Voglio sapere a riguardo di…

Federal Register / Vol. 86, No. 43 / Monday, March 8, 2021 / Notices
jbell on DSKJLSW7X2PROD with NOTICES

6c11c, together with the existing creation and redemption process, serve to mitigate the risks of manipulation and lack of liquidity that the Beneficial Holders Rule was intended to address.13
The Exchange also asserts that requiring at least one creation unit to be outstanding at all times, together with the enhanced disclosure requirements of Rule 6c11 under the 1940 Act, will facilitate an effective arbitrage mechanism that, with respect to Investment Company Units, Managed Fund Shares, and Exchange-Traded Fund Shares, will provide investors with sufficient transparency into the holdings of the underlying portfolio and help ensure that the trading price in the secondary market remains in line with the net asset value-per-share of a funds portfolio. In support of this assertion, the Exchange cites to Rule 6c 11c1vi under the 1940 Act, which requires additional disclosures if the premium or discount with respect to a funds trading price in the secondary market and the net asset value-per-share of a funds portfolio is in excess of 2%
for more than seven consecutive days.
NYSE Arca asserts that such enhanced disclosure would provide transparency to investors in the event there are indications of an inefficient arbitrage mechanism. With respect to Managed Portfolio Shares, while these securities do not publicly disclose their portfolio holdings daily and are not eligible to rely on Rule 6c11 under the 1940 Act, the Exchange argues that the applicable Verified Intraday Indicative Value and other information required to be disseminated in connection with the listing and trading of Managed Portfolio Shares ensures transparency of key values and information, and that such information is sufficient to support an effective arbitrage process, independent of any Beneficial Holders Rule.
The Exchange states that the arbitrage mechanism generally causes the market price and the net asset value-per-share to align, and the functioning of the arbitrage mechanism helps to ensure that the trading price in the secondary market is at fair value. The Exchange further states that the existence of the creation and redemption process, as well as the proposed requirement that at 13 The portfolio holdings underlying Managed Portfolio Shares must be disclosed within at least 60 days following the end of every fiscal quarter.
See NYSE Arca Rule 8.900Ec1.d. As a result, the requirements of Rule 6c11 upon which the Exchange relies to mitigate manipulation risk and illiquidity do not apply to Managed Portfolio Shares. See Investment Company Act Release No.
33646 September 25, 2019, 84 FR 57162, 57163
October 24, 2019 Because these non-transparent ETFs do not provide daily portfolio transparency, they would not meet the conditions of rule 6c11.

VerDate Sep<11>2014

19:05 Mar 05, 2021

Jkt 253001

least one creation unit is always outstanding, would ensure that market participants are able to redeem Fund Shares and, thereby, allow the arbitrage mechanism to function properly. The Exchange concludes, therefore, that such arbitrage mechanism would obviate the need for a Beneficial Holders Rule to support a fair and orderly market in Fund Shares. In addition, the Exchange contends that its surveillance procedures for Fund Shares and its ability to halt trading in Fund Shares in specified circumstances provide for additional investor protections by further mitigating any abnormal trading that would affect the Fund Shares prices.
The Commission received one comment in support of the proposal.14
The commenter states that the Beneficial Holders Rule does not appear to provide any meaningful investor-protection benefits. 15
Specifically, the commenter expresses the view that the liquidity of shares of an exchange-traded fund ETF is primarily a function of the liquidity of the ETFs underlying securities, that the marketplace taps into this liquidity through the creation and redemption and arbitrage processes, and that this mitigates potential price manipulation concerns.16 In addition, the commenter believes that the enhanced disclosure requirements of Rule 6c-11 under the 1940 Act,17 including those relating to an ETFs portfolio holdings and when an ETFs premium or discount exceeds 2% for more than seven consecutive days, will help facilitate effective arbitrage. The commenter conducted a survey of its members that sought information on level of assets, number of beneficial holders, and various trading measures of newly-listed ETFs over different periods following initial listing, and concluded that the number of shareholders in an ETF does not appear to be a significant consideration in an ETFs sponsors decision to delist and terminate an ETF and that this requirement does not appear to offer investor protection benefits.18
14 See Letter to Secretary, Commission, from Timothy W. Cameron, Asset Management Group Head, and Lindsey Weber Keljo, Asset Management GroupManaging Director and Associate General Counsel, SIFMA AMG Dec. 18, 2020 SIFMA
Letter.
15 SIFMA Letter, id. at 3.
16 See id.
17 See id. at 34. The commenter also states that the Beneficial Holders Rule puts newer and smaller sponsors at an unnecessary disadvantage to larger sponsors having the enterprise-wide scale and distribution reach to gather assets in the months after launch. See id.
18 See id.

PO 00000

Frm 00137

Fmt 4703

Sfmt 4703

13415

III. Discussion and Commission Findings The Commission must consider whether NYSE Arcas proposal is consistent with Section 6b5 of the Exchange Act, which requires, in relevant part, that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices and to protect investors and the public interest. 19
Under the Commissions Rules of Practice, the burden to demonstrate that a proposed rule change is consistent with the Exchange Act and the rules and regulations issued thereunder . . . is on the self-regulatory organization SRO that proposed the rule change. 20
The description of a proposed rule change, its purpose and operation, its effect, and a legal analysis of its consistency with applicable requirements must all be sufficiently detailed and specific to support an affirmative Commission finding,21 and any failure of an SRO to provide this information may result in the Commission not having a sufficient basis to make an affirmative finding that a proposed rule change is consistent with the Exchange Act and the applicable rules and regulations.22
Moreover, unquestioning reliance on an SROs representations in a proposed rule change is not sufficient to justify Commission approval of a proposed rule change.23
The Commission has consistently recognized the importance of the 19 15 U.S.C. 78fb5. Pursuant to Section 19b2
of the Exchange Act, 15 U.S.C. 78sb2, the Commission must disapprove a proposed rule change filed by a national securities exchange if it does not find that the proposed rule change is consistent with the applicable requirements of the Exchange Act. Exchange Act Section 6b5 states that an exchange shall not be registered as a national securities exchange unless the Commission determines that the rules of the exchange are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest; and are not designed to permit unfair discrimination between customers, issuers, brokers, or dealers, or to regulate by virtue of any authority conferred by this title matters not related to the purposes of this title or the administration of the exchange. 15 U.S.C.
78fb5.
20 Rule 700b3, Commission Rules of Practice, 17 CFR 201.700b3.
21 See id.
22 See id.
23 Susquehanna Intl Group, LLP v. Securities and Exchange Commission, 866 F.3d 442, 447 DC Cir.
2017.

E:FRFM08MRN1.SGM

08MRN1