Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the Rockledge SectorSAM ETF Under NYSE Arca Equities Rule 8.600, 72474-72480 [2011-30202]

Download as PDF 72474 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Notices The Exchange also stated that it has analyzed its capacity, and represented that it and the Options Price Reporting Authority (‘‘OPRA’’) have the necessary systems capacity to handle the potential additional traffic associated with trading of an expanded number of classes in the Program. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Kevin M. O’Neill, Deputy Secretary. III. Discussion SECURITIES AND EXCHANGE COMMISSION The Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.4 Specifically, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,5 which requires, among other things, that the rules of a national securities exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, 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 believes that the proposal strikes a reasonable balance between the Exchange’s desire to offer a wider array of investment opportunities and the need to avoid unnecessary proliferation of options series. In approving this proposal, the Commission notes that the Exchange has represented that it and OPRA have the necessary systems capacity to handle the potential additional traffic associated with trading of an expanded number of classes in the Program. The Commission expects the Exchange to monitor the trading volume associated with the additional options series listed as a result of this proposal and the effect of these additional series on market fragmentation and on the capacity of the Exchange’s, OPRA’s, and vendors’ automated systems. IV. Conclusion sroberts on DSK5SPTVN1PROD with NOTICES It is therefore ordered, pursuant to Section 19(b)(2) of the Act,6 that the proposed rule change (SR–NASDAQ– 2011–138) be, and it hereby is, approved. 4 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). 5 15 U.S.C. 78f(b)(5). 6 15 U.S.C. 78s(b)(2). VerDate Mar<15>2010 17:03 Nov 22, 2011 Jkt 226001 [FR Doc. 2011–30199 Filed 11–22–11; 8:45 am] BILLING CODE 8011–01–P [Release No. 34–65778; File No. SR– NYSEArca-2011–80] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the Rockledge SectorSAM ETF Under NYSE Arca Equities Rule 8.600 November 17, 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 November 3, 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. 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’’): Rockledge SectorSAM TM ETF. The text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and 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. 7 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The Exchange proposes to list and trade the following Managed Fund Shares 3 (‘‘Shares’’) under NYSE Arca Equities Rule 8.600: Rockledge SectorSAM 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’’). Rockledge Advisers LLC serves as investment sub-adviser to the Fund (‘‘Rockledge’’ or ‘‘SubAdviser’’) 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. The Bank of New York Mellon Corporation (‘‘Administrator’’) 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 has previously 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); 62502 (July 15, 2010), 75 FR 42471 (July 21, 2010) (SR–NYSEArca–2010–57) (order approving listing of AdviserShares WCM/ BNY Mellon Focused Growth ADR ETF); 63076 (October 12, 2010), 75 FR 63874 (October 18, 2010) (SR–NYSEArca–2010–79) (order approving listing of Cambria Global Tactical ETF); 63329 (November 17, 2010), 75 FR 71760 (November 24, 2010) (SR– NYSEArca–2010–86) (order approving listing of Peritus High Yield ETF). 5 The Trust is registered under the 1940 Act. On April 11, 2011, the Trust filed with the Commission Post-Effective Amendment No. 23 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, in part, on the Registration Statement. In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. See Investment Company Act Release No. 29291 (May 28, 2010) (File No. 812–13677) (‘‘Exemptive Order’’). E:\FR\FM\23NON1.SGM 23NON1 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Notices sroberts on DSK5SPTVN1PROD with NOTICES serves as administrator, custodian and transfer agent for the Fund. Commentary .06 to Rule 8.600 provides that, if the investment adviser to the investment company issuing Managed Fund Shares is affiliated with a broker-dealer, such investment adviser shall erect a ‘‘fire wall’’ between the investment adviser and the brokerdealer with respect to access to information concerning the composition and/or changes to such investment company portfolio. 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.6 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 SubAdviser is affiliated with a brokerdealer. 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 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. VerDate Mar<15>2010 17:03 Nov 22, 2011 Jkt 226001 material non-public information regarding such portfolio. According to the Registration Statement, the Fund is considered a ‘‘fund-of-funds’’ that seeks to achieve its investment objective by primarily investing in other U.S.-listed exchangetraded funds (‘‘Underlying ETFs’’) that offer diversified exposure to U.S. large capitalization (generally, Standard & Poor 500 companies) sectors. The SubAdviser will use ‘‘Sector Scoring and Allocation Methodology’’ (‘‘SectorSAM’’), which is a proprietary quantitative analysis, to forecast each sector’s excess return within a specific time horizon. The Sub-Adviser will seek to achieve the Fund’s investment objective by buying (taking long positions in) Underlying ETFs intended to capture the performance of the most promising sectors and selling (establishing short positions) in Underlying ETFs with the intent of profiting from the least promising sectors of U.S. large capitalization broad market securities. The strategy is designed to generate higher returns in a higher interest rate environment, which is often associated with increased inflation.7 Under normal circumstances,8 the Fund intends to invest equal dollar amounts to obtain both long and short exposure in the market at each major rebalancing point (on at least a monthly basis). When fully invested, the Fund will typically be both 100% long and 100% short of total portfolio value. The Sub-Adviser, in its discretion, may choose an additional long or short bias of up to 50% exposure, or may choose to hold amounts in cash or cash equivalents depending on its view of market conditions. The Underlying ETFs in which the Fund will invest will primarily be ETFs that hold substantially all of their assets in securities representing a specific index. The main risk of investing in index-based investments is the same as investing in a portfolio of securities comprising the index. The market prices of index-based investments will fluctuate in accordance with both changes in the market value of their underlying portfolio securities and due 7 The Underlying ETFs are registered under the 1940 Act and will be listed and traded in the U.S. on registered exchanges. 