[Federal Register Volume 80, Number 73 (Thursday, April 16, 2015)]
[Notices]
[Pages 20529-20534]
[FR Doc No: 2015-08695]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74701; File No. SR-NYSEArca-2015-18]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading under NYSE Arca
Equities Rule 5.2(j)(3), Commentary .02 of Shares of the Vanguard Tax-
Exempt Bond Index Fund

April 10, 2015.
    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 April 6, 2015, NYSE Arca, Inc. (``NYSE Arca'' or ``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 list and trade under NYSE Arca Equities
Rule 5.2(j)(3), Commentary .02, the shares of the Vanguard Tax-Exempt
Bond Index Fund. The text of the proposed rule change is available on
the Exchange's Web site 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
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the
Vanguard Tax-Exempt Bond Index Fund's ETF share class (``Fund'') under
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02, which governs the
listing and trading of Investment Company Units (``Units'') based on
fixed income securities indexes.\4\ The Fund is a series of the
Vanguard Municipal Bond Funds Trust (``Trust'').\5\ The Vanguard Group,
Inc.

will be the investment adviser to the Fund (``Adviser'').
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    \4\ The Commission previously has approved proposed rule changes
relating to listing and trading on the Exchange of Units based on
municipal bond indexes. See Securities Exchange Act Release Nos.
67985 (October 4, 2012), 77 FR 61804 (October 11, 2012) (SR-
NYSEArca-2012-92) (order approving proposed rule change relating to
the listing and trading of iShares 2018 S&P AMT-Free Municipal
Series and iShares 2019 S&P AMT-Free Municipal Series under NYSE
Arca Equities Rule 5.2(j)(3), Commentary .02); 67729 (August 24,
2012), 77 FR 52776 (August 30, 2012) (SR-NYSEArca-2012-92) (notice
of proposed rule change relating to the listing and trading of
iShares 2018 S&P AMT-Free Municipal Series and iShares 2019 S&P AMT-
Free Municipal Series under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02); 71232 (January 3, 2014), 79 FR 1662 (January 9,
2014) (SR-NYSEArca-2013-118) (order approving listing and trading of
shares of the Market Vectors Short High-Yield Municipal Index ETF
under NYSE Arca Equities Rule 5.2(j)(3), Commentary .02); 72523,
(July 2, 2014), 79 FR 39016 (July 9, 2014) (SR-NYSEArca-2014-37)
(order approving proposed rule change relating to the listing and
trading of iShares 2020 S&P AMT-Free Municipal Series under NYSE
Arca Equities Rule 5.2(j)(3), Commentary .02); 72172 (May 15, 2014),
79 FR 29241 (May 21, 2014) (SR-NYSEArca-2014-37) (notice of proposed
rule change relating to the listing and trading of iShares 2020 S&P
AMT-Free Municipal Series under NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02). The Commission also has issued a notice of filing
and immediate effectiveness of a proposed rule change relating to
listing and trading on the Exchange of shares of the iShares Taxable
Municipal Bond Fund. See Securities Exchange Act Release No. 63176
(October 25, 2010), 75 FR 66815 (October 29, 2010) (SR-NYSEArca-
2010-94). The Commission has approved for Exchange listing and
trading of shares of two actively managed funds of the PIMCO ETF
Trust that principally hold municipal bonds. See Securities Exchange
Act Release No. 60981 (November 10, 2009), 74 FR 59594 (November 18,
2009) (SR-NYSEArca-2009-79) (order approving listing and trading of
shares of the PIMCO Short-Term Municipal Bond Strategy Fund and
PIMCO Intermediate Municipal Bond Strategy Fund). The Commission
also has approved listing and trading on the Exchange of shares of
the SPDR[supreg] Nuveen S&P High Yield Municipal Bond Fund under
Commentary .02 of NYSE Arca Equities Rule 5.2(j)(3). See Securities
Exchange Act Release No. 63881 (February 9, 2011), 76 FR 9065
(February 16, 2011) (SR-NYSEArca-2010-120).
    \5\ On January 6, 2015, the Trust filed a registration statement
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a)
(``1933 Act'') and the Investment Company Act of 1940 (``1940 Act'')
(15 U.S.C. 80a-1) (File Nos. 2-57689 and 811-02687) (the
``Registration Statement''). The description of the operation of the
Trust and the Fund herein is based, in part, on the Registration
Statement. In addition, the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940 Act. See
Investment Company Act Release No. 27773 (April 2, 2007) (File No.
812-13336) (``Exemptive Order'').
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    State Street Bank and Trust Company will serve as custodian for the
Fund. Vanguard Marketing Corporation will be the distributor
(``Distributor'') for the Fund's Shares.
Principal Investments
    According to the Registration Statement, the Fund will seek to
track the performance of a benchmark index that measures the
investment-grade segment of the U.S. municipal bond market. The Fund
will invest by sampling its benchmark index, meaning that it holds a
range of securities that, in the aggregate, approximates the full index
in terms of key risk factors and other characteristics. All of the
Fund's investments will be selected through the sampling process, and,
under normal circumstances \6\, at least 80% of the Fund's assets will
be invested in securities held in its benchmark index. Under normal
circumstances, at least 80% of the Fund's income will be exempt from
federal income taxes.
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    \6\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
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    The Fund has proposed to use the Standard & Poor's National AMT-
Free Municipal Bond Index (``Index'') as its benchmark index.\7\ The
Index includes municipal bonds from issuers that are primarily state or
local governments or agencies whose interest is exempt from U.S.
federal income taxes and the federal alternative minimum tax (AMT). To
be eligible for inclusion in the Index, each bond must have a rating of
at least investment-grade, as determined by a nationally recognized
statistical rating organization (e.g., at least BBB- by Fitch Ratings,
Inc.); be denominated in U.S. dollars; and have a minimum par amount of
$25 million. In addition, to be included in the Index, each bond must
have a minimum term to maturity and/or pre-refunded or call date
greater than or equal to one calendar month. The following bond types
are specifically excluded from the Index: bonds subject to the AMT;
commercial paper; derivative securities (inverse floaters, forwards,
swaps); housing bonds; insured conduit bonds where the obligor is a
for-profit institution; non-insured conduit bonds; non-rated bonds;
notes; taxable municipals; tobacco bonds; and variable rate debt. Each
bond in the Index must be a constituent of a deal where the deal's
original offering amount was at least $100 million. Index constituents
normally undergo a review and rebalancing once a month. At each monthly
rebalancing, no one issuer can represent more than 25% of the weight of
the Index; and individual issuers that represent at least 5% of the
weight of the Index cannot account for more than 50% of the weight of
the Index in the aggregate.
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    \7\ S&P Dow Jones Indices (``S&P'') is the ``Index Provider''
with respect to the Index. The Index Provider is not a broker-dealer
or affiliated with a broker-dealer and has implemented procedures
designed to prevent the use and dissemination of material, non-
public information regarding the Index.
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Non-Principal Investments
    While under normal circumstances, at least 80% of the Fund's assets
will be invested in securities held in its benchmark index, as
described above, the Fund may invest up to 20% of its assets in other
securities and financial instruments, as described below.
    According to the Registration Statement, up to 20% of the Fund's
assets may be used to purchase nonpublic, investment-grade securities,
generally referred to as 144A securities, as well as smaller public
issues or medium-term notes not included in its benchmark index because
of the small size of the issue. The vast majority of these securities
will have characteristics and risks similar to those in the benchmark
index. Subject to the same 20% limit, the Fund may also purchase other
investments that are outside of its benchmark index or may hold bonds
that, when acquired, were included in the benchmark index but
subsequently were removed.
    The Fund may invest in U.S. Treasury futures contracts, exchange-
traded and over-the-counter (``OTC'') options on such futures
contracts, exchange-traded and OTC fixed income options, centrally
cleared and non-centrally cleared interest rate swaps, centrally
cleared and non-centrally cleared total return swaps, and centrally
cleared and non-centrally cleared credit default swaps.
    The Fund may invest in non-investment-grade securities, also
referred to as ``high-yield securities'' or ``junk bonds'', which are
debt securities that are rated lower than the four highest rating
categories by a nationally recognized statistical rating organization
(e.g., lower than Baa3/P-2 by Moody's Investors Service, Inc.
(Moody's), or below BBB-/A-2 by Standard & Poor's) or, if unrated, are
determined to be of comparable quality by the Adviser.
    The Fund may invest in variable and floating rate securities, which
are debt securities that provide for periodic adjustments in the
interest rate paid on the security. Variable rate securities provide
for a specified periodic adjustment in the interest rate, while
floating rate securities have interest rates that change whenever there
is a change in a designated benchmark rate or the issuer's credit
quality.
    The Fund may purchase shares of exchange-traded funds (``ETFs'')
\8\, including ETF shares issued by other Vanguard funds.
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    \8\ For purposes of this filing, ETFs include Investment Company
Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
and Managed Fund Shares (as described in NYSE Arca Equities Rule
8.600). The ETFs all will be listed and traded in the U.S. on
national securities exchanges. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged or inverse leveraged
ETFs (e.g., 2X or 3X).
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    The Fund may invest in hybrid instruments.\9\
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    \9\ According to the Registration Statement, a hybrid instrument
is an interest in an issuer that combines the characteristics of an
equity security, a debt security, a commodity, and/or a derivative.
Examples of hybrid instruments include exchange-traded or OTC
convertible securities, contingent convertible securities; trust-
preferred securities, and commodity-linked bonds.
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    In addition to the municipal securities referenced in the
``Principal Investments'' section above, the Fund may invest in other
municipal securities, which are debt obligations issued by states,
municipalities, U.S. jurisdictions or territories, and other political
subdivisions and by agencies, authorities, and instrumentalities of
states and multistate agencies or authorities (collectively,
municipalities). Municipal securities also include a variety of
structures geared toward accommodating municipal-issuer short-term cash
flow requirements. These structures include, but are not limited to,
general market notes, commercial paper, put bonds, and variable-rate
demand obligations (``VRDOs'').
    The Fund may invest in Build America Bonds.
    The Fund may purchase certain variable-rate demand-preferred
securities (``VRDPs'') issued by closed-end municipal bond funds,
which, in turn, invest primarily in portfolios of tax-exempt municipal
bonds. The Fund

