[Federal Register Volume 84, Number 224 (Wednesday, November 20, 2019)]
[Notices]
[Pages 64170-64176]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-25101]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87542; File No. SR-NYSEArca-2019-81]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Establish Generic Listing Standards for 
Derivative Securities Products That Are Permitted To Operate in 
Reliance on Rule 6c-11 Under the Investment Company Act of 1940

November 14, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the

[[Page 64171]]

``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that, 
on November 1, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') a proposed rule change described in Items I and II 
below, which Items have been prepared by the Exchange. The Commission 
is publishing this notice to solicit comments on the proposed rule 
change from interested persons.
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    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes new Rule 5.2-E(j)(8) to establish generic 
listing standards for Derivative Securities Products that are permitted 
to operate in reliance on Rule 6c-11 under the Investment Company Act 
of 1940. In addition, the Exchange proposes to discontinue the 
quarterly reports currently required with respect to Managed Fund 
Shares listed on the Exchange pursuant to Commentary .01 to NYSE Arca 
Rule 8.600-E. 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 new Rule 5.2-E(j)(8) to establish ``generic'' 
listing standards for Derivative Securities Products \4\ that are 
permitted to operate in reliance on Rule 6c-11 (``Rule 6c-11'') under 
the Investment Company Act of 1940 (``1940 Act'').\5\ In addition, the 
Exchange proposes to discontinue the quarterly reports currently 
required with respect to Managed Fund Shares listed on the Exchange 
pursuant to Rule Commentary .01 to Rule 8.600-E.
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    \4\ The term ``Derivative Securities Product'' is defined in 
Rule 1.1(k) to mean a security that meets the definition of 
``derivative securities product'' in Rule 19b-4(e) under the 
Exchange Act. 17 CFR 240.19b-4(e). As provided under Rule 19b-4(e), 
the term ``new derivative securities product'' means any type of 
option, warrant, hybrid securities product or any other security, 
other than a single equity option or a security futures product, 
whose value is based, in whole or in part, upon the performance of, 
or interest in, an underlying instrument. The term ``Exchange Act'' 
is defined in Rule 1.1(q) to mean the Securities Exchange Act of 
1934, as amended.
    \5\ 15 U.S.C. 80a-1.
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    The Securities and Exchange Commission (``Commission'') recently 
adopted Rule 6c-11 to permit exchange-traded funds (ETFs) that satisfy 
certain conditions to operate without obtaining an exemptive order from 
the Commission under the 1940 Act.\6\ The regulatory framework provided 
in Rule 6c-11 will streamline current procedures and reduce the costs 
and time frames associated with bringing ETFs to market, thereby 
enhancing competition among ETF issuers and reducing costs for 
investors.\7\
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    \6\ See Release Nos. 33-10695; IC-33646; File No. S7-15-18 
(Exchange-Traded Funds) (September 25, 2019), 84 FR 57162 (October 
24, 2019) (the ``Rule 6c-11 Release'').
    \7\ In approving the rule, the Commission stated that the ``rule 
will modernize the regulatory framework for ETFs to reflect our more 
than two decades of experience with these investment products. The 
rule is designed to further important Commission objectives, 
including establishing a consistent, transparent, and efficient 
regulatory framework for ETFs and facilitating greater competition 
and innovation among ETFs.'' Rule 6c-11 Release, at 57163. The 
Commission also stated the following regarding the rule's impact: 
``We believe rule 6c-11 will establish a regulatory framework that: 
(1) Reduces the expense and delay currently associated with forming 
and operating certain ETFs unable to rely on existing orders; and 
