Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to the Listing and Trading of Shares of the Peritus High Yield ETF, 71760-71762 [2010-29560]
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Federal Register / Vol. 75, No. 226 / Wednesday, November 24, 2010 / Notices
periodically, but no less frequently than
annually, to determine whether the
purchases were influenced by the
investment by the Purchasing Fund in
the Fund. The Board will consider,
among other things: (i) Whether the
purchases were consistent with the
investment objectives and policies of
the Fund (or its respective Master
Fund); (ii) how the performance of
securities purchased in an Affiliated
Underwriting compares to the
performance of comparable securities
purchased during a comparable period
of time in underwritings other than
Affiliated Underwritings or to a
benchmark such as a comparable market
index; and (iii) whether the amount of
securities purchased by the Fund (or its
respective Master Fund) in Affiliated
Underwritings and the amount
purchased directly from an
Underwriting Affiliate have changed
significantly from prior years. The
Board will take any appropriate actions
based on its review, including, if
appropriate, the institution of
procedures designed to assure that
purchases of securities in Affiliated
Underwritings are in the best interest of
shareholders.
14. Each Fund (or its respective
Master Fund) will maintain and
preserve permanently in an easily
accessible place a written copy of the
procedures described in the preceding
condition, and any modifications to
such procedures, and will maintain and
preserve for a period of not less than six
years from the end of the fiscal year in
which any purchase in an Affiliated
Underwriting occurred, the first two
years in an easily accessible place, a
written record of each purchase of
securities in Affiliated Underwritings,
once an investment by a Purchasing
Fund in the securities of the Fund
exceeds the limit of section
12(d)(1)(A)(i) of the Act, setting forth
from whom the securities were
acquired, the identity of the
underwriting syndicate’s members, the
terms of the purchase, and the
information or materials upon which
the Board’s determinations were made.
15. Before investing in a Fund in
excess of the limit in section
12(d)(1)(A), a Purchasing Fund will
execute a FOF Participation Agreement
with the Fund stating that their
respective boards of directors or trustees
and their investment advisers, or trustee
and Sponsor, as applicable, understand
the terms and conditions of the order,
and agree to fulfill their responsibilities
under the order. At the time of its
investment in shares of a Fund in excess
of the limit in section 12(d)(1)(A)(i), a
Purchasing Fund will notify the Fund of
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the investment. At such time, the
Purchasing Fund will also transmit to
the Fund a list of the names of each
Purchasing Fund Affiliate and
Underwriting Affiliate. The Purchasing
Fund will notify the Fund of any
changes to the list of the names as soon
as reasonably practicable after a change
occurs. The Fund and the Purchasing
Fund will maintain and preserve a copy
of the order, the FOF Participation
Agreement, and the list with any
updated information for the duration of
the investment and for a period of not
less than six years thereafter, the first
two years in an easily accessible place.
16. Before approving any advisory
contract under section 15 of the Act, the
board of directors or trustees of each
Purchasing Management Company,
including a majority of the disinterested
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund (or its respective Master Fund) in
which the Purchasing Management
Company may invest. These findings
and their basis will be recorded fully in
the minute books of the appropriate
Purchasing Management Company.
17. Any sales charges and/or service
fees charged with respect to shares of a
Purchasing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
18. No Fund (or its respective Master
Fund) will acquire securities of any
investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent that (i) the Fund (or its
respective Master Fund) acquires
securities of another investment
company pursuant to exemptive relief
from the Commission permitting the
Fund (or its respective Master Fund) to
acquire securities of one or more
investment companies for short-term
cash management purposes, or (ii) the
Fund acquires securities of the Master
Fund pursuant to the Master-Feeder
Relief.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–29588 Filed 11–23–10; 8:45 am]
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63329; File No. SR–
NYSEArca–2010–86]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Relating to the
Listing and Trading of Shares of the
Peritus High Yield ETF
November 17, 2010.
I. Introduction
On September 23, 2010, NYSE Arca,
Inc. (‘‘NYSE Arca’’ or ‘‘Exchange’’) 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 Peritus High Yield ETF (‘‘Fund’’).
The proposed rule change was
published for comment in the Federal
Register on October 13, 2010.3 The
Commission received no comments on
the proposal. This order grants approval
of the proposed rule change.
