[Federal Register Volume 84, Number 223 (Tuesday, November 19, 2019)]
[Notices]
[Pages 63929-63940]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24973]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87514; File No. SR-NYSEArca-2019-78]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1, Relating to 
Listing and Trading of Shares of the Innovator PTAM Core Bond ETF Under 
NYSE Arca Rule 8.600-E

November 13, 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 October 30, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') a proposed rule change, and on November 8, 2019, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
amended and replaced the proposed rule change in its entirety. The 
proposed rule change, as modified by Amendment No. 1, is described in 
Items I, II, and III below, which Items have been prepared by the 
Exchange. The Commission is publishing this notice to solicit comments 
on the proposed rule change, as modified by Amendment No. 1, 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 following 
under NYSE Arca Rule 8.600-E (``Managed Fund Shares''): Innovator PTAM 
Core Bond ETF. This Amendment No. 1 to SR-NYSEArca-2019-78 replaces SR-
NYSEArca-2019-78 as originally filed and supersedes such filing in its 
entirety. The proposed change is available on the Exchange's website at 
www.nyse.com, at the principal office of the Exchange, and at the 
Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade shares of the following 
under NYSE Arca Rule 8.600-E which governs the listing and trading of 
Managed Fund Shares on the Exchange: \4\ Innovator PTAM Core Bond ETF 
(the ``Fund'').
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    \4\ 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.
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    The Shares will be offered by Innovator ETFs Trust (the ``Trust''), 
which is registered with the Commission as an open-end management 
investment company.\5\ The Fund is a series of the Trust.
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    \5\ The Trust is registered under the 1940 Act. On July 5, 2019, 
the Trust filed with the Commission its registration statement on 
Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a), and 
under the 1940 Act relating to the Fund (File Nos. 333-146827 and 
811-22135) (``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 upon which the Trust may rely, granting certain exemptive 
relief under the 1940 Act. See Investment Company Act Release No. 
32854 (October 6, 2017) (File No. 812-14781).
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    Innovator Capital Management, LLC will be the investment adviser 
(``Innovator'' or ``Adviser'') to the Fund. PT Asset Management, LLC 
(``PTAM'' or the ``Sub-Adviser''), will serve as the Fund's investment 
sub-adviser. Foreside Fund Services, LLC will be the distributor 
(``Distributor'') for the Fund's Shares. US Bancorp Fund Services LLC 
will act as the administrator and transfer agent for the Fund. U.S. 
Bank, N.A. will serve as the custodian (``Custodian'') 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.\6\ 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

[[Page 63930]]

regarding the open-end fund's portfolio. The Adviser and Sub-Adviser 
are not registered as broker-dealers. The Adviser is not affiliated 
with a broker-dealer. The Sub-Adviser is affiliated with a broker-
dealer and has implemented and will maintain a fire wall with respect 
to its broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the portfolio. In the 
event (a) the Adviser or the Sub-Adviser becomes registered as a 
broker-dealer or newly affiliated with a broker-dealer, or (b) any new 
adviser or sub-adviser is a registered broker-dealer or becomes 
affiliated with a broker-dealer, it will implement and maintain a fire 
wall with respect to relevant personnel and any broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio.
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    \6\ 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 Sub-Adviser and their 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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Innovator PTAM Core Bond ETF
Principal Investments
    According to the Registration Statement, the investment objective 
of the Fund is to seek to maximize total return through income and 
capital appreciation. Under normal market conditions,\7\ the Fund 
intends to invest at least 80% of its net assets in a portfolio of 
``Fixed Income Securities'' (described below).\8\
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    \7\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5). On a temporary basis, including for 
defensive purposes, during the initial invest-up period (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 
(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 objective. The Fund may adopt a defensive 
strategy when the Adviser and/or the Sub-Adviser believes securities 
in which the Fund normally invests have elevated risks due to 
market, political or economic factors and in other extraordinary 
circumstances.
    \8\ The Fund may enter into short sales of any securities in 
which the Fund may invest.
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    In managing the Fund's portfolio, PTAM intends to use a value-
oriented strategy looking for higher-yielding and undervalued fixed 
income securities that offer above-average total return. Pursuant to 
this investment strategy, the Fund may invest in the following Fixed 
Income Securities, as discussed below:
     U.S. Government obligations \9\ and sovereign debt 
obligations of non-U.S. governments;
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    \9\ Examples of U.S. Government obligations include direct 
obligations of the U.S. Treasury, including Treasury bills, notes 
and bonds, all of which are backed as to principal and interest 
payments by the full faith and credit of the United States, and 
separately traded principal and interest component parts of such 
obligations that are transferable through the Federal book-entry 
system known as Separate Trading of Registered Interest and 
Principal of Securities (``STRIPS'') and Coupons Under Book Entry 
Safekeeping (``CUBES'').
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     U.S. Government Agency Securities (including agency asset-
backed securities (``ABS'') and agency mortgage-backed securities 
(``MBS'')); \10\
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    \10\ Examples of U.S. Government Agency Securities include 
securities issued or guaranteed by agencies and instrumentalities of 
the U.S. government. These include all types of securities issued by 
the Government National Mortgage Association (``Ginnie Mae''), the 
Federal National Mortgage Association (``Fannie Mae'') and the 
Federal Home Loan Mortgage Corporation (``Freddie Mac''), including 
funding notes, subordinated benchmark notes, collateralized mortgage 
obligations (``CMOs'') and Real Estate Mortgage Investment Conduits 
(``REMICs'').
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     Non-agency ABS; \11\
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    \11\ For purposes of this filing, non-agency ABS are 
collateralized bond obligations (``CBOs''), collateralized loan 
obligations (``CLOs''), and other collateralized debt obligations 
(``CDOs'').
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     Non-agency MBS; \12\
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    \12\ For purposes of this filing, non-agency MBS are 
collateralized mortgage obligations (``CMOs''); commercial mortgage-
backed securities (``CMBS''); residential mortgage-backed securities 
(``RMBS''); and principal-only (PO) and interest-only (IO) stripped 
MBS. Non-agency ABS and non-agency MBS are referred to herein as 
``Private ABS/MBS.'' The Fund may invest in agency RMBS and CMBS by 
investing in to-be-announced transactions.
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     Stripped MBS; \13\
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    \13\ Stripped MBS are derivative multi-class mortgage securities 
which are usually structured with two classes of shares that receive 
different proportions of the interest and principal from a pool of 
mortgage assets. These include IO and PO securities issued outside a 
REMIC or CMO structure.
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     Treasury Inflation Protected Securities (``TIPS'');
     Corporate bonds;
     Bank loans, including first lien senior secured floating 
rate bank loans (``Senior Loans''), secured and unsecured loans, second 
lien or more junior loans, and bridge loans;
     Fixed income convertible securities;
     Municipal bonds and municipal securities issued by tender 
option bond trusts (collectively, ``Municipal Securities''); and
     Custodial receipts trusts.
    The Fund may invest up to 75% of its net assets in Municipal 
Securities.
    The Fund may hold cash and cash equivalents.\14\ In addition, the 
Fund may hold the following short-term instruments with maturities of 
three months or more: Certificates of deposit; bankers' acceptances; 
repurchase agreements and reverse repurchase agreements; bank time 
deposits; and commercial paper.
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    \14\ For purposes of this filing, cash equivalents are the 
short-term instruments with maturities of less than 3 months 
enumerated in Commentary .01(c) to Rule 8.600-E.
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    The Fund may utilize exchange-listed and over-the-counter (``OTC'') 
traded derivatives instruments for duration/yield curve management and/
or hedging purposes, for risk management purposes or as part of its 
investment strategies. The Fund will use derivative instruments 
primarily to hedge interest rate risk, actively manage interest rate 
exposure, hedge foreign currency risk and actively manage foreign 
currency exposure. The Fund may also use derivative instruments to 
enhance returns, as a substitute for, or to gain exposure to, a 
position in an underlying asset, to reduce transaction costs, to 
maintain full market exposure, to manage cash flows or to preserve 
capital. Derivatives may also be used to hedge risks associated with 
the Fund's other portfolio investments. The Fund will not use 
derivative instruments to gain exposure to Private ABS/MBS, and 
derivative instruments linked to such securities will be used for 
hedging purposes only. Derivatives that the Fund may enter into are the 
following: Futures on interest rates, currencies, Fixed Income 
Securities and fixed income indices; exchange-traded and OTC options on 
interest rates, currencies, Fixed Income Securities and fixed income 
indices; swap agreements on interest rates, currencies, Fixed Income 
Securities and fixed income indices; credit default swaps (``CDX''); 
and currency forward contracts.
Non-Principal Investments
    While the Fund, under normal market conditions, will invest at 
least 80% of its net assets in the Principal Investments described 
above, the Fund may invest its remaining assets in the following ``Non-
Principal Investments.''
    The Fund may invest in exchange-traded common stock, exchange-
traded preferred stock, and exchange-traded real estate investment 
trusts (``REITs'').
    The Fund may invest in the securities of other investment companies 
registered under the 1940 Act, including money market funds, exchange-
traded funds (``ETFs''), open-end funds (other than money market funds 
and other ETFs), and U.S. exchange-traded closed-end funds.\15\
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    \15\ For purposes of this filing, the term ``ETFs'' are 
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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[[Page 63931]]

