Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to Listing and Trading of the WisdomTree Brazil Bond Fund Under NYSE Arca Equities Rule 8.600, 21827-21833 [2012-8717]
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Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–66753; File No. SR–
NYSEArca–2012–25]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to Listing and
Trading of the WisdomTree Brazil
Bond Fund Under NYSE Arca Equities
Rule 8.600
April 6, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that,
on March 23, 2012, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been substantially prepared by the
Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
fund of the WisdomTree Trust (‘‘Trust’’)
under NYSE Arca Equities Rule 8.600
(‘‘Managed Fund Shares’’): WisdomTree
Brazil Bond Fund (‘‘Fund’’). The text of
the proposed rule change is available at
the Exchange, the Commission’s Public
Reference Room, and www.nyse.com.
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade Shares of the WisdomTree Brazil
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Bond Fund under NYSE Arca Equities
Rule 8.600, which governs the listing
and trading of Managed Fund Shares on
the Exchange.3 The Fund will be an
actively managed exchange-traded
fund.4 The Shares will be offered by the
Trust, which was established as a
Delaware statutory trust on December
15, 2005. The Trust is registered with
the Commission as an investment
company.5
Description of the Shares and the Fund
WisdomTree Asset Management, Inc.
(‘‘WisdomTree Asset Management’’) is
the investment adviser (‘‘Adviser’’) to
the Fund.6 WisdomTree Asset
Management is not affiliated with any
3 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index, or
combination thereof.
4 The Commission has previously approved
listing and trading on the Exchange of a number of
actively managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
NYSEArca–2008–31) (order approving Exchange
listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 58564 (September
17, 2008), 73 FR 55194 (September 24, 2008) (SR–
NYSEArca–2008–86) (order approving Exchange
listing and trading of WisdomTree Dreyfus
Emerging Currency Fund); 62604 (July 30, 2010), 75
FR 47323 (August 5, 2010) (SR–NYSEArca–2010–
49) (order approving listing and trading of
WisdomTree Emerging Markets Local Debt Fund);
63919 (February 16, 2011), 76 FR 10073 (February
23, 2011) (SR–NYSEArca–2010–116) (order
approving listing and trading of WisdomTree Asia
Local Debt Fund); 64643 (June 10, 2011), 76 FR
35062 (June 15, 2011) (SR–NYSEArca–2011–21)
(order approving listing and trading of WisdomTree
Global Real Return Fund); 65458 (September 30,
2011), 76 FR 62112 (October 6, 2011) (SR–
NYSEArca–2011–54) (order approving listing and
trading of WisdomTree Dreyfus Australia and New
Zealand Debt Fund); 66342 (February 7, 2012), 77
FR 7623 (February 13, 2012) (SR–NYSEArca–2011–
82) (order approving listing and trading of
WisdomTree Emerging Markets Inflation Protection
Bond Fund); and 66489 (February 29, 2012), 77 FR
13379 (March 6, 2012) (SR–NYSEArca–2012–004)
(order approving listing and trading of WisdomTree
Emerging Markets Corporate Bond Fund). The
Exchange believes the proposed rule change raises
no significant issues not previously addressed in
those prior Commission orders.
5 See registration statement on Form N–1A for the
Trust under the Securities Act of 1933 (15 U.S.C.
77a) and under the 1940 Act, dated October 8, 2010
(File Nos. 333–132380 and 811–21864)
(‘‘Registration Statement’’). The descriptions of the
Fund and the Shares contained herein are based, in
part, on information in the Registration Statement.
6 WisdomTree Investments, Inc. (‘‘WisdomTree
Investments’’) is the parent company of
WisdomTree Asset Management.
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21827
broker-dealer. Western Asset
Management Company serves as subadviser for the Fund (‘‘Sub-Adviser’’).7
The Bank of New York Mellon is the
administrator, custodian, and transfer
agent for the Trust. ALPS Distributors,
Inc. serves as the distributor for the
Trust.8
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.9 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 non-public information
7 The Sub-Adviser will be responsible for day-today management of the Fund and, as such, typically
will make all decisions with respect to portfolio
holdings. The Adviser will have ongoing oversight
responsibility.
8 The Commission has issued an order granting
certain exemptive relief (‘‘Exemptive Order’’) to the
Trust under the 1940 Act. See Investment Company
Act Release No. 28171 (October 27, 2008) (File No.
812–13458). In compliance with Commentary .05 to
NYSE Arca Equities Rule 8.600, which applies to
Managed Fund Shares based on an international or
global portfolio, the Trust’s application for
exemptive relief under the 1940 Act states that the
Fund will comply with the federal securities laws
in accepting securities for deposits and satisfying
redemptions with redemption securities, including
that the securities accepted for deposits and the
securities used to satisfy redemption requests are
sold in transactions that would be exempt from
registration under the Securities Act of 1933 (15
U.S.C. 77a).
9 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’). As a result,
the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule
204A–1 under the Advisers Act relating to codes of
ethics. This Rule requires investment advisers to
adopt a code of ethics that reflects the fiduciary
nature of the relationship to clients as well as
compliance with other applicable securities laws.
Accordingly, procedures designed to prevent the
communication and misuse of non-public
information by an investment adviser must be
consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) Adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
.
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regarding the open-end fund’s portfolio.
Commentary .06 to Rule 8.600 is similar
to Commentary .03(a)(i) and (iii) to
NYSE Arca Equities Rule 5.2(j)(3);
however, Commentary .06 in connection
with the establishment of a ‘‘fire wall’’
between the investment adviser and the
broker-dealer reflects the applicable
open-end fund’s portfolio, not an
underlying benchmark index, as is the
case with index-based funds. The SubAdviser is affiliated with multiple
broker-dealers and has implemented a
‘‘fire wall’’ with respect to such brokerdealers regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio. In
addition, Sub-Adviser personnel who
make decisions regarding the Fund’s
portfolio are subject to procedures
designed to prevent the use and
dissemination of material non-public
information regarding the Fund’s
portfolio. In the event (a) the Adviser or
the Sub-Adviser becomes newly
affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser becomes
affiliated with a broker-dealer, it will
implement a fire wall with respect to
such broker-dealer regarding access to
information concerning the composition
and/or changes to the portfolio.
WisdomTree Brazil Bond Fund
According to the Registration
Statement, the Fund will seek to
provide investors with a high level of
total return consisting of both income
and capital appreciation. The Fund will
be designed to provide exposure to a
broad range of Brazilian government
and corporate bonds through investment
in both local currency (i.e., Brazilian
real) and U.S. dollar-denominated Fixed
Income Securities. For purposes of this
proposed rule change, Fixed Income
Securities will include bonds, notes, or
other debt obligations, including loan
participation notes (‘‘LPNs’’),10
inflation-linked debt, and debt
securities issued by ‘‘supranational
issuers,’’ such as the European
Investment Bank, International Bank for
Reconstruction and Development, and
the International Finance Corporation,
as well as development agencies
supported by other national
governments. The Fund may invest to a
lesser extent in Money Market
Securities and derivative instruments,
as described below.
The Fund will be designed to provide
broad exposure to Brazilian government
and corporate bonds and will invest in
10 The Fund may invest in LPNs with a minimum
outstanding principal amount of $200 million that
the Adviser or Sub-Adviser deems to be liquid. The
Adviser represents that the Fund will invest a
limited percentage of its assets in LPNs.
