[Federal Register Volume 82, Number 85 (Thursday, May 4, 2017)]
[Notices]
[Pages 20932-20945]
[FR Doc No: 2017-08980]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80553; File No. SR-NYSEArca-2017-36]

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

April 28, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on April 14, 2017, NYSE Arca, Inc. (the ``Exchange,''
``NYSE Arca,'' or the ``Corporation'') filed with the Securities and
Exchange Commission (the ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the self-regulatory organization. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to adopt a new NYSE Arca Equities Rule 8.900
to permit it to list and trade Managed Portfolio Shares, which are
shares of actively managed exchange-traded funds (``ETFs'') for which
the portfolio is disclosed in accordance with standard mutual fund
disclosure rules. In addition, the Exchange proposes to list and trade
shares of the following under proposed NYSE Arca Equities Rule 8.900:
Royce Pennsylvania ETF; Royce Premier ETF; and Royce Total Return ETF.
The proposed 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 the
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to add new NYSE Arca Equities Rule 8.900 for
the purpose of permitting the listing and trading, or trading pursuant
to unlisted trading privileges (``UTP''), of Managed Portfolio Shares,
which are securities issued by an actively managed open-end investment
management company.\4\
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    \4\ A Managed Portfolio Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3) (``Index ETFs''), seeks to provide investment results that
correspond generally 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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    In addition to the above-mentioned proposed rule changes, the
Exchange proposes to list and trade shares (``Shares'') of the
following under proposed NYSE Arca Equities Rule 8.900: Royce
Pennsylvania ETF; Royce Premier ETF; and Royce Total Return ETF (each,
a ``Fund'' and, collectively, the ``Funds'').
Proposed Listing Rules
    Proposed Rule 8.900(a) provides that the Corporation will consider
for trading, whether by listing or pursuant to UTP, Managed Portfolio
Shares that meet the criteria of Rule 8.900.
    Proposed Rule 8.900(b) provides that Rule 8.900 is applicable only
to Managed Portfolio Shares and that, except to the extent inconsistent
with Rule 8.900, or unless the context otherwise requires, the rules
and procedures of the Corporation's Board of Directors shall be
applicable to the trading on the Corporation of such securities.
Proposed Rule 8.900(b) provides further that Managed Portfolio Shares
are included within the definition of ``security'' or ``securities'' as
such terms are used in the Rules of the Corporation.
Proposed Definitions
    Proposed Rule 8.900(c)(1) defines the term ``Managed Portfolio
Share'' as a security that (a) is issued by a registered investment
company (``Investment Company'') organized as an open-end management
investment company or similar entity, that invests in a portfolio of
securities selected by the Investment Company's investment adviser
consistent with the Investment Company's investment objectives and
policies; and (b) when aggregated in a number of shares equal to a
Redemption Unit or multiples thereof, may be redeemed at the request of
an Authorized Participant (as defined in the Investment Company's Form
N-1A filed with the SEC), which Authorized Participant will be paid,
through its own separate confidential account established for its
benefit, a portfolio of securities and/or cash with a value equal to
the next determined net asset value (``NAV'').
    Proposed Rule 8.900(c)(2) defines the term ``Verified Intraday
Indicative Value (``VIIV'') as the estimated indicative value of a
Managed Portfolio Share based on all of the issuer's holdings as of the
close of business on the prior business day, priced and disseminated in
one second intervals, and subject to validation by a pricing
verification agent of the Investment Company that is responsible for
comparing multiple independent pricing sources to establish the
accuracy of the VIIV.
    Proposed Rule 8.900(c)(3) defines the term ``Redemption Unit'' as a
specified number of Managed Portfolio Shares.
    Proposed Rule 8.900(c)(4) defines the term ``Reporting Authority''
in respect of a particular series of Managed Portfolio Shares as a
reporting service designated by the issuer as the official source for
calculating and reporting information relating to such series,
including, but not limited to, the VIIV, NAV, or other information
relating to the issuance, redemption or trading of Managed Portfolio
Shares. A series of Managed Portfolio Shares may have more than one
Reporting Authority, each having different functions.
    Proposed Rule 8.900(d) sets forth initial and continued listing
criteria applicable to Managed Portfolio Shares. Proposed Rule
8.900(d)(1)(A) provides that, for each series of Managed Portfolio
Shares, the Corporation will

establish a minimum number of Managed Portfolio Shares required to be
outstanding at the time of commencement of trading on the Corporation.
In addition, proposed Rule 8.900(d)(1)(B) provides that the Corporation
will obtain a representation from the issuer of each series of Managed
Portfolio Shares that the NAV per share for the series will be
calculated daily and that the NAV will be made available to all market
participants at the same time.\5\
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    \5\ NYSE Arca Equities Rule 7.18(d)(2) (``Halts of Derivative
Securities Products Listed on the NYSE Arca Marketplace)'' provides
that, with respect to Derivative Securities Products listed on the
NYSE Arca Marketplace for which a net asset value is disseminated,
if the Exchange becomes aware that the net asset value is not being
disseminated to all market participants at the same time, it will
halt trading in the affected Derivative Securities Product on the
NYSE Arca Marketplace until such time as the net asset value is
available to all market participants.
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    Proposed Rule 8.900(d)(2) provides that each series of Managed
Portfolio Shares will be listed and traded subject to application of
the following continued listing criteria:
     Proposed Rule 8.900(d)(2)(A) provides that the VIIV for
Managed Portfolio Shares will be widely disseminated by one or more
major market data vendors every second during the Exchange's Core
Trading Session (as defined in NYSE Arca Equities Rule 7.34).
     Proposed Rule 8.900(d)(2)(B) provides that the Corporation
will maintain surveillance procedures for securities listed under Rule
8.900 and will consider the suspension of trading in, and will commence
delisting proceedings under Rule 5.5(m) of, a series of Managed
Portfolio Shares under any of the following circumstances:
    (i) If, following the initial twelve-month period after
commencement of trading on the Exchange of a series of Managed
Portfolio Shares, there are fewer than 50 beneficial holders of the
series of Managed Portfolio Shares;
    (ii) if the value of the VIIV is no longer calculated or made
available to all market participants at the same time;
    (iii) if the Investment Company issuing the Managed Portfolio
Shares has failed to file any filings required by the Commission or if
the Corporation is aware that the Investment Company is not in
compliance with the conditions of any exemptive order or no-action
relief granted by the Securities and Exchange Commission to the
Investment Company with respect to the series of Managed Portfolio
Shares;
    (iv) if any of the continued listing requirements set forth in Rule
8.900 are not continuously maintained;
    (v) if the Corporation submits a rule filing pursuant to Section
19(b) of the Act to permit the listing and trading of a series of
Managed Portfolio Shares and any of the statements or representations
regarding (a) the description of the portfolio or reference asset, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules specified in such rule filing
are not continuously maintained; or
    (vi) if such other event shall occur or condition exists which, in
the opinion of the Corporation, makes further dealings on the
Corporation inadvisable.
    Proposed Rule 8.900(d)(2)(C) provides that, upon notification to
the Corporation by the Investment Company or its agent that (i) the
prices from the multiple independent pricing sources to be validated by
the Investment Company's pricing verification agent differ by more than
25 basis points for 60 seconds in connection with pricing of the VIIV,
or (ii) that the VIIV of a series of Managed Portfolio Shares is not
being priced and disseminated in one-second intervals, as required, the
Corporation shall halt trading in the Managed Portfolio Shares as soon
as practicable. Such halt in trading shall continue until the
Investment Company or its agent notifies the Corporation that the
prices from the independent pricing sources no longer differ by more
than 25 basis points for 60 seconds or that the VIIV is being priced
and disseminated as required. The Investment Company or its agent shall
be responsible for monitoring that the VIIV is being priced and
disseminated as required and whether the prices to be validated from
multiple independent pricing sources differ by more than 25 basis
points for 60 seconds. With respect to series of Managed Portfolio
Shares trading on the Corporation pursuant to unlisted trading
privileges, if a temporary interruption occurs in the pricing or
dissemination of the applicable Verified Intraday Indicative Value and
the listing market halts trading in such series, the Corporation, upon
notification by the listing market of such halt due to such temporary
interruption, will halt trading in such series. In addition, if the
Exchange becomes aware that the NAV with respect to a series of Managed
Portfolio Shares is not disseminated to all market participants at the
same time, it will halt trading in such series until such time as the
NAV is available to all market participants.
    Proposed Rule 8.900(d)(2)(D) provides that, upon termination of an
Investment Company, the Corporation requires that Managed Portfolio
Shares issued in connection with such entity be removed from
Corporation listing.
    Proposed Rule 8.900(d)(2)(E) provides that voting rights shall be
as set forth in the applicable Investment Company prospectus.
    Proposed Rule 8.900(e), which relates to limitation of Corporation
liability, provides that neither the Corporation, the Reporting
Authority, nor any agent of the Corporation shall have any liability
for damages, claims, losses or expenses caused by any errors,
omissions, or delays in calculating or disseminating any current
portfolio value; the VIIV; the current value of the portfolio of
securities required to be deposited to the open-end management
investment company in connection with issuance of Managed Portfolio
Shares; the amount of any dividend equivalent payment or cash
distribution to holders of Managed Portfolio Shares; NAV; or other
information relating to the purchase, redemption, or trading of Managed
Portfolio Shares, resulting from any negligent act or omission by the
Corporation, the Reporting Authority or any agent of the Corporation,
or any act, condition, or cause beyond the reasonable control of the
Corporation, its agent, or the Reporting Authority, including, but not
limited to, an act of God; fire; flood; extraordinary weather
conditions; war; insurrection; riot; strike; accident; action of
government; communications or power failure; equipment or software
malfunction; or any error, omission, or delay in the reports of
transactions in one or more underlying securities.
    Proposed Commentary .01 to NYSE Arca Equities Rule 8.900 provides
that the Corporation will file separate proposals under Section 19(b)
of the Act before the listing and trading of Managed Portfolio Shares.
All statements or representations contained in such rule filing
regarding (a) the description of the portfolio or reference asset, (b)
limitations on portfolio holdings or reference assets, or (c) the
applicability of Exchange listing rules specified in such rule filing
will constitute continued listing requirements. An issuer of such
securities must notify the Exchange of any failure to comply with such
continued listing requirements. Proposed Commentary .02 to NYSE Arca
Equities Rule 8.900 provides that transactions in Managed Portfolio
Shares will occur only during the Core Trading Session as specified in
NYSE Arca Equities Rule 7.34(a)(2).
    Proposed Commentary .03 to NYSE Arca Equities Rule 8.900 provides
that

