[Federal Register Volume 83, Number 18 (Friday, January 26, 2018)]
[Notices]
[Pages 3846-3859]
[FR Doc No: 2018-01364]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82549; File No. SR-NYSEArca-2018-04]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Adopt a New NYSE Arca Rule 8.900-E and To
List and Trade Shares of the Royce Pennsylvania ETF; Royce Premier ETF;
and Royce Total Return ETF Under Proposed NYSE Arca Equities Rule
8.900-E

January 19, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 8, 2018, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') 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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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to adopt a new NYSE Arca Rule 8.900-E to
permit it to list and trade Managed Portfolio Shares, which are shares
of actively managed exchange-traded funds (``ETFs'') for which the
portfolio is disclosed in accordance with standard mutual fund
disclosure rules. In addition, the Exchange proposes to list and trade
shares of the following under proposed NYSE Arca Rule 8.900-E: Royce
Pennsylvania ETF; Royce Premier ETF; and Royce Total Return ETF. The
proposed change is available on the Exchange's website at www.nyse.com,
at the principal office of the Exchange, and at the Commission's Public
Reference Room.

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 add new NYSE Arca Rule 8.900-E for the
purpose of permitting the listing and trading, or trading pursuant to
unlisted trading privileges (``UTP''), of Managed Portfolio Shares,
which are securities issued by an actively managed open-end investment
management company.\4\
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    \4\ A Managed Portfolio Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment management company or similar entity that
invests in a portfolio of securities selected by its investment
adviser consistent with its investment objectives and policies.
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    In addition to the above-mentioned proposed rule changes, the
Exchange proposes to list and trade shares (``Shares'') of the
following under proposed NYSE Arca Rule 8.900-E: Royce Pennsylvania
ETF; Royce Premier ETF; and Royce Total Return ETF (each, a ``Fund''
and, collectively, the ``Funds'').
Proposed Listing Rules
    Proposed Rule 8.900-E (a) provides that the Exchange will consider
for trading, whether by listing or pursuant to UTP, Managed Portfolio
Shares that meet the criteria of Rule 8.900-E.
    Proposed Rule 8.900-E (b) provides that Rule 8.900-E is applicable
only to Managed Portfolio Shares and that, except to the extent
inconsistent with Rule 8.900-E, or unless the context otherwise
requires, the rules and procedures of the Exchange's Board of Directors
shall be applicable to the trading on the Exchange of such securities.
Proposed Rule 8.900-E (b) provides further that Managed Portfolio
Shares are included within the definition of ``security'' or
``securities'' as such terms are used in the Rules of the Exchange.
Proposed Definitions
    Proposed Rule 8.900-E(c)(1) defines the term ``Managed Portfolio
Share'' as a security that (a) represents an interest in a registered
investment company (``Investment Company'') organized as an open-end
management investment company or similar entity, 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 aggregate minimum number of
shares equal to a Creation Unit, or multiples thereof, in return for a
designated portfolio of securities (and/or an amount of cash) with a
value equal to the next determined net asset value; and (c) when
aggregated in the same specified aggregate number of shares equal to a
Redemption Unit, or multiples thereof, may be redeemed at the request
of an Authorized Participant (as defined in the Investment Company's
Form N-1A filed with the Commission), which AP Participant will be paid
through a confidential account established for its benefit a portfolio
of securities and/or cash with a value equal to the next determined net
asset value (``NAV'').
    Proposed Rule 8.900-E(c)(2) defines the term ``Verified Intraday
Indicative Value'' (``VIIV'') as the estimated indicative value of a
Managed Portfolio Share based on all of the holdings of a series of
Managed Portfolio Shares as of the close of business on the prior
business day and, for corporate actions, based on the applicable
holdings as of the opening of business on the current business day,
priced and disseminated in one second intervals during the Core Trading
Session. The VIIV is monitored by an Investment Company's pricing
verification agent responsible for processing Consolidated Tape best
bid and offer quotation information into more than one ``Calculation
Engines,'' each of which then calculates a separate intraday indicative
value for comparison by the pricing verification agent based on the
mid-point of the highest bid and lowest offer for the portfolio
constituents of a series of Managed Portfolio Shares. A single VIIV
will be disseminated publicly during the Core Trading Session for each
series of Managed Portfolio Shares; and the pricing verification agent
will continuously compare the publicly-disseminated VIIV against one or
more non-public alternative intra-day indicative values to which the
pricing verification agent has access.\5\
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    \5\ Each Calculation Engine is a computer that receives a file
from a real-time quote feed, calculates a price for the securities
in the portfolio, and aggregates the weights of the securities in
the portfolio to produce an intra-day indicative value.
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    Proposed Rule 8.900-E(c)(3) defines the term ``Creation Unit'' as a
specified minimum number of Managed Portfolio Shares issued by an
Investment Company at the request of an Authorized Participant in
return for a designated portfolio of securities (and/or an amount of
cash) specified each day consistent with the Investment

Company's investment objectives and policies.
    Proposed Rule 8.900-E(c)(4) defines the term ``Redemption Unit'' as
a specified minimum number of Managed Portfolio Shares that may be
redeemed to an Investment Company at the request of an Authorized
Participant in return for a portfolio of securities and/or cash.
    Proposed Rule 8.900-E(c)(5) defines the term ``Reporting
Authority'' in respect of a particular series of Managed Portfolio
Shares as the Exchange, the exchange that lists a particular series of
Managed Portfolio Shares (if the Exchange is trading such series
pursuant to unlisted trading privileges), an institution, or a
reporting service designated by the issuer of a series of Managed
Portfolio Shares as the official source for calculating and reporting
information relating to such series, including, the net asset value, or
other information (with the exception of the VIIV) relating to the
issuance, redemption or trading of Managed Portfolio Shares. A series
of Managed Portfolio Shares may have more than one Reporting Authority,
each having different functions.
    Proposed Rule 8.900-E(c)(6) defines the term ``normal market
conditions'' as including, but not limited to, the absence of trading
halts in the applicable financial markets generally; operational issues
(e.g., systems failure) causing dissemination of inaccurate market
information; or force majeure type events such as natural or manmade
disaster, act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
    Proposed Rule 8.900-E (d) sets forth initial and continued listing
criteria applicable to Managed Portfolio Shares. Proposed Rule 8.900-
E(d)(1)(A) provides that, for each series of Managed Portfolio Shares,
the Exchange will establish a minimum number of Managed Portfolio
Shares required to be outstanding at the time of commencement of
trading on the Exchange. In addition, proposed Rule 8.900-E(d)(1)(B)
provides that the Exchange will obtain a representation from the issuer
of each series of Managed Portfolio Shares that the NAV per share for
the series will be calculated daily and that the NAV will be made
available to all market participants at the same time.\6\ Proposed Rule
8.900-E(d)(1)(C) provides that all Managed Portfolio Shares shall have
a stated investment objective, which shall be adhered to under normal
market conditions.
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    \6\ NYSE Arca Rule 7.18-E(d)(2) (``Halts of Derivative
Securities Products Listed on the NYSE Arca Marketplace'') provides
that, with respect to Derivative Securities Products listed on the
NYSE Arca Marketplace for which a net asset value is disseminated,
if the Exchange becomes aware that the net asset value is not being
disseminated to all market participants at the same time, it will
halt trading in the affected Derivative Securities Product on the
NYSE Arca Marketplace until such time as the net asset value is
available to all market participants.
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    Proposed Rule 8.900-E(d)(2) provides that each series of Managed
Portfolio Shares will be listed and traded subject to application of
the following continued listing criteria:
     Proposed Rule 8.900-E(d)(2)(A) provides that the VIIV for
Managed Portfolio Shares will be widely disseminated by the Reporting
Authority and/or by one or more major market data vendors every second
during the Exchange's Core Trading Session (as defined in NYSE Arca
Rule 7.34-E) and will be disseminated to all market participants at the
same time.
     Proposed Rule 8.900-E(d)(2)(B) provides that the
Corporation will maintain surveillance procedures for securities listed
under this rule and will consider the suspension of trading in, and
will commence delisting proceedings under Rule 5.5-E(m) of, a series of
Managed Portfolio Shares under any of the following circumstances:
    (i) If, following the initial twelve-month period after
commencement of trading on the Exchange of a series of Managed
Portfolio Shares, there are fewer than 50 beneficial holders of the
series of Managed Portfolio Shares;
    (ii) if the value of the Verified Intraday Indicative Value is no
longer calculated or available to all market participants at the same
time;
    (iii) if the Investment Company issuing the Managed Portfolio
Shares has failed to file any filings required by the Securities and
Exchange Commission or if the Exchange is aware that the Investment
Company is not in compliance with the conditions of any exemptive order
or no-action relief granted by the Securities and Exchange Commission
to the Investment Company with respect to the series of Managed
Portfolio Shares;
    (iv) if any of the continued listing requirements set forth in Rule
8.900-E are not continuously maintained;
    (v) if the Exchange submits a rule filing pursuant to Section 19(b)
of the Securities Exchange Act of 1934 to permit the listing and
trading of a series of Managed Portfolio Shares and any of the
statements or representations regarding (a) the description of the
portfolio, (b) limitations on portfolio holdings, or (c) the
applicability of Exchange listing rules specified in such rule filing
are not continuously maintained; or
    (vi) if such other event shall occur or condition exists which, in
the opinion of the Exchange, makes further dealings on the Exchange
inadvisable.
    Proposed Rule 8.900-E(d)(2)(C) provides that, upon notification to
the Exchange by the Investment Company or its agent that (i) the
intraday indicative values calculated by more than one Calculation
Engines to be compared by the Investment Company's pricing verification
agent differ by more than 25 basis points for 60 seconds in connection
with pricing of the Verified Intraday Indicative Value, or (ii) that
the Verified Intraday Indicative Value of a series of Managed Portfolio
Shares is not being calculated or disseminated in one-second intervals,
as required, the Exchange shall halt trading in the Managed Portfolio
Shares as soon as practicable. Such halt in trading shall continue
until the Investment Company or its agent notifies the Exchange that
the intraday indicative values calculated by the Calculation Engines no
longer differ by more than 25 basis points for 60 seconds or that the
Verified Intraday Indicative Value is being calculated and disseminated
as required. The Investment Company or its agent shall be responsible
for monitoring that the Verified Intraday Indicative Value is being
priced and disseminated as required and whether the intraday indicative
values to be calculated by more than one Calculation Engines differ by
more than 25 basis points for 60 seconds. In addition, if the Exchange
becomes aware that the net asset value with respect to a series of
Managed Portfolio 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 is available to all market participants.
    Proposed Rule 8.900-E(d)(2)(D) provides that, upon termination of
an Investment Company, the Exchange requires that Managed Portfolio
Shares issued in connection with such entity be removed from Exchange
listing.
    Proposed Rule 8.900-E(d)(2)(E) provides that voting rights shall be
as set forth in the applicable Investment Company prospectus.
    Proposed Rule 8.900-E(e), which relates to limitation of Exchange
liability, provides that Neither [sic] 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 portfolio value; the
current value of the portfolio

