[Federal Register Volume 85, Number 2 (Friday, January 3, 2020)]
[Notices]
[Pages 380-391]
[FR Doc No: 2019-28411]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87865; File No. SR-NYSEArca-2019-92]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To Adopt NYSE Arca Rule 8.601-E To Permit the
Listing and Trading of Managed Portfolio Securities and To List and
Trade Four Series of Managed Portfolio Securities Issued by T. Rowe
Price Exchange-Traded Funds, Inc. Under Proposed NYSE Arca Rule 8.601-E

December 30, 2019.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on December 23, 2019, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to adopt a new NYSE Arca Rule 8.601-E to
permit the Exchange to list and trade Managed Portfolio Securities,
which are shares of an actively managed exchange-traded fund (``ETF'')
for which the portfolio is disclosed quarterly. In addition, the
Exchange proposes to list and trade shares of the following Managed
Portfolio Securities under proposed new NYSE Arca Rule 8.601-E: T. Rowe
Price Blue Chip Growth ETF; T. Rowe Price Dividend Growth ETF; T. Rowe
Price Growth Stock ETF; and T. Rowe Price Equity Income 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 8.601-E for the
purpose of permitting the listing and trading, or trading pursuant to
unlisted trading privileges (``UTP''), of Managed Portfolio Securities,
which are securities issued by an actively managed open-end investment
management company.
    In addition to the above-mentioned proposed rule changes, the
Exchange proposes to list and trade shares (``Shares'') of the
following series of Managed Portfolio Securities under proposed new
NYSE Arca Rule 8.601-E: T. Rowe Price Blue Chip Growth ETF, T. Rowe
Price Dividend Growth ETF, T. Rowe Price Growth Stock ETF, and T. Rowe
Price Equity Income ETF (each a ``Fund'' and, collectively, the
``Funds''). The investment adviser for the Funds will be T. Rowe Price
Associates, Inc. (``Adviser'').
Proposed Listing Rules
    Proposed Rule 8.601-E (a) provides that the Exchange will consider
for trading, whether by listing or pursuant to UTP, Managed Portfolio
Securities that meet the criteria of Rule 8.601-E.
    Proposed Rule 8.601-E (b) provides that Rule 8.601-E is applicable
only to Managed Portfolio Securities and that, except to the extent
inconsistent with Rule 8.601-E, or unless the context otherwise
requires, the rules and procedures of the Board of Directors will be
applicable to the trading on the Exchange of such securities. Proposed
Rule 8.601-E(b) provides further that Managed Portfolio Securities are
included within the definition of ``security'' or ``securities'' as
such terms are used in the Rules of the Exchange.
    Proposed Rule 8.601-E(c) sets forth the applicable definitions
related to Managed Portfolio Securities. Proposed Rule 8.601-E(c)(1)
defines the term ``Managed Portfolio Security'' as a security that (a)
is issued by a registered investment company (``Investment Company'')
organized as an open-end management investment company that invests in
a portfolio of securities selected by the Investment Company's
investment adviser consistent with the Investment Company's investment
objectives and policies; (b) is issued in a specified aggregate minimum
number of shares equal to a Creation Unit, or multiples thereof, in
return for a deposit by the purchaser of the ``Proxy Portfolio'' and/or
cash, and (c) when aggregated in the same specified minimum number of
shares, or multiples thereof, may be redeemed at a holder's request in
return for a transfer of the Proxy Portfolio and/or cash to the holder
by the issuer.
    Proposed Rule 8.601-E(c)(2) defines the term ``Portfolio
Positions'' 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 (``NAV'')
at the end of the business day.
    Proposed Rule 8.601-E(c)(3) defines the term ``Proxy Portfolio'' as
a specified portfolio of securities, other financial instruments and/or
cash that shall serve as the Managed Portfolio Security's identified
hedging vehicle.
    Proposed Rule 8.601-E(c)(4) defines the term ``Creation Unit'' as a
specified minimum number of Managed Portfolio Securities.
    Proposed Rule 8.601-E(c)(5) defines the term ``Reporting
Authority'' in respect of a particular series of Managed Portfolio
Securities as the Exchange, an institution, or a reporting service
designated by the issuer or by the exchange that lists a particular
series of Managed Portfolio Securities (if the Exchange is trading such
series pursuant to UTP) as the official source for calculating and
reporting information relating to such series, including, but not
limited to, the Portfolio Positions, NAV, or other information relating
to the issuance, redemption or trading of Managed Portfolio Securities.
A series of Managed Portfolio Securities may have more than one
Reporting Authority, each having different functions.
    Proposed Rule 8.601-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 8.601-E(d) sets forth initial and continued listing
criteria applicable to Managed Portfolio Securities. Proposed Rule
8.601-E(d)(1) provides that each series of Managed Portfolio Securities
will be listed and traded on the Exchange subject to application of the
following initial listing criteria. Proposed Rule 8.601-E(d)(1)(A)
provides that, for each series of Managed Portfolio Securities, the
Exchange will establish a minimum number of Managed Portfolio
Securities required to be outstanding at the time of commencement of
trading on the Exchange. In addition, proposed Rule 8.601-E(d)(1)(B)
provides that the Exchange will obtain a representation from the issuer
of each series of Managed Portfolio Securities that the NAV per share
for the series will be calculated daily and that the NAV and the
Portfolio Positions will be made publicly available to all market
participants at the same time.\4\ Proposed Rule 8.601-E(d)(1)(C)
provides that all Managed Portfolio Securities shall have a stated
investment objective, which shall be adhered to under normal market
conditions.
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    \4\ NYSE Arca Rule 7.18-E(d)(2) (Trading 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 NAV is disseminated, if the
Exchange becomes aware that the NAV 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 NAV is available to all market participants.
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    Proposed Rule 8.601-E(d)(2) provides that each series of Managed
Portfolio Securities will be listed and traded subject to application
of the following continued listing criteria: Proposed Rule 8.601-
E(d)(2)(A)(i) provides that Portfolio Positions shall be disseminated
quarterly and shall be made publicly available to all market
participants at the same time Proposed Rule 8.601-E(d)(2)(B)(i)
provides that the Proxy Portfolio will be made publicly available each
day. Proposed Rule 8.601-E(d)(2)(C) provides that the Exchange will
maintain surveillance procedures for securities listed under Rule
8.601-E and consider the suspension of trading in, and will commence
delisting proceedings under Rule 5.5-E(m) for, a series of Managed
Portfolio Securities under any of the following circumstances: (i) If
any of the continued listing requirements set forth