the Exchange will implement written surveillance procedures for Managed
Portfolio Shares.
    Proposed Commentary .04 to NYSE Arca Equities Rule 8.900 provides
that Authorized Participants (as defined in the Investment Company's
Form N-1A filed with the SEC) or non-Authorized Participant market
makers redeeming Managed Portfolio Shares will sign an agreement with
an agent (``Trusted Agent'') to establish a confidential account for
the benefit of such Authorized Participant or non-Authorized
Participant market maker that will receive all consideration from the
issuer in a redemption. A Trusted Agent may not disclose the
consideration received in a redemption except as required by law or as
provided in the Investment Company's Form N-1A, as applicable
    Proposed Commentary .05 to NYSE Arca Equities Rule 8.900 provides
that, if the investment adviser to the Investment Company issuing
Managed Portfolio Shares is affiliated with a broker-dealer, or if any
Trusted Agent is registered as a broker-dealer or is affiliated with a
broker-dealer, such investment adviser or Trusted Agent will erect and
maintain a ``fire wall'' between the investment adviser or Trusted
Agent and (i) personnel of the broker-dealer or broker-dealer
affiliate, as applicable, or (ii) the Authorized Participant or non-
Authorized Participant market maker, as applicable, with respect to
access to information concerning the composition and/or changes to such
Investment Company portfolio. Personnel who make decisions on the
Investment Company's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable Investment Company
portfolio.\6\
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    \6\ The Exchange will propose applicable NYSE Arca Equities
listing fees for Managed Portfolio Shares in the NYSE Arca Equities
Schedule of Fees and Charges via a separate proposed rule change.
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Key Features of Managed Portfolio Shares
    While funds issuing Managed Portfolio Shares will be actively-
managed and, to that extent, will be similar to Managed Fund Shares,
Managed Portfolio Shares differ from Managed Fund Shares in the
following important respects. First, in contrast to Managed Fund
Shares, which are actively-managed funds listed and traded under NYSE
Arca Equities Rule 8.600 \7\ and for which a ``Disclosed Portfolio'' is
required to be disseminated at least once daily,\8\ the portfolio for
an issue of Managed Portfolio Shares will be disclosed quarterly in
accordance with normal disclosure requirements otherwise applicable to
open-end investment companies registered under the 1940 Act.\9\ Second,
in connection with the redemption of shares in ``Redemption Unit'' size
(as described below), the delivery of any portfolio securities in kind
will generally be effected through a ``Confidential Account'' (as
described below) for the benefit of the redeeming ``Authorized
Participant'' (as described below in ``Creation and Redemption of
Shares'') without disclosing the identity of such securities to the
Authorized Participant.
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    \7\ The Commission has previously approved listing and trading
on the Exchange of a number of issues of Managed Fund Shares under
Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 57801
(May 8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31)
(order approving Exchange listing and trading of twelve actively-
managed funds of the WisdomTree Trust); 60460 (August 7, 2009), 74
FR 41468 (August 17, 2009) (SR-NYSEArca-2009-55) (order approving
listing of Dent Tactical ETF); 63076 (October 12, 2010), 75 FR 63874
(October 18, 2010) (SR-NYSEArca-2010-79) (order approving Exchange
listing and trading of Cambria Global Tactical ETF); 63802 (January
31, 2011), 76 FR 6503 (February 4, 2011) (SR-NYSEArca-2010-118)
(order approving Exchange listing and trading of the SiM Dynamic
Allocation Diversified Income ETF and SiM Dynamic Allocation Growth
Income ETF). More recently, the Commission approved a proposed rule
change to adopt generic listing standards for Managed Fund Shares.
Securities Exchange Act Release No. 78397 (July 22, 2016), 81 FR
49320 (July 27, 2016 (SR-NYSEArca-2015-110) ( amending NYSE Arca
Equities Rule 8.600 to adopt generic listing standards for Managed
Fund Shares).
    \8\ NYSE Arca Equities Rule 8.600(c)(2) defines the term
``Disclosed Portfolio'' as the identities and quantities of the
securities and other assets held by the Investment Company that will
form the basis for the Investment Company's calculation of net asset
value at the end of the business day. NYSE Arca Equities Rule
8.600(d)(2)(B)(i) requires that the Disclosed Portfolio will be
disseminated at least once daily and will be made available to all
market participants at the same time.
    \9\ A mutual fund is required to file with the Commission its
complete portfolio schedules for the second and fourth fiscal
quarters on Form N-CSR under the 1940 Act, and is required to file
its complete portfolio schedules for the first and third fiscal
quarters on Form N-Q under the 1940 Act, within 60 days of the end
of the quarter. Form N-Q requires funds to file the same schedules
of investments that are required in annual and semi-annual reports
to shareholders. These forms are available to the public on the
Commission's Web site at www.sec.gov.
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    For each series of Managed Portfolio Shares, an estimated value--
the VIIV--that reflects an estimated intraday value of a fund's
portfolio will be disseminated. With respect to the Funds, the VIIV
will be based upon all of a Fund's holdings as of the close of the
prior business day and will be widely disseminated by one or more major
market data vendors every second during the Exchange's Core Trading
Session (normally, 9:30 a.m. to 4:00 p.m., Eastern Time (``E.T.'')).
The dissemination of the VIIV will allow investors to determine the
estimated intra-day value of the underlying portfolio of a series of
Managed Portfolio Shares on a daily basis and will provide a close
estimate of that value throughout the trading day. The VIIV should not
be viewed as a ``real-time'' update of the NAV per Share of each Fund
because the VIIV may not be calculated in the same manner as the NAV,
which will be computed once a day, generally at the end of the business
day. Unlike the VIIV, which will be based on consolidated midpoint of
the bid ask spread, the NAV per Share will be based on the closing
price on the primary market for each portfolio security. If there is no
closing price for a particular portfolio security, such as when it the
[sic] subject of a trading halt, a Fund will use fair value pricing.
That fair value pricing will be carried over to the next day's VIIV
until the first trade in that stock is reported unless the ``Adviser''
(defined below) deems a particular portfolio security to be illiquid
and/or the available ongoing pricing information unlikely to be
reliable. In such case, that fact will be immediately disclosed on each
Fund's Web site, including the identity and weighting of that security
in a Fund's portfolio, and the impact of that security on VIIV
calculation, including the fair value price for that security being
used for the calculation of that day's VIIV.
    The Exchange, after consulting with various Lead Market Makers that
trade exchange-traded funds (``ETFs'') on the Exchange, believes that
market makers will be able to make efficient and liquid markets priced
near the VIIV as long as a VIIV is disseminated every second, market
makers have knowledge of a Fund's means of achieving its investment
objective, and market makers are permitted to engage in ``Bona Fide
Arbitrage,'' as described below. The Exchange believes that market
makers will employ Bona Fide Arbitrage in addition to risk-management
techniques such as ``statistical arbitrage,'' which is currently used
throughout the financial services industry, to make efficient markets
in exchange-traded products.\10\ This ability