of securities required to be deposited to the open-end management
investment company in connection with issuance of Managed Portfolio
Shares; the Verified Intraday Indicative Value; the amount of any
dividend equivalent payment or cash distribution to holders of Managed
Portfolio Shares; net asset value; or other information relating to the
purchase, redemption, or trading of Managed Portfolio 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 Commentary .01 to NYSE Arca Rule 8.900-E provides that The
[sic] Exchange will file separate proposals under Section 19(b) of the
Securities Exchange Act of 1934 before the listing and trading of
Managed Portfolio Shares. All statements or representations contained
in such rule filing regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings, or (c) the applicability of Exchange
listing rules specified in such rule filing will constitute continued
listing requirements. An issuer of such securities must notify the
Exchange of any failure to comply with such continued listing
requirements.
    Proposed Commentary .02 to NYSE Arca Rule 8.900-E provides that
transactions in Managed Portfolio Shares will occur only during the
Core Trading Session as specified in NYSE Arca Rule 7.34-E(a)(2).
    Proposed Commentary .03 to NYSE Arca Rule 8.900-E provides that the
Exchange will implement written surveillance procedures for Managed
Portfolio Shares.
    Proposed Commentary .04 to NYSE Arca Rule 8.900-E provides that
Authorized Participants (as defined in the Investment Company's Form N-
1A filed with the Commission) creating or redeeming Managed Portfolio
Shares will sign an agreement with an agent (``AP Representative'') to
establish a confidential account for the benefit of such Authorized
Participant that will deliver or receive all consideration from the
issuer in a creation or redemption. An AP Representative may not
disclose the consideration delivered or received in a creation or
redemption.
    Proposed Commentary .05(a) to NYSE Arca Rule 8.900-E provides that,
if the investment adviser to the Investment Company issuing Managed
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 portfolio. Personnel who make decisions on the
Investment Company's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable Investment Company
portfolio.
    Proposed Commentary .05(b) to NYSE Arca Rule 8.900-E provides that,
if an AP Representative, the custodian or pricing verification agent
for an Investment Company issuing Managed Portfolio Shares, or any
other entity that has access to information concerning the composition
and/or changes to such Investment Company's portfolio, is registered as
a broker-dealer or affiliated with a broker-dealer, such AP
Representative, custodian, pricing verification agent or other entity
will erect and maintain a ``fire wall'' between such AP Representative,
custodian, pricing verification agent, or other entity and personnel of
the broker-dealer or broker-dealer affiliate, as applicable, with
respect to access to information concerning the composition and/or
changes to such Investment Company portfolio. Personnel who make
decisions on the Investment Company's portfolio composition must be
subject to procedures designed to prevent the use and dissemination of
material nonpublic information regarding the applicable Investment
Company portfolio. \7\
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    \7\ The Exchange will propose applicable NYSE Arca listing fees
for Managed Portfolio Shares in the NYSE Arca Equities Schedule of
Fees and Charges via a separate proposed rule change.
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Key Features of Managed Portfolio Shares
    While funds issuing Managed Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares,
Managed Portfolio Shares differ from Managed Fund Shares in the
following important respects. First, in contrast to Managed Fund
Shares, which are actively-managed funds listed and traded under NYSE
Arca Rule 8.600-E \8\ and for which a ``Disclosed Portfolio'' is
required to be disseminated at least once daily,\9\ the portfolio for
an issue of Managed Portfolio Shares will be disclosed quarterly in
accordance with normal disclosure requirements otherwise applicable to
open-end investment companies registered under the 1940 Act.\10\ The
composition of the portfolio of an issue of Managed Portfolio Shares
would not be available at commencement of Exchange listing and trading.
Second, in connection with the creation and redemption of shares in
``Creation Unit'' or ``Redemption Unit'' size (as described below), the
delivery of any portfolio securities in kind will be effected through a
``Confidential Account'' (as described below) for the benefit of the
redeeming AP (as described below in ``Creation and Redemption of
Shares'') without disclosing the identity of such securities to the
Authorized Participant (``AP'').
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    \8\ The Commission has previously approved listing and trading
on the Exchange of a number of issues of Managed Fund Shares under
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801
(May 8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31)
(order approving Exchange listing and trading of twelve actively-
managed funds of the WisdomTree Trust); 60460 (August 7, 2009), 74
FR 41468 (August 17, 2009) (SR-NYSEArca-2009-55) (order approving
listing of Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874
(October 18, 2010) (SR-NYSEArca-2010-79) (order approving Exchange
listing and trading of Cambria Global Tactical ETF); 63802 (January
31, 2011), 76 FR 6503 (February 4, 2011) (SR-NYSEArca-2010-118)
(order approving Exchange listing and trading of the SiM Dynamic
Allocation Diversified Income ETF and SiM Dynamic Allocation Growth
Income ETF). More recently, the Commission approved a proposed rule
change to adopt generic listing standards for Managed Fund Shares.
Securities Exchange Act Release No. 78397 (July 22, 2016), 81 FR
49320 (July 27, 2016 (SR-NYSEArca-2015-110) (amending NYSE Arca
Equities Rule 8.600 to adopt generic listing standards for Managed
Fund Shares).
    \9\ NYSE Arca Rule 8.600-E(c)(2) defines the term ``Disclosed
Portfolio'' as the identities and quantities of the securities and
other assets held by the Investment Company that will form the basis
for the Investment Company's calculation of net asset value at the
end of the business day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires
that the Disclosed Portfolio will be disseminated at least once
daily and will be made available to all market participants at the
same time.
    \10\ A mutual fund is required to file with the Commission its
complete portfolio schedules for the second and fourth fiscal
quarters on Form N-CSR under the 1940 Act, and is required to file
its complete portfolio schedules for the first and third fiscal
quarters on Form N-Q under the 1940 Act, within 60 days of the end
of the quarter. Form N-Q requires funds to file the same schedules
of investments that are required in annual and semi-annual reports
to shareholders. These forms are available to the public on the
Commission's website at www.sec.gov.
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    For each series of Managed Portfolio Shares, an estimated value--
the VIIV-- that reflects an estimated intraday value of a fund's
portfolio will be disseminated. With respect to the Funds, the VIIV
will be based upon all of a Fund's holdings as of the close of

