[Federal Register Volume 85, Number 2 (Friday, January 3, 2020)]
[Notices]
[Pages 380-391]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-28411]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87865; File No. SR-NYSEArca-2019-92]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To Adopt NYSE Arca Rule 8.601-E To Permit the 
Listing and Trading of Managed Portfolio Securities and To List and 
Trade Four Series of Managed Portfolio Securities Issued by T. Rowe 
Price Exchange-Traded Funds, Inc. Under Proposed NYSE Arca Rule 8.601-E

December 30, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that, on December 23, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as 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 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 adopt a new NYSE Arca Rule 8.601-E to 
permit the Exchange to list and trade Managed Portfolio Securities, 
which are shares of an actively managed exchange-traded fund (``ETF'') 
for which the portfolio is disclosed quarterly. In addition, the 
Exchange proposes to list and trade shares of the following Managed 
Portfolio Securities under proposed new NYSE Arca Rule 8.601-E: T. Rowe 
Price Blue Chip Growth ETF; T. Rowe Price Dividend Growth ETF; T. Rowe 
Price Growth Stock ETF; and T. Rowe Price Equity Income ETF. The 
proposed change is available on the Exchange's website at www.nyse.com, 
at the principal office of the Exchange, and at

[[Page 381]]

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 add new NYSE Arca Rule 8.601-E for the 
purpose of permitting the listing and trading, or trading pursuant to 
unlisted trading privileges (``UTP''), of Managed Portfolio Securities, 
which are securities issued by an actively managed open-end investment 
management company.
    In addition to the above-mentioned proposed rule changes, the 
Exchange proposes to list and trade shares (``Shares'') of the 
following series of Managed Portfolio Securities under proposed new 
NYSE Arca Rule 8.601-E: T. Rowe Price Blue Chip Growth ETF, T. Rowe 
Price Dividend Growth ETF, T. Rowe Price Growth Stock ETF, and T. Rowe 
Price Equity Income ETF (each a ``Fund'' and, collectively, the 
``Funds''). The investment adviser for the Funds will be T. Rowe Price 
Associates, Inc. (``Adviser'').
Proposed Listing Rules
    Proposed Rule 8.601-E (a) provides that the Exchange will consider 
for trading, whether by listing or pursuant to UTP, Managed Portfolio 
Securities that meet the criteria of Rule 8.601-E.
    Proposed Rule 8.601-E (b) provides that Rule 8.601-E is applicable 
only to Managed Portfolio Securities and that, except to the extent 
inconsistent with Rule 8.601-E, or unless the context otherwise 
requires, the rules and procedures of the Board of Directors will be 
applicable to the trading on the Exchange of such securities. Proposed 
Rule 8.601-E(b) provides further that Managed Portfolio Securities are 
included within the definition of ``security'' or ``securities'' as 
such terms are used in the Rules of the Exchange.
    Proposed Rule 8.601-E(c) sets forth the applicable definitions 
related to Managed Portfolio Securities. Proposed Rule 8.601-E(c)(1) 
defines the term ``Managed Portfolio Security'' as a security that (a) 
is issued by a registered investment company (``Investment Company'') 
organized as an open-end management investment company that invests in 
a portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's investment 
objectives and policies; (b) is issued in a specified aggregate minimum 
number of shares equal to a Creation Unit, or multiples thereof, in 
return for a deposit by the purchaser of the ``Proxy Portfolio'' and/or 
cash, and (c) when aggregated in the same specified minimum number of 
shares, or multiples thereof, may be redeemed at a holder's request in 
return for a transfer of the Proxy Portfolio and/or cash to the holder 
by the issuer.
    Proposed Rule 8.601-E(c)(2) defines the term ``Portfolio 
Positions'' as the identities and quantities of the securities and 
other assets held by the Investment Company that will form the basis 
for the Investment Company's calculation of net asset value (``NAV'') 
at the end of the business day.
    Proposed Rule 8.601-E(c)(3) defines the term ``Proxy Portfolio'' as 
a specified portfolio of securities, other financial instruments and/or 
cash that shall serve as the Managed Portfolio Security's identified 
hedging vehicle.
    Proposed Rule 8.601-E(c)(4) defines the term ``Creation Unit'' as a 
specified minimum number of Managed Portfolio Securities.
    Proposed Rule 8.601-E(c)(5) defines the term ``Reporting 
Authority'' in respect of a particular series of Managed Portfolio 
Securities as the Exchange, an institution, or a reporting service 
designated by the issuer or by the exchange that lists a particular 
series of Managed Portfolio Securities (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 Portfolio Positions, NAV, or other information relating 
to the issuance, redemption or trading of Managed Portfolio Securities. 
A series of Managed Portfolio Securities may have more than one 
Reporting Authority, each having different functions.
    Proposed Rule 8.601-E(c)(6) defines the term ``normal market 
conditions'' as including, but not limited to, the absence of trading 
halts in the applicable financial markets generally; operational issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or manmade 
disaster, act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance.
    Proposed Rule 8.601-E(d) sets forth initial and continued listing 
criteria applicable to Managed Portfolio Securities. Proposed Rule 
8.601-E(d)(1) provides that each series of Managed Portfolio Securities 
will be listed and traded on the Exchange subject to application of the 
following initial listing criteria. Proposed Rule 8.601-E(d)(1)(A) 
provides that, for each series of Managed Portfolio Securities, the 
Exchange will establish a minimum number of Managed Portfolio 
Securities required to be outstanding at the time of commencement of 
trading on the Exchange. In addition, proposed Rule 8.601-E(d)(1)(B) 
provides that the Exchange will obtain a representation from the issuer 
of each series of Managed Portfolio Securities that the NAV per share 
for the series will be calculated daily and that the NAV and the 
Portfolio Positions will be made publicly available to all market 
participants at the same time.\4\ Proposed Rule 8.601-E(d)(1)(C) 
provides that all Managed Portfolio Securities shall have a stated 
investment objective, which shall be adhered to under normal market 
conditions.
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    \4\ NYSE Arca Rule 7.18-E(d)(2) (Trading Halts of Derivative 
Securities Products Listed on the NYSE Arca Marketplace) provides 
that, with respect to Derivative Securities Products listed on the 
NYSE Arca Marketplace for which a NAV is disseminated, if the 
Exchange becomes aware that the NAV is not being disseminated to all 
market participants at the same time, it will halt trading in the 
affected Derivative Securities Product on the NYSE Arca Marketplace 
until such time as the NAV is available to all market participants.
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    Proposed Rule 8.601-E(d)(2) provides that each series of Managed 
Portfolio Securities will be listed and traded subject to application 
of the following continued listing criteria: Proposed Rule 8.601-
E(d)(2)(A)(i) provides that Portfolio Positions shall be disseminated 
quarterly and shall be made publicly available to all market 
participants at the same time Proposed Rule 8.601-E(d)(2)(B)(i) 
provides that the Proxy Portfolio will be made publicly available each 
day. Proposed Rule 8.601-E(d)(2)(C) provides that the Exchange will 
maintain surveillance procedures for securities listed under Rule 
8.601-E and consider the suspension of trading in, and will commence 
delisting proceedings under Rule 5.5-E(m) for, a series of Managed 
Portfolio Securities under any of the following circumstances: (i) If 
any of the continued listing requirements set forth

