Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to the Listing and Trading of the STARTM, 47131-47136 [2012-19210]
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Federal Register / Vol. 77, No. 152 / Tuesday, August 7, 2012 / Notices
the Federal Register on December 27,
2011 (76 FR 80977).
The Commission’s related evaluation
of the amendments is contained in a
Safety Evaluation dated July 12, 2012.
No significant hazards consideration
comments received: No.
Dated at Rockville, Maryland, this 26th day
of July 2012.
For the Nuclear Regulatory Commission.
Louise Lund,
Deputy Director, Division of Operating
Reactor Licensing, Office of Nuclear Reactor
Regulation.
[FR Doc. 2012–19004 Filed 8–6–12; 8:45 am]
BILLING CODE 7590–01–P
NUCLEAR REGULATORY
COMMISSION
[NRC–2012–0002]
Notice of Sunshine Act Meeting
AGENCY HOLDING THE MEETINGS: Nuclear
Regulatory Commission.
DATES: Weeks of August 6, 13, 20, 27,
September 3, 10, 2012.
PLACE: Commissioners’ Conference
Room, 11555 Rockville Pike, Rockville,
Maryland.
STATUS: Public and closed.
Week of August 6, 2012
Tuesday, August 7, 2012
8:55 a.m. Affirmation Session (Public
Meeting) (Tentative)
a. Calvert Cliffs Nuclear Project, L.L.C.
(Calvert Cliffs Nuclear Power Plant,
Unit 3), et al., Petition to Suspend
Final Decisions on Reactor License
Applications Pending Completion
of Remanded Waste Confidence
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(Tentative)
This meeting will be webcast live at
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9 a.m. Briefing on the Status of
Lessons Learned from the
Fukushima Dai-ichi Accident
(Public Meeting) (Contact: John
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This meeting will be webcast live at
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Contact person for more information:
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Dated: August 2, 2012.
Richard J. Laufer,
Technical Coordinator, Office of the
Secretary.
[FR Doc. 2012–19380 Filed 8–3–12; 11:15 am]
BILLING CODE 7590–01–P
There are no meetings scheduled for
the week of August 13, 2012.
VerDate Mar<15>2010
Week of September 3, 2012—Tentative
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the week of September 3, 2012.
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting Notice
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
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Commission will hold a Closed Meeting
on Thursday, August 9, 2012 at 2 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
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staff members who have an interest in
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The General Counsel of the
Commission, or his designee, has
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more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matters at the Closed
Meeting.
Commissioner Gallagher, as duty
officer, voted to consider the items
listed for the Closed Meeting in a closed
session.
The subject matter of the Closed
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Institution and settlement of injunctive
actions;
Institution and settlement of
administrative proceedings;
A litigation matter; and
Other matters relating to enforcement
proceedings.
At times, changes in Commission
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scheduling of meeting items.
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added, deleted or postponed, please
contact: The Office of the Secretary at
(202) 551–5400.
Dated: August 2, 2012.
Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2012–19340 Filed 8–3–12; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
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[Release No. 34–67552; File No. SR–
NYSEArca–2012–55]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Relating to the
Listing and Trading of the STARTM
Global Buy-Write ETF Under NYSE
Arca Equities Rule 8.600
August 1, 2012.
I. Introduction
On May 31, 2012, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’ or
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Federal Register / Vol. 77, No. 152 / Tuesday, August 7, 2012 / Notices
‘‘Exchange Act’’) 1 and Rule 19b-4
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
STARTM Global Buy-Write ETF
(‘‘Fund’’) under NYSE Arca Equities
Rule 8.600. The proposed rule change
was published for comment in the
Federal Register on June 18, 2012.3 The
Commission received no comments on
the proposed rule change. This order
grants approval of the proposed rule
change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade Shares of the Fund pursuant to
NYSE Arca Equities Rule 8.600, which
governs the listing and trading of
Managed Fund Shares on the Exchange.
The Shares will be offered by
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.4 The
investment adviser to the Fund is
AdvisorShares Investments, LLC
(‘‘Adviser’’). Partnervest Advisory
Services, LLC serves as investment subadviser to the Fund (‘‘Sub-Adviser’’)
and provides day-to-day portfolio
management of the Fund. Foreside Fund
Services, LLC is the principal
underwriter and distributor of the
Fund’s Shares. The Bank of New York
Mellon serves as administrator,
custodian, and transfer agent for the
Fund. The Exchange has represented
that neither the Adviser nor the SubAdviser is affiliated with a brokerdealer.5
The Fund’s investment objective is to
seek consistent repeatable returns across
all market cycles. The Fund is a ‘‘fundof-funds’’ and, under normal market
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 67183
(June 12, 2012), 77 FR 36314 (‘‘Notice’’).
4 The Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). On October 28,
2011, the Trust filed an amendment to its
registration statement on Form N–1A under the
Securities Act of 1933 (‘‘1933 Act’’) and under the
1940 Act relating to the Fund (File Nos. 333–
157876 and 811–22110) (‘‘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).
5 See NYSE Arca Equities Rule 8.600,
Commentary .06. In the event (a) the Adviser or the
Sub-Adviser becomes newly affiliated with a
broker-dealer, or (b) any new adviser or sub-adviser
becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to such brokerdealer 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, nonpublic information regarding such portfolio.
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conditions,6 intends to invest at least
60% of its total assets in exchangetraded funds (‘‘ETFs’’) 7 and exchangetraded notes (‘‘ETNs’’) 8 that seek to
track a diversified basket of global
indices and investment sectors, and in
exchange-traded pooled investment
vehicles that invest directly in
commodities or currencies and that are
registered pursuant to the 1933 Act
(together with ETFs and ETNs,
‘‘Underlying ETPs’’) 9 that meet certain
selection criteria established by the SubAdviser. The selection criteria include
size, historical track record,
diversification among indices, the
correlation of an index to other indices,
and an ability to write exchange-listed
covered call options on the particular
Underlying ETP.10 An Underlying ETP
may be disposed of should it no longer
meet the selection criteria.
