Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of a Proposed Rule Change Relating to Listing of the Peritus High Yield ETF, 62905-62909 [2010-25621]

Download as PDF Federal Register / Vol. 75, No. 197 / Wednesday, October 13, 2010 / Notices because those changes will not be implemented until November 1, 2010. Because of the timing of the aforementioned filings, certain of the amendments that were approved pursuant to SR–FINRA–2009–061 must be reconciled with the current rule text, as amended pursuant to SR–FINRA– 2010–003. This proposed rule change makes no material changes to the amendments that were approved pursuant to SR–FINRA–2009–061.7 In addition, SR–FINRA–2009–061 and SR–FINRA–2010–003 proposed identical amendments to Rule 6623, and both filings proposed to amend Rules 7310(j) and 7330(b). FINRA is proposing to retain the version of these provisions as amended by SR–FINRA–2010–003; therefore, this proposed rule change does not reflect any conforming changes to Rules 6623, 7310(j) or 7330(b). Finally, FINRA is proposing in this filing an additional amendment that was not proposed in SR–FINRA–2010–003 or SR–FINRA–2009–061. FINRA is proposing a technical change to the title of the Rule 6620 Series to clarify that the series applies to the reporting of transactions in Restricted Equity Securities as well as OTC Equity Securities. FINRA has filed the proposed rule change for immediate effectiveness. The operative date of the proposed rule change will be November 1, 2010, the date on which SR–FINRA–2009–061 will be implemented. 2. Statutory Basis FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,8 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, and, in general, to protect investors and the public interest. FINRA believes the proposed rule change will provide greater clarity to members and the public regarding FINRA’s rules. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA 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. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor 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, it has become effective pursuant to Section 19(b)(3)(A) of the Act 9 and Rule 19b–4(f)(6) thereunder.10 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. 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 mstockstill on DSKH9S0YB1PROD with NOTICES 7 Specifically, the amendments approved pursuant to SR–FINRA–2009–061 and SR–FINRA– 2010–003 overlap with respect to the rule text itself in Rules 6610, 6622(a)(9) (which is renumbered as Rule 6622(a)(7) by SR–FINRA–2009–061), 7310(g) and 7410(l). In addition, both filings renumbered certain provisions in Rules 6420 and 6622(a). This proposed rule change reflects conforming changes to reconcile the numbering of these provisions. To avoid potential confusion as a result of conflicting numbering, this proposed rule change reflects all of the amendments to Rule 6420 and paragraph (a) of Rule 6622 that were approved pursuant to SR– FINRA–2009–061, irrespective of whether the rule text itself conflicts with the text as amended by SR– FINRA–2010–003. Because these amendments were previously approved by the Commission, FINRA is not re-proposing them in this filing and is including them herein solely for ease of reference. 8 15 U.S.C. 78o–3(b)(6). VerDate Mar<15>2010 17:22 Oct 12, 2010 Jkt 223001 • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–FINRA–2010–051 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–FINRA–2010–051. This file number should be included on the subject line if e-mail 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 (https://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 a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of FINRA. 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 publicly available. All submissions should refer to File Number SR–FINRA–2010–051 and should be submitted on or before November 3, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.11 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–25740 Filed 10–12–10; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63041; File No. SR– NYSEArca–2010–86] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of a Proposed Rule Change Relating to Listing of the Peritus High Yield ETF October 5, 2010. 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 September 23, 2010, NYSE Arca, Inc. (‘‘NYSE Arca’’ or the ‘‘Exchange’’) filed with the Securities 11 17 9 15 U.S.C. 78s(b)(3)(A). 10 17 CFR 240.19b–4(f)(6). PO 00000 Frm 00151 Fmt 4703 Sfmt 4703 62905 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 E:\FR\FM\13OCN1.SGM 13OCN1 62906 Federal Register / Vol. 75, No. 197 / Wednesday, October 13, 2010 / Notices 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. 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’’): Peritus High Yield ETF. The text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and https://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 mstockstill on DSKH9S0YB1PROD with NOTICES 1. Purpose The Exchange proposes to list and trade the following Managed Fund Shares 3 (‘‘Shares’’) under NYSE Arca Equities Rule 8.600: Peritus High Yield ETF (the ‘‘Fund’’).4 The Shares will be 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) (‘‘1940 Act’’) organized as an open-end investment company or similar entity that invests in a portfolio of securities selected by its investment advisor 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 listing and trading on the Exchange of certain actively managed funds under Rule 8.600 that hold debt securities. 