in Rule 8.601-E are not continuously maintained; (ii) if 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 the Exchange's
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
Securities, is not continuously maintained; or (iii) 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 8.601-E(d)(2)(D) provides that if a series of Managed
Portfolio Securities is trading on the Exchange pursuant to UTP, the
Exchange will halt trading in that series as specified in Rule 7.18-
E(d)(1). In addition, upon notification to the Exchange by the issuer
of a series of Managed Portfolio Securities that the NAV with respect
to a series of Managed Portfolio Securities is not disseminated to all
market participants at the same time, the Exchange shall halt trading
in such series until such time as the NAV is available to all market
participants at the same time. The Exchange may also halt trading at
the request of the investment adviser to a series of Managed Portfolio
Securities upon notification to the Exchange that the securities
representing 10% or more of the Portfolio Positions for such series do
not have readily available market quotations, and during times of
unusual market volatility where a significant portion of such series'
Portfolio Positions are subject to a trading halt or have a last trade
price that the investment adviser deems unreliable, if the investment
adviser determines that it is in the best interest of such series.
    Proposed Rule 8.601-E(d)(2)(E) provides that, upon termination of
an Investment Company, the Exchange requires that Managed Portfolio
Securities issued in connection with such entity be removed from
Exchange listing.
    Proposed Rule 8.601-E(d)(2)(F) provides that voting rights will be
as set forth in the applicable Investment Company prospectus.
    Proposed Rule 8.601-E(e) relates to limitation of Exchange
liability and provides that neither the Exchange, the Reporting
Authority, nor any agent of the Exchange will 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 Investment Company in connection with issuance of Managed
Portfolio Securities; the amount of any dividend equivalent payment or
cash distribution to holders of Managed Portfolio Securities; NAV; or
other information relating to the purchase, redemption, or trading of
Managed Portfolio Securities, 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 8.601-E provides that the
Exchange will file separate proposals under Section 19(b) of the Act
before the listing and trading of a series of Managed Portfolio
Securities. Proposed Commentary .01 further provides that 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 8.601-E provides that
transactions in Managed Portfolio Securities will occur during the
trading hours specified in NYSE Arca Rule 7.34-E(a).
    Proposed Commentary .03 to NYSE Arca Rule 8.601-E provides that the
Exchange will implement and maintain written surveillance procedures
for Managed Portfolio Securities.
    Proposed Commentary .04 to NYSE Arca Rule 8.601-E provides that, if
the investment adviser to the Investment Company issuing Managed
Portfolio Securities is affiliated with a broker-dealer, such
investment adviser will erect and maintain a ``fire wall'' between the
investment adviser and the broker-dealer with respect to access to
information concerning the composition and/or changes to such
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.\5\
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    \5\ The Exchange will propose applicable NYSE Arca listing fees
for Managed Portfolio Securities in the NYSE Arca Equities Schedule
of Fees and Charges in a separate proposed rule change.
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Key Features of Managed Portfolio Securities
    While funds issuing Managed Portfolio Securities will be actively-
managed and, to that extent, will be similar to Managed Fund Shares
listed and traded under NYSE Arca Rule 8.600-E,\6\ Managed Portfolio
Securities differ from Managed Fund Shares in the following important
respects. First, in contrast to Managed Fund Shares, for which the
fund's ``Disclosed Portfolio'' is required to be disseminated at least
once daily,\7\ the full portfolio holdings for a series of Managed
Portfolio Securities will not be made available on a daily basis.
Rather, the Portfolio Positions will be disclosed quarterly in
accordance and in compliance with the portfolio holdings disclosure
requirements applicable to other registered open-end funds, including
traditional mutual funds.\8\ Second, in connection with the creation
and redemption of shares, such creation or redemption will be in a
Creation Unit size and may be in exchange for an in-kind basket of
securities, which will be