II. 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 and trading of Managed Fund
Shares.4 The Shares will be offered by
AdvisorShares Trust (‘‘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 The
investment advisor to the Fund is
AdvisorShares Investments, LLC
(‘‘Advisor’’), and Peritus I Asset
Management, LLC is the Fund’s subadvisor (‘‘Peritus’’ or ‘‘Sub-Advisor’’).6
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 63041
(October 5, 2010), 75 FR 62905 (‘‘Notice’’).
4 A Managed Fund Share is a security that, among
other things, represents an interest in an investment
company registered under the Investment Company
Act of 1940 (‘‘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. See NYSE Arca Equities Rule
8.600(c)(1).
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
relating to the Fund (File Nos. 333–157876 and
811–22110) (‘‘Registration Statement’’).
6 The Exchange represents that the Advisor and
Sub-Advisor are not affiliated with a broker-dealer.
See Commentary .06 to NYSE Arca Equities Rule
8.600 (requiring that, if the investment adviser is
affiliated with a broker-dealer, the investment
adviser 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 the portfolio).
2 17
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The Exchange represents that the Shares
will conform to the initial and
continued listing criteria under NYSE
Arca Equities Rule 8.600 and that, for
initial and/or continued listing, the
Fund will be in compliance with Rule
10A–3 under the Exchange Act,7 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 Fund’s investment objective is
high current income with a secondary
goal of capital appreciation. 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, which
include senior and subordinated
corporate debt obligations (such as
bonds, debentures, notes and
commercial paper). 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 will perform its own
independent investment analysis of
each issuer to determine its
creditworthiness. Peritus will focus on
the 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. Peritus will
place limited value on credit ratings and
instead will focus on true cash flow
while looking to buy credit at prices that
it feels provide a margin of safety.
Additional factors will be 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. The
Fund’s portfolio will typically consist of
40–60 holdings,8 which 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.
The Fund may seek investments 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. The
Fund may invest in all grades of
corporate securities, including those
7 17
CFR 240.10A–3.
Fund represents that the portfolio will
include a minimum of 13 non-affiliated issuers.
8 The
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below investment grade.9 The Fund will
only invest in liquid securities and only
purchase performing securities and not
distressed debt.10 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 Commission.
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.
Additional details regarding the
Shares and the Fund including, among
other things, the organization and
structure of the Fund, the investment
objectives and methodologies,
investment risks, dissemination and
availability of key information about the
Fund, the Shares, and the portfolio,
creations and redemptions of Shares,
trading halts, trading rules, surveillance,
and the Information Bulletin can be
found in the Notice and the Registration
Statement, as applicable.11
III. Discussion and Commission’s
Findings
After careful consideration, the
Commission finds that the proposed
rule change is consistent with the
requirements of the Act and the rules
and regulations thereunder applicable to
a national securities exchange.12 In
particular, the Commission finds that
the proposed rule change is consistent
with the requirements of Section 6(b)(5)
of the Act,13 which requires, among
other things, that the Exchange’s rules
be designed to promote just and
9 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.
10 Distressed debt is debt that is currently in
default and is not expected to pay the current
coupon.
11 See supra notes 3 and 5.
12 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
13 15 U.S.C. 78f(b)(5).
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71761
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, to remove
impediments to, and perfect the
mechanism of, a free and open market
and a national market system, and, in
general, to protect investors and the
public interest.
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,14 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 disseminated through the facilities of
the Consolidated Tape Association. In
addition, the Portfolio Indicative Value
(‘‘PIV’’) will be disseminated at least
every 15 seconds during the Core
Trading Session by one or more major
market data vendors. 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 net asset value
(‘‘NAV’’) at the end of the business
day.15 In addition, 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, and the previous day’s closing
price and trading volume information
will be published daily in the financial
section of newspapers. The Fund will
also make available on its Web site daily
trading volume of the Shares, closing
prices of the Shares, NAV, and other
related quantitative and trading
information. 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
14 15
U.S.C. 78k–1(a)(1)(C)(iii).
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.
15 On
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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 p.m. Eastern Time)
on each business day.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
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
issuer of the Shares that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time.16 The Exchange may halt
trading in the Shares if the value of the
Portfolio Indicative Value is no longer
calculated or available or the Disclosed
Portfolio is not made available to all
market participants at the same time.17
In addition, NYSE Arca Equities Rule
8.600(d)(2)(B)(ii) requires that the
Reporting Authority that provides the
Disclosed Portfolio 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. Lastly, the
Commission notes that the Exchange
will halt trading in the Shares under the
specific circumstances set forth in NYSE
Arca Equities Rule 8.600(d)(2)(D) and
that, if there is an additional Fund subadvisor that is affiliated with a brokerdealer, that sub-advisor must erect a fire
wall between it and such broker-dealer
with respect to access to information
concerning the composition and/or
changes to the investment portfolio of
the Fund.18
The Exchange has represented that
the Shares are deemed to be equity
securities, thus rendering trading in the
16 See NYSE Arca Equities Rule 8.600(d)(1)(B)
(also requiring that the Exchange obtain a
representation from the issuer that the NAV per
Share will be calculated daily).