should permit market makers to make efficient markets in an issue of
Managed Portfolio Shares without precise knowledge of a Fund's
underlying portfolio.\11\
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    \10\ Statistical arbitrage enables a trader to construct an
accurate proxy for another instrument, allowing it to hedge the
other instrument or buy or sell the instrument when it is cheap or
expensive in relation to the proxy. Statistical analysis permits
traders to discover correlations based purely on trading data
without regard to other fundamental drivers. These correlations are
a function of differentials, over time, between one instrument or
group of instruments and one or more other instruments. Once the
nature of these price deviations have been quantified, a universe of
securities is searched in an effort to, in the case of a hedging
strategy, minimize the differential. Once a suitable hedging proxy
has been identified, a trader can minimize portfolio risk by
executing the hedging basket. The trader then can monitor the
performance of this hedge throughout the trade period making
correction where warranted.
    \11\ Authorized Participants and other broker-dealers that enter
into their own separate Confidential Accounts shall have enough
information to ensure that they are able to comply with applicable
regulatory requirements. For example, for purposes of net capital
requirements, the maximum Securities Haircut applicable to the
securities in a Creation Basket, as determined under Rule 15c3-1,
will be disclosed daily on each Fund's Web site.
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    To enable market makers to engage in Bona Fide Arbitrage, on each
``Business Day'' (as defined below), before commencement of trading in
Shares on the Exchange, the Funds will provide to a ``Trusted Agent''
(as described below) of each Authorized Participant or ``Non-Authorized
Participant Market Maker'' \12\ the identities and quantities of
portfolio securities that will form the basis for a Fund's calculation
of NAV per Share at the end of the Business Day, as well as the names
and quantities of the instruments comprising a ``Creation Basket'' and
the estimated ``Balancing Amount'' (if any) (as described below), for
that day. This information will permit Authorized Participants to
purchase ``Creation Units'' through an in-kind transaction with a Fund,
as described below.
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    \12\ A Non-Authorized Participant Market Maker is a market
participant that makes a market in Shares, but is not an Authorized
Participant.
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    In addition, Authorized Participants will be able to instruct the
Trusted Agent to buy or sell portfolio securities during the day and
thereby engage in Bona Fide Arbitrage throughout the trading day. For
example, if an Authorized Participant believes that Shares of a Fund
are trading at a price that is higher than the value of its underlying
portfolio based on the VIIV, the Authorized Participant may sell Shares
short and instruct the Trusted Agent to buy portfolio securities for
its Confidential Account. When the market price of a Fund's Shares
falls in line with the value of the portfolio, the Authorized
Participant can then close out its positions in both the Shares and the
portfolio securities. The Authorized Participant's purchase of the
portfolio securities into its Confidential Account, combined with the
sale of Shares, may also create downward pressure on the price of
Shares and/or upward pressure on the price of the portfolio securities,
bringing the market price of Shares and the value of a Fund's portfolio
securities closer together. Similarly, an Authorized Participant could
buy Shares and instruct the Trusted Agent to sell the underlying
portfolio securities from its Confidential Account in an attempt to
profit when a Fund's Shares are trading at a discount to its portfolio.
The Authorized Participant's purchase of a Fund's Shares in the
secondary market, combined with the sale of the portfolio securities
from its Confidential Account, may also create upward pressure on the
price of Shares and/or downward pressure on the price of portfolio
securities, driving the market price of Shares and the value of a
Fund's portfolio securities closer together. The Adviser represents
that it understands that, other than the confidential nature of the
account, this process is identical to how many Authorized Participants
currently arbitrage existing traditional ETFs.
    Because other market participants can also engage in arbitrage
activity without using the creation or redemption processes described
above, the Confidential Account structure will be made available to any
Non-Authorized Participant Market Maker that is willing to establish a
Confidential Account. In that case, if a market participant believes
that a Fund is overvalued relative to its underlying assets, the market
participant may sell short Shares and instruct its Trusted Agent to buy
portfolio securities in its Confidential Account, wait for the trading
prices to move toward parity, and then close out the positions in both
the Shares and the portfolio securities to realize a profit from the
relative movement of their trading prices. Similarly, a market
participant could buy Shares and instruct the Trusted Agent to sell the
underlying portfolio securities in an attempt to profit when a Fund's
Shares are trading at a discount to a Fund's underlying or reference
assets. Any investor that is willing to transact through a broker-
dealer that has established a Confidential Account with a Trusted Agent
will have the same opportunity to engage in arbitrage activity. As
discussed above, the trading of a Fund's Shares and the Fund's
portfolio securities may bring the prices of a Fund's Shares and its
portfolio assets closer together through market pressure. This type of
arbitrage is referred to herein as ``Bona Fide Arbitrage.''
    The Exchange understands that traders use statistical analysis to
derive correlations between different sets of instruments to identify
opportunities to buy or sell one set of instruments when it is
mispriced relative to the others. For Managed Portfolio Shares, market
makers, in addition to employing Bona Fide Arbitrage, may use the
knowledge of a Fund's means of achieving its investment objective, as
described in the applicable Fund registration statement, to construct a
hedging proxy for a Fund to manage a market maker's quoting risk in
connection with trading Fund Shares. Market makers can then conduct
statistical arbitrage between their hedging proxy (for example, the
Russell 1000 Index) and Shares of a Fund, buying and selling one
against the other over the course of the trading day. They will
evaluate how their proxy performed in comparison to the price of a
Fund's Shares, and use that analysis as well as knowledge of risk
metrics, such as volatility and turnover, to enhance their proxy
calculation to make it a more efficient hedge.
    Market makers not intending to utilize Bona Fide Arbitrage have
indicated to the Exchange that there will be sufficient data to run a
statistical analysis which will lead to spreads being tightened
substantially around the VIIV. This is similar to certain other
existing exchange traded products (for example, ETFs that invest in
foreign securities that do not trade during U.S. trading hours), in
which spreads may be generally wider in the early days of trading and
then narrow as market makers gain more confidence in their real-time
hedges.
Description of the Funds and the Trust
    The Shares of each Fund will be issued by Precidian ETFs Trust
[sic] (``Trust''), a statutory trust organized under the laws of the
State of Delaware and registered with the Commission as an open-end
management investment company.\13\ The investment adviser to the Trust
will be Precidian Funds LLC (the ``Adviser''). Foreside Fund

