[Federal Register Volume 81, Number 3 (Wednesday, January 6, 2016)]
[Notices]
[Pages 526-535]
[FR Doc No: 2015-33207]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-76798; File No. SR-NYSEArca-2015-125]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of RiverFront Dynamic
Unconstrained Income ETF and RiverFront Dynamic Core Income ETF Under
NYSE Arca Equities Rule 8.600

December 30, 2015.
    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 December 15, 2015, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''):
RiverFront Dynamic Unconstrained Income ETF and RiverFront Dynamic Core
Income ETF. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

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

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600,\4\ which governs the
listing and trading of Managed Fund Shares: \5\ RiverFront Dynamic
Unconstrained Income ETF and RiverFront Dynamic Core Income ETF, each
referred to as a ``Fund'' and collectively as the ``Funds.'' The Funds
are each a series of ALPS ETF Trust (``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.\6\ The
Funds will be managed by ALPS Advisors, Inc. (``ALPS Advisors'' or the
``Adviser''). RiverFront Investment Group, LLC (``RiverFront'') is the
investment sub-adviser for the Funds (the ``Sub-Adviser'').
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    \4\ The Commission has previously approved listing and trading
on the Exchange of actively managed funds 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); 66321 (February 3, 2012), 77 FR 6850 (February 9,
2012) (SR-NYSEArca-2011-95) (order approving listing and trading of
PIMCO Total Return Exchange Traded Fund); 66670 (March 28, 2012), 77
FR 20087 (April 3, 2012) (SR-NYSEArca-2012-09) (order approving
listing and trading of PIMCO Global Advantage Inflation-Linked Bond
Strategy Fund).
    \5\ A Managed Fund 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), 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.
    \6\ The Trust is registered under the 1940 Act. On September 1,
2015, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to
the Funds (File Nos. 333-148826 and 811-22175) (the ``Registration
Statement''). The description of the operation of the Trust and the
Funds herein is based, in part, on the Registration Statement. In
addition, the Commission has issued an order granting certain
exemptive relief to the Trust and the Adviser (as defined below)
under the 1940 Act. See Investment Company Act Release No. 30553
(June 11, 2013) (File No. 812-13884) (``Exemptive Order''). The
Funds will be offered in reliance upon the Exemptive Order issued to
the Trust and the Adviser.
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    Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition,
Commentary .06 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. Each of ALPS
Advisors and RiverFront is not registered as a broker-dealer but is
affiliated with a broker-dealer. Each of ALPS Advisors and RiverFront
has implemented and will maintain a fire wall with respect to its
affiliated broker-dealer(s) regarding access to information concerning
the composition and/or changes to a Fund portfolio. In the event (a)
the Adviser or Sub-Adviser becomes newly affiliated with a broker-
dealer, or (b) any new adviser or sub-adviser becomes affiliated with a
broker-dealer, it will implement a fire wall with respect to such
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.
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    \7\ 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 Sub-Adviser and their related
personnel are 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. The Exchange represents that the
Adviser and Sub-Adviser, and their respective related personnel, are
subject to Investment Advisers Act Rule 204A-1. 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 violation, 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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RiverFront Dynamic Unconstrained Income ETF
Principal Investment Strategies
    According to the Registration Statement, the investment objective
of the Fund will be to seek total return with an emphasis on income as
the source of that total return. Under normal circumstances, the Fund
will principally invest its assets in the securities and financial
instruments described below.\8\
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    \8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the securities markets or the financial markets generally;
circumstances under which a Fund's investments are made for
temporary defensive purposes; operational issues causing
dissemination of inaccurate market information; or force majeure
type events such as systems failure, natural or man-made disaster,
act of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
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    The Fund's portfolio is constructed through a two-step process,
with the first step setting the allocation among different fixed income
asset classes and the second step determining security selection within
those asset classes. The allocation across long-term, medium-term and
short-term investment grade securities, long-term and short-term high
yield securities and emerging market debt is determined by a
quantitative methodology. The methodology models historical returns as
a function of initial valuation conditions and creates estimates of
potential returns and downside risks consistent with historical market
behavior. These capital market assumptions are incorporated into a
patent-pending Mean Reversion Optimization (MRO) process to produce the
index weighting within each of the major fixed income asset classes.
The objective of this optimization is to construct a combination of
fixed income asset classes that are expected to have a high probability
of generating a positive potential total return over a five-year
investment horizon.
    The Fund will seek to achieve its investment objective by investing
in a global portfolio of ``Fixed Income Securities'' (as described
