[Federal Register Volume 84, Number 151 (Tuesday, August 6, 2019)]
[Notices]
[Pages 38312-38315]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-16717]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-86532; File No. SR-NYSEArca-2019-02]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To 
List and Trade the Shares of the ProShares UltraPro 3x Natural Gas ETF 
and ProShares UltraPro 3x Short Natural Gas ETF Under NYSE Arca Rule 
8.200-E

July 31, 2019.

I. Introduction

    On January 28, 2019, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1)\1\ of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ a proposed rule change to list and trade shares 
(``Shares'') of the ProShares UltraPro 3x Natural Gas ETF and ProShares 
UltraPro 3x Short Natural Gas ETF (individually, ``Fund,'' and 
collectively, ``Funds'') under NYSE Arca Equities Rule 8.200-E. The 
proposed rule change was published for comment in the Federal Register 
on February 15, 2019.\4\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 85088 (Feb. 11, 
2019), 84 FR 4573 (``Notice'').
---------------------------------------------------------------------------

    On March 26, 2019, pursuant to Section 19(b)(2) of the Act,\5\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\6\ On May 15, 2019, the Commission instituted proceedings under 
Section 19(b)(2)(B) of the Act \7\ to determine whether to approve or 
disapprove the proposed rule change.\8\ In the Order Instituting 
Proceedings, the Commission solicited comments on specified matters 
related to the proposal.\9\ On June 26, 2019, the Exchange filed 
Amendment No. 1 to the proposed rule change.\10\ The Commission has 
received no comments on the proposal. This order grants approval of the 
proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 85417, 84 FR 12304 
(Apr. 1, 2019). The Commission designated May 16, 2019, as the date 
by which the Commission shall approve or disapprove, or institute 
proceedings to determine whether to approve or disapprove, the 
proposed rule change.
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 85860, 84 FR 23103 
(May 21, 2019) (``Order Instituting Proceedings'').
    \9\ Specifically, the Commission instituted proceedings to allow 
for additional analysis of the proposed rule change's consistency 
with Section 6(b)(5) of the Act, which requires, among other things, 
that the rules of a national securities exchange be ``designed to 
prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade,'' and ``to protect investors 
and the public interest.'' See id., 84 FR at 23104.
    \10\ In Amendment No. 1, which amended and replaced the proposed 
rule change in its entirety, the Exchange clarified: (a) That each 
Fund will seek to invest in Futures Contracts (as defined herein) 
listed on NYMEX (as defined herein); (b) the specific circumstances 
and conditions under which a Fund may obtain exposure to the 
Benchmark (as defined herein) through investments in Financial 
Instruments (as defined herein); (c) the trading volume and open 
interest in natural gas futures contracts; (d) the trading hours of 
the natural gas futures contracts, the designated settlement time of 
the natural gas futures contracts, and the daily Benchmark closing 
value calculation time; and (e) that prior to the commencement of 
trading, the Exchange will inform its ETP Holders (as defined 
herein) of the suitability requirements of NYSE Arca Equities Rule 
9.2-E(a) in an information bulletin. In addition, the Exchange made 
other technical, conforming, and non-substantive changes to the 
proposal. Because the changes in Amendment No. 1 do not materially 
alter the substance of the proposed rule change or raise unique or 
novel regulatory issues, Amendment No. 1 is not subject to notice 
and comment. Amendment No. 1 is available on the Commission's 
website at: https://www.sec.gov/comments/sr-nysearca-2019-02/srnysearca201902-5736053-186688.pdf.
---------------------------------------------------------------------------

II. Exchange's Description of the Proposal, as Modified by Amendment 
No. 1 11
---------------------------------------------------------------------------

    \11\ The Commission notes that additional information regarding, 
among other things, the Shares, Funds, investment objectives, 
permitted investments, investment strategies and methodologies, 
investment restrictions, creation and redemption procedures, 
availability of information, trading rules and halts, and 
surveillance procedures, can be found in the Notice (see supra note 
4) and the Registration Statement (see infra note 13), as 
applicable.
---------------------------------------------------------------------------