8 The term ‘‘under normal circumstances’’ includes, but is not limited to, the absence of extreme volatility or trading halts in the equity 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 00089 Fmt 4703 Sfmt 4703 72475 to supply and demand for the instruments on the exchanges on which they are traded (which may result in their trading at a discount or premium to their net asset values (‘‘NAVs’’). The Fund, through its investment in Underlying ETFs, 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, and investments in master limited partnerships. The Fund, through its investment in Underlying ETFs, may invest in American Depositary Receipts (‘‘ADRs’’), as well as Global Depositary Receipts (‘‘GDRs,’’ together with ADRs, ‘‘Depositary Receipts’’), which 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. ADRs are alternatives to directly purchasing the underlying foreign securities in their national markets and currencies. However, ADRs continue to be subject to many of the risks associated with investing directly in foreign securities. Investments in Foreign Equity Securities. Through Underlying ETFs, the Fund 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 risks of investing in these markets are similar to the risks of international investing in general, although the risks are greater in emerging and developing markets. Countries with emerging or developing securities markets tend to have economic structures that are less stable than countries with developed securities markets. This is because their economies may be based on only a few industries and their securities markets may trade a small number of securities. Prices on these exchanges tend to be volatile, and securities in these countries historically have offered greater potential for gain (as well as E:\FR\FM\23NON1.SGM 23NON1 72476 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Notices loss) than securities of companies located in developed countries. The Fund, through its investment in Underlying ETFs, may invest in closedend funds, pooled investment vehicles that are registered under the 1940 Act and whose shares are listed and traded on U.S. national securities exchanges. The Fund, through its investment in Underlying ETFs, may invest in shares of real estate investment trusts (‘‘REITs’’). REITs are pooled investment vehicles which invest primarily in real estate or real estate related loans. REITs are generally classified as equity REITs, mortgage REITs or a combination of equity and mortgage REITs. The Fund intends to invest primarily in the securities of Underlying ETFs 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 Underlying ETFs may invest in complex securities such as equity options, index options, repurchase agreements, foreign currency contracts and swaps.The Fund does not intend to invest in leveraged, inverse or inverse leveraged Underlying ETFs. sroberts on DSK5SPTVN1PROD with NOTICES Investment Process The following describes the SubAdviser’s investment process, as described in the Registration Statement: Quantitative Analysis. Rockledge has developed a proprietary SectorSAM TM quantitative research and evaluation process that forecasts economic excess sector returns (over/under the Standard & Poor’s 500 Index (‘‘S&P 500 Index’’) for a given timeframe). Absolute returns may be captured by investing long in sectors which are forecasted to outperform the overall U.S. equity market and shorting sectors that are forecasted to underperform the market. SectorSAM analysis provides for individual sector forecasts through analysis of over 200 fundamental, macroeconomic and technical factors influencing stock returns. The SectorSAM process creates a basket of factors that are meaningful to each economic sector within the S&P 500 Index. Rockledge reviews the information to make portfolio decisions on behalf of the Fund. Long/Short Portfolio Construction. The Fund’s portfolio will be comprised primarily of an equal dollar amount of long and short positions based on the Rockledge relative value strategy.9 9 According to the Registration Statement, the following convictions constitute the guiding philosophy for the relative investment strategy pursued by the Sub-Adviser: VerDate Mar<15>2010 17:03 Nov 22, 2011 Jkt 226001 Rockledge will actively manage and adjust the positions in its long and short portfolios as dictated by its proprietary SectorSAM quantitative research and evaluation process. Risk Management. The Fund’s core long/short portfolio construction generally will be dollar neutral, where the value of all long positions is equal to the value of all short positions. According to the Registration Statement, this provides a high degree of inherent risk control, especially when stock markets are falling. The short positions provide protection against market declines, and may offer the potential to generate positive returns when markets are falling if the short positions fall more than the long positions. Rockledge will use a number of methods to monitor and manage the inherent risk of the portfolio including the tracking of relative sector exposure, volatility, and sector correlations. Rockledge proactively will monitor its positions, exposure and performance attribution on a real-time basis to identify, monitor and mitigate the most threatening risks to the Fund’s ability to attain its investment objective. The Fund’s portfolio holdings will be disclosed on the Trust’s Web site daily after the close of trading on the Exchange and prior to the opening of trading on the Exchange the following day. Other Investments of the Fund To respond to adverse market, economic, political or other conditions,10 the Fund may invest 100% 1. The U.S. economy goes through various growth and contraction stages and the various economic sectors reflect these changes. 2. Large capitalization stocks are heavily researched and well known to equity analysts. The valuations and pricing of these stocks are very close to efficient. It is difficult to make significant outsized returns by investing in individual large capitalization stocks. 3. The valuation of each U.S. economic sector is directly based on the aggregation of valuation of the individual companies making up that sector. Up to 90% of an individual stock’s performance can be attributed to the return of the sector that stock is in. 4. Sector investing provides a better risk/return profile than individual stock investing. Sector investing eliminates company specific risk as sectors are inherently diversified. 5. Appropriately and correctly forecasted, one can capture both the upside potential of the outperforming sectors and downside loss of the underperforming sectors, relative to a broad market index. 6. There can be significant performance dispersion among various economic sectors. The ability to identify which sectors will outperform the broad market and which will underperform over a specified time period can lead to considerable cumulative absolute returns. 