Services, LLC (``Distributor'') will serve as the distributor of the
Fund's Shares.
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    \13\ The Trust will be registered under the 1940 Act. On April
5, 2017, the Trust filed a registration statement on Form N-1A under
the Securities Act of 1933 (the ``1933 Act'') (15 U.S.C. 77a), and
under the 1940 Act relating to the Funds (File Nos. 333-171987 and
811-22524) [sic] (the ``Registration Statement''). The Trust filed
an amended Application for an Order under Section 6(c) of the 1940
Act for exemptions from various provisions of the 1940 Act and rules
thereunder (File No. 812-14405), dated September 21, 2015 [sic]
(``Exemptive Application''). The Shares will not be listed on the
Exchange until an order (``Exemptive Order'') under the 1940 Act has
been issued by the Commission with respect to the Exemptive
Application. Investments made by the Funds will comply with the
conditions set forth in the Exemptive Order. The description of the
operation of the Trust and the Funds herein is based, in part, on
the Registration Statement and the Exemptive Application.
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    As noted above, proposed Commentary .05 to NYSE Arca Equities Rule
8.900 provides that, if the investment adviser to the Investment
Company issuing Managed Portfolio Shares is affiliated with a broker-
dealer, or if any Trusted Agent is registered as a broker-dealer or is
affiliated with a broker-dealer, such investment adviser or Trusted
Agent will erect and maintain a ``fire wall'' between the investment
adviser or Trusted Agent and (i) personnel of the broker-dealer or
broker-dealer affiliate, as applicable, or (ii) the Authorized
Participant or non-Authorized Participant market maker, as applicable,
with respect to access to information concerning the composition and/or
changes to such Investment Company portfolio. Personnel who make
decisions on the Investment Company's portfolio composition must be
subject to procedures designed to prevent the use and dissemination of
material nonpublic information regarding the applicable Investment
Company portfolio.\14\ In addition, proposed Commentary .05 further
requires that personnel who make decisions on the open-end fund's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the open-end fund's portfolio. Proposed Commentary .05 to Rule 8.900 is
similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .05 in connection with the establishment
of a ``fire wall'' between the investment adviser and the broker-dealer
reflects the applicable open-end fund's portfolio, not an underlying
benchmark index, as is the case with index-based funds. The Adviser is
not registered as a broker-dealer or affiliated with a broker-dealer.
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    \14\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel will be
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violations, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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    In the event (a) the Adviser or any sub-adviser becomes registered
as a broker-dealer or becomes newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser is a registered broker-dealer, or
becomes affiliated with a broker-dealer, it will implement a fire wall
with respect to its relevant personnel or its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio.
    The portfolio for each Fund will consist of long and/or short
positions in U.S.-listed securities and shares issued by other U.S.-
listed ETFs \15\ All exchange-listed equity securities in which the
Funds will invest will be listed and traded on U.S. national securities
exchanges.
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    \15\ For purposes of this filing, ETFs include Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3));
Portfolio Depository 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 in which a Fund will invest all will
be listed and traded on national securities exchanges. While the
Funds may invest in inverse ETFs, the Funds will not invest in
leveraged (e.g., 2X, -2X, 3X or -3X) ETFs.
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Description of the Funds
Royce Pennsylvania ETF
    The Royce Pennsylvania ETF will invest primarily in US- listed
equity securities of small-cap companies with stock market
capitalizations up to $3 billion that Royce & Associates, LP
(``Royce''), the Fund's investment sub-adviser, believes are trading
below its estimate of their current worth. The Fund may invest in other
investment companies that invest in equity securities. The Fund may
sell securities to, among other things, secure gains, limit losses,
redeploy assets into what Royce deems to be more promising
opportunities, and/or manage cash levels in the Fund's portfolio.
Royce Premier ETF
    The Royce Premier ETF will invest in a limited number of US- listed
equity securities of primarily small-cap companies with stock market
capitalizations from $1 billion to $3 billion at the time of
investment. The Fund may invest in other investment companies that
invest in equity securities. The Fund may sell securities to, among
other things, secure gains, limit losses, redeploy assets into what
Royce deems to be more promising opportunities, and/or manage cash
levels in the Fund's portfolio.
Royce Total Return ETF
    The Royce Total Return ETF will invest primarily in dividend-paying
US- listed securities of small-cap companies with stock market
capitalizations up to $3 billion that it believes are trading below its
estimate of their current worth. The Fund may invest in other
investment companies that invest in equity securities. The Fund may
sell securities to, among other things, secure gains, limit losses,
redeploy assets into what Royce deems to be more promising
opportunities, and/or manage cash levels in the Fund's portfolio.
Other Investments
    While each Fund, under normal market conditions, will invest
primarily in U.S.-listed securities, as described above, each Fund may
invest its remaining assets in other securities and financial
instruments, as described below.
    According to the Registration Statement, each Fund may enter into
repurchase agreements.
    It will be the policy of the Trust to enter into repurchase
agreements only with recognized securities dealers, banks and Fixed
Income Clearing Corporation, a securities clearing agency registered
with the Commission.
    Each Fund may invest up to 5% of its total assets in warrants,
rights and options.
    Each Fund may invest a portion of its assets in cash or cash
equivalents.\16\
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    \16\ For purposes of this filing, cash equivalents include
short-term instruments (instruments with maturities of less than 3
months) of the following types: (i) U.S. Government securities,
including bills, notes and bonds differing as to maturity and rates
of interest, which are either issued or guaranteed by the U.S.
Treasury or by U.S. Government agencies or instrumentalities; (ii)
certificates of deposit issued against funds deposited in a bank or
savings and loan association; (iii) bankers' acceptances, which are
short-term credit instruments used to finance commercial
transactions; (iv) repurchase agreements and reverse repurchase
agreements; (v) bank time deposits, which are monies kept on deposit
with banks or savings and loan associations for a stated period of
time at a fixed rate of interest; (vi) commercial paper, which are
short-term unsecured promissory notes; and (vii) money market funds.
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    Each Fund may invest in the securities of other investment
companies (including money market funds) to the extent allowed by law.
Investment Restrictions
    Each Fund may invest up to an aggregate amount of 15% of its net
assets in illiquid assets (calculated at

the time of investment),\17\ consistent with Commission guidance. Each
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 a Fund's
net assets are invested in illiquid assets. Illiquid assets 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.\18\
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    \17\ In reaching liquidity decisions, the Adviser may consider
the following factors: The frequency of trades and quotes for the
security; the number of dealers wishing to purchase or sell the
security and the number of other potential purchasers; dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers and the mechanics of transfer).
    \18\ 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 Securities Act of 1933). The
Commission recently codified this long standing position in Rule
22e-4. See Investment Company Act Release No. 32315 (October 13,
2016), 81 FR 82142 (November 18, 2016) (adopting requirements for
investment company liquidity risk management programs).
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    According to the Registration Statement, each Fund will seek to
qualify for treatment as a Regulated Investment Company (``RIC'') under
the Internal Revenue Code.\19\
---------------------------------------------------------------------------

    \19\ 26 U.S.C. 851.
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    The Shares of each Fund will conform to the initial and continued
listing criteria under proposed Rule 8.900. The Funds will not invest
in futures, forwards or swaps.
    Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage. While a Fund may
invest in inverse ETFs, a Fund will not invest in leveraged (e.g., 2X,
-2X, 3X or -3X) ETFs.
    The Funds will not invest in non-U.S.-listed securities.
Creations and Redemptions of Shares
    In connection with the creation and redemption of Creation Units
(defined below), the delivery or receipt of any portfolio securities
in-kind will be required to be effected through a separate confidential
brokerage account (i.e., a Confidential Account) with a Trusted
Agent,\20\ which will be a bank or broker-dealer such as JP Morgan
Chase, State Street Bank and Trust, or Bank of New York Mellon, for the
benefit of an Authorized Participant.\21\ An Authorized Participant
will generally be a Depository Trust Company (``DTC'') Participant that
has executed a ``Participant Agreement'' with the Distributor with
respect to the creation and redemption of Creation Units and formed a
Confidential Account for its benefit in accordance with the terms of
the Participant Agreement. For purposes of creations or redemptions,
all transactions will be effected through the respective Authorized
Participant's Confidential Account, for the benefit of the Authorized
Participant without disclosing the identity of such securities to the
Authorized Participant. Each Trusted Agent will be given, before the
commencement of trading each Business Day (defined below), both the
holdings of a Fund and their relative weightings for that day. This
information will permit an Authorized Participant, or other market
participant that has established a Confidential Account with a Trusted
Agent, to instruct the Trusted Agent to buy and sell positions in the
portfolio securities to permit Bona Fide Arbitrage, as defined above.
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    \20\ Each Authorized Participant shall enter into its own
separate Confidential Account with a Trusted Agent.
    \21\ In the event that a Trusted Agent is a bank, the bank will
be required to have an affiliated broker-dealer to accommodate the
execution of hedging transactions on behalf of the holder of a
Confidential Account.
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    Shares of each Fund will be issued in Creation Units of 25,000 or
more Shares. The Funds will offer and sell Creation Units through the
Distributor on a continuous basis at the NAV per Share next determined
after receipt of an order in proper form. The NAV per Share of each
Fund will be determined as of the close of regular trading on the New
York Stock Exchange (``NYSE'') on each day that the NYSE is open. A
``Business Day'' is defined as any day that the Trust is open for
business. The Funds will sell and redeem Creation Units only on
Business Days. Applicants anticipate that the initially [sic] price of
a Share will range from $20 to $30, and that the price of a Creation
Unit initial [sic] will range from $1,000,000 to $5,000,000.
    In order to keep costs low and permit each Fund to be as fully
invested as possible, Shares will be purchased and redeemed in Creation
Units and generally on an in-kind basis. Accordingly, except where the
purchase or redemption will include cash under the circumstances
described in the Registration Statement, purchasers will be required to
purchase Creation Units by making an in-kind deposit of specified
instruments (``Deposit Instruments''), and shareholders redeeming their
Shares will receive an in-kind transfer of specified instruments
(``Redemption Instruments'').\22\ On any given Business Day, the names
and quantities of the instruments that constitute the Deposit
Instruments and the names and quantities of the instruments that
constitute the Redemption Instruments will be identical, and these
instruments may be referred to, in the case of either a purchase or a
redemption, as the ``Creation Basket.'' \23\
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    \22\ The Funds must comply with the federal securities laws in
accepting Deposit Instruments and satisfying redemptions with
Redemption Instruments, including that the Deposit Instruments and
Redemption Instruments are sold in transactions that would be exempt
from registration under the 1933 Act.
    \23\ In determining whether a particular Fund will sell or
redeem Creation Units entirely on a cash or in-kind basis, whether
for a given day or a given order, the key consideration will be the
benefit that would accrue to a Fund and its investors. The Adviser
represents that the Funds do not currently anticipate the need to
sell or redeem Creation Units entirely on a cash basis.
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    As noted above, each Authorized Participant will be required to
establish a Confidential Account with a Trusted Agent and transact with
each Fund through that Confidential Account.\24\ Therefore, before the
commencement of trading on each Business Day, the Trusted Agent of each
Authorized Participant will be provided, on a confidential basis, with
a list of the names and quantities of the instruments comprising a
Creation Basket, as well as the estimated Balancing Amount (if any),
for that day. The published Creation Basket will apply until a new
Creation Basket is announced on the following Business Day, and there
will be no intra-day changes to the Creation Basket except to correct
errors in the