may invest in securities issued by single-state or national closed-end
municipal bond funds. VRDPs are issued by closed-end funds to leverage
returns for common shareholders.
    The Fund may participate in tender option bond programs, which are
a type of municipal bond derivative structure, which is taxed as a
partnership for federal income tax purposes. These programs provide for
tax-exempt income at a variable rate. In such programs, high-quality
longer-term municipal bonds are held inside a trust and varying
economic interests in the bonds are created and sold to investors.
Investment Restrictions
    The Fund may invest in other investment companies to the extent
permitted by applicable law or Commission exemption and consistent with
Section 12(d)(1) of the 1940 Act.
    The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser, in
accordance with Commission guidance.\10\ The Fund will monitor its
portfolio liquidity on an ongoing basis to determine whether, in light
of current circumstances, an adequate level of liquidity is being
maintained, and will consider taking appropriate steps in order to
maintain adequate liquidity if, through a change in values, net assets,
or other circumstances, more than 15% of the Fund's net assets are held
in illiquid securities. Illiquid securities include securities subject
to contractual or other restrictions on resale and other instruments
that lack readily available markets as determined in accordance with
Commission staff guidance.\11\
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    \10\ Several factors considered in monitoring illiquidity
determinations include the valuation of a security; the availability
of qualified institutional buyers, brokers, and dealers that trade
in the security; and the availability of information about the
security's issuer.
    \11\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the 1933 Act).
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    The Fund is classified as diversified within the meaning of the
1940 Act.\12\
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    \12\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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    The Fund intends to maintain the required level of diversification
and otherwise conduct its operations so as to qualify as a ``regulated
investment company'' for purposes of the Internal Revenue Code of
1986.\13\
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    \13\ 26 U.S.C. 851.
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    The Exchange is submitting this proposed rule change because the
Index for the Fund does not meet all of the ``generic'' listing
requirements of Commentary .02(a) to NYSE Arca Equities Rule 5.2(j)(3)
applicable to the listing of Units based on fixed income securities
indexes. The Index meets all such requirements except for those set
forth in Commentary .02(a)(2).\14\ Specifically, as of February 7,
2015, 33.69% of the weight of the Index components have a minimum
original principal amount outstanding of $100 million or more.
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    \14\ Commentary .02(a)(2) to NYSE Arca Equities Rule 5.2(j)(3)
provides that components that in the aggregate account for at least
75% of the weight of the index or portfolio each shall have a
minimum original principal amount outstanding of $100 million or
more.
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    As of February 7, 2015, 98.72% of the weight of the Index
components was composed of individual maturities that were part of an
entire municipal bond offering with a minimum original principal amount
outstanding of $100 million or more for all maturities of the offering.
In addition, the total dollar amount outstanding of issues in the Index
was approximately $2.424 billion and the average dollar amount
outstanding of issues in the Index was approximately $60 million.
Further, the most heavily weighted component represents 0.27% of the
weight of the Index and the five most heavily weighted components
represent 0.96% of the weight of the Index.\15\ In addition, the
average daily notional trading volume for Index components for the
period from January 2, 2014 to December 31, 2014 was $1,272,356,609 and
the sum of the notional trading volumes for the same period was
$318,089,152,147.
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    \15\ Commentary .02(a)(4) to NYSE Arca Equities Rule 5.2(j)(3)
provides that no component fixed-income security (excluding Treasury
Securities and GSE Securities, as defined therein) shall represent
more than 30% of the weight of the index or portfolio, and the five
most heavily weighted component fixed-income securities in the index
or portfolio shall not in the aggregate account for more than 65% of
the weight of the index or portfolio.
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    Therefore, the Exchange believes that, notwithstanding that the
Index does not satisfy the criterion in NYSE Arca Equities Rule
5.2(j)(3), Commentary .02 (a)(2), the Index is sufficiently broad-based
to deter potential manipulation, given that it is composed of
approximately 10,015 issues and 969 unique issuers. In addition, the
Index securities are sufficiently liquid to deter potential
manipulation in that a substantial portion (98.72%) of the Index weight
is composed of maturities that are part of an entire municipal bond
offering with a minimum original principal amount outstanding of $100
million or more, and in view of the substantial total dollar amount
outstanding and the average dollar amount outstanding of Index issues,
as referenced above.
Purchase and Issuance of Shares in Creation Units
    The Fund will issue and sell Shares only in ``Creation Units''
through the Distributor, without a sales load, at its net asset value
(``NAV'') next determined after receipt of an order in proper form on
any business day.
    The consideration for purchase of a Creation Unit from the Fund
generally will consist of the in-kind deposit of a designated portfolio
of securities (Deposit Securities) and an amount of cash (``Cash
Component'') consisting of a purchase balancing amount and a
transaction fee (both described in the following paragraphs). Together,
the Deposit Securities and the Cash Component constitute the ``Fund
Deposit''.
    The purchase balancing amount is an amount equal to the difference
between the NAV of a Creation Unit and the market value of the Deposit
Securities (Deposit Amount). It ensures that the NAV of a Fund Deposit
(not including the transaction fee) is identical to the NAV of the
Creation Unit it is used to purchase. If the purchase balancing amount
is a positive number (i.e., the NAV per Creation Unit exceeds the
market value of the Deposit Securities), then that amount will be paid
by the purchaser to the Fund in cash. If the purchase balancing amount
is a negative number (i.e., the NAV per Creation Unit is less than the
market value of the Deposit Securities), then that amount will be paid
by the Fund to the purchaser in cash (except as offset by the
transaction fee).
    Vanguard, through the National Securities Clearing Corporation
(``NSCC''), will make available after the close of each business day a
list of the names and the number of shares of each Deposit Security to
be included in the next business day's Fund Deposit for the Fund
(subject to possible amendment or correction). The Fund reserves the
right

