CHICAGO STOCK EXCHANGE, INC. MARKET REGULATION DEPARTMENT INFORMATION CIRCULAR

Transcription

1 September 30, 2014 ETF CHICAGO STOCK EXCHANGE, INC. MARKET REGULATION DEPARTMENT INFORMATION CIRCULAR RE: ARK INDUSTRIAL INNOVATION ETF AND ARK WEB X.0 ETF TO BEGIN TRADING ON CHX Pursuant to Information Circular MR 08-16, the Chicago Stock Exchange, Inc. ( CHX or the Exchange ) is issuing this Information Circular to advise that the following securities have been approved for trading on the Exchange as a UTP derivative securities product pursuant to Exchange Article 22, Rule 6: Security Symbol Security: (the Shares ) ARK Industrial Innovation ETF ARKQ ARK Web x.0 ETF ARKW Commencement of Trading: October 1, 2014 Issuer: ARK ETF Trust ( Trust ) Website: Primary Listing Exchange: NYSE Arca Primary Exchange Circular: RB Issuer Registration Statement: and The purpose of this information circular is to outline various rules and policies that will be applicable to trading in this new product pursuant to the Exchange s unlisted trading privileges, as well as to provide certain characteristics and features of the Shares. For a more complete description of the Issuer, the Shares and the underlying market instruments or indexes, visit the Issuer Website, consult the Prospectus available on the Issuer Website, examine the Issuer Registration Statement or review the most current information bulletin issued by the Primary Listing Exchange (which as of the date hereof is set forth above as the Primary Exchange Circular ). The Issuer Website, the Prospectus, the Issuer Registration Statement and the Primary Exchange Circular are hereafter collectively referred to as the Issuer Disclosure Materials. The Primary Exchange Circular cited above contains the following information: Background Information on the Fund The ARK Industrial Innovation ETF ( ARKQ ) is an actively-managed exchange-traded fund that invests under normal circumstances primarily in domestic and foreign equity securities of companies that are relevant to its investment theme of industrial innovation. Companies

2 aligned with the theme of industrial innovation are expected to focus on and benefit from the development of new products or services, technological improvements and advancements in scientific research related to, among other things, disruptive innovation in energy, automation and manufacturing, materials, and transportation. In selecting companies that the Adviser believes are relevant to a particular investment theme, it seeks to identify, using its own internal research and analysis, companies capitalizing on disruptive innovation or that are enabling the further development of a theme in the markets in which they operate. The Adviser s internal research and analysis leverages insights from diverse sources, including external research, to develop and refine its investment themes and identify and take advantage of trends that have ramifications for individual companies or entire industries. The Adviser will use both top down and bottom up approaches to select investments for the Fund. Under normal circumstances, substantially all of ARKQ s assets will be invested in equity securities, including common stocks, partnership interests, business trust shares and other equity investments or ownership interests in business enterprises. ARKQ s investments will include issuers of micro-, small-, medium- and large-capitalizations. ARKQ s investments in foreign equity securities will be in both developed and emerging markets and it intends to use only ADRs when purchasing foreign securities. ARKQ will be concentrated in issuers in groups of industries in the industrials and information technology sectors. ARK Web x.0 ETF ( ARKW ) is an actively-managed exchange-traded fund that will invest under normal circumstances primarily in domestic and foreign equity securities of companies that are relevant to its investment theme of Web x.0. Companies relevant to this theme are focused on and expected to benefit from shifting the bases of technology infrastructure from hardware and software to the cloud, enabling mobile and local services, such as companies that rely on or benefit from the increased use of shared technology, infrastructure and services. These companies may include mail order houses which generate the entirety of their business through websites and which offer internet-based products and services, such as streaming media or cloud storage in addition to traditional physical goods. These companies may also include ones that develop, use or rely on innovative payment methodologies, big data, the internet of things, and social distribution and media. The types of companies that the Adviser believes are relevant to this theme are those that are focused on shifting the bases of technology infrastructure from hardware and software to the cloud, enabling mobile and local services, among others. The Adviser will use both top down and bottom up approaches to select investments for ARKW. Under normal circumstances, substantially all of ARKW s assets will be invested in equity securities, including common stocks, partnership interests, business trust shares and other equity investments or ownership interests in business enterprises. ARKW s investments will include issuers of micro-, small-, medium- and large-capitalizations. ARKW s investments in foreign equity securities will be in both developed and emerging markets. For more information regarding each Fund s unique investment strategy, please read the Trust s prospectus for the Funds. As described more fully in the Trust s prospectus and Statement of Additional Information ( SAI ), each Fund issues and redeems Shares at net asset value ( NAV ) only in large blocks of shares, respectively, (each block of Shares called a Creation Unit ) or multiples