The Fund currently intends to invest
primarily in the securities of ETFs
consistent with the requirements of
Section 12(d)(1) of the 1940 Act, or any
rule, regulation, or order of the
Commission or interpretation thereof.
The Underlying ETPs in which the
Fund will invest will primarily be
Underlying ETPs that hold substantially
all of their assets in securities
representing a country (or region)
specific index.
The Sub-Adviser seeks to achieve the
Fund’s investment objective by using a
proprietary overwrite strategy known as
Volatility Enhanced Global
6 The term ‘‘under normal market conditions’’
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.
7 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), 8.100, and
8.600.
8 For purposes of this proposed rule change, ETNs
are securities that are registered pursuant to the
1933 Act such as those listed and traded on the
Exchange pursuant to NYSE Arca Equities Rule
5.2(j)(6).
9 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. The ETFs in which the Fund may invest
will primarily be index-based ETFs that hold
substantially all of their assets in securities
representing a specific index.
10 The options in which the Fund will invest will
be U.S. exchange-listed.
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Appreciation (‘‘VEGA’’). Through
VEGA, the Fund will invest in
Underlying ETPs in combination with
call options on generally all such
Underlying ETPs to seek cumulative
price appreciation from the portfolio’s
global exposure while generating an
additional return stream from the sale of
covered call and/or cash-secured put
options.11 While the Fund is permitted
to invest up to 40% of its total assets in
call options on Underlying ETPs, the
Adviser expects that, under normal
market conditions, the Fund will invest
no more than 15% in such call options
on a daily basis. To the extent cash and
cash equivalents in the Fund’s portfolio
serve as collateral for cash-secured put
options, such cash and cash equivalents
may not be invested in Underlying
ETPs, additional options, or other
similar investments in pursuit of the
Fund’s investment objective. Rather, on
a day-to-day basis, such collateral may
be invested in U.S. Government
securities, short-term, high-quality fixed
income securities, money market
instruments, cash, and other cash
equivalents with maturities of one year
or less, or Underlying ETPs that hold
such investments.12
11 A covered call option involves holding a long
position in a particular asset, in this case shares of
an Underlying ETP, and writing a call option on
that same asset with the goal of realizing additional
income from the option premium. A put option is
a contract that gives the owner of the option the
right to sell a specified amount of the asset
underlying the option at a specified price (‘‘strike
price’’) within a specified time. When a put option
is exercised or assigned, the writer of the option is
obligated to purchase the requisite amount of the
asset underlying the option to complete the sale. A
put option is considered cash-secured when the
writer of the put option segregates an amount of
cash or cash equivalents sufficient to cover the
purchase price of the asset underlying the option.
12 All options written on indices or securities
must be covered. A written call option on a security
may be covered if a fund: (1) Owns the security
underlying the call until the option is exercised or
expires; (2) holds an American-style call on the
same security as the call written with an exercise
price (a) no greater than the exercise price of the
call written or (b) greater than the exercise price of
the call written if the difference is maintained by
the fund in cash or other liquid assets designated
on the fund’s records or placed in a segregated
account with the fund’s custodian; (3) has an
absolute and immediate right to acquire the security
without additional cost (or if additional
consideration is required, cash or other liquid assets
in such amount have been segregated); or (4)
segregates cash or other liquid assets on the fund’s
records or with the custodian in an amount equal
to (when added to any margin on deposit) the
current market value of the call option, but not less
than the exercise price, marked to market daily. If
the call option is exercised by the purchaser during
the option period, the seller is required to deliver
the underlying security against payment of the
exercise price or pay the difference. The seller’s
obligation terminates upon expiration of the option
period or when the seller executes a closing
purchase transaction with respect to such option.
All put options written by the Fund will be covered
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The Sub-Adviser will use VEGA, a
proprietary quantitative and qualitative
investment process, to determine the
optimal Underlying ETPs and options
for the strategy. The process focuses on
the performance of a comprehensive
portfolio of assets based on the
combination of risk, return, and their
correlation to each other. Consistent
with VEGA, call options will be sold on
generally all of the Underlying ETPs at
a strike price equivalent to targets based
on volatility and quantitative criteria.
As calls are covered and/or expire,
additional options on the Underlying
ETPs will be sold. The average time
until expiration for the option portfolio
will be typically one quarter (91 days)
or less, so that premiums may be
received on options on Underlying ETPs
approximately four times per year. The
Sub-Adviser, however, will reserve the
right to close out or enter into options
on a more or less frequent basis in its
discretion if it believes it is in the best
interest of the Fund. The Sub-Adviser
periodically will monitor the
performance of the Fund’s portfolio and
systematically rebalance and initiate
tactical shifts in the underlying
investments when the strategy indicates
it is both optimal and beneficial to do
so.
VEGA is designed to generate
quarterly returns in the form of
premiums received from the sale of
covered call and/or cash-secured put
options. The amount of the premium
will typically be determined at the start
of the quarter, and realized either at
expiration or sooner if the strategy
determines that conditions warrant
covering the short option position
beforehand.13
Except for premium amounts required
for transactional and portfolio
management purposes, the Sub-Adviser,
by: (1) Segregating cash, cash equivalents, such as
U.S. Treasury securities or overnight repurchase
agreements, or other liquid assets on the Fund’s
records or with the custodian having a value at least
equal to the exercise price of the option (less cash
received, if any); or (2) holding a put option on the
same security as the option written where the
exercise price of the written put option is (i) equal
to or higher than the exercise price of the option
written or (ii) less than the exercise price of the
option written provided the Fund segregates cash
or other liquid assets in the amount of the
difference.
