[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)]
[Notices]
[Pages 49320-49327]
[FR Doc No: 2016-17825]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78397; File No. SR-NYSEArca-2015-110]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change, as Modified by Amendment No. 7
Thereto, Amending NYSE Arca Equities Rule 8.600 To Adopt Generic
Listing Standards for Managed Fund Shares

July 22, 2016.

I. Introduction

    On November 6, 2015, NYSE Arca, Inc. (``Exchange'') filed with the
Securities and Exchange Commission (``Commission''), pursuant to
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\
and Rule 19b-4 thereunder,\2\ a proposed rule change to amend NYSE Arca
Equities Rule 8.600 and to adopt generic listing standards for Managed
Fund Shares. The proposed rule change was published for comment in the
Federal Register on November 27, 2015.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 76486 (Nov. 20,
2015), 80 FR 74169 (``Notice'').
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    On November 23, 2015, the Exchange filed Amendment No. 1 to the
proposed rule change, which amended and replaced the original proposal
in its entirety.\4\ On January 4, 2016, pursuant to Section 19(b)(2) of
the Act,\5\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\6\ On January 21, 2016, the Exchange filed
Amendment No. 2 to the proposed rule change.\7\ The proposed rule
change, as modified by Amendment No. 2 thereto, was published for
comment in the Federal Register on February 1, 2016.\8\ On February 11,
2016, the Exchange filed Amendment No. 3 to the proposed rule
change.\9\
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    \4\ On January 21, 2016, the Exchange withdrew Amendment No. 1
to the proposed rule change.
    \5\ 15 U.S.C. 78s(b)(2).
    \6\ See Securities Exchange Act Release No. 76819, 81 FR 987
(Jan. 8, 2016).
    \7\ In Amendment No. 2 to the proposed rule change, the Exchange
added provisions to the generic listing criteria relating to non-
U.S. Component Stocks, convertible securities, and listed swaps,
among other changes. Amendment No. 2, which amended and replaced the
Notice in its entirety, is available on the Commission's Web site
at: https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-3.pdf.
    \8\ See Securities Exchange Act Release No. 76974 (Jan. 26,
2016), 81 FR 5149.
    \9\ In Amendment No. 3 to the proposed rule change, the Exchange
(a) revised the provisions relating to convertible securities, (b)
clarified the limitations on non-exchange-traded American Depositary
Receipts, (c) eliminated redundant provisions relating to
limitations on leveraged and inverse-leveraged Derivative Securities
Products, (d) revised the provision relating to limitations on
listed derivatives, (e) clarified that, for purposes of the
limitations relating to listed and over-the-counter derivatives, a
portfolio's investment in listed and over-the-counter derivatives
will be calculated as the total absolute notional value of these
derivatives, and (f) provided additional information regarding the
statutory basis of the proposal. Amendment No. 3, which amended and
replaced the proposed rule change, as modified by Amendment No. 2
thereto, in its entirety, is available on the Commission's Web site
at: https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-4.pdf.
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    On February 12, 2016, the Exchange filed Amendment No. 4 to the
proposed rule change.\10\ On February 22, 2016, the Commission issued
notice of Amendment No. 4 to the proposed rule change and instituted
proceedings under Section 19(b)(2)(B) of the Act \11\ to determine
whether to approve or disapprove the proposed rule change, as modified
by Amendment No. 4 thereto.\12\ In the Order Instituting Proceedings,
the Commission solicited comments to specified matters related to the
proposal.\13\ On May 20, 2016, the Commission issued a notice of
designation of a longer period for Commission action on proceedings to
determine whether to approve or disapprove the proposed rule change, as
modified by Amendment No. 4 thereto.\14\
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    \10\ In Amendment No. 4 to the proposed rule change, the
Exchange (a) modified the generic listing rules to require
compliance of the standards applicable to underlying equity
securities, fixed income securities, and over-the-counter
derivatives on an initial and continuing basis; and (b) clarified
that the limitations on listed derivatives would apply to all listed
derivatives, including listed swaps. Amendment No. 4, which amended
and replaced the proposed rule change, as modified by Amendment No.
3 thereto, in its entirety, is available on the Commission's Web
site at: https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-5.pdf.
    \11\ 15 U.S.C. 78s(b)(2)(B).
    \12\ See Securities Exchange Act Release No. 77203, 81 FR 9900
(Feb. 26, 2016) (``Order Instituting Proceedings''). Specifically,
the Commission instituted proceedings to allow for additional
analysis of the proposed rule change's consistency with Section
6(b)(5) of the Act, which requires, among other things, that the
rules of a national securities exchange be ``designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade,'' and ``to protect investors and the
public interest.'' See id., 81 FR at 9908.
    \13\ See id., 81 FR at 9908-09.
    \14\ See Securities Exchange Act Release No. 77872, 81 FR 33570
(May 26, 2016). The Commission designated July 22, 2016 as the date
by which it should approve or disapprove the proposed rule change.
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    On June 3, 2016, the Exchange filed Amendment No. 5 to the proposed
rule change.\15\ On June 7, 2016, the Exchange filed Amendment No. 6 to
the proposed rule change.\16\ The proposed rule change, as modified by
Amendment No. 6 thereto, was published for comment in the Federal
Register on June 14, 2016.\17\ On July 20, 2016, the Exchange filed
Amendment No. 7 to the proposed rule change.\18\ The Commission has
received

two comment letters on the proposal.\19\ This order grants approval of
the proposed rule change, as modified by Amendment No. 7 thereto.
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    \15\ In Amendment No. 5 to the proposed rule change, the
Exchange (a) modified the definition of ``normal market conditions''
to reflect ``systems failures'' as an example of an operational
issue that causes dissemination of inaccurate market information;
(b) clarified that, with respect to the scope of equity securities
components in Commentary .01(a) to NYSE Arca Equities Rule 8.600,
the securities described in NYSE Arca Equities Rule 5.2(j)(3), NYSE
Arca Equities Rule 5.2(j)(6), and Section 2 of NYSE Arca Equities
Rule 8 also include securities listed on a different national
securities exchange pursuant to substantially equivalent listing
rules; (c) with respect to the provisions applicable to fixed income
securities components, modified the concentration limitations by
excluding U.S. Department of Treasury securities and government-
sponsored entity securities, and clarified that the special purpose
vehicle (``SPV'') that issues the fixed income security (e.g., an
asset-backed or mortgage-backed security) would itself be required
to satisfy the $700 million and $1 billion thresholds set forth in
Commentary .01(b)(4) to NYSE Arca Equities Rule 8.600, and not the
entity that controls, owns, or is affiliated with the SPV; (d)
clarified that the limitations imposed on derivatives holdings will
be calculated as the total absolute notional value of the
derivatives; (e) added a concentration limitation with respect to
listed derivatives by requiring the aggregate gross notional value
of listed derivatives based on any five or fewer underlying
reference assets to not exceed 65% of the weight of the portfolio
(including notional exposures), and the aggregate gross notional
value of listed derivatives based on any single underlying reference
asset to not exceed 30% of the weight of the portfolio (including
notional exposures); and (f) provided examples illustrating the
application of certain of the generic listing standard requirements
criteria of NYSE Arca Equities Rule 8.600. Amendment No. 5, which
amended and replaced the proposed rule change, as modified by
Amendment No. 4 thereto, in its entirety, is available on the
Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-6.pdf.
    \16\ In Amendment No. 6 to the proposed rule change, the
Exchange clarified that the limitations on derivatives as set forth
in Commentaries .01(d), (e), and (f) to NYSE Arca Equities Rule
8.600 will be calculated as, and will be based on, the aggregate
gross notional value of the derivatives. Amendment No. 6, which
amended and replaced the proposed rule change, as modified by
Amendment No. 5 thereto, in its entirety, is available on the
Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-7.pdf.
    \17\ See Securities Exchange Act Release No. 78016 (Jun. 8,
2016), 81 FR 38759 (``Amendment No. 6 Notice'').
    \18\ In Amendment No. 7 to the proposed rule change, the
Exchange added the following representations: (a) On a periodic
basis and no less than annually, the Exchange will review issues of
Managed Fund Shares listed pursuant to Commentary .01 to NYSE Arca
Equities Rule 8.600 for compliance with NYSE Arca Equities Rule
8.600, and will provide a report to the Regulatory Oversight
Committee of the Exchange's Board of Directors regarding the
Exchange's findings; (b) the Exchange will provide the Commission
staff with a report each calendar quarter that includes the
following information for issues of Managed Fund Shares listed
during such calendar quarter under Commentary .01 to NYSE Arca
Equities Rule 8.600: (1) Trading symbol and date of listing on the
Exchange; (2) the number of active authorized participants and a
description of any failure of an issue of Managed Fund Shares listed
pursuant to Commentary .01 to NYSE Arca Equities Rule 8.600 or of an
authorized participant to deliver shares, cash, or cash and
financial instruments in connection with creation or redemption
orders; and (3) a description of any failure of an issue of Managed
Fund Shares to comply with NYSE Arca Equities Rule 8.600; (c) prior
to listing pursuant to Commentary .01 to NYSE Arca Equities Rule
8.600, an issuer will be required to represent to the Exchange that
it will advise the Exchange of any failure by a series of Managed
Fund Shares to comply with the continued listing requirements, and,
pursuant to its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor for compliance with the continued listing
requirements; and (d) if a series of Managed Fund Shares is not in
compliance with the applicable listing requirements, the Exchange
will commence delisting procedures under NYSE Arca Equities Rule
5.5(m). Because Amendment No. 7 does not materially alter the
substance of the proposed rule change or raise unique or novel
regulatory issues, Amendment No. 7 is not subject to notice and
comment. Amendment No. 7, which amended and replaced the proposed
rule change, as modified by Amendment No. 6 thereto, in its
entirety, is available on the Commission's Web site at: https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110-9.pdf.
    \19\ See Letter from Kermit Kubitz to the Commission dated Jun.
30, 2016 (emphasizing the importance of the Exchange's monitoring
program to determine continued compliance of series of Managed Fund
Shares with the generic listing standards, supported by, for
example, continued affirmation by issuers of Managed Fund Shares on
a periodic basis that they are in compliance with the generic
listing standards or if any deviations from the standards have
occurred); and Letter from Rob Ivanoff to the Commission dated Nov.
22, 2015 (commenting that the format of the Exchange's proposed rule
change was unclear and difficult to read, and suggesting a new
format that would be easier to understand). All comments on the
proposed rule change are available on the Commission's Web site at:
https://www.sec.gov/comments/sr-nysearca-2015-110/nysearca2015110.shtml.
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II. Exchange's Description of the Proposed Rule Change