[[Page 382]]

in Rule 8.601-E are not continuously maintained; (ii) if any of the 
statements or representations regarding (a) the description of the 
portfolio, (b) limitations on portfolio holdings, or (c) the 
applicability of Exchange listing rules, specified in the Exchange's 
rule filing pursuant to Section 19(b) of the Securities Exchange Act of 
1934 to permit the listing and trading of a series of Managed Portfolio 
Securities, is not continuously maintained; or (iii) if such other 
event shall occur or condition exists which, in the opinion of the 
Exchange, makes further dealings on the Exchange inadvisable.
    Proposed Rule 8.601-E(d)(2)(D) provides that if a series of Managed 
Portfolio Securities is trading on the Exchange pursuant to UTP, the 
Exchange will halt trading in that series as specified in Rule 7.18-
E(d)(1). In addition, upon notification to the Exchange by the issuer 
of a series of Managed Portfolio Securities that the NAV with respect 
to a series of Managed Portfolio Securities is not disseminated to all 
market participants at the same time, the Exchange shall halt trading 
in such series until such time as the NAV is available to all market 
participants at the same time. The Exchange may also halt trading at 
the request of the investment adviser to a series of Managed Portfolio 
Securities upon notification to the Exchange that the securities 
representing 10% or more of the Portfolio Positions for such series do 
not have readily available market quotations, and during times of 
unusual market volatility where a significant portion of such series' 
Portfolio Positions are subject to a trading halt or have a last trade 
price that the investment adviser deems unreliable, if the investment 
adviser determines that it is in the best interest of such series.
    Proposed Rule 8.601-E(d)(2)(E) provides that, upon termination of 
an Investment Company, the Exchange requires that Managed Portfolio 
Securities issued in connection with such entity be removed from 
Exchange listing.
    Proposed Rule 8.601-E(d)(2)(F) provides that voting rights will be 
as set forth in the applicable Investment Company prospectus.
    Proposed Rule 8.601-E(e) relates to limitation of Exchange 
liability and provides that neither the Exchange, the Reporting 
Authority, nor any agent of the Exchange will have any liability for 
damages, claims, losses or expenses caused by any errors, omissions, or 
delays in calculating or disseminating any current portfolio value; the 
current value of the portfolio of securities required to be deposited 
to the Investment Company in connection with issuance of Managed 
Portfolio Securities; the amount of any dividend equivalent payment or 
cash distribution to holders of Managed Portfolio Securities; NAV; or 
other information relating to the purchase, redemption, or trading of 
Managed Portfolio Securities, resulting from any negligent act or 
omission by the Exchange, the Reporting Authority or any agent of the 
Exchange, or any act, condition, or cause beyond the reasonable control 
of the Exchange, its agent, or the Reporting Authority, including, but 
not limited to, an act of God; fire; flood; extraordinary weather 
conditions; war; insurrection; riot; strike; accident; action of 
government; communications or power failure; equipment or software 
malfunction; or any error, omission, or delay in the reports of 
transactions in one or more underlying securities.
    Proposed Commentary .01 to NYSE Arca Rule 8.601-E provides that the 
Exchange will file separate proposals under Section 19(b) of the Act 
before the listing and trading of a series of Managed Portfolio 
Securities. Proposed Commentary .01 further provides that all 
statements or representations contained in such rule filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings, or (c) the applicability of Exchange listing rules specified 
in such rule filing will constitute continued listing requirements. An 
issuer of such securities must notify the Exchange of any failure to 
comply with such continued listing requirements.
    Proposed Commentary .02 to NYSE Arca Rule 8.601-E provides that 
transactions in Managed Portfolio Securities will occur during the 
trading hours specified in NYSE Arca Rule 7.34-E(a).
    Proposed Commentary .03 to NYSE Arca Rule 8.601-E provides that the 
Exchange will implement and maintain written surveillance procedures 
for Managed Portfolio Securities.
    Proposed Commentary .04 to NYSE Arca Rule 8.601-E provides that, if 
the investment adviser to the Investment Company issuing Managed 
Portfolio Securities is affiliated with a broker-dealer, such 
investment adviser will 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. Personnel who make decisions on the 
Investment Company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Investment Company 
portfolio.\5\
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    \5\ The Exchange will propose applicable NYSE Arca listing fees 
for Managed Portfolio Securities in the NYSE Arca Equities Schedule 
of Fees and Charges in a separate proposed rule change.
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Key Features of Managed Portfolio Securities
    While funds issuing Managed Portfolio Securities will be actively-
managed and, to that extent, will be similar to Managed Fund Shares 
listed and traded under NYSE Arca Rule 8.600-E,\6\ Managed Portfolio 
Securities differ from Managed Fund Shares in the following important 
respects. First, in contrast to Managed Fund Shares, for which the 
fund's ``Disclosed Portfolio'' is required to be disseminated at least 
once daily,\7\ the full portfolio holdings for a series of Managed 
Portfolio Securities will not be made available on a daily basis. 
Rather, the Portfolio Positions will be disclosed quarterly in 
accordance and in compliance with the portfolio holdings disclosure 
requirements applicable to other registered open-end funds, including 
traditional mutual funds.\8\ Second, in connection with the creation 
and redemption of shares, such creation or redemption will be in a 
Creation Unit size and may be in exchange for an in-kind basket of 
securities, which will be

[[Page 383]]

