Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of the PIMCO Total Return Exchange Traded Fund Under NYSE Arca Equities Rule 8.600, 79741-79748 [2011-32751]

Download as PDF Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices jlentini on DSK4TPTVN1PROD with NOTICES brokers, municipal securities dealers and municipal advisors. The Commission believes that the MSRB has adequately responded to the concerns expressed in the comment letters. The Commission agrees with the MSRB that the requirement to retain certain records for an additional year will not impose an undue burden on municipal securities brokers, municipal securities dealers and municipal advisors or require substantial changes to their systems or procedures because the records are already being retained. Further, the Commission agrees with the MSRB that any incremental cost and burden of modifying policies and procedures should be minimal, with such cost and burden outweighed by the necessity to accommodate the four-year examination cycle for a significant number of FINRA members. V. Order Granting Accelerated Approval of Proposed Rule Change Pursuant to Section 19(b)(2) of the Exchange Act,19 the Commission may not approve any proposed rule change, or amendment thereto, prior to the 30th day after the date of publication of notice of the filing thereof, unless the Commission finds good cause for so doing and publishes its reasons for so finding. The Commission hereby finds good cause for approving the proposed rule change, as modified by Amendment No. 1, before the 30th day after the date of publication of notice of filing thereof in the Federal Register. Amendment No. 1 would partially amend the original proposed rule change by requesting that the Commission approve the amendments to Rule G–9 with an effective date that is six months from the date of the Commission approval order. Originally, the proposed rule change to Rule G–9 would have become effective as of the date of the Commission approval order. While the MSRB does believe it appropriate to provide dealers with time to revise their policies and procedures, systems and controls to accommodate the longer retention period, the MSRB believes that such changes can be accomplished in a shorter timeframe. The MSRB stated that the modest extension of the retention period for certain records does not warrant such a delayed effective date as requested by SIFMA. Rather, the MSRB believes that in light of the clear importance of preserving records for the entire period between FINRA examination cycles, and the modest increase in the current retention period, six months is an appropriate period to permit dealers to modify their policies 19 15 U.S.C. 78s(b)(2). VerDate Mar<15>2010 19:17 Dec 21, 2011 and systems to comply with the rule change. The Commission does not believe that Amendment No. 1 significantly alters the proposal and that the six-month extension in the effective date of the amendments to Rule G–9 is reasonable. The Commission believes that Amendment No. 1 is consistent with the proposal’s purpose and raises no new significant issues. Accordingly, pursuant to Section 19(b)(2) of the Exchange Act,20 the Commission finds good cause to approve the proposed rule change, as amended, on an accelerated basis. a.m. and 3 p.m. Copies of such filing also will be available for inspection and copying at the principal office of the MSRB. 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–MSRB–2011–19 and should be submitted on or before January 12, 2012. VI. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change, as amended, is consistent with the Exchange Act. Comments may be submitted by any of the following methods: It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,21 that the proposed rule change (SR– MSRB–2011–19), as modified by Amendment No. 1, be, and it hereby is, approved. The proposed amendment to Rule G–16 will become effective as of the date of this approval order and the proposed amendment to Rule G–9 will become effective six months after the date of this approval order. 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–MSRB–2011–19 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–MSRB–2011–19. 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 20 15 Jkt 226001 79741 PO 00000 U.S.C. 78s(b)(2). Frm 00096 Fmt 4703 Sfmt 4703 VII. Conclusion For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2011–32754 Filed 12–21–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65988; File No. SR– NYSEARCA–2011–95] Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of the PIMCO Total Return Exchange Traded Fund Under NYSE Arca Equities Rule 8.600 December 16, 2011. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (the ‘‘Act’’) 2 and Rule 19b–4 thereunder,3 notice is hereby given that, on December 13, 2011, NYSE Arca, Inc. (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (the ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the self-regulatory organization. The Commission is publishing this notice to solicit 21 15 U.S.C. 78s(b)(2). CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 15 U.S.C. 78a. 3 17 CFR 240.19b–4. 22 17 E:\FR\FM\22DEN1.SGM 22DEN1 79742 Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices 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’’): PIMCO Total Return Exchange Traded Fund. The text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and www.nyse.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text of those statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant parts of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change jlentini on DSK4TPTVN1PROD with NOTICES 1. Purpose The Exchange proposes to list and trade the following Managed Fund Shares 4 (‘‘Shares’’) under NYSE Arca Equities Rule 8.600: PIMCO Total Return Exchange Traded Fund (the ‘‘Fund’’).5 The Shares will be offered by PIMCO ETF Trust (the ‘‘Trust’’), a statutory trust organized under the laws 4 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. 5 The Commission has previously approved the listing and trading on the Exchange of other actively managed funds under Rule 8.600. See, e.g., Securities Exchange Act Release Nos. 60981 (November 10, 2009), 74 FR 59594 (November 18, 2009) (SR–NYSEArca–2009–79) (order approving Exchange listing and trading of five fixed income funds of the PIMCO ETF Trust); 61365 (January 15, 2010), 75 FR 4124 (January 26, 2010) (SR– NYSEArca–2009–114) (order approving Exchange listing and trading of Grail McDonnell Fixed Income ETFs). VerDate Mar<15>2010 19:17 Dec 21, 2011 Jkt 226001 of the State of Delaware and registered with the Commission as an open-end management investment company.6 The investment manager to the Fund is Pacific Investment Management Company LLC (‘‘PIMCO’’ or the ‘‘Adviser’’). PIMCO Investments LLC serves as the distributor for the Fund (‘‘Distributor’’). State Street Bank & Trust Co. serves as the custodian and transfer agent for the Fund (‘‘Transfer Agent’’). 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.7 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 implemented a ‘‘fire 6 The Trust is registered under the 1940 Act. On July 7, 2011, the Trust filed with the Commission Post-Effective Amendment No. 30 to Form N–1A under the Securities Act of 1933 (15 U.S.C. 77a) (‘‘1933 Act’’) relating to the Fund (File Nos. 333– 155395 and 811–22250) (the ‘‘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. 28993 (November 10, 2009) (File No. 812–13571) (‘‘Exemptive Order’’). 7 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (the ‘‘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. PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 wall’’ with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the Fund’s portfolio. If PIMCO elects to hire a sub-adviser for the Fund that is also affiliated with a broker-dealer, such sub-adviser will implement a fire wall with respect to such broker-dealer 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 brokerdealer, or (b) any new manager, 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. According to the Registration Statement, the Fund will seek maximum total return, consistent with preservation of capital and prudent investment management. The Fund will invest under normal market circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities.8 ‘‘Fixed Income Instruments’’ include bonds, debt securities and other similar instruments issued by various U.S. and non-U.S. public- or private-sector entities.9 The 8 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. 9 Described below are ‘‘Fixed Income Instruments,’’ as such term is used generally in the Registration Statement, in which the Fund will focus: Debt securities issued or guaranteed by the U.S. Government, its agencies or governmentsponsored enterprises (‘‘U.S. Government Securities’’); corporate debt securities of U.S. and non-U.S. issuers, including convertible securities and corporate commercial paper; mortgage-backed and other asset-backed securities; inflation-indexed bonds issued both by governments and corporations; structured notes, including hybrid or ‘‘indexed’’ securities and event-linked bonds; bank capital and trust preferred securities; loan participations and assignments; delayed funding loans and revolving credit facilities; bank certificates of deposit, fixed time deposits and bankers’ acceptances; repurchase agreements on Fixed Income Instruments and reverse repurchase agreements on Fixed Income Instruments; debt securities issued by states or local governments and their agencies, authorities and other governmentsponsored enterprises; obligations of non-U.S. governments or their subdivisions, agencies and government-sponsored enterprises; and obligations of international agencies or supranational entities. E:\FR\FM\22DEN1.SGM 22DEN1 Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices jlentini on DSK4TPTVN1PROD with NOTICES average portfolio duration of the Fund normally will vary within two years (plus or minus) of the duration of the Barclays Capital U.S. Aggregate Index, which as of May 31, 2011 was 5.19 years.10 According to the Registration Statement, the Fund will invest primarily (under normal market circumstances, at least 65% of its total assets) in investment-grade Fixed Income Instruments, but may invest up to 10% of its total assets in high yield Fixed Income Instruments (‘‘junk bonds’’) rated B3 through Ba1 by Moody’s Investors Service, Inc. (‘‘Moody’s’’), or equivalently rated by Standard & Poor’s Ratings Services (‘‘S&P’’) or Fitch, Inc. (‘‘Fitch’’), or, if unrated, determined by PIMCO to be of comparable quality.11 The Fund may invest in variable and floating rate debt securities, which are securities that pay interest at rates that adjust whenever a specified interest rate changes and/or that reset on predetermined dates (such as the last day of a month or calendar quarter). The Fund may invest in floating rate debt instruments (‘‘floaters’’) and engage in credit spread trades. Variable and floating rate debt securities generally are less sensitive to interest rate changes but may decline in value if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate debt securities will not generally increase in value if interest rates decline. The Fund may invest in debt securities and instruments that are economically tied to foreign (non-U.S.) countries. PIMCO generally considers an instrument to be economically tied to a non-U.S. country if the issuer is a foreign government (or any political subdivision, agency, authority or instrumentality of such government), or if the issuer is organized under the laws of a non-U.S. country. In the case of certain money market instruments, such instruments will be considered economically tied to a non-U.S. country if either the issuer or the guarantor of such money market instrument is Securities issued by U.S. Government agencies or government-sponsored enterprises may not be guaranteed by the U.S. Treasury. 