proposed 
Commentary .02A to Rule 5.2-E(j)(3) only if (i) an index did not meet 
the requirements of Commentary .02 to Rule 5.2-E(j)(3) and (ii) such 
index contained only Municipal Securities and cash.
    The Exchange believes that if an index of fixed-income securities 
and cash (including one that contains Municipal Securities) satisfies 
the existing requirements of Commentary .02 to Rule 5.2-E(j)(3) its 
constituent securities are sufficiently liquid to deter manipulation of 
the index. Further, the proposed alternative listing standard, which 
would only be applicable to an index consisting entirely of Municipal 
Securities and cash, includes many requirements that are more stringent 
than those applicable to an index of fixed-income securities and cash. 
The Exchange believes these heightened requirements would deter 
potential manipulation of such Municipal Securities indices even though 
the index may include securities that have smaller original principal 
amounts outstanding.
Comparison of Existing Quantitative Requirements for Fixed-Income 
Indices vs. Proposed Quantitative Requirements for Municipal Securities 
Indices
    Below is a comparison of the existing quantitative requirements for 
Units based on an index of fixed-income securities versus the 
Exchange's proposed alternative quantitative requirements for Units 
based on an index of Municipal Securities:
    Original Principal Amount Outstanding:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Existing Requirement for Fixed-Income       Fixed Income Security
 Securities:                                 components that in
                                             aggregate account for at
                                             least 75% of the Fixed
                                             Income Securities portion
                                             of the weight of the index
                                             or portfolio each shall
                                             have a minimum original
                                             principal amount
                                             outstanding of $100 million
                                             or more.
Proposed Requirement for Municipal          Municipal Security
 Securities:                                 components that in
                                             aggregate account for at
                                             least 90% of the Municipal
                                             Securities portion of the
                                             weight of the index or
                                             portfolio each shall have a
                                             minimum original principal
                                             amount outstanding of at
                                             least $5 million and have
                                             been issued as part of a
                                             transaction of at least $20
                                             million.
------------------------------------------------------------------------

    As discussed above, Municipal Securities are typically issued with 
individual maturities of relatively small size, although they generally 
are constituents of a much larger municipal bond offering. In 
recognition of these smaller offering sizes, the Exchange proposes to 
reduce the minimum original principal amount outstanding requirement 
for component securities to at least $5 million. Further, the Exchange 
proposes that qualifying securities must have been issued as part of a 
transaction of at least $20 million. Lastly, the Exchange proposes to 
increase the percentage weight of an index that must satisfy the 
original principal amount outstanding requirement from 75% to 90%.
    The Exchange does not believe that reducing the minimum original 
principal amount outstanding requirement for component securities will 
make an index more susceptible to manipulation. The Exchange believes 
that the requirement that component securities in a fixed-income index 
have a minimum principal amount outstanding, in concert with the other 
requirements of Commentary .02 to Rule 5.2-E(j)(3), is to ensure that 
such index is sufficiently broad-based in scope as to minimize 
potential manipulation of the index.\8\ However, based on empirical 
analysis, the Exchange does not believe that an index of Municipal 
Securities with lower original principal amounts outstanding is 
necessarily more susceptible to manipulation.\9\ In 2016, Blackrock, 
Inc. analyzed the potential manipulation of Municipal Securities and 
found that such manipulation ``may be uneconomical and is unsupported 
in

[[Page 6453]]

