Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of QAM Equity Hedge ETF Under NYSE Arca Equities Rule 8.600, 36591-36597 [2012-14905]
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Federal Register / Vol. 77, No. 118 / Tuesday, June 19, 2012 / Notices
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67196; File No. SR–
NYSEArca–2012–57]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of QAM Equity Hedge ETF
Under NYSE Arca Equities Rule 8.600
June 13, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that,
on June 1, 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 the following under NYSE Arca
Equities Rule 8.600 (‘‘Managed Fund
Shares’’): QAM Equity Hedge ETF. The
text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, 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
srobinson on DSK4SPTVN1PROD with NOTICES
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade the following Managed Fund
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Shares 3 (‘‘Shares’’) under NYSE Arca
Equities Rule 8.600: QAM Equity Hedge
ETF (‘‘Fund’’).4 The Shares will be
offered by AdvisorShares Trust
(‘‘Trust’’), a statutory trust organized
under the laws of the State of Delaware
and registered with the Commission as
an open-end management investment
company.5 The investment adviser to
the Fund is AdvisorShares Investments,
LLC (‘‘Adviser’’). Commerce Asset
Management serves as investment subadviser to the Fund (‘‘Sub-Adviser’’)
and provides day-to-day portfolio
management of the Fund. Foreside Fund
Services, LLC (‘‘Distributor’’) is the
principal underwriter and distributor of
the Fund’s Shares. The Bank of New
York Mellon Corporation
(‘‘Administrator’’) serves as
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 approved NYSE Arca Equities
Rule 8.600 and the listing and trading of certain
funds of the PowerShares Actively Managed
Exchange-Traded Funds Trust on the Exchange
pursuant to Rule 8.600 in Securities Exchange Act
Release No. 57619 (April 4, 2008), 73 FR 19544
(April 10, 2008) (SR–NYSEArca–2008–25). The
Commission also 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. 60460
(August 7, 2009), 74 FR 41468 (August 17, 2009)
(SR–NYSEArca–2009–55) (order approving listing
of Dent Tactical ETF); 61365 (January 15, 2010), 75
FR 4124 (January 26, 2010) (SR–NYSEArca–2009–
114) (order approving listing and trading of Grail
McDonnell Fixed Income ETFs); 60981 (November
10, 2009), 74 FR 59594 (November 18, 2009) (SR–
NYSEArca–2009–79) (order approving listing of five
fixed income funds of the PIMCO ETF Trust); 62502
(July 15, 2010), 75 FR 42471 (July 21, 2010) (SR–
NYSEArca–2010–57) (order approving listing of
AdvisorShares WCM/BNY Mellon Focused Growth
ADR ETF); and 63076 (October 12, 2010), 75 FR
63874 (October 18, 2010) (SR–NYSEArca–2010–79)
(order approving listing of Cambria Global Tactical
ETF).
5 The Trust is registered under the 1940 Act. On
September 16, 2011, the Trust filed with the
Commission an amendment to its registration
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’) and under
the 1940 Act relating to the Fund (File Nos. 333–
157876 and 811–22110) (‘‘Registration Statement’’).
The description of the operation of the Trust and
the Fund herein is based, in part, on the
Registration Statement. In addition, the
Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act.
See Investment Company Act Release No. 28822
(July 20, 2009) (File No. 812–13488) (‘‘Exemptive
Order’’).
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36591
administrator, custodian, and transfer
agent for the Fund.
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material, non-public information
regarding the open-end fund’s
portfolio.6 Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i)
and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 in
connection with the establishment of a
‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. The Adviser is not affiliated with
a broker-dealer. The Sub-Adviser is
affiliated with Commerce Square
Trading, LLC, a broker-dealer, and has
implemented a fire wall with respect to
its broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
portfolio. In the event (a) the Adviser or
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
6 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’). As a result,
the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule
204A–1 under the Advisers Act relating to codes of
ethics. This Rule requires investment advisers to
adopt a code of ethics that reflects the fiduciary
nature of the relationship to clients as well as
compliance with other applicable securities laws.
Accordingly, procedures designed to prevent the
communication and misuse of non-public
information by an investment adviser must be
consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) adopted and
implemented written policies and procedures
reasonably designed to prevent violation, by the
investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted
thereunder; (ii) implemented, at a minimum, an
annual review regarding the adequacy of the
policies and procedures established pursuant to
subparagraph (i) above and the effectiveness of their
implementation; and (iii) designated an individual
(who is a supervised person) responsible for
administering the policies and procedures adopted
under subparagraph (i) above.
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Federal Register / Vol. 77, No. 118 / Tuesday, June 19, 2012 / Notices
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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Principal Investment Strategies
According to the Registration
Statement, the Fund seeks investment
results that exceed the risk adjusted
performance of approximately 50% of
the long/short equity hedge fund
universe as defined by the HFRI Equity
Hedge (Total) Index (‘‘HFRI Index’’)
constituents.7 The Fund is a ‘‘fund of
funds’’ that seeks to achieve its
investment objective, under normal
circumstances,8 by investing at least
60% of its portfolio in both long and
short positions in exchange-traded
funds (‘‘ETFs’’) 9 and exchange-traded
notes (‘‘ETNs’’) 10 that offer diversified
exposure to global regions, countries,
investment styles (i.e., value, growth),
sectors, and industries, as well as
exchange-traded currency and
commodity trusts (collectively, with
ETFs and ETNs, ‘‘Underlying ETPs’’),11
including Underlying ETPs that invest
in short duration debt, cash, other cash
7 The HFRI Index contains more than 2,400 funds.
Instead of the Fund having an investment objective
to outperform the HFRI Index, the Fund’s
investment objective is to outperform 50% of the
constituents in the HFRI Index.
8 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the equity
markets or the financial markets generally;
operational issues causing dissemination of
inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar
intervening circumstance.
9 For purposes of this proposed rule change, ETFs
are securities registered under the 1940 Act such as
those listed and traded on the Exchange under
NYSE Arca Equities Rules 5.2(j)(3) (Investment
Company Units), 8.100 (Portfolio Depositary
Receipts), and 8.600 (Managed Fund Shares).
10 For purposes of this proposed rule change,
ETNs are securities that are registered pursuant to
the Securities Act such as those listed and traded
on the Exchange pursuant to NYSE Arca Equities
Rule 5.2(j)(6). ETNs are debt obligations of
investment banks that are traded on exchanges and
the returns of which are linked to the performance
of market indexes. In addition to trading ETNs on
exchanges, investors may redeem ETNs directly
with the issuer on a weekly basis, typically in a
minimum amount of 50,000 units, or hold the ETNs
until maturity.
11 Underlying ETPs include, in addition to ETFs
and ETNs, the following securities: Trust Issued
Receipts (as described in NYSE Arca Equities Rule
8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201);
Currency Trust Shares (as described in NYSE Arca
Equities Rule 8.202); Commodity Index Trust
Shares (as described in NYSE Arca Equities Rule
8.203); and closed-end funds. The Underlying ETPs
all will be listed and traded in the U.S. on registered
exchanges.
