Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to the Listing and Trading of QAM Equity Hedge ETF Under NYSE Arca Equities Rule 8.600, 47482-47486 [2012-19351]
Download as PDF
47482
Federal Register / Vol. 77, No. 153 / Wednesday, August 8, 2012 / Notices
investors or the public interest; (ii)
impose any significant burden on
competition; and (iii) become operative
prior to 30 days from the date on which
it was filed, or such shorter time as the
Commission may designate, if
consistent with the protection of
investors and the public interest, the
proposed rule change has become
effective pursuant to Section 19(b)(3)(A)
of the Act 14 and Rule 19b–4(f)(6)(iii)
thereunder.15
A proposed rule change filed under
Rule 19b–4(f)(6) 16 normally does not
become operative for 30 days after the
date of filing. However, pursuant to
Rule 19b–4(f)(6)(iii) 17 the Commission
may designate a shorter time if such
action is consistent with the protection
of investors and the public interest. The
Exchange has asked the Commission to
waive the 30-day operative delay so that
the proposal may become operative
immediately upon filing.
The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest, as it
will allow the pilot program to continue
uninterrupted, thereby avoiding the
investor confusion that could result
from a temporary interruption in the
pilot program. For this reason, the
Commission designates the proposed
rule change to be operative upon
filing.18
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act.
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:
14 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6)(iii) requires the Exchange to give the
Commission written notice of the Exchange’s intent
to file the proposed rule change along with a brief
description and text of the proposed rule change,
at least five business days prior to the date of filing
of the proposed rule change, or such shorter time
as designated by the Commission. The Exchange
has satisfied this requirement.
16 17 CFR 240.19b–4(f)(6).
17 17 CFR 240.19b–4(f)(6)(iii).
18 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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15 17
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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 No. SR–
CHX–2012–11 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 No.
SR–CHX–2012–11. This file number
should be included on the subject line
if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–CHX–2012–
11 and should be submitted on or before
August 29, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.19
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–19354 Filed 8–7–12; 8:45 am]
BILLING CODE 8011–01–P
19 17
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SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67559; File No. SR–
NYSEArca–2012–57]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Relating to the
Listing and Trading of QAM Equity
Hedge ETF Under NYSE Arca Equities
Rule 8.600
August 1, 2012.
I. Introduction
On June 1, 2012, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the QAM Equity Hedge
ETF (‘‘Fund’’) under NYSE Arca
Equities Rule 8.600. The proposed rule
change was published for comment in
the Federal Register on June 19, 2012.3
The Commission received no comments
on the proposal. This order grants
approval of the proposed rule change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade the Shares of the Fund pursuant
to NYSE Arca Equities Rule 8.600,
which governs the listing and trading of
Managed Fund Shares on the Exchange.
The Shares will be offered by
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’’). 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 is the principal
underwriter and distributor of the
Fund’s Shares. The Bank of New York
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 67196
(June 13, 2012), 77 FR 36591 (‘‘Notice’’).
4 The Trust is registered under the Investment
Company Act of 1940 (‘‘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 (‘‘Securities
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).
2 17
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Mellon Corporation serves as
administrator, custodian, and transfer
agent for the Fund. The Exchange
represents that, while the Adviser is not
affiliated with a broker-dealer, the SubAdviser 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.5
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Principal Investment Strategies
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.6 The Fund is a ‘‘fund of
funds’’ that seeks to achieve its
investment objective, under normal
circumstances,7 by investing at least
60% of its portfolio in both long and
short positions in exchange-traded
funds (‘‘ETFs’’) 8 and exchange-traded
notes (‘‘ETNs’’) 9 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’’),10
5 See Commentary .06 to NYSE Arca Equities
Rule 8.600. The Exchange represents that in the
event (a) the Adviser or Sub-Adviser becomes
newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser becomes affiliated with a
broker-dealer, it will implement a fire wall with
respect to such broker-dealer regarding access to
information concerning the composition and/or
changes to the portfolio and will be subject to
procedures designed to prevent the use and
dissemination of material, non-public information
regarding such portfolio.