10 Duration is a measure used to determine the sensitivity of a security’s price to changes in interest rates. The longer a security’s duration, the more sensitive it will be to changes in interest rates. 11 To the extent the Fund invests in unrated securities that PIMCO determines to be of comparable quality to rated securities that the Fund may purchase, the Fund’s ability to achieve its objective may depend more heavily on PIMCO’s creditworthiness analysis than if the Fund invested exclusively in rated securities. VerDate Mar<15>2010 19:17 Dec 21, 2011 Jkt 226001 organized under the laws of a non-U.S. country. The Fund may invest up to 15% of its total assets in securities and instruments that are economically tied to emerging market countries. PIMCO generally considers an instrument to be economically tied to an emerging market country if the issuer or guarantor is a government of an emerging market country (or any political subdivision, agency, authority or instrumentality of such government), if the issuer or guarantor is organized under the laws of an emerging market country, or if the currency of settlement of the security is a currency of an emerging market country.12 The Fund may invest, without limitation, in mortgage- or asset-backed securities.13 The Fund may purchase or sell debt and equity securities on a when-issued, delayed delivery or forward commitment basis and may engage in short sales. While corporate debt securities and debt securities economically tied to an emerging market country generally must have $200 million or more par amount outstanding and significant par value traded to be considered as an eligible investment for the Fund, at least 80% of issues of such securities held by the 12 According to the Registration Statement, PIMCO has broad discretion to identify countries that it considers to qualify as emerging markets. In making investments in emerging market securities, the Fund emphasizes those countries with relatively low gross national product per capita and with the potential for rapid economic growth. Emerging market countries are generally located in Asia, Africa, the Middle East, Latin America and Eastern Europe. PIMCO will select the country based on its evaluation of relative interest rates, inflation rates, exchange rates, monetary and fiscal policies, trade and current account balances, legal and political developments and any other specific factors it believes to be relevant. 13 According to the Registration Statement, the value of some mortgage-or asset-backed securities may be particularly sensitive to changes in prevailing interest rates. Early repayment of principal on some mortgage-related securities may expose the Fund to a lower rate of return upon reinvestment of principal. When interest rates rise, the value of a mortgage-related security generally will decline; however, when interest rates are declining, the value of mortgage-related securities with prepayment features may not increase as much as other fixed income securities. The rate of prepayments on underlying mortgages will affect the price and volatility of a mortgage-related security, and may shorten or extend the effective maturity of the security beyond what was anticipated at the time of purchase. If unanticipated rates of prepayment on underlying mortgages increase the effective maturity of a mortgage-related security, the volatility of the security can be expected to increase. The value of these securities may fluctuate in response to the market’s perception of the creditworthiness of the issuers. Additionally, although mortgages and mortgagerelated securities are generally supported by some form of government or private guarantee and/or insurance, there is no assurance that private guarantors or insurers will meet their obligations. PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 79743 Fund must have $200 million or more par amount outstanding. According to the Registration Statement, the Fund may, without limitation, seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as buy backs or dollar rolls). The ‘‘total return’’ sought by the Fund will consist of income earned on the Fund’s investments, plus capital appreciation, if any, which generally arises from decreases in interest rates, foreign currency appreciation, or improving credit fundamentals for a particular sector or security. The Fund may also invest in Brady Bonds, which are debt securities created through the exchange of existing commercial bank loans to sovereign entities for new obligations in connection with a debt restructuring. The Fund may invest up to 30% of its total assets in securities denominated in foreign currencies, and may invest beyond this limit in U.S. dollardenominated securities of foreign issuers, subject to the Fund’s 10% of total assets limit on investments in preferred stock, convertible securities and other equity related securities.14 The Fund will normally limit its foreign currency exposure (from non-U.S. dollar-denominated securities or currencies) to 20% of its total assets. The Fund may invest in municipal bonds. The types of municipal bonds in which the Fund may invest include municipal lease obligations, municipal general obligation bonds, municipal cash equivalents, and pre-refunded and escrowed to maturity municipal bonds. The Fund may also invest in industrial development bonds, which are municipal bonds issued by a government agency on behalf of a private sector company and, in most cases, are not backed by the credit of the issuing municipality and may therefore involve more risk. The Fund may also invest in securities issued by entities whose underlying assets are municipal bonds. The Fund may invest in pre-refunded municipal bonds, which are tax-exempt bonds that have been refunded to a call date on or before the final maturity of principal and remain outstanding in the municipal market.15 14 The Fund will not invest in any non-U.S registered equity securities, except if such securities are traded on exchanges that are members of the Intermarket Surveillance Group (‘‘ISG’’). 15 The payment of principal and interest of the pre-refunded municipal bonds held by the Fund is funded from securities in a designated escrow E:\FR\FM\22DEN1.SGM Continued 22DEN1 79744 Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices jlentini on DSK4TPTVN1PROD with NOTICES The Fund may make short sales as part of its overall portfolio management strategies or to offset a potential decline in value of a security. The Fund may invest in bank capital securities. Bank capital securities are issued by banks to help fulfill their regulatory capital requirements. There are three common types of bank capital: Lower Tier II, Upper Tier II and Tier I. Bank capital is generally, but not always, of investment grade quality. Upper Tier II securities are commonly thought of as hybrids of debt and preferred stock. Upper Tier II securities are often perpetual (with no maturity date), callable and have a cumulative interest deferral feature. This means that under certain conditions, the issuer bank can withhold payment of interest until a later date. However, such deferred interest payments generally earn interest. Tier I securities often take the form of trust preferred securities. In selecting Fixed Income Instruments for the Fund, PIMCO will develop an outlook for interest rates, currency exchange rates and the economy, analyze credit and call risks, and use other security selection techniques. The proportion of the Fund’s assets committed to investments in Fixed Income Instruments with particular characteristics (such as quality, sector, interest rate or maturity) will vary based on PIMCO’s outlook for the U.S. economy and the economies of other countries in the world, the financial markets and other factors. PIMCO will attempt to identify areas of the bond market that are undervalued relative to the rest of the market. PIMCO will identify these areas by grouping Fixed Income Instruments into sectors such as: money markets, governments, corporates, mortgages, asset-backed and international. Sophisticated proprietary software then will assist in evaluating sectors and pricing specific securities. Once investment opportunities are identified, PIMCO will shift assets among sectors depending upon changes account that holds U.S. Treasury securities or other obligations of the U.S. Government (including its agencies and instrumentalities (‘‘Agency Securities’’)). As the payment of principal and interest is generated from securities held in a designated escrow account, the pledge of the municipality has been fulfilled and the original pledge of revenue by the municipality is no longer in place. The escrow account securities pledged to pay the principal and interest of the pre-refunded municipal bond do not guarantee the price movement of the bond before maturity. Investment in pre-refunded municipal bonds held by the Fund may subject the Fund to interest rate risk, market risk and credit risk. In addition, while a secondary market exists for pre-refunded municipal bonds, if the Fund sells pre-refunded municipal bonds prior to maturity, the price received may be more or less than the original cost, depending on market conditions at the time of sale. VerDate Mar<15>2010 19:17 Dec 21, 2011 Jkt 226001 in relative valuations and credit spreads. Other Portfolio Holdings This describes additional securities and investment techniques that may be used by the Fund from time to time. Most of the securities and investment techniques described herein are discretionary, which means that PIMCO can decide whether to use them or not. The Fund may engage in foreign currency transactions on a spot (cash) basis and enter into forward foreign currency exchange contracts. A forward foreign currency exchange contract, which involves an obligation to purchase or sell a specific currency at a future date at a price set at the time of the contract, reduces the Fund’s exposure