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a range of instruments with varying
credit risk and duration. The Fund
intends to invest in bonds and debt
instruments issued by the government
of Brazil and its agencies and
instrumentalities and bonds and other
debt instruments issued by corporations
organized in Brazil.11 The Fund also
may invest in bonds and debt
instruments denominated in Brazilian
real and issued by supranational issuers,
as described above. The Fund intends to
invest at least 70% of its net assets in
Fixed Income Securities. The Fund will
invest only in corporate bonds that the
Adviser or Sub-Adviser deems to be
sufficiently liquid. Generally a corporate
bond must have $200 million or more
par amount outstanding and significant
par value traded to be considered as an
eligible investment.12 Economic and
11 The category of ‘‘Brazilian debt’’ includes both
U.S. dollar-denominated debt and non-U.S. or
‘‘local’’ currency debt. The market for Brazilian
local currency debt is larger and more actively
traded than the market for Brazilian U.S. dollardenominated debt. According to the Emerging
Markets Traders Association, the global dollar
amount of emerging market debt instruments traded
in the first two quarters of 2011 was $3.443 trillion,
of which Brazil represented over $358 billion. This
pace seems largely similar to the annual amounts
traded in 2010 whereby $6.765 trillion globally and
$958 billion in Brazilian debt traded between
market participants. This marked a 52% increase
globally and a 28% increase in Brazilian debt over
the total volumes of each traded in 2009 ($4.4445
trillion globally, $747 billion in Brazilian debt).
Global turnover in local currency debt instruments
in 2009 was $2.870 trillion, of which Brazilian debt
represented $548 billion. (Source: Emerging
Markets Traders Association Survey: Full Year 2010
Emerging Markets Debt Trading, Emerging Markets
Traders Association, March 22, 2011; Emerging
Markets Traders Association 2009 Annual Debt
Trading Volume Survey, March 8, 2010. Additional
information relating to emerging market corporate
bonds is available at: www.emta.org. See Form 19b–
4 at 7, n.10. The Adviser represents that Brazilian
sovereign debt is issued in large par size and tends
to be very liquid. Real-denominated Brazilian debt
issued by supranational entities is also actively
traded. Intra-day, executable price quotations on
such instruments are available from major brokerdealer firms. Intra-day price information is available
through subscription services, such as Bloomberg
and Thomson Reuters, which can be accessed by
authorized participants and other investors.
12 The Adviser represents that the size and
liquidity of the market for emerging market bonds,
including Brazilian corporate bonds, generally has
been increasing in recent years. Through the first
three quarters of 2011, emerging market corporate
bonds traded approximately $652 billion. The
aggregate dollar amount of emerging market
corporate bonds traded in 2010 was $841 billion.
This constituted a 63% increase over the $514
billion traded in 2009. As of January 31, 2012, the
market for Brazilian corporate bonds represented
22.48% ($95.83 billion) of the JPMorgan Corporate
Emerging Market Bond Index Broad, the industry
standard benchmark for emerging market corporate
debt. Brazilian corporate debt represents the single
largest country exposure of the index. Turnover in
emerging market corporate debt accounted for 12%
of the overall volume of emerging market debt of
$4.445 trillion in 2009, an increase over the 9%
share in 2008. Trading in Brazilian corporate debt
accounted for approximately 8% of the overall
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other conditions in Brazil may, from
time to time, lead to a decrease in the
average par amount outstanding of bond
issuances. Therefore, although the Fund
does not intend to do so, the Fund may
invest up to 20% of its net assets in
corporate bonds with less than $200
million par amount outstanding,
including up to 5% of its assets in
corporate bonds with less than $100
million par amount outstanding, if (i)
The Adviser or Sub-Adviser deems such
security to be sufficiently liquid based
on its analysis of the market for such
security (based on, for example, brokerdealer quotations or its analysis of the
trading history of the security or the
trading history of other securities issued
by the issuer), (ii) such investment is
consistent with the Fund’s goal of
providing exposure to a broad range of
Brazilian government and corporate
bonds, and (iii) such investment is
deemed by the Adviser or Sub-Adviser
to be in the best interest of the Fund.
According to the Registration
Statement, the Fund typically will
maintain aggregate portfolio duration of
between two and ten years. Aggregate
portfolio duration is a measure of the
portfolio’s sensitivity to changes in the
level of interest rates. The Fund’s actual
portfolio duration may be longer or
shorter depending upon market
conditions.
The universe of Brazilian Fixed
Income Securities currently includes
securities that are rated ‘‘investment
grade’’ as well as ‘‘non-investment
grade’’ securities. The Fund is designed
to provide a broad-based, representative
exposure to Brazilian government and
corporate bonds and therefore will
invest in both investment grade and
non-investment grade securities in a
manner designed to provide this
exposure. The Fund currently expects
that it will have 65% or more of its
assets invested in investment grade
securities, and no more than 35% of its
assets invested in non-investment grade
securities. Because the Fund is designed
to provide exposure to a broad range of
Brazilian government and corporate
bonds, and because the debt ratings of
the Brazilian government and those
corporate issuers will change from time
to time, the exact percentage of the
Fund’s investments in investment grade
and non-investment grade securities
will change from time to time in
response to economic events and
trading in Brazilian debt in 2009, an increase over
the approximately 6% share in 2008. (Source:
JPMorgan, January 31, 2012; Emerging Markets
Traders Association Press Releases, March 8, 2010,
August 22, 2011, December 15, 2011.) Additional
information relating to emerging market corporate
bonds is available at: www.emta.org.
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changes to the credit ratings of the
Brazilian government and corporate
issuers.13 Within the non-investment
grade category, some issuers and
instruments are considered to be of
lower credit quality and at higher risk
of default. In order to limit its exposure
to these more speculative credits, the
Fund will not invest more than 15% of
its assets in securities rated B or below
by Moody’s, or equivalently rated by
S&P or Fitch. The Fund does not intend
to invest in unrated securities. However,
it may do so to a limited extent, such
as where a rated security becomes
unrated, if such security is determined
by the Adviser and Sub-Adviser to be of
comparable quality. In determining
whether a security is of ‘‘comparable
quality,’’ the Adviser and Sub-Adviser
will consider, for example, whether the
issuer of the security has issued other
rated securities.
The Fund will hold Fixed Income
Securities of at least 13 non-affiliated
issuers. The Fund will not concentrate
25% or more of the value of its total
assets (taken at market value at the time
of each investment) in any one industry,
as that term is used in the 1940 Act
(except that this restriction does not
apply to obligations issued by the U.S.
government or its agencies and
instrumentalities or governmentsponsored enterprises).14
The Fund intends to qualify each year
as a regulated investment company
(‘‘RIC’’) under Subchapter M of the
Internal Revenue Code of 1986, as
amended.15 The Fund will invest its
assets, and otherwise conduct its
operations, in a manner that is intended
to satisfy the qualifying income,
diversification, and distribution
requirements necessary to establish and
maintain RIC qualification under
Subchapter M. The Subchapter M
diversification tests generally require
that (i) the Fund invest no more than
25% of its total assets in securities
(other than securities of the U.S.
government or other RICs) of any one
issuer or two or more issuers that are
controlled by the Fund and that are
engaged in the same, similar, or related
trades or businesses, and (ii) at least
50% of the Fund’s total assets consist of
cash and cash items, U.S. government
securities, securities of other RICs, and
13 As
of January 31, 2012, Brazilian government
debt was rated investment grade by S&P, Moody’s,
and Fitch. See https://brasilstocks.com/bonds. See
Form 19b–4 at 8, n.12.
14 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
15 26 U.S.C. 851.
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other securities, with investments in
such other securities limited in respect
of any one issuer 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.
In addition to satisfying the above
referenced RIC diversification
requirements, no portfolio security held
by the Fund (other than U.S.
government securities) will represent
more than 30% of the weight of the
portfolio, and the five highest weighted
portfolio securities of the Fund (other
than U.S. government securities) will
not in the aggregate account for more
than 65% of the weight of the portfolio.
For these purposes, the Fund may treat
repurchase agreements collateralized by
U.S. government securities as U.S.
government securities.