a fund's Proxy Portfolio with a value equal to the prior day's NAV, 
rather than the ``Disclosed Portfolio'' applicable to Managed Fund 
Shares. With respect to the Funds, Shares will generally be issued and 
redeemed primarily on an in-kind basis, but may include cash under 
certain circumstances as described in the ``Application,'' as described 
below.\9\
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    \6\ The Commission has previously approved listing and trading 
on the Exchange of a number of issues of Managed Fund Shares under 
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801 
(May 8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) 
(order approving Exchange listing and trading of twelve actively-
managed funds of the WisdomTree Trust); 76871 (January 11, 2016), 81 
FR 2261 (January 15, 2016) (SR-NYSEArca-2015-114) (Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, to List and 
Trade Shares of the Market Vectors Dynamic Put Write ETF under NYSE 
Arca Equities Rule 8.600); 86636 (August 12, 2019), 84 FR 42030 
(August 16, 2019) (SR-NYSEArca-2018-98) (Notice of Filing of 
Amendment No. 4 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 4, to List and 
Trade Shares of the iShares Commodity Multi-Strategy ETF under NYSE 
Arca Rule 8.600-E).
    \7\ NYSE Arca Rule 8.600-E(c)(2) defines the term ``Disclosed 
Portfolio'' as the identities and quantities of the securities and 
other assets held by the Investment Company that will form the basis 
for the Investment Company's calculation of NAV at the end of the 
Business Day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires that the 
Disclosed Portfolio be disseminated at least once daily and be made 
available to all market participants at the same time.
    \8\ A mutual fund is required to file with the Commission Form 
N-CEN under the Investment Company Act of 1940 (``1940 Act'') within 
75 days of the end of the fiscal year, and is required to file its 
complete portfolio schedules on a monthly basis on Form N-PORT under 
the 1940 Act within 30 days of the end of each month. These forms 
are available to the public on the Commission's website at 
www.sec.gov.
    \9\ See note 20 [sic], infra.
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Hedging Vehicle and Portfolio Positions
    The Proxy Portfolio is designed to serve as a pricing signal for 
low-risk arbitrage trades in shares of Managed Portfolio Securities 
generally. With respect to the Funds, in order to provide a hedging 
vehicle whose performance reliably and highly correlates to the NAV of 
the relevant Fund, and that is liquid and trades synchronously with the 
Shares of the Funds,\10\ a Fund's Portfolio Positions will (a) be 
listed on an exchange and the primary trading session of such exchange 
will substantially overlap with the Exchange's Core Trading Session, as 
defined in Rule 7.34-E(a); (b) with respect to exchange-traded futures, 
be listed on a U.S. futures exchange; or (c) consist of cash and cash 
equivalents.
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    \10\ The Adviser will deem the securities in a Proxy Portfolio 
to trade synchronously with Shares of a Fund if the primary trading 
session of the securities in the Proxy Portfolio substantially 
overlaps with the Exchange's Core Trading Session (normally 9:30 
a.m. to 4:00 p.m., Eastern Time (``E.T.'').
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    Consistent with these representations, each Fund will only invest 
in exchange-traded common stocks, common stocks listed on a foreign 
exchange that trade on such exchange synchronously with the Shares 
(``foreign common stocks''), ETFs,\11\ exchange-traded notes 
(``ETNs''),\12\ exchange-traded preferred stocks, exchange-traded 
American Depositary Receipts (``ADRs''),\13\ exchange-traded real 
estate investment trusts, exchange-traded commodity pools, exchange-
traded metals trusts, exchange-traded currency trusts and exchange-
traded futures contracts \14\ (collectively, ``exchange-traded 
instruments'') that trade synchronously with the Fund's Shares, as well 
as cash and cash equivalents.\15\ For purposes of this filing, cash 
equivalents are short-term U.S. Treasury securities, government money 
market funds, and repurchase agreements.
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    \11\ For purposes of this filing, ETFs include 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). The ETFs all will be listed and traded in the U.S. on registered 
exchanges.
    \12\ ETNs are securities as described in NYSE Arca Rule 5.2-
E(j)(6) (Equity Index-Linked Securities, Commodity-Linked 
Securities, Currency-Linked Securities, Fixed Income Index-Linked 
Securities, Futures-Linked Securities and Multifactor Index-Linked 
Securities).
    \13\ ADRs are issued by a U.S. financial institution (a 
``depositary'') and evidence ownership in a security or pool of 
securities issued by a foreign issuer that have been deposited with 
the depositary. Each ADR is registered under the Securities Act of 
1933 (``1933 Act'') (15 U.S.C. 77a) on Form F-6. ADRs in which a 
Fund may invest will trade on an exchange.
    \14\ Exchange-traded futures are U.S. listed futures contracts 
where the futures contract's reference asset is an asset that the 
Fund could invest in directly, or in the case of an index future, is 
based on an index of a type of asset that the Fund could invest in 
directly, such as an S&P 500 index futures contract. All futures 
contracts that a Fund may invest in will be traded on a U.S. futures 
exchange.
    \15\ The Adviser will notify the Exchange at any time that the 
securities representing 10% or more of a Fund's Portfolio Positions 
do not have readily available market quotations, and will request 
the Exchange to halt trading in such Fund's Shares.
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    With respect to the Funds, the Adviser will identify each Fund's 
Proxy Portfolio, which could be a broad-based securities index (e.g., 
the S&P 500) or a Fund's recently disclosed portfolio holdings. Each 
Fund will consistently invest such that at least 80% of its total 
assets will overlap with the portfolio weightings in its identified 
Proxy Portfolio. Although the Adviser may change a Fund's Proxy 
Portfolio at any time, the Adviser currently does not expect to make 
such changes more frequently than quarterly (for example, in connection 
with the release of a Fund's portfolio holdings). The Adviser will 
publish a new Proxy Portfolio for a Fund only before the commencement 
of trading of such Fund's Shares on that ``Business Day'',\16\ and the 
Adviser will not make intra-day changes to the Proxy Portfolio except 
to correct errors in the published Proxy Portfolio. For the reasons 
described below, the Adviser believes that each Fund's Proxy Portfolio 
will be a high-quality hedging vehicle, the value of which will provide 
arbitrageurs with a high quality pricing signal.
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    \16\ ``Business Day'' is defined to mean any day that the 
Exchange is open, including any day when a Fund satisfies redemption 
requests as required by section 22(e) of the 1940 Act.
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    The Proxy Portfolio will not include any asset that is ineligible 
to be a Portfolio Position in the applicable Fund.
    In addition, on each Business Day, before commencement of trading 
of Shares, the ``Portfolio Overlap'' (as defined below) will be 
published on each Fund's website. The Portfolio Overlap will be the 
percentage weight overlap between the prior Business Day's Proxy 
Portfolio's holdings compared to the holdings of the Fund that formed 
the basis for that Fund's calculation of NAV at the end of the prior 
Business Day.\17\ In addition, each Fund will disclose the ``Daily 
Deviation'' (as defined below) between the Proxy Portfolio and a Fund 
daily, as well as ``Empirical Percentiles'' (as defined below), which 
are quantitative summaries of the Daily Deviation data for the last 
year. Each Fund will also disclose its ``Tracking Error'' (as defined 
below).
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    \17\ According to the Application, the Portfolio Overlap will be 
calculated by taking the lesser weight of each asset held in common 
between a Fund's portfolio and the Proxy Portfolio, and adding the 
totals.
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    According to the Application, the Adviser expects that the Proxy 
Portfolio, the Portfolio Overlap, the Daily Deviations and related 
information will provide a set of high-quality proxy information that 
arbitrageurs will use to construct a hedging basket. The Portfolio 
Overlap, Daily Deviation, and Empirical Percentile data will help 
arbitrageurs by describing the market behavior of the Proxy Portfolio 
and how it relates to a Fund's portfolio holdings, and by providing 
historical valuation data and analysis.
Indicative Net Asset Value
    With respect to the Funds, for each Fund, an estimated value--the 
Indicative Net Asset Value (``INAV'')--will be disseminated that 
reflects an estimated intraday value of a Fund's portfolio. The INAV 
will represent, on a per Share basis, the current value of a Fund's 
portfolio holdings (including liabilities) and will be widely 
disseminated every 15 seconds throughout the Core Trading Session by 
the Reporting Authority and/or by one or more major market data 
vendors. The dissemination of the INAV will allow investors to 
determine the estimated intraday value of the underlying portfolio of a 
series of Managed Portfolio Securities on a daily basis and will 
provide a close estimate of that value throughout the trading day. The 
INAV should not be viewed as a ``real-time'' update of the NAV per 
Share of each Fund because the INAV may not be calculated in the same 
manner as the NAV, which will be computed once a day, generally at the 
end of the Business Day. Unlike the INAV, which will be based on 
consolidated last sale information, the NAV per Share will be based on 
the closing prices on the primary market for each exchange-listed 
security. If there is no closing price for a particular exchange listed 
security, such as when it is the subject of a trading halt, a Fund will 
use fair value pricing. To the extent a security's last trade price is 
stale or otherwise inaccurate, the Adviser's ``Valuation

[[Page 384]]