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); 61365 (January 15, 2010), 75 FR 4124 (January 26, VerDate Mar<15>2010 17:22 Oct 12, 2010 Jkt 223001 offered by AdvisorShares Trust (the ‘‘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 Peritus High Yield ETF The investment advisor to the Fund is AdvisorShares Investments, LLC (the ‘‘Advisor’’). Peritus I Asset Management, LLC is the Fund’s sub-advisor (‘‘Peritus’’ or the ‘‘Sub-Advisor’’). The Bank of New York Mellon is the administrator, transfer agent and custodian for the Fund. 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 brokerdealer 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 Advisor and Sub-Advisor are not affiliated with a broker-dealer.7 Any 2010) (SR–NYSEArca–2009–114) (order approving listing and trading of Grail McDonnell Fixed Income ETFs); 60981 (November 10, 2009), 74 FR 59594 (November 18, 2009) (SR–NYSEArca–2009– 79) (order approving listing of five fixed income funds of the PIMCO ETF Trust). 5 The Trust is registered under the 1940 Act. On May 11, 2010, the Trust filed with the Commission Post-Effective Amendment No. 6 to Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) relating to the Fund (File Nos. 333–157876 and 811–22110) (the ‘‘Registration Statement’’). The description of the operation of the Trust and the Fund herein is based on the Registration Statement. 6 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ‘‘Advisers Act’’). As a result, the investment adviser is 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 nonpublic information by an investment adviser must be consistent with Rule 204A–1 under the Advisers Act. 7 The Exchange represents that the Advisor and Sub-Advisor, and their respective related personnel, are subject to Investment Advisers Act Rule 204A– 1. This Rule specifically requires the adoption of a code of ethics by an investment adviser to include, at a minimum: (i) Standards of business conduct that reflect the firm’s/personnel fiduciary obligations; (ii) provisions requiring supervised persons to comply with applicable federal securities laws; (iii) provisions that require all access persons to report, and the firm to review, their personal PO 00000 Frm 00152 Fmt 4703 Sfmt 4703 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 a portfolio. According to the Registration Statement, the Fund’s investment objective is high current income with a secondary goal of capital appreciation. The Sub-Advisor seeks to achieve the Fund’s investment objective by selecting a focused portfolio of high yield debt securities, which include senior and subordinated corporate debt obligations (such as bonds, debentures, notes and commercial paper 8). The Fund does not have any portfolio maturity limitation and may invest its assets from time to time primarily in instruments with short-term, medium-term or long-term maturities. In selecting securities for the Fund’s portfolio, Peritus performs its own independent investment analysis of each issuer to determine its creditworthiness. Peritus focuses on the securities transactions and holdings periodically as specifically set forth in Rule 204A–1; (iv) provisions requiring supervised persons to report any violations of the code of ethics promptly to the chief compliance officer (‘‘CCO’’) or, provided the CCO also receives reports of all violations, to other persons designated in the code of ethics; and (v) provisions requiring the investment adviser to provide each of the supervised persons with a copy of the code of ethics with an acknowledgement by said supervised persons. 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. 8 Commercial paper consists of short-term, promissory notes issued by banks, corporations and other entities to finance short-term credit needs. These securities generally are discounted but sometimes may be interest bearing. As of year end 2009, $1.137 trillion commercial paper was outstanding, and, as of May 31, 2010 $1.0548 trillion commercial paper was outstanding The daily average commercial paper market issuance in 2009 was $99.044 billion, with 66% having a maturity of 1–4 days, 7.1% having a maturity of 5– 9 days, 3.8% having a maturity of 10–20 days, 10.4% having a maturity of 21–40 days, 3.6% having a maturity of 41–80 days and 8.6% having a maturity of 81 days or more. For 2010 (as of May 31), the daily average commercial paper market issuance was $92.758 billion, with 67.6% having a maturity of 1–4 days, 7.4% having a maturity of 5– 9 days, 4% having a maturity of 10–20 days, 10.8% having a maturity of 21–40 days, 3.3% having a maturity of 41–80 days and 6.9% having a maturity of 81 days or more. (Source: Federal Reserve). E:\FR\FM\13OCN1.SGM 13OCN1 Federal Register / Vol. 75, No. 197 / Wednesday, October 13, 2010 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES secondary market, predominantly investing in assets at a discount to par ($100), allowing for a potential opportunity to generate capital gains in addition to current yield. According to the Registration Statement, Peritus places limited value on credit ratings and instead focuses on true cash flow while looking to buy credit at prices that it feels provide a margin of safety. Additional factors are considered when constructing the portfolio including, but not limited to, excess cash on the balance sheet and/or a history of producing real free cash flow, as well as a capital structure that can be sustained on conservative forecasts. According to the Registration Statement, Peritus reverse engineers the traditional financial