Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade the Meidell Tactical Advantage ETF, 24936-24942 [2011-10717]
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Federal Register / Vol. 76, No. 85 / Tuesday, May 3, 2011 / Notices
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act and Rule 19b–4(f)(6) (iii)
thereunder.
A proposed rule change filed under
Rule 19b–4(f)(6) 13 normally does not
become operative prior to 30 days after
the date of the filing. However, pursuant
to Rule 19b4(f)(6)(iii),14 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has requested that the
Commission waive the 30-day operative
delay to ensure that NASDAQ OMX is
able to implement the rule changes.
The Commission finds that waiver of
the operative delay is consistent with
the protection of investors and the
public interest. The Commission notes
in waiving the 30-day operative delay
that the Commission published for
comment in the Federal Register the
initial filing to amend NASDAQ OMX’s
By-Laws, did not receive any
comments,15 and subsequently
approved the proposed rule change.16
Further, the Commission notes that the
Exchange’s proposal is identical to the
proposed rule change previously
approved by the Commission.17
Accordingly, the Commission finds that
it is consistent with investor protection
and the public interest to waive the 30day operative delay in accordance with
19b–4(f)(6)(iii) so that NASDAQ OMX’s
By-Laws can be effective without undue
delay, and therefore designates the
proposal operative upon filing.18
At any time within 60 days of the
filing of such 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.
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IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
13 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires that a self-regulatory
organization submit to the Commission written
notice of its intent to file the proposed rule change,
along with a brief description and text of the
proposed rule change, at least five business days
prior to the filing of the proposed rule change, or
such shorter time as designated by the Commission.
The Commission notes that the Exchange has
satisfied this requirement.
14 17 CFR 240.19b–4(f)(6)(iii).
15 See supra note 6.
16 See supra note 3.
17 Id.
18 For purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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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 rulecomments@sec.gov. Please include File
Number SR–BX–2011–022 on the
subject line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64357; File No. SR–
NYSEArca–2011–18]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade the
Meidell Tactical Advantage ETF
April 28, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
Paper Comments
thereunder,2 notice is hereby given that
• Send paper comments in triplicate
on April 15, 2011, NYSE Arca, Inc.
to Elizabeth M. Murphy, Secretary,
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
Securities and Exchange Commission,
the Securities and Exchange
100 F Street, NE., Washington, DC
Commission (‘‘Commission’’) the
20549–1090.
proposed rule change as described in
All submissions should refer to File
Items I and II below, which Items have
Number SR–BX–2011–022. This file
been prepared by the Exchange. The
number should be included on the
Commission is publishing this notice to
subject line if e-mail is used. To help the solicit comments on the proposed rule
Commission process and review your
change from interested persons.
comments more efficiently, please use
I. Self-Regulatory Organization’s
only one method. The Commission will
Statement of the Terms of Substance of
post all comments on the Commission’s
the Proposed Rule Change
Internet Web site (https://www.sec.gov/
The Exchange proposes to list and
rules/sro.shtml). Copies of the
trade the following under NYSE Arca
submission, all subsequent
Equities Rule 8.600 (‘‘Managed Fund
amendments, all written statements
Shares’’): The Meidell Tactical
with respect to the proposed rule
Advantage ETF. The text of the
change that are filed with the
proposed rule change is available at the
Commission, and all written
Exchange, the Commission’s Public
communications relating to the
Reference Room, and https://
proposed rule change between the
Commission and any person, other than www.nyse.com.
those that may be withheld from the
II. Self-Regulatory Organization’s
public in accordance with the
Statement of the Purpose of, and
provisions of 5 U.S.C. 552, will be
Statutory Basis for, the Proposed Rule
available for Web site viewing and
Change
printing in the Commission’s Public
In its filing with the Commission, the
Reference Room, 100 F Street, NE.,
self-regulatory organization included
Washington, DC 20549, on official
statements concerning the purpose of,
business days between the hours of 10
and basis for, the proposed rule change
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and and discussed any comments it received
on the proposed rule change. The text
copying at the principal office of the
of those statements may be examined at
Exchange. All comments received will
the places specified in Item IV below.
be posted without change; the
The Exchange has prepared summaries,
Commission does not edit personal
set forth in sections A, B, and C below,
identifying information from
of the most significant parts of such
submissions. You should submit only
statements.
information that you wish to make
available publicly. All submissions
A. Self-Regulatory Organization’s
should refer to File No. SR–BX–2011–
Statement of the Purpose of, and
022 and should be submitted on or
Statutory Basis for, the Proposed Rule
before May 24, 2011.
Change
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–10650 Filed 5–2–11; 8:45 am]
BILLING CODE 8011–01–P
19 17
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1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 A Managed Fund Share is a security that
represents an interest in an investment company
2 17
CFR 200.30–3(a)(12).
Frm 00089
1. Purpose
The Exchange proposes to list and
trade the following Managed Fund
Shares 3 (‘‘Shares’’) under NYSE Arca
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Federal Register / Vol. 76, No. 85 / Tuesday, May 3, 2011 / Notices
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Equities Rule 8.600: The Meidell
Tactical Advantage ETF (‘‘Fund’’).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 adviser to the Fund is
AdvisorShares Investments, LLC
(‘‘Adviser’’). American Wealth
Management is the Fund’s sub-adviser
(‘‘Sub-Adviser’’) and provides day-to-day
portfolio management of the Fund.
Foreside Fund Services, LLC
(‘‘Distributor’’) is the principal
underwriter and distributor of the
Fund’s Shares.