6 The 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.
7 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.
8 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).
9 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).
10 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);
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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.11 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 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 SubAdviser 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: (i)
Closed-end funds, pooled investment
vehicles that are registered under the
1940 Act and whose shares are listed
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.
11 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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47483
and traded on U.S. national securities
exchanges; (ii) equity securities of
foreign issuers, including the securities
of foreign issuers in emerging
countries; 12 and (iii) 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
12 The Exchange states that emerging or
developing markets exist in countries that are
considered to be in the initial stages of
industrialization. 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,
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. 153 / Wednesday, August 8, 2012 / Notices
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.
The Fund or an Underlying ETP may
invest in American Depositary Receipts
(‘‘ADRs’’), as well as Global Depositary
Receipts (‘‘GDRs,’’ and 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
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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.
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.
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, wellcapitalized, 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
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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.
The Fund will seek to qualify for
treatment as a Regulated Investment
Company (RIC) under the Internal
Revenue Code. Except for Underlying
ETPs that may hold non-U.S. issues, the
Fund will not otherwise invest in nonU.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).13 The Fund will not invest in
leveraged or inverse leveraged
Underlying ETPs.
Additional information regarding the
Trust and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings, disclosure policies,
distributions, and taxes, among other
13 The Exchange states that the Fund’s broadbased securities market index, which is to be
determined, will be identified in an amendment to
the Registration Statement.
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things, can be found in the Notice and
Registration Statement, as applicable.14
wreier-aviles on DSK7SPTVN1PROD with NOTICES
III. Discussion and Commission’s
Findings
The Commission has carefully
reviewed the proposed rule change and
finds that it is consistent with the
requirements of Section 6 of the Act 15
and the rules and regulations
thereunder applicable to a national
securities exchange.16 In particular, the
Commission finds that the proposal is
consistent with Section 6(b)(5) of the
Act,17 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,18 which sets
forth Congress’ finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. Quotation
and last-sale information for the Shares
will be available via the Consolidated
Tape Association (‘‘CTA’’) high-speed
line. In addition, the Portfolio Indicative
Value (‘‘PIV’’), as defined in NYSE Arca
Equities Rule 8.600(c)(3), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Exchange’s Core
Trading Session.19 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
14 See Notice and Registration Statement, supra
notes 3 and 4, respectively.
15 15 U.S.C. 78f.
16 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
17 15 U.S.C. 78f(b)(5).
18 15 U.S.C. 78k–1(a)(1)(C)(iii).
19 According to the Exchange, several major
market data vendors widely disseminate PIVs taken
from CTA or other data feeds.
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8.600(c)(2), that will form the basis for
the Fund’s calculation of the net asset
value (‘‘NAV’’) at the end of the
business day.20 The Fund will calculate
NAV once each business day as of the
close of normal trading on the New York
Stock Exchange (normally, 4:00 p.m.
Eastern Time). In addition, information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services, and
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. The Web site for the
Fund will include a form of the
prospectus for the Fund, additional data
relating to NAV, and other applicable
quantitative information. 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.
Further, 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 New York Stock Exchange via the
National Securities Clearing
Corporation. The basket represents one
‘‘Creation Unit’’ of the Fund.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Commission notes that the Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
will be made available to all market
20 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.
PO 00000
Frm 00128
Fmt 4703
Sfmt 4703
47485
participants at the same time.21 In
addition, the Exchange will halt trading
in the Shares under the specific
circumstances set forth in NYSE Arca
Equities Rule 8.600(d)(2)(D), and may
halt trading in the Shares if trading is
not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund, or
if other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present.22 The Exchange will
consider the suspension of trading in or
removal from listing of the Shares if the
PIV is no longer calculated or available
or the Disclosed Portfolio is not made
available to all market participants at
the same time.23 The Exchange
represents that the Adviser is not
affiliated with a broker-dealer. The
Exchange further represents that the
Sub-Adviser is affiliated with a brokerdealer 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.24 The
Commission notes that Adviser and
Sub-Adviser personnel who make
decisions on the Fund’s portfolio
composition must be subject to
procedures designed to prevent the use
and dissemination of material, non21 See
NYSE Arca Equities Rule 8.600(d)(1)(B).