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equivalents, and other highly liquid
instruments based on the Sub-Adviser’s
current analysis. The Sub-Adviser seeks
to achieve the Fund’s investment
objective by taking long and short
positions in Underlying ETPs that the
Sub-Adviser believes, in the aggregate,
will track the performance of a selected
universe of long/short equity hedge
funds.12 The Underlying ETPs in which
the Fund will invest will primarily be
index-based ETFs that hold
substantially all of their assets in
securities that offer diversified exposure
to global regions, countries, investment
styles, sectors, and industries.
In managing the Fund’s portfolio,
among other proprietary analytics, the
Sub-Adviser will utilize Markov
Processes International, LLC’s (‘‘MPI’’)
Dynamic Style Analysis (‘‘DSA’’)
patented hedge fund analysis software
to help select the Fund’s investments
and determine the allocation among
such investments. The Sub-Adviser will
identify approximately 50 market
factors that track the aggregated
exposure and approximate the returns of
the selected universe of long/short
equity hedge funds. The Sub-Adviser
will use DSA and other proprietary
analytics to define and track the various
market factors and relative exposures
and to adjust the Fund’s portfolio as
necessary. At any given time, such
market factors may include country
exposure, sector exposure, industry
exposure, and currency exposure. In
seeking to achieve its investment
objective, the Fund will seek to remain
invested at all times in securities or
derivatives (as described below) that
provide the desired exposures to market
factors.
The Fund’s portfolio typically will
consist of up to 50 Underlying ETPs and
other securities, as described below.
Under normal circumstances, the
Fund’s largest or maximum investment
in any single issuer will range between
5% and 10% of the Fund’s portfolio.
The Fund, through its investment in
Underlying ETPs, may invest in closedend funds, pooled investment vehicles
that are registered under the 1940 Act
and whose shares are listed and traded
on U.S. national securities exchanges.
The Fund, through its investment in
Underlying ETPs, may invest in the
equity securities of foreign issuers,
including the securities of foreign
issuers in emerging countries. Emerging
12 According to the Registration Statement, long/
short equity hedge funds typically buy stocks, ETFs,
ETNs, or currencies that the hedge fund managers
expect will appreciate, and concurrently either sell
short stocks, ETFs, ETNs, or currencies that the
hedge fund managers expect will decline in value
or to hedge market or sector exposures.
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or developing markets exist in countries
that are considered to be in the initial
stages of industrialization.13
The Fund, through its investment in
Underlying ETPs, may invest in shares
of real estate investment trusts
(‘‘REITs’’), which are pooled investment
vehicles which invest primarily in real
estate or real estate-related loans.
Other Investment Practices and
Strategies
To respond to adverse market,
economic, political or other conditions,
the Fund may invest 100% of its total
assets, without limitation, in highquality debt securities and money
market instruments either directly or
through Underlying ETPs. The Fund
may be invested in this manner for
extended periods depending on the SubAdviser’s assessment of market
conditions. Debt securities and money
market instruments include shares of
mutual funds, commercial paper,
certificates of deposit, bankers’
acceptances, U.S. Government
securities, repurchase agreements, and
bonds that are BBB or higher.
Under normal circumstances, the
Fund may hold up to 40% of its
portfolio in other investments. For
example, on a day-to-day basis, the
Fund may hold money market
instruments, cash or cash equivalents,
and/or Underlying ETPs that invest in
these and other highly liquid
instruments, to collateralize its
derivative positions.
The Fund, or the Underlying ETPs in
which it invests, may invest in U.S.
Treasury zero-coupon bonds. These
securities are U.S. Treasury bonds
which have been stripped of their
unmatured interest coupons, the
coupons themselves, and receipts or
certificates representing interests in
such stripped debt obligations and
coupons. Interest is not paid in cash
during the term of these securities, but
is accrued and paid at maturity.
The Fund or an Underlying ETP may
invest in equity securities, which
represent ownership interests in a
company or partnership and consist of
common stocks, preferred stocks,
13 According to the Registration Statement, the
risks of investing in these markets are similar to the
risks of international investing in general, although
the risks are greater in emerging and developing
markets. Countries with emerging or developing
securities markets tend to have economic structures
that are less stable than countries with developed
securities markets. This is because their economies
may be based on only a few industries and their
securities markets may trade a small number of
securities. Prices on these exchanges tend to be
volatile, and securities in these countries
historically have offered greater potential for gain
(as well as loss) than securities of companies
located in developed countries.
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Federal Register / Vol. 77, No. 118 / Tuesday, June 19, 2012 / Notices
warrants to acquire common stock,
securities convertible into common
stock, and investments in master limited
partnerships.
The Fund or an Underlying ETP may
invest in American Depositary Receipts
(‘‘ADRs’’), as well as Global Depositary
Receipts (‘‘GDRs’’, together with ADRs,
‘‘Depositary Receipts’’), which are
certificates evidencing ownership of
shares of a foreign issuer. Depositary
Receipts will be sponsored. These
certificates are issued by depositary
banks and generally trade on an
established market in the United States
or elsewhere. The underlying shares are
held in trust by a custodian bank or
similar financial institution in the
issuer’s home country. The depositary
bank may not have physical custody of
the underlying securities at all times
and may charge fees for various
services, including forwarding
dividends and interest and corporate
actions. Depositary Receipts are
alternatives to directly purchasing the
underlying foreign securities in their
national markets and currencies.
However, Depositary Receipts continue
to be subject to many of the risks
associated with investing directly in
foreign securities.
The Fund, or the Underlying ETPs in
which it invests, may invest in U.S.
government securities. Securities issued
or guaranteed by the U.S. government or
its agencies or instrumentalities include
U.S. Treasury securities, which are
backed by the full faith and credit of the
U.S. Treasury and which differ only in
their interest rates, maturities, and times
of issuance. U.S. Treasury bills have
initial maturities of one-year or less;
U.S. Treasury notes have initial
maturities of one to ten years; and U.S.
Treasury bonds generally have initial
maturities of greater than ten years.
Certain U.S. government securities are
issued or guaranteed by agencies or
instrumentalities of the U.S. government
including, but not limited to, obligations
of U.S. government agencies or
instrumentalities such as Fannie Mae,
Freddie Mac, the Government National
Mortgage Association (Ginnie Mae), the
Small Business Administration, the
Federal Farm Credit Administration, the
Federal Home Loan Banks, Banks for
Cooperatives (including the Central
Bank for Cooperatives), the Federal
Land Banks, the Federal Intermediate
Credit Banks, the Tennessee Valley
Authority, the Export-Import Bank of
the United States, the Commodity Credit
Corporation, the Federal Financing
Bank, the Student Loan Marketing
Association, the National Credit Union
Administration, and the Federal
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Agricultural Mortgage Corporation
(Farmer Mac).