Committee'' will implement any fair valuation adjustments as necessary 
or appropriate pursuant to the applicable Fund's valuation procedures.
    An independent INAV provider will calculate the INAV for each Fund 
during the Exchange's Core Trading Session by dividing the ``Intraday 
Fund Value'' (as defined below) as of the time of the calculation by 
the total number of outstanding Shares of that Fund. ``Intraday Fund 
Value'' is the sum of the Fund's assets, including the amount of cash 
held in a Fund's portfolio, the amount of accrued assets, such as 
interest, dividends and distributions owed to a Fund, and the value of 
the securities held in a Fund's portfolio, minus the amount of a Fund's 
accrued liabilities as of a Fund's previous day's NAV calculation. The 
Intraday Fund Value is also based on intraday estimates of securities 
values. A Fund's INAV will represent a Fund's estimated NAV, which will 
be the value of the Fund's Portfolio Positions, on a per Share 
basis.\18\
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    \18\ The INAV for a Fund for a given day T will be calculated by 
the INAV provider using the portfolio holdings from the previous 
day, T-1, as provided by the Fund custodian prior to the open of 
trading on day T.
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    According to the Application, the Funds will adopt uniform 
procedures governing the calculation and dissemination of the INAV, and 
the Adviser will bear responsibility for the oversight of that process 
(``INAV Procedures''). The Adviser will also, as part of that oversight 
process, periodically, but no less than annually, review the INAV 
Procedures. Any material changes to the procedures will be submitted to 
the Funds' Audit Committee for review.
    With respect to funds utilizing an INAV, the Exchange, after 
consulting with various Lead Market Makers that trade ETFs on the 
Exchange, believes that market makers will be able to make efficient 
and liquid markets priced near the NAV given daily publication of the 
Proxy Portfolio and dissemination of an accurate INAV every 15 seconds, 
and that market makers have knowledge of a series of Managed Portfolio 
Securities' means of achieving its investment objective, even without 
daily disclosure of its underlying portfolio. With respect to the 
Funds, the Exchange believes that the information proposed to be 
provided will build upon and be similar to the pricing signals of 
existing ETFs such that the market price of Shares will closely track 
the relevant Fund's NAV and reflect minimal intraday and end-of-day 
premiums/discounts to NAV and narrow spreads without market makers' 
knowledge of a Fund's underlying portfolio.
    The Exchange understands that, with respect to funds utilizing an 
INAV, traders will analyze the correlation between changes in the value 
of a fund's Proxy Portfolio against changes in the INAV to determine 
whether and how to engage in arbitrage transactions and hedge their 
positions. The ``Daily Deviation'' (as described below) and related 
summary data will help them in this determination by describing the 
market behavior of the Proxy Portfolio and how it relates to a fund's 
portfolio holdings, and by providing historical valuation data and 
analysis. Taken together, with respect to the Funds, the Adviser 
expects that all of this information will provide market participants 
with high-quality pricing signals for the Funds, which will be 
comparable to the pricing signals arbitrageurs use for existing ETFs, 
and which will enable arbitrageurs to engage in transactions that will 
keep the intraday premiums/discounts and spreads of Shares low.
    Market makers have indicated to the Exchange that there will be 
sufficient data to engage in arbitrage trades in Managed Portfolio 
Securities with accuracy and minimal risk. In addition, market makers 
have indicated that they are incented to engage in arbitrage trades 
when the risk of the trade is low. However, they cannot know with any 
certainty the precise risk of an arbitrage trade on the current or any 
future Business Day. Rather, they must use information from the past to 
evaluate the likely risk of an arbitrage trade executed today or in the 
future. More specifically, it is understood that they must use 
historical data about the performance of the fund whose shares are 
being arbitraged and the performance of the fund's Proxy Portfolio. 
From such data, arbitrageurs may be able to develop sufficient insight 
into the risk of an arbitrage trade to evaluate and price it into the 
trade.
    With respect to the Funds, each Fund will disclose its Tracking 
Error. The Adviser defines ``Tracking Error'' to mean the standard 
deviation over the past three months of the daily proxy spread (i.e., 
the difference, in percentage terms, between the Proxy Portfolio's per 
Share NAV and that of a Fund at the end of the trading day). Tracking 
Error measures the ability of the Proxy Portfolio to accurately reflect 
changes in a Fund's NAV and allows arbitrageurs to estimate the risk of 
large daily proxy spreads by examining the variability of daily proxy 
spreads over the past year. The Adviser will calculate and disclose 
daily each Fund's Tracking Error over the preceding rolling one-year 
period. Upon inception, each Fund's Tracking Error data will be updated 
daily to increasingly reflect the current proxy spread of a Fund.
    Additionally, data would be provided regarding past performance or 
value between each Fund's NAV and the performance of its Proxy 
Portfolio to evaluate and price the risk of arbitrage trades in a 
Fund's Shares, in the form of ``Daily Deviation,'' ``Empirical 
Percentiles,'' and ``Portfolio Overlap,'' as described below.\19\
---------------------------------------------------------------------------

    \19\ The data will be disclosed on the Funds' website.
---------------------------------------------------------------------------

    Each Fund will disseminate a ``Daily Deviation'' between the 
performance of a Fund's NAV and its Proxy Portfolio for the most recent 
rolling one-year period. The Daily Deviation is calculated each day of 
the most recent rolling one-year period as the difference between the 
performance of a Fund's NAV and its Proxy Portfolio's NAV.\20\ As such, 
each Daily Deviation directly captures the performance difference 
between a Fund's Proxy Portfolio and its NAV on one trading day during 
the measured period. The Daily Deviation can be calculated over any 
number of Business Days. The Adviser proposes to provide data for the 
most recent one-year period (rolling, and updated on a daily basis). 
The Adviser believes this level of data will be sufficient for 
arbitrageurs to develop the necessary insights into the relationship 
between the performance of a Fund's Proxy Portfolio and its NAV. In 
particular, with such data, arbitrageurs will be able to examine the 
reported Daily Deviations over any desired interval during the one-year 
period to evaluate the degree of risk involved in entering into an 
arbitrage trade in a Fund's Shares, using the Proxy Portfolio to hedge 
an open position in the Shares.
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    \20\ The Adviser will calculate and disclose daily each Fund's 
Tracking Error, Daily Deviations and ``Empirical Percentiles'' (as 
defined below) over the preceding rolling one-year period. Upon 
inception, each Fund's Portfolio Overlap, Tracking Error, Daily 
Deviation and Empirical Percentile data will be updated daily to 
increasingly reflect the performance of a Fund.
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    There would be a summary of the Daily Deviation data in the form of 
a series of ``Empirical Percentiles.'' More specifically, the Adviser 
will tabulate and disclose Empirical Percentiles of Daily Deviations, 
over the past one-year period, at the following levels: 99%, 95%, 90%, 
75%, 50%, 25%, 10%, 5% and 1%. Each Empirical Percentile represents the 
value of Daily Deviations (in basis points) exceeded by a specific 
percentage of all Daily Deviations over the past year. For example, the 
99%

[[Page 385]]

Empirical Percentile tells arbitrageurs that only 1% of all Daily 
Deviations over the past year exceeded a specified number of basis 
points. In this way, the Empirical Percentiles allow arbitrageurs to 
better predict the likelihood of a Daily Deviation being more than such 
specified number of basis points. The Empirical Percentiles give 
arbitrageurs differing levels of confidence that Daily Deviations will 
be confined to a certain number of basis points.
    In addition, a Portfolio Overlap will be calculated for each Fund 
by taking the lesser weight of each asset held in common between a 
Fund's portfolio and the Proxy Portfolio, and adding the totals. The 
Adviser will calculate and disseminate the Portfolio Overlap each 
Business Day on the Funds' website prior to the commencement of trading 
on the Exchange's Core Trading Session. The Adviser believes that the 
Portfolio Overlap will support the use of the Proxy Portfolio by 
arbitrageurs in determining hedging transactions.
    The Adviser believes further that, under the circumstances 
described, given the high degree of overlap, the high correlation and 
low Tracking Error between each Fund's Portfolio Positions and its 
Proxy Portfolio, arbitrageurs will be able to use the Proxy Portfolio 
as a high-quality hedging vehicle for a Fund. Arbitrageurs will know 
the Daily Deviation for the last rolling one-year period between a Fund 
and its Proxy Portfolio, the Empirical Percentiles and the Tracking 
Error. Together, the Adviser believes that these measures will help 
arbitrageurs to evaluate and mitigate the risk of an arbitrage trade in 
Shares and to use the Proxy Portfolio as a hedging vehicle for open 
positions in Shares.
Description of the Funds and the Issuer
    The Shares of each Fund will be issued by T. Rowe Price Exchange-
Traded Funds, Inc. (``Issuer''), a corporation organized under the laws 
of the State of Maryland, which may be comprised of multiple separate 
series, and registered with the Commission as an open-end management 
investment company.\21\ State Street Bank and Trust Co. will serve as 
the Funds' transfer agent, administrator and custodian (the ``Transfer 
Agent'', ``Administrator'', or ``Custodian''). T. Rowe Price Investment 
Services, Inc., a registered broker dealer and an affiliate of the 
Adviser, will serve as the distributor (``Distributor'') of the Shares.
---------------------------------------------------------------------------

