Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change To List and Trade Managed Fund Shares of TrimTabs Float Shrink ETF Under NYSE Arca Equities Rule 8.600, 62873-62876 [2011-26135]

Download as PDF Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Notices necessary or appropriate in furtherance of the purposes of the Act. ‘‘In calculating the number of option class assignments, equity options including ETFs, ETNs and HOLDRS will be counted. Currencies and indexes will not be counted in the number of option class assignments.’’ C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others While changes to the Fee Schedule pursuant to this proposal are effective upon filing, the Exchange has designated these changes to be operative on October 3, 2011. No written comments were either solicited or received. 2. Statutory Basis The Exchange believes that its proposal to amend its Fee Schedule is consistent with Section 6(b) of the Act 8 in general, and furthers the objectives of Section 6(b)(4) of the Act 9 in particular, in that it is an equitable allocation of reasonable fees and other charges among Exchange members and other persons using its facilities. The Exchange believes that the proposed amendments to the SQT Fees are reasonable because the fees remain the same, except the verbiage is simplified. The Exchange believes that the fees continue to be reasonable because SQT Fees are lower than RSQT Fees. This is because SQTs have more out-of-pocket costs associated with their streaming quote systems as compared to RSQTs. For example, SQTs generally have to purchase additional software programs and hardware from outside vendor to support their streaming quote systems, in addition to incurring additional costs associated with market data to enable them to price options within their particular options pricing model. Furthermore, the Exchange believes that excluding currencies and indexes from the basis of the calculation of the SQT Fees is reasonable because the Exchange is seeking to incentivize SQTs to transact equity options including ETFs, ETNs and HOLDRs.10 The Exchange believes that the proposed calculation of the SQT Fees is equitable and not unfairly discriminatory because the calculation will be uniformly applied to all SQTs. The exclusion of the currencies and indexes from the calculation of option class assignments to determine the amount of SQT Fees will apply equally to all SQTs. mstockstill on DSK4VPTVN1PROD with NOTICES note the method of calculation as follows: The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(ii) of the Act.11 At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission shall institute proceedings to determine whether the proposed rule should be approved or disapproved. 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 not 8 15 U.S.C. 78f(b). U.S.C. 78f(b)(4). 10 The Exchange is excluding currencies and indexes. 9 15 VerDate Mar<15>2010 20:47 Oct 07, 2011 Jkt 226001 III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action 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 No. SR– Phlx–2011–130 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 No. SR–Phlx-2011–130. This file number should be included on the subject line if e-mail is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for 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 such filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File No. SR–Phlx–2011– 130 and should be submitted on or before November 1, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.12 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–26134 Filed 10–7–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65468; File No. SR– NYSEArca–2011–51] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change To List and Trade Managed Fund Shares of TrimTabs Float Shrink ETF Under NYSE Arca Equities Rule 8.600 October 3, 2011. I. Introduction On July 29, 2011, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of TrimTabs Float Shrink ETF (‘‘Fund’’) under NYSE Arca Equities Rule 8.600. The proposed rule change was published for comment in the Federal Register on August 18, 12 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 11 15 PO 00000 U.S.C. 78s(b)(3)(A)(ii). Frm 00119 Fmt 4703 Sfmt 4703 62873 E:\FR\FM\11OCN1.SGM 11OCN1 62874 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Notices 2011.3 The Commission received no comments on the proposal [CONFIRM]. This order grants approval of the proposed rule change. II. Description of the Proposed Rule Change The Exchange proposes to list and trade the Shares of the Fund pursuant to NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares on the Exchange. 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.4 The investment adviser to the Fund is AdvisorShares Investments, LLC (‘‘Adviser’’). Trim Tabs Asset Management, LLC (‘‘TrimTabs’’ or ‘‘SubAdviser’’) is the Fund’s sub-adviser and provides day-to-day portfolio management of the Fund. Foreside Fund Services, LLC is the principal underwriter and distributor of the Fund’s Shares. The Exchange states that neither the Adviser nor the Sub-Adviser is affiliated with a broker-dealer.5 Description of the Fund The Fund is an actively-managed exchange-traded fund that seeks to achieve its investment objective primarily by investing in the broad U.S. equity market, as represented by the Russell 3000® Index (‘‘Index’’). The Fund seeks to achieve this goal by investing in stocks with liquidity and fundamental characteristics that are historically associated with superior long-term performance. The SubAdviser designed the following quantitative stock selection rules to make allocation decisions and to protect against dramatic over or under mstockstill on DSK4VPTVN1PROD with NOTICES 3 See Securities Exchange Act Release No. 65126 (August 12, 2011), 76 FR 51442 (‘‘Notice’’). 4 The Trust is registered under the Investment Company Act of 1940 (‘‘1940 Act’’). On January 19, 2011, the Trust filed with the Commission 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’’). In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the1940 Act. See Investment Company Act Release No. 29291 (May 28, 2010) (File No. 812–13677) (‘‘Exemptive Order’’). 