analysis process when reviewing each issuer’s creditworthiness. Each analysis considers the issuer’s Statement of Cash Flows, the Balance Sheet and then the Income Statement, in that order. The investment team looks at a complete appraisal of the business’ intrinsic value, rather than just traditional credit analysis. Through fundamental and valuation analysis, the Sub-Advisor determines whether an investment should be made in a certain company, and where in the capital structure (secured, senior, or subordinate) the risk/return is most attractive. The Fund’s portfolio will typically consist of 40–60 holdings.9 The Fund’s portfolio holdings will be disclosed on its Web site (https:// www.advisorshares.com) daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. According to the Registration Statement, the Fund may invest in debt securities and may seek investment in corporate debt securities representative of one or more high yield bond or credit derivative indices, which may change from time to time. Selection will generally be dependent on independent credit analysis or fundamental analysis performed by the Sub-Advisor.10 The Fund may invest in all grades of corporate securities including below investment grade.11 The Fund will only invest in liquid securities. The Fund 9 The Fund represents that the portfolio will include a minimum of 13 non-affiliated issuers. 10 See e-mail from Tim Malinowski, Senior Director, Exchange, to David Liu, Senior Special Counsel, Edward Cho, Special Counsel, and Andrew Madar, Special Counsel, Commission, dated October 4, 2010. 11 The Fund has represented that it will invest only in U.S.-registered bonds that are listed or traded in the United States. However, certain of the Fund’s debt holdings may be issued by corporations domiciled outside the United States. VerDate Mar<15>2010 17:22 Oct 12, 2010 Jkt 223001 will only purchase performing securities, not distressed debt.12 To a lesser extent, the Fund also may invest in unrated securities. The Fund may invest in the securities of other investment companies to the extent that such an investment would be consistent with the requirements of Section 12(d)(1) of the 1940 Act, or any rule, regulation or order of the SEC. The Fund may make short-term investments in U.S. Government securities and may invest in U.S. Treasury zero-coupon bonds. To respond to adverse market, economic, political or other conditions, the Fund may invest 100% of its total assets, without limitation, in highquality short-term debt securities and money market instruments. The Fund may be invested in these instruments for extended periods, depending on the Sub-Advisor’s assessment of market conditions. These short-term debt securities and money market instruments include shares of other mutual funds, commercial paper, certificates of deposit, bankers’ acceptances, and U.S. Government securities. The Fund is subject to the following investment limitations: Diversification. The Fund may not (i) with respect to 75% of its total assets, purchase securities of any issuer (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities or shares of investment companies) if, as a result, more than 5% of its total assets would be invested in the securities of such issuer; or (ii) acquire more than 10% of the outstanding voting securities of any one issuer. For purposes of this policy, the issuer of a Depository Receipt will be deemed to be the issuer of the respective underlying security.13 Concentration. The Fund may not invest 25% or more of its total assets in the securities of one or more issuers conducting their principal business activities in the same industry or group of industries. The Fund will not invest 25% or more of its total assets in any investment company that so concentrates. This limitation does not apply to investments in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, or shares of investment companies. For purposes of this policy, the issuer of a Depository Receipt will be deemed to be the issuer of the respective underlying security. 12 Distressed debt is debt that is currently in default and is not expected to pay the current coupon. 13 This diversification standard is contained in Section 5(b)(1) of the 1940 Act. PO 00000 Frm 00153 Fmt 4703 Sfmt 4703 62907 The Fund, under normal circumstances, will invest at least 80% of its net assets, plus any borrowings for investment purposes, in high yield debt securities. The Fund intends to maintain the level of diversification necessary to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. 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 14 under the Exchange Act, 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’’) and the Disclosed Portfolio will be made available to all market participants at the same time. The Fund will not invest in non-US issues. Creations and Redemptions of Shares The Trust issues and sells Shares of the Fund only in Creation Units of 50,000 Shares on a continuous basis through the Distributor, at their NAV next determined after receipt, on any Business Day (as defined in the Registration Statement). The consideration for purchase of a Creation Unit of the Fund generally consists of an in-kind deposit of a designated portfolio of securities (the ‘‘Deposit Securities’’) per each Creation Unit constituting securities included in the Fund’s portfolio and an amount of cash (the ‘‘Cash Component’’) computed as described in the Registration Statement. Together, the Deposit Securities and the Cash Component constitute the ‘‘Fund Deposit,’’ which represents the minimum initial and subsequent investment amount for a Creation Unit of the Fund. Creations and redemption of Shares may be effected only by Authorized Participants, as defined in the Registration Statement.15 Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Fund through the Administrator and only on a Business Day. The Trust will not redeem shares in amounts less than Creation Units. Unless cash redemptions are available or specified for the Fund, the 14 17 CFR 240.10A–3. relating to the Trust and the Shares referred to, but not defined, herein are defined in the Registration Statement. 