    The Fund may hold exchange-traded notes (``ETNs'').\16\
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    \16\ ETNs are Index-Linked Securities (as described in NYSE Arca 
Rule 5.2-E(j)(6)). While the Fund may invest in inverse ETNs, the 
Fund will not invest in leveraged or inverse leveraged ETNs (e.g., 
2X or -3X).
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    The Fund may hold exchange-traded or OTC ``Work Out Securities.'' 
\17\
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    \17\ For purposes of this filing, Work Out Securities are U.S. 
or foreign equity securities of any type acquired in connection with 
restructurings related to issuers of Fixed Income Securities held by 
the Fund. Work Out Securities are generally traded OTC, but may be 
traded on a U.S. or foreign exchange.
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    The Fund may hold exchange-traded or OTC equity securities issued 
upon conversion of fixed income convertible securities.
Investment Restrictions
    The Fund may not invest more than 5% of its total assets 
(determined at the time of purchase) in any one Fixed Income Security 
(excluding U.S. government securities and TIPS) on a per CUSIP basis. 
The Fund's holdings in derivative instruments for hedging purposes 
would be excluded from the determination of compliance with this 5% 
limitation. The total gross notional value of the Fund's holdings in 
derivative instruments used to gain exposure to a specific reference 
asset is limited to 5% of the Fund's total assets (determined at the 
time of purchase).
    The Fund may invest up to 50% of its total assets in the aggregate 
in Private ABS/MBS, provided that the Fund (1) may not invest more than 
30% of its total assets in non-agency RMBS; (2) may not invest more 
than 25% of its total assets in non-agency CMBS; and (3) may not invest 
more than 25% of its total assets in non-agency ABS.
    The Fund may invest up to 75% of its net assets in Municipal 
Securities that have a minimum original principal outstanding of less 
than $100 million. Under normal market conditions, the Fund's 
investments in Municipal Securities will satisfy the following 
criteria:
    i. 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\ The Exchange notes that the Commission has approved the 
listing and trading of another issue of Managed Fund Shares that 
principally holds municipal securities for which no single issuer 
would account for more than 10% of the weight of the fund's 
portfolio. See Securities Exchange Act Release No. 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).
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    ii. No individual Municipal Security will account for more than 5% 
of the weight of the Fund's portfolio; \19\
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    \19\ The Exchange notes that the Commission has approved the 
listing and trading of another issue of Managed Fund Shares that 
principally holds municipal securities for which no single bond 
would exceed 5% of the fund's portfolio. See Securities Exchange Act 
Release No. 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).
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    iii. The Fund will limit its investments in Municipal Securities of 
any one state or U.S. territory to 20% of the Fund's total assets.\20\
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    \20\ The Exchange notes that the Commission has approved the 
listing and trading of other issues of Managed Fund Shares that 
principally hold municipal securities for which the applicable 
fund's assets in municipal securities of any one state would be 
limited to 30% of such fund's assets. See Securities Exchange Act 
Release Nos. 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); 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); 78913 (September 
23, 2016) (SR-Nasdaq-2016-002) (order approving listing and trading 
of the First Trust Municipal High Income ETF of First Trust 
Exchange-Traded Fund III).
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    The Exchange proposes that up to 25% of the Fund's assets may be 
invested in OTC derivatives that are used to reduce currency, interest 
rate or credit risk arising from the Fund's investments (that is, 
``hedge''). The Fund's investments in OTC derivatives other than OTC 
derivatives used to hedge the Fund's portfolio against currency, 
interest rate or credit risk will be limited to 20% of the assets in 
the Fund's portfolio. For purposes of these percentage limitations on 
OTC derivatives, the weight of such OTC derivatives will be calculated 
as the aggregate gross notional value of such OTC derivatives.
    The Fund's holdings of bank loans will not exceed 15% of the Fund's 
total assets, and the Fund's holdings of bank loans other than Senior 
Loans will not exceed 5% of the Fund's total assets.
    The Fund's holdings in fixed income convertible securities and in 
equity securities issued upon conversion of such convertible securities 
will not exceed 10% of the Fund's total assets.
    The Fund's holdings in Work Out Securities will not exceed 5% of 
the Fund's total assets.
    The Fund will not invest in securities or other financial 
instruments that have not been described in this proposed rule change.
Other Restrictions
    The Fund's investments, including derivatives, will be consistent 
with the Fund's investment objective and will not be used to enhance 
leverage (although certain derivatives and other investments may result 
in leverage). That is, the Fund's investments will not be used to seek 
performance that is the multiple or inverse multiple (e.g., 2X or -3X) 
of the Fund's primary broad-based securities benchmark index (as 
defined in Form N-1A).\21\
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    \21\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
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Use of Derivatives by the Fund
    The Fund may invest in the types of derivatives described in the 
``Principal Investments'' section above for the purposes described in 
that section. Investments in derivative instruments will be made in 
accordance with the Fund's investment objective and policies.
    To limit the potential risk associated with such transactions, the 
Fund will enter into offsetting transactions or segregate or 
``earmark'' assets determined to be liquid by the Adviser in accordance 
with procedures established by the Trust's Board of Trustees. In 
addition, the Fund has included appropriate risk disclosure in its 
offering documents, including leveraging risk. Leveraging risk is the 
risk that certain transactions of the Fund, including the Fund's use of 
derivatives, may give rise to leverage, causing the Fund to be more 
volatile than if it had not been leveraged. Because the markets for 
certain assets, or the assets themselves, may be unavailable or cost 
prohibitive as compared to derivative instruments, suitable derivative 
transactions may be an efficient alternative for the Fund to obtain the 
desired asset exposure.
Impact on Arbitrage Mechanism
    The Adviser and the Sub-Adviser believe there will be minimal, if 
any, impact to the arbitrage mechanism as a result of the Fund's use of 
derivatives and Private ABS/MBS. The Adviser and the Sub-Adviser 
understand that market makers and participants should be able to value 
derivatives and Private ABS/MBS as long as the positions are disclosed 
with relevant information. The Adviser and the Sub-Adviser believe that 
the price at which Shares of the Fund trade will continue to be 
disciplined by arbitrage opportunities created by the ability to 
purchase or redeem Shares of the Fund at their net

