Notice2025-10447
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To Adopt a New Rule 5.2-E(j)(9) To Permit the Generic Listing and Trading of Multi-Class Exchange-Traded Fund Shares
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
June 10, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 110 (Tuesday, June 10, 2025)</title>
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[Federal Register Volume 90, Number 110 (Tuesday, June 10, 2025)]
[Notices]
[Pages 24463-24471]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-10447]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103189; File No. SR-NYSEARCA-2025-39]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Adopt a New Rule 5.2-E(j)(9) To Permit the
Generic Listing and Trading of Multi-Class Exchange-Traded Fund Shares
June 4, 2025.
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 May 28, 2025, 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, II,
and III 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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[[Page 24464]]
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to (1) adopt a new Rule 5.2-E(j)(9) to permit
the generic listing and trading of Multi-Class Exchange-Traded Fund
(``ETF'') Shares that comply with the requirements of Rule 6c-11 of the
Investment Company Act of 1940 (the ``1940 Act'') and are eligible to
operate in reliance on exemptive relief from certain requirements of
1940 Act and the rules and regulations thereunder that permit the
entity issuing the Multi-Class ETF Shares to offer an ETF class in
addition to classes of shares that are not exchange-traded; and (2)
make certain conforming changes to the Exchange's rules to accommodate
the proposed listing of Multi-Class ETF 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 (1) adopt a new Rule 5.2-E(j)(9) to permit
the generic listing and trading of Multi-Class ETF Shares that comply
with the requirements of Rule 6c-11 of the 1940 Act and are eligible to
operate in reliance on exemptive relief from certain requirements of
the 1940 Act and the rules and regulations thereunder that permit the
entity issuing the Multi-Class ETF Shares to offer an ETF fund class in
addition to classes of shares that are not exchange-traded; and (2)
make certain conforming changes to the Exchange's rules to accommodate
the proposed listing of Multi-Class ETF Shares.\4\
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\4\ The Exchange notes that Cboe BZX Exchange, Inc. (``BZX'')
and The Nasdaq Stock Market LLC (``Nasdaq'') have filed a
substantially similar rule filings. See Securities Exchange Act
Release No. 102594 (March 11, 2025), 90 FR 12387 (March 17, 2025)
(SR-CboeBZX-2024-112) & Securities Exchange Act Release No. 103072
(May 20, 2025), 90 FR 22373 (May 27, 2025) (SR-NASDAQ-2025-037).
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Consistent with other products (specifically, Investment Company
Units listed pursuant to Rule 5.2-E(j)(3), Managed Fund Shares listed
pursuant to Rule 8.600-E, and ETF Shares listed pursuant to Rule 5.2-
E(j)(8)), Multi-Class ETF Shares, i.e., both a class of mutual fund
shares (each such class, a ``Mutual Fund class'' and such shares
``Mutual Fund Shares'') and ETF Shares, would be permitted to be listed
and traded on the Exchange without prior Commission approval order or
notice of effectiveness pursuant to Section 19(b) of the Act.\5\
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\5\ Rule 19b-4(e)(1) provides that the listing and trading of a
new derivative securities product by a self-regulatory organization
(``SRO'') is not deemed a proposed rule change, pursuant to
paragraph (c)(1) of Rule 19b-4, if the Commission has approved,
pursuant to Section 19(b) of the Act, the SRO's trading rules,
procedures and listing standards for the product class that would
include the new derivative securities product and the SRO has a
surveillance program for the product class. As contemplated by
proposed Rule 5.2-E(j)(9), the Exchange proposes to establish
generic listing standards for Multi-Class ETFs that are permitted to
operate in reliance on exemptive relief to Rule 6c-11 of the 1940
Act that permits the entity issuing the Multi-Class ETF Shares to
offer an exchange-traded fund class in addition to classes of shares
that are not exchange-traded of an open-end fund. A Multi-Class ETF
listed under proposed Rule 5.2-E(j)(9) would therefore not need a
separate proposed rule change pursuant to Rule 19b-4 before it can
be listed and traded on the Exchange.
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Background
There are numerous applications for exemptive relief for Multi-
Class ETF Shares currently before the Commission \6\ requesting
exemptive relief similar to that previously granted to other funds that
are not listed on the Exchange.\7\ The current proposal would provide
for the ``generic'' listing and/or trading of Multi-Class ETF Shares
pursuant to proposed Rule 5.2-E(j)(9) immediately upon the Commission's
applicable order granting exemptive relief to the outstanding
applications. The Exchange submits the instant proposal only to prevent
any unnecessary delay in listing additional Multi-Class ETF Shares
generically under Rule 5.2-E(j)(9) when and if such requests are
granted by the Commission.
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\6\ See Perpetual US Services, LLC (filed February 7, 2023); DFA
Investment Dimensions Group Inc. and Dimensional Investment Group
Inc. (filed July 12, 2023); F/m Investments LLC (August 22, 2023);
Fidelity Hastings Street Trust and Fidelity Management & Research
Company (filed October 24, 2023); Morgan Stanley Institutional Fund
Trust and Morgan Stanley Investment Management Inc. (filed January
29, 2024); First Trust Series Fund and First Trust Variable
Insurance Trust (filed January 24, 2024); Guinness Atkinson Funds
(filed February 27, 2024); and Metropolitan West Funds, TCW ETF
Trust, and TCW Funds, Inc. (filed March 20, 2024).
\7\ See note 7, infra.
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The Commission began granting limited relief for The Vanguard
Group, Inc. (``Vanguard'') in 2000 to offer certain index-based open-
end management investment companies with Multi-Class ETF Shares.\8\
After this relief was granted, there was limited public discourse about
Multi-Class ETF Shares until 2019, when the prospect of providing
blanket exemptive relief to Multi-Class ETF Shares was addressed in the
Commission's adoption of Rule 6c-11 under the 1940 Act (the ``ETF
Rule'').\9\ The ETF Rule permits ETFs that satisfy certain conditions
to operate without the expense or delay of obtaining an exemptive
order. However, the ETF Rule did not provide blanket exemptive relief
to allow for Multi-Class ETF Shares as part of the final rule. Instead,
the Commission concluded that Multi-Class ETF Shares should request
relief through the exemptive application process so that the Commission
may assess all relevant policy considerations in the context of the
facts and circumstances of particular applicants. The Exchange adopted
Rule 5.2-E(j)(8) \10\ shortly after implementation of the ETF Rule and,
because the ETF Rule did not provide blanket relief to the Multi-Class
ETF Shares listed on the Exchange pursuant to previously
[[Page 24465]]
granted exemptive relief and there were no exemptive applications
before the Commission at that time, the Exchange did not propose to
include any language comparable to what is being proposed herein.