Money Market Securities
The Fund intends to invest in Money
Market Securities (as described below)
in a manner consistent with its
investment objective in order to help
manage cash flows in and out of the
Fund, such as in connection with
payment of dividends or expenses and
to satisfy margin requirements, to
provide collateral, or to otherwise back
investments in derivative instruments.
For these purposes, Money Market
Securities include: short-term, highquality obligations issued or guaranteed
by the U.S. Treasury or the agencies or
instrumentalities of the U.S.
government; short-term, high-quality
securities issued or guaranteed by nonU.S. governments, agencies, and
instrumentalities; repurchase
agreements backed by U.S. government
securities; money market mutual funds;
and deposits and other obligations of
U.S. and non-U.S. banks and financial
institutions. All Money Market
Securities acquired by the Fund will be
rated investment grade. The Fund does
not intend to invest in any unrated
money market securities. However, it
may do so, to a limited extent, such as
where a rated Money Market Security
becomes unrated, if such Money Market
Security is determined by the Adviser or
the Sub-Adviser to be of comparable
quality.
Derivative Instruments
Consistent with the Exemptive Order,
the Fund may use derivative
instruments as part of its investment
strategies. Examples of derivative
instruments include listed futures
contracts,16 forward currency contracts,
16 The listed futures contracts in which the Fund
may invest will be listed on exchanges either in the
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non-deliverable forward currency
contracts,17 currency swaps (e.g.,
Brazilian real vs. U.S. dollar), interest
rate swaps,18 total return swaps,19
currency options, options on futures
contracts, and credit-linked notes. 20
The Fund’s use of derivative
instruments (other than credit-linked
notes) will be collateralized or
otherwise backed by investments in
short term, high-quality U.S. money
market securities and other liquid fixed
income securities. The Fund expects
that no more than 30% of the value of
the Fund’s net assets will be invested in
derivative instruments. Such
investments will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage.
With respect to certain kinds of
derivative transactions entered into by
the Fund that involve obligations to
make future payments to third parties,
including, but not limited to, futures,
forward contracts, swap contracts, the
purchase of securities on a when-issued
or delayed delivery basis, or reverse
repurchase agreements, under
applicable federal securities laws, rules,
and interpretations thereof, the Fund
must ‘‘set aside’’ liquid assets or engage
in other measures to ‘‘cover’’ open
positions with respect to such
transactions.21
U.S. or in Brazil. Brazil’s primary financial markets
regulator, the Comissao de Valores Mobiliarios, is
a signatory to the International Organization of
Securities Commissions (‘‘IOSCO’’) Multilateral
Memorandum of Understanding (‘‘MMOU’’), which
is a multi-party information sharing arrangement
among major financial regulators. Both the
Commission and the Commodity Futures Trading
Commission are signatories to the IOSCO MMOU.
17 A forward currency contract is an agreement to
buy or sell a specific currency on a future date at
a price set at the time of the contract.
18 An interest rate swap involves the exchange of
a floating interest rate payment for a fixed interest
rate payment.
19 A total return swap is an agreement between
two parties in which one party agrees to make
payments of the total return of a reference asset in
return for payments equal to a rate of interest on
another reference asset.
20 The Fund may invest in credit-linked notes. A
credit linked note is a type of structured note whose
value is linked to an underlying reference asset.
Credit linked notes typically provide periodic
payments of interest as well as payment of principal
upon maturity. The value of the periodic payments
and the principal amount payable upon maturity
are tied (positively or negatively) to a reference
asset such as an index, government bond, interest
rate, or currency exchange rate. The ongoing
payments and principal upon maturity typically
will increase or decrease depending on increases or
decreases in the value of the reference asset. The
Fund’s investments in credit-linked notes will be
limited to notes providing exposure to Brazilian
Fixed Income Securities. The Fund’s overall
investment in credit-linked notes will not exceed
25% of the Fund’s assets.
21 See 15 U.S.C. 80a–18; Investment Company Act
Release No. 10666 (April 18, 1979), 44 FR 21258
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The Fund may engage in foreign
currency transactions, and may invest
directly in foreign currencies in the
form of bank and financial institution
deposits, certificates of deposit, and
bankers acceptances denominated in a
specified non-U.S. currency. The Fund
may enter into forward currency
contracts in order to ‘‘lock in’’ the
exchange rate between the currency it
will deliver and the currency it will
receive for the duration of the
contract.22
The Fund may enter into repurchase
agreements with counterparties that are
deemed to present acceptable credit
risks, and may enter into reverse
repurchase agreements, which involve
the sale of securities held by the Fund
subject to its agreement to repurchase
the securities at an agreed upon date or
upon demand and at a price reflecting
a market rate of interest.
The Fund may invest in the securities
of other investment companies
(including money market funds and
exchange-traded funds). The Fund may
hold up to an aggregate amount of 15%
of its net assets in (1) Illiquid securities,
(2) Rule 144A securities, and (3) loan
interests (such as loan participations
and assignments, but not including
LPNs).23 Illiquid securities include
securities subject to contractual or other
restrictions on resale and other
(April 27, 1979); Dreyfus Strategic Investing,
Commission No-Action Letter (June 22, 1987);
Merrill Lynch Asset Management, L.P., Commission
No-Action Letter (July 2, 1996).
22 The Fund will invest only in currencies, and
instruments that provide exposure to such
currencies, that have significant foreign exchange
turnover and are included in the Bank for
International Settlements, Triennial Central Bank
Survey, Report on Global Foreign Exchange Market
Activity in 2010 December 2010 (‘‘BIS Survey’’).
The Fund may invest in currencies, and
instruments that provide exposure to such
currencies, selected from the top 40 currencies (as
measured by percentage share of average daily
turnover for the applicable month and year)
included in the BIS Survey.
23 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14617 (March 18, 2008), footnote
34. See also Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act of 1933).
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15:14 Apr 10, 2012
Jkt 226001
instruments that lack readily available
markets.
The Fund will not invest in non-U.S.
equity securities.
The Shares
The Fund will issue and redeem
Shares on a continuous basis at net asset
value (‘‘NAV’’) 24 only in large blocks of
Shares (‘‘Creation Units’’) in
transactions with authorized
participants. Currently, a Creation Unit
consists of 100,000 Shares. The Fund
will issue and redeem Creation Units in
exchange for a portfolio of Fixed Income
Securities closely approximating the
holdings of the Fund and/or an amount
of cash in U.S. dollars. Once created,
Shares of the Fund will trade on the
secondary market in amounts less than
a Creation Unit.
Creations and redemptions must be
made by an authorized participant or
through a firm that is either a member
of the National Securities Clearing
Corporation or a Depository Trust
Company participant, and in each case,
must have executed an agreement with
the Distributor with respect to creations
and redemptions of Creation Units.
Creation and redemption orders must be
entered by 4 p.m., Eastern time.
Additional information regarding the
Shares and the Fund, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosure policies,
distributions, and taxes is included in
the Registration Statement.
Availability of Information
The Fund’s Web site
(www.wisdomtree.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 Web site will
include additional quantitative
information updated on a daily basis,
including, for the Fund: (1) The prior
business day’s reported NAV, mid-point
of the bid/ask spread at the time of
calculation of such NAV (‘‘Bid/Ask
Price’’),25 and a calculation of the
premium and discount of the Bid/Ask
24 The NAV of the Fund’s Shares generally will
be calculated once daily Monday through Friday as
of the close of regular trading on the New York
Stock Exchange, generally 4 p.m., Eastern time
(‘‘NAV Calculation Time’’). NAV per Share is
calculated by dividing a Fund’s net assets by the
number of Fund Shares outstanding. For more
information regarding the valuation of Fund
investments in calculating a Fund’s NAV, see the
Registration Statement.