10 Adverse market conditions would include large downturns in the broad market value of two or PO 00000 Frm 00090 Fmt 4703 Sfmt 4703 of its total assets, without limitation, in high-quality debt securities and money market instruments either directly or through Underlying ETFs. 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,11 repurchase agreements 12 and bonds that are BBB or higher. The Fund, or the Underlying ETFs in which it invests, may invest in U.S. Treasury zero-coupon bonds. These securities are U.S. Treasury bonds more times current average volatility, where the Sub-Adviser views such downturns as likely to continue for an extended period of time. Adverse economic conditions would include significant negative results in factors deemed critical at the time by the Sub-Adviser, including significant negative results regarding unemployment, Gross Domestic Product, consumer spending or housing numbers. Adverse political conditions would include events such as government overthrows or instability, where the Sub-Adviser expects that such events may potentially create a negative market or economic condition for an extended period of time. 11 Securities issued or guaranteed by the U.S. government or its agencies or instrumentalities include U.S. Treasury securities, which are backed by the full faith and credit of the U.S. Treasury and which differ only in their interest rates, maturities, and times of issuance. U.S. Treasury bills have initial maturities of one year or less; U.S. Treasury notes have initial maturities of one to ten years; and U.S. Treasury bonds generally have initial maturities of greater than ten years. Certain U.S. government securities are issued or guaranteed by agencies or instrumentalities of the U.S. government including, but not limited to, obligations of U.S. government agencies or instrumentalities such as Fannie Mae, Freddie Mac, the Government National Mortgage Association (‘‘Ginnie Mae’’), the Small Business Administration, the Federal Farm Credit Administration, the Federal Home Loan Banks, Banks for Cooperatives (including the Central Bank for Cooperatives), the Federal Land Banks, the Federal Intermediate Credit Banks, the Tennessee Valley Authority, the Export-Import Bank of the United States, the Commodity Credit Corporation, the Federal Financing Bank, the Student Loan Marketing Association, the National Credit Union Administration and the Federal Agricultural Mortgage Corporation (‘‘Farmer Mac’’). 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. The Fund may enter into reverse repurchase agreements 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\23NON1.SGM 23NON1 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Notices sroberts on DSK5SPTVN1PROD with NOTICES which have been stripped of their unmatured interest coupons, the coupons themselves, and receipts or certificates representing interests in such stripped debt obligations and coupons. The Fund may invest in exchangetraded notes (‘‘ETNs’’). As described in the Registration Statement, ETNs are debt obligations of investment banks which are traded on exchanges and the returns of which are linked to the performance of market indexes. In addition to trading ETNs on exchanges, investors may redeem ETNs directly with the issuer on a weekly basis, typically in a minimum amount of 50,000 units, or hold the ETNs until maturity. ETNs may be riskier than ordinary debt securities and may have no principal protection. 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 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 Depositary Receipt.14 The Fund will not purchase illiquid securities, including Rule 144A securities and loan participation interests.15 13 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act. 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 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 fund. See Investment Company Act Release No. 14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting VerDate Mar<15>2010 17:03 Nov 22, 2011 Jkt 226001 According to the Registration Statement, the Fund will seek to qualify for treatment as a Regulated Investment Company (‘‘RIC’’) under the Internal Revenue Code.16 Except for Underlying ETFs that may hold non-U.S. issues, the Fund will not otherwise invest in non-U.S.-registered issues. 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. Net Asset Value The Fund will calculate 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 Fund will calculate NAV once each business day as of the regularly scheduled close of the Core Trading Session on the Exchange (normally, 4 p.m., Eastern Time). In calculating NAV, the Fund generally will value investment portfolios at market price. If market prices are unavailable or the Adviser believes they 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. 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’’). PO 00000 Frm 00091 Fmt 4703 Sfmt 4703 72477 The use of fair valuation in pricing a security involves the consideration of a number of subjective factors and therefore, is susceptible to the unavoidable risk that the valuation may be higher or lower than the price at which the security might actually trade if a reliable market price were readily available. Creation and Redemption of Shares The Fund will offer and issue Shares on a continuous basis at NAV only in aggregated lots of 50,000 or more Shares (each a ‘‘Creation Unit’’ or a ‘‘Creation Unit Aggregation’’), generally in exchange for: (i) A basket of equity securities (‘‘Deposit Securities’’); and (ii) an amount of cash (‘‘Cash Component’’). Shares are redeemable only in Creation Unit Aggregations, and, generally, in exchange for portfolio securities and a specified cash payment. A ‘‘creator’’ will enter into an authorized participant agreement (‘‘Participant Agreement’’) with the Distributor or use a Depository Trust Company (‘‘DTC’’) participant who has executed a Participant Agreement (‘‘Authorized Participant’’), and deposit 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 50,000 Shares of the Fund (or multiples thereof). All orders to purchase Creation Units must be received by the Distributor no later than the close of the regular trading session on the NYSE (ordinarily 4 p.m., Eastern Time) on the date such order is placed in order for the purchase of Creation Units to be effected based on the NAV of Shares of the Fund as next determined on such date after receipt of the order in proper form. Shares may be redeemed only in Creation Units at their NAV next determined after receipt of a redemption request in proper form by the Fund through the Administrator and only on a business day. With respect to the Fund, the Administrator, through the National Securities Clearing Corporation (‘‘NSCC’’), will make available immediately prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern Time) on each business day, the portfolio of securities (‘‘Fund Securities’’) that will be applicable to redemption requests received in proper form on that day. Fund Securities received on redemption may not be identical to Deposit Securities which are applicable to creations of Creation Units. Unless cash redemptions are available or specified for the Fund, the redemption proceeds E:\FR\FM\23NON1.SGM 23NON1 72478 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Notices sroberts on DSK5SPTVN1PROD with NOTICES for a Creation Unit generally will consist of Fund Securities plus cash in an amount equal to the difference between the NAV of the Shares being redeemed, as next determined after a receipt of a request in proper form, and the value of the Fund Securities less a redemption transaction fee, as described in the Registration Statement. In the event that the Fund Securities have a value greater than the NAV of the Shares, a compensating cash payment equal to the differential will be required to be made by or through an Authorized Participant by the redeeming shareholder. 