below) of various maturities, ratings and currency denominations. The
Fund intends to utilize various investment strategies in a broad array
of fixed income sectors. The Fund will allocate its investments based
upon the analysis of the Sub-Adviser of the pertinent economic and
market conditions, as well as yield, maturity, credit and currency
considerations.
    For purposes of this filing, Fixed Income Securities include the
following (as described further below): Bonds, including corporate
bonds; securities issued by the U.S. government or its agencies,
instrumentalities or sponsored corporations (including those not backed
by the full faith and credit of the U.S. government); agency and non-
agency mortgage-backed securities (``MBS'', which may include
commercial MBS (``CMBS'')) and asset-backed securities (``ABS'');
municipal securities; U.S. agency mortgage pass-through securities;
convertible securities; preferred stocks; commercial instruments;
variable or floating rate instruments and variable rate demand
instruments; \9\ zero-coupon and pay-in-kind securities; \10\ bank
instruments, including certificates of deposit (``CDs''), time deposits
and bankers' acceptances from U.S. banks; and participations in and
assignments of bank loans or corporate loans,\11\ which loans include
senior loans, syndicated bank loans, junior loans, bridge loans,
unfunded commitments, revolving credit facilities, and participation
interests.\12\
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    \9\ Variable or floating interest rates are readjusted on set
dates (such as the last day of the month or calendar quarter) in the
case of variable rates or whenever a specified interest rate change
occurs in the case of a floating rate instrument. The terms of such
demand instruments require payment of principal and accrued interest
by the issuer, a guarantor and/or a liquidity provider. The Sub-
Adviser will monitor the pricing, quality and liquidity of the
variable or floating rate securities held by the Fund.
    \10\ Zero-coupon or pay-in-kind securities are debt securities
that do not make regular cash interest payments. Zero-coupon
securities are sold at a deep discount to their face value. Pay-in-
kind securities pay interest through the issuance of additional
securities.
    \11\ The Adviser expects that under normal market conditions,
the Fund generally will seek to invest at least 80% of its corporate
loan assets in issuances that have at least $100,000,000 par amount
outstanding (if tied to developed countries) and at least
$200,000,000 par amount outstanding (if tied to emerging market
countries).
    \12\ Participation interests generally will be acquired from a
commercial bank or other financial institution (a ``Lender'') or
from other holders of a participation interest (a ``Participant'').
The purchase of a participation interest either from a Lender or a
Participant will not result in any direct contractual relationship
with the borrowing company (the ``Borrower''). The Fund generally
will have no right directly to enforce compliance by the Borrower
with the terms of the credit agreement. Instead, the Fund will be
required to rely on the Lender or the Participant that sold the
participation interest, both for the enforcement of the Fund's
rights against the Borrower and for the receipt and processing of
payments due to the Fund under the loans. Under the terms of a
participation interest, the Fund may be regarded as a member of the
Participant, and thus the Fund is subject to the credit risk of both
the Borrower and a Participant. Participation interests are
generally subject to restrictions on resale.
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    The Fund may purchase Fixed Income Securities issued by U.S. or
foreign corporations \13\ or financial institutions.
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    \13\ The Fund will invest only in securities that the Adviser or
Sub-Adviser deems to be sufficiently liquid. While foreign corporate
debt securities generally must have $200 million or more par amount
outstanding and significant par value traded to be considered as an
eligible investment, at least 80% of issues of foreign corporate
debt held by the Fund will have $200 million or more par amount
outstanding.
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    The Fund may purchase securities issued or guaranteed by the U.S.
Government or foreign governments (including foreign states, provinces
and municipalities) or their agencies and instrumentalities or issued
or guaranteed by international organizations designated or supported by
multiple government entities to promote economic reconstruction or
development.
    The Fund may invest in MBS issued or guaranteed by federal agencies
and/or U.S. government sponsored instrumentalities, such as the
Government National Mortgage Administration (``Ginnie Mae''), the
Federal Housing Administration (``FHA''), the Federal National Mortgage
Association (``Fannie Mae'') and the Federal Home Loan Mortgage
Corporation (``Freddie Mac''). The MBS in which the Fund may invest
will be either pass-through securities or collateralized mortgage
obligations (``CMOs''), and may use to-be-announced (``TBA'')
transactions.\14\
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    \14\ Pass-through securities represent a right to receive
principal and interest payments collected on a pool of mortgages,
which are passed through to security holders. CMOs are created by
dividing the principal and interest payments collected on a pool of
mortgages into several revenue streams (tranches) with different
priority rights to portions of the underlying mortgage payments. The
Fund will not invest in CMO tranches which represent a right to
receive interest only (``IOs''), principal only (``POs'') or an
amount that remains after other floating-rate tranches are paid (an
inverse floater).
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    The Fund may purchase or sell securities on a when-issued,\15\
delayed delivery or forward commitment basis,