to accept a nonconforming Fund Deposit.
    The identity and number of shares of the Deposit Securities
required for a Fund Deposit may change from one day to another to
reflect rebalancing adjustments, corporate actions, and interest
payments on underlying bonds or to respond to adjustments to the
weighting or composition of the component securities of the Index.
    In addition, the Fund reserves the right to permit or require the
substitution of an amount of cash--referred to as ``cash-in-lieu''--to
be added to the Cash Component to replace any Deposit Security. This
might occur, for example, if a Deposit Security is not available in
sufficient quantity for delivery, is not eligible for transfer through
the applicable clearance and settlement system, or is not eligible for
trading by an ``Authorized Participant'' or the investor for which an
Authorized Participant is acting.
    To initiate a purchase order for a Creation Unit, an Authorized
Participant must submit an order in proper form to the Distributor and
such order must be received by the Distributor prior to the closing
time of regular trading of the New York Stock Exchange (``NYSE'')
(Closing Time) (ordinarily 4 p.m. Eastern time) to receive that day's
NAV. Authorized Participants must transmit orders using a transmission
method acceptable to the Distributor pursuant to procedures set forth
in the ``Participant Agreement''.
Redemption of Shares in Creation Units
    Redemption orders must be placed by an Authorized Participant.
Shares may be redeemed only in Creation Units.
    Unless cash redemptions are available or specified for the Fund, an
investor tendering a Creation Unit generally will receive redemption
proceeds consisting of (1) a basket of ``Redemption Securities''; plus
(2) a redemption balancing amount in cash equal to the difference
between (x) the NAV of the Creation Unit being redeemed, as next
determined after receipt of a request in proper form, and (y) the value
of the Redemption Securities; less (3) a transaction fee. If the
Redemption Securities have a value greater than the NAV of a Creation
Unit, the redeeming investor will pay the redemption balancing amount
in cash to the Fund rather than receive such amount from the Fund.
    Vanguard, through the NSCC, will make available after the close of
each business day a list of the names and the number of shares of each
Redemption Security to be included in the next business day's
redemption basket for the Fund (subject to possible amendment or
correction). The basket of Redemption Securities provided to an
investor redeeming a Creation Unit may not be identical to the basket
of Deposit Securities required of an investor purchasing a Creation
Unit. If the Fund and a redeeming investor mutually agree, the Fund may
provide the investor with a basket of Redemption Securities that
differs from the composition of the redemption basket published through
the NSCC.
    The Fund reserves the right to deliver cash in lieu of any
Redemption Security for the same reason it might accept cash in lieu of
a Deposit Security, or if the Fund could not lawfully deliver the
security or could not do so without first registering such security
under federal or state law.
    If an Authorized Participant, or a redeeming investor acting
through an Authorized Participant, is subject to a legal restriction
with respect to a particular security included in the basket of
Redemption Securities, such investor may be paid an equivalent amount
of cash in lieu of the security.
    The right of redemption may be suspended or the date of payment
postponed with respect to the Fund (1) for any period during which the
NYSE or the Exchange is closed (other than customary weekend and
holiday closings), (2) for any period during which trading on the NYSE
or the Exchange is suspended or restricted, (3) for any period during
which an emergency exists as a result of which disposal of the Fund's
portfolio securities or determination of its NAV is not reasonably
practical, or (4) in such other circumstances as the Commission
permits.
    A creation and redemption transaction fee will be imposed to offset
transfer and other transaction costs that may be incurred by the Fund.
    The Exchange represents that: (1) Except for Commentary .02(a)(2)
to NYSE Arca Equities Rule 5.2(j)(3), the Shares of the Fund currently
satisfy all of the generic listing standards under NYSE Arca Equities
Rule 5.2(j)(3); (2) the continued listing standards under NYSE Arca
Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Units shall apply
to the Shares; and (3) the Trust is required to comply with Rule 10A-3
under the Act \16\ for the initial and continued listing of the Shares.
In addition, the Exchange represents that the Shares will comply with
all other requirements applicable to Units including, but not limited
to, requirements relating to the dissemination of key information such
as the value of the Index and the applicable Intraday Indicative Value
(``IIV''),\17\ rules governing the trading of equity securities,
trading hours, trading halts, surveillance, and the Information
Bulletin to Equity Trading Permit Holders (``ETP Holders''), as set
forth in Exchange rules applicable to Units and prior Commission orders
approving the generic listing rules applicable to the listing and
trading of Units.\18\
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    \16\ 17 CFR 240.10A-3.
    \17\ The IIV will be widely disseminated by one or more major
market data vendors at least every 15 seconds during the Exchange's
Core Trading Session of 9:30 a.m. to 4:00 p.m., Eastern time.
Currently, it is the Exchange's understanding that several major
market data vendors display and/or make widely available IIVs taken
from the Consolidated Tape Association (``CTA'') or other data
feeds.
    \18\ See, e.g., Securities Exchange Act Release Nos. 55783 (May
17, 2007), 72 FR 29194 (May 24, 2007) (SR-NYSEArca-2007-36) (order
approving NYSE Arca generic listing standards for Units based on a
fixed income index); 44551 (July 12, 2001), 66 FR 37716 (July 19,
2001) (SR-PCX-2001-14) (order approving generic listing standards
for Units and Portfolio Depositary Receipts); 41983 (October 6,
1999), 64 FR 56008 (October 15, 1999) (SR-PCX-98-29) (order
approving rules for listing and trading of Units).
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    The current value of the Index will be widely disseminated by one
or more major market data vendors at least once per day, as required by
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (b)(ii). The IIV for
Shares of the Fund will be disseminated by one or more major market
data vendors, updated at least every 15 seconds during the Exchange's
Core Trading Session, as required by NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02(c).
    The Index value, calculated and disseminated at least once daily,
as well as the components of the Index and their percentage weighting,
will be available from major market data vendors. In addition, as
disclosed in the Registration Statement, the portfolio of securities
held by the Fund will be disclosed monthly on the Fund's Web site at
www.vanguard.com.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5)\19\ that an exchange have rules that
are 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, in general, to protect investors and the public interest.
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    \19\ 15 U.S.C. 78f(b)(5).
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    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 Equities Rule 5.2(j)(3). 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.\20\ 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. 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 with other
markets that are members of the Intermarket Surveillance Group
(``ISG'') or with which the Exchange has in place a comprehensive
surveillance sharing agreement. FINRA also can access data obtained
from the Municipal Securities Rulemaking Board relating to municipal
bond trading activity for surveillance purposes in connection with
trading in the Shares. The Index Provider is not a broker-dealer or
affiliated with a broker-dealer and has implemented procedures designed
to prevent the use and dissemination of material, non-public
information regarding the Index. As of February 7, 2015, there were
approximately 10,015 issues in the Index. The Index meets all such
requirements except for those set forth in Commentary .02(a)(2).\21\
Specifically, as of February 7, 2015, 33.69% of the weight of the Index
components have a minimum original principal amount outstanding of $100
million or more.
---------------------------------------------------------------------------