(2) creates a level playing field for ETFs that can rely on the 
rule. As such, the rule will enable increased product competition 
among certain ETF providers, which can lead to lower fees for 
investors, encourage financial innovation, and increase investor 
choice in the ETF market.'' Rule 6c-11 Release, at 57204.
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    Rule 19b-4(e)(1) provides that the listing and trading of a new 
derivative securities product by a self-regulatory organization 
(``SRO'') is not deemed a proposed rule change, pursuant to paragraph 
(c)(1) of Rule 19b-4,\8\ if the Commission has approved, pursuant to 
Section 19(b) of the Act, the SRO's trading rules, procedures and 
listing standards for the product class that would include the new 
derivative securities product and the SRO has a surveillance program 
for the product class.\9\ As contemplated by this Rule, the Exchange 
proposes new Rule 5.2-E(j)(8) to establish generic listing standards 
for Derivative Securities Products that are ETFs that are permitted to 
operate in reliance on Rule 6c-11. An ETF listed under proposed Rule 
5.2-E(j)(8) would therefore not need a separate proposed rule change 
pursuant to Rule 19b-4 before it can be listed and traded on the 
Exchange.
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    \8\ 17 CFR 240.19b-4(c)(1). As provided under SEC Rule 19b-
4(c)(1), a stated policy, practice, or interpretation of the SRO 
shall be deemed to be a proposed rule change unless it is reasonably 
and fairly implied by an existing rule of the SRO.
    \9\ Currently, ``passive'' ETFs (Investment Company Units) based 
on an underlying index as well as actively-managed ETFs (Managed 
Fund Shares) are listed on the Exchange pursuant to NYSE Arca Rules 
5.2-E(j)(3) and 8.600-E, respectively, and such securities are 
eligible for Exchange listing pursuant to Rule 19b-4(e) if they 
satisfy the ``generic'' listing criteria specified in those Exchange 
rules. The Exchange may file with the Commission a proposed rule 
change pursuant to Rule 19(b) of the Act to permit listing of 
Investment Company Units and Managed Fund Shares that do not meet 
the applicable generic listing criteria. Such securities may be 
listed and traded on the Exchange following Commission approval or 
notice of effectiveness of the applicable proposed rule change.
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    The Exchange believes that the proposed generic listing rules for 
Exchange-Traded Fund Shares, described below, would facilitate 
efficient procedures for ETFs that are permitted to operate in reliance 
on Rule 6c-11. The Exchange further believes that the proposed rule is 
fully consistent with, and will further, the Commission's goals in 
adopting Rule 6c-11. As with Investment Company Units and Managed Fund 
Shares listed under the generic listing standards in NYSE Arca Rules 
5.2-E(j)(3) and 8.600-E, respectively, series of Exchange-Traded Fund 
Shares that are permitted to operate in reliance on Rule 6c-11 would be 
permitted to be listed and traded on the Exchange without a prior 
Commission approval order or notice of effectiveness pursuant to 
Section 19(b) of the Act. This will significantly reduce the time frame 
and costs associated with bringing these securities to market, thereby 
promoting market competition among issuers of Exchange-Traded Fund 
Shares, to the benefit of the investing public.
Proposed Rule 5.2-E(j)(8)--Exchange-Traded Fund Shares
    The Exchange is proposing standards that would pertain to Exchange-
Traded Fund Shares to qualify for listing and trading pursuant to Rule 
19b-4(e), as follows.\10\
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    \10\ Rule 6c-11 is effective December 23, 2019. Subject to 
approval of this proposed rule change, Exchange-Traded Fund Shares 
that are permitted to operate in reliance on Rule 6c-11 would be 
eligible for listing and trading on the Exchange under proposed Rule 
5.2-E(j)(8) after that date.
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    Proposed Rule 5.2-E(j)(8)(a) would provide that the Exchange would