respect to trading halts, the Exchange may
consider all relevant factors in exercising its
discretion to halt or suspend trading in the Shares
of the Fund. Trading in Shares of the Fund will be
halted if the circuit breaker parameters in NYSE
Arca Equities Rule 7.12 have been reached. Trading
also may be halted because of market conditions or
for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
23 See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii).
24 See supra note 5 and accompanying text. The
Commission notes that an investment adviser to an
open-end fund is required to be registered under the
Investment Advisers Act of 1940 (‘‘Advisers Act’’).
As a result, the Adviser, the 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.
22 With
E:\FR\FM\08AUN1.SGM
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wreier-aviles on DSK7SPTVN1PROD with NOTICES
47486
Federal Register / Vol. 77, No. 153 / Wednesday, August 8, 2012 / Notices
public information regarding the Fund’s
portfolio.25 Further, the Commission
notes that the Reporting Authority that
provides the Disclosed Portfolio must
implement and maintain, or be subject
to, procedures designed to prevent the
use and dissemination of material, nonpublic information regarding the actual
components of the portfolio.26 The
Exchange states that it has a general
policy prohibiting the distribution of
material, non-public information by its
employees. The Commission also notes
that the Exchange would be able to
obtain surveillance information from all
securities exchanges listing and/or
trading the securities held by the Fund,
including 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 further 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 in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (a) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(b) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its Equity Trading Permit Holders to
learn the essential facts relating to every
customer prior to trading the Shares; (c)
the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated PIV will not
be calculated or publicly disseminated;
Commentary .06 to NYSE Arca Equities
Rule 8.600.
26 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
(d) how information regarding the PIV is
disseminated; (e) the requirement that
Equity Trading Permit Holders deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (f) trading information.
(5) For initial and/or continued
listing, the Fund will be in compliance
with Rule 10A–3 under the Act,27 as
provided by NYSE Arca Equities Rule
5.3.
(6) The Fund may not hold more than
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.
(7) 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. exchangelisted. 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.
(8) 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.
(9) The Exchange would be able to
obtain surveillance information from all
securities exchanges listing and/or
trading the securities held by the Fund,
including 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.
(10) A minimum of 100,000 Shares of
each Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on the
Exchange’s representations and
description of the Fund, including those
set forth above and in the Notice.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act28 and the rules and
regulations thereunder applicable to a
national securities exchange.
15:11 Aug 07, 2012
Jkt 226001
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.30
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–19351 Filed 8–7–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67570; File No. SR–BX–
2012–056]
Self-Regulatory Organizations;
NASDAQ OMX BX, Inc.; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Extend the
Pilot Period of Amendments to the
Clearly Erroneous Rule
August 2, 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 July 24,
2012, NASDAQ OMX BX, Inc.
(‘‘Exchange’’), 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 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 extend the
pilot period of recent amendments to
Rule 11890, concerning clearly
erroneous transactions, so that the pilot
will now expire on February 4, 2013.
The text of the proposed rule change
is below. Proposed new language is in
italics; proposed deletions are in
brackets.
*
*
*
27 See
28 15
PO 00000
17 CFR 240.10A–3.
U.S.C. 78f(b)(5).
Frm 00129
Fmt 4703
Sfmt 4703
*
*
11890. Clearly Erroneous Transactions
The provisions of paragraphs (C), (c)(1),
(b)(i), and (b)(ii) of this Rule, as amended on
September 10, 2010, shall be in effect during
a pilot period set to end on February 4, 2013
[July 31, 2012]. If the pilot is not either
extended or approved permanent by
February 4, 2013[July 31, 2012], the prior
29 15
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
30 17
25 See
VerDate Mar<15>2010
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,29 that the
proposed rule change (SR–NYSEArca–
2012–57) be, and it hereby is, approved.