and may enter into repurchase \16\ and reverse repurchase
agreements.\17\
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    \15\ Purchasing securities on a ``when-issued'' basis means that
the date for delivery of and payment for the securities is not fixed
at the date of purchase, but is set after the securities are issued.
The payment obligation and, if applicable, the interest rate that
will be received on the securities are fixed at the time the buyer
enters into the commitment. The Fund will only make commitments to
purchase such securities with the intention of actually acquiring
such securities, but the Fund may sell these securities before the
settlement date if it is deemed advisable.
    \16\ Repurchase agreements are agreements pursuant to which
securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a fixed
price on an agreed date. These agreements may be made with respect
to any of the portfolio securities in which the Fund is authorized
to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities.
    \17\ Reverse repurchase agreements involve the sale of
securities with an agreement to repurchase the securities at an
agreed-upon price, date and interest payment and have the
characteristics of borrowing. The securities purchased with the
funds obtained from the agreement and securities collateralizing the
agreement will have maturity dates no later than the repayment date.
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    The Fund may invest in exchange-traded funds (``ETFs'') \18\ and/or
exchange-traded closed-end funds that invest in Fixed Income
Securities.
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    \18\ For purposes of this filing, ETFs consist of Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)),
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100), and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). All ETFs will be listed and traded in the U.S.
on a national securities exchange. The Funds will not invest in
leveraged or leveraged inverse ETFs.
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    The Fund may invest without limitation in U.S. dollar-denominated
securities of foreign issuers and up to 50% of its total assets in
securities denominated in foreign currencies, and in securities of
issuers located in emerging markets. The Sub-Adviser may attempt to
reduce currency risk by entering into contracts with banks, brokers or
dealers to purchase or sell securities or foreign currencies at a
future date (``forward contracts'').\19\
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    \19\ A foreign currency forward contract is a negotiated
agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate.
The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.
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    The Fund may enter into cleared and over-the-counter (``OTC'') swap
agreements that effectively bundle the purchase of foreign bonds and
the hedging of foreign currency into a single transaction.\20\
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    \20\ See ``The Funds' Use of Derivatives'', infra.
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    The Fund may invest in securities that are offered pursuant to Rule
144A under the Securities Act.
    The average maturity or duration of the Fund's portfolio of Fixed
Income Securities will vary based on the Sub-Adviser's assessment of
economic and market conditions; however, the Sub-Adviser intends to
manage the Fund's portfolio so that it has an average duration of
between two and ten years, under normal circumstances.
Other Investments
    While the Fund will, under normal circumstances, principally invest
its assets in the securities and financial instruments described above,
the Fund may invest its remaining assets in the securities and
financial instruments described below.
    According to the Registration Statement, the Fund may invest in
money market instruments, including other funds which invest
exclusively in money market instruments. The Fund may invest up to 20%
of its total assets in structured notes (notes on which the amount of
principal repayment and interest payments are based on the movement of
one or more specified factors, such as the movement of a particular
bond or bond index). In addition to the types of forward contracts and
swaps discussed above, the Fund may invest in other types of forward
contracts and swaps, as well as options and futures contracts (as
discussed below), each based on fixed-income securities, currencies, or
indexes of fixed-income securities or currencies.
    The Fund may invest up to 5% of its assets in U.S. exchange-traded
equity securities (excluding ETFs and closed-end funds).
RiverFront Dynamic Core Income ETF
Principal Investment Strategies
    According to the Registration Statement, the investment objective
of the Fund will be to seek total return with an emphasis on income as
the source of that total return. Under normal circumstances, the Fund
will principally invest its assets in the securities and financial
instruments described below.\21\
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    \21\ See note 8, supra.
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    The Fund's portfolio is constructed through a two-step process,
with the first step setting the allocation among different fixed income
asset classes and the second step determining security selection within
those asset classes. The allocation across long-term, medium-term and
short-term investment grade securities, long-term and short-term high
yield securities and emerging market debt is determined by a
quantitative methodology. The methodology models historical returns as
a function of initial valuation conditions and creates estimates of
potential returns and downside risks consistent with historical market
behavior. These capital market assumptions are incorporated into a
patent-pending Mean Reversion Optimization (MRO) process to produce the
index weighting within each of the major fixed income asset classes.
The objective of this optimization is to construct a combination of
fixed income asset classes that are expected to have a high probability
of generating a positive potential total return over a five-year
investment horizon.
    The Fund will seek to achieve its investment objective by investing
in a global portfolio of Fixed Income Securities (as described above)
of various maturities, ratings and currency denominations. The Fund
intends to utilize various investment strategies in a broad array of
fixed income sectors. The Fund will allocate its investments based upon
the analysis of the Sub-Adviser of the pertinent economic and market
conditions, as well as yield, maturity, credit and currency
considerations.
    The Fund may purchase Fixed Income Securities issued by U.S. or
foreign corporations \22\ or financial institutions.
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    \22\ See note 11, supra.
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    The Fund may purchase securities issued or guaranteed by the U.S.
Government or foreign governments (including foreign states, provinces
and municipalities) or their agencies and instrumentalities or issued
or guaranteed by international organizations designated or supported by
multiple government entities to promote economic reconstruction or
development.
    The Fund may invest in MBS issued or guaranteed by federal agencies
and/or U.S. government sponsored instrumentalities, such as Ginnie Mae,
the FHA, Fannie Mae and Freddie Mac. The MBS in which the Fund may
invest will be either pass-through securities or CMOs and may use TBA
transactions.\23\
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    \23\ See note 14, supra.
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    The Fund may purchase or sell securities on a when-issued, delayed
delivery or forward commitment basis, and may enter into repurchase and
reverse repurchase agreements.
    The Fund may invest in ETFs\24\ and/or exchange-traded closed-end
funds which invest in Fixed Income Securities.
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    \24\ See note 18, supra.
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    The Fund may invest without limitation in U.S. dollar-denominated
securities of foreign issuers and up to 10% of its total assets in
securities denominated in foreign currencies, and in securities of
issuers located in emerging markets. The Sub-Adviser may attempt to
reduce currency risk by entering into forward contracts.
    The Fund may enter into cleared and OTC swap agreements that
effectively bundle the purchase of foreign bonds and the hedging of
foreign currency into a single transaction.\25\
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    \25\ See ``The Funds' Use of Derivatives'', infra.