a fund's Proxy Portfolio with a value equal to the prior day's NAV,
rather than the ``Disclosed Portfolio'' applicable to Managed Fund
Shares. With respect to the Funds, Shares will generally be issued and
redeemed primarily on an in-kind basis, but may include cash under
certain circumstances as described in the ``Application,'' as described
below.\9\
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    \6\ 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); 76871 (January 11, 2016), 81
FR 2261 (January 15, 2016) (SR-NYSEArca-2015-114) (Notice of Filing
of Amendment No. 1 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 1, to List and
Trade Shares of the Market Vectors Dynamic Put Write ETF under NYSE
Arca Equities Rule 8.600); 86636 (August 12, 2019), 84 FR 42030
(August 16, 2019) (SR-NYSEArca-2018-98) (Notice of Filing of
Amendment No. 4 and Order Granting Accelerated Approval of a
Proposed Rule Change, as Modified by Amendment No. 4, to List and
Trade Shares of the iShares Commodity Multi-Strategy ETF under NYSE
Arca Rule 8.600-E).
    \7\ 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 NAV at the end of the
Business Day. NYSE Arca Rule 8.600-E(d)(2)(B)(i) requires that the
Disclosed Portfolio be disseminated at least once daily and be made
available to all market participants at the same time.
    \8\ A mutual fund is required to file with the Commission Form
N-CEN under the Investment Company Act of 1940 (``1940 Act'') within
75 days of the end of the fiscal year, and is required to file its
complete portfolio schedules on a monthly basis on Form N-PORT under
the 1940 Act within 30 days of the end of each month. These forms
are available to the public on the Commission's website at
www.sec.gov.
    \9\ See note 20 [sic], infra.
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Hedging Vehicle and Portfolio Positions
    The Proxy Portfolio is designed to serve as a pricing signal for
low-risk arbitrage trades in shares of Managed Portfolio Securities
generally. With respect to the Funds, in order to provide a hedging
vehicle whose performance reliably and highly correlates to the NAV of
the relevant Fund, and that is liquid and trades synchronously with the
Shares of the Funds,\10\ a Fund's Portfolio Positions will (a) be
listed on an exchange and the primary trading session of such exchange
will substantially overlap with the Exchange's Core Trading Session, as
defined in Rule 7.34-E(a); (b) with respect to exchange-traded futures,
be listed on a U.S. futures exchange; or (c) consist of cash and cash
equivalents.
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    \10\ The Adviser will deem the securities in a Proxy Portfolio
to trade synchronously with Shares of a Fund if the primary trading
session of the securities in the Proxy Portfolio substantially
overlaps with the Exchange's Core Trading Session (normally 9:30
a.m. to 4:00 p.m., Eastern Time (``E.T.'').
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    Consistent with these representations, each Fund will only invest
in exchange-traded common stocks, common stocks listed on a foreign
exchange that trade on such exchange synchronously with the Shares
(``foreign common stocks''), ETFs,\11\ exchange-traded notes
(``ETNs''),\12\ exchange-traded preferred stocks, exchange-traded
American Depositary Receipts (``ADRs''),\13\ exchange-traded real
estate investment trusts, exchange-traded commodity pools, exchange-
traded metals trusts, exchange-traded currency trusts and exchange-
traded futures contracts \14\ (collectively, ``exchange-traded
instruments'') that trade synchronously with the Fund's Shares, as well
as cash and cash equivalents.\15\ For purposes of this filing, cash
equivalents are short-term U.S. Treasury securities, government money
market funds, and repurchase agreements.
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    \11\ For purposes of this filing, ETFs include Investment
Company Units (as described in NYSE Arca Rule 5.2-E(j)(3));
Portfolio Depositary Receipts (as described in NYSE Arca Rule 8.100-
E); and Managed Fund Shares (as described in NYSE Arca Rule 8.600-
E). The ETFs all will be listed and traded in the U.S. on registered
exchanges.
    \12\ ETNs are securities as described in NYSE Arca Rule 5.2-
E(j)(6) (Equity Index-Linked Securities, Commodity-Linked
Securities, Currency-Linked Securities, Fixed Income Index-Linked
Securities, Futures-Linked Securities and Multifactor Index-Linked
Securities).
    \13\ ADRs are issued by a U.S. financial institution (a
``depositary'') and evidence ownership in a security or pool of
securities issued by a foreign issuer that have been deposited with
the depositary. Each ADR is registered under the Securities Act of
1933 (``1933 Act'') (15 U.S.C. 77a) on Form F-6. ADRs in which a
Fund may invest will trade on an exchange.
    \14\ Exchange-traded futures are U.S. listed futures contracts
where the futures contract's reference asset is an asset that the
Fund could invest in directly, or in the case of an index future, is
based on an index of a type of asset that the Fund could invest in
directly, such as an S&P 500 index futures contract. All futures
contracts that a Fund may invest in will be traded on a U.S. futures
exchange.
    \15\ The Adviser will notify the Exchange at any time that the
securities representing 10% or more of a Fund's Portfolio Positions
do not have readily available market quotations, and will request
the Exchange to halt trading in such Fund's Shares.
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    With respect to the Funds, the Adviser will identify each Fund's
Proxy Portfolio, which could be a broad-based securities index (e.g.,
the S&P 500) or a Fund's recently disclosed portfolio holdings. Each
Fund will consistently invest such that at least 80% of its total
assets will overlap with the portfolio weightings in its identified
Proxy Portfolio. Although the Adviser may change a Fund's Proxy
Portfolio at any time, the Adviser currently does not expect to make
such changes more frequently than quarterly (for example, in connection
with the release of a Fund's portfolio holdings). The Adviser will
publish a new Proxy Portfolio for a Fund only before the commencement
of trading of such Fund's Shares on that ``Business Day'',\16\ and the
Adviser will not make intra-day changes to the Proxy Portfolio except
to correct errors in the published Proxy Portfolio. For the reasons
described below, the Adviser believes that each Fund's Proxy Portfolio
will be a high-quality hedging vehicle, the value of which will provide
arbitrageurs with a high quality pricing signal.
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    \16\ ``Business Day'' is defined to mean any day that the
Exchange is open, including any day when a Fund satisfies redemption
requests as required by section 22(e) of the 1940 Act.
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    The Proxy Portfolio will not include any asset that is ineligible
to be a Portfolio Position in the applicable Fund.
    In addition, on each Business Day, before commencement of trading
of Shares, the ``Portfolio Overlap'' (as defined below) will be
published on each Fund's website. The Portfolio Overlap will be the
percentage weight overlap between the prior Business Day's Proxy
Portfolio's holdings compared to the holdings of the Fund that formed
the basis for that Fund's calculation of NAV at the end of the prior
Business Day.\17\ In addition, each Fund will disclose the ``Daily
Deviation'' (as defined below) between the Proxy Portfolio and a Fund
daily, as well as ``Empirical Percentiles'' (as defined below), which
are quantitative summaries of the Daily Deviation data for the last
year. Each Fund will also disclose its ``Tracking Error'' (as defined
below).
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    \17\ According to the Application, the Portfolio Overlap will be
calculated by taking the lesser weight of each asset held in common
between a Fund's portfolio and the Proxy Portfolio, and adding the
totals.
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    According to the Application, the Adviser expects that the Proxy
Portfolio, the Portfolio Overlap, the Daily Deviations and related
information will provide a set of high-quality proxy information that
arbitrageurs will use to construct a hedging basket. The Portfolio
Overlap, Daily Deviation, and Empirical Percentile data will help
arbitrageurs by describing the market behavior of the Proxy Portfolio
and how it relates to a Fund's portfolio holdings, and by providing
historical valuation data and analysis.
Indicative Net Asset Value
    With respect to the Funds, for each Fund, an estimated value--the
Indicative Net Asset Value (``INAV'')--will be disseminated that
reflects an estimated intraday value of a Fund's portfolio. The INAV
will represent, on a per Share basis, the current value of a Fund's
portfolio holdings (including liabilities) and will be widely
disseminated every 15 seconds throughout the Core Trading Session by
the Reporting Authority and/or by one or more major market data
vendors. The dissemination of the INAV will allow investors to
determine the estimated intraday value of the underlying portfolio of a
series of Managed Portfolio Securities on a daily basis and will
provide a close estimate of that value throughout the trading day. The
INAV should not be viewed as a ``real-time'' update of the NAV per
Share of each Fund because the INAV may not be calculated in the same
manner as the NAV, which will be computed once a day, generally at the
end of the Business Day. Unlike the INAV, which will be based on
consolidated last sale information, the NAV per Share will be based on
the closing prices on the primary market for each exchange-listed
security. If there is no closing price for a particular exchange listed
security, such as when it is the subject of a trading halt, a Fund will
use fair value pricing. To the extent a security's last trade price is
stale or otherwise inaccurate, the Adviser's ``Valuation