to changes in the value of the currency it will deliver and increases its exposure to changes in the value of the currency it will receive for the duration of the contract. Certain foreign currency transactions may also be settled in cash rather than the actual delivery of the relevant currency. The Fund may enter into these contracts to hedge against foreign exchange risk, to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one currency to another. The Fund may use one currency (or a basket of currencies) to hedge against adverse changes in the value of another currency (or a basket of currencies) when exchange rates between the two currencies are positively correlated. The Fund will segregate or ‘‘earmark’’ assets determined to be liquid by PIMCO in accordance with the procedures established by the Fund’s Board of Trustees (or, as permitted by applicable law, enter into certain offsetting positions) to cover its obligations under forward foreign currency exchange contracts entered into for non-hedging purposes. As disclosed in the Registration Statement, if PIMCO believes that economic or market conditions are unfavorable to investors, PIMCO may temporarily invest up to 100% of the Fund’s assets in certain defensive strategies, including holding a substantial portion of the Fund’s assets in cash, cash equivalents or other highly rated short-term debt securities, including debt securities issued or guaranteed by the U.S. government, its agencies or instrumentalities and affiliated money market and/or shortterm bond funds. The Fund may invest in, to the extent permitted by Section 12(d)(1)(A) of the 1940 Act, other affiliated and unaffiliated funds, such as open-end or PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 closed-end management investment companies, including other exchange traded funds, provided that the Fund’s investment in units or shares of investment companies and other openend collective investment vehicles will not exceed 10% of the Fund’s net assets. The Fund may invest securities lending collateral in one or more money market funds to the extent permitted by Rule 12d1–1 under the 1940 Act, including series of PIMCO Funds, an affiliated open-end management investment company managed by PIMCO. The Fund may invest up to 10% of its total assets in preferred stock, convertible securities and other equity related securities. Consistent with the Exemptive Order, the Fund will not invest in options contracts, futures contracts or swap agreements. The Fund may not concentrate its investments in a particular industry, as that term is used in the 1940 Act, and as interpreted, modified, or otherwise permitted by regulatory authority having jurisdiction from time to time.16 The Fund may not, with respect to 75% of the Fund’s total assets, purchase the securities of any issuer, except securities issued or guaranteed by the U.S. government or any of its agencies or instrumentalities, if, as a result (i) more than 5% of the Fund’s total assets would be invested in the securities of that issuer, or (ii) the Fund would hold more than 10% of the outstanding voting securities of that issuer.17 For the purpose of this restriction, each state and each separate political subdivision, agency, authority or instrumentality of such state, each multi-state agency or authority, and each guarantor, if any, are treated as separate issuers of municipal bonds. The Fund may hold up to 15% of its net assets in illiquid securities.18 16 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). 17 The diversification standard is set forth in Section 5(b)(1) of the 1940 Act (15 U.S.C. 80e). 18 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), 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 E:\FR\FM\22DEN1.SGM 22DEN1 Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices jlentini on DSK4TPTVN1PROD with NOTICES Certain illiquid securities may require pricing at fair value as determined in good faith under the supervision of the Fund’s Board of Trustees. The term ‘‘illiquid securities’’ for this purpose means securities that cannot be disposed of within seven days in the ordinary course of business at approximately the amount at which the Fund has valued the securities. Certain financial instruments, including, but not limited to, Rule 144A securities, loan participations and assignments, delayed funding loans, revolving credit facilities, and fixed- and floating-rate loans will be included in the 15% limitation on illiquid securities.19 The Fund intends to qualify annually and elect to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code.20 (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 1933 Act). 19 The Fund may invest in fixed- and floating-rate loans, which investments generally will be in the form of loan participations and assignments of portions of such loans. Participations and assignments involve special types of risk, including credit risk, interest rate risk, liquidity risk, and the risks of being a lender. The Fund may also enter into, or acquire participations in, delayed funding loans and revolving credit facilities, in which a lender agrees to make loans up to a maximum amount upon demand by the borrower during a specified term. These commitments may have the effect of requiring the Fund to increase its investments in a company at a time when it might not otherwise decide to do so (including at a time when the company’s financial condition makes it unlikely that such amounts will be repaid). To the extent that the Fund is committed to advance additional funds it will segregate or ‘‘earmark’’ assets determined to be liquid by PIMCO in accordance with procedures established by the Fund’s Board of Trustees in an amount sufficient to meet such commitments. 20 26 U.S.C. 851. According to the Registration Statement, to qualify as a regulated investment company, the Fund generally must, among other things, (a) Derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, net income from certain ‘‘qualified publicly traded partnerships,’’ or other income derived with respect to its business of investing in such stock, securities or currencies (‘‘Qualifying Income Test’’); (b) diversify its holdings so that, at the end of each quarter of the taxable year, (i) at least 50% of the market value of the Fund’s assets is represented by cash, U.S. Government securities, the securities of other regulated investment companies and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Fund’s total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or the securities of other regulated investment companies), the securities of certain controlled issuers in the same or similar trades or businesses, or the securities of one or more ‘‘qualified publicly traded partnerships’’; and (c) distribute each taxable year the sum of (i) at least VerDate Mar<15>2010 19:17 Dec 21, 2011 Jkt 226001 The Fund will not invest in any nonU.S registered equity securities, except if such securities are traded on exchanges that are ISG members. The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. That is, while the Fund will be permitted to borrow as permitted under the 1940 Act, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund’s broadbased securities market index (as defined in Form N–1A). The Shares will conform to the initial and continued listing criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material nonpublic information regarding the actual components of the Fund’s portfolio. The Exchange represents that, for initial and/or continued listing, the Fund will be in compliance with Rule 10A–3 21 under the Exchange Act, as provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange. The Exchange will obtain a representation from the issuer of the Shares that the 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. Creations and Redemptions of Shares According to the Registration Statement, Shares of the Fund that trade in the secondary market will be ‘‘created’’ at NAV 22 by Authorized Participants only in block-size Creation Units of 100,000 Shares or multiples thereof. The Fund will offer and issue Shares at their NAV per Share generally in exchange for a basket of debt securities held by the Fund (the ‘‘Deposit Securities’’) together with a deposit of a specified cash payment (the 90% of its investment company taxable income (which includes dividends, interest and net shortterm capital gains in excess of any net long-term capital losses) and (ii) 90% of its tax exempt interest, net of expenses allocable thereto. 21 17 CFR 240.10A–3. 22 The NAV of the Fund’s Shares generally is calculated once daily Monday through Friday as of the close of regular trading on the New York Stock Exchange (‘‘NYSE’’), generally 4 p.m. Eastern time (‘‘E.T.’’) (the ‘‘NAV Calculation Time’’) on any business day. NAV per Share is calculated by dividing the Fund’s net assets by the number of Fund Shares outstanding. For more information regarding the valuation of Fund investments in calculating the Fund’s NAV, see the Registration Statement. PO 00000 Frm 00100 Fmt 4703 Sfmt 4703 79745 ‘‘Cash Component’’). Alternatively, the Fund may issue Creation Units in exchange for a specified all-cash payment (‘‘Cash Deposit’’). Similarly, Shares can be redeemed only in Creation Units, generally in-kind for a portfolio of debt securities held by the Fund and/or for a specified amount of cash. Except when aggregated in Creation Units, Shares are not redeemable by the Fund. The prices at which creations and redemptions will occur will be based on the next calculation of NAV after an order is received. PIMCO will make available on each business day via the National Securities Clearing Corporation (‘‘NSCC’’), prior to the opening of business (subject to amendments) on the Exchange (currently 9:30 a.m., E.T.), the identity and the required amount of each Deposit Security and the amount of the Cash Component (or Cash Deposit) to be included in the current Fund Deposit 23 (based on information at the end of the previous business day). Creations and redemptions must be made by an Authorized Participant or through a firm that is either a participant in the Continuous Net Settlement System of the NSCC or a Depository Trust Company participant, and in each case, must have executed an agreement with the Distributor and Transfer Agent with respect to creations and redemptions of Creation Unit aggregations. Additional information regarding the Trust, the Fund and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings, disclosure policies, distributions and taxes is included in the Registration Statement. All terms relating to the Fund that are referred to but not defined in this proposed rule change are defined in the Registration Statement. Availability of Information The Trust’s Web site (www.pimcoetfs. com), which will be publicly available prior to the public offering of Shares, will include a form of the prospectus for the Fund that may be downloaded. The