E:\FR\FM\08AUN1.SGM
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Agencies
[Federal Register Volume 77, Number 153 (Wednesday, August 8, 2012)]
[Notices]
[Pages 47482-47486]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19351]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67559; File No. SR-NYSEArca-2012-57]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to the Listing and Trading of
QAM Equity Hedge ETF Under NYSE Arca Equities Rule 8.600
August 1, 2012.
I. Introduction
On June 1, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the QAM Equity Hedge ETF
(``Fund'') under NYSE Arca Equities Rule 8.600. The proposed rule
change was published for comment in the Federal Register on June 19,
2012.\3\ The Commission received no comments on the proposal. 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. 67196 (June 13,
2012), 77 FR 36591 (``Notice'').
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II. Description of the Proposed Rule Change
The Exchange proposes to list and trade the Shares of the Fund
pursuant to NYSE Arca Equities Rule 8.600, which governs the listing
and trading of Managed Fund Shares on the Exchange. The Shares will be
offered by 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''). 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 is the principal
underwriter and distributor of the Fund's Shares. The Bank of New York
[[Page 47483]]
Mellon Corporation serves as administrator, custodian, and transfer
agent for the Fund. The Exchange represents that, while the Adviser is
not affiliated with a broker-dealer, 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.\5\
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\4\ The Trust is registered under the Investment Company Act of
1940 (``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 (``Securities 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 Commentary .06 to NYSE Arca Equities Rule 8.600. The
Exchange represents that in the event (a) the Adviser or 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.
---------------------------------------------------------------------------
Principal Investment Strategies
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.\6\ The Fund is a ``fund of funds'' that seeks to
achieve its investment objective, under normal circumstances,\7\ by
investing at least 60% of its portfolio in both long and short
positions in exchange-traded funds (``ETFs'') \8\ and exchange-traded
notes (``ETNs'') \9\ 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''),\10\ 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.\11\ 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.
---------------------------------------------------------------------------
\6\ 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.
\7\ 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.
\8\ 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).
\9\ 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).
\10\ 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.
\11\ 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.
---------------------------------------------------------------------------
In managing the Fund's portfolio, among other proprietary
analytics, the Sub-Adviser will utilize Markov Processes International,
LLC's 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:
(i) 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; (ii) equity securities of foreign
issuers, including the securities of foreign issuers in emerging
countries; \12\ and (iii) shares of real estate investment trusts
(REITs), which are pooled investment vehicles which invest primarily in
real estate or real estate-related loans.
---------------------------------------------------------------------------
\12\ The Exchange states that emerging or developing markets
exist in countries that are considered to be in the initial stages
of industrialization. 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, 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.
---------------------------------------------------------------------------
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
[[Page 47484]]
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.
The Fund or an Underlying ETP may invest in American Depositary
Receipts (``ADRs''), as well as Global Depositary Receipts (``GDRs,''
and 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.
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.
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.
The Fund will seek to qualify for treatment as a Regulated
Investment Company (RIC) 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'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).\13\ The Fund will not invest in leveraged or
inverse leveraged Underlying ETPs.
---------------------------------------------------------------------------
\13\ The Exchange states that the Fund's broad-based securities
market index, which is to be determined, will be identified in an
amendment to the Registration Statement.
---------------------------------------------------------------------------
Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings, disclosure policies,
distributions, and taxes, among other
[[Page 47485]]
things, can be found in the Notice and Registration Statement, as
applicable.\14\
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\14\ See Notice and Registration Statement, supra notes 3 and 4,
respectively.
---------------------------------------------------------------------------
III. Discussion and Commission's Findings
The Commission has carefully reviewed the proposed rule change and
finds that it is consistent with the requirements of Section 6 of the
Act \15\ and the rules and regulations thereunder applicable to a
national securities exchange.\16\ In particular, the Commission finds
that the proposal is consistent with Section 6(b)(5) of the Act,\17\
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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\15\ 15 U.S.C. 78f.