[[Page 64172]]

consider for trading, whether by listing or pursuant to unlisted 
trading privileges (``UTP''), Exchange-Traded Fund Shares that meet the 
criteria of proposed Rule 5.2-E(j)(8).
    Proposed Rule 5.2-E(j)(8)(a)(1) would provide that a Derivative 
Securities Product listed under proposed Rule 5.2-E(j)(8) would not 
need to separately meet either the initial or continued listed 
requirements of any other Exchange rules. For example, an ETF that 
satisfies the requirements of Rule 6c-11 and therefore is listed 
pursuant to proposed Rule 5.2-E(j)(8) and is also, for example, an 
Investment Company Unit, would not need to separately meet the initial 
or continued listed requirements of Rule 5.2-E(j)(3).
    Proposed Rule 5.2-E(j)(8)(b) would specify applicability of the 
Rule and would provide that it is applicable only to Exchange-Traded 
Fund Shares. The Rule would further provide that, except to the extent 
inconsistent with proposed Rule 5.2-E(j)(8), or unless the context 
otherwise requires, Exchange rules would be applicable to the trading 
on the Exchange of such securities and that Exchange-Traded Fund Shares 
would be included within the definition of NMS Stock as defined in Rule 
1.1.
    Proposed Rule 5.2-E(j)(8)(c) would set forth the definitions that 
would be used for purposes of the proposed rule as follows:
     Proposed Rule 5.2-E(j)(8)(c)(1) would define the term 
``1940 Act'' to mean the Investment Company Act of 1940, as amended.
     Proposed Rule 5.2-E(j)(8)(c)(2) would define the term 
``Exchange-Traded Fund'' as having the same meaning as the term 
``exchange-traded fund'' as defined in Rule 6c-11(a)(1) under the 1940 
Act.\11\
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    \11\ Rule 6c-11(a)(1) defines ``exchange-traded fund'' as a 
registered open-end management company: (i) That issues (and 
redeems) creation units to (and from) authorized participants in 
exchange for a basket and a cash balancing amount if any; and (ii) 
Whose shares are listed on a national securities exchange and traded 
at market-determined prices. The terms ``authorized participant,'' 
``basket'' and ``creation unit'' are defined in Rule 6c-11(a).
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     Proposed Rule 5.2-E(j)(8)(c)(3) would define the term 
``Exchange-Traded Fund Share'' to mean a share of stock issued by an 
Exchange-Traded Fund.\12\
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    \12\ The definition of Exchange-Traded Fund Shares is the same 
as the definition of ``exchange-traded fund shares'' in Rule 6c-
11(a) under the 1940 Act.
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     Proposed Rule 5.2-E(j)(8)(c)(4) would define the term 
``Reporting Authority'' to mean, in respect of a particular series of 
Exchange-Traded Fund Shares, the Exchange, an institution, or a 
reporting service designated by the Exchange or by the exchange that 
lists a particular series of Exchange-Traded Fund Shares (if the 
Exchange is trading such series pursuant to UTP) as the official source 
for calculating and reporting information relating to such series, 
including, but not limited to, the amount of any cash distribution to 
holders of Exchange-Traded Fund Shares, net asset value, or other 
information relating to the issuance, redemption or trading of 
Exchange-Traded Fund Shares. As further proposed, a series of Exchange-
Traded Fund Shares may have more than one Reporting Authority, each 
having different functions.\13\
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    \13\ Proposed Rule 5.2-E(j)(8)(c)(3) is based, for example, on 
Rules 8.100-E(a)(2) for Portfolio Depositary Receipts); 8.600-
E(c)(4) (for Managed Fund Shares) and 8.700-E(c)(4) (for Managed 
Trust Securities).
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    Proposed Rule 5.2-E(j)(8)(d) would specify the limitations on 
Exchange liability and relates to limitation of the Exchange, the 
Reporting Authority, or any agent of the Exchange as a result of 
specified events and conditions. Specifying such limitations of 
liability is standard in the Exchange's rules governing the listing of 
Derivative Securities Products and the proposed rule text is based on 
Rules 5.2-E(j)(3)(D), 8.100-E(f), 8.201-E(f), 8.200-E(f), 8.202-E(f), 
8.203-E(f), 8.204-E(g), 8.300-E(f), 8.400-E(f), 8.500-E(e), 8.600-E(e), 
and 8.700-E(g).