5 See Commentary .06 to NYSE Arca Equities Rule 8.600. The Exchange represents that 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, it will implement a fire wall with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. VerDate Mar<15>2010 20:47 Oct 07, 2011 Jkt 226001 weighting of individual securities in the Fund’s portfolio. The Sub-Adviser will rank stocks in the Index based on the following criteria: I. The decrease in their outstanding shares over approximately the past 120 days (‘‘float shrink’’); II. The increase in free cash flow (the money available to the company that is not used to pay for its daily operations) over approximately the past 120 days; and III. The decrease in leverage over approximately the past 120 days. Leverage is measured as the ratio of total liabilities to total assets. The SubAdviser will use the relative decrease in leverage, rather than amount of leverage itself, as a criterion because the degree of leverage varies across industries. The top decile of each respective ranking will consist of the stocks of the companies with (I) the strongest reduction in shares outstanding, (II) the strongest growth in free cash flow, and (III) the largest decrease in leverage, respectively. Stock Selection Algorithm The Sub-Adviser will use an algorithm to give a relative weight to the three decile rankings, combining them in a single ranking (combined ranking). The algorithm will place a higher weight on the float shrink ranking, followed by the free cash flow ranking, followed by the leverage ranking. The Fund, under normal circumstances,6 will invest in 80 to 120 stocks from among the top 10% of stocks in the combined ranking. The Sub-Adviser’s investment process is quantitative. The Sub-Adviser designed the following stock selection rules, which involve liquidity, weighting, rebalancing, and trading considerations: Liquidity Screening Before trading, the Fund will estimate the liquidity impact of its suggested trades. Specifically, the Fund will avoid stocks whose average trading volume over the past 30 days would be less than 50% of the size of the Fund’s proposed trades. As a result, the Fund will not invest in stocks that meet its investment criteria in terms of float shrink, free cash flow growth, and leverage if their trading volume is below such levels. As 6 The term ‘‘under normal market circumstances’’ includes, but is not limited to, the absence of extreme volatility or trading halts in the fixed income markets or the financial markets generally; operational issues causing dissemination of inaccurate market information; or force majeure type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption or any similar intervening circumstance. PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 such, the Fund will not invest in stocks that it deems to be illiquid. Weighting and Sector Allocation Although the Fund initially will invest an equal dollar amount in the stocks that meet its investment criteria, the Fund is not market capitalization weighted. Thus, the Fund will overweight small-cap stocks and midcap stocks relative to traditional, market cap weighted indices.7 The relative weights of the sectors in the Fund may vary significantly from those of traditional, market cap weighted indices. Stocks with favorable liquidity characteristics may be concentrated in certain sectors. Sector concentration might increase the Fund’s volatility over the short term. The Fund will not correct these sector effects because the Sub-Adviser’s research shows that historically they are a source of long-term outperformance. Other Investments To respond to adverse market, economic, political, or other conditions, the Fund may invest 100% of its total assets, without limitation, in short-term, high-quality debt securities and money market instruments. The Fund may invest in these instruments for extended periods, depending on the SubAdviser’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, including U.S. Treasury zero-coupon bonds, repurchase and reverse repurchase agreements,8 and bonds that are BBB or higher. The Fund will seek to qualify for treatment as a Regulated Investment Company under Subchapter M of the 7 Mid-sized companies may be more volatile than large-capitalization companies, and returns on investments in stocks of mid-sized companies could trail the returns on investments in stocks of larger or smaller companies. Stock prices of small capitalization companies may be more volatile than those of larger companies and, therefore, the Fund’s Share price may be more volatile than those of funds that invest a larger percentage of their assets in stocks issued by larger-capitalization companies. 8 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, wellcapitalized and well-established financial institutions whose condition will be continually monitored by the Sub-Adviser. 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. E:\FR\FM\11OCN1.SGM 11OCN1 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES Internal Revenue Code. 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. In addition, 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 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. Pursuant to the terms of the Exemptive Order, the Fund will not invest in options contracts, futures contracts or swap agreements. The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. The Fund will not purchase illiquid securities. In addition, the Fund will not invest in non-U.S.-registered equity securities, loan participation agreements, and Rule 144A securities. Additional information regarding the Trust, Fund, Shares, Fund’s investment strategies, risks, creation and redemption procedures, fees, portfolio holdings and disclosure policies, distributions and taxes, availability of information, trading rules and halts, and surveillance procedures, among other things, can be found in the Notice and the Registration Statement, as applicable.9 III. Discussion and Commission’s Findings The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of Section 6 of the Act and the rules and regulations thereunder applicable to a national securities exchange.10 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,11 which requires, among other things, that the Exchange’s rules be 9 See Notice and Registration Statement, supra notes 3 and 4, respectively. 10 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 11 17 U.S.C. 78f(b)(5). VerDate Mar<15>2010 20:47 Oct 07, 2011 Jkt 226001 designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that the Shares must comply with the requirements of NYSE Arca Equities Rule 8.600 to be listed and traded on the Exchange. The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,12 which sets forth Congress’ finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for, and transactions in, securities. Quotation and last-sale information for the Shares will be available via the Consolidated Tape Association high-speed line. In addition, the Portfolio Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be updated and disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session on the Exchange. 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 the net asset value (‘‘NAV’’) at the end of the business day.13 The Fund will calculate NAV once each business day as of the regularly scheduled close of trading on the Exchange (normally 4 p.m. Eastern Time). In addition, information regarding market price and trading volume of the Shares is and will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and the previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. The 12 15 U.S.C. 78k–1(a)(1)(C)(iii). a daily basis, the Adviser will disclose on the Fund’s Web site 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. 