\16\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\17\ 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,\18\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association (``CTA'') high-speed line. In addition, the Portfolio
Indicative Value (``PIV''), as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated by one or more major market
data vendors at least every 15 seconds during the Exchange's Core
Trading Session.\19\ On each business day before commencement of
trading in Shares in the Core Trading Session on the Exchange, the Fund
will disclose on its Web site the Disclosed Portfolio, as defined in
NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for the
Fund's calculation of the net asset value (``NAV'') at the end of the
business day.\20\ The Fund will calculate NAV once each business day as
of the close of normal trading on the New York Stock Exchange
(normally, 4:00 p.m. Eastern Time). In addition, information regarding
market price and trading volume of the Shares will be continually
available on a real-time basis throughout the day on brokers' computer
screens and other electronic services, and 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.
The Web site for the Fund will include a form of the prospectus for the
Fund, additional data relating to NAV, and other applicable
quantitative information. 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. Further, 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 New York Stock Exchange
via the National Securities Clearing Corporation. The basket represents
one ``Creation Unit'' of the Fund.
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\18\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\19\ According to the Exchange, several major market data
vendors widely disseminate PIVs taken from CTA or other data feeds.
\20\ 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.
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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.\21\
In addition, the Exchange will halt trading in the Shares under the
specific circumstances set forth in NYSE Arca Equities Rule
8.600(d)(2)(D), and may halt trading in the Shares if trading is not
occurring in the securities and/or the financial instruments comprising
the Disclosed Portfolio of the Fund, or if other unusual conditions or
circumstances detrimental to the maintenance of a fair and orderly
market are present.\22\ The Exchange will consider the suspension of
trading in or removal from listing of the Shares if the PIV is no
longer calculated or available or the Disclosed Portfolio is not made
available to all market participants at the same time.\23\ The Exchange
represents that the Adviser is not affiliated with a broker-dealer. The
Exchange further represents that 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.\24\ The Commission notes
that Adviser and Sub-Adviser personnel who make decisions on the Fund's
portfolio composition must be subject to procedures designed to prevent
the use and dissemination of material, non-
[[Page 47486]]
public information regarding the Fund's portfolio.\25\ Further, the
Commission notes that the Reporting Authority that provides the
Disclosed Portfolio must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of the
portfolio.\26\ The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees. The Commission also notes that the Exchange would be able to
obtain surveillance information from all securities exchanges listing
and/or trading the securities held by the Fund, including 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.
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\21\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\22\ With respect to trading halts, the Exchange may consider
all relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached. Trading also may be halted
because of market conditions or for reasons that, in the view of the
Exchange, make trading in the Shares inadvisable.
\23\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii).
\24\ See supra note 5 and accompanying text. The Commission
notes that an investment adviser to an open-end fund is required to
be registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser, the 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.
\25\ See Commentary .06 to NYSE Arca Equities Rule 8.600.
\26\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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The Exchange further represents that the Shares are deemed to be
equity securities, thus rendering trading in the Shares subject to the
Exchange's 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 in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (a) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its Equity Trading Permit Holders to learn the
essential facts relating to every customer prior to trading the Shares;
(c) the risks involved in trading the Shares during the Opening and
Late Trading Sessions when an updated PIV will not be calculated or
publicly disseminated; (d) how information regarding the PIV is
disseminated; (e) the requirement that Equity Trading Permit Holders
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; and (f)
trading information.
(5) For initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 under the Act,\27\ as provided by NYSE Arca
Equities Rule 5.3.
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\27\ See 17 CFR 240.10A-3.
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(6) The Fund may not hold more than 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.
(7) 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.
(8) 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.
(9) The Exchange would be able to obtain surveillance information
from all securities exchanges listing and/or trading the securities
held by the Fund, including 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.
(10) A minimum of 100,000 Shares of each Fund will be outstanding
at the commencement of trading on the Exchange.
This approval order is based on the Exchange's representations and
description of the Fund, including those set forth above and in the
Notice.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act\28\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\28\ 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,\29\ that the proposed rule change (SR-NYSEArca-2012-57) be, and it
hereby is, approved.
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\29\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\30\
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\30\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19351 Filed 8-7-12; 8:45 am]
BILLING CODE 8011-01-P