[Federal Register Volume 77, Number 32 (Thursday, February 16, 2012)]
[Notices]
[Pages 9281-9287]
[FR Doc No: 2012-3610]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66381; File No. SR-NYSEArca-2012-09]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of the
PIMCO Global Advantage Inflation-Linked Bond Strategy Fund Under NYSE
Arca Equities Rule 8.600

February 10, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that, on January 27, 2012, NYSE Arca, Inc.
(``Exchange'' or ``NYSE Arca'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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 the following under NYSE
Arca Equities Rule 8.600 (``Managed Fund Shares''): PIMCO Global
Advantage Inflation-Linked Bond Strategy Fund. The text of the proposed
rule change is available at the Exchange, the Commission's Public
Reference Room, and www.nyse.com.

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

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

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

1. Purpose
    The Exchange proposes to list and trade the following Managed Fund
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: PIMCO
Global Advantage Inflation-Linked Bond Strategy Fund (``Fund'').\4\ The
Shares will be offered by PIMCO 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.\5\
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    \3\ 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.
    \4\ The Commission has previously approved the listing and
trading on the Exchange of other 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); 60460 (August 7, 2009), 74 FR 41468
(August 17, 2009) (SR-NYSEArca-2009-55) (order approving Exchange
listing and trading of AdvisorShares Dent Tactical ETF); 60981
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (order approving Exchange listing and trading of five fixed
income funds of the PIMCO ETF Trust); 61365 (January 15, 2010), 75
FR 4124 (January 26, 2010) (SR-NYSEArca-2009-114) (order approving
Exchange listing and trading of Grail McDonnell Fixed Income ETFs).
    \5\ The Trust is registered under the 1940 Act. On February 14,
2011, the Trust filed with the Commission Post-Effective Amendment
No. 25 under the Securities Act of 1933 (15 U.S.C. 77a)
(``Securities Act'') and Amendment No. 27 under the 1940 Act to the
Trust's registration statement on Form N-1A relating to the Fund. On
October 28, 2011, the Trust filed with the Commission Post-Effective
Amendment No. 43 under the Securities Act and Amendment No. 45 under
the 1940 Act to the Trust's registration statement on Form N-1A
relating to the Fund (File Nos. 333-155395 and 811-22250)
(``Registration Statement''). The description of the operation of
the Trust and the Fund herein is based, in part, on the Registration
Statement. In addition, the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940 Act. See
Investment Company Act Release No. 28993 (November 10, 2009) (File
No. 812-13571) (``Exemptive Order'').

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    The investment manager to the Fund is Pacific Investment Management
Company LLC (``PIMCO'' or ``Adviser''). PIMCO Investments LLC serves as
the distributor for the Fund (``Distributor''). State Street Bank &
Trust Co. serves as the custodian and transfer agent for the Fund
(``Custodian'' or ``Transfer Agent'').
    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.\6\ 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. The Adviser is
affiliated with a broker-dealer and has implemented a ``fire wall''
with respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the Fund's portfolio. If
PIMCO elects to hire a sub-adviser for the Fund that is also affiliated
with a broker-dealer, such sub-adviser will implement a fire wall with
respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the portfolio. In the
event (a) the Adviser or any 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 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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    \6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and its 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.
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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    According to the Registration Statement, the Fund seeks total
return which exceeds that of its benchmark indexes, consistent with
prudent investment management. The Fund's primary benchmark index is
the Barclays Capital Universal Government Inflation-Linked Bond Index.
The Fund's secondary benchmark index is the PIMCO Global Advantage
Inflation-Linked Bond Index.
    The Fund seeks to achieve its investment objective by investing
under normal circumstances \7\ at least 80% of its assets in a
portfolio of inflation-linked bonds that is economically tied to at
least three developed and/or emerging market countries (one of which
may be the United States). The Fund's holdings may include bonds issued
by issuers in both developed and/or emerging market countries and the
Fund is expected to hold bonds of issuers that are economically tied
\8\ to many of the countries represented in the Fund's primary
benchmark index.\9\ Assets not invested in inflation-linked bonds may
be invested in other types of Fixed Income Instruments.\10\
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    \7\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
    \8\ As disclosed in the Trust's Registration Statement, PIMCO
generally considers an instrument to be economically tied to a non-
U.S. country if the issuer is a foreign government (or any political
subdivision, agency, authority or instrumentality of such
government), or if the issuer is organized under the laws of a non-
U.S. country. In the case of certain money market instruments, such
instruments will be considered economically tied to a non-U.S.
country if either the issuer or the guarantor of such money market
instrument is organized under the laws of a non-U.S. country.
    \9\ Each country's approximate weighting within the global
inflation-linked bond market, as reflected by the approximate
weighting of the Barclays Capital Universal Government Inflation-
Linked Bond Index (the Fund's primary benchmark), as of January 31,
2011, is as follows: U.S. 32%, U.K. 19%, France 11%, Brazil 10%,
Italy 7%, Canada 2%, Germany 3%, Japan 3%, Mexico 2%, Sweden 2%,
Turkey 2%, Argentina 1%, Australia 1%, Greece 1%, South Africa 1%,
Chile <1%, Poland <1%, Colombia <1% and South Korea <1%. Each
country's approximate value of outstanding inflation-linked bonds
also as of January 31, 2011, is as follows (in $ billions): U.S.
$642.7, U.K. $392.2, France $222.0, Brazil $209.6, Italy $143.2,
Canada $49.9, Germany $60.9, Japan $57.0, Mexico $45.7, Sweden
$39.1, Turkey $45.9, Argentina $20.0, Australia $17.7, Greece $11.8,
South Africa $26.4, Chile $8.2, Poland $5.5, Colombia $2.7 and South
Korea $3.4.
    \10\ The term ``Fixed Income Instruments'' includes: securities
issued or guaranteed by the U.S. Government, its agencies or
government-sponsored enterprises (``U.S. Government Securities'');
corporate debt securities of U.S. and non-U.S. issuers, including
convertible securities and corporate commercial paper; mortgage-
backed and other asset-backed securities; inflation-indexed bonds
issued both by governments and corporations; structured notes,
including hybrid or ``indexed'' securities and event-linked bonds;
bank capital and trust preferred securities; loan participations and
assignments; delayed funding loans and revolving credit facilities;
bank certificates of deposit, fixed time deposits and bankers'
acceptances; repurchase agreements on Fixed Income Instruments and
reverse repurchase agreements on Fixed Income Instruments; debt
securities issued by states or local governments and their agencies,
authorities and other government-sponsored enterprises; obligations
of non-U.S. governments or their subdivisions, agencies and
government-sponsored enterprises; and obligations of international
agencies or supranational entities. Securities issued by U.S.
Government agencies or government-sponsored enterprises may not be
guaranteed by the U.S. Treasury.
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    According to the Registration Statement, inflation-linked bonds are
government-issued fixed income securities that are structured to
provide protection against inflation. The value of the bond's principal
or the interest income paid on the bond is adjusted to track changes in
an official inflation measure. The effective duration of the Fund's
portfolio normally varies within two years (plus or minus) of the
effective duration of the PIMCO Global Advantage Inflation-Linked Bond
Index which, as of September 30, 2011, as converted, was 4.53 years.
Duration is a measure used to determine the sensitivity of a security's
price to changes in interest rates. The longer a security's duration,
the more sensitive it will be to changes in interest rates. Effective
duration takes into account that, for certain bonds, expected cash
flows will fluctuate as interest rates change and will be defined in
nominal yield terms, which is market convention for most bond investors
and managers. Because market convention for bonds is to use nominal
yields to measure duration, duration for inflation-linked