published Creation Basket. The instruments and cash that the purchaser
is required to deliver in exchange for the Creation Units it is
purchasing are referred to as the ``Portfolio Deposit.''
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    \24\ The Adviser represents that transacting through a
Confidential Account is similar to transacting through any broker-
dealer account, except that the Trusted Agent will be bound to keep
the names and weights of the portfolio securities confidential. To
comply with certain recordkeeping requirements applicable to
Authorized Participants, the Trusted Agent will maintain and
preserve, and make available to the Commission, certain required
records related to the securities held in the Confidential Account.
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Placement of Purchase Orders
    Each Fund will issue Shares through the Distributor on a continuous
basis at NAV. The Exchange represents that the issuance of Shares will
operate in a manner substantially similar to that of other ETFs.
    Each Fund will issue Shares only at the NAV per Share next
determined after an order in proper form is received. The Trust will
sell and redeem Shares on each such day and will not suspend the right
of redemption or postpone the date of payment or satisfaction upon
redemption for more than seven days, other than as provided by Section
22(d) of the 1940 Act.
    Shares may be purchased from a Fund by an Authorized Participant
for its own account or for the benefit of a customer. The Distributor
will furnish acknowledgements to those placing such orders that the
orders have been accepted, but the Distributor may reject any order
which is not submitted in proper form, as described in a Fund's
prospectus or Statement of Additional Information (``SAI''). Purchases
of Shares will be settled in-kind or cash for an amount equal to the
applicable NAV per Share purchased plus applicable ``Transaction
Fees,'' as discussed below.
    The NAV of each Fund is expected to be determined once each
Business Day at a time determined by the Trust's Board of Directors
(``Board''), currently anticipated to be as of the close of the regular
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) (the
``Valuation Time''). Each Fund will establish a cut-off time (``Order
Cut-Off Time'') for purchase orders in proper form. To initiate a
purchase of Shares, an Authorized Participant must submit to the
Distributor an irrevocable order to purchase such Shares after the most
recent prior Valuation Time but not later than the Order Cut-Off Time.
The Order Cut-Off Time for a Fund may be its Valuation Time, or may be
prior to the Valuation Time if the Board determines that an earlier
Order Cut-Off Time for purchase of Shares is necessary and is in the
best interests of Fund shareholders.
    All orders to purchase Creation Units must be received by the
Distributor no later than the scheduled closing time of the regular
trading session on the NYSE (ordinarily 4:00 p.m. E.T.) in each case on
the date such order is placed (``Transmittal Date'') in order for the
purchaser to receive the NAV per Share determined on the Transmittal
Date. In the case of custom orders, the order must be received by the
Distributor, no later than 3:00 p.m. E.T., or such earlier time as may
be designated by the Funds and disclosed to Authorized
Participants.\25\ The Distributor will maintain a record of Creation
Unit purchases and will send out confirmations of such purchases.\26\
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    \25\ A ``custom order'' is any purchase or redemption of Shares
made in whole or in part on a cash basis, as provided in the
Registration Statement.
    \26\ A Trusted Agent will provide information related to
creations and redemption of Creation Units to the Financial Industry
Regulatory Authority (``FINRA'') upon request.
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Transaction Fees
    The Trust may impose purchase or redemption transaction fees
(``Transaction Fees'') in connection with the purchase or redemption of
Shares from the Funds. The exact amounts of any such Transaction Fees
will be determined by the Adviser. The purpose of the Transaction Fees
is to protect the continuing shareholders against possible dilutive
transactional expenses, including operational processing and brokerage
costs, associated with establishing and liquidating portfolio
positions, including short positions, in connection with the purchase
and redemption of Shares.
Purchases of Shares--Secondary Market
    Only Authorized Participants and their customers will be able to
acquire Shares at NAV directly from a Fund through the Distributor. The
required payment must be transferred in the manner set forth in a
Fund's SAI by the specified time on the third DTC settlement day
following the day it is transmitted (the ``Transmittal Date''). These
investors and others will also be able to purchase Shares in secondary
market transactions at prevailing market prices. Each Fund will reserve
the right to reject any purchase order at any time.
Redemption
    Beneficial Owners may sell their Shares in the secondary market.
Alternatively, investors that own enough Shares to constitute a
Redemption Unit (currently, 25,000 Shares) or multiples thereof may
redeem those Shares through the Distributor, which will act as the
Trust's representative for redemption. The size of a Redemption Unit
will be subject to change. Redemption orders for Redemption Units or
multiples thereof must be placed by or through an Authorized
Participant.
Authorized Participant Redemption
    The Shares may be redeemed to a Fund in Redemption Unit size or
multiples thereof as described below. Redemption orders of Redemption
Units must be placed by or through an Authorized Participant (``AP
Redemption Order''). Each Fund will establish an Order Cut-Off Time for
redemption orders of Redemption Units in proper form. Redemption Units
of the Fund will be redeemable at their NAV per Share next determined
after receipt of a request for redemption by the Trust in the manner
specified below before the Order Cut-Off Time. To initiate an AP
Redemption Order, an Authorized Participant must submit to the
Distributor an irrevocable order to redeem such Redemption Unit after
the most recent prior Valuation Time but not later than the Order Cut-
Off Time. The Order Cut-Off Time for a Fund may be its Valuation Time,
or may be prior to the Valuation Time if the Board determines that an
earlier Order Cut-Off Time for redemption of Redemption Units is
necessary and is in the best interests of Fund shareholders.
    Consistent with the provisions of Section 22(e) of the 1940 Act and
Rule 22e-2 thereunder, the right to redeem will not be suspended, nor
payment upon redemption delayed, except for: (1) Any period during
which the NYSE is closed other than customary weekend and holiday
closings, (2) any period during which trading on the NYSE is
restricted, (3) any period during which an emergency exists as a result
of which disposal by a Fund of securities owned by it is not reasonably
practicable or it is not reasonably practicable for a Fund to determine
its NAV, and (4) for such other periods as the Commission may by order
permit for the protection of shareholders.
    Redemptions will occur primarily in-kind, although redemption
payments may also be made partly or wholly in cash.\27\ The Participant
Agreement signed by each Authorized Participant will require
establishment of a Confidential Account to receive distributions of
securities in-kind upon redemption.\28\ Each Authorized

Participant will be required to open a Confidential Account with a
Trusted Agent in order to facilitate orderly processing of redemptions.
While a Fund will generally distribute securities in-kind, the Adviser
may determine from time to time that it is not in a Fund's best
interests to distribute securities in-kind, but rather to sell
securities and/or distribute cash. For example, the Adviser may
distribute cash to facilitate orderly portfolio management in
connection with rebalancing or transitioning a portfolio in line with
its investment objective, or if there is substantially more creation
than redemption activity during the period immediately preceding a
redemption request, or as necessary or appropriate in accordance with
applicable laws and regulations. In this manner, a Fund can use in-kind
redemptions to reduce the unrealized capital gains that may, at times,
exist in a Fund by distributing low cost lots of each security that a
Fund needs to dispose of to maintain its desired portfolio exposures.
Shareholders of a Fund would benefit from the in-kind redemptions
through the reduction of the unrealized capital gains in a Fund that
would otherwise have to be realized and, eventually, distributed to
shareholders.
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    \27\ It is anticipated that any portion of a Fund's NAV
attributable to appreciated short positions will be paid in cash, as
securities sold short are not susceptible to in-kind settlement. The
value of other positions not susceptible to in-kind settlement may
also be paid in cash.
    \28\ The terms of each Confidential Account will be set forth as
an exhibit to the applicable Participant Agreement, which will be
signed by each Authorized Participant. The terms of the Confidential
Account will provide that the trust be formed under applicable state
laws; the Custodian may act as Trusted Agent of the Confidential
Account; and the Trusted Agent will be paid by the Authorized
Participant a fee negotiated directly between the Authorized
Participants and the Trusted Agent(s).
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    The redemption basket will consist of the same securities for all
Authorized Participants on any given day subject to the Adviser's
ability to make minor adjustments to address odd lots, fractional
shares, tradeable sizes or other situations.
    After receipt of a Redemption Order, a Fund's custodian
(``Custodian'') will typically deliver securities to the Confidential
Account on a pro rata basis (which securities are determined by the
Adviser) with a value approximately equal to the value of the Shares
\29\ tendered for redemption at the Cut-Off time. The Custodian will
make delivery of the securities by appropriate entries on its books and
records transferring ownership of the securities to the Authorized
Participant's Confidential Account, subject to delivery of the Shares
redeemed. The Trusted Agent of the Confidential Account will in turn
liquidate, hedge or otherwise manage the securities based on
instructions from the Authorized Participant.\30\ If the Trusted Agent
is instructed to sell all securities received at the close on the
redemption date, the Trusted Agent will pay the liquidation proceeds
net of expenses plus or minus any cash balancing amount to the
Authorized Participant through DTC.\31\ The redemption securities that
the Confidential Account receives are expected to mirror the portfolio
holdings of a Fund pro rata. To the extent a Fund distributes portfolio
securities through an in-kind distribution to more than one
Confidential Account for the benefit of that account's Authorized
Participant, each Fund expects to distribute a pro rata portion of the
portfolio securities selected for distribution to each redeeming
Authorized Participant.
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    \29\ If the NAV of the Shares redeemed differs from the value of
the securities delivered to the applicable Confidential Account, the
Fund will pay a cash balancing amount to compensate for the
difference between the value of the securities delivered and the
NAV.
    \30\ An Authorized Participant will issue execution instructions
to the Trusted Agent and be responsible for all associated profit or
losses. Like a traditional ETF, the Authorized Participant has the
ability to sell the basket securities at any point during normal
trading hours.
    \31\ Under applicable provisions of the Internal Revenue Code,
the Authorized Participant is expected to be deemed a ``substantial
owner'' of the Confidential Account because it receives
distributions from the Confidential Account. As a result, all
income, gain or loss realized by the Confidential Account will be
directly attributed to the Authorized Participant. In a redemption,
the Authorized Participant will have a basis in the distributed
securities equal to the fair market value at the time of the
distribution and any gain or loss realized on the sale of those
Shares will be taxable income to the Authorized Participant.
---------------------------------------------------------------------------