13 The risks of covered call writing include the
potential for the market to rise sharply. In such
instance, the buyer of the call option would likely
acquire the Underlying ETP from the Fund and the
return on that Underlying ETP would be limited to
the premium received and the difference between
the strike price and the purchase price until such
time as the Underlying ETP is repurchased as
applicable. The risks of cash-secured put writing
include the potential for the price of the Underlying
ETP to decline significantly causing the put writer,
the Fund, to have an unrealized loss due to the high
stock purchase price.
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in its discretion, may allocate the
accumulated premium in ‘‘principal
protection’’ and/or ‘‘reinvestment
strategies,’’ as described below.
The ‘‘principal protection’’ feature is
intended as a means to profit and/or
hedge against potential price declines of
20% or greater of Underlying ETPs. The
feature may be implemented when
volatility declines and/or security prices
rise, and the Sub-Adviser determines
the cost of principal protection to be
beneficial. The cost of the protection is
expected to be paid from accumulated
option premiums, but principal may be
used. The use of principal protection
entails the purchase of put options on
Underlying ETPs representing some or
all of the Fund’s portfolio holdings. The
risk of buying long puts is limited to the
loss of the premium paid for the
purchase of the put. Option premiums
received by the Fund will remain in
cash or cash equivalents or may be
invested in Underlying ETPs that invest
primarily in U.S. treasuries or other
cash equivalent securities.
The Sub-Adviser also will utilize a
‘‘reinvestment strategy’’ whereby
accumulated option premiums may be
reinvested back into additional shares of
Underlying ETPs held by the Fund
based on the Sub-Adviser’s view of the
market.
Principal Fund Investments
The Fund, through its investment in
Underlying ETPs, may invest in equity
securities. Equity securities represent
ownership interests in a company or
partnership and consist of common
stocks, preferred stocks, warrants to
acquire common stock, securities
convertible into common stock, and
investments in master limited
partnerships, rights, and depositary
receipts, including American Depositary
Receipts (‘‘ADRs’’) and Global
Depositary Receipts (‘‘GDRs’’). The
Fund, through its investment in
Underlying ETPs, may purchase equity
securities traded in the U.S. on
registered exchanges or the over-thecounter market.
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.
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.
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47133
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. 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, 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.
The Fund, through its investments in
Underlying ETPs from time to time, in
the ordinary course of business, may
purchase securities on a when-issued or
delayed-delivery basis (i.e., delivery and
payment can take place between a
month and 120 days after the date of the
transaction).
The Fund, or the Underlying ETPs in
which it invests, may invest in U.S.
Treasury zero-coupon bonds. The Fund,
through its investment in ETFs, may
invest in shares of real estate investment
trusts.
Other Investments
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
other mutual funds, commercial paper,
certificates of deposit, bankers’
acceptances, U.S. Government
securities, repurchase agreements, and
bonds that are BBB or higher. The Fund
may also invest a substantial portion of
its assets in such instruments at any
time to maintain liquidity or pending
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Federal Register / Vol. 77, No. 152 / Tuesday, August 7, 2012 / Notices
selection of investments in accordance
with its policies.
The Fund may invest in derivatives,
including, for example, options, futures,
options on futures, and swaps. While
the Fund currently does not intend to
invest in swaps, it may invest up to 10%
of its total assets in swaps. The Fund
may invest in derivatives to gain market
exposure, enhance returns, or hedge
against market declines.
Other than options on Underlying
ETPs in which the Fund may invest, as
described above, the Fund may trade
U.S. exchange-listed put and call
options on other securities, securities
indices, and currencies, as the SubAdviser determines is appropriate in
seeking the Fund’s investment objective
and except as restricted by the Fund’s
investment limitations.14 While the
Fund may invest in put and call options
on other securities, the Adviser expects
that, under normal market conditions,
the Fund will invest from 0% up to 10%
in such put and call options on a daily
basis.
The Fund may invest up to 10% of its
total assets in futures contracts and
related options on futures contracts for
bona fide hedging; attempting to offset
changes in the value of securities held
or expected to be acquired or be
disposed of; attempting to gain exposure
to a particular market, index, or
instrument; or other risk management
purposes. To the extent the Fund uses
futures and/or options on futures, it will
do so in accordance with Rule 4.5 under
the Commodity Exchange Act
(‘‘CEA’’).15
The Fund may enter into repurchase
agreements with financial institutions,
which may be deemed to be loans. The
Fund also may enter into reverse
repurchase agreements without limit as
part of the Fund’s investment strategy.
The Fund may not 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, (i)
more than 5% of its total assets would
be invested in the securities of such
issuer, or (ii) more than 10% of the
outstanding voting securities of any one
issuer would be held by the Fund. For
purposes of this policy, the issuer of the
underlying security will be deemed to
14 See
supra note 10.
Exchange represents that the Trust, on
behalf of all of its series, including the Fund, has
filed a notice of eligibility for exclusion from the
definition of the term ‘‘commodity pool operator’’
in accordance with Rule 4.5 and, therefore, the
Fund is not subject to registration or regulation as
a commodity pool operator under the CEA.
15 The
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be the issuer of any respective
depositary receipt.
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.
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.
According to the Registration
Statement, the Fund will seek to qualify
for treatment as a Regulated Investment
Company under the Internal Revenue
Code.
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 does not intend to invest in
leveraged, inverse, 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. 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).16
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
16 The Fund’s broad-based securities market
index, which is to be determined, will be identified
in an amendment to the Registration Statement.
PO 00000
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under the Exchange Act,17 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 net asset value (‘‘NAV’’)
per Share will be calculated daily and
that the NAV and the Disclosed
Portfolio will be made available to all
market participants at the same time.