The Fund may not (i) with respect to
75% of its total assets, purchase
securities of any issuer (except
securities issued or guaranteed by the
U.S. Government, its agencies or
instrumentalities, or shares of
investment companies) if, as a result,
more than 5% of its total assets would
be invested in the securities of such
issuer; or (ii) acquire more than 10% of
the outstanding voting securities of any
one issuer. For purposes of this policy,
the issuer of the underlying security
will be deemed to be the issuer of any
respective Depositary Receipt.14
The Fund may not invest 25% or
more of its total assets in the securities
of one or more issuers conducting their
principal business activities in the same
industry or group of industries. This
limitation does not apply to investments
in securities issued or guaranteed by the
U.S. Government, its agencies or
instrumentalities, or shares of
investment companies. The Fund will
not invest 25% or more of its total assets
in any investment company that so
concentrates. For purposes of this
policy, the issuer of the underlying
security will be deemed to be the issuer
of any respective Depositary Receipt.15
While the Fund may invest up to 40%
of its total assets in put and call options
on indices (and enter into related
closing transactions), exchange-listed
futures contracts, and options on futures
contracts, the Adviser expects that,
under normal market conditions, the
Fund will invest no more than 15% in
such options and 15% in such futures
on a daily basis.
The Fund may conduct foreign
currency transactions on a spot (i.e.,
cash) or forward basis (i.e., by entering
into forward contracts to purchase or
sell foreign currencies up to 10% of its
total assets). Currency transactions
made on a spot basis are for cash at the
spot rate prevailing in the currency
exchange market for buying or selling
currency.
The Fund may enter into repurchase
agreements with financial institutions,
which may be deemed to be loans. The
Fund follows certain procedures
designed to minimize the risks inherent
in such agreements. These procedures
include effecting repurchase
transactions only with large, well14 The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act.
15 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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36593
capitalized, and well-established
financial institutions whose condition
will be continually monitored by the
Sub-Adviser. The Fund may enter into
reverse repurchase agreements without
limit as part of the Fund’s investment
strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio
assets concurrently with an agreement
by the Fund to repurchase the same
assets at a later date at a fixed price.
The Fund may invest up to 15% of its
total assets in swap agreements,
including, but not limited to, total
return swaps, index swaps, and interest
rate swaps. The Fund may utilize swap
agreements in an attempt to gain
exposure to the securities in a market
without actually purchasing those
securities, or to hedge a position. In
seeking to establish a long or short
position in such instruments, the Fund
may use swaps based on published
indices, including international indices.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities (calculated at the time
of investment), including Rule 144A
securities and loan participation
interests. The Fund will monitor its
portfolio liquidity on an ongoing basis
to determine whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid securities. Illiquid securities
include securities subject to contractual
or other restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.16
According to the Registration
Statement, the Fund will seek to qualify
for treatment as a Regulated Investment
16 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 14618 (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).
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Company (‘‘RIC’’) under the Internal
Revenue Code.17
Except for Underlying ETPs that may
hold non-U.S. issues, the Fund will not
otherwise invest in non-U.S.-registered
issues.
The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage. That is, while the
Fund will be permitted to borrow as
permitted under the 1940 Act, the
Fund’s investments will not be used to
seek performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
the Fund’s broad-based securities
market index (as defined in Form N–
1A).18 The Fund will not invest in
leveraged or inverse leveraged
Underlying ETPs.
Net Asset Value
srobinson on DSK4SPTVN1PROD with NOTICES
The Fund will calculate NAV by: (i)
Taking the current market value of its
total assets; (ii) subtracting any
liabilities; and (iii) dividing that amount
by the total number of Shares owned by
shareholders. The Fund will calculate
NAV once each business day as of the
close of normal trading on the New York
Stock Exchange (‘‘NYSE’’) (normally,
4:00 p.m., Eastern Time). In calculating
NAV, the Fund generally will value
investment portfolios at market price. If
market prices are unavailable or the
Fund thinks that they are unreliable, or
when the value of a security has been
materially affected by events occurring
after the relevant market closes, the
Fund will price those securities at fair
value as determined in good faith using
17 26 U.S.C. 851. One of several requirements for
RIC qualification is that the Fund must receive at
least 90% of the Fund’s gross income each year
from dividends, interest, payments with respect to
securities loans, gains from the sale, or other
disposition of stock, securities, or foreign
currencies, or other income derived with respect to
the Fund’s investments in stock, securities, foreign
currencies, and net income from an interest in a
qualified publicly traded partnership (‘‘90% Test’’).
A second requirement for qualification as a RIC is
that the Fund must diversify its holdings so that,
at the end of each fiscal quarter of the Fund’s
taxable year: (a) At least 50% of the market value
of the Fund’s total assets is represented by cash and
cash items, U.S. Government securities, securities
of other RICs, and other securities, with these other
securities limited, in respect to any one issuer, to
an amount not greater than 5% of the value of the
Fund’s total assets or 10% of the outstanding voting
securities of such issuer; and (b) not more than 25%
of the value of its total assets are invested in the
securities (other than U.S. Government securities or
securities of other RICs) of any one issuer or two
or more issuers which the Fund controls and which
are engaged in the same, similar, or related trades
or businesses, or the securities of one or more
qualified publicly traded partnership (‘‘Asset
Test’’).
18 The Fund’s broad-based securities market
index, which is to be determined, will be identified
in an amendment to the Registration Statement.
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methods approved by the Board of
Trustees.
The use of fair valuation in pricing a
security involves the consideration of a
number of subjective factors and,
therefore, is susceptible to the
unavoidable risk that the valuation may
be higher or lower than the price at
which the security might actually trade
if a reliable market price were readily
available.
Creation and Redemption of Shares
The Fund will offer and issue Shares
on a continuous basis at NAV only in
aggregated lots of 50,000 or more Shares
(each a ‘‘Creation Unit’’ or ‘‘Creation
Unit Aggregation’’), generally in
exchange for: (i) A basket of equity
securities (‘‘Deposit Securities’’); and (ii)
an amount of cash (‘‘Cash Component’’).
Shares are redeemable only in Creation
Unit Aggregations, and, generally, in
exchange for portfolio securities and a
specified cash payment.
A ‘‘creator’’ will enter into an
authorized participant agreement
(‘‘Participant Agreement’’) with the
Distributor or use a Depository Trust
Company (‘‘DTC’’) participant who has
executed a Participant Agreement
(‘‘Authorized Participant’’), and deposit
into the Fund a portfolio of securities
closely approximating the holdings of
the Fund and a specified amount of
cash, together totaling the NAV of the
Creation Unit(s), in exchange for 50,000
Shares of the Fund (or multiples
thereof).
All orders to purchase Creation Units
must be received by the Distributor no
later than the close of the regular trading
session on the NYSE (ordinarily 4:00
p.m., Eastern Time) on the date such
order is placed in order for the purchase
of Creation Units to be effected based on
the NAV of Shares of the Fund as next
determined on such date after receipt of
the order in proper form.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the Fund
through the Administrator and only on
a business day. With respect to the
Fund, the Administrator, through the
National Securities Clearing
Corporation, will make available
immediately prior to the opening of
business on the Exchange (currently
9:30 a.m., Eastern Time) on each
business day, the portfolio of securities
(‘‘Fund Securities’’) that will be
applicable to redemption requests
received in proper form on that day.