practice.'' \10\ In addition, the Exchange believes that its proposal 
to require that 90% of the weight of a Municipal Securities Index meet 
the original principal amount outstanding requirement (as opposed to 
75% for fixed-income indices) will further deter potential manipulation 
by ensuring that a greater portion of the index meet this minimum size 
requirement.
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    \8\ See Securities Exchange Act Release No. 55783 (May 17, 
2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order 
approving the adoption of generic listing standards for Units based 
on an index of fixed-income securities) at pg. 19-20.
    \9\ See Letter from Samara Cohen, Managing Director, U.S. Head 
of iShares Capital Markets, Joanne Medero, Managing Director, 
Government Relations & Public Policy, and Deepa Damre, Managing 
Director, Legal & Compliance, BlackRock, Inc., to Brent J. Fields, 
Secretary, Commission, dated October 18, 2017 in support of the 
Exchange's proposal to facilitate the listing and trading of certain 
series of Units listed pursuant to NYSE Arca Rule 5.2-E(j)(3) (SR-
NYSEArca-2017-56).
    \10\ See Id. at 3 and accompanying Footnote 11. Blackrock stated 
``Our empirical analysis indicated that: (1) Given the over-the-
counter dealer-centric market for municipal bonds, the bid-ask 
spread decreases with trade size; therefore, trading many small lots 
to move matrix prices is likely to be costly; (2) large trades move 
prices significantly and this effect is incorporated into prices 
quickly; for manipulation to work by affecting bond prices, the 
trades must be large, implying greater dollar cost and more 
likelihood of detection even if markets were segmented; (3) while 
pricing agents apply matrix pricing techniques to value non-traded 
bonds, the effect is likely too small to permit price manipulation 
of the corresponding index or ETF; and (4) market participants will 
use all intraday data to come up with their own valuations 
independently of pricing providers; ultimately, the price of an ETF 
at a point in time reflects these estimates in a manner that 
balances supply and demand.''
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    The Exchange notes that the Commission has previously approved the 
listing and trading of several series of Units where the underlying 
Municipal Securities index required that component securities 
representing at least 90% of the weight of the index have a minimum 
original principal amount outstanding of at least $5 million and have 
been issued as part of a transaction of at least $20 million.\11\
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    \11\ See Securities Exchange Act Release No. 84049 (September 6, 
2018), 83 FR 46228 (September 12, 2012) (SR-NYSEArca-2018-38) (order 
approving, among other things, revisions to the continued listing 
criteria applicable to the iShares New York AMT-Free Muni Bond ETF).
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    Maximum Weight of Component Securities:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Existing Requirement for       No component fixed-income security
 Fixed-Income Securities:       (excluding Treasury Securities and GSE
                                Securities) shall represent more than
                                30% of the Fixed Income Securities
                                portion of the weight of the index or
                                portfolio, and the five most heavily
                                weighted component fixed-income
                                securities in the index or portfolio
                                shall not in the aggregate account for
                                more than 65% of the Fixed Income
                                Securities portion of the weight of the
                                index or portfolio.
Proposed Requirement for       No component Municipal Security shall
 Municipal Securities:          represent more than 10% of the Municipal
                                Securities portion of the weight of the
                                index or portfolio, and the five most
                                heavily weighted component Municipal
                                Securities in the index or portfolio
                                shall not in the aggregate account for
                                more than 30% of the Municipal
                                Securities portion of the weight of the
                                index or portfolio.
------------------------------------------------------------------------

    The Exchange proposes to substantially reduce the maximum weight 
that any individual Municipal Security, or group of five Municipal 
Securities, can have in a Municipal Securities index. The current 
generic listing rules for Units based on a fixed-income index permit 
individual component securities to account for up to 30% of the weight 
of such index and the top-five weighted component securities to account 
for up to 65% of the weight of such index. The Exchange proposes to 
reduce these metrics to 10% for individual Municipal Securities and 30% 
for the top-weighted Municipal Securities in an index.
    The Exchange believes that its proposal will reduce the likelihood 
that a Municipal Securities index underlying a series of Units could be 
subject to manipulation by ensuring that no individual Municipal 
Security, or group of five Municipal Securities, represents an outsized 
weight of a Municipal Securities index.
    Diversification of Issuers:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Existing Requirement for       An underlying index or portfolio
 Fixed-Income Securities:       (excluding one consisting entirely of
                                exempted securities) must include a
                                minimum of 13 non-affiliated issuers.
Proposed Requirement for       An underlying index or portfolio must
 Municipal Securities:          include a minimum of 13 non-affiliated
                                issuers.
------------------------------------------------------------------------