[[Page 63932]]

asset value (``NAV''), which should ensure that Shares of the Fund will 
not trade at a material discount or premium in relation to their NAV.
    The Adviser and Sub-Adviser do not believe there will be any 
significant impacts to the settlement or operational aspects of the 
Fund's arbitrage mechanism due to the use of derivatives and Private 
ABS/MBS.
Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at NAV 
\22\ only in large blocks of Shares (``Creation Units'') in 
transactions with ``Authorized Participants'' (described below). A 
Creation Unit will consist of 50,000 Shares. The size of a Creation 
Unit is subject to change.
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    \22\ 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.
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    To be eligible to place orders with the Distributor to create a 
Creation Unit of the Fund, an entity must be (i) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the National 
Securities Clearing Corporation (``NSCC''); or (ii) a Depository Trust 
Company (``DTC'') Participant, and, in each case, must have executed an 
agreement with the Fund, the Distributor and the Administrator with 
respect to creations and redemptions of Creation Units. A Participating 
Party and DTC Participant are collectively referred to as an Authorized 
Participant.
    All orders to create Creation Units must be placed for one or more 
Creation Unit size aggregations. All orders to create Creation Units 
must be received by the Distributor no later than 4:00 p.m., E.T. on 
the date such order is placed in order for the creation of Creation 
Units to be effected based on the NAV of Shares of the Fund as next 
determined on such date after receipt of the order in proper form.
    Shares may be redeemed only in Creation Unit aggregations at their 
NAV next determined after receipt of a redemption request in proper 
form by the Fund through the Custodian and only on a business day. 
Orders to redeem Creation Units must be received by 4:00 p.m., E.T.
    The Custodian, through the NSCC, will make available prior to the 
opening of business on the Exchange (currently 9:30 a.m., E.T.) on each 
business day, the amount of cash that will be applicable (subject to 
possible amendment or correction) to redemption requests received in 
proper form on that day. The redemption proceeds for a Creation Unit 
Aggregation generally will consist of cash in an amount equal to the 
NAV of Fund Shares next determined after a redemption request is 
received, less a redemption transaction fee.
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(a)(1) 
and (a)(2) (with respect to the Fund's investments in equity 
securities), (b)(1) (with respect to the Fund's investments in Fixed 
Income Securities, including Municipal Securities), (b)(4) (with 
respect to the Fund's investments in Private ABS/MBS), (b)(5) (with 
respect to the Fund's investments in Private ABS/MBS), and (e) (with 
respect to the Fund's investments in OTC derivatives), as described 
below.
    The Fund will not comply with all of the requirements set forth in 
Commentary .01(a)(1) \23\ and (a)(2) \24\ to

[[Page 63933]]

NYSE Arca Rule 8.600-E with respect to the Fund's investments in equity 
securities.\25\ Instead, the Exchange proposes that (i) the Fund's 
investments in equity securities will meet the requirements of 
Commentary .01(a) with the exception of Commentary .01(a)(1)(C) and 
.01(a)(1)(D) (with respect to U.S. Component Stocks) and Commentary 
.01(a)(2)(C) and .01(a)(2)(D) (with respect to Non-U.S. Component 
Stocks). Any Fund investment in exchange-traded common stocks, 
preferred stocks, REITS, ETFs, ETNs, exchange-traded equity securities 
issued upon conversion of fixed income convertible securities, 
exchange-traded Work Out Securities and U.S. exchange-traded closed-end 
funds would provide for enhanced diversification of the Fund's 
portfolio and, in any case, would be Non-Principal Investments and 
would not exceed 20% of the Fund's net assets in the aggregate. With 
respect to any Fund holdings of exchange-traded equity securities 
issued upon conversion of fixed income convertible securities and 
exchange-traded Work Out Securities, such securities will not exceed 
10% and 5%, respectively, of the Fund's total assets. The Adviser and 
Sub-Adviser represent that the Fund generally will not actively invest 
in equity securities issued upon conversion of fixed income convertible 
securities or Work Out Securities, but may, at times, receive a 
distribution of such securities in connection with the Fund's holdings 
in other securities. Therefore, the Fund's holdings in equity 
securities issued upon conversion of fixed income convertible 
securities and Work Out Securities generally would not be acquired as 
the result of the Fund's voluntary investment decisions. The Adviser 
and Sub-Adviser represent that, under these circumstances, application 
of the weighting requirements of Commentary .01(a)(1)(C) and Commentary 
.01(a)(2)(C) and the minimum number of components requirements of 
Commentary .01(a)(1)(D) and Commentary .01(a)(2)(D) would impose an 
unnecessary burden on the Fund's ability to hold such equity 
securities.
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    \23\ Commentary .01(a)(1) to NYSE Arca Rule 8.600-E provides 
that the component stocks of the equity portion of a portfolio that 
are U.S. Component Stocks shall meet the following criteria 
initially and on a continuing basis:
    (A) Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at 
least 90% of the equity weight of the portfolio (excluding such 
Derivative Securities Products and Index-Linked Securities) each 
shall have a minimum market value of at least $75 million;
    (B) Component stocks (excluding Derivative Securities Products 
and Index-Linked Securities) that in the aggregate account for at 
least 70% of the equity weight of the portfolio (excluding such 
Derivative Securities Products and Index-Linked Securities) each 
shall have a minimum monthly trading volume of 250,000 shares, or 
minimum notional volume traded per month of $25,000,000, averaged 
over the last six months;
    (C) The most heavily weighted component stock (excluding 
Derivative Securities Products and Index-Linked Securities) shall 
not exceed 30% of the equity weight of the portfolio, and, to the 
extent applicable, the five most heavily weighted component stocks 
(excluding Derivative Securities Products and Index-Linked 
Securities) shall not exceed 65% of the equity weight of the 
portfolio;
    (D) Where the equity portion of the portfolio does not include 
Non-U.S. Component Stocks, the equity portion of the portfolio shall 
include a minimum of 13 component stocks; provided, however, that 
there shall be no minimum number of component stocks if (i) one or 
more series of Derivative Securities Products or Index-Linked 
Securities constitute, at least in part, components underlying a 
series of Managed Fund Shares, or (ii) one or more series of 
Derivative Securities Products or Index-Linked Securities account 
for 100% of the equity weight of the portfolio of a series of 
Managed Fund Shares;
    (E) Except as provided herein, equity securities in the 
portfolio shall be U.S. Component Stocks listed on a national 
securities exchange and shall be NMS Stocks as defined in Rule 600 
of Regulation NMS under the Securities Exchange Act of 1934; and
    (F) American Depositary Receipts (``ADRs'') in a portfolio may 
be exchange-traded or non- exchange-traded. However, no more than 
10% of the equity weight of a portfolio shall consist of non-
exchange-traded ADRs.
    \24\ Commentary .01(a)(2) to NYSE Arca Rule 8.600-E provides 
that the component stocks of the equity portion of a portfolio that 
are Non-U.S. Component Stocks shall meet the following criteria 
initially and on a continuing basis:
    (A) Non-U.S. Component Stocks each shall have a minimum market 
value of at least $100 million;
    (B) Non-U.S. Component Stocks each shall have a minimum global 
monthly trading volume of 250,000 shares, or minimum global notional 
volume traded per month of $25,000,000, averaged over the last six 
months;
    (C) The most heavily weighted Non-U.S. Component stock shall not 
exceed 25% of the equity weight of the portfolio, and, to the extent 
applicable, the five most heavily weighted Non-U.S. Component Stocks 
shall not exceed 60% of the equity weight of the portfolio;
    (D) Where the equity portion of the portfolio includes Non-U.S. 
Component Stocks, the equity portion of the portfolio shall include 
a minimum of 20 component stocks; provided, however, that there 
shall be no minimum number of component stocks if (i) one or more 
series of Derivative Securities Products or Index-Linked Securities 
constitute, at least in part, components underlying a series of 
Managed Fund Shares, or (ii) one or more series of Derivative 
Securities Products or Index-Linked Securities account for 100% of 
the equity weight of the portfolio of a series of Managed Fund 
Shares; and
    (E) Each Non-U.S. Component Stock shall be listed and traded on 
an exchange that has last-sale reporting.
    \25\ For purposes of these exceptions, investments in equity 
securities that are OTC Work Out Securities, OTC equity securities 
issued upon conversion of fixed income convertible securities, or 
non-exchange-traded securities of other open-end investment 
companies (e.g., mutual funds) are excluded and are discussed 
further below.
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    The Fund will not comply with the requirement in Commentary 
.01(b)(1) to Rule 8.600-E 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. Instead, the Exchange proposes that components that in the 
aggregate account for at least 50% of the fixed income weight of the 
portfolio shall have a minimum original principal amount outstanding of 
$50 million or more. As noted above, the Fund may not invest more than 
5% of its total assets (determined at the time of purchase) in any one 
Fixed Income Security (excluding U.S. government securities and TIPS) 
on a per CUSIP basis.
    With respect to the Fund's investments in Municipal Securities, the 
Fund may invest up to 75% of its net assets in Municipal Securities 
that have a minimum original principal outstanding of less than $100 
million. 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; and the 
Fund will limit its investments in Municipal Securities of any one 
state or U.S. territory to 20% of the Fund's total assets. The Exchange 
believes these limitations to the Funds [sic] investments in Fixed 
Income Securities, including Municipal Securities, would provide 
significant additional diversification to the Fund's investments in 
Fixed Income Securities, and reduce concerns that the Fund's 
investments in such securities would be readily susceptible to market 
manipulation.
    The Fund will not comply with the requirements in Commentary 
.01(b)(4) to Rule 8.600-E that component securities that in the 
aggregate account for at least 90% of the fixed income weight of the 
portfolio meet one of the criteria specified in Commentary .01(b)(4), 
because certain Private ABS/MBS cannot satisfy the criteria in 
Commentary .01(b)(4).\26\ Instead, the Exchange proposes that the 
Fund's investments in Fixed Income Securities other than Private ABS/
MBS will be required to comply with the requirements of Commentary 
.01(b)(4). As noted above, the Fund may not invest more than 5% of its 
total assets (determined at the time of purchase) in any one Fixed 
Income Security (excluding U.S. government securities and TIPS) on a 
per CUSIP basis.
---------------------------------------------------------------------------