25 The Bid/Ask Price of the Fund will be
determined using the midpoint of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of such Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
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 26 on the
Exchange, the Trust will disclose on its
Web site the identities and quantities of
the portfolio of securities and other
assets (‘‘Disclosed Portfolio’’) held by
the Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the business day.27 The Disclosed
Portfolio will include, as applicable, the
names, quantity, percentage weighting,
and market value of Fixed Income
Securities and other assets held by the
Fund and the characteristics of such
assets. The Web site and information
will be publicly available at no charge.
In addition, for the Fund, an
estimated value, defined in Rule 8.600
as the Portfolio Indicative Value (‘‘PIV’’)
that reflects an estimated intra-day
value of the Fund’s portfolio, will be
disseminated. The PIV will be based
upon the current value for the
components of the Disclosed Portfolio
and will be updated and widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Core Trading
Session on the Exchange.28 In addition,
during hours when the markets for
Fixed Income Securities in the Fund’s
portfolio are closed, the PIV will be
updated at least every 15 seconds
during the Core Trading Session to
reflect currency exchange fluctuations.
The dissemination of the PIV, 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.
Information regarding market price
and volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
26 The Core Trading Session is 9:30 a.m. to 4 p.m.,
Eastern time.
27 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’’). Notwithstanding the
foregoing, portfolio trades that are executed prior to
the opening of the Exchange on any business day
may be booked and reflected in NAV on such
business day. 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.
28 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available PIVs published via the
Consolidated Tape Association (‘‘CTA’’) or other
data feeds.
E:\FR\FM\11APN1.SGM
11APN1
Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices
computer screens and other electronic
services. The previous day’s closing
price and trading volume information
will be published daily in the financial
section of newspapers. Quotation and
last-sale information for the Shares will
be available via the CTA high-speed
line.
Intra-day and end-of-day prices are
readily available through major market
data providers and broker-dealers for
the Fixed Income Securities, Money
Market Securities, and derivative
instruments held by the Fund.
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.
Initial and Continued Listing
The Shares will be subject to Rule
8.600, which sets forth the initial and
continued listing criteria applicable to
Managed Fund Shares. The Exchange
represents that, for initial and/or
continued listing, the Fund must be in
compliance with Rule 10A–3 under the
Exchange Act,29 as provided by NYSE
Arca Equities Rule 5.3. A minimum of
100,000 Shares will be outstanding at
the commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares that the NAV and the Disclosed
Portfolio will be made available to all
market participants at the same time.
Surveillance
The Exchange intends to utilize its
existing surveillance procedures
applicable to derivative products (which
includes Managed Fund Shares) to
monitor trading in the Shares. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
The Exchange’s current trading
surveillance focuses on detecting
securities trading outside their normal
patterns. When such situations are
detected, surveillance analysis follows
and investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange may obtain information
via the Intermarket Surveillance Group
(‘‘ISG’’) from other exchanges who are
members of the ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement.30
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
wreier-aviles on DSK5TPTVN1PROD with NOTICES
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. Shares of the Fund will be
halted if the ‘‘circuit breaker’’
parameters in NYSE Arca Equities Rule
7.12 are reached. Trading 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 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 Rule
8.600(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m.
to 8 p.m., Eastern time in accordance
29 See
17 CFR 240.10A–3.
VerDate Mar<15>2010
15:14 Apr 10, 2012
Jkt 226001
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
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
30 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
of the components of the Disclosed Portfolio for the
Fund may trade on exchanges that are members of
the ISG or with which the Exchange has in place
a comprehensive surveillance sharing agreement.
See note 16, supra.
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
21831
ETP Holders to learn the essential facts
relating to every customer prior to
trading the Shares; (3) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated PIV will not be
calculated or publicly disseminated; (4)
how information regarding the PIV is
disseminated; (5) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Exchange Act. The Bulletin will also
disclose that the NAV for the Shares
will be calculated after 4 p.m., Eastern
time each trading day.
2. Statutory Basis
The basis under the Exchange Act for
this proposed rule change is the
requirement under Section 6(b)(5) 31
that an exchange have rules that are
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to, and
perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws. The Exchange may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. The Sub-Adviser is
affiliated with multiple broker-dealers
and has implemented a ‘‘fire wall’’ with
respect to such broker-dealers regarding
access to information concerning the
composition and/or changes to the
Fund’s portfolio. In addition, SubAdviser personnel who make decisions
regarding the Fund’s portfolio are
subject to procedures designed to
prevent the use and dissemination of
31 15
E:\FR\FM\11APN1.SGM
U.S.C. 78f(b)(5).
11APN1
wreier-aviles on DSK5TPTVN1PROD with NOTICES
21832
Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices
material nonpublic information
regarding the Fund’s portfolio. The
Fund intends to invest at least 70% of
its net assets in Fixed Income Securities.
The Fund will invest only in corporate
bonds that the Adviser or Sub-Adviser
deems to be sufficiently liquid.
Generally a corporate bond must have
$200 million or more par amount
outstanding and significant par value
traded to be considered as an eligible
investment. The Fund currently expects
that it will have 65% or more of its
assets invested in investment grade
securities, and no more than 35% of its
assets invested in non-investment grade
securities. Money Market Securities
acquired by the Fund will generally be
rated investment grade, except, to a
limited extent, such as where a rated
Money Market Security becomes
unrated, if such Money Market Security
is determined by the Adviser or the SubAdviser to be of comparable quality.
The Fund expects that no more than
30% of the value of the Fund’s net
assets will be invested in derivative
instruments. The Fund may hold up to
an aggregate amount of 15% of its net
assets in (1) Illiquid securities, (2) Rule
144A securities, and (3) loan interests
(such as loan participations and
assignments, but not including LPNs).
Such investments will be consistent
with the Fund’s investment objective
and will not be used to enhance
leverage. The Fund will not invest in
any non-U.S. equity securities.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. Moreover, the PIV
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
VerDate Mar<15>2010
15:14 Apr 10, 2012
Jkt 226001
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 PIV, the Disclosed
Portfolio, and quotation and last-sale
information for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the PIV, the Disclosed
Portfolio, and quotation and last-sale
information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Exchange 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.
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
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 Exchange
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 rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2012–25 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–2012–25. 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
E:\FR\FM\11APN1.SGM
11APN1
Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices
business days between 10 a.m. and 3
p.m. Copies of the filing will also be
available for inspection and copying at
the Exchange’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–2012–25 and
should be submitted on or before May
2, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–8717 Filed 4–10–12; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
Self-Regulatory Organizations;
International Securities Exchange,
LLC; Notice of Filing and Immediate
Effectiveness of Proposed Rule
Change To Increase the Route-Out Fee
for Priority Customer Orders and
Modify the Rebate for Primary Market
Makers That Send Intermarket Sweep
Orders
April 5, 2012.
wreier-aviles on DSK5TPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that
on March 30, 2012, the International
Securities Exchange, LLC (the
‘‘Exchange’’ or the ‘‘ISE’’) 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 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 ISE is proposing to raise a fee
related to the execution of Priority
Customer orders subject to linkage
handling. The text of the proposed rule
change is available on the Exchange’s
Web site (https://www.ise.com), at the
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
VerDate Mar<15>2010
15:14 Apr 10, 2012
Jkt 226001
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 these statements may be examined at
the places specified in Item IV below.
The self-regulatory organization has
prepared summaries, set forth in
sections A, B and C below, of the most
significant aspects of such statements.
1. Purpose
[Release No. 34–66746; File No. SR–ISE–
2012–28]
1 15
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
32 17
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
The purpose of this proposed rule
change is to raise a fee related to the
execution of Priority Customer 3 orders
subject to linkage handling (‘‘Linkage
Fee’’).
On August 31, 2009, the Exchange
implemented the new Options Order
Protection and Locked/Crossed Market
Plan (‘‘Distributive Linkage’’) and the
use of Intermarket Sweep Orders
(‘‘ISOs’’). Consistent with Distributive
Linkage and pursuant to ISE rules, the
Exchange’s Primary Market Makers
(‘‘PMMs’’) have an obligation to address
customer 4 orders when there is a better
market displayed on another exchange.