    The current generic listing rules for Units based on an index of 
fixed-income securities require that such index must include securities 
from at least thirteen non-affiliated \12\ issuers. Notably, the 
current rules exempt indices consisting entirely of exempted securities 
from complying with this diversification requirement. Municipal 
Securities are included in the definition of exempted securities.\13\ 
Therefore, an index of Municipal Securities that otherwise met the 
requirements of Commentary .02 to Rule 5.2-E(j)(3) would not be 
required to satisfy any minimum issuer diversification requirement. 
Nonetheless, the Exchange proposes that a Municipal Securities Index be 
required to include securities from at least 13 non-affiliated issuers. 
The Exchange believes that requiring such diversification will reduce 
the likelihood that an index can be manipulated by ensuring that 
securities from a variety of issuers are represented in an index of 
Municipal Securities.
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    \12\ Rule 405 under the Securities Act of 1933 defines an 
affiliate as a person that directly, or indirectly through one or 
more intermediaries, controls or is controlled by, or is under 
common control with such person. Control, for this purpose, is the 
possession, direct or indirect, of the power to direct or cause the 
direction of the management and policies of a person, whether 
through the ownership of voting securities, by contract, or 
otherwise.
    \13\ See Section 3(a)(12) of the Securities Exchange Act of 
1934.
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    Number of Components:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Existing Requirement for Fixed-Income    Thirteen.
 Securities:
Proposed Requirement for Municipal       Five Hundred.
 Securities:
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    The current generic listing rules for Units based on an index of 
fixed-income securities do not have an explicit requirement that an 
index contain a minimum number of securities. However, given that such 
rules require an index to contain securities from at least thirteen 
non-affiliated issuers, there is a de facto requirement that an index 
of fixed-income securities contain at least thirteen component 
securities. As described above, a fixed-income index comprised entirely 
of exempted securities (including Municipal Securities) is not required 
to satisfy the issuer diversification test, thereby allowing it to have 
no minimum number of component securities.
    The Exchange proposes to require that a Municipal Securities Index 
contain at least 500 component securities. The Exchange believes that 
such requirement will ensure that a Municipal Securities index is 
sufficiently broad-based and diversified to make it less susceptible to 
manipulation.
    The Exchange proposes that the quantitative requirements described 
above would apply to a Municipal

[[Page 6454]]

