[Federal Register Volume 85, Number 67 (Tuesday, April 7, 2020)]
[Notices]
[Pages 19526-19537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-07226]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88533; File No. SR-NYSEArca-2019-95]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 2 and Order Instituting Proceedings To Determine 
Whether To Approve or Disapprove a Proposed Rule Change, as Modified by 
Amendment No. 2, To Adopt NYSE Arca Rule 8.601-E To Permit the Listing 
and Trading of Active Proxy Portfolio Shares and To List and Trade 
Shares of the Natixis ETF Under Proposed NYSE Arca Rule 8.601-E

April 1, 2020.

I. Introduction

    On December 23, 2019, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to (1) adopt proposed NYSE Arca Rule 8.601-E to 
permit the Exchange to list and trade Active Proxy Portfolio Shares,\3\ 
which are shares of actively managed exchange-traded funds for which 
the portfolio is disclosed in accordance with standard mutual fund 
disclosure rules; and (2) list and trade the following Active Proxy 
Portfolio Shares under proposed NYSE Arca Rule 8.601-E: Natixis ETF. 
The proposed rule change was published for comment in the Federal 
Register on January 3, 2020.\4\ On February 13, 2020, pursuant to 
Section 19(b)(2) of the Exchange Act,\5\ the Commission designated a 
longer period within which to approve the proposed rule change, 
disapprove the proposed rule change, or institute proceedings to 
determine whether to disapprove the proposed rule change.\6\ On March 
31, 2020, the Exchange filed Amendment No. 2 to the proposed rule 
change, which replaced and superseded the proposed rule

[[Page 19527]]

change as originally filed.\7\ The Commission has received no comments 
on the proposed rule change. The Commission is publishing this notice 
and order to solicit comments on the proposed rule change, as modified 
by Amendment No. 2, from interested persons and to institute 
proceedings pursuant to Section 19(b)(2)(B) of the Act \8\ to determine 
whether to approve or disapprove the proposed rule change, as modified 
by Amendment No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Exchange originally proposed to adopt NYSE Arca Rule 
8.602-E to permit the Exchange to list and trade Actively Managed 
Solution Shares. In Amendment No. 2, the Exchange renumbered and 
renamed the Exchange rule proposed to be adopted to NYSE Arca Rule 
8.601-E (Active Proxy Portfolio Shares). See Amendment No. 2, infra 
note 7.
    \4\ See Securities Exchange Act Release No. 87866 (Dec. 30, 
2019), 85 FR 357 (``Notice'').
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 88199, 85 FR 9888 
(Feb. 20, 2020). The Commission designated April 2, 2020, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \7\ Amendment No. 1 to the proposed rule change was filed on 
March 26, 2020 and subsequently withdrawn on March 31, 2020. 
Amendment No. 2 is available on the Commission's website at https://www.sec.gov/comments/sr-nysearca-2019-95/srnysearca201995.htm.
    \8\ 15 U.S.C. 78s(b)(2)(B).
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II. The Exchange's Description of the Proposed Rule Change, as Modified 
by Amendment No. 2

    The Exchange proposes to adopt new NYSE Arca Rule 8.601-E to permit 
it to list and trade Active Proxy Portfolio Shares, which are shares of 
actively managed exchange-traded funds for which the portfolio is 
disclosed in accordance with standard mutual fund disclosure rules. In 
addition, the Exchange proposes to list and trade shares of the 
following under proposed NYSE Arca Rule 8.601-E: Natixis ETF. This 
Amendment No. 2 to SR-NYSEArca-2019-95 replaces SR-NYSEArca-2019-95 as 
originally filed and supersedes such filing in its entirety. The 
Exchange has withdrawn Amendment No. 1 to SR-NYSEArca-2019-95.
    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.

III. 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 Active Proxy Portfolio 
Shares, which are securities issued by an actively managed open-end 
investment management company. The Exchange also proposes to list and 
trade shares (``Shares'') of the following under proposed NYSE Arca 
Rule 8.601-E: Natixis ETF (the ``Fund'').
Proposed Listing Rules
    Proposed Rule 8.601-E (a) provides that the Exchange will consider 
for trading, whether by listing or pursuant to UTP, Active Proxy 
Portfolio Shares 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 Active Proxy Portfolio Shares and that, except to the extent 
inconsistent with Rule 8.601-E, or unless the context otherwise 
requires, the rules and procedures of the Exchange's Board of Directors 
shall be applicable to the trading on the Exchange of such securities. 
Proposed Rule 8.601-E (b) provides further that Active Proxy Portfolio 
Shares 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)(1) defines the term ``Active Proxy 
Portfolio Share'' 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 Creation Unit, or multiples thereof, in return for a 
deposit by the purchaser of the Proxy Portfolio and/or cash with a 
value equal to the next determined net asset value (``NAV''); (c) when 
aggregated in the same specified minimum number of Active Proxy 
Portfolio 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 with a value equal to the next determined NAV; 
and (d) the portfolio holdings for which are disclosed within at least 
60 days following the end of every fiscal quarter.
    Proposed Rule 8.601-E(c)(2) defines the term ``Actual Portfolio'' 
as the identities and quantities of the securities and other assets 
held by the Investment Company that shall form the basis for the 
Investment Company's calculation of 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 designed to track closely the daily performance of the Actual 
Portfolio of a series of Active Proxy Portfolio Shares as provided in 
the exemptive relief pursuant to the Investment Company Act of 1940 
applicable to such series. The website for each series of Active Proxy 
Portfolio Shares shall disclose the information regarding the Proxy 
Portfolio as provided in the exemptive relief pursuant to the 
Investment Company Act of 1940 applicable to such series, including the 
following, to the extent applicable:
    (i) Ticker symbol;
    (ii) CUSIP or other identifier;
    (iii) Description of holding;
    (iv) Quantity of each security or other asset held; and
    (v) Percentage weighting of the holding in the portfolio.\9\
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    \9\ The information required in proposed Rule 8.601-E(c)(3) for 
the Proxy Portfolio is the same as that required in SEC Rule 6c-
11(c)(1)(i)(A) through (E) under the 1940 Act for exchange-traded 
funds operating in compliance with Rule 6c-11. 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''). The Exchange believes it is appropriate to require 
such information, rather than all information required under Rule 
8.600-E(c)(2), in order to provide consistency in website 
dissemination among various ETF issuers. In adopting this 
requirement for funds operating in compliance with Rule 6c-11, the 
Commission stated that ``a more streamlined requirement will provide 
standardized portfolio holdings disclosure in a more efficient, less 
costly, and less burdensome format, while still providing market 
participants with relevant information. Accordingly, rule 6c-11 will 
require an ETF to post a subset of the information required by the 
listing exchanges' current generic listing standards for actively 
managed ETFs.'' The Commission stated further that ``this framework 
will provide market participants with the information necessary to 
support an effective arbitrage mechanism and eliminate potential 
investor confusion due to a lack of standardization.'' See Rule 6c-
11 Release, notes 249-260 and accompanying text.
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    Proposed Rule 8.601-E(c)(4) defines the term ``Creation Unit'' as a 
specified minimum number of Active Proxy Portfolio Shares issued by an 
Investment Company in return for a deposit by the purchaser of the 
Proxy Portfolio and/or cash.
    Proposed Rule 8.601-E(c)(5) defines the term ``Reporting 
Authority'' in respect of a particular series of Active Proxy Portfolio 
Shares means the Exchange, an institution, or a reporting service 
designated by the Exchange or