    \20\ 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.
    \21\ See note 14, supra.
---------------------------------------------------------------------------

    As of February 7, 2015, 98.72% of the weight of the Index
components was composed of individual maturities that were part of an
entire municipal bond offering with a minimum original principal amount
outstanding of $100 million or more for all maturities of the offering.
In addition, the total dollar amount outstanding of issues in the Index
was approximately $2.424 billion and the average dollar amount
outstanding of issues in the Index was approximately $60 million.
Further, the most heavily weighted component represents 0.27% of the
weight of the Index and the five most heavily weighted components
represent 0.96% of the weight of the Index.\22\ Therefore, the Exchange
believes that, notwithstanding that the Index does not satisfy the
criterion in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 (a)(2),
the Index is sufficiently broad-based to deter potential manipulation,
given that it is composed of approximately 10,015 issues and 969 unique
issuers. The Index securities are sufficiently liquid to deter
potential manipulation in that a substantial portion (98.72%) of the
Index weight is composed of maturities that are part of an entire
municipal bond offering with a minimum original principal amount
outstanding of $100 million or more, and in view of the substantial
total dollar amount outstanding and the average dollar amount
outstanding of Index issues, as referenced above. In addition, the
average daily notional trading volume for Index components for the
period from January 2, 2014 to December 31, 2014 was $1,272,356,609 and
the sum of the notional trading volumes for the same period was
$318,089,152,147.
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    \22\ See note 15, supra.
---------------------------------------------------------------------------

    The Index value, calculated and disseminated at least once daily,
as well as the components of the Index and their respective percentage
weightings, will be available from major market data vendors. In
addition, as disclosed in the Registration Statement, the portfolio of
securities held by the Fund will be disclosed on the Fund's Web site.
The IIV for Shares of the Fund will be disseminated by one or more
major market data vendors, updated at least every 15 seconds during the
Exchange's Core Trading Session. The Adviser represents that, within a
single municipal bond issuer, separate issues by the same issuer are
also likely to trade similarly to one another. In addition, the Adviser
represents that individual CUSIPs within the Index that share
characteristics with other CUSIPs have a high yield to maturity
correlation, and frequently have a correlation of one or close to one.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest.
In addition, a large amount of information is publicly available
regarding the Fund and the Shares, thereby promoting market
transparency. As disclosed in the Registration Statement, the Fund's
portfolio holdings will be periodically disclosed on the Fund's Web
site. Moreover, the IIV will be widely disseminated by one or more
major market data vendors at least every 15 seconds during the
Exchange's Core Trading Session. The current value of the Index will be
disseminated by one or more major market data vendors at least once per
day. 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, and
quotation and last sale information will be available via the CTA high-
speed line. The Web site for the Fund will include the prospectus for
the Fund and additional data relating to NAV and other applicable
quantitative information. 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. 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 Shares until such time as the NAV is available to
all market participants. 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 Fund. 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. If the IIV or the
Index values are not being disseminated as required, the Corporation
may halt trading during the day in which the interruption to the
dissemination of the applicable IIV or Index value occurs. If the
interruption to the dissemination of the applicable IIV or Index value
persists past the trading day in which it occurred, the Corporation
will halt trading. Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been
reached or because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable, and
trading in the Shares will be subject to NYSE Arca Equities Rule 7.34,
which sets forth circumstances under which Shares of the Fund may be
halted. In addition, investors will have ready access to information
regarding the IIV, and

quotation and last sale information for the Shares.
    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 exchange-traded product that invests principally
in municipal securities and 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, investors will have ready access to information regarding the
IIV 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 purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of exchange-traded product that invests principally in
municipal securities and that will enhance competition among market
participants, to the benefit of investors and the marketplace.

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-2015-18 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-2015-18. 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 Web site (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 Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available
for inspection and copying at the principal offices of the Exchange and
on its Internet Web site at www.nyse.com. All comments received will be
posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2015-18, and should be
submitted on or before May 7, 2015.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
---------------------------------------------------------------------------

    \23\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-08695 Filed 4-15-15; 8:45 am]
 BILLING CODE 8011-01-P


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[Federal Register: June 5, 2008 (Volume 73, Number 109)]
[Proposed Rules]
[Page 31947-31949]
[DOCID:fr05jn08-11]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R03-OAR-2008-0189; FRL-8576-5]

Approval and Promulgation of Air Quality Implementation Plans;
Pennsylvania; Section 110(a)(1) 8-Hour Ozone Maintenance Plan and 2002
Base-Year Inventory for the Schuylkill County Area

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing to approve a State Implementation Plan (SIP)
revision submitted by the Commonwealth of Pennsylvania. The
Pennsylvania Department of Environmental Protection (PADEP) submitted a
SIP revision consisting of a maintenance plan that provides for
continued attainment of the 8-hour ozone national ambient air quality
standard (NAAQS) for at least 10 years after the April 30, 2004
designations, as well as a 2002 base-year inventory for the Schuylkill
County Area. EPA is proposing approval of the maintenance plan and the
2002 base-year inventory in accordance with the requirements of the
Clean Air Act (CAA).

DATES: Written comments must be received on or before July 7, 2008.

ADDRESSES: Submit your comments, identified by Docket ID Number EPA-
R03-OAR-2008-0189 by one of the following methods:
    A. http://www.regulations.gov. Follow the on-line instructions for
submitting comments.
    B. E-mail<EMAIL_ADDRESS>    C. Mail: EPA-R03-OAR-2008-0097, Cristina Fernandez, Chief, Air
Quality Planning Branch, Mailcode 3AP21, U.S. Environmental Protection
Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103.
    D. Hand Delivery: At the previously-listed EPA Region III address.
Such deliveries are only accepted during the Docket's normal hours of
operation, and special arrangements should be made for deliveries of
boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-R03-OAR-
2008-0189. EPA's policy is that all comments received will be included
in the public docket without change, and may be made available online
at http://www.regulations.gov, including any personal information
provided, unless the comment includes information claimed to be
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Do not submit information that you
consider to be CBI or otherwise protected through http://
www.regulations.gov or e-mail. The http://www.regulations.gov Web site
is an ``anonymous access'' system, which means EPA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an e-mail comment directly to EPA without
going through http://www.regulations.gov, your e-mail address will be
automatically captured and included as part of the comment that is
placed in the public docket and made available on the Internet. If you
submit an electronic comment, EPA recommends that you include your name
and other contact information in the body of your comment and with any
disk or CD-ROM you submit. If EPA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EPA
may not be able to consider your comment. Electronic files should avoid
the use of special characters, any form of encryption, and be free of
any defects or viruses.
    Docket: All documents in the electronic docket are listed in the
http://www.regulations.gov index. Although listed in the index, some
information is not publicly available, i.e., CBI or other information
whose disclosure is restricted by statute. Certain other material, such
as copyrighted material, is not placed on the Internet and will be
publicly available only in hard copy form.

Publicly available docket materials are available either electronically
in http://www.regulations.gov or in hard copy during normal business
hours at the Air Protection Division, U.S. Environmental Protection
Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103.
Copies of the State submittal are available at Pennsylvania Department
of Environmental Protection, Bureau of Air Quality Control, P.O. Box
8468, 400 Market Street, Harrisburg, Pennsylvania 17105.