ISE’s PMMs meet this obligation via the
use of ISOs. In meeting their obligations,
PMMs may incur fees when they send
ISOs, especially when sending ISOs to
exchanges that charge ‘‘taker’’ fees. To
minimize the PMM’s financial burden
and help offset such fees, the ISE
amended its schedule of fees on October
1, 2009 to adopt a rebate for the PMM
of $0.20 per contract on all ISO orders
sent to an away exchange (regardless of
the fee charged by the exchange where
the ISO order sent away was executed).5
With the costs associated with servicing
Priority Customer orders that must be
3 Pursuant to ISE Rule 100(37A), a Priority
Customer is a person or entity that is not a broker
or dealer in securities, and does not place more
than 390 orders in listed options per day on average
during a calendar month for its own beneficial
account.
4 Pursuant to ISE Rule 1900(f) of the Distributive
Linkage rules, a customer is an individual or
organization that is not a broker-dealer.
5 See Securities and Exchange Act Release No.
60791 (October 5, 2009), 74 FR 52521 (October 13,
2009) (SR–ISE–2009–74).
PO 00000
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Fmt 4703
Sfmt 4703
21833
executed at another exchange coupled
with the cost of funding the existing fee
credit, the Exchange recently adopted
the Linkage Fee, at a rate of $0.25 per
contract, for executions that result from
the PMM routing ISOs to another
exchange in a limited number of
symbols.6 The Linkage Fee is only
charged for Priority Customer orders
that are routed to an away exchange in
symbols that are subject to the
Exchange’s modified maker/taker
pricing model. These symbols, which
currently number 101, are identified on
the Exchange’s Schedule of Fees as
Select Symbols. Priority Customer
orders that are routed out to another
exchange are charged the Linkage Fee at
the current rate instead of the standard
taker fee applicable to the Select
Symbols.
The Linkage Fee allows the Exchange
to equitably assess reasonable fees
incurred for processing such orders, and
permit the Exchange to recoup
administrative and other costs.
However, because the fees assessed by
other exchanges vary considerably, the
Exchange has determined that instead of
providing PMMs with a rebate of $0.20
per contract, it will now simply rebate
to PMMs the actual transaction fee
assessed by the exchange to which the
order is routed, while requiring the
PMM to make every effort, all things
being equal, to route the order to the
lowest cost away market. Furthermore,
as a result of recent fee changes, notably
the taker fee increases adopted by
NASDAQ OMX PHLX, Inc.,7 the overall
cost to PMMs has risen significantly and
will likely cause the overall rebate level
to the PMMs incurred by the Exchange
to rise also. To offset this increased
rebate, the Exchange also proposes to
increase the Linkage Fee from $0.25 per
contract to $0.35 per contract.
The Exchange notes that it currently
has a similar fee and credit for Customer
(Professional) orders. Specifically, the
Exchange currently charges PMMs a fee
of $0.45 per contract for executions of
Customer (Professional) orders that are
routed to one or more exchanges in
connection with Distributive Linkage,
and also provides PMMs with a credit
equal to the fee charged by the
destination exchange for such Customer
(Professional) orders, but not more than
6 See Securities and Exchange Act Release No.
66589 (March 14, 2012), 76 [sic] FR 16311 (March
20, 2012) (SR–ISE–2012–13).
7 See Securities and Exchange Act Release No.
66367 (February 9, 2012), 77 FR 8934 (February 15,
2012) (SR–Phlx-2012–15).
E:\FR\FM\11APN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 70 (Wednesday, April 11, 2012)]
[Notices]
[Pages 21827-21833]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8717]
[[Page 21827]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66753; File No. SR-NYSEArca-2012-25]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of the
WisdomTree Brazil Bond Fund Under NYSE Arca Equities Rule 8.600
April 6, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby
given that, on March 23, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by the
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares (``Shares'') of the
following fund of the WisdomTree Trust (``Trust'') under NYSE Arca
Equities Rule 8.600 (``Managed Fund Shares''): WisdomTree Brazil Bond
Fund (``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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade Shares of the WisdomTree
Brazil Bond Fund under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares on the Exchange.\3\ The Fund
will be an actively managed exchange-traded fund.\4\ The Shares will be
offered by the Trust, which was established as a Delaware statutory
trust on December 15, 2005. The Trust is registered with the Commission
as an investment company.\5\
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\3\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index, or
combination thereof.
\4\ The Commission has previously approved listing and trading
on the Exchange of a number of actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8,
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order
approving Exchange listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 58564 (September 17, 2008), 73 FR
55194 (September 24, 2008) (SR-NYSEArca-2008-86) (order approving
Exchange listing and trading of WisdomTree Dreyfus Emerging Currency
Fund); 62604 (July 30, 2010), 75 FR 47323 (August 5, 2010) (SR-
NYSEArca-2010-49) (order approving listing and trading of WisdomTree
Emerging Markets Local Debt Fund); 63919 (February 16, 2011), 76 FR
10073 (February 23, 2011) (SR-NYSEArca-2010-116) (order approving
listing and trading of WisdomTree Asia Local Debt Fund); 64643 (June
10, 2011), 76 FR 35062 (June 15, 2011) (SR-NYSEArca-2011-21) (order
approving listing and trading of WisdomTree Global Real Return
Fund); 65458 (September 30, 2011), 76 FR 62112 (October 6, 2011)
(SR-NYSEArca-2011-54) (order approving listing and trading of
WisdomTree Dreyfus Australia and New Zealand Debt Fund); 66342
(February 7, 2012), 77 FR 7623 (February 13, 2012) (SR-NYSEArca-
2011-82) (order approving listing and trading of WisdomTree Emerging
Markets Inflation Protection Bond Fund); and 66489 (February 29,
2012), 77 FR 13379 (March 6, 2012) (SR-NYSEArca-2012-004) (order
approving listing and trading of WisdomTree Emerging Markets
Corporate Bond Fund). The Exchange believes the proposed rule change
raises no significant issues not previously addressed in those prior
Commission orders.
\5\ See registration statement on Form N-1A for the Trust under
the Securities Act of 1933 (15 U.S.C. 77a) and under the 1940 Act,
dated October 8, 2010 (File Nos. 333-132380 and 811-21864)
(``Registration Statement''). The descriptions of the Fund and the
Shares contained herein are based, in part, on information in the
Registration Statement.
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Description of the Shares and the Fund
WisdomTree Asset Management, Inc. (``WisdomTree Asset Management'')
is the investment adviser (``Adviser'') to the Fund.\6\ WisdomTree
Asset Management is not affiliated with any broker-dealer. Western
Asset Management Company serves as sub-adviser for the Fund (``Sub-
Adviser'').\7\ The Bank of New York Mellon is the administrator,
custodian, and transfer agent for the Trust. ALPS Distributors, Inc.
serves as the distributor for the Trust.\8\
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\6\ WisdomTree Investments, Inc. (``WisdomTree Investments'') is
the parent company of WisdomTree Asset Management.
\7\ The Sub-Adviser will be responsible for day-to-day
management of the Fund and, as such, typically will make all
decisions with respect to portfolio holdings. The Adviser will have
ongoing oversight responsibility.
\8\ The Commission has issued an order granting certain
exemptive relief (``Exemptive Order'') to the Trust under the 1940
Act. See Investment Company Act Release No. 28171 (October 27, 2008)
(File No. 812-13458). In compliance with Commentary .05 to NYSE Arca
Equities Rule 8.600, which applies to Managed Fund Shares based on
an international or global portfolio, the Trust's application for
exemptive relief under the 1940 Act states that the Fund will comply
with the federal securities laws in accepting securities for
deposits and satisfying redemptions with redemption securities,
including that the securities accepted for deposits and the
securities used to satisfy redemption requests are sold in
transactions that would be exempt from registration under the
Securities Act of 1933 (15 U.S.C. 77a).
