Notice2021-21209
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of a Proposed Rule Change To Amend Rule 8.601-E (Active Proxy Portfolio Shares) To Provide for the Use of Custom Baskets
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 30, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 187 (Thursday, September 30, 2021)</title>
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[Federal Register Volume 86, Number 187 (Thursday, September 30, 2021)]
[Notices]
[Pages 54257-54259]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-21209]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-93120; File No. SR-NYSEArca-2021-64]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of a Proposed Rule Change To Amend Rule 8.601-E (Active Proxy
Portfolio Shares) To Provide for the Use of Custom Baskets
September 24, 2021.
I. Introduction
On July 28, 2021, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to amend NYSE Arca 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 (``1940
Act'') \3\ applicable to a series of Active Proxy Portfolio Shares. The
proposed rule change was published for comment in the Federal Register
on August 12, 2021.\4\ The Commission has received no comments on the
proposed rule change. The Commission is approving the proposed rule
change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ 15 U.S.C. 80a.
\4\ See Securities Exchange Act Release No. 92595 (August 6,
2021), 86 FR 44449.
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II. Description
The Exchange proposes to amend NYSE Arca Rule 8.601-E, which
permits the listing and trading of series of Active Proxy Portfolio
Shares. NYSE Arca 8.601-E currently requires that Active Proxy
Portfolio Shares be issued and redeemed in a specified minimum number
of shares, or multiples thereof, in return for the Proxy Portfolio \5\
and/or cash.\6\ The Exchange proposes to amend the definition of
``Active Proxy Portfolio Share'' in Rule 8.601-E(c)(1) to permit
creations and redemptions of shares in return for a Custom Basket in
addition to the Proxy Portfolio, to the extent permitted by a fund's
exemptive relief.\7\ Further, the Exchange proposes to define the term
``Custom Basket'' as a portfolio of securities that is different from
the Proxy Portfolio and is otherwise consistent with the exemptive
relief issued pursuant to the 1940 Act applicable to a series of Active
Proxy Portfolio Shares.\8\ The Exchange also proposes to amend the
definition of ``Reporting Authority'' in NYSE Arca Rule 8.601-E(c)(4)
to include Custom Baskets among the types of information for which the
Reporting Authority designated for a particular series of Active Proxy
Portfolio Shares will be the official source for calculating and
reporting such information.\9\
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\5\ The term ``Proxy Portfolio'' means 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 1940 Act applicable to such series. See NYSE
Arca Rule 8.601-E(c)(3). The term ``Actual Portfolio'' means 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 net asset value (``NAV'') at the end of the
business day. See NYSE Arca Rule 8.601-E(c)(2).
\6\ See NYSE Arca Rule 8.601-E(c)(1) (defining the term ``Active
Proxy Portfolio Share'').
\7\ See proposed NYSE Arca Rule 8.601-E(c)(1) (defining ``Active
Proxy Portfolio Share'' as a security that (a) is issued by an
investment company registered under the 1940 Act (``Investment
Company'') organized as an open-end management investment company
that invests in a portfolio of securities selected by the Investment
Company's investment adviser consistent with the Investment
Company's investment objectives and policies; (b) is issued in a
specified minimum number of shares, or multiples thereof, in return
for a deposit by the purchaser of the Proxy Portfolio or Custom
Basket, as applicable, and/or cash with a value equal to the next
determined 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
or Custom Basket, as applicable, 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).
\8\ See proposed NYSE Arca Rule 8.601-E(c)(4). The Exchange
proposes to renumber the remainder of NYSE Arca Rule 8.601-E(c). See
proposed NYSE Arca Rule 8.601-E(c)(5) and (6).
\9\ See proposed NYSE Arca Rule 8.601-E(c)(5) (defining
``Reporting Authority'' in respect of a particular series of Active
Proxy Portfolio Shares as 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, Custom Basket, or other
information relating to the issuance, redemption or trading of
Active Proxy Portfolio Shares).
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The Exchange proposes to amend NYSE Arca Rule 8.601-E(d) to
incorporate specific initial and continued listing criteria relating to
Custom Baskets. Specifically, the Exchange proposes to add a new
initial listing requirement to stipulate that the Exchange shall 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 Exchange Act
[[Page 54258]]
(``Regulation FD''),\10\ including with respect to any Custom
Basket.\11\ The Exchange also proposes to add a new continued listing
requirement 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,\12\ the Investment
Company shall 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.\13\
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\10\ 17 CFR 243.100.
\11\ See proposed NYSE Arca Rule 8.601-E(d)(1)(B)(iii). NYSE
Arca Rule 8.601-E(d)(1)(B) currently 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. The Exchange proposes to renumber the
current requirements as NYSE Arca Rule 8.601-E(d)(1)(B)(i) and (ii).
\12\ The ``Core Trading Session'' begins for each security at
9:30 a.m. Eastern Time and ends at the conclusion of core trading
hours or the core closing auction, whichever comes later. See NYSE
Arca Rule 7.34-E(a)(2).
\13\ See proposed NYSE Arca Rule 8.601-E(d)(2)(B)(ii). The
Exchange also proposes to amend the title of NYSE Arca Rule 8.601-
E(d)(2)(B) to ``Proxy Portfolio and Custom Basket.'' See proposed
NYSE Arca Rule 8.601-E(d)(2)(B).
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Finally, the Exchange proposes to amend Commentaries .04 and .05 of
NYSE Arca Rule 8.601-E, which contain requirements that specified
parties must erect and maintain ``fire walls'' with respect to access
to information concerning the Actual Portfolio and Proxy Portfolio and
enact procedures reasonably designed to prevent the use and
dissemination of material non-public information regarding the Actual
Portfolio and Proxy Portfolio. The Exchange proposes to amend these
rules so that the requirements set forth therein would also cover
information concerning Custom Baskets. As proposed to be amended,
Commentary .04 would require 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, 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. As proposed to be amended, Commentary .05 would require 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, 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 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's Actual Portfolio, Proxy Portfolio, or Custom
Basket, as applicable.