Fund Securities received on redemption
may not be identical to Deposit
Securities which are applicable to
creations of Creation Units. Unless cash
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Fmt 4703
Sfmt 4703
redemptions are available or specified
for the Fund, the redemption proceeds
for a Creation Unit generally will consist
of Fund Securities plus cash in an
amount equal to the difference between
the NAV of the Shares being redeemed,
as next determined after a receipt of a
request in proper form, and the value of
the Fund Securities less a redemption
transaction fee, as described in the
Registration Statement. In the event that
the Fund Securities have a value greater
than the NAV of the Shares, a
compensating cash payment equal to the
differential will be required to be made
by or through an Authorized Participant
by the redeeming shareholder.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3
under the Exchange Act,19 as provided
by NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares for the
Fund will be outstanding at the
commencement of trading on the
Exchange. The Exchange will obtain a
representation from the issuer of the
Shares that the NAV per Share will be
calculated daily and that the NAV and
the Disclosed Portfolio will be made
available to all market participants at
the same time.
Availability of Information
The Fund’s Web site
(www.advisorshares.com), which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Fund’s Web site
will include additional quantitative
information updated on a daily basis,
including, for the Fund, (1) daily trading
volume, the prior business day’s
reported closing price, NAV and midpoint of the bid/ask spread at the time
of calculation of such NAV (‘‘Bid/Ask
Price’’),20 and a calculation of the
premium and discount of the Bid/Ask
Price against the NAV, and (2) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund will disclose on its
19 17
CFR 240.10A–3.
Bid/Ask Price of the Fund will be
determined using the mid-point of the highest bid
and the lowest offer on the Exchange as of the time
of calculation of the Fund’s NAV. The records
relating to Bid/Ask Prices will be retained by the
Fund and its service providers.
20 The
E:\FR\FM\19JNN1.SGM
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srobinson on DSK4SPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 118 / Tuesday, June 19, 2012 / Notices
Web site the Disclosed Portfolio, as
defined in NYSE Arca Equities Rule
8.600(c)(2), that will form the basis for
the Fund’s calculation of NAV at the
end of the business day.21
On a daily basis, the Adviser will
disclose for each portfolio security and
other financial instrument of the Fund
the following information on the Fund’s
Web site: Ticker symbol (if applicable),
name of security and financial
instrument, number of shares or dollar
value of each security and financial
instrument held in the portfolio, and
percentage weighting of the security and
financial instrument in the portfolio.
The Web site information will be
publicly available at no charge.
In addition, a basket composition file,
which includes the security names and
share quantities required to be delivered
in exchange for the Fund’s Shares,
together with estimates and actual cash
components, will be publicly
disseminated daily prior to the opening
of the NYSE via the National Securities
Clearing Corporation. The basket
represents one Creation Unit of the
Fund.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and the Trust’s Form N–CSR
and Form N–SAR, filed twice a year.
The Trust’s SAI and Shareholder
Reports are available free upon request
from the Trust, and those documents
and the Form N–CSR and Form N–SAR
may be viewed on-screen or
downloaded from the Commission’s
Web site at www.sec.gov. Information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services.
Information regarding the previous
day’s closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers. Quotation and last-sale
information for the Shares will be
available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line
and, for the Underlying ETPs, will be
available from the national securities
exchange on which they are listed. In
addition, the Portfolio Indicative Value,
as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated
at least every 15 seconds during the
Core Trading Session by one or more
21 Under accounting procedures followed by the
Fund, trades made on the prior business day (‘‘T’’)
will be booked and reflected in NAV on the current
business day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the business
day the portfolio that will form the basis for the
NAV calculation at the end of the business day.
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16:39 Jun 18, 2012
Jkt 226001
major market data vendors.22 The
dissemination of the Portfolio Indicative
Value, together with the Disclosed
Portfolio, will allow investors to
determine the value of the underlying
portfolio of the Fund on a daily basis
and to provide a close estimate of that
value throughout the trading day. The
intra-day, closing, and settlement prices
of the portfolio investments (e.g.,
Underlying ETPs, put and call options,
futures contracts, forward contracts,
money market funds, and options on
futures contracts) will also be readily
available from the national securities
exchanges trading such securities,
automated quotation systems, published
or other public sources, or on-line
information services such as Bloomberg
or Reuters.
Additional information regarding the
Trust and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosure policies,
distributions, and taxes is included in
the Registration Statement. All terms
relating to the Fund that are referred to,
but not defined in, this proposed rule
change are defined in the Registration
Statement.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund.23 Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule
7.12 have been reached. Trading also
may be halted because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund; or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets
forth circumstances under which Shares
of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
22 Currently, it is the Exchange’s understanding
that several major market data vendors widely
disseminate Portfolio Indicative Values taken from
CTA or other data feeds.
23 See NYSE Arca Equities Rule 7.12,
Commentary .04.
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Fmt 4703
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36595
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00
a.m. to 8:00 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
include Managed Fund Shares) to
monitor trading in the Shares. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
The Exchange’s current trading
surveillance focuses on detecting
securities trading outside their normal
patterns. When such situations are
detected, surveillance analysis follows
and investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
The Exchange may obtain information
via the Intermarket Surveillance Group
(‘‘ISG’’) from other exchanges that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.24 In
addition, the Exchange could obtain
information from the U.S. exchanges, all
of which are ISG members, on which
the Underlying ETPs, Depositary
Receipts, futures, options, and other
applicable portfolio securities are listed
and traded. The Exchange may obtain
surveillance information from all
securities exchanges listing and/or
trading the securities held by the Fund.
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
24 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund
may trade on markets that are members of ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement.
E:\FR\FM\19JNN1.SGM
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36596
Federal Register / Vol. 77, No. 118 / Tuesday, June 19, 2012 / Notices
srobinson on DSK4SPTVN1PROD with NOTICES
Equity Trading Permit (‘‘ETP’’) Holders
in an Information Bulletin (‘‘Bulletin’’)
of the special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit Aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its ETP Holders to learn the essential
facts relating to every customer prior to
trading the Shares; (3) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated Portfolio Indicative
Value will not be calculated or publicly
disseminated; (4) how information
regarding the Portfolio Indicative Value
is disseminated; (5) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Exchange Act. The Bulletin will also
disclose that the NAV for the Shares
will be calculated after 4:00 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) 25
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 Sub-Adviser is affiliated with
a broker-dealer, and has implemented a
fire wall with respect to its brokerdealer affiliate regarding access to
25 15
U.S.C. 78f(b)(5).
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16:39 Jun 18, 2012
Jkt 226001
information concerning the composition
and/or changes to the portfolio. In
addition, the Sub-Adviser is subject to
procedures designed to prevent the use
and dissemination of material, nonpublic information regarding such
portfolio. 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. In addition, the
Exchange could obtain information from
the U.S. exchanges, all of which are ISG
members, on which the Underlying
ETPs, Depositary Receipts, futures,
options, and other applicable portfolio
securities are listed and traded. The
Fund seeks to achieve its investment
objective, under normal circumstances,
by investing at least 60% of its portfolio
in both long and short positions in
Underlying ETPs. The listing and
trading of such Underlying ETPs is
subject to rules of the exchanges on
which they are listed and traded, as
approved by the Commission. Except for
Underlying ETPs that may hold nonU.S. issues, the Fund will not otherwise
invest in non-U.S.-registered issues.