[[Page 19528]]

by the exchange that lists a particular series of Active Proxy 
Portfolio Shares (if the Exchange is trading such series pursuant to 
unlisted trading privileges) as the official source for calculating and 
reporting information relating to such series, including, but not 
limited to, NAV; the Actual Portfolio, Proxy Portfolio, or other 
information relating to the issuance, redemption or trading of Active 
Proxy Portfolio Shares. A series of Active Proxy Portfolio Shares 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 Active Proxy Portfolio Shares. Proposed Rule 
8.601-E(d)(1) provides that each series of Active Proxy Portfolio 
Shares shall be listed and traded on the Exchange subject to 
application of the following criteria:
    (A) For each series, the Exchange shall establish a minimum number 
of Active Proxy Portfolio Shares required to be outstanding at the time 
of commencement of trading on the Exchange.
    (B) The Exchange shall obtain a representation from the issuer of 
each series of Active Proxy Portfolio Shares that the NAV per share for 
the series shall be calculated daily and that the NAV, the Proxy 
Portfolio, and the Actual Portfolio shall be made publicly available to 
all market participants at the same time.
    (C) All Active Proxy Portfolio Shares shall have a stated 
investment objective, which shall be adhered to under normal market 
conditions.
    Proposed Rule 8.601-E(d)(2) provides that each series of Active 
Proxy Portfolio Shares shall be listed and traded subject to 
application of the following continued listing criteria: The Actual 
Portfolio shall be disseminated at least 60 days following the end of 
every fiscal quarter and shall be made publicly available to all market 
participants at the same time (proposed Rule 8.601-E(d)(2)(A)(i)), and 
the Proxy Portfolio will be made publicly available on the website for 
each series of Active Proxy Portfolio Shares at least once daily and 
will be made available to all market participants at the same time 
(proposed Rule 8.601-E(d)(2)(B)(i)).
    Proposed Rule 8.601-E(d)(2)(C) provides that the Exchange will 
consider the suspension of trading in, and will commence delisting 
proceedings under Rule 5.5-E(m) for, a series of Active Proxy Portfolio 
Shares 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, following the initial twelve month period after 
commencement of trading on the Exchange of a series of Active Proxy 
Portfolio Shares, there are fewer than 50 beneficial holders of such 
series of Active Proxy Portfolio Shares;
    (iii) if the Exchange is notified, or otherwise becomes aware, that 
the Investment Company is not in compliance with the conditions of any 
currently applicable exemptive order or no-action relief granted by the 
Commission or Commission staff to the Investment Company with respect 
to a series of Active Proxy Portfolio Shares;
    (iv) 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 Act to permit 
the listing and trading of a series of Active Proxy Portfolio Shares, 
is not continuously maintained; or
    (v) 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) (Trading Halt) provides that (i) The 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in a series of Active Proxy Portfolio Shares. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the series of Active Proxy 
Portfolio Shares inadvisable. These may include: (a) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the portfolio; or (b) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present; (ii) If a series of Active Proxy 
Portfolio Shares 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); and (iii) Upon notification to the 
Exchange by the issuer of a series of Active Proxy Portfolio Shares, 
that the NAV, Proxy Portfolio or Actual Portfolio with respect to a 
series of Active Proxy Portfolio Shares 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, Proxy Portfolio or Actual 
Portfolio is available to all market participants at the same time.
    Proposed Rule 8.601-E(d)(2)(E) provides that, upon termination of 
an Investment Company, the Exchange requires that Active Proxy 
Portfolio Shares issued in connection with such entity be removed from 
Exchange listing.
    Proposed Rule 8.601-E(d)(2)(F) provides that voting rights shall be 
as set forth in the applicable Investment Company prospectus.
    Proposed Rule 8.601-E(e) (Limitation of Exchange Liability) 
provides that neither the Exchange, the Reporting Authority, when the 
Exchange is acting in the capacity of a Reporting Authority, nor any 
agent of the Exchange shall 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 Active Proxy 
Portfolio Shares; the amount of any dividend equivalent payment or cash 
distribution to holders of Active Proxy Portfolio Shares; NAV; or other 
information relating to the purchase, redemption, or trading of Active 
Proxy Portfolio Shares, resulting from any negligent act or omission by 
the Exchange, the Reporting Authority, when the Exchange is acting in 
the capacity of a Reporting Authority, or any agent of the Exchange, or 
any act, condition, or cause beyond the reasonable control of the 
Exchange, when the Exchange is acting in the capacity of a Reporting 
Authority, 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 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 Active Proxy Portfolio Shares. 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