Committee'' will implement any fair valuation adjustments as necessary
or appropriate pursuant to the applicable Fund's valuation procedures.
    An independent INAV provider will calculate the INAV for each Fund
during the Exchange's Core Trading Session by dividing the ``Intraday
Fund Value'' (as defined below) as of the time of the calculation by
the total number of outstanding Shares of that Fund. ``Intraday Fund
Value'' is the sum of the Fund's assets, including the amount of cash
held in a Fund's portfolio, the amount of accrued assets, such as
interest, dividends and distributions owed to a Fund, and the value of
the securities held in a Fund's portfolio, minus the amount of a Fund's
accrued liabilities as of a Fund's previous day's NAV calculation. The
Intraday Fund Value is also based on intraday estimates of securities
values. A Fund's INAV will represent a Fund's estimated NAV, which will
be the value of the Fund's Portfolio Positions, on a per Share
basis.\18\
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    \18\ The INAV for a Fund for a given day T will be calculated by
the INAV provider using the portfolio holdings from the previous
day, T-1, as provided by the Fund custodian prior to the open of
trading on day T.
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    According to the Application, the Funds will adopt uniform
procedures governing the calculation and dissemination of the INAV, and
the Adviser will bear responsibility for the oversight of that process
(``INAV Procedures''). The Adviser will also, as part of that oversight
process, periodically, but no less than annually, review the INAV
Procedures. Any material changes to the procedures will be submitted to
the Funds' Audit Committee for review.
    With respect to funds utilizing an INAV, 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 NAV given daily publication of the
Proxy Portfolio and dissemination of an accurate INAV every 15 seconds,
and that market makers have knowledge of a series of Managed Portfolio
Securities' means of achieving its investment objective, even without
daily disclosure of its underlying portfolio. With respect to the
Funds, the Exchange believes that the information proposed to be
provided will build upon and be similar to the pricing signals of
existing ETFs such that the market price of Shares will closely track
the relevant Fund's NAV and reflect minimal intraday and end-of-day
premiums/discounts to NAV and narrow spreads without market makers'
knowledge of a Fund's underlying portfolio.
    The Exchange understands that, with respect to funds utilizing an
INAV, traders will analyze the correlation between changes in the value
of a fund's Proxy Portfolio against changes in the INAV to determine
whether and how to engage in arbitrage transactions and hedge their
positions. The ``Daily Deviation'' (as described below) and related
summary data will help them in this determination by describing the
market behavior of the Proxy Portfolio and how it relates to a fund's
portfolio holdings, and by providing historical valuation data and
analysis. Taken together, with respect to the Funds, the Adviser
expects that all of this information will provide market participants
with high-quality pricing signals for the Funds, which will be
comparable to the pricing signals arbitrageurs use for existing ETFs,
and which will enable arbitrageurs to engage in transactions that will
keep the intraday premiums/discounts and spreads of Shares low.
    Market makers have indicated to the Exchange that there will be
sufficient data to engage in arbitrage trades in Managed Portfolio
Securities with accuracy and minimal risk. In addition, market makers
have indicated that they are incented to engage in arbitrage trades
when the risk of the trade is low. However, they cannot know with any
certainty the precise risk of an arbitrage trade on the current or any
future Business Day. Rather, they must use information from the past to
evaluate the likely risk of an arbitrage trade executed today or in the
future. More specifically, it is understood that they must use
historical data about the performance of the fund whose shares are
being arbitraged and the performance of the fund's Proxy Portfolio.
From such data, arbitrageurs may be able to develop sufficient insight
into the risk of an arbitrage trade to evaluate and price it into the
trade.
    With respect to the Funds, each Fund will disclose its Tracking
Error. The Adviser defines ``Tracking Error'' to mean the standard
deviation over the past three months of the daily proxy spread (i.e.,
the difference, in percentage terms, between the Proxy Portfolio's per
Share NAV and that of a Fund at the end of the trading day). Tracking
Error measures the ability of the Proxy Portfolio to accurately reflect
changes in a Fund's NAV and allows arbitrageurs to estimate the risk of
large daily proxy spreads by examining the variability of daily proxy
spreads over the past year. The Adviser will calculate and disclose
daily each Fund's Tracking Error over the preceding rolling one-year
period. Upon inception, each Fund's Tracking Error data will be updated
daily to increasingly reflect the current proxy spread of a Fund.
    Additionally, data would be provided regarding past performance or
value between each Fund's NAV and the performance of its Proxy
Portfolio to evaluate and price the risk of arbitrage trades in a
Fund's Shares, in the form of ``Daily Deviation,'' ``Empirical
Percentiles,'' and ``Portfolio Overlap,'' as described below.\19\
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    \19\ The data will be disclosed on the Funds' website.
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    Each Fund will disseminate a ``Daily Deviation'' between the
performance of a Fund's NAV and its Proxy Portfolio for the most recent
rolling one-year period. The Daily Deviation is calculated each day of
the most recent rolling one-year period as the difference between the
performance of a Fund's NAV and its Proxy Portfolio's NAV.\20\ As such,
each Daily Deviation directly captures the performance difference
between a Fund's Proxy Portfolio and its NAV on one trading day during
the measured period. The Daily Deviation can be calculated over any
number of Business Days. The Adviser proposes to provide data for the
most recent one-year period (rolling, and updated on a daily basis).
The Adviser believes this level of data will be sufficient for
arbitrageurs to develop the necessary insights into the relationship
between the performance of a Fund's Proxy Portfolio and its NAV. In
particular, with such data, arbitrageurs will be able to examine the
reported Daily Deviations over any desired interval during the one-year
period to evaluate the degree of risk involved in entering into an
arbitrage trade in a Fund's Shares, using the Proxy Portfolio to hedge
an open position in the Shares.
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    \20\ The Adviser will calculate and disclose daily each Fund's
Tracking Error, Daily Deviations and ``Empirical Percentiles'' (as
defined below) over the preceding rolling one-year period. Upon
inception, each Fund's Portfolio Overlap, Tracking Error, Daily
Deviation and Empirical Percentile data will be updated daily to
increasingly reflect the performance of a Fund.
---------------------------------------------------------------------------

    There would be a summary of the Daily Deviation data in the form of
a series of ``Empirical Percentiles.'' More specifically, the Adviser
will tabulate and disclose Empirical Percentiles of Daily Deviations,
over the past one-year period, at the following levels: 99%, 95%, 90%,
75%, 50%, 25%, 10%, 5% and 1%. Each Empirical Percentile represents the
value of Daily Deviations (in basis points) exceeded by a specific
percentage of all Daily Deviations over the past year. For example, the
99%