Options, futures, and options on futures
contracts in which the Fund invests will
be U.S. exchange-listed. The Fund will
invest no more than 15% of total assets
in such options and 15% of total assets
in such futures on a daily basis. The
Fund may invest up to 15% of its total
assets in swap agreements, including,
but not limited to, total return swaps,
index swaps, and interest rate swaps.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities (calculated at the time
of investment), including Rule 144A
securities and loan participation
interests. The Fund will not invest in
leveraged or inverse leveraged
Underlying ETPs. The Fund’s
investments will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
will be publicly available regarding the
Fund and the Shares, thereby promoting
market transparency. Moreover, the
Portfolio Indicative Value will be
widely disseminated through the
facilities of the CTA or by one or more
PO 00000
Frm 00120
Fmt 4703
Sfmt 4703
major market data vendors at least every
15 seconds during the Exchange’s Core
Trading Session. On each business day,
before commencement of trading in
Shares in the Core Trading Session on
the Exchange, the Fund will disclose on
its Web site the Disclosed Portfolio that
will form the basis for the Fund’s
calculation of NAV at the end of the
business day. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
last-sale information will be available
via the CTA high-speed line. The Web
site for the Fund will include a form of
the prospectus for the Fund and
additional data relating to NAV and
other applicable quantitative
information. Moreover, prior to the
commencement of trading, the Exchange
will inform its ETP Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Trading in Shares of
the Fund will be halted if the circuit
breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable, and trading in the Shares
will be subject to NYSE Arca Equities
Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the Portfolio Indicative
Value, the Disclosed Portfolio, and
quotation and last-sale information for
the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of actively
managed exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Portfolio Indicative Value,
the Disclosed Portfolio, and quotation
and last-sale information for the Shares.
E:\FR\FM\19JNN1.SGM
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Federal Register / Vol. 77, No. 118 / Tuesday, June 19, 2012 / Notices
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
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 Act.
Comments may be submitted by any of
the following methods:
srobinson on DSK4SPTVN1PROD with NOTICES
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2012–57 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–2012–57. 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
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16:39 Jun 18, 2012
Jkt 226001
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE.,
Washington, DC 20549, on official
business days between 10:00 a.m. and
3:00 p.m. Copies of the filing will also
be available for inspection and copying
at the NYSE’s principal office and on its
Internet Web site at www.nyse.com. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2012–57 and
should be submitted on or before July
10, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.26
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–14905 Filed 6–18–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67194; File No. SR–
NYSEMKT–2012–08]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change Amending Commentary
.10 To Exchange Rule 903 Allowing the
NYSE Amex Options To Open Short
Term Option Series That Are Opened
by Other Securities Exchanges in
Option Classes Selected by Other
Exchanges Under Their Respective
Short Term Option Rules
June 13, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on June 12,
2012, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
26 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Fmt 4703
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36597
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend
Commentary .10 to Exchange Rule 903
to allow the NYSE Amex Options to
open Short Term Option Series
(‘‘Weeklies’’) that are opened by other
securities exchanges in option classes
selected by other exchanges under their
respective short term option rules. The
text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, 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
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 purpose of this proposed rule
change is to amend Commentary .10 to
Exchange Rule 903 to allow the
Exchange to open Short Term Option
Series (‘‘Weeklies’’) that are opened by
other securities exchanges in option
classes selected by other exchanges
under their respective short term option
rules.3
Currently, the Exchange may select up
to 5 currently listed option classes on
which Weeklies options may be opened
in the Weeklies Program and the
Exchange may also match any option
classes that are selected by other
3 On July 12, 2005, the Commission approved the
Weeklies Program on a pilot basis. See Securities
Exchange Act Release No. 52014 (July 12, 2005), 70
FR 41244 (July 18, 2005) (Amex–2005–035). The
Weeklies Program was made permanent on June 23,
2010. See Securities Exchange Act Release
No.62370 (June 23, 2010), 75 FR 37870 (June 30,
2010) (SR–NYSEAmex–2010–62).
E:\FR\FM\19JNN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 118 (Tuesday, June 19, 2012)]
[Notices]
[Pages 36591-36597]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14905]
[[Page 36591]]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67196; File No. SR-NYSEArca-2012-57]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of QAM
Equity Hedge ETF Under NYSE Arca Equities Rule 8.600
June 13, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that, on June 1, 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 the following under NYSE
Arca Equities Rule 8.600 (``Managed Fund Shares''): QAM Equity Hedge
ETF. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, 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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the following Managed Fund
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: QAM Equity
Hedge ETF (``Fund'').\4\ The Shares will be offered by AdvisorShares
Trust (``Trust''), a statutory trust organized under the laws of the
State of Delaware and registered with the Commission as an open-end
management investment company.\5\ The investment adviser to the Fund is
AdvisorShares Investments, LLC (``Adviser''). Commerce Asset Management
serves as investment sub-adviser to the Fund (``Sub-Adviser'') and
provides day-to-day portfolio management of the Fund. Foreside Fund
Services, LLC (``Distributor'') is the principal underwriter and
distributor of the Fund's Shares. The Bank of New York Mellon
Corporation (``Administrator'') serves as administrator, custodian, and
transfer agent for the Fund.
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\3\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-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 approved NYSE Arca Equities Rule 8.600 and
the listing and trading of certain funds of the PowerShares Actively
Managed Exchange-Traded Funds Trust on the Exchange pursuant to Rule
8.600 in Securities Exchange Act Release No. 57619 (April 4, 2008),
73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission
also 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. 60460 (August 7, 2009), 74 FR
41468 (August 17, 2009) (SR-NYSEArca-2009-55) (order approving
listing of Dent Tactical ETF); 61365 (January 15, 2010), 75 FR 4124
(January 26, 2010) (SR-NYSEArca-2009-114) (order approving listing
and trading of Grail McDonnell Fixed Income ETFs); 60981 (November
10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-2009-79)
(order approving listing of five fixed income funds of the PIMCO ETF
Trust); 62502 (July 15, 2010), 75 FR 42471 (July 21, 2010) (SR-
NYSEArca-2010-57) (order approving listing of AdvisorShares WCM/BNY
Mellon Focused Growth ADR ETF); and 63076 (October 12, 2010), 75 FR
63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order approving
listing of Cambria Global Tactical ETF).
\5\ The Trust is registered under the 1940 Act. On September 16,
2011, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) (``Securities Act'') and under the 1940 Act relating
to the Fund (File Nos. 333-157876 and 811-22110) (``Registration
Statement''). The description of the operation of the Trust and the
Fund herein is based, in part, on the Registration Statement. In
addition, the Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act. See Investment
Company Act Release No. 28822 (July 20, 2009) (File No. 812-13488)
(``Exemptive Order'').
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Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding the open-end fund's portfolio.\6\ Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds. The
Adviser is not affiliated with a broker-dealer. The Sub-Adviser is
affiliated with Commerce Square Trading, LLC, a broker-dealer, and has
implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio. In the event (a) the Adviser or 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
[[Page 36592]]
such broker-dealer regarding access to information concerning the
composition and/or changes to the portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material,
non-public information regarding such portfolio.