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\8\ See Vanguard Index Funds, Investment Company Act Release
Nos. 24680 (Oct. 6, 2000) (notice) and 24789 (Dec. 12, 2000)
(order). The Commission itself, as opposed to the Commission staff
acting under delegated authority, considered the original Vanguard
application and determined that the relief was appropriate in the
public interest and consistent with the protection of investors and
the purposes fairly intended by the policy and provisions of the
Act. In the process of granting the order, the Commission also
considered and denied a hearing request on the original application,
as reflected in the final Commission order. See also the Vanguard
Group, Inc., Investment Company Act Release Nos. 26282 (Dec. 2,
2003) (notice) and 26317 (Dec. 30, 2003) (order); Vanguard
International Equity Index Funds, Investment Company Act Release
Nos. 26246 (Nov. 3, 2003) (notice) and 26281 (Dec. 1, 2003) (order);
Vanguard Bond Index Funds, Investment Company Act Release Nos. 27750
(Mar. 9, 2007) (notice) and 27773 (April 2, 2007) (order)
(collectively referred to as the ``Vanguard Orders'').
\9\ See Securities Exchange Act Release No. 33-10695 (October
24, 2019) 84 FR 57162 (File No. S7-15-18).
\10\ See Securities Exchange Act No. 88625 (April 13, 2020) 85
FR 21479 (April 17, 2020) (SR-NYSEArca-2019-81) (Notice of Filing of
Amendment No. 2 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 2, to Adopt NYSE
Arca Rule 5.2-E(j)(8) Governing the Listing and Trading of ETF
Shares).
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As noted, a number of applications for exemptive relief to permit
the applicable fund to offer Multi-Class ETF Shares (the
``Applications'') have been submitted to the Commission starting in
early 2023. In general, the Applications state that the ability of a
fund to offer Multi-Class ETF Shares, i.e., both a class of mutual fund
shares and ETF Shares, could be beneficial to the fund and to
shareholders of each type of class for various reasons, including more
efficient portfolio management, better secondary market trading
opportunities, and cost efficiencies, among others.\11\
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\11\ Specifically, the Applicants believe that a Mutual Fund
class would benefit ETF class shareholders because investor cash
flows through a Mutual Fund class can be used for efficient
portfolio rebalancing. To the extent that cash flows come into a
fund through a Mutual Fund class, a portfolio manager may be able to
deploy that cash strategically to rebalance the portfolio. Second,
cash flows through a Mutual Fund class may allow for greater
creation basket flexibility for creations and redemptions through
the ETF class, which could promote arbitrage efficiency and smaller
spreads on the trading of ETF Shares in the secondary market. With
respect to existing funds, ETF classes would permit investors that
prefer the ETF structure to gain access to established funds'
investment strategies. Additionally, the establishment of an ETF
class as part of an existing fund could lead to cost efficiencies.
Specifically, in terms of fund expenses, an ETF class could have
initial and ongoing advantages for its shareholders, where
shareholders of an ETF class of a fund that already has substantial
assets could immediately benefit from economies of scale. Finally,
the tax-free conversion of shares from the Mutual Fund class to the
ETF class may accelerate the development of an ETF shareholder base.
Subsequent secondary market transactions by the ETF class
shareholders could generate greater trading volume, resulting in
lower trading spreads and/or premiums or discounts in the market
prices of the ETF Shares to the benefit of ETF shareholders. The
Applicants also believe that an ETF class would benefit Mutual Fund
class shareholders because in-kind transactions through the ETF
class may contribute to lower portfolio transaction costs and
greater tax efficiency. Additionally, the conversion feature could
allow Mutual Fund shareholders to convert Mutual Fund Shares for ETF
Shares without adverse consequences to the Fund by allowing Mutual
Fund shareholders to convert their shares into the ETF class of the
same fund rather than redeeming their Mutual Fund Shares and buying
shares of another ETF. In doing so, the converting shareholder could
save on transaction costs and potential tax consequences that may
otherwise be incurred in redeeming their existing shares and buying
separate ETF Shares. The ETF class would also represent an
additional distribution channel for a fund that could lead to
additional asset grown and economies of scale; greater assets under
management may lead to additional cost efficiencies and an improved
tax profile for the fund may also assist the competitive position of
the Fund for attracting prospective shareholders. Last, the class of
ETF Shares could allow certain investors to engage in more frequent
trading without disrupting the fund's portfolio.
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While Multi-Class ETF Shares could potentially be listed under
existing Rule 5.2-E(j)(3) or Rule 8.600-E, doing so would unnecessarily
re-introduce the burdensome quantitative requirements and ongoing
compliance obligations associated therewith that existed before the
adoption of Rule 6c-11 of the 1940 Act and Rule 5.2-E(j)(8). The
Exchange is not aware of any clear policy rationale as to why those
quantitative requirements should apply to Multi-Class ETF Shares. As
such, listing Multi-Class ETF Shares under these older rules would
place undue burdens on both the Exchange and fund issuers because of
the quantitative requirements that currently do not apply to ETFs
meeting the requirements of Rule 6c-11 of the 1940 Act and Rule 5.2-
E(j)(8). Furthermore, while the Applicants generally seek the same
exemptive relief as granted under those previous orders,\12\ several
Applicants have proposed different conditions to the relief that
reflect the adoption of Rule 6c-11. The Exchange therefore believes
there is a reasonable relationship between the Applications and the
proposed rule change to allow for the Commission's evaluation of
whether the proposed rule change is consistent with the Act. The
Exchange also acknowledges that approval of this proposed rule change
would not necessarily result in the listing and trading of the
additional Multi-Class ETF Shares under the proposed rule until and
unless the necessary relief was granted by the Division of Investment
Management, but approving this proposal would address any potential
concerns the Commission's Division of Trading and Markets might have as
it specifically relates to the listing and trading of Multi-Class ETF
Shares under proposed Rule 5.2-E(j)(9) and would allow for a smooth
launch process if and when such relief is granted.\13\
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\12\ See note 8, supra.
