Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to Listing and Trading of Shares of the Horizons S&P 500 Covered Call ETF, Horizons S&P Financial Select Sector Covered Call ETF, and Horizons S&P Energy Select Sector Covered Call ETF Under NYSE Arca Equities Rule 5.2(j)(3), 6161-6167 [2013-01811]

Download as PDF Federal Register / Vol. 78, No. 19 / Tuesday, January 29, 2013 / Notices in the program, will increase the level of competition around executions such that retail investors would receive better prices than they currently do on the Exchange and potentially through bilateral internalization arrangements. The Exchange believes that the transparency and competitiveness of operating a program such as the Retail Liquidity Program on an exchange market would result in better prices for retail investors, and benefits retail investors by expanding the capabilities of Exchanges to encompass practices currently allowed on non-Exchange venues. C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others No written comments were solicited or received with respect to the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The Exchange has filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act 6 and Rule 19b–4(f)(6) thereunder.7 Because the proposed rule change does not: (i) Significantly affect the protection of 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 and Rule 19b–4(f)(6)(iii) thereunder. A proposed rule change filed under Rule 19b–4(f)(6) 8 normally does not become operative prior to 30 days after the date of the filing.9 However, pursuant to Rule 19b4(f)(6)(iii),10 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 srobinson on DSK4SPTVN1PROD with 6 15 U.S.C. 78s(b)(3)(A)(iii). 7 17 CFR 240.19b–4(f)(6). 8 17 CFR 240.19b–4(f)(6). 9 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. 10 17 CFR 240.19b–4(f)(6)(iii). VerDate Mar<15>2010 16:47 Jan 28, 2013 Jkt 229001 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. The proposal would explicitly state that RLPs could submit RPIs in non-assigned securities, which should allow retail orders additional opportunities to receive price improvement. Therefore, the Commission designates the proposed rule change as operative upon filing.11 At any time within 60 days of the filing of such 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. If the Commission takes such action, the Commission shall institute proceedings under Section 19(b)(2)(B) 12 of the Act to determine whether the proposed rule change should be approved or disapproved. IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments • Use the Commission’s Internet comment form (http://www.sec.gov/ rules/sro.shtml); or • Send an email to rulecomments@sec.gov. Please include File Number SR–NYSE–2013–04 on the subject line. Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–NYSE–2013–04. 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 (http://www.sec.gov/ rules/sro.shtml). Copies of the 11 For purposes only of waiving the operative delay for this proposal, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 12 15 U.S.C. 78s(b)(2)(B). PO 00000 Frm 00097 Fmt 4703 Sfmt 4703 6161 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 Number SR–NYSE– 2013–04 and should be submitted on or before February 19, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.13 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–01839 Filed 1–28–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–68708; File No. SR– NYSEArca–2012–131] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to Listing and Trading of Shares of the Horizons S&P 500 Covered Call ETF, Horizons S&P Financial Select Sector Covered Call ETF, and Horizons S&P Energy Select Sector Covered Call ETF Under NYSE Arca Equities Rule 5.2(j)(3) January 23, 2013. I. Introduction On November 21, 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 ‘‘Exchange Act’’) 1 and Rule 19b–4 13 17 1 15 E:\FR\FM\29JAN1.SGM CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 29JAN1 6162 Federal Register / Vol. 78, No. 19 / Tuesday, January 29, 2013 / Notices thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the Horizons S&P 500 Covered Call ETF, Horizons S&P Financial Select Sector Covered Call ETF, and Horizons S&P Energy Select Sector Covered Call ETF (each, a ‘‘Fund,’’ and collectively, ‘‘Funds’’) under NYSE Arca Equities Rule 5.2(j)(3). The proposed rule change was published in the Federal Register on December 10, 2012.3 The Commission received no comments on the proposal. This order grants approval of the proposed rule change. II. Description of the Proposal The Exchange proposes to list and trade the Shares of the Funds under Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3), which governs the listing and trading of Investment Company Units. The Shares will be offered by Exchange Traded Concepts Trust II (‘‘Trust’’), which is organized as a Delaware statutory trust and is registered with the Commission as an open-end management investment company.4 The investment adviser to the Funds is Exchange Traded Concepts, LLC (‘‘Adviser’’), and the sub-adviser to the Funds is Horizons ETFs Management (USA) LLC