    \26\ Commentary .01(b)(4) provides that component securities 
that in the aggregate account for at least 90% of the fixed income 
weight of the portfolio must be either: (a) From issuers that are 
required to file reports pursuant to Sections 13 and 15(d) of the 
Act; (b) from issuers that have a worldwide market value of its 
outstanding common equity held by non-affiliates of $700 million or 
more; (c) from issuers that have outstanding securities that are 
notes, bonds debentures, or evidence of indebtedness having a total 
remaining principal amount of at least $1 billion; (d) exempted 
securities as defined in Section 3(a)(12) of the Act; or (e) from 
issuers that are a government of a foreign country or a political 
subdivision of a foreign country.
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    The Exchange notes that the Commission has previously approved the 
listing of Managed Fund Shares with similar investment objectives and 
strategies without imposing requirements that a certain percentage of 
such funds' securities meet one of the criteria set forth in Commentary 
.01(b)(4).\27\
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    \27\ See, e.g., Exchange Act Release Nos. 67894 (September 20, 
2012) 77 FR 59227 (September 26, 2012) (SR-BATS-2012-033) (order 
approving the listing and trading of shares of the iShares Short 
Maturity Bond Fund); 70342 (September 6, 2013), 78 FR 56256 
(September 12, 2013) (SR-NYSEArca-2013-71) (order approving the 
listing and trading of shares of the SPDR SSgA Ultra Short Term Bond 
ETF, SPDR SSgA Conservative Ultra Short Term Bond ETF and SPDR SSgA 
Aggressive Ultra Short Term Bond ETF).
---------------------------------------------------------------------------

    The Fund will not comply with the requirement in Commentary 
.01(b)(5) to Rule 8.600-E that Private ABS/MBS in the Fund's portfolio 
account, in the aggregate, for no more than 20% of the weight of the 
Fund's portfolio.\28\ Instead, the Exchange proposes that, in order to 
enable the portfolio to be more diversified and provide the Fund with 
an opportunity to earn higher returns, the Fund may invest up to 50% of 
its total assets in the aggregate in Private ABS/MBS, provided that the 
Fund (1) may not invest more than 30% of its total assets in non-agency 
RMBS; (2) may not invest more than 25% of its total assets in non-
agency CMBS; and (3) may not invest more than 25% of its total assets 
in non-agency ABS.
---------------------------------------------------------------------------

    \28\ Commentary .01(b)(5) to Rule 8.600-E provides that non-
agency, non-government-sponsored entity (``GSE'') and privately-
issued mortgage-related and other asset-backed securities components 
of a portfolio shall not account, in the aggregate, for more than 
20% of the weight of the portfolio.
---------------------------------------------------------------------------

    In addition, as noted above, the Fund may not invest more than 5% 
of its total assets (determined at the time of purchase) in any one 
Fixed Income Security (excluding U.S. government securities and TIPS) 
on a per CUSIP basis.\29\ The Exchange believes these limitations would 
provide additional diversification to the Fund's Private ABS/MBS 
investments and reduce concerns that the Fund's investment in

[[Page 63934]]

such securities would be readily susceptible to market manipulation.
---------------------------------------------------------------------------

    \29\ As noted above, the Fund's holdings in derivative 
instruments for hedging purposes would be excluded from the 
determination of compliance with this 5% limitation. The total gross 
notional value of the Fund's holdings in derivative instruments used 
to gain exposure to a specific asset is limited to 5% of the Fund's 
total assets (determined at the time of purchase).
---------------------------------------------------------------------------

    The Adviser and Sub-Adviser represent that the RMBS sector can be 
an important component of the Fund's investment strategy because of the 
potential for attractive risk-adjusted returns relative to other fixed 
income sectors and the potential to add significantly to the 
diversification in the Fund's portfolio. Similarly, the Private ABS/MBS 
sectors also have the potential for attractive risk-adjusted returns 
and added portfolio diversification.
    The Fund's portfolio will not comply with the requirements set 
forth in Commentary .01(e) to NYSE Arca Rule 8.600-E.\30\ Specifically, 
the Fund's investments in OTC derivatives may exceed 20% of Fund 
assets, calculated as the aggregate gross notional value of such OTC 
derivatives. The Exchange proposes that up to 25% of the Fund's assets 
(calculated as the aggregate gross notional value) may be invested in 
OTC derivatives that are used to reduce currency, interest rate or 
credit risk arising from the Fund's investments (that is, ``hedge''). 
The Fund's investments in OTC derivatives other than OTC derivatives 
used to hedge the Fund's portfolio against currency, interest rate or 
credit risk will be limited to 20% of the assets in the Fund's 
portfolio, calculated as the aggregate gross notional value of such OTC 
derivatives.
---------------------------------------------------------------------------

    \30\ Commentary .01(e) to NYSE Arca Rule 8.600-E provides that 
the portfolio may hold OTC derivatives, including forwards, options 
and swaps on commodities, currencies and financial instruments 
(e.g., stocks, fixed income, interest rates, and volatility) or a 
basket or index of any of the foregoing; however, on both an initial 
and continuing basis, no more than 20% of the assets in the 
portfolio may be invested in OTC derivatives. For purposes of 
calculating this limitation, a portfolio's investment in OTC 
derivatives will be calculated as the aggregate gross notional value 
of the OTC derivatives.
---------------------------------------------------------------------------

