[Federal Register Volume 85, Number 125 (Monday, June 29, 2020)]
[Notices]
[Pages 39008-39013]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13873]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89129; File No. SR-NYSEArca-2020-57]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of a Proposed Rule Change To Permit the 
Continued Listing and Trading of the WisdomTree Mortgage Plus Bond Fund

June 23, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on June 11, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. 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 permit the continued listing and trading 
of the WisdomTree Mortgage Plus Bond Fund listed under NYSE Arca Rule 
8.600-E. The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

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

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

1. Purpose
    Pursuant to NYSE Arca Rule 8.600-E, the Exchange proposes to permit 
the continued listing and trading of the WisdomTree Mortgage Plus Bond 
Fund (the ``Fund''), a series of the WisdomTree Trust (the ``Trust''), 
listed under NYSE Arca Rule 8.600-E (``Managed Fund Shares''),\4\ that 
does not otherwise meet the standards set forth in Rule 8.600-E, 
Commentary .01(b)(4), as described below. The shares (``Shares'') of 
the Fund commenced trading on the Exchange on November 14, 2019 
pursuant to the generic listing standards under Commentary .01 to NYSE 
Arca Rule 8.600-E (ticker symbol MTGP).
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Rule 5.2-E(j)(3), 
seeks to provide investment results that correspond generally to the 
price and yield performance of a specific foreign or domestic stock 
index, fixed income securities index or combination thereof.
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    The Shares are offered by the Trust, which is registered with the 
Commission as an open-end management investment company consisting of 
multiple investment series.\5\ Each Fund is a series of the Trust. 
WisdomTree Asset Management, Inc. (the ``Adviser'') is the investment 
adviser to the Fund. Voya Investment Management Co., LLC (the 
``Subadviser'') is the subadviser to the Fund. Foreside Fund Services, 
LLC serves as the distributor (``Distributor'') of the Shares for the 
Fund.
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    \5\ The Trust is registered under the 1940 Act. On December 19, 
2019 (effective January 1, 2020), the Trust filed with the 
Securities and Exchange Commission (``SEC'' or Commission'') a 
registration statement update on Form N-1A under the Securities Act 
of 1933 (15 U.S.C. 77a), and under the 1940 Act relating to the Fund 
(File Nos. 333-132380 and 811-21864) (``Registration Statement''). 
The description of the operation of the Trust and of the Fund and 
Shares herein is based, in part, on the Registration Statement. 
There are no permissible holdings for the Fund that are not 
described in this proposal. The Commission has issued an order 
granting certain exemptive relief to the Trust under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act''). See Investment 
Company Act Release No. 28471 (Oct. 27, 2008) (File No. 812-13458).
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    Commentary .06 to Rule 8.600-E provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\6\ In addition,

[[Page 39009]]