the prior business day and, for corporate actions, based on the
applicable holdings as of the opening of business on the current
business day, and will be widely disseminated by one or more major
market data vendors every second during the Exchange's Core Trading
Session (normally, 9:30 a.m. to 4:00 p.m., Eastern Time (``E.T.'')).
The dissemination of the VIIV will allow investors to determine the
estimated intra-day value of the underlying portfolio of a series of
Managed Portfolio Shares and will provide a close estimate of that
value throughout the trading day.
    The Exchange, after consulting with various Lead Market Makers that
trade exchange-traded funds (``ETFs'') on the Exchange, believes that
market makers will be able to make efficient and liquid markets priced
near the VIIV as long as a VIIV is disseminated every second, and
market makers employ market making techniques such as ``statistical
arbitrage,'' including correlation hedging, beta hedging, and
dispersion trading, which is currently used throughout the financial
services industry, to make efficient markets in exchange-traded
products.\11\ This ability should permit market makers to make
efficient markets in an issue of Managed Portfolio Shares without
precise knowledge of a Fund's underlying portfolio.\12\
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    \11\ Statistical arbitrage enables a trader to construct an
accurate proxy for another instrument, allowing it to hedge the
other instrument or buy or sell the instrument when it is cheap or
expensive in relation to the proxy. Statistical analysis permits
traders to discover correlations based purely on trading data
without regard to other fundamental drivers. These correlations are
a function of differentials, over time, between one instrument or
group of instruments and one or more other instruments. Once the
nature of these price deviations have been quantified, a universe of
securities is searched in an effort to, in the case of a hedging
strategy, minimize the differential. Once a suitable hedging proxy
has been identified, a trader can minimize portfolio risk by
executing the hedging basket. The trader then can monitor the
performance of this hedge throughout the trade period making
correction where warranted. In the case of correlation hedging, the
analysis seeks to find a proxy that matches the pricing behavior of
the Fund. In the case of beta hedging, the analysis seeks to
determine the relationship between the price movement over time of
the Fund and that of another stock.
    \12\ APs that enter into their own separate Confidential
Accounts shall have enough information to ensure that they are able
to comply with applicable regulatory requirements. For example, for
purposes of net capital requirements, the maximum Securities Haircut
applicable to the securities in a Creation Basket, as determined
under Rule 15c3-1, will be disclosed daily on each Fund's website.
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    On each ``Business Day'' (as defined below), before commencement of
trading in Shares on the Exchange, the Funds will provide to an ``AP
Representative'' (as described below) of each AP the identities and
quantities of portfolio securities that will form the basis for a
Fund's calculation of NAV per Share at the end of the Business Day, as
well as the names and quantities of the instruments comprising a
``Creation Basket'' or the ``Redemption Instruments'' and the estimated
``Balancing Amount'' (if any) (as described below), for that day. This
information will permit APs to purchase ``Creation Units'' or redeem
``Redemption Units'' through an in-kind transaction with a Fund, as
described below.
    Using various trading methodologies such as statistical arbitrage,
both APs and ``Non-Authorized Participant Market Makers'' will be able
to hedge exposures by trading correlative portfolios, securities or
other proxy instruments, thereby enabling an arbitrage functionality
throughout the trading day. For example, if an AP believes that Shares
of a Fund are trading at a price that is higher than the value of its
underlying portfolio based on the VIIV, the AP may sell Shares short
and purchase securities that the AP believes will track the movements
of a Fund's Shares until the spread narrows and the AP executes
offsetting orders or the AP enters an order with its AP Representative
to create Fund Shares. Upon the completion of the Creation Unit, the AP
will unwind its correlative hedge. A non-AP Market Maker would be able
to perform the same function but would be required to employ an AP to
create or redeem Shares on its behalf.
    The AP Representative's execution of a Creation Unit in a
Confidential Account,\13\ combined with the sale of Fund Shares, may
create downward pressure on the price of Shares and/or upward pressure
on the price of the portfolio securities, bringing the market price of
Shares and the value of a Fund's portfolio securities closer together.
Similarly, an AP could buy Shares and instruct the AP Representative to
redeem Fund Shares and liquidate underlying portfolio securities in a
Confidential Account. The AP's purchase of a Fund's Shares in the
secondary market, combined with the liquidation of the portfolio
securities from its Confidential Account by an AP Representative, may
also create upward pressure on the price of Shares and/or downward
pressure on the price of portfolio securities, driving the market price
of Shares and the value of a Fund's portfolio securities closer
together. The ``Adviser'' (as defined below) represents that it
understands that, other than the confidential nature of the account,
this process is identical to how many APs currently arbitrage existing
traditional ETFs.
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    \13\ A Confidential Account is a restricted account owned by an
AP and held at a broker-dealer who will act as an AP Representative
(execution agent acting on agency basis) on their behalf. The
restricted account will be established and governed via contract and
used solely for creation and redemption activity, while protecting
the confidentiality of the portfolio constituents. For reporting
purposes, the books and records of the Confidential Account will be
maintained by the AP Representative and provided to the appropriate
regulatory agency as required. The Confidential Account will be
liquidated daily, so that the account holds no positions at the end
of day.
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    APs can engage in arbitrage by creating or redeeming Shares if the
AP believes the Shares are overvalued or undervalued. As discussed
above, the trading of a Fund's Shares and the creation or redemption of
portfolio securities may bring the prices of a Fund's Shares and its
portfolio assets closer together through market pressure.
    The Exchange understands that traders use statistical analysis to
derive correlations between different sets of instruments to identify
opportunities to buy or sell one set of instruments when it is
mispriced relative to the others. For Managed Portfolio Shares, market
makers may use the knowledge of a Fund's means of achieving its
investment objective, as described in the applicable Fund registration
statement, to construct a hedging proxy for a Fund to manage a market
maker's quoting risk in connection with trading Fund Shares. Market
makers can then conduct statistical arbitrage between their hedging
proxy (for example, the Russell 1000 Index) and Shares of a Fund,
buying and selling one against the other over the course of the trading
day. They will evaluate how their proxy performed in comparison to the
price of a Fund's Shares, and use that analysis as well as knowledge of
risk metrics, such as volatility and turnover, to enhance their proxy
calculation to make it a more efficient hedge.
    Market makers have indicated to the Exchange that there will be
sufficient data to run a statistical analysis which will lead to
spreads being tightened substantially around the VIIV. This is similar
to certain other existing exchange traded products (for example, ETFs
that invest in foreign securities that do not trade during U. S.
trading hours), in which spreads may be generally wider in the early
days of trading and then narrow as market makers gain more confidence
in their real-time hedges.

Description of the Funds and the Trust
    The Shares of each Fund will be issued by Precidian ETF Trust II
(``Trust''), a statutory trust organized under the laws of the State of
Delaware and registered with the Commission as an open-end management
investment company.\14\ The investment adviser to the Trust will be
Precidian Funds LLC (the ``Adviser''). Royce & Associates, LP
(``Royce''), will be the Fund's investment sub-adviser (``Sub-
Adviser''). Foreside Fund Services, LLC (``Distributor'') will serve as
the distributor of the Fund's Shares.
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    \14\ The Trust will be registered under the 1940 Act. On April
5, 2017, the Trust filed a registration statement on Form N-1A under
the Securities Act of 1933 (the ``1933 Act'') (15 U.S.C. 77a), and
under the 1940 Act relating to the Funds (File Nos. 333-217142 and
811-23246) (the ``Registration Statement''). The Trust filed a Fifth
Amended and Restated Application for an Order under Section 6(c) of
the 1940 Act for exemptions from various provisions of the 1940 Act
and rules thereunder (File No. 812-14405), dated December 4, 2017
(``Exemptive Application''). The Shares will not be listed on the
Exchange until an order (``Exemptive Order'') under the 1940 Act has
been issued by the Commission with respect to the Exemptive
Application. Investments made by the Funds will comply with the
conditions set forth in the Exemptive Order. The description of the
operation of the Trust and the Funds herein is based, in part, on
the Registration Statement and the Exemptive Application.
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    As noted above, if the investment adviser to the Investment Company
issuing Managed 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 portfolio. Personnel who make
decisions on the Investment Company's portfolio composition must be
subject to procedures designed to prevent the use and dissemination of
material nonpublic information regarding the applicable Investment
Company portfolio. Proposed Commentary .05(a) is similar to Commentary
.03(a)(i) and (iii) to NYSE Arca Rule 5.2-E(j)(3); however, Commentary
.05(a) in connection with the establishment of a ``fire wall'' between
the investment adviser and the broker-dealer reflects the applicable
open-end fund's portfolio, not an underlying benchmark index, as is the
case with index-based funds.\15\ The Adviser is not registered as a
broker-dealer or affiliated with a broker-dealer. The Sub-Adviser is
not registered as a broker-dealer but is affiliated with a broker-
dealer and has implemented and will maintain a fire wall with respect
to such broker-dealer affiliate regarding access to information
concerning the composition and/or changes to the portfolio.
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    \15\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel will be
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violations, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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    In the event (a) the Adviser or Sub-Adviser becomes registered as a
broker-dealer or becomes newly affiliated with a broker-dealer, or (b)
any new adviser or sub-adviser is a registered broker-dealer, or
becomes affiliated with a broker-dealer, it will implement and maintain
a fire wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
    The portfolio for each Fund primarily will consist of long and/or
short positions in U.S. exchange-listed equity securities and shares
issued by other U.S.-listed ETFs.\16\ All exchange-listed equity
securities in which the Funds will invest will be listed and traded on
U.S. national securities exchanges.
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    \16\ For purposes of this filing, ETFs include Investment
Company Units (as described in NYSE Arca Rule 5.2-E(j)(3));
Portfolio Depository Receipts (as described in NYSE Arca Rule 8.100-
E); and Managed Fund Shares (as described in NYSE Arca Rule 8.600-
E). The ETFs in which a Fund will invest all will be listed and
traded on U.S. national securities exchanges. While the Funds may
invest in inverse ETFs, the Funds will not invest in leveraged
(e.g., 2X, -2X, 3X or -3X) ETFs.
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Description of the Funds
Royce Pennsylvania ETF
    Under normal market conditions (as defined in proposed Rule 8.900-
E(c)(5)), the Royce Pennsylvania ETF will invest at least 65% of its
assets in US exchange- listed equity securities of small-cap companies
with stock market capitalizations up to $3 billion that the Sub-Adviser
believes are trading below its estimate of their current worth. The
Fund may invest in U.S. exchange-listed ETFs. The Fund may sell
securities to, among other things, secure gains, limit losses, redeploy
assets into what Royce deems to be more promising opportunities, and/or
manage cash levels in the Fund's portfolio.
Royce Premier ETF
    Under normal market conditions, the Royce Premier ETF will invest
at least 80% of its net assets in a limited number (generally less than
100) of US exchange- listed equity securities of primarily small-cap
companies with stock market capitalizations from $1 billion to $3
billion at the time of investment. The Fund may invest in U.S.
exchange-listed ETFs. The Fund may sell securities to, among other
things, secure gains, limit losses, redeploy assets into what Royce
deems to be more promising opportunities, and/or manage cash levels in
the Fund's portfolio.
Royce Total Return ETF
    Under normal market conditions, the Royce Total Return ETF will
invest at least 65% of its assets in dividend-paying U.S.-listed equity
securities of small-cap companies with stock market capitalizations up
to $3 billion that it believes are trading below its estimate of their
current worth. The Fund may invest in U.S. exchange-listed ETFs. The
Fund may sell securities to, among other things, secure gains, limit
losses, redeploy assets into what Royce deems to be more promising
opportunities, and/or manage cash levels in the Fund's portfolio.
Other Investments
    While each Fund, under normal market conditions, will invest
primarily in U.S.-listed equity securities, as described above, each
Fund may invest its remaining assets in other securities and financial
instruments, as described below.
    Each Fund may invest up to 5% of its total assets in U.S. exchange-
listed warrants and rights and U.S. exchange-listed options.
    Each Fund may invest a portion of its assets in cash or cash
equivalents.\17\
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    \17\ For purposes of this filing, cash equivalents include
short-term instruments (instruments with maturities of less than 3
months) of the following types: (i) U.S. Government securities,
including bills, notes and bonds differing as to maturity and rates
of interest, which are either issued or guaranteed by the U.S.
Treasury or by U.S. Government agencies or instrumentalities; (ii)
certificates of deposit issued against funds deposited in a bank or
savings and loan association; (iii) bankers' acceptances, which are
short-term credit instruments used to finance commercial
transactions; (iv) repurchase agreements and reverse repurchase
agreements; (v) bank time deposits, which are monies kept on deposit
with banks or savings and loan associations for a stated period of
time at a fixed rate of interest; (vi) commercial paper, which are
short-term unsecured promissory notes; and (vii) money market funds.
It will be the policy of the Trust to enter into repurchase
agreements only with recognized securities dealers, banks and Fixed
Income Clearing Corporation, a securities clearing agency registered
with the Commission.