    The Adviser and Sub-Adviser believe that it is important to provide 
the Fund with additional flexibility to manage risk associated with its 
investments. Depending on market conditions, it may be critical that 
the Fund be able to utilize available OTC derivatives for this purpose 
to attempt to reduce impact of currency, interest rate or credit 
fluctuations on Fund assets. Therefore, the Exchange believes it is 
appropriate to apply a limit of up to 25% of the Fund's assets to the 
Fund's investments in OTC derivatives (calculated as the aggregate 
gross notional value of such OTC derivatives), including forwards, 
options and swaps, that are used for hedging purposes, as described 
above.\31\
---------------------------------------------------------------------------

    \31\ The Commission has previously approved an exception from 
requirements set forth in Commentary .01(e) relating to investments 
in OTC derivatives similar to those proposed with respect to the 
Fund in Securities Exchange Act Release No. 80657 (May 11, 2017), 82 
FR 22702 (May 17, 2017) (SR-NYSEArca-2017-09) (Notice of Filing of 
Amendment No. 2 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 2, Regarding 
Investments of the Janus Short Duration Income ETF Listed Under NYSE 
Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    As noted above, the Fund may hold equity securities that are Work 
Out Securities, which generally are traded OTC (but that may be traded 
on a U.S. or foreign exchange), exchange-traded or OTC equity 
securities issued upon conversion of fixed income convertible 
securities, and non-exchange-traded securities of other open-end 
investment company securities (e.g., mutual funds). 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(a)(1)(A) through (E) to Rule 8.600-E with respect to the 
Fund's investments in non-exchange-traded securities of open-end 
investment company securities,\32\ and notwithstanding that the Fund's 
holdings of OTC equity securities issued upon conversion of fixed 
income convertible securities and OTC Work Out Securities would not 
meet the requirements of Commentary .01(a)(1)(A) through (E) and 
Commentary .01(a)(2) (A) through (E) to Rule 8.600-E. Investments in 
non-exchange-traded securities of open-end investment company 
securities will not be principal investments of the Fund.\33\ Such 
investments, which may include mutual funds that invest, for example, 
principally in fixed income securities, would be utilized to help the 
Fund meet its investment objective and to equitize cash in the short 
term. With respect to any Fund holdings of OTC equity securities issued 
upon conversion of fixed income convertible securities and OTC Work Out 
Securities, such securities will not exceed 10% and 5%, respectively, 
of the Fund's total assets. The Adviser and Sub-Adviser represent that 
the Fund generally will not actively invest in OTC equity securities 
issued upon conversion of fixed income convertible securities or OTC 
Work Out Securities, but may, at times, receive a distribution of such 
securities in connection with the Fund's holdings in other securities. 
Therefore, the Fund's holdings in equity securities issued upon 
conversion of fixed income convertible securities and Work Out 
Securities generally would not be acquired as the result of the Fund's 
voluntary investment decisions.
---------------------------------------------------------------------------

    \32\ Commentary .01 (a) to Rule 8.600-E specifies the equity 
securities accommodated by the generic criteria in Commentary 
.01(a), namely, U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)); Non-U.S. Component Stocks (as described in Rule 5.2-
E(j)(3)); Derivative Securities Products (i.e., Investment Company 
Units and securities described in Section 2 of Rule 8-E); and Index-
Linked Securities that qualify for Exchange listing and trading 
under Rule 5.2-E(j)(6).
    \33\ For purposes of this section of the filing, non-exchange-
traded securities of other registered investment companies do not 
include money market funds, which are cash equivalents under 
Commentary .01(c) to Rule 8.600-E and for which there is no 
limitation in the percentage of the portfolio invested in such 
securities.
---------------------------------------------------------------------------

    With respect to investments in non-exchange-traded investment 
company securities, because such securities have a net asset value 
based on the value of securities and financial assets the investment 
company holds, the Exchange believes it is both unnecessary and 
inappropriate to apply to such investment company securities the 
criteria in Commentary .01(a)(1).\34\
---------------------------------------------------------------------------

    \34\ The Commission has previously approved proposed rule 
changes under Section 19(b) of the Act for series of Managed Fund 
Shares that may invest in non-exchange traded investment company 
securities. See, e.g., Securities Exchange Act Release No. 78414 
(July 26, 2016), 81 FR 50576 (August 1, 2016) (SR-NYSEArca-2016-79) 
(order approving listing and trading of shares of the Virtus Japan 
Alpha ETF under NYSE Arca Equities Rule 8.600).
---------------------------------------------------------------------------

    The Exchange notes that Commentary .01(a) through (d) to Rule 
8.600-E exclude application of those provisions to certain ``Derivative 
Securities Products'' that are exchange-traded investment company 
securities, including 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).\35\ In its

[[Page 63935]]

2008 Approval Order approving amendments to Commentary .01(a) to Rule 
5.2(j)(3) that exclude Derivative Securities Products from certain 
provisions of Commentary .01(a) (which exclusions are similar to those 
in Commentary .01(a)(1) to Rule 8.600-E), the Commission stated that 
``based on the trading characteristics of Derivative Securities 
Products, it may be difficult for component Derivative Securities 
Products to satisfy certain quantitative index criteria, such as the 
minimum market value and trading volume limitations.'' The Exchange 
notes that it would be difficult or impossible to apply to non-
exchange-traded investment company securities the generic quantitative 
criteria (e.g., market capitalization, trading volume, or portfolio 
criteria) in Commentary .01 (a) through (d) applicable to U.S. 
Component Stocks. For example, the requirement for U.S. Component 
Stocks in Commentary .01(a)(1)(B) that there be minimum monthly trading 
volume of 250,000 shares, or minimum notional volume traded per month 
of $25,000,000, averaged over the last six months is tailored to 
exchange-traded securities (e.g., U.S. Component Stocks) and not to 
mutual fund shares, which do not trade in the secondary market. 
Moreover, application of such criteria would not serve the purpose 
served with respect to U.S. Component Stocks, namely, to establish 
minimum liquidity and diversification criteria for U.S. Component 
Stocks held by series of Managed Fund Shares.
---------------------------------------------------------------------------

    \35\ The Commission initially approved the Exchange's proposed 
rule change to exclude ``Derivative Securities Products'' (i.e., 
Investment Company Units and securities described in Section 2 of 
Rule 8) and ``Index-Linked Securities (as described in Rule 5.2-
E(j)(6)) from Commentary .01(a)(A)(1) through (4) to Rule 5.2-
E(j)(3) in Securities Exchange Act Release No. 57751 (May 1, 2008), 
73 FR 25818 (May 7, 2008) (SR-NYSEArca-2008-29) (Order Granting 
Approval of a Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, to Amend the Eligibility Criteria for Components of an 
Index Underlying Investment Company Units) (``2008 Approval 
Order''). See also, Securities Exchange Act Release No. 57561 (March 
26, 2008), 73 FR 17390 (April 1, 2008) (Notice of Filing of Proposed 
Rule Change and Amendment No. 1 Thereto to Amend the Eligibility 
Criteria for Components of an Index Underlying Investment Company 
Units). The Commission subsequently approved generic criteria 
applicable to listing and trading of Managed Fund Shares, including 
exclusions for Derivative Securities Products and Index-Linked 
Securities in Commentary .01(a)(1)(A) through (D), in Securities 
Exchange Act Release No. 78397 (July 22, 2016), 81 FR 49320 (July 
27, 2016) (Order Granting Approval of Proposed Rule Change, as 
Modified by Amendment No. 7 Thereto, Amending NYSE Arca Equities 
Rule 8.600 To Adopt Generic Listing Standards for Managed Fund 
Shares). See also, Amendment No. 7 to SR-NYSEArca-2015-110, 
available at https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-9.pdf.
---------------------------------------------------------------------------