\13\ The Commission has in some instances historically approved
Exchange listing rules even when no products would necessarily be
permitted to list under those rules. Most recently, the Commission
approved Exchange proposals to list and trade shares of ether-based
exchange-traded products (``ETPs'') prior to any such products
having an effective registration statement. As those ether-based
ETPs could not trade on the Exchange without an effective
registration statement, which were separately considered by the
Commission's Division of Corporate Finance, the Exchange could not
list and trade those products even with proper Exchange Rules in
place. The Exchange believes this example illustrates the
reasonability of the Exchange pursuing the adoption of a proposed
Rule that would not immediately result in the listing and trading of
the applicable products thereunder. See Securities Exchange Act No.
100224 (May 23, 2024) 89 FR 46937 (May 30, 2024) (Order Granting
Accelerated Approval of Proposed Rule Changes, as Modified by
Amendments Thereto, To List and Trade Shares of Ether-Based
Exchange-Traded Products).
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Proposed Rule Change
Proposed Rule 5.2-E(j)(9)
Proposed Rule 5.2-E(j)(9) is modeled on current Rule 5.2-E(j)(8).
The presentation of the proposed rule is thus slightly different than
the rule proposed by BZX and Nasdaq but contains all of the same
elements and is otherwise substantially the same as the rule proposed
by those exchanges.
Rule 5.2-E(j)(9)(a) would provide that the Exchange will consider
for trading, whether by listing or pursuant to unlisted trading
privileges, the shares of Multi-Class ETF Shares that meet the criteria
of the proposed rule.\14\
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\14\ To the extent that a series of Multi-Class ETF Shares does
not satisfy one or more of the criteria in proposed Rule 5.2-
E(j)(9), the Exchange may file a separate proposal under Section
19(b) of the Act in order to list such series on the Exchange. Any
of the statements or representations in that proposal regarding the
index composition, the description of the portfolio or reference
assets, limitations on portfolio holdings or reference assets,
dissemination and availability of index, reference asset, and
intraday indicative values (as applicable), or the applicability of
Exchange listing rules specified in any filing to list such series
of Multi-Class ETF Shares shall constitute continued listing
requirements for the series of Multi-Class ETF Shares. Further, in
the event that a series of Multi-Class ETF Shares becomes listed
under proposed Rule 5.2-E(j)(9) and subsequently can no longer rely
on the applicable exemptive relief to Rule 6c-11 of the 1940 Act,
such series of Multi-Class ETF Shares may be listed as a series of
Investment Company Units pursuant to Rule 5.2-E(j)(3) or Managed
Fund Shares under Rule 8.600-E, as applicable, as long as the series
of Multi-Class ETF Shares meets all listing requirements applicable
under the applicable rule.
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Proposed Rule 5.2-E(j)(9)(b) titled ``Applicability'' would provide
that the proposed rule would be applicable only to Multi-Class ETF
Shares. Except to the extent inconsistent with proposed Rule 5.2-
E(j)(9), or unless the context otherwise requires, the rules and
procedures of the Board of Directors shall be applicable to the trading
on the Exchange of such securities. Multi-Class ETF Shares are included
within the definition of ``security'' or ``securities'' as such terms
are used in the Rules of the Exchange.
Proposed Rule 5.2-E(j)(9)(c) titled ``Definitions'' would set forth
the meanings of terms as used in the Rule unless the context otherwise
requires.
Proposed Rule 5.2-E(j)(9)(c)(1) would provide that the term
``Multi-Class ETF Shares'' means shares of stock issued by a Multi-
Class ETF.
Proposed Rule 5.2-E(j)(9)(c)(2) would provide that the term
``Multi-Class ETF'' means a fund that is subject to the same relief and
constraints as ETFs under Rule 6c-11 of the 1940 Act except that the
security is issued by a trust that
[[Page 24466]]
issues Multi-Class ETF Shares in addition to classes of shares of an
open-end fund that are not exchange-traded.
Proposed Rule 5.2-E(j)(9)(c)(3) would provide that the term
``Reporting Authority'' in respect of a particular series of Multi-
Class ETF Shares means the Exchange, an institution, or a reporting
service designated by the Exchange or by the exchange that lists a
particular series of Multi-Class ETF 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, the amount of any dividend
equivalent payment or cash distribution to holders of Multi-Class ETF
Shares, net asset value, index or portfolio value, the current value of
the portfolio of securities required in connection with issuance of
Multi-Class ETF Shares, or other information relating to the issuance,
redemption or trading of Multi-Class ETF Shares. A series of Multi-
Class ETF Shares may have more than one Reporting Authority, each
having different functions.
Proposed Rule 5.2-E(j)(9)(d) titled ``Limitation of Exchange
Liability'' would provide that neither the Exchange, the 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 index or portfolio
value; the current value of the portfolio of securities required to be
deposited in connection with issuance of Multi-Class ETF Shares; the
amount of any dividend equivalent payment or cash distribution to
holders of Multi-Class ETF Shares; net asset value; or other
information relating to the purchase, redemption, or trading of Multi-
Class ETF Shares, resulting from any negligent act or omission by the
Exchange, the Reporting Authority, or any agent of the Exchange, or any
act, condition, or cause beyond the reasonable control of the Exchange,
its agent, or the Reporting Authority, including, but not limited to,
an act of God; fire; flood; extraordinary weather conditions; war;
insurrection; riot; strike; accident; action of government;
communications or power failure; equipment or software malfunction; or
any error, omission, or delay in the reports of transactions in one or
more underlying securities.
Proposed Rule 5.2-E(j)(9)(e) would provide that the Exchange may
approve a series of Multi-Class ETF Shares for listing and/or trading
(including pursuant to unlisted trading privileges) pursuant to Rule
19b-4(e) of the Act. Each listed series of Multi-Class ETF Shares must
satisfy the requirements of Rule 5.2-E(j)(9) upon initial listing and,
except for subparagraph (1)(A) of Rule 5.2-E(j)(9)(e), on a continuing
basis. An issuer of such securities must notify the Exchange of any
failure to comply with such requirements.