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 for the Fund 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. 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 17 17 CFR 240.10A–3. Bid/Ask Price of the Fund will be 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. 18 The VerDate Mar<15>2010 17:03 Nov 22, 2011 Jkt 226001 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 on the Fund’s Web site: 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 the Fund’s Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the NYSE via NSCC. The basket represents one Creation Unit of the Fund. Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and the Trust’s 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 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 ETFs, 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 widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session.20 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. 20 Currently, it is the Exchange’s understanding that several major market data vendors widely disseminate Portfolio Indicative Values taken from CTA or other data feeds. PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 The dissemination of the Portfolio Indicative Value, together with the Disclosed Portfolio, will allow investors to determine the value of the underlying portfolio of the Fund on a daily basis and to provide a close estimate of that value throughout the trading day. 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. 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.21 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. 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 21 See NYSE Arca Equities Rule 7.12, Commentary .04. E:\FR\FM\23NON1.SGM 23NON1 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Notices 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. sroberts on DSK5SPTVN1PROD with NOTICES 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 in place a comprehensive surveillance sharing agreement.22 In addition, the Exchange could obtain information from the U.S. exchanges, all of which are ISG members, on which the Underlying ETFs 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 22 For a list of the current members of ISG, see 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. VerDate Mar<15>2010 17:03 Nov 22, 2011 Jkt 226001 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 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) 23 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 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. The holdings of the Fund will be comprised primarily of U.S.-exchange listed Underlying ETFs. The listing and trading of such Underlying ETFs is subject to rules of the exchanges on which they are listed and traded, as approved by the Commission. Except for Underlying ETFs that may hold non-U.S. issues, the Fund will not otherwise invest in nonU.S.-registered issues. The Fund will not purchase illiquid securities, 23 15 PO 00000 U.S.C. 78f(b)(5). Frm 00093 Fmt 4703 Sfmt 4703 72479 including Rule 144A securities and loan participation interests. The Fund does not intend to invest in leveraged, inverse or inverse leveraged Underlying ETFs. The Fund will not invest in options contracts, futures contracts or swap agreements. 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. In addition, the Portfolio Indicative Value will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Core Trading Session. 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. 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 quotation and last sale information will be available via the CTA high-speed line. 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, and 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. E:\FR\FM\23NON1.SGM 23NON1 72480 Federal Register / Vol. 76, No. 226 / Wednesday, November 23, 2011 / Notices 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. sroberts on DSK5SPTVN1PROD with NOTICES 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: VerDate Mar<15>2010 17:03 Nov 22, 2011 Jkt 226001 Electronic Comments • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– NYSEArca–2011–80 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–2011–80. This file number should be included on the subject line if email 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 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– 2011–80 and should be submitted on or before December 14, 2011. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2011–30202 Filed 11–22–11; 8:45 am] BILLING CODE 8011–01–P 24 17 PO 00000 CFR 200.30–3(a)(12). Frm 00094 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65777; File No. SR–Phlx2011–151] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to the Professional Routing Fee to the BATS Exchange, Inc. November 17, 2011. 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 November 8, 2011, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III, below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend its Professional Routing Fee governing pricing for Exchange members using the Phlx XL II system,3 for routing standardized equity and index option Professional orders to the BATS Exchange, Inc. (‘‘BATS’’) for execution. While changes to the Fee Schedule pursuant to this proposal are effective upon filing, the Exchange has designated these changes to be operative on December 1, 2011. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaqtrader.com/ micro.aspx?id=PHLXfilings, at the principal office of the Exchange, on the Commission’s Web site at https:// www.sec.gov/, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 For a complete description of Phlx XL II, see Securities Exchange Act Release No. 59995 (May 28, 2009), 74 FR 26750 (June 3, 2009) (SR–Phlx– 2009–32). The instant proposed fees will apply only to option orders entered into, and routed by, the Phlx XL II system. 2 17 E:\FR\FM\23NON1.SGM 23NON1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 226 (Wednesday, November 23, 2011)]
[Notices]
[Pages 72474-72480]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30202]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65778; File No. SR-NYSEArca-2011-80]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the Rockledge
SectorSAM ETF Under NYSE Arca Equities Rule 8.600

