Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of the Guggenheim Enhanced Short Duration High Yield Bond ETF Under NYSE Arca Equities Rule 8.600, 75926-75932 [2011-31045]
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Federal Register / Vol. 76, No. 233 / Monday, December 5, 2011 / Notices
available to its members on December 1,
2011, providing members with a tool to
track their order flow on the Exchange.
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
change should be approved or
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:
jlentini on DSK4TPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NASDAQ–2011–157 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–NASDAQ–2011–157. 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 on official business
days between the hours of 10 a.m. and
3 p.m. Copies of such filing also will be
available for inspection and copying at
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16:52 Dec 02, 2011
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the principal offices 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
Number SR–NASDAQ–2011–157, and
should be submitted on or before
December 27, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.12
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–31110 Filed 12–2–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65847; File No. SR–
NYSEArca–2011–81]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of the Guggenheim
Enhanced Short Duration High Yield
Bond ETF Under NYSE Arca Equities
Rule 8.600
November 29, 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 14, 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’’): Guggenheim Enhanced Short
Duration High Yield Bond ETF. The text
of the proposed rule change is available
at the Exchange, the Commission’s
Public Reference Room, and https://
www.nyse.com.
12 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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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: Guggenheim
Enhanced Short Duration High Yield
Bond ETF (‘‘Fund’’).4 The Shares will be
offered by the Claymore ExchangeTraded Fund 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
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 actively
managed funds under Rule 8.600. See Securities
Exchange Act Release Nos. 57801 (May 8, 2008), 73
FR 27878 (May 14, 2008) (SR–NYSEArca-2008–31)
(order approving Exchange listing and trading of
twelve actively-managed funds of the WisdomTree
Trust); 61365 (January 15, 2010), 75 FR 4124
(January 26, 2010) (SR–NYSEArca-2009–114) (order
approving listing and trading of Grail McDonnell
Fixed Income ETFs); 60981 (November 10, 2009),
74 FR 59594 (November 18, 2009) (SR–NYSEArca2009–79) (order approving listing of five fixed
income funds of the PIMCO ETF Trust); 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
December 8, 2010, the Trust filed with the
Commission Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a) relating to the Fund (File
Nos. 333–134551 and 811–21906) (‘‘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
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jlentini on DSK4TPTVN1PROD with NOTICES
The investment adviser for the Fund
is Guggenheim Funds Investment
Advisors, LLC (‘‘Adviser’’). The Bank of
New York Mellon is the custodian and
transfer agent for the Fund. Guggenheim
Funds Distributors, Inc. is the
distributor for the Fund.
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio.6 In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s portfolio.
The Adviser is affiliated with a brokerdealer and has represented that it has
implemented a fire wall with respect to
its broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
portfolio. In the event (a) The Adviser
or any 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
Primary Investments
As a principal investment strategy,
under normal market circumstances,7
the Fund will invest at least 80% of its
net assets in debt securities which are
below investment grade (‘‘high yield’’
bonds or ‘‘junk bonds’’).8 Bonds are
considered to be below investment
grade if they have a Standard & Poor’s
or Fitch credit rating of ‘‘BB+’’ or lower
or a Moody’s credit rating of ‘‘Ba1’’ or
lower (collectively or individually,
‘‘Below Investment Grade’’) or bonds
that are unrated and deemed to be of
below investment grade quality as
determined by the Adviser.9 The Fund’s
exemptive relief to the Trust under the 1940 Act.
See Investment Company Act Release No. 29271
(May 18, 2010) (File No. 812–13534) (‘‘Exemptive
Order’’).
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 its 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 nonpublic 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.
7 The term ‘‘under normal market circumstances’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the fixed
income markets or the financial markets generally;
operational issues causing dissemination of
inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance. Email from Timothy J.
Malinowski, Senior Director, NYSE Euronext, to
Edward Y. Cho, Special Counsel, Division of
Trading and Markets, Commission, dated November
22, 2011.
8 As of August 30, 2011, the Adviser represents
that there were approximately 1,100 high yield
bond issues that mature on or before December
2016, representing $420 billion or approximately
40% of the total amount of high yield bonds
outstanding. (Source: Barclays Capital). As of
August 1, 2011, floating rate bank loans outstanding
were $637 billion. (Source regarding floating rate
bank loans: Credit Suisse Leveraged Finance
Strategy Update, August 1, 2011).
9 The Fund’s investments will be subject to credit
risk. According to the Registration Statement, credit
risk is the risk that issuers or guarantors of debt
instruments or the counterparty to a derivatives
contract, repurchase agreement or loan of portfolio
securities is unable or unwilling to make timely
interest and/or principal payments or otherwise
honor its obligations. Debt instruments are subject
to varying degrees of credit risk, which may be
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prevent the use and dissemination of
material non-public information
regarding such portfolio.
According to the Registration
Statement, the investment objective of
the Fund is to seek to maximize total
return, through monthly income and
capital appreciation, consistent with
capital preservation.
The Fund will use an actively
managed strategy that seeks to maximize
total return, comprised of income and
capital appreciation, and risk-adjusted
returns in excess of the 3-month LIBOR
while maintaining a low risk profile
relative to below investment grade
rated, longer-term, fixed income
investments. The Fund will primarily
invest in below investment grade rated
bonds while opportunistically allocating
to investment grade bonds and other
select securities. The Fund’s portfolio
will maintain an effective duration of
one year or less.
PO 00000
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75927
primary investments also may include
floating rate or adjustable rate bonds,10
callable bonds with, as determined by
the Adviser, a high probability of being
redeemed prior to maturity,11 ‘‘putable’’
bonds (bonds that give the holder the
right to sell the bond to the issuer prior
to the bond’s maturity) when the put
date is within a 24 month period,
‘‘busted’’ convertible securities (a
convertible security that is trading well
below its conversion value minimizing
the likelihood that it will ever reach its
convertible price prior to maturity), and
other types of securities, all of which
may be rated at or below investment
grade. The Fund will not invest in
securities in default at the time of
investment. According to the
Registration Statement, the management
process is intended to be highly flexible
and responsive to market opportunities.
For example, when interest rates are low
and credit markets are healthy, the Fund
may be overweight in callable bonds,
which generally have a lower yield-tocall than yield-to-maturity, as well as
bonds that are subject to company
repurchases and tender offers. In weaker
credit markets, the Fund may be
overweight in bonds that are at maturity
or have putable features. The Adviser
anticipates that under normal market
circumstances the Fund will invest
approximately 20% of its assets in
securities that will be called, tendered,
or mature within 60 to 90 days.