Commentary .06 further requires that 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.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and Subadviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    The Adviser is not a registered broker-dealer and is not affiliated 
with a broker-dealer. In addition, Adviser personnel who make decisions 
regarding the Fund's portfolio are subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the Fund's portfolio. The Subadviser is affiliated with 
multiple broker-dealers and has implemented and will maintain a ``fire 
wall'' with respect to such broker-dealers and their personnel 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio. In addition, Subadviser personnel who 
make decisions regarding a Fund's portfolio are subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the Fund's portfolio. In the event that (a) the 
Adviser becomes registered as a broker-dealer or newly affiliated with 
a broker-dealer, or (b) any new adviser or subadviser 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 such broker-dealer affiliate, as applicable, 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.
    As discussed below, the Fund's investments currently comply with 
the generic requirements set forth in Commentary .01 to Rule 8.600-E 
for Managed Fund Shares (``Generic Listing Standards''), except as 
described herein. The Exchange submits this proposal in order to allow 
the Fund to hold fixed income securities in a manner that would not 
satisfy the criteria in Commentary .01(b)(4).\7\ Specifically, the Fund 
seeks to allow up to 20% of the Fund's portfolio to be composed of the 
following securitized credit securities that will not satisfy the 
criteria in Commentary .01(b)(4): Non-agency or privately issued 
residential and commercial mortgage-backed securities (``MBS''), asset-
backed securities (``ABS''), collateralized debt (including loan) 
obligations and credit risk transfer securities (i.e., debt issued by 
government agencies, but which is not backed by the government agencies 
such that credit risk is transferred to the private sector) 
(collectively, ``Private ABS/MBS''). The Exchange notes that this 
proposed rule change is similar to previous rule changes involving 
Managed Fund Shares seeking similar relief.\8\
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    \7\ Commentary .01(b)(4) provides that component securities that 
in the aggregate account for at least 90% of the fixed income weight 
of the portfolio must be either: (a) From issuers that are required 
to file reports pursuant to Sections 13 and 15(d) of the Act; (b) 
from issuers that have a worldwide market value of its outstanding 
common equity held by non-affiliates of $700 million or more; (c) 
from issuers that have outstanding securities that are notes, bonds 
debentures, or evidence of indebtedness having a total remaining 
principal amount of at least $1 billion; (d) exempted securities as 
defined in Section 3(a)(12) of the Act; or (e) from issuers that are 
a government of a foreign country or a political subdivision of a 
foreign country.
    \8\ See Securities Exchange Act Release No. 87963 (January 14, 
2020), 85 FR 3458 (January 21, 2020) (SR-NYSEArca-2019-51) (Notice 
of Filing of Amendment No. 2 and Order Granting Accelerated Approval 
of a Proposed Rule Change, as Modified by Amendment No. 2, Regarding 
Investments of the Janus Henderson Mortgage-Backed Securities ETF) 
(approving expanding permitted investments beyond what is permitted 
under the generic listing requirements, including excluding Private 
ABS/MBS from the 90% calculation in Commentary .01(b)(4)) (``Release 
No. 87963''). See also Securities Exchange Act Release No. 87576 
(November 20, 2019), 84 FR 65206 (November 26, 2019) (SR-NYSEArca-
2019-14) (approving certain changes to the listing rule for shares 
of the PGIM Ultra Short Bond ETF expanding permitted investments 
beyond what is permitted under the generic listing requirements).
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Principal Investments of the Fund
    The investment objective of the Fund seeks to provide income and 
capital appreciation. The Fund seeks to achieve its investment 
objective by investing primarily in a portfolio of mortgage-related 
fixed income securities issued or guaranteed by the U.S. government or 
its agencies or instrumentalities.\9\ Under normal market 
conditions,\10\ the Fund invests at least 80% of its net assets (plus 
any borrowings for investment purposes) in mortgage-related debt and 
other securitized debt. Specifically, the Fund may invest in the 
following mortgage-related fixed income instruments issued or 
guaranteed by the U.S. government or its agencies or instrumentalities 
(``Mortgage-Related Fixed Income Instruments''):
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    \9\ Agency MBS includes residential mortgage-backed securities, 
commercial mortgage-backed securities, and structured products such 
as collateralized mortgage obligations and real estate mortgage 
investment conduits (``REMICs''). For avoidance of doubt, the Fund 
will comply with Commentary.01(b)(5) to NYSE Arca Rule8.600-E, which 
provides that non-agency, non-government-sponsored entity (``GSE'') 
and privately-issued mortgage-related and other asset-backed 
securities components of a portfolio shall not account, in the 
aggregate, for more than 20% of the weight of the portfolio. For 
purposes of this filing, all non-agency, non-GSE and privately-
issued mortgage-related and other asset-backed securities components 
of the Fund's portfolio, including, without limitation, Private ABS/
MBS, shall not account, in the aggregate, for more than 20% of the 
weight of the Fund's portfolio.
    \10\ The term ``normal market conditions'' is defined in NYSE 
Arca Rule 8.600-E(c)(5).
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     Government National Mortgage Association (``GNMA''), the 
Federal National Mortgage Association (``FNMA''), and Federal Home Loan 
Mortgage Corporation (``FHLMC'') mortgage-related fixed income 
securities;
     residential mortgage-backed securities;
     commercial mortgage-backed securities;
     collateralized mortgage obligations;
     real estate mortgage investment conduits (``REMICs''); and
     exchange-traded funds (``ETFs'') \11\ and mutual funds 
that invest primarily in mortgage-backed securities.
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    \11\ For purposes of this filing, ETFs are Investment Company 
Units (as described in NYSE Arca Rule 5.2-E(j)(3)); Exchange-Traded 
Fund Shares (as described in NYSE Arca Rule 5.2-E(j)(8)); Portfolio 
Depositary Receipts (as described in NYSE Arca Rule 8.100-E); and 
Managed Fund Shares (as described in NYSE Arca Rule 8.600-E). All 
ETFs will be listed and traded in the U.S. on a national securities 
exchange.
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    The Fund may purchase mortgage-backed securities through 
standardized contracts for future delivery in which the exact mortgage 
pools to be delivered are not specified until a few days prior to 
settlement, referred to as a ``to-be-announced transaction'' or ``TBA 
Transaction.''
    The Fund's investments in Mortgage-Related Fixed Income Instruments 
and Private ABS/MBS may be represented by futures contracts.