13 On PO 00000 Frm 00121 Fmt 4703 Sfmt 4703 62875 intra-day, closing, and settlement prices of the portfolio securities are also readily available from the national securities exchanges trading such securities, automated quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. The Fund’s website will also include a form of the prospectus for the Fund, information relating to NAV, and other quantitative and trading information. The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Commission notes that the Exchange will obtain a representation from the issuer of the Shares that the NAV 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.14 In addition, the Exchange will halt trading in the Shares under the specific circumstances set forth in NYSE Arca Equities Rule 8.600(d)(2)(D), and may halt trading in the Shares if trading is not occurring in the securities and/or the financial instruments comprising the Disclosed Portfolio of the Fund, or if other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present.15 The Exchange will consider the suspension of trading in or removal from listing of the Shares if the Portfolio Indicative Value is no longer calculated or available or the Disclosed Portfolio is not made available to all market participants at the same time.16 The Exchange represents that neither the Adviser nor the Sub-Adviser is affiliated with a broker-dealer.17 The 14 See NYSE Arca Equities Rule 8.600(d)(1)(B). respect to trading halts, the Exchange may consider other relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund. 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. 16 See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii). 17 See supra note 5 and accompanying text. The Commission notes that 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 15 With E:\FR\FM\11OCN1.SGM Continued 11OCN1 62876 Federal Register / Vol. 76, No. 196 / Tuesday, October 11, 2011 / Notices Commission notes that the Reporting Authority that provides the Disclosed Portfolio must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material non-public information regarding the actual components of the portfolio.18 The Exchange further represents that the Shares are deemed to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including: (1) The Shares will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. (2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (3) The Exchange’s surveillance procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. (4) Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (‘‘ETP’’) Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Unit aggregations (and that Shares are not individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (c) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated Portfolio Indicative Value will not be calculated or publicly disseminated; (d) how information regarding the Portfolio Indicative Value is disseminated; (e) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information. (5) For initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 under the Act,19 as provided by NYSE Arca Equities Rule 5.3. (6) The Fund will not invest in nonU.S. equity securities, loan participation agreements, and Rule 144A securities. In addition, pursuant to the terms of the Exemptive Order, the Fund will not invest in options contracts, futures contracts, or swap agreements. The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. The Fund will not purchase illiquid securities. (7) A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. This approval order is based on the Exchange’s representations. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 20 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It Is Therefore Ordered, pursuant to Section 19(b)(2) of the Act,21 that the proposed rule change (SR–NYSEArca– 2011–51) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Elizabeth M. Murphy, Secretary. [FR Doc. 2011–26135 Filed 10–7–11; 8:45 am] mstockstill on DSK4VPTVN1PROD with NOTICES BILLING CODE 8011–01–P 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. 18 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii). VerDate Mar<15>2010 20:47 Oct 07, 2011 Jkt 226001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65479; File No. SR–FICC– 2011–06] Self-Regulatory Organizations; Fixed Income Clearing Corporation; Order Approving Proposed Rule Change To Eliminate Two Rules of the MortgageBacked Securities Division That FICC Believes Are No Longer Utilized or Necessary October 4, 2011. I. Introduction On August 17, 2011, Fixed Income Clearing Corporation (‘‘FICC’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change SR–FICC–2011– 06 pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder.2 The proposed rule change was published for comment in the Federal Register on August 31, 2011.3 The Commission received no comment letters. For the reasons discussed below, the Commission is granting approval of the proposed rule change. II. Description This rule change will eliminate two Mortgage-Backed Securities Division (‘‘MBSD’’) rules which FICC believes are no longer utilized or necessary. The first rule that will be eliminated is Article II, Rule 1, Section 3, which was put in place to stem certain abuses of cash adjustments taking place in the mid to late 1990s (specifically, traders were manipulating pricing on their submission of trades in order to maximize their cash adjustments). Because cash adjustments were deleted from the rules via the approved rule filing FICC 2010–08,4 FICC believes the rule imposing trade restrictions between accounts is no longer necessary. The second rule that will be eliminated relates to the ‘‘match modes’’ currently referenced in the MBSD rules. Currently, the rules provide that dealers may elect to have the comparison of their transactions governed in either ‘‘Exact Match Mode’’ or ‘‘Net Position Match Mode.’’ In Exact Match Mode, trade input that matches in all other respects will be compared only if the par amount of the eligible securities reported to have been sold or purchased 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 Securities Exchange Act Release No. 34–65198 (August 25, 2011), 76 FR 54268 (August 31, 2011). 4 See Securities Exchange Act Release No. 34– 63611 (December 28, 2010), 76 FR 408 (January 4, 2011) (SR–FICC–2010–08). 2 17 19 See 17 CFR 240.10A–3. U.S.C. 78f(b)(5). 21 15 U.S.C. 78s(b)(2). 22 17 CFR 200.30–3(a)(12). 20 15 PO 00000 Frm 00122 Fmt 4703 Sfmt 4703 E:\FR\FM\11OCN1.SGM 11OCN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 196 (Tuesday, October 11, 2011)]
[Notices]
[Pages 62873-62876]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-26135]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65468; File No. SR-NYSEArca-2011-51]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change To List and Trade Managed Fund Shares 
of TrimTabs Float Shrink ETF Under NYSE Arca Equities Rule 8.600