    If the Authorized Participant would receive a security that it is
restricted from receiving, a Fund will deliver cash equal to the value
of that security.
    To address odd lots, fractional shares, tradeable sizes or other
situations where dividing securities is not practical or possible, the
Adviser may make minor adjustments to the pro rata portion of portfolio
securities selected for distribution to each redeeming Authorized
Participant on such Business Day.
    The Trust will accept a Redemption Order in proper form. A
Redemption Order is subject to acceptance by the Trust and must be
preceded or accompanied by an irrevocable commitment to deliver the
requisite number of Shares. At the time of settlement, an Authorized
Participant will initiate a delivery of the Shares versus subsequent
payment against the proceeds, if any, of the sale of portfolio
securities distributed to the applicable Confidential Account plus or
minus any cash balancing amounts, and less the expenses of liquidation.
Net Asset Value
    The NAV per Share of a Fund will be computed by dividing the value
of the net assets of a Fund (i.e., the value of its total assets less
total liabilities) by the total number of Shares of a Fund outstanding,
rounded to the nearest cent. Expenses and fees, including, without
limitation, the management, administration and distribution fees, will
be accrued daily and taken into account for purposes of determining
NAV. Interest and investment income on the Trust's assets accrue daily
and will be included in the Fund's total assets. The NAV per Share for
a Fund will be calculated by a Fund's administrator (``Administrator'')
and determined as of the close of the regular trading session on the
NYSE (ordinarily 4:00 p.m., E.T.) on each day that the NYSE is open.
    Shares of exchange-listed equity securities and exchange-listed
options will be valued at market value, which will generally be
determined using the last reported official closing or last trading
price on the exchange or market on which the securities are primarily
traded at the time of valuation. Repurchase agreements will be valued
based on price quotations or other equivalent indications of value
provided by a third-party pricing service. Money market funds will be
valued based on price quotations or other equivalent indications of
value provided by a third-party pricing service. Cash equivalents will
generally be valued on the basis of independent pricing services or
quotes obtained from brokers and dealers. Options not listed on an
exchange, rights and warrants will be valued based on price quotations
or other equivalent indications of value provided by a third-party
pricing service.
    When last sale prices and market quotations are not readily
available, are deemed unreliable or do not reflect material events
occurring between the close of local markets and the time of valuation,
investments will be valued using fair value pricing as determined in
good faith by the Adviser under procedures established by and under the
general supervision and responsibility of the Trust's Board of
Trustees. Investments that may be valued using fair value pricing
include, but are not limited to: (1) Securities that are not actively
traded; (2) securities of an issuer that becomes bankrupt or enters
into a restructuring; and (3) securities whose trading has been halted
or suspended.
    The frequency with which each Fund's investments will be valued
using fair value pricing will primarily be a function of the types of
securities and other assets in which the respective Fund will invest
pursuant to its investment objective, strategies and

limitations. If the Funds invest in open-end management investment
companies registered under the 1940 Act (other than ETFs), they may
rely on the NAVs of those companies to value the shares they hold of
them.
    Valuing the Funds' investments using fair value pricing involves
the consideration of a number of subjective factors and thus the prices
for those investments may differ from current market valuations.
Accordingly, fair value pricing could result in a difference between
the prices used to calculate NAV and the prices used to determine a
Fund's VIIV, which could result in the market prices for Shares
deviating from NAV. In cases where the fair value price of the security
is materially different from the pricing data provided by the
independent pricing sources and the Adviser determined that the ongoing
pricing information is not likely to be reliable, the fair value will
be used for calculation of the VIIV, and a Fund's Custodian will be
instructed to disclose the identity and weight of the fair valued
securities, as well as the fair value price being used for the
security.
Availability of Information
    The Funds' Web site (www.precidianfunds.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the prospectus for each Fund that may be downloaded. The
Funds' Web site will include additional quantitative information
updated on a daily basis, including, for each Fund, (1) daily trading
volume, the prior Business Day's reported closing price, NAV and mid-
point of the bid/ask spread at the time of calculation of such NAV (the
``Bid/Ask Price''),\32\ and a calculation of the premium and discount
of the Bid/Ask Price against the NAV, and (2) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid/Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters. The Web site and
information will be publicly available at no charge.
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    \32\ The Bid/Ask Price of a Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of a Fund's NAV. The records relating to
Bid/Ask Prices will be retained by each Fund and its service
providers.
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    As noted above, a mutual fund is required to file with the
Commission its complete portfolio schedules for the second and fourth
fiscal quarters on Form N-CSR under the 1940 Act, and is required to
file its complete portfolio schedules for the first and third fiscal
quarters on Form N-Q under the 1940 Act, within 60 days of the end of
the quarter. Form N-Q requires funds to file the same schedules of
investments that are required in annual and semi-annual reports to
shareholders. The Trust's SAI and each Fund's shareholder reports will
be available free upon request from the Trust. These documents and
forms may be viewed on-screen or downloaded from the Commission's Web
site at www.sec.gov.
    Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Updated price information for U.S. exchange-
listed equity securities is available through major market data vendors
or securities exchanges trading such securities. The intraday, closing
and settlement prices of money market funds, repurchase agreements,
reverse repurchase agreements and cash equivalents will be readily
available from published or other public sources, or major market data
vendors such as Bloomberg and Thomson Reuters. The NAV of any
investment company security investment will be readily available on the
Web site of the relevant investment company and from major market data
vendors. Quotation and last sale information for the Shares will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. In addition, the VIIV, as defined in NYSE Arca Equities Rule
8.900(c)(3) and as described further below, will be widely disseminated
by one or more major market data vendors at least every second during
the Exchange's Core Trading Session.
Dissemination of the Verified Intraday Indicative Value
    The VIIV, which is approximate value of each Fund's investments on
a per Share basis, will be disseminated every second during the
Exchange's Core Trading Session. The VIIV should not be viewed as a
``real-time'' update of NAV because the VIIV may not be calculated in
the same manner as NAV, which is computed once per day.
    The Exchange will disseminate the VIIV for each Fund in one-second
intervals during the Core Trading Session, through the facilities of
the CTA. The VIIV is essentially an intraday NAV calculation every
second during the Core Trading Session. Each Fund will adopt procedures
governing the calculation of the VIIV and will bear responsibility for
the accuracy of its calculation. Pursuant to those procedures, the VIIV
will include all accrued income and expenses of a Fund and will assure
that any extraordinary expenses, booked during the day, that would be
taken into account in calculating a Fund's NAV for that day are also
taken into account in calculating the VIIV. For purposes of the VIIV,
securities held by a Fund will be valued throughout the day based on
the mid-point between the disseminated current national best bid and
offer. The Adviser represents that, by utilizing the mid-point pricing
for purposes of VIIV calculation, stale prices are eliminated and more
accurate representation of the real time value of the underlying
securities is provided to the market. Specifically, quotations based on
the mid-point of bid/ask spreads more accurately reflect current market
sentiment by providing real time information on where market
participants are willing to buy or sell securities at that point in
time. Using quotations rather than last sale information addresses
concerns regarding the staleness of pricing information of less
actively traded securities. Because quotations are updated more
frequently than last sale information especially for inactive
securities, the VIIV will be based on more current and accurate
information. The use of quotations will also dampen the impact of any
momentary spikes in the price of a portfolio security.
    Each Fund will utilize two independent pricing sources to provide
two independent sources of pricing information. Each Fund will also
utilize a ``Pricing Verification Agent'' and establish a computer-based
protocol that will permit the Pricing Verification Agent to
continuously compare the two data streams from the independent pricing
agents sources on a real time basis.\33\ A single VIIV will be
disseminated publicly for each Fund; however, the Pricing Verification
Agent will continuously compare the public VIIV against a non-public
alternative intra-day indicative value to which the Pricing
Verification Agent has access. If it becomes apparent that there is a
material discrepancy between the two data streams, the Exchange will be
notified and have the ability to halt trading in a Fund until the
discrepancy is resolved. Each Fund's Board will review the procedures
used to calculate the VIIV and maintain its accuracy as

appropriate, but not less than annually. The specific methodology for
calculating the VIIV will be disclosed on each Fund's Web site.
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    \33\ A Fund's Custodian will provide, on a daily basis, the
constituent basket file comprised of all securities plus any cash to
the independent pricing agent(s) for purposes of pricing.
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Trading Halts
    With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Funds.\34\ Trading in Shares of the Funds
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. Trading in the Shares will be
subject to NYSE Arca Equities Rule 8.900(d)(2)(C), which sets forth
circumstances under which Shares of the Funds will be halted.
---------------------------------------------------------------------------