The Adviser will commence the
investment review process with a topdown, macroeconomic outlook to
determine both investment themes and
relative value within each market sector
and industry. Within these parameters,
the Adviser will then apply detailed
bottom-up security selection to select
individual portfolio securities that the
Adviser believes can add value from
income and/or the potential for capital
reflected in credit ratings. Credit rating downgrades
and defaults (failure to make interest or principal
payment) may potentially reduce the Fund’s
income and Share price.
10 The Fund may invest in debt securities that
have variable or floating interest rates which are
readjusted on set dates (such as the last day of the
month or calendar quarter) in the case of variable
rates or whenever a specified interest rate change
occurs in the case of a floating rate instrument.
Variable or floating interest rates generally reduce
changes in the market price of securities from their
original purchase price because, upon readjustment,
such rates approximate market rates. Accordingly,
as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less for
variable or floating rate securities than for fixed rate
obligations.
11 During periods of falling interest rates, an
issuer of a callable bond may exercise its right to
pay principal on an obligation earlier than
expected, which may result in the Fund reinvesting
proceeds at lower interest rates, resulting in a
decline in the Fund’s income.
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jlentini on DSK4TPTVN1PROD with NOTICES
appreciation. Credit research may
include an assessment of an issuer’s
profitability, its competitive positioning
and management strength, as well as
industry characteristics, liquidity,
growth and other factors. The Adviser
may sell a portfolio security due to
changes in credit characteristics or
outlook, as well as changes in portfolio
strategy or cash flow needs. A portfolio
security may also be sold and replaced
with one that presents a better value or
risk/reward profile. Except during
periods of temporary defensive
positioning, the Adviser generally
expects to be fully-invested.
The Adviser aims to manage the Fund
so as to provide investors with a higher
degree of principal stability than is
typically available in a portfolio of
lower-rated longer-term, fixed income
investments. The Adviser intends to
invest the Fund’s assets in the securities
of issuers in many different industries
and intends to invest a maximum of 2–
3% of the Fund’s assets in the securities
of any one issuer, though the Fund is
not restricted from maintaining
positions of greater weight based upon
the outlook for an issuer or during
periods of relatively small asset levels of
the Fund.
The Fund may invest a portion of its
assets in various types of U.S.
Government obligations. The Fund also
may invest in convertible securities,
including bonds, debentures, notes,
preferred stocks and other securities
that may be converted into a prescribed
amount of common stock or other equity
securities at a specified price and time.
The Fund may invest in municipal
securities, and certificates of deposit.
While the Adviser anticipates that the
Fund will invest primarily in the debt
securities of U.S.-registered companies,
it may also invest in those of foreign
companies in developed countries.12
The Fund may invest in U.S.-registered,
dollar-denominated bonds of foreign
corporations, governments, agencies and
supra-national agencies.13
12 The Adviser considers developed countries to
include Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Greece, Hong
Kong, Ireland, Israel, Italy, Japan, Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, the United Kingdom and the
United States.
13 According to the Registration Statement, such
bonds have different risks than investing in U.S.
companies. These include differences in
accounting, auditing and financial reporting
standards, the possibility of expropriation or
confiscatory taxation, adverse changes in
investment or exchange control regulations,
political instability which could affect U.S.
investments in foreign countries, and potential
restrictions of the flow of international capital.
Foreign companies may be subject to less
governmental regulation than U.S. issuers.
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Jkt 226001
The Fund will be managed in
accordance with the principal
investment strategies stated above,
subject to the following investment
restrictions: The Fund will not employ
any leverage in order to meet its
investment objective, and, consistent
with the Exemptive Order, the Fund
will not invest in derivatives including
options, swaps or futures.
Other Investments
As non-principal investment
strategies, the Fund may invest its
remaining assets in money market
instruments (including other funds
which invest exclusively in money
market instruments), preferred
securities, insurance-linked securities
and structured notes (notes on which
the amount of principal repayment and
interest payments are based on the
movement of one or more specified
factors, such as the movement of a
particular security or security index).
The Fund may, from time to time, invest
in money market instruments or other
cash equivalents as part of a temporary
defensive strategy to protect against
temporary market declines. When the
Fund takes a temporary defensive
position that is inconsistent with its
principal investment strategies, the
Fund may not achieve its investment
objective. The Fund may also invest, to
a limited extent, in other pooled
investment vehicles which are not
registered investment companies under
the 1940 Act; however, the Fund will
not invest in hedge funds or commodity
pools.
The Fund may invest in commercial
interests, including commercial paper
and other short-term corporate
instruments. Commercial paper consists
of short-term promissory notes issued
by corporations and may be traded in
the secondary market after its issuance.
The Fund may invest in zero-coupon
or pay-in-kind securities. These
securities are debt securities that do not
make regular cash interest payments.
Zero-coupon securities are sold at a
deep discount to their face value. Payin-kind securities pay interest through
the issuance of additional securities.
Because zero-coupon and pay-in-kind
securities do not pay current cash
income, the price of these securities can
be volatile when interest rates fluctuate.
The Fund may invest up to 10% of its
net assets in asset-backed securities
issued or guaranteed by private issuers.
Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in
such respects as growth of gross domestic product,
rate of inflation, capital investment, resource selfsufficiency and balance of payment options.
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The Fund may invest in the aggregate
up to 15% of its net assets (taken at the
time of investment) in: (1) Illiquid
securities 14 and (2) Rule 144A
securities. Illiquid securities include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets.15 Rule 144A securities are
securities which, while privately
placed, are eligible for purchase and
14 The Fund may invest in master notes, which
are demand notes that permit the investment of
fluctuating amounts of money at varying rates of
interest pursuant to arrangements with issuers who
meet the quality criteria of the Fund. The interest
rate on a master note may fluctuate based upon
changes in specified interest rates, be reset
periodically according to a prescribed formula or be
a set rate. Although there is no secondary market
in master demand notes, if such notes have a
demand future, the payee may demand payment of
the principal amount of the note upon relatively
short notice. Master notes are generally illiquid and
therefore subject to the Fund’s percentage
limitations for investments in illiquid securities.