Proposed Rule 5.2-E(j)(9)(e)(1) titled ``Initial and Continued
Listing'' would provide that Multi-Class ETF Shares will be listed and
traded on the Exchange subject to the requirement that the investment
company issuing a series of Multi-Class ETF Shares complies with the
requirements of Rule 6c-11(c) of the 1940 Act and is eligible to
operate in reliance on exemptive relief from certain requirements of
the 1940 Act and the rules and regulations thereunder that permit the
fund to offer Multi-Class ETF Shares, on an initial and continued
listing basis. Further, proposed Rule 5.2-E(j)(9)(e)(1)(A) would
provide that for each series, the Exchange will establish a minimum
number of Multi-Class ETF Shares required to be outstanding at the time
of commencement of trading on the Exchange.
Proposed Rule 5.2-E(j)(9)(e)(2) titled ``Suspension of trading or
removal'' would provide that the Exchange will consider the suspension
of trading in, and will commence delisting proceedings under Rule 5.5-
E(m) of, a series of Multi-Class ETF Shares under any of the following
circumstances:
<bullet> if the Exchange becomes aware that the issuer of the
Multi-Class ETF Shares is no longer in compliance with Rule 6c-11 of
the 1940 Act and/or with the exemptive relief applicable to Multi-Class
ETF Shares (proposed Rule 5.2-E(j)(9)(e)(2)(A));
<bullet> if the investment company no longer complies with the
requirements set forth in proposed Rule 5.2-E(j)(9) (proposed Rule 5.2-
E(j)(9)(e)(2)(B));
<bullet> if, following the initial twelve-month period after
commencement of trading on the Exchange of a series of Multi-Class ETF
Shares, there are fewer than 50 beneficial holders of such series of
Multi-Class ETF Shares (proposed Rule 5.2-E(j)(9)(e)(2)(C)); or
<bullet> 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 5.2-E(j)(9)(e)(2)(D)).
Proposed Rule 5.2-E(j)(9)(f) would provide that transactions in
Multi-Class ETF Shares will occur during the trading hours specified in
Rule 7.34-E(a).
Proposed Rule 5.2-E(j)(9)(g) titled ``Surveillance Procedures''
would provide that the Exchange will implement and maintain written
surveillance procedures for Multi-Class ETF Shares.
Proposed Rule 5.2-E(j)(9)(h) titled ``Termination'' would provide
that upon termination of an investment company issuing Multi-Class ETF
Shares, the Exchange would require that Multi-Class ETF Shares issued
in connection with such entity be removed from Exchange listing.
The Exchange proposes to add two Commentaries to proposed Rule 5.2-
E(j)(9), as follows.
First, proposed Commentary .01 to Rule 5.2-E(j)(9) would provide
that a security that has previously been approved for listing on the
Exchange pursuant to the generic listing requirements specified in Rule
5.2-E(j)(3) or Commentary .01 to Rule 8.600-E, or pursuant to a
proposed rule change approved or subject to a notice of effectiveness
by the Commission, may be considered approved for listing solely under
Rule 5.2-E(j)(9) if such security is compliant with Rule 6c-11 of the
1940 Act and the exemptive relief applicable to Multi-Class ETF Shares.
Further, the proposed Commentary would provide that once so approved
for listing, the continued listing requirements applicable to such
previously-listed security would be those specified in paragraph (e) of
proposed Rule 5.2-E(j)(9). Any requirements for listing as specified in
Rule 5.2-E(j)(3) or Commentary .01 to Rule 8.600-E, or an approval
order or notice of effectiveness of a separate proposed rule change
that differ from the requirements of Rule 5.2-E(j)(9) would no longer
be applicable to such security.
Second, proposed Commentary .02 to Rule 5.2-E(j)(9) would provide
that the following requirements shall be met by series of Multi-Class
ETF Shares on an initial and continued listing basis.
Subsection (a)(1) of proposed Commentary .02 would provide that
with respect to series of Multi-Class ETF Shares based on an index, if
the underlying index is maintained by a broker-dealer or fund adviser,
the broker-dealer or fund adviser will erect and maintain a ``fire
wall'' around the personnel who have access to information concerning
changes and adjustments to the index and the index will be calculated
by a third party who is not a broker-dealer or fund adviser.
Subsection (a)(2) of proposed Commentary .02 would provide that any
advisory committee, supervisory board, or similar entity that advises a
Reporting Authority (as defined in the proposed rule) or that makes
decisions on the
[[Page 24467]]
index composition, methodology and related matters, must implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material nonpublic information regarding the
applicable index.
Subsection (b) of proposed Commentary .02 would provide that with
respect to series of Multi-Class ETF Shares that is actively managed,
if the investment adviser to the investment company issuing Multi-Class
ETF Shares is affiliated with a broker-dealer, such investment adviser
will erect and maintain a ``fire wall'' between the investment adviser
and the broker-dealer with respect to access to information concerning
the composition and/or changes to such Fund's portfolio. Further,
personnel who make decisions on the portfolio composition must be
subject to procedures designed to prevent the use and dissemination of
material nonpublic information regarding the applicable portfolio. The
Reporting Authority that provides information relating to the portfolio
of a series of Multi-Class ETF Shares must also implement and maintain,
or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the actual
components of such portfolio.
Proposed Conforming Changes
The Exchange also proposes corresponding amendments to include
Multi-Class ETF Shares in other Exchange rules, which are intended to
align the treatment of the proposed products with how other open-end
management investment company shares (e.g., Investment Company Units,
Managed Fund Shares, and ETF Shares) are treated under the Exchange's
rules.
First, the Exchange proposes to add Multi-Class ETF Shares to the
definition of ``Derivative Securities Product and UTP Derivative
Securities Product'' in Rule 1.1.
Second, the Exchange proposes to amend Rule 5.3-E to exempt Multi-
Class ETF Shares from the requirements of Rule 5.3-E(d)(9) in
connection with the acquisition of the stock or assets of an affiliated
registered investment company in a transaction that complies with Rule
17a-8 under the 1940 Act and does not otherwise require shareholder
approval under the 1940 Act and the rules thereunder or any other
Exchange rule.\15\ In addition, the Exchange proposes to add proposed
Rule 5.2-E(j)(9) to the last paragraph of Rule 5.3-E, which defines
derivative and special purpose securities for purposes of Rule 5.3-E.