bonds, which are based on real yields, are converted to nominal
durations through a conversion factor. The resulting nominal duration
typically can range from 20% to 90% of the respective real duration.
All security holdings will be measured in effective (nominal) duration
terms. Similarly, the effective duration of the PIMCO Global Advantage
Inflation-Linked Bond Index will be calculated using the same
conversion factors.
    The Fund will invest under normal circumstances at least 80% of its
assets in inflation-linked bonds issued by U.S. or foreign governments
(or any political subdivision, agency, authority or instrumentality of
such government).\11\ The secondary benchmark includes a liquidity
screen to remove inflation-linked bonds issued by governments of
countries with cumulative inflation-linked bond issuances below $7
billion local currency equivalent, in addition to liquidity screens at
the issue level. The global inflation-linked bond market exceeded $2.25
trillion as of December 31, 2011.\12\
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    \11\ According to the Registration Statement, the value of
inflation-linked bonds is expected to change in response to changes
in real interest rates. Real interest rates are tied to the
relationship between nominal interest rates and the rate of
inflation. If nominal interest rates increase at a faster rate than
inflation, real interest rates may rise, leading to a decrease in
value of inflation-linked bonds.
    \12\ The value of the global inflation-linked bond market is
calculated based on the total outstanding value of issues included
in the Barclays Capital Universal Government Inflation-Linked Bond
Index that are not expiring in less than one year.
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    The Fund primarily will invest in debt securities rated Baa or
higher by Moody's Investors Service, Inc., or equivalently rated by
Standard & Poor's Ratings Services or Fitch, Inc., or, if unrated,
determined by PIMCO to be of comparable quality.\13\ The Fund may
obtain foreign currency exposure (from non-U.S. dollar denominated debt
securities or currencies) without limitation. The Fund may purchase and
sell debt securities on a when-issued, delayed delivery or forward
commitment basis. The Fund may, without limitation, seek to obtain
market exposure to the securities in which it primarily invests by
entering into a series of purchase and sale contracts or by using other
investment techniques (such as buy backs or dollar rolls). The Fund may
invest, without limitation, in debt securities and instruments of
foreign government issuers, including debt securities and instruments
economically tied to emerging market countries.
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    \13\ The Adviser represents that, in selecting securities for
the Fund, PIMCO will develop an outlook for interest rates, currency
exchange rates and the economy, analyze credit and call risks, and
use other security selection techniques. The proportion of the
Fund's assets committed to investment in securities with particular
characteristics (such as quality, sector, interest rate or maturity)
will vary based on PIMCO's outlook for the U.S. economy and the
economies of other countries in the world, the financial markets and
other factors. Sophisticated proprietary software will assist in
evaluating sectors, pricing and rating specific securities. Once
investment opportunities are identified, PIMCO will shift assets
among sectors and securities depending upon changes in relative
valuations and credit spreads in a manner consistent with the Fund's
objective and strategies. To the extent the Fund invests in unrated
securities that PIMCO determines to be of comparable quality to
rated securities that the Fund may purchase, the Fund's ability to
achieve its objective may depend more heavily on PIMCO's
creditworthiness analysis than if the Fund invested exclusively in
rated securities.
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Other Portfolio Holdings
    The Fund's portfolio holdings will be disclosed on the Trust's Web
site (www.pimcoetfs.com) daily after the close of trading on the
Exchange and prior to the opening of trading on the Exchange the
following day.
    As disclosed in the Trust's Registration Statement, if PIMCO
believes that economic or market conditions are unfavorable to
investors, PIMCO may temporarily invest up to 100% of the Fund's assets
in certain defensive strategies, including holding a substantial
portion of the Fund's assets in cash, cash equivalents or other highly
rated short-term securities, including securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities and
affiliated money market and/or short-term bond funds.
    The Fund may invest in, to the extent permitted by Section 12(d)(1)
of the 1940 Act and rules thereunder, other affiliated and unaffiliated
funds, such as open-end or closed-end management investment companies,
including other exchange traded funds.
    The Fund may enter into foreign currency transactions (such as
currency forwards).\14\
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    \14\ The Fund may engage in these transactions primarily to: (1)
Protect against uncertainty in the level of future foreign exchange
rates in the purchase and sale of securities; or (2) lower currency
deviations relative to the Fund's benchmark indexes.
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    The Fund may hold in the aggregate up to 15% of its net assets in:
(1) Illiquid securities,\15\ which include delayed funding loans,
revolving credit facilities, fixed- and floating-rate loans and loan
participations and assignments, and (2) Rule 144A securities. Certain
illiquid securities may require pricing at fair value as determined in
good faith under the supervision of the Fund's Board of Trustees. The
term ``illiquid securities'' for this purpose means securities that
cannot be disposed of within seven days in the ordinary course of
business at approximately the amount at which the Fund has valued the
securities.
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    \15\ 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
14617 (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 ETF. 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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    With respect to its equity securities investments, the Fund will
invest only in U.S.-registered equity securities and non-U.S.-
registered equity securities that trade in markets that are members of
the Intermarket Surveillance Group (``ISG'') or are parties to a
comprehensive surveillance sharing agreement with the Exchange.\16\
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    \16\ See note 29, infra.
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Investment Limitations
    The Fund is subject to the following investment limitations:
    The Fund may not concentrate its investments in a particular
industry, as that term is used in the 1940 Act,\17\ and as interpreted,
modified, or otherwise permitted by regulatory authority having
jurisdiction from time to time.\18\
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    \17\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
    \18\ The Fund's policy with respect to the concentration of
investments in a particular industry is disclosed in the Trust's
Registration Statement.
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    The Fund will be non-diversified,\19\ which means that it may
invest its assets in a smaller number of issuers than a diversified
fund.\20\
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    \19\ A ``non-diversified company'', as defined in Section
5(b)(2) of the 1940 Act, means any management company other than a
diversified company (as defined in Section 5(b)(1) of the 1940 Act).
    \20\ The minimum number of inflation-linked bonds and other
Fixed Income Instruments and issuers in which the Fund may invest at
any one time depends in part upon the number of securities or
issuers comprising the Fund's benchmark indexes. In seeking to
achieve its investment objective, the Fund's portfolio will consist
of at least twenty-five (25) inflation-linked bonds and other Fixed
Income Instruments on any given day, but the Fund may regularly
invest in fifty (50) or more inflation-linked bonds and other Fixed
Income Instruments at a time in seeking to achieve its investment
objective. The Fund's portfolio will hold issues of at least 13 non-
affiliated issuers.