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Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\9\ 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 non-public
information
[[Page 21828]]
regarding the open-end fund's portfolio. Commentary .06 to Rule 8.600
is similar to Commentary .03(a)(i) and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 in connection with the establishment
of a ``fire wall'' between the investment adviser and the broker-dealer
reflects the applicable open-end fund's portfolio, not an underlying
benchmark index, as is the case with index-based funds. The Sub-Adviser
is affiliated with multiple broker-dealers and has implemented a ``fire
wall'' with respect to such broker-dealers regarding access to
information concerning the composition and/or changes to the Fund's
portfolio. In addition, Sub-Adviser personnel who make decisions
regarding the Fund's portfolio are subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding the Fund's portfolio. In the event (a) the Adviser or the
Sub-Adviser becomes newly affiliated with a broker-dealer, or (b) any
new adviser or sub-adviser becomes affiliated with a broker-dealer, it
will implement a fire wall with respect to such broker-dealer regarding
access to information concerning the composition and/or changes to the
portfolio.
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\9\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) Adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
.
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WisdomTree Brazil Bond Fund
According to the Registration Statement, the Fund will seek to
provide investors with a high level of total return consisting of both
income and capital appreciation. The Fund will be designed to provide
exposure to a broad range of Brazilian government and corporate bonds
through investment in both local currency (i.e., Brazilian real) and
U.S. dollar-denominated Fixed Income Securities. For purposes of this
proposed rule change, Fixed Income Securities will include bonds,
notes, or other debt obligations, including loan participation notes
(``LPNs''),\10\ inflation-linked debt, and debt securities issued by
``supranational issuers,'' such as the European Investment Bank,
International Bank for Reconstruction and Development, and the
International Finance Corporation, as well as development agencies
supported by other national governments. The Fund may invest to a
lesser extent in Money Market Securities and derivative instruments, as
described below.
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\10\ The Fund may invest in LPNs with a minimum outstanding
principal amount of $200 million that the Adviser or Sub-Adviser
deems to be liquid. The Adviser represents that the Fund will invest
a limited percentage of its assets in LPNs.
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The Fund will be designed to provide broad exposure to Brazilian
government and corporate bonds and will invest in a range of
instruments with varying credit risk and duration. The Fund intends to
invest in bonds and debt instruments issued by the government of Brazil
and its agencies and instrumentalities and bonds and other debt
instruments issued by corporations organized in Brazil.\11\ The Fund
also may invest in bonds and debt instruments denominated in Brazilian
real and issued by supranational issuers, as described above. The Fund
intends to invest at least 70% of its net assets in Fixed Income
Securities. The Fund will invest only in corporate bonds that the
Adviser or Sub-Adviser deems to be sufficiently liquid. Generally a
corporate bond must have $200 million or more par amount outstanding
and significant par value traded to be considered as an eligible
investment.\12\ Economic and other conditions in Brazil may, from time
to time, lead to a decrease in the average par amount outstanding of
bond issuances. Therefore, although the Fund does not intend to do so,
the Fund may invest up to 20% of its net assets in corporate bonds with
less than $200 million par amount outstanding, including up to 5% of
its assets in corporate bonds with less than $100 million par amount
outstanding, if (i) The Adviser or Sub-Adviser deems such security to
be sufficiently liquid based on its analysis of the market for such
security (based on, for example, broker-dealer quotations or its
analysis of the trading history of the security or the trading history
of other securities issued by the issuer), (ii) such investment is
consistent with the Fund's goal of providing exposure to a broad range
of Brazilian government and corporate bonds, and (iii) such investment
is deemed by the Adviser or Sub-Adviser to be in the best interest of
the Fund.
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\11\ The category of ``Brazilian debt'' includes both U.S.
dollar-denominated debt and non-U.S. or ``local'' currency debt. The
market for Brazilian local currency debt is larger and more actively
traded than the market for Brazilian U.S. dollar-denominated debt.
According to the Emerging Markets Traders Association, the global
dollar amount of emerging market debt instruments traded in the
first two quarters of 2011 was $3.443 trillion, of which Brazil
represented over $358 billion. This pace seems largely similar to
the annual amounts traded in 2010 whereby $6.765 trillion globally
and $958 billion in Brazilian debt traded between market
participants. This marked a 52% increase globally and a 28% increase
in Brazilian debt over the total volumes of each traded in 2009
($4.4445 trillion globally, $747 billion in Brazilian debt). Global
turnover in local currency debt instruments in 2009 was $2.870
trillion, of which Brazilian debt represented $548 billion. (Source:
Emerging Markets Traders Association Survey: Full Year 2010 Emerging
Markets Debt Trading, Emerging Markets Traders Association, March
22, 2011; Emerging Markets Traders Association 2009 Annual Debt
Trading Volume Survey, March 8, 2010. Additional information
relating to emerging market corporate bonds is available at:
www.emta.org. See Form 19b-4 at 7, n.10. The Adviser represents that
Brazilian sovereign debt is issued in large par size and tends to be
very liquid. Real-denominated Brazilian debt issued by supranational
entities is also actively traded. Intra-day, executable price
quotations on such instruments are available from major broker-
dealer firms. Intra-day price information is available through
subscription services, such as Bloomberg and Thomson Reuters, which
can be accessed by authorized participants and other investors.
\12\ The Adviser represents that the size and liquidity of the
market for emerging market bonds, including Brazilian corporate
bonds, generally has been increasing in recent years. Through the
first three quarters of 2011, emerging market corporate bonds traded
approximately $652 billion. The aggregate dollar amount of emerging
market corporate bonds traded in 2010 was $841 billion. This
constituted a 63% increase over the $514 billion traded in 2009. As
of January 31, 2012, the market for Brazilian corporate bonds
represented 22.48% ($95.83 billion) of the JPMorgan Corporate
Emerging Market Bond Index Broad, the industry standard benchmark
for emerging market corporate debt. Brazilian corporate debt
represents the single largest country exposure of the index.
Turnover in emerging market corporate debt accounted for 12% of the
overall volume of emerging market debt of $4.445 trillion in 2009,
an increase over the 9% share in 2008. Trading in Brazilian
corporate debt accounted for approximately 8% of the overall trading
in Brazilian debt in 2009, an increase over the approximately 6%
share in 2008. (Source: JPMorgan, January 31, 2012; Emerging Markets
Traders Association Press Releases, March 8, 2010, August 22, 2011,
December 15, 2011.) Additional information relating to emerging
market corporate bonds is available at: www.emta.org.
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According to the Registration Statement, the Fund typically will
maintain aggregate portfolio duration of between two and ten years.
Aggregate portfolio duration is a measure of the portfolio's
sensitivity to changes in the level of interest rates. The Fund's
actual portfolio duration may be longer or shorter depending upon
market conditions.
The universe of Brazilian Fixed Income Securities currently
includes securities that are rated ``investment grade'' as well as
``non-investment grade'' securities. The Fund is designed to provide a
broad-based, representative exposure to Brazilian government and
corporate bonds and therefore will invest in both investment grade and
non-investment grade securities in a manner designed to provide this
exposure. The Fund currently expects that it will have 65% or more of
its assets invested in investment grade securities, and no more than
35% of its assets invested in non-investment grade securities. Because
the Fund is designed to provide exposure to a broad range of Brazilian
government and corporate bonds, and because the debt ratings of the
Brazilian government and those corporate issuers will change from time
to time, the exact percentage of the Fund's investments in investment
grade and non-investment grade securities will change from time to time
in response to economic events and
[[Page 21829]]
changes to the credit ratings of the Brazilian government and corporate
issuers.\13\ Within the non-investment grade category, some issuers and
instruments are considered to be of lower credit quality and at higher
risk of default. In order to limit its exposure to these more
speculative credits, the Fund will not invest more than 15% of its
assets in securities rated B or below by Moody's, or equivalently rated
by S&P or Fitch. The Fund does not intend to invest in unrated
securities. However, it may do so to a limited extent, such as where a
rated security becomes unrated, if such security is determined by the
Adviser and Sub-Adviser to be of comparable quality. In determining
whether a security is of ``comparable quality,'' the Adviser and Sub-
Adviser will consider, for example, whether the issuer of the security
has issued other rated securities.