15 Terms E:\FR\FM\13OCN1.SGM 13OCN1 62908 Federal Register / Vol. 75, No. 197 / Wednesday, October 13, 2010 / Notices redemption proceeds for a Creation Unit generally consist of Fund Securities (securities included in the Fund’s portfolio)—as announced by the Administrator on the Business Day of the request for redemption received in proper form—plus cash in an amount equal to the difference between the NAV of the shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities (the ‘‘Cash Redemption Amount’’), less a redemption transaction fee. In the event that the Fund Securities have a value greater than the NAV of the shares, a compensating cash payment equal to the differential is required to be made by or through an Authorized Participant by the redeeming shareholder. mstockstill on DSKH9S0YB1PROD with NOTICES Availability of Information The Fund’s Web site (https:// www.advisorshares.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 Fund’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 midpoint of the bid/ask spread at the time of calculation of such NAV (the ‘‘Bid/ Ask Price’’),16 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 on the Exchange, the Fund will disclose on its 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.17 On a daily basis, the Advisor 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 16 The Bid/Ask Price of the Fund is determined using 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. 17 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. VerDate Mar<15>2010 17:22 Oct 12, 2010 Jkt 223001 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 includes the security names and share quantities 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 New York Stock Exchange (‘‘NYSE’’) via the National Securities Clearing Corporation. 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 4:00 p.m. Eastern Time) on each business 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 https://www.sec.gov. Information regarding market price and trading volume of the Shares is and 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 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 disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session. 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. Additional information regarding the Trust and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, PO 00000 Frm 00154 Fmt 4703 Sfmt 4703 distributions and taxes is included in the Registration Statement. 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.18 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 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. 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. 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. Eastern Time 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 18 See NYSE Arca Equities Rule 7.12, Commentary .04. E:\FR\FM\13OCN1.SGM 13OCN1 Federal Register / Vol. 75, No. 197 / Wednesday, October 13, 2010 / Notices 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 Intermarket Surveillance Group (‘‘ISG’’) from other exchanges that are members of ISG or with which the Exchange has entered into a surveillance sharing agreement.19 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. Eastern Time each trading day. mstockstill on DSKH9S0YB1PROD with NOTICES 2. Statutory Basis The basis under the Exchange Act for this proposed rule change is the 19 For a list of the current members of ISG, see. 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. VerDate Mar<15>2010 17:22 Oct 12, 2010 Jkt 223001 requirement under Section 6(b)(5) 20 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. The Exchange believes that the proposed rule change will facilitate the listing and trading of an additional type of activelymanaged exchange-traded product that will enhance competition among market participants, to the benefit of investors and the marketplace. 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 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: Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, Station Place, 100 F Street, NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSEArca–2010–86. This file number should be included on the subject line if e-mail 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 (https://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 a.m. and 3 p.m. Copies of such 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 publicly available. All submissions should refer to File Number SR– NYSEArca–2010–86 and should be submitted on or before November 3, 2010. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Florence E. Harmon, Deputy Secretary. [FR Doc. 2010–25621 Filed 10–12–10; 8:45 am] BILLING CODE 8011–01–P Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number SR–NYSEArca–2010–86 on the subject line. 20 15 PO 00000 U.S.C. 78f(b)(5). Frm 00155 Fmt 4703 21 17 Sfmt 9990 62909 E:\FR\FM\13OCN1.SGM CFR 200.30–3(a)(12). 13OCN1