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
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 adviser 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 approved NYSE Arca Equities
Rule 8.600 and the listing and trading of certain
funds of the PowerShares Actively Managed
Exchange-Traded Funds Trust on the Exchange
pursuant to Rule 8.600 in Securities Exchange Act
Release No. 57619 (April 4, 2008) 73 FR 19544
(April 10, 2008) (SR–NYSEArca–2008–25). The
Commission also has approved listing and trading
on the Exchange of a number of actively managed
funds under Rule 8.600. 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); 60460 (August 7, 2009), 74 FR 41468
(August 17, 2009) (SR–NYSEArca–2009–55) (order
approving listing of Dent Tactical ETF); 63076
(October 12, 2010), 75 FR 63874 (October 18, 2010)
(SR–NYSEArca–2010–79) (order approving
Exchange listing and trading of Cambria Global
Tactical ETF); 63802 (January 31, 2011), 76 FR 6503
(February 4, 2011) (SR–NYSEArca–2010–118)
(order approving Exchange listing and trading of the
SiM Dynamic Allocation Diversified Income ETF
and SiM Dynamic Allocation Growth Income ETF).
5 The Trust is registered under the 1940 Act. On
March 15, 2011, the Trust filed with the
Commission Post-Effective Amendment No. 20 to
Form N–1A under the Securities Act of 1933 (15
U.S.C. 77a) and under the 1940 Act relating to the
Fund (File Nos. 333–157876 and 811–22110)
(‘‘Registration Statement’’). The description of the
operation of the Trust and the Fund herein is based
on the Registration Statement.
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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.
Commentary .06 to Rule 8.600 is similar
to Commentary .03(a)(i) and (iii) to
NYSE Arca Equities Rule 5.2(j)(3);
however, Commentary .06 in connection
with the establishment of a ‘‘fire wall’’
between the investment adviser and the
broker-dealer reflects the applicable
open-end fund’s portfolio, not an
underlying benchmark index, as is the
case with index-based funds. Neither
the Adviser nor the Sub-Adviser is
affiliated with a broker-dealer. In the
event (a) the Adviser or the Sub-Adviser
becomes newly affiliated with a brokerdealer, or (b) any new adviser or subadviser becomes affiliated with a brokerdealer, they 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, and will
be subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
Description of the Fund
According to the Registration
Statement, the Fund’s investment
objective is to seek to provide long-term
capital appreciation with a secondary
emphasis on capital preservation. The
Fund is an actively managed exchangetraded fund (‘‘ETF’’) and thus does not
seek to replicate the performance of a
specified index. The Fund is considered
6 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’). As a result,
the Adviser and Sub-Adviser and their related
personnel are 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. 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.
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24937
a ‘‘fund-of-funds’’ that seeks to achieve
its investment objective by primarily
investing in other ETFs that offer
diversified exposure to global regions,
countries, styles (market capitalization,
value, growth, etc.) or sectors, and other
exchange-traded products (‘‘ETPs,’’ and,
together with ETFs, ‘‘Underlying
ETPs’’),7 including but not limited to
exchange-traded notes (‘‘ETNs’’),8
exchange-traded currency trusts, and
closed-end funds.9 The Fund will
primarily invest in U.S.-listed domestic
and foreign equity-based, fixed incomebased, currency-based, and commoditybased Underlying ETPs.
The Sub-Adviser will seek to achieve
the Fund’s investment objective by
managing a tactical strategy that has the
ability to dynamically rebalance the
Fund’s portfolio from as much as 100%
equity-based assets to 100% fixed
income-based assets or cash and cash
equivalents depending on market
trends. This is a long-only tactical
strategy that seeks to minimize portfolio
losses by rotating out of higher volatility
assets and into lower volatility assets
when the Sub-Adviser believes there are
significant risks in the equity markets.
Risk management is an integral part of
the Sub-Adviser’s investment strategy.
The Fund will not invest in leveraged,
inverse, or inverse leveraged Underlying
ETPs.
The Sub-Adviser uses a quantitative
tactical methodology to identify the
Underlying ETPs believed to be
participating in long-term ‘‘durable
trends’’ within the market. This model
enables the Sub-Adviser to evaluate,
rank, and select the appropriate mix of
investments in Underlying ETPs given
market conditions.
The Sub-Adviser’s investment
philosophy emphasizes investments in
broad market indexes and market sector
indexes. In general, the Fund will
7 Underlying ETPs include Investment Company
Units (as described in NYSE Arca Equities Rule
5.2(j)(3)); Index-Linked Securities (as described in
NYSE Arca Equities Rule 5.2(j)(6)); Portfolio
Depositary Receipts (as described in NYSE Arca
Equities Rule 8.100); Trust Issued Receipts (as
described in NYSE Arca Equities Rule 8.200);
Commodity-Based Trust Shares (as described in
NYSE Arca Equities Rule 8.201); Currency Trust
Shares (as described in NYSE Arca Equities Rule
8.202); Commodity Index Trust Shares (as described
in NYSE Arca Equities Rule 8.203); Trust Units (as
described in NYSE Arca Equities Rule 8.500);
Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600); and closed-end funds.
8 ETNs are debt obligations of investment banks
that are traded on exchanges and the returns of
which are linked to the performance of market
indexes.
9 The Fund, through its investment in Underlying
ETPs, may invest in closed-end funds, pooled
investment vehicles that are registered under the
1940 Act and whose shares are listed and traded on
U.S. national securities exchanges.
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Federal Register / Vol. 76, No. 85 / Tuesday, May 3, 2011 / Notices
The Fund will only make such
investments in conformity with the
requirements of Section 817 of the
Internal Revenue Code of 1986, as
amended (‘‘Code’’).10
The Fund, through its investment in
Underlying ETPs, may invest in equity
securities. Equity securities represent
ownership interests in a company or
partnership and consist of common
stocks, preferred stocks, warrants to
acquire common stock, securities
convertible into common stock,
investments in master limited
partnerships securities traded in the
U.S. on registered exchanges or the
over-the-counter market, rights, and
Depositary Receipts.11
The Fund, through its investments in
Underlying ETPs, may invest in the
equity securities of foreign issuers,
including the securities of foreign
issuers in emerging market countries.