    The Exchange proposes to list and trade the Shares of each Fund 
under NYSE Arca Rule 8.200-E, Commentary .02, which governs the listing 
and trading of Trust Issued Receipts.\12\ Each Fund is a series of the 
ProShares Trust II (``Trust''), a Delaware statutory trust.\13\ The 
Trust and the Funds are managed and controlled by ProShare Capital 
Management LLC (``ProShare Capital'' or ``Sponsor''). ProShare Capital 
is registered as a commodity pool operator with the Commodity Futures 
Trading Commission and is a member of the National Futures Association. 
The Bank of New York Mellon will be the custodian, transfer agent, and 
administrator for the Funds. SEI Investments Distribution Co. will 
serve as distributor for the Funds.
---------------------------------------------------------------------------

    \12\ Commentary .02 to NYSE Arca Rule 8.200-E applies to Trust 
Issued Receipts that invest in ``Financial Instruments.'' The term 
``Financial Instruments,'' as defined in Commentary .02(b)(4) to 
NYSE Arca Rule 8.200-E, means any combination of investments, 
including cash; securities; options on securities and indices; 
futures contracts; options on futures contracts; forward contracts; 
equity caps, collars, and floors; and swap agreements.
    \13\ The Trust is registered under the Securities Act of 1933. 
On May 19, 2017, the Trust filed with the Commission a registration 
statement on Form S-1 under the Securities Act of 1933 relating to 
the Funds (File No. 333-218136) (``Registration Statement'').
---------------------------------------------------------------------------

Overview of the Funds

    The investment objective of the ProShares UltraPro 3x Natural Gas 
ETF is to seek daily \14\ investment results (before fees and expenses) 
that correspond to three times (3x) the performance of the Bloomberg 
Natural Gas Subindex (``Benchmark''). The investment objective of the 
ProShares UltraPro 3x Short Natural Gas ETF is to seek daily investment 
results (before fees and expenses) that correspond to three times the 
inverse (-3x) of the performance of the Benchmark. The Benchmark is 
intended to reflect the performance of a rolling position in natural 
gas futures contracts listed on the New York Mercantile Exchange 
(``NYMEX,'' which is part of the CME Group, Inc.), without regard to 
income earned on cash positions.
---------------------------------------------------------------------------

    \14\ Each Fund seeks to achieve its investment objective for a 
single day, and not for any other period. The Exchange states that 
the return of a Fund for a period longer than a single trading day 
is the result of its return for each day compounded over the period 
and thus will usually differ from a Fund's multiple times the return 
of the Benchmark for the same period.
---------------------------------------------------------------------------

Investments of the Funds

    In seeking to achieve the Funds' investment objectives, ProShare 
Capital will utilize a mathematical approach to determine the type, 
quantity, and mix of investment positions that ProShare Capital 
believes, in combination, should produce daily returns consistent with 
the Funds' respective objectives. Each Fund will seek to meet its 
respective investment objective by investing, under normal market 
conditions,\15\ in NYMEX-

[[Page 38313]]

listed futures contracts and NYMEX-listed options on such futures 
contracts (collectively, ``Futures Contracts'').\16\ The Funds will not 
invest directly in natural gas. The Funds' investments in Futures 
Contracts will be used to produce economically ``leveraged'' or 
``inverse leveraged'' investment results for the Funds.
---------------------------------------------------------------------------

    \15\ The term ``normal market conditions'' includes, but is not 
limited to, the absence of: trading halts in the applicable 
financial markets generally; operational issues (e.g., systems 
failure) causing dissemination of inaccurate market information; or 
force majeure type events such as natural or manmade disaster, act 
of God, armed conflict, act of terrorism, riot or labor disruption, 
or any similar intervening circumstance. See NYSE Arca Rule 8.600-
E(c)(5).
    \16\ According to the Exchange, a Futures Contract is a 
standardized contract traded on, or subject to the rules of, an 
exchange that calls for the future delivery of a specified quantity 
and type of a particular underlying asset at a specified time and 
place or alternatively may call for cash settlement. The notional 
size and calendar term Futures Contracts on a particular underlying 
asset are identical and are not subject to any negotiation, other 
than with respect to price and the number of contracts traded 
between the buyer and seller. Natural gas futures contracts listed 
on NYMEX have significant volume and open interest. Year-to-date (as 
of 3/27/19) average daily dollar volume of the first and second 
month contracts combined is over $6 billion per day and current open 
is over $10 billion.
---------------------------------------------------------------------------