The Fund may invest up to 15% of its net assets
in bank loans, which include participation interests
(as described below). Any bank loans will be
broadly syndicated and may be first or second liens;
the Fund will not invest in third lien or mezzanine
loans. The interest rate on bank loans and other
adjustable rate securities typically resets every 90
days based upon then current interest rates. The
Fund may purchase participations in corporate
loans. Participation interests generally will be
acquired from a commercial bank or other financial
institution (‘‘Lender’’) or from other holders of a
participation interest (‘‘Participant’’). The purchase
of a participation interest either from a Lender or
a Participant will not result in any direct
contractual relationship with the borrowing
company (‘‘Borrower’’). The Fund generally will
have no right directly to enforce compliance by the
Borrower with the terms of the credit agreement.
Instead, the Fund will be required to rely on the
Lender or the Participant that sold the participation
interest, both for the enforcement of the Fund’s
rights against the Borrower and for the receipt and
processing of payments due to the Fund under the
loans. Under the terms of a participation interest,
the Fund may be regarded as a member of the
Participant, and thus the Fund is subject to the
credit risk of both the Borrower and a Participant.
Participation interests are generally subject to
restrictions on resale. Generally, the Fund considers
participation interests to be illiquid and therefore
subject to the Fund’s percentage limitations for
investments in illiquid securities.
15 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14617 (March 18, 2008), footnote
34. See also Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the ETF. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933).
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resale pursuant to Rule 144A under the
Securities Act of 1933 (‘‘Securities
Act’’). Rule 144A permits certain
qualified institutional buyers, such as
the Fund, to trade in privately placed
securities even though such securities
are not registered under the Securities
Act.
The Fund may invest in the securities
of other investment companies
(including money market funds). Under
Section 12(d) of the 1940 Act, or as
otherwise permitted by the Commission,
the Fund’s investment in investment
companies is limited to, subject to
certain exceptions, (i) 3% of the total
outstanding voting stock of any one
investment company, (ii) 5% of the
Fund’s total assets with respect to any
one investment company and (iii) 10%
of the Fund’s total assets of [sic]
investment companies in the
aggregate.16
The Fund may enter into
repurchase 17 and reverse repurchase
agreements.18 The Fund also may invest
in the securities of real estate
investment trusts to the extent allowed
by law, which pool investors’ funds for
investments primarily in commercial
real estate properties.
The Fund may not invest 25% or
more of the value of its total assets in
securities of issuers in any one industry
or group of industries. This restriction
does not apply to obligations issued or
guaranteed by the U.S. Government, its
agencies or instrumentalities.19
16 15
U.S.C. 80a–12(d).
agreements are agreements
pursuant to which securities are acquired by the
Fund from a third party with the understanding that
they will be repurchased by the seller at a fixed
price on an agreed date. These agreements may be
made with respect to any of the portfolio securities
in which the Fund is authorized to invest.
Repurchase agreements may be characterized as
loans secured by the underlying securities. The
Fund may enter into repurchase agreements with (i)
Member banks of the Federal Reserve System
having total assets in excess of $500 million and (ii)
securities dealers (‘‘Qualified Institutions’’). The
Adviser will monitor the continued
creditworthiness of Qualified Institutions.
18 Reverse repurchase agreements involve the sale
of securities with an agreement to repurchase the
securities at an agreed-upon price, date and interest
payment and have the characteristics of borrowing.
The securities purchased with the funds obtained
from the agreement and securities collateralizing
the agreement will have maturity dates no later than
the repayment date. Generally the effect of such
transactions is that the Fund can recover all or most
of the cash invested in the portfolio securities
involved during the term of the reverse repurchase
agreement, while in many cases the Fund is able to
keep some of the interest income associated with
those securities.
19 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).
jlentini on DSK4TPTVN1PROD with NOTICES
17 Repurchase
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The Fund’s portfolio holdings will be
disclosed on its Web site (https://
www.guggenheimfunds.com) daily after
the close of trading on the Exchange and
prior to the opening of trading on the
Exchange the following day.
The Fund intends to maintain the
level of diversification necessary to
qualify as a regulated investment
company (‘‘RIC’’) under Subchapter M
of the Internal Revenue Code of 1986, as
amended.20
The Fund represents that the portfolio
will include a minimum of 13 nonaffiliated issuers.
The Fund will only purchase
performing securities, not distressed
debt. Distressed debt is debt that is
currently in default and is not expected
to pay the current coupon.
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,21 as provided
20 26 U.S.C. 851. As a RIC, the Fund will not be
subject to U.S. federal income tax on the portion of
its taxable investment income and capital gains that
it distributes to its shareholders. To qualify for
treatment as a RIC, a company must annually
distribute at least 90% of its net investment
company taxable income (which includes
dividends, interest and net short-term capital gains)
and meet several other requirements relating to the
nature of its income and the diversification of its
assets. If the Fund fails to qualify for any taxable
year as a RIC, all of its taxable income will be
subject to tax at regular corporate income tax rates
without any deduction for distributions to
shareholders, and such distributions generally will
be taxable to shareholders as ordinary dividends to
the extent of the Fund’s current and accumulated
earnings and profits. In addition, in order to
requalify for taxation as a RIC, the Fund may be
required to recognize unrealized gains, pay
substantial taxes and interest and make certain
distributions. 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, [sic] 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 [sic] (‘‘Asset
Test’’).
21 17 CFR 240.10A–3.
PO 00000
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75929
by NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares of 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 net asset value (‘‘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.
The Fund will not invest in non-U.S.registered equity securities.
Creations and Redemptions of Shares
Investors may create or redeem in
Creation Unit size of 100,000 Shares or
aggregations thereof (‘‘Creation Unit
Aggregation’’) through an Authorized
Participant, as described in the
Registration Statement. In order to
purchase Creation Units of a Fund, an
investor must generally deposit a
designated portfolio of securities
(‘‘Deposit Securities’’) (and/or an
amount in cash in lieu of some or all of
the Deposit Securities) per each
Creation Unit Aggregation constituting a
substantial replication, or
representation, of the securities
included in the Fund’s portfolio as
selected by the Adviser (‘‘Fund
Securities’’) and generally make a cash
payment referred to as the ‘‘Cash
Component.’’ The list of the names and
the amounts of the Deposit Securities
will be made available by the Fund’s
custodian through the facilities of the
National Securities Clearing Corporation
(‘‘NSCC’’) immediately prior to the
opening of business each day of the
NYSE Arca. The Cash Component
represents the difference between the
net asset value of a Creation Unit and
the market value of the Deposit
Securities.