Emerging or developing markets exist in
countries that are considered to be in
the initial stages of industrialization.
The Fund, through its investment in
Underlying ETPs, may invest in debt
securities. A debt security is a security
consisting of a certificate or other
ASSETS HELD BY UNDERLYING ETPS evidence of a debt (secured or
unsecured) on which the issuing
Equity-Based ..............................
0%–100% company or governmental body
Fixed Income-Based/Cash .........
0%–100% promises to pay the holder thereof a
fixed, variable, or floating rate of
Depending on the economic and
interest for a specified length of time,
market climate, the portfolio may
and to repay the debt on the specified
increase or decrease portfolio
maturity date. Some debt securities,
concentrations within the ranges shown such as zero coupon bonds, do not make
below.
regular interest payments, but are issued
at a discount to their principal or
Foreign Equity ............................
0%–50% maturity value. Debt securities include
Large Cap Equity ........................
0%–50% a variety of fixed income obligations,
Mid Cap Equity ...........................
0%–30%
including, but not limited to, corporate
Small Cap Equity ........................
0%–30%
Commodities ...............................
0%–20% debt securities, government securities,
Currencies ..................................
0%–10% municipal securities, convertible
securities, and mortgage-backed
The Fund’s portfolio may temporarily securities. Debt securities include
exceed these percentage ranges for short investment-grade securities, noninvestment-grade securities, and
periods without notice, and the SubAdviser may alter the percentage ranges unrated securities. Debt securities are
subject to a variety of risks, such as
when it deems appropriate.
Additional quantitative tools are used interest rate risk, income risk, call/
to evaluate the probability of investment prepayment risk, inflation risk, credit
success within the equity market. These risk, and currency risk.
tools allow the Sub-Adviser to get into
10 26 CFR 1.817–5.
or out of equity positions, and include
11 American Depositary Receipts (‘‘ADRs’’), as
but are not limited to:
well as Global Depositary Receipts (‘‘GDRs’’), are
• Interest rate spreads.
certificates evidencing ownership of shares of a
• Options activity.
foreign issuer. Depositary Receipts may be
sponsored or unsponsored. These certificates are
• Market breadth.
issued by depositary banks and generally trade on
• Equity index trends.
an established market in the United States or
The Fund intends to invest primarily
elsewhere. The underlying shares are held in trust
in the securities of Underlying ETPs
by a custodian bank or similar financial institution
in the issuer’s home country. The depositary bank
consistent with the requirements of
may not have physical custody of the underlying
Section 12(d)(1) of the 1940 Act, or any
securities at all times and may charge fees for
rule, regulation, or order of the
various services, including forwarding dividends
Commission or interpretation thereof.
and interest and corporate actions.
srobinson on DSKHWCL6B1PROD with NOTICES
purchase or increase its exposure to
Underlying ETPs that track equity
markets or market sectors when the SubAdviser’s quantitative tactical asset
allocation model and risk analysis
indicates that the applicable market or
sector is at low risk of losing value or
presents opportunity for growth and
appreciation. The Fund will generally
sell interests in, or reduce investment
exposure to, Underlying ETPs tracking
equity markets or market sectors in
favor of fixed income-based Underlying
ETPs or cash positions when the SubAdviser’s quantitative tactical asset
allocation model and risk analysis
indicates that such markets have
become, or are becoming, risky.
The Sub-Adviser uses a quantitative
metric to rank and select the appropriate
mix of investments given prevailing
market conditions. The Sub-Adviser’s
quantitative tactical asset allocation
model determines asset allocation
between bonds and stocks, equity
selection, sector concentration, as well
as limiting portfolio drawdown. The
general guidelines for the Fund’s
portfolio are as follows:
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The Fund, or the Underlying ETPs in
which it invests, may invest in U.S.
government securities, U.S. Treasury
zero-coupon bonds, and real estate
investment trusts.
Other Investments
To respond to adverse market,
economic, political, or other conditions,
the Fund may invest 100% of its total
assets, without limitation, in highquality debt securities and money
market instruments either directly or
through Underlying ETPs. The Fund
may be invested in these instruments for
extended periods, depending on the
Sub-Adviser’s assessment of market
conditions. These debt securities and
money market instruments include
shares of other mutual funds,
commercial paper, certificates of
deposit, bankers’ acceptances, U.S.
Government securities, repurchase and
reverse repurchase agreements,12 and
bonds that are BBB or higher.
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 the underlying security
will be deemed to be the issuer of any
respective Depositary Receipt.13
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. This
limitation does not apply to investments
in securities issued or guaranteed by the
U.S. Government, its agencies or
12 The Fund may enter into repurchase
agreements with financial institutions, which may
be deemed to be loans. The Fund follows certain
procedures designed to minimize the risks inherent
in such agreements. These procedures include
effecting repurchase transactions only with large,
well-capitalized and well-established financial
institutions whose condition will be continually
monitored by the Sub-Adviser. In addition, the
value of the collateral underlying the repurchase
agreement will always be at least equal to the
repurchase price, including any accrued interest
earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such
collateral. In addition, the Fund may enter into
reverse repurchase agreements without limit as part
of the Fund’s investment strategy. Reverse
repurchase agreements involve sales by the Fund of
portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later
date at a fixed price.
13 The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act.
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instrumentalities, or shares of
investment companies. The Fund will
not invest 25% or more of its total assets
in any investment company that so
concentrates. For purposes of this
policy, the issuer of the underlying
security will be deemed to be the issuer
of any respective ADRs or GDRs.14
The Fund may not purchase illiquid
securities.15
Except for Underlying ETPs that may
hold non-U.S. issues, the Fund will not
otherwise invest in non-U.S. issues.