    Each Fund may, to a lesser extent and in view of regulatory 
requirements and/or market conditions,\17\ obtain exposure to the 
Benchmark through investment in over-the-counter (``OTC'') swap 
transactions and forward contracts based on such Benchmark (``Financial 
Instruments''). A Fund may invest in Financial Instruments: (i) If 
position, price or accountability limits are reached with respect to 
Futures Contracts; \18\ (ii) if margin requirements or exposure limits 
are reached with a particular futures commission merchant; (iii) if the 
market for a specific futures contract experiences emergencies (e.g., 
natural disaster, terrorist attack or an act of God) or disruptions 
(e.g., trading halt or ``flash crash''); (iv) to maintain or increase 
portfolio diversification or liquidity or to obtain more favorable 
pricing; (v) to mitigate credit risk or exposure; or (vi) if the 
Sponsor deems it impractical or otherwise not in the best interest of a 
Fund to buy or sell Futures Contracts (such as during periods of market 
volatility or illiquidity).
---------------------------------------------------------------------------

    \17\ Market conditions that the Sponsor currently anticipates 
could cause a Fund to invest in Financial Instruments include, among 
others, conditions where the Sponsor believes the use of Financial 
Instruments would allow a Fund to obtain greater liquidity or more 
favorable pricing.
    \18\ According to the Exchange, many designated contract 
markets, such as the NYMEX, have established accountability levels 
and position limits on the maximum net long or net short futures 
contracts in commodity interests that any person or group of persons 
under common trading control may hold, own or control. In addition, 
NYMEX also sets price fluctuation limits on futures contracts. 
Options do not have individual price limits but rather are linked to 
the price limit of Futures Contracts.
---------------------------------------------------------------------------

    Each Fund will also hold cash or cash equivalents, such as U.S. 
Treasury securities or other high credit quality, short-term fixed-
income or similar securities (such as shares of money market funds and 
collateralized repurchase agreements), pending investment in Futures 
Contracts or Financial Instruments or as collateral for the Funds' 
investments.
    In addition, to the extent a Fund enters into swap agreements and 
other OTC transactions, it will do so only with large, established and 
well capitalized financial institutions that meet the Sponsor's credit 
quality standards and monitoring policies. Each Fund will use various 
techniques to minimize credit risk including early termination or reset 
and payment, using different counterparties and limiting the net amount 
due from any individual counterparty.
    The Funds do not intend to hold Futures Contracts through 
expiration, but instead intend to ``roll'' or close their respective 
positions before expiration.\19\ The Exchange states that the Funds do 
not expect to have exposure to Futures Contracts and Financial 
Instruments greater than three times (3x) the Funds' net assets. The 
Exchange further represents that not more than 10% of the net assets of 
a Fund in the aggregate invested in Futures Contracts will consist of 
Futures Contracts whose principal market is not a member of the 
Intermarket Surveillance Group (``ISG'') or is a market with which the 
Exchange does not have a comprehensive surveillance sharing agreement 
(``CSSA'').
---------------------------------------------------------------------------

    \19\ The Funds also may invest in options on Futures Contracts. 
Unlike Futures Contracts, which the Funds intend to roll before 
expiration, the Funds intend to hold ``in-the-money'' options on 
Futures Contracts to expiration. The Funds expect to exercise in-
the-money options on Futures Contracts at expiration of the options 
contract and they would settle through receipt or delivery of the 
underlying Futures Contracts. The Funds expect to hold out-of-the 
money options to expiration and that they will be expired worthless. 
Options on Futures Contracts are subject to the effects of contango 
and backwardation to the same general extent as their underlying 
Futures Contracts.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\20\ In particular, the Commission finds that the 
proposed rule change, as modified by Amendment No. 1, is consistent 
with Section 6(b)(5) of the Exchange Act,\21\ which requires, among 
other things, that the Exchange's rules be designed to prevent 
fraudulent and manipulative acts and practices, promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The 
Commission also finds that the proposal to list and trade the Shares on 
the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Exchange Act,\22\ which sets forth Congress' finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities.
---------------------------------------------------------------------------