[[Page 19529]]

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 provides that transactions in Active Proxy 
Portfolio Shares shall occur during the trading hours specified in NYSE 
Arca Rule 7.34-E(a).
    Proposed Commentary .03 provides that the Exchange will implement 
and maintain written surveillance procedures for Active Proxy Portfolio 
Shares. As part of these surveillance procedures, the Investment 
Company's investment adviser will upon request by the Exchange or 
FINRA, on behalf of the Exchange, make available to the Exchange or 
FINRA the daily portfolio holdings of each series of Active Proxy 
Portfolio Shares.
    Proposed Commentary.04 provides that, if the investment adviser to 
the Investment Company issuing Active Proxy Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company's 
Actual Portfolio and/or Proxy Portfolio. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to non-
public information regarding the Investment Company's Actual Portfolio 
or changes thereto or the Proxy Portfolio must be subject to procedures 
reasonably designed to prevent the use and dissemination of material 
non-public information regarding the Actual Portfolio or changes 
thereto or the Proxy Portfolio.\10\
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    \10\ The Exchange will propose applicable NYSE Arca listing fees 
for Active Proxy Portfolio Shares in the NYSE Arca Equities Schedule 
of Fees and Charges via a separate proposed rule change.
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    The Exchange also proposes non-substantive amendments to include 
Active Proxy Portfolio 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 Active Proxy Portfolio Shares to 
the enumerated derivative and special purpose securities that are 
subject to the respective Rules. Thus, Active Proxy Portfolio 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.
Key Features of Active Proxy Portfolio Shares
    While funds issuing Active Proxy Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares, 
Active Proxy Portfolio Shares differ from Managed Fund Shares in the 
following important respects. First, in contrast to Managed Fund 
Shares, which are actively-managed funds listed and traded under NYSE 
Arca Rule 8.600-E \11\ and for which a ``Disclosed Portfolio'' is 
required to be disseminated at least once daily,\12\ the portfolio for 
an issue of Active Proxy Portfolio Shares will be publicly disclosed 
within at least 60 days following the end of every fiscal quarter in 
accordance with normal disclosure requirements otherwise applicable to 
open-end management investment companies registered under the 1940 
Act.\13\ The composition of the portfolio of an issue of Active Proxy 
Portfolio Shares would not be available at commencement of Exchange 
listing and trading. Second, in connection with the creation and 
redemption of Active Proxy Portfolio Shares, such creation or 
redemption may be exchanged for a Proxy Portfolio with a value equal to 
the next-determined NAV. A series of Active Proxy Portfolio Shares will 
disclose the Proxy Portfolio on a daily basis, which, as described 
above, is designed to track closely the daily performance of the Actual 
Portfolio of a series of Active Proxy Portfolio Shares, instead of the 
actual holdings of the Investment Company, as provided by a series of 
Managed Fund Shares.
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    \11\ The Commission has previously approved listing and trading 
on the Exchange of a number of issues of Managed Fund Shares under 
NYSE Arca Rule 8.600-E. 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); 60460 (August 7, 
2009), 74 FR 41468 (August 17, 2009) (SR-NYSEArca-2009-55) (order 
approving listing of Dent Tactical ETF); 63076 (October 12, 2010), 
75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order 
approving Exchange listing and trading of Cambria Global Tactical 
ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR-
NYSEArca-2010-118) (order approving Exchange listing and trading of 
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic 
Allocation Growth Income ETF). The Commission also has approved a 
proposed rule change relating to generic listing standards for 
Managed Fund Shares. Securities Exchange Act Release No. 78397 (July 
22, 2016), 81 FR 49320 (July 27, 2016 (SR-NYSEArca-2015-110) 
(amending NYSE Arca Equities Rule 8.600 to adopt generic listing 
standards for Managed Fund Shares).
    \12\ 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 net asset value at the 
end of the business day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires 
that the Disclosed Portfolio will be disseminated at least once 
daily and will be made available to all market participants at the 
same time.
    \13\ A mutual fund is required to file with the Commission its 
complete portfolio schedules for the second and fourth fiscal 
quarters on Form N-CSR under the 1940 Act. Information reported on 
Form N-PORT for the third month of a Fund's fiscal quarter will be 
made publicly available 60 days after the end of a Fund's fiscal 
quarter. Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly 
basis within 60 days after fiscal quarter end. Investors can obtain 
a fund's Statement of Additional Information, its Shareholder 
Reports, its Form N-CSR, filed twice a year, and its Form N-CEN, 
filed annually. A fund's statement of additional information 
(``SAI'') and Shareholder Reports are available free upon request 
from the Investment Company, and those documents and the Form N-
PORT, Form N-CSR, and Form N-CEN may be viewed on-screen or 
downloaded from the Commission's website at www.sec.gov.
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    The Exchange, after consulting with various Lead Market Makers that 
trade exchange-traded funds (``ETFs'') on the Exchange, believes that 
market makers will be able to make efficient and liquid markets priced 
near the NAV in light of the daily Proxy Portfolio dissemination Market 
makers employ market making techniques such as ``statistical 
arbitrage,'' including correlation hedging, beta hedging, and 
dispersion trading, which is currently used throughout the financial 
services industry, to make efficient markets in exchange-traded 
products.\14\ These techniques should permit market makers to make 
efficient markets in an issue of Active Proxy Portfolio Shares