    Proposed Rule 5.2-E(j)(8)(e) would provide that Exchange may 
approve Exchange-Traded Fund Shares for listing and/or trading 
(including pursuant to UTP) pursuant to Rule 19b-4(e) under the 
Exchange Act provided that each series of Exchange-Traded Fund Shares 
must be eligible to operate in reliance on Rule 6c-11 and must satisfy 
the requirements of proposed Rule 5.2-E(j)(8) upon initial listing and 
on a continuing basis. As further proposed, an issuer of such 
securities must notify the Exchange of any failure to comply with such 
requirements.
    Proposed Rule 5.2-E(j)(8)(e)(1) would set forth the initial and 
continued listing standards for Exchange-Traded Fund Shares to be 
listed on the Exchange and would provide that Exchange-Traded Fund 
Shares will be listed and traded on the Exchange subject to the 
requirement that the investment company issuing a series of Exchange-
Traded Fund Shares is in compliance with the requirements of Rule 6c-
11(c) \14\ on an initial and continued listing basis.
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    \14\ Rule 6c-11(c) (``Conditions'') sets forth certain 
conditions applicable to exchange-traded funds, and specifies the 
information required to be disclosed prominently on the fund's 
website free of charge, including the following:
    (i) Before the opening of regular trading on the primary listing 
exchange of the exchange-traded fund shares, the estimated cash 
balancing amount (if any) and the following information (as 
applicable) for each portfolio holding that will form the basis of 
the next calculation of current net asset value per share:
    (A) Ticker symbol;
    (B) CUSIP or other identifier;
    (C) Description of holding;
    (D) Quantity of each security or other asset held; and
    (E) Percentage weight of the holding in the portfolio;
    (ii) The exchange-traded fund's current net asset value per 
share, market price, and premium or discount, each as of the end of 
the prior business day;
    (iii) A table showing the number of days the exchange-traded 
fund's shares traded at a premium or discount during the most 
recently completed calendar year and the most recently completed 
calendar quarters since that year (or the life of the exchange-
traded fund, if shorter);
     (iv) A line graph showing exchange-traded fund share premiums 
or discounts for the most recently completed calendar year and the 
most recently completed calendar quarters since that year (or the 
life of the exchange-traded fund, if shorter);
    (v) The exchange-traded fund's median bid-ask spread, expressed 
as a percentage rounded to the nearest hundredth (and computed in a 
manner described in Rule 6c-11(c)(v)(A) through (D)); and
    (vi) If the exchange-traded fund's premium or discount is 
greater than 2% for more than seven consecutive trading days, a 
statement that the exchange-traded fund's premium or discount, as 
applicable, was greater than 2% and a discussion of the factors that 
are reasonably believed to have materially contributed to the 
premium or discount, which must be maintained on the website for at 
least one year thereafter.
    Rule 6c-11(c)(4) provides that the exchange-traded fund may not 
seek, directly or indirectly, to provide investment returns that 
correspond to the performance of a market index by a specified 
multiple, or to provide investment returns that have an inverse 
relationship to the performance of a market index, over a 
predetermined period of time.
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    Proposed Rule 5.2-E(j)(8)(e)(2) would set forth the standards for 
suspension of trading or removal of Exchange-Traded Fund Shares from 
listing on the Exchange and would provide that the Exchange will 
maintain surveillance procedures for securities listed under proposed 
Rule 5.2-E(j)(8) and would consider the suspension of trading in, and 
will commence delisting proceedings under Rule 5.5-E(m) of, a series of 
Exchange-Traded Fund Shares under any of the following circumstances:
    (i) If the investment company notifies the Exchange that it does 
not comply with the requirements of Rule 6c-11(c) under the 1940 Act 
(see proposed Rule 5.2-E(j)(8)(e)(2)(A));
    (ii) if such other event shall occur or condition exists which, in 
the opinion of the Exchange, makes further dealings on the Exchange 
inadvisable (see proposed Rule 5.2-E(j)(8)(e)(2)(B)). This proposed 
rule text is based, for example,

