Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change to Amend NYSE Arca Rule 8.601-E To Adopt Generic Listing Standards for Active Proxy Portfolio Shares

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that, on August 31, 2020, NYSE Arca, Inc. (“NYSE Arca” or “Exchange”) 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 self-regulatory organization. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

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

The Exchange proposes to amend NYSE Arca Rule 8.601-E to adopt generic listing standards for Active Proxy Portfolio Shares. The proposed change is available on the Exchange's website at www.nyse.com,, at the principal office of the Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose

The Exchange proposes to amend NYSE Arca Rule 8.601-E to adopt generic listing standards for Active Proxy Portfolio Shares. Under the Exchange's current rules, a proposed rule change must be filed with the Securities and Exchange Commission (“SEC” or “Commission”) for the listing and trading of each new series of Active Proxy Portfolio Shares. The Exchange believes that it is appropriate to codify certain rules within Rule 8.601-E that would generally eliminate the need for such proposed rule changes, which would create greater efficiency and promote uniform standards in the listing process.

The Commission has previously approved listing and trading on the Exchange of series of Active Proxy Portfolio Shares under NYSE Arca Rule 8.601-E. Currently, six series of Active Proxy Portfolio Shares are listed and traded on the Exchange—the American Century Mid Cap Growth Impact ETF and American Century Sustainable Equity ETF ; and the T. Rowe Price Blue Chip Growth ETF; T. Rowe Price Dividend Growth ETF; T. Rowe Price Growth Stock ETF; and T. Rowe Price Equity Income ETF.

Background

Rule 8.601-E sets forth certain rules related to the listing and trading of Active Proxy Portfolio Shares. Under Rule 8.601-E(c)(1), the term Active Proxy Portfolio Shares means a security that (a) is issued by an investment company registered under the Investment Company Act of 1940 (“1940 Act”) (“Investment Company”) organized as an open-end management investment company that invests in a portfolio of securities selected by the Investment Company's investment adviser consistent with the Investment Company's investment objectives and policies; (b) is issued in a specified minimum number of shares, or multiples thereof, in return for a deposit by the purchaser of the Proxy Portfolio and/or cash with a value equal to the next determined net asset value (“NAV”); (c) when aggregated in the same specified minimum number of Active Proxy Portfolio Shares, or multiples thereof, may be redeemed at a holder's request in return for the Proxy Portfolio and/or cash to the holder by the issuer with a value equal to the next determined NAV; and (d) the portfolio holdings for which are disclosed within at least 60 days following the end of every fiscal quarter.

Rule 8.601-E(c)(2) defines the term “Actual Portfolio” as identities and quantities of the securities and other assets held by the Investment Company that shall form the basis for the Investment Company's calculation of NAV at the end of the business day.

Rule 8.601-E(c)(3) defines the term “Proxy Portfolio” as a specified portfolio of securities, other financial instruments and/or cash designed to track closely the daily performance of the Actual Portfolio of a series of Active Proxy Portfolio Shares as provided in the exemptive relief pursuant to the 1940 Act applicable to such series. The website for each series of Active Proxy Portfolio Shares shall disclose the information regarding the Proxy Portfolio as provided in the exemptive relief pursuant to the 1940 Act applicable to such series, including the following, to the extent applicable:

(i) Ticker symbol;

(ii) CUSIP or other identifier;

(iii) Description of holding;

(iv) Quantity of each security or other asset held; and

(v) Percentage weighting of the holding in the portfolio.

