Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to Listing and Trading of the WisdomTree Brazil Bond Fund Under NYSE Arca Equities Rule 8.600, 32161-32165 [2012-13145]

Download as PDF Federal Register / Vol. 77, No. 105 / Thursday, May 31, 2012 / Notices and, in particular, the requirements of Section 6(b) of the Act.3 Specifically, the Exchange believes the proposed amendment is consistent with the Section 6(b)(5) 4 requirements that the rules of an exchange be designed to promote just and equitable principles of trade, to prevent fraudulent and manipulative acts, to remove impediments to and to perfect the mechanism for a free and open market and a national market system, and, in general, to protect investors and the public interest. The proposed amendment would protect investors and the public interest by clarifying the Bylaws to change the name of an Exchange committee to one that more accurately reflects the committee’s current functions. B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) 5 of the Act and paragraph (f) of Rule 19b–4 6 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. srobinson on DSK4SPTVN1PROD with NOTICES IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: 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– CBOE–2012–050 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–CBOE–2012–050. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CBOE– 2012–050 and should be submitted on or before June 21, 2012. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.7 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–13146 Filed 5–30–12; 8:45 am] BILLING CODE 8011–01–P 3 15 U.S.C. 78f(b). 4 15 U.S.C. 78f(b)(5). 5 15 U.S.C. 78s(b)(3)(A). 6 17 CFR 240.19b–4(f). VerDate Mar<15>2010 17:53 May 30, 2012 7 17 Jkt 226001 PO 00000 CFR 200.30–3(a)(12). Frm 00081 Fmt 4703 Sfmt 4703 32161 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67054; File No. SR– NYSEArca–2012–25] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to Listing and Trading of the WisdomTree Brazil Bond Fund Under NYSE Arca Equities Rule 8.600 May 24, 2012. I. Introduction On March 23, 2012, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the WisdomTree Brazil Bond Fund (‘‘Fund’’) under NYSE Arca Equities Rule 8.600. The proposed rule change was published for comment in the Federal Register on April 11, 2012.3 The Commission received no comments on the proposal. This order grants approval of the proposed rule change. II. Description of the Proposed Rule Change The Exchange proposes to list and trade the Shares of the Fund pursuant to NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares on the Exchange. The Shares will be offered by WisdomTree Trust (‘‘Trust’’), a Delaware statutory trust registered with the Commission as an investment company.4 The investment adviser to the Fund is WisdomTree Asset Management, Inc. (‘‘Adviser’’). The Fund’s sub-adviser is Western Asset Management Company (‘‘Sub-Adviser’’). ALPS Distributors, Inc. serves as the distributor for the Trust. The Bank of New York Mellon is the administrator, custodian, and transfer agent for the Trust. The Exchange represents that the Adviser is not affiliated with a brokerdealer. The Sub-Adviser is affiliated 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 66753 (April 6, 2012), 77 FR 21827 (‘‘Notice’’). 4 See Registration Statement on Form N–1A for the Trust under the Securities Act of 1933 (15 U.S.C. 77a) and under the Investment Company Act of 1940 (‘‘1940 Act’’), dated October 8, 2010 (File Nos. 333–132380 and 811–21864) (‘‘Registration Statement’’). In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. See Investment Company Act Release No. 28471 (October 27, 2008) (File No. 812–13458) (‘‘Exemptive Order’’). 2 17 E:\FR\FM\31MYN1.SGM 31MYN1 32162 Federal Register / Vol. 77, No. 105 / Thursday, May 31, 2012 / Notices 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 on the Fund’s portfolio composition are subject to procedures designed to prevent the use and dissemination of material non-public information regarding the Fund’s portfolio.5 srobinson on DSK4SPTVN1PROD with NOTICES Description of the Fund 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, which will include bonds, notes, or other debt obligations, including loan participation notes (‘‘LPNs’’),6 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 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.7 The Fund also may 5 See Commentary .06 to NYSE Arca Equities Rule 8.600. The Exchange represents that, in the event (a) the Adviser or the Sub-Adviser becomes newly affiliated with a broker-dealer, or (b) any new adviser or sub-adviser becomes affiliated with a broker-dealer, it will implement a fire wall with respect to such broker-dealer regarding access to information concerning the composition and/or changes to the portfolio, and will be subject to procedures designed to prevent the use and dissemination of material non-public information regarding such portfolio. 6 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. 7 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. The Adviser represents that VerDate Mar<15>2010 17:53 May 30, 2012 Jkt 226001 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. 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, 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. 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 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. PO 00000 Frm 00082 Fmt 4703 Sfmt 4703 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 changes to the credit ratings of the Brazilian government and corporate issuers.8 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). 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. 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. 8 As of January 31, 2012, Brazilian government debt was rated investment grade by S&P, Moody’s, and Fitch. See https://brasilstocks.com/bonds. E:\FR\FM\31MYN1.SGM 31MYN1 Federal Register / Vol. 77, No. 105 / Thursday, May 31, 2012 / Notices 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. 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. srobinson on DSK4SPTVN1PROD with NOTICES 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. VerDate Mar<15>2010 17:53 May 30, 2012 Jkt 226001 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,9 forward currency contracts, non-deliverable forward currency contracts,10 currency swaps (e.g., Brazilian real vs. U.S. dollar), interest rate swaps,11 total return swaps,12 currency options, options on futures contracts, and credit-linked notes.13 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 9 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. 