Shares may be redeemed only in
Creation Unit size at their NAV on a day
the NYSE Arca is open for business. The
Fund’s custodian will make available
immediately prior to the opening of
business each day of the NYSE Arca,
through the facilities of NSCC, the list
of the names and the amounts of the
Fund’s portfolio securities that will be
applicable that day to redemption
requests in proper form. Fund Securities
received on redemption may not be
identical to Deposit Securities which are
applicable to purchases of Creation
Units.
Net Asset Value
The NAV per Share of the Fund will
be determined once daily as of the close
of the New York Stock Exchange
(‘‘NYSE’’), usually 4 p.m. Eastern time
(‘‘E.T.’’), each day the NYSE is open for
trading, provided that any assets or
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liabilities denominated in currencies
other than the U.S. dollar shall be
translated into U.S. dollars at the
prevailing market rates on the date of
valuation as quoted by one or more
major banks or dealers that makes a twoway market in such currencies (or a data
service provider based on quotations
received from such banks or dealers);
and U.S. fixed income instruments may
be valued as of the announced closing
time for trading in fixed income
instruments on any day that the
Securities Industry and Financial
Markets Association announces an early
closing time.
NAV per Share will be determined by
dividing the value of the Fund’s
portfolio securities, cash and other
assets (including accrued interest), less
all liabilities (including accrued
expenses), by the total number of Shares
outstanding. Debt securities will be
valued at the mean between the last
available bid and ask prices for such
securities or, if such prices are not
available, at prices for securities of
comparable maturity, quality, and type.
The Fund’s debt securities may also be
valued based on price quotations or
other equivalent indications of value
provided by a third-party pricing
service.
Short-term securities for which
market quotations are not readily
available will be valued at amortized
cost, which approximates market value.
To the extent the Fund invests in bank
loans, the loans will generally be fair
valued using evaluated quotes provided
by an independent pricing service.
Prices provided by the pricing services
may be determined without exclusive
reliance on quoted prices, and may
reflect appropriate factors such as,
among others, market quotes, ratings,
tranche type, industry, company
performance, spread, individual trading
characteristics and other market data.
Equity securities will be valued at the
last reported sale price on the principal
exchange or on the principal OTC
market on which such securities are
traded, as of the close of regular trading
on the NYSE on the day the securities
are being valued or, if there are no sales,
at the mean of the most recent bid and
ask prices. Equity securities that are
traded primarily on the NASDAQ Stock
Market will be valued at the NASDAQ
Official Closing Price.
Securities for which market
quotations are not readily available,
including restricted securities, will be
valued by the Adviser by a method that
the Adviser believes accurately reflects
fair value, pursuant to policies adopted
by the Board of Trustees. Securities will
be valued at fair value when market
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16:52 Dec 02, 2011
Jkt 226001
quotations are not readily available or
are deemed unreliable, such as when a
security’s value or meaningful portion
of the Fund’s portfolio is believed to
have been materially affected by a
significant event. Such events may
include a natural disaster, an economic
event like a bankruptcy filing, a trading
halt in a security, an unscheduled early
market close or a substantial fluctuation
in domestic and foreign markets that has
occurred between the close of the
principal exchange and the NYSE Arca.
Availability of Information
The Fund’s Web site, which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Fund’s Web site
will include additional quantitative
information updated on a daily basis,
including, for the Fund, (1) Daily
trading volume, the prior business day’s
reported closing price, NAV and midpoint of the bid/ask spread at the time
of calculation of such NAV (the ‘‘Bid/
Ask Price’’),22 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
each Fund’s calculation of NAV at the
end of the business day.23
On a daily basis, the Adviser will
disclose on the Fund’s Web site for each
portfolio security or other financial
instrument of the Fund the following
information: Ticker symbol (if
applicable), name of security or
financial instrument, number of shares
or dollar value of financial instruments
held in the portfolio, and percentage
weighting of the security or financial
instrument in the portfolio. The Web
site information will be publicly
available at no charge. In addition, price
22 The Bid/Ask Price of the Fund will be
determined using the midpoint of 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.
23 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.
PO 00000
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Fmt 4703
Sfmt 4703
information for the debt securities held
by the Fund will be available through
major market data vendors.
In addition, a basket composition file,
which includes the security names and
share quantities required to be delivered
in exchange for Fund Shares, together
with estimates and actual cash
components, will be publicly
disseminated daily prior to the opening
of the 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 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 onscreen or downloaded from the
Commission’s Web site at https://
www.sec.gov. Information regarding
market price and trading volume for the
Shares 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. 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.24 The dissemination of
the Portfolio Indicative Value, together
with the Disclosed Portfolio, will allow
investors to determine the value of the
underlying portfolio of the Fund on a
daily basis and to provide a close
estimate of that value throughout the
trading day.
Additional information regarding the
Trust and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosure policies,
distributions and taxes is included in
the Registration Statement.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
24 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Portfolio Indicative
Values published on CTA or other data feeds.
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Federal Register / Vol. 76, No. 233 / Monday, December 5, 2011 / Notices
the Fund.25 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.
jlentini on DSK4TPTVN1PROD with NOTICES
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. E.T. in accordance with NYSE
Arca Equities Rule 7.34 (Opening, Core,
and Late Trading Sessions). The
Exchange has appropriate rules to
facilitate transactions in the Shares
during all trading sessions. As provided
in NYSE Arca Equities Rule 7.6,
Commentary .03, the minimum price
variation (‘‘MPV’’) for quoting and entry
of orders in equity securities traded on
the NYSE Arca Marketplace is $0.01,
with the exception of securities that are
priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange intends to utilize its
existing surveillance procedures
applicable to derivative products (which
include Managed Fund Shares) to
monitor trading in the Shares. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
The Exchange’s current trading
surveillance focuses on detecting
securities trading outside their normal
patterns. When such situations are
detected, surveillance analysis follows
and investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange may obtain information
via the Intermarket Surveillance Group
25 See NYSE Arca Equities Rule 7.12,
Commentary .04.
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16:52 Dec 02, 2011
Jkt 226001
(‘‘ISG’’) from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement.26
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. E.T. 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) 27
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
26 For a list of the current members of ISG, see
https://www.isgportal.org. The Exchange notes that
not all components of the Disclosed Portfolio for the
Fund may trade on markets that are members of ISG
or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
27 15 U.S.C. 78f(b)(5).