FOR FURTHER INFORMATION CONTACT: Melissa Linden,<PHONE_NUMBER>, or by
e-mail at<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: On December 17, 2007, PADEP formally
submitted for approval, under section 110(a)(1) of the CAA, a SIP
revision for the 8-hour ozone maintenance plan and the 2002 base-year
inventory for the Schuylkill County Area.

I. Background

    Section 110(a)(1) of the CAA requires that states submit to EPA
plans to maintain the NAAQS promulgated by EPA. EPA interprets this
provision to require that areas that were maintenance areas for the 1-
hour ozone NAAQS, but attainment for the 8-hour ozone NAAQS, submit a
plan to demonstrate the continued maintenance of the 8-hour ozone
NAAQS.
    On May 20, 2005, EPA issued guidance that applies to areas that are
designated unclassifiable/attainment for the 8-hour ozone standard. The
purpose of this guidance is to address the maintenance requirements in
section 110(a)(1) of the CAA, and to assist the states in the
development of a SIP. The components from EPA's guidance include: (1)
An attainment emissions inventory, which is based on actual ``typical
summer day'' emissions of volatile organic compounds (VOCs) and
nitrogen oxides (NOX) for a 10-year maintenance period, from
a base-year chosen by the state; (2) a maintenance demonstration, which
demonstrates how the area will remain in compliance with the 8-hour
ozone standard for a period of 10 years following the effective date of
designation unclassifiable/attainment (June 15, 2004); (3) an ambient
air monitoring network, which will be in continuous operation in
accordance with 40 CFR Part 58 to verify maintenance of the 8-hour
ozone standard; (4) a contingency plan, that will ensure that in the
event of a violation of the 8-hour ozone NAAQS, measures will be
implemented as promptly as possible; (5) a verification of continued
attainment, indicating how the state intends on tracking the progress
of the maintenance plan.

II. Summary of SIP Revision

    The Commonwealth of Pennsylvania has requested approval of its 8-
hour ozone maintenance plan and 2002 base-year inventory for the
Schuylkill County Area. The PADEP 8-hour ozone maintenance plan
addresses the five components of EPA's May 20, 2005 guidance, which
pertains to the maintenance requirements in section 110(a)(1) of the
CAA.
    Attainment Emission Inventory: An attainment emissions inventory
includes emissions during the time period associated with the
monitoring data showing attainment. PADEP has provided an emissions
inventory for VOCs and NOX, using 2002 as the base-year from
which to project emissions. The 2002 inventory is consistent with EPA
guidance, is based on actual ``typical summer day'' emissions of VOCs
and NOX, and consists of a list of sources and their
associated emissions. PADEP prepared comprehensive VOCs and
NOX emissions inventories for the Schuylkill County Area. In
the maintenance plan, PADEP included information on the man-made
sources of ozone precursors, VOCs and NOX (e.g.,
``stationary sources,'' ``stationary area sources,'' ``highway
vehicles,'' and ``nonroad sources'').
    Pennsylvania projected emissions for beyond 10 years from the
effective date of the April 30, 2004 designations for the 8-hour ozone
standard. PADEP has developed an emissions inventory for ozone
precursors for the year 2002, 2009, and 2018. Tables 1 and 2 show the
VOCs and NOX emissions reduction summary for 2002, 2009, and
2018.

          Table 1.--VOC Emissions Summary: 2002, 2009 and 2018
                          [tons per summer day]
------------------------------------------------------------------------
      Major source category            2002         2009         2018
------------------------------------------------------------------------
Stationary Point Sources.........         1.16         0.92         1.09
Stationary Area Sources..........         7.74         7.19         7.56
Highway Vehicles.................         9.02         4.89         2.73
Nonroad Sources..................         2.59         2.38         1.86
                                  --------------------------------------
    Total........................        20.51        15.38        13.24
------------------------------------------------------------------------

          Table 2.--NOX Emissions Summary: 2002, 2009 and 2018
                          [tons per summer day]
------------------------------------------------------------------------
      Major source category            2002         2009         2018
------------------------------------------------------------------------
Stationary Point Sources.........         3.62         4.42         4.37
Stationary Area Sources..........         0.86         0.92         0.94
Highway Vehicles.................        16.71         9.00         3.80
Nonroad Sources..................         2.42         1.85         1.11
                                  --------------------------------------
    Total........................        23.61        16.19        10.22
------------------------------------------------------------------------

EPA believes Pennsylvania has demonstrated that the VOCs and
NOX emissions in the Schuylkill County Area will improve due
to permanent and enforceable reductions in emissions resulting from
implementation of the SIP, federal measures, and other state-adopted
measures.
    Maintenance demonstration: As Tables 1 and 2 indicate, the
Schuylkill County Attainment Area plan shows maintenance of the 8-hour
ozone NAAQS by demonstrating that future emissions of VOCs and
NOX remain at

or below the 2002 base-year emissions levels through the year 2018.
    Based upon the comparison of the projected emissions and the 2002
base-year inventory emissions, along federal and state measures, EPA
concludes that PADEP successfully demonstrates that the 8-hour ozone
standard will be maintained in the Schuylkill County Area. Further
details of Schuylkill County Attainment Area's 8-hour ozone maintenance
demonstration can be found in a Technical Support Document (TSD)
prepared for this rulemaking.
    Ambient Air Quality Monitoring: With regard to the ambient air
monitoring component of the maintenance plan, Pennsylvania commits to
continue operating its current air quality monitoring stations in
accordance with 40 CFR Part 58, to verify the attainment status of the
area, with no reductions in the number of sites from those in the
existing network unless pre-approved by EPA.
    Contingency Plan: Section 110(a)(1) of the CAA requires that the
state develop a contingency plan which will ensure that any violation
of a NAAQS is promptly corrected. The purpose of the contingency plan
is to adopt measures, outlined in the maintenance plan, in order to
assure continued attainment in the event of a violation of the 8-hour
ozone NAAQS. The maintenance plan should identify the events that would
``trigger'' the adoption and implementation of a contingency
measure(s), the contingency measure(s) that would be adopted and
implemented, and the schedule indicating the time frame by which the
state would adopt and implement the measure(s).
    Since the Schuylkill County Area does not have a monitor,
contingency measures will be considered if for two consecutive years
the fourth highest 8-hour ozone concentrations at the design monitor
for the Reading Area are above 84 parts per billion (ppb). If this
trigger point occurs, PADEP will evaluate whether additional local
emission control measures should be implemented in Schuylkill County in
order to prevent a violation of the air quality standard. PADEP will
analyze the conditions leading to the excessive ozone levels and
evaluate what measures might be most effective in correcting the
excessive ozone levels. PADEP will also analyze the potential emissions
effect of federal, state, and local measures that have been adopted but
not yet implemented at the time the excessive ozone levels occurred.
PADEP will then begin the process of implementing the contingency
measures outlined in their maintenance plan.
    Verification of continued attainment: PADEP will track the
attainment status of the 8-hour ozone NAAQS for Schuylkill County by
reviewing air quality at the design monitor for the Reading Area and
emissions data during the maintenance period. An annual evaluation of
vehicle miles traveled and emissions reported from stationary sources
will be performed and compared to the assumptions about the factors
used in the maintenance plan. PADEP will also evaluate the periodic
(every three years) emission inventories prepared under EPA's
Consolidated Emission Reporting Regulation (40 CFR 51, Subpart A) for
any unanticipated increases. Based on these evaluations, PADEP will
consider whether any further emission control measures should be
implemented.