[[Page 64173]]

on Rules 5.2-E(j)(6)(B)(2)(c)(3)(for Index-Linked Securities); 8.600-
E(d)(2)(C)(vi)(for Managed Fund Shares); and 8.700-E(d)(2)(c)(vi)(for 
Managed Trust Securities).
    Proposed Rule 5.2-E(j)(8)(f) would provide that transactions in 
Exchange-Traded Fund Shares would occur during the trading hours 
specified in Rule 7.34-E(a). As with other Derivative Securities 
Products listed on the Exchange, Exchange-Traded Fund Shares would 
trade during the Early, Core, and Late Trading Sessions, as defined in 
Rule 7.34-E(a). ETP Holders accepting orders in Exchange-Traded Fund 
Shares in the Early or Late Trading Session would be subject to the 
customer disclosure requirements specified in Rule 7.34-E(d).
    Proposed Rule 5.2-E(j)(8)(g) would provide that the Exchange would 
implement written surveillance procedures for Exchange-Traded Fund 
Shares.\15\ This proposed rule is based, for example, on Commentary 
.01(f) to Rule 5.2-E(j)(3) (for Investment Company Units); Commentary 
.03 to Rule 8.600-E (for Managed Fund Shares); and Commentary .04 to 
Rule 8.700-E (for Managed Trust Securities).
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    \15\ The Exchange will propose applicable NYSE Arca listing fees 
for Exchange-Traded Fund Shares in the NYSE Arca Equities Schedule 
of Fees and Charges in a separate proposed rule change.
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    The Exchange proposes to include Commentary .01 to proposed Rule 
5.2-E(j)(8) that would set forth which listing rule would be applicable 
to Derivative Securities Products that are currently listed on the 
Exchange and are also Exchange-Traded Funds that are permitted to 
operate in reliance on Rule 6c-11. As proposed, Commentary .01 to Rule 
5.2-E(j)(8) would provide that a Derivative Securities Product that has 
previously been approved for listing on the Exchange pursuant to the 
generic listing requirements specified in Rule 5.2-E(j)(3) or 
Commentary .01 to Rule 8.600-E, or pursuant to a proposed rule change 
filed and approved or subject to a notice of effectiveness by the 
Commission, will be deemed to be considered approved for listing under 
this Rule if such Derivative Securities Product is both (1) permitted 
to operate in reliance on Rule 6c-11 under the 1940 Act, and (2) the 
prior exemptive relief under the 1940 Act for such Derivative 
Securities Product has been rescinded.
    As further proposed, once such prior exemptive relief has been 
rescinded, the continued listing requirements applicable to such 
previously-listed Derivative Securities Products would be those 
specified in paragraph (e) of Rule 5.2-E(j)(8) and any requirements for 
listing as specified in Rule 5.2-E(j)(3) or Commentary .01 to Rule 
8.600-E, or an approval order or notice of effectiveness of a separate 
proposed rule change that differ from the requirements of Rule 5.2-
E(j)(8) would no longer be applicable to such Derivative Securities 
Products.
    The Exchange believes that this proposed Commentary harmonizes the 
Exchange's listing standards for all Exchange-Traded Funds that will be 
listed on the Exchange, even if they were previously listed pursuant to 
different continuing listed requirements. Specifically, as noted in the 
Rule 6c-11 Release, one year following the effective date of Rule 6c-
11, the Commission will be rescinding those portions of its prior ETF 
exemptive orders under the 1940 Act that grant relief related to the 
formation and operation of certain ETFs. The Exchange believes that 
once this occurs, all Exchange-Traded Funds will be subject to the same 
requirements under Rule 6c-11 and will no longer be subject to any 
differing requirements that may have been set forth in the exemptive 
orders issued before the effective date of Rule 6c-11. The Exchange 
therefore believes that any such Exchange-Traded Funds that were 
previously-listed on the Exchange under a different standard should be 
deemed approved for listing on the Exchange under proposed Rule 5.2-
E(j)(8). To maintain consistent standards for all Exchange-Traded Fund 
Shares on the Exchange, the Exchange further believes that such 
previously-listed products should no longer be required to comply with 
the previously-applicable continued listing requirements for such 
Exchange-Traded Funds.
    The Exchange also proposes non-substantive amendments to include 
Exchange-Traded Fund Shares in other Exchange rules. Specifically, the 
Exchange proposes to amend Rule 5.3-E, concerning Corporate Governance 
and Disclosure Policies, and Rule 5.3-E(e), concerning Shareholder/
Annual Meetings, to add Exchange-Traded Fund Shares to the enumerated 
derivative and special purpose securities that are subject to the 
respective Rules. Thus, Exchange-Traded Fund Shares would be subject to 
corporate governance, disclosure and shareholder/annual meeting 
requirements that are consistent with other derivative and special 
purpose securities enumerated in those Rules.
    The Exchange believes that proposed Rule 5.2-E(j)(8) would promote 
transparency surrounding the listing process for Exchange-Traded Fund 
Shares.
    The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Exchange-Traded Fund 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules. Specifically, the Exchange intends to utilize its 
existing surveillance procedures applicable to Derivative Securities 
Products to monitor trading in Exchange-Traded Fund Shares.
    Pursuant to its obligations under Section 19(g)(1) of the Act, the 
Exchange will monitor for compliance with the continued listing 
requirements. As provided for under proposed Rule 5.2-E(j)(8)(e)(2), if 
the fund is not in compliance with the applicable listing requirements, 
the Exchange will commence delisting procedures under Rule 5.5-E(m).
    In support of this proposal, the Exchange represents that:
    (1) The Exchange-Traded Fund Shares will conform to the initial and 
continued listing criteria under Rule 5.2-E(j)(8);
    (2) the Exchange's surveillance procedures are adequate to properly 
monitor the trading of the Exchange-Traded Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules. 
Specifically, the Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products, which will include 
Exchange-Traded Fund Shares, to monitor trading in the Exchange-Traded 
Fund Shares; and
    (3) the issuer of a series of Exchange-Traded Fund Shares will be 
required to comply with Rule 10A-3 under the Act for the initial and 
continued listing of Exchange-Traded Fund Shares, as provided under 
Rule 5.3-E.
Proposed Discontinuance of Quarterly Reporting Obligation for Managed 
Fund Shares
    In its order approving the Exchange's proposal to adopt generic 
listing standards for Managed Fund Shares,\16\ the Commission noted 
that the Exchange has represented that it would ``provide the 
Commission staff with a report each calendar quarter that includes the 
following information for issues of Managed Fund Shares listed during 
such calendar quarter under Commentary .01 to NYSE Arca Rule 8.600-E: 
(1) trading symbol and date of listing on the Exchange; (2) the number 
of active authorized participants and a description of any failure of 
an issue of