PO 00000
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75931
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. According to the
Registration Statement, the Fund will
not employ any leverage in order to
meet its investment objective; and the
Fund will not invest in derivative
securities including options, swaps or
futures. The Fund will not invest in
securities in default at the time of
investment.
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 Adviser is
affiliated with a broker-dealer and has
represented that it has implemented a
fire wall with respect to its brokerdealer affiliate regarding access to
information concerning the composition
and/or changes to the portfolio. 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. The Fund’s
portfolio holdings will be disclosed on
its Web site daily after the close of
trading on the Exchange and prior to the
opening of trading on the Exchange the
following day. Moreover, the Portfolio
Indicative Value will be widely
disseminated by one or more major
market data vendors at least every
15 seconds during the Exchange’s 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
E:\FR\FM\05DEN1.SGM
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Federal Register / Vol. 76, No. 233 / Monday, December 5, 2011 / Notices
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.
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 an additional type of activelymanaged exchange-traded product 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.
jlentini on DSK4TPTVN1PROD with NOTICES
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.
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16:52 Dec 02, 2011
Jkt 226001
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
will:
(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:
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
also will be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2011–81 and should be
submitted on or before December 27,
2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–31045 Filed 12–2–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2011–81 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–2011–81. 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
PO 00000
Frm 00073
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[Release No. 34–65846; File No. SR–
NYSEArca–2011–82]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of Shares of the
WisdomTree Emerging Markets
Inflation Protection Bond Fund Under
NYSE Arca Equities Rule 8.600
November 29, 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 14, 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.
28 17
CFR 200.30–3(a)(12).
U.S.C.78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\05DEN1.SGM
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]]>Agencies
[Federal Register Volume 76, Number 233 (Monday, December 5, 2011)]
[Notices]
[Pages 75926-75932]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31045]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65847; File No. SR-NYSEArca-2011-81]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of the
Guggenheim Enhanced Short Duration High Yield Bond ETF Under NYSE Arca
Equities Rule 8.600
November 29, 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 14, 2011, NYSE Arca, Inc.
(``Exchange'' or ``NYSE Arca'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the following under NYSE
Arca Equities Rule 8.600 (``Managed Fund Shares''): Guggenheim Enhanced
Short Duration High Yield Bond ETF. The text of the proposed rule
change is available at the Exchange, the Commission's Public Reference
Room, and https://www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the following Managed Fund
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: Guggenheim
Enhanced Short Duration High Yield Bond ETF (``Fund'').\4\ The Shares
will be offered by the Claymore Exchange-Traded Fund 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\
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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 actively managed funds under Rule 8.600. See
Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR
27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving Exchange
listing and trading of twelve actively-managed funds of the
WisdomTree Trust); 61365 (January 15, 2010), 75 FR 4124 (January 26,
2010) (SR-NYSEArca-2009-114) (order approving listing and trading of
Grail McDonnell Fixed Income ETFs); 60981 (November 10, 2009), 74 FR
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving
listing of five fixed income funds of the PIMCO ETF Trust); 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 December 8,
2010, the Trust filed with the Commission Form N-1A under the
Securities Act of 1933 (15 U.S.C. 77a) relating to the Fund (File
Nos. 333-134551 and 811-21906) (``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.
29271 (May 18, 2010) (File No. 812-13534) (``Exemptive Order'').
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[[Page 75927]]
The investment adviser for the Fund is Guggenheim Funds Investment
Advisors, LLC (``Adviser''). The Bank of New York Mellon is the
custodian and transfer agent for the Fund. Guggenheim Funds
Distributors, Inc. is the distributor for the Fund.
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\6\ In addition,
Commentary .06 further requires that personnel who make decisions on
the open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the open-end fund's portfolio. The Adviser is
affiliated with a broker-dealer and has represented that it has
implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio. In the event (a) The Adviser or any 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 its 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 investment objective
of the Fund is to seek to maximize total return, through monthly income
and capital appreciation, consistent with capital preservation.
The Fund will use an actively managed strategy that seeks to
maximize total return, comprised of income and capital appreciation,
and risk-adjusted returns in excess of the 3-month LIBOR while
maintaining a low risk profile relative to below investment grade
rated, longer-term, fixed income investments. The Fund will primarily
invest in below investment grade rated bonds while opportunistically
allocating to investment grade bonds and other select securities. The
Fund's portfolio will maintain an effective duration of one year or
less.
Primary Investments
As a principal investment strategy, under normal market
circumstances,\7\ the Fund will invest at least 80% of its net assets
in debt securities which are below investment grade (``high yield''
bonds or ``junk bonds'').\8\ Bonds are considered to be below
investment grade if they have a Standard & Poor's or Fitch credit
rating of ``BB+'' or lower or a Moody's credit rating of ``Ba1'' or
lower (collectively or individually, ``Below Investment Grade'') or
bonds that are unrated and deemed to be of below investment grade
quality as determined by the Adviser.\9\ The Fund's primary investments
also may include floating rate or adjustable rate bonds,\10\ callable
bonds with, as determined by the Adviser, a high probability of being
redeemed prior to maturity,\11\ ``putable'' bonds (bonds that give the
holder the right to sell the bond to the issuer prior to the bond's
maturity) when the put date is within a 24 month period, ``busted''
convertible securities (a convertible security that is trading well
below its conversion value minimizing the likelihood that it will ever
reach its convertible price prior to maturity), and other types of
securities, all of which may be rated at or below investment grade. The
Fund will not invest in securities in default at the time of
investment. According to the Registration Statement, the management
process is intended to be highly flexible and responsive to market
opportunities. For example, when interest rates are low and credit
markets are healthy, the Fund may be overweight in callable bonds,
which generally have a lower yield-to-call than yield-to-maturity, as
well as bonds that are subject to company repurchases and tender
offers. In weaker credit markets, the Fund may be overweight in bonds
that are at maturity or have putable features. The Adviser anticipates
that under normal market circumstances the Fund will invest
approximately 20% of its assets in securities that will be called,
tendered, or mature within 60 to 90 days.
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\7\ The term ``under normal market circumstances'' includes, but
is not limited to, the absence of extreme volatility or trading
halts in the fixed income markets or the financial markets
generally; operational issues causing dissemination of inaccurate
market information; or force majeure type events such as systems
failure, natural or man-made disaster, act of God, armed conflict,
act of terrorism, riot or labor disruption or any similar
intervening circumstance. Email from Timothy J. Malinowski, Senior
Director, NYSE Euronext, to Edward Y. Cho, Special Counsel, Division
of Trading and Markets, Commission, dated November 22, 2011.