Additional information regarding the
Trust, Fund, Shares, Fund’s investment
strategies, risks, creation and
redemption procedures, fees, portfolio
holdings and disclosure policies,
distributions and taxes, availability of
information, trading rules and halts, and
surveillance procedures, among other
things, can be found in the Notice and/
or the Registration Statement, as
applicable.18
III. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of
Section 6 of the Act 19 and the rules and
regulations thereunder applicable to a
national securities exchange.20 In
particular, the Commission finds that
the proposed rule change is consistent
with the requirements of Section 6(b)(5)
of the Act,21 which requires, among
other things, that the Exchange’s rules
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Commission notes
that the Fund and the Shares must
comply with the requirements of NYSE
Arca Equities Rule 8.600 to be listed and
traded on the Exchange.
The Commission finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Act,22 which sets
forth Congress’s finding that it is in the
public interest and appropriate for the
protection of investors and the
17 17
CFR 240.10A–3.
Notice and Registration Statement, supra
notes 3 and 4, respectively.
19 15 U.S.C. 78f.
20 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
21 15 U.S.C. 78f(b)(5).
22 15 U.S.C. 78k–1(a)(1)(C)(iii).
18 See
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maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. Quotation
and last-sale information for the Shares
will be available via the Consolidated
Tape Association (‘‘CTA’’) high-speed
line, and, for the Underlying ETPs, will
be available from the national securities
exchanges on which they are listed.
Quotation and last-sale information for
the U.S. exchange-listed options in
which the Fund will invest will be
available from the applicable U.S.
options exchange via the Options Price
Reporting Authority. In addition, the
Portfolio Indicative Value, as defined in
NYSE Arca Equities Rule 8.600(c)(3),
will be widely disseminated by one or
more major market data vendors at least
every 15 seconds during the Core
Trading Session.23 On each business
day, before commencement of trading in
Shares in the Core Trading Session on
the Exchange, the Fund will disclose on
its Web site the Disclosed Portfolio, as
defined in NYSE Arca Equities Rule
8.600(c)(2), that will form the basis for
the Fund’s calculation of NAV at the
end of the business day.24 The Fund
will calculate NAV once each business
day as of the regularly scheduled close
of trading on the New York Stock
Exchange (‘‘NYSE’’) (normally 4:00
p.m., Eastern Time). 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. In addition, the intraday, closing, and settlement prices of
the other portfolio securities and
instruments held by the Fund will 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. The Fund’s Web
23 According to the Exchange, several major
market data vendors widely disseminate Portfolio
Indicative Values taken from the CTA or other data
feeds.
24 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
securities and financial instruments 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.
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16:52 Aug 06, 2012
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site will include a form of the
prospectus for the Fund and additional
data relating to NAV and other
applicable quantitative information.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Commission notes that the Exchange
will obtain a representation from the
issuer of the Shares that the NAV 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.25 In
addition, 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. The Exchange
may halt trading in the Shares if trading
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund, or
if other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present.26 Further, the
Commission notes that the Reporting
Authority that provides the Disclosed
Portfolio must implement and maintain,
or be subject to, procedures designed to
prevent the use and dissemination of
material, non-public information
regarding the actual components of the
portfolio.27 The Exchange states that it
has a general policy prohibiting the
distribution of material, non-public
information by its employees. The
Exchange also states that neither the
Adviser nor the Sub-Adviser is affiliated
with a broker-dealer.28 Moreover, the
25 See
NYSE Arca Equities Rule 8.600(d)(1)(B).
NYSE Arca Equities Rule 8.600(d)(2)(C)
(providing additional considerations for the
suspension of trading in or removal from listing of
Managed Fund Shares on the Exchange). With
respect to trading halts, the Exchange may consider
other relevant factors in exercising its discretion to
halt or suspend trading in the Shares of the Fund.
Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be
halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in
the Shares inadvisable.
27 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
28 See supra note 5. The Commission notes that
an investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (‘‘Advisers Act’’). As a result,
the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule
204A–1 under the Advisers Act relating to codes of
ethics. This Rule requires investment advisers to
adopt a code of ethics that reflects the fiduciary
nature of the relationship to clients as well as
compliance with other applicable securities laws.
26 See
PO 00000
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Fmt 4703
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47135
Exchange represents that it is able to
obtain information from the U.S.
exchanges, all of which are members of
the Intermarket Surveillance Group
(‘‘ISG’’), on which the Underlying ETPs
and options are listed and traded.
The Exchange represents that the
Shares are deemed to be equity
securities, thus rendering trading in the
Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange has made
representations, including:
(1) The Shares will conform to the
initial and continued listing criteria
under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) The Exchange’s surveillance
procedures applicable to derivative
products, which include Managed Fund
Shares, are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
(4) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders (‘‘ETP
Holders’’) in an Information Bulletin of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Bulletin
will discuss the following: (a) The
procedures for purchases and
redemptions of Shares in Creation Unit
aggregations (and that Shares are not
individually redeemable); (b) NYSE
Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its
ETP Holders to learn the essential facts
relating to every customer prior to
trading the Shares; (c) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated Portfolio Indicative
Value will not be calculated or publicly
disseminated; (d) how information
regarding the Portfolio Indicative Value
is disseminated; (e) the requirement that
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. 152 / Tuesday, August 7, 2012 / Notices
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(5) For initial and/or continued
listing, the Fund will be in compliance
with Rule 10A–3 under the Exchange
Act,29 as provided by NYSE Arca
Equities Rule 5.3.
(6) The options contracts held by the
Fund will be U.S. exchange-listed.
Except for Underlying ETPs that may
hold non-U.S. issues, the Fund will not
otherwise invest in non-U.S.-registered
issues. The Exchange may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has in place
a comprehensive surveillance sharing
agreement. In addition, the Exchange is
able to obtain information from the U.S.
exchanges, all of which are ISG
members, on which the Underlying
ETPs and options are listed and traded.
(7) The Fund does not intend to invest
in leveraged, inverse, 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.