November 17, 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 November 3, 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.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

The Exchange proposes to list and trade the following under NYSE
Arca Equities Rule 8.600 (``Managed Fund Shares''): Rockledge SectorSAM
\TM\ ETF. The text of the proposed rule change is available at the
Exchange, the Commission's Public Reference Room, and www.nyse.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

1. Purpose
The Exchange proposes to list and trade the following Managed Fund
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: Rockledge
SectorSAM 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''). Rockledge
Advisers LLC serves as investment sub-adviser to the Fund
(``Rockledge'' or ``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. The
Bank of New York Mellon Corporation (``Administrator'')

[[Page 72475]]

serves as administrator, custodian and transfer agent for the Fund.
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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 has previously 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); 62502 (July 15, 2010), 75 FR 42471 (July 21,
2010) (SR-NYSEArca-2010-57) (order approving listing of
AdviserShares WCM/BNY Mellon Focused Growth ADR ETF); 63076 (October
12, 2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79)
(order approving listing of Cambria Global Tactical ETF); 63329
(November 17, 2010), 75 FR 71760 (November 24, 2010) (SR-NYSEArca-
2010-86) (order approving listing of Peritus High Yield ETF).
\5\ The Trust is registered under the 1940 Act. On April 11,
2011, the Trust filed with the Commission Post-Effective Amendment
No. 23 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, in part,
on the Registration Statement. In addition, the Commission has
issued an order granting certain exemptive relief to the Trust under
the 1940 Act. See Investment Company Act Release No. 29291 (May 28,
2010) (File No. 812-13677) (``Exemptive Order'').
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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. 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.\6\ 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, 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.
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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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According to the Registration Statement, the Fund is considered a
``fund-of-funds'' that seeks to achieve its investment objective by
primarily investing in other U.S.-listed exchange-traded funds
(``Underlying ETFs'') that offer diversified exposure to U.S. large
capitalization (generally, Standard & Poor 500 companies) sectors. The
Sub-Adviser will use ``Sector Scoring and Allocation Methodology''
(``SectorSAM''), which is a proprietary quantitative analysis, to
forecast each sector's excess return within a specific time horizon.
The Sub-Adviser will seek to achieve the Fund's investment objective by
buying (taking long positions in) Underlying ETFs intended to capture
the performance of the most promising sectors and selling (establishing
short positions) in Underlying ETFs with the intent of profiting from
the least promising sectors of U.S. large capitalization broad market
securities. The strategy is designed to generate higher returns in a
higher interest rate environment, which is often associated with
increased inflation.\7\
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\7\ The Underlying ETFs are registered under the 1940 Act and
will be listed and traded in the U.S. on registered exchanges.
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Under normal circumstances,\8\ the Fund intends to invest equal
dollar amounts to obtain both long and short exposure in the market at
each major rebalancing point (on at least a monthly basis). When fully
invested, the Fund will typically be both 100% long and 100% short of
total portfolio value. The Sub-Adviser, in its discretion, may choose
an additional long or short bias of up to 50% exposure, or may choose
to hold amounts in cash or cash equivalents depending on its view of
market conditions.
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\8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the equity 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.
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The Underlying ETFs in which the Fund will invest will primarily be
ETFs that hold substantially all of their assets in securities
representing a specific index. The main risk of investing in index-
based investments is the same as investing in a portfolio of securities
comprising the index. The market prices of index-based investments will
fluctuate in accordance with both changes in the market value of their
underlying portfolio securities and due to supply and demand for the
instruments on the exchanges on which they are traded (which may result
in their trading at a discount or premium to their net asset values
(``NAVs'').
The Fund, through its investment in Underlying ETFs, 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, and investments in master limited partnerships.
The Fund, through its investment in Underlying ETFs, may invest in
American Depositary Receipts (``ADRs''), as well as Global Depositary
Receipts (``GDRs,'' together with ADRs, ``Depositary Receipts''), which
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. ADRs are alternatives to directly purchasing the
underlying foreign securities in their national markets and currencies.
However, ADRs continue to be subject to many of the risks associated
with investing directly in foreign securities.
Investments in Foreign Equity Securities. Through Underlying ETFs,
the Fund 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 risks
of investing in these markets are similar to the risks of international
investing in general, although the risks are greater in emerging and
developing markets. Countries with emerging or developing securities
markets tend to have economic structures that are less stable than
countries with developed securities markets. This is because their
economies may be based on only a few industries and their securities
markets may trade a small number of securities. Prices on these
exchanges tend to be volatile, and securities in these countries
historically have offered greater potential for gain (as well as