[[Page 39010]]

    The Fund may hold cash and cash equivalents.\12\
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    \12\ The Fund's investments in futures will comply with the 
requirements of Commentary .01(d) to NYSE Arca Rule 8.600-E, and 
cash equivalents will comply with Commentary .01(c) to NYSE Arca 
Rule 8.600-E.
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Application of Generic Listing Requirements
    The Exchange is submitting this proposed rule change because the 
portfolio for the Fund will not meet all of the ``generic'' listing 
requirements of Commentary .01 to NYSE Arca Rule 8.600-E applicable to 
the listing of Managed Fund Shares. The Fund's portfolio would meet all 
such requirements except for those set forth in Commentary .01(b)(4) 
applicable to Private ABS/MBS as defined above.\13\
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    \13\ Because the Fund is not in compliance with Rule 8.600-E, 
Commentary .01(b)(4), the Exchange has commenced delisting 
proceedings pursuant to Rule 5.5-E(m), including issuing a 
deficiency notification, for which the Fund has been granted a cure 
period to come into compliance.
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    The Fund will not comply with the requirements in Commentary 
.01(b)(4) to Rule 8.600-E that component securities that in the 
aggregate account for at least 90% of the fixed income weight of the 
portfolio meet one of the criteria specified in Commentary .01(b)(4), 
because certain Private ABS/MBS by their nature cannot satisfy the 
criteria in Commentary .01(b)(4). Private ABS/MBS are generally issued 
by special purpose vehicles in amounts smaller than the minimum dollar 
threshold set forth in Commentary .01(b)(4), so the criteria in 
Commentary .01(b)(4) to Rule 8.600-E regarding an issuer's market 
capitalization and the remaining principal amount of an issuer's 
securities are typically unavailable with respect to Private ABS/MBS, 
even though such Private ABS/MBS may own significant assets. Instead, 
the Exchange proposes that the Fund's investments in Mortgage-Related 
Fixed Income Instruments other than Private ABS/MBS will be required to 
comply with the requirements of Commentary .01(b)(4).
    The Exchange believes that excluding Private ABS/MBS from the 90% 
calculation in Commentary .01(b)(4) is consistent with the Act because 
the Fund's portfolio will minimize the risk to the overall Fund 
associated with any particular holding of the Fund as a result of the 
diversification provided by the investments and the Adviser's selection 
process, which closely monitors investments to ensure maintenance of 
credit and liquidity standards. Further, the Exchange believes that 
this alternative limitation is appropriate because Commentary .01(b)(4) 
to Rule 8.600-E is not designed for structured finance vehicles such as 
Private ABS/MBS.
    The Exchange notes that the Commission has previously approved the 
listing of Managed Fund Shares with similar investment objectives and 
strategies without imposing requirements that a certain percentage of 
such funds' securities meet one of the criteria set forth in Commentary 
.01(b)(4).\14\
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    \14\ See Release No. 87963, 85 FR at 3458.
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    The proposed exceptions from the requirements of Commentary .01 to 
Rule 8.600-E described above are consistent with the Fund's investment 
objective, and will further assist the Adviser to achieve such 
investment objective. Deviations from the generic requirements are 
necessary for the Fund to achieve its investment objective in a manner 
that is cost-effective and that maximizes investors' returns. Further, 
the proposed alternative requirements are narrowly tailored to allow 
the Fund to achieve its investment objective in manner that is 