Trust’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 23 The Deposit Securities and Cash Component or, alternatively, the Cash Deposit, constitute the ‘‘Fund Deposit,’’ which represents the investment amount for a Creation Unit of the Fund. E:\FR\FM\22DEN1.SGM 22DEN1 79746 Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices jlentini on DSK4TPTVN1PROD with NOTICES ‘‘Bid/Ask Price’’),24 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 (9:30 a.m. E.T. to 4 p.m. E.T.) on the Exchange, the Fund will disclose on the Trust’s Web site the Disclosed Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) that will form the basis for the Fund’s calculation of NAV at the end of the business day.25 On a daily basis, the Adviser will disclose for each portfolio security or other financial instrument of the Fund the following information: Ticker symbol (if applicable), name of security or financial instrument, number of shares or dollar value of financial instruments held in the portfolio, and percentage weighting of the security or financial instrument in the portfolio. The Web site information will be publicly available at no charge. In addition, 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, if applicable, required to be delivered in exchange for Fund Shares, together with estimates and actual cash components, will be publicly disseminated daily prior to the opening of the NYSE via the NSCC. The basket represents one Creation Unit of the Fund. The NAV of the Fund will normally be determined as of the close of the regular trading session on the NYSE (ordinarily 4 p.m. E.T.) on each business day. Investors can also obtain the Trust’s Statement of Additional Information (‘‘SAI’’), the Fund’s Shareholder Reports, and its Form N–CSR and Form N–SAR, filed twice a year. The Trust’s SAI and Shareholder Reports are available free upon request from the Trust, and those documents and the Form N–CSR and Form N–SAR may be 24 The Bid/Ask Price of the Fund is 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. 25 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. VerDate Mar<15>2010 19:17 Dec 21, 2011 Jkt 226001 viewed on-screen or downloaded from the Commission’s Web site at www.sec.gov. Information regarding market price and trading volume of the Shares 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. 26 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. Trading Halts With respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of the Fund.27 Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached. Trading also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) The extent to which trading is not occurring in the securities and/or the financial instruments comprising the Disclosed Portfolio of the Fund; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. Trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under which Shares of the Fund may be halted. Trading Rules The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. Shares will trade on the NYSE Arca Marketplace from 4 a.m. 26 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. 27 See NYSE Arca Equities Rule 7.12, Commentary .04. PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 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 ISG from other exchanges that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.28 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 28 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. See note 15, supra. E:\FR\FM\22DEN1.SGM 22DEN1 Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices jlentini on DSK4TPTVN1PROD with NOTICES 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) 29 that an exchange have rules that are designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to, and perfect the mechanism of a free and open market and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change is designed to prevent fraudulent and manipulative acts and practices in that the Shares will be listed and traded on the Exchange pursuant to the initial and continued listing criteria in NYSE Arca Equities Rule 8.600. The Exchange has in place surveillance procedures that are adequate to properly monitor trading in the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable Federal securities laws. The Exchange may obtain information via ISG from other exchanges that are members of ISG or with which the Exchange has entered into a comprehensive surveillance sharing agreement. According to the Registration Statement, the Fund will invest under normal market circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities. The Fund will invest primarily (under normal market circumstances, at least 65% of its total assets) in investment-grade Fixed Income Instruments, but may invest up to 10% of its total assets in high yield 29 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 19:17 Dec 21, 2011 Jkt 226001 Fixed Income Instruments rated B3 through Ba1 by Moody’s or equivalently rated by S&P or Fitch, or, if unrated, determined by PIMCO to be of comparable quality. At least 80% of issues of corporate debt securities and debt securities economically tied to an emerging market country held by the Fund must have $200 million or more par amount outstanding. The Fund will not invest in options contracts, futures contracts or swap agreements. The Fund will not invest in any non-U.S registered equity securities, except if such securities are traded on exchanges that are ISG members. The Fund’s investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage; that is, the Fund’s investments will not be used to seek performance that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund’s broad-based securities market index (as defined in Form N–1A). The proposed rule change is designed to promote just and equitable principles of trade and to protect investors and the public interest in that the Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time. In addition, a large amount of information will be 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 will be continually available on a real-time basis throughout the day on brokers’ computer screens and other electronic services, and quotation and last sale information will be available via the CTA high-speed line. The Web site for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other applicable quantitative information. Moreover, prior to the PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 79747 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. The Adviser is affiliated with a broker-dealer and has implemented a ‘‘fire wall’’ with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the Fund’s portfolio. In addition, the Fund’s Reporting Authority will implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material non-public information regarding the actual components of the Fund’s portfolio. 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. E:\FR\FM\22DEN1.SGM 22DEN1 79748 Federal Register / Vol. 76, No. 246 / Thursday, December 22, 2011 / Notices 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 the 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–2011–95 on the subject line. jlentini on DSK4TPTVN1PROD with NOTICES 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–2011–95. 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 Section, 100 F Street NE., Washington, DC 20549–1090, on official business days between 10 a.m. and VerDate Mar<15>2010 19:17 Dec 21, 2011 Jkt 226001 3 p.m. Copies of the filing will also be available for inspection and copying at the NYSE’s principal office and on its Internet Web site at www.nyse.com. 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–2011–95 and should be submitted on or before January 12, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.30 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2011–32751 Filed 12–21–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–65986; File No. SR–Phlx– 2011–175] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing of Proposed Rule Change Regarding Strike Price Intervals for SLV and USO Options December 16, 2011. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on December 7, 2011, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange is filing with the Commission a proposal to amend Commentary .05 of Rule 1012 (Series of Options Open for Trading) to allow trading of options on iShares® Silver Trust 3 and United States Oil Fund at 30 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 See email from Jurij Trypupenko, Associate General Counsel, the NASDAQ OMX Group, Inc., to Drew J. Zimmerman, confirming that ‘‘iShares®’’ is a registered trademark of BlackRock Institutional Trust Company, N.A. PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 $0.50 strike price intervals where the strike price is less than $75. The text of the proposed rule change is available on the Exchange’s Web site at https://nasdaqomxphlx.cchwallstreet. com/NASDAQOMXPHLX/Filings/, at the principal office of the Exchange, at the Commission’s Web site at www.sec.gov, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these 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 aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of this filing is to amend Commentary .05 of Rule 1012 to allow trading of options on iShares® Silver Trust (‘‘SLV’’ or ‘‘SLV Trust’’) and United States Oil Fund (‘‘USO’’ or ‘‘USO Fund’’) at $0.50 strike price intervals where the strike price is less than $75. The Underlying ETFs Two popular exchange traded funds (‘‘ETFs’’), which are known on the Exchange as Exchange-Traded Fund Shares, underlie SLV and USO options.4 SLV and USO options are currently traded on several exchanges.5 The iShares® Silver Trust is a grantor trust that is designed to provide a vehicle for investors to own interests in silver. The purpose of the SLV Trust is to own silver transferred to the trust in exchange for shares that are issued by the trust. Each of such shares represents a fractional undivided beneficial interest in the net assets of the SLV Trust. The objective of the SLV Trust is 4 As of July 31, 2011, the average daily volume (‘‘ADV’’) over the previous three calendar months was 60,087,539 for SLV and 13,881,380 for USO. 5 These exchanges include, in addition to Phlx: NYSEAmex (‘‘Amex’’), NYSEArca (‘‘Arca’’), BATS Global Markets (‘‘BATS’’), Boston Options Exchange (‘‘BOX’’), Chicago Board Options Exchange (‘‘CBOE’’), C2 Options Exchange (‘‘C2’’), International Securities Exchange (‘‘ISE’’), and NASDAQ Options Exchange (‘‘NOM’’). E:\FR\FM\22DEN1.SGM 22DEN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 76, Number 246 (Thursday, December 22, 2011)]
[Notices]
[Pages 79741-79748]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32751]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65988; File No. SR-NYSEARCA-2011-95]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of the PIMCO
Total Return Exchange Traded Fund Under NYSE Arca Equities Rule 8.600