    \21\ The Issuer is registered under the 1940 Act. On December 
11, 2019, the Issuer filed a registration statement on Form N-1A 
under the 1933 Act, and under the 1940 Act relating to the Funds 
(File Nos.333-235450 and 811-23494) (the ``Registration 
Statement''). The Issuer filed a seventh amended application for an 
order under Section 6(c) of the 1940 Act for exemptions from various 
provisions of the 1940 Act and rules thereunder (File No. 812-
14214), dated October 16, 2019 (``Application''). On December 10, 
2019, the Commission issued an order (``Exemptive Order'') under the 
1940 Act granting the exemptions requested in the Application 
(Investment Company Act Release No. 33713, December 10, 2019). 
Investments made by the Funds will comply with the conditions set 
forth in the Application and the Exemptive Order. The description of 
the operation of the Funds herein is based, in part, on the 
Registration Statement and the Application.
---------------------------------------------------------------------------

    As noted above, proposed Commentary .04 to Rule 8.601-E provides 
that, if the investment adviser to the Investment Company issuing 
Managed Portfolio Securities is affiliated with a broker-dealer, such 
investment adviser must 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.\22\ In addition, proposed Commentary .04 
further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the open-end fund's portfolio. Proposed Commentary .04 to 
Rule 8.601-E is similar to Commentary .03(a)(i) and (iii) to NYSE Arca 
Rule 5.2-E(j)(3). However, Commentary .04, in connection with the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer, reflects the applicable open-end fund's portfolio, not 
an underlying benchmark index, as is the case with index-based funds. 
The Adviser is not registered as a broker-dealer but the Adviser is 
affiliated with a broker-dealer and has implemented a ``fire wall'' 
with respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to a Fund's portfolio. In the 
event (a) the Adviser becomes registered as a broker-dealer or newly 
affiliated with a broker-dealer, or (b) any new adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement and maintain a fire wall with respect to its relevant 
personnel or broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the portfolio, and will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio.
---------------------------------------------------------------------------

    \22\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel will be 
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 
violations, 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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Description of the Funds
    According to the Application, for each Fund, the Adviser will 
identify its Proxy Portfolio, which could be a broad-based securities 
index (e.g., the S&P 500) or a Fund's recently disclosed portfolio 
holdings. The Proxy Portfolio will be determined such that at least 80% 
of its total assets will overlap with the portfolio weightings of a 
Fund. Although the Adviser may change a Fund's Proxy Portfolio at any 
time, the Adviser currently does not expect to make such changes more 
frequently than quarterly (for example, in connection with the release 
of a Fund's portfolio holdings). The Adviser will publish a new Proxy 
Portfolio for a Fund only before the commencement of trading of such 
Fund's Shares on that Business Day, and the Adviser will not make 
intra-day changes to the Proxy Portfolio except to correct errors in 
the published Proxy Portfolio.
T. Rowe Price Blue Chip Growth ETF
    The investment objective of the T. Rowe Price Blue Chip Growth ETF 
will be to seek to provide long-term capital growth. Income will be a 
secondary objective.
    The Fund will invest only in exchange-traded securities, exchange-
traded futures, cash, and cash equivalents. The Fund will normally 
invest at least 80% of its net assets in U.S. exchange-traded common 
stocks of large and medium-sized blue-chip growth companies. These are 
companies that, in the Adviser's view, are well established in their 
industries and have the potential for above-average earnings growth.
T. Rowe Price Dividend Growth ETF
    The investment objective of the T. Rowe Price Dividend Growth ETF 
will

[[Page 386]]

be to seek dividend income and long-term capital growth primarily 
through investments in stocks.
    The Fund will invest only in exchange-traded securities, U.S. 
exchange-traded futures, cash, and cash equivalents. The Fund normally 
will invest at least 65% of the Fund's total assets in stocks listed in 
the United States, with an emphasis on stocks that have a strong track 
record of paying dividends or that are expected to increase their 
dividends over time.
T. Rowe Price Growth Stock ETF
    The investment objective of the T. Rowe Price Growth Stock ETF will 
be to seek long-term capital growth through investments in stocks.
    The Fund will invest only in exchange-traded securities, U.S. 
exchange-traded futures, cash, and cash equivalents. The Fund will 
normally invest at least 80% of its net assets in the common stocks of 
a diversified group of growth companies. While it may invest in 
companies of any market capitalization, the Fund generally seeks 
investments in stocks of large-capitalization companies with one or 
more of the following characteristics: Strong cash flow and an above-
average rate of earnings growth; the ability to sustain earnings 
momentum during economic downturns; and occupation of a lucrative niche 
in the economy and the ability to expand even during times of slow 
economic growth.
T. Rowe Price Equity Income ETF
    The investment objective of the T. Rowe Price Equity Income ETF 
will be to seek a high level of dividend income and long-term capital 
growth primarily through investments in stocks.
    The Fund will invest only in exchange-traded securities, U.S. 
exchange-traded futures, cash, and cash equivalents. The Fund will 
normally invest at least 80% of its net assets in common stocks listed 
in the United States, with an emphasis on large-capitalization stocks 
that have a strong track record of paying dividends or that are 
believed to be undervalued. The Fund typically will employ a ``value'' 
approach in selecting investments.
Investment Restrictions
    The Shares of each Fund will conform to the initial and continued 
listing criteria under proposed Rule 8.601-E.
    Each Fund's investments will be consistent with its investment 
objective. The Funds will not invest in penny stocks as defined by Rule 
3a51-1 under the Act. No Fund will borrow for investment purposes, hold 
short positions or purchase any securities that are illiquid 
investments (as defined in Rule 22e-4(a)(8) under the 1940 Act) at the 
time of purchase.
Purchases and Redemptions
General
    The Issuer will offer, issue and sell Shares of each Fund to 
investors only in Creation Units through the Distributor on a 
continuous basis at the NAV per Share next determined after an order in 
proper form is received. The NAV of each Fund is expected to be 
determined as of 4:00 p.m. E.T. on each Business Day. The Issuer will 
sell and redeem Creation Units of each Fund only on a Business Day. A 
Creation Unit will consist of at least 5,000 Shares. Creation Units of 
the Funds may be purchased and/or redeemed entirely for cash, as 
permissible under the procedures described below.
    Shares will be purchased and redeemed in Creation Units and 
generally on an in-kind basis. Accordingly, except where the purchase 
or redemption will include cash under the circumstances specified 
below, purchasers will be required to purchase Creation Units by making 
an in-kind deposit of specified instruments (``Deposit Instruments''), 
and shareholders redeeming their Shares will receive an in-kind 
transfer of specified instruments (``Redemption Instruments''). The 
names and quantities of the instruments that constitute the Deposit 
Instruments and the Redemption Instruments for a Fund (collectively, 
the ``Creation Basket'') will be the same as a Fund's designated Proxy 
Portfolio, except to the extent that a Fund requires purchases and 
redemptions to be made entirely or in part on a cash basis, as 
described below.
    If there is a difference between the net asset value attributable 
to a Creation Unit and the aggregate market value of the Creation 
Basket exchanged for the Creation Unit, the party conveying instruments 
with the lower value will also pay to the other an amount in cash equal 
to that difference (the ``Cash Amount'').
    Each Fund will adopt and implement policies and procedures 
regarding the composition of its Creation Baskets. The policies and 
procedures will set forth detailed parameters for the construction and 
acceptance of baskets that are in the best interests of a Fund, 
including the process for any revisions to or deviations from, those 
parameters. A Fund's basket policies and procedures would be covered by 
its compliance program and other requirements under rule 38a-1 of the 
1940 Act.
    A Fund that normally issues and redeems Creation Units in kind may 
require purchases and redemptions to be made entirely or in part on a 
cash basis.\23\ In such an instance, the Fund will announce, before the 
open of trading on a given Business Day, that all purchases, all 
redemptions or all purchases and redemptions on that day will be made 
wholly or partly in cash. A Fund may also determine, upon receiving a 
purchase or redemption order from an Authorized Participant (as defined 
below), to have the purchase or redemption, as applicable, be made 
entirely or in part in cash.
---------------------------------------------------------------------------