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\13\ As of January 31, 2012, Brazilian government debt was rated
investment grade by S&P, Moody's, and Fitch. See https://brasilstocks.com/bonds. See Form 19b-4 at 8, n.12.
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The Fund will hold Fixed Income Securities of at least 13 non-
affiliated issuers. The Fund will not concentrate 25% or more of the
value of its total assets (taken at market value at the time of each
investment) in any one industry, as that term is used in the 1940 Act
(except that this restriction does not apply to obligations issued by
the U.S. government or its agencies and instrumentalities or
government-sponsored enterprises).\14\
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\14\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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The Fund intends to qualify each year as a regulated investment
company (``RIC'') under Subchapter M of the Internal Revenue Code of
1986, as amended.\15\ The Fund will invest its assets, and otherwise
conduct its operations, in a manner that is intended to satisfy the
qualifying income, diversification, and distribution requirements
necessary to establish and maintain RIC qualification under Subchapter
M. The Subchapter M diversification tests generally require that (i)
the Fund invest no more than 25% of its total assets in securities
(other than securities of the U.S. government or other RICs) of any one
issuer or two or more issuers that are controlled by the Fund and that
are engaged in the same, similar, or related trades or businesses, and
(ii) at least 50% of the Fund's total assets consist of cash and cash
items, U.S. government securities, securities of other RICs, and other
securities, with investments in such other securities limited in
respect of any one issuer 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.
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\15\ 26 U.S.C. 851.
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In addition to satisfying the above referenced RIC diversification
requirements, no portfolio security held by the Fund (other than U.S.
government securities) will represent more than 30% of the weight of
the portfolio, and the five highest weighted portfolio securities of
the Fund (other than U.S. government securities) will not in the
aggregate account for more than 65% of the weight of the portfolio. For
these purposes, the Fund may treat repurchase agreements collateralized
by U.S. government securities as U.S. government securities.
Money Market Securities
The Fund intends to invest in Money Market Securities (as described
below) in a manner consistent with its investment objective in order to
help manage cash flows in and out of the Fund, such as in connection
with payment of dividends or expenses and to satisfy margin
requirements, to provide collateral, or to otherwise back investments
in derivative instruments. For these purposes, Money Market Securities
include: short-term, high-quality obligations issued or guaranteed by
the U.S. Treasury or the agencies or instrumentalities of the U.S.
government; short-term, high-quality securities issued or guaranteed by
non-U.S. governments, agencies, and instrumentalities; repurchase
agreements backed by U.S. government securities; money market mutual
funds; and deposits and other obligations of U.S. and non-U.S. banks
and financial institutions. All Money Market Securities acquired by the
Fund will be rated investment grade. The Fund does not intend to invest
in any unrated money market securities. However, it may do so, to a
limited extent, such as where a rated Money Market Security becomes
unrated, if such Money Market Security is determined by the Adviser or
the Sub-Adviser to be of comparable quality.
Derivative Instruments
Consistent with the Exemptive Order, the Fund may use derivative
instruments as part of its investment strategies. Examples of
derivative instruments include listed futures contracts,\16\ forward
currency contracts, non-deliverable forward currency contracts,\17\
currency swaps (e.g., Brazilian real vs. U.S. dollar), interest rate
swaps,\18\ total return swaps,\19\ currency options, options on futures
contracts, and credit-linked notes. \20\ The Fund's use of derivative
instruments (other than credit-linked notes) will be collateralized or
otherwise backed by investments in short term, high-quality U.S. money
market securities and other liquid fixed income securities. The Fund
expects that no more than 30% of the value of the Fund's net assets
will be invested in derivative instruments. Such investments will be
consistent with the Fund's investment objective and will not be used to
enhance leverage.
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\16\ The listed futures contracts in which the Fund may invest
will be listed on exchanges either in the U.S. or in Brazil.
Brazil's primary financial markets regulator, the Comissao de
Valores Mobiliarios, is a signatory to the International
Organization of Securities Commissions (``IOSCO'') Multilateral
Memorandum of Understanding (``MMOU''), which is a multi-party
information sharing arrangement among major financial regulators.
Both the Commission and the Commodity Futures Trading Commission are
signatories to the IOSCO MMOU.
\17\ A forward currency contract is an agreement to buy or sell
a specific currency on a future date at a price set at the time of
the contract.
\18\ An interest rate swap involves the exchange of a floating
interest rate payment for a fixed interest rate payment.
\19\ A total return swap is an agreement between two parties in
which one party agrees to make payments of the total return of a
reference asset in return for payments equal to a rate of interest
on another reference asset.
\20\ The Fund may invest in credit-linked notes. A credit linked
note is a type of structured note whose value is linked to an
underlying reference asset. Credit linked notes typically provide
periodic payments of interest as well as payment of principal upon
maturity. The value of the periodic payments and the principal
amount payable upon maturity are tied (positively or negatively) to
a reference asset such as an index, government bond, interest rate,
or currency exchange rate. The ongoing payments and principal upon
maturity typically will increase or decrease depending on increases
or decreases in the value of the reference asset. The Fund's
investments in credit-linked notes will be limited to notes
providing exposure to Brazilian Fixed Income Securities. The Fund's
overall investment in credit-linked notes will not exceed 25% of the
Fund's assets.
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With respect to certain kinds of derivative transactions entered
into by the Fund that involve obligations to make future payments to
third parties, including, but not limited to, futures, forward
contracts, swap contracts, the purchase of securities on a when-issued
or delayed delivery basis, or reverse repurchase agreements, under
applicable federal securities laws, rules, and interpretations thereof,
the Fund must ``set aside'' liquid assets or engage in other measures
to ``cover'' open positions with respect to such transactions.\21\
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\21\ See 15 U.S.C. 80a-18; Investment Company Act Release No.
10666 (April 18, 1979), 44 FR 21258 (April 27, 1979); Dreyfus
Strategic Investing, Commission No-Action Letter (June 22, 1987);
Merrill Lynch Asset Management, L.P., Commission No-Action Letter
(July 2, 1996).
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[[Page 21830]]
The Fund may engage in foreign currency transactions, and may
invest directly in foreign currencies in the form of bank and financial
institution deposits, certificates of deposit, and bankers acceptances
denominated in a specified non-U.S. currency. The Fund may enter into
forward currency contracts in order to ``lock in'' the exchange rate
between the currency it will deliver and the currency it will receive
for the duration of the contract.\22\
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\22\ The Fund will invest only in currencies, and instruments
that provide exposure to such currencies, that have significant
foreign exchange turnover and are included in the Bank for
International Settlements, Triennial Central Bank Survey, Report on
Global Foreign Exchange Market Activity in 2010 December 2010 (``BIS
Survey''). The Fund may invest in currencies, and instruments that
provide exposure to such currencies, selected from the top 40
currencies (as measured by percentage share of average daily
turnover for the applicable month and year) included in the BIS
Survey.
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The Fund may enter into repurchase agreements with counterparties
that are deemed to present acceptable credit risks, and may enter into
reverse repurchase agreements, which involve the sale of securities
held by the Fund subject to its agreement to repurchase the securities
at an agreed upon date or upon demand and at a price reflecting a
market rate of interest.