October 3, 2011.

I. Introduction

    On July 29, 2011, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade shares (``Shares'') of TrimTabs Float Shrink ETF 
(``Fund'') under NYSE Arca Equities Rule 8.600. The proposed rule 
change was published for comment in the Federal Register on August 18,

[[Page 62874]]

2011.\3\ The Commission received no comments on the proposal [CONFIRM]. 
This order grants approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 65126 (August 12, 
2011), 76 FR 51442 (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares of the Fund 
pursuant to NYSE Arca Equities Rule 8.600, which governs the listing 
and trading of Managed Fund Shares on the Exchange. 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.\4\ The 
investment adviser to the Fund is AdvisorShares Investments, LLC 
(``Adviser''). Trim Tabs Asset Management, LLC (``TrimTabs'' or ``Sub-
Adviser'') is the Fund's sub-adviser and provides day-to-day portfolio 
management of the Fund. Foreside Fund Services, LLC is the principal 
underwriter and distributor of the Fund's Shares. The Exchange states 
that neither the Adviser nor the Sub-Adviser is affiliated with a 
broker-dealer.\5\
---------------------------------------------------------------------------

    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On January 19, 2011, the Trust filed with the 
Commission 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''). In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the1940 Act. See Investment Company Act Release No. 
29291 (May 28, 2010) (File No. 812-13677) (``Exemptive Order'').
    \5\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that 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, 
it will implement a fire wall with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to the 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