\8\ As of August 30, 2011, the Adviser represents that there
were approximately 1,100 high yield bond issues that mature on or
before December 2016, representing $420 billion or approximately 40%
of the total amount of high yield bonds outstanding. (Source:
Barclays Capital). As of August 1, 2011, floating rate bank loans
outstanding were $637 billion. (Source regarding floating rate bank
loans: Credit Suisse Leveraged Finance Strategy Update, August 1,
2011).
\9\ The Fund's investments will be subject to credit risk.
According to the Registration Statement, credit risk is the risk
that issuers or guarantors of debt instruments or the counterparty
to a derivatives contract, repurchase agreement or loan of portfolio
securities is unable or unwilling to make timely interest and/or
principal payments or otherwise honor its obligations. Debt
instruments are subject to varying degrees of credit risk, which may
be reflected in credit ratings. Credit rating downgrades and
defaults (failure to make interest or principal payment) may
potentially reduce the Fund's income and Share price.
\10\ The Fund may invest in debt securities that have variable
or floating interest rates which are readjusted on set dates (such
as the last day of the month or calendar quarter) in the case of
variable rates or whenever a specified interest rate change occurs
in the case of a floating rate instrument. Variable or floating
interest rates generally reduce changes in the market price of
securities from their original purchase price because, upon
readjustment, such rates approximate market rates. Accordingly, as
interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable or floating rate
securities than for fixed rate obligations.
\11\ During periods of falling interest rates, an issuer of a
callable bond may exercise its right to pay principal on an
obligation earlier than expected, which may result in the Fund
reinvesting proceeds at lower interest rates, resulting in a decline
in the Fund's income.
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The Adviser will commence the investment review process with a top-
down, macroeconomic outlook to determine both investment themes and
relative value within each market sector and industry. Within these
parameters, the Adviser will then apply detailed bottom-up security
selection to select individual portfolio securities that the Adviser
believes can add value from income and/or the potential for capital
[[Page 75928]]
appreciation. Credit research may include an assessment of an issuer's
profitability, its competitive positioning and management strength, as
well as industry characteristics, liquidity, growth and other factors.
The Adviser may sell a portfolio security due to changes in credit
characteristics or outlook, as well as changes in portfolio strategy or
cash flow needs. A portfolio security may also be sold and replaced
with one that presents a better value or risk/reward profile. Except
during periods of temporary defensive positioning, the Adviser
generally expects to be fully-invested.
The Adviser aims to manage the Fund so as to provide investors with
a higher degree of principal stability than is typically available in a
portfolio of lower-rated longer-term, fixed income investments. The
Adviser intends to invest the Fund's assets in the securities of
issuers in many different industries and intends to invest a maximum of
2-3% of the Fund's assets in the securities of any one issuer, though
the Fund is not restricted from maintaining positions of greater weight
based upon the outlook for an issuer or during periods of relatively
small asset levels of the Fund.
The Fund may invest a portion of its assets in various types of
U.S. Government obligations. The Fund also may invest in convertible
securities, including bonds, debentures, notes, preferred stocks and
other securities that may be converted into a prescribed amount of
common stock or other equity securities at a specified price and time.
The Fund may invest in municipal securities, and certificates of
deposit.
While the Adviser anticipates that the Fund will invest primarily
in the debt securities of U.S.-registered companies, it may also invest
in those of foreign companies in developed countries.\12\ The Fund may
invest in U.S.-registered, dollar-denominated bonds of foreign
corporations, governments, agencies and supra-national agencies.\13\
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\12\ The Adviser considers developed countries to include
Australia, Austria, Belgium, Canada, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan,
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland, the United Kingdom and the United States.
\13\ According to the Registration Statement, such bonds have
different risks than investing in U.S. companies. These include
differences in accounting, auditing and financial reporting
standards, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control
regulations, political instability which could affect U.S.
investments in foreign countries, and potential restrictions of the
flow of international capital. Foreign companies may be subject to
less governmental regulation than U.S. issuers. Moreover, individual
foreign economies may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate
of inflation, capital investment, resource self-sufficiency and
balance of payment options.
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The Fund will be managed in accordance with the principal
investment strategies stated above, subject to the following investment
restrictions: The Fund will not employ any leverage in order to meet
its investment objective, and, consistent with the Exemptive Order, the
Fund will not invest in derivatives including options, swaps or
futures.
Other Investments
As non-principal investment strategies, the Fund may invest its
remaining assets in money market instruments (including other funds
which invest exclusively in money market instruments), preferred
securities, insurance-linked securities and structured notes (notes on
which the amount of principal repayment and interest payments are based
on the movement of one or more specified factors, such as the movement
of a particular security or security index). The Fund may, from time to
time, invest in money market instruments or other cash equivalents as
part of a temporary defensive strategy to protect against temporary
market declines. When the Fund takes a temporary defensive position
that is inconsistent with its principal investment strategies, the Fund
may not achieve its investment objective. The Fund may also invest, to
a limited extent, in other pooled investment vehicles which are not
registered investment companies under the 1940 Act; however, the Fund
will not invest in hedge funds or commodity pools.
The Fund may invest in commercial interests, including commercial
paper and other short-term corporate instruments. Commercial paper
consists of short-term promissory notes issued by corporations and may
be traded in the secondary market after its issuance.
The Fund may invest in zero-coupon or pay-in-kind securities. These
securities are debt securities that do not make regular cash interest
payments. Zero-coupon securities are sold at a deep discount to their
face value. Pay-in-kind securities pay interest through the issuance of
additional securities. Because zero-coupon and pay-in-kind securities
do not pay current cash income, the price of these securities can be
volatile when interest rates fluctuate.
The Fund may invest up to 10% of its net assets in asset-backed
securities issued or guaranteed by private issuers.
The Fund may invest in the aggregate up to 15% of its net assets
(taken at the time of investment) in: (1) Illiquid securities \14\ and
(2) Rule 144A securities. Illiquid securities include securities
subject to contractual or other restrictions on resale and other
instruments that lack readily available markets.\15\ Rule 144A
securities are securities which, while privately placed, are eligible
for purchase and
[[Page 75929]]
resale pursuant to Rule 144A under the Securities Act of 1933
(``Securities Act''). Rule 144A permits certain qualified institutional
buyers, such as the Fund, to trade in privately placed securities even
though such securities are not registered under the Securities Act.