III. Proposed Action

    EPA is proposing to approve the maintenance plan and the 2002 base-
year inventory for the Schuylkill County Area, submitted on December
17, 2007, as revisions to the Pennsylvania SIP. EPA is proposing to
approve the maintenance plan and 2002 base-year inventory for the
Schuylkill County Area because it meets the requirements of section
110(a)(1) of the CAA. EPA is soliciting public comments on the issues
discussed in this document. These comments will be considered before
taking final action.

IV. Statutory and Executive Order Reviews

    Under the CAA, the Administrator is required to approve a SIP
submission that complies with the provisions of the Act and applicable
Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a). Thus, in
reviewing SIP submissions, EPA's role is to approve state choices,
provided that they meet the criteria of the CAA. Accordingly, this
action merely proposes to approve state law as meeting Federal
requirements and does not impose additional requirements beyond those
imposed by state law. For that reason, this proposed action:
     Is not a ``significant regulatory action'' subject to
review by the Office of Management and Budget under Executive Order
12866 (58 FR 51735, October 4, 1993);
     Does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Does not have Federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of Section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the CAA; and
     Does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).
    In addition, this proposed rule to approve the maintenance plan and
the 2002 base-year inventory for the Schuylkill County Area in the
Commonwealth of Pennsylvania does not have tribal implications as
specified by Executive Order 13175 (65 FR 67249, November 9, 2000),
because the SIP is not approved to apply in Indian country located in
the state, and EPA notes that it will not impose substantial direct
costs on tribal governments or preempt tribal law.

List of Subjects in 40 CFR Part 52

    Environmental protection, Air pollution control, Nitrogen dioxide,
Ozone, Reporting and recordkeeping requirements, Volatile organic
compounds.

    Authority: 42 U.S.C. 7401 et seq.

    Dated: May 28, 2008.
William T. Wisniewski,
Acting Regional Administrator, Region III.
[FR Doc. E8-12601 Filed 6-4-08; 8:45 am]

BILLING CODE 6560-50-P


[Federal Register Volume 88, Number 66 (Thursday, April 6, 2023)]
[Notices]
[Pages 20582-20586]
[FR Doc No: 2023-07141]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-97232; File No. SR-Phlx-2023-09]

Self-Regulatory Organizations; Nasdaq PHLX LLC; Notice of Filing
of Proposed Rule Change To Permit the Listing and Trading of Options on
the Nasdaq-100 ESG Index

March 31, 2023.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 28, 2023, Nasdaq PHLX LLC (``Phlx'' or ``Exchange'') filed
with the Securities and Exchange Commission (``SEC'' or ``Commission'')
the proposed rule change as described in Items I and II 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to permit the listing and trading of options
on the Nasdaq-100 ESG Index.
    The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/phlx/rules, 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 Exchange 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 these 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 aspects of such
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to permit the listing and trading of options
on the Nasdaq-100 ESG Index or ``NDXESG''.\3\ The Nasdaq-100 ESG Index
is a broad based, modified ESG Risk Rating Score-adjusted market-
capitalization-weighted index that is designed to measure the
performance of the companies in the Nasdaq-100 Index (``NDX'') that
meet specific environmental, social and governance (``ESG'')
criteria.\4\ The Nasdaq-100 ESG Index at all times consists of a
selection of securities in NDX.\5\ In order to be selected for the
Nasdaq-100 ESG Index, a Nasdaq-100 Index company must: (1) not be
involved in specific business activities, as defined in the methodology
\6\ and determined by Sustainalytics; \7\ (2) not be deemed non-
compliant with the principles of the United Nations Global Compact, as
determined by Sustainalytics; (3) not have a controversy level higher
than four (4), as defined by Sustainalytics; and (4) have a
Sustainalytics ESG Risk Rating Score lower than 40. There are various
stages in the constituent weighting process which are outlined in the
methodology.\8\
---------------------------------------------------------------------------

    \3\ These options would trade under the symbol ``EXGN.''
    \4\ Companies are evaluated and weighted on the basis of their
business activities, controversies and ESG Risk Ratings.
    \5\ See https://indexes.nasdaqomx.com/docs/methodology_NDXESG.pdf.
    \6\ See supra note 5.
    \7\ Sustainalytics is a company that rates the sustainability of
listed companies based on their ESG performance.
    \8\ See supra note 5.
---------------------------------------------------------------------------

Initial and Maintenance Listing Criteria
    The Nasdaq-100 ESG Index meets the definition of a broad-based
index as set forth in Options 4A, Section 2(a)(13) \9\ (i.e., an index
designed to be representative of a stock market as a whole or of a
range of companies in unrelated industries). Additionally, the Nasdaq-
100 ESG Index satisfies the initial listing criteria of a broad-based
index, as set forth in Options 4A, Section 3(d):
---------------------------------------------------------------------------

    \9\ The Exchange proposes to amend Options 4A, Section 3(d)(1)
to correct a citation to the definition of a broad-based index from
Section 2(a)(11) to Section 2(a)(13).

    (1) The index is broad-based, as defined in Options 4A, Section
2(a)(13);
    (2) Options on the index are designated as A.M.-settled index
options;
    (3) The index is capitalization-weighted, price-weighted,
modified capitalization-weighted or equal dollar-weighted;
    (4) The index consists of 50 or more component securities;
    (5) Component securities that account for at least ninety-five
percent (95%) of the weight of the index have a market
capitalization of at least $ 75 million, except that component
securities that account for at least sixty-five percent (65%) of the
weight of the index have a market capitalization of at least $ 100
million;
    (6) Component securities that account for at least eighty
percent (80%) of the weight of the index satisfy the requirements of
Options 4, Section 3 applicable to individual underlying securities;
    (7) Each component security that accounts for at least one
percent (1%) of the weight of the index has an average daily trading
volume of at least 90,000 shares during the last six month period;
    (8) No single component security accounts for more than ten
percent (10%) of the weight of the index, and the five highest
weighted component securities in the index do not, in the aggregate,
account for more than thirty-three percent (33%) of the weight of
the index;
    (9) Each component security must be an ``NMS Stock'' as defined
in rule 600 of Regulation NMS under the Exchange Act;
    (10) Non-U.S. component securities (stocks or ADRs) that are not
subject to comprehensive surveillance agreements do not, in the
aggregate, represent more than twenty percent (20%) of the weight of
the index;
    (11) The current index value is widely disseminated at least
once every fifteen (15) seconds by one or more major market data
vendors during the time options on the index are traded on the
Exchange;
    (12) The Exchange reasonably believes it has adequate System
capacity to support the trading of options on the index, based on a
calculation of the Exchange's current Independent System Capacity
Advisor (ISCA) allocation and the number of new messages per second
expected to be generated by options on such index;
    (13) An equal dollar-weighted index is rebalanced at least once
every calendar quarter;
    (14) If an index is maintained by a broker-dealer, the index is
calculated by a third-party who is not a broker-dealer, and the
broker-dealer has erected an informational barrier around its
personnel who have access to information concerning changes in, and
adjustments to, the index;
    (15) The Exchange has written surveillance procedures in place
with respect to surveillance of trading of options on the index.