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\15\ The Exchange notes that these proposed changes would
subject Multi-Class ETF Shares to the same corporate governance
requirements as other open-end management investment companies
listed on the Exchange.
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Discussion
Proposed Rule 5.2-E(j)(9) is based in large part on Rules 5.2-
E(j)(3), 5.2-E(j)(8) and 8.600-E related to the listing and trading of
Investment Company Units, Managed Fund Shares, and ETF Shares,
respectively, each of which are issued under the 1940 Act and qualify
as ETF Shares under Rule 6c-11 of the 1940 Act. Rules 5.2-E(j)(3) and
8.600-E are very similar, their primary difference being that
Investment Company Units are designed to track an underlying index and
Managed Fund Shares are based on an actively managed portfolio that is
not designed to track an index. ETF Shares are identical to Multi-Class
ETF Shares except that Multi-Class ETF Shares have received exemptive
relief to operate an exchange-traded fund class in addition to classes
of shares that are not exchange-traded. As such, the Exchange believes
that using Rules 5.2-E(j)(3) and 8.600-E (collectively, the ``Current
ETF Standards'') as well as Rule 5.2-E(j)(8) as the basis for proposed
5.2-E(j)(9) is appropriate because they are generally designed to
address the issues associated with Multi-Class ETF Shares. The only
substantial difference between Rule 5.2-E(j)(8) and proposed Rule 5.2-
E(j)(9) from the Current ETF Standards that are not otherwise required
under Rule 6c-11 of the 1940 Act is that proposed Rule 5.2-E(j)(9) and
Rule 5.2-E(j)(8) do not include the quantitative standards applicable
to a fund or an index that are included in the Current ETF Standards.
This difference is discussed below.
The Exchange believes that the proposal is designed to prevent
fraudulent and manipulative acts and practices because the Exchange
will perform ongoing surveillance of Multi-Class ETF Shares listed on
the Exchange in order to ensure compliance with Rule 6c-11, the 1940
Act, and any applicable exemptive relief on an ongoing basis. While
proposed Rule 5.2-E(j)(9) does not include the quantitative
requirements applicable to an ETF or an ETF's holdings or underlying
index that are included in Rules 5.2-E(j)(3) and 8.600-E,\16\ the
Exchange believes that the manipulation concerns that such standards
are intended to address are otherwise mitigated by a combination of the
Exchange's surveillance procedures, the Exchange's ability to halt
trading and to suspend trading and commence delisting proceedings under
proposed Rule 5.2-E(j)(9)(e)(2). The Exchange will also halt trading in
Multi-Class ETF Shares under the conditions specified in Rule 7.12-E,
``Trading Halts Due to Extraordinary Market Volatility.'' The Exchange
also believes that such concerns are further mitigated by enhancements
to the arbitrage mechanism that have come from Rule 6c-11 of the 1940
Act, specifically the additional flexibility provided to issuers of
Multi-Class ETF Shares through the use of custom baskets for creations
and redemptions and the additional information made available to the
public through the additional daily website disclosure obligations
applicable under Rule 6c-11 of the 1940 Act.\17\ The Exchange believes
that the combination of these factors will act to keep Multi-Class ETF
Shares trading near the value of their underlying holdings and further
mitigate concerns around manipulation of Multi-Class ETF Shares on the
Exchange without the inclusion of quantitative standards.\18\
---------------------------------------------------------------------------
\16\ The Exchange notes that Rules 5.2-E(j)(3) and 8.600-E
include certain quantitative standards related to the size, trading
volume, concentration, and diversity of the components of an index
underlying a series of Investment Company Units and the portfolio
holdings of a series of Managed Fund Shares (the ``Holdings
Standards'') as well as related to the minimum number of beneficial
holders of a fund (the ``Distribution Standards''). The Exchange
believes that to the extent that manipulation concerns are mitigated
based on the factors described herein, such concerns are mitigated
both as it relates to the Holdings Standards and the Distribution
Standards.
\17\ The Exchange notes that the Commission came to a similar
conclusion in several places in the Rule 6c-11 Release. See Rule 6c-
11 Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
\18\ The Exchange believes that this applies to all quantitative
standards, whether applicable to the portfolio holdings of a series
of Multi-Class ETF Shares or the distribution of the Multi-Class ETF
Shares.
---------------------------------------------------------------------------
The Exchange will monitor for compliance with Rule 6c-11 of the
1940 Act and any applicable exemptive relief in order to ensure that
the continued listing standards are being met.\19\ Specifically, the
Exchange will review the website of each series of Multi-Class ETF
Shares listed on the Exchange in order to ensure that the requirements
of Rule 6c-11 of the 1940 Act are being met. The Exchange will also
employ numerous intraday alerts that will notify
[[Page 24468]]
Exchange personnel of trading activity throughout the day that is
potentially indicative of certain disclosures not being made accurately
or the presence of other unusual conditions or circumstances that could
be detrimental to the maintenance of a fair and orderly market.
Proposed Rule 5.2-E(j)(9) would require an issuer of Multi-Class ETF
Shares to notify the Exchange of any failure to comply with Rule 6c-11
or the 1940 Act.
---------------------------------------------------------------------------
\19\ As noted throughout, proposed Rule 5.2-E(j)(9), unlike
Rules 5.2-E(j)(3) and 8.600-E, does not include Holdings Standards
and, as such, there will be no quantitative standards applicable by
the Exchange to the underlying index or the portfolio holdings of a
series of Multi-Class ETF Shares on an initial or continued listing
basis. In addition, Rule 5.2-E(j)(9) as proposed does not impose
index dissemination requirements and the Exchange does not plan to
conduct a specific index dissemination surveillance for securities
listed pursuant to such rule.