Empirical Percentile tells arbitrageurs that only 1% of all Daily
Deviations over the past year exceeded a specified number of basis
points. In this way, the Empirical Percentiles allow arbitrageurs to
better predict the likelihood of a Daily Deviation being more than such
specified number of basis points. The Empirical Percentiles give
arbitrageurs differing levels of confidence that Daily Deviations will
be confined to a certain number of basis points.
    In addition, a Portfolio Overlap will be calculated for each Fund
by taking the lesser weight of each asset held in common between a
Fund's portfolio and the Proxy Portfolio, and adding the totals. The
Adviser will calculate and disseminate the Portfolio Overlap each
Business Day on the Funds' website prior to the commencement of trading
on the Exchange's Core Trading Session. The Adviser believes that the
Portfolio Overlap will support the use of the Proxy Portfolio by
arbitrageurs in determining hedging transactions.
    The Adviser believes further that, under the circumstances
described, given the high degree of overlap, the high correlation and
low Tracking Error between each Fund's Portfolio Positions and its
Proxy Portfolio, arbitrageurs will be able to use the Proxy Portfolio
as a high-quality hedging vehicle for a Fund. Arbitrageurs will know
the Daily Deviation for the last rolling one-year period between a Fund
and its Proxy Portfolio, the Empirical Percentiles and the Tracking
Error. Together, the Adviser believes that these measures will help
arbitrageurs to evaluate and mitigate the risk of an arbitrage trade in
Shares and to use the Proxy Portfolio as a hedging vehicle for open
positions in Shares.
Description of the Funds and the Issuer
    The Shares of each Fund will be issued by T. Rowe Price Exchange-
Traded Funds, Inc. (``Issuer''), a corporation organized under the laws
of the State of Maryland, which may be comprised of multiple separate
series, and registered with the Commission as an open-end management
investment company.\21\ State Street Bank and Trust Co. will serve as
the Funds' transfer agent, administrator and custodian (the ``Transfer
Agent'', ``Administrator'', or ``Custodian''). T. Rowe Price Investment
Services, Inc., a registered broker dealer and an affiliate of the
Adviser, will serve as the distributor (``Distributor'') of the Shares.
---------------------------------------------------------------------------

    \21\ The Issuer is registered under the 1940 Act. On December
11, 2019, the Issuer filed a registration statement on Form N-1A
under the 1933 Act, and under the 1940 Act relating to the Funds
(File Nos.333-235450 and 811-23494) (the ``Registration
Statement''). The Issuer filed a seventh amended 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-
14214), dated October 16, 2019 (``Application''). On December 10,
2019, the Commission issued an order (``Exemptive Order'') under the
1940 Act granting the exemptions requested in the Application
(Investment Company Act Release No. 33713, December 10, 2019).
Investments made by the Funds will comply with the conditions set
forth in the Application and the Exemptive Order. The description of
the operation of the Funds herein is based, in part, on the
Registration Statement and the Application.
---------------------------------------------------------------------------

    As noted above, proposed Commentary .04 to Rule 8.601-E provides
that, if the investment adviser to the Investment Company issuing
Managed Portfolio Securities is affiliated with a broker-dealer, such
investment adviser must erect and maintain a ``fire wall'' between the
investment adviser and the broker-dealer with respect to access to
information concerning the composition and/or changes to such
Investment Company portfolio.\22\ In addition, proposed Commentary .04
further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio. Proposed Commentary .04 to
Rule 8.601-E is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Rule 5.2-E(j)(3). However, Commentary .04, 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.
The Adviser is not registered as a broker-dealer but the Adviser is
affiliated with a broker-dealer and has implemented a ``fire wall''
with respect to such broker-dealer regarding access to information
concerning the composition and/or changes to a Fund's portfolio. In the
event (a) the Adviser becomes registered as a broker-dealer or newly
affiliated with a broker-dealer, or (b) any new 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 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.
---------------------------------------------------------------------------

    \22\ 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.
---------------------------------------------------------------------------

Description of the Funds
    According to the Application, for each Fund, the Adviser will
identify its Proxy Portfolio, which could be a broad-based securities
index (e.g., the S&P 500) or a Fund's recently disclosed portfolio
holdings. The Proxy Portfolio will be determined such that at least 80%
of its total assets will overlap with the portfolio weightings of a
Fund. Although the Adviser may change a Fund's Proxy Portfolio at any
time, the Adviser currently does not expect to make such changes more
frequently than quarterly (for example, in connection with the release
of a Fund's portfolio holdings). The Adviser will publish a new Proxy
Portfolio for a Fund only before the commencement of trading of such
Fund's Shares on that Business Day, and the Adviser will not make
intra-day changes to the Proxy Portfolio except to correct errors in
the published Proxy Portfolio.
T. Rowe Price Blue Chip Growth ETF
    The investment objective of the T. Rowe Price Blue Chip Growth ETF
will be to seek to provide long-term capital growth. Income will be a
secondary objective.
    The Fund will invest only in exchange-traded securities, exchange-
traded futures, cash, and cash equivalents. The Fund will normally
invest at least 80% of its net assets in U.S. exchange-traded common
stocks of large and medium-sized blue-chip growth companies. These are
companies that, in the Adviser's view, are well established in their
industries and have the potential for above-average earnings growth.
T. Rowe Price Dividend Growth ETF
    The investment objective of the T. Rowe Price Dividend Growth ETF
will