10 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. 11 An interest rate swap involves the exchange of a floating interest rate payment for a fixed interest rate payment. 12 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. 13 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. PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 32163 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. 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.14 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). Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets. The Fund will not invest in non-U.S. equity securities. Additional information regarding the Shares and the Fund, including investment strategies, Fixed Income Securities, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions, and taxes can be found in the Notice and Registration Statement, as applicable.15 14 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. 15 See supra notes 3 and 4, respectively. E:\FR\FM\31MYN1.SGM 31MYN1 32164 Federal Register / Vol. 77, No. 105 / Thursday, May 31, 2012 / Notices III. Discussion and Commission’s Findings The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of Section 6 of the Act 16 and the rules and regulations thereunder applicable to a national securities exchange.17 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,18 which requires, among other things, that the Exchange’s rules be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in facilitating transactions in securities, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that the Fund and the Shares must comply with the requirements of NYSE Arca Equities Rule 8.600 to be listed and traded on the Exchange. The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,19 which sets forth Congress’ finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for, and transactions in, securities. Quotation and last-sale information for the Shares will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line. In addition, the Portfolio Indicative Value (‘‘PIV’’), as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated by one or more major market data vendors at least every 15 seconds during the Exchange’s Core Trading Session.20 On each business day, before commencement of trading in Shares in the Core Trading Session on the Exchange, the Fund will disclose on its Web site the Disclosed Portfolio, as defined in NYSE Arca Equities Rule srobinson on DSK4SPTVN1PROD with NOTICES 16 15 U.S.C. 78f. 17 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 18 15 U.S.C. 78f(b)(5). 19 15 U.S.C. 78k–1(a)(1)(C)(iii). 20 According to the Exchange, several major market data vendors display and/or make widely available PIVs published on the CTA or other data feeds. 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. VerDate Mar<15>2010 17:53 May 30, 2012 Jkt 226001 8.600(c)(2), that will form the basis for the Fund’s calculation of the NAV at the end of the business day.21 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 (‘‘NYSE’’) (generally 4:00 p.m., Eastern time or ‘‘E.T.’’). In addition, 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 the previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers. The Web site for the Fund will include a form of the prospectus for the Fund that may be downloaded, additional data relating to NAV, and other applicable quantitative information, updated on a daily basis. 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. The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Commission notes that the Exchange will obtain a representation from the issuer of the Shares that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time.22 In addition, the Exchange will halt trading in the Shares under the specific circumstances set forth in NYSE Arca Equities Rule 8.600(d)(2)(D), and may halt trading in the Shares if trading is not occurring in the securities and/or the financial instruments comprising the Disclosed Portfolio of the Fund, or if other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present.23 The 21 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. 22 See NYSE Arca Equities Rule 8.600(d)(1)(B) (requiring, in addition, that the Exchange obtain a representation from the issuer of the Shares that the NAV will be calculated daily). 23 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. Trading in Shares of the Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached. Trading also may be halted because of market conditions or PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 Exchange will consider the suspension of trading in or removal from listing of the Shares if the PIV is no longer calculated or available or the Disclosed Portfolio is not made available to all market participants at the same time.24 While the Adviser is not affiliated with a broker-dealer, 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.25 Further, the Commission notes that the Reporting Authority that provides the Disclosed Portfolio must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material non-public information regarding the actual components of the portfolio.26 The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees. The Commission also notes that the Fund will not invest in non-U.S. equity securities, and the Exchange may obtain information via the Intermarket Surveillance Group (‘‘ISG’’) from other exchanges that are members of ISG or with which the Exchange has in place a comprehensive surveillance sharing agreement.27 The Exchange further represents that the Shares are deemed to be equity securities, thus rendering trading in the Shares subject to the Exchange’s for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. 24 See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii). 