    The Exchange proposes to amend NYSE Arca Equities Rule 8.600 and to
adopt generic listing standards for Managed Fund Shares, which are
securities issued by an open-end investment company. Unlike exchange-
traded funds (``ETFs'') whose performance is based on the performance
of an underlying index of securities,\20\ Managed Fund Shares generally
use an active investment strategy to achieve their specific investment
objectives.
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    \20\ For example, Investment Company Units listed and traded on
the Exchange pursuant to NYSE Arca Equities Rule 5.2(j)(3) are
securities of index-based ETFs that seek to provide investment
results that generally correspond to the price and yield performance
of a specific foreign or domestic stock index, fixed income
securities index, or combination thereof.
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    According to the Exchange, all Managed Fund Shares listed and
traded pursuant to NYSE Arca Equities Rule 8.600 (including trading
pursuant to unlisted trading privileges) are subject to the full
panoply of Exchange rules and procedures that currently govern the
trading of equity securities on the Exchange. In addition, NYSE Arca
Equities Rule 8.600 currently requires that the Exchange submit a
proposed rule change with the Commission to list and trade each new
series of Managed Fund Shares on the Exchange.\21\ The Exchange
proposes to adopt ``generic'' listing standards that would allow the
Exchange to approve the listing and trading of Managed Fund Shares that
satisfy those generic listing standards pursuant to Rule 19b-4(e) under
the Act.\22\
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    \21\ See Commentary .01 to NYSE Arca Equities Rule 8.600
(requiring the Exchange to file separate proposals under Section
19(b) of the Act before the listing and trading of shares of an
issue of Managed Fund Shares).
    \22\ See 17 CFR 240.19b-4(e). Rule 19b-4(e) under the Act
permits self-regulatory organizations (``SROs'') to list and trade
new derivative securities products that comply with existing SRO
trading rules, procedures, surveillance programs, and listing
standards, without submitting a proposed rule change under Section
19(b). See also Securities Exchange Act Release No. 40761 (Dec. 8,
1998), 63 FR 70952 (Dec. 22, 1998) (S7-13-98) (adopting Rule 19b-
4(e) under the Act).
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A. Generic Listing Standards for Managed Fund Shares

    The Exchange proposes to amend Commentary .01 to NYSE Arca Equities
Rule 8.600 and adopt generic listing standards that would permit the
listing and trading (including trading pursuant to unlisted trading
privileges) of Managed Fund Shares pursuant to Rule 19b-4(e) under the
Act, which pertains to new derivative securities products.\23\ These
generic listing standards are grouped according to underlying security
or asset type. The Exchange also seeks to specify in Commentary .01 to
NYSE Arca Equities Rule 8.600 that components of Managed Fund Shares
listed pursuant to Rule 19b-4(e) under the Act must satisfy, on an
initial and continued basis, certain specific criteria (as described
below), and that the Exchange would continue to file separate proposed
rule changes with the Commission before the listing and trading of
Managed Fund Shares that do not satisfy the prescribed generic listing
standards.\24\
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    \23\ Under Rule 19b-4(e), the term ``new derivative securities
product'' means any type of option, warrant, hybrid securities
product, or any other security, other than a single equity option or
a security futures product, whose value is based, in whole or in
part, upon the performance of, or interest in, an underlying
instrument. See 17 CFR 240.19b-4(e). Rule 19b-4(e)(1) under the Act
provides that the listing and trading of a new derivative securities
product by an SRO is not deemed a proposed rule change, pursuant to
paragraph (c)(1) of Rule 19b-4, if the Commission has approved,
pursuant to section 19(b) of the Act, the SRO's trading rules,
procedures and listing standards for the product class that would
include the new derivative securities product and the SRO has a
surveillance program for the product class. See 17 CFR 240.19b-
4(c)(1). Under Rule 19b-4(c)(1), a stated policy, practice, or
interpretation of the SRO shall be deemed to be a proposed rule
change, unless it is reasonably and fairly implied by an existing
rule of the SRO.
    \24\ For example, according to the Exchange, if the portfolio
components of a series of Managed Fund Shares exceeded one of the
applicable thresholds, the Exchange would file a separate proposed
rule change before listing and trading the Managed Fund Shares.
Similarly, if the portfolio components of a series of Managed Fund
Shares included a security or asset that is not specified in the
generic listing criteria, the Exchange would file a separate
proposed rule change.
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1. Requirements Applicable to Equity Securities Components of the
Portfolio
    Commentary .01(a) to NYSE Arca Equities Rule 8.600 sets forth the
standards for a Managed Fund Share portfolio holding equity securities,
which are defined to be U.S. Component Stocks,\25\ Non-U.S. Component
Stocks,\26\ Derivative Securities Products,\27\ and Index-Linked
Securities \28\ listed on a national securities exchange.\29\ For
Derivative Securities Products and Index-Linked Securities, leveraged
and inverse leveraged Derivative Securities Products or Index-Linked
Securities can