Agencies

[Federal Register Volume 75, Number 197 (Wednesday, October 13, 2010)]
[Notices]
[Pages 62905-62909]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-25621]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63041; File No. SR-NYSEArca-2010-86]


 Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of a Proposed Rule Change Relating to Listing of the Peritus High Yield 
ETF

October 5, 2010.
    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 September 23, 2010, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities

[[Page 62906]]

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''): Peritus High Yield 
ETF. The text of the proposed rule change is available at the Exchange, 
the Commission's Public Reference Room, and https://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: Peritus 
High Yield ETF (the ``Fund'').\4\ The Shares will be offered by 
AdvisorShares Trust (the ``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) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment advisor 
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 listing and trading 
on the Exchange of certain actively managed funds under Rule 8.600 
that hold debt securities. 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); 61365 
(January 15, 2010), 75 FR 4124 (January 26, 2010) (SR-NYSEArca-2009-
114) (order approving listing and trading of Grail McDonnell Fixed 
Income ETFs); 60981 (November 10, 2009), 74 FR 59594 (November 18, 
2009) (SR-NYSEArca-2009-79) (order approving listing of five fixed 
income funds of the PIMCO ETF Trust).
    \5\ The Trust is registered under the 1940 Act. On May 11, 2010, 
the Trust filed with the Commission Post-Effective Amendment No. 6 
to Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) 
relating to the Fund (File Nos. 333-157876 and 811-22110) (the 
``Registration Statement''). The description of the operation of the 
Trust and the Fund herein is based on the Registration Statement.
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Peritus High Yield ETF
    The investment advisor to the Fund is AdvisorShares Investments, 
LLC (the ``Advisor''). Peritus I Asset Management, LLC is the Fund's 
sub-advisor (``Peritus'' or the ``Sub-Advisor''). The Bank of New York 
Mellon is the administrator, transfer agent and custodian for the Fund.
    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 Advisor and 
Sub-Advisor are not affiliated with a broker-dealer.\7\ 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 a 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 (the ``Advisers 
Act''). As a result, the investment adviser is 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.
    \7\ The Exchange represents that the Advisor and Sub-Advisor, 
and their respective related personnel, are subject to Investment 
Advisers Act Rule 204A-1. This Rule specifically requires the 
adoption of a code of ethics by an investment adviser to include, at 
a minimum: (i) Standards of business conduct that reflect the 
firm's/personnel fiduciary obligations; (ii) provisions requiring 
supervised persons to comply with applicable federal securities 
laws; (iii) provisions that require all access persons to report, 
and the firm to review, their personal securities transactions and 
holdings periodically as specifically set forth in Rule 204A-1; (iv) 
provisions requiring supervised persons to report any violations of 
the code of ethics promptly to the chief compliance officer 
(``CCO'') or, provided the CCO also receives reports of all 
violations, to other persons designated in the code of ethics; and 
(v) provisions requiring the investment adviser to provide each of 
the supervised persons with a copy of the code of ethics with an 
acknowledgement by said supervised persons. 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.
---------------------------------------------------------------------------