December 16, 2011.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on December 13, 2011, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit

[[Page 79742]]

comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

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

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

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

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

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

1. Purpose
The Exchange proposes to list and trade the following Managed Fund
Shares \4\ (``Shares'') under NYSE Arca Equities Rule 8.600: PIMCO
Total Return Exchange Traded Fund (the ``Fund'').\5\ The Shares will be
offered by PIMCO ETF Trust (the ``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.\6\
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\4\ 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.
\5\ The Commission has previously approved the listing and
trading on the Exchange of other actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 60981
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (order approving Exchange listing and trading of five fixed
income funds of the PIMCO ETF Trust); 61365 (January 15, 2010), 75
FR 4124 (January 26, 2010) (SR-NYSEArca-2009-114) (order approving
Exchange listing and trading of Grail McDonnell Fixed Income ETFs).
\6\ The Trust is registered under the 1940 Act. On July 7, 2011,
the Trust filed with the Commission Post-Effective Amendment No. 30
to Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a)
(``1933 Act'') relating to the Fund (File Nos. 333-155395 and 811-
22250) (the ``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. 28993 (November 10,
2009) (File No. 812-13571) (``Exemptive Order'').
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The investment manager to the Fund is Pacific Investment Management
Company LLC (``PIMCO'' or the ``Adviser''). PIMCO Investments LLC
serves as the distributor for the Fund (``Distributor''). State Street
Bank & Trust Co. serves as the custodian and transfer agent for the
Fund (``Transfer Agent'').
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.\7\ 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 implemented a ``fire wall''
with respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the Fund's portfolio. If
PIMCO elects to hire a sub-adviser for the Fund that is also affiliated
with a broker-dealer, such sub-adviser will implement a fire wall with
respect to such broker-dealer 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 manager, 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.
---------------------------------------------------------------------------

\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``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 Fund will seek maximum
total return, consistent with preservation of capital and prudent
investment management. The Fund will invest under normal market
circumstances at least 65% of its total assets in a diversified
portfolio of Fixed Income Instruments of varying maturities.\8\ ``Fixed
Income Instruments'' include bonds, debt securities and other similar
instruments issued by various U.S. and non-U.S. public- or private-
sector entities.\9\ The

[[Page 79743]]

average portfolio duration of the Fund normally will vary within two
years (plus or minus) of the duration of the Barclays Capital U.S.
Aggregate Index, which as of May 31, 2011 was 5.19 years.\10\
---------------------------------------------------------------------------

\8\ 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.
\9\ Described below are ``Fixed Income Instruments,'' as such
term is used generally in the Registration Statement, in which the
Fund will focus: Debt securities issued or guaranteed by the U.S.
Government, its agencies or government-sponsored enterprises (``U.S.
Government Securities''); corporate debt securities of U.S. and non-
U.S. issuers, including convertible securities and corporate
commercial paper; mortgage-backed and other asset-backed securities;
inflation-indexed bonds issued both by governments and corporations;
structured notes, including hybrid or ``indexed'' securities and
event-linked bonds; bank capital and trust preferred securities;
loan participations and assignments; delayed funding loans and
revolving credit facilities; bank certificates of deposit, fixed
time deposits and bankers' acceptances; repurchase agreements on
Fixed Income Instruments and reverse repurchase agreements on Fixed
Income Instruments; debt securities issued by states or local
governments and their agencies, authorities and other government-
sponsored enterprises; obligations of non-U.S. governments or their
subdivisions, agencies and government-sponsored enterprises; and
obligations of international agencies or supranational entities.
Securities issued by U.S. Government agencies or government-
sponsored enterprises may not be guaranteed by the U.S. Treasury.
\10\ Duration is a measure used to determine the sensitivity of
a security's price to changes in interest rates. The longer a
security's duration, the more sensitive it will be to changes in
interest rates.
---------------------------------------------------------------------------