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    The Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code.\21\
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    \21\ 26 U.S.C. 851. To qualify as a regulated investment
company, the Fund generally must, among other things, (a) derive in
each taxable year at least 90% of its gross income from dividends,
interest, payments with respect to securities loans, and gains from
the sale or other disposition of stock, securities or foreign
currencies, net income from certain ``qualified publicly traded
partnerships,'' or other income derived with respect to its business
of investing in such stock, securities or currencies (``Qualifying
Income Test''); (b) diversify its holdings so that, at the end of
each quarter of the taxable year, (i) at least 50% of the market
value of the Fund's assets is represented by cash, U.S. Government
securities, the securities of other regulated investment companies
and other securities, with such other securities of any one issuer
limited for the purposes of this calculation to an amount not
greater than 5% of the value of the Fund's total assets and 10% of
the outstanding voting securities of such issuer, and (ii) not more
than 25% of the value of its total assets is invested in the
securities of any one issuer (other than U.S. Government securities
or the securities of other regulated investment companies), the
securities of certain controlled issuers in the same or similar
trades or businesses, or the securities of one or more ``qualified
publicly traded partnerships''; and (c) distribute each taxable year
the sum of (i) at least 90% of its investment company taxable income
(which includes dividends, interest and net short-term capital gains
in excess of any net long-term capital losses) and (ii) 90% of its
tax exempt interest, net of expenses allocable thereto.
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    Consistent with the Exemptive Order, the Fund will not invest in
options contracts, futures contracts or swap agreements.
    The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. That is,
while the Fund will be permitted to borrow as permitted under the 1940
Act, the Fund's investments will not be used to seek performance that
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's
primary broad-based securities benchmark index (as defined in Form N-
1A) (i.e., the Barclays Capital Universal Government Inflation-Linked
Bond Index).
    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, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\22\ as provided by
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares 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 net asset value (``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.
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    \22\ 17 CFR 240.10A-3.
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Creations and Redemptions of Shares
    According to the Registration Statement, Shares of the Fund that
trade in the secondary market will be ``created'' at NAV \23\ by
Authorized Participants only in block-size Creation Units of 100,000
Shares or multiples thereof. The Fund will offer and issue Shares at
their NAV per Share generally in exchange for a basket of debt
securities held by the Fund (``Deposit Securities'') together with a
deposit of a specified cash payment (``Cash Component'').
Alternatively, the Fund may issue Creation Units in exchange for a
specified all-cash payment (``Cash Deposit''). Similarly, Shares can be
redeemed only in Creation Units, generally in-kind for a portfolio of
debt securities held by the Fund and/or for a specified amount of cash.
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    \23\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of regular trading
on the New York Stock Exchange (``NYSE''), generally 4 p.m. Eastern
time (``E.T.'') (``NAV Calculation Time'') on any business day. NAV
per Share will be calculated by dividing the Fund's net assets by
the number of Fund Shares outstanding. For more information
regarding the valuation of Fund investments in calculating the
Fund's NAV, see the Registration Statement.
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    Except when aggregated in Creation Units, Shares will not be
redeemable by the Fund. The prices at which creations and redemptions
occur will be based on the next calculation of NAV after an order is
received. Requirements as to the timing and form of orders are
described in the Authorized Participant agreement. PIMCO will make
available on each business day via the National Securities Clearing
Corporation (``NSCC'') or other method of public dissemination, prior
to the opening of business (subject to amendments) on the Exchange
(currently 9:30 a.m. E.T.), the identity and the required amount of
each Deposit Security and the amount of the Cash Component (or Cash
Deposit) to be included in the current Fund Deposit \24\ (based on
information at the end of the previous business day). Creations and
redemptions must be made by an Authorized Participant or through a firm
that is either a participant in the Continuous Net Settlement System of
the NSCC or a DTC participant, and in each case, must have executed an
agreement with the Distributor and Transfer Agent with respect to
creations and redemptions of Creation Unit aggregations.
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    \24\ The Deposit Securities and Cash Component or,
alternatively, the Cash Deposit, constitute the ``Fund Deposit,''
which represents the investment amount for a Creation Unit of the
Fund.
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    Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings, disclosure policies,
distributions and taxes is included in the Registration Statement. All
terms relating to the Fund that are referred to but not defined in this
proposed rule change are defined in the Registration Statement.
Availability of Information
    The Trust's Web site (www.pimcoetfs.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Trust's Web
site will include additional quantitative information updated on a
daily basis, including, for the 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 (``Bid/Ask
Price''),\25\ 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 (9:30 a.m. E.T. to
4:00 p.m. E.T.) on the Exchange, the Fund will disclose on the Trust's
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.\26\
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    \25\ The Bid/Ask Price of the Fund is determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
    \26\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the 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.
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    On a daily basis, the Adviser will disclose for each portfolio
security or other financial instrument of the Fund the following
information: Ticker symbol (if applicable), name of security or
financial instrument, number of shares or dollar value of financial
instruments held in the portfolio, and percentage weighting of the
security or financial instrument in the portfolio. The Web site
information will be publicly available at no charge. In addition, price
information for the debt

securities held by the Fund will be available through major market data
vendors.
    In addition, a basket composition file, which will include the
security names and share quantities, if applicable, 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 the NSCC. The basket represents one
Creation Unit of the Fund. The NAV of the Fund will normally be
determined as of the close of the regular trading session on the NYSE
(ordinarily 4 p.m. E.T.) on each business day. Authorized Participants
may refer to the basket composition file for information regarding
Fixed Income Instruments, inflation-linked bonds and any other
instrument that may comprise the Fund's basket on a given day.
    Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its 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 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. Quotation and last sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line. In addition, the Portfolio Indicative Value,
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.\27\ The dissemination of the
Portfolio Indicative Value, together with the Disclosed Portfolio, will
allow investors to determine the value of the underlying portfolio of
the Fund on a daily basis and to provide a close estimate of that value
throughout the trading day.
---------------------------------------------------------------------------

    \27\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values published on 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 the Fund.\28\ Trading in Shares of the 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 the 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 the Fund may be
halted.
---------------------------------------------------------------------------

    \28\ 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. E.T. 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.
Surveillance
    The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (which include Managed
Fund Shares) to monitor trading in the Shares. 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 applicable federal securities laws.
    The Exchange's current trading surveillance focuses on detecting
securities trading outside their normal patterns. 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 may obtain information via the ISG from other
exchanges that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.\29\
---------------------------------------------------------------------------

    \29\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place 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 Unit aggregations (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 Portfolio Indicative Value will not be
calculated or publicly disseminated; (4) how information regarding the
Portfolio Indicative Value 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 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 Exchange 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 basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5) \30\ 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.
---------------------------------------------------------------------------