consistent with the principles of Section 6(b)(5) of the Act. As a 
result, it is in the public interest to approve the continued listing 
and trading of Shares of the Fund on the Exchange pursuant to the 
requirements set forth herein. In addition, the Fund's investments in 
Private ABS/MBS are subject to the Fund's liquidity risk management 
program as approved by the Fund's board of trustees.\15\ The liquidity 
procedures generally include public disclosure by the Fund of its 
liquidity and redemption practices. The Fund's holdings in Private ABS/
MBS are, and will continue to be, encompassed within the Fund's 
liquidity risk management program. The Exchange notes that all 
Mortgage-Related Fixed Income Instruments other than Private ABS/MBS 
will meet the requirements of Commentary .01(b)(4) to Rule 8.600-E.
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    \15\ Rule 22e-4(b) under the 1940 Act requires, among other 
things, that a fund ``adopt and implement a written liquidity risk 
management program that is reasonably designed to assess and manage 
its liquidity risk.'' The rule is ``designed to promote effective 
liquidity risk management throughout the open-end investment company 
industry, thereby reducing the risk that funds will be unable to 
meet their redemption obligations and mitigating dilution of the 
interests of fund shareholders.'' See Release Nos. 33-10233; IC-
32315; File No. S7-16-15 (October 13, 2016).
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    Except for the change noted above, the Fund will continue to comply 
with all other listing requirements on an initial and continued listing 
basis under Commentary .01 to Rule 8.600-E for Managed Fund Shares.
Availability of Information
    The Fund's website (https://www.WisdomTree.com) will include the 
Fund's prospectus that may be downloaded. The Fund's website will 
include ticker, CUSIP and exchange information, along with additional 
quantitative information updated on a daily basis, including, for the 
Fund: (1) The prior Business Day's net asset value (``NAV'') per share 
and the market closing price or mid-point of the bid/ask spread at the 
time of calculation of such NAV per share (the ``Bid/Ask Price''),\16\ 
and a calculation of the premium or discount of the market closing 
price or Bid/Ask Price against such NAV per share; and (2) a table 
showing the number of days of such premium or discount for the most 
recently completed calendar year, and the most recently completed 
calendar quarters since that year (or the life of Fund, if shorter). On 
each business day, before commencement of trading in Shares in the Core 
Trading Session on the Exchange, the Fund will disclose on its website 
the Disclosed Portfolio as defined in NYSE Arca Rule 8.600-E(c)(2) that 
forms the basis for the Fund's calculation of NAV at the end of the 
business day.
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    \16\ The Bid/Ask Price of the Fund's Shares will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Fund's NAV. The 
records relating to Bid/Ask Prices will be retained by the Fund and 
its service providers.
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    On a daily basis, the Fund will disclose the information required 
under NYSE Arca Rule 8.600-E(c)(2) to the extent applicable. The 
website information will be publicly available at no charge.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Fund's 
Forms N-CSR and Forms N-CEN. The Fund's SAI and Shareholder Reports 
will be available free upon request from the Trust, and those documents 
and the Form N-CSR, Form N-PX, Form N-PORT and Form N-CEN may be viewed 
on-screen or downloaded from the Commission's website at www.sec.gov.
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the Consolidated Tape 
Association (``CTA''). 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