constitute no more than 25% of the equity weight of the portfolio. In
addition, Commentary .01(a) provides that, to the extent that a
portfolio includes convertible securities, the equity security into
which any such security is converted would be required to meet the
criteria of Commentary .01(a) after converting.
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    \25\ See Commentary .01(a) to NYSE Arca Equities Rule 8.600. The
term ``U.S. Component Stocks'' is defined in NYSE Arca Equities Rule
5.2(j)(3) (defining U.S. Component Stock as an equity security that
is registered under Sections 12(b) or 12(g) of the Act or an
American Depositary Receipt, the underlying equity security of which
is registered under Sections 12(b) or 12(g) of the Act). See NYSE
Arca Equities Rule 5.2(j)(3).
    \26\ The term ``Non-U.S. Component Stocks'' is defined in NYSE
Arca Equities Rule 5.2(j)(3) (defining Non-U.S. Component Stock as
an equity security that is not registered under Sections 12(b) or
12(g) of the Act and that is issued by an entity that (a) is not
organized, domiciled, or incorporated in the United States, and (b)
is an operating company (including Real Estate Investment Trusts and
income trusts, but excluding investment trusts, unit trusts, mutual
funds, and derivatives)). See id.
    \27\ For the purposes of Commentary .01, the term ``Derivative
Securities Products'' would mean Investment Company Units and
securities described in Section 2 of NYSE Arca Equities Rule 8
(i.e., securities described in NYSE Arca Equities Rules 5.2(j)(3),
8.100, 8.200, 8.201, 8.202, 8.203, 8.204, 8.300, 8.400, 8.500,
8.600, and 8.700).
    \28\ Index-Linked Securities are securities that qualify for
Exchange listing and trading under NYSE Arca Equities Rule
5.2(j)(6).
    \29\ Commentary .01(a) clarifies that, with respect to the scope
of securities included in the term ``equity securities,'' the
securities described in NYSE Arca Equities Rule 5.2(j)(3), NYSE Arca
Equities Rule 5.2(j)(6), and Section 2 of NYSE Arca Equities Rule 8,
as referenced above, include securities listed on a different
national securities exchange pursuant to substantially equivalent
listing rules.
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    As set forth in Commentary .01(a)(1) to NYSE Arca Equities Rule
8.600,\30\ the component stocks of the equity portion of a portfolio
that are U.S. Component Stocks must meet the following criteria
initially and on a continuing basis: \31\
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    \30\ See Commentary .01(a)(1) to NYSE Arca Equities Rule 8.600.
    \31\ See Commentary .01(a)(1)(A)-(F) to NYSE Arca Equities Rule
8.600.
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    (a) Component stocks (excluding Derivative Securities Products and
Index-Linked Securities) that in the aggregate account for at least 90%
of the equity weight of the portfolio (excluding such Derivative
Securities Products and Index-Linked Securities) each must have a
minimum market value of at least $75 million;
    (b) Component stocks (excluding Derivative Securities Products and
Index-Linked Securities) that in the aggregate account for at least 70%
of the equity weight of the portfolio (excluding such Derivative
Securities Products and Index-Linked Securities) each must have a
minimum monthly trading volume of 250,000 shares, or minimum notional
volume traded per month of $25,000,000, averaged over the previous six
months;
    (c) The most heavily weighted component stock (excluding Derivative
Securities Products and Index-Linked Securities) must not exceed 30% of
the equity weight of the portfolio, and, to the extent applicable, the
five most heavily weighted component stocks (excluding Derivative
Securities Products and Index-Linked Securities) must not exceed 65% of
the equity weight of the portfolio;
    (d) Where the equity portion of the portfolio does not include Non-
U.S. Component Stocks, the equity portion of the portfolio shall
include a minimum of 13 component stocks; provided, however, that there
shall be no minimum number of component stocks if (i) one or more
series of Derivative Securities Products or Index-Linked Securities
constitute, at least in part, components underlying a series of Managed
Fund Shares, or (ii) one or more series of Derivative Securities
Products or Index-Linked Securities account for 100% of the equity
weight of the portfolio of a series of Managed Fund Shares;
    (e) Except as provided in Commentary .01(a), equity securities in
the portfolio must be U.S. Component Stocks listed on a national
securities exchange and must be NMS Stocks as defined in Rule 600 of
Regulation NMS; \32\ and
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    \32\ See 17 CFR 240.600.
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    (f) American Depositary Receipts (``ADRs'') may be exchange-traded
or non-exchange-traded; however, no more than 10% of the equity weight
of the portfolio shall consist of non-exchange-traded ADRs.
    As set forth in Commentary .01(a)(2) to NYSE Arca Equities Rule
8.600,\33\ the component stocks of the equity portion of a portfolio
that are Non-U.S. Component Stocks must meet the following criteria
initially and on a continuing basis: \34\
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    \33\ See Commentary .01(a)(2) to NYSE Arca Equities Rule 8.600.
    \34\ See Commentary .01(a)(2)(A)-(E) to NYSE Arca Equities Rule
8.600.
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    (a) Non-U.S. Component Stocks each shall have a minimum market
value of at least $100 million;
    (b) Non-U.S. Component Stocks each shall have a minimum global
monthly trading volume of 250,000 shares, or minimum global notional
volume traded per month of $25,000,000, averaged over the last six
months;
    (c) The most heavily weighted Non-U.S. Component Stock shall not
exceed 25% of the equity weight of the portfolio, and, to the extent
applicable, the five most heavily weighted Non-U.S. Component Stocks
shall not exceed 60% of the equity weight of the portfolio;
    (d) Where the equity portion of the portfolio includes Non-U.S.
Component Stocks, the equity portion of the portfolio shall include a
minimum of 20 component stocks; provided, however, that there shall be
no minimum number of component stocks if (i) one or more series of
Derivative Securities Products or Index-Linked Securities constitute,
at least in part, components underlying a series of Managed Fund
Shares, or (ii) one or more series of Derivative Securities Products or
Index-Linked Securities account for 100% of the equity weight of the
portfolio of a series of Managed Fund Shares; and
    (e) Each Non-U.S. Component Stock shall be listed and traded on an
exchange that has last-sale reporting.
2. Requirements Applicable to Fixed Income Securities Components of the
Portfolio
    Commentary .01(b) to NYSE Arca Equities Rule 8.600 \35\ sets forth
standards for a Managed Fund Share portfolio that holds fixed income
securities, which are defined to be debt securities \36\ that are
notes, bonds, debentures, or evidence of indebtedness that include, but
are not limited to, U.S. Department of Treasury securities (``Treasury
Securities''), government-sponsored entity securities (``GSE
Securities''), municipal securities, trust preferred securities,
supranational debt and debt of a foreign country or a subdivision
thereof, investment grade and high yield corporate debt, bank loans,
mortgage and asset backed securities, and commercial paper. To the
extent that a portfolio includes convertible securities, the fixed
income security into which such security is converted would be required
to meet the criteria of Commentary .01(b) after converting.
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    \35\ See Commentary .01(b) to NYSE Arca Equities Rule 8.600.
    \36\ According to the Exchange, debt securities include a
variety of fixed income obligations, including, but not limited to,
corporate debt securities, government securities, municipal
securities, convertible securities, and mortgage-backed securities.
Debt securities include investment-grade securities, non-investment-
grade securities, and unrated securities. Debt securities also
include variable and floating rate securities. See Order Instituting
Proceedings, supra note 12, 81 FR at 9903 n.41.
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    The components of the fixed income portion of a portfolio must meet
the following criteria initially and on a continuing basis: \37\
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    \37\ See Commentary .01(b)(1)-(5) to NYSE Arca Equities Rule
8.600.
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    (a) Components that in the aggregate account for at least 75% of
the fixed income weight of the portfolio each shall have a minimum
original principal amount outstanding of $100 million or more;
    (b) No component fixed-income security (excluding Treasury
Securities and GSE Securities) could represent more than 30% of the
fixed income weight of the portfolio, and the five most heavily
weighted component fixed income securities in the portfolio (excluding
Treasury Securities and GSE Securities) must not in the aggregate
account for more than 65% of the fixed income weight of the portfolio;
    (c) An underlying portfolio (excluding exempted securities) that
includes fixed income securities must include a minimum of 13 non-
affiliated issuers; provided, however, that there shall be no minimum
number of non-affiliated issuers required for fixed income securities
if at least 70% of the weight of the portfolio consists of equity
securities as described in Commentary .01(a).
    (d) Component securities that in aggregate account for at least 90%
of the fixed income weight of the portfolio must be: (i) From issuers
that are

required to file reports pursuant to Sections 13 and 15(d) of the Act;
(ii) from issuers each of which has a worldwide market value of its
outstanding common equity held by non-affiliates of $700 million or
more; (iii) from issuers each of which has outstanding securities that
are notes, bonds debentures, or evidence of indebtedness having a total
remaining principal amount of at least $1 billion; \38\ (iv) exempted
securities as defined in Section 3(a)(12) of the Act; or (v) from
issuers that are a government of a foreign country or a political
subdivision of a foreign country; and
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    \38\ The Exchange represents that, with respect to subparagraphs
(ii) and (iii) of this provision in paragraph (d), the SPV that
issues the fixed income security (e.g., an asset-backed or mortgage-
backed security) would itself be required to satisfy the $700
million and $1 billion criteria, respectively, and not the entity
that controls, owns, or is affiliated with the SPV. See Amendment
No. 5 to the proposed rule change, supra note 15.
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    (e) Non-agency, non-GSE, and privately-issued mortgage-related and
other asset-backed securities components of a portfolio shall not
account, in the aggregate, for more than 20% of the weight of the fixed
income portion of the portfolio.
3. Requirements Relating to Cash and Cash Equivalents Components of the
Portfolio
    Commentary .01(c) to NYSE Arca Equities Rule 8.600 \39\ sets forth
standards for a Managed Fund Share portfolio holding cash and cash
equivalents. Specifically, the portfolio may hold short-term
instruments with maturities of less than 3 months and cash, and there
would be no limitation to the percentage of the portfolio invested in
such holdings. Short-term instruments include the following: \40\
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    \39\ See Commentary .01(c) to NYSE Arca Equities Rule 8.600.
    \40\ See Commentary .01(c)(2)(i)-(vii) to NYSE Arca Equities
Rule 8.600.
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    (a) U.S. Government securities, including bills, notes, and bonds
differing as to maturity and rates of interest, which are either issued
or guaranteed by the U.S. Treasury or by U.S. Government agencies or
instrumentalities;
    (b) Certificates of deposit issued against funds deposited in a
bank or savings and loan association;
    (c) Bankers' acceptances, which are short-term credit instruments
used to finance commercial transactions;
    (d) Repurchase agreements and reverse repurchase agreements;
    (e) Bank time deposits, which are monies kept on deposit with banks
or savings and loan associations for a stated period of time at a fixed
rate of interest;
    (f) Commercial paper, which are short-term unsecured promissory
notes; and
    (g) Money market funds.
4. Requirements Applicable to Listed Derivatives Components of the
Portfolio
    Commentary .01(d) to NYSE Arca Equities Rule 8.600 \41\ sets forth
standards for a Managed Fund Share portfolio that holds listed
derivatives, including futures, options, and swaps on commodities,
currencies, and financial instruments (e.g., stocks, fixed income
securities, interest rates, and volatility) or a basket or index of any
of the foregoing. There would be no limitation to the percentage of the
portfolio invested in such holdings, but portfolio holdings would be
subject to the following requirements:
---------------------------------------------------------------------------