[[Page 64174]]

Managed Fund Shares listed pursuant to Commentary .01 to Rule 8.600-E 
or of an authorized participant to deliver shares, cash, or cash and 
financial instruments in connection with creation or redemption orders; 
and (3) a description of any failure of an issue of Managed Fund Shares 
to comply with Rule 8.600-E.'' \17\ The requirement to provide such 
quarterly reports is not separately specified in Rule 8.600-E.
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    \16\ See Securities Exchange Act Release No. 78397 (July 22, 
2016), 81 FR 49320 (the ``Managed Fund Shares Approval Order'').
    \17\ See Managed Fund Shares Approval Order at footnote 18.
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    The Exchange has provided such information to the Commission on a 
quarterly basis for two years. The Exchange believes such quarterly 
reports are no longer necessary in view of the requirements of Rule 6c-
11(d), as adopted in the Rule 6c-11 Release, and now proposes to 
discontinue such reporting going forward. Rule 6c-11(d) includes 
specific ongoing reporting requirements for exchange-traded funds, 
including written agreements between an authorized participant and a 
fund allowing purchase or redemption of creation units, information 
regarding the baskets exchanged with authorized participants, and the 
identity of authorized participants transacting with a fund.\18\ The 
Commission has stated that the information required by Rule 6c-11(d) 
will provide the Commission's examination staff with information to 
determine compliance with Rule 6c-11 and applicable federal securities 
laws. \19\
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    \18\ Rule 6c-11(d), which sets forth recordkeeping requirements 
applicable to exchange-traded funds, provides that that the 
exchange-traded fund must maintain and preserve for a period of not 
less than five years, the first two years in an easily accessible 
place: (1) All written agreements (or copies thereof) between an 
authorized participant and the exchange-traded fund or one of its 
service providers that allows the authorized participant to place 
orders for the purchase or redemption of creation units; (2) For 
each basket exchanged with an authorized participant, records 
setting forth: (i) The ticker symbol, CUSIP or other identifier, 
description of holding, quantity of each holding, and percentage 
weight of each holding composing the basket exchanged for creation 
units; (ii) If applicable, identification of the basket as a custom 
basket and a record stating that the custom basket complies with 
policies and procedures that the exchange-traded fund adopted 
pursuant to paragraph (c)(3) of Rule 6c-11; (iii) Cash balancing 
amount (if any); and (iv) Identity of authorized participant 
transacting with the exchange-traded fund.
    \19\ In the Rule 6c-11 Release, the Commission stated that 
``requiring ETFs to maintain records regarding each basket exchanged 
with authorized participants will provide our examination staff with 
a basis to understand how baskets are being used by ETFs, 
particularly with respect to custom baskets. In order to provide our 
examination staff with detailed information regarding basket 
composition, however, we have modified rule 6c-11 to require the 
ticker symbol, CUSIP or other identifier, description of holding, 
quantity of each holding, and percentage weight of each holding 
composing the basket exchanged for creation units as part of the 
basket records, instead of the name and quantities of each position 
as proposed. We believe that this additional information will better 
enable our examination staff to evaluate compliance with the rule 
and other applicable provisions of the federal securities laws.'' 
See Rule 6c-11 Release, at 57195.
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    The Exchange therefore believes that the quarterly reports 
currently required pursuant to the Managed Fund Shares Approval Order 
are duplicative of the new Rule 6c-11(d) requirements. To avoid 
unnecessary overlap and potential inconsistency between the quarterly 
reports currently required under the Managed Fund Shares Approval Order 
and the reporting requirements of Rule 6c-11(d), and to avoid 