The Fund may invest in the securities of other investment companies
(including money market funds and exchange-traded funds). The Fund may
hold up to an aggregate amount of 15% of its net assets in (1) Illiquid
securities, (2) Rule 144A securities, and (3) loan interests (such as
loan participations and assignments, but not including LPNs).\23\
Illiquid securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets.
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\23\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14617 (March 18, 2008), footnote 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act of 1933).
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The Fund will not invest in non-U.S. equity securities.
The Shares
The Fund will issue and redeem Shares on a continuous basis at net
asset value (``NAV'') \24\ only in large blocks of Shares (``Creation
Units'') in transactions with authorized participants. Currently, a
Creation Unit consists of 100,000 Shares. The Fund will issue and
redeem Creation Units in exchange for a portfolio of Fixed Income
Securities closely approximating the holdings of the Fund and/or an
amount of cash in U.S. dollars. Once created, Shares of the Fund will
trade on the secondary market in amounts less than a Creation Unit.
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\24\ The NAV of the Fund's Shares generally will be calculated
once daily Monday through Friday as of the close of regular trading
on the New York Stock Exchange, generally 4 p.m., Eastern time
(``NAV Calculation Time''). NAV per Share is calculated by dividing
a Fund's net assets by the number of Fund Shares outstanding. For
more information regarding the valuation of Fund investments in
calculating a Fund's NAV, see the Registration Statement.
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Creations and redemptions must be made by an authorized participant
or through a firm that is either a member of the National Securities
Clearing Corporation or a Depository Trust Company participant, and in
each case, must have executed an agreement with the Distributor with
respect to creations and redemptions of Creation Units. Creation and
redemption orders must be entered by 4 p.m., Eastern time.
Additional information regarding the Shares and the Fund, including
investment strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, distributions, and taxes is
included in the Registration Statement.
Availability of Information
The Fund's Web site (www.wisdomtree.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 Web site
will include additional quantitative information updated on a daily
basis, including, for the Fund: (1) The prior business day's reported
NAV, mid-point of the bid/ask spread at the time of calculation of such
NAV (``Bid/Ask Price''),\25\ 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
\26\ on the Exchange, the Trust will disclose on its Web site the
identities and quantities of the portfolio of securities and other
assets (``Disclosed Portfolio'') held by the Fund that will form the
basis for the Fund's calculation of NAV at the end of the business
day.\27\ The Disclosed Portfolio will include, as applicable, the
names, quantity, percentage weighting, and market value of Fixed Income
Securities and other assets held by the Fund and the characteristics of
such assets. The Web site and information will be publicly available at
no charge.
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\25\ The Bid/Ask Price of the Fund will be determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of such Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\26\ The Core Trading Session is 9:30 a.m. to 4 p.m., Eastern
time.
\27\ 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''). Notwithstanding the
foregoing, portfolio trades that are executed prior to the opening
of the Exchange on any business day may be booked and reflected in
NAV on such business day. Accordingly, the Fund will be able to
disclose at the beginning of the business day the portfolio that
will form the basis for the NAV calculation at the end of the
business day.
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In addition, for the Fund, an estimated value, defined in Rule
8.600 as the Portfolio Indicative Value (``PIV'') that reflects an
estimated intra-day value of the Fund's portfolio, will be
disseminated. The PIV will be based upon the current value for the
components of the Disclosed Portfolio and will be updated and widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session on the Exchange.\28\ In
addition, during hours when the markets for Fixed Income Securities in
the Fund's portfolio are closed, the PIV will be updated at least every
15 seconds during the Core Trading Session to reflect currency exchange
fluctuations.
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\28\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available PIVs
published via the Consolidated Tape Association (``CTA'') or other
data feeds.
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The dissemination of the PIV, 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.
Information regarding market price and volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers'
[[Page 21831]]
computer screens and other electronic services. The previous day's
closing price and trading volume information will be published daily in
the financial section of newspapers. Quotation and last-sale
information for the Shares will be available via the CTA high-speed
line.
Intra-day and end-of-day prices are readily available through major
market data providers and broker-dealers for the Fixed Income
Securities, Money Market Securities, and derivative instruments held by
the Fund.
Initial and Continued Listing
The Shares will be subject to Rule 8.600, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Fund must be in compliance with Rule 10A-3 under the
Exchange Act,\29\ as provided by NYSE Arca Equities Rule 5.3. A minimum
of 100,000 Shares will be outstanding at the commencement of trading on
the Exchange. The Exchange will obtain a representation from the issuer
of the Shares that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time.
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\29\ See 17 CFR 240.10A-3.
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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. Shares of the Fund will be halted if
the ``circuit breaker'' parameters in NYSE Arca Equities Rule 7.12 are
reached. Trading 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 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 Rule 8.600(d)(2)(D), which sets forth circumstances under which
Shares of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m., Eastern time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (which includes Managed
Fund Shares) to monitor trading in the Shares. The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
The Exchange's current trading surveillance focuses on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
The Exchange may obtain information via the Intermarket
Surveillance Group (``ISG'') from other exchanges who are members of
the ISG or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.\30\
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\30\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all of the components
of the Disclosed Portfolio for the Fund may trade on exchanges that
are members of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. See note 16, supra.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin (``Bulletin'') of the special
characteristics and risks associated with trading the Shares.
Specifically, the Bulletin will discuss the following: (1) The
procedures for purchases and redemptions of Shares in Creation Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its ETP Holders to learn the essential facts relating to every
customer prior to trading the Shares; (3) the risks involved in trading
the Shares during the Opening and Late Trading Sessions when an updated
PIV will not be calculated or publicly disseminated; (4) how
information regarding the PIV is disseminated; (5) the requirement that
ETP Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4 p.m., Eastern time each trading day.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5) \31\ that an exchange have rules
that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\31\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement. The Sub-Adviser is affiliated with multiple broker-dealers
and has implemented a ``fire wall'' with respect to such broker-dealers
regarding access to information concerning the composition and/or
changes to the Fund's portfolio. In addition, Sub-Adviser personnel who
make decisions regarding the Fund's portfolio are subject to procedures
designed to prevent the use and dissemination of
[[Page 21832]]
material nonpublic information regarding the Fund's portfolio. The Fund
intends to invest at least 70% of its net assets in Fixed Income
Securities. The Fund will invest only in corporate bonds that the
Adviser or Sub-Adviser deems to be sufficiently liquid. Generally a
corporate bond must have $200 million or more par amount outstanding
and significant par value traded to be considered as an eligible
investment. The Fund currently expects that it will have 65% or more of
its assets invested in investment grade securities, and no more than
35% of its assets invested in non-investment grade securities. Money
Market Securities acquired by the Fund will generally be rated
investment grade, except, to a limited extent, such as where a rated
Money Market Security becomes unrated, if such Money Market Security is
determined by the Adviser or the Sub-Adviser to be of comparable
quality. The Fund expects that no more than 30% of the value of the
Fund's net assets will be invested in derivative instruments. The Fund
may hold up to an aggregate amount of 15% of its net assets in (1)
Illiquid securities, (2) Rule 144A securities, and (3) loan interests
(such as loan participations and assignments, but not including LPNs).
Such investments will be consistent with the Fund's investment
objective and will not be used to enhance leverage. The Fund will not
invest in any non-U.S. equity securities.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Moreover, the PIV 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 PIV, the Disclosed
Portfolio, and quotation and last-sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the PIV, the Disclosed Portfolio, and quotation and last-sale
information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Exchange Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove 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 Exchange 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-2012-25 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-2012-25. 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
[[Page 21833]]
business days between 10 a.m. and 3 p.m. Copies of the filing will also
be available for inspection and copying at the Exchange'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-2012-25 and should
be submitted on or before May 2, 2012.
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\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-8717 Filed 4-10-12; 8:45 am]
BILLING CODE 8011-01-P