---------------------------------------------------------------------------
The Exchange may suspend trading in and commence delisting
proceedings for a series of Multi-Class ETF Shares where such series is
not in compliance with the applicable listing standards or where the
Exchange believes that further dealings on the Exchange are
inadvisable.\20\ The Exchange also notes that proposed Rule 5.2-
E(j)(9)(e) requires any issuer to provide the Exchange with prompt
notification after it becomes aware of any non-compliance with the
proposed rule, which would include any failure of the issuer to comply
with Rule 6c-11 of the 1940 Act, the 1940 Act, or any exemptive relief
applicable to Multi-Class ETF Shares.\21\
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\20\ Specifically, proposed Rule 5.2-E(j)(9)(e)(1) provides that
each series of Multi-Class ETF Shares will be listed and traded on
the Exchange subject to application of proposed Rule 5.2-
E(j)(9)(e)(2). Proposed Rule 5.2-E(j)(9)(e)(2) provides that the
Exchange will consider the suspension of trading in, and will
commence delisting proceedings under Rule 5.5(m) for, a series of
Multi-Class ETF Shares under any of the following circumstances: (a)
if the Exchange becomes aware that the issuer of the Multi-Class ETF
Shares is no longer in compliance with Rule 6c-11 of the 1940 Act
and/or with the exemptive relief applicable to Multi-Class ETF
Shares; (b) if the investment company no longer complies with the
requirements set forth in proposed Rule 5.2-E(j)(9); (3) if,
following the initial twelve-month period after commencement of
trading on the Exchange of a series of Multi-Class ETF Shares, there
are fewer than 50 beneficial holders of such series of Multi-Class
ETF Shares; or (4) 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 5.2-E(j)(9)(h) provides
that upon termination of an investment company, the Exchange
requires that Multi-Class ETF Shares issued in connection with such
entity be removed from Exchange listing.
\21\ The Exchange notes that failure by an issuer to notify the
Exchange of non-compliance pursuant to proposed Rule 5.2-E(j)(9)(e)
would itself be considered non-compliance with the requirements of
Rule 5.2-E(j)(9) and would subject the series of Multi-Class ETF
Shares to potential trading halts and the delisting process under
Rule 5.5(m).
---------------------------------------------------------------------------
Further, the Exchange also represents that its surveillance
procedures are adequate to properly monitor the trading of the Multi-
Class ETF Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
Specifically, the Exchange intends to utilize its existing surveillance
procedures applicable to derivative products, which are currently
applicable to Investment Company Units, Managed Fund Shares, and ETF
Shares, among other product types, to monitor trading in Multi-Class
ETF Shares on the Exchange. The Exchange or the Financial Industry
Regulatory Authority, Inc. (``FINRA''), on behalf of the Exchange, will
communicate as needed regarding trading in Multi-Class ETF Shares and
certain of their applicable underlying components with other markets
that are members of the Intermarket Surveillance Group (``ISG'') or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. In addition, the Exchange may obtain information
regarding trading in Multi-Class ETF Shares and certain of their
applicable underlying components from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. Additionally, FINRA, on
behalf of the Exchange, is able to access trade information for certain
fixed income securities that may be held by a series of Multi-Class ETF
Shares reported to FINRA's Trade Reporting and Compliance Engine
(``TRACE''). FINRA also can access data obtained from the Municipal
Securities Rulemaking Board's (``MSRB'') Electronic Municipal Market
Access (``EMMA'') system relating to municipal bond trading activity
for surveillance purposes in connection with trading in a series of
Multi-Class ETF Shares, to the extent that a series of Multi-Class ETF
Shares holds municipal securities. Finally, the issuer of a series of
Multi-Class ETF Shares will be required to comply with Rule 10A-3 under
the Act for the initial and continued listing of Multi-Class ETF
Shares, as provided under Rule 5.3-E.\22\
---------------------------------------------------------------------------
\22\ The Exchange notes that these proposed changes would
subject ETF Shares to the same corporate governance requirements as
other open-end management investment companies listed on the
Exchange.
---------------------------------------------------------------------------
The Exchange notes that it may consider all relevant factors in
exercising its discretion to halt or suspend trading in a series of
Multi-Class ETF Shares. Trading may be halted if the circuit breaker
parameters in Rule 7.12-E have been reached, because of other market
conditions, or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) the extent to
which certain information about the Multi-Class ETF Shares that is
required to be disclosed under Rule 6c-11 of the 1940 Act is not being
made available, including specifically where the Exchange becomes aware
that the net asset value or the daily portfolio disclosure with respect
to a series of Multi-Class ETF Shares is not disseminated to all market
participants at the same time, it will halt trading in such series
until such time as the net asset value or the daily portfolio
disclosure is available to all market participants; \23\ (2) if an
interruption to the dissemination to the value of the index or
reference asset on which a series of Multi-Class ETF Shares is based
persists past the trading day in which it occurred or is no longer
calculated or available; (3) trading in the securities comprising the
underlying index or portfolio has been halted in the primary market(s);
or (4) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present.
---------------------------------------------------------------------------
\23\ The Exchange will obtain a representation from the issuer
of Multi-Class ETF Shares that the net asset value per share will be
calculated daily and the requirements under Rule 6c-11 of the 1940
Act will be satisfied for the series will be calculated daily and
made available to all market participants at the same time.
---------------------------------------------------------------------------
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\24\ in general, and furthers the objectives of Section
6(b)(5),\25\ in that it is designed 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.
---------------------------------------------------------------------------
\24\ 15 U.S.C. 78f(b).
\25\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that proposed Rule 5.2-E(j)(9) is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading Multi-Class ETF Shares
on the Exchange provide specific initial and continued listing criteria
required to be met by such securities. Proposed Rule 5.2-E(j)(9)(e)
sets forth initial and continued listing criteria applicable to Multi-
Class ETF Shares, specifically providing that the Exchange may approve
a series of Multi-Class ETF Shares for listing and/or trading
(including pursuant to unlisted trading privileges) on the Exchange
pursuant to Rule 19b-4(e) under the Act, provided such series of Multi-
Class ETF Shares complies with the requirements of Rule 6c-11 of the
1940 Act, is eligible to operate in reliance on exemptive relief from
certain requirements of the 1940 Act and the rules and regulations
[[Page 24469]]
thereunder that permits the fund to offer Multi-Class ETF Shares, and
satisfies the requirements of the proposed rule on an initial and
continued listing basis.\26\ The Exchange will submit a Form 19b-4(e)
for all series of Multi-Class ETF Shares upon being listed pursuant to
Rule 5.2-E(j)(9), and such Form 19b-4(e) will specifically note that
such series of Multi- Class ETF Shares are being listed on the Exchange
pursuant to Rule 5.2-E(j)(9).