unnecessary, duplicative burdens on authorized participants and their 
firms in providing and maintaining information regarding creation and 
redemption activity, the Exchange proposes to discontinue the filing 
quarterly reports.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\20\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\21\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \20\ 15 U.S.C. 78f(b).
    \21\ 15 U.S.C. 78f(b)(5).
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    By facilitating efficient procedures for listing ETFs that are 
permitted to operate in reliance on Rule 6c-11, the generic listing 
rules in proposed Rule 5.2-E(j)(8) described above are consistent with, 
and will further, the Commission's goals in adopting Rule 6c-11. In 
addition, by allowing Exchange-Traded Fund Shares to be listed and 
traded on the Exchange without a prior Commission approval order or 
notice of effectiveness pursuant to Section 19(b) of the Act, proposed 
Rule 5.2-E(j)(8) will significantly reduce the time frame and costs 
associated with bringing these securities to market, thereby promoting 
market competition among issuers of Exchange-Traded Fund Shares, to the 
benefit of the investing public.
    In addition, the proposed rule change would fulfill the intended 
objective of Rule 19b-4(e) under the Act by permitting Exchange-Traded 
Fund Shares that satisfy the proposed listing standards to be listed 
and traded without separate Commission approval.
    To be listed under proposed Rule 5.2-E(j)(8), each series of 
Exchange-Traded Fund Shares must be eligible to operate in reliance on 
Rule 6c-11 under the 1940 Act and must satisfy the requirements of Rule 
5.2-E(j)(8) upon initial listing and on a continuing basis. An issuer 
of such securities must notify the Exchange of any failure to comply 
with such requirements.
    As provided in proposed Rule 5.2-E(j)(8)(e)(1), Exchange-Traded 
Fund Shares would be listed and traded on the Exchange subject to the 
requirement that the investment company issuing a series of Exchange-
Traded Fund Shares is in compliance with the requirements of Rule 6c-
11(c) \22\ under the 1940 Act on an initial and continued listing 
basis. This requirement will ensure that Exchange-listed Exchange-
Traded Fund Shares continue to operate in a manner that fully complies 
with the portfolio transparency requirements of Rule 6c-11(c).
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    \22\ Rule 6c-11(c) sets forth certain conditions applicable to 
exchange-traded funds, including information required to be 
disclosed on the fund's website.
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    As provided in proposed Rule 5.2-E(j)(8)(e)(2) (Suspension of 
trading or removal), the Exchange will maintain surveillance procedures 
for securities listed under proposed Rule 5.2-E(j)(8) and will consider 
the suspension of trading in, and will commence delisting proceedings 
under Rule 5.5-E(m) of, a series of Exchange-Traded Fund Shares if the 
investment company notifies the Exchange that it does not comply with 
the requirements of Rule 6c-11(c) under the 1940 Act, or if such other 
event shall occur or condition exists which, in the opinion of the 
Exchange, makes further dealings on the Exchange inadvisable.
    As provided in proposed Rule 5.2-E(j)(8)(g), the Exchange will 
implement written surveillance procedures for Exchange-Traded Fund 
Shares. The Exchange represents that its surveillance procedures are 
adequate to properly monitor the trading of the Exchange-Traded Fund 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules. Specifically, the Exchange intends to utilize its 
existing surveillance procedures applicable to derivative products, 
which will include Exchange-Traded Fund Shares, to monitor trading in 
the Exchange-Traded Fund Shares.
    Proposed Commentary .01 to Rule 5.2-E(j)(8) relates to Derivative 
Securities Products that have previously been approved for listing on 
the Exchange pursuant to the generic listing requirements specified in 
Rule 5.2-E(j)(3) or Commentary .01 to Rule 8.600-E, or pursuant to a 
proposed rule change filed with the Commission. Commentary .01 to 
proposed Rule 5.2-E(j)(8) will make clear that such funds