[[Page 39011]]

for the Shares will be published daily in the financial section of 
newspapers.
    Price information regarding Mortgage-Related Fixed Income 
Instruments, Private ABS/MBS, cash equivalents and futures generally 
may be obtained from brokers and dealers who make markets in such 
securities or through nationally recognized pricing services through 
subscription agreements. Price information regarding exchange-traded 
futures is also available from the applicable exchange on which the 
future is listed and traded.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. The Exchange 
represents that trading in the Shares will be subject to the existing 
trading surveillances, administered by Financial Industry Regulatory 
Authority (``FINRA'') on behalf of the Exchange, or by regulatory staff 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws. The Exchange represents 
that these procedures are adequate to properly monitor Exchange trading 
of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and federal securities laws applicable to 
trading on the Exchange.\17\
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    \17\ 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.
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    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 certain 
Mortgage-Related Fixed Income Instruments 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 in such securities and financial 
instruments from such markets and other entities. The Exchange may 
obtain information regarding trading in such securities and financial 
instruments from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement. FINRA, on behalf of the Exchange, is able to access, 
as needed, trade information for certain Mortgage-Related Fixed Income 
Instruments and cash equivalents held by the Fund reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE'').
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio or reference assets, (b) 
limitations on portfolio holdings or reference assets, (c) 
dissemination and availability of reference assets and portfolio 
indicative values, or (d) the applicability of Exchange listing rules 
specified in this rule filing shall constitute continued listing 
requirements for listing the Shares of the Fund on the Exchange.
    The issuer must notify the Exchange of any failure by the Fund to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
monitor for compliance with the continued listing requirements. If the 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \18\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \18\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed noncompliance for Private 
ABS/MBS with the requirements in Commentary .01(b)(4) to Rule 8.600-E 
that component securities that in the aggregate account for at least 
90% of the fixed income weight of the portfolio meet one of the 
criteria specified in Commentary .01(b)(4) is appropriate because 
certain Private ABS/MBS by their nature cannot satisfy the criteria in 
Commentary .01(b)(4). As described above, Private ABS/MBS are generally 
issued by special purpose vehicles in amounts smaller than the minimum 
dollar threshold set forth in Commentary .01(b)(4), so the criteria in 
Commentary .01(b)(4) to Rule 8.600-E regarding an issuer's market 
capitalization and the remaining principal amount of an issuer's 
securities are typically unavailable with respect to Private ABS/MBS, 
even though such Private ABS/MBS may own significant assets. Instead, 
the Exchange proposes that the Fund's investments in Mortgage-Related 
Fixed Income Instruments other than Private ABS/MBS will be required to 
comply with the requirements of Commentary .01(b)(4).
    The Exchange believes that excluding Private ABS/MBS from the 90% 
calculation in Commentary .01(b)(4) is consistent with the Act because 
the Fund's portfolio will minimize the risk to the overall Fund 
associated with any particular holding of the Fund as a result of the 
diversification provided by the investments and the Adviser's selection 
process, which closely monitors investments to ensure maintenance of 
credit and liquidity standards. The proposed exceptions from the 
requirements of Commentary .01 to Rule 8.600-E described above are 
consistent with the Fund's investment objective, and will further 
assist the Adviser to achieve such investment objective. Deviations 
from the generic requirements are necessary for the Fund to achieve its 
investment objective in a manner that is cost-effective and that 
maximizes investors' returns. Further, the proposed alternative 
requirements are narrowly tailored to allow the Fund to achieve its 
investment objective in a manner that is consistent with the principles 
of Section 6(b)(5) of the Act. As a result, it is in the public 
interest to approve the continued listing and trading of Shares of the 
Fund on the Exchange pursuant to the requirements set forth herein. In 
addition, as noted, the Fund's investments in Private ABS/MBS are 
subject to the Fund's liquidity risk management program as approved by 
the Fund's board of trustees.\19\ The liquidity procedures generally 
include public disclosure by the Fund of its liquidity and redemption 
practices. The Fund's holdings in Private ABS/MBS