17 See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii).
With respect to trading halts, the Exchange may
consider other relevant factors in exercising its
discretion to halt or suspend trading in the Shares.
Trading on the Exchange in the Shares 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.
18 The Commission notes that the Exchange has
represented that neither the Fund’s Advisor nor
Sub-Advisor is affiliated with a broker-dealer. See
supra note 6.
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Shares subject to the Exchange’s
existing 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 has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) 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.
(4) 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 Bulletin
will discuss the following: (a) The
procedures for purchases and
redemptions of Shares in Creation Unit
aggregations (including noting 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.
(5) A minimum of 100,000 Shares will
be outstanding at the commencement of
trading on the Exchange.
(6) For initial and continued listing,
the Shares must comply with Rule
10A–3 under the Act.19
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 20 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,21 that the
proposed rule change (SR–NYSEArca–
2010–86), be, and it hereby is, approved.
CFR 240.10A–3.
U.S.C. 78f(b)(5).
21 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.22
Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010–29560 Filed 11–23–10; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63333; File No. SR–
NASDAQ–2010–148]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change Relating to
Exchange-Traded Notes
November 17, 2010.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1, and Rule 19b–4 2 thereunder,
notice is hereby given that on November
15, 2010 The NASDAQ Stock Market
LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed
with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I and II below, which Items
have been prepared by the NASDAQ.
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 NASDAQ Stock Market LLC
proposes to amend Chapter IV, Section
3, titled Criteria for Underlying
Securities, to: (a) Permit trading options
on leveraged (multiple or inverse)
exchange-traded notes, and (b) broaden
the definition of ‘‘Futures-Linked
Securities.’’
The text of the proposed rule change
is available on the Exchange’s Web site
at https://
www.nasdaq.cchwallstreet.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change. The text of
these statements may be examined at
19 17
22 17
20 15
1 15
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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]]>Agencies
[Federal Register Volume 75, Number 226 (Wednesday, November 24, 2010)]
[Notices]
[Pages 71760-71762]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29560]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63329; File No. SR-NYSEArca-2010-86]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to the Listing and Trading of
Shares of the Peritus High Yield ETF
November 17, 2010.
I. Introduction
On September 23, 2010, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange'') 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
Peritus High Yield ETF (``Fund''). The proposed rule change was
published for comment in the Federal Register on October 13, 2010.\3\
The Commission received no comments on the proposal. This order grants
approval of the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 63041 (October 5,
2010), 75 FR 62905 (``Notice'').
---------------------------------------------------------------------------
II. 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 and trading of
Managed Fund Shares.\4\ The Shares will be offered by AdvisorShares
Trust (``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\ The investment advisor to the Fund is
AdvisorShares Investments, LLC (``Advisor''), and Peritus I Asset
Management, LLC is the Fund's sub-advisor (``Peritus'' or ``Sub-
Advisor'').\6\
[[Page 71761]]
The Exchange represents that the Shares will conform to the initial and
continued listing criteria under NYSE Arca Equities Rule 8.600 and
that, for initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\7\ 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.
---------------------------------------------------------------------------
\4\ A Managed Fund Share is a security that, among other things,
represents an interest in an investment company registered under the
Investment Company Act of 1940 (``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. See NYSE Arca Equities Rule
8.600(c)(1).
\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 relating to the Fund (File Nos. 333-157876 and 811-
22110) (``Registration Statement'').
\6\ The Exchange represents that the Advisor and Sub-Advisor are
not affiliated with a broker-dealer. See Commentary .06 to NYSE Arca
Equities Rule 8.600 (requiring that, if the investment adviser is
affiliated with a broker-dealer, the investment adviser 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 the portfolio).