    \30\ 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
applicable federal securities laws. The Exchange 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. According to the Registration Statement, the Fund will
invest under normal circumstances at least 80% of its assets in
inflation-linked bonds issued by U.S. or foreign governments, screened
for minimum liquidity levels. The Fund primarily will invest in debt
securities rated Baa or higher by Moody's Investors Service, Inc., or
equivalently rated by Standard & Poor's Ratings Services or Fitch,
Inc., or, if unrated, determined by PIMCO to be of comparable quality.
The Adviser is affiliated with a broker-dealer and has implemented a
``fire wall'' with respect to such broker-dealer regarding access to
information concerning the composition and/or changes to the Fund's
portfolio. In addition, the Fund will implement and maintain, or be
subject to, procedures designed to prevent the use and dissemination of
material non-public information regarding the Fund's portfolio
holdings. Consistent with the Exemptive Order, the Fund will not invest
in options contracts, futures contracts or swap agreements. The Fund's
investments will be consistent with the Fund's investment objective and
will not be used to enhance leverage. That is, while the Fund will be
permitted to borrow as permitted under the 1940 Act, the Fund's
investments will not be used to seek performance that is the multiple
or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A) (i.e., the
Barclays Capital Universal Government Inflation-Linked Bond Index).
    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 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. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. The Fund's portfolio holdings
will be disclosed on the Trust's Web site daily after the close of
trading on the Exchange and prior to the opening of trading on the
Exchange the following day. Moreover, the Portfolio Indicative Value
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, the Fund will disclose on the Trust's
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 Trust's Web site will include a form of the prospectus for
the Fund and additional data relating to NAV and other applicable
quantitative information. Moreover, prior to the commencement of
trading, the Exchange will inform its ETP Holders in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares. Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been
reached or because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable, and
trading in the Shares will be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth circumstances under which Shares of
the Fund may be halted. In addition, as noted above, investors will
have ready access to information regarding the Fund's holdings, the
Portfolio Indicative Value, 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. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, 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 purposes of the Act.

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 within such longer period (i) as the Commission may
designate up to 90 days of such date 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 such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule
change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2012-09 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2012-09. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet 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
a.m. and 3 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-2012-09 and should
be submitted on or before March 8, 2012.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-3610 Filed 2-15-12; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 81, Number 127 (Friday, July 1, 2016)]
[Notices]
[Pages 43327-43330]
[FR Doc No: 2016-15714]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-78175; File No. SR-NASDAQ-2016-088]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC;
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To
Reduce the Fees for Certain Real Estate Investment Trusts Listed on
Nasdaq

June 28, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 14, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

    The Exchange proposes to reduce the fees for certain Real Estate
Investment Trusts (``REITs'') listed on Nasdaq.
    The text of the proposed rule change is set forth below. Proposed
new language is in italics; deleted text is in brackets.
* * * * *
IM-5910-1. All-Inclusive Annual Listing Fee

    (a)-(c) No change.
    (d) The All-Inclusive Annual Listing Fee will be calculated on
total shares outstanding according to the following schedules:
    (1) All domestic and foreign Companies listing equity securities,
except as described below:

Up to 10 million shares $45,000
10+ to 50 million shares $55,000
50+ to 75 million shares $75,000
75+ to 100 million shares $100,000
100+ to 125 million shares $125,000
125+ to 150 million shares $135,000
Over 150 million shares $155,000

    Real Estate Investment Trusts (REITs) are subject to the same fee
schedule as other equity securities. For the purpose of determining the
total shares outstanding, shares outstanding of all members in a REIT
Family listed on the Nasdaq Global Market may be aggregated. The
maximum annual fee applicable to such a REIT Family shall not exceed
$155,000. For purposes of this rule, a ``REIT Family'' means three or
more REITs that are provided management services by the same entity or
by entities under common control.
    (2)-(3) No change.
    (e) No change.
* * * * *
IM-5920-1. All-Inclusive Annual Listing Fee
    (a)-(c) No change.
    (d) The All-Inclusive Annual Listing Fee will be calculated on
total shares outstanding according to the following schedules:
    (1) All domestic and foreign Companies listing equity securities,
except as described below:

Up to 10 million shares $42,000
10+ to 50 million shares $55,000
Over 50 million shares $75,000

    Real Estate Investment Trusts (REITs) are subject to the same fee
schedule as other equity securities. For the purpose of determining the
total shares outstanding, shares outstanding of all members in a REIT
Family listed on the Nasdaq Capital Market may be aggregated. The
maximum annual fee applicable to such a REIT Family shall not exceed
$75,000. For purposes of this rule, a ``REIT Family'' means three or
more REITs that are provided management services by the same entity or
by entities under common control.
    (2)-(3) No change.
    (e) No change.
* * * * *

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

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

the most significant aspects of such statements.

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

1. Purpose
    Nasdaq proposes to allow three or more REITs that are provided
management services by the same entity or by entities under common
control (a ``REIT Family'') to aggregate the shares outstanding of such
REITs for the purpose of determining the annual fee payable to Nasdaq,
thus lowering the fees paid by the REIT Family.\3\
---------------------------------------------------------------------------

    \3\ REITs currently pay the same annual fees that apply to other
equity securities.
---------------------------------------------------------------------------

    Some publicly traded REITs have their operations externally managed
by another entity pursuant to a management agreement. In such cases,
the REIT itself does not have any employees. Rather, the external
manager is entirely responsible for managing and staffing the
operations of the company, in return for management fees. In a limited
number of cases, a single entity or affiliated entities externally
manage three or more REITs, thus forming a REIT Family.
    As an incentive for all of the REITs in such a group to list on
Nasdaq, Nasdaq proposes to allow three or more REITs under common
management to aggregate the shares outstanding of such REITs for the
purpose of determining the annual fee payable to Nasdaq.\4\ Nasdaq
believes that this will be attractive to management companies that
externally manage multiple REITs as it will reduce the REITs' expenses
and, therefore, increase the REITs' earnings available to shareholders.
---------------------------------------------------------------------------

    \4\ For example, three REITs in a REIT Family, each having 55
million total shares outstanding, listed on the Nasdaq Global
Market, would be charged $75,000 each under the current All-
Inclusive Annual Listing Fee schedule for a total of $225,000. Under
the proposed rule such REITs would be charged $155,000 in total, as
one entity with 165 million total shares outstanding.
---------------------------------------------------------------------------

    Nasdaq already allows the sponsor of a family of closed-end funds
to aggregate the funds' shares outstanding in a similar manner.\5\
REITs are similar to closed-end funds in that they receive special tax
treatment if they distribute most of their income each year. As a
result, like closed-end funds, REITs are judged by investors, in large
part, based upon the yield that they provide and REITs are therefore
extremely fee sensitive.
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 52277 (August 17,
2005), 70 FR 49347 (August 23, 2005) (SR-NASD-2005-96).
---------------------------------------------------------------------------