    According to the Registration Statement, the Fund's investment 
objective is high current income with a secondary goal of capital 
appreciation. The Sub-Advisor seeks to achieve the Fund's investment 
objective by selecting a focused portfolio of high yield debt 
securities, which include senior and subordinated corporate debt 
obligations (such as bonds, debentures, notes and commercial paper 
\8\). The Fund does not have any portfolio maturity limitation and may 
invest its assets from time to time primarily in instruments with 
short-term, medium-term or long-term maturities.
---------------------------------------------------------------------------

    \8\ Commercial paper consists of short-term, promissory notes 
issued by banks, corporations and other entities to finance short-
term credit needs. These securities generally are discounted but 
sometimes may be interest bearing. As of year end 2009, $1.137 
trillion commercial paper was outstanding, and, as of May 31, 2010 
$1.0548 trillion commercial paper was outstanding The daily average 
commercial paper market issuance in 2009 was $99.044 billion, with 
66% having a maturity of 1-4 days, 7.1% having a maturity of 5-9 
days, 3.8% having a maturity of 10-20 days, 10.4% having a maturity 
of 21-40 days, 3.6% having a maturity of 41-80 days and 8.6% having 
a maturity of 81 days or more. For 2010 (as of May 31), the daily 
average commercial paper market issuance was $92.758 billion, with 
67.6% having a maturity of 1-4 days, 7.4% having a maturity of 5-9 
days, 4% having a maturity of 10-20 days, 10.8% having a maturity of 
21-40 days, 3.3% having a maturity of 41-80 days and 6.9% having a 
maturity of 81 days or more. (Source: Federal Reserve).
---------------------------------------------------------------------------

    In selecting securities for the Fund's portfolio, Peritus performs 
its own independent investment analysis of each issuer to determine its 
creditworthiness. Peritus focuses on the

[[Page 62907]]

secondary market, predominantly investing in assets at a discount to 
par ($100), allowing for a potential opportunity to generate capital 
gains in addition to current yield.
    According to the Registration Statement, Peritus places limited 
value on credit ratings and instead focuses on true cash flow while 
looking to buy credit at prices that it feels provide a margin of 
safety. Additional factors are considered when constructing the 
portfolio including, but not limited to, excess cash on the balance 
sheet and/or a history of producing real free cash flow, as well as a 
capital structure that can be sustained on conservative forecasts.
    According to the Registration Statement, Peritus reverse engineers 
the traditional financial analysis process when reviewing each issuer's 
creditworthiness. Each analysis considers the issuer's Statement of 
Cash Flows, the Balance Sheet and then the Income Statement, in that 
order. The investment team looks at a complete appraisal of the 
business' intrinsic value, rather than just traditional credit 
analysis. Through fundamental and valuation analysis, the Sub-Advisor 
determines whether an investment should be made in a certain company, 
and where in the capital structure (secured, senior, or subordinate) 
the risk/return is most attractive. The Fund's portfolio will typically 
consist of 40-60 holdings.\9\
---------------------------------------------------------------------------