According to the Registration Statement, the Fund will invest
primarily (under normal market circumstances, at least 65% of its total
assets) in investment-grade Fixed Income Instruments, but may invest up
to 10% of its total assets in high yield Fixed Income Instruments
(``junk bonds'') rated B3 through Ba1 by Moody's Investors Service,
Inc. (``Moody's''), or equivalently rated by Standard & Poor's Ratings
Services (``S&P'') or Fitch, Inc. (``Fitch''), or, if unrated,
determined by PIMCO to be of comparable quality.\11\
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\11\ To the extent the Fund invests in unrated securities that
PIMCO determines to be of comparable quality to rated securities
that the Fund may purchase, the Fund's ability to achieve its
objective may depend more heavily on PIMCO's creditworthiness
analysis than if the Fund invested exclusively in rated securities.
---------------------------------------------------------------------------

The Fund may invest in variable and floating rate debt securities,
which are securities that pay interest at rates that adjust whenever a
specified interest rate changes and/or that reset on predetermined
dates (such as the last day of a month or calendar quarter). The Fund
may invest in floating rate debt instruments (``floaters'') and engage
in credit spread trades. Variable and floating rate debt securities
generally are less sensitive to interest rate changes but may decline
in value if their interest rates do not rise as much, or as quickly, as
interest rates in general. Conversely, floating rate debt securities
will not generally increase in value if interest rates decline.
The Fund may invest in debt securities and instruments that are
economically tied to foreign (non-U.S.) countries. PIMCO generally
considers an instrument to be economically tied to a non-U.S. country
if the issuer is a foreign government (or any political subdivision,
agency, authority or instrumentality of such government), or if the
issuer is organized under the laws of a non-U.S. country. In the case
of certain money market instruments, such instruments will be
considered economically tied to a non-U.S. country if either the issuer
or the guarantor of such money market instrument is organized under the
laws of a non-U.S. country.
The Fund may invest up to 15% of its total assets in securities and
instruments that are economically tied to emerging market countries.
PIMCO generally considers an instrument to be economically tied to an
emerging market country if the issuer or guarantor is a government of
an emerging market country (or any political subdivision, agency,
authority or instrumentality of such government), if the issuer or
guarantor is organized under the laws of an emerging market country, or
if the currency of settlement of the security is a currency of an
emerging market country.\12\
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\12\ According to the Registration Statement, PIMCO has broad
discretion to identify countries that it considers to qualify as
emerging markets. In making investments in emerging market
securities, the Fund emphasizes those countries with relatively low
gross national product per capita and with the potential for rapid
economic growth. Emerging market countries are generally located in
Asia, Africa, the Middle East, Latin America and Eastern Europe.
PIMCO will select the country based on its evaluation of relative
interest rates, inflation rates, exchange rates, monetary and fiscal
policies, trade and current account balances, legal and political
developments and any other specific factors it believes to be
relevant.
---------------------------------------------------------------------------

The Fund may invest, without limitation, in mortgage- or asset-
backed securities.\13\ The Fund may purchase or sell debt and equity
securities on a when-issued, delayed delivery or forward commitment
basis and may engage in short sales.
---------------------------------------------------------------------------

\13\ According to the Registration Statement, the value of some
mortgage-or asset-backed securities may be particularly sensitive to
changes in prevailing interest rates. Early repayment of principal
on some mortgage-related securities may expose the Fund to a lower
rate of return upon reinvestment of principal. When interest rates
rise, the value of a mortgage-related security generally will
decline; however, when interest rates are declining, the value of
mortgage-related securities with prepayment features may not
increase as much as other fixed income securities. The rate of
prepayments on underlying mortgages will affect the price and
volatility of a mortgage-related security, and may shorten or extend
the effective maturity of the security beyond what was anticipated
at the time of purchase. If unanticipated rates of prepayment on
underlying mortgages increase the effective maturity of a mortgage-
related security, the volatility of the security can be expected to
increase. The value of these securities may fluctuate in response to
the market's perception of the creditworthiness of the issuers.
Additionally, although mortgages and mortgage-related securities are
generally supported by some form of government or private guarantee
and/or insurance, there is no assurance that private guarantors or
insurers will meet their obligations.
---------------------------------------------------------------------------

While corporate debt securities and debt securities economically
tied to an emerging market country generally must have $200 million or
more par amount outstanding and significant par value traded to be
considered as an eligible investment for the Fund, at least 80% of
issues of such securities held by the Fund must have $200 million or
more par amount outstanding.
According to the Registration Statement, the Fund may, without
limitation, seek to obtain market exposure to the securities in which
it primarily invests by entering into a series of purchase and sale
contracts or by using other investment techniques (such as buy backs or
dollar rolls). The ``total return'' sought by the Fund will consist of
income earned on the Fund's investments, plus capital appreciation, if
any, which generally arises from decreases in interest rates, foreign
currency appreciation, or improving credit fundamentals for a
particular sector or security.
The Fund may also invest in Brady Bonds, which are debt securities
created through the exchange of existing commercial bank loans to
sovereign entities for new obligations in connection with a debt
restructuring.
The Fund may invest up to 30% of its total assets in securities
denominated in foreign currencies, and may invest beyond this limit in
U.S. dollar-denominated securities of foreign issuers, subject to the
Fund's 10% of total assets limit on investments in preferred stock,
convertible securities and other equity related securities.\14\ The
Fund will normally limit its foreign currency exposure (from non-U.S.
dollar-denominated securities or currencies) to 20% of its total
assets.
---------------------------------------------------------------------------

\14\ The Fund will not invest in any non-U.S registered equity
securities, except if such securities are traded on exchanges that
are members of the Intermarket Surveillance Group (``ISG'').
---------------------------------------------------------------------------

The Fund may invest in municipal bonds. The types of municipal
bonds in which the Fund may invest include municipal lease obligations,
municipal general obligation bonds, municipal cash equivalents, and
pre-refunded and escrowed to maturity municipal bonds. The Fund may
also invest in industrial development bonds, which are municipal bonds
issued by a government agency on behalf of a private sector company
and, in most cases, are not backed by the credit of the issuing
municipality and may therefore involve more risk. The Fund may also
invest in securities issued by entities whose underlying assets are
municipal bonds.
The Fund may invest in pre-refunded municipal bonds, which are tax-
exempt bonds that have been refunded to a call date on or before the
final maturity of principal and remain outstanding in the municipal
market.\15\
---------------------------------------------------------------------------

\15\ The payment of principal and interest of the pre-refunded
municipal bonds held by the Fund is funded from securities in a
designated escrow account that holds U.S. Treasury securities or
other obligations of the U.S. Government (including its agencies and
instrumentalities (``Agency Securities'')). As the payment of
principal and interest is generated from securities held in a
designated escrow account, the pledge of the municipality has been
fulfilled and the original pledge of revenue by the municipality is
no longer in place. The escrow account securities pledged to pay the
principal and interest of the pre-refunded municipal bond do not
guarantee the price movement of the bond before maturity. Investment
in pre-refunded municipal bonds held by the Fund may subject the
Fund to interest rate risk, market risk and credit risk. In
addition, while a secondary market exists for pre-refunded municipal
bonds, if the Fund sells pre-refunded municipal bonds prior to
maturity, the price received may be more or less than the original
cost, depending on market conditions at the time of sale.