    The Fund is an actively-managed exchange-traded fund that seeks to 
achieve its investment objective primarily by investing in the broad 
U.S. equity market, as represented by the Russell 3000[supreg] Index 
(``Index''). The Fund seeks to achieve this goal by investing in stocks 
with liquidity and fundamental characteristics that are historically 
associated with superior long-term performance. The Sub-Adviser 
designed the following quantitative stock selection rules to make 
allocation decisions and to protect against dramatic over or under 
weighting of individual securities in the Fund's portfolio.
    The Sub-Adviser will rank stocks in the Index based on the 
following criteria:
    I. The decrease in their outstanding shares over approximately the 
past 120 days (``float shrink'');
    II. The increase in free cash flow (the money available to the 
company that is not used to pay for its daily operations) over 
approximately the past 120 days; and
    III. The decrease in leverage over approximately the past 120 days. 
Leverage is measured as the ratio of total liabilities to total assets. 
The Sub-Adviser will use the relative decrease in leverage, rather than 
amount of leverage itself, as a criterion because the degree of 
leverage varies across industries.
    The top decile of each respective ranking will consist of the 
stocks of the companies with (I) the strongest reduction in shares 
outstanding, (II) the strongest growth in free cash flow, and (III) the 
largest decrease in leverage, respectively.

Stock Selection Algorithm

    The Sub-Adviser will use an algorithm to give a relative weight to 
the three decile rankings, combining them in a single ranking (combined 
ranking). The algorithm will place a higher weight on the float shrink 
ranking, followed by the free cash flow ranking, followed by the 
leverage ranking. The Fund, under normal circumstances,\6\ will invest 
in 80 to 120 stocks from among the top 10% of stocks in the combined 
ranking. The Sub-Adviser's investment process is quantitative. The Sub-
Adviser designed the following stock selection rules, which involve 
liquidity, weighting, rebalancing, and trading considerations:
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    \6\ The term ``under normal market circumstances'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the fixed income markets or the financial markets 
generally; operational issues causing dissemination of inaccurate 
market information; or force majeure type events such as systems 
failure, natural or man-made disaster, act of God, armed conflict, 
act of terrorism, riot or labor disruption or any similar 
intervening circumstance.
---------------------------------------------------------------------------

Liquidity Screening

    Before trading, the Fund will estimate the liquidity impact of its 
suggested trades. Specifically, the Fund will avoid stocks whose 
average trading volume over the past 30 days would be less than 50% of 
the size of the Fund's proposed trades. As a result, the Fund will not 
invest in stocks that meet its investment criteria in terms of float 
shrink, free cash flow growth, and leverage if their trading volume is 
below such levels. As such, the Fund will not invest in stocks that it 
deems to be illiquid.

Weighting and Sector Allocation

    Although the Fund initially will invest an equal dollar amount in 
the stocks that meet its investment criteria, the Fund is not market 
capitalization weighted. Thus, the Fund will overweight small-cap 
stocks and mid-cap stocks relative to traditional, market cap weighted 
indices.\7\
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    \7\ Mid-sized companies may be more volatile than large-
capitalization companies, and returns on investments in stocks of 
mid-sized companies could trail the returns on investments in stocks 
of larger or smaller companies. Stock prices of small capitalization 
companies may be more volatile than those of larger companies and, 
therefore, the Fund's Share price may be more volatile than those of 
funds that invest a larger percentage of their assets in stocks 
issued by larger-capitalization companies.
---------------------------------------------------------------------------

    The relative weights of the sectors in the Fund may vary 
significantly from those of traditional, market cap weighted indices. 
Stocks with favorable liquidity characteristics may be concentrated in 
certain sectors. Sector concentration might increase the Fund's 
volatility over the short term. The Fund will not correct these sector 
effects because the Sub-Adviser's research shows that historically they 
are a source of long-term outperformance.