(8) While the Fund is permitted to
invest up to 40% of its total assets in
call options on Underlying ETPs, the
Adviser expects that, under normal
market conditions, the Fund will invest
no more than 15% in such call options
on a daily basis.
(9) The Fund may invest up to 10%
of its total assets in futures contracts
and related options on futures contracts.
While the Fund may invest in put and
call options on securities other than
Underlying ETPs, the Adviser expects
that, under normal market conditions,
the Fund will invest from 0% to up to
10% in such put and call options on a
daily basis. While the Fund currently
does not intend to invest in swaps, it
may invest up to 10% of its total assets
in swaps.
(10) 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.
(11) A minimum of 100,000 Shares of
the Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice, and the Exchange’s
description of the Fund.
29 17
CFR 240.10A–3.
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Jkt 226001
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 30 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,31 that the
proposed rule change (SR–NYSEArca–
2012–55) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–19210 Filed 8–6–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67567; File No. SR–
NYSEMKT–2012–28]
Self-Regulatory Organizations; NYSE
MKT LLC; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change Amending Rule 128—
Equities, Which Governs Clearly
Erroneous Executions, To Extend the
Effective Date of the Pilot by Which
Portions of Such Rule Operate Until
February 4, 2013
August 1, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on July 20,
2012, NYSE MKT LLC (the ‘‘Exchange’’
or ‘‘NYSE MKT’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which items have been prepared
by the self-regulatory organization. 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
Rule 128—Equities, which governs
clearly erroneous executions, to extend
the effective date of the pilot by which
portions of such Rule operate until
February 4, 2013. The pilot is currently
scheduled to expire on July 31, 2012.
The text of the proposed rule change is
30 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
32 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
31 15
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Fmt 4703
Sfmt 4703
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
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Rule 128—Equities, which governs
clearly erroneous executions, to extend
the effective date of the pilot by which
portions of such Rule operate, until
February 4, 2013. The pilot is currently
scheduled to expire on July 31, 2012.3
On September 10, 2010, the
Commission approved, on a pilot basis,
market-wide amendments to exchanges’
rules for clearly erroneous executions to
set forth clearer standards and curtail
discretion with respect to breaking
erroneous trades. In connection with
this pilot initiative, the Exchange
amended Rule 128(c), (e)(2), (f), and (g).
The amendments provide for uniform
treatment of clearly erroneous execution
reviews (1) in Multi-Stock Events 4
involving twenty or more securities, and
(2) in the event transactions occur that
result in the issuance of an individual
security trading pause by the primary
market and subsequent transactions that
occur before the trading pause is in
effect on the Exchange.5 The
3 See Securities Exchange Act Release No. 62886
(September 10, 2010), 75 FR 56613 (September 16,
2010) (SR–NYSEAmex–2010–60). See also
Securities Exchange Act Release Nos. 63480
(December 9, 2010), 75 FR 78333 (December 15,
2010) (SR–NYSEAmex–2010–116); 64233 (April 7,
2011), 76 FR 20736 (April 13, 2011) (SR–
NYSEAmex–2011–24); 65066 (August 9, 2011), 76
FR 50506 (August 15, 2011) (SR–NYSEAmex–2011–
58) and 66137 (January 11, 2012), 77 FR 2587
(January 18, 2012) (SR–NYSEAmex–2011–106).
4 Terms not defined herein are defined in Rule
128—Equities.
5 Separately, the Exchange has proposed extend
the effective date of the trading pause pilot under
Rule 80C—Equities, which requires to the Exchange
to pause trading in an individual security listed on
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]]>Agencies
[Federal Register Volume 77, Number 152 (Tuesday, August 7, 2012)]
[Notices]
[Pages 47131-47136]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19210]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67552; File No. SR-NYSEArca-2012-55]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to the Listing and Trading of
the STARTM Global Buy-Write ETF Under NYSE Arca Equities
Rule 8.600
August 1, 2012.
I. Introduction
On May 31, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or
[[Page 47132]]
``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule
change to list and trade shares (``Shares'') of the STARTM
Global Buy-Write ETF (``Fund'') under NYSE Arca Equities Rule 8.600.
The proposed rule change was published for comment in the Federal
Register on June 18, 2012.\3\ The Commission received no comments on
the proposed rule change. This order grants approval of the proposed
rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 67183 (June 12,
2012), 77 FR 36314 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to list and trade Shares of the Fund pursuant
to NYSE Arca Equities Rule 8.600, which governs the listing and trading
of Managed Fund Shares on the Exchange. The Shares will be offered by
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.\4\ The investment adviser to
the Fund is AdvisorShares Investments, LLC (``Adviser''). Partnervest
Advisory Services, LLC serves as investment sub-adviser to the Fund
(``Sub-Adviser'') and provides day-to-day portfolio management of the
Fund. Foreside Fund Services, LLC is the principal underwriter and
distributor of the Fund's Shares. The Bank of New York Mellon serves as
administrator, custodian, and transfer agent for the Fund. The Exchange
has represented that neither the Adviser nor the Sub-Adviser is
affiliated with a broker-dealer.\5\
---------------------------------------------------------------------------
\4\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). On October 28, 2011, the Trust filed an
amendment to its registration statement on Form N-1A under the
Securities Act of 1933 (``1933 Act'') and under the 1940 Act
relating to the Fund (File Nos. 333-157876 and 811-22110)
(``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).
\5\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the
event (a) the Adviser or the Sub-Adviser becomes newly affiliated
with a broker-dealer, or (b) any new adviser or sub-adviser becomes
affiliated with a broker-dealer, it will implement a fire wall with
respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the portfolio, and will
be subject to procedures designed to prevent the use and
dissemination of material, non-public information regarding such
portfolio.