25 See supra note 5 and accompanying text. The Commission notes that an investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (‘‘Advisers Act’’). As a result, the Adviser and Sub-Adviser and their related personnel are subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary nature of the relationship to clients as well as compliance with other applicable securities laws. Accordingly, procedures designed to prevent the communication and misuse of non-public information by an investment adviser must be consistent with Rule 204A–1 under the Advisers Act. In addition, Rule 206(4)–7 under the Advisers Act makes it unlawful for an investment adviser to provide investment advice to clients unless such investment adviser has (i) adopted and implemented written policies and procedures reasonably designed to prevent violation, by the investment adviser and its supervised persons, of the Advisers Act and the Commission rules adopted thereunder; (ii) implemented, at a minimum, an annual review regarding the adequacy of the policies and procedures established pursuant to subparagraph (i) above and the effectiveness of their implementation; and (iii) designated an individual (who is a supervised person) responsible for administering the policies and procedures adopted under subparagraph (i) above. 26 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii). 27 See Notice, supra note 3. E:\FR\FM\31MYN1.SGM 31MYN1 srobinson on DSK4SPTVN1PROD with NOTICES Federal Register / Vol. 77, No. 105 / Thursday, May 31, 2012 / Notices existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including: (1) The Shares will be subject to NYSE Arca Equities Rule 8.600, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares. (2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (3) The Exchange’s surveillance procedures applicable to derivative products, which include Managed Fund Shares, are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to deter and detect violations of Exchange rules and applicable federal securities laws. (4) Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (a) The procedures for purchases and redemptions of Shares in Creation Unit aggregations (and that Shares are not individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its Equity Trading Permit Holders to learn the essential facts relating to every customer prior to trading the Shares; (c) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated PIV will not be calculated or publicly disseminated; (d) how information regarding the PIV is disseminated; (e) the requirement that Equity Trading Permit Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information. (5) For initial and/or continued listing, the Fund must be in compliance with Rule 10A–3 under the Act,28 as provided by NYSE Arca Equities Rule 5.3. (6) The Fund may hold up to an aggregate amount of 15% of its net assets in: (a) Illiquid securities; (b) Rule 144A securities; and (c) loan interests (such as loan participations and assignments, but not including LPNs). (7) The Fund expects that no more than 30% of the value of the Fund’s net assets will be invested in derivative instruments, and such investments will be consistent with the Fund’s investment objective and will not be used to enhance leverage. (8) The Fund will not invest in nonU.S. equity securities. 28 See 17 CFR 240.10A–3. VerDate Mar<15>2010 17:53 May 30, 2012 Jkt 226001 (9) A minimum of 100,000 Shares of the Fund will be outstanding at the commencement of trading on the Exchange. This approval order is based on all of the Exchange’s representations. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 29 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,30 that the proposed rule change (SR–NYSEArca– 2012–25) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.31 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2012–13145 Filed 5–30–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–67047; File No. SR–Phlx– 2012–70] Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Relating to Reversal and Conversion Strategies May 23, 2012. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’),1 and Rule 19b–4 2 thereunder, notice is hereby given that, on May 16, 2012, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend a fee cap on equity options transactions 29 15 U.S.C. 78f(b)(5). U.S.C. 78s(b)(2). 31 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 30 15 PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 32165 on certain reversals 3 and conversion 4 strategies in Section II, entitled ‘‘Equity Options Fees.’’ 5 The Exchange also proposes to make technical amendments to the Pricing Schedule. The text of the proposed rule change is available on the Exchange’s Web site at https://www.nasdaqtrader.com/micro. aspx?id=PHLXfilings, at the principal office of the Exchange, and at the Commission’s Public Reference Room. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose The purpose of the proposed rule change is to amend the applicability of a fee cap relating to reversal and conversion strategies in Section II of the Pricing Schedule to conform the applicability of that cap to that of the dividend,6 merger 7 and short stock interest 8 strategies cap. The Exchange believes that all strategy caps should be applied in the same manner, in this case 3 Reversals are established by combining a short stock position with a short put and a long call position that shares the same strike and expiration. 4 Conversions are established by combining a long position in the underlying security with a long put and a short call position that shares the same strike and expiration. 5 Section II Equity Options Fees include options overlying equities, ETFs, ETNs, indexes and HOLDRS which are Multiply Listed. 6 A dividend strategy is defined as transactions done to achieve a dividend arbitrage involving the purchase, sale and exercise of in-the-money options of the same class, executed the first business day prior to the date on which the underlying stock goes ex-dividend. 7 A merger strategy is defined as transactions done to achieve a merger arbitrage involving the purchase, sale and exercise of options of the same class and expiration date, executed the first business day prior to the date on which shareholders of record are required to elect their respective form of consideration, i.e., cash or stock. 8 A short stock interest strategy is defined as transactions done to achieve a short stock interest arbitrage involving the purchase, sale and exercise of in-the-money options of the same class. E:\FR\FM\31MYN1.SGM 31MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 105 (Thursday, May 31, 2012)]
[Notices]
[Pages 32161-32165]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-13145]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67054; File No. SR-NYSEArca-2012-25]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to Listing and Trading of the 
WisdomTree Brazil Bond Fund Under NYSE Arca Equities Rule 8.600