    \34\ See NYSE Arca Equities Rule 7.12.
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Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace only during the Core Trading Session in
accordance with NYSE Arca Equities Rule 7.34(a)(2). As provided in NYSE
Arca Equities Rule 7.6, the minimum price variation (``MPV'') for
quoting and entry of orders in equity securities traded on the NYSE
Arca Marketplace is $0.01, with the exception of securities that are
priced less than $1.00 for which the MPV for order entry is $0.0001.
    The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.900. The Exchange represents
that, for initial and/or continued listing, each Fund will be in
compliance with Rule 10A-3 under the Act,\35\ as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares of each Fund will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares of
each Fund that the NAV per Share of each Fund will be calculated daily
and will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \35\ See 17 CFR 240.10A-3.
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Surveillance
    The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Exchange, as
well as cross-market surveillances administered by FINRA on behalf of
the Exchange, which are designed to detect violations of Exchange rules
and applicable federal securities laws.\36\ 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.
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    \36\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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    The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
    The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares, underlying
stocks, ETFs and exchange-listed options with other markets and other
entities that are members of the Intermarket Surveillance Group
(``ISG''), and the Exchange or FINRA, on behalf of the Exchange, or
both, may obtain trading information regarding trading such securities
from such markets and other entities. In addition, the Exchange may
obtain information regarding trading in the Shares, underlying stocks,
ETFs and exchange-listed options from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\37\
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    \37\ For a list of the current members of ISG, see
www.isgportal.org.
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    The Funds' Adviser will make available daily to FINRA and the
Exchange the portfolio holdings of each Fund in order to facilitate the
performance of the surveillances referred to above.
    In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares;
(2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (4) [sic] how information
regarding the VIIV is disseminated; (5) the requirement that ETP
Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information.
    In addition, the Bulletin will reference that the Funds are subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m., E.T. each trading day.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with Section 6(b) of the Act,\38\ in general, and furthers the
objectives of Section 6(b)(5) of the Act,\39\ in particular, in that it
is designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest.
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    \38\ 15 U.S.C. 78f(b).
    \39\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 8.900 is designed to
prevent fraudulent and manipulative acts and practices in that the
proposed rules relating to listing and trading of Managed Portfolio
Shares provide specific initial and continued listing criteria required
to be met by such securities. Proposed Rule 8.900(d) sets forth initial
and continued listing criteria applicable to Managed Portfolio Shares.
Proposed Rule 8.900(d)(1) provides that, for each series of Managed
Portfolio Shares, the Corporation will establish a minimum number of
Managed Portfolio Shares required to be outstanding at the time of
commencement of trading. In addition, the Corporation will obtain a
representation from the issuer of each series of Managed Portfolio
Shares that the NAV per share for the series will be calculated daily
and that the NAV will be made available to all market participants at
the same time. Proposed Rule 8.900(d)(2) provides that each series of
Managed Portfolio Shares will be listed and traded subject to
application of the specified continued

listing criteria, as described above. Proposed Rule 8.900(d)(2)(A)
provides that the VIIV for Managed Portfolio Shares will be widely
disseminated by one or more major market data vendors every second
during the Exchange's Core Trading Session. Proposed Rule
8.900(d)(2)(B) provides that the Corporation will maintain surveillance
procedures for securities listed under Rule 8.900 and will consider the
suspension of trading in, and will commence delisting proceedings under
Rule 5.5(m) of, a series of Managed Portfolio Shares under any of the
circumstances set forth in proposed Rules 8.900(d)(2)(B)(i) through
(vi), as described above, including if any of the continued listing
requirements set forth in Rule 8.900 are not continuously maintained
(proposed Rule 8.900(d)(2)(B)(iv)), and if the Corporation submits a
rule filing pursuant to Section 19(b) of the Act to permit the listing
and trading of a series of Managed Portfolio Shares and any of the
statements or representations regarding (a) the description of the
portfolio or reference asset, (b) limitations on portfolio holdings or
reference assets, or (c) the applicability of Exchange listing rules
specified in such rule filing are not continuously maintained (proposed
Rule 8.900(d)(2)(B)(v)). Proposed Rule 8.900(d)(2)(C) provides that,
upon notification to the Corporation by the Investment Company or its
agent that (i) the prices from the multiple independent pricing sources
to be validated by the Investment Company's pricing verification agent
differ by more than 25 basis points for 60 seconds in connection with
pricing of the VIIV, or (ii) that the VIIV of a series of Managed
Portfolio Shares is not being priced and disseminated in one-second
intervals, as required, the Corporation shall halt trading in the
Managed Portfolio Shares as soon as practicable. Such halt in trading
shall continue until the Investment Company or its agent notifies the
Corporation that the prices from the independent pricing sources no
longer differ by more than 25 basis points for 60 seconds or that the
VIIV is being priced and disseminated as required. Proposed Commentary
.05 to NYSE Arca Equities Rule 8.900 provides that, if the investment
adviser to the Investment Company issuing Managed Portfolio Shares is
affiliated with a broker-dealer, or if any Trusted Agent is registered
as a broker-dealer or is affiliated with a broker-dealer, such
investment adviser or Trusted Agent will erect and maintain a ``fire
wall'' between the investment adviser or Trusted Agent and (i)
personnel of the broker-dealer or broker-dealer affiliate, as
applicable, or (ii) the Authorized Participant or non-Authorized
Participant market maker, as applicable, with respect to access to
information concerning the composition and/or changes to such
Investment Company portfolio. Personnel who make decisions on the
Investment Company's portfolio composition must be subject to
procedures designed to prevent the use and dissemination of material
nonpublic information regarding the applicable Investment Company
portfolio Personnel who make decisions on the Investment Company's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the applicable Investment Company portfolio.
    With respect to the proposed listing and trading of Shares of the
Funds, the Exchange believes that the proposed rule change is designed
to prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.900. Price information for the exchange-listed equity securities held
by the Funds will be available through major market data vendors or
securities exchanges listing and trading such securities. All exchange-
listed equity securities held by the Funds will be listed on national
securities exchanges. The listing and trading of such securities is
subject to rules of the exchanges on which they are listed and traded,
as approved by the Commission. The Funds will primarily hold U.S.-
listed securities or ETFs. A Fund's investments will be consistent with
its respective investment objective and will not be used to enhance
leverage. The Funds will not invest in non-U.S.-listed securities. The
Exchange or FINRA, on behalf of the Exchange, or both, will communicate
as needed regarding trading in the Shares and underlying stocks and
ETFs with other markets and other entities that are members of the ISG,
and the Exchange or FINRA, on behalf of the Exchange, or both, may
obtain trading information regarding trading such securities from such
markets and other entities. In addition, the Exchange may obtain
information regarding trading in the Shares, underlying stocks and ETFs
from markets and other entities that are members of ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement. A Trusted Agent will provide information related to
creations and redemption of Creation Units to FINRA upon request. The
Funds' Adviser will make available daily to FINRA and the Exchange the
portfolio holdings of each Fund in order to facilitate the performance
of the surveillances referred to above.
    The Exchange, after consulting with various Lead Market Makers that
trade ETFs on the Exchange, believes that market makers will be able to
make efficient and liquid markets priced near the VIIV, market makers
have knowledge of a fund's means of achieving its investment objective
even without daily disclosure of a fund's underlying portfolio, and are
able to engage in Bona Fide Arbitrage. The Exchange believes that
market makers will employ risk-management techniques such as Bona Fide
Arbitrage in addition to ``statistical arbitrage,'' which is currently
used throughout the financial services industry, to make efficient
markets in exchange traded products.\40\ This ability should permit
market makers to make efficient markets in shares without knowledge of
a fund's underlying portfolio.
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    \40\ See note 10, supra.
---------------------------------------------------------------------------