    \41\ See Commentary .01(d) to NYSE Arca Equities Rule 8.600.
---------------------------------------------------------------------------

    (a) In the aggregate, at least 90% of the weight of holdings
invested in futures, exchange-traded options, and listed swaps shall,
on both an initial and continuing basis, consist of futures, options,
and swaps for which the Exchange may obtain information via the
Intermarket Surveillance Group (``ISG'') from other members or
affiliates of the ISG or for which the principal market is a market
with which the Exchange has a comprehensive surveillance sharing
agreement; \42\ and
---------------------------------------------------------------------------

    \42\ Commentary .01(d)(1) specifies that, for purposes of
calculating the percentage limitations, a portfolio's investment in
listed derivatives will be calculated as the aggregate gross
notional value of the listed derivatives.
---------------------------------------------------------------------------

    (b) The aggregate gross notional value of listed derivatives based
on any five or fewer underlying reference assets shall not exceed 65%
of the weight of the portfolio (including gross notional exposures),
and the aggregate gross notional value of listed derivatives based on
any single underlying reference asset shall not exceed 30% of the
weight of the portfolio (including gross notional exposures).
5. Requirements Applicable to Over-the-Counter (``OTC'') Derivatives
Components of the Portfolio
    Commentary .01(e) to NYSE Arca Equities Rule 8.600 \43\ sets forth
standards for a Managed Fund Share portfolio that holds OTC
derivatives, including forwards, options, and swaps on commodities,
currencies, and financial instruments (e.g., stocks, fixed income
securities, interest rates, and volatility) or a basket or index of any
of the foregoing. Commentary .01(e) requires that, on an initial and
continuing basis, no more than 20% of the assets in the portfolio may
be invested in OTC derivatives. The Exchange notes that, for purposes
of calculating this limitation, a portfolio's investment in OTC
derivatives will be calculated as the aggregate gross notional value of
the OTC derivatives.
---------------------------------------------------------------------------

    \43\ See Commentary .01(e) to NYSE Arca Equities Rule 8.600.
---------------------------------------------------------------------------

6. Requirements Applicable to Securities Underlying Derivatives
Components
    Commentary .01(f) to NYSE Arca Equities Rule 8.600 \44\ provides
that, to the extent that listed or OTC derivatives are used to gain
exposure to individual equities or fixed income securities, or to
indexes of equities or fixed income securities, the aggregate gross
notional value of this exposure must meet the applicable criteria set
forth in Commentaries .01(a) and .01(b) to NYSE Arca Equities Rule
8.600, respectively.\45\
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    \44\ See Commentary .01(f) to NYSE Arca Equities Rule 8.600.
    \45\ The Exchange provides examples illustrating the application
of certain of the generic listing standard requirements criteria of
NYSE Arca Equities Rule 8.600. See Amendment No. 6 Notice, supra
note 17, 81 FR at 38764-65 (describing several portfolio scenarios
and the method of calculating the holdings percentage limitations
with respect to OTC derivatives and listed derivatives, among other
securities).
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B. Other Aspects of the Proposal

    In addition to the generic listing standards applicable to Managed
Fund Shares that satisfy those specific generic criteria, the Exchange
also proposes to amend certain other aspects of NYSE Arca Equities Rule
8.600, which governs the listing and trading of all Managed Fund
Shares.
1. Disclosed Portfolio
    As part of the proposed rule change, the Exchange also proposes to
amend NYSE Arca Equities Rule 8.600(c) to require that the Web site for
all series of Managed Fund Shares, including Managed Fund Shares listed
and traded on the Exchange pursuant to Commentary .01 to NYSE Arca
Equities Rule 8.600, disclose certain additional information regarding
the Disclosed Portfolio. The required information includes the
following, to the extent applicable: Ticker symbol; CUSIP or other
identifier; a description of the holding; with respect to holdings in
derivatives, the identity of the security, commodity, index, or other
asset upon which the derivative is based; the strike price for any
options; the quantity of each security or other asset held as measured
by select metrics (par value, notional value, number of shares,

number of contracts, and number of units); maturity date; coupon rate;
effective date; market value; and percentage weighting of the holding
in the portfolio.\46\
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    \46\ See NYSE Arca Equities Rule 8.600(c)(2)(A)-(K).
---------------------------------------------------------------------------

2. Investment Objective
    In addition, the Exchange proposes to amend NYSE Arca Equities Rule
8.600(d) to specify that all Managed Fund Shares must have a stated
investment objective, which must be adhered to under normal market
conditions.\47\ NYSE Arca Equities Rule 8.600(c)(5) would specify that
the term ``normal market conditions'' includes, but is 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 man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or any similar
intervening circumstance.\48\
---------------------------------------------------------------------------

    \47\ See NYSE Arca Equities Rule 8.600(d)(1)(C).
    \48\ See NYSE Arca Equities Rule 8.600(c)(5).
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3. Portfolio Indicative Value
    The Exchange seeks to amend the continued listing requirement in
NYSE Arca Equities Rule 8.600(d)(2)(A) by changing the requirement that
a Portfolio Indicative Value for Managed Fund Shares be widely
disseminated by one or more major market data vendors at least every 15
seconds during the time when the Managed Fund Shares trade on the
Exchange to a requirement that the Portfolio Indicative Value be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session (as defined in NYSE Arca
Equities Rule 7.34).\49\
---------------------------------------------------------------------------

    \49\ See NYSE Arca Equities Rule 8.600(d)(2)(A).
---------------------------------------------------------------------------

C. Additional Representations of the Exchange Applicable to the Listing
and Trading of Managed Fund Shares

    In support of the proposed rule change, the Exchange represents
that:
    (1) The Managed Fund Shares will continue to conform to the initial
and continued listing criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange's surveillance procedures are adequate to continue
to properly monitor the trading of the Managed Fund Shares in all
trading sessions and to deter and detect violations of Exchange rules.
Specifically, the Exchange intends to utilize its existing surveillance
procedures applicable to derivative products, which will include
Managed Fund Shares, to monitor trading in the Managed Fund Shares.
    (3) Prior to the commencement of trading of a particular series of
Managed Fund Shares, the Exchange will inform its Equity Trading Permit
(``ETP'') Holders in a Bulletin of the special characteristics and
risks associated with trading the Managed Fund Shares, including
procedures for purchases and redemptions of Managed Fund Shares,
suitability requirements under NYSE Arca Equities Rule 9.2(a), the
risks involved in trading the Managed Fund Shares during the Opening
and Late Trading Sessions when an updated Portfolio Indicative Value
will not be calculated or publicly disseminated, information regarding
the Portfolio Indicative Value and the Disclosed Portfolio, prospectus
delivery requirements, and other trading information. In addition, the
Bulletin will disclose that the Managed Fund Shares are subject to
various fees and expenses, as described in the applicable registration
statement, and will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. Finally,
the Bulletin will disclose that the net asset value for the Managed
Fund Shares will be calculated after 4:00 p.m. Eastern Time each
trading day.
    (4) The issuer of a series of Managed Fund Shares will be required
to comply with Rule 10A-3 under the Act for the initial and continued
listing of Managed Fund Shares, as provided under NYSE Arca Equities
Rule 5.3.
    (5) The Exchange, on a periodic basis and no less than annually,
will review issues of Managed Fund Shares listed pursuant to Commentary
.01 to NYSE Arca Equities Rule 8.600 for compliance with NYSE Arca
Equities Rule 8.600, and will provide a report to the Regulatory
Oversight Committee of the Exchange's Board of Directors regarding the
Exchange's findings. In addition, the Exchange will provide the
Commission staff with a report each calendar quarter that includes the
following information for issues of Managed Fund Shares listed during
such calendar quarter under Commentary .01 to NYSE Arca Equities Rule
8.600: (1) Trading symbol and date of listing on the Exchange; (2) the
number of active authorized participants and a description of any
failure of an issue of Managed Fund Shares listed pursuant to
Commentary .01 to NYSE Arca Equities Rule 8.600 or of an authorized
participant to deliver shares, cash, or cash and financial instruments
in connection with creation or redemption orders; and (3) a description
of any failure of an issue of Managed Fund Shares to comply with NYSE
Arca Equities Rule 8.600.
    (6) Prior to listing pursuant to Commentary .01 to NYSE Arca
Equities Rule 8.600, an issuer would be required to represent to the
Exchange that it will advise the Exchange of any failure by a series of
Managed Fund Shares to comply with the continued listing requirements,
and, pursuant to its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor for compliance with the continued listing
requirements. If a series of Managed Fund Shares is not in compliance
with the applicable listing requirements, the Exchange will commence
delisting procedures under NYSE Arca Equities Rule 5.5(m).