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the Exchange Act and rules and regulations
thereunder applicable to a national securities exchange.\14\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Exchange Act,\15\ which
requires, among other things, that the Exchange's rules 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.
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\14\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\15\ 15 U.S.C. 78f(b)(5).
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The Commission previously approved NYSE Arca Rule 8.601-E to permit
the listing and trading of Active Proxy Portfolio Shares.\16\ As
discussed above, under the current rule, a series of Active Proxy
Portfolio Shares must create or redeem shares in return for the Proxy
Portfolio and/or cash. The Exchange is now proposing to amend NYSE Arca
Rule 8.601-E to allow a series of Active Proxy Portfolio Shares to
create or redeem shares in return for a Custom Basket, which is a
portfolio of securities that is different from the Proxy Portfolio, to
the extent consistent with an issuer's exemptive relief under the 1940
Act.\17\ For the reasons discussed below, the Commission finds that the
proposed amendments to NYSE Arca Rule 8.601-E to provide for the use of
Custom Baskets for Active Proxy Portfolio Shares, to the extent
permitted by an issuer's exemptive relief under the 1940 Act, are
consistent with Section 6(b)(5) of the Exchange Act.
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\16\ See Securities Exchange Act Release No. 89185 (June 29,
2020), 85 FR 40328 (July 6, 2020) (SR-NYSEArca-2019-95) (approving
proposal to adopt Rule 8.601-E to permit the listing and trading of
Active Proxy Portfolio Shares and to list and trade shares of the
Natixis U.S. Equities Opportunities ETF) (``2020 Order''). The
Exchange must file a separate proposed rule change pursuant to
Section 19(b) of the Exchange Act for each series of Active Proxy
Portfolio Shares. See NYSE Arca Rule 8.601-E, Commentary .01.
\17\ The Commission has granted exemptive relief under the 1940
Act to certain series of Active Proxy Portfolio Shares to permit the
creation or redemption of shares using a Custom Basket that includes
instruments that are not included, or included with different
weightings, in the fund's Proxy Portfolio. See, e.g., Natixis
Advisors, L.P., et al., Investment Company Act Release No. 34192
(February 9, 2021).
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The Commission believes that the proposed changes to NYSE Arca Rule
8.601-E, Commentaries .04 and .05, are consistent with the Exchange Act
and are reasonably designed to help prevent fraudulent and manipulative
acts and practices. The Commission notes that, because Active Proxy
Portfolio Shares do not publicly disclose on a daily basis information
about the holdings of the Actual Portfolio, it is vital that key
information relating to Active Proxy Portfolio Shares, including
information relating to Custom Baskets, be kept confidential prior to
its public disclosure and not be subject to misuse.\18\ Accordingly,
the Commission believes that the Exchange's proposal to amend NYSE Arca
Rule 8.601-E, Commentaries .04 and .05,\19\ to apply the current ``fire
wall'' and other requirements contained therein to those that have
access to information concerning, or make decisions pertaining to, the
composition of and/or changes to the Custom Baskets, in
[[Page 54259]]
addition to the existing requirements relating to the Actual Portfolio
and the Proxy Portfolio, is designed to prevent fraud and manipulation
with respect to Active Proxy Portfolio Shares.
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\18\ See 2020 Order, supra note 16, 85 FR at 40339.
\19\ See supra Section II, describing proposed NYSE Arca Rule
8.601, Commentaries .04 and .05.
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The Commission also believes that the proposed amendments to the
initial and continued listing requirements for Active Proxy Portfolio
Shares are adequate to ensure transparency of information relating to
Custom Baskets utilized by a fund and to ensure that such information
is available to the rest of the market participants at the same time.
Specifically, prior to the opening of trading on each business day, the
Investment Company will 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.\20\ In addition, prior to the
initial listing of the Active Proxy Portfolio Shares, the Exchange will
be required to 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 FD, including with respect to any Custom Basket.\21\
These measures help to mitigate concerns that certain information
regarding the funds will be available only to select market
participants and thereby helps to prevent fraud and manipulation.
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\20\ See proposed NYSE Arca Rule 8.601-E(d)(2)(B)(ii).
\21\ See proposed NYSE Arca Rule 8.601-E(d)(1)(B)(iii). The
Commission notes that a fund's use of, or conversations with
authorized participants about, Creation Baskets that would result in
selective disclosure of non-public information would effectively be
limited by the funds' obligation to comply with Regulation Fair
Disclosure. See, e.g., Natixis ETF Trust II, et al., Investment
Company Act Release No. 34171 (January 12, 2021).
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The Commission notes that, as set forth in the definition of
``Custom Basket,'' a series of Active Proxy Portfolio Shares may only
utilize Custom Baskets to the extent consistent with the exemptive
relief issued pursuant to the 1940 Act applicable to such series.\22\
The Commission further notes that all series of Active Proxy Portfolio
Shares will continue to be subject to the existing rules and procedures
that govern the listing and trading of Active Proxy Portfolio Shares
and the trading of equity securities on the Exchange.
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\22\ See proposed NYSE Arca Rule 8.601-E(c)(4).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Exchange Act \23\ that the proposed rule change (SR-NYSEArca-2021-64),
be, and it hereby is, approved.
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\23\ 15 U.S.C. 78s(b)(2).
\24\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-21209 Filed 9-29-21; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on September 30, 2021.
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