---------------------------------------------------------------------------

[[Page 79744]]

The Fund may make short sales as part of its overall portfolio
management strategies or to offset a potential decline in value of a
security.
The Fund may invest in bank capital securities. Bank capital
securities are issued by banks to help fulfill their regulatory capital
requirements. There are three common types of bank capital: Lower Tier
II, Upper Tier II and Tier I. Bank capital is generally, but not
always, of investment grade quality. Upper Tier II securities are
commonly thought of as hybrids of debt and preferred stock. Upper Tier
II securities are often perpetual (with no maturity date), callable and
have a cumulative interest deferral feature. This means that under
certain conditions, the issuer bank can withhold payment of interest
until a later date. However, such deferred interest payments generally
earn interest. Tier I securities often take the form of trust preferred
securities.
In selecting Fixed Income Instruments for the Fund, PIMCO will
develop an outlook for interest rates, currency exchange rates and the
economy, analyze credit and call risks, and use other security
selection techniques. The proportion of the Fund's assets committed to
investments in Fixed Income Instruments with particular characteristics
(such as quality, sector, interest rate or maturity) will vary based on
PIMCO's outlook for the U.S. economy and the economies of other
countries in the world, the financial markets and other factors.
PIMCO will attempt to identify areas of the bond market that are
undervalued relative to the rest of the market. PIMCO will identify
these areas by grouping Fixed Income Instruments into sectors such as:
money markets, governments, corporates, mortgages, asset-backed and
international. Sophisticated proprietary software then will assist in
evaluating sectors and pricing specific securities. Once investment
opportunities are identified, PIMCO will shift assets among sectors
depending upon changes in relative valuations and credit spreads.

Other Portfolio Holdings

This describes additional securities and investment techniques that
may be used by the Fund from time to time. Most of the securities and
investment techniques described herein are discretionary, which means
that PIMCO can decide whether to use them or not.
The Fund may engage in foreign currency transactions on a spot
(cash) basis and enter into forward foreign currency exchange
contracts. A forward foreign currency exchange contract, which involves
an obligation to purchase or sell a specific currency at a future date
at a price set at the time of the contract, reduces the Fund's exposure
to changes in the value of the currency it will deliver and increases
its exposure to changes in the value of the currency it will receive
for the duration of the contract. Certain foreign currency transactions
may also be settled in cash rather than the actual delivery of the
relevant currency. The Fund may enter into these contracts to hedge
against foreign exchange risk, to increase exposure to a foreign
currency or to shift exposure to foreign currency fluctuations from one
currency to another. The Fund may use one currency (or a basket of
currencies) to hedge against adverse changes in the value of another
currency (or a basket of currencies) when exchange rates between the
two currencies are positively correlated. The Fund will segregate or
``earmark'' assets determined to be liquid by PIMCO in accordance with
the procedures established by the Fund's Board of Trustees (or, as
permitted by applicable law, enter into certain offsetting positions)
to cover its obligations under forward foreign currency exchange
contracts entered into for non-hedging purposes.
As disclosed in the Registration Statement, if PIMCO believes that
economic or market conditions are unfavorable to investors, PIMCO may
temporarily invest up to 100% of the Fund's assets in certain defensive
strategies, including holding a substantial portion of the Fund's
assets in cash, cash equivalents or other highly rated short-term debt
securities, including debt securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities and affiliated money
market and/or short-term bond funds.
The Fund may invest in, to the extent permitted by Section
12(d)(1)(A) of the 1940 Act, other affiliated and unaffiliated funds,
such as open-end or closed-end management investment companies,
including other exchange traded funds, provided that the Fund's
investment in units or shares of investment companies and other open-
end collective investment vehicles will not exceed 10% of the Fund's
net assets. The Fund may invest securities lending collateral in one or
more money market funds to the extent permitted by Rule 12d1-1 under
the 1940 Act, including series of PIMCO Funds, an affiliated open-end
management investment company managed by PIMCO.
The Fund may invest up to 10% of its total assets in preferred
stock, convertible securities and other equity related securities.
Consistent with the Exemptive Order, the Fund will not invest in
options contracts, futures contracts or swap agreements.
The Fund may not concentrate its investments in a particular
industry, as that term is used in the 1940 Act, and as interpreted,
modified, or otherwise permitted by regulatory authority having
jurisdiction from time to time.\16\
---------------------------------------------------------------------------

\16\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
---------------------------------------------------------------------------

The Fund may not, with respect to 75% of the Fund's total assets,
purchase the securities of any issuer, except securities issued or
guaranteed by the U.S. government or any of its agencies or
instrumentalities, if, as a result (i) more than 5% of the Fund's total
assets would be invested in the securities of that issuer, or (ii) the
Fund would hold more than 10% of the outstanding voting securities of
that issuer.\17\ For the purpose of this restriction, each state and
each separate political subdivision, agency, authority or
instrumentality of such state, each multi-state agency or authority,
and each guarantor, if any, are treated as separate issuers of
municipal bonds.
---------------------------------------------------------------------------

\17\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
---------------------------------------------------------------------------

The Fund may hold up to 15% of its net assets in illiquid
securities.\18\

[[Page 79745]]

Certain illiquid securities may require pricing at fair value as
determined in good faith under the supervision of the Fund's Board of
Trustees. The term ``illiquid securities'' for this purpose means
securities that cannot be disposed of within seven days in the ordinary
course of business at approximately the amount at which the Fund has
valued the securities. Certain financial instruments, including, but
not limited to, Rule 144A securities, loan participations and
assignments, delayed funding loans, revolving credit facilities, and
fixed- and floating-rate loans will be included in the 15% limitation
on illiquid securities.\19\
---------------------------------------------------------------------------

\18\ 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),
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
1933 Act).
\19\ The Fund may invest in fixed- and floating-rate loans,
which investments generally will be in the form of loan
participations and assignments of portions of such loans.
Participations and assignments involve special types of risk,
including credit risk, interest rate risk, liquidity risk, and the
risks of being a lender. The Fund may also enter into, or acquire
participations in, delayed funding loans and revolving credit
facilities, in which a lender agrees to make loans up to a maximum
amount upon demand by the borrower during a specified term. These
commitments may have the effect of requiring the Fund to increase
its investments in a company at a time when it might not otherwise
decide to do so (including at a time when the company's financial
condition makes it unlikely that such amounts will be repaid). To
the extent that the Fund is committed to advance additional funds it
will segregate or ``earmark'' assets determined to be liquid by
PIMCO in accordance with procedures established by the Fund's Board
of Trustees in an amount sufficient to meet such commitments.
---------------------------------------------------------------------------

The Fund intends to qualify annually and elect to be treated as a
regulated investment company under Subchapter M of the Internal Revenue
Code.\20\
---------------------------------------------------------------------------

\20\ 26 U.S.C. 851. According to the Registration Statement, to
qualify as a regulated investment company, the Fund generally must,
among other things, (a) Derive in each taxable year at least 90% of
its gross income from dividends, interest, payments with respect to
securities loans, and gains from the sale or other disposition of
stock, securities or foreign currencies, net income from certain
``qualified publicly traded partnerships,'' or other income derived
with respect to its business of investing in such stock, securities
or currencies (``Qualifying Income Test''); (b) diversify its
holdings so that, at the end of each quarter of the taxable year,
(i) at least 50% of the market value of the Fund's assets is
represented by cash, U.S. Government securities, the securities of
other regulated investment companies and other securities, with such
other securities of any one issuer limited for the purposes of this
calculation to an amount not greater than 5% of the value of the
Fund's total assets and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than
U.S. Government securities or the securities of other regulated
investment companies), the securities of certain controlled issuers
in the same or similar trades or businesses, or the securities of
one or more ``qualified publicly traded partnerships''; and (c)
distribute each taxable year the sum of (i) at least 90% of its
investment company taxable income (which includes dividends,
interest and net short-term capital gains in excess of any net long-
term capital losses) and (ii) 90% of its tax exempt interest, net of
expenses allocable thereto.
---------------------------------------------------------------------------