    The Nasdaq-100 ESG Index will also be subject to the maintenance
listing standards set forth in Options 4A, Section 3(e):

    (1) The conditions set forth in subparagraphs (d)(1), (2), (3),
(9), (10), (11), (12), (13), (14) and (15) must continue to be
satisfied. The conditions set forth in subparagraphs (d)(5), (6),
(7) and (8) must be satisfied only as of the first day of January
and July in each year;
    (2) The total number of component securities in the index may
not increase or decrease by more than ten percent (10%) from the
number of component securities in the index at the time of its
initial listing.\10\
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    \10\ As is the case with other index options authorized for
listing and trading on Phlx, in the event the Nasdaq-100 ESG Index
fails to satisfy the maintenance listing standards, the Exchange
will not open for trading any additional series of options of that
class unless such failure is determined by the Exchange not to be
significant and the Commission concurs in that determination, or
unless the continued listing of that class of index options has been
approved by the Commission under Section 19(b)(2) of the Act.
---------------------------------------------------------------------------

Expiration Months, Settlement, and Exercise Style
    Consistent with existing rules for certain index options, the
Exchange will allow up to twelve near-term expiration months for the
Nasdaq-100 ESG Index options (``NDXESG options'') \11\ as well as
LEAPS.\12\ Options on NDX may list up to twelve near-term expiration
months pursuant to Phlx Options 4A, Section 12(a)(4). The Nasdaq-100
ESG Index consists of components that are also included in NDX, as
discussed above. Because of the relationship between the Nasdaq-100 ESG
Index and NDX, which will likely result in market participants'
investment and hedging strategies consisting of options over both, the
Exchange believes it is appropriate to permit the same number of
monthly expirations for the Nasdaq-100 ESG Index and NDX. Strike price
intervals would be at no less than $2.50 intervals.\13\
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    \11\ See Phlx Options 4A, Section 12(a)(4).
    \12\ See Phlx Options 4A, Section 12(b)(2).
    \13\ See proposed Phlx Options 4A, Section 12(a)(2).
---------------------------------------------------------------------------

    The NDXESG options will be a.m.-settled \14\ and cash-settled
contracts with European-style exercise.\15\ A.M.-

settlement is consistent with the generic listing criteria for broad-
based indexes,\16\ and thus it is common for index options to be a.m.-
settled. The Exchange proposes to amend Phlx Options 4A, Section
12(e)(II) to add the Nasdaq-100 ESG Index options to the list of other
a.m.-settled options. European-style exercise is consistent with many
index options, as set forth in Options 4A, Section 12(a)(5). The
Exchange proposes to amend Options 4A, Section 12(a)(5) to add the
NDXESG options to the list of European-style index options. Standard
third-Friday NDX options are a.m.-settled with European-style exercise.
Because of the relationship between the Nasdaq-100 ESG Index and the
NDX, which will likely result in market participants' investment and
hedging strategies consisting of options over both, the Exchange
believes it is appropriate to list the NDXESG options with the same
settlement and exercise style as the other NDX options.
---------------------------------------------------------------------------

    \14\ See proposed Phlx Options 4A, Section 12(e)(II).
    \15\ See proposed Phlx Options 4A, Section 12(a)(5).
    \16\ See Phlx Options 4A, Section 3(d).
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Minimum Trading Increment
    The Exchange proposes the minimum trading increment for NDXESG
options would be $0.05 for options trading below $3.00 and $0.10 for
all other options.\17\
---------------------------------------------------------------------------

    \17\ See Phlx Options 3, Section 3.
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Reporting Authority
    The Nasdaq Stock Market LLC would be the Reporting Authority for
the Nasdaq-100 ESG Index.\18\
---------------------------------------------------------------------------

    \18\ See proposed Phlx Supplementary Material .02 to Options 4A,
Section 2.
---------------------------------------------------------------------------

Position Limit and Exercise Limits
    The position limits for options on the Nasdaq-100 ESG Index would
be 25,000 contracts on the same side of the market in accordance with
Phlx Options 4A, Section 6(a). The exercise limits for options on the
Nasdaq-100 ESG Index shall be equivalent to the position limits
pursuant to Options 4A, Section 10. Each member or member organization
that maintains a position on the same side of the market in excess of
100,000 contracts for its own account or for the account of a customer
in NDXESG options must file a report with the Exchange pursuant to
proposed Phlx Options 4A, Section 6(c).\19\ The Exchange also proposes
to make a technical correction to Phlx Options 4A, Section 6(c) to add
an ``or'' within that paragraph.
---------------------------------------------------------------------------

    \19\ The report would include, but would not be limited to, data
related to the option positions, whether such positions are hedged
and if applicable, a description of the hedge and information
concerning collateral used to carry the positions. Market Makers are
exempt from this reporting requirement. See proposed Phlx Options
4A, Section 6(c).
---------------------------------------------------------------------------

    Likewise, the position and exercise limits for FLEX options on the
Nasdaq-100 ESG Index would be 25,000 contracts on the same side of the
market. In amending Phlx Options 8, Section 34(e), regarding position
limits for FLEX options, the Exchange proposes to align the position
limits for FLEX options within Phlx Options 8, Section 34, with the
position limits for standard options within Phlx Options 4A, Section 6,
which are specifically related to index options. Today, FLEX index
options are subject to the same position limits governing standard
index options as provided for within Options 4A, Section 6, unless
otherwise noted within Options 8, Section 34. At this time, Phlx
proposes to amend Options 8, Section 34(e) to add a sentence that
provides that the position limits are the same for FLEX index options
as with standard index options, unless otherwise noted. This amendment
is intended to be non-substantive and would not change any position
limits. Rather, the amendment would simply cross-reference the position
limits in Options 4A, Section 6 as opposed to restating each position
limit.\20\ Today, the position limits for standard index options are
identical to the FLEX index options on the same index. With this
proposal those position limits would continue to be identical.
---------------------------------------------------------------------------

    \20\ In light of this proposal, the Exchange proposes to remove
the remainder of the rule text related to index options within
Options 8, Section 34(e).
---------------------------------------------------------------------------

Trading Hours
    NDXESG options will be available for trading during the Exchange's
standard trading hours for index options, i.e., from 9:30 a.m. to 4:15
p.m. New York time.\21\
---------------------------------------------------------------------------

    \21\ See proposed Phlx Supplementary .01 to Options 4A, Section
12.
---------------------------------------------------------------------------

Margin and Sales Practice
    The margin requirements for NDXESG options would be subject to Phlx
Options 6C, Section 3, Proper and Adequate Margin. Phlx General 9,
Section 10, Recommendations to Customers (Suitability), and Phlx
Options 10, Section 8, Suitability, would also apply to NDXESG options.
Surveillance and Capacity
    Finally, the Exchange represents that it has sufficient capacity to
handle additional quotations and message traffic associated with the
proposed listing and trading of NDXESG options. Further, the Exchange
has analyzed its capacity and represents that it believes the Exchange
and the Options Price Reporting Authority (``OPRA'') have the necessary
systems capacity to handle any additional traffic associated with the
listing of NDXESG options.
    Index options are integrated into the Exchange's existing
surveillance system architecture and are thus subject to the relevant
surveillance processes. The Exchange represents that it has adequate
surveillance procedures to monitor trading in NDXESG options thereby
aiding in the maintenance of a fair and orderly market.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\22\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\23\ in particular, in that it is designed to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in regulating, clearing,
settling, processing information with respect to, and facilitating
transactions in securities, 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; and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers, or to regulate by virtue of any authority
conferred by the Act matters not related to the purposes of the Act or
the administration of the Exchange. The Exchange believes that the
proposed rule change is also consistent with Section 6(b)(8) of the Act
\24\ in that it does not impose any burden on competition not necessary
or appropriate in furtherance of the purposes of the Act. Specifically,
the Exchange believes that the introduction of NDXESG options will
attract order flow to the Exchange, increase the variety of listed
options to investors, and provide a valuable hedge tool to investors.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b)
    \23\ 15 U.S.C. 78f(b)(5).
    \24\ 15 U.S.C. 78(f)(b)(8).
---------------------------------------------------------------------------