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the Exchange's
proposal to amend Commentary .01 to NYSE Arca Equities Rule 8.600 to
adopt generic listing standards for Managed Fund Shares and to amend
certain other provisions in NYSE Arca Equities Rule 8.600 applicable to
the listing and trading of all Managed Fund Shares on the Exchange is
consistent with the Act and the rules and regulations thereunder
applicable to a national securities exchange.\50\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 7 thereto, is consistent with Section 6(b)(5) of the
Act,\51\ which requires, among other things, that the Exchange's rules
be designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
---------------------------------------------------------------------------

    \50\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \51\ 15 U.S.C. 78f(b)(5).
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    In support of its proposal, the Exchange states that its proposed
requirements for Managed Fund Shares are based in large part on the
generic listing criteria currently applicable to Investment Company
Units.\52\ As a general matter, the Commission believes that this is an
appropriate approach with respect to underlying asset classes covered
by the existing generic standards, because the mere addition of active
management to an ETF portfolio that would qualify for generic listing
as an index-based ETF should not affect the portfolio's susceptibility
to

manipulation or the availability of arbitrage between the ETF and its
underlying portfolio. Below, the Commission addresses the proposed
criteria for each of the asset classes encompassed within the generic
listing standards.
---------------------------------------------------------------------------

    \52\ See id. at 7-14. See also supra note 20.
---------------------------------------------------------------------------

    Equity Holdings. With respect to the equity securities holdings of
the underlying portfolio, the criteria closely track the existing
standards for Investment Company Units with four relevant differences.
First, while the generic listing criteria for Investment Company Units
do not permit the inclusion of any non-exchange-traded ADRs in the
underlying index,\53\ the generic criteria for Managed Fund Shares
permit an ETF to hold up to 10% of the equity weight of the portfolio
in non-exchange-traded ADRs. This provision, however, is consistent
with standards that the Commission has approved for specific ETFs
listed and traded as Managed Fund Shares.\54\ Moreover, the Commission
believes that the requirement that at least 90% of the equity portion
of a portfolio consist of domestic equity securities (a category that
includes ADRs) for which the Exchange may obtain transaction data
should both deter manipulation of generically listed Managed Fund
Shares and permit the Exchange to investigate any instances of
manipulation.
---------------------------------------------------------------------------

    \53\ The Commission notes, however, that a portfolio of a series
of Investment Company Units nevertheless may contain non-exchange-
listed ADRs because the Investment Company Unit portfolio need not
consist only of components of the index underlying the series of
Investment Company Units.
    \54\ See, e.g., Securities Exchange Act Release No. 72679 (July
28, 2014), 79 FR 44878 (Aug. 1, 2014) (SR-NYSEArca-2014-71);
Securities Exchange Act Release No. 67277 (June 27, 2012), 77 FR
39554 (July 3, 2012) (SR-NYSEArca-2012-39).
---------------------------------------------------------------------------

    Second, the generic listing standards differ slightly from the
existing generic standards for Investment Company Units with respect to
Non-U.S. Component Stocks. The standards provide that all Non-U.S.
Component Stocks in a Portfolio must have a minimum market value of at
least $100 million. By contrast, the generic listing criterion for
Investment Company Units requires only 90% of the Non-U.S. Component
Stocks (excluding Derivative Securities Products) included in an index
to meet the same minimum market-value threshold.\55\ Additionally,
under the proposal, all Non-U.S. Component Stocks included in a
portfolio must have a minimum global monthly trading volume of 250,000
shares, or minimum global notional volume traded per month of
$25,000,000, averaged over the previous six months.\56\ By contrast,
only 70% of the weight of an index (excluding Derivative Securities
Products) underlying generically listed Investment Company Units must
satisfy the same monthly volume thresholds.\57\ The Commission believes
that these provisions should reduce the extent to which Managed Fund
Shares holding Non-U.S. Component Stocks may be susceptible to
manipulation.
---------------------------------------------------------------------------

    \55\ See Commentary .01 to NYSE Arca Equities Rule
5.2(j)(3)(a)(B)(1).
    \56\ The Commission approved a listing rule that contained these
heightened market capitalization and trading volume requirements.
See Securities Exchange Act Release No. 75023 (May 21, 2015), 80 FR
30519 (May 28, 2015) (SR-NYSEArca-2014-100).
    \57\ See Commentary .01 to NYSE Arca Equities Rule
5.2(j)(3)(a)(B)(2).
---------------------------------------------------------------------------

    Third, while the Exchange's existing generic listing standards for
index-based ETFs do not apply concentration limits to an index's
exposure to specified exchange-traded products (called ``Derivative
Securities Products''), which have concentration limits or price
transparency requirements within their own listing standards, proposed
Commentary .01(a) to NYSE Arca Rule 8.600 would also deem portfolio
concentration limits not to apply to holdings of specified exchange-
traded notes (called ``Index-Linked Securities''). The Commission
believes that this change should not increase the susceptibility of
Managed Fund Shares to manipulation because Index-Linked Securities,
like Derivative Securities Products, have asset-exposure concentration
limits and requirements promoting price transparency within their own
listing standards, and both Derivative Securities Products and Index-
Linked Securities are listed and traded on national securities
exchanges (which are all members of ISG), publicly provide information
about listed Derivative Securities Products and Index-Linked
Securities, including price and other information relating to the
underlying index or reference asset, as the case may be, and provide
trading and price information and other quantitative date for investors
and other market participants.
    And fourth, under current generic listing standards, index-based
ETFs cannot seek inverse returns greater than 300% of the performance
of their reference index, and there is no limit on positive leverage
versus an index. By contrast, the proposed standards would impose an
absolute cap--25%--on the amount of an ETF's portfolio that could be
invested in leveraged or inverse-leveraged exchange-traded products.
The Commission believes that a limitation on the overall use of
leveraged exchange-traded products is consistent with Section 6(b)(5)
of the Act because it will limit the extent to which the performance of
a generically listed, actively managed ETF can be tied to a product
whose performance over periods of longer than one day can differ
significantly from its stated daily performance objective.\58\
---------------------------------------------------------------------------

    \58\ Cf. SEC Invester Alert, Leveraged and Inverse ETFs:
Specialized Products with Extra Risks for Buy-and-Hold Investors,
available at https://www.sec.gov/investor/pubs/leveragedetfs-alert.htm.
---------------------------------------------------------------------------

    Fixed Income Holdings. With respect to the fixed income securities
components of a portfolio, the generic listing standards for Managed
Fund Shares are based in large part on the existing generic listing
standards of Commentary .02 to NYSE Arca Equities Rule 5.2(j)(3)
applicable to components of fixed income securities indexes underlying
Investment Company Units,\59\ with three relevant differences. First,
Commentary .01(b)(3) to NYSE Arca Equities Rule 8.600 does not require
a minimum number of non-affiliated issuers for fixed income securities
in the portfolio if at least 70% of the weight of the portfolio
consists of equity securities as set forth in Commentary .01(a) to NYSE
Arca Equities Rule 8.600. Second, Commentary .01(b)(5) to NYSE Arca
Equities Rule 8.600 prohibits non-agency, non-GSE, and privately issued
mortgage-related and other asset-backed securities components of a
portfolio from constituting, in the aggregate, more than 20% of the
weight of the fixed income portion of the portfolio.\60\ And third, the
standards make explicit that convertible bonds both (a) have to meet
the criteria for fixed-income holdings and (b) be convertible into
equities that would meet the criteria for equity holdings.
---------------------------------------------------------------------------

    \59\ See Amendment No. 7, supra note 18, at 12-14.
    \60\ The Commission notes that it has approved listing and
trading rules for specific ETFs listed as Managed Fund Shares that
limit holdings of non-agency asset-backed securities to 20% of the
value of the fund's portfolio. See, e.g., Securities Exchange Act
Release No. 74297 (Feb. 18, 2015), 80 FR 9788 (Feb. 24, 2015) (SR-
BATS-2014-056); Securities Exchange Act Release No. 75566 (July 30,
2015), 80 FR 46612 (Aug. 5, 2015) (SR-NYSEArca-2015-42).
---------------------------------------------------------------------------

