Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Accelerated Approval of a Proposed Rule Change To List and Trade Shares of the Grail American Beacon Large Cap Value ETF, 20512-20513 [E9-10116]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 84 (Monday, May 4, 2009)]
[Notices]
[Pages 20512-20513]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-10116]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-59826; File No. SR-NYSEArca-2009-22]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Accelerated Approval of a Proposed Rule Change To List and Trade Shares 
of the Grail American Beacon Large Cap Value ETF

April 28, 2009.
    On March 13, 2009, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange''), 
through its wholly owned subsidiary, NYSE Arca Equities, Inc. (``NYSE 
Arca Equities''), filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the Grail 
American Beacon Large Cap Value ETF (``Fund'') under NYSE Arca Equities 
Rule 8.600. The proposed rule change was published in the Federal 
Register on April 6, 2009.\3\ The Commission received no comments on 
the proposal. This order grants approval to the proposed rule change on 
an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 59651 (March 30, 
2009), 74 FR 15548 (``Notice'').
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I. Description of the Proposal

    The Exchange proposes to list and trade the Shares pursuant to NYSE 
Arca Equities Rule 8.600, which governs the listing of Managed Fund 
Shares.\4\ The Shares will be offered by Grail Advisors ETF Trust 
(``Trust''),\5\ a statutory trust organized under the laws of the State 
of Delaware and registered with the Commission as an open-end 
management investment company. The Exchange states that the Shares will 
conform to the initial and continued listing criteria under NYSE Arca 
Equities Rule 8.600 and that the Fund will be in compliance with Rule 
10A-3 under the Act,\6\ as provided by NYSE Arca Equities Rule 5.3.
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    \4\ See NYSE Arca Equities Rule 8.600.
    \5\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a) (``1940 Act''). On January 14, 2009, the Trust 
filed with the Commission pre-effective amendment 1 to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a), and under the 1940 Act relating to the Fund (File 
Nos. 333-148082 and 811-22154) (``Registration Statement'').
    \6\ 17 CFR 240.10A-3.
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    Grail Advisors, LLC (``Manager''), a majority owned subsidiary of 
Grail Partners, LLC, is the Fund's investment manager, and American 
Beacon Advisors, Inc. (``ABA'') is the Fund's sub-adviser.\7\ The 
Fund's investment objective is long-term capital appreciation and 
current income. It seeks to achieve its investment objective by 
investing at least 80% of its net assets (plus the amount of any 
borrowings for investment purposes) in equity securities of large 
market capitalization U.S. companies. These companies will generally 
have market capitalizations similar to the market capitalizations of 
the companies in the Russell 1000[supreg] Index at the time of 
investment. The Russell 1000[supreg] Index measures the performance of 
the 1,000 largest U.S. companies based on total market capitalization. 
The Fund's investments may include common stocks, preferred stocks, 
securities convertible into U.S. common stocks, U.S. dollar-denominated 
American Depositary Receipts, and U.S. dollar-denominated foreign 
stocks traded on U.S. exchanges. The Fund will not purchase or sell 
securities in markets outside the United States.
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    \7\ The Exchange states that Grail Advisors, LLC is affiliated 
with Grail Securities, LLC, a broker-dealer. As required by 
Commentary .07 to NYSE Arca Equities Rule 8.600, the Exchange 
represents that the Manager has implemented a ``fire wall'' with 
respect to such broker-dealer regarding access to information 
concerning composition and/or changes to the Fund's portfolio. 
Commentary .07 to NYSE Arca Equities Rule 8.600 also requires 
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. In addition, the Exchange represents 
that ABA, the Fund's primary sub-adviser, is not affiliated with a 
broker-dealer and that any additional Fund sub-advisers that are 
affiliated with a broker-dealer will be required to implement a fire 
wall with respect to such broker-dealer regarding access to 
information concerning the composition and/or changes to the 
portfolio.
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    Additional information regarding the Fund, the Shares, the Fund's 
investment objective, strategies, policies, and restrictions, risks, 
fees and expenses, creations and redemptions of Shares, availability of 
information, trading rules and halts, and surveillance procedures, 
among other things, can be found in the Registration Statement and in 
the Notice, as applicable.

II. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \8\ and the rules and regulations thereunder applicable to a 
national securities exchange.\9\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\10\ 
which requires, among other things, that the Exchange's rules be 
designed to promote just and equitable principles of trade, 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.
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    \8\ 15 U.S.C. 78f.
    \9\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \10\ 17 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act, which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via the Consolidated Tape 
Association high-speed line, and the Exchange will disseminate the 
Portfolio Indicative Value (``PIV'') at least every 15 seconds during 
the Core Trading Session. In addition, the Fund will make available on 
its Web site on each business day the Disclosed Portfolio that will 
form the basis for its calculation of the net asset value (``NAV''), 
which will be determined as of the close of the regular trading session 
on the New York Stock Exchange (ordinarily 4 p.m. Eastern Time) on each 
business day. The Fund's Web site will also include additional 
quantitative information updated on a daily basis relating to trading 
volume, prices, and NAV. Information regarding the market price and 
volume of the Shares will be continually available on a real-time basis 
throughout the day via electronic services, and the previous day's 
closing price and trading volume information for the Shares will be 
published daily in the financial sections of newspapers.
    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair

[[Page 20513]]

disclosure of information that may be necessary to price the Shares 
appropriately and to prevent trading when a reasonable degree of 
transparency cannot be assured. The Commission notes that the Exchange 
will obtain a representation from the Fund 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. 
Additionally, if it becomes aware that the NAV or the Disclose 
Portfolio is not disseminated daily to all market participants at the 
same time, the Exchange will halt trading in the Shares until such 
information is available to all market participants. Further, if the 
PIV is not being disseminated as required, the Exchange may halt 
trading during the day in which the disruption occurs; if the 
interruption persists past the day in which it occurred, the Exchange 
will halt trading no later than the beginning of the trading day 
following the interruption.\11\ The Exchange represents that the 
Manager has implemented a ``fire wall'' between it and its broker-
dealer affiliate with respect to access to information concerning the 
composition and/or changes to the Fund's portfolio.\12\ Finally, the 
Commission notes that the Reporting Authority that provides the 
Disclosed Portfolio must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the actual components of the 
portfolio.\13\
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    \11\ Trading in the Shares may also 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 comprising the 
Disclosed Portfolio and/or the financial instruments of the Fund; or 
(2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present.
    \12\ The Exchange also represents that ABA, the Fund's primary 
sub-adviser, is not affiliated with a broker-dealer, and that any 
additional Fund sub-advisers that are affiliated with a broker-
dealer will be required to implement a fire wall with respect to 
such broker-dealer regarding access to information concerning the 
composition and/or changes to the portfolio.
    \13\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    The Exchange has represented that the Shares are equity securities 
subject to the Exchange's rules governing the trading of equity 
securities. In support of this proposal, the Exchange has made 
representations, including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange's surveillance 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.
    (3) 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. 
Specifically, the Information Circular will discuss the following: (a) 
The procedures for purchases and redemptions of Shares and that Shares 
are not individually redeemable; (b) 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; 
(c) the risks involved in trading the Shares during the Opening and 
Late Trading Sessions when an updated PIV will not be calculated or 
publicly disseminated; (d) how information regarding the PIV is 
disseminated; (e) 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 (f) trading information.
    (4) The Fund will be in compliance with Rule 10A-3 under the 
Act.\14\
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    \14\ See supra note 6.
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    (5) The Fund will not purchase or sell securities in markets 
outside the United States.

This approval order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \15\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \15\ 15 U.S.C. 78f(b)(5).
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III. Accelerated Approval

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\16\ for approving the proposal prior to the thirtieth day 
after the date of publication of the Notice in the Federal Register. 
The Commission notes that it has approved the listing and trading on 
the Exchange of shares of other actively managed exchange-traded funds 
based on a portfolio of securities, the characteristics of which are 
similar to those to be invested by the Fund.\17\ The Commission also 
notes that it has received no comments regarding the proposed rule 
change. The Commission finds that the proposed rule change does not 
raise any novel regulatory issues and believes that accelerating 
approval of this proposal should benefit investors by creating, without 
undue delay, additional competition in the market for Managed Fund 
Shares.
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    \16\ 15 U.S.C. 78s(b)(2).
    \17\ See, e.g., Securities Exchange Act Release Nos. 58512 
(September 11, 2008), 73 FR 53915 (September 17, 2008) (SR-NYSEArca-
2008-85) (approving the listing and trading of shares of the 
PowerShares Active U.S. Real Estate Fund); and 57619 (April 4, 
2008), 73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25) (approving 
the listing and trading of shares of the PowerShares Active AlphaQ 
Fund, PowerShares Active Alpha Multi-Cap Fund, and PowerShares 
Active Mega-Cap Portfolio, among other funds).
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IV. Conclusion

    It is therfore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSEArca-2009-22) be, and it 
hereby is, approved on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-10116 Filed 5-1-09; 8:45 am]
BILLING CODE 8010-01-P