be to seek dividend income and long-term capital growth primarily
through investments in stocks.
    The Fund will invest only in exchange-traded securities, U.S.
exchange-traded futures, cash, and cash equivalents. The Fund normally
will invest at least 65% of the Fund's total assets in stocks listed in
the United States, with an emphasis on stocks that have a strong track
record of paying dividends or that are expected to increase their
dividends over time.
T. Rowe Price Growth Stock ETF
    The investment objective of the T. Rowe Price Growth Stock ETF will
be to seek long-term capital growth through investments in stocks.
    The Fund will invest only in exchange-traded securities, U.S.
exchange-traded futures, cash, and cash equivalents. The Fund will
normally invest at least 80% of its net assets in the common stocks of
a diversified group of growth companies. While it may invest in
companies of any market capitalization, the Fund generally seeks
investments in stocks of large-capitalization companies with one or
more of the following characteristics: Strong cash flow and an above-
average rate of earnings growth; the ability to sustain earnings
momentum during economic downturns; and occupation of a lucrative niche
in the economy and the ability to expand even during times of slow
economic growth.
T. Rowe Price Equity Income ETF
    The investment objective of the T. Rowe Price Equity Income ETF
will be to seek a high level of dividend income and long-term capital
growth primarily through investments in stocks.
    The Fund will invest only in exchange-traded securities, U.S.
exchange-traded futures, cash, and cash equivalents. The Fund will
normally invest at least 80% of its net assets in common stocks listed
in the United States, with an emphasis on large-capitalization stocks
that have a strong track record of paying dividends or that are
believed to be undervalued. The Fund typically will employ a ``value''
approach in selecting investments.
Investment Restrictions
    The Shares of each Fund will conform to the initial and continued
listing criteria under proposed Rule 8.601-E.
    Each Fund's investments will be consistent with its investment
objective. The Funds will not invest in penny stocks as defined by Rule
3a51-1 under the Act. No Fund will borrow for investment purposes, hold
short positions or purchase any securities that are illiquid
investments (as defined in Rule 22e-4(a)(8) under the 1940 Act) at the
time of purchase.
Purchases and Redemptions
General
    The Issuer will offer, issue and sell Shares of each Fund to
investors only in Creation Units through the Distributor on a
continuous basis at the NAV per Share next determined after an order in
proper form is received. The NAV of each Fund is expected to be
determined as of 4:00 p.m. E.T. on each Business Day. The Issuer will
sell and redeem Creation Units of each Fund only on a Business Day. A
Creation Unit will consist of at least 5,000 Shares. Creation Units of
the Funds may be purchased and/or redeemed entirely for cash, as
permissible under the procedures described below.
    Shares will be purchased and redeemed in Creation Units and
generally on an in-kind basis. Accordingly, except where the purchase
or redemption will include cash under the circumstances specified
below, purchasers will be required to purchase Creation Units by making
an in-kind deposit of specified instruments (``Deposit Instruments''),
and shareholders redeeming their Shares will receive an in-kind
transfer of specified instruments (``Redemption Instruments''). The
names and quantities of the instruments that constitute the Deposit
Instruments and the Redemption Instruments for a Fund (collectively,
the ``Creation Basket'') will be the same as a Fund's designated Proxy
Portfolio, except to the extent that a Fund requires purchases and
redemptions to be made entirely or in part on a cash basis, as
described below.
    If there is a difference between the net asset value attributable
to a Creation Unit and the aggregate market value of the Creation
Basket exchanged for the Creation Unit, the party conveying instruments
with the lower value will also pay to the other an amount in cash equal
to that difference (the ``Cash Amount'').
    Each Fund will adopt and implement policies and procedures
regarding the composition of its Creation Baskets. The policies and
procedures will set forth detailed parameters for the construction and
acceptance of baskets that are in the best interests of a Fund,
including the process for any revisions to or deviations from, those
parameters. A Fund's basket policies and procedures would be covered by
its compliance program and other requirements under rule 38a-1 of the
1940 Act.
    A Fund that normally issues and redeems Creation Units in kind may
require purchases and redemptions to be made entirely or in part on a
cash basis.\23\ In such an instance, the Fund will announce, before the
open of trading on a given Business Day, that all purchases, all
redemptions or all purchases and redemptions on that day will be made
wholly or partly in cash. A Fund may also determine, upon receiving a
purchase or redemption order from an Authorized Participant (as defined
below), to have the purchase or redemption, as applicable, be made
entirely or in part in cash.
---------------------------------------------------------------------------

    \23\ The Adviser represents that, to the extent the Issuer
effects the creation or redemption of Shares in cash, such
transactions will be effected in the same manner for all
``Authorized Participants'' (as defined below).
---------------------------------------------------------------------------

    Each Business Day, before the open of trading on the Exchange, the
Fund will cause to be published through the National Securities
Clearing Corporation (``NSCC'') the names and quantities of the
instruments comprising the Creation Basket, as well as the estimated
Cash 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
Proxy Portfolio will be published each Business Day regardless of
whether a Fund decides to issue or redeem Creation Units entirely or in
part on a cash basis.
    All orders to purchase Creation Units must be placed with the
Distributor by or through an Authorized Participant, which is generally
either: (1) A ``participating party,'' i.e., a broker or other
participant, in the Continuous Net Settlement (``CNS'') System of the
NSCC, a clearing agency registered with the Commission and affiliated
with the Depository Trust Company (``DTC''), or (2) a DTC Participant,
which in any case has executed a participant agreement with the
Distributor and the transfer agent with respect to the creation and
redemption of Creation Units (``Participant Agreement''). Except as
otherwise permitted, no promoter, principal underwriter (e.g., the
Distributor) or affiliated person of a Fund, or any affiliated person
of such person, will be an Authorized Participant in Shares.
Timing
    Validly submitted orders to purchase or redeem Creation Units on
each Business Day will be accepted until the end of the Core Trading
Session (the ``Order Cut-Off Time''), generally 4:00

p.m. E.T., on the Business Day that the order is placed (the
``Transmittal Date''). All Creation Unit orders must be received by the
Distributor no later than the Order Cut-Off Time in order to receive
the NAV determined on the Transmittal Date. When the Exchange closes
earlier than normal, a Fund may require orders for Creation Units to be
placed earlier in the Business Day.
Availability of Information
    The Funds' website, which will be publicly available at no charge
prior to the public offering of Shares, will include a prospectus for
each Fund that may be downloaded. In addition, the website will include
the following:
     Quantitative information updated on a daily basis,
including, on a per Share basis for each Fund, the prior Business Day's
NAV and the Closing Price \24\ or Bid/Ask Price of Shares, and a
calculation of the premium/discount of the Closing Price or Bid/Ask
Price \25\ against such NAV and any other information regarding
premiums and discounts as may be required for other ETFs under rule 6c-
11 under the 1940 Act. The website will also disclose any information
regarding the bid-ask spread for each Fund as may be required for other
ETFs under rule 6c-11 under the 1940 Act.
---------------------------------------------------------------------------

    \24\ The ``Closing Price'' of Shares is the official closing
price of Shares on the Exchange's Core Trading Session.
    \25\ The ``Bid/Ask Price'' is the midpoint of the highest bid
and lowest offer based on the National Best Bid and Offer at the
time that a Fund's NAV is calculated. The ``National Best Bid and
Offer'' is the current national best bid and national best offer as
disseminated by the Consolidated Quotation System or UTP Plan
Securities Information Processor.
---------------------------------------------------------------------------