Key Features of Active Proxy Portfolio Shares

While funds issuing Active Proxy Portfolio Shares are actively-managed and, to that extent, are similar, for example, to Managed Fund Shares, which are actively-managed funds listed and traded under NYSE Arca Rule 8.600-E, Active Proxy Portfolio Shares differ from Managed Fund Shares in the following important respects. First, in contrast to Managed Fund Shares and for which a “Disclosed Portfolio” is required to be disseminated at least once daily, the portfolio for an issue of Active Proxy Portfolio Shares is publicly disclosed within at least 60 days following the end of every fiscal quarter in accordance with normal disclosure requirements otherwise applicable to open-end management investment companies registered under the 1940 Act. The composition of the portfolio of an issue of Active Proxy Portfolio Shares is not available at commencement of Exchange listing and trading. Second, in connection with the creation and redemption of Active Proxy Portfolio Shares, such creation or redemption may be exchanged for a Proxy Portfolio with a value equal to the next-determined NAV. A series of Active Proxy Portfolio Shares discloses the Proxy Portfolio on a daily basis, which, as described above, is designed to track closely the daily performance of the Actual Portfolio of a series of Active Proxy Portfolio Shares, instead of the actual holdings of the Investment Company, as provided by a series of Managed Fund Shares.

In addition, Rule 8.601-E(d) currently provides criteria that Active Proxy Portfolio Shares must satisfy for initial and continued listing on the Exchange, including, for example, that a minimum number of Active Proxy Portfolio Shares are required to be outstanding at the time of commencement of trading on the Exchange. However, the current process for listing and trading new series of Active Proxy Portfolio Shares on the Exchange requires that the Exchange submit a proposed rule change with the Commission. In this regard, Commentary .01 to Rule 8.601-E specifies that the Exchange will file separate proposals under Section 19(b) of the Act before listing and trading of shares of a series of Active Proxy Portfolio Shares.

Proposed Changes to Rule 8.601-E

The Exchange proposes to amend Commentary .01 to Rule 8.601-E to specify that the Exchange may approve Active Proxy Portfolio Shares for listing and/or trading (including pursuant to unlisted trading privileges) pursuant to SEC Rule 19b-4(e) under the Act, which pertains to derivative securities products (“SEC Rule 19b-4(e)”). SEC Rule 19b-4(e)(1) provides that the listing and trading of a new derivative securities product by a self-regulatory organization (“SRO”) is not deemed a proposed rule change, pursuant to paragraph (c)(1) of Rule 19b-4, if the Commission has approved, pursuant to section 19(b) of the Act, the SRO's trading rules, procedures and listing standards for the product class that would include the new derivative securities product and the SRO has a surveillance program for the product class. This is the current method pursuant to which “passive” ETFs are listed under NYSE Arca Rule 5.2-E(j)(3), actively-managed ETFs are listed under NYSE Arca Rule 8.600-E, and Exchange-Traded Fund Shares are listed under NYSE Arca Rule 5.2-E(j)(8).

The Exchange would also specify within Commentary .01 to Rule 8.601-E that components of a series of Active Proxy Portfolio Shares listed pursuant to Rule 19b-4(e) shall satisfy the criteria set forth in Rule 8.601-E upon initial listing and on a continual basis. The Exchange will file separate proposals under Section 19(b) of the Act before the listing and trading of a series of Active Proxy Portfolio Shares with components that do not satisfy the criteria set forth in proposed amended Commentary .01 or components other than those specified in amended Commentary .01. For example, if the components of a series of Active Proxy Portfolio Shares included a security or asset that is not specified in proposed amended Commentary .01, the Exchange would file a separate proposed rule change.

Proposed Commentary .01 (a) provides that the Actual Portfolio and Proxy Portfolio for a series of Active Proxy Portfolio Shares shall include only the following:

(1) U.S. exchange-traded securities that are common stocks; preferred stocks; American Depositary Receipts; and real estate investment trusts;

(2) Foreign common stocks that (1) are listed on a foreign exchange that is a member of the Intermarket Surveillance Group or with which the Exchange has in place a comprehensive surveillance sharing agreement; and (2) trade on such foreign exchange contemporaneously with shares of a series of Active Proxy Portfolio Shares in the Exchange's Core Trading Session;