    The Exchange understands that traders, in addition to employing
Bona Fide Arbitrage, use statistical analysis to derive correlations
between different sets of instruments to identify opportunities to buy
or sell one set of instruments when it is mispriced relative to the
others. For Managed Portfolio Shares, market makers utilizing
statistical arbitrage use the knowledge of a fund's means of achieving
its investment objective, as described in the applicable fund
registration statement, to construct a hedging proxy for a fund to
manage a market maker's quoting risk in connection with trading fund
shares. Market makers will then conduct statistical arbitrage between
their hedging proxy (for example, the Russell 1000 Index) and shares of
a fund, buying and selling one against the other over the course of the
trading day. Eventually, at the end of each day, they will evaluate how
their proxy performed in comparison to the price of a fund's shares,
and use that analysis as well as knowledge of risk metrics, such as
volatility and turnover, to enhance their proxy calculation to make it
a more efficient hedge.
    Market makers who anticipate employing statistical arbitrage more
often than Bona Fide Arbitrage, have indicated to the Exchange that,
after the first few days of trading, there will be sufficient data to
run a statistical

analysis which will lead to spreads being tightened substantially
around VIIV. This is similar to certain other existing exchange traded
products (for example, ETFs that invest in foreign securities that do
not trade during U.S. trading hours), in which spreads may be generally
wider in the early days of trading and then narrow as market makers
gain more confidence in their real-time hedges.
    The Lead Market Makers also indicated that, as with some other new
exchange-traded products, spreads may be generally wider in the early
days of trading and would tend to narrow as market makers gain more
confidence in the accuracy of their hedges and their ability to adjust
these hedges in real-time relative to the published VIIV and gain an
understanding of the applicable market risk metrics such as volatility
and turnover, and as natural buyers and sellers enter the market. Other
relevant factors cited by Lead Market Makers were that a fund's
investment objectives are clearly disclosed in the applicable
prospectus, the existence of quarterly portfolio disclosure, the
capacity to engage in Bona Fide Arbitrage and the ability to create
shares in creation unit size.
    The Commission's concept release regarding ``Actively Managed
Exchange-Traded Funds'' highlighted several issues that could impact
the Commission's willingness to authorize the operation of an actively-
managed ETF, including whether effective arbitrage of the ETF shares
exists.\41\ The Concept Release identifies the transparency of a fund's
portfolio and the liquidity of the securities in a fund's portfolio as
central to effective arbitrage. With respect to the Funds, the Funds'
use of U.S.-listed securities and the ability of market makers to
engage in Bona Fide Arbitrage provide adequate liquidity as well as the
ability to engage in riskless arbitrage. Additionally, certain existing
ETFs with portfolios of foreign securities have shown their ability to
trade efficiently in the secondary market at approximately their NAV
even though they do not provide opportunities for riskless arbitrage
transactions during much of the trading day.\42\ Such ETFs have been
shown to have pricing characteristics very similar to ETFs that can be
arbitraged in this manner. For example, index-based ETFs containing
securities that trade during different trading hours than the ETF, such
as ETFs that hold Asian stocks, have demonstrated efficient pricing
characteristics notwithstanding the inability of market professionals
to engage in ``riskless arbitrage'' with respect to the underlying
portfolio for most, or even all, of the U.S. trading day when Asian
markets are closed. Pricing for shares of such ETFs is efficient
because market professionals are still able to hedge their positions
with offsetting, correlated positions in derivative instruments during
the entire trading day.
---------------------------------------------------------------------------

    \41\ See Investment Company Act Release No. 25258 (November 8,
2001) (the ``Concept Release'').
    \42\ The Adviser represents that the mechanics of arbitrage and
hedging differ. Prior Rule 10a-1 and Regulation T under the Act both
describe arbitrage as either buying and selling the same security in
two different markets or buying and selling two different
securities, one of which is convertible into the other. This is also
known as a ``riskless arbitrage'' transaction in that the
transaction is risk free since it generally consists of buying an
asset at one price and simultaneously selling that same asset at a
higher price, thereby generating a profit on the difference.
Hedging, on the other hand, involves managing risk by purchasing or
selling a security or instrument that will track or offset the value
of another security or instrument. Arbitrage and hedging are both
used to manage risk; however, they involve different trading
strategies.
---------------------------------------------------------------------------

    The real-time dissemination of a fund's VIIV, the ability for
market makers to engage is [sic] riskless arbitrage through the Bona
Fide Arbitrage mechanism, together with the right of Authorized
Participants to create and redeem each day at the NAV, will be
sufficient for market participants to value and trade shares in a
manner that will not lead to significant deviations between the shares'
Bid/Ask Price and NAV.
    The pricing efficiency with respect to trading a series of Managed
Portfolio Shares will generally rest on the ability of market
participants to arbitrage between the shares and a fund's portfolio, in
addition to the ability of market participants to assess a fund's
underlying value accurately enough throughout the trading day in order
to hedge positions in shares effectively. Professional traders not
employing Bona Fide Arbitrage can buy shares that they perceive to be
trading at a price less than that which will be available at a
subsequent time, and sell shares they perceive to be trading at a price
higher than that which will be available at a subsequent time. It is
expected that, as part of their normal day-to-day trading activity,
market makers assigned to shares by the Exchange, off-exchange market
makers, firms that specialize in electronic trading, hedge funds and
other professionals specializing in short-term, non-fundamental trading
strategies will assume the risk of being ``long'' or ``short'' shares
through such trading and will hedge such risk wholly or partly by
simultaneously taking positions in correlated assets \43\ or by netting
the exposure against other, offsetting trading positions--much as such
firms do with existing ETFs and other equities. Disclosure of a fund's
investment objective and principal investment strategies in its
prospectus and SAI, along with the dissemination of the VIIV every
second, should permit professional investors to engage easily in this
type of hedging activity.\44\
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    \43\ Price correlation trading is used throughout the financial
industry. It is used to discover both trading opportunities to be
exploited, such as currency pairs and statistical arbitrage, as well
as for risk mitigation such as dispersion trading and beta hedging.
These correlations are a function of differentials, over time,
between one or multiple securities pricing. Once the nature of these
price deviations have been quantified, a universe of securities is
searched in an effort to, in the case of a hedging strategy,
minimize the differential. Once a suitable hedging basket has been
identified, a trader can minimize portfolio risk by executing the
hedging basket. The trader then can monitor the performance of this
hedge throughout the trade period, making corrections where
warranted.
    \44\ With respect to trading in Shares of the Funds, market
participants would manage risk in a variety of ways. In addition to
Bona Fide Arbitrage, it is expected that market participants will be
able to determine how to trade Shares at levels approximating the
VIIV without taking undue risk by gaining experience with how
various market factors (e.g., general market movements, sensitivity
of the VIIV to intraday movements in interest rates or commodity
prices, etc.) affect VIIV, and by finding hedges for their long or
short positions in Shares using instruments correlated with such
factors. The Adviser expects that market participants will initially
determine the VIIV's correlation to a major large capitalization
equity benchmark with active derivative contracts, such as the
Russell 1000 Index, and the degree of sensitivity of the VIIV to
changes in that benchmark. For example, using hypothetical numbers
for illustrative purposes, market participants should be able to
determine quickly that price movements in the Russell 1000 Index
predict movements in a Fund's VIIV 95% of the time (an acceptably
high correlation) but that the VIIV generally moves approximately
half as much as the Russell 1000 Index with each price movement.
This information is sufficient for market participants to construct
a reasonable hedge--buy or sell an amount of futures, swaps or ETFs
that track the Russell 1000 equal to half the opposite exposure
taken with respect to Shares. Market participants will also
continuously compare the intraday performance of their hedge to a
Fund's VIIV. If the intraday performance of the hedge is correlated
with the VIIV to the expected degree, market participants will feel
comfortable they are appropriately hedged and can rely on the VIIV
as appropriately indicative of a Fund's performance.
---------------------------------------------------------------------------

    With respect to trading of Shares of the Funds, the ability of
market participants to buy and sell Shares at prices near the VIIV is
dependent upon their assessment that the VIIV is a reliable, indicative
real-time value for a Fund's underlying holdings. Market participants
are expected to accept the VIIV as a reliable, indicative real-time
value because (1) the VIIV will be calculated and disseminated based on
a Fund's actual portfolio holdings, (2) the securities in which the
Funds plan to

invest are generally highly liquid and actively traded and therefore
generally have accurate real time pricing available, and (3) market
participants will have a daily opportunity to evaluate whether the VIIV
at or near the close of trading is indeed predictive of the actual NAV.
    The real-time dissemination of a Fund's VIIV, the ability for
market makers to engage is [sic] riskless arbitrage through the Bona
Fide Arbitrage mechanism, together with the ability of Authorized
Participants to create and redeem each day at the NAV, will be crucial
for market participants to value and trade Shares in a manner that will
not lead to significant deviations between the Shares' Bid/Ask Price
and NAV.\45\
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    \45\ The statements in the Statutory Basis section of this
filing relating to pricing efficiency, arbitrage, and activities of
market participants, including market makers and Authorized
Participants, are based on representations by the Adviser and review
by the Exchange.
---------------------------------------------------------------------------

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

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

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

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

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

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

    Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2017-36 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-2017-36. 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 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; 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-2017-36 and should
be submitted on or before May 25, 2017.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\46\
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    \46\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08980 Filed 5-3-17; 8:45 am]
BILLING CODE 8011-01-P