    The Exchange expects that the proposed fee change will incentivize
external managers to encourage the boards of their managed REITs to
avail themselves of the potential reduction in the annual fee and that
it will therefore motivate eligible REITs to remain listed on Nasdaq or
to transfer their listing to the Nasdaq.
    The proposed REIT fee structure would apply to both the Nasdaq
Global Market and the Nasdaq Capital Market.\6\ REITs listed on the
Nasdaq Global Market that are part of a REIT Family will be permitted
to aggregate the shares outstanding of such REITs for the purpose of
determining the annual fee, and such aggregated shares outstanding will
be subject to the same fee schedule as a single REIT listed on the
Nasdaq Global Market.
---------------------------------------------------------------------------

    \6\ Listing Rule 5910 provides that fee schedules for the Nasdaq
Global Select Market are the same as fee schedules for the Nasdaq
Global Market.
---------------------------------------------------------------------------

    Similarly, REITs listed on the Nasdaq Capital Market that are part
of a REIT Family will be permitted to aggregate the shares outstanding
of such REITs for the purpose of determining the annual fee, and such
aggregated shares outstanding will be subject to the same fee schedule
as a single REIT listed on the Nasdaq Capital Market.
    The proposed amendment will affect only the All-Inclusive Annual
Listing Fee schedule. In 2014, Nasdaq adopted a new All-Inclusive
Annual Listing Fee schedule and this new fee structure currently
applies to all newly listing companies and will become operative for
all listed companies in 2018.\7\ On June 10, 2016, Nasdaq filed a
proposed rule change with the Commission to allow currently listed
companies that are not on the All-Inclusive Annual Listing Fee schedule
to opt-in for 2017.\8\ This will allow any currently listed REIT Family
that would like to take advantage of this fee change to do so for their
next annual fee.
---------------------------------------------------------------------------

    \7\ Securities Exchange Act Release No. 73647 (November 19,
2014), 79 FR 70232 (November 25, 2014) (SR-NASDAQ-2014-87).
    \8\ SR-NASDAQ-2016-085.
---------------------------------------------------------------------------

2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\9\ in general, and furthers the objectives of Sections
6(b)(4) and 6(b)(5) of the Act,\10\ in particular, in that it provides
for the equitable allocation of reasonable dues, fees, and other
charges among members and issuers and other persons using any facility
or system which the Exchange operates or controls, and is not designed
to permit unfair discrimination between customers, issuers, brokers, or
dealers.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(4) and (5).
---------------------------------------------------------------------------

    As a preliminary matter, Nasdaq competes for listings with other
national securities exchanges and companies can easily choose to list
on, or transfer to, those alternative venues. As a result, the fees
Nasdaq can charge listed companies are constrained by the fees charged
by its competitors and Nasdaq cannot charge prices in a manner that
would be unreasonable, inequitable, or unfairly discriminatory.
    Nasdaq believes that the proposed fee change allowing a REIT Family
to aggregate shares, and pay a lower fee, is reasonable and not
unfairly discriminatory because there is a reasonable justification for
charging a REIT Family different fees from those charged to other
issuers of equity securities.
    In particular, REITs are similar to closed-end funds in that they
receive special tax treatment if they distribute most of their income
each year. As a result, like closed-end funds, REITs are judged by
investors, in large part, based upon the yield that they provide and
are therefore extremely fee sensitive. For these reasons, it is not
unfairly discriminatory to afford a REIT Family a similar fee benefit
as afforded to a family of closed-end funds, even if such treatment
differs from the treatment of operating companies.
    In addition, Nasdaq notes that a substantial portion of the
regulatory cost it incurs in connection with the continued listing of
an issuer relates to the review by Nasdaq staff of the issuer's
compliance with Nasdaq's corporate governance requirements. Because the
REITs in a REIT Family are provided management services by the same
entity or by entities under common control, established rapport between
REIT managers and Nasdaq staff allows Nasdaq to more efficiently
monitor all members of a REIT Family.
    Nasdaq believes that allowing aggregation of shares outstanding for
three or more REITs, rather than two or more REITs, managed by the same
entity or entities under common control is not unfairly discriminatory.
First, the benefits to Nasdaq described above are more pronounced when
there are three or more REITs in the family. In addition, if
aggregation is allowed for two REITs, it would lead to additional loss
of revenue to Nasdaq. Finally, the proposed fee change is a competitive
response to the discount allowed by NYSE, which is also available only
to families of three or more REITs.\11\
---------------------------------------------------------------------------

    \11\ In 2007, the New York Stock Exchange (``NYSE'') adopted a
rule that provides for a discount in annual fees for three or more
REITs sharing a common external manager. Securities Exchange Act
Release No. 57061 (December 28, 2007), 73 FR 0902 (January 4, 2008)
(SR-NYSE-2007-113). In an order approving the NYSE's discount the
Commission found that ``it is reasonable for the Exchange to balance
its need to remain competitive, while at the same time ensuring
adequate revenue to meet is regulatory responsibilities.'' The
Commission further found that the NYSE's proposed discount ``does
not constitute an inequitable allocation of reasonable dues, fees,
and other charges, does not permit unfair discrimination between
issuers, and is generally consistent with the Act.'' See Securities
Exchange Act Release No. 57291 (February 7, 2008), 73 FR 8387
(February 13, 2008) (approving SR-NYSE-2007-113).

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

    Nasdaq also notes that no other company will be required to pay
higher fees as a result of the proposed amendments. Therefore, Nasdaq
believes that allowing a REIT Family to aggregate the shares
outstanding of all REITs that are part of the REIT Family is reasonable
and not inequitable or unfairly discriminatory.
    Finally, Nasdaq believes that the proposed fees are consistent with
the investor protection objectives of Section 6(b)(5) of the Act \12\
in that they are designed to promote just and equitable principles of
trade, to remove impediments to a free and open market and national
market system, and in general to protect investors and the public
interest.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the amount of revenue forgone by allowing REIT
Families to aggregate shares outstanding when calculating fees is not
substantial, and the reduced fees may result in more REITs listing on
Nasdaq, thereby increasing the resources available for Nasdaq's listing
compliance program, which helps to assure that listing standards are
properly enforced and investors are protected.
    Consequently, Nasdaq believes that the potential loss of revenue
from the aggregation of shares outstanding in a REIT Family, as
proposed, will not hinder its ability to fulfill its regulatory
responsibilities.

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

    Nasdaq does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended. The market for
listing services is extremely competitive and listed companies may
freely choose alternative venues based on the aggregate fees assessed
and the value provided by each listing. This rule proposal does not
burden competition with other listing venues, which are similarly free
to set their fees.\13\ For these reasons, Nasdaq does not believe that
the proposed rule change will result in any burden on competition for
listings.
---------------------------------------------------------------------------

    \13\ See footnote 11 above.
---------------------------------------------------------------------------

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

    No written comments were either solicited or received.