May 24, 2012.

I. Introduction

    On March 23, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade shares (``Shares'') of the WisdomTree Brazil Bond Fund 
(``Fund'') under NYSE Arca Equities Rule 8.600. The proposed rule 
change was published for comment in the Federal Register on April 11, 
2012.\3\ The Commission received no comments on the proposal. This 
order grants approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 66753 (April 6, 
2012), 77 FR 21827 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares of the Fund 
pursuant to NYSE Arca Equities Rule 8.600, which governs the listing 
and trading of Managed Fund Shares on the Exchange. The Shares will be 
offered by WisdomTree Trust (``Trust''), a Delaware statutory trust 
registered with the Commission as an investment company.\4\ The 
investment adviser to the Fund is WisdomTree Asset Management, Inc. 
(``Adviser''). The Fund's sub-adviser is Western Asset Management 
Company (``Sub-Adviser''). ALPS Distributors, Inc. serves as the 
distributor for the Trust. The Bank of New York Mellon is the 
administrator, custodian, and transfer agent for the Trust.
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    \4\ See Registration Statement on Form N-1A for the Trust under 
the Securities Act of 1933 (15 U.S.C. 77a) and under the Investment 
Company Act of 1940 (``1940 Act''), dated October 8, 2010 (File Nos. 
333-132380 and 811-21864) (``Registration Statement''). In addition, 
the Commission has issued an order granting certain exemptive relief 
to the Trust under the 1940 Act. See Investment Company Act Release 
No. 28471 (October 27, 2008) (File No. 812-13458) (``Exemptive 
Order'').
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    The Exchange represents that the Adviser is not affiliated with a 
broker-dealer. The Sub-Adviser is affiliated

[[Page 32162]]

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 on the Fund's 
portfolio composition are subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding the 
Fund's portfolio.\5\
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    \5\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that, in the event (a) the Adviser or the Sub-
Adviser becomes newly affiliated with a broker-dealer, or (b) any 
new adviser or sub-adviser becomes affiliated with a broker-dealer, 
it will implement a fire wall with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to the portfolio, and will be subject to procedures designed 
to prevent the use and dissemination of material non-public 
information regarding such portfolio.
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Description of the Fund

    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, which will include bonds, notes, or other debt 
obligations, including loan participation notes (``LPNs''),\6\ 
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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    \6\ 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.\7\ 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. 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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    \7\ 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. 
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.
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    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 changes to the credit ratings of the 
Brazilian government and corporate issuers.\8\ 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.
---------------------------------------------------------------------------

    \8\ As of January 31, 2012, Brazilian government debt was rated 
investment grade by S&P, Moody's, and Fitch. See https://brasilstocks.com/bonds.
---------------------------------------------------------------------------

    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).
    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. 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.

[[Page 32163]]

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.
    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,\9\ forward 
currency contracts, non-deliverable forward currency contracts,\10\ 
currency swaps (e.g., Brazilian real vs. U.S. dollar), interest rate 
swaps,\11\ total return swaps,\12\ currency options, options on futures 
contracts, and credit-linked notes.\13\ 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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    \9\ 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.
    \10\ 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.
    \11\ An interest rate swap involves the exchange of a floating 
interest rate payment for a fixed interest rate payment.
    \12\ 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.
    \13\ 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.
    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.\14\
---------------------------------------------------------------------------

    \14\ 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.
---------------------------------------------------------------------------

    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). Illiquid 
securities include securities subject to contractual or other 
restrictions on resale and other instruments that lack readily 
available markets. The Fund will not invest in non-U.S. equity 
securities.
    Additional information regarding the Shares and the Fund, including 
investment strategies, Fixed Income Securities, risks, creation and 
redemption procedures, fees, portfolio holdings disclosure policies, 
distributions, and taxes can be found in the Notice and Registration 
Statement, as applicable.\15\
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    \15\ See supra notes 3 and 4, respectively.