---------------------------------------------------------------------------
The Fund's investment objective is to seek consistent repeatable
returns across all market cycles. The Fund is a ``fund-of-funds'' and,
under normal market conditions,\6\ intends to invest at least 60% of
its total assets in exchange-traded funds (``ETFs'') \7\ and exchange-
traded notes (``ETNs'') \8\ that seek to track a diversified basket of
global indices and investment sectors, and in exchange-traded pooled
investment vehicles that invest directly in commodities or currencies
and that are registered pursuant to the 1933 Act (together with ETFs
and ETNs, ``Underlying ETPs'') \9\ that meet certain selection criteria
established by the Sub-Adviser. The selection criteria include size,
historical track record, diversification among indices, the correlation
of an index to other indices, and an ability to write exchange-listed
covered call options on the particular Underlying ETP.\10\ An
Underlying ETP may be disposed of should it no longer meet the
selection criteria.
---------------------------------------------------------------------------
\6\ The term ``under normal market conditions'' 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.
\7\ 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),
8.100, and 8.600.
\8\ For purposes of this proposed rule change, ETNs are
securities that are registered pursuant to the 1933 Act such as
those listed and traded on the Exchange pursuant to NYSE Arca
Equities Rule 5.2(j)(6).
\9\ 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. The ETFs in which the Fund may
invest will primarily be index-based ETFs that hold substantially
all of their assets in securities representing a specific index.
\10\ The options in which the Fund will invest will be U.S.
exchange-listed.
---------------------------------------------------------------------------
The Fund currently intends to invest primarily in the securities of
ETFs consistent with the requirements of Section 12(d)(1) of the 1940
Act, or any rule, regulation, or order of the Commission or
interpretation thereof. The Underlying ETPs in which the Fund will
invest will primarily be Underlying ETPs that hold substantially all of
their assets in securities representing a country (or region) specific
index.
The Sub-Adviser seeks to achieve the Fund's investment objective by
using a proprietary overwrite strategy known as Volatility Enhanced
Global Appreciation (``VEGA''). Through VEGA, the Fund will invest in
Underlying ETPs in combination with call options on generally all such
Underlying ETPs to seek cumulative price appreciation from the
portfolio's global exposure while generating an additional return
stream from the sale of covered call and/or cash-secured put
options.\11\ While the Fund is permitted to invest up to 40% of its
total assets in call options on Underlying ETPs, the Adviser expects
that, under normal market conditions, the Fund will invest no more than
15% in such call options on a daily basis. To the extent cash and cash
equivalents in the Fund's portfolio serve as collateral for cash-
secured put options, such cash and cash equivalents may not be invested
in Underlying ETPs, additional options, or other similar investments in
pursuit of the Fund's investment objective. Rather, on a day-to-day
basis, such collateral may be invested in U.S. Government securities,
short-term, high-quality fixed income securities, money market
instruments, cash, and other cash equivalents with maturities of one
year or less, or Underlying ETPs that hold such investments.\12\
---------------------------------------------------------------------------
\11\ A covered call option involves holding a long position in a
particular asset, in this case shares of an Underlying ETP, and
writing a call option on that same asset with the goal of realizing
additional income from the option premium. A put option is a
contract that gives the owner of the option the right to sell a
specified amount of the asset underlying the option at a specified
price (``strike price'') within a specified time. When a put option
is exercised or assigned, the writer of the option is obligated to
purchase the requisite amount of the asset underlying the option to
complete the sale. A put option is considered cash-secured when the
writer of the put option segregates an amount of cash or cash
equivalents sufficient to cover the purchase price of the asset
underlying the option.
\12\ All options written on indices or securities must be
covered. A written call option on a security may be covered if a
fund: (1) Owns the security underlying the call until the option is
exercised or expires; (2) holds an American-style call on the same
security as the call written with an exercise price (a) no greater
than the exercise price of the call written or (b) greater than the
exercise price of the call written if the difference is maintained
by the fund in cash or other liquid assets designated on the fund's
records or placed in a segregated account with the fund's custodian;
(3) has an absolute and immediate right to acquire the security
without additional cost (or if additional consideration is required,
cash or other liquid assets in such amount have been segregated); or
(4) segregates cash or other liquid assets on the fund's records or
with the custodian in an amount equal to (when added to any margin
on deposit) the current market value of the call option, but not
less than the exercise price, marked to market daily. If the call
option is exercised by the purchaser during the option period, the
seller is required to deliver the underlying security against
payment of the exercise price or pay the difference. The seller's
obligation terminates upon expiration of the option period or when
the seller executes a closing purchase transaction with respect to
such option. All put options written by the Fund will be covered by:
(1) Segregating cash, cash equivalents, such as U.S. Treasury
securities or overnight repurchase agreements, or other liquid
assets on the Fund's records or with the custodian having a value at
least equal to the exercise price of the option (less cash received,
if any); or (2) holding a put option on the same security as the
option written where the exercise price of the written put option is
(i) equal to or higher than the exercise price of the option written
or (ii) less than the exercise price of the option written provided
the Fund segregates cash or other liquid assets in the amount of the
difference.
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[[Page 47133]]
The Sub-Adviser will use VEGA, a proprietary quantitative and
qualitative investment process, to determine the optimal Underlying
ETPs and options for the strategy. The process focuses on the
performance of a comprehensive portfolio of assets based on the
combination of risk, return, and their correlation to each other.
Consistent with VEGA, call options will be sold on generally all of the
Underlying ETPs at a strike price equivalent to targets based on
volatility and quantitative criteria. As calls are covered and/or
expire, additional options on the Underlying ETPs will be sold. The
average time until expiration for the option portfolio will be
typically one quarter (91 days) or less, so that premiums may be
received on options on Underlying ETPs approximately four times per
year. The Sub-Adviser, however, will reserve the right to close out or
enter into options on a more or less frequent basis in its discretion
if it believes it is in the best interest of the Fund. The Sub-Adviser
periodically will monitor the performance of the Fund's portfolio and
systematically rebalance and initiate tactical shifts in the underlying
investments when the strategy indicates it is both optimal and
beneficial to do so.