[[Page 72476]]

loss) than securities of companies located in developed countries.
The Fund, through its investment in Underlying ETFs, 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.
The Fund, through its investment in Underlying ETFs, may invest in
shares of real estate investment trusts (``REITs''). REITs are pooled
investment vehicles which invest primarily in real estate or real
estate related loans. REITs are generally classified as equity REITs,
mortgage REITs or a combination of equity and mortgage REITs.
The Fund intends to invest primarily in the securities of
Underlying ETFs 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 Underlying ETFs may invest in complex securities such as equity
options, index options, repurchase agreements, foreign currency
contracts and swaps.The Fund does not intend to invest in leveraged,
inverse or inverse leveraged Underlying ETFs.
Investment Process
The following describes the Sub-Adviser's investment process, as
described in the Registration Statement:
Quantitative Analysis. Rockledge has developed a proprietary
SectorSAM \TM\ quantitative research and evaluation process that
forecasts economic excess sector returns (over/under the Standard &
Poor's 500 Index (``S&P 500 Index'') for a given timeframe). Absolute
returns may be captured by investing long in sectors which are
forecasted to outperform the overall U.S. equity market and shorting
sectors that are forecasted to underperform the market.
SectorSAM analysis provides for individual sector forecasts through
analysis of over 200 fundamental, macroeconomic and technical factors
influencing stock returns. The SectorSAM process creates a basket of
factors that are meaningful to each economic sector within the S&P 500
Index. Rockledge reviews the information to make portfolio decisions on
behalf of the Fund.
Long/Short Portfolio Construction. The Fund's portfolio will be
comprised primarily of an equal dollar amount of long and short
positions based on the Rockledge relative value strategy.\9\ Rockledge
will actively manage and adjust the positions in its long and short
portfolios as dictated by its proprietary SectorSAM quantitative
research and evaluation process.
---------------------------------------------------------------------------

\9\ According to the Registration Statement, the following
convictions constitute the guiding philosophy for the relative
investment strategy pursued by the Sub-Adviser:
1. The U.S. economy goes through various growth and contraction
stages and the various economic sectors reflect these changes.
2. Large capitalization stocks are heavily researched and well
known to equity analysts. The valuations and pricing of these stocks
are very close to efficient. It is difficult to make significant
outsized returns by investing in individual large capitalization
stocks.
3. The valuation of each U.S. economic sector is directly based
on the aggregation of valuation of the individual companies making
up that sector. Up to 90% of an individual stock's performance can
be attributed to the return of the sector that stock is in.
4. Sector investing provides a better risk/return profile than
individual stock investing. Sector investing eliminates company
specific risk as sectors are inherently diversified.
5. Appropriately and correctly forecasted, one can capture both
the upside potential of the outperforming sectors and downside loss
of the underperforming sectors, relative to a broad market index.
6. There can be significant performance dispersion among various
economic sectors. The ability to identify which sectors will
outperform the broad market and which will underperform over a
specified time period can lead to considerable cumulative absolute
returns.
---------------------------------------------------------------------------