According to the Registration
Statement, the Fund will seek to qualify
for treatment as a Regulated Investment
Company (‘‘RIC’’) pursuant to
Subchapter M under the Code.16
The Fund calculates net asset value
(‘‘NAV’’) by: (i) Taking the current
market value of its total assets; (ii)
subtracting any liabilities; and (iii)
dividing that amount by the total
14 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
15 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14617 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the ETF. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933).
16 26 U.S.C. 851. One of several requirements for
RIC qualification is that the Fund must receive at
least 90% of the Fund’s gross income each year
from dividends, interest, payments with respect to
securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies,
or other income derived with respect to the Fund’s
investments in stock, securities, foreign currencies
and net income from an interest in a qualified
publicly traded partnership (‘‘90% Test’’). A second
requirement for qualification as a RIC is that the
Fund must diversify its holdings so that, at the end
of each fiscal quarter of the Fund’s taxable year: (a)
At least 50% of the market value of the Fund’s total
assets is represented by cash and cash items, U.S.
Government securities, securities of other RICs, and
other securities, with these other securities limited,
in respect to any one issuer, to an amount not
greater than 5% of the value of the Fund’s total
assets or 10% of the outstanding voting securities
of such issuer; and (b) not more than 25% of the
value of its total assets are invested in the securities
(other than U.S. Government securities or securities
of other RICs) of any one issuer or two or more
issuers which the Fund controls and which are
engaged in the same, similar, or related trades or
businesses, or the securities of one or more
qualified publicly traded partnership (‘‘Asset Test’’).
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number of Shares owned by
shareholders. The NAV of the Fund will
normally be determined as of the close
of the regular trading session on the
New York Stock Exchange (‘‘NYSE’’)
(ordinarily 4:00 p.m. Eastern Time) on
each business day. In calculating NAV,
the Fund generally values investment
portfolios at market price. If market
prices are unavailable or are unreliable,
or when the value of a security has been
materially affected by events occurring
after the relevant market closes, the
Fund will price those securities at fair
value as determined in good faith using
methods approved by the Fund’s Board
of Trustees.
Creations and redemptions of Shares
occur in large specified blocks of
Shares, referred to as ‘‘Creation Units.’’
According to the Registration Statement,
the Shares of the Fund are ‘‘created’’ at
their NAV by Authorized Participants
only in block-size Creation Units of
25,000 Shares or more. An Authorized
Participant enters into an agreement
(‘‘Participant Agreement’’) with the
Fund’s Distributor or a Depository Trust
Company participant that has executed
a Participant Agreement with the
Distributor, and deposits into the Fund
a portfolio of securities closely
approximating the holdings of the Fund
and a specified amount of cash, together
totaling the NAV of the Creation Unit(s),
in exchange for 25,000 Shares of the
Fund (or multiples thereof). Similarly,
Shares can only be redeemed in
Creation Units, generally 25,000 Shares
or more, principally in-kind for a
portfolio of securities held by the Fund
and a specified amount of cash together
totaling the NAV of the Creation Unit(s).
Shares are not redeemable from the
Fund except when aggregated in
Creation Units. The prices at which
creations and redemptions occur are
based on the next calculation of NAV
after an order is received in a form
prescribed in the Participant Agreement.
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
under the Exchange Act,17 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 NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
17 17
PO 00000
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24939
will be made available to all market
participants at the same time.
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 (‘‘Bid/Ask
Price’’),18 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.19
On a daily basis, the Adviser 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, 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 NYSE via the National Securities
Clearing Corporation. The basket
represents one Creation Unit of the
Fund.
18 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.
19 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.
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srobinson on DSKHWCL6B1PROD with NOTICES
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 for the Shares 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,
and, for the Underlying ETPs, will be
available from the national securities
exchange on which they are listed. In
addition, the Portfolio Indicative Value,
as defined in NYSE Arca Equities Rule
8.600(c)(3), will be disseminated by the
Exchange at least every 15 seconds
during the Core Trading Session by one
or more major market data vendors. 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 will 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. All terms
relating to the Fund that are referred to,
but not defined in, this proposed rule
change are defined 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.20 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
20 See
NYSE Arca Equities Rule 7.12,
Commentary .04.
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Jkt 223001
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio 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
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
comprehensive surveillance sharing
agreement.21 In addition, the Exchange
21 For a list of the current members of ISG, see
https://www.isgportal.org. 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. All
PO 00000
Frm 00093
Fmt 4703
Sfmt 4703
could obtain information from the U.S.
exchanges on which the Underlying
ETPs are listed and traded.
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) 22
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 is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
Underlying ETPs are listed on national securities
exchanges, all of which are members of ISG.
22 15 U.S.C. 78f(b)(5).
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be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable Federal securities
laws. The Exchange may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. All Underlying ETPs
will be listed on national securities
exchanges, all of which are members of
ISG, and the listing and trading of such
securities is subject to rules of the
exchanges on which they are listed and
traded, as approved by the Commission.
The Fund will not invest in leveraged,
inverse, or inverse leveraged Underlying
ETPs. The Fund may not purchase
illiquid securities. Except for
Underlying ETPs that may hold nonU.S. issues, the Fund will not otherwise
invest in non-U.S. issues.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. Quotation and
last-sale information for the Shares will
be available via the CTA high-speed line
and, for the Underlying ETPs, will be
available from the national securities
exchange on which they are listed. In
addition, the Portfolio Indicative Value
will be disseminated by the Exchange at
least every 15 seconds during the Core
Trading Session. The Fund’s Web site
will include a form of the Prospectus for
the Fund that may be downloaded, as
well as additional quantitative
information updated on a daily basis.
