Notice2021-17173
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Amend Rule 8.601-E (Active Proxy Portfolio Shares) To Provide for the Use of Custom Baskets
Primary source
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Published
August 12, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 153 (Thursday, August 12, 2021)</title>
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[Federal Register Volume 86, Number 153 (Thursday, August 12, 2021)]
[Notices]
[Pages 44449-44451]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17173]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92595; File No. SR-NYSEArca-2021-64)]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Amend Rule 8.601-E (Active Proxy Portfolio
Shares) To Provide for the Use of Custom Baskets
August 6, 2021.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that on July 28, 2021, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Rule 8.601-E (Active Proxy Portfolio
Shares) to provide for the use of ``Custom Baskets'' consistent with
the exemptive relief issued pursuant to the Investment Company Act of
1940 applicable to a series of Active Proxy Portfolio Shares. The
proposed rule change is available on the Exchange's website at
<a href="http://www.nyse.com">www.nyse.com</a>, at the principal office of the Exchange, and at the
Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Rule 8.601-E (Active Proxy Portfolio
Shares) \4\ to provide for the use of ``Custom Baskets'' consistent
with the exemptive relief issued pursuant to the Investment Company Act
of 1940 \5\ applicable to a series of Active Proxy Portfolio Shares.
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\4\ NYSE Arca Rule 8.601-E(c)(1) defines the term ``Active Proxy
Portfolio Share'' as a security that (a) is issued by an
``Investment Company'' registered under the Investment Company Act
of 1940 (``1940 Act'') (15 U.S.C. 80a) organized as an open-end
management investment company that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies; (b) is issued in a specified minimum number of shares, 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 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.
\5\ 15 U.S.C. 80a et seq.
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To effectuate this change, the Exchange proposes the following
amendments to Rule 8.601-E.
First, a new section 4 would be added to Rule 8.601-E(c)
(Definitions) defining ``Custom Basket'' to mean a portfolio of
securities that is different from the Proxy Portfolio (as defined in
Rule 8.601-E(c)(3)) and is otherwise consistent with the exemptive
relief issued pursuant to the Investment Company Act of 1940 applicable
to a series of Active Proxy Portfolio Shares. Current sections (4) and
(5) of Rule 8.601-E(c) would be renumbered (5) and (6), respectively.
The definition of ``Active Proxy Portfolio Share'' in NYSE Arca Rule
8.601-E(c)(1) would be amended to provide for creations of shares in
return for a deposit by the purchaser of, and redemptions of shares at
a holder's request in return for, a Custom Basket rather than a Proxy
Portfolio to the extent permitted by a fund's exemptive relief. In
addition, the definition of ``Reporting Authority'' in respect of a
particular series of Active Proxy Portfolio Shares in current section 4
(proposed section 5) of Rule 8.601E(c) would be amended to provide for
Custom Baskets to the extent permitted by a fund's exemptive relief.
Currently, ``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 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. The rule further provides that a series of Active
Proxy Portfolio Shares may have more than one Reporting Authority, each
having different functions. The Exchange would add ``Custom Basket'' to
the non-exclusive list of information relating to Active Proxy
Portfolio Shares that a Reporting Authority calculates and reports,
i.e., including, but not limited to, NAV, the Actual Portfolio, Proxy
Portfolio, Custom Basket, or other information relating to the
issuance, redemption or trading of Active Proxy Portfolio Shares.
Second, Rule 8.601-E(d) (Initial and Continued Listing), which
currently provides criteria that Active Proxy Portfolio Shares must
satisfy for initial and continued listing on the Exchange, would be
amended to incorporate specific initial and continued listing criteria
for Custom Baskets. Specifically, current Rule 8.601-E(d)(1)(B)
provides that 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. These
requirements would become proposed Rule 8.601-E(d)(1)(B)(i) & (ii). The
Exchange proposes a third romanette providing that the Exchange shall
also obtain a representation from the issuer of each series of Active
Proxy Portfolio Shares that the issuer and any person acting on behalf
of the series of Active Proxy Portfolio Shares will comply with
Regulation Fair Disclosure under the Securities Exchange Act of 1934,
including with respect to any Custom Basket.
Third, a new section (d)(2)(B)(ii) would be added to Rule 8.601-E
providing that, with respect to each Custom Basket utilized by a series
of Active Proxy Portfolio Shares, each business day, before the opening
of trading in the Core Trading Session (as defined in Rule 7.34-E(a)),
the investment company shall make publicly available on its website the
composition of any Custom Basket
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transacted on the previous business day, except a Custom Basket that
differs from the applicable Proxy Portfolio only with respect to cash.
Rule 8.601-E(d)(2)(B), which is currently titled ``Proxy Portfolio,''
would be amended to read ``Proxy Portfolio and Custom Basket.''
Finally, the Exchange would make conforming amendments to
Commentary .04 and Commentary .05 of Rule 8.601-E, as follows.
First, Commentary .04 to NYSE Arca Rule 8.601-E 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.
Commentary .04 further provides that any person related to the
investment adviser or Investment Company who makes decisions pertaining
to the Investment Company's Actual Portfolio and/or Proxy Portfolio, or
has access to non-public information regarding the Investment Company's
Actual Portfolio and/or the Proxy Portfolio, or changes thereto must be
subject to procedures reasonably designed to prevent the use and
dissemination of material non-public information regarding the Actual
Portfolio and/or the Proxy Portfolio, or changes thereto.
Commentary .04 would be amended to provide for Custom Baskets to
the extent permitted by a fund's exemptive relief. As proposed,
Commentary .04 would provide 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, Proxy Portfolio, and/or Custom Basket, as applicable.