---------------------------------------------------------------------------
\26\ The Exchange notes that eligibility to operate in reliance
on Rule 6c-11 of the 1940 Act or any applicable exemptive relief
thereunder does not necessarily mean that an investment company
would be listed on the Exchange pursuant to proposed Rule 5.2-
E(j)(9). To this point, an investment company that operates in
reliance of exemptive relief providing for Multi-Class ETF Shares
could also be listed as a series of Investment Company Units or
Managed Fund Shares pursuant to Rules 5.2-E(j)(3) and 8.600-E,
respectively, and would be subject to all requirements under each of
those rules. Further to this point, in the event that a series of
Multi-Class ETF Shares listed on the Exchange preferred to be listed
as a series of Investment Company Units or Managed Fund Shares (as
applicable), nothing would preclude such a series from changing to
be listed as a series of Investment Company Units or Managed Fund
Shares (as applicable), as long as the series met each of the
initial and continued listing obligations under the applicable
rules.
---------------------------------------------------------------------------
Proposed Rule 5.2-E(j)(9)(e) provides that each series of Multi-
Class ETF Shares will be listed and traded on the Exchange subject to
application of proposed Rule 5.2-E(j)(9)(e)(2). Proposed Rule 5.2-
E(j)(9)(e)(2) provides that the Exchange will consider the suspension
of trading in, and will commence delisting proceedings under Rule
5.5(m) of a series of Multi-Class ETF Shares under any of the following
circumstances:
<bullet> if the Exchange becomes aware that the issuer of the
Multi-Class ETF Shares is no longer in compliance with Rule 6c-11 and/
or with the exemptive relief applicable to Multi-Class ETF Shares;
<bullet> if the investment company no longer complies with the
requirements set forth in proposed Rule 5.2-E(j)(9);
<bullet> if, following the initial twelve-month period after
commencement of trading on the Exchange of a series of Multi-Class ETF
Shares, there are fewer than 50 beneficial holders of such series of
Multi-Class ETF Shares; or
<bullet> if such other event shall occur or condition exists which,
in the opinion of the Exchange, makes further dealings on the Exchange
inadvisable.
The Exchange notes that issuers are required to notify the Exchange
of any noncompliance with Rule 6c-11 of the 1940 Act or any applicable
exemptive relief thereunder, as described in proposed Rule 5.2-
E(j)(9)(e)(1). Moreover, the Exchange may identify noncompliance
through its own monitoring process.
Proposed Rule 5.2-E(j)(9)(h) provides that upon termination of an
investment company, the Exchange requires that Multi-Class ETF Shares
issued in connection with such entity be removed from Exchange listing.
The Exchange also notes that it will obtain a representation from the
issuer of each series of Multi-Class ETF Shares stating that the
requirements of Rule 6c-11 of the 1940 Act will be continuously
satisfied and that the issuer will notify the Exchange of any failure
to do so.
The Exchange further believes that proposed Rule 5.2-E(j)(9) is
designed to prevent fraudulent and manipulative acts and practices
because of the robust surveillances in place on the Exchange as
required under proposed Rule 5.2-E(j)(9)(g) along with the similarities
of proposed Rule 5.2-E(j)(9) to the rules related to other securities
that are already listed and traded on the Exchange and which would
qualify as Multi-Class ETF Shares. Proposed Rule 5.2-E(j)(9) is based
in large part on Rules 5.2-E(j)(3), 5.2-E(j)(8) and 8.600-E related to
the listing and trading of Investment Company Units, Managed Fund
Shares, and ETF Shares, respectively, each of which are issued under
the 1940 Act and would qualify as Multi-Class ETF Shares. Rules 5.2-
E(j)(3) and 8.600-E are very similar, their primary difference being
that Investment Company Units are designed to track an underlying index
and Managed Fund Shares are based on an actively managed portfolio that
is not designed to track an index. ETF Shares are identical to Multi-
Class ETF Shares except that Multi-Class ETF Shares have received
exemptive relief to operate an exchange-traded fund class in addition
to classes of shares that are not exchange-traded. As such, the
Exchange believes that using the Current ETF Standards as well as Rule
5.2-E(j)(8) as the basis for proposed Rule 5.2-E(j)(9) is appropriate
because they are generally designed to address the issues associated
with Multi-Class ETF Shares. The only substantial difference between
proposed Rule 5.2-E(j)(9) and the Current ETF Standards that are not
otherwise required under Rule 6c-11 of the 1940 Act is that proposed
Rule 5.2-E(j)(9) does not include the quantitative standards applicable
to a fund or an index that are included in the Current ETF Standards.
The Exchange believes that the proposal is consistent with Section
6(b)(1) of the Act \27\ in that, in addition to being designed to
prevent fraudulent and manipulative acts and practices, the Exchange
has the capacity to enforce proposed Rule 5.2-E(j)(9) by performing
ongoing surveillance of Multi-Class ETF Shares listed on the Exchange
in order to ensure compliance with Rule 6c-11 and the 1940 Act on an
ongoing basis. While proposed Rule 5.2-E(j)(9) does not include the
quantitative requirements applicable to a fund and a fund's holdings or
underlying index that are included in Rules 5.2-E(j)(3) and 8.600-
E,\28\ the Exchange believes that the manipulation concerns that such
standards are intended to address are otherwise mitigated by a
combination of the Exchange's surveillance procedures, and the
Exchange's ability to halt trading and to suspend trading and commence
delisting proceedings under proposed Rule 5.2-E(j)(9)(e)(2). The
Exchange also believes that such concerns are further mitigated by
enhancements to the arbitrage mechanism that have come from compliance
with Rule 6c-11 of the 1940 Act, specifically the additional
flexibility provided to issuers of Multi-Class ETF Shares through the
use of custom baskets for creations and redemptions and the additional
information made available to the public through the additional daily
website disclosure obligations applicable under Rule 6c-11 of the 1940
Act.\29\ The Exchange believes that the combination of these factors
will act to keep Multi-Class ETF Shares trading near the value of their
underlying holdings and further mitigate concerns around manipulation
of Multi-Class ETF Shares on the Exchange without the inclusion of
quantitative standards.\30\
---------------------------------------------------------------------------
\27\ 15 U.S.C. 78f(b)(1).
\28\ The Exchange notes that Rules 5.2-E(j)(3) and 8.600-E
include certain Holdings Standards and Distribution Standards. The
Exchange believes that to the extent that manipulation concerns are
mitigated based on the factors described herein, such concerns are
mitigated both as it relates to the Holdings Standards and the
Distribution Standards.