3 thereof. Each Creation Unit consists of 50,000 shares. As a practical matter, only broker-dealers or large institutional investors with creation and redemption agreements (called Authorized Participants) can purchase or redeem these Creation Units. Except when aggregated in Creation Units, the Shares may not be redeemed with the Fund. Each Fund pays out substantially all of its net earnings to its shareholders as distributions. A Fund typically earns income dividends from stocks and interest from debt securities. These amounts, net of expenses, are typically passed along to Fund shareholders as dividends from net investment income. A Fund realizes capital gains or losses whenever it sells securities. Net capital gains are distributed to shareholders as capital gain distributions. Net investment income, if any, and net capital gains, if any, are typically distributed to shareholders at least annually. Dividends may be declared and paid more frequently to comply with the distribution requirements of the Internal Revenue Code. The Depository Trust Company ( DTC ) will serve as securities depository for the Shares, which may be held only in book-entry form; stock certificates will not be issued. DTC, or its nominee, is the record or registered owner of all outstanding Shares. The NAV per share of the Funds will be determined as of the close of trading (normally, 4:00 p.m. Eastern Time ( ET )) on each day that the New York Stock Exchange ( NYSE ) and NYSE Arca are open for business. A major market data vendor will disseminate the Indicative Optimized Portfolio Value (IOPV) for the Trust throughout the trading day to the Consolidated Tape association. The symbols for the IOPV of the Funds are ARKQ.IV and ARKW.IV. The Registration Statement describes the various fees and expenses for each Fund s Shares. For a more complete description of the Funds, visit Risk Factor Information Interested persons are referred to the Funds Prospectus for a description of risks associated with an investment in the Funds. Risks associated with an investment in the Fund include, but are not limited to: Currency Risk, Emerging Market Securities Risk, Equity Risk, Foreign Securities Risk, Issuer Risk, Large-Capitalization Companies Risk, Management Risk, Market Risk, Market Trading Risk, Micro-Capitalization Companies Risk, New Fund Risk, Non- Diversified Risk, and Small- and Medium-Capitalization Companies Risk. In addition, the market prices of the Shares will fluctuate in accordance with changes in NAV as well as the supply and demand for the Shares. As a result, the Shares may trade at market prices that may differ from their NAV. The NAV of the Shares will fluctuate with changes in the market value of the Fund s holdings. BECAUSE WHAT FOLLOWS IS ONLY A SUMMARY OF THE RELIEF OUTLINED IN THE NO-ACTION LETTER(S) REFERENCED ABOVE, THE EXCHANGE ADVISES INTERESTED PARTIES TO CONSULT THE NO-ACTION LETTER(S) FOR MORE COMPLETE INFORMATION REGARDING THE MATTERS COVERED THEREIN AND THE APPLICABILITY OF THE RELIEF GRANTED IN RESPECT OF TRADING IN THE SHARES. INTERESTED PARTIES SHOULD ALSO CONSULT THEIR PROFESSIONAL ADVISORS. Exchange Rules Applicable to Trading in the Shares