    The Exchange notes that the Commission has previously approved 
listing and trading of an issue of Managed Fund Shares that may invest 
in equity securities that are non-exchange-traded securities of other 
open-end investment company securities notwithstanding that the fund 
would not meet the requirements of Commentary .01(a)(1)(A) through (E) 
to Rule 8.600-E with respect to such fund's investments in such 
securities.\36\ Thus, the Exchange believes that it is appropriate to 
permit the Fund to invest in non-exchange-traded open-end management 
investment company securities, as described above.
---------------------------------------------------------------------------

    \36\ See, e.g., Securities Exchange Act Release No. 83319 (May 
24, 2018) (SR-NYSEArca-2018-15) (Order Approving a Proposed Rule 
Change, as Modified by Amendment No. 1 Thereto, to Continue Listing 
and Trading Shares of the PGIM Ultra Short Bond ETF Under NYSE Arca 
Rule 8.600-E).
---------------------------------------------------------------------------

    Deviations from the generic requirements are necessary for the Fund 
to achieve its investment objective in a manner that is cost-effective 
and that maximizes investors' returns. Further, the proposed 
alternative requirements are narrowly tailored to allow the Fund to 
achieve its investment objective in manner that is consistent with the 
principles of Section 6(b)(5) of the Act. As a result, it is in the 
public interest to approve listing and trading of Shares of the Fund on 
the Exchange pursuant to the requirements set forth herein.
    The Exchange notes that, other than Commentary .01(a)(1), (a)(2), 
(b)(1), (b)(4), (b)(5), and (e) to Rule 8.600-E, as described above, 
the Fund's portfolio will meet all other requirements of Rule 8.600-E.
Availability of Information
    The Fund's website (www.innovatoretfs.com) will include the 
prospectus for the Fund that may be downloaded. The Fund's website will 
include additional quantitative information updated on a daily basis 
including, for the Fund, (1) daily trading volume, the prior business 
day's reported closing price, NAV and midpoint of the bid/ask spread at 
the time of calculation of such NAV (the ``Bid/Ask Price''),\37\ and a 
calculation of the premium and discount of the Bid/Ask Price against 
the NAV, and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Fund will disclose on its website the Disclosed Portfolio as defined in 
NYSE Arca Rule 8.600-E(c)(2) that forms the basis for the Fund's 
calculation of NAV at the end of the business day.\38\
---------------------------------------------------------------------------

    \37\ The Bid/Ask Price of the Fund's Shares will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Fund's NAV. The 
records relating to Bid/Ask Prices will be retained by the Fund and 
its service providers.
    \38\ Under accounting procedures followed by the Fund, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Fund 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business 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.
    In addition, a basket composition file, which includes the security 
names and share quantities, if applicable, required to be delivered in 
exchange for the Fund's Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the Exchange via the NSCC. The basket represents one Creation Unit of 
the Fund. Authorized Participants may refer to the basket composition 
file for information regarding Fixed Income Securities, and any other 
instrument that may comprise the Fund's basket on a given day.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's 
Forms N-CSR and Forms N-SAR, filed twice a year. The Fund's SAI and 
Shareholder Reports will be available free upon request from the Trust, 
and those documents and the Form N-CSR, Form N-PX and Form N-SAR may be 
viewed on-screen or downloaded from the Commission's website at 
www.sec.gov.
    Intra-day and closing price information regarding exchange-traded 
options will be available from the exchange on which such instruments 
are traded. Intra-day and closing price information regarding Fixed 
Income Securities will be available from major market data vendors. 
Price information relating to OTC options, forwards and swaps will be 
available from major market data vendors. Intra-day price information 
for exchange-traded derivative instruments will be available from the 
applicable exchange and from major market data vendors. Intraday and 
other price information for the Fixed Income Securities in which the 
Fund will invest will be available through subscription services, such 
as Bloomberg, Markit and Thomson Reuters, which can be accessed by 
Authorized Participants and other market participants. Additionally, 
the Trade Reporting and Compliance Engine (``TRACE'') of the Financial 
Industry Regulatory Authority (``FINRA'') will be a source of price 
information for corporate bonds to the extent transactions in such 
securities are reported to TRACE.\39\ Trade price and

[[Page 63936]]

other information relating to municipal bonds is available through the 
Municipal Securities Rulemaking Board's Electronic Municipal Market 
Access (``EMMA'') system. Non-exchange-traded open-end investment 
company securities are typically priced once each business day and 
their prices will be available through the applicable fund's website or 
from major market data vendors. Price information regarding U.S. 
government securities, bank loans, Private ABS/MBS, cash equivalents 
and short-term instruments with maturities of three months or more 
generally may be obtained from brokers and dealers who make markets in 
such securities or through nationally recognized pricing services 
through subscription agreements. Information relating to Private ABS/
MBS is widely available from major market data vendors such as 
Bloomberg.
---------------------------------------------------------------------------

    \39\ Broker-dealers that are FINRA member firms have an 
obligation to report transactions in specified debt securities to 
TRACE to the extent required under applicable FINRA rules. 
Generally, such debt securities will have at issuance a maturity 
that exceeds one calendar year. For Fixed Income Securities that are 
not reported to TRACE, (i) intraday price quotations will generally 
be available from broker-dealers and trading platforms (as 
applicable) and (ii) price information will be available from feeds 
from market data vendors, published or other public sources, or 
online information services, as described above.
---------------------------------------------------------------------------

    Information regarding market price and trading volume of the 
Shares, ETFs, ETNs, common stocks, preferred stocks, REITs, equity 
securities issued upon conversion of fixed income convertible 
securities, Work-Out Securities and closed-end funds 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, ETFs, ETNs, 
closed-end funds, REITs, U.S. exchange-traded common stocks, U.S. 
exchange-traded preferred stocks, U.S. exchange-traded equity 
securities issued upon conversion of fixed income convertible 
securities, and U.S. exchange-traded Work-Out Securities will be 
available via the Consolidated Tape Association (``CTA'') high-speed 
line. Exchange-traded options quotation and last sale information for 
options cleared via the Options Clearing Corporation (``OCC'') are 
available via the Options Price Reporting Authority (``OPRA''). In 
addition, the Portfolio Indicative Value (``PIV''), as defined in NYSE 
Arca Rule 8.600-E(c)(3), will be widely disseminated by one or more 
major market data vendors at least every 15 seconds during the Core 
Trading Session.
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.\40\ 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. Trading in the Fund's Shares also 
will be subject to Rule 8.600-E(d)(2)(D) (``Trading Halts'').
---------------------------------------------------------------------------

    \40\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace 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 the NYSE Arca Marketplace is 
$0.01, with the exception of securities that are priced less than $1.00 
for which the MPV for order entry is $0.0001.
    With the exception of the requirements of Commentary .01(a)(1), 
(a)(2), (b)(1), (b)(4), (b)(5), and (e) to Rule 8.600-E as described 
above in ``Application of Generic Listing Requirements,'' 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 and Sub-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 continued listing, 
the Fund will be in compliance with Rule 10A-3 \41\ under the Act, as 
provided by NYSE Arca Rule 5.3-E. 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 its investment goal and will 
not be used to provide multiple returns of a benchmark or to produce 
leveraged returns.
---------------------------------------------------------------------------

    \41\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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.\42\
---------------------------------------------------------------------------

    \42\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    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, certain 
exchange-traded options and certain exchange-traded futures, ETFs, 
ETNs, closed-end funds, certain common stocks, certain preferred 
stocks, certain REITs, certain equity securities issued upon conversion 
of fixed income convertible securities, and certain Work-Out Securities 
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 such securities and financial instruments from 
such markets and other entities.\43\ In addition, the Exchange may 
obtain information regarding trading in such securities and financial 
instruments from markets and other entities that are members of ISG or 
with which the Exchange has in place a CSSA. 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