[[Page 39012]]

are, and will continue to be, encompassed within the Fund's liquidity 
risk management program. The Exchange notes that all Mortgage-Related 
Fixed Income Instruments other than Private ABS/MBS will meet the 
requirements of Commentary .01(b)(4) to Rule 8.600-E.
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    \19\ Rule 22e-4(b) under the 1940 Act requires, among other 
things, that a fund ``adopt and implement a written liquidity risk 
management program that is reasonably designed to assess and manage 
its liquidity risk.'' The rule is ``designed to promote effective 
liquidity risk management throughout the open-end investment company 
industry, thereby reducing the risk that funds will be unable to 
meet their redemption obligations and mitigating dilution of the 
interests of fund shareholders.'' See Release Nos. 33-10233; IC-
32315; File No. S7-16-15 (October 13, 2016).
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    The Exchange notes that the Commission has previously approved the 
listing of Managed Fund Shares with similar investment objectives and 
strategies without imposing requirements that a certain percentage of 
such funds' securities meet one of the criteria set forth in Commentary 
.01(b)(4).\20\
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    \20\ See Release No. 87963, 85 FR at 3458.
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    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Funds on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws.
    Trading of the Funds through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products, including 
Managed Fund Shares. All statements and representations made in this 
filing regarding the description of the portfolio or reference assets, 
limitations on portfolio holdings or reference assets, dissemination 
and availability of reference assets and portfolio indicative values, 
and the applicability of Exchange listing rules specified in this 
filing shall constitute continued listing requirements for the Funds. 
The Trust, on behalf of the Funds, has represented to the Exchange that 
it will advise the Exchange of any failure by a Fund or the Shares to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If a 
Fund or the Shares are not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 5.5-E(m).
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange believes that 
the proposed rule change will facilitate listing and trading of shares 
of another actively managed ETF that principally holds fixed income 
securities, and that will enhance competition among market 
participants, to the benefit of investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \21\ and Rule 19b-
4(f)(6) thereunder.\22\
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    \21\ 15 U.S.C. 78s(b)(3)(A).
    \22\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \23\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \24\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay. The 
Exchange states that waiver of the 30-day operative delay would 
facilitate the Adviser and the Subadviser's ability to continue to 
implement the Fund's investment objective in a manner that is cost-
effective, maximizes investors' returns, and is consistent with the 
principles of Section 6(b)(5) of the Act. According to the Exchange, 
except for the change noted above, the Fund will continue to comply 
with all other listing requirements on an initial and continued listing 
basis under Commentary .01 to Rule 8.600-E for Managed Fund Shares. 
Specifically, the Exchange represents that all Mortgage-Related Fixed 
Income Instruments other than Private ABS/MBS will meet the 
requirements of Commentary .01(b)(4) to Rule 8.600-E. Because the Fund 
is currently not in compliance with Rule 8.600-E, Commentary .01(b)(4), 
the Exchange has commenced delisting proceedings pursuant to Rule 5.5-
E(m), including issuing a deficiency notification, for which the Fund 
has been granted a cure period to come into compliance. The Exchange 
represents that, in connection with this proposed rule change, all 
statements and representations made in this filing regarding the 
description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of reference assets and portfolio indicative values, and the 
applicability of Exchange listing rules specified in this filing shall 
constitute continued listing requirements for the Funds, and that the 
Trust, on behalf of the Funds, has represented to the Exchange that it 
will advise the Exchange of any failure by the Fund or the Shares to 
comply with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If the 
Fund or the Shares are not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 5.5-E(m). For these reasons, the Commission believes that 
waiver of the 30-day operative delay is consistent with the protection 
of investors and the public interest. Therefore, the Commission hereby 
waives the operative delay and designates the proposal as operative 
upon filing.\25\
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    \23\ 17 CFR 240.19b-4(f)(6).
    \24\ 17 CFR 240.19b-4(f)(6)(iii).
    \25\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule

[[Page 39013]]

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-2020-57 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-2020-57. 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-2020-57, and should be 
submitted on or before July 20, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-13873 Filed 6-26-20; 8:45 am]
BILLING CODE 8011-01-P