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

    Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, the proposed rule
change has become effective pursuant to Section 19(b)(3)(A) of the Act
\14\ and Rule 19b-4(f)(6) thereunder.\15\
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intention to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    A proposed rule change filed under Rule 19b-4(f)(6) normally does
not become operative for 30 days from the date of filing. However, Rule
19b-4(f)(6)(iii) \16\ permits the Commission to designate a shorter
time if such action is consistent with the protection of investors and
the public interest. The Exchange has asked the Commission to waive the
30-day operative delay so that REITs have an incentive to list on the
Exchange sooner, which additional time the Exchange states will help to
prevent potential disruptions to listing REITs that are part of a REIT
Family and thereby enhance competition. Based on the foregoing, the
Commission believes that waiving the 30-day operative delay is
consistent with the protection of investors and the public interest for
the same reasons stated by the Exchange.\17\ The Commission hereby
waives the 30-day operative delay and designates the proposed rule
change to be operative upon filing with the Commission. At any time
within 60 days of the filing of the proposed rule change, the
Commission summarily may temporarily suspend such rule change if it
appears to the Commission that such action is necessary or appropriate
in the public interest, for the protection of investors, or otherwise
in furtherance of the purposes of the Act.
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    \16\ 17 CFR 240.19b-4(f)(6)(iii).
    \17\ For purposes only of waiving the 30-day operative delay,
the Commission has also considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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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-NASDAQ-2016-088 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-NASDAQ-2016-088. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filing 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-NASDAQ-2016-088 and should
be submitted on or before July 22, 2016.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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    \18\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-15714 Filed 6-30-16; 8:45 am]
 BILLING CODE 8011-01-P


MEMORANDUM

TO:	Dockets for rulemaking, "Printing, Coating and Dyeing of Fabrics and Other Textiles (Subpart OOOO)" (EPA-HQ-OAR-2017-0668)
DATE:		December 4, 2018
SUBJECT:	Economic Impact and Small Business Screening Assessments for Amendments to the National Emission Standards for Hazardous Air Pollutants for the Printing, Coating and Dyeing of Fabrics and Other Textiles (Subpart OOOO)

Introduction

This document summarizes economic impact and small business screening assessments for the amendments to the National Emission Standards for Hazardous Air Pollutants for the Coating and Dyeing of Fabrics and Other Textiles (40 CFR part 63, Subpart OOOO) based on the residual risk and technology review. The costs estimated for the amendments to subpart OOOO are associated with performance testing once every five years for 13 facilities, as well as costs associated with familiarization with the rule requirements and changes to the Startup, Shutdown, and Malfunction (SSM) requirements for all 43 affected entities. A discussion of the regulatory options evaluated and their detailed cost estimates is provided in the November 28, 2018, technical memorandum entitled "Updated Costs/Impacts of the Proposed 40 CFR Part 63 Subparts NNNN, OOOO and RRRR Monitoring Review Revisions," available in the docket.

Costs of the Amendments

This rule will require periodic air emissions testing to measure organic HAP destruction or removal efficiency at the inlet and outlet of the add-on control device, or control device outlet concentration of organic HAP, once every five years for existing and new surface coating affected sources using the emission rate with add-on controls compliance option. Currently, there are 21 facilities that use add-on control devices for fabric coating operations, and eight of these are already required to perform testing as part of renewing their 40 CFR part 70 operating permit.

This rule will also require that the emission standards be met at all times, including during startup, shutdown, and malfunction, and will require the use of the electronic reporting tool for annual reports, performance testing, and notifications. The burden associated with these requirements is the recordkeeping requirement for startup, shutdown, and malfunction, and the requirement that facilities use the electronic reporting tool. While the electronic reporting requirements are expected to be no more burdensome than the current reporting requirements, there are some costs associated with re-evaluating previously developed SSM record systems in year one.

The costs for each year in the time period of analysis are presented in the table below. A seven-year time period was chosen for this analysis because it is assumed that facilities must become familiarized and comply with the regulation, and testing is required every five years. The costs in 2019 are related to familiarization with the rule requirements and changes to the SSM requirements, while the costs reported in 2021 are those related to performing the emissions test and reporting the results. The 2018 equivalent annualized value (in 2016$) of the costs over the seven-year time period range is $72,000 assuming a three percent discount rate and $75,000 assuming a seven percent discount rate.

Table 1. National Cost of Amendments (2016$)

                              Undiscounted Costs
                          Total 2018 Discounted Value
                                     Year
                                     Labor
                                 Testing Costs
                                     Total
                                      3%
                                      7%
                                     2019
                                    $90,000
                                      $0
                                    $90,000
                                    $87,000
                                    $84,000
                                     2020
                                      $0
                                      $0
                                      $0
                                      $0
                                      $0
                                     2021
                                    $60,000
                                   $330,000
                                   $390,000
                                   $360,000
                                   $320,000
                                     2022
                                      $0
                                      $0
                                      $0
                                      $0
                                      $0
                                     2023
                                      $0
                                      $0
                                      $0
                                      $0
                                      $0
                                     2024
                                      $0
                                      $0
                                      $0
                                      $0
                                      $0
                                     2025
                                      $0
                                      $0
                                      $0
                                      $0
                                      $0
                                 Present Value
                                      --
                                      --
                                      --
                                   $450,000
                                   $400,000
                          Equivalent Annualized Value
                                      --
                                      --
                                      --
                                    $72,000
                                    $75,000
Note: Values rounded to two significant digits.

Economic Impacts

Economic impact analyses focus on changes in market prices and output levels. If changes in market prices and output levels in the primary markets are significant enough, impacts on other markets may also be examined. Both the magnitude of costs needed to comply with a rule and the distribution of these costs among affected facilities can have a role in determining how the market will change in response to a rule.

For the purpose of analyzing the impact on firms, performance testing costs were treated as capital costs because facilities are expected to contract with a testing company to perform the testing. The testing costs were annualized at a 5.25 percent interest rate over the 5-year testing period, under the assumption that facilities would obtain a 5-year loan to finance the testing. Some facilities only face costs associated with familiarization with the rule requirements and changes to the SSM requirements, while other facilities face additional costs associated with conducting emissions tests and reporting the results. To assess the maximum potential impact, the largest cost expected to be experienced in any one year is compared to the total sales for the ultimate owner of the affected facilities to estimate the total burden for each facility. The total costs associated with Subpart OOOO's proposed requirements range from 0.00002 to 0.42 percent of annual sales revenue per affected entity. These costs are not expected to result in a significant market impact, regardless of whether they are passed on to the purchaser or absorbed by the firms.