[[Page 63937]]

from the Municipal Securities Rulemaking Board relating to municipal 
bond trading activity for surveillance purposes in connection with 
trading in the Shares.
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    \43\ 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 (``CSSA'').
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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 or reference assets, (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 must notify 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
    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 PIV will not be 
calculated or publicly disseminated; (4) how information regarding the 
PIV 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) \44\ 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.
---------------------------------------------------------------------------

    \44\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares are 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, certain 
exchange-traded options and certain exchange-traded futures, ETFs, 
ETNs, closed-end funds, certain common stocks, certain preferred 
stocks, certain REITs, certain equity securities issued upon conversion 
of fixed income convertible securities and certain Work-Out Securities 
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 such securities and financial 
instruments from such markets and other entities. The Exchange may 
obtain information regarding trading in such securities and financial 
instruments from markets and other entities that are members of ISG or 
with which the Exchange has in place a CSSA. 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 Municipal Securities 
Rulemaking Board relating to municipal bond trading activity for 
surveillance purposes in connection with trading in the Shares.
    The Adviser and Sub-Adviser are not registered as broker-dealers. 
The Adviser is not affiliated with a broker-dealer. The Sub-Adviser is 
affiliated with a broker-dealer and has implemented and will maintain a 
fire wall with respect to its broker-dealer affiliate regarding access 
to information concerning the composition and/or changes to the 
portfolio.
    The Exchange notes that, other than Commentary .01(a)(1), (a)(2), 
(b)(1), (b)(4), (b)(5), and (e) to Rule 8.600-E, as described above, 
the Fund's portfolio will meet all other requirements of Rule 8.600-E.
    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 will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Quotation and last sale 
information for the Shares, ETFs, ETNs, closed-end funds, certain 
REITs, certain common stocks, certain preferred stocks, certain equity 
securities issued upon conversion of fixed income convertible 
securities, and certain Work-Out Securities will be available via the 
CTA high-speed line. Exchange-traded options quotation and last sale 
information for options cleared via the OCC are available via OPRA. 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, NAV, the 
PIV, 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 
generally will principally hold fixed income 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

[[Page 63938]]

Shares and may obtain information via ISG from other exchanges that are 
members of ISG or with which the Exchange has entered into a CSSA.
    Deviations from the generic requirements, as described above, are 
necessary for the Fund to achieve its investment objective in a manner 
that is cost-effective and that maximizes investors' returns. Further, 
the proposed alternative requirements are narrowly tailored to allow 
the Fund to achieve its investment objective in a manner that is 
consistent with the principles of Section 6(b)(5) of the Act. As a 
result, it is in the public interest to approve listing and trading of 
Shares of the Fund on the Exchange pursuant to the requirements set 
forth herein.
    As noted above, the Fund will not comply with the requirements set 
forth in Commentary .01(a)(1) and (a)(2) to NYSE Arca Rule 8.600-E with 
respect to the Fund's investments in equity securities. Instead, the 
Exchange proposes that (i) the Fund's investments in equity securities 
will meet the requirements of Commentary .01(a) with the exception of 
Commentary .01(a)(1)(C) and .01(a)(1)(D) (with respect to U.S. 
Component Stocks) and Commentary .01(a)(2)(C) and .01(a)(2)(D) (with 
respect to Non-U.S. Component Stocks).\45\ The Exchange believes it is 
appropriate and in the public interest to approve listing and trading 
of Shares of the Fund notwithstanding that the Fund's holdings in such 
equity securities do not comply with the requirements set forth in 
Commentary .01(a)(1) and (a)(2) to NYSE Arca Rule 8.600-E in that any 
Fund investment in exchange-traded common stocks, preferred stocks, 
REITs, ETFs, ETNs, U.S. exchange-traded closed-end funds, exchange-
traded equity securities issued upon conversion of fixed income 
convertible securities, and exchange-traded Work Out Securities would 
provide for enhanced diversification of the Fund's portfolio. Such 
securities would be Non-Principal Investments, not exceeding 20% of the 
Fund's net assets in the aggregate.
---------------------------------------------------------------------------

    \45\ See notes 23 and 24, supra.
---------------------------------------------------------------------------

    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, 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 will not comply with the requirements set forth in 
Commentary .01(b)(1) to NYSE Arca Rule 8.600-E with respect to the 
Fund's investments in Fixed Income Securities, including Municipal 
Securities. The Fund may not invest more than 5% of its total assets 
(determined at the time of purchase) in any one Fixed Income Security 
(excluding U.S. government securities and TIPS) on a per CUSIP basis. 
In addition, at least 50% of the weight of the Fund's portfolio would 
continue to be subject to a substantial minimum (i.e., $50 million) 
original principal amount outstanding. These conditions would provide 
the Fund with greater ability to select from a broad range of Fixed 
Income Securities, as described above, that would support the Fund's 
investment goal.
    With respect to the Fund's investments in Municipal Securities, 
such securities will be diversified in that no single Municipal 
Securities issuer will account for more than 10% of the weight of the 
Fund's portfolio; no individual Municipal Security will account for 
more than 5% of the weight of the Fund's portfolio; and the Fund will 
limit its investments in Municipal Securities of any one state or U.S. 
territory to 20% of the Fund's total assets.
    The Exchange believes it is appropriate and in the public interest 
to approve listing and trading of Shares of the Fund notwithstanding 
that the Fund's holdings in such Private ABS/MBS do not comply with the 
requirements set forth in Commentary .01(b)(4) to NYSE Arca Rule 8.600-
E because certain Private ABS/MBS cannot satisfy the criteria in 
Commentary .01(b)(4).\46\ Instead, the Exchange proposes that the 
Fund's investments in Fixed Income Securities other than Private ABS/
MBS will be required to comply with the requirements of Commentary 
.01(b)(4). As noted above, the Fund may not invest more than 5% of its 
total assets (determined at the time of purchase) in any one Fixed 
Income Security (excluding U.S. government securities and TIPS) on a 
per CUSIP basis. The Exchange believes this limitation would provide 
additional diversification to the Fund's investments in Private ABS/
MBS, and reduce concerns that the Fund's investment in such securities 
would be readily susceptible to market manipulation.
---------------------------------------------------------------------------

    \46\ See note 26, supra.
---------------------------------------------------------------------------

    The Exchange believes it is appropriate and in the public interest 
to approve listing and trading of Shares of the Fund notwithstanding 
that the Fund's holdings in such Private ABS/MBS do not comply with the 
requirements set forth in Commentary .01(b)(5) to NYSE Arca Rule 8.600-
E. Instead, the Exchange proposes that, in order to enable the 
portfolio to be more diversified and provide the Fund with an 
opportunity to earn higher returns, the Fund may invest up to 50% of 
its total assets in the aggregate in Private ABS/MBS, provided that the 
Fund (1) may not invest more than 30% of its total assets in non-agency 
RMBS; (2) may not invest more than 25% of its total assets in non-
agency CMBS; and (3) may not invest more than 25% of its total assets 
in non-agency ABS. In addition, the Fund's investment in Private ABS/
MBS is expected to provide the Fund with benefits associated with 
increased diversification, as Private ABS/MBS investments tend to be 
less correlated to interest rates than many other fixed income 
securities.
    In addition, as noted above, the Fund may not invest more than 5% 
of its total assets (determined at the time of purchase) in any one 
Fixed Income Security (excluding U.S. government securities and TIPS) 
on a per CUSIP basis.\47\ The Exchange believes these limitations would 
provide additional diversification to the Fund's Private ABS/MBS 
investments and reduce concerns that the Fund's investment in such 
securities would be readily susceptible to market manipulation.
---------------------------------------------------------------------------