[[Page 19530]]

without precise knowledge of a fund's underlying portfolio.
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    \14\ Statistical arbitrage enables a trader to construct an 
accurate proxy for another instrument, allowing it to hedge the 
other instrument or buy or sell the instrument when it is cheap or 
expensive in relation to the proxy. Statistical analysis permits 
traders to discover correlations based purely on trading data 
without regard to other fundamental drivers. These correlations are 
a function of differentials, over time, between one instrument or 
group of instruments and one or more other instruments. 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. Once a suitable hedging proxy 
has been identified, a trader can minimize portfolio risk by 
executing the hedging basket. The trader then can monitor the 
performance of this hedge throughout the trade period making 
correction where warranted. In the case of correlation hedging, the 
analysis seeks to find a proxy that matches the pricing behavior of 
a fund. In the case of beta hedging, the analysis seeks to determine 
the relationship between the price movement over time of a fund and 
that of another stock. Dispersion trading is a hedged strategy 
designed to take advantage of relative value differences in implied 
volatilities between an index and the component stocks of that 
index.
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    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Active Proxy Portfolio Shares, 
market makers may use the knowledge of a fund's means of achieving its 
investment objective, as described in the applicable fund registration 
statement, together with the Proxy Portfolio to manage a market maker's 
quoting risk in connection with trading shares of a fund. Market makers 
can then conduct statistical arbitrage between Proxy Portfolio and 
shares of a fund, buying and selling one against the other over the 
course of the trading day. They will evaluate how the Proxy Portfolio 
performed in comparison to the price of a fund's shares, and use that 
analysis as well as knowledge of risk metrics, such as volatility and 
turnover, to provide a more efficient hedge.
    Market makers have indicated to the Exchange that there will be 
sufficient data to run a statistical analysis which will lead to 
spreads being tightened substantially around NAV of a fund's shares. 
This is similar to certain other existing exchange traded products (for 
example, ETFs that invest in foreign securities that do not trade 
during U. S. trading hours), in which spreads may be generally wider in 
the early days of trading and then narrow as market makers gain more 
confidence in their real-time hedges.
Description of the Fund and the Trust
    The Fund will be a series of Natixis ETF Trust II (``Trust''), 
which will be registered with the Commission as an open-end management 
investment company.\15\
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    \15\ The Trust is registered under the 1940 Act. On December 12, 
2019, the Trust filed a registration statement on Form N-1A under 
the Securities Act of 1933 (the ``1933 Act'') (15 U.S.C. 77a), and 
under the 1940 Act relating to the Fund (File Nos. 333-235466 and 
811-23500) (the ``Registration Statement''). The Trust and NYSE 
Group, Inc. filed a Seventh Amended and Restated 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-
14870), dated October 21, 2019 (``Application''). On November 14, 
2019, the Commission issued a notice regarding the Application. 
Investment Company Release No. 33684 (File No. 812-14870). 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. 33711 (December 10, 
2019)). Investments made by the Fund will comply with the conditions 
set forth in the Application and the Exemptive Order. The 
description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement and the Application.
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    Natixis Advisors, L.P. (``Adviser'') will be the investment adviser 
to the Fund. ALPS Distributors, Inc. will act as the distributor and 
principal underwriter (``Distributor'') for the Fund.
    As noted above, proposed Commentary.04 provides that, if the 
investment adviser to the Investment Company issuing Active Proxy 
Portfolio Shares is affiliated with a broker-dealer, such investment 
adviser will erect and maintain a ``fire wall'' between the investment 
adviser and personnel of the broker-dealer or broker-dealer affiliate, 
as applicable, with respect to access to information concerning the 
composition and/or changes to such Investment Company portfolio. Any 
person related to the investment adviser or Investment Company who 
makes decisions pertaining to the Investment Company's portfolio 
composition or has access to information regarding the Investment 
Company's Actual Portfolio or changes thereto must be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the Actual Portfolio Proposed 
Commentary .04 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.\16\ Proposed Commentary .04 is also similar to Commentary .06 to 
Rule 8.600-E related to Managed Fund Shares, except that proposed 
Commentary .04 relates to establishment and maintenance of a ``fire 
wall'' between the investment adviser and the broker-dealer applicable 
to an Investment Company's Actual Portfolio and/or Proxy Portfolio, and 
not just to the underlying portfolio, as is the case with Managed Fund 
Shares. The Adviser is not registered as a broker-dealer but is 
affiliated with a broker-dealer. The Adviser has implemented and will 
maintain a ``fire wall'' with respect to such broker-dealer affiliate 
regarding access to information concerning the composition of and/or 
changes to the Fund's portfolio.
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    \16\ 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.
---------------------------------------------------------------------------

    In the event (a) the Adviser or any sub-adviser becomes registered 
as a broker-dealer or becomes newly affiliated with a broker-dealer, or 
(b) any new adviser or sub-adviser is a registered broker-dealer, or 
becomes affiliated with a broker-dealer, it will implement and maintain 
a fire wall with respect to its relevant personnel or its 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.
Natixis ETF
    According to the Application, the Adviser believes the Fund would 
allow for efficient trading of Shares through an effective Fund 
portfolio transparency substitute and publication of related 
information metrics, while still shielding the identity of the full 
Fund portfolio contents to protect the Fund's performance-seeking 
strategies. Even though the Fund would not publish its full portfolio 
contents daily, the Adviser believes that the NYSE Proxy Portfolio 
Methodology would allow market participants to assess the intraday 
value and associated risk of the Fund's Actual Portfolio. As a result, 
the Adviser believes that investors would be able to purchase and sell 
Shares in the secondary market at prices that are close to their NAV.
    In this regard, the Fund will utilize a proxy portfolio 
methodology-- the ``NYSE Proxy Portfolio Methodology''-- that would 
allow market participants to assess the intraday value and associated 
risk of the Fund's Actual Portfolio and thereby facilitate the purchase 
and sale of Shares by investors in the secondary market at prices that 
do not vary materially from their NAV.\17\ The NYSE

[[Page 19531]]

Proxy Portfolio Methodology would utilize creation of a Proxy Portfolio 
for hedging and arbitrage purposes.\18\
---------------------------------------------------------------------------

    \17\ The NYSE Proxy Portfolio Methodology is owned by the NYSE 
Group, Inc. and licensed for use by the Fund. NYSE Group, Inc. is 
not affiliated with the Fund, Adviser or Distributor. Not all series 
of Active Proxy Portfolio Shares will utilize the NYSE Proxy 
Portfolio Methodology.
    \18\ With respect to the Fund, the Fund will have in place 
policies and procedures regarding the construction and composition 
of its Proxy Portfolio. Such policies and procedures will be covered 
by the Fund's compliance program and other requirements under Rule 
38a-1 under the 1940 Act.
---------------------------------------------------------------------------