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    The Fund may invest in securities that are offered pursuant to Rule
144A under the Securities Act.
    The average maturity or duration of the Fund's portfolio of Fixed
Income Securities will vary based on the Sub-Adviser's assessment of
economic and market conditions; however, the Sub-Adviser intends to
manage the Fund's portfolio so that it has an average duration of
between two and eight years, under normal circumstances.
Other Investments
    While the Fund will, under normal circumstances, principally invest
its assets in the securities and financial instruments described above,
the Fund may invest its remaining assets in the securities and
financial instruments described below.
    According to the Registration Statement, the Fund may also invest
in money market instruments, including other funds which invest
exclusively in money market instruments. The Fund may invest up to 20%
of its total assets in structured notes. In addition to the types of
forward contracts and swaps discussed above, the Fund may invest in
other types of forward contracts and swaps, as well as options and
futures contracts (as described below), each based on fixed-income
securities, currencies, or indexes of fixed-income securities or
currencies.
    The Fund may invest up to 5% of its assets in U.S. exchange-traded
equity securities (excluding ETFs and closed-end funds).
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),
including securities that are offered pursuant to Rule 144A under the
Securities Act deemed illiquid by the Sub-Adviser.\26\ A 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 held in illiquid securities. Illiquid securities include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\27\
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    \26\ Rule 144A securities are securities which, while privately
placed, are eligible for purchase and resale pursuant to Rule 144A.
According to the Registration Statement, Rule 144A permits certain
qualified institutional buyers, such as a Fund, to trade in
privately placed securities even though such securities are not
registered under the Securities Act.
    \27\ 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).
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    The Funds intend to qualify for and to elect to be treated as
separate regulated investment companies (``RICs'') under Subchapter M
of the Internal Revenue Code.\28\
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    \28\ 26 U.S.C. 851.
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    A Fund may invest up to 20% of its total assets in MBS (which may
include CMBS) or ABS issued or guaranteed by private entities.
    A Fund may invest up to 20% of its total assets in junior loans.
    The RiverFront Dynamic Unconstrained Income ETF may invest entirely
in high yield securities (``junk bonds''). Junk bonds are Fixed Income
Securities that are rated below investment grade by nationally
recognized statistical rating organizations (``NRSROs''), or are
unrated securities that the Sub-Adviser believes are of comparable
quality. The Sub-Adviser considers the credit ratings assigned by
NRSROs as one of several factors in its independent credit analysis of
issuers.
    The RiverFront Dynamic Core Income ETF may invest up to 15% of its
total assets in Fixed Income Securities that are rated below investment
grade by NRSROs, or unrated securities that the Sub-Adviser believes
are of comparable quality. The Sub-Adviser considers the credit ratings
assigned by NRSROs as one of several factors in its independent credit
analysis of issuers.
    The Funds will not invest in non-U.S. equity securities.
    A Fund's investments will be consistent with a Fund's investment
objective and will not be used to enhance leverage. That is, while a
Fund will be permitted to borrow as permitted under the 1940 Act, a
Fund's investments will not be used to seek performance that is the
multiple or inverse multiple (i.e., 2Xs and 3Xs) of a Fund's primary
broad-based securities benchmark index (as defined in Form N-1A).\29\
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    \29\ A Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following a Fund's first full calendar year of performance.
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The Funds' Use of Derivatives
    Each Fund proposes to seek certain exposures through derivative
transactions as described below. With respect to a Fund, derivative
instruments may include foreign exchange forward contracts; exchange-
traded futures on securities, indices, currencies and other
investments; exchange-traded and OTC options; exchange-traded and OTC
options on futures contracts; exchange-traded and OTC interest rate
swaps, cross-currency swaps, total return swaps, inflation swaps and
credit default swaps; and options on such swaps (``swaptions'').\30\
Generally, derivatives are financial contracts whose value depends
upon, or is derived from, the value of an underlying asset, reference
rate or index, and may relate to stocks, bonds, interest rates,
currencies or currency exchange rates, commodities, and related
indexes. A Fund may, but is not required to, use derivative instruments
for risk management purposes or as part of its investment
strategies.\31\ A Fund may also engage in derivative transactions for
speculative purposes to enhance total return, to seek to hedge against
fluctuations in securities prices, interest rates or currency rates, to
change the effective duration of its portfolio, to manage certain
investment risks and/or as a substitute for the purchase or sale of
securities or currencies.
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    \30\ Options on swaps are traded OTC. In the future, in the
event that there are exchange-traded options on swaps, a Fund may
invest in these instruments.
    \31\ A Fund will seek, where possible, to use counterparties
whose financial status is such that the risk of default is reduced;
however, the risk of losses resulting from default is still
possible. The Sub-Adviser will monitor the financial standing of
counterparties on an ongoing basis. This monitoring may include
information provided by credit agencies, as well as the Sub-
Adviser's credit analysts and other team members who evaluate
approved counterparties using various methods of analysis, including
but not limited to earnings updates, the counterparty's reputation,
the Sub-Adviser's past experience with the broker-dealer, market
levels for the counterparty's debt and equity, the counterparty's
liquidity and its share of market participation.
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    Investments in derivative instruments will be made in accordance
with the 1940 Act and consistent with a Fund's investment objective and
policies. As described further below, a Fund will typically use
derivative instruments as a