    \23\ The Adviser represents that, to the extent the Issuer 
effects the creation or redemption of Shares in cash, such 
transactions will be effected in the same manner for all 
``Authorized Participants'' (as defined below).
---------------------------------------------------------------------------

    Each Business Day, before the open of trading on the Exchange, the 
Fund will cause to be published through the National Securities 
Clearing Corporation (``NSCC'') the names and quantities of the 
instruments comprising the Creation Basket, as well as the estimated 
Cash Amount (if any) for that day. The published Creation Basket will 
apply until a new Creation Basket is announced on the following 
Business Day, and there will be no intra-day changes to the Creation 
Basket except to correct errors in the published Creation Basket. The 
Proxy Portfolio will be published each Business Day regardless of 
whether a Fund decides to issue or redeem Creation Units entirely or in 
part on a cash basis.
    All orders to purchase Creation Units must be placed with the 
Distributor by or through an Authorized Participant, which is generally 
either: (1) A ``participating party,'' i.e., a broker or other 
participant, in the Continuous Net Settlement (``CNS'') System of the 
NSCC, a clearing agency registered with the Commission and affiliated 
with the Depository Trust Company (``DTC''), or (2) a DTC Participant, 
which in any case has executed a participant agreement with the 
Distributor and the transfer agent with respect to the creation and 
redemption of Creation Units (``Participant Agreement''). Except as 
otherwise permitted, no promoter, principal underwriter (e.g., the 
Distributor) or affiliated person of a Fund, or any affiliated person 
of such person, will be an Authorized Participant in Shares.
Timing
    Validly submitted orders to purchase or redeem Creation Units on 
each Business Day will be accepted until the end of the Core Trading 
Session (the ``Order Cut-Off Time''), generally 4:00

[[Page 387]]

p.m. E.T., on the Business Day that the order is placed (the 
``Transmittal Date''). All Creation Unit orders must be received by the 
Distributor no later than the Order Cut-Off Time in order to receive 
the NAV determined on the Transmittal Date. When the Exchange closes 
earlier than normal, a Fund may require orders for Creation Units to be 
placed earlier in the Business Day.
Availability of Information
    The Funds' website, which will be publicly available at no charge 
prior to the public offering of Shares, will include a prospectus for 
each Fund that may be downloaded. In addition, the website will include 
the following:
     Quantitative information updated on a daily basis, 
including, on a per Share basis for each Fund, the prior Business Day's 
NAV and the Closing Price \24\ or Bid/Ask Price of Shares, and a 
calculation of the premium/discount of the Closing Price or Bid/Ask 
Price \25\ against such NAV and any other information regarding 
premiums and discounts as may be required for other ETFs under rule 6c-
11 under the 1940 Act. The website will also disclose any information 
regarding the bid-ask spread for each Fund as may be required for other 
ETFs under rule 6c-11 under the 1940 Act.
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    \24\ The ``Closing Price'' of Shares is the official closing 
price of Shares on the Exchange's Core Trading Session.
    \25\ The ``Bid/Ask Price'' is the midpoint of the highest bid 
and lowest offer based on the National Best Bid and Offer at the 
time that a Fund's NAV is calculated. The ``National Best Bid and 
Offer'' is the current national best bid and national best offer as 
disseminated by the Consolidated Quotation System or UTP Plan 
Securities Information Processor.
---------------------------------------------------------------------------

     Each Fund's Proxy Portfolio, as well as the Portfolio 
Overlap, Daily Deviation (for the last rolling one-year period), 
Empirical Percentiles and Tracking Error of the Proxy Portfolio.
     Each Fund's Tracking Error.
     Bid-ask spread information for each Fund.
     A legend that will highlight for investors the differences 
between a Fund and Managed Fund Shares (which are actively-managed 
investment company securities such as those listed under NYSE Arca Rule 
8.600-E). The legend will state that, unlike actively-managed ETFs such 
as Managed Fund Shares, a Fund does not disclose its portfolio holdings 
each day, but instead publishes a Proxy Portfolio each day during 
normal trading hours. The legend will also include prominently in clear 
bullet style the risks of a Fund relative to other ETFs.
    Investors interested in a particular Fund can also obtain its 
prospectus, statement of additional information (``SAI''), shareholder 
reports, Form N-CSR and Form N-CEN. The prospectus, SAI and shareholder 
reports will be available free upon request from the Funds, and those 
documents and the Form N-CSR and Form N-CEN may be viewed on-screen or 
downloaded from the Commission's website at http://www.sec.gov.
    Information regarding the market price of Shares and trading volume 
in Shares will be continually available on a real-time basis throughout 
the day on brokers' computer screens and other electronic services. The 
previous day's closing price and trading volume information may be 
published daily in the financial section of newspapers. Further, the 
Exchange will disseminate every 15 seconds throughout the Core Trading 
Session through the facilities of the Consolidated Tape Association 
(``CTA'') or other widely disseminated means each Fund's INAV.
Dissemination of the INAV
    The INAV for each Fund will be disseminated every 15 seconds during 
the Exchange's Core Trading Session. The INAV should not be viewed as a 
``real-time'' update of NAV because the INAV may not be calculated in 
the same manner as NAV, which is computed once per day.
    An independent third party provider will calculate the INAV for 
each Fund during the Exchange's Core Trading Session by dividing the 
``Intraday Fund Value'' (as defined below) as of the time of the 
calculation by the total number of outstanding Shares of that Fund. 
``Intraday Fund Value'' is the sum of a Fund's assets, including the 
amount of cash held in a Fund's portfolio, the amount of accrued 
assets, such as interest, dividends and distributions owed to a Fund, 
and the value of the securities held in a Fund's portfolio, minus the 
amount of a Fund's accrued liabilities as of a Fund's previous day's 
NAV calculation. The Intraday Fund Value is also based on intraday 
estimates of securities values.
    The Funds will provide the independent third party provider with 
information to calculate the INAV. Dissemination of the INAV will allow 
investors to determine the value of the underlying portfolio of a Fund 
throughout the trading day.
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 Funds.\26\ Trading in Shares of the Funds 
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. These may include the extent to 
which trading is not occurring in the securities and/or the financial 
instruments comprising the holdings of a Fund, or whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. Trading in the Shares will be subject 
to NYSE Arca Rule 8.601-E(d)(2)(D), which sets forth circumstances 
under which Shares of the Funds may be halted.
---------------------------------------------------------------------------