    The Fund's holdings will conform to the permissible investments as 
set forth in the Application and Exemptive Order and the holdings will 
be consistent with all requirements in the Application and Exemptive 
Order.\19\
---------------------------------------------------------------------------

    \19\ Pursuant to the Application and Exemptive Order, the 
permissible investments include only the following instruments: 
Exchange traded funds (``ETFs'') traded on a U.S. exchange; 
exchange-traded notes (``ETNs'') traded on a U.S. exchange; U.S. 
exchange-traded common stocks; common stocks listed on a foreign 
exchange that trade on such exchange contemporaneously with the 
Shares (``foreign common stocks'') in the Exchange's Core Trading 
Session (normally 9:30 a.m. and 4:00 p.m. Eastern time (``E.T.'')); 
U.S. exchange-traded preferred stocks; U.S. exchange-traded American 
Depositary Receipts (``ADRs''); U.S. exchange-traded real estate 
investment trusts; U.S. exchange-traded commodity pools; U.S. 
exchange-traded metals trusts; U.S. exchange-traded currency trusts; 
and U.S. exchange-traded futures that trade contemporaneously with 
Fund Shares. In addition, the Fund may hold cash and cash 
equivalents (short-term U.S. Treasury securities, government money 
market funds, and repurchase agreements).
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund will invest only 
in together, the ``Permissible Investments'').\20\ The Fund will not 
hold short positions or invest in derivatives other than U.S. exchange-
traded futures. The Fund will not borrow for investment purposes.
---------------------------------------------------------------------------

    \20\ For purposes of this filing, cash equivalents are short-
term U.S. Treasury securities, government money market funds, and 
repurchase agreements.
---------------------------------------------------------------------------

    Under normal market conditions,\21\ the Fund will primarily invest 
in U.S. exchange-traded common stocks of U.S. companies. The Fund 
generally will invest in securities of larger capitalization companies 
in any industry.
---------------------------------------------------------------------------

    \21\ The term ``normal market conditions'' is defined in 
proposed Rule 8.6018.601-E(c)(6).
---------------------------------------------------------------------------

Creations and Redemptions of Shares
    According to the Application, the ``Creation Basket'' (as defined 
below) for the Fund's Shares will be based on the Fund's Proxy 
Portfolio, which is designed to approximate the value and performance 
of the Actual Portfolio. All Creation Basket instruments will be valued 
in the same manner as they are valued for purposes of calculating the 
Fund's NAV, and such valuation will be made in the same manner 
regardless of the identity of the purchaser or redeemer. Further, the 
total consideration paid for the purchase or redemption of a Creation 
Unit of Shares will be based on the NAV of the Fund, as calculated in 
accordance with the policies and procedures set forth in the 
Registration Statement.
    According to the Application, the Trust will offer, issue and sell 
Shares of the 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 the Fund is 
expected to be determined as of 4:00 p.m. E.T. on each Business Day. 
The Trust will sell and redeem Creation Units of the Fund only on a 
Business Day. Creation Units of the Fund 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 the Fund (collectively, 
the ``Creation Basket'') will be the same as the Fund's Proxy 
Portfolio, except to the extent purchases and redemptions are made 
entirely or in part on a cash basis.
    If there is a difference between the NAV 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'').
    While the Fund normally will issue and redeem Shares in kind, the 
Fund may require purchases and redemptions to be made entirely or in 
part on a cash basis. In such an instance, the Fund will announce, 
before the open of trading in the Core Trading Session (normally, 9:30 
a.m. to 4:00 p.m. E.T.) 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. The Fund may also determine, upon 
receiving a purchase or redemption order from an Authorized 
Participant, to have the purchase or redemption, as applicable, be made 
entirely or in part in cash. 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.
    All orders to purchase Creation Units must be placed with the 
Distributor by or through an Authorized Participant, which is 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.
Timing and Transmission of Purchase Orders
    All orders to purchase (or redeem) Creation Units, whether using 
the NSCC Process or the DTC Process, must be received by the 
Distributor no later than the NAV calculation time (``NAV Calculation 
Time''), generally 4:00 p.m. E.T. on the date the order is placed 
(``Transmittal Date'') in order for the purchaser (or redeemer) to 
receive the NAV determined on the Transmittal Date. In the case of 
custom orders, the order must be received by the Distributor 
sufficiently in advance of the NAV Calculation Time in order to help 
ensure that the Fund has an opportunity to purchase the missing 
securities with the cash in lieu amounts or to sell securities to 
generate the cash in lieu amounts prior to the NAV Calculation Time. On 
days when the Exchange closes earlier than normal, the Fund may require 
custom orders to be placed earlier in the day.
Availability of Information for the Fund's Shares
    The Fund's website (www.im.natixis.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's 
website will include on a daily basis, per Share for the Fund, (1) 
daily trading volume, the prior Business Day's NAV and the ``Closing 
Price'' or ``Bid/Ask Price,'' \22\

[[Page 19532]]

and a calculation of the premium/discount of the Closing Price or Bid/
Ask Price against such NAV \23\, and (2) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
daily Bid/Ask Price against the NAV, within appropriate ranges, for 
each of the four previous calendar quarters. The website and 
information will be publicly available at no charge.
---------------------------------------------------------------------------

    \22\ The records relating to Bid/Ask Prices will be retained by 
the Fund or its service providers. The ``Bid/Ask Price'' is the 
midpoint of the highest bid and lowest offer based upon the National 
Best Bid and Offer as of the time of calculation of the Fund's NAV. 
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. The 
``Closing Price'' of Shares is the official closing price of the 
Shares on the Exchange.
    \23\ The ``premium/discount'' refers to the premium or discount 
to NAV at the end of a trading day and will be calculated based on 
the last Bid/Ask Price or the Closing Price on a given trading day.
---------------------------------------------------------------------------