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\14\ The Fund may invest in master notes, which are demand notes
that permit the investment of fluctuating amounts of money at
varying rates of interest pursuant to arrangements with issuers who
meet the quality criteria of the Fund. The interest rate on a master
note may fluctuate based upon changes in specified interest rates,
be reset periodically according to a prescribed formula or be a set
rate. Although there is no secondary market in master demand notes,
if such notes have a demand future, the payee may demand payment of
the principal amount of the note upon relatively short notice.
Master notes are generally illiquid and therefore subject to the
Fund's percentage limitations for investments in illiquid
securities. The Fund may invest up to 15% of its net assets in bank
loans, which include participation interests (as described below).
Any bank loans will be broadly syndicated and may be first or second
liens; the Fund will not invest in third lien or mezzanine loans.
The interest rate on bank loans and other adjustable rate securities
typically resets every 90 days based upon then current interest
rates. The Fund may purchase participations in corporate loans.
Participation interests generally will be acquired from a commercial
bank or other financial institution (``Lender'') or from other
holders of a participation interest (``Participant''). The purchase
of a participation interest either from a Lender or a Participant
will not result in any direct contractual relationship with the
borrowing company (``Borrower''). The Fund generally will have no
right directly to enforce compliance by the Borrower with the terms
of the credit agreement. Instead, the Fund will be required to rely
on the Lender or the Participant that sold the participation
interest, both for the enforcement of the Fund's rights against the
Borrower and for the receipt and processing of payments due to the
Fund under the loans. Under the terms of a participation interest,
the Fund may be regarded as a member of the Participant, and thus
the Fund is subject to the credit risk of both the Borrower and a
Participant. Participation interests are generally subject to
restrictions on resale. Generally, the Fund considers participation
interests to be illiquid and therefore subject to the Fund's
percentage limitations for investments in illiquid securities.
\15\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14617 (March 18, 2008), footnote 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the ETF. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
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The Fund may invest in the securities of other investment companies
(including money market funds). Under Section 12(d) of the 1940 Act, or
as otherwise permitted by the Commission, the Fund's investment in
investment companies is limited to, subject to certain exceptions, (i)
3% of the total outstanding voting stock of any one investment company,
(ii) 5% of the Fund's total assets with respect to any one investment
company and (iii) 10% of the Fund's total assets of [sic] investment
companies in the aggregate.\16\
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\16\ 15 U.S.C. 80a-12(d).
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The Fund may enter into repurchase \17\ and reverse repurchase
agreements.\18\ The Fund also may invest in the securities of real
estate investment trusts to the extent allowed by law, which pool
investors' funds for investments primarily in commercial real estate
properties.
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\17\ Repurchase agreements are agreements pursuant to which
securities are acquired by the Fund from a third party with the
understanding that they will be repurchased by the seller at a fixed
price on an agreed date. These agreements may be made with respect
to any of the portfolio securities in which the Fund is authorized
to invest. Repurchase agreements may be characterized as loans
secured by the underlying securities. The Fund may enter into
repurchase agreements with (i) Member banks of the Federal Reserve
System having total assets in excess of $500 million and (ii)
securities dealers (``Qualified Institutions''). The Adviser will
monitor the continued creditworthiness of Qualified Institutions.
\18\ Reverse repurchase agreements involve the sale of
securities with an agreement to repurchase the securities at an
agreed-upon price, date and interest payment and have the
characteristics of borrowing. The securities purchased with the
funds obtained from the agreement and securities collateralizing the
agreement will have maturity dates no later than the repayment date.
Generally the effect of such transactions is that the Fund can
recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while
in many cases the Fund is able to keep some of the interest income
associated with those securities.
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The Fund may not invest 25% or more of the value of its total
assets in securities of issuers in any one industry or group of
industries. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities.\19\
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\19\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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The Fund's portfolio holdings will be disclosed on its Web site
(https://www.guggenheimfunds.com) daily after the close of trading on
the Exchange and prior to the opening of trading on the Exchange the
following day.
The Fund intends to maintain the level of diversification necessary
to qualify as a regulated investment company (``RIC'') under Subchapter
M of the Internal Revenue Code of 1986, as amended.\20\
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\20\ 26 U.S.C. 851. As a RIC, the Fund will not be subject to
U.S. federal income tax on the portion of its taxable investment
income and capital gains that it distributes to its shareholders. To
qualify for treatment as a RIC, a company must annually distribute
at least 90% of its net investment company taxable income (which
includes dividends, interest and net short-term capital gains) and
meet several other requirements relating to the nature of its income
and the diversification of its assets. If the Fund fails to qualify
for any taxable year as a RIC, all of its taxable income will be
subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders, and such distributions
generally will be taxable to shareholders as ordinary dividends to
the extent of the Fund's current and accumulated earnings and
profits. In addition, in order to requalify for taxation as a RIC,
the Fund may be required to recognize unrealized gains, pay
substantial taxes and interest and make certain distributions. 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, [sic] 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
[sic] (``Asset Test'').
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The Fund represents that the portfolio will include a minimum of 13
non-affiliated issuers.
The Fund will only purchase performing securities, not distressed
debt. Distressed debt is debt that is currently in default and is not
expected to pay the current coupon.
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,\21\ as provided by
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of 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 net asset value (``NAV'') per Share will be calculated daily
and that the NAV and the Disclosed Portfolio will be made available to
all market participants at the same time.
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\21\ 17 CFR 240.10A-3.
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The Fund will not invest in non-U.S.-registered equity securities.
Creations and Redemptions of Shares
Investors may create or redeem in Creation Unit size of 100,000
Shares or aggregations thereof (``Creation Unit Aggregation'') through
an Authorized Participant, as described in the Registration Statement.
In order to purchase Creation Units of a Fund, an investor must
generally deposit a designated portfolio of securities (``Deposit
Securities'') (and/or an amount in cash in lieu of some or all of the
Deposit Securities) per each Creation Unit Aggregation constituting a
substantial replication, or representation, of the securities included
in the Fund's portfolio as selected by the Adviser (``Fund
Securities'') and generally make a cash payment referred to as the
``Cash Component.'' The list of the names and the amounts of the
Deposit Securities will be made available by the Fund's custodian
through the facilities of the National Securities Clearing Corporation
(``NSCC'') immediately prior to the opening of business each day of the
NYSE Arca. The Cash Component represents the difference between the net
asset value of a Creation Unit and the market value of the Deposit
Securities.