    \9\ The Fund represents that the portfolio will include a 
minimum of 13 non-affiliated issuers.
---------------------------------------------------------------------------

    The Fund's portfolio holdings will be disclosed on its Web site 
(https://www.advisorshares.com) daily after the close of trading on the 
Exchange and prior to the opening of trading on the Exchange the 
following day.
    According to the Registration Statement, the Fund may invest in 
debt securities and may seek investment in corporate debt securities 
representative of one or more high yield bond or credit derivative 
indices, which may change from time to time. Selection will generally 
be dependent on independent credit analysis or fundamental analysis 
performed by the Sub-Advisor.\10\ The Fund may invest in all grades of 
corporate securities including below investment grade.\11\ The Fund 
will only invest in liquid securities. The Fund will only purchase 
performing securities, not distressed debt.\12\ To a lesser extent, the 
Fund also may invest in unrated securities.
---------------------------------------------------------------------------

    \10\ See e-mail from Tim Malinowski, Senior Director, Exchange, 
to David Liu, Senior Special Counsel, Edward Cho, Special Counsel, 
and Andrew Madar, Special Counsel, Commission, dated October 4, 
2010.
    \11\ The Fund has represented that it will invest only in U.S.-
registered bonds that are listed or traded in the United States. 
However, certain of the Fund's debt holdings may be issued by 
corporations domiciled outside the United States.
    \12\ Distressed debt is debt that is currently in default and is 
not expected to pay the current coupon.
---------------------------------------------------------------------------

    The Fund may invest in the securities of other investment companies 
to the extent that such an investment would be consistent with the 
requirements of Section 12(d)(1) of the 1940 Act, or any rule, 
regulation or order of the SEC.
    The Fund may make short-term investments in U.S. Government 
securities and may invest in U.S. Treasury zero-coupon bonds.
    To respond to adverse market, economic, political or other 
conditions, the Fund may invest 100% of its total assets, without 
limitation, in high-quality short-term debt securities and money market 
instruments. The Fund may be invested in these instruments for extended 
periods, depending on the Sub-Advisor's assessment of market 
conditions. These short-term debt securities and money market 
instruments include shares of other mutual funds, commercial paper, 
certificates of deposit, bankers' acceptances, and U.S. Government 
securities.
    The Fund is subject to the following investment limitations:
    Diversification. The Fund may not (i) with respect to 75% of its 
total assets, purchase securities of any issuer (except securities 
issued or guaranteed by the U.S. Government, its agencies or 
instrumentalities or shares of investment companies) if, as a result, 
more than 5% of its total assets would be invested in the securities of 
such issuer; or (ii) acquire more than 10% of the outstanding voting 
securities of any one issuer. For purposes of this policy, the issuer 
of a Depository Receipt will be deemed to be the issuer of the 
respective underlying security.\13\
---------------------------------------------------------------------------

    \13\ This diversification standard is contained in Section 
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

    Concentration. The Fund may not invest 25% or more of its total 
assets in the securities of one or more issuers conducting their 
principal business activities in the same industry or group of 
industries. The Fund will not invest 25% or more of its total assets in 
any investment company that so concentrates. This limitation does not 
apply to investments in securities issued or guaranteed by the U.S. 
Government, its agencies or instrumentalities, or shares of investment 
companies. For purposes of this policy, the issuer of a Depository 
Receipt will be deemed to be the issuer of the respective underlying 
security.
    The Fund, under normal circumstances, will invest at least 80% of 
its net assets, plus any borrowings for investment purposes, in high 
yield debt securities. The Fund intends to maintain the level of 
diversification necessary to qualify as a regulated investment company 
under Subchapter M of the Internal Revenue Code of 1986, as amended.
    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 \14\ under the Exchange Act, 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'') and the Disclosed Portfolio will be 
made available to all market participants at the same time.
---------------------------------------------------------------------------