    The Proxy Portfolio holdings (including the identity and quantity 
of investments in the Proxy Portfolio) will be publicly available on 
the Fund's website before the commencement of trading in Shares on each 
Business Day.
    Typical mutual fund-style annual, semi-annual and quarterly 
disclosures contained in the Fund's Commission filings will be provided 
on the Fund's website on a current basis.\24\ Thus, the Fund will 
publish the portfolio contents of its Actual Portfolio on a periodic 
basis, and no less than 60 days after the end of every fiscal quarter.
---------------------------------------------------------------------------

    \24\ See note 13, supra.
---------------------------------------------------------------------------

    Investors can also obtain the Fund's SAI, Shareholder Reports, Form 
N-CSR, N-PORT and Form N-CEN. The prospectus, SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR, N-PORT, and Form N-CEN may be viewed on-
screen or downloaded from the Commission's website.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares, equity securities and ETFs will be available via the 
Consolidated Tape Association (``CTA'') high-speed line.
Investment Restrictions
    The Shares of the Fund will conform to the initial and continued 
listing criteria under proposed Rule 8.601-E. The Fund's holdings will 
be limited to and consistent with permissible holdings as described in 
the Exemptive Application.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\25\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Rule 
7.12-E have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Trading in the Shares will be 
subject to NYSE Arca Rule 8.601-E(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund will be halted.
---------------------------------------------------------------------------

    \25\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

    Specifically, proposed Rule 8.601-E(d)(2)(D) provides that the 
Exchange may consider all relevant factors in exercising its discretion 
to halt trading in a series of Active Proxy Portfolio Shares. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the series of Active Proxy 
Portfolio Shares inadvisable. These may include: (a) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the portfolio; or (b) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. In addition, upon notification to the 
Exchange by the issuer of a series of Active Proxy Portfolio Shares, 
that the NAV, Proxy Portfolio or Actual Portfolio with respect to a 
series of Active Proxy Portfolio Shares 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, Proxy Portfolio or Actual 
Portfolio is available to all market participants at the same time. The 
issuer has represented to the Exchange that it will provide the 
Exchange with prompt notification upon the existence of any such 
condition or set of conditions.
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 in all trading sessions in accordance with 
NYSE Arca Rule 7.34-E(a). 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 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. The Exchange has appropriate rules to facilitate trading in 
the Shares during all trading sessions.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Exchange, as 
well as cross-market 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.\26\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and federal securities laws applicable to trading on 
the Exchange.
---------------------------------------------------------------------------

    \26\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will 
communicate as needed regarding trading in the Shares and underlying 
exchange-traded instruments with other markets and other entities that 
are members of the ISG, and the Exchange or FINRA, on behalf of the 
Exchange, or both, may obtain trading information regarding trading 
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

[[Page 19533]]

a comprehensive surveillance sharing agreement.\27\
---------------------------------------------------------------------------

    \27\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    The Adviser will make available daily to FINRA and the Exchange the 
Actual Portfolio of the Fund, upon request, in order to facilitate the 
performance of the surveillances referred to above.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    As noted above, proposed Commentary .03 to NYSE Arca Rule 8.601-E 
provides that the Exchange will implement and maintain written 
surveillance procedures for Active Proxy Portfolio Shares. As part of 
these surveillance procedures, the Investment Company's investment 
adviser will upon request by the Exchange or FINRA, on behalf of the 
Exchange, make available to the Exchange or FINRA the daily portfolio 
holdings of each series of Active Proxy Portfolio Shares. The Exchange 
believes that the ability to access the information on an as needed 
basis will provide it with sufficient information to perform the 
necessary regulatory functions associated with listing and trading 
series of Active Proxy Portfolio Shares on the Exchange, including the 
ability to monitor compliance with the initial and continued listing 
requirements as well as the ability to surveil for manipulation of 
Active Proxy Portfolio Shares.
    The Exchange will utilize its existing procedures to monitor issuer 
compliance with the requirements of proposed Rule 8.601-E. For example, 
the Exchange will continue to use intraday alerts that will notify 
Exchange personnel of trading activity throughout the day that may 
indicate that unusual conditions or circumstances are present that 
could be detrimental to the maintenance of a fair and orderly market. 
The Exchange will require from the issuer of a series of Active Proxy 
Portfolio Shares, upon initial listing and periodically thereafter, a 
representation that it is in compliance with Rule 8.601-E. The Exchange 
notes that proposed Commentary .01 to Rule 8.601-E would require an 
issuer of Active Proxy Portfolio Shares to notify the Exchange of any 
failure to comply with the continued listing requirements of Rule 
8.601-E. In addition, the Exchange will require issuers to represent 
that they will notify the Exchange of any failure to comply with the 
terms of applicable exemptive and no-action relief. The Exchange will 
rely on the foregoing procedures to become aware of any non-compliance 
with the requirements of Rule 8.601-E.
    With respect to the Fund, all statements and representations made 
in this filing regarding (a) the description of the portfolio or 
reference asset, (b) limitations on portfolio holdings or reference 
assets, or (c) the applicability of Exchange listing rules specified in 
this rule filing shall constitute continued listing requirements for 
listing the Shares on the Exchange. The issuer has represented to the 
Exchange that it will advise the Exchange of any failure by the Fund to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements. If the 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
Information Bulletin
    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; 
(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) how information regarding the Proxy 
Portfolio will be disseminated; (4) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; (5) the 
requirement that the Fund's portfolio holdings will be disclosed 
quarterly, and (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\28\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\29\ 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.
---------------------------------------------------------------------------