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 that
will form the basis for the Fund’s
calculation of NAV at the end of the
business day. On a daily basis, the
Adviser 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
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20:39 May 02, 2011
Jkt 223001
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 for the Fund will include
a form of the Prospectus for the Fund
and additional data relating to NAV and
other applicable quantitative
information. Moreover, 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. Trading in Shares of
the Fund will be halted if the circuit
breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. 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. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the Portfolio Indicative
Value, the Disclosed Portfolio, and
quotation and last-sale information for
the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of additional types of actively-managed
exchange-traded products that will
enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Portfolio Indicative Value,
the Disclosed Portfolio, and quotation
and last-sale information for the Shares.
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.
PO 00000
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24941
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 (i)
as the Commission may designate up to
90 days of such date 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
shall:
(A) By order approve or disapprove
such 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 rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2011–18 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–NYSEArca–2011–18. 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
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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 Web site 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 the filing will
also 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
available publicly. All submissions
should refer to File No. SR–NYSEArca–
2011–18 and should be submitted on or
before May 24, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–10717 Filed 5–2–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64353; File No. SR–FINRA–
2011–020]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of
Proposed Rule Change Relating to
FINRA’s Trading Activity Fee Rate for
Transactions in Covered Equity
Securities
April 27, 2011.
srobinson on DSKHWCL6B1PROD with NOTICES
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 April 26,
2011, the Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) 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 FINRA. 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
FINRA is proposing to amend Section
1 of Schedule A to the FINRA By-Laws
to adjust the rate of FINRA’s Trading
Activity Fee (‘‘TAF’’) for transactions in
covered equity securities.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA, 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,
FINRA 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 these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in Sections A, B,
and C below, of the most significant
aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
FINRA’s primary member regulatory
pricing structure consists of the
following fees: The Personnel
Assessment (PA); the Gross Income
Assessment (GIA); and the Trading
Activity Fee (TAF). These fees are used
to fund FINRA’s regulatory activities,
including examinations; financial
monitoring; and FINRA’s policymaking,
rulemaking, and enforcement activities.3
Because the proceeds from these fees are
used to fund FINRA’s regulatory
mandate, Section 1 of Schedule A to
FINRA’s By-Laws notes that ‘‘FINRA
shall periodically review these revenues
in conjunction with costs to determine
the applicable rate.’’ 4
FINRA initially adopted the TAF in
2002 as a replacement for an earlier
regulatory fee based on trades reported
to Nasdaq’s Automated Confirmation
Transaction system then in place.5
Currently, the TAF is generally assessed
on the sale of all exchange registered
securities wherever executed (except
debt securities that are not TRACE–
Eligible Securities), over-the-counter
equity securities, security futures,
TRACE–Eligible Securities (provided
that the transaction is a Reportable
TRACE Transaction), and all municipal
securities subject to Municipal
Securities Rulemaking Board (‘‘MSRB’’)
reporting requirements. The rules
3 See
23 17
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate Mar<15>2010
20:39 May 02, 2011
FINRA By-Laws, Schedule A, § 1(a).
4 Id.
5 See Securities Exchange Act Release No. 46416
(August 23, 2002), 67 FR 55901 (August 30, 2002).
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governing the TAF also include a list of
transactions exempt from the TAF.6
The current TAF rates are $0.000075
per share for each sale of a covered
equity security, with a maximum charge
of $3.75 per trade; $0.002 per contract
for each sale of an option; $0.04 per
contract for each round turn transaction
of a security future; and $0.00075 per
bond for each sale of a covered TRACE–
Eligible Security and/or municipal
security, with a maximum charge of
$0.75 per trade. In addition, if the
execution price for a covered security is
less than the TAF rate on a per share,
per contract, or round turn transaction
basis, then no TAF is assessed.
The current TAF rate for covered
equity securities of $0.000075 per share
has been in place for over six years.7
Over that time period, FINRA has
proposed the restructuring of both the
GIA and the PA. For example, effective
January 1, 2010, the GIA and PA were
restructured to stabilize cash flows by
shifting a greater portion of the
regulatory fees from the GIA, which is
based on industry revenue, to the PA,
which is based on the more constant
figure of registered persons, while
seeking to remain revenue neutral to
FINRA.8
As FINRA noted when it restructured
the GIA and the PA, because the GIA is
assessed based on a member’s annual
gross revenue for the preceding calendar
year, FINRA’s revenues derived from
the GIA are subject to the year-to-year
volatility of members’ revenues. A
similar unpredictability of revenue
flows exists with the TAF. The TAF
generally is assessed on sales of
securities by members and is collected
from clearing firms on a monthly basis.
Although the TAF is generally charged
on transactions in equity securities,
TRACE-reportable securities, options,
and futures, over 95% of TAF revenue
is generated by transactions in covered
equity securities. Thus, FINRA’s
revenue from the TAF is substantially
affected by changes in trading volume in
the equities markets. Because of the
substantial decrease in average daily
share volumes (ADSV) since 2009,
FINRA has seen a commensurate
substantial decline in revenue from the
TAF.
To stabilize revenue flows necessary
to support FINRA’s regulatory mission,
FINRA is proposing an increase to the
6 See
FINRA By-Laws, Schedule A, § 1(b)(2).
Securities Exchange Act Release No. 50485
(October 1, 2004), 69 FR 60445 (October 8, 2004);
NASD Notice to Members 04–84 (November 2004).
8 See Securities Exchange Act Release No. 61042
(November 20, 2009), 74 FR 62616 (November 30,
2009); see also Regulatory Notice 09–68 (November
2009).
7 See
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]]>Agencies
[Federal Register Volume 76, Number 85 (Tuesday, May 3, 2011)]
[Notices]
[Pages 24936-24942]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10717]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64357; File No. SR-NYSEArca-2011-18]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade the Meidell Tactical
Advantage ETF
April 28, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that on April 15, 2011, NYSE Arca, Inc. (``Exchange''
or ``NYSE Arca'') filed with the Securities 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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''): The Meidell
Tactical Advantage 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
[[Page 24937]]
Equities Rule 8.600: The Meidell Tactical Advantage ETF (``Fund'').\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 adviser to the Fund is AdvisorShares
Investments, LLC (``Adviser''). American Wealth Management is the
Fund's sub-adviser (``Sub-Adviser'') and provides day-to-day portfolio
management of the Fund. Foreside Fund Services, LLC (``Distributor'')
is the principal underwriter and distributor of the Fund's Shares.