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    In addition to investments in U.S.-listed ETFs, as referenced
above, each Fund may invest in the securities of other investment
companies to the extent allowed by law.
Investment Restrictions
    The Shares of each Fund will conform to the initial and continued
listing criteria under proposed Rule 8.900-E. The Funds will not invest
in futures, forwards or swaps.
    Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage. While a Fund may
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X,
-2X, 3X or -3X) ETFs.
    The equity securities (other than non-exchange-listed investment
company securities) and options in which the Funds invest will be
listed on a U.S. national securities exchange.
Creations and Redemptions of Shares
    In connection with the creation and redemption of Creation Units
and Redemption Units, the delivery or receipt of any portfolio
securities in-kind will be required to be effected through a separate
confidential brokerage account (i.e., a Confidential Account) with an
AP Representative,\18\ which will be a bank or broker-dealer such as
broker-dealer affiliates of JP Morgan Chase, State Street Bank and
Trust, or Bank of New York Mellon, for the benefit of an AP.\19\ An AP
must be a Depository Trust Company (``DTC'') Participant that has
executed a ``Participant Agreement'' with the Distributor with respect
to the creation and redemption of Creation Units and formed a
Confidential Account for its benefit in accordance with the terms of
the Participant Agreement. For purposes of creations or redemptions,
all transactions will be effected through the respective Authorized
Participant's Confidential Account, for the benefit of the AP without
disclosing the identity of such securities to the AP. Each AP
Representative will be given, before the commencement of trading each
Business Day (defined below), the ``Creation Basket'' (as described
below) for that day. This information will permit an AP that has
established a Confidential Account with an AP Representative to
instruct the AP Representative to buy and sell positions in the
portfolio securities to permit creation and redemption of Creation
Units and Redemption Units.
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    \18\ Each AP shall enter into its own separate Confidential
Account with an AP Representative.
    \19\ In the event that an AP Representative is a bank, the bank
will be required to have an affiliated broker-dealer to accommodate
the execution of hedging transactions on behalf of the holder of a
Confidential Account.
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    In the case of a creation, the Authorized Participant would enter
into an irrevocable creation order with the Fund and then direct the AP
Representative to purchase the necessary basket of portfolio
securities. The AP Representative would then purchase the necessary
securities in the Confidential Account. In purchasing the necessary
securities, the AP Representative would be required, by the terms of
the Confidential Account Agreement, to obfuscate the purchase by use of
tactics such as breaking the purchase into multiple purchases and
transacting in multiple marketplaces. Once the necessary basket of
securities has been acquired, the purchased securities held in the
Confidential Account would be contributed in-kind to the Fund.
    Shares of each Fund will be issued in Creation Units of 5,000 or
more Shares. The Funds will offer and sell Creation Units and
Redemption Units on a continuous basis at the NAV per Share next
determined after receipt of an order in proper form. The NAV per Share
of each Fund will be determined as of the close of regular trading on
the New York Stock Exchange (``NYSE'') on each day that the NYSE is
open. A ``Business Day'' is defined as any day that the Exchange is
open for business. The Funds will sell and redeem Creation Units and
Redemption Units only on Business Days. The Adviser anticipates that
the initial price of a Share will range from $20 to $60, and that the
price of a minimum Creation Unit initially will range from $100,000 to
$300,000.
    In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and Redemption Units and generally on an in-kind basis.
Accordingly, except where the purchase or redemption will include cash
under the circumstances described in the Registration Statement,
purchasers will be required to purchase Creation Units by making an in-
kind deposit of specified instruments (``Deposit Instruments''), and AP
will receive an in-kind transfer of specified instruments (``Redemption
Instruments'') through the AP Representative in their Confidential
Account.\20\ On any given Business Day, the names and quantities of the
instruments that constitute the Deposit Instruments and the names and
quantities of the instruments that constitute the Redemption
Instruments will be identical, and these instruments may be referred
to, in the case of either a purchase or a redemption, as the ``Creation
Basket.'' \21\
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    \20\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments.
    \21\ In determining whether a particular Fund will sell or
redeem Creation Units entirely on a cash or in-kind basis, whether
for a given day or a given order, the key consideration will be the
benefit that would accrue to a Fund and its investors. The Adviser
represents that the Funds do not currently anticipate the need to
sell or redeem Creation Units or Redemption Units entirely on a cash
basis. To the extent a Fund allows creations or redemptions to be
conducted in cash, such transactions will be effected in the same
manner for all APs.
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    As noted above, each AP will be required to establish a
Confidential Account with an AP Representative and transact with each
Fund through that Confidential Account.\22\ Therefore, before the
commencement of trading on each Business Day, the AP Representative of
each AP will be provided, on a confidential basis and at the same time
as other Authorized Participants, with a list of the names and
quantities of the instruments comprising a Creation Basket, as well as
the estimated Balancing Amount (if any), for that day. The published
Creation Basket will apply until a new Creation Basket is announced on
the following Business Day, and there will be no intra-day changes to
the Creation Basket except to correct errors in the published Creation
Basket. The instruments and cash that the purchaser is required to
deliver in exchange for the