    \47\ As noted above, the Fund's holdings in derivative 
instruments for hedging purposes would be excluded from the 
determination of compliance with this 5% limitation. The total gross 
notional value of the Fund's holdings in derivative instruments used 
to gain exposure to a specific asset is limited to 5% of the Fund's 
total assets (determined at the time of purchase).
---------------------------------------------------------------------------

    As noted above, the Fund's portfolio will not comply with the 
requirements set forth in Commentary .01(e) to NYSE Arca Rule 8.600-E. 
The Exchange proposes that up to 25% of the Fund's assets (calculated 
as the aggregate gross notional value) may be invested in OTC 
derivatives that are used to reduce currency, interest rate or credit 
risk arising from the Fund's investments (that is, ``hedge''), and that 
the Fund's investments in OTC derivatives other than OTC derivatives 
used to hedge the Fund's portfolio against currency, interest rate or 
credit risk will be limited to 20% of the assets in the Fund's 
portfolio, calculated as the aggregate gross notional value of such OTC

[[Page 63939]]

derivatives. As noted above, the Fund will not use derivative 
instruments to gain exposure to Private ABS/MBS, and derivative 
instruments linked to such securities will be used for hedging purposes 
only.
    The Exchange believes it is appropriate and in the public interest 
to approve listing and trading of Shares of the Fund notwithstanding 
that the Fund's holdings in OTC derivatives do not comply with the 
requirements set forth in Commentary .01(e) to NYSE Arca Rule 8.600-E 
in that, depending on market conditions, it may be critical that the 
Fund be able to utilize available OTC derivatives to attempt to reduce 
impact of currency, interest rate or credit fluctuations on Fund 
assets. Therefore, the Exchange believes it is appropriate to apply a 
limit of up to 25% of the Fund's assets to the Fund's investments in 
OTC derivatives (calculated as the aggregate gross notional value of 
such OTC derivatives), including forwards, options and swaps, that are 
used for hedging purposes, as described above.
    The Adviser and Sub-Adviser represent that OTC derivatives can be 
tailored to hedge the specific risk arising from the Fund's investments 
and frequently may be a more efficient hedging vehicle than listed 
derivatives. For example, the Fund could obtain an OTC foreign currency 
derivative in a notional amount that exactly matches the notional 
amount of the Fund's investments. If the Fund were limited to investing 
up to 20% of assets in OTC derivatives, the Fund might have to ``over 
hedge'' or ``under hedge'' if round lot sizes in listed derivatives 
were not available. In addition, for example, an OTC CDX option can be 
structured to provide protection tailored to the Fund's credit exposure 
and can be a more efficient way to hedge credit risk with respect to 
specific exposures than listed derivatives. Similarly, OTC interest 
rate derivatives can be more effective hedges of interest rate exposure 
because they can be customized to match the basis risk arising from the 
term of the investments held by the Fund.
    Because the Fund, in furtherance of its investment objective, may 
invest a substantial percentage of its investments in foreign currency 
denominated Fixed Income Securities, the 20% limit in Commentary .01(e) 
to Rule 8.600-E could result in the Fund being unable to fully pursue 
its investment objective while attempting to sufficiently mitigate 
investment risks. The inability of the Fund to adequately hedge its 
holdings would effectively limit the Fund's ability to invest in 
certain instruments, or could expose the Fund to additional investment 
risk. For example, if the Fund's assets (on a gross notional value 
basis) were $100 million and no listed derivative were suitable to 
hedge the Fund's risk, under the generic standards the Fund would be 
limited to holding up to $20 million gross notional value in OTC 
derivatives ($100 million * 20%). Accordingly, the maximum amount the 
Fund would be able to invest in foreign currency denominated Fixed 
Income Securities while remaining adequately hedged would be $20 
million. The Fund then would hold $60 million in assets that could not 
be hedged, other than with listed derivatives, which, as noted above, 
might not be sufficiently tailored to the specific instruments to be 
hedged.
    In addition, by applying the 20% limitation in Commentary .01(e) to 
Rule 8.600-E, the Fund would be less able to protect its holdings from 
more than one risk simultaneously. For example, if the Fund's assets 
(on a gross notional basis) were $100 million and the Fund held $20 
million in foreign currency denominated Fixed Income Instruments with 
two types of risks (e.g., currency and credit risk) which could not be 
hedged using listed derivatives, the Fund would be faced with the 
choice of either holding $20 million aggregate gross notional value in 
OTC derivatives to mitigate one of the risks while passing the other 
risk to its shareholders, or, for example, holding $10 million 
aggregate gross notional value in OTC derivatives on each of the risks 
while passing the remaining portion of each risk to the Fund's 
shareholders.
    The Adviser and Sub-Adviser believe that it is in the best interest 
of the Fund's shareholders for the Fund to be allowed to reduce the 
currency, interest rate or credit risk arising from the Fund's 
investments using the most efficient financial instrument. While 
certain risks can be hedged via listed derivatives, OTC derivatives 
(such as forwards, options and swaps) can be customized to hedge 
against precise risks. Accordingly, the Adviser and Sub-Adviser believe 
that OTC derivatives may frequently be a more efficient hedging vehicle 
than listed derivatives. Therefore, the Exchange believes that 
increasing the percentage limit in Commentary .01(e), as described 
above, to the Fund's investments in OTC derivatives, including 
forwards, options and swaps, that are used specifically for hedging 
purposes would help protect investors and the public interest.
    As noted above, the Fund's portfolio will not meet the requirements 
of Commentary .01(a)(1)(A) through (E) to Rule 8.600-E with respect to 
the Fund's investments in non-exchange-traded securities of open-end 
investment company securities, and, with respect to the Fund's holdings 
of OTC equity securities issued upon conversion of fixed income 
convertible securities and OTC Work Out Securities, would not meet the 
requirements of Commentary .01(a)(1)(A) through (E) and Commentary 
.01(a)(2)(A) through (E) to Rule 8.600-E. 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(a)(1)(A) through 
(E) to Rule 8.600-E with respect to the Fund's investments in non-
exchange-traded securities of open-end investment company securities, 
and notwithstanding that the Fund's holdings of OTC equity securities 
issued upon conversion of fixed income convertible securities and OTC 
Work Out Securities would not meet the requirements of Commentary 
.01(a)(1)(A) through (E) and Commentary .01(a)(2)(A) through (E) to 
Rule 8.600-E. Investments in non-exchange-traded securities of open-end 
investment company securities will not be principal investments of the 
Fund.\48\ Such investments, which may include mutual funds that invest, 
for example, principally in fixed income securities, would be utilized 
to help the Fund meet its investment objective and to equitize cash in 
the short term.
---------------------------------------------------------------------------

    \48\ See note 33, supra.
---------------------------------------------------------------------------

    With respect to any Fund holdings of exchange-traded or OTC equity 
securities issued upon conversion of fixed income convertible 
securities and Work Out Securities, such securities will not exceed 10% 
and 5%, respectively, of the Fund's total assets. The Adviser and Sub-
Adviser represent that the Fund generally will not actively invest in 
equity securities issued upon conversion of fixed income convertible 
securities or Work Out Securities, but may, at times, receive a 
distribution of such securities in connection with the Fund's holdings 
in other securities. Therefore, the Fund's holdings in equity 
securities issued upon conversion of fixed income convertible 
securities and Work Out Securities generally would not be acquired as 
the result of the Fund's voluntary investment decisions.
    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 
shares of an additional type of

[[Page 63940]]

actively-managed exchange-traded product that will enhance competition

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 
generally will principally hold fixed income 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

    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, as modified by Amendment No. 1, 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-2019-78 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-2019-78. 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-2019-78 and should be submitted 
on or before December 10, 2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
---------------------------------------------------------------------------

    \49\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-24973 Filed 11-18-19; 8:45 am]
 BILLING CODE 8011-01-P