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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 adviser
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 approved NYSE Arca Equities Rule 8.600 and
the listing and trading of certain funds of the PowerShares Actively
Managed Exchange-Traded Funds Trust on the Exchange pursuant to Rule
8.600 in Securities Exchange Act Release No. 57619 (April 4, 2008)
73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission
also has approved listing and trading on the Exchange of a number of
actively managed funds under Rule 8.600. 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);
60460 (August 7, 2009), 74 FR 41468 (August 17, 2009) (SR-NYSEArca-
2009-55) (order approving listing of Dent Tactical ETF); 63076
(October 12, 2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-
2010-79) (order approving Exchange listing and trading of Cambria
Global Tactical ETF); 63802 (January 31, 2011), 76 FR 6503 (February
4, 2011) (SR-NYSEArca-2010-118) (order approving Exchange listing
and trading of the SiM Dynamic Allocation Diversified Income ETF and
SiM Dynamic Allocation Growth Income ETF).
\5\ The Trust is registered under the 1940 Act. On March 15,
2011, the Trust filed with the Commission Post-Effective Amendment
No. 20 to Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a)
and under the 1940 Act relating to the Fund (File Nos. 333-157876
and 811-22110) (``Registration Statement''). The description of the
operation of the Trust and the Fund herein is based on the
Registration Statement.
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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. Commentary .06 to
Rule 8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds.
Neither the Adviser nor the Sub-Adviser is affiliated with a broker-
dealer. In the event (a) the Adviser or the Sub-Adviser becomes newly
affiliated with a broker-dealer, or (b) any new adviser or sub-adviser
becomes affiliated with a broker-dealer, they 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, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
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 (``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are 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. 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.
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Description of the Fund
According to the Registration Statement, the Fund's investment
objective is to seek to provide long-term capital appreciation with a
secondary emphasis on capital preservation. The Fund is an actively
managed exchange-traded fund (``ETF'') and thus does not seek to
replicate the performance of a specified index. The Fund is considered
a ``fund-of-funds'' that seeks to achieve its investment objective by
primarily investing in other ETFs that offer diversified exposure to
global regions, countries, styles (market capitalization, value,
growth, etc.) or sectors, and other exchange-traded products (``ETPs,''
and, together with ETFs, ``Underlying ETPs''),\7\ including but not
limited to exchange-traded notes (``ETNs''),\8\ exchange-traded
currency trusts, and closed-end funds.\9\ The Fund will primarily
invest in U.S.-listed domestic and foreign equity-based, fixed income-
based, currency-based, and commodity-based Underlying ETPs.
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\7\ Underlying ETPs include Investment Company Units (as
described in NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked
Securities (as described in NYSE Arca Equities Rule 5.2(j)(6));
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); Trust Issued Receipts (as described in NYSE Arca
Equities Rule 8.200); Commodity-Based Trust Shares (as described in
NYSE Arca Equities Rule 8.201); Currency Trust Shares (as described
in NYSE Arca Equities Rule 8.202); Commodity Index Trust Shares (as
described in NYSE Arca Equities Rule 8.203); Trust Units (as
described in NYSE Arca Equities Rule 8.500); Managed Fund Shares (as
described in NYSE Arca Equities Rule 8.600); and closed-end funds.
\8\ ETNs are debt obligations of investment banks that are
traded on exchanges and the returns of which are linked to the
performance of market indexes.
\9\ The Fund, through its investment in Underlying ETPs, may
invest in closed-end funds, pooled investment vehicles that are
registered under the 1940 Act and whose shares are listed and traded
on U.S. national securities exchanges.
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The Sub-Adviser will seek to achieve the Fund's investment
objective by managing a tactical strategy that has the ability to
dynamically rebalance the Fund's portfolio from as much as 100% equity-
based assets to 100% fixed income-based assets or cash and cash
equivalents depending on market trends. This is a long-only tactical
strategy that seeks to minimize portfolio losses by rotating out of
higher volatility assets and into lower volatility assets when the Sub-
Adviser believes there are significant risks in the equity markets.
Risk management is an integral part of the Sub-Adviser's investment
strategy. The Fund will not invest in leveraged, inverse, or inverse
leveraged Underlying ETPs.
The Sub-Adviser uses a quantitative tactical methodology to
identify the Underlying ETPs believed to be participating in long-term
``durable trends'' within the market. This model enables the Sub-
Adviser to evaluate, rank, and select the appropriate mix of
investments in Underlying ETPs given market conditions.
The Sub-Adviser's investment philosophy emphasizes investments in
broad market indexes and market sector indexes. In general, the Fund
will
[[Page 24938]]
purchase or increase its exposure to Underlying ETPs that track equity
markets or market sectors when the Sub-Adviser's quantitative tactical
asset allocation model and risk analysis indicates that the applicable
market or sector is at low risk of losing value or presents opportunity
for growth and appreciation. The Fund will generally sell interests in,
or reduce investment exposure to, Underlying ETPs tracking equity
markets or market sectors in favor of fixed income-based Underlying
ETPs or cash positions when the Sub-Adviser's quantitative tactical
asset allocation model and risk analysis indicates that such markets
have become, or are becoming, risky.