    \26\ See NYSE Arca Rule 7.12-E.
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Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Rule 7.34-E (Opening, 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.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.601-E. The Exchange represents that, 
for initial and/or continued listing, each Fund will be in compliance 
with Rule 10A-3 under the Act,\27\ as provided by NYSE Arca Rule 5.3-E. 
The Exchange will obtain a representation from the Issuer of the Shares 
of each Fund that the NAV per Share of each Fund will be calculated 
daily and will be made available to all market participants at the same 
time.
---------------------------------------------------------------------------

    \27\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\28\ The Exchange

[[Page 388]]

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.
---------------------------------------------------------------------------

    \28\ FINRA surveils trading on 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.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares, certain exchange-traded equities, 
ETFs, ETNs and futures with other markets and other entities that are 
members of the Intermarket Surveillance Group (``ISG''), and FINRA, on 
behalf of the Exchange, may obtain trading information regarding 
trading such securities and financial instruments from such markets and 
other entities. 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 comprehensive surveillance sharing 
agreement.\29\
---------------------------------------------------------------------------

    \29\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    The Funds' Adviser will make available to FINRA and the Exchange 
the portfolio holdings of each Fund in order to facilitate the 
performance of the surveillances referred to above on a confidential 
basis.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') 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 
and the differing rights of various investors to redeem Shares; (2) 
NYSE Arca Rule 9.2-E(a), which imposes a duty of due diligence on its 
ETP Holders to learn the essential facts relating to every customer 
prior to trading the Shares; (3) the risks involved in trading the 
Shares during the Opening and Late Trading Sessions when an updated 
INAV will not be calculated or publicly disseminated; (4) how 
information regarding the INAV is disseminated; (5) the requirement 
that ETP 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 Funds are 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 as of 4:00 p.m. E.T. each trading day.
    The Exchange notes that the proposed change is not otherwise 
intended to address any other issues and that the Exchange is not aware 
of any problems that Equity Trading Permit Holders or issuers would 
have in complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\30\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\31\ in particular, in that 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 
a national market system, and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 8.601-E is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Managed Portfolio 
Securities provide specific initial and continued listing criteria 
required to be met by such securities. Proposed Rule 8.601-E(d) sets 
forth initial and continued listing criteria applicable to Managed 
Portfolio Securities. Proposed Rule 8.601-E(d)(1)(A) provides that, for 
each series of Managed Portfolio Securities, the Exchange will 
establish a minimum number of Managed Portfolio Securities required to 
be outstanding at the time of commencement of trading. In addition, 
proposed Rule 8.601-E(d)(1)(B) provides that the Exchange will obtain a 
representation from the issuer of each series of Managed Portfolio 
Securities that the NAV per share for the series will be calculated 
daily and that the NAV and the Portfolio Positions will be made 
publicly available to all market participants at the same time. 
Proposed Rule 8.601-E(d)(1)(C) provides that all Managed Portfolio 
Securities shall have a stated objective, which shall be adhered to 
under normal market conditions.
    Proposed Rule 8.601-E(d)(2) provides that each series of Managed 
Portfolio Securities will be listed and traded subject to application 
of the specified continued listing criteria, as described above. 
Proposed Rule 8.601-E(d)(2)(A)(i) provides that the Portfolio Positions 
shall be disseminated quarterly and shall be made publicly available to 
all market participants at the same time. Proposed Rule 8.601-
E(d)(2)(C) provides that the Exchange will maintain surveillance 
procedures for securities listed under Rule 8.601-E and consider the 
suspension of trading in, and will commence delisting proceedings under 
Rule 5.5-E(m) for, a series of Managed Portfolio Securities under any 
of the following circumstances: (i) If any of the continued listing 
requirements set forth in Rule 8.601-E are not continuously maintained; 
(ii) if any of the statements or representations regarding (a) the 
description of the portfolio, (b) limitations on portfolio holdings, or 
(c) the applicability of Exchange listing rules, specified in the 
Exchange's rule filing pursuant to Section 19(b) of the Securities 
Exchange Act of 1934 to permit the listing and trading of a series of 
Managed Portfolio Securities, is not continuously maintained; or (iii) 
if such other event shall occur or condition exists which, in the 
opinion of the Exchange, makes further dealings on the Exchange 
inadvisable.
    Proposed Rule 8.601-E(d)(1)(D) provides that, if a series of 
Managed Portfolio Securities is trading on the Exchange pursuant to 
unlisted trading privileges, the Exchange shall halt trading in that 
series as specified in Rule 7.18-E(d)(1). In addition, upon 
notification to the Exchange by the issuer of a series of Managed 
Portfolio Securities that the NAV with respect to a series of Managed 
Portfolio Securities is not disseminated to all market participants at 
the same time, the Exchange shall halt trading in such series until 
such time as the NAV is available to all market participants at the 
same time. The Exchange may also halt trading at the request of the 
investment adviser to a series of Managed Portfolio Securities upon 
notification to the Exchange that the

[[Page 389]]