    The Commission believes that, taken together, the requirements for
the fixed income portion of the portfolio are reasonably designed to
ensure that a substantial portion of the portfolio consists of fixed
income securities for which information is publicly available, and,
when applied in conjunction with the other applicable listing
requirements, will permit the listing and trading only of Managed Fund
Shares that are sufficiently broad-based to

minimize the potential for manipulation. The Commission also believes
that these provisions should help to ensure that the fixed income
securities portion of a portfolio consists of assets for which
available intra-day values allow market participants to identify and
capitalize upon arbitrage opportunities, which in turn should help keep
the intra-day prices of generically listed Managed Fund Shares
reasonably aligned with the intra-day values of their underlying
assets.
    Cash and Cash Equivalents. With respect to cash and cash
equivalents to be held in a portfolio, the Commission believes that the
proposed standards appropriately define the type of short-term
instruments that would qualify as such holdings.
    Derivatives Holdings. With respect to derivatives of any type
included in the portfolio, Commentary .01(f) to NYSE Arca Equities Rule
8.600 provides that, to the extent they are used to gain exposure to
individual equities or fixed income securities, or to indexes of
equities or fixed income securities, the total notional exposure to the
underlying instruments--whether achieved through cash instruments or
derivative instruments--must meet the numerical and other criteria set
forth in Commentaries .01(a) and .01(b) to NYSE Arca Equities Rule
8.600, as applicable. The Commission believes that this provision
should make the portfolios less susceptible to manipulation by
preventing circumvention of the quantitative and other requirements
applicable to equity and fixed income security components of a
portfolio.
    With respect to listed derivatives under Commentary .01(d) to NYSE
Arca Equities Rule 8.600, the generic criterion allows a generically
listed ETF to use listed derivatives to achieve 100% of its portfolio
exposure, provided that, in the aggregate, at least 90% of the weight
of the holdings in futures, exchange-traded options, and listed swaps
consists of futures, options, and swaps for which (1) the Exchange may
obtain information from other ISG members or affiliate members, or (2)
the principal market is a market with which the Exchange has a
comprehensive surveillance sharing agreement.\61\ Additionally, the
Exchange represents that it (or the Financial Industry Regulatory
Authority, Inc. on its behalf) will communicate regarding and obtain
trade information as needed for the underlying exchange-listed
instruments whose principal market is either an ISG member or a market
with which the Exchange has a comprehensive surveillance sharing
agreement in place.\62\ The Commission believes that these provisions
should both deter potential manipulation and permit the Exchange to
investigate suspected manipulation of generically listed Managed Fund
Shares that use listed derivatives. Moreover, the Commission believes
that the price transparency of listed derivatives should enable market
participants to identify and execute arbitrage strategies that will
tend to equalize the market price of generically listed Managed Fund
Shares with the value of the underlying portfolios. The Commission also
notes that Commentary .01(d)(2) to NYSE Arca Equities Rule 8.600
imposes concentration limits on the use of listed derivatives. The
Commission believes that this limitation should make Portfolios that
contain listed derivatives less susceptible to manipulation.\63\
---------------------------------------------------------------------------

    \61\ See Amendment No. 7, supra note 18, at 23-24. The Exchange
also states that: (1) A fund's investments in derivatives, including
listed derivatives, would be subject to limits on leverage imposed
by the Investment Company Act of 1940 (``1940 Act''); (2) to limit
the potential risk associated with a fund's use of derivatives, a
fund will segregate or ``earmark'' assets determined to be liquid by
a fund in accordance with the 1940 Act (or, as permitted by
applicable regulation, enter into certain offsetting positions) to
cover its obligations under derivative instruments; and (3) a fund's
investments would be consistent with its investment objective and
would not be used to enhance leverage. See id. at 24.
    \62\ See id. at 27.
    \63\ Commentary .01(d)(2) to NYSE Arca Equities Rule 8.600
requires that the aggregate gross notional value of listed
derivatives based on any five or fewer underlying reference assets
shall not exceed 65% of the weight of the portfolio (including gross
notional exposures), and the aggregate gross notional value of
listed derivatives based on any single underlying reference asset
shall not exceed 30% of the weight of the portfolio (including gross
notional exposures).
---------------------------------------------------------------------------

    With respect to OTC derivatives, Commentary .01(e) to NYSE Arca
Equities Rule 8.600 permits the portfolio to include OTC derivatives,
but would limit the amount of these derivatives to 20% of the fund's
assets in the portfolio, thereby ensuring that the preponderance of a
fund's investments would not be in derivatives that are not listed and
centrally cleared. The Commission believes that this limitation is
sufficient to mitigate the risks associated with price manipulation
because at least 80% of a Managed Fund Shares portfolio would consist
of: Cash and cash equivalents; listed derivatives, of which 90% by
portfolio weight would be traded on a principal market that is a member
of ISG; and equity securities or fixed income instruments subject to
numerous restrictions designed to prevent manipulation and ensure
pricing transparency. The Commission notes that, for purposes of
calculating this 20% limitation on OTC derivatives holdings, a
portfolio's investment in OTC derivatives will be calculated as the
aggregate gross notional value of the OTC derivatives.\64\
---------------------------------------------------------------------------

    \64\ See Commentary .01(e) to NYSE Arca Equities Rule 8.600.
---------------------------------------------------------------------------

    The Commission further notes that, in addition to the listing
criteria described above for specific underlying asset classes, the
Exchange has committed to conduct an ongoing compliance review of the
ETFs that are generically listed as Managed Fund Shares. Specifically,
the Exchange has represented that, no less than annually, it will
review the Managed Fund Shares generically listed and traded on the
Exchange under NYSE Arca Equities Rule 8.600 for compliance with that
rule and will provide a report to its Regulatory Oversight Committee
presenting the findings of its review. The Exchange has also committed
to provide, on a quarterly basis, a report to the Commission staff that
contains, for each ETF whose shares are generically listed and traded
under Commentary .01 to NYSE Arca Equities Rule 8.600: (a) The symbol
and date of listing; (b) the number of active authorized participants
and a description of any failure by either a fund or an authorized
participant to deliver promised baskets of shares, cash, or cash and
instruments in connection with creation or redemption orders; and (c) a
description of any failure by an ETF to comply with NYSE Arca Equities
Rule 8.600.\65\ The Commission believes that the quarterly report
provided by the Exchange will assist the Commission in using public
data to review the trading characteristics of ETFs listed under these
generic standards.\66\
---------------------------------------------------------------------------

    \65\ See Amendment No. 7, supra note 18, at 19.
    \66\ The Commission also notes that all Managed Fund Shares
listed pursuant to NYSE Arca Equities Rule 8.600, including
generically listed Managed Fund Shares, are included within the
definition of ``security'' or ``securities'' as those terms are used
in the Exchange Rules. See NYSE Arca Equities Rule 8.600(b).
Accordingly, Managed Fund Shares are subject to the full set of
rules and procedures that govern the trading of securities on the
Exchange. See Amendment No. 7, supra note 18, at 5 and 26.
---------------------------------------------------------------------------

    The Commission also notes that, prior to listing pursuant to
Commentary .01 to NYSE Arca Equities Rule 8.600, an issuer would be
required to represent to the Exchange that it will advise the Exchange
of any failure by a series of Managed Fund Shares to comply with the
continued listing requirements, and, pursuant to its obligations under
Section 19(g)(1) of the Act, the Exchange will monitor for compliance
with the continued listing requirements.\67\ If a

series of Managed Fund Shares is not in compliance with the applicable
listing requirements, the Exchange will commence delisting procedures
under NYSE Arca Equities Rule 5.5(m).\68\
---------------------------------------------------------------------------

    \67\ The Commission notes that another proposal relating to the
generic listing and trading of Managed Fund Shares includes a
representation that the exchange will ``surveil'' for compliance
with the continued listing requirements. See, e.g., Securities
Exchange Act Release No. 78005 (Jun. 7, 2016), 81 FR 38247 (Jun. 13,
2016) (SR-BATS-2015-100). In the context of this representation, it
is the Commission's view that ``monitor'' and ``surveil'' both mean
ongoing oversight of a fund's compliance with the continued listing
requirements. Therefore, the Commission does not view ``monitor'' as
a more or less stringent obligation than ``surveil'' with respect to
the continued listing requirements.
    \68\ See Amendment No. 7, supra note 18, at 19.
---------------------------------------------------------------------------