    \20\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
    \22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    According to the Exchange, quotation and last-sale information 
regarding the Shares will be disseminated through the facilities of the 
Consolidated Tape Association. Quotation information for cash 
equivalents and OTC Financial Instruments may be obtained from brokers 
and dealers who make markets in such instruments. Quotation information 
for exchange-traded swaps will be available from the applicable 
exchange and major market vendors. The intraday, closing prices, and 
settlement prices of the Futures Contracts will be readily available 
from the applicable futures exchange websites, automated quotation 
systems, published or other public sources, or major market data 
vendors. Complete real-time data for the Futures Contracts is available 
by subscription through on-line information services. ICE Futures U.S. 
and NYMEX also provide delayed futures and options on futures 
information on current and past trading sessions and market news free 
of charge on their respective websites. The specific contract 
specifications for Futures Contracts are also available on such 
websites, as well as other financial informational sources. Intra-day 
price and closing price level information for the Benchmark will be 
available from major market data vendors.
    The Funds' website will display the applicable end of day closing 
net asset value (``NAV''). The daily holdings of each Fund will be 
available on the Funds' website. The Funds' website will also include a 
form of the prospectus for the Funds that may be downloaded. The 
website will include the Shares' ticker and CUSIP information, along 
with

[[Page 38314]]

additional quantitative information updated on a daily basis for each 
Fund.\23\ The website disclosure of portfolio holdings will be made 
daily and will include, as applicable, (i) the name, quantity, value, 
expiration, and strike price of Futures Contracts, (ii) the 
counterparty to and value of swap agreements and forward contracts, and 
(iii) the aggregate net value of other assets (i.e., Treasury 
securities, cash equivalents, and cash) held in each Fund's portfolio, 
if applicable. The Funds' website will be publicly available at the 
time of the public offering of Shares and accessible at no charge. The 
spot price of natural gas also is available on a 24-hour basis from 
major market data vendors.
---------------------------------------------------------------------------

    \23\ The Funds' website will include: (1) Daily trading volume, 
the prior business day's reported NAV and closing price, and a 
calculation of the premium and discount of the closing price or mid-
point of the bid/ask spread at the time of NAV calculation (``Bid/
Ask Price'') against the NAV; and (2) data in chart format 
displaying the frequency distribution of discounts and premiums of 
the daily closing price or Bid/Ask Price against the NAV, within 
appropriate ranges, for at least each of the four previous calendar 
quarters.
---------------------------------------------------------------------------

    Each Fund's NAV will be calculated on each day other than a day 
when the Exchange is closed for regular trading. The Funds will 
typically compute their NAVs as of 2:30 p.m. Eastern Time (``E.T.''), 
which is the designated settlement time of the natural gas futures 
listed on NYMEX,\24\ or an earlier time as set forth on 
www.ProShares.com, if necessitated by the Exchange or other exchange 
material to the valuation or operation of such Fund closing early. Each 
Fund's NAV is calculated only once each trading day. In order to 
provide updated information relating to a Fund for use by investors and 
market professionals, the Exchange will calculate an updated IFV, which 
will be calculated by using the prior day's closing NAV per Share of a 
Fund as a base and will be updated throughout the Core Trading Session 
of 9:30 a.m. E.T. to 4:00 p.m. E.T. to reflect changes in the 
approximate aggregate per Share value of the investments held by a Fund 
based on the most recently available prices for the Fund's investments. 
The IFV will be disseminated on a per Share basis every 15 seconds 
during the Exchange's Core Trading Session and be widely disseminated 
by one or more major market data vendors during the NYSE Arca Core 
Trading Session. The NAV for the Shares will be disseminated daily to 
all market participants at the same time.
---------------------------------------------------------------------------