Creation Units it is purchasing are referred to as the ``Portfolio
Deposit.''
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    \22\ The Adviser represents that transacting through a
Confidential Account is similar to transacting through any broker-
dealer account, except that the AP Representative will be bound to
keep the names and weights of the portfolio securities confidential.
Each service provider that has access to the identity and weightings
of securities in a Fund's Creation Basket or portfolio securities,
such as a Fund's Custodian or pricing verification agent, shall be
restricted contractually from disclosing that information to any
other person, or using that information for any purpose other than
providing services to the Fund. To comply with certain recordkeeping
requirements applicable to APs, the AP Representative will maintain
and preserve, and make available to the Commission, certain required
records related to the securities held in the Confidential Account.
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    APs will enter into an agreement with an AP Representative to open
a Confidential Account, for the benefit of the AP. The AP
Representative will serve as an agent between a Fund and each AP and
act as a broker-dealer on behalf of the AP. Each day, the Custodian
(defined below) will transmit the Fund Constituent file to each AP
Representative and, acting on execution instructions from AP, the AP
Representative may purchase or sell the securities currently held in a
Fund's portfolio for purposes of effecting in-kind creation and
redemption activity during the day.\23\
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    \23\ Each Fund will identify one or more entities to enter into
a contractual arrangement with the Fund to serve as an AP
Representative. In selecting entities to serve as AP
Representatives, a Fund will obtain representations from the entity
related to the confidentiality of the Fund's Creation Basket
portfolio securities, the effectiveness of information barriers, and
the adequacy of insider trading policies and procedures. In
addition, as a broker-dealer, Section 15(g) of the Act requires the
AP Representative to establish, maintain, and enforce written
policies and procedures reasonably designed to prevent the misuse of
material, nonpublic information by the AP Representative or any
person associated with the AP Representative.
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    As with the AP, Non-Authorized Participant Market Makers will have
the ability to facilitate efficient market making in the Shares.
However, Non-Authorized Participant Market Makers will not have the
ability to create or redeem shares directly with a Fund. Rather, if a
Non-Authorized Participant Market Maker wishes to create Shares in a
Fund, it will have to do so through an AP.
Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous
basis at NAV. The Exchange represents that the issuance of Shares will
operate in a manner substantially similar to that of other ETFs.
    Each Fund will issue Shares only at the NAV per Share next
determined after an order in proper form is received.
    Shares may be purchased from a Fund by an AP for its own account or
for the benefit of a customer. The Distributor will furnish
acknowledgements to those placing such orders that the orders have been
accepted, but the Distributor may reject any order which is not
submitted in proper form, as described in a Fund's prospectus or
Statement of Additional Information (``SAI''). Purchases of Shares will
be settled in-kind and/or cash for an amount equal to the applicable
NAV per Share purchased plus applicable ``Transaction Fees,'' as
discussed below.
    The NAV of each Fund is expected to be determined once each
Business Day at a time determined by the Trust's Board of Directors
(``Board''), currently anticipated to be as of the close of the regular
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the
``Valuation Time''). Each Fund will establish a cut-off time (``Order
Cut-Off Time'') (i.e., the scheduled closing time of the regular
trading session on the NYSE, ordinarily 4:00 p.m. E.T.) for purchase
orders in proper form. To initiate a purchase of Shares, an AP must
submit to the Distributor an irrevocable order to purchase such Shares
after the most recent prior Valuation Time.
    All orders to purchase Creation Units must be received by the
Distributor no later than the scheduled closing time of the regular
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) in each case on
the date such order is placed (``Transmittal Date'') in order for the
purchaser to receive the NAV per Share determined on the Transmittal
Date. In the case of custom orders made in connection with creations or
redemptions in whole or in part in cash, the order must be received by
the Distributor, no later than the order cut-off time \24\ The
Distributor will maintain a record of Creation Unit purchases and will
send out confirmations of such purchases.\25\
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    \24\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis, as provided in the
Registration Statement.
    \25\ An AP Representative will provide information related to
creations and redemption of Creation Units and Redemption Units to
the Financial Industry Regulatory Authority (``FINRA'') upon
request.
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Transaction Fees
    The Trust may impose purchase or redemption transaction fees
(``Transaction Fees'') in connection with the purchase or redemption of
Shares from the Funds. The exact amounts of any such Transaction Fees
will be determined by the Adviser. The purpose of the Transaction Fees
is to protect the continuing shareholders against possible dilutive
transactional expenses, including operational processing and brokerage
costs, associated with establishing and liquidating portfolio
positions, including short positions, in connection with the purchase
and redemption of Shares.
Purchases of Shares--Secondary Market
    Only APs will be able to acquire Shares at NAV directly from a Fund
through the Distributor. The required payment must be transferred in
the manner set forth in a Fund's SAI by the specified time on the
second DTC settlement day following the day it is transmitted (the
``Transmittal Date''). These investors and others will also be able to
purchase Shares in secondary market transactions at prevailing market
prices.
Redemption
    Beneficial Owners may sell their Shares in the secondary market.
Alternatively, investors that own enough Shares to constitute a
Redemption Unit (currently, 25,000 Shares) or multiples thereof may
redeem those Shares through the Distributor, which will act as the
Trust's representative for redemption. The size of a Redemption Unit
will be subject to change. Redemption orders for Redemption Units or
multiples thereof must be placed by or through an AP.
Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or
multiples thereof as described below. Redemption orders of Redemption
Units must be placed by or through an AP (``AP Redemption Order'').
Each Fund will establish an Order Cut-Off Time for redemption
(ordinarily 4:00 p.m., E.T.) for orders of Redemption Units in proper
form. Redemption Units of the Fund will be redeemable at their NAV per
Share next determined after receipt of a request for redemption by the
Trust in the manner specified below before the Order Cut-Off Time. To
initiate an AP Redemption Order, an AP must submit to the Distributor
an irrevocable order to redeem such Redemption Unit after the most
recent prior Valuation Time but not later than the Order Cut-Off Time.
The Order Cut-Off Time for a Fund will ordinarily be its Valuation
Time, or may be prior to the Valuation Time if the Board determines
that an earlier Order Cut-Off Time for redemption of Redemption Units
is necessary and is in the best interests of Fund shareholders.
    In the case of a redemption, the Authorized Participant would enter
into an irrevocable redemption order, and then immediately instruct the
AP Representative to sell the underlying basket of securities that it
will receive in the redemption. As with the purchase of securities, the
AP Representative would be required to obfuscate the sale of the
portfolio securities it will receive as redemption proceeds using
similar tactics. The positions in the underlying portfolio securities
sold from the Confidential Account would be covered by the in-kind
redemption proceeds

received by the Confidential Account from the Fund.
    Consistent with the provisions of Section 22(e) of the 1940 Act and
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor
payment upon redemption delayed, except for: (1) Any period during
which the NYSE is closed other than customary weekend and holiday
closings, (2) any period during which trading on the NYSE is
restricted, (3) any period during which an emergency exists as a result
of which disposal by a Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Fund to determine
its NAV, and (4) for such other periods as the Commission may by order
permit for the protection of shareholders.
    Redemptions will occur primarily in-kind, although redemption
payments may also be made partly or wholly in cash.\26\ The Participant
Agreement signed by each AP will require establishment of a
Confidential Account to receive distributions of securities in-kind
upon redemption.\27\ Each AP will be required to open a Confidential
Account with an AP Representative in order to facilitate orderly
processing of redemptions. While a Fund will generally distribute
securities in-kind, the Adviser may determine from time to time that it
is not in a Fund's best interests to distribute securities in-kind, but
rather to sell securities and/or distribute cash. For example, the
Adviser may distribute cash to facilitate orderly portfolio management
in connection with rebalancing or transitioning a portfolio in line
with its investment objective, or if there is substantially more
creation than redemption activity during the period immediately
preceding a redemption request, or as necessary or appropriate in
accordance with applicable laws and regulations. In this manner, a Fund
can use in-kind redemptions to reduce the unrealized capital gains that
may, at times, exist in a Fund by distributing low cost lots of each
security that a Fund needs to dispose of to maintain its desired
portfolio exposures. Shareholders of a Fund would benefit from the in-
kind redemptions through the reduction of the unrealized capital gains
in a Fund that would otherwise have to be realized and, eventually,
distributed to shareholders.
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    \26\ It is anticipated that any portion of a Fund's NAV
attributable to appreciated short positions will be paid in cash, as
securities sold short are not susceptible to in-kind settlement. The
value of other positions not susceptible to in-kind settlement may
also be paid in cash.
    \27\ The terms of each Confidential Account will be set forth as
an exhibit to the Participant Agreement, which will be signed by
each Authorized Participant. The Authorized Participant will be free
to choose an AP Representative for its Confidential Account from a
list of banks and trust companies that have signed confidentiality
agreements with the Fund.
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    The redemption basket will consist of the same securities for all
APs on any given day subject to the Adviser's ability to make minor
adjustments to address odd lots, fractional shares, tradeable sizes or
other situations.
    After receipt of a Redemption Order, a Fund's custodian
(``Custodian'') will typically deliver securities to the Confidential
Account on a pro rata basis (which securities are determined by the
Adviser) with a value approximately equal to the value of the Shares
\28\ tendered for redemption at the Cut-Off time. The Custodian will
make delivery of the securities by appropriate entries on its books and
records transferring ownership of the securities to the AP's
Confidential Account, subject to delivery of the Shares redeemed. The
AP Representative of the Confidential Account will in turn liquidate
the securities based on instructions from the AP.\29\ The AP
Representative will pay the liquidation proceeds net of expenses plus
or minus any cash balancing amount to the AP through DTC.\30\ The
redemption securities that the Confidential Account receives are
expected to mirror the portfolio holdings of a Fund pro rata. To the
extent a Fund distributes portfolio securities through an in-kind
distribution to more than one Confidential Account for the benefit of
each account's AP, each Fund expects to distribute a pro rata portion
of the portfolio securities selected for distribution to each redeeming
AP.
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    \28\ If the NAV of the Shares redeemed differs from the value of
the securities delivered to the applicable Confidential Account, the
Fund will pay a cash balancing amount to compensate for the
difference between the value of the securities delivered and the
NAV.
    \29\ An AP will issue execution instructions to the AP
Representative and be responsible for all associated profit or
losses. Like a traditional ETF, the AP has the ability to sell the
basket securities at any point during normal trading hours.
    \30\ Under applicable provisions of the Internal Revenue Code,
the AP is expected to be deemed a ``substantial owner'' of the
Confidential Account because it receives distributions from the
Confidential Account. As a result, all income, gain or loss realized
by the Confidential Account will be directly attributed to the AP.
In a redemption, the AP will have a basis in the distributed
securities equal to the fair market value at the time of the
distribution and any gain or loss realized on the sale of those
Shares will be taxable income to the AP.
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    If the AP would receive a security that it is restricted from
receiving, for example if the AP is engaged in a distribution of the
security, a Fund will deliver cash equal to the value of that security.
APs and Non-Authorized Participant Market Makers will provide the AP
Representative with a list of restricted securities applicable to the
AP or Non-Authorized Participant Market Maker on a daily basis, and a
Fund will substitute cash for those securities in the applicable
Confidential Account.
    To address odd lots, fractional shares, tradeable sizes or other
situations where dividing securities is not practical or possible, the
Adviser may make minor adjustments to the pro rata portion of portfolio
securities selected for distribution to each redeeming AP on such
Business Day.
    The Trust will accept a Redemption Order in proper form. A
Redemption Order is subject to acceptance by the Trust and must be
preceded or accompanied by an irrevocable commitment to deliver the
requisite number of Shares. At the time of settlement, an AP will
initiate a delivery of the Shares versus subsequent payment against the
proceeds, if any, of the sale of portfolio securities distributed to
the applicable Confidential Account plus or minus any cash balancing
amounts, and less the expenses of liquidation.
Independent Pricing Calculations
    According to the Exemptive Application, the Pricing Verification
Agent, on behalf of each Fund, will utilize at least two separate
calculation engines to calculate intra-day indicative values
(``Calculation Engines''), based on the mid-point between the current
national best bid and offer disseminated by the Consolidated Quotation
System (``CQS'') and Unlisted Trading Privileges (``UTP'') Plan
Securities Information Processor,\31\ to provide the real-time value on
a per Share basis of each Fund's holdings every second during the
Exchange's Core Trading Session.\32\ The Custodian will provide, on a
daily basis, the identities and quantities of portfolio securities that