substitute for taking a position in the underlying asset and/or as part
of a strategy designed to reduce exposure to other risks, such as
currency risk. A Fund may also use derivative instruments to enhance
returns. To limit the potential risk associated with such transactions,
a Fund will segregate or ``earmark'' assets determined to be liquid by
the Sub-Adviser in accordance with procedures established by a Fund's
Board of Trustees (the ``Board'') and in accordance with the 1940 Act
(or, as permitted by applicable regulation, enter into certain
offsetting positions) to cover its obligations under derivative
instruments. These procedures have been adopted consistent with section
18 of the 1940 Act and related Commission guidance. In addition, a Fund
will include appropriate risk disclosure in its offering documents,
including leveraging risk. Leveraging risk is the risk that certain
transactions of a Fund, including a Fund's use of derivatives, may give
rise to leverage, causing a Fund to be more volatile than if it had not
been leveraged.\32\ Because the markets for certain securities, or the
securities themselves, may be unavailable or cost prohibitive as
compared to derivative instruments, suitable derivative transactions
may be an efficient alternative for a Fund to obtain the desired asset
exposure.
---------------------------------------------------------------------------

    \32\ To mitigate leveraging risk, the Sub-Adviser will segregate
or ``earmark'' liquid assets or otherwise cover the transactions
that may give rise to such risk.
---------------------------------------------------------------------------

    The Sub-Adviser believes that derivatives can be an economically
attractive substitute for an underlying physical security that a Fund
would otherwise purchase. For example, as part of a Fund's non-
principal investment strategies, a Fund could purchase Treasury futures
contracts instead of physical Treasuries or could sell credit default
protection on a corporate bond instead of buying a physical bond.
Economic benefits include potentially lower transaction costs or
attractive relative valuation of a derivative versus a physical bond
(e.g., differences in yields).
    The Sub-Adviser further believes that derivatives can be used as a
more liquid means of adjusting portfolio duration as well as targeting
specific areas of yield curve exposure, with potentially lower
transaction costs than the underlying securities (e.g., interest rate
swaps may have lower transaction costs than physical bonds). Similarly,
money market futures can be used, as part of a Fund's non-principal
investment strategies, to gain exposure to short-term interest rates in
order to express views on anticipated changes in central bank policy
rates. In addition, derivatives can be used to protect client assets
through selectively hedging downside (or ``tail risks'') in a Fund.
    A Fund also can use derivatives to increase or decrease credit
exposure. Index credit default swaps (CDX) can be used, as part of a
Fund's non-principal investment strategies, to gain exposure to a
basket of credit risk by ``selling protection'' against default or
other credit events, or to hedge broad market credit risk by ``buying
protection''. Single name credit default swaps (CDS) can be used, as
part of a Fund's non-principal investment strategies, to allow a Fund
to increase or decrease exposure to specific issuers, saving investor
capital through lower trading costs. A Fund can use total return swap
contracts to obtain the total return of a reference asset or index in
exchange for paying a financing cost. A total return swap may be more
efficient than buying underlying securities of an index, potentially
lowering transaction costs.
    A Fund may attempt to reduce foreign currency exchange rate risk by
entering into contracts with banks, brokers or dealers to purchase or
sell foreign currencies at a future date (``forward contracts'').
    The Sub-Adviser believes that the use of derivatives will allow a
Fund to selectively add, as part of a Fund's non-principal investment
strategies, diversifying sources of return from selling options. Option
purchases and sales can also be used, as part of a Fund's non-principal
investment strategies, to hedge specific exposures in the portfolio,
and can provide access to return streams available to long-term
investors such as the persistent difference between implied and
realized volatility. Option strategies can, as part of a Fund's non-
principal investment strategies, generate income or improve execution
prices (i.e., covered calls).
Valuation Methodology for Purposes of Determining Net Asset Value
    According to the Registration Statement, the NAV per Share of each
Fund will be computed by dividing the value of the net assets of each
Fund (i.e., the value of its total assets less total liabilities) by
the total number of Shares of the Fund outstanding, rounded to the
nearest cent. Expenses and fees, including without limitation, the
management fees, will be accrued daily and taken into account for
purposes of determining NAV. The NAV per Share will be calculated by
each Fund's custodian and determined as of the close of the regular
trading session on the New York Stock Exchange (``NYSE'') (ordinarily
4:00 p.m., Eastern Time) on each day that such exchange is open.
Information that becomes known to a Fund or its agents after the NAV
has been calculated on a particular day will not generally be used to
retroactively adjust the price of a portfolio asset or the NAV
determined earlier that day. Each Fund reserves the right to change the
time its NAV is calculated if the Fund closes earlier, or as permitted
by the Commission.
    In computing each Fund's NAV, each Fund's Fixed Income Securities
will be valued at market value. Market value generally means a
valuation (i) obtained from an exchange, a pricing service or a major
market maker (or dealer), (ii) based on a price quotation or other
equivalent indication of value supplied by an exchange, a pricing
service or a major market maker (or dealer) or (iii) based on amortized
cost. Each Fund's Fixed Income Securities are thus valued by reference
to a combination of transactions and quotations for the same or other
securities believed to be comparable in quality, coupon, maturity, type
of issue, call provisions, trading characteristics and other features
deemed to be relevant. To the extent each Fund's Fixed Income
Securities, including some or all of the MBS in which a Fund invests,
will be valued based on price quotations or other equivalent
indications of value provided by a third-party pricing service, any
such third-party pricing service may use a variety of methodologies to
value some or all of a Fund's Fixed Income Securities to determine the
market price. For example, the prices of securities with
characteristics similar to those held by a Fund may be used to assist
with the pricing process. In addition, the pricing service may use
proprietary pricing models. Each Fund's securities holdings that are
traded on a national securities exchange will be valued based on their
last sale price. Price information on listed securities will be taken
from the exchange where the security is primarily traded. Other
portfolio securities and assets for which market quotations are not
readily available will be valued based on fair value as determined in
good faith in accordance with procedures adopted by the Board.
    A third-party pricing service will be used to value some or all of
a Fund's MBS. Derivatives for which market quotes are readily available
will be valued at market value. Local closing prices will be used for
all instrument valuation purposes. Futures will be valued at the last
reported sale or settlement price on the day of valuation. Swaps traded
on exchanges such as the