     Each Fund's Proxy Portfolio, as well as the Portfolio
Overlap, Daily Deviation (for the last rolling one-year period),
Empirical Percentiles and Tracking Error of the Proxy Portfolio.
     Each Fund's Tracking Error.
     Bid-ask spread information for each Fund.
     A legend that will highlight for investors the differences
between a Fund and Managed Fund Shares (which are actively-managed
investment company securities such as those listed under NYSE Arca Rule
8.600-E). The legend will state that, unlike actively-managed ETFs such
as Managed Fund Shares, a Fund does not disclose its portfolio holdings
each day, but instead publishes a Proxy Portfolio each day during
normal trading hours. The legend will also include prominently in clear
bullet style the risks of a Fund relative to other ETFs.
    Investors interested in a particular Fund can also obtain its
prospectus, statement of additional information (``SAI''), shareholder
reports, Form N-CSR and Form N-CEN. The prospectus, SAI and shareholder
reports will be available free upon request from the Funds, and those
documents and the Form N-CSR and Form N-CEN may be viewed on-screen or
downloaded from the Commission's website at http://www.sec.gov.
    Information regarding the market price of Shares and trading volume
in Shares will be continually available on a real-time basis throughout
the day on brokers' computer screens and other electronic services. The
previous day's closing price and trading volume information may be
published daily in the financial section of newspapers. Further, the
Exchange will disseminate every 15 seconds throughout the Core Trading
Session through the facilities of the Consolidated Tape Association
(``CTA'') or other widely disseminated means each Fund's INAV.
Dissemination of the INAV
    The INAV for each Fund will be disseminated every 15 seconds during
the Exchange's Core Trading Session. The INAV should not be viewed as a
``real-time'' update of NAV because the INAV may not be calculated in
the same manner as NAV, which is computed once per day.
    An independent third party provider will calculate the INAV for
each Fund during the Exchange's Core Trading Session by dividing the
``Intraday Fund Value'' (as defined below) as of the time of the
calculation by the total number of outstanding Shares of that Fund.
``Intraday Fund Value'' is the sum of a Fund's assets, including the
amount of cash held in a Fund's portfolio, the amount of accrued
assets, such as interest, dividends and distributions owed to a Fund,
and the value of the securities held in a Fund's portfolio, minus the
amount of a Fund's accrued liabilities as of a Fund's previous day's
NAV calculation. The Intraday Fund Value is also based on intraday
estimates of securities values.
    The Funds will provide the independent third party provider with
information to calculate the INAV. Dissemination of the INAV will allow
investors to determine the value of the underlying portfolio of a Fund
throughout the trading day.
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.\26\ Trading in Shares of the Funds
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. 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. These may include the extent to
which trading is not occurring in the securities and/or the financial
instruments comprising the holdings of a Fund, or whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. Trading in the Shares will be subject
to NYSE Arca Rule 8.601-E(d)(2)(D), which sets forth circumstances
under which Shares of the Funds may be halted.
---------------------------------------------------------------------------

    \26\ 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 from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Rule 7.34-E (Opening, Core, and Late Trading Sessions). The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. 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 8.601-E. The Exchange represents that,
for initial and/or continued listing, each Fund will be in compliance
with Rule 10A-3 under the Act,\27\ as provided by NYSE Arca Rule 5.3-E.
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.
---------------------------------------------------------------------------

    \27\ 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 Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\28\ 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.
---------------------------------------------------------------------------

    \28\ FINRA surveils trading on 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.
    FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, certain exchange-traded equities,
ETFs, ETNs and futures with other markets and other entities that are
members of the Intermarket Surveillance Group (``ISG''), and FINRA, on
behalf of the Exchange, may obtain trading information regarding
trading such securities and financial instruments from such markets and
other entities. In addition, the Exchange may obtain information
regarding trading in such securities and financial instruments from
markets and other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing
agreement.\29\
---------------------------------------------------------------------------

    \29\ For a list of the current members of ISG, see
www.isgportal.org.
---------------------------------------------------------------------------

    The Funds' Adviser will make available to FINRA and the Exchange
the portfolio holdings of each Fund in order to facilitate the
performance of the surveillances referred to above on a confidential
basis.
    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
and the differing rights of various investors to redeem 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) the risks involved in trading the
Shares during the Opening and Late Trading Sessions when an updated
INAV will not be calculated or publicly disseminated; (4) how
information regarding the INAV is disseminated; (5) 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 (6) 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 as of 4:00 p.m. E.T. each trading day.
    The Exchange notes that the proposed change is not otherwise
intended to address any other issues and that the Exchange is not aware
of any problems that Equity Trading Permit Holders or issuers would
have in complying with the proposed change.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\30\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\31\ 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.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 8.601-E is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading of Managed Portfolio
Securities provide specific initial and continued listing criteria
required to be met by such securities. Proposed Rule 8.601-E(d) sets
forth initial and continued listing criteria applicable to Managed
Portfolio Securities. Proposed Rule 8.601-E(d)(1)(A) provides that, for
each series of Managed Portfolio Securities, the Exchange will
establish a minimum number of Managed Portfolio Securities required to
be outstanding at the time of commencement of trading. In addition,
proposed Rule 8.601-E(d)(1)(B) provides that the Exchange will obtain a
representation from the issuer of each series of Managed Portfolio
Securities that the NAV per share for the series will be calculated
daily and that the NAV and the Portfolio Positions will be made
publicly available to all market participants at the same time.
Proposed Rule 8.601-E(d)(1)(C) provides that all Managed Portfolio
Securities shall have a stated objective, which shall be adhered to
under normal market conditions.
    Proposed Rule 8.601-E(d)(2) provides that each series of Managed
Portfolio Securities will be listed and traded subject to application
of the specified continued listing criteria, as described above.
Proposed Rule 8.601-E(d)(2)(A)(i) provides that the Portfolio Positions
shall be disseminated quarterly and shall be made publicly available to
all market participants at the same time. Proposed Rule 8.601-
E(d)(2)(C) provides that the Exchange will maintain surveillance
procedures for securities listed under Rule 8.601-E and consider the
suspension of trading in, and will commence delisting proceedings under
Rule 5.5-E(m) for, a series of Managed Portfolio Securities under any
of the following circumstances: (i) If any of the continued listing
requirements set forth in Rule 8.601-E are not continuously maintained;
(ii) if 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 the
Exchange's 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 Securities, is not continuously maintained; or (iii)
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 8.601-E(d)(1)(D) provides that, if a series of
Managed Portfolio Securities is trading on the Exchange pursuant to
unlisted trading privileges, the Exchange shall halt trading in that
series as specified in Rule 7.18-E(d)(1). In addition, upon
notification to the Exchange by the issuer of a series of Managed
Portfolio Securities that the NAV with respect to a series of Managed
Portfolio Securities is not disseminated to all market participants at
the same time, the Exchange shall halt trading in such series until
such time as the NAV is available to all market participants at the
same time. The Exchange may also halt trading at the request of the
investment adviser to a series of Managed Portfolio Securities upon
notification to the Exchange that the