\29\ The Exchange notes that the Commission came to a similar
conclusion in several places in the Rule 6c-11 Release. See Rule 6c-
11 Release at 15-18; 60-61; 69-70; 78-79; 82-84; and 95-96.
\30\ The Exchange believes that this applies to all quantitative
standards, whether applicable to the portfolio holdings of a series
of Multi-Class ETF Shares or the distribution of the Multi-Class ETF
Shares.
---------------------------------------------------------------------------
Rule 5.2-E(j)(9) requires an issuer of Multi-Class ETF Shares to
promptly notify the Exchange of any failure to comply with Rule 6c-11
or the 1940 Act. In addition, the Exchange will monitor for compliance
with Rule 6c-11 of the 1940 Act and any applicable exemptive relief in
order to ensure that the continued listing standards are being met.
Specifically, the Exchange plans to review the website of series of
Multi-Class ETF Shares in order to
[[Page 24470]]
ensure that the requirements of Rule 6c-11 of the 1940 Act are being
met. The Exchange will also employ numerous intraday alerts that will
notify Exchange personnel of trading activity throughout the day that
is potentially indicative of certain disclosures not being made
accurately or the presence of other unusual conditions or circumstances
that could be detrimental to the maintenance of a fair and orderly
market.
To the extent that any of the requirements under Rule 6c-11 or the
1940 Act are not being met, the Exchange may halt trading in a series
of Multi-Class ETF Shares as provided in proposed Rule 5.2-E(j)(9)(e).
Further, the Exchange may also suspend trading in and commence
delisting proceedings for a series of Multi-Class ETF Shares where such
series is not in compliance with the applicable listing standards or
where the Exchange believes that further dealings on the Exchange are
inadvisable.
Further, the Exchange also represents that its surveillance
procedures are adequate to properly monitor the trading of the Multi-
Class ETF Shares in all trading sessions and to deter and detect
violations of Exchange rules. Specifically, the Exchange intends to
utilize its existing surveillance procedures applicable to derivative
products, which are currently applicable to Investment Company Units,
Managed Fund Shares, and ETF Shares, among other product types, to
monitor trading in Multi-Class ETF Shares. The Exchange or FINRA, on
behalf of the Exchange, will communicate as needed regarding trading in
Multi-Class ETF Shares and certain of their applicable underlying
components with other markets that are members of the ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement. In addition, the Exchange may obtain information regarding
trading in Multi-Class ETF Shares and certain of their applicable
underlying components from markets and other entities that are members
of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
Additionally, FINRA, on behalf of the Exchange, is able to access
trade information for certain fixed income securities that may be held
by a series of Multi-Class ETF Shares reported to FINRA's TRACE. FINRA
also can access data obtained from the MSRB's EMMA system relating to
municipal bond trading activity for surveillance purposes in connection
with trading in a series of Multi-Class ETF Shares, to the extent that
a series of Multi-Class ETF Shares holds municipal securities. Finally,
as noted above, the issuer of a series of Multi-Class ETF Shares will
be required to comply with Rule 10A-3 under the Act for the initial and
continued listing of Multi-Class ETF Shares, as provided under Rule
5.3-E.
The Exchange believes that permitting Multi-Class ETF Shares to
list on the Exchange is consistent with the applicable exemptive relief
and will help perfect the mechanism of a free and open market and, in
general, will protect investors and the public interest in that it will
permit the listing and trading of Multi-Class ETF Shares, consistent
with the applicable exemptive relief, and in a manner that will benefit
investors. Specifically, the Exchange believes that the relief proposed
in the Applications and the expected benefits of the Multi-Class ETF
Shares described above would be to the benefit of investors.
Eliminating any unnecessary delay for additional Multi-Class ETF Shares
listing on the Exchange under proposed Rule 5.2-E(j)(9) will help
accrue those benefits to investors more expeditiously. Further, the
Exchange is only proposing to amend its rules to allow such a series of
Multi-Class ETF Shares to list on the Exchange pursuant to Rule 5.2-
E(j)(9), a change to its rules that will only be meaningful if and when
the Commission grants such relief to an Applicant. As noted above, the
Exchange submits this proposal only to prevent any unnecessary delay in
listing additional Multi-Class ETF Shares generically under Rule 5.2-
E(j)(9) when and if such requests are granted by the Commission.
The Exchange also believes that proposed Rule 5.2-E(j)(9)
provisions which explicitly provide the initial and continued listing
standards applicable to Multi-Class ETF Shares, including the
suspension of trading or removal standards, are designed to promote
transparency and clarity in the Exchange's Rules. The Exchange believes
that with these changes, Rule 5.2-E(j)(9) would clearly allow for the
listing and trading of Multi-Class ETF Shares upon the Commission's
order of exemptive relief.
The Exchange also believes that the corresponding changes to add
Multi-Class ETF Shares in the Exchange's corporate governance
requirements under Rule 1.1 and Rule 5.3-E discussed above will add
clarity to the Exchange's rulebook. Investment Company Units, Managed
Fund Shares, and ETF Shares are similarly included in these provisions.
Therefore, the Exchange believes these are non-substantive changes
meant only to subject Multi-Class ETF Shares to the same exemptions and
provisions currently applicable to Investment Company Units, Managed
Fund Shares, and ETF Shares so that the treatment of these open-end
management investment companies is consistent under the Exchange's
rules.
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 purposes of the Act. The Exchange believes the
proposal, by permitting the listing and trading of Multi-Class ETF
Shares under exemptive relief from the 1940 Act and the rules and
regulations thereunder, 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 within such longer period 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="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7200071e175f111d1f1f171c0601320117115c151d04"><span class="__cf_email__" data-cfemail="d6a4a3bab3fbb5b9bbbbb3b8a2a596a5b3b5f8b1b9a0">[email protected]</span></a>. Please include
file number SR-
[[Page 24471]]
NYSEARCA-2025-39 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-2025-39. 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="https://www.sec.gov/rules/sro.shtml">https://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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NYSEARCA-2025-39 and should
be submitted on or before July 1, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------
\31\ 17 CFR 200.30-3(a)(12).
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Stephanie Fouse,
Assistant Secretary.
[FR Doc. 2025-10447 Filed 6-9-25; 8:45 am]
BILLING CODE 8011-01-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.