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\6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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Principal Investment Strategies
According to the Registration Statement, the Fund seeks investment
results that exceed the risk adjusted performance of approximately 50%
of the long/short equity hedge fund universe as defined by the HFRI
Equity Hedge (Total) Index (``HFRI Index'') constituents.\7\ The Fund
is a ``fund of funds'' that seeks to achieve its investment objective,
under normal circumstances,\8\ by investing at least 60% of its
portfolio in both long and short positions in exchange-traded funds
(``ETFs'') \9\ and exchange-traded notes (``ETNs'') \10\ that offer
diversified exposure to global regions, countries, investment styles
(i.e., value, growth), sectors, and industries, as well as exchange-
traded currency and commodity trusts (collectively, with ETFs and ETNs,
``Underlying ETPs''),\11\ including Underlying ETPs that invest in
short duration debt, cash, other cash equivalents, and other highly
liquid instruments based on the Sub-Adviser's current analysis. The
Sub-Adviser seeks to achieve the Fund's investment objective by taking
long and short positions in Underlying ETPs that the Sub-Adviser
believes, in the aggregate, will track the performance of a selected
universe of long/short equity hedge funds.\12\ The Underlying ETPs in
which the Fund will invest will primarily be index-based ETFs that hold
substantially all of their assets in securities that offer diversified
exposure to global regions, countries, investment styles, sectors, and
industries.
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\7\ The HFRI Index contains more than 2,400 funds. Instead of
the Fund having an investment objective to outperform the HFRI
Index, the Fund's investment objective is to outperform 50% of the
constituents in the HFRI Index.
\8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the equity markets or the financial markets generally; operational
issues causing dissemination of inaccurate market information; or
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption, or any similar intervening circumstance.
\9\ For purposes of this proposed rule change, ETFs are
securities registered under the 1940 Act such as those listed and
traded on the Exchange under NYSE Arca Equities Rules 5.2(j)(3)
(Investment Company Units), 8.100 (Portfolio Depositary Receipts),
and 8.600 (Managed Fund Shares).
\10\ For purposes of this proposed rule change, ETNs are
securities that are registered pursuant to the Securities Act such
as those listed and traded on the Exchange pursuant to NYSE Arca
Equities Rule 5.2(j)(6). ETNs are debt obligations of investment
banks that are traded on exchanges and the returns of which are
linked to the performance of market indexes. In addition to trading
ETNs on exchanges, investors may redeem ETNs directly with the
issuer on a weekly basis, typically in a minimum amount of 50,000
units, or hold the ETNs until maturity.
\11\ Underlying ETPs include, in addition to ETFs and ETNs, the
following securities: Trust Issued Receipts (as described in NYSE
Arca Equities Rule 8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares
(as described in NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and
closed-end funds. The Underlying ETPs all will be listed and traded
in the U.S. on registered exchanges.
\12\ According to the Registration Statement, long/short equity
hedge funds typically buy stocks, ETFs, ETNs, or currencies that the
hedge fund managers expect will appreciate, and concurrently either
sell short stocks, ETFs, ETNs, or currencies that the hedge fund
managers expect will decline in value or to hedge market or sector
exposures.
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In managing the Fund's portfolio, among other proprietary
analytics, the Sub-Adviser will utilize Markov Processes International,
LLC's (``MPI'') Dynamic Style Analysis (``DSA'') patented hedge fund
analysis software to help select the Fund's investments and determine
the allocation among such investments. The Sub-Adviser will identify
approximately 50 market factors that track the aggregated exposure and
approximate the returns of the selected universe of long/short equity
hedge funds. The Sub-Adviser will use DSA and other proprietary
analytics to define and track the various market factors and relative
exposures and to adjust the Fund's portfolio as necessary. At any given
time, such market factors may include country exposure, sector
exposure, industry exposure, and currency exposure. In seeking to
achieve its investment objective, the Fund will seek to remain invested
at all times in securities or derivatives (as described below) that
provide the desired exposures to market factors.
The Fund's portfolio typically will consist of up to 50 Underlying
ETPs and other securities, as described below. Under normal
circumstances, the Fund's largest or maximum investment in any single
issuer will range between 5% and 10% of the Fund's portfolio.
The Fund, through its investment in Underlying ETPs, may invest in
closed-end funds, pooled investment vehicles that are registered under
the 1940 Act and whose shares are listed and traded on U.S. national
securities exchanges.
The Fund, through its investment in Underlying ETPs, may invest in
the equity securities of foreign issuers, including the securities of
foreign issuers in emerging countries. Emerging or developing markets
exist in countries that are considered to be in the initial stages of
industrialization.\13\
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\13\ According to the Registration Statement, the risks of
investing in these markets are similar to the risks of international
investing in general, although the risks are greater in emerging and
developing markets. Countries with emerging or developing securities
markets tend to have economic structures that are less stable than
countries with developed securities markets. This is because their
economies may be based on only a few industries and their securities
markets may trade a small number of securities. Prices on these
exchanges tend to be volatile, and securities in these countries
historically have offered greater potential for gain (as well as
loss) than securities of companies located in developed countries.
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The Fund, through its investment in Underlying ETPs, may invest in
shares of real estate investment trusts (``REITs''), which are pooled
investment vehicles which invest primarily in real estate or real
estate-related loans.
Other Investment Practices and Strategies
To respond to adverse market, economic, political or other
conditions, the Fund may invest 100% of its total assets, without
limitation, in high-quality debt securities and money market
instruments either directly or through Underlying ETPs. The Fund may be
invested in this manner for extended periods depending on the Sub-
Adviser's assessment of market conditions. Debt securities and money
market instruments include shares of mutual funds, commercial paper,
certificates of deposit, bankers' acceptances, U.S. Government
securities, repurchase agreements, and bonds that are BBB or higher.
Under normal circumstances, the Fund may hold up to 40% of its
portfolio in other investments. For example, on a day-to-day basis, the
Fund may hold money market instruments, cash or cash equivalents, and/
or Underlying ETPs that invest in these and other highly liquid
instruments, to collateralize its derivative positions.
The Fund, or the Underlying ETPs in which it invests, may invest in
U.S. Treasury zero-coupon bonds. These securities are U.S. Treasury
bonds which have been stripped of their unmatured interest coupons, the
coupons themselves, and receipts or certificates representing interests
in such stripped debt obligations and coupons. Interest is not paid in
cash during the term of these securities, but is accrued and paid at
maturity.
The Fund or an Underlying ETP may invest in equity securities,
which represent ownership interests in a company or partnership and
consist of common stocks, preferred stocks,
[[Page 36593]]
warrants to acquire common stock, securities convertible into common
stock, and investments in master limited partnerships.
The Fund or an Underlying ETP may invest in American Depositary
Receipts (``ADRs''), as well as Global Depositary Receipts (``GDRs'',
together with ADRs, ``Depositary Receipts''), which are certificates
evidencing ownership of shares of a foreign issuer. Depositary Receipts
will be sponsored. These certificates are issued by depositary banks
and generally trade on an established market in the United States or
elsewhere. The underlying shares are held in trust by a custodian bank
or similar financial institution in the issuer's home country. The
depositary bank may not have physical custody of the underlying
securities at all times and may charge fees for various services,
including forwarding dividends and interest and corporate actions.
Depositary Receipts are alternatives to directly purchasing the
underlying foreign securities in their national markets and currencies.
However, Depositary Receipts continue to be subject to many of the
risks associated with investing directly in foreign securities.