Shares may be redeemed only in Creation Unit size at their NAV on a
day the NYSE Arca is open for business. The Fund's custodian will make
available immediately prior to the opening of business each day of the
NYSE Arca, through the facilities of NSCC, the list of the names and
the amounts of the Fund's portfolio securities that will be applicable
that day to redemption requests in proper form. Fund Securities
received on redemption may not be identical to Deposit Securities which
are applicable to purchases of Creation Units.
Net Asset Value
The NAV per Share of the Fund will be determined once daily as of
the close of the New York Stock Exchange (``NYSE''), usually 4 p.m.
Eastern time (``E.T.''), each day the NYSE is open for trading,
provided that any assets or
[[Page 75930]]
liabilities denominated in currencies other than the U.S. dollar shall
be translated into U.S. dollars at the prevailing market rates on the
date of valuation as quoted by one or more major banks or dealers that
makes a two-way market in such currencies (or a data service provider
based on quotations received from such banks or dealers); and U.S.
fixed income instruments may be valued as of the announced closing time
for trading in fixed income instruments on any day that the Securities
Industry and Financial Markets Association announces an early closing
time.
NAV per Share will be determined by dividing the value of the
Fund's portfolio securities, cash and other assets (including accrued
interest), less all liabilities (including accrued expenses), by the
total number of Shares outstanding. Debt securities will be valued at
the mean between the last available bid and ask prices for such
securities or, if such prices are not available, at prices for
securities of comparable maturity, quality, and type. The Fund's debt
securities may also be valued based on price quotations or other
equivalent indications of value provided by a third-party pricing
service.
Short-term securities for which market quotations are not readily
available will be valued at amortized cost, which approximates market
value. To the extent the Fund invests in bank loans, the loans will
generally be fair valued using evaluated quotes provided by an
independent pricing service. Prices provided by the pricing services
may be determined without exclusive reliance on quoted prices, and may
reflect appropriate factors such as, among others, market quotes,
ratings, tranche type, industry, company performance, spread,
individual trading characteristics and other market data. Equity
securities will be valued at the last reported sale price on the
principal exchange or on the principal OTC market on which such
securities are traded, as of the close of regular trading on the NYSE
on the day the securities are being valued or, if there are no sales,
at the mean of the most recent bid and ask prices. Equity securities
that are traded primarily on the NASDAQ Stock Market will be valued at
the NASDAQ Official Closing Price.
Securities for which market quotations are not readily available,
including restricted securities, will be valued by the Adviser by a
method that the Adviser believes accurately reflects fair value,
pursuant to policies adopted by the Board of Trustees. Securities will
be valued at fair value when market quotations are not readily
available or are deemed unreliable, such as when a security's value or
meaningful portion of the Fund's portfolio is believed to have been
materially affected by a significant event. Such events may include a
natural disaster, an economic event like a bankruptcy filing, a trading
halt in a security, an unscheduled early market close or a substantial
fluctuation in domestic and foreign markets that has occurred between
the close of the principal exchange and the NYSE Arca.
Availability of Information
The Fund's Web site, which will be publicly available prior to the
public offering of Shares, will include a form of the prospectus for
the Fund that may be downloaded. The Fund's Web site will include
additional quantitative information updated on a daily basis,
including, for the Fund, (1) Daily trading volume, the prior business
day's reported closing price, NAV and mid-point of the bid/ask spread
at the time of calculation of such NAV (the ``Bid/Ask Price''),\22\ 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
each Fund's calculation of NAV at the end of the business day.\23\
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\22\ The Bid/Ask Price of the Fund will be determined using the
midpoint of 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.
\23\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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On a daily basis, the Adviser will disclose on the Fund's Web site
for each portfolio security or other financial instrument of the Fund
the following information: Ticker symbol (if applicable), name of
security or financial instrument, number of shares or dollar value of
financial instruments held in the portfolio, and percentage weighting
of the security or financial instrument in the portfolio. The Web site
information will be publicly available at no charge. In addition, price
information for the debt securities held by the Fund will be available
through major market data vendors.
In addition, a basket composition file, which includes the security
names and share quantities required to be delivered in exchange for
Fund Shares, together with estimates and actual cash components, will
be publicly disseminated daily prior to the opening of the 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 Form N-CSR
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at https://www.sec.gov.
Information regarding market price and trading volume for the Shares
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. 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.\24\ 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.
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\24\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values published on CTA or other data feeds.
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Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of
[[Page 75931]]
the Fund.\25\ Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been
reached. Trading also may be halted because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Shares
inadvisable. These may include: (1) The extent to which trading is not
occurring in the securities and/or the financial instruments comprising
the Disclosed Portfolio of the Fund; or (2) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present. Trading in the Shares will be subject
to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Fund may be halted.
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\25\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (which include Managed
Fund Shares) to monitor trading in the Shares. The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
The Exchange's current trading surveillance focuses on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
The Exchange may obtain information via the Intermarket
Surveillance Group (``ISG'') from other exchanges that are members of
ISG or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.\26\
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\26\ For a list of the current members of ISG, see https://www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit Aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated Portfolio Indicative Value will not be
calculated or publicly disseminated; (4) how information regarding the
Portfolio Indicative Value is disseminated; (5) the requirement that
ETP Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4 p.m. E.T. 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) \27\ that an exchange have rules
that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\27\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will 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. According to the Registration Statement, the Fund will not
employ any leverage in order to meet its investment objective; and the
Fund will not invest in derivative securities including options, swaps
or futures. The Fund will not invest in securities in default at the
time of investment.
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 Adviser is affiliated with a broker-dealer and has represented
that it has implemented a fire wall with respect to its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio. 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. The
Fund's portfolio holdings will be disclosed on its Web site daily after
the close of trading on the Exchange and prior to the opening of
trading on the Exchange the following day. Moreover, the Portfolio
Indicative Value will be widely disseminated by one or more major
market data vendors at least every 15 seconds during the Exchange's
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
[[Page 75932]]
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.
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
an additional type of actively-managed exchange-traded product 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 will:
(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-2011-81 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-2011-81. 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 also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2011-81 and should
be submitted on or before December 27, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
Kevin M. O'Neill,
Deputy Secretary.
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\28\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-31045 Filed 12-2-11; 8:45 am]
BILLING CODE 8011-01-P