Securities index underlying a series of Units on both an initial and 
continued basis.
    The Exchange proposes to amend Commentary .03 to NYSE Arca Rule 
5.2-E(j)(3) to specify that the Exchange may approve a series of Units 
for listing based on a combination of indexes, including an index of 
Municipal Securities. To the extent that an index of Municipal 
Securities is included in a combination, proposed Commentary .03 will 
specify that the Municipal Securities index must meet all requirements 
of Commentary .02A. In addition, Commentary .03 will be amended to 
specify that requirements related to index dissemination and related 
continued listing standards will apply to indexes of Municipal 
Securities. The Exchange notes that a combination index that includes 
an index of Municipal Securities will not be permitted to seek to 
provide investment results in a multiple of the direct or inverse 
performance of such combination index.
Additional Requirements
    In addition to the quantitative requirements described above, the 
Exchange proposes to adopt additional rules related to (i) index 
methodology and calculation, (ii) dissemination of information, (iii) 
initial shares outstanding, (iv) hours of trading, (v) surveillance 
procedures, and (vi) disclosures. Such additional requirements are 
consistent with the requirements applicable to Units based on an index 
of U.S. equity securities, global equity securities and fixed-income 
securities.
    The Exchange proposes to adopt Commentary .02A(b) to Rule 5.2-
E(j)(3) which will require that (i) if a Municipal Securities index is 
maintained by a broker-dealer or fund advisor, the broker-dealer or 
fund advisor shall erect and maintain a ``firewall'' around the 
personnel who have access to information concerning changes and 
adjustments to the index; (ii) the current index value for Units listed 
pursuant to proposed Commentary .02A(a) will be widely disseminated by 
one or more major market data vendors at least once per day and if the 
index value does not change during some or all of the period when 
trading is occurring on the NYSE Arca Marketplace, the last official 
calculated index value must remain available throughout NYSE Arca 
Marketplace trading hours; and (iii) any advisory committee, 
supervisory board, or similar entity that advises a Reporting Authority 
\14\ or that makes decisions on the index composition, methodology and 
related matters, must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the applicable Municipal Securities 
index.
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    \14\ The term ``Reporting Authority'' has the meaning given to 
it in NYSE Arca Rule 5.1-E(b)(16).
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    The Exchange proposes to adopt Commentary .02A(c) which will 
require that one or more major market data vendors shall disseminate 
for each series of Units based on an index or portfolio of Municipal 
Securities an estimate, updated at least every 15 seconds during the 
Core Trading Session, of the value of a share of each series (the 
``Intraday Indicative Value''). The Intraday Indicative Value may be 
based, for example, upon current information regarding the required 
deposit of securities and cash amount to permit creation of new shares 
of the series or upon the index value. The Intraday Indicative Value 
may be calculated by the Exchange or by an independent third party 
throughout the day using prices obtained from independent market data 
providers or other independent pricing sources such as a broker-dealer 
or price evaluation services. If the Intraday Indicative Value does not 
change during some or all of the period when trading is occurring on 
the Exchange, then the last official calculated Intraday Indicative 
Value must remain available throughout Exchange trading hours.
    The Exchange proposes to adopt Commentary .02A(d) stating that a 
minimum of 100,000 shares of a series of Units will be required to be 
outstanding at commencement of trading.
    The Exchange proposes to adopt Commentary .02A(e) stating that the 
hours of trading for the Units will be as specified in NYSE Arca Rule 
7.34-E(a).
    The Exchange proposes to adopt Commentary .02A(f) specifying that 
Units that are listed or traded pursuant to unlisted trading privileges 
will be subject to the Exchange's written surveillance procedures.
    Pursuant to NYSE Arca Rule 5.2-E(j)(3)(A)(v), the Exchange will 
obtain a representation from an issuer of Units based on an index of 
Municipal Securities that the net asset value per share of the series 
will be calculated daily and will be made available to all market 
participants at the same time.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \15\ 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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    \15\ 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 Units 
listed pursuant to proposed NYSE Arca Rule 5.2-E(j)(3), Commentary .02A 
will be subject to the existing trading surveillances, administered by 
FINRA on behalf 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 applicable federal 
securities laws. FINRA, on behalf of the Exchange, will communicate as 
needed regarding trading in the Shares with other markets that are 
members of the ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. 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. 
FINRA, on behalf of the Exchange, is able to access, as needed, trade 
information for certain fixed income securities held by a Fund reported 
to FINRA's TRACE.
    Pursuant to proposed Commentary .02A(b), if the index is maintained 
by a broker-dealer or fund advisor, the broker-dealer or fund advisor 
shall erect and maintain a ``firewall'' around the personnel who have 
access to information concerning changes and adjustments to the index. 
Further, any advisory committee, supervisory board, or similar entity 
that advises a Reporting Authority or that makes decisions on the index 
composition, methodology and related matters, must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
applicable index.
    The index value of a series of Units listed pursuant to proposed 
Commentary .02A will be widely disseminated by one or more major market 
data vendors at least once per day and if the index value does not 
change during some or all of the period

[[Page 6455]]