The EPA prepared a small business screening assessment to determine if any of the identified affected entities are small entities, as defined by the U.S. Small Business Administration (SBA). The affected facilities that perform coating and dyeing of fabrics and other textiles fall into one of the following North American Industry Classification System (NAICS) codes, where the associated SBA small entity size threshold appears in parentheses: 313110, Fiber, Yarn, and Thread Mills (1,250 or fewer employees); 313210, Broadwoven Fabric Mills (1,000 or fewer employees); 313310, Textile and Fabric Finishing Mills (1,000 or fewer employees); 313320, Fabric Coating Mills	(1,000 or fewer employees); 314110, Carpet and Rug Mills (1,500 or fewer employees); 314999, All Other Miscellaneous Textile Product Mills (500 or fewer employees); 322220, Paper Bag and Coated and Treated Paper Manufacturing (750 or fewer employees); 323111, Commercial Printing (except Screen and Books) (500 or fewer employees); 325211, Plastics Material and Resin Manufacturing	(1,250 or fewer employees); 326130, Laminated Plastics Plate, Sheet (except Packaging), and Shape Manufacturing (500 or fewer employees); 326220, Rubber and Plastics Hoses and Belting Manufacturing (750 or fewer employees); 326299, All Other Rubber Product Manufacturing (500 or fewer employees); 334290, Other Communications Equipment Manufacturing (750 or fewer employees); 334418, Printed Circuit Assembly (Electronic Assembly) Manufacturing (750 or fewer employees); 335932, Noncurrent‑Carrying Wiring Device Manufacturing (1,000 or fewer employees); 336390, Other Motor Vehicle Parts Manufacturing (1,000 or fewer employees); or 336992, Military Armored Vehicle, Tank and Tank Component Manufacturing (1,500 or fewer employees).
Eighteen of the potentially affected entities are small entities. However, the annualized costs associated with Subpart OOOO's requirements for these 18 affected small entities range from 0.00112 to 0.42 percent of annual sales revenues per affected entity. Therefore, there are no significant economic impacts on a substantial number of small entities (SISNOSE) from these amendments.


[Federal Register Volume 85, Number 129 (Monday, July 6, 2020)]
[Notices]
[Pages 40356-40358]
[FR Doc No: 2020-14371]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89184]

Order Under Section 17(h)(4) of the Securities Exchange Act of
1934 Granting Exemption from Rule 17h-1T and Rule 17h-2T for Certain
Broker-Dealers Maintaining Capital, Including Subordinated Debt of
Greater Than $20 Million But Less Than $50 Million

June 29, 2020.

I. Introduction

    Section 17(h) was added to the Securities Exchange Act of 1934
(``Exchange Act'') to address the concern that financial problems of a
broker-dealer's affiliate could cause the broker-dealer to fail or
experience significant financial difficulties.\1\ The Securities and
Exchange Commission (``Commission'') adopted Rules 17h-1T and 17h-2T
under Section 17(h) of the Exchange Act.\2\ As discussed below, these
rules contain provisions that exempt certain broker-dealers from the
requirements of the rules. This order exempts from the requirements of
the rules broker-dealers that do not hold funds or securities for, or
owe money or securities to, customers and do not carry customer
accounts, or that are exempt from Rule 15c3-3 pursuant to paragraph
(k)(2) of that rule, and that maintain total assets of less than $1
billion and capital, including debt subordinated in

accordance with appendix D of Rule 15c3-1 under the Exchange Act
(``Rule 15c3-1d''), of less than $50 million.\3\
---------------------------------------------------------------------------

    \1\ See Final Temporary Risk Assessment Rules, Exchange Act
Release No. 30929 (July 16, 1992), 57 FR 32159 (July 21, 1992).
    \2\ See 15 U.S.C. 78q(h) (``Section 17h of the Exchange Act'');
17 CFR 240.17h-1T (``Rule 17h-1T''); 17 CFR 240.17h-2T (``Rule 17h-
2T'').
    \3\ For the purposes of the exemptions in Rule 17h-1T and Rule
17h-2T and this order, capital must be calculated pursuant to
paragraph (d)(3) of Rule 17h-1T and paragraph (b)(3) of Rule 17h-2T.
---------------------------------------------------------------------------

    Rule 17h-1T requires a broker-dealer that is not exempt under
paragraph (d) of the Rule to maintain and preserve certain records,
including: (1) An organizational chart that includes the broker-dealer
and its affiliates; (2) policies, procedures, or systems concerning
methods for monitoring and controlling financial and operational risks
to the broker-dealer resulting from the activities of its affiliates;
(3) a description of material pending legal and arbitration proceedings
involving the broker-dealer or its affiliates; (4) consolidating and
consolidated financial statements; and (5) the broker-dealer's
securities and commodities position records. Rule 17h-2T requires a
broker-dealer that is not exempt under paragraph (b) of the Rule to
file Form 17-H with the Commission on a quarterly basis. The form
elicits information concerning certain of the broker-dealer's
affiliates.\4\ Paragraph (d) of Rule 17h-1T and paragraph (b) of Rule
17h-2T exempt from their respective requirements certain categories of
broker-dealers, as long as the broker-dealers maintain capital of less
than $20 million (``$20 million exemption''). These categories of
broker-dealers include: (1) broker-dealers that are exempt from Rule
15c3-3 pursuant to paragraph (k)(2) of that rule; and (2) broker-
dealers that do not hold funds or securities for customers, owe money
or securities to customers, or carry the accounts of customers.
---------------------------------------------------------------------------

    \4\ See Form 17-H, available at https://www.sec.gov/about/forms/form17-h.pdf.
---------------------------------------------------------------------------

II. Discussion

    Section 17(h)(4) of the Exchange Act provides that the Commission
by rule or order may exempt any person or class of persons, under such
terms and conditions and for such periods as the Commission shall
provide in such rule or order, from the provisions of Section 17(h) of
the Exchange Act, and the rules thereunder. The statute further
provides that, in granting such exemptions, the Commission shall
consider, among other factors:
     Whether information of the type required under section
17(h) of the Exchange Act is available from a supervisory agency (as
defined in section 3401(6)of title 12), a State insurance commission or
similar State agency, the Commodity Futures Trading Commission
(``CFTC''), or a similar foreign regulator;
     The primary business of any associated person;
     The nature and extent of domestic or foreign regulation of
the associated person's activities;
     The nature and extent of the registered person's
securities activities; and
     With respect to the registered person and its associated
persons, on a consolidated basis, the amount and proportion of assets
devoted to, and revenues derived from, activities in the United States
securities markets.
    The Commission has administered the risk assessment program under
Section 17(h) of the Exchange Act for 28 years. Based on this
experience, the Commission believes it is appropriate to raise by order
the threshold for the $20 million exemption to $50 million, provided
the broker-dealer maintains less than $1 billion in total assets.
    In adopting the $20 million exemption (rather than a $5 million
exemption, which was proposed),\5\ the Commission stated that the
number of broker-dealers subject to Rules 17h-1T and 17h-2T would be
reduced without a corresponding trade-off in risk.\6\ Moreover, the
Commission stated that its staff intended to focus its efforts on the
largest 50 to 75 broker-dealers.\7\ Thus, from the outset, the
Commission's risk assessment program under Section 17(h) of the
Exchange Act sought to be risk-based and to focus on larger broker-
dealers. Information filed by broker-dealers on Form X-17A-5 (``FOCUS
Report'') indicates that for the subset of firms subject to Rules 17h-
1T and 17h-2T, those maintaining $50 million or more in capital
currently account for over 98% of total capital of subject broker-
dealers. Similarly, for all broker-dealers, those maintaining $50
million or more in capital account for nearly 97% of the total capital
of all broker-dealers. Based upon the current record of broker-dealers
subject to Rules 17h-1T and 17h-2T maintained by Commission staff and
information filed by broker-dealers in the FOCUS Reports and other
information known to Commission staff, the Commission believes
exempting certain broker-dealers that maintain total assets of less
than $1 billion and maintain capital of greater than $20 million but
less than $50 million will provide relief to approximately 59 broker-
dealers or approximately 21% of the approximately 275 broker-dealers
currently subject to Rules 17h-1T and 17h-2T.
---------------------------------------------------------------------------