In addition, Commentary .04 would provide that any person related to
the investment adviser or Investment Company who makes decisions
pertaining to the Investment Company's Actual Portfolio, Proxy
Portfolio, and/or Custom Basket, as applicable, or has access to non-
public information regarding the Investment Company's Actual Portfolio,
the Proxy Portfolio, and/or the Custom Basket, as applicable, or
changes thereto must be subject to procedures reasonably designed to
prevent the use and dissemination of material non-public information
regarding the Actual Portfolio, the Proxy Portfolio, and/or the Custom
Basket, as applicable, or changes thereto.
Second, Commentary .05 to Rule 8.601-E provides that any person or
entity, including a custodian, Reporting Authority, distributor, or
administrator, who has access to nonpublic information regarding the
Investment Company's Actual Portfolio or the Proxy Portfolio or changes
thereto, must be subject to procedures reasonably designed to prevent
the use and dissemination of material non-public information regarding
the applicable Investment Company Actual Portfolio or the Proxy
Portfolio or changes thereto. Moreover, if any such person or entity is
registered as a broker-dealer or affiliated with a broker-dealer, such
person or entity will erect and maintain a ``fire wall'' between the
person or entity and the broker-dealer with respect to access to
information concerning the composition and/or changes to such
Investment Company Actual Portfolio or Proxy Portfolio.
Commentary .05 would similarly be amended to provide for Custom
Baskets to the extent permitted by a fund's exemptive relief. As
proposed, Commentary .05 would be amended to provide that any person or
entity, including a custodian, Reporting Authority, distributor, or
administrator, who has access to non-public information regarding the
Investment Company's Actual Portfolio, or the Proxy Portfolio, or the
Custom Basket, as applicable, or changes thereto, must be subject to
procedures reasonably designed to prevent the use and dissemination of
material non-public information regarding the applicable Investment
Company Actual Portfolio, the Proxy Portfolio, or the Custom Basket, as
applicable, or changes thereto. Moreover, if any such person or entity
is registered as a broker-dealer or affiliated with a broker-dealer,
such person or entity will erect and maintain a ``fire wall'' between
the person or entity and the broker-dealer with respect to access to
information concerning the composition and/or changes to such
Investment Company Actual Portfolio, Proxy Portfolio, or Custom Basket,
as applicable.
2. Statutory Basis
The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\6\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\7\ 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.
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\6\ 15 U.S.C. 78f(b).
\7\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that amending Rule 8.601-E to incorporate
specific initial and continued listing criteria required to be met by
Active Proxy Portfolio Shares that utilize Custom Baskets is designed
to prevent fraudulent and manipulative acts and practices. The Exchange
believes that the daily dissemination of the composition of any Custom
Basket transacted on the previous day, except a Custom Basket that
differs from the applicable Proxy Portfolio only with respect to cash,
together with the right of Authorized Participants to create and redeem
each day at the NAV, will enable 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. Further, including Custom Baskets in the requirements
of Commentaries .04 and .05 would act as a safeguard against any misuse
and improper dissemination of nonpublic information related to a fund's
Custom Basket or changes thereto. The requirement that any person or
entity implement procedures reasonably designed to prevent the use and
dissemination of material non-public information regarding a Custom
Basket will act to prevent any individual or entity from sharing such
information externally and the internal ``fire wall'' requirements
applicable where an entity is a registered broker-dealer or affiliated
with a broker-dealer will act to make sure that no entity will be able
to misuse the data for their own purposes.
As such, the Exchange believes that the proposed amendment of Rule
8.601-E is designed to prevent fraudulent and manipulative acts and
practices.
The proposed rule change is also 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 permit use of Custom Baskets consistent
with an issuer's exemptive relief in a manner that will benefit
investors by increasing efficiencies in the creation/redemption
process. The Exchange believes this will
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enhance competition among market participants, to the benefit of
investors and the marketplace. Similarly, the Exchange believes that
the proposed initial and continued listing standards are designed to
promote disclosure and transparency with respect to the use of Custom
Baskets consistent with an issuer's exemptive relief. Specifically, the
Exchange believes that requiring as an initial listing condition that
an issuer and any person acting on behalf of the series of Active Proxy
Portfolio Shares comply with Regulation Fair Disclosure under the
Securities Exchange Act of 1934, including with respect to any Custom
Basket, would further the full and fair disclosure objectives of
Regulation Fair Disclosure to the benefit of the investing public and
all market participants. Further, the Exchange believes that requiring
as a continued listing condition that, with respect to each Custom
Basket utilized by a series of Active Proxy Portfolio Shares, each
business day, before the opening of trading in the Core Trading Session
(as defined in Rule 7.34-E(a)), an investment company make publicly
available on its website the composition of any Custom Basket
transacted on the previous business day, except a Custom Basket that
differs from the applicable Proxy Portfolio only with respect to cash,
also furthers the goals of transparency and full and fair disclosure,
to the benefit of investors and the public interest.
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, by permitting use of Custom Baskets consistent
with an issuer's exemptive relief, 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.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#dcaea9b0b9f1bfb3b1b1b9b2a8af9cafb9bff2bbb3aa"><span class="__cf_email__" data-cfemail="cab8bfa6afe7a9a5a7a7afa4beb98ab9afa9e4ada5bc">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2021-64 on the subject line.
Paper Comments
<bullet> 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-2021-64. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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 such 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-2021-64, and should be
submitted on or before September 2, 2021.
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\8\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17173 Filed 8-11-21; 8:45 am]
BILLING CODE 8011-01-P
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