when trading is occurring on the Exchange, the last official calculated 
index value must remain available throughout Exchange trading hours. In 
addition, the IIV for the Units will be disseminated by one or more 
major market data vendors, updated at least every 15 seconds during the 
Exchange's Core Trading Session.
    The Exchange believes that the proposed listing standard will 
ensure that indices underlying a series of Units are sufficiently well-
diversified to protect against index manipulation. On an initial and 
continuous basis, each index will contain at least 500 component 
securities. In addition, on an initial and continued basis, at least 
90% of the Municipal Securities portion of the weight of the index or 
portfolio each shall have a minimum original principal amount 
outstanding of at least $5 million and have been issued as part of a 
transaction of at least $20 million. Further, on an initial and 
continued basis, no component Municipal Security shall represent more 
than 10% of the Municipal Securities portion of the weight of the index 
or portfolio, and the five most heavily weighted component Municipal 
Securities in an index or portfolio shall not in the aggregate account 
for more than 30% of the Municipal Securities portion of the weight of 
such index or portfolio. Lastly, on an initial and continued basis, an 
underlying index or portfolio must include a minimum of 13 non-
affiliated issuers. The Exchange believes that this significant 
diversification and the lack of concentration among constituent 
securities provides a strong degree of protection against index 
manipulation.
    In addition, the Exchange represents that Units listed to the 
proposed generic listing rule will comply with all other requirements 
applicable to Units including, but not limited to, the applicable rules 
governing the trading of equity securities, trading hours, trading 
halts, surveillance, information barriers and the Information Bulletin 
to ETP Holders, as set forth in Exchange rules applicable to Units.
    The Exchange believes that its proposed amendments to Commentary 
.03 are consistent with the Act because any index of Municipal 
Securities included in a combination index will be required to meet the 
requirements of proposed Commentary .02A. In addition, such index will 
be required to meet the index dissemination and continued listing 
requirements of Commentary .03. Lastly, a combination index that 
includes an index of Municipal Securities will not be permitted to seek 
to provide investment results in a multiple of the direct or inverse 
performance of such combination index.
    In support of its proposed rule change, the Exchange notes that the 
Commission has previously approved the listing and trading of several 
series of Units where the underlying Municipal Securities index 
required that component securities representing at least 90% of the 
weight of the index have a minimum original principal amount 
outstanding of at least $5 million and have been issued as part of a 
transaction of at least $20 million.\16\ Further, the Exchange notes 
that the other elements of the proposed rule are each the same or more 
restrictive than the generic listing rules applicable to Units based on 
an index of fixed-income securities. The Exchange, therefore, believes 
that indices underlying a series of Units listed pursuant to the 
proposed generic rules will be sufficiently broad-based to deter 
potential manipulation.
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    \16\ See note 10[sic], infra [sic].
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    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest. 
The Exchange believes that a large amount of information will be 
publicly available regarding Units listed pursuant to the proposed 
rule, thereby promoting market transparency. As described above, the 
IIV will be widely disseminated by one or more major market data 
vendors at least every 15 seconds during the Exchange's Core Trading 
Session. The current value of an index underlying a series of Units 
will be disseminated by one or more major market data vendors at least 
once per day. Information regarding market price and trading volume of 
the Units will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services, and 
quotation and last sale information will be available via the CTA high-
speed line. 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 Units. If the 
Exchange becomes aware that the NAV is not being disseminated to all 
market participants at the same time, it will halt trading in the Units 
until such time as the NAV is available to all market participants. 
With respect to trading halts, the Exchange may consider all relevant 
factors in exercising its discretion to halt or suspend trading in the 
Units. Trading also may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Units 
inadvisable. If the IIV or the index values are not being disseminated 
as required, the Exchange may halt trading during the day in which the 
interruption to the dissemination of the applicable IIV or an index 
value occurs. If the interruption to the dissemination of the 
applicable IIV or an index value persists past the trading day in which 
it occurred, the Exchange will halt trading. Trading in Shares of the 
Funds 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 Units 
inadvisable. In addition, investors will have ready access to 
information regarding the IIV, and quotation and last sale information 
for the Units.
    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 
additional types of exchange-traded products based on municipal bond 
indexes that will enhance competition among market participants, to the 
benefit of investors and the marketplace. The Exchange has in place 
surveillance procedures relating to trading in the Units 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, investors will have ready access to 
information regarding the IIV and quotation and last sale information 
for the Units. Trade price and other information relating to municipal 
bonds is available through the MSRB's EMMA system.

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

    The Exchange does not believe that its proposal would impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of Units 
based on an index of Municipal Securities which 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.

[[Page 6456]]

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2019-04 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-2019-04. 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-2019-04 and should be submitted 
on or before March 20, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-03331 Filed 2-26-19; 8:45 am]
 BILLING CODE 8011-01-P