    \5\ See Proposed Temporary Risk Assessment Rules, Exchange Act
Release No. 29635 (Aug. 30, 1991), 56 FR 44016 (Sep. 6, 1991).
    \6\ See Final Temporary Risk Assessment Rules, 57 FR at 32164-
65.
    \7\ See Final Temporary Risk Assessment Rules, 57 FR at 32165.
---------------------------------------------------------------------------

    Exempting certain firms that maintain total assets of less than $1
billion and maintain capital, including subordinated debt, of greater
than $20 million but less than $50 million from Rules 17h-1T and 17h-2T
is intended to reduce the number of broker-dealers subject to the rules
without materially increasing risk, given that firms continuing to be
subject to the rules account for over 98% of the total capital of firms
subject to the rules prior to the issuance of this Order and nearly 97%
of the total capital of all broker-dealers. The Commission is setting
the ceiling for this exemption at $50 million with this goal in mind.
Moreover, limiting the availability of this exemption to firms with
total assets of less than $1 billion will prevent highly leveraged
firms with relatively small levels of capital from availing themselves
of the exemption. A broker-dealer with a high level of leverage and a
small level of capital can pose heightened risks because it has less
capital to absorb losses and, therefore, poses greater credit risk to
its customers, counterparties, and other creditors. Thus, the
Commission's risk assessment program will continue to focus on those
broker-dealers and affiliates that conduct a substantial securities
business and thus are in a position to potentially pose significant
risk to investors and to the orderly, fair, and efficient functioning
of the markets.\8\ Moreover, increasing the exemption to $50 million
will reduce the regulatory burden for a cohort of smaller broker-
dealers that pose less risk to the orderly, fair, and efficient
functioning of the markets relative to broker-dealers that will
continue to be subject to the rules.
---------------------------------------------------------------------------

    \8\ Many of the largest broker-dealers, which use alternative
methods of computing their net capital under Appendix E of Rule
15c3-1, are exempt from Rules 17h-1T and 17h-2T but are subject to
heightened monitoring as part of the Commission's Risk Supervised
Broker-Dealer Program. See 17 CFR 17h-1T(d)(4) and 17 CFR 17h-
2T(b)(4). See also 17 CFR 240.15c3-1e.
---------------------------------------------------------------------------

    In considering this Order, the Commission focused on the fourth
factor in Section 17(h)(4) of the Exchange Act (i.e., the nature and
extent of the person's securities activities).\9\ Although the other
four factors included

in Section 17(h)(4) of the Exchange Act were considered, the Commission
determined they did not inform the exemption as the exemption does not
alter the type of information required to be reported or preserved,
does not vary in applicability based upon the business activities of or
the extent of regulatory oversight over a broker-dealer's affiliate,
and applies regardless of the extent of a broker-dealer and its
affiliate conducting business in the United States.\10\ More
specifically, the cohort of broker-dealers that will be able to rely on
this exemption maintains total assets of less than $1 billion and
maintains capital, including subordinated debt, of greater than $20
million but less than $50 million, and do not hold funds or securities
for, or owe money or securities to, customers and do not carry customer
accounts, or that are exempt from Rule 15c3-3 pursuant to paragraph
(k)(2) of that rule. These firms are relatively small in size, as
measured by the amount of total assets and by the amount of capital
(including subordinated debt) that they maintain. The Commission
believes these exempted firms--because of their relative size and the
fact that they do not hold customer funds or securities, or owe money
or securities to, customers and do not carry customer accounts, or are
exempt from Rule 15c3-3 pursuant to paragraph (k)(2) of that rule--
present less risk to the financial markets. Consequently, the
objectives of this exemption align most closely with the fourth factor
in Section 17(h)(4) of the Exchange Act (i.e., the nature and extent of
the registered person's securities activities).
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78q(h)(4). Section 17(h)(4) of the Exchange Act
states that the HYPERLINK Commission by HYPERLINK rule or order may
exempt any HYPERLINK person or class of HYPERLINK persons, under
such terms and conditions and for such periods as the HYPERLINK
Commission shall provide in such HYPERLINK rule or order, from the
provisions of this subsection, and the HYPERLINK rules thereunder.
In granting such exemptions, the HYPERLINK Commission shall
consider, among other factors--
    (A) whether information of the type required under this
subsection is available from a supervisory HYPERLINK agency (as
defined in section 3401(6) of title 12), a HYPERLINK State insurance
HYPERLINK commission or similar HYPERLINK State agency, the
Commodity Futures Trading Commission, or a similar foreign
regulator;
    (B) the primary business of any associated HYPERLINK person;
    (C) the nature and extent of domestic or foreign regulation of
the associated HYPERLINK person's activities;
    (D) the nature and extent of the registered HYPERLINK person's
HYPERLINK securities activities; and
    (E) with respect to the registered HYPERLINK person and its
associated HYPERLINK persons, on a consolidated basis, the amount
and proportion of assets devoted to, and revenues derived from,
activities in the United HYPERLINK States securities markets.
    \10\ 15 U.S.C. 78q(h)(4)(A)-(C) & (E).
---------------------------------------------------------------------------

    In light of changes in the financial services industry, including
consolidation among financial services institutions, the Commission
believes that this Order strikes an appropriate balance in terms of
relieving certain broker-dealers--those that maintain total assets of
less than $1 billion and maintain capital, including subordinated debt,
of greater than $20 million but less than $50 million and that do not
hold funds or securities for, or owe money or securities to, customers
and do not carry customer accounts, or that are exempt from Rule 15c3-3
pursuant to paragraph (k)(2) of that rule --from the requirements of
Rules 17h-1T and 17h-2T while continuing to subject to the rules those
broker-dealers that pose greater risk to the financial markets,
investors, and other market participants.

III. Conclusion

    It is hereby ordered pursuant to section 17(h)(4) of the Exchange
Act that any broker-dealer that does not hold funds or securities for,
or owe money or securities to, customers and does not carry the
accounts of or for customers, or that is exempt from Rule 15c3-3
pursuant to paragraph (k)(2) of that rule, is hereby exempt from Rule
17h-1T and Rule 17h-2T, if it maintains total assets of less than $1
billion and capital, including debt subordinated in accordance with
Rule 15c3-1d, of less than $50 million.\11\
---------------------------------------------------------------------------

    \11\ See supra note 3.

    By the Commission.
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14371 Filed 7-2-20; 8:45 am]
BILLING CODE 8011-01-P