    \28\ 15 U.S.C. 78f(b).
    \29\ 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 Active Proxy 
Portfolio Shares 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 Active Proxy Portfolio Shares. Proposed Rule 
8.601-E(d)(1)(A) provides that, for each series of Active Proxy 
Portfolio Shares, the Exchange will establish a minimum number of 
Active Proxy Portfolio Shares 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 Active Proxy Portfolio 
Shares that the NAV per share for the series will be calculated daily 
and that the NAV, Proxy Portfolio and the Actual Portfolio will be made 
available to all market participants at the same time. Proposed Rule 
8.601-E(d)(2) provides that each series of Active Proxy Portfolio 
Shares will be listed and traded subject to application of specified 
continued listing criteria, as set forth above.
    Proposed Rule 8.601-E(d)(2)(D)(i) provides that the Exchange may 
consider all relevant factors in exercising its discretion to halt 
trading in a series of Active Proxy Portfolio Shares. Trading may be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the series of Active Proxy Portfolio 
Shares inadvisable. These may include: (a) The extent to which trading 
is not occurring in the securities and/or the financial instruments 
composing the portfolio; or (b) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.
    Proposed Rule 8.601-E(d)(2)(D)(iii) provides that, upon 
notification to the Exchange by the issuer of a series of Active Proxy 
Portfolio Shares, that the NAV, Proxy Portfolio or Actual Portfolio 
with respect to a series of Active Proxy Portfolio Shares is not 
disseminated to all market participants at the same time,

[[Page 19534]]

the Exchange shall halt trading in such series until such time as the 
NAV, Proxy Portfolio or Actual Portfolio is available to all market 
participants at the same time.
    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 Active Proxy Portfolio Shares. 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 .03 to NYSE Arca Rule 8.601-E provides that the 
Exchange will implement and maintain written surveillance procedures 
for Active Proxy Portfolio Shares. As part of these surveillance 
procedures, the Investment Company's investment adviser will, upon 
request by the Exchange or FINRA, on behalf of the Exchange, make 
available to the Exchange or FINRA the daily portfolio holdings of each 
series of Active Proxy Portfolio Shares.
    Proposed Commentary .04 provides that, if the investment adviser to 
the Investment Company issuing Active Proxy Portfolio Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition and/or changes to such Investment Company's 
Actual Portfolio and or Proxy Portfolio. Any person related to the 
investment adviser or Investment Company who makes decisions pertaining 
to the Investment Company's portfolio composition or has access to non-
public information regarding the Investment Company's Actual Portfolio 
or changes thereto or the Proxy Portfolio must be subject to procedures 
reasonably designed to prevent the use and dissemination of material 
non-public information regarding the Actual Portfolio or changes 
thereto or to the Proxy Portfolio.
    The proposed addition of Active Proxy Portfolio 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 
Active Proxy Portfolio 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).
    With respect to the proposed listing and trading of Shares of the 
Fund, 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. All 
exchange-listed equity securities held by the Fund will be listed on 
U.S. national securities 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. The Fund will 
primarily hold U.S.-listed equity securities and shares issued by other 
U.S.-listed ETFs. The Fund's holdings will conform to the permissible 
investments as set forth in the Application and Exemptive Order and the 
holdings will be consistent with all requirements in the Application 
and Exemptive Order. The Exchange or FINRA, on behalf of the Exchange, 
or both, will communicate as needed regarding trading in the Shares, 
exchange-traded equity securities, and futures with other markets and 
other entities that are members of the ISG, and the Exchange or FINRA, 
on behalf of the Exchange, or both, may obtain trading information 
regarding trading 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.
    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, and that market 
makers have knowledge of a fund's means of achieving its investment 
objective even without daily disclosure of a fund's underlying 
portfolio. The Exchange believes that market makers will employ risk-
management techniques to make efficient markets in exchange traded 
products. This ability should permit market makers to make efficient 
markets in shares without knowledge of a fund's underlying portfolio.
    The Exchange understands that traders use statistical analysis to 
derive correlations between different sets of instruments to identify 
opportunities to buy or sell one set of instruments when it is 
mispriced relative to the others. For Active Proxy Portfolio Shares, 
market makers utilizing statistical arbitrage use the knowledge of a 
fund's means of achieving its investment objective, as described in the 
applicable fund registration statement to manage a market maker's 
quoting risk in connection with trading fund shares. Market makers will 
then conduct statistical arbitrage between the Proxy Portfolio and 
shares of a fund, buying and selling one against the other over the 
course of the trading day. Eventually, at the end of each day, they 
will evaluate how the Proxy Portfolio performed in comparison to the 
price of a fund's shares, and use that analysis as well as knowledge of 
risk metrics, such as volatility and turnover, to provide a more 
efficient hedge.
    The Lead Market Makers also indicated that, as with some other new 
exchange-traded products, spreads would tend to narrow as market makers 
gain more confidence in the accuracy of their hedges and their ability 
to adjust these hedges in real-time and gain an understanding of the 
applicable market risk metrics such as volatility and turnover, and as 
natural buyers and sellers enter the market. Other relevant factors 
cited by Lead Market Makers were that a fund's investment objectives 
are clearly disclosed in the applicable prospectus, the existence of 
quarterly portfolio disclosure and the ability to create shares in 
creation unit size.
    The real-time dissemination of the identity and quantity of Proxy 
Portfolio component investments, together with 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 Bid/Ask 
Price and NAV of shares of a series of Active Proxy Portfolio Shares.
    The pricing efficiency with respect to trading a series of Active 
Proxy Portfolio Shares will generally rest on the ability of market 
participants to arbitrage between the shares and a fund's portfolio, in 
addition to 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 can 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

[[Page 19535]]