The Sub-Adviser uses a quantitative metric to rank and select the
appropriate mix of investments given prevailing market conditions. The
Sub-Adviser's quantitative tactical asset allocation model determines
asset allocation between bonds and stocks, equity selection, sector
concentration, as well as limiting portfolio drawdown. The general
guidelines for the Fund's portfolio are as follows:
Assets Held by Underlying ETPs
------------------------------------------------------------------------
------------------------------------------------------------------------
Equity-Based................................................ 0%-100%
Fixed Income-Based/Cash..................................... 0%-100%
------------------------------------------------------------------------
Depending on the economic and market climate, the portfolio may
increase or decrease portfolio concentrations within the ranges shown
below.
------------------------------------------------------------------------
------------------------------------------------------------------------
Foreign Equity.............................................. 0%-50%
Large Cap Equity............................................ 0%-50%
Mid Cap Equity.............................................. 0%-30%
Small Cap Equity............................................ 0%-30%
Commodities................................................. 0%-20%
Currencies.................................................. 0%-10%
------------------------------------------------------------------------
The Fund's portfolio may temporarily exceed these percentage ranges
for short periods without notice, and the Sub-Adviser may alter the
percentage ranges when it deems appropriate.
Additional quantitative tools are used to evaluate the probability
of investment success within the equity market. These tools allow the
Sub-Adviser to get into or out of equity positions, and include but are
not limited to:
Interest rate spreads.
Options activity.
Market breadth.
Equity index trends.
The Fund intends to invest primarily in the securities of
Underlying ETPs consistent with the requirements of Section 12(d)(1) of
the 1940 Act, or any rule, regulation, or order of the Commission or
interpretation thereof. The Fund will only make such investments in
conformity with the requirements of Section 817 of the Internal Revenue
Code of 1986, as amended (``Code'').\10\
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\10\ 26 CFR 1.817-5.
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The Fund, through its investment in Underlying ETPs, may invest in
equity securities. Equity securities represent ownership interests in a
company or partnership and consist of common stocks, preferred stocks,
warrants to acquire common stock, securities convertible into common
stock, investments in master limited partnerships securities traded in
the U.S. on registered exchanges or the over-the-counter market,
rights, and Depositary Receipts.\11\
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\11\ American Depositary Receipts (``ADRs''), as well as Global
Depositary Receipts (``GDRs''), are certificates evidencing
ownership of shares of a foreign issuer. Depositary Receipts may be
sponsored or unsponsored. These certificates are issued by
depositary banks and generally trade on an established market in the
United States or elsewhere. The underlying shares are held in trust
by a custodian bank or similar financial institution in the issuer's
home country. The depositary bank may not have physical custody of
the underlying securities at all times and may charge fees for
various services, including forwarding dividends and interest and
corporate actions.
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The Fund, through its investments in Underlying ETPs, may invest in
the equity securities of foreign issuers, including the securities of
foreign issuers in emerging market countries. Emerging or developing
markets exist in countries that are considered to be in the initial
stages of industrialization.
The Fund, through its investment in Underlying ETPs, may invest in
debt securities. A debt security is a security consisting of a
certificate or other evidence of a debt (secured or unsecured) on which
the issuing company or governmental body promises to pay the holder
thereof a fixed, variable, or floating rate of interest for a specified
length of time, and to repay the debt on the specified maturity date.
Some debt securities, such as zero coupon bonds, do not make regular
interest payments, but are issued at a discount to their principal or
maturity value. Debt securities include a variety of fixed income
obligations, including, but not limited to, corporate debt securities,
government securities, municipal securities, convertible securities,
and mortgage-backed securities. Debt securities include investment-
grade securities, non-investment-grade securities, and unrated
securities. Debt securities are subject to a variety of risks, such as
interest rate risk, income risk, call/prepayment risk, inflation risk,
credit risk, and currency risk.
The Fund, or the Underlying ETPs in which it invests, may invest in
U.S. government securities, U.S. Treasury zero-coupon bonds, and real
estate investment trusts.
Other Investments
To respond to adverse market, economic, political, or other
conditions, the Fund may invest 100% of its total assets, without
limitation, in high-quality debt securities and money market
instruments either directly or through Underlying ETPs. The Fund may be
invested in these instruments for extended periods, depending on the
Sub-Adviser's assessment of market conditions. These debt securities
and money market instruments include shares of other mutual funds,
commercial paper, certificates of deposit, bankers' acceptances, U.S.
Government securities, repurchase and reverse repurchase
agreements,\12\ and bonds that are BBB or higher.
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\12\ The Fund may enter into repurchase agreements with
financial institutions, which may be deemed to be loans. The Fund
follows certain procedures designed to minimize the risks inherent
in such agreements. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established
financial institutions whose condition will be continually monitored
by the Sub-Adviser. In addition, the value of the collateral
underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such
collateral. In addition, the Fund may enter into reverse repurchase
agreements without limit as part of the Fund's investment strategy.
Reverse repurchase agreements involve sales by the Fund of portfolio
assets concurrently with an agreement by the Fund to repurchase the
same assets at a later date at a fixed price.
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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 the underlying
security will be deemed to be the issuer of any respective Depositary
Receipt.\13\
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\13\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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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. This limitation
does not apply to investments in securities issued or guaranteed by the
U.S. Government, its agencies or
[[Page 24939]]
instrumentalities, or shares of investment companies. The Fund will not
invest 25% or more of its total assets in any investment company that
so concentrates. For purposes of this policy, the issuer of the
underlying security will be deemed to be the issuer of any respective
ADRs or GDRs.\14\
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\14\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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The Fund may not purchase illiquid securities.\15\
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\15\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14617 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the ETF. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act of 1933).
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Except for Underlying ETPs that may hold non-U.S. issues, the Fund
will not otherwise invest in non-U.S. issues.