[[Page 64175]]

will be deemed to be considered approved for listing under Rule 5.2-
E(j)(8) if such funds are permitted to operate in reliance on Rule 6c-
11 and any prior exemptive relief under the 1940 Act for such product 
has been rescinded. At such time, to maintain consistent listing 
standards for all Exchange-Traded Fund Shares listed on the Exchange, 
any requirements for listing as specified in Rule 5.2-E(j)(3) or 
Commentary .01 to Rule 8.600-E, or an approval order or notice of 
effectiveness of a separate proposed rule change that differ from the 
requirements of this Rule would no longer be applicable to such 
exchange-traded funds. The Exchange believes this Rule will streamline 
the listing process for such securities, consistent with the regulatory 
framework adopted in Rule 6c-11 under the 1940 Act.
    The proposed addition of Exchange-Traded Fund Shares to the 
enumerated derivative and special purpose securities that are subject 
to the provisions of Rule 5.3-E (Corporate Governance and Disclosure 
Policies) and Rule 5.3-E (e) (Shareholder/Annual Meetings) would 
subject Exchange-Traded Fund Shares to the same requirements currently 
applicable to other 1940 Act-registered investment company securities 
(i.e., Investment Company Units, Managed Fund Shares and Portfolio 
Depositary Receipts).
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices. The Exchange 
has in place surveillance procedures that are adequate to properly 
monitor trading in the Exchange-Traded Fund Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Financial Industry Regulatory 
Authority, on behalf of the Exchange, or the regulatory staff of the 
Exchange, will communicate as needed regarding trading in Exchange-
Traded Fund Shares with other markets that are members of the 
Intermarket Surveillance Group (``ISG''), including all U.S. securities 
exchanges on which the components are traded. In addition, the Exchange 
may obtain information regarding trading in Exchange-Traded Fund Shares 
from other markets that are members of the ISG, including all U.S. 
securities exchanges on which the components are traded, or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.
    The Exchange will monitor for compliance with the continued listing 
requirements. If the Exchange-Traded Fund is not in compliance with the 
applicable listing requirements, the Exchange will commence delisting 
procedures under Rule 5.5-E(m).
    With respect to the proposed discontinuance of quarterly reports 
currently required for Managed Fund Shares, the Exchange believes such 
quarterly reports are no longer necessary in view of the requirements 
of Rule 6c-11(d).\23\ As noted above, Rule 6c-11(d) includes specific 
ongoing reporting requirements for exchange-traded funds, including 
written agreements between an authorized participant and a fund 
allowing purchase or redemption of creation units, information 
regarding the baskets exchanged with authorized participants, and the 
identity of authorized participants transacting with a fund. The 
Commission has stated that the information required by Rule 6c-11(d) 
will provide the Commission's examination staff with information to 
determine compliance with Rule 6c-11 and applicable federal securities 
laws. The Exchange, therefore, believes it is necessary to discontinue 
the filing quarterly reports to avoid unnecessary overlap and potential 
inconsistency between the quarterly reports and the reporting 
requirements of Rule 6c-11(d), and to avoid unnecessary, duplicative 
burdens on authorized participants and their firms in providing and 
maintaining information regarding creation and redemption activity.
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    \23\ See note 18, supra.
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    For these reasons, the Exchange believes that the proposal is 
consistent with the Act.

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

    In accordance with Section 6(b)(8) of the Act,\24\ 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 purposes of the Act. Instead, the Exchange believes that the 
proposed rule change would facilitate the listing and trading of 
Exchange-Traded Fund Shares and result in an efficient process 
surrounding the listing and trading of Exchange-Traded Fund Shares, 
which will enhance competition among market participants, to the 
benefit of investors and the marketplace. The Exchange believes that 
this will reduce the time frame for bringing Exchange-Traded Fund 
Shares to market, thereby reducing the burdens on issuers and other 
market participants and promoting competition. In turn, the Exchange 
believes that the proposed change would make the process for listing 
Exchange-Traded Fund Shares more competitive by applying uniform 
listing standards with respect to Exchange-Traded Fund Shares.
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    \24\ 15 U.S.C. 78f(b)(8).
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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 such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2019-81 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-2019-81. 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

[[Page 64176]]

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-2019-81 and should be submitted on or before December 11, 
2019.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2019-25101 Filed 11-19-19; 8:45 am]
 BILLING CODE 8011-01-P