Chicago Mercantile Exchange (``CME'') or the Intercontinental Exchange
(``ICE-US'') will use the applicable exchange closing price where
available. Foreign currency-denominated derivatives will generally be
valued as of the respective local region's market close.
    With respect to specific derivatives:
     Currency spot and forward rates from major market data
vendors \33\ will generally be determined as of the NYSE Close.
---------------------------------------------------------------------------

    \33\ Major market data vendors may include, but are not limited
to: Thomson Reuters, JPMorgan Chase PricingDirect Inc., Markit Group
Limited, Bloomberg, Interactive Data Corporation or other major data
vendors.
---------------------------------------------------------------------------

     Exchange-traded futures will generally be valued at the
settlement price of the relevant exchange.
     A total return swap on an index will be valued at the
publicly available index price. The index price, in turn, is determined
by the applicable index calculation agent, which generally values the
securities underlying the index at the last reported sale price.
     Bank loan total return swaps will generally be valued
using the evaluated underlying bank loan price minus the strike price
of the loan.
     Exchange-traded non-equity options, (for example, options
on bonds, Eurodollar options and U.S. Treasury options), index options,
and options on futures will generally be valued at the official
settlement price determined by the relevant exchange, if available.
     OTC foreign currency (FX) options will generally be valued
by pricing vendors.
     All other swaps such as interest rate swaps, inflation
swaps, swaptions, credit default swaps, and CDX/CDS will generally be
valued by pricing services.
Derivatives Valuation Methodology for Purposes of Determining Intra-Day
Indicative Value
    On each business day, before commencement of trading in Fund Shares
on NYSE Arca, a Fund will disclose on its Web site the identities and
quantities of the portfolio instruments and other assets held by a Fund
that will form the basis for a Fund's calculation of NAV at the end of
the business day.
    In order to provide additional information regarding the intra-day
value of Shares of a Fund, the NYSE Arca or a market data vendor will
disseminate every 15 seconds through the facilities of the Consolidated
Tape Association or other widely disseminated means an updated Intra-
day Indicative Value (``IIV'') for a Fund as calculated by a third
party market data provider.
    A third party market data provider will calculate the IIV for each
Fund. For the purposes of determining the IIV, the third party market
data provider's valuation of derivatives is expected to be similar to
their valuation of all securities. The third party market data provider
may use market quotes if available or may fair value securities against
proxies (such as swap or yield curves).

With respect to specific derivatives:

     Foreign currency derivatives may be valued intraday using
market quotes, or another proxy as determined to be appropriate by the
third party market data provider.
     Futures may be valued intraday using the relevant futures
exchange data, or another proxy as determined to be appropriate by the
third party market data provider.
     Interest rate swaps and cross-currency swaps may be mapped
to a swap curve and valued intraday based on changes of the swap curve,
or another proxy as determined to be appropriate by the third party
market data provider.
     Index credit default swaps (such as, CDX/CDS) may be
valued using intraday data from market vendors, or based on underlying
asset price, or another proxy as determined to be appropriate by the
third party market data provider.
     Total return swaps may be valued intraday using the
underlying asset price, or another proxy as determined to be
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the
relevant exchange data, or another proxy as determined to be
appropriate by the third party market data provider.
     OTC options and swaptions may be valued intraday through
option valuation models (e.g., Black-Scholes) or using exchange traded
options as a proxy, or another proxy as determined to be appropriate by
the third party market data provider.
Disclosed Portfolio
    The Funds' disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Adviser or Sub-
Adviser will disclose on the Funds' Web site the following information
regarding each portfolio holding, as applicable to the type of holding:
Ticker symbol, CUSIP number or other identifier, if any; a description
of the holding (including the type of holding, such as the type of
swap); the identity of the security, commodity, index or other asset or
instrument underlying the holding, if any; for options, the option
strike price; quantity held (as measured by, for example, par value,
notional value or number of shares, contracts or units); maturity date,
if any; coupon rate, if any; effective date, if any; market value of
the holding; and the percentage weighting of the holding in each Fund's
portfolio. The Web site information will be publicly available at no
charge.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal, if any, impact to the
arbitrage mechanism as a result of the use of derivatives. Market
makers and participants should be able to value derivatives as long as
the positions are disclosed with relevant information. The Adviser
believes that the price at which Shares trade will continue to be
disciplined by arbitrage opportunities created by the ability to
purchase or redeem creation Shares at their NAV, which should ensure
that Shares will not trade at a material discount or premium in
relation to their NAV.
    The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of a Fund's arbitrage
mechanism due to the use of derivatives. Because derivatives generally
are not eligible for in-kind transfer, they will typically be
substituted with a ``cash in lieu'' amount when a Fund processes
purchases or redemptions of creation units in-kind.
Creation and Redemption of Shares
    Shares may be created and redeemed in ``Creation Unit'' size
aggregations of 50,000 or multiples thereof. The size of a Creation
Unit is subject to change. In order to purchase Creation Units of a
Fund, an investor must generally deposit a designated portfolio of
securities (the ``Deposit Securities'') (and/or an amount in cash in
lieu of some or all of the Deposit Securities) and generally make a
cash payment referred to as the ``Cash Component.'' The list of the
names and the amounts of the Deposit Securities is made available by
the Funds' custodian through the facilities of the National Securities
Clearing Corporation (``NSCC'') immediately prior to the opening of
business each day of the NYSE Arca. The Cash Component represents the
difference between the NAV of a Creation Unit and the market value of
the Deposit Securities. Creations and redemptions of Shares may only be
made through an Authorized Participant, as described in the
Registration Statement.