According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment Company (``RIC'')
pursuant to Subchapter M under the Code.\16\
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\16\ 26 U.S.C. 851. One of several requirements for RIC
qualification is that the Fund must receive at least 90% of the
Fund's gross income each year from dividends, interest, payments
with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other
income derived with respect to the Fund's investments in stock,
securities, foreign currencies and net income from an interest in a
qualified publicly traded partnership (``90% Test''). A second
requirement for qualification as a RIC is that the Fund must
diversify its holdings so that, at the end of each fiscal quarter of
the Fund's taxable year: (a) At least 50% of the market value of the
Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other RICs, and other
securities, with these other securities limited, in respect to any
one issuer, to an amount not greater than 5% of the value of the
Fund's total assets or 10% of the outstanding voting securities of
such issuer; and (b) not more than 25% of the value of its total
assets are invested in the securities (other than U.S. Government
securities or securities of other RICs) of any one issuer or two or
more issuers which the Fund controls and which are engaged in the
same, similar, or related trades or businesses, or the securities of
one or more qualified publicly traded partnership (``Asset Test'').
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The Fund calculates net asset value (``NAV'') by: (i) Taking the
current market value of its total assets; (ii) subtracting any
liabilities; and (iii) dividing that amount by the total number of
Shares owned by shareholders. The NAV of the Fund will normally be
determined as of the close of the regular trading session on the New
York Stock Exchange (``NYSE'') (ordinarily 4:00 p.m. Eastern Time) on
each business day. In calculating NAV, the Fund generally values
investment portfolios at market price. If market prices are unavailable
or are unreliable, or when the value of a security has been materially
affected by events occurring after the relevant market closes, the Fund
will price those securities at fair value as determined in good faith
using methods approved by the Fund's Board of Trustees.
Creations and redemptions of Shares occur in large specified blocks
of Shares, referred to as ``Creation Units.'' According to the
Registration Statement, the Shares of the Fund are ``created'' at their
NAV by Authorized Participants only in block-size Creation Units of
25,000 Shares or more. An Authorized Participant enters into an
agreement (``Participant Agreement'') with the Fund's Distributor or a
Depository Trust Company participant that has executed a Participant
Agreement with the Distributor, and deposits into the Fund a portfolio
of securities closely approximating the holdings of the Fund and a
specified amount of cash, together totaling the NAV of the Creation
Unit(s), in exchange for 25,000 Shares of the Fund (or multiples
thereof). Similarly, Shares can only be redeemed in Creation Units,
generally 25,000 Shares or more, principally in-kind for a portfolio of
securities held by the Fund and a specified amount of cash together
totaling the NAV of the Creation Unit(s). Shares are not redeemable
from the Fund except when aggregated in Creation Units. The prices at
which creations and redemptions occur are based on the next calculation
of NAV after an order is received in a form prescribed in the
Participant Agreement.
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 under the Exchange Act,\17\ 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 NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio will be made available to all market
participants at the same time.
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\17\ 17 CFR 240.10A-3.
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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
(``Bid/Ask Price''),\18\ 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.\19\
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\18\ 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.
\19\ 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.
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On a daily basis, the Adviser 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, 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 NYSE via the
National Securities Clearing Corporation. The basket represents one
Creation Unit of the Fund.
[[Page 24940]]
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 for the Shares 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, and, for the Underlying ETPs, will be
available from the national securities exchange on which they are
listed. In addition, the Portfolio Indicative Value, as defined in NYSE
Arca Equities Rule 8.600(c)(3), will be disseminated by the Exchange at
least every 15 seconds during the Core Trading Session by one or more
major market data vendors. 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 will 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. All
terms relating to the Fund that are referred to, but not defined in,
this proposed rule change are defined 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.\20\ 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 and/or the
financial instruments comprising the Disclosed Portfolio 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.
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\20\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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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
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 comprehensive
surveillance sharing agreement.\21\ In addition, the Exchange could
obtain information from the U.S. exchanges on which the Underlying ETPs
are listed and traded.
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\21\ For a list of the current members of ISG, see https://www.isgportal.org. 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. All Underlying ETPs
are listed on national securities exchanges, all of which are
members of ISG.
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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) \22\ 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.
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\22\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will
[[Page 24941]]
be listed and traded on the Exchange pursuant to the initial and
continued listing criteria in NYSE Arca Equities Rule 8.600. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable Federal
securities laws. The Exchange may obtain information via ISG from other
exchanges that are members of ISG or with which the Exchange has
entered into a comprehensive surveillance sharing agreement. All
Underlying ETPs will be listed on national securities exchanges, all of
which are members of ISG, and the listing and trading of such
securities is subject to rules of the exchanges on which they are
listed and traded, as approved by the Commission. The Fund will not
invest in leveraged, inverse, or inverse leveraged Underlying ETPs. The
Fund may not purchase illiquid securities. Except for Underlying ETPs
that may hold non-U.S. issues, the Fund will not otherwise invest in
non-U.S. issues.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Quotation and last-sale
information for the Shares will be available via the CTA high-speed
line and, for the Underlying ETPs, will be available from the national
securities exchange on which they are listed. In addition, the
Portfolio Indicative Value will be disseminated by the Exchange at
least every 15 seconds during the Core Trading Session. The Fund's Web
site will include a form of the Prospectus for the Fund that may be
downloaded, as well as additional quantitative information updated on a
daily basis. 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 that will form the
basis for the Fund's calculation of NAV at the end of the business day.
On a daily basis, the Adviser 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 for the Fund will
include a form of the Prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information.
Moreover, 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. Trading
in Shares of the Fund will be halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. 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. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Portfolio Indicative
Value, the Disclosed Portfolio, and quotation and last-sale information
for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation
and last-sale information for the Shares.
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 (i) as the Commission may
designate up to 90 days of such date 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 shall:
(A) By order approve or disapprove such 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-2011-18 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-NYSEArca-2011-18. 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
[[Page 24942]]
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 Web site 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 the
filing will also 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 available publicly. All submissions should refer to
File No. SR-NYSEArca-2011-18 and should be submitted on or before May
24, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-10717 Filed 5-2-11; 8:45 am]
BILLING CODE 8011-01-P