(3) U.S. exchange-traded funds that are listed under the following rules: Investment Company Units (Rule 5.2-E(j)(3)); Exchange-Traded Fund Shares (Rule 5.2-E(j)(8)); Portfolio Depositary Receipts (Rule 8.100-E); Managed Fund Shares (Rule 8.600-E); Active Proxy Portfolio Shares (Rule 8.601-E); and Managed Portfolio Shares (Rule 8.900-E);

(4) Equity Gold Shares (Rule 5.2-E(j)(5))

(5) Index-Linked Securities (Rule 5.2-E(j)(6));

(6) Commodity-Based Trust Shares (Rule 8.201-E);

(7) Currency Trust Shares (Rule 8.202-E);

(8) The following securities, which are required to be organized as commodity pools: Commodity Index Trust Shares (Rule 8.203-E); Commodity Futures Trust Shares (Rule 8.204-E); Trust Units (Rule 8.500-E); and Managed Trust Securities (Rule 8.700-E);

(9) The following securities if organized as commodity pools: Trust Issued Receipts (Rule 8.200-E) and Partnership Units (Rule 8.300-E);

(10) U.S. exchange-traded futures that trade contemporaneously with shares of a series of Active Proxy Portfolio Shares in the Exchange's Core Trading Session; and

(11) Cash and cash equivalents. Cash equivalents are the following: Short-term U.S. Treasury securities, government money market funds, and repurchase agreements.

Proposed Commentary .01(b) provides that a series of Active Proxy Portfolio Shares will not hold short positions in securities and other financial instruments referenced in proposed Commentary .01(a)(1)-(11).

Proposed Commentary .01(c) provides that the securities referenced above in proposed Commentary .01(a)(3)-(9) shall include securities listed on another national securities exchange pursuant to substantially equivalent listing rules.

The securities and financial instruments enumerated in proposed Commentary .01 (a) to Rule 8.601-E are consistent with, and limited to, the “permissible investments” for series of Active Proxy Portfolio Shares previously approved by the Commission for Exchange listing and trading, as described in the Approval Orders. Each such series has filed an application for an order under Section 6(c) of the 1940 Act for exemptions from various provisions of the 1940 Act and rules thereunder, and the Commission has issued orders under the 1940 Act granting the exemptions requested in such applications. Such applications made substantially identical representations specifying the instruments that a series of Active Proxy Portfolio Shares is permitted to hold, and a series of Active Proxy Portfolio Shares would be limited to such holdings on an initial and continued listing basis.

The regulatory staff of the Exchange, or the Financial Industry Regulatory Authority, Inc. (“FINRA”), on behalf of the Exchange, will communicate as needed regarding trading in Active Proxy Portfolio Shares, other exchange-traded equity securities and futures contracts with other markets that are members of the Intermarket Surveillance Group (“ISG”), including U.S. and foreign exchanges on which the components are traded. In addition, the Exchange may obtain information regarding trading in Active Proxy Portfolio Shares from other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the equity securities and futures contracts are traded, or with which the Exchange has in place a comprehensive surveillance sharing agreement.

With respect to the proposed amendment to Commentary .01(a)(11) relating to cash and cash equivalents, the enumerated cash equivalents—short-term U.S. Treasury securities, government money market funds, and repurchase agreements—also are included as cash equivalents for purposes of the generic listing criteria applicable to Managed Fund Shares in Commentary .01(c) to Rule 8.600-E. Such instruments are short-term, highly liquid, and of high credit quality, making them less susceptible than other asset classes both to price manipulation and volatility.

The Exchange believes that the proposed standards would continue to ensure transparency surrounding the listing process for Active Proxy Portfolio Shares. In addition, the Exchange believes that the proposed portfolio standards for listing and trading Active Proxy Portfolio Shares are reasonably designed to promote a fair and orderly market for such Active Proxy Portfolio Shares. These proposed standards would also work in conjunction with the existing initial and continued listing criteria related to surveillance procedures and trading guidelines.