    The Commission believes that the Managed Fund Shares generic
listing criteria, taken together, should promote the listing only of
Managed Fund Shares that are not susceptible to manipulation.
Additionally, the generic listing standards as a whole should ensure
that the underlying portfolios are composed predominantly of securities
and instruments for which available intra-day values allow market
participants to identify and capitalize upon arbitrage opportunities,
which in turn should help keep the intra-day prices of generically
listed Managed Fund Shares reasonably aligned with the intra-day values
of their underlying assets.
    For the reasons discussed above, the Commission finds that the
generic listing standards for Managed Fund Shares are consistent with
Section 6(b)(5) of the Act.\69\
---------------------------------------------------------------------------

    \69\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    In addition, the Exchange amends certain requirements of NYSE Arca
Equities Rule 8.600 that apply to all Managed Fund Shares (i.e., both
fund shares listed generically under the proposed standards and fund
shares listed pursuant to filings by the Exchange under Section
19(b)(1) of the Act and Rule 19b-4 thereunder). Specifically, the
Exchange specifies the information that must be included in the
Disclosed Portfolio disseminated by each actively managed ETF.
Previously approved listing rules for specific ETFs listed as Managed
Fund Shares have included identical disclosure requirements.\70\ The
mandatory disclosures include information that market participants can
use to value an actively managed ETF's holdings intra-day, which should
facilitate arbitrage opportunities that should help keep the intra-day
prices of Managed Fund Shares reasonably aligned with the intra-day
values of their underlying assets.
---------------------------------------------------------------------------

    \70\ See, e.g., Securities Exchange Act Release No. 72666 (July
3, 2014), 79 FR 44224 (July 30, 2014) (SR-NYSEArca-2013-122).
---------------------------------------------------------------------------

    The Exchange also amends the continued listing requirement in NYSE
Arca Equities Rule 8.600(d)(2)(A), which is applicable to all Managed
Fund Shares, to require dissemination of the Portfolio Indicative Value
at least every 15 seconds during the Core Trading Session, as defined
in NYSE Arca Equities Rule 7.34. The Commission believes that this
requirement is consistent with the intraday indicative value
dissemination requirement for Investment Company Units,\71\ as well as
with the representations made in support of approved proposals to list
and trade shares of other series of Managed Fund Shares.\72\
---------------------------------------------------------------------------

    \71\ See, e.g., Commentary .01(c) and Commentary .02(c) to NYSE
Arca Equities Rule 5.2(j)(3) (currently requiring the index-based
ETF's intraday indicative value to be disseminated at least every 15
seconds only during the Core Trading Session of the Exchange).
    \72\ See Amendment No. 7, supra note 18, at 20-21.
---------------------------------------------------------------------------

    Finally, the Exchange adds as an initial listing criterion
applicable to all Managed Fund Shares (including those that are
generically listed) the requirement that Managed Fund Shares must have
a stated investment objective, which shall be adhered to under ``Normal
Market Conditions,'' defined as circumstances including, but not
limited to, the absence of: Trading halts in the applicable financial
markets generally; operational issues causing dissemination of
inaccurate market information or systems failure; or force majeure type
events, such as natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption, or any similar
intervening circumstance.\73\ The Commission believes that this
proposed change is consistent with previous Commission approvals of
specific ETFs listed as Managed Fund Shares.
---------------------------------------------------------------------------

    \73\ See NYSE Arca Equities Rule 8.600(c)(5). See also NYSE Arca
Equities Rule 8.600(d)(1)(C).
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission finds that the proposed
rule change, as modified by Amendment No. 7 thereto, is consistent with
Section 6(b)(5) of the Act \74\ and the rules and regulations
thereunder applicable to a national securities exchange.
---------------------------------------------------------------------------

    \74\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\75\ that the proposed rule change (SR-NYSEArca-2015-110), as
modified by Amendment No. 7 thereto, be, and it hereby is, approved.
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\76\
---------------------------------------------------------------------------

    \76\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2016-17825 Filed 7-26-16; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 85, Number 249 (Tuesday, December 29, 2020)]
[Proposed Rules]
[Pages 85557-85559]
[FR Doc No: 2020-28824]

========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.

========================================================================

Federal Register / Vol. 85, No. 249 / Tuesday, December 29, 2020 /
Proposed Rules

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. FAA-2020-1030; Project Identifier AD-2020-01079-T]
RIN 2120-AA64

Airworthiness Directives; The Boeing Company Airplanes

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Notice of proposed rulemaking (NPRM).

-----------------------------------------------------------------------

SUMMARY: The FAA proposes to adopt a new airworthiness directive (AD)
for certain The Boeing Company Model 777-300ER series airplanes. This
proposed AD was prompted by a report that a production design change to
certain insulation blankets inadvertently opened up leakage paths for
halon and smoke to escape from the aft cargo compartment in the event
of a fire. This proposed AD would require installation of an insulation
blanket assembly on top of existing insulation blankets, in certain
areas of the forward endwall in the aft cargo compartment. The FAA is
proposing this AD to address the unsafe condition on these products.

DATES: The FAA must receive comments on this proposed AD by February
12, 2021.

ADDRESSES: You may send comments, using the procedures found in 14 CFR
11.43 and 11.45, by any of the following methods:
     Federal eRulemaking Portal: Go to https://www.regulations.gov. Follow the instructions for submitting comments.
     Fax:<PHONE_NUMBER>.
     Mail: U.S. Department of Transportation, Docket
Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New
Jersey Avenue SE, Washington, DC 20590.
     Hand Delivery: Deliver to Mail address above between 9
a.m. and 5 p.m., Monday through Friday, except Federal holidays.
    For service information identified in this NPRM, contact Boeing
Commercial Airplanes, Attention: Contractual & Data Services (C&DS),
2600 Westminster Blvd., MC 110-SK57, Seal Beach, CA 90740-5600;
telephone<PHONE_NUMBER>; internet https://www.myboeingfleet.com. You may
view this referenced service information at the FAA, Airworthiness
Products Section, Operational Safety Branch, 2200 South 216th St., Des
Moines, WA. For information on the availability of this material at the
FAA, call<PHONE_NUMBER>. It is also available on the internet at https://www.regulations.gov by searching for and locating Docket No. FAA-2020-
1030.

Examining the AD Docket

    You may examine the AD docket on the internet at https://www.regulations.gov by searching for and locating Docket No. FAA-2020-
1030; or in person at Docket Operations between 9 a.m. and 5 p.m.,
Monday through Friday, except Federal holidays. The AD docket contains
this NPRM, any comments received, and other information. The street
address for Docket Operations is listed above. Comments will be
available in the AD docket shortly after receipt.

FOR FURTHER INFORMATION CONTACT: Susan L. Monroe, Aerospace Engineer,
Cabin Safety and Environmental Systems Section, FAA, Seattle ACO
Branch, 2200 South 216th St., Des Moines, WA 98198; phone and fax: 206-
231-3570; email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

Comments Invited

    The FAA invites you to participate in this rulemaking by submitting
written comments, data, or views about this proposal. The most helpful
comments reference a specific portion of the proposal, explain the
reason for any recommended change, and include supporting data. To
ensure the docket does not contain duplicate comments, commenters
should submit only one copy of the comments. Send your comments to an
address listed under the ADDRESSES section. Include ``Docket No. FAA-
2020-1030; Project Identifier AD-2020-01079-T'' at the beginning of
your comments.
    Except for Confidential Business Information (CBI) as described in
the following paragraph, and other information as described in 14 CFR
11.35, the FAA will post all comments received, without change, as well
as a report summarizing each substantive public contact with FAA
personnel concerning this proposed rulemaking. Before acting on this
proposal, the FAA will consider all comments received by the closing
date for comments. The FAA will consider comments filed after the
comment period has closed if it is possible to do so without incurring
expense or delay. The FAA may change this NPRM because of those
comments.

Confidential Business Information

    CBI is commercial or financial information that is both customarily
and actually treated as private by its owner. Under the Freedom of
Information Act (FOIA) (5 U.S.C. 552), CBI is exempt from public
disclosure. If your comments responsive to this NPRM contain commercial
or financial information that is customarily treated as private, that
you actually treat as private, and that is relevant or responsive to
this NPRM, it is important that you clearly designate the submitted
comments as CBI. Please mark each page of your submission containing
CBI as ``PROPIN.'' The FAA will treat such marked submissions as
confidential under the FOIA, and they will not be placed in the public
docket of this NPRM. Submissions containing CBI should be sent to Susan
L. Monroe, Aerospace Engineer, Cabin Safety and Environmental Systems
Section, FAA, Seattle ACO Branch, 2200 South 216th St., Des Moines, WA
98198; phone and fax:<PHONE_NUMBER>; email<EMAIL_ADDRESS>Any
commentary that the FAA receives which is not specifically designated
as CBI will be placed in the public docket for this rulemaking.

Discussion

    The FAA has received a report indicating that a production design
change to certain insulation blankets inadvertently opened up leakage
paths for halon and smoke to escape from the aft cargo compartment.
This condition, if not addressed, could, in the event of a fire, result
in loss of fire suppressant in the cargo compartment, and could lead to
an uncontained fire and subsequent loss of the airplane.