will form the basis for the Fund's calculation of NAV at the end of the
Business Day,\33\ plus any cash in the portfolio, to the Pricing
Verification Agent for purposes of pricing.
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    \31\ According to the Exemptive Application, all Commission-
registered exchanges and market centers send their trades and quotes
to a central consolidator where the Consolidated Tape System (CTS)
and CQS data streams are produced and distributed worldwide. See
https://www.ctaplan.com/index. Although there is only one source of
market quotations, each Calculation Engine will receive the data
directly and calculate an indicative value separately and
independently from each other Calculation Engine.
    \32\ The Adviser represents that the dissemination of VIIV at
one second intervals strikes a balance of providing all investors
with useable information at a rate that can be processed by retail
investors, does not provide so much information so as to allow
market participants to accurately determine the constituents, and
their weightings, of the portfolio, can be accurately calculated and
disseminated, and still provides professional traders with per
second data.
    \33\ Under accounting procedures followed by the Funds, trades
made on the prior Business Day (T) will be booked and reflected in
the NAV on the current Business Day (T+1). Thus, the VIIV calculated
throughout the day will be based on the same portfolio as is used to
calculate the NAV on that day.
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    According to the Exemptive Application, it is anticipated that each
Calculation Engine could be using some combination of different
hardware, software and communications platforms to process the CQS
data. Different hardware platforms' operating systems could be
receiving and calculating the CQS data inputs differently, potentially
resulting in one Calculation Engine processing the indicative value in
a different time slice than another Calculation Engine's system, thus
processing values in different sequences. The processing differences
between different Calculation Engines will most likely be in the sub-
second range. Consequently, the frequency of occurrence of out of
sequence values among different Calculation Engines due to differences
in operating system environments should be minimal. Other factors that
could result in sequencing that is not uniform among the different
Calculation Engines are message gapping, internal system software
design, and how the CQS data is transmitted to the Calculation Engine.
While the expectation is that the separately calculated intraday
indicative values will generally match, having dual streams of
redundant data that must be compared by the Pricing Verification Agent
will provide an additional check that the resulting VIIV is accurate.
    According to the Exemptive Application, each Fund's Board has a
responsibility to oversee the process of calculating an accurate VIIV
and to make an affirmative determination, at least annually, that the
procedures used to calculate the VIIV and maintain its accuracy are, in
its reasonable business judgment, appropriate. These procedures and
their continued effectiveness will be subject to the ongoing oversight
of the Fund's chief compliance officer. The specific methodology for
calculating the VIIV will be disclosed on each Fund's website. While
each Fund will oversee the calculation of the VIIV, a Fund will utilize
multiple Calculation Engines, one of which may be supplied by the
Pricing Verification Agent.
Net Asset Value
    The NAV per Share of a Fund will be computed by dividing the value
of the net assets of a Fund (i.e. the value of its total assets less
total liabilities) by the total number of Shares of a Fund outstanding,
rounded to the nearest cent. Expenses and fees, including, without
limitation, the management, administration and distribution fees, will
be accrued daily and taken into account for purposes of determining
NAV. Interest and investment income on the Trust's assets accrue daily
and will be included in the Fund's total assets. The NAV per Share for
a Fund will be calculated by a Fund's administrator (``Administrator'')
and determined as of the close of the regular trading session on the
NYSE (ordinarily 4:00 p.m., E.T.) on each day that the NYSE is open.
    Shares of exchange-listed equity securities and exchange-listed
options will be valued at market value, which will generally be
determined using the last reported official closing or last trading
price on the exchange or market on which the securities are primarily
traded at the time of valuation. Repurchase agreements will be valued
based on price quotations or other equivalent indications of value
provided by a third-party pricing service. Money market funds and other
non-exchange-traded investment company securities will be valued based
on price quotations or other equivalent indications of value provided
by a third-party pricing service. Other cash equivalents will generally
be valued on the basis of separate pricing services or quotes obtained
from brokers and dealers.
    When last sale prices and market quotations are not readily
available, are deemed unreliable or do not reflect material events
occurring between the close of local markets and the time of valuation,
investments will be valued using fair value pricing, as determined in
good faith by the Adviser under procedures established by and under the
general supervision and responsibility of the Trust's Board of
Trustees. Investments that may be valued using fair value pricing
include, but are not limited to: (1) Securities that are not actively
traded; (2) securities of an issuer that becomes bankrupt or enters
into a restructuring; and (3) securities whose trading has been halted
or suspended.
    The frequency with which each Fund's investments will be valued
using fair value pricing will primarily be a function of the types of
securities and other assets in which the respective Fund will invest
pursuant to its investment objective, strategies and limitations. If
the Funds invest in open-end management investment companies registered
under the 1940 Act (other than ETFs), they may rely on the NAVs of
those companies to value the shares they hold of them.
    Valuing the Funds' investments using fair value pricing involves
the consideration of a number of subjective factors and thus the prices
for those investments may differ from current market valuations.
Accordingly, fair value pricing could result in a difference between
the prices used to calculate NAV and the prices used to determine a
Fund's VIIV, which could result in the market prices for Shares
deviating from NAV. In cases where the fair value price of the security
is materially different from the mid-point of the bid/ask spread
provided to the Calculation Engines and the Adviser determined that the
ongoing pricing information is not likely to be reliable, the fair
value will be used for calculation of the VIIV, and a Fund's Custodian
will be instructed to disclose the identity and weight of the fair
valued securities, as well as the fair value price being used for the
security.
Availability of Information
    The Funds' website (www.precidianfunds.com), which will be publicly
available prior to the listing and trading of Shares, will include a
form of the prospectus for each Fund that may be downloaded. The Funds'
website will include additional quantitative information updated on a
daily basis, including, for each Fund, (1) daily trading volume, the
prior Business Day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\34\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. The website and information will be
publicly available at no charge.
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    \34\ The Bid/Ask Price of a Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of a Fund's NAV. The records relating to
Bid/Ask Prices will be retained by each Fund and its service
providers.
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    As noted above, a mutual fund is required to file with the
Commission its complete portfolio schedules for the second and fourth
fiscal quarters on Form N-CSR under the 1940 Act, and is required to
file its complete portfolio schedules for the first and third fiscal

quarters on Form N-Q under the 1940 Act, within 60 days of the end of
the quarter. Form N-Q requires funds to file the same schedules of
investments that are required in annual and semi-annual reports to
shareholders. The Trust's SAI and each Fund's shareholder reports will
be available free upon request from the Trust. These documents and
forms may be viewed on-screen or downloaded from the Commission's
website at www.sec.gov.
    Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line. In addition, the VIIV, as defined in NYSE
Arca Rule 8.900-E (c)(3) and as described further below, will be widely
disseminated by one or more major market data vendors every second
during the Exchange's Core Trading Session.
Dissemination of the Verified Intraday Indicative Value
    The VIIV, which is approximate value of each Fund's investments on
a per Share basis, will be disseminated every second during the
Exchange's Core Trading Session. The VIIV should not be viewed as a
``real-time'' update of NAV because the VIIV may not be calculated in
the same manner as NAV, which is computed once per day.
    The VIIV for each Fund will be disseminated by one or more major
market data vendors in one-second intervals during the Core Trading
Session. The VIIV is an intraday approximation of the Fund's value
calculated every second during the Core Trading Session. Each Fund will
adopt procedures governing the calculation of the VIIV. Pursuant to
those procedures, the VIIV will include all accrued income and expenses
of a Fund and will assure that any extraordinary expenses booked during
the day that would be taken into account in calculating a Fund's NAV
for that day are also taken into account in calculating the VIIV. For
purposes of the VIIV, securities held by a Fund will be valued
throughout the day based on the mid-point between the disseminated
current national best bid and offer. If the Adviser determines that the
mid-point of the bid/ask spread is inaccurate, a Fund will use fair
value pricing. That fair value pricing will be carried over to the next
day's VIIV until the first trade in that stock is reported unless the
Adviser deems a particular portfolio security to be illiquid and/or the
available ongoing pricing information unlikely to be reliable. In such
case, that fact will be disclosed as soon as practicable on each Fund's
website, including the identity and weighting of that security in a
Fund's portfolio, and the impact of that security on VIIV calculation,
including the fair value price for that security being used for the
calculation of that day's VIIV.
    The Adviser represents that, by utilizing the mid-point pricing for
purposes of VIIV calculation, stale prices are eliminated and more
accurate representation of the real time value of the underlying
securities is provided to the market. Specifically, quotations based on
the mid-point of bid/ask spreads more accurately reflect current market
sentiment by providing real time information on where market
participants are willing to buy or sell securities at that point in
time. Using quotations rather than last sale information addresses
concerns regarding the staleness of pricing information of less
actively traded securities. Because quotations are updated more
frequently than last sale information especially for inactive
securities, the VIIV will be based on more current and accurate
information. The use of quotations will also dampen the impact of any
momentary spikes in the price of a portfolio security.
    Each Fund will utilize two separate pricing feeds to provide two
separate sources of pricing information. Each Fund will also utilize a
``Pricing Verification Agent'' and establish a computer-based protocol
that will permit the Pricing Verification Agent to continuously compare
the multiple intraday indicative values from the Calculation Engines on
a real time basis.\35\ A single VIIV will be disseminated publicly for
each Fund; however, the Pricing Verification Agent will continuously
compare the public VIIV against a non-public alternative intra-day
indicative value to which the Pricing Verification Agent has access.
Upon notification to the Exchange by the issuer of a series of Managed
Portfolio Shares or its agent that the public VIIV and non-public
alternative intra-day indicative value differ by more than 25 basis
points for 60 seconds, the Exchange will halt trading as soon as
practicable in a Fund until the discrepancy is resolved.\36\ Each
Fund's Board will review the procedures used to calculate the VIIV and
maintain its accuracy as appropriate, but not less than annually. The
specific methodology for calculating the VIIV will be disclosed on each
Fund's website.
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    \35\ A Fund's Custodian will provide, on a daily basis, the
identities and quantities of portfolio securities that will form the
basis for a Fund's calculation of NAV at the end of the Business
Day, plus any cash in the portfolio, to the Pricing Verification
Agent for purposes of pricing.
    \36\ For the period January 1, 2017, to October 31, 2017, the
average bid/ask spread on actively managed equity ETFs (Managed Fund
Shares) traded on NYSE Arca, as a percentage, was 38 basis points.
For the same period, the spread on all exchange-traded products
traded on NYSE Arca, as a percentage, was 54 basis points. A
continuous deviation for sixty seconds could indicate an error in
the feed or in a Calculation Engine. The Trust reserves the right to
change these thresholds to the extent deemed appropriate and
approved by a Fund's Board.
---------------------------------------------------------------------------

Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Funds. Trading in Shares of the Funds will
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E
have been reached.\37\ Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. Trading in the Shares will be
subject to NYSE Arca Rule 8.900-E(d)(2)(C), which sets forth
circumstances under which Shares of the Funds will be halted.
---------------------------------------------------------------------------

    \37\ See NYSE Arca Rule 7.12-E.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace only during the Core Trading Session in
accordance with NYSE Arca Rule 7.34-E (a)(2). As provided in NYSE Arca
Rule 7.6-E, the minimum price variation (``MPV'') for quoting and entry
of orders in equity securities traded on the NYSE Arca Marketplace is
$0.01, with the exception of securities that are priced less than $1.00
for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.900-E. The Exchange represents that,
for initial and/or continued listing, each Fund will be in compliance
with Rule 10A-3 under the Act,\38\ as provided by NYSE Arca Rule 5.3-E.
A minimum of 100,000 Shares of each Fund will be outstanding at the
commencement of trading on the Exchange. The Exchange will obtain a

representation from the issuer of the Shares of each Fund that the NAV
per Share of each Fund will be calculated daily and will be made
available to all market participants at the same time.
---------------------------------------------------------------------------

    \38\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Exchange, as
well as cross-market surveillances administered by FINRA on behalf of
the Exchange, which are designed to detect violations of Exchange rules
and applicable federal securities laws.\39\ The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and federal securities laws applicable to
trading on the Exchange.
---------------------------------------------------------------------------

    \39\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, common stocks,
rights, warrants, ETFs and exchange-listed options with other markets
and other entities that are members of the Intermarket Surveillance
Group (``ISG''), and the Exchange or FINRA, on behalf of the Exchange,
or both, may obtain trading information regarding trading such
securities from such markets and other entities. In addition, the
Exchange may obtain information regarding trading in such securities
from markets and other entities that are members of ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement.\40\
---------------------------------------------------------------------------

    \40\ For a list of the current members of ISG, see
www.isgportal.org.
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    The Funds' Adviser will make available daily to FINRA and the
Exchange the portfolio holdings of each Fund in order to facilitate the
performance of the surveillances referred to above.
    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares;
(2) NYSE Arca Rule 9.2-E(a), which imposes a duty of due diligence on
its ETP Holders to learn the essential facts relating to every customer
prior to trading the Shares; (3) how information regarding the VIIV is
disseminated; (4) the requirement that ETP Holders deliver a prospectus
to investors purchasing newly issued Shares prior to or concurrently
with the confirmation of a transaction; and (5) trading information.
    In addition, the Bulletin will reference that the Funds are subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\41\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\42\ 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.
---------------------------------------------------------------------------

    \41\ 15 U.S.C. 78f(b).
    \42\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 8.900-E is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading of Managed Portfolio
Shares provide specific initial and continued listing criteria required
to be met by such securities. Proposed Rule 8.900-E(d) sets forth
initial and continued listing criteria applicable to Managed Portfolio
Shares. Proposed Rule 8.900-E (d)(1) provides that, for each series of
Managed Portfolio Shares, the Exchange will establish a minimum number
of Managed Portfolio Shares required to be outstanding at the time of
commencement of trading. In addition, the Exchange will obtain a
representation from the issuer of each series of Managed Portfolio
Shares that the NAV per share for the series will be calculated daily
and that the NAV will be made available to all market participants at
the same time. Proposed Rule 8.900-E (d)(2) provides that each series
of Managed Portfolio Shares will be listed and traded subject to
application of the specified continued listing criteria, as described
above. Proposed Rule 8.900-E (d)(2)(A) provides that the VIIV for
Managed Portfolio Shares will be widely disseminated by one or more
major market data vendors every second during the Exchange's Core
Trading Session. Proposed Rule 8.900-E (d)(2)(B) provides that the
Exchange will maintain surveillance procedures for securities listed
under Rule 8.900 and will consider the suspension of trading in, and
will commence delisting proceedings under Rule 5.5-E (m) of a series of
Managed Portfolio Shares under any of the circumstances set forth in
proposed Rules 8.900-E (d)(2)(B)(i) through (vi), as described above,
including if any of the continued listing requirements set forth in
Rule 8.900-E are not continuously maintained (proposed Rule 8.900-E
(d)(2)(B)(iv)), and if the Exchange submits a rule filing pursuant to
Section 19(b) of the Act to permit the listing and trading of a series
of Managed Portfolio Shares and any of the statements or
representations regarding (a) the description of the portfolio, (b)
limitations on portfolio holdings, or (c) the applicability of Exchange
listing rules specified in such rule filing are not continuously
maintained (proposed Rule 8.900-E (d)(2)(B)(v)). Proposed Rule 8.900-E
(d)(2)(C) provides that, upon notification to the Corporation by the
Investment Company or its agent that (i) the intraday indicative values
calculated from more than one Calculation Engines to be compared by the
Investment Company's pricing verification agent differ by more than 25
basis points for 60 seconds in connection with pricing of the VIIV, or
(ii) that the VIIV of a series of Managed Portfolio Shares is not being
calculated or disseminated in one-second intervals, as required, the
Exchange shall halt trading in the Managed Portfolio Shares as soon as
practicable. Such halt in trading shall continue until the Investment
Company or its agent notifies the Exchange that the intraday indicative
values no longer differ by more than 25 basis points for

60 seconds or that the VIIV is being calculated and disseminated as
required. Proposed Commentary .05(a) to NYSE Arca Rule 8.900-E provides
that, if the investment adviser to the Investment Company issuing
Managed 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 portfolio. Proposed Commentary
.05(b) provides that, if an AP Representative, the custodian or pricing
verification agent for an Investment Company issuing Managed Portfolio
Shares, or any other entity that has access to information concerning
the composition and/or changes to such Investment Company's portfolio,
is registered as a broker-dealer or affiliated with a broker-dealer,
such AP Representative, custodian, pricing verification agent or other
entity will erect and maintain a ``fire wall'' between such AP
Representative, custodian, pricing verification agent, or other entity
and personnel of the broker-dealer or broker-dealer affiliate, as
applicable, with respect to access to information concerning the
composition and/or changes to such Investment Company portfolio. With
respect to both Commentary .05(a) and .05(b), personnel who make
decisions on the Investment Company's portfolio composition must be
subject to procedures designed to prevent the use and dissemination of
material nonpublic information regarding the applicable Investment
Company portfolio.
    With respect to the proposed listing and trading of Shares of the
Funds, the Exchange believes that the proposed rule change is designed
to prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Rule 8.900-E. Price
information for the exchange-listed equity securities held by the Funds
will be available through major market data vendors or securities
exchanges listing and trading such securities. All exchange-listed
equity securities held by the Funds will be listed on U.S. national
securities exchanges. The listing and trading of such securities is
subject to rules of the exchanges on which they are listed and traded,
as approved by the Commission. The Funds will primarily hold U.S.-
listed equity securities and shares issued by other U.S.-listed ETFs.
All exchange-listed equity securities in which the Funds will invest
will be listed and traded on U.S. national securities exchanges. A
Fund's investments will be consistent with its respective investment
objective and will not be used to enhance leverage. The Funds will not
invest in non-U.S.-listed securities. The Exchange or FINRA, on behalf
of the Exchange, or both, will communicate as needed regarding trading
in the Shares and underlying stocks and ETFs with other markets and
other entities that are members of the ISG, and the Exchange or FINRA,
on behalf of the Exchange, or both, may obtain trading information
regarding trading such securities from such markets and other entities.
In addition, the Exchange may obtain information regarding trading in
the Shares, underlying stocks and ETFs from markets and other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. An AP Representative will
provide information related to creations and redemption of Creation
Units and Redemption Instruments to FINRA upon request. The Funds'
Adviser will make available daily to FINRA and the Exchange the
portfolio holdings of each Fund in order to facilitate the performance
of the surveillances referred to above.
    The Exchange, after consulting with various Lead Market Makers that
trade ETFs on the Exchange, believes that market makers will be able to
make efficient and liquid markets priced near the VIIV, market makers
have knowledge of a fund's means of achieving its investment objective
even without daily disclosure of a fund's underlying portfolio. The
Exchange believes that market makers will employ risk-management
techniques to make efficient markets in exchange traded products.\43\
This ability should permit market makers to make efficient markets in
shares without knowledge of a fund's underlying portfolio.
---------------------------------------------------------------------------