VEGA is designed to generate quarterly returns in the form of
premiums received from the sale of covered call and/or cash-secured put
options. The amount of the premium will typically be determined at the
start of the quarter, and realized either at expiration or sooner if
the strategy determines that conditions warrant covering the short
option position beforehand.\13\
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\13\ The risks of covered call writing include the potential for
the market to rise sharply. In such instance, the buyer of the call
option would likely acquire the Underlying ETP from the Fund and the
return on that Underlying ETP would be limited to the premium
received and the difference between the strike price and the
purchase price until such time as the Underlying ETP is repurchased
as applicable. The risks of cash-secured put writing include the
potential for the price of the Underlying ETP to decline
significantly causing the put writer, the Fund, to have an
unrealized loss due to the high stock purchase price.
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Except for premium amounts required for transactional and portfolio
management purposes, the Sub-Adviser, in its discretion, may allocate
the accumulated premium in ``principal protection'' and/or
``reinvestment strategies,'' as described below.
The ``principal protection'' feature is intended as a means to
profit and/or hedge against potential price declines of 20% or greater
of Underlying ETPs. The feature may be implemented when volatility
declines and/or security prices rise, and the Sub-Adviser determines
the cost of principal protection to be beneficial. The cost of the
protection is expected to be paid from accumulated option premiums, but
principal may be used. The use of principal protection entails the
purchase of put options on Underlying ETPs representing some or all of
the Fund's portfolio holdings. The risk of buying long puts is limited
to the loss of the premium paid for the purchase of the put. Option
premiums received by the Fund will remain in cash or cash equivalents
or may be invested in Underlying ETPs that invest primarily in U.S.
treasuries or other cash equivalent securities.
The Sub-Adviser also will utilize a ``reinvestment strategy''
whereby accumulated option premiums may be reinvested back into
additional shares of Underlying ETPs held by the Fund based on the Sub-
Adviser's view of the market.
Principal Fund Investments
The Fund, through its investment in Underlying ETPs, may invest in
equity securities. Equity securities represent ownership interests in a
company or partnership and consist of common stocks, preferred stocks,
warrants to acquire common stock, securities convertible into common
stock, and investments in master limited partnerships, rights, and
depositary receipts, including American Depositary Receipts (``ADRs'')
and Global Depositary Receipts (``GDRs''). The Fund, through its
investment in Underlying ETPs, may purchase equity securities traded in
the U.S. on registered exchanges or the over-the-counter market.
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.
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, 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. 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, 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.
The Fund, through its investments in Underlying ETPs from time to
time, in the ordinary course of business, may purchase securities on a
when-issued or delayed-delivery basis (i.e., delivery and payment can
take place between a month and 120 days after the date of the
transaction).
The Fund, or the Underlying ETPs in which it invests, may invest in
U.S. Treasury zero-coupon bonds. The Fund, through its investment in
ETFs, may invest in shares of real estate investment trusts.
Other Investments
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 other mutual funds, commercial
paper, certificates of deposit, bankers' acceptances, U.S. Government
securities, repurchase agreements, and bonds that are BBB or higher.
The Fund may also invest a substantial portion of its assets in such
instruments at any time to maintain liquidity or pending
[[Page 47134]]
selection of investments in accordance with its policies.
The Fund may invest in derivatives, including, for example,
options, futures, options on futures, and swaps. While the Fund
currently does not intend to invest in swaps, it may invest up to 10%
of its total assets in swaps. The Fund may invest in derivatives to
gain market exposure, enhance returns, or hedge against market
declines.
Other than options on Underlying ETPs in which the Fund may invest,
as described above, the Fund may trade U.S. exchange-listed put and
call options on other securities, securities indices, and currencies,
as the Sub-Adviser determines is appropriate in seeking the Fund's
investment objective and except as restricted by the Fund's investment
limitations.\14\ While the Fund may invest in put and call options on
other securities, the Adviser expects that, under normal market
conditions, the Fund will invest from 0% up to 10% in such put and call
options on a daily basis.
---------------------------------------------------------------------------
\14\ See supra note 10.
---------------------------------------------------------------------------
The Fund may invest up to 10% of its total assets in futures
contracts and related options on futures contracts for bona fide
hedging; attempting to offset changes in the value of securities held
or expected to be acquired or be disposed of; attempting to gain
exposure to a particular market, index, or instrument; or other risk
management purposes. To the extent the Fund uses futures and/or options
on futures, it will do so in accordance with Rule 4.5 under the
Commodity Exchange Act (``CEA'').\15\
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\15\ The Exchange represents that the Trust, on behalf of all of
its series, including the Fund, has filed a notice of eligibility
for exclusion from the definition of the term ``commodity pool
operator'' in accordance with Rule 4.5 and, therefore, the Fund is
not subject to registration or regulation as a commodity pool
operator under the CEA.
---------------------------------------------------------------------------
The Fund may enter into repurchase agreements with financial
institutions, which may be deemed to be loans. The Fund also may enter
into reverse repurchase agreements without limit as part of the Fund's
investment strategy.
The Fund may not 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, (i) more than 5% of its total
assets would be invested in the securities of such issuer, or (ii) more
than 10% of the outstanding voting securities of any one issuer would
be held by the Fund. For purposes of this policy, the issuer of the
underlying security will be deemed to be the issuer of any respective
depositary receipt.
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.
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.
According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment Company under the
Internal Revenue Code.
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 does not intend to invest in leveraged, inverse, 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. 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).\16\
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\16\ The Fund's broad-based securities market index, which is to
be determined, will be identified in an amendment to the
Registration Statement.