Related Service Information Under 1 CFR Part 51

    The FAA reviewed Boeing Special Attention Requirements Bulletin
777-25-0753 RB, dated July 31, 2020. This service information describes
procedures for installing an insulation blanket assembly on top of
existing insulation blankets, on the left and right side corner of the
forward endwall in the aft cargo compartment. This service information
is reasonably available because the interested parties have access to
it through their normal course of business or by the means identified
in the ADDRESSES section.

FAA's Determination

    The FAA is proposing this AD because the agency evaluated all the
relevant information and determined the unsafe condition described
previously is likely to exist or develop in other products of the same
type design.

Proposed AD Requirements

    This proposed AD would require accomplishment of the actions
identified in Boeing Special Attention Requirements Bulletin 777-25-
0753 RB, dated July 31, 2020, described previously, except for any
differences identified as exceptions in the regulatory text of this
proposed AD.
    For information on the procedures and compliance times, see this
service information at https://www.regulations.gov by searching for and
locating Docket No. FAA-2020-1030.

Explanation of Requirements Bulletin

    The FAA worked in conjunction with industry, under the
Airworthiness Directive Implementation Aviation Rulemaking Committee
(AD ARC), to enhance the AD system. One enhancement is a process for
annotating which steps in the service information are ``required for
compliance'' (RC) with an AD. Boeing has implemented this RC concept
into Boeing service bulletins.
    In an effort to further improve the quality of ADs and AD-related
Boeing service information, a joint process improvement initiative was
worked between the FAA and Boeing. The initiative resulted in the
development of a new process in which the service information more
clearly identifies the actions needed to address the unsafe condition
in the ``Accomplishment Instructions.'' The new process results in a
Boeing Requirements Bulletin, which contains only the actions needed to
address the unsafe condition (i.e., only the RC actions).

Costs of Compliance

    The FAA estimates that this proposed AD affects 22 airplanes of
U.S. registry. The FAA estimates the following costs to comply with
this proposed AD:

                                      Estimated Costs for Required Actions
----------------------------------------------------------------------------------------------------------------
                                                                                Cost per      Cost on U.S.
                Action                         Labor cost           Parts cost        product        operators
----------------------------------------------------------------------------------------------------------------
Insulation blanket installation.......  1 work-hour x $85 per               $240            $325          $7,150
                                         hour = $85.
----------------------------------------------------------------------------------------------------------------

    According to the manufacturer, some or all of the costs of this
proposed AD may be covered under warranty, thereby reducing the cost
impact on affected individuals. The FAA does not control warranty
coverage for affected individuals. As a result, the FAA has included
all known costs in the cost estimate.

Authority for This Rulemaking

    Title 49 of the United States Code specifies the FAA's authority to
issue rules on aviation safety. Subtitle I, section 106, describes the
authority of the FAA Administrator. Subtitle VII: Aviation Programs,
describes in more detail the scope of the Agency's authority.
    The FAA is issuing this rulemaking under the authority described in
Subtitle VII, Part A, Subpart III, Section 44701: General requirements.
Under that section, Congress charges the FAA with promoting safe flight
of civil aircraft in air commerce by prescribing regulations for
practices, methods, and procedures the Administrator finds necessary
for safety in air commerce. This regulation is within the scope of that
authority because it addresses an unsafe condition that is likely to
exist or develop on products identified in this rulemaking action.

Regulatory Findings

    The FAA determined that this proposed AD would not have federalism
implications under Executive Order 13132. This proposed AD would not
have a substantial direct effect on the States, on the relationship
between the national Government and the States, or on the distribution
of power and responsibilities among the various levels of government.
    For the reasons discussed above, I certify this proposed
regulation:
    (1) Is not a ``significant regulatory action'' under Executive
Order 12866,
    (2) Will not affect intrastate aviation in Alaska, and
    (3) Will not have a significant economic impact, positive or
negative, on a substantial number of small entities under the criteria
of the Regulatory Flexibility Act.

List of Subjects in 14 CFR Part 39

    Air transportation, Aircraft, Aviation safety, Incorporation by
reference, Safety.

The Proposed Amendment

    Accordingly, under the authority delegated to me by the
Administrator, the FAA proposes to amend 14 CFR part 39 as follows:

PART 39--AIRWORTHINESS DIRECTIVES

0
1. The authority citation for part 39 continues to read as follows:

    Authority:  49 U.S.C. 106(g), 40113, 44701.

Sec.  39.13   [Amended]

0
2. The FAA amends Sec.  39.13 by adding the following new airworthiness
directive (AD):

The Boeing Company: Docket No. FAA-2020-1030; Project Identifier AD-
2020-01079-T.

(a) Comments Due Date

    The FAA must receive comments by February 12, 2021.

(b) Affected ADs

    None.

(c) Applicability

    This AD applies to The Boeing Company Model 777-300ER series
airplanes, certificated in any category, as identified in Boeing
Special Attention Requirements Bulletin 777-25-0753 RB, dated July
31, 2020.

(d) Subject

    Air Transport Association (ATA) of America Code 25, Equipment/
Furnishings.

(e) Unsafe Condition

    This AD was prompted by a report that a production design change
to certain insulation blankets inadvertently opened up

leakage paths for halon and smoke to escape from the aft cargo
compartment in the event of a fire. The FAA is issuing this AD to
address increased leakage paths, which, in the event of a fire,
could result in loss of fire suppressant in the cargo compartment,
and could lead to an uncontained fire and subsequent loss of the
airplane.

(f) Compliance

    Comply with this AD within the compliance times specified,
unless already done.

(g) Required Actions

    Except as specified by paragraph (h) of this AD: At the
applicable times specified in the ``Compliance'' paragraph of Boeing
Special Attention Requirements Bulletin 777-25-0753 RB, dated July
31, 2020, do all applicable actions identified in, and in accordance
with, the Accomplishment Instructions of Boeing Special Attention
Requirements Bulletin 777-25-0753 RB, dated July 31, 2020.

    Note 1 to paragraph (g):  Guidance for accomplishing the actions
required by this AD can be found in Boeing Special Attention Service
Bulletin 777-25-0753, dated July 31, 2020, which is referred to in
Boeing Special Attention Requirements Bulletin 777-25-0753 RB, dated
July 31, 2020.

(h) Exceptions to Service Information Specifications

    Where Boeing Special Attention Requirements Bulletin 777-25-0753
RB, dated July 31, 2020, uses the phrase ``the original issue date
of the Requirements Bulletin 777-25-0753 RB,'' this AD requires
using ``the effective date of this AD.''

(i) Alternative Methods of Compliance (AMOCs)

    (1) The Manager, Seattle ACO Branch, FAA, has the authority to
approve AMOCs for this AD, if requested using the procedures found
in 14 CFR 39.19. In accordance with 14 CFR 39.19, send your request
to your principal inspector or responsible Flight Standards Office,
as appropriate. If sending information directly to the manager of
the certification office, send it to the attention of the person
identified in paragraph (j)(1) of this AD. Information may be
emailed to<EMAIL_ADDRESS>    (2) Before using any approved AMOC, notify your appropriate
principal inspector, or lacking a principal inspector, the manager
of the responsible Flight Standards Office.
    (3) An AMOC that provides an acceptable level of safety may be
used for any repair, modification, or alteration required by this AD
if it is approved by The Boeing Company Organization Designation
Authorization (ODA) that has been authorized by the Manager, Seattle
ACO Branch, FAA, to make those findings. To be approved, the repair
method, modification deviation, or alteration deviation must meet
the certification basis of the airplane, and the approval must
specifically refer to this AD.

(j) Related Information

    (1) For more information about this AD, contact Susan L. Monroe,
Aerospace Engineer, Cabin Safety and Environmental Systems Section,
FAA, Seattle ACO Branch, 2200 South 216th St., Des Moines, WA 98198;
phone and fax:<PHONE_NUMBER>; email<EMAIL_ADDRESS>    (2) For service information identified in this AD, contact
Boeing Commercial Airplanes, Attention: Contractual & Data Services
(C&DS), 2600 Westminster Blvd., MC 110-SK57, Seal Beach, CA 90740-
5600; telephone<PHONE_NUMBER>; internet https://www.myboeingfleet.com. You may view this referenced service
information at the FAA, Airworthiness Products Section, Operational
Safety Branch, 2200 South 216th St., Des Moines, WA. For information
on the availability of this material at the FAA, call<PHONE_NUMBER>.

    Issued on November 13, 2020.
Lance T. Gant,
Director, Compliance & Airworthiness Division, Aircraft Certification
Service.
[FR Doc. 2020-28824 Filed 12-28-20; 8:45 am]
BILLING CODE 4910-13-P