    \14\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    The Fund will not invest in non-US issues.
Creations and Redemptions of Shares
    The Trust issues and sells Shares of the Fund only in Creation 
Units of 50,000 Shares on a continuous basis through the Distributor, 
at their NAV next determined after receipt, on any Business Day (as 
defined in the Registration Statement). The consideration for purchase 
of a Creation Unit of the Fund generally consists of an in-kind deposit 
of a designated portfolio of securities (the ``Deposit Securities'') 
per each Creation Unit constituting securities included in the Fund's 
portfolio and an amount of cash (the ``Cash Component'') computed as 
described in the Registration Statement. Together, the Deposit 
Securities and the Cash Component constitute the ``Fund Deposit,'' 
which represents the minimum initial and subsequent investment amount 
for a Creation Unit of the Fund. Creations and redemption of Shares may 
be effected only by Authorized Participants, as defined in the 
Registration Statement.\15\
---------------------------------------------------------------------------

    \15\ Terms relating to the Trust and the Shares referred to, but 
not defined, herein are defined in the Registration Statement.
---------------------------------------------------------------------------

    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through the Administrator and only on a Business Day. The Trust 
will not redeem shares in amounts less than Creation Units.
    Unless cash redemptions are available or specified for the Fund, 
the

[[Page 62908]]

redemption proceeds for a Creation Unit generally consist of Fund 
Securities (securities included in the Fund's portfolio)--as announced 
by the Administrator on the Business Day of the request for redemption 
received in proper form--plus cash in an amount equal to the difference 
between the NAV of the shares being redeemed, as next determined after 
a receipt of a request in proper form, and the value of the Fund 
Securities (the ``Cash Redemption Amount''), less a redemption 
transaction fee. In the event that the Fund Securities have a value 
greater than the NAV of the shares, a compensating cash payment equal 
to the differential is required to be made by or through an Authorized 
Participant by the redeeming shareholder.
Availability of Information
    The Fund's Web site (https://www.advisorshares.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 
Fund'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 (the 
``Bid/Ask Price''),\16\ 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 on 
the Exchange, the Fund will disclose on its 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.\17\
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    \16\ The Bid/Ask Price of the Fund is determined using 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.
    \17\ 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.
---------------------------------------------------------------------------

    On a daily basis, the Advisor 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 includes the security 
names and share quantities 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 New York 
Stock Exchange (``NYSE'') via the National Securities Clearing 
Corporation. 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 4:00 p.m. Eastern Time) 
on each business 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 https://www.sec.gov. 
Information regarding market price and trading volume of the Shares is 
and 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 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 disseminated by one or more 
major market data vendors at least every 15 seconds during the Core 
Trading Session. 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.
    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.
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.\18\ 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 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. 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.
---------------------------------------------------------------------------

    \18\ 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. Eastern Time 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

[[Page 62909]]

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 Intermarket 
Surveillance Group (``ISG'') from other exchanges that are members of 
ISG or with which the Exchange has entered into a surveillance sharing 
agreement.\19\
---------------------------------------------------------------------------

    \19\ For a list of the current members of ISG, see. 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. Eastern Time 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) \20\ 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. The 
Exchange believes that the proposed rule change 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.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

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 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 (https://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2010-86 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2010-86. This 
file number should be included on the subject line if e-mail 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 (https://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 a.m. and 3 p.m. Copies of such 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 
publicly available. All submissions should refer to File Number SR-
NYSEArca-2010-86 and should be submitted on or before November 3, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-25621 Filed 10-12-10; 8:45 am]
BILLING CODE 8011-01-P
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