securities representing 10% or more of the Portfolio Positions for such 
series do not have readily available market quotations, and during 
times of unusual market volatility where a significant portion of such 
series' Portfolio Positions are subject to a trading halt or have a 
last trade price that the investment adviser deems unreliable, if the 
investment adviser determines that it is in the best interest of such 
series.
    Proposed Commentary .01 provides that the Exchange will file 
separate proposals under Section 19(b) of the Act before the listing 
and trading of a series of Managed Portfolio Securities. An issuer of 
such securities must notify the Exchange of any failure to comply with 
such continued listing requirements.
    Proposed Commentary .03 provides that the Exchange will implement 
and maintain written surveillance procedures for Managed Portfolio 
Securities. Proposed Commentary .04 provides that if the investment 
adviser to the Investment Company issuing Managed Portfolio Securities 
is affiliated with a broker-dealer, such investment adviser will 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. 
Personnel who make decisions on the Investment Company's portfolio 
composition must be subject to procedures designed to prevent the use 
and dissemination of material nonpublic information regarding the 
applicable Investment Company portfolio.
    With respect to the proposed listing and trading of Shares of the 
Funds, the Exchange believes that the proposed rule change is designed 
to prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Rule 8.601-E. Price 
information for the securities and other financial instruments held by 
the Funds will be available through major market data vendors or 
exchanges listing and trading such securities and other financial 
instruments. One-hundred percent of the value of a Fund's Portfolio 
Positions (except for cash, cash equivalents and Treasury securities) 
at the time of purchase will be listed on national securities exchanges 
(or, in the limited case of index futures contracts, futures 
exchanges). The listing and trading of such securities is subject to 
rules of the exchanges on which they are listed and traded, as approved 
by the Commission. FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares, certain exchange-traded 
equities, ETFs, ETNs and futures with other markets and other entities 
that are members of the ISG, and FINRA, on behalf of the Exchange, may 
obtain trading information regarding trading such securities and 
financial instruments from such markets and other entities. 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 
comprehensive surveillance sharing agreement.
    With respect to the Funds, the Exchange believes that a Fund's 
Proxy Portfolio, together with the real-time dissemination of a Fund's 
INAV, as well as the Portfolio Overlap, Daily Deviations, Empirical 
Percentiles and Tracking Error data as well as the right of Authorized 
Participants to create and redeem each day at the NAV, will be 
sufficient for market participants to value and trade Shares in a 
manner that will not lead to significant deviations between the Shares' 
Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed 
Portfolio Securities will not generally rest on the ability of market 
participants to arbitrage between the Shares and a Fund's portfolio, 
but rather on the ability of market participants to assess a Fund's 
underlying value accurately enough throughout the trading day in order 
to hedge positions in Shares effectively. Professional traders will buy 
Shares that they perceive to be trading at a price less than that which 
will be available at a subsequent time, and sell Shares they perceive 
to be trading at a price higher than that which will be available at a 
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to Shares by the Exchange, 
off-exchange market makers, firms that specialize in electronic 
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being 
``long'' or ``short'' Shares through such trading and will hedge such 
risk wholly or partly by simultaneously taking positions in correlated 
assets \32\ or by netting the exposure against other, offsetting 
trading positions--much as such firms do with existing ETFs and other 
equities. Disclosure of the Proxy Portfolio, Portfolio Overlap, the 
Daily Deviation (for the last rolling one-year period), Empirical 
Percentiles and Tracking Error of the Proxy Portfolio, a Fund's 
investment objective and principal investment strategies in its 
prospectus and SAI, along with the dissemination of the INAV every 15 
seconds, should permit professional investors to engage readily in this 
type of hedging activity.\33\
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    \32\ Price correlation trading is used throughout the financial 
industry. It is used to discover both trading opportunities to be 
exploited, such as currency pairs and statistical arbitrage, as well 
as for risk mitigation such as dispersion trading and beta hedging. 
These correlations are a function of differentials, over time, 
between one or multiple securities pricing. Once the nature of these 
price deviations have been quantified, a universe of securities is 
searched in an effort to, in the case of a hedging strategy, 
minimize the differential. With the Proxy Portfolio identified, a 
trader can minimize portfolio risk by executing the hedging basket. 
The trader then can monitor the performance of the Proxy Portfolio 
throughout the trade period, making corrections where warranted.
    \33\ With respect to trading in Shares of the Funds, market 
participants can manage risk in a variety of ways. It is expected 
that market participants will be able to determine how to trade 
Shares at levels approximating the INAV without taking undue risk by 
utilizing the Proxy Portfolio directly as a hedge, analyzing the 
Daily Deviation (for the last rolling one-year period), Empirical 
Percentiles and Tracking Error of the Proxy Portfolio, gaining 
experience with how various market factors (e.g., general market 
movements, sensitivity of the value of the Proxy Portfolio to 
intraday movements in interest rates or commodity prices, etc.) 
affect value of the Proxy Portfolio, and by finding hedges for their 
long or short positions in Shares using instruments correlated with 
such factors.
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    It is expected that market participants will utilize the Proxy 
Portfolio as a pricing signal and high quality hedging vehicle, analyze 
the Portfolio Overlap, Daily Deviation (for the last rolling one-year 
period), Empirical Percentiles and Tracking Error of the Proxy 
Portfolio, and gain experience with how various market factors (e.g., 
general market movements, sensitivity or correlations of the Proxy 
Portfolio to intraday movements in interest rates or commodity prices, 
other benchmarks, etc.) affect the value of the Proxy Portfolio in 
order to determine how best to hedge long or short positions taken in 
Shares in a manner that will permit them to provide a Bid/Ask Price for 
Shares that is near to the value of the Proxy Portfolio throughout the 
day. The ability of market participants to accurately hedge their 
positions should serve to minimize any divergence between the secondary 
market price of the Shares and a Fund's NAV, as well as create 
liquidity in the Shares. With respect to trading of Shares of the 
Funds, the ability of market participants to buy and sell Shares at 
prices near the NAV is dependent upon their assessment that the value 
of the Proxy Portfolio is a reliable, indicative real-time value for a 
Fund's underlying

[[Page 390]]

holdings. Market participants are expected to accept the value of the 
Proxy Portfolio as a reliable, indicative real-time value because (1) 
the Proxy Portfolio will be determined such that at least 80% of its 
total assets will overlap with the portfolio weightings of the Fund, 
(2) the securities in which the Funds plan to invest are generally 
highly liquid and actively traded and therefore generally have accurate 
real time pricing available, and (3) market participants will have a 
daily opportunity to evaluate whether the value of the Proxy Portfolio 
at or near the close of trading is predictive of the actual NAV.
    The disclosure of a Fund's Proxy Portfolio and the ability of 
Authorized Participants to create and redeem each Business Day at the 
NAV, will be crucial for market participants to value and trade Shares 
in a manner that will not lead to significant deviations between the 
Shares' Bid/Ask Price and NAV.
    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 an 
issue of Managed Portfolio Securities that the NAV per share of such 
issue will be calculated daily and that the NAV and Portfolio Positions 
will be made available to all market participants at the same time. 
Investors can also obtain a fund's SAI, shareholder reports, and its 
Form N-CSR and Form N-CEN. A fund's SAI and shareholder reports will be 
available free upon request from the applicable fund, and those 
documents and the Form N-CSR and Form N-CEN may be viewed on-screen or 
downloaded from the Commission's website.
    In addition, with respect to the Funds, a large amount of 
information will be publicly available regarding the Funds and the 
Shares, thereby promoting market transparency. Quotation and last sale 
information for the Shares will be available via the CTA high-speed 
line. Information regarding the INAV will be widely disseminated every 
15 seconds throughout the Exchange's Core Trading Session by one or 
more major market data vendors. The website for the Funds will include 
a form of the prospectus for the Funds that may be downloaded, and 
additional data relating to NAV and other applicable quantitative 
information, updated on a daily basis. Moreover, prior to the 
commencement of trading, the Exchange will inform its ETP Holders in a 
Bulletin of the special characteristics and risks associated with 
trading the Shares. Trading in Shares of a 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 8.601-E(d)(2)(D), which sets forth 
circumstances under which Shares of the Funds may be halted. In 
addition, as noted above, investors will have ready access to the INAV, 
the Proxy Portfolio, and quotation and last sale information for the 
Shares. The Shares will conform to the initial and continued listing 
criteria under proposed Rule 8.601-E.
    The value of a Fund's Portfolio Positions will (a) be listed on an 
exchange and the primary trading session of such exchange will 
substantially overlap with the Exchange's Core Trading Session, as 
defined in Rule 7.34-E(a); (b) with respect to exchange-traded futures, 
be listed on a U.S. futures exchange; or (c) consist of cash and cash 
equivalents.\34\
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    \34\ See note 10, supra.
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    The proposed rule change is designed to improve 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 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, with respect to the 
Funds, the Exchange has in place surveillance procedures relating to 
trading in the Shares and may obtain information via ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. In 
addition, as noted above, investors will have ready access to 
information regarding the Proxy Portfolio, Portfolio Overlap, Daily 
Deviation, Empirical Percentiles, Tracking Error, the INAV, and 
quotation and last sale information for the Shares.

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

    In accordance with Section 6(b)(8) of the Act,\35\ 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. The Exchange believes the proposed rule change 
would permit listing and trading of another type of actively-managed 
ETF that has characteristics different from existing actively-managed 
and index ETFs, including that the portfolio is disclosed at least once 
quarterly as opposed to daily, and would introduce additional 
competition among various ETF products to the benefit of investors.
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    \35\ 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 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-2019-92 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-2019-92. 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 391]]

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-2019-92 and should be submitted on or before January 24, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28411 Filed 1-2-20; 8:45 am]
 BILLING CODE 8011-01-P