    In particular, the Exchange believes that the proposal to list and
trade options on the Nasdaq-100 ESG Index will remove impediments to
and perfect the mechanism of a free and open market and a national
market system, because the Exchange believes that the proposed rule
change will further the Exchange's goal of introducing new and
innovative products to the marketplace. Additionally, the Exchange
believes that the proposed rule change will remove impediments to and
perfect the mechanism of a free and open market and a national market
system, as the

Exchange believes there is unmet market demand for exchange-listed
security options listed on this new ESG index. NDXESG options are
designed to provide different and additional opportunities for
investors who have a desire to invest in companies that meet certain
environmental, social and governance criteria to hedge on the market
risk associated with this index by listing an option directly on this
index. Further, the Exchange believes that this new product will
provide market participant with an additional investment opportunity.
    The Exchange believes that the introduction of the Nasdaq-100 ESG
Index will likely result in market participants' investment and hedging
strategies consisting of options over both the Nasdaq-100 ESG Index and
NDX. The Exchange notes that the Nasdaq-100 ESG Index consists of
companies within NDX that meet specific ESG criteria. Because of this
relationship between the Nasdaq-100 ESG Index and NDX, the Exchange
believes the proposed rule change will benefit investors, as it will
provide market participants with additional investment and hedging
strategies consisting of options over each of these indexes.
    The Exchange believes the proposed rule change will remove
impediments to and perfect the mechanism of a free and open market and
a national market system, as well as protect investors and the public
interest, because the proposed rule change is consistent with current
rules already applicable to the listing and trading of options on Phlx,
which were previously filed with and approved as consistent with the
Act by the Commission. Particularly, the NDXESG options satisfy the
initial listing standards for a broad-based index in Phlx's rules,
which the Commission previously deemed consistent with the Act.\25\
---------------------------------------------------------------------------

    \25\ See Securities Exchange Act Release No. 54158 (July 17,
2006), 71 FR 41853 (July 24, 2006) (SR-Phlx-2006-17) (Notice of
Filing and Order Granting Accelerated Approval of a Proposed Rule
Change and Amendment Nos. 1 and 2 Thereto Relating to Listing
Standards for Broad-Based Index Options).
---------------------------------------------------------------------------

    With this proposal NDXESG options would be permitted to list up to
twelve near-term expiration months and LEAPS. The Exchange believes
that its proposal is consistent with the Act and promotes just and
equitable principles of trade because the listings of these options is
consistent with existing rules for certain index options, including
options on NDX which may list up to twelve near-term expiration months
pursuant to Phlx Options 4A, Section 12(a)(4), as well as LEAPs
pursuant to Options 4A, Section 12(b)(2). As noted herein, the Nasdaq-
100 ESG Index consists of components that are also included in NDX, as
discussed above. Because of the relationship between the Nasdaq-100 ESG
Index and NDX, the Exchange believes it is appropriate to permit the
same number of monthly expirations for the Nasdaq-100 ESG Index and
NDX. Further, the Exchange's proposal for strike price intervals to be
at no less than $2.50 intervals is consistent with the Act and promotes
just and equitable principles of trade because the proposed strike
prices align with NDX options strike price intervals.\26\
---------------------------------------------------------------------------

    \26\ See Phlx Options 4A, Section 12(a)(2).
---------------------------------------------------------------------------

    The NDXESG options will be a.m.-settled \27\ and cash-settled
contracts with European-style exercise.\28\ The Exchange believes that
it is consistent with the Act for NDXESG options to be a.m.-settled as
this is consistent with the generic listing criteria for broad-based
indexes,\29\ and thus it is common for index options to be a.m.-
settled. Additionally, standard third-Friday NDX options are a.m.-
settled. Further, the Exchange believes that it is consistent with the
Act for NDXESG options to be European-style as standard third-Friday
NDX options have European-style exercises. Further, European-style
exercise is consistent with many index options, as set forth in Options
4A, Section 12(a)(5) including NDX options. Because of the relationship
between the Nasdaq-100 ESG Index and the NDX, which will likely result
in market participants' investment and hedging strategies consisting of
options over both, the Exchange believes it is appropriate to list the
NDXESG options with the same settlement and exercise style as the other
NDX options. Additionally, the Reporting Authority shall be the same
for NDXESG as it is for NDX.
---------------------------------------------------------------------------

    \27\ See proposed Phlx Options 4A, Section 12(e)(II).
    \28\ See proposed Phlx Options 4A, Section 12(a)(5).
    \29\ See Phlx Options 4A, Section 3(d).
---------------------------------------------------------------------------

    The Exchange's proposal to utilize $0.05 for options trading below
$3.00 and $0.10 for all other options for the minimum trading increment
for NDXESG options is consistent with the Act as this is consistent
with the minimum trading increments for a majority of index options
including NDX options.
    Setting position and exercise limits for options on the Nasdaq-100
ESG Index at 25,000 contracts on the same side of the market for both
standard and FLEX options will promote just and equitable principles of
trade and protect investors and the public interest because these
position limits should serve to reduce potential manipulative schemes
and adverse market impacts surrounding the use of options, such as
disrupting the market in the security underlying the options.
    The amendments to Phlx Options 8, Section 34(e) to include a cross-
cite to the standard options within Phlx Options 4A, Section 6 is
consistent with the Act because this amendment will reflect that the
position limits for standard index options are identical to the FLEX
index options on the same index. This amendment is non-substantive.
    Proposing standard trading hours for NDXESG options is consistent
with the Act and serves to remove impediments to and perfects the
mechanism of a free and open market because these trading hours align
with trading hours in other index options including NDX options.
    Subjecting NDXESG options to the same margin and suitability rules
that apply to other index options serves to remove impediments to and
perfects the mechanism of a free and open market.
    Finally, the Exchange represents that it has the necessary systems
capacity to support the new option series given these proposed
specifications. The Exchange believes that its existing surveillance
and reporting safeguards are designed to deter and detect possible
manipulative behavior which might arise from listing and trading
options on the Nasdaq-100 ESG Index. The Exchange further notes that
current Exchange rules that apply to the trading of other index options
traded on the Exchange, such as options on the NDX, would also apply to
the trading of options on the Nasdaq-100 ESG Index, such as, for
example, Exchange Rules governing customer accounts, margin
requirements and trading halt procedures.
    Finally, this proposal is not novel as Cboe Exchange, Inc.
(``Cboe'') lists options on the S&P 500 ESG Index.

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

    This proposed rule change does not impose any burden on intra-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act. Any member or member organization may
transact NDXESG options. Further, the Nasdaq-100 ESG Index satisfies
initial listing standards set forth in the rules, and the proposed
number of expirations, settlement, and exercise style are consistent
with current rules applicable to index options, including standard

third-Friday NDX options. Because of the relationship between the
Nasdaq-100 ESG Index and the NDX, which will likely result in market
participants' investment and hedging strategies consisting of options
over each of these indexes, the Exchange believes it is appropriate to
have the same number of expirations, settlement, and exercise style for
options on each index. The NDXESG options will provide investors with
different and additional opportunities to hedge or speculate on the
market associated with this index.
    This proposed rule change does not impose any burden on inter-
market competition that is not necessary or appropriate in furtherance
of the purposes of the Act because this proposal will facilitate the
listing and trading of a new option product that will enhance
competition among market participants, to the benefit of investors and
the marketplace. Today, Cboe lists options on the S&P 500 ESG Index.
Also, other options exchanges may develop similar products.

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

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action

    Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) by order approve
or disapprove such 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include
File Number SR-Phlx-2023-09 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-Phlx-2023-09. 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 (https://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-Phlx-2023-09 and should be
submitted on or before April 27, 2023.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-07141 Filed 4-5-23; 8:45 am]
BILLING CODE 8011-01-P