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[[Page 32164]]

III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \16\ and the rules and regulations thereunder applicable to a 
national securities exchange.\17\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\18\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission notes that 
the Fund and the Shares must comply with the requirements of NYSE Arca 
Equities Rule 8.600 to be listed and traded on the Exchange.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78f.
    \17\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\19\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association (``CTA'') high-speed line. In addition, the Portfolio 
Indicative Value (``PIV''), as defined in NYSE Arca Equities Rule 
8.600(c)(3), will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Exchange's Core 
Trading Session.\20\ On each business day, before commencement of 
trading in Shares in the Core Trading Session on the Exchange, the Fund 
will disclose on its Web site the Disclosed Portfolio, as defined in 
NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for the 
Fund's calculation of the NAV at the end of the business day.\21\ 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 (``NYSE'') (generally 4:00 p.m., Eastern time or ``E.T.''). In 
addition, 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 
the previous day's closing price and trading volume information for the 
Shares will be published daily in the financial section of newspapers. 
The Web site for the Fund will include a form of the prospectus for the 
Fund that may be downloaded, additional data relating to NAV, and other 
applicable quantitative information, updated on a daily basis. 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.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \20\ According to the Exchange, several major market data 
vendors display and/or make widely available PIVs published on the 
CTA or other data feeds. 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.
    \21\ 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.
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV and the 
Disclosed Portfolio will be made available to all market participants 
at the same time.\22\ In addition, the Exchange will halt trading in 
the Shares under the specific circumstances set forth in NYSE Arca 
Equities Rule 8.600(d)(2)(D), and may halt trading in the Shares if 
trading is not occurring in the securities and/or the financial 
instruments comprising the Disclosed Portfolio of the Fund, or if other 
unusual conditions or circumstances detrimental to the maintenance of a 
fair and orderly market are present.\23\ The Exchange will consider the 
suspension of trading in or removal from listing of the Shares if the 
PIV is no longer calculated or available or the Disclosed Portfolio is 
not made available to all market participants at the same time.\24\ 
While the Adviser is not affiliated with a broker-dealer, 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.\25\ Further, the Commission notes that the Reporting 
Authority that provides the Disclosed Portfolio must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the portfolio.\26\ The Exchange states that it has a 
general policy prohibiting the distribution of material, non-public 
information by its employees. The Commission also notes that the Fund 
will not invest in non-U.S. equity securities, and the Exchange may 
obtain information via the Intermarket Surveillance Group (``ISG'') 
from other exchanges that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.\27\
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    \22\ See NYSE Arca Equities Rule 8.600(d)(1)(B) (requiring, in 
addition, that the Exchange obtain a representation from the issuer 
of the Shares that the NAV will be calculated daily).
    \23\ 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. Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca 
Equities Rule 7.12 have been reached. Trading also may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable.
    \24\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii).
    \25\ See supra note 5 and accompanying text. The Commission 
notes that an investment adviser to an open-end fund is required to 
be registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser and Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
    \26\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \27\ See Notice, supra note 3.
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    The Exchange further represents that the Shares are deemed to be 
equity securities, thus rendering trading in the Shares subject to the 
Exchange's

[[Page 32165]]

existing rules governing the trading of equity securities. In support 
of this proposal, the Exchange has made representations, including:
    (1) The Shares will be subject to NYSE Arca Equities Rule 8.600, 
which sets forth the initial and continued listing criteria applicable 
to Managed Fund Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures applicable to derivative 
products, which include Managed Fund Shares, are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares in Creation Unit 
aggregations (and that Shares are not individually redeemable); (b) 
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence 
on its Equity Trading Permit Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (c) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated PIV will not be calculated or publicly 
disseminated; (d) how information regarding the PIV is disseminated; 
(e) the requirement that Equity Trading Permit Holders deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (f) trading 
information.
    (5) For initial and/or continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act,\28\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \28\ See 17 CFR 240.10A-3.
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    (6) The Fund may hold up to an aggregate amount of 15% of its net 
assets in: (a) Illiquid securities; (b) Rule 144A securities; and (c) 
loan interests (such as loan participations and assignments, but not 
including LPNs).
    (7) The Fund expects that no more than 30% of the value of the 
Fund's net assets will be invested in derivative instruments, and such 
investments will be consistent with the Fund's investment objective and 
will not be used to enhance leverage.
    (8) The Fund will not invest in non-U.S. equity securities.
    (9) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.

This approval order is based on all of the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \29\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \29\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\30\ that the proposed rule change (SR-NYSEArca-2012-25) be, and it 
hereby is, approved.
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    \30\ 15 U.S.C. 78s(b)(2).
    \31\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-13145 Filed 5-30-12; 8:45 am]
BILLING CODE 8011-01-P

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