In support of this proposal, the Exchange represents that:

(1) The Active Proxy Portfolio Shares will conform to the initial and continued listing criteria under Rule 8.601-E;

(2) the Exchange's surveillance procedures are adequate to continue to properly monitor the trading of Active Proxy Portfolio Shares in all trading sessions and to deter and detect violations of Exchange rules. Specifically, the Exchange intends to utilize its existing surveillance procedures applicable to derivative products, which will include Active Proxy Portfolio Shares, to monitor trading in the Active Proxy Portfolio Shares;

(3) the issuer of a series of Active Proxy Portfolio Shares will be required to comply with Rule 10A-3 under the Act for the initial and continued listing of Active Proxy Portfolio Shares, as provided under NYSE Arca Rule 5.3-E.

Prior to listing pursuant to proposed amended Commentary .01 to Rule 8.601-E, an issuer would be required to represent to the Exchange that it will notify the Exchange of any failure by a series of Active Proxy Portfolio Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. If a series of Active Proxy Portfolio Shares is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Rule 5.5-E(m).

All Active Proxy Portfolio Shares listed and/or traded pursuant to Rule 8.601-E (including pursuant to unlisted trading privileges) are subject to all Exchange rules and procedures that currently govern the trading of equity securities on the Exchange.

The Exchange notes that the proposed change is not otherwise intended to address any other issues and that the Exchange is not aware of any problems that Equity Trading Permit Holders or issuers would have in complying with the proposed change.

2. Statutory Basis

The Exchange believes that the proposed rule change is consistent with Section 6(b) of the Act, in general, and furthers the objectives of Section 6(b)(5) of the Act, in particular, because it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest.

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 because it would facilitate the listing and trading of additional Active Proxy Portfolio Shares, which would enhance competition among market participants, to the benefit of investors and the marketplace. The Exchange believes that, in view of the Commission's approval of Exchange rules for Active Proxy Portfolio Shares and commencement of Exchange trading of shares of series of Active Proxy Portfolio Shares, it is appropriate to codify certain rules within Rule 8.601-E that would generally eliminate the need for separate proposed rule changes. The Exchange believes that this would facilitate the listing and trading of additional types of Active Proxy Portfolio Shares that have investment portfolios that are similar to investment portfolios for other exchange-traded funds that have been approved for listing and trading, thereby creating greater efficiencies in the listing process for the Exchange and the Commission.

The securities and financial instruments enumerated in proposed Commentary .01 (a)(1)-(11) to Rule 8.601-E are consistent with, and limited to, the “permissible investments” for series of Active Proxy Portfolio Shares previously approved by the Commission for Exchange listing and trading, as described in the Approval Orders. The Exchange notes that all exchange-traded equity securities held by a series of Active Proxy Portfolio Shares would either be listed and traded on a national securities exchange in the United States or, with respect to foreign common stocks, traded on a foreign exchange that is a member of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement. In addition, such foreign common stocks would be required to trade on such foreign exchange contemporaneously with shares of a series of Active Proxy Portfolio Shares in the Exchange's Core Trading Session (as defined in NYSE Arca Rule 7.34-E). Futures contracts held by a series of Active Proxy Portfolio Shares would be traded on a U.S. futures exchange.

With respect to the proposed amendment to Commentary .01(a)(11) relating to cash and cash equivalents, the enumerated cash equivalents—short-term U.S. Treasury securities, government money market funds, and repurchase agreements—also are included as cash equivalents for purposes of the generic listing criteria applicable to Managed Fund Shares in Commentary .01(c) to Rule 8.600-E. Such instruments are short-term, highly liquid, and of high credit quality, making them less susceptible than other asset classes both to price manipulation and volatility.

As noted above, NYSE Arca Rule 8.601-E(c)(3) requires that the website for each series of Active Proxy Portfolio Shares shall disclose the information regarding the Proxy Portfolio as provided in the exemptive relief pursuant to the 1940 Act applicable to such series, including specified information, to the extent applicable.