securities representing 10% or more of the Portfolio Positions for such
series do not have readily available market quotations, and during
times of unusual market volatility where a significant portion of such
series' Portfolio Positions are subject to a trading halt or have a
last trade price that the investment adviser deems unreliable, if the
investment adviser determines that it is in the best interest of such
series.
    Proposed Commentary .01 provides that the Exchange will file
separate proposals under Section 19(b) of the Act before the listing
and trading of a series of Managed Portfolio Securities. An issuer of
such securities must notify the Exchange of any failure to comply with
such continued listing requirements.
    Proposed Commentary .03 provides that the Exchange will implement
and maintain written surveillance procedures for Managed Portfolio
Securities. Proposed Commentary .04 provides that if the investment
adviser to the Investment Company issuing Managed Portfolio Securities
is affiliated with a broker-dealer, such investment adviser will erect
and maintain a ``fire wall'' between the investment adviser and the
broker-dealer with respect to access to information concerning the
composition and/or changes to such 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.
    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 8.601-E. Price
information for the securities and other financial instruments held by
the Funds will be available through major market data vendors or
exchanges listing and trading such securities and other financial
instruments. One-hundred percent of the value of a Fund's Portfolio
Positions (except for cash, cash equivalents and Treasury securities)
at the time of purchase will be listed on national securities exchanges
(or, in the limited case of index futures contracts, futures
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. FINRA, on behalf of the Exchange, will communicate
as needed regarding trading in the Shares, certain exchange-traded
equities, ETFs, ETNs and futures with other markets and other entities
that are members of the ISG, and FINRA, on behalf of the Exchange, may
obtain trading information regarding trading such securities and
financial instruments from such markets and other entities. In
addition, the Exchange may obtain information regarding trading in such
securities and financial instruments from markets and other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
    With respect to the Funds, the Exchange believes that a Fund's
Proxy Portfolio, together with the real-time dissemination of a Fund's
INAV, as well as the Portfolio Overlap, Daily Deviations, Empirical
Percentiles and Tracking Error data as well as the right of Authorized
Participants 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 Securities will not generally rest on the ability of market
participants to arbitrage between the Shares and a Fund's portfolio,
but rather on 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 will 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 \32\ or by netting the exposure against other, offsetting
trading positions--much as such firms do with existing ETFs and other
equities. Disclosure of the Proxy Portfolio, Portfolio Overlap, the
Daily Deviation (for the last rolling one-year period), Empirical
Percentiles and Tracking Error of the Proxy Portfolio, a Fund's
investment objective and principal investment strategies in its
prospectus and SAI, along with the dissemination of the INAV every 15
seconds, should permit professional investors to engage readily in this
type of hedging activity.\33\
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    \32\ 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. With the Proxy Portfolio identified, a
trader can minimize portfolio risk by executing the hedging basket.
The trader then can monitor the performance of the Proxy Portfolio
throughout the trade period, making corrections where warranted.
    \33\ With respect to trading in Shares of the Funds, market
participants can 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 INAV without taking undue risk by
utilizing the Proxy Portfolio directly as a hedge, analyzing the
Daily Deviation (for the last rolling one-year period), Empirical
Percentiles and Tracking Error of the Proxy Portfolio, gaining
experience with how various market factors (e.g., general market
movements, sensitivity of the value of the Proxy Portfolio to
intraday movements in interest rates or commodity prices, etc.)
affect value of the Proxy Portfolio, and by finding hedges for their
long or short positions in Shares using instruments correlated with
such factors.
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    It is expected that market participants will utilize the Proxy
Portfolio as a pricing signal and high quality hedging vehicle, analyze
the Portfolio Overlap, Daily Deviation (for the last rolling one-year
period), Empirical Percentiles and Tracking Error of the Proxy
Portfolio, and gain experience with how various market factors (e.g.,
general market movements, sensitivity or correlations of the Proxy
Portfolio to intraday movements in interest rates or commodity prices,
other benchmarks, etc.) affect the value of the Proxy Portfolio in
order to determine how best to hedge long or short positions taken in
Shares in a manner that will permit them to provide a Bid/Ask Price for
Shares that is near to the value of the Proxy Portfolio throughout the
day. The ability of market participants to accurately hedge their
positions should serve to minimize any divergence between the secondary
market price of the Shares and a Fund's NAV, as well as create
liquidity in the Shares. With respect to trading of Shares of the
Funds, the ability of market participants to buy and sell Shares at
prices near the NAV is dependent upon their assessment that the value
of the Proxy Portfolio is a reliable, indicative real-time value for a
Fund's underlying

holdings. Market participants are expected to accept the value of the
Proxy Portfolio as a reliable, indicative real-time value because (1)
the Proxy Portfolio will be determined such that at least 80% of its
total assets will overlap with the portfolio weightings of the Fund,
(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 value of the Proxy Portfolio
at or near the close of trading is predictive of the actual NAV.
    The disclosure of a Fund's Proxy Portfolio and the ability of
Authorized Participants to create and redeem each Business 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.
    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 Securities that the NAV per share of such
issue will be calculated daily and that the NAV and Portfolio Positions
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 and Form N-CEN. 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 and Form N-CEN 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 INAV will be widely disseminated every
15 seconds 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 a
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 8.601-E(d)(2)(D), which sets forth
circumstances under which Shares of the Funds may be halted. In
addition, as noted above, investors will have ready access to the INAV,
the Proxy Portfolio, and quotation and last sale information for the
Shares. The Shares will conform to the initial and continued listing
criteria under proposed Rule 8.601-E.
    The value of a Fund's Portfolio Positions will (a) be listed on an
exchange and the primary trading session of such exchange will
substantially overlap with the Exchange's Core Trading Session, as
defined in Rule 7.34-E(a); (b) with respect to exchange-traded futures,
be listed on a U.S. futures exchange; or (c) consist of cash and cash
equivalents.\34\
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    \34\ See note 10, supra.
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    The proposed rule change is designed to improve 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, with respect to the
Funds, 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 Proxy Portfolio, Portfolio Overlap, Daily
Deviation, Empirical Percentiles, Tracking Error, the INAV, and
quotation and last sale information for the Shares.

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

    In accordance with Section 6(b)(8) of the Act,\35\ 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, including that the portfolio is disclosed at least once
quarterly as opposed to daily, and would introduce additional
competition among various ETF products to the benefit of investors.
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    \35\ 15 U.S.C. 78f(b)(8).
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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_ADDRESS>Please include
File Number SR-NYSEArca-2019-92 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-2019-92. 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-2019-92 and should be submitted on or before January 24, 2020.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2019-28411 Filed 1-2-20; 8:45 am]
 BILLING CODE 8011-01-P