Risk Management. The Fund's core long/short portfolio construction
generally will be dollar neutral, where the value of all long positions
is equal to the value of all short positions. According to the
Registration Statement, this provides a high degree of inherent risk
control, especially when stock markets are falling. The short positions
provide protection against market declines, and may offer the potential
to generate positive returns when markets are falling if the short
positions fall more than the long positions. Rockledge will use a
number of methods to monitor and manage the inherent risk of the
portfolio including the tracking of relative sector exposure,
volatility, and sector correlations. Rockledge proactively will monitor
its positions, exposure and performance attribution on a real-time
basis to identify, monitor and mitigate the most threatening risks to
the Fund's ability to attain its investment objective.
The Fund's portfolio holdings will be disclosed on the Trust's Web
site daily after the close of trading on the Exchange and prior to the
opening of trading on the Exchange the following day.
Other Investments of the Fund
To respond to adverse market, economic, political or other
conditions,\10\ 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 ETFs. 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,\11\ repurchase agreements \12\ and bonds that
are BBB or higher.
---------------------------------------------------------------------------

\10\ Adverse market conditions would include large downturns in
the broad market value of two or more times current average
volatility, where the Sub-Adviser views such downturns as likely to
continue for an extended period of time. Adverse economic conditions
would include significant negative results in factors deemed
critical at the time by the Sub-Adviser, including significant
negative results regarding unemployment, Gross Domestic Product,
consumer spending or housing numbers. Adverse political conditions
would include events such as government overthrows or instability,
where the Sub-Adviser expects that such events may potentially
create a negative market or economic condition for an extended
period of time.
\11\ Securities issued or guaranteed by the U.S. government or
its agencies or instrumentalities include U.S. Treasury securities,
which are backed by the full faith and credit of the U.S. Treasury
and which differ only in their interest rates, maturities, and times
of issuance. U.S. Treasury bills have initial maturities of one year
or less; U.S. Treasury notes have initial maturities of one to ten
years; and U.S. Treasury bonds generally have initial maturities of
greater than ten years. Certain U.S. government securities are
issued or guaranteed by agencies or instrumentalities of the U.S.
government including, but not limited to, obligations of U.S.
government agencies or instrumentalities such as Fannie Mae, Freddie
Mac, the Government National Mortgage Association (``Ginnie Mae''),
the Small Business Administration, the Federal Farm Credit
Administration, the Federal Home Loan Banks, Banks for Cooperatives
(including the Central Bank for Cooperatives), the Federal Land
Banks, the Federal Intermediate Credit Banks, the Tennessee Valley
Authority, the Export-Import Bank of the United States, the
Commodity Credit Corporation, the Federal Financing Bank, the
Student Loan Marketing Association, the National Credit Union
Administration and the Federal Agricultural Mortgage Corporation
(``Farmer Mac'').
\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. The Fund may enter into reverse repurchase
agreements 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, or the Underlying ETFs in which it invests, may invest in
U.S. Treasury zero-coupon bonds. These securities are U.S. Treasury
bonds

[[Page 72477]]

which have been stripped of their unmatured interest coupons, the
coupons themselves, and receipts or certificates representing interests
in such stripped debt obligations and coupons.
The Fund may invest in exchange-traded notes (``ETNs''). As
described in the Registration Statement, ETNs are debt obligations of
investment banks which are traded on exchanges and the returns of which
are linked to the performance of market indexes. In addition to trading
ETNs on exchanges, investors may redeem ETNs directly with the issuer
on a weekly basis, typically in a minimum amount of 50,000 units, or
hold the ETNs until maturity. ETNs may be riskier than ordinary debt
securities and may have no principal protection.
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\
---------------------------------------------------------------------------

\13\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
---------------------------------------------------------------------------

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. For purposes of
this policy, the issuer of the underlying security will be deemed to be
the issuer of any respective Depositary Receipt.\14\
---------------------------------------------------------------------------

\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).
---------------------------------------------------------------------------

The Fund will not purchase illiquid securities, including Rule 144A
securities and loan participation interests.\15\
---------------------------------------------------------------------------

\15\ 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 fund. 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).
---------------------------------------------------------------------------

According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment Company (``RIC'') under
the Internal Revenue Code.\16\
---------------------------------------------------------------------------

\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'').
---------------------------------------------------------------------------