4 The Shares are considered equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. The Shares are also a UTP Derivative Securities as specified in Exchange Article 22, Rule 6, and as such are subject to the additional provisions specific to that Rule. In particular, Participants are reminded of their obligations under the following CHX Rules: Trading Hours The shares will trade during the Exchange s Early Session (6:00 a.m. to 8:30 a.m. CT); the Regular Trading Session (8:30 a.m. to 3:00 p.m. CT) and the Late Trading Session (commences immediately after the Regular Trading Session and ends at 3:15 p.m. CT). Please note that trading in the Shares during the Exchange s various trading sessions may result in additional trading risks which include: (1) lower liquidity which may impact pricing, (2) higher volatility (3) wider spreads and (4) other risks including among other things, the lack of calculation or dissemination of the intra-day indicative value or a similar value. The minimum trading increment is $.01. Customer Dealings Suitability Exchange Article 8, Rule 11 provides that prior to the execution of a transaction recommended to a customer, a Participant shall make reasonable efforts to obtain information concerning: (1) the customer s financial status, (2) the customer s tax status, (3) the customer s investment objectives, and (4) such other information used or considered to be reasonable by such Participant in making recommendations to the customer. Based on this information, the Participant must have reasonable grounds to believe that the recommendation is suitable for such customer. Prospectus Delivery/Product Description Participants are subject to the prospectus delivery requirements under the Securities Act of 1933, unless the new derivative securities product is the subject of an order by the Securities and Exchange Commission exempting the product from certain prospectus delivery requirements under Section 24(d) of the Investment Company Act of 1940 and the product is not otherwise subject to prospectus delivery requirements under the Securities Act of The Exchange shall inform its Participants regarding the application of the provisions of this subparagraph to a particular derivative securities product by means of a Regulatory Information Circular: The Exchange requires that Participants provide to all purchasers of a derivative securities product a written description of the terms and characteristics of those securities, in a form approved by the Exchange or prepared by the open-ended management company issuing such securities, not later than the time a confirmation of the first transaction in such series is delivered to such purchaser. In addition, Participants shall include a written description with any sales material relating to a derivative securities product that is provided to customers or the public. Any other written materials provided by a Participant to customers or the public making specific reference to the derivative securities product as an investment vehicle must include a statement substantially in the following form:

5 "A circular describing the terms and characteristics of [the derivative securities product] has been prepared by the [open-ended management investment company name] and is available from your broker. It is recommended that you obtain and review such circular before purchasing [the derivative securities product]." A Participant carrying an omnibus account for a non-participant is required to inform such non-participant that execution of an order to purchase a derivative securities product for such omnibus account will be deemed to constitute an agreement by the non-participant to make such written description available to its customers on the same terms as are directly applicable to the Participant under this rule. Upon request of a customer, a Participant shall also provide a prospectus for the particular derivative securities product. Upon request of a customer, a Participant shall also provide a prospectus for the particular derivative securities product. Trading Halts Exchange Article 22, Rule 6(a)(iii) provides that, in addition to the Exchange s authority to suspend or halt trading under Article 20, Rule 1(d) (Trading Suspensions or Halts) and Article 20, Rule 2 (Trading Halts Due To Extraordinary Market Volatility), if a temporary interruption occurs in the calculation or wide dissemination of the intraday indicative value (or similar value) or the value of the underlying index or instrument and the listing market halts trading in the product, the Exchange, upon notification by the listing market of such halt due to such temporary interruption, also shall immediately halt trading in that product on the Exchange. The Shares will be traded following a trading halt in accordance with Interpretations and Policies.02 of Exchange Article 20, Rule 1. In addition, for a UTP Derivative Securities product where a net asset value is disseminated, if the primary listing exchange notifies the Exchange that the net asset value is not being disseminated to all market participants at the same time, the Exchange will immediately halt trading in such security. The Exchange may resume trading in the UTP Derivative Security only when the net asset value is disseminated to all market participants at the same time or trading in the UTP Derivative Security resumes on the listing market. THIS INFORMATION CIRCULAR IS NOT A STATUTORY PROSPECTUS. MEMBERS AND MEMBER ORGANIZATIONS SHOULD CONSULT THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION FOR ALL RELEVANT INFORMATION RELATING TO SHARES OF THE FUND. * * * * Inquiries regarding this Information Memo should be directed to Peter D. Santori, Executive Vice President and Chief Regulatory Officer, at (312)