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 \30\ or by netting 
the exposure against other, offsetting trading positions--much as such 
firms do with existing ETFs and other equities. Disclosure of a fund's 
investment objective and principal investment strategies in its 
prospectus and SAI should permit professional investors to engage 
easily in this type of hedging activity.
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    \30\ 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. Once a suitable hedging basket has been 
identified, a trader can minimize portfolio risk by executing the 
hedging basket. The trader then can monitor the performance of this 
hedge throughout the trade period, making corrections where 
warranted.
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    The Exchange believes that the Fund and Active Proxy Portfolio 
Shares generally, will provide investors with a greater choice of 
active portfolio managers and active strategies through which they can 
manage their assets in an ETF structure. This greater choice of active 
asset management is expected to be similar to the diversity of active 
managers and strategies available to mutual fund investors. Unlike 
mutual fund investors, investors in Active Proxy Portfolio Shares would 
also accrue the benefits derived from the ETF structure, such as lower 
fund costs, tax efficiencies, intraday liquidity, and pricing that 
reflects current market conditions rather than end-of-day pricing.
    The Adviser represents that, unlike ETFs that publish their 
portfolios on a daily basis, the Fund, as Active Proxy Portfolio 
Shares, proposes to allow for efficient trading of Shares through an 
effective Fund portfolio transparency substitute--Proxy Portfolio 
transparency. The Adviser believes that this approach will provide an 
important benefit to investors by protecting the Fund from the 
potential for front-running of portfolio transactions and the potential 
for free-riding on Fund portfolio strategies, each of which could 
adversely impact the performance of the Fund.
    The Fund will utilize the NYSE Proxy Portfolio Methodology, 
allowing market participants to assess the intraday value and 
associated risk of the Fund's Actual Portfolio and thereby facilitate 
the purchase and sale of Shares by investors in the secondary market at 
prices that do not vary materially from their NAV.
    The Exchange believes that Active Proxy Portfolio Shares will 
provide the platform for many more asset managers to launch ETFs, 
increasing the investment choices for consumers of actively managed 
funds, which should lead to a greater competitive landscape that can 
help to reduce the overall costs of active investment management for 
retail investors. Unlike mutual funds, Active Proxy Portfolio Shares 
would be able to use the efficient share settlement system in place for 
ETFs today, translating into a lower cost of maintaining shareholder 
accounts and processing transactions.
    The Adviser represents that investors will also benefit because the 
Fund's operating costs, such as transfer agency costs, are generally 
lower in ETFs than in mutual funds. The Fund will have access to the 
identical clearing and settlement procedures now used by U.S. domiciled 
ETFs, and therefore, should experience many of the operational and cost 
efficiencies benefitting current ETF investors.
    The Adviser represents further that in-kind Share creation/
redemption orders will allow the Fund to enjoy overall transaction 
costs lower than those experienced by mutual funds. The Fund's in-kind 
Share creation and redemption process will facilitate and enhance 
active management strategies by generally limiting the portfolio 
manager's need to transact in a large volume of trades in order to 
maintain desired investment exposures. In addition, the Adviser 
represents that the Fund will receive tax efficiency benefits of the 
ETF structure because of in-kind Share creation and redemption 
activity.
    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 a 
series of Active Proxy Portfolio Shares that the NAV per share of a 
fund will be calculated daily and that the NAV will be made available 
to all market participants at the same time. Investors can also obtain 
the Fund's SAI, shareholder reports, and its Form N-CSR, Form N-PORT 
and Form N-CEN. The Fund's SAI and shareholder reports will be 
available free upon request from the Fund, and those documents and the 
Form N-CSR, Form N-PORT and Form N-CEN may be viewed on-screen or 
downloaded from the Commission's website. In addition, with respect to 
the Fund, a large amount of information will be publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. Quotation and last sale information for the Shares will 
be available via the CTA high-speed line. The website for the Fund will 
include a form of the prospectus for the Fund 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 an 
Information Bulletin of the special characteristics and risks 
associated with trading the Shares. Trading in Shares of the Fund will 
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E 
have been reached or because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the Shares inadvisable. 
Trading in the Shares will be subject to NYSE Arca Rule 8.601-E 
(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund will be halted. In addition, as noted above, investors will have 
ready access to 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 proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the 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 quotation and last sale 
information for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes the 
proposed rule change would permit listing and trading

[[Page 19536]]

of another type of actively-managed ETF that has characteristics 
different from existing actively-managed and index ETFs and would 
introduce additional competition among various ETF products to the 
benefit of investors.

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.

IV. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2019-95, as Modified by Amendment No. 2, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act \31\ to determine whether the proposed 
rule change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\32\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of the proposed rule change's consistency with 
Section 6(b)(5) of the Exchange Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, . . . 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.'' \33\
---------------------------------------------------------------------------

    \32\ Id.
    \33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

V. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment No. 2, is consistent with Section 
6(b)(5) or any other provision of the Exchange Act, or the rules and 
regulations thereunder. Although there do not appear to be any issues 
relevant to approval or disapproval that would be facilitated by an 
oral presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4, any request for an opportunity to 
make an oral presentation.\34\
---------------------------------------------------------------------------

    \34\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 2, should be approved or disapproved by April 28, 2020. 
Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by May 12, 2020.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in Amendment No. 2,\35\ and any other issues raised by the proposed 
rule change, as modified by Amendment No. 2, under the Exchange Act. In 
this regard, the Commission seeks commenters' views regarding whether 
the Exchange's proposed rule to list and trade Active Proxy Portfolio 
Shares, which are actively managed exchange-traded products for which 
the portfolio holdings would be disclosed on a quarterly, rather than 
daily, basis, is adequately designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, and to protect investors and the public interest, 
and is consistent with the maintenance of a fair and orderly market 
under the Exchange Act. In particular, the Commission seeks commenters' 
views regarding whether the Exchange's proposed listing rule provisions 
as they relate to foreign securities are adequate to prevent fraud and 
manipulation. In addition, the Commission seeks commenters' views 
regarding whether the Exchange's proposed listing rule provisions are 
adequate to prevent the use and dissemination of material non-public 
information regarding the Actual Portfolio and the Proxy Portfolio and 
changes thereto.
---------------------------------------------------------------------------

    \35\ See supra note 7.
---------------------------------------------------------------------------

    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-2019-95 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-2019-95. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2019-95 and should be submitted 
on or before April 28, 2020. Rebuttal comments should be submitted by 
May 12, 2020.


[[Page 19537]]


    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)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-07226 Filed 4-6-20; 8:45 am]
BILLING CODE 8011-01-P