The Fund, or the Underlying ETPs in which it invests, may invest in
U.S. government securities. Securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities include U.S. Treasury
securities, which are backed by the full faith and credit of the U.S.
Treasury and which differ only in their interest rates, maturities, and
times of issuance. U.S. Treasury bills have initial maturities of one-
year or less; U.S. Treasury notes have initial maturities of one to ten
years; and U.S. Treasury bonds generally have initial maturities of
greater than ten years. Certain U.S. government securities are issued
or guaranteed by agencies or instrumentalities of the U.S. government
including, but not limited to, obligations of U.S. government agencies
or instrumentalities such as Fannie Mae, Freddie Mac, the Government
National Mortgage Association (Ginnie Mae), the Small Business
Administration, the Federal Farm Credit Administration, the Federal
Home Loan Banks, Banks for Cooperatives (including the Central Bank for
Cooperatives), the Federal Land Banks, the Federal Intermediate Credit
Banks, the Tennessee Valley Authority, the Export-Import Bank of the
United States, the Commodity Credit Corporation, the Federal Financing
Bank, the Student Loan Marketing Association, the National Credit Union
Administration, and the Federal Agricultural Mortgage Corporation
(Farmer Mac).
The Fund may not (i) with respect to 75% of its total assets,
purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
or shares of investment companies) if, as a result, more than 5% of its
total assets would be invested in the securities of such issuer; or
(ii) acquire more than 10% of the outstanding voting securities of any
one issuer. For purposes of this policy, the issuer of the underlying
security will be deemed to be the issuer of any respective Depositary
Receipt.\14\
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\14\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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The Fund may not invest 25% or more of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry or group of industries. This limitation
does not apply to investments in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities, or shares of
investment companies. The Fund will not invest 25% or more of its total
assets in any investment company that so concentrates. For purposes of
this policy, the issuer of the underlying security will be deemed to be
the issuer of any respective Depositary Receipt.\15\
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\15\ 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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While the Fund may invest up to 40% of its total assets in put and
call options on indices (and enter into related closing transactions),
exchange-listed futures contracts, and options on futures contracts,
the Adviser expects that, under normal market conditions, the Fund will
invest no more than 15% in such options and 15% in such futures on a
daily basis.
The Fund may conduct foreign currency transactions on a spot (i.e.,
cash) or forward basis (i.e., by entering into forward contracts to
purchase or sell foreign currencies up to 10% of its total assets).
Currency transactions made on a spot basis are for cash at the spot
rate prevailing in the currency exchange market for buying or selling
currency.
The Fund may enter into repurchase agreements with financial
institutions, which may be deemed to be loans. The Fund follows certain
procedures designed to minimize the risks inherent in such agreements.
These procedures include effecting repurchase transactions only with
large, well-capitalized, and well-established financial institutions
whose condition will be continually monitored by the Sub-Adviser. The
Fund may enter into reverse repurchase agreements without limit as part
of the Fund's investment strategy. Reverse repurchase agreements
involve sales by the Fund of portfolio assets concurrently with an
agreement by the Fund to repurchase the same assets at a later date at
a fixed price.
The Fund may invest up to 15% of its total assets in swap
agreements, including, but not limited to, total return swaps, index
swaps, and interest rate swaps. The Fund may utilize swap agreements in
an attempt to gain exposure to the securities in a market without
actually purchasing those securities, or to hedge a position. In
seeking to establish a long or short position in such instruments, the
Fund may use swaps based on published indices, including international
indices.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities and loan participation interests. The
Fund will monitor its portfolio liquidity on an ongoing basis to
determine whether, in light of current circumstances, an adequate level
of liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid securities. Illiquid securities include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\16\
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\16\ 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
14618 (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).
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According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment
[[Page 36594]]
Company (``RIC'') under the Internal Revenue Code.\17\
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\17\ 26 U.S.C. 851. One of several requirements for RIC
qualification is that the Fund must receive at least 90% of the
Fund's gross income each year from dividends, interest, payments
with respect to securities loans, gains from the sale, or other
disposition of stock, securities, or foreign currencies, or other
income derived with respect to the Fund's investments in stock,
securities, foreign currencies, and net income from an interest in a
qualified publicly traded partnership (``90% Test''). A second
requirement for qualification as a RIC is that the Fund must
diversify its holdings so that, at the end of each fiscal quarter of
the Fund's taxable year: (a) At least 50% of the market value of the
Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other RICs, and other
securities, with these other securities limited, in respect to any
one issuer, to an amount not greater than 5% of the value of the
Fund's total assets or 10% of the outstanding voting securities of
such issuer; and (b) not more than 25% of the value of its total
assets are invested in the securities (other than U.S. Government
securities or securities of other RICs) of any one issuer or two or
more issuers which the Fund controls and which are engaged in the
same, similar, or related trades or businesses, or the securities of
one or more qualified publicly traded partnership (``Asset Test'').
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Except for Underlying ETPs that may hold non-U.S. issues, the Fund
will not otherwise invest in non-U.S.-registered issues.
The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. That is,
while the Fund will be permitted to borrow as permitted under the 1940
Act, the Fund's investments will not be used to seek performance that
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's
broad-based securities market index (as defined in Form N-1A).\18\ The
Fund will not invest in leveraged or inverse leveraged Underlying ETPs.
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\18\ The Fund's broad-based securities market index, which is to
be determined, will be identified in an amendment to the
Registration Statement.
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Net Asset Value
The Fund will calculate NAV by: (i) Taking the current market value
of its total assets; (ii) subtracting any liabilities; and (iii)
dividing that amount by the total number of Shares owned by
shareholders. The Fund will calculate NAV once each business day as of
the close of normal trading on the New York Stock Exchange (``NYSE'')
(normally, 4:00 p.m., Eastern Time). In calculating NAV, the Fund
generally will value investment portfolios at market price. If market
prices are unavailable or the Fund thinks that they are unreliable, or
when the value of a security has been materially affected by events
occurring after the relevant market closes, the Fund will price those
securities at fair value as determined in good faith using methods
approved by the Board of Trustees.
The use of fair valuation in pricing a security involves the
consideration of a number of subjective factors and, therefore, is
susceptible to the unavoidable risk that the valuation may be higher or
lower than the price at which the security might actually trade if a
reliable market price were readily available.
Creation and Redemption of Shares
The Fund will offer and issue Shares on a continuous basis at NAV
only in aggregated lots of 50,000 or more Shares (each a ``Creation
Unit'' or ``Creation Unit Aggregation''), generally in exchange for:
(i) A basket of equity securities (``Deposit Securities''); and (ii) an
amount of cash (``Cash Component''). Shares are redeemable only in
Creation Unit Aggregations, and, generally, in exchange for portfolio
securities and a specified cash payment.
A ``creator'' will enter into an authorized participant agreement
(``Participant Agreement'') with the Distributor or use a Depository
Trust Company (``DTC'') participant who has executed a Participant
Agreement (``Authorized Participant''), and deposit into the Fund a
portfolio of securities closely approximating the holdings of the Fund
and a specified amount of cash, together totaling the NAV of the
Creation Unit(s), in exchange for 50,000 Shares of the Fund (or
multiples thereof).