Quotation and last sale information for U.S. exchange-traded equity securities in the applicable Proxy Portfolio will be available via the Consolidated Tape Association high-speed line or from the exchange on which such securities trade. Price information for foreign common stocks in the applicable Proxy Portfolio will be available from the exchange on which such securities trade or from market data vendors. Intraday pricing information for cash equivalents will be available through subscription services and/or pricing services. Quotation and other market information relating to futures contracts is available from the U.S. futures exchanges listing such instruments as well as from market data vendors.

The proposed rule change is also designed to protect investors and the public interest because Active Proxy Portfolio Shares listed and traded pursuant to Rule 8.601-E, including pursuant to the proposed portfolio standards, would continue to be subject to the full panoply of Exchange rules and procedures that currently govern the trading of equity securities on the Exchange.

The Exchange believes that the proposed standards would continue to ensure transparency surrounding the listing process for Active Proxy Portfolio Shares. In addition, the Exchange believes that the proposed portfolio standards for listing and trading Active Proxy Portfolio Shares are reasonably designed to promote a fair and orderly market for such Active Proxy Portfolio Shares. These proposed standards would also work in conjunction with the existing initial and continued listing criteria related to surveillance procedures and trading guidelines.

The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices because the Active Proxy Portfolio Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in Rule 8.601-E. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in Active Proxy Portfolio Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. FINRA, on behalf of the Exchange, or the regulatory staff of the Exchange, will communicate as needed regarding trading in Active Proxy Portfolio Shares, other exchange-traded equity securities, and futures contracts with other markets that are members of the ISG, including all U.S. and foreign exchanges on which the components are traded. In addition, the Exchange may obtain information regarding trading in Active Proxy Portfolio Shares from other markets that are members of the ISG, including all U.S. securities exchanges and futures exchanges on which the equity securities and futures contracts are traded, or with which the Exchange has in place a comprehensive surveillance sharing agreement.

The Exchange also believes that the proposed rule change would fulfill the intended objective of Rule 19b-4(e) under the Act by allowing Active Proxy Portfolio Shares that satisfy the proposed listing standards to be listed and traded without separate Commission approval. However, as proposed, the Exchange would continue to file separate proposed rule changes before the listing and trading of Active Proxy Portfolio Shares that do not satisfy the additional criteria described above.

Prior to listing pursuant to proposed amended Commentary .01 to Rule 8.601-E, an issuer would be required to represent to the Exchange that it will advise the Exchange of any failure by a series of Active Proxy Portfolio Shares to comply with the continued listing requirements, and, pursuant to its obligations under Section 19(g)(1) of the Act, the Exchange will monitor for compliance with the continued listing requirements. If a series of Active Proxy Portfolio Shares is not in compliance with the applicable listing requirements, the Exchange will commence delisting procedures under NYSE Arca Rule 5.5-E(m).

For these reasons, the Exchange believes that the proposal is consistent with the Act.

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

In accordance with Section 6(b)(8) of the Act, 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. Instead, the Exchange believes that the proposed rule change would facilitate the listing and trading of additional types of Active Proxy Portfolio Shares and result in a significantly more efficient process surrounding the listing and trading of Active Proxy Portfolio Shares, which will enhance competition among market participants, to the benefit of investors and the marketplace. The Exchange believes that this would reduce the time frame for bringing Active Proxy Portfolio Shares to market, thereby reducing the burdens on issuers and other market participants and promoting competition. In turn, the Exchange believes that the proposed change would make the process for listing Active Proxy Portfolio Shares more competitive by applying uniform listing standards with respect to Active Proxy Portfolio Shares.

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 such longer period up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will:

(A) By order approve or disapprove the proposed rule change, or

(B) institute proceedings to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

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

Electronic Comments

• Use the Commission's internet comment form ( http://www.sec.gov/rules/sro.shtml ); or
• Send an email to rule-comments@sec.gov. Please include File Number SR-NYSEArca-2020-77 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2020-77. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission's internet website ( 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 website viewing and printing in the Commission's Public Reference Room, 100 F Street NE, Washington, DC 20549 on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR-NYSEArca-2020-77 and should be submitted on or before October 13, 2020.