\7\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
The Fund's investment objective is high current income with a
secondary goal of capital appreciation. 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,
which include senior and subordinated corporate debt obligations (such
as bonds, debentures, notes and commercial paper). 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 will
perform its own independent investment analysis of each issuer to
determine its creditworthiness. Peritus will focus on the 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. Peritus will place limited value on credit
ratings and instead will focus on true cash flow while looking to buy
credit at prices that it feels provide a margin of safety. Additional
factors will be 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. The Fund's portfolio will
typically consist of 40-60 holdings,\8\ which 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.
---------------------------------------------------------------------------
\8\ The Fund represents that the portfolio will include a
minimum of 13 non-affiliated issuers.
---------------------------------------------------------------------------
The Fund may seek investments 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. The Fund may invest in all grades of
corporate securities, including those below investment grade.\9\ The
Fund will only invest in liquid securities and only purchase performing
securities and not distressed debt.\10\ 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
Commission.
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\9\ 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.
\10\ Distressed debt is debt that is currently in default and is
not expected to pay the current coupon.
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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.
Additional details regarding the Shares and the Fund including,
among other things, the organization and structure of the Fund, the
investment objectives and methodologies, investment risks,
dissemination and availability of key information about the Fund, the
Shares, and the portfolio, creations and redemptions of Shares, trading
halts, trading rules, surveillance, and the Information Bulletin can be
found in the Notice and the Registration Statement, as applicable.\11\
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\11\ See supra notes 3 and 5.
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III. Discussion and Commission's Findings
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\12\ In particular, the Commission finds that the proposed
rule change is consistent with the requirements of Section 6(b)(5) of
the Act,\13\ which requires, among other things, that the Exchange's
rules be designed to promote just and equitable principles of trade, to
foster cooperation and coordination with persons engaged in
facilitating transactions in securities, to remove impediments to, and
perfect the mechanism of, a free and open market and a national market
system, and, in general, to protect investors and the public interest.
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\12\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\13\ 15 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,\14\ 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 disseminated through the facilities
of the Consolidated Tape Association. In addition, the Portfolio
Indicative Value (``PIV'') will be disseminated at least every 15
seconds during the Core Trading Session by one or more major market
data vendors. 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 net asset value (``NAV'') at the end of the business
day.\15\ In addition, 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, and the previous day's closing price and trading
volume information will be published daily in the financial section of
newspapers. The Fund will also make available on its Web site daily
trading volume of the Shares, closing prices of the Shares, NAV, and
other related quantitative and trading information. 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
[[Page 71762]]
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 p.m. Eastern
Time) on each business day.
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\14\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\15\ 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.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair 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 issuer of the Shares that the NAV and the
Disclosed Portfolio will be made available to all market participants
at the same time.\16\\\ The Exchange may halt trading in the Shares if
the value of the Portfolio Indicative Value is no longer calculated or
available or the Disclosed Portfolio is not made available to all
market participants at the same time.\17\\\ In addition, NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii) requires that the Reporting Authority
that provides the Disclosed Portfolio 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. Lastly, the Commission notes that the Exchange will halt
trading in the Shares under the specific circumstances set forth in
NYSE Arca Equities Rule 8.600(d)(2)(D) and that, if there is an
additional Fund sub-advisor that is affiliated with a broker-dealer,
that sub-advisor must erect a fire wall between it and such broker-
dealer with respect to access to information concerning the composition
and/or changes to the investment portfolio of the Fund.\18\
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\16\ See NYSE Arca Equities Rule 8.600(d)(1)(B) (also requiring
that the Exchange obtain a representation from the issuer that the
NAV per Share will be calculated daily).
\17\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii). With
respect to trading halts, the Exchange may consider other relevant
factors in exercising its discretion to halt or suspend trading in
the Shares. Trading on the Exchange in the Shares 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.
\18\ The Commission notes that the Exchange has represented that
neither the Fund's Advisor nor Sub-Advisor is affiliated with a
broker-dealer. See supra note 6.
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The Exchange has represented that the Shares are deemed to be
equity securities, thus rendering trading in the Shares subject to the
Exchange's existing 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 has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) 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.
(4) 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 Bulletin will discuss the following: (a)
The procedures for purchases and redemptions of Shares in Creation Unit
aggregations (including noting 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.
(5) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
(6) For initial and continued listing, the Shares must comply with
Rule 10A-3 under the Act.\19\
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\19\ 17 CFR 240.10A-3.
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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 \20\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\20\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-NYSEArca-2010-86), be, and
it hereby is, approved.
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\21\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-29560 Filed 11-23-10; 8:45 am]
BILLING CODE 8011-01-P