    \43\ See note 11, supra.
---------------------------------------------------------------------------

    The Exchange understands that traders use statistical analysis to
derive correlations between different sets of instruments to identify
opportunities to buy or sell one set of instruments when it is
mispriced relative to the others. For Managed Portfolio Shares, market
makers utilizing statistical arbitrage use the knowledge of a fund's
means of achieving its investment objective, as described in the
applicable fund registration statement, to construct a hedging proxy
for a fund to manage a market maker's quoting risk in connection with
trading fund shares. Market makers will then conduct statistical
arbitrage between their hedging proxy (for example, the Russell 1000
Index) and shares of a fund, buying and selling one against the other
over the course of the trading day. Eventually, at the end of each day,
they will evaluate how their proxy performed in comparison to the price
of a fund's shares, and use that analysis as well as knowledge of risk
metrics, such as volatility and turnover, to enhance their proxy
calculation to make it a more efficient hedge.
    The Lead Market Makers also indicated that, as with some other new
exchange-traded products, spreads would tend to narrow as market makers
gain more confidence in the accuracy of their hedges and their ability
to adjust these hedges in real-time relative to the published VIIV and
gain an understanding of the applicable market risk metrics such as
volatility and turnover, and as natural buyers and sellers enter the
market. Other relevant factors cited by Lead Market Makers were that a
fund's investment objectives are clearly disclosed in the applicable
prospectus, the existence of quarterly portfolio disclosure and the
ability to create shares in creation unit size.
    The real-time dissemination of a fund's VIIV, together with the
right of APs to create and redeem each day at the NAV, will be
sufficient for market participants to value and trade shares in a
manner that will not lead to significant deviations between the shares'
Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed
Portfolio Shares will generally rest on the ability of market
participants to arbitrage between the shares and a fund's portfolio, in
addition to the ability of market participants to assess a fund's
underlying value accurately enough throughout the trading day in order
to hedge positions in shares effectively. Professional traders can buy
shares that they perceive to be trading at a price less than that which
will be available at a subsequent time, and sell shares they perceive
to be trading at a price higher than that which will be available at a
subsequent time. It is expected that, as part of their normal day-to-
day trading activity, market makers assigned to shares by the Exchange,
off-exchange market makers, firms that specialize in electronic
trading, hedge funds and other professionals specializing in short-
term, non-fundamental trading strategies will assume the risk of being
``long'' or ``short'' shares through such

trading and will hedge such risk wholly or partly by simultaneously
taking positions in correlated assets \44\ or by netting the exposure
against other, offsetting trading positions--much as such firms do with
existing ETFs and other equities. Disclosure of a fund's investment
objective and principal investment strategies in its prospectus and
SAI, along with the dissemination of the VIIV every second, should
permit professional investors to engage easily in this type of hedging
activity.\45\
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    \44\ Price correlation trading is used throughout the financial
industry. It is used to discover both trading opportunities to be
exploited, such as currency pairs and statistical arbitrage, as well
as for risk mitigation such as dispersion trading and beta hedging.
These correlations are a function of differentials, over time,
between one or multiple securities pricing. Once the nature of these
price deviations have been quantified, a universe of securities is
searched in an effort to, in the case of a hedging strategy,
minimize the differential. Once a suitable hedging basket has been
identified, a trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the performance of this
hedge throughout the trade period, making corrections where
warranted.
    \45\ With respect to trading in Shares of the Funds, market
participants would manage risk in a variety of ways. It is expected
that market participants will be able to determine how to trade
Shares at levels approximating the VIIV without taking undue risk by
gaining experience with how various market factors (e.g., general
market movements, sensitivity of the VIIV to intraday movements in
interest rates or commodity prices, etc.) affect VIIV, and by
finding hedges for their long or short positions in Shares using
instruments correlated with such factors. The Adviser expects that
market participants will initially determine the VIIV's correlation
to a major large capitalization equity benchmark with active
derivative contracts, such as the Russell 1000 Index, and the degree
of sensitivity of the VIIV to changes in that benchmark. For
example, using hypothetical numbers for illustrative purposes,
market participants should be able to determine quickly that price
movements in the Russell 1000 Index predict movements in a Fund's
VIIV 95% of the time (an acceptably high correlation) but that the
VIIV generally moves approximately half as much as the Russell 1000
Index with each price movement. This information is sufficient for
market participants to construct a reasonable hedge--buy or sell an
amount of futures, swaps or ETFs that track the Russell 1000 equal
to half the opposite exposure taken with respect to Shares. Market
participants will also continuously compare the intraday performance
of their hedge to a Fund's VIIV. If the intraday performance of the
hedge is correlated with the VIIV to the expected degree, market
participants will feel comfortable they are appropriately hedged and
can rely on the VIIV as appropriately indicative of a Fund's
performance.
---------------------------------------------------------------------------

    With respect to trading of Shares of the Funds, the ability of
market participants to buy and sell Shares at prices near the VIIV is
dependent upon their assessment that the VIIV is a reliable, indicative
real-time value for a Fund's underlying holdings. Market participants
are expected to accept the VIIV as a reliable, indicative real-time
value because (1) the VIIV will be calculated and disseminated based on
a Fund's actual portfolio holdings, (2) the securities in which the
Funds plan to invest are generally highly liquid and actively traded
and therefore generally have accurate real time pricing available, and
(3) market participants will have a daily opportunity to evaluate
whether the VIIV at or near the close of trading is indeed predictive
of the actual NAV.
    The real-time dissemination of a Fund's VIIV, together with the
ability of APs to create and redeem each day at the NAV, will be
crucial for market participants to value and trade Shares in a manner
that will not lead to significant deviations between the Shares' Bid/
Ask Price and NAV.\46\
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    \46\ The statements in the Statutory Basis section of this
filing relating to pricing efficiency, arbitrage, and activities of
market participants, including market makers and APs, are based on
representations by the Adviser and review by the Exchange.
---------------------------------------------------------------------------

    In a typical index-based ETF, it is standard for APs to know what
securities must be delivered in a creation or will be received in a
redemption. For Managed Portfolio Shares, however, APs do not need to
know the securities comprising the portfolio of a Fund since creations
and redemptions are handled through the Confidential Account mechanism.
The Adviser represents that the in-kind creations and redemptions
through a Confidential Account will preserve the integrity of the
active investment strategy and reduce the potential for ``free riding''
or ``front-running,'' while still providing investors with the
advantages of the ETF structure.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of an
issue of Managed Portfolio Shares that the NAV per share of a fund will
be calculated daily and that the NAV will be made available to all
market participants at the same time. Investors can also obtain a
fund's SAI, shareholder reports, and its Form N-CSR, Form N-Q and Form
N-SAR. A fund's SAI and shareholder reports will be available free upon
request from the applicable fund, and those documents and the Form N-
CSR, Form N-Q and Form N-SAR may be viewed on-screen or downloaded from
the Commission's website. In addition, with respect to the Funds, a
large amount of information will be publicly available regarding the
Funds and the Shares, thereby promoting market transparency. Quotation
and last sale information for the Shares will be available via the CTA
high-speed line. Information regarding the intra-day value of the
Shares of a Fund, which is the VIIV as defined in proposed NYSE Arca
Rule 8.900-E (c)(3), will be widely disseminated every second
throughout the Exchange's Core Trading Session by one or more major
market data vendors. The website for the Funds will include a form of
the prospectus for the Funds that may be downloaded, and additional
data relating to NAV and other applicable quantitative information,
updated on a daily basis. Moreover, prior to the commencement of
trading, the Exchange will inform its ETP Holders in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares. Trading in Shares of a Fund will be halted if the
circuit breaker parameters in NYSE Arca Rule 7.12-E have been reached
or because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable. Trading in the Shares
will be subject to NYSE Arca Rule 8.900-E (d)(2)(C), which sets forth
circumstances under which Shares of the Funds will be halted. In
addition, as noted above, investors will have ready access to the VIIV,
and quotation and last sale information for the Shares. The Shares will
conform to the initial and continued listing criteria under proposed
Rule 8.900-E. The Funds will not invest in futures, forwards or swaps.
Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage. While a Fund may
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X,
-2X, 3X or -3X) ETFs. The Funds will not invest in non-U.S. listed
securities.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the VIIV and quotation
and last sale information for the Shares.

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

    The Exchange does not believe that the proposed rule change will
impose

any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange believes the
proposed rule change would permit listing and trading of another type
of actively-managed ETF that has characteristics different from
existing actively-managed and index ETFs, and would introduce
additional competition among various ETF products to the benefit of
investors.

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

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

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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-NYSEArca-2018-04 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2018-04. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (http://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2018-04 and should be submitted
on or before February 16, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\47\
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    \47\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-01364 Filed 1-25-18; 8:45 am]
 BILLING CODE 8011-01-P