    \24\ The daily closing value of the Benchmark is calculated as 
of 2:30 p.m. E.T. to coincide with the designated settlement time of 
the natural gas futures listed on NYMEX. These contracts generally 
trade 23 hours a day, Sunday through Friday from 6:00 p.m. E.T. with 
a 60-minute break each day beginning at 5:00 p.m. E.T. The Fund's 
Indicative Fund Value (``IFV'') is updated to reflect the price of 
these contracts up until 4:00 p.m.
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. If the Exchange becomes aware that the NAV with respect to the 
Shares is not disseminated to all market participants at the same time, 
it will halt trading in the Shares until such time as the NAV is 
available to all market participants. Further, the Exchange may halt 
trading during the day in which an interruption to the dissemination of 
the IFV or the value of the Benchmark occurs. If the interruption to 
the dissemination of the IFV or the value of the Benchmark persists 
past the trading day in which it occurred, the Exchange will halt 
trading no later than the beginning of the trading day following the 
interruption. Trading in Shares of a Fund will be halted if the circuit 
breaker parameters in NYSE Arca Equities 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. The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. Moreover, trading of the Shares will be subject to NYSE Arca 
Equities Rule 8.200-E, Commentary .02(e), which sets forth certain 
restrictions on Equity Trading Permit (``ETP'') Holders acting as 
registered Market Makers in Trust Issued Receipts to facilitate 
surveillance.
    The Commission notes that the Exchange or the Financial Industry 
Regulatory Authority (``FINRA''), on behalf of the Exchange, or both, 
will communicate as needed regarding trading in the Shares and certain 
Futures Contracts 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 and certain Futures Contracts from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and certain Futures Contracts from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a CSSA.\25\ The Exchange is also able to obtain information 
regarding trading in the Shares, the physical commodities underlying 
Futures Contracts through ETP Holders, in connection with such ETP 
Holders' proprietary or customer trades which they effect through ETP 
Holders on any relevant market. The Exchange can obtain market 
surveillance information, including customer identity information, with 
respect to transactions (including transactions in Futures Contracts) 
occurring on US futures exchanges, which are members of the ISG.
---------------------------------------------------------------------------

    \25\ For a list of the current members of ISG, see 
www.isgportal.org. According to the Exchange, not all components of 
a Fund may trade on markets that are members of ISG or with which 
the Exchange has in place a CSSA.
---------------------------------------------------------------------------

    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. In support of this 
proposal, the Exchange represented that:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.200-E.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading in the Shares will be subject to the existing trading 
surveillances administered by the Exchange, as well as cross-market 
surveillances administered by FINRA on behalf of the Exchange, which 
are designed to detect violations of Exchange rules and applicable 
federal securities laws, and 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.
    (4) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The risks involved in trading the Shares during the Early and Late 
Trading Sessions when an updated IFV will not be calculated or publicly 
disseminated; (b) the procedures for purchases and redemptions of 
Shares in Creation Units (and that Shares are not individually 
redeemable); (c) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (d) how 
information regarding the IFV is

[[Page 38315]]

disseminated; (e) how information regarding portfolio holdings is 
disseminated; (f) the requirement that ETP Holders deliver a prospectus 
to investors purchasing newly issued Shares prior to or concurrently 
with the confirmation of a transaction; (g) trading information; and 
(h) NYSE Arca suitability rules.
    (5) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders of the suitability requirements of NYSE Arca Equities 
Rule 9.2-E(a) in an Information Bulletin. Specifically, ETP Holders 
will be reminded in the Information Bulletin that, in recommending 
transactions in the Shares, they must have a reasonable basis to 
believe that (a) the recommendation is suitable for a customer given 
reasonable inquiry concerning the customer's investment objectives, 
financial situation, needs, and any other information known by such ETP 
Holder, and (b) the customer can evaluate the special characteristics, 
and is able to bear the financial risks, of an investment in the 
Shares. In connection with the suitability obligation, the Information 
Bulletin will also provide that ETP Holders must make reasonable 
efforts to obtain the following information: (i) The customer's 
financial status; (ii) the customer's tax status; (iii) the customer's 
investment objectives; and (iv) such other information used or 
considered to be reasonable by such ETP Holder or registered 
representative in making recommendations to the customer.
    (6) FINRA has implemented increased sales practice and customer 
margin requirements for FINRA members applicable to inverse, leveraged 
and inverse leveraged securities (which include the Shares) and options 
on such securities, as described in FINRA Regulatory Notices 09-31 
(June 2009), 09-53 (August 2009), and 09-65 (November 2009). ETP 
Holders that carry customer accounts will be required to follow the 
FINRA guidance set forth in these notices.
    (7) For initial and continued listing, each Fund will be in 
compliance with Rule 10A-3 under the Act, \26\ as provided by NYSE Arca 
Equities Rule 5.3-E.
---------------------------------------------------------------------------