    Shares may be redeemed only in Creation Units at their NAV and only
on a day the NYSE Arca is open for business. The Funds' custodian will
make available immediately prior to the opening of business each day of
the NYSE Arca, through the facilities of the NSCC, the list of the
names and the amounts of each Fund's portfolio securities that will be
applicable that day to redemption requests in proper form (``Fund
Securities''). Fund Securities received on redemption may not be
identical to Deposit Securities, which are applicable to purchases of
Creation Units.
    Unless cash redemptions or partial cash redemptions are available
or specified for a Fund, the redemption proceeds will consist of the
Fund Securities, plus cash in an amount equal to the difference between
the NAV of Shares being redeemed as next determined after receipt by
the transfer agent of a redemption request in proper form, and the
value of the Fund Securities (the ``Cash Redemption Amount''), less the
applicable redemption fee and, if applicable, any transfer taxes.\34\
---------------------------------------------------------------------------

    \34\ Each Fund may, in certain circumstances, allow cash
creations or partial cash creations but not redemptions (or vice
versa) if the Sub-Adviser believes it will allow the Fund to adjust
its portfolio in a manner which is more efficient for shareholders.
Each Fund may allow creations or redemptions to be conducted
partially in cash only where certain instruments are (i) in the case
of the purchase of a Creation Unit, not available in sufficient
quantity for delivery; (ii) not eligible for transfer through either
the NSCC or DTC; or (iii) not eligible for trading due to local
trading restrictions, local restrictions on securities transfers or
other similar circumstances. To the extent each Fund allows
creations or redemptions to be conducted wholly or partially in
cash, such transactions will be effected in the same manner for all
Authorized Participants on a given day except where: (i) Such
instruments are, in the case of the purchase of a Creation Unit, not
available to a particular Authorized Participant in sufficient
quantity; (ii) such instruments are not eligible for trading by an
Authorized Participant or the investor on whose behalf the
Authorized Participant is acting; or (iii) a holder of Shares of a
Fund would be subject to unfavorable income tax treatment if the
holder receives redemption proceeds in kind. According to the
Registration Statement, an additional variable charge for cash or
partial cash creations, and cash or partial cash redemptions, may
also be imposed to compensate a Fund for the costs associated with
buying the applicable securities.
---------------------------------------------------------------------------

Availability of Information
    The Funds' Web site (www.alpsetfs.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''),\35\ 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. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, each
Fund will disclose on its Web site the Disclosed Portfolio as defined
in NYSE Arca Equities Rule 8.600(c)(2) that will form the basis for the
Fund's calculation of NAV at the end of the business day.\36\
---------------------------------------------------------------------------

    \35\ The Bid/Ask Price of each Fund's Shares 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 a Fund and its
service providers.
    \36\ Under accounting procedures to be followed by the Funds,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1''). Accordingly,
each Fund will be able to disclose at the beginning of the business
day the portfolio that will form the basis for the NAV calculation
at the end of the business day.
---------------------------------------------------------------------------

    In addition, a basket composition file, which will include the
security names and share quantities required to be delivered in
exchange for Fund Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via NSCC. The basket represents one Creation Unit of the
applicable Fund.
    Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Funds' Shareholder Reports, and Form N-CSR
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov. Information
regarding market price and trading volume for the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares, U.S. exchange-traded common stocks, ETFs and closed-end funds
will be available via the Consolidated Tape Association (``CTA'') high-
speed line. Price information for exchange-traded derivative
instruments will be available from the applicable exchange and from
major market data vendors. Price information for forwards, swaps, money
market instruments, repurchase agreements, reverse repurchase
agreements, OTC options, structured notes, and OTC derivative
instruments will be available from major market data vendors. Intra-day
and closing price information for exchange-traded options and futures
will be available from the applicable exchange and from major market
data vendors. In addition, price information for U.S. exchange-traded
options is available from the Options Price Reporting Authority.
Quotation information from brokers and dealers or independent pricing
services will be available for Fixed Income Securities. In addition,
the IIV, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be
widely disseminated by one or more major market data vendors at least
every 15 seconds during the Core Trading Session.\37\ The dissemination
of the IIV, together with the Disclosed Portfolio, will allow investors
to determine the value of the underlying portfolio of each Fund on a
daily basis and provide a close estimate of that value throughout the
trading day.
---------------------------------------------------------------------------

    \37\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IIVs
taken from CTA or other data feeds.
---------------------------------------------------------------------------

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 a Fund.\38\ Trading in Shares of a Fund 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. These may include: (1) The extent to
which trading is not occurring in the securities and/or the financial
instruments comprising the Disclosed Portfolio of a Fund; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. Trading in the
Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which
sets forth circumstances under which Shares of a Fund may be halted.
---------------------------------------------------------------------------