---------------------------------------------------------------------------
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,\17\ 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 net asset value (``NAV'') per Share will be calculated daily
and that the NAV and the Disclosed Portfolio will be made available to
all market participants at the same time.
---------------------------------------------------------------------------
\17\ 17 CFR 240.10A-3.
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Additional information regarding the Trust, Fund, Shares, Fund's
investment strategies, risks, creation and redemption procedures, fees,
portfolio holdings and disclosure policies, distributions and taxes,
availability of information, trading rules and halts, and surveillance
procedures, among other things, can be found in the Notice and/or the
Registration Statement, as applicable.\18\
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\18\ See Notice and Registration Statement, supra notes 3 and 4,
respectively.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \19\
and the rules and regulations thereunder applicable to a national
securities exchange.\20\ In particular, the Commission finds that the
proposed rule change is consistent with the requirements of Section
6(b)(5) of the Act,\21\ which requires, among other things, that the
Exchange's rules be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
The Commission notes that the Fund and the Shares must comply with the
requirements of NYSE Arca Equities Rule 8.600 to be listed and traded
on the Exchange.
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\19\ 15 U.S.C. 78f.
\20\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\21\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\22\ which sets forth Congress's finding that it is in the public
interest and appropriate for the protection of investors and the
[[Page 47135]]
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association (``CTA'') high-speed line, and, for the Underlying
ETPs, will be available from the national securities exchanges on which
they are listed. Quotation and last-sale information for the U.S.
exchange-listed options in which the Fund will invest will be available
from the applicable U.S. options exchange via the Options Price
Reporting Authority. In addition, the Portfolio Indicative Value, as
defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session.\23\ On each business day,
before commencement of trading in Shares in the Core Trading Session on
the Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will
form the basis for the Fund's calculation of NAV at the end of the
business day.\24\ The Fund will calculate NAV once each business day as
of the regularly scheduled close of trading on the New York Stock
Exchange (``NYSE'') (normally 4:00 p.m., Eastern Time). 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. In addition, the intra-day, closing, and
settlement prices of the other portfolio securities and instruments
held by the Fund will 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. The Fund's Web site will include a form
of the prospectus for the Fund and additional data relating to NAV and
other applicable quantitative information.
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\22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\23\ According to the Exchange, several major market data
vendors widely disseminate Portfolio Indicative Values taken from
the CTA or other data feeds.
\24\ 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 securities and financial instruments 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.
---------------------------------------------------------------------------
The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV 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.\25\
In addition, 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. The Exchange may halt trading
in the Shares if trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund,
or if other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.\26\ Further, the
Commission notes that the Reporting Authority that provides the
Disclosed Portfolio must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of the
portfolio.\27\ The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees. The Exchange also states that neither the Adviser nor the
Sub-Adviser is affiliated with a broker-dealer.\28\ Moreover, the
Exchange represents that it is able to obtain information from the U.S.
exchanges, all of which are members of the Intermarket Surveillance
Group (``ISG''), on which the Underlying ETPs and options are listed
and traded.
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\25\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\26\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing
additional considerations for the suspension of trading in or
removal from listing of Managed Fund Shares on the Exchange). With
respect to trading halts, the Exchange may consider other relevant
factors in exercising its discretion to halt or suspend trading in
the Shares of the Fund. Trading in Shares of the Fund will be halted
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12
have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
\27\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
\28\ See supra note 5. The Commission notes that an investment
adviser to an open-end fund is required to be registered under the
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the
Adviser and Sub-Adviser and their related personnel are subject to
the provisions of Rule 204A-1 under the Advisers Act relating to
codes of ethics. This Rule requires investment advisers to adopt a
code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange's surveillance procedures applicable to derivative
products, which include Managed Fund Shares, are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws.
(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders (``ETP Holders'') in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares. Specifically, the Information Bulletin will discuss
the following: (a) The procedures for purchases and redemptions of
Shares in Creation Unit aggregations (and that Shares are not
individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its ETP Holders to learn the
essential facts relating to every customer prior to trading the Shares;
(c) the risks involved in trading the Shares during the Opening and
Late Trading Sessions when an updated Portfolio Indicative Value will
not be calculated or publicly disseminated; (d) how information
regarding the Portfolio Indicative Value is disseminated; (e) the
requirement that
[[Page 47136]]
ETP Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (f) trading information.
(5) For initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\29\ as provided by
NYSE Arca Equities Rule 5.3.
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\29\ 17 CFR 240.10A-3.
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(6) The options contracts held by the Fund will be U.S. exchange-
listed. Except for Underlying ETPs that may hold non-U.S. issues, the
Fund will not otherwise invest in non-U.S.-registered issues. The
Exchange may obtain information via ISG from other exchanges that are
members of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement. In addition, the Exchange is able to
obtain information from the U.S. exchanges, all of which are ISG
members, on which the Underlying ETPs and options are listed and
traded.
(7) The Fund does not intend to invest in leveraged, inverse, 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.
(8) While the Fund is permitted to invest up to 40% of its total
assets in call options on Underlying ETPs, the Adviser expects that,
under normal market conditions, the Fund will invest no more than 15%
in such call options on a daily basis.
(9) The Fund may invest up to 10% of its total assets in futures
contracts and related options on futures contracts. While the Fund may
invest in put and call options on securities other than Underlying
ETPs, the Adviser expects that, under normal market conditions, the
Fund will invest from 0% to up to 10% in such put and call options on a
daily basis. While the Fund currently does not intend to invest in
swaps, it may invest up to 10% of its total assets in swaps.
(10) 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.
(11) A minimum of 100,000 Shares of the Fund will be outstanding at
the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice, and
the Exchange's description of the Fund.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \30\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\30\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-NYSEArca-2012-55) be, and it
hereby is, approved.
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\31\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19210 Filed 8-6-12; 8:45 am]
BILLING CODE 8011-01-P