Other Investments

    To respond to adverse market, economic, political, or other 
conditions, the Fund may invest 100% of its total assets, without 
limitation, in short-term, high-quality debt securities and money 
market instruments. The Fund may invest 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, including 
U.S. Treasury zero-coupon bonds, repurchase and reverse repurchase 
agreements,\8\ and bonds that are BBB or higher.
---------------------------------------------------------------------------

    \8\ 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. 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.
---------------------------------------------------------------------------

    The Fund will seek to qualify for treatment as a Regulated 
Investment Company under Subchapter M of the

[[Page 62875]]

Internal Revenue Code. 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. In addition, 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 
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.
    Pursuant to the terms of the Exemptive Order, the Fund will not 
invest in options contracts, futures contracts or swap agreements. The 
Fund's investments will be consistent with the Fund's investment 
objective and will not be used to enhance leverage. The Fund will not 
purchase illiquid securities. In addition, the Fund will not invest in 
non-U.S.-registered equity securities, loan participation agreements, 
and Rule 144A securities.
    Additional information regarding the Trust, Fund, Shares, Fund's 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings and disclosure policies, distributions and taxes, 
availability of information, trading rules and halts, and surveillance 
procedures, among other things, can be found in the Notice and the 
Registration Statement, as applicable.\9\
---------------------------------------------------------------------------

    \9\ See Notice and Registration Statement, supra notes 3 and 4, 
respectively.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\10\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\11\ which 
requires, among other things, that the Exchange's rules be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission notes that 
the Shares must comply with the requirements of NYSE Arca Equities Rule 
8.600 to be listed and traded on the Exchange.
---------------------------------------------------------------------------

    \10\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \11\ 17 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\12\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association high-speed line. In addition, the Portfolio Indicative 
Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be 
updated and disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session on the Exchange. 
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 the 
net asset value (``NAV'') at the end of the business day.\13\ The Fund 
will calculate NAV once each business day as of the regularly scheduled 
close of trading on the Exchange (normally 4 p.m. Eastern Time). In 
addition, information regarding market price and trading volume of the 
Shares is and will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. The intra-day, closing, and settlement prices of 
the portfolio securities are also readily available from the national 
securities exchanges trading such securities, automated quotation 
systems, published or other public sources, or on-line information 
services such as Bloomberg or Reuters. The Fund's website will also 
include a form of the prospectus for the Fund, information relating to 
NAV, and other quantitative and trading information.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \13\ On a daily basis, the Adviser will disclose on the Fund's 
Web site 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.
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV 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.\14\ 
In addition, the Exchange will halt trading in the Shares under the 
specific circumstances set forth in NYSE Arca Equities Rule 
8.600(d)(2)(D), and may halt trading in the Shares if trading is not 
occurring in the securities and/or the financial instruments comprising 
the Disclosed Portfolio of the Fund, or if other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.\15\ The Exchange will consider the suspension of 
trading in or removal from listing of the Shares if the Portfolio 
Indicative Value is no longer calculated or available or the Disclosed 
Portfolio is not made available to all market participants at the same 
time.\16\ The Exchange represents that neither the Adviser nor the Sub-
Adviser is affiliated with a broker-dealer.\17\ The

[[Page 62876]]

Commission notes that the Reporting Authority that provides the 
Disclosed Portfolio must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the actual components of the 
portfolio.\18\
---------------------------------------------------------------------------

    \14\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \15\ With respect to trading halts, the Exchange may consider 
other relevant factors in exercising its discretion to halt or 
suspend trading in the Shares of the Fund. 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.
    \16\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii).
    \17\ See supra note 5 and accompanying text. The Commission 
notes that 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.
    \18\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
---------------------------------------------------------------------------

    The Exchange further represents that the Shares are deemed to be 
equity securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
of the special characteristics and risks associated with trading the 
Shares. Specifically, the Information Bulletin will discuss the 
following: (a) The procedures for purchases and redemptions of Shares 
in Creation Unit aggregations (and that Shares are not individually 
redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (c) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (d) how information regarding the 
Portfolio Indicative Value is disseminated; (e) the requirement that 
ETP Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act,\19\ as provided by NYSE Arca 
Equities Rule 5.3.
---------------------------------------------------------------------------

    \19\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (6) The Fund will not invest in non-U.S. equity securities, loan 
participation agreements, and Rule 144A securities. In addition, 
pursuant to the terms of the Exemptive Order, the Fund will not invest 
in options contracts, futures contracts, or swap agreements. The Fund's 
investments will be consistent with the Fund's investment objective and 
will not be used to enhance leverage. The Fund will not purchase 
illiquid securities.
    (7) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.

This approval order is based on the Exchange's representations.

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \20\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

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

IV. Conclusion

    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSEArca-2011-51) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
---------------------------------------------------------------------------
pursuant to delegated authority.\22\

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-26135 Filed 10-7-11; 8:45 am]
BILLING CODE 8011-01-P

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