    \38\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading

in the Shares subject to the Exchange's existing rules governing the
trading of equity securities. Shares will trade on the NYSE Arca
Marketplace from 4 a.m. to 8 p.m. Eastern Time in accordance with NYSE
Arca Equities Rule 7.34 (Opening, Core, and Late Trading Sessions). The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in NYSE Arca Equities Rule
7.6, Commentary .03, 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 8.600. The Exchange represents
that, for initial and/or continued listing, each Fund will be in
compliance with Rule 10A-3 \39\ under the Act, 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
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio of each Fund will be made available to all
market participants at the same time.
---------------------------------------------------------------------------

    \39\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, or
regulatory staff of the Exchange, which are designed to detect
violations of Exchange rules and applicable federal securities laws.
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.\40\
---------------------------------------------------------------------------

    \40\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, or regulatory staff of the
Exchange, will communicate as needed regarding trading in the Shares,
certain exchange-traded options and futures, certain exchange-traded
equities with other markets or other entities that are members of the
Intermarket Surveillance Group (``ISG''),\41\ and FINRA or regulatory
staff of the Exchange may obtain trading information regarding trading
in the Shares, certain exchange-traded options and futures, and certain
exchange-traded equities from such markets or entities. In addition,
the Exchange may obtain information regarding trading in the Shares,
certain exchange-traded options and futures, and certain exchange-
traded equities from markets or other entities that are members of ISG
or with which the Exchange has in place a comprehensive surveillance
sharing agreement.\42\ FINRA, on behalf of the Exchange, is able to
access, as needed, trade information for certain Fixed Income
Securities held by the Fund reported to FINRA's Trade Reporting and
Compliance Engine (``TRACE'').
---------------------------------------------------------------------------

    \41\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
    \42\ Certain of the exchange-traded equity instruments in which
a Fund may invest may trade in markets that are not members of ISG.
---------------------------------------------------------------------------

    Not more than 10% of the net assets of a Fund in the aggregate
invested in futures contracts or options contracts shall consist of
futures contracts or exchange-traded options contracts whose principal
market is not a member of ISG or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement.
    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
in Creation Units (and that Shares are not individually redeemable);
(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; (3) the risks involved in
trading the Shares during the Opening and Late Trading Sessions when an
updated IIV will not be calculated or publicly disseminated; (4) how
information regarding the IIV and the Disclosed Portfolio 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 each Fund is 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. Eastern Time each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under section 6(b)(5) \43\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \43\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
federal securities laws applicable to trading on the Exchange.
    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Sub-Adviser is affiliated with a broker-dealer and has
represented that it has implemented a fire wall with respect to its
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed

Portfolio will be made available to all market participants at the same
time. FINRA, on behalf of the Exchange, or regulatory staff of the
Exchange, will communicate as needed regarding trading in the Shares,
certain exchange-traded options and futures, certain exchange-traded
equities with other markets or other entities that are members of the
ISG, and FINRA or regulatory staff of the Exchange may obtain trading
information regarding trading in the Shares, certain exchange-traded
options and futures, certain exchange-traded equities from such markets
or entities. In addition, the Exchange may obtain information regarding
trading in the Shares, certain exchange-traded options and futures,
certain exchange-traded equities from markets or other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
Fixed Income Securities held by a Fund reported to FINRA's TRACE.
    Each Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Funds will
disclose on the Funds' Web site the following information regarding
each portfolio holding, as applicable to the type of holding: Ticker
symbol, CUSIP number or other identifier, if any; a description of the
holding (including the type of holding, such as the type of swap); the
identity of the security, commodity, index or other asset or instrument
underlying the holding, if any; for options, the option strike price;
quantity held (as measured by, for example, par value, notional value
or number of shares, contracts or units); maturity date, if any; coupon
rate, if any; effective date, if any; market value of the holding; and
the percentage weighting of the holding in each Fund's portfolio. Price
information for the debt and equity securities held by a Fund will be
available through major market data vendors and on the applicable
securities exchanges on which such securities are listed and traded. In
addition, a large amount of information will be publicly available
regarding the Funds and the Shares, thereby promoting market
transparency. Moreover, the IIV will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Exchange's Core Trading Session. On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, each Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services, and quotation and last sale information will be
available via the CTA high-speed line. The Web site for the Funds will
include a form of the prospectus for each Fund and additional data
relating to NAV and other applicable quantitative information.
Moreover, prior to the commencement of trading, the Exchange will
inform its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares. 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, and trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of a Fund may be halted. In addition,
as noted above, investors will have ready access to information
regarding each Fund's holdings, the IIV, the Disclosed Portfolio, and
quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of 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. Not more than 10% of the net assets of
a Fund in the aggregate invested in futures contracts or exchange-
traded options contracts shall consist of futures contracts or
exchange-traded options contracts whose principal market is not a
member of ISG or is a market with which the Exchange does not have a
comprehensive surveillance sharing agreement. In addition, as noted
above, investors will have ready access to information regarding each
Fund's holdings, the IIV, the Disclosed Portfolio, and quotation and
last sale information for the Shares.

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

    The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded product that
primarily holds Fixed Income Securities, which may be represented by
certain derivative instruments as discussed above, which will enhance
competition among market participants, to the benefit of investors and
the marketplace.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2015-125 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2015-125. 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 Section, 100 F Street
NE., Washington, DC 20549-1090 on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing will also 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-2015-125 and should be submitted on or before January 27,
2016.
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    \44\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\44\
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-33207 Filed 1-5-16; 8:45 am]
 BILLING CODE 8011-01-P