The Fund will not invest in any non-U.S registered equity
securities, except if such securities are traded on exchanges that are
ISG members. The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. That is,
while the Fund will be permitted to borrow as permitted under the 1940
Act, the Fund's investments will not be used to seek performance that
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's
broad-based securities market index (as defined in Form N-1A).
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the actual
components of the Fund's portfolio. The Exchange represents that, for
initial and/or continued listing, the Fund will be in compliance with
Rule 10A-3 \21\ under the Exchange Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares will be outstanding at
the commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the 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.
---------------------------------------------------------------------------

\21\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Creations and Redemptions of Shares

According to the Registration Statement, Shares of the Fund that
trade in the secondary market will be ``created'' at NAV \22\ by
Authorized Participants only in block-size Creation Units of 100,000
Shares or multiples thereof. The Fund will offer and issue Shares at
their NAV per Share generally in exchange for a basket of debt
securities held by the Fund (the ``Deposit Securities'') together with
a deposit of a specified cash payment (the ``Cash Component'').
Alternatively, the Fund may issue Creation Units in exchange for a
specified all-cash payment (``Cash Deposit''). Similarly, Shares can be
redeemed only in Creation Units, generally in-kind for a portfolio of
debt securities held by the Fund and/or for a specified amount of cash.
---------------------------------------------------------------------------

\22\ The NAV of the Fund's Shares generally is calculated once
daily Monday through Friday as of the close of regular trading on
the New York Stock Exchange (``NYSE''), generally 4 p.m. Eastern
time (``E.T.'') (the ``NAV Calculation Time'') on any business day.
NAV per Share is calculated by dividing the Fund's net assets by the
number of Fund Shares outstanding. For more information regarding
the valuation of Fund investments in calculating the Fund's NAV, see
the Registration Statement.
---------------------------------------------------------------------------

Except when aggregated in Creation Units, Shares are not redeemable
by the Fund. The prices at which creations and redemptions will occur
will be based on the next calculation of NAV after an order is
received. PIMCO will make available on each business day via the
National Securities Clearing Corporation (``NSCC''), prior to the
opening of business (subject to amendments) on the Exchange (currently
9:30 a.m., E.T.), the identity and the required amount of each Deposit
Security and the amount of the Cash Component (or Cash Deposit) to be
included in the current Fund Deposit \23\ (based on information at the
end of the previous business day). Creations and redemptions must be
made by an Authorized Participant or through a firm that is either a
participant in the Continuous Net Settlement System of the NSCC or a
Depository Trust Company participant, and in each case, must have
executed an agreement with the Distributor and Transfer Agent with
respect to creations and redemptions of Creation Unit aggregations.
---------------------------------------------------------------------------

\23\ The Deposit Securities and Cash Component or,
alternatively, the Cash Deposit, constitute the ``Fund Deposit,''
which represents the investment amount for a Creation Unit of the
Fund.
---------------------------------------------------------------------------

Additional information regarding the Trust, the Fund and the
Shares, including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings, disclosure policies,
distributions and taxes is included in the Registration Statement. All
terms relating to the Fund that are referred to but not defined in this
proposed rule change are defined in the Registration Statement.

Availability of Information

The Trust's Web site (www.pimcoetfs.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Trust'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

[[Page 79746]]

``Bid/Ask Price''),\24\ 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
(9:30 a.m. E.T. to 4 p.m. E.T.) on the Exchange, the Fund will disclose
on the Trust's Web site the Disclosed Portfolio as defined in NYSE Arca
Equities Rule 8.600(c)(2) that will form the basis for the Fund's
calculation of NAV at the end of the business day.\25\
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\24\ The Bid/Ask Price of the Fund is 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.
\25\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
---------------------------------------------------------------------------

On a daily basis, the Adviser will disclose for each portfolio
security or other financial instrument of the Fund the following
information: 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, if applicable, required to be delivered in
exchange for Fund Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via the NSCC. The basket represents one Creation Unit of the
Fund. The NAV of the Fund will normally be determined as of the close
of the regular trading session on the NYSE (ordinarily 4 p.m. E.T.) on
each business day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov. Information
regarding market price and trading volume of 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. \26\ 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.
---------------------------------------------------------------------------

\26\ 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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Trading Halts

With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\27\ 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.
---------------------------------------------------------------------------

\27\ 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 ISG from other
exchanges that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.\28\
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\28\ 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. See note 15, supra.
---------------------------------------------------------------------------

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

[[Page 79747]]

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) \29\ 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.
---------------------------------------------------------------------------

\29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable Federal securities laws. The Exchange may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement. According to the Registration Statement, the Fund will
invest under normal market circumstances at least 65% of its total
assets in a diversified portfolio of Fixed Income Instruments of
varying maturities. The Fund will invest primarily (under normal market
circumstances, at least 65% of its total assets) in investment-grade
Fixed Income Instruments, but may invest up to 10% of its total assets
in high yield Fixed Income Instruments rated B3 through Ba1 by Moody's
or equivalently rated by S&P or Fitch, or, if unrated, determined by
PIMCO to be of comparable quality. At least 80% of issues of corporate
debt securities and debt securities economically tied to an emerging
market country held by the Fund must have $200 million or more par
amount outstanding. The Fund will not invest in options contracts,
futures contracts or swap agreements. The Fund will not invest in any
non-U.S registered equity securities, except if such securities are
traded on exchanges that are ISG members. The Fund's investments will
be consistent with the Fund's investment objective and will not be used
to enhance leverage; that is, the Fund's investments will not be used
to seek performance that is the multiple or inverse multiple (i.e., 2Xs
and 3Xs) of the Fund's broad-based securities market index (as defined
in Form N-1A).
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information will be 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 will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services, and quotation
and last sale information will be available via the CTA high-speed
line. The Web site for the Fund will include a form of the prospectus
for the Fund and additional data relating to NAV and other applicable
quantitative information. Moreover, prior to the commencement of
trading, the Exchange will inform its ETP Holders in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares. Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been
reached or because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable, and
trading in the Shares will be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth circumstances under which Shares of
the Fund may be halted. In addition, as noted above, investors will
have ready access to information regarding the Fund's holdings, the
Portfolio Indicative Value, the Disclosed Portfolio, and quotation and
last sale information for the Shares.
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. The Adviser is affiliated with a
broker-dealer and has implemented a ``fire wall'' with respect to such
broker-dealer regarding access to information concerning the
composition and/or changes to the Fund's portfolio. In addition, the
Fund's Reporting Authority will implement and maintain, or be subject
to, procedures designed to prevent the use and dissemination of
material non-public information regarding the actual components of the
Fund's portfolio.

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.

[[Page 79748]]

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 the 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-2011-95 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-2011-95. 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 Section, 100 F Street
NE., Washington, DC 20549-1090, on official business days between 10
a.m. and 3 p.m. Copies of the filing will also be available for
inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. 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-2011-95 and should be submitted on or before
January 12, 2012.

For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
---------------------------------------------------------------------------

\30\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32751 Filed 12-21-11; 8:45 am]
BILLING CODE 8011-01-P

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