Except for Underlying ETFs that may hold non-U.S. issues, the Fund
will not otherwise invest in non-U.S.-registered issues.
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.
Net Asset Value
The Fund will calculate 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 Fund will calculate NAV once each business day as of the
regularly scheduled close of the Core Trading Session on the Exchange
(normally, 4 p.m., Eastern Time).
In calculating NAV, the Fund generally will value investment
portfolios at market price. If market prices are unavailable or the
Adviser believes they 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.
The use of fair valuation in pricing a security involves the
consideration of a number of subjective factors and therefore, is
susceptible to the unavoidable risk that the valuation may be higher or
lower than the price at which the security might actually trade if a
reliable market price were readily available.
Creation and Redemption of Shares
The Fund will offer and issue Shares on a continuous basis at NAV
only in aggregated lots of 50,000 or more Shares (each a ``Creation
Unit'' or a ``Creation Unit Aggregation''), generally in exchange for:
(i) A basket of equity securities (``Deposit Securities''); and (ii) an
amount of cash (``Cash Component''). Shares are redeemable only in
Creation Unit Aggregations, and, generally, in exchange for portfolio
securities and a specified cash payment.
A ``creator'' will enter into an authorized participant agreement
(``Participant Agreement'') with the Distributor or use a Depository
Trust Company (``DTC'') participant who has executed a Participant
Agreement (``Authorized Participant''), and deposit 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 50,000 Shares of the Fund (or
multiples thereof).
All orders to purchase Creation Units must be received by the
Distributor no later than the close of the regular trading session on
the NYSE (ordinarily 4 p.m., Eastern Time) on the date such order is
placed in order for the purchase of Creation Units to be effected based
on the NAV of Shares of the Fund as next determined on such date after
receipt of the order in proper form.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through the Administrator and only on a business day. With respect
to the Fund, the Administrator, through the National Securities
Clearing Corporation (``NSCC''), will make available immediately prior
to the opening of business on the Exchange (currently 9:30 a.m.,
Eastern Time) on each business day, the portfolio of securities (``Fund
Securities'') that will be applicable to redemption requests received
in proper form on that day. Fund Securities received on redemption may
not be identical to Deposit Securities which are applicable to
creations of Creation Units. Unless cash redemptions are available or
specified for the Fund, the redemption proceeds

[[Page 72478]]

for a Creation Unit generally will consist of Fund Securities plus cash
in an amount equal to the difference between the NAV of the Shares
being redeemed, as next determined after a receipt of a request in
proper form, and the value of the Fund Securities less a redemption
transaction fee, as described in the Registration Statement. In the
event that the Fund Securities have a value greater than the NAV of the
Shares, a compensating cash payment equal to the differential will be
required to be made by or through an Authorized Participant by the
redeeming shareholder.
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 for the Fund
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.
---------------------------------------------------------------------------

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

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\
---------------------------------------------------------------------------

\18\ The Bid/Ask Price of the Fund will be 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.
---------------------------------------------------------------------------

On a daily basis, the Adviser will disclose for each portfolio
security or other financial instrument of the Fund the following
information on the Fund's Web site: 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 the
Fund's Shares, together with estimates and actual cash components, will
be publicly disseminated daily prior to the opening of the NYSE via
NSCC. The basket represents one Creation Unit of the Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's
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 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 ETFs, 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 widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Core Trading Session.\20\
---------------------------------------------------------------------------

\20\ Currently, it is the Exchange's understanding that several
major market data vendors widely disseminate Portfolio Indicative
Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

The dissemination of the Portfolio Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and to provide a
close estimate of that value throughout the trading day. 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.
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.\21\ 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.
---------------------------------------------------------------------------

\21\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m., Eastern Time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all

[[Page 72479]]

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 in place a comprehensive
surveillance sharing agreement.\22\ In addition, the Exchange could
obtain information from the U.S. exchanges, all of which are ISG
members, on which the Underlying ETFs are listed and traded.
---------------------------------------------------------------------------

\22\ For a list of the current members of ISG, see
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.
---------------------------------------------------------------------------

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 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) \23\ 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.
---------------------------------------------------------------------------

\23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will 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. The holdings of the Fund will be comprised primarily of
U.S.-exchange listed Underlying ETFs. The listing and trading of such
Underlying ETFs is subject to rules of the exchanges on which they are
listed and traded, as approved by the Commission. Except for Underlying
ETFs that may hold non-U.S. issues, the Fund will not otherwise invest
in non-U.S.-registered issues. The Fund will not purchase illiquid
securities, including Rule 144A securities and loan participation
interests. The Fund does not intend to invest in leveraged, inverse or
inverse leveraged Underlying ETFs. The Fund will not invest in options
contracts, futures contracts or swap agreements.
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. In addition, the Portfolio
Indicative Value will be widely disseminated by one or more major
market data vendors at least every 15 seconds during the Core Trading
Session.
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. 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 quotation
and last sale information will be available via the CTA high-speed
line. 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, and
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.

[[Page 72480]]

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 email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2011-80 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-2011-80. This
file number should be included on the subject line if email 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 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-2011-80 and should be
submitted on or before December 14, 2011.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30202 Filed 11-22-11; 8:45 am]
BILLING CODE 8011-01-P

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