    \26\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (8) Each Fund will seek to meet its respective investment objective 
by investing, under normal market conditions, in NYMEX-listed Futures 
Contracts. The Funds will not invest directly in natural gas.
    (9) Each Fund may, to a lesser extent and in view of regulatory 
requirements and/or market conditions, \27\ obtain exposure to the 
Benchmark through investment in OTC Financial Instruments. A Fund may 
invest in Financial Instruments: (i) If position, price or 
accountability limits are reached with respect to Futures Contracts; 
\28\ (ii) if margin requirements or exposure limits are reached with a 
particular futures commission merchant; (iii) if the market for a 
specific futures contract experiences emergencies (e.g., natural 
disaster, terrorist attack or an act of God) or disruptions (e.g., 
trading halt or ``flash crash''); (iv) to maintain or increase 
portfolio diversification or liquidity or to obtain more favorable 
pricing; (v) to mitigate credit risk or exposure; or (vi) if the 
Sponsor deems it impractical or otherwise not in the best interest of a 
Fund to buy or sell Futures Contracts (such as during periods of market 
volatility or illiquidity).
---------------------------------------------------------------------------

    \27\ See supra note 17 and accompanying text.
    \28\ See supra note 18 and accompanying text.
---------------------------------------------------------------------------

    (10) The Funds do not expect to have exposure to Futures Contracts 
and Financial Instruments greater than three times (3x) the Funds' net 
assets as of the time the NAV is calculated.
    (11) Not more than 10% of the net assets of a Fund in the aggregate 
invested in Futures Contracts shall consist of Futures Contracts whose 
principal market is not a member of the ISG or is a market with which 
the Exchange does not have a CSSA.
    (12) To the extent a Fund enters into swap agreements and other OTC 
transactions, it will do so only with large, established and well 
capitalized financial institutions that meet the Sponsor's credit 
quality standards and monitoring policies. Each Fund will use various 
techniques to minimize credit risk including early termination or reset 
and payment, using different counterparties and limiting the net amount 
due from any individual counterparty.
    (13) A minimum of 100,000 Shares of each Fund will be outstanding 
at the commencement of trading on the Exchange.
    The Exchange represents that all statements and representations 
made in this filing regarding (a) the description of the portfolios of 
the Funds or Benchmark, (b) limitations on portfolio holdings or the 
Benchmark, or (c) the applicability of Exchange listing rules specified 
in this rule filing shall constitute continued listing requirements for 
listing the Shares on the Exchange. The issuer has represented to the 
Exchange that it will advise the Exchange of any failure by the Funds 
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.\29\ If 
a Fund is not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under NYSE Arca 
Equities Rule 5.5-E(m).
---------------------------------------------------------------------------

    \29\ The Commission notes that certain other proposals for the 
listing and trading of Managed Fund Shares include a representation 
that the exchange will ``surveil'' for compliance with the continued 
listing requirements. See, e.g., Securities Exchange Act Release No. 
77499 (April 1, 2016), 81 FR 20428 (April 7, 2016) (Notice of Filing 
of Amendment No. 2, and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, to List and 
Trade Shares of the SPDR DoubleLine Short Duration Total Return 
Tactical ETF of the SSgA Active Trust), available at: http://www.sec.gov/rules/sro/bats/2016/34-77499.pdf. In the context of this 
representation, it is the Commission's view that ``monitor'' and 
``surveil'' both mean ongoing oversight of the Fund's compliance 
with the continued listing requirements. Therefore, the Commission 
does not view ``monitor'' as a more or less stringent obligation 
than ``surveil'' with respect to the continued listing requirements.
---------------------------------------------------------------------------

    This approval order is based on all of the Exchange's 
representations and description of the Funds, including those set forth 
above and in Amendment No. 1. The Commission notes that the Shares must 
comply with the requirements of NYSE Arca Equities Rule 8.200-E and 
Commentary .02 thereto to be listed and traded on the Exchange on an 
initial and continuing basis.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) of the Act \30\ and the rules and regulations thereunder 
applicable to a national securities exchange.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\31\ that the proposed rule change (SR-NYSEArca-2019-02), 
as modified by Amendment No. 1, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2).
    \32\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-16717 Filed 8-5-19; 8:45 am]
BILLING CODE 8011-01-P