All orders to purchase Creation Units must be received by the
Distributor no later than the close of the regular trading session on
the NYSE (ordinarily 4:00 p.m., Eastern Time) on the date such order is
placed in order for the purchase of Creation Units to be effected based
on the NAV of Shares of the Fund as next determined on such date after
receipt of the order in proper form.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through the Administrator and only on a business day. With respect
to the Fund, the Administrator, through the National Securities
Clearing Corporation, will make available immediately prior to the
opening of business on the Exchange (currently 9:30 a.m., Eastern Time)
on each business day, the portfolio of securities (``Fund Securities'')
that will be applicable to redemption requests received in proper form
on that day. Fund Securities received on redemption may not be
identical to Deposit Securities which are applicable to creations of
Creation Units. Unless cash redemptions are available or specified for
the Fund, the redemption proceeds for a Creation Unit generally will
consist of Fund Securities plus cash in an amount equal to the
difference between the NAV of the Shares being redeemed, as next
determined after a receipt of a request in proper form, and the value
of the Fund Securities less a redemption transaction fee, as described
in the Registration Statement. In the event that the Fund Securities
have a value greater than the NAV of the Shares, a compensating cash
payment equal to the differential will be required to be made by or
through an Authorized Participant by the redeeming shareholder.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents
that, for initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\19\ as provided by
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for the Fund
will be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio will be made available to all market
participants at the same time.
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\19\ 17 CFR 240.10A-3.
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Availability of Information
The Fund's Web site (www.advisorshares.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (``Bid/Ask
Price''),\20\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund will disclose on its
[[Page 36595]]
Web site the Disclosed Portfolio, as defined in NYSE Arca Equities Rule
8.600(c)(2), that will form the basis for the Fund's calculation of NAV
at the end of the business day.\21\
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\20\ The Bid/Ask Price of the Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\21\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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On a daily basis, the Adviser will disclose for each portfolio
security and other financial instrument of the Fund the following
information on the Fund's Web site: Ticker symbol (if applicable), name
of security and financial instrument, number of shares or dollar value
of each security and financial instrument held in the portfolio, and
percentage weighting of the security and financial instrument in the
portfolio. The Web site information will be publicly available at no
charge.
In addition, a basket composition file, which includes the security
names and share quantities required to be delivered in exchange for the
Fund's Shares, together with estimates and actual cash components, will
be publicly disseminated daily prior to the opening of the NYSE via the
National Securities Clearing Corporation. The basket represents one
Creation Unit of the Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and
Shareholder Reports are available free upon request from the Trust, and
those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last-sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line and, for the Underlying ETPs, will be
available from the national securities exchange on which they are
listed. In addition, the Portfolio Indicative Value, as defined in NYSE
Arca Equities Rule 8.600(c)(3), will be widely disseminated at least
every 15 seconds during the Core Trading Session by one or more major
market data vendors.\22\ The dissemination of the Portfolio Indicative
Value, together with the Disclosed Portfolio, will allow investors to
determine the value of the underlying portfolio of the Fund on a daily
basis and to provide a close estimate of that value throughout the
trading day. The intra-day, closing, and settlement prices of the
portfolio investments (e.g., Underlying ETPs, put and call options,
futures contracts, forward contracts, money market funds, and options
on futures contracts) will also be readily available from the national
securities exchanges trading such securities, automated quotation
systems, published or other public sources, or on-line information
services such as Bloomberg or Reuters.
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\22\ Currently, it is the Exchange's understanding that several
major market data vendors widely disseminate Portfolio Indicative
Values taken from CTA or other data feeds.
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Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes is included in the Registration Statement. All
terms relating to the Fund that are referred to, but not defined in,
this proposed rule change are defined in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\23\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted.
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\23\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 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 include Managed
Fund Shares) to monitor trading in the Shares. The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
The Exchange's current trading surveillance focuses on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
The Exchange may obtain information via the Intermarket
Surveillance Group (``ISG'') from other exchanges that are members of
ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\24\ In addition, the Exchange could
obtain information from the U.S. exchanges, all of which are ISG
members, on which the Underlying ETPs, Depositary Receipts, futures,
options, and other applicable portfolio securities are listed and
traded. The Exchange may obtain surveillance information from all
securities exchanges listing and/or trading the securities held by the
Fund.
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\24\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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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
[[Page 36596]]
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit Aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated Portfolio Indicative Value will not be
calculated or publicly disseminated; (4) how information regarding the
Portfolio Indicative Value is disseminated; (5) the requirement that
ETP Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 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) \25\ 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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\25\ 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 Sub-Adviser is affiliated with
a broker-dealer, and has implemented a fire wall with respect to its
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio. In addition, the Sub-
Adviser is subject to procedures designed to prevent the use and
dissemination of material, non-public information regarding such
portfolio. 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. In
addition, the Exchange could obtain information from the U.S.
exchanges, all of which are ISG members, on which the Underlying ETPs,
Depositary Receipts, futures, options, and other applicable portfolio
securities are listed and traded. The Fund seeks to achieve its
investment objective, under normal circumstances, by investing at least
60% of its portfolio in both long and short positions in Underlying
ETPs. The listing and trading of such Underlying ETPs is subject to
rules of the exchanges on which they are listed and traded, as approved
by the Commission. Except for Underlying ETPs that may hold non-U.S.
issues, the Fund will not otherwise invest in non-U.S.-registered
issues. Options, futures, and options on futures contracts in which the
Fund invests will be U.S. exchange-listed. The Fund will invest no more
than 15% of total assets in such options and 15% of total assets in
such futures on a daily basis. The Fund may invest up to 15% of its
total assets in swap agreements, including, but not limited to, total
return swaps, index swaps, and interest rate swaps. The Fund may hold
up to an aggregate amount of 15% of its net assets in illiquid
securities (calculated at the time of investment), including Rule 144A
securities and loan participation interests. The Fund will not invest
in leveraged or inverse leveraged Underlying ETPs. The Fund's
investments will be consistent with the Fund's investment objective and
will not be used to enhance leverage.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information will be publicly available regarding the Fund and the
Shares, thereby promoting market transparency. Moreover, the Portfolio
Indicative Value will be widely disseminated through the facilities of
the CTA or by one or more major market data vendors at least every 15
seconds during the Exchange's Core Trading Session. On each business
day, before commencement of trading in Shares in the Core Trading
Session on the Exchange, the Fund will disclose on its Web site the
Disclosed Portfolio that will form the basis for the Fund's calculation
of NAV at the end of the business day. Information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services, and quotation and last-sale information will
be available via the CTA high-speed line. The Web site for the Fund
will include a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information.
Moreover, prior to the commencement of trading, the Exchange will
inform its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares. Trading
in Shares of the Fund will be halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable, and trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Fund may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Portfolio Indicative
Value, the Disclosed Portfolio, and quotation and last-sale information
for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation
and last-sale information for the Shares.
[[Page 36597]]
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2012-57 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-2012-57. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Section, 100 F Street
NE., Washington, DC 20549, on official business days between 10:00 a.m.
and 3:00 p.m. Copies of the filing will also be available for
inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NYSEArca-2012-57 and should be submitted on or before
July 10, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14905 Filed 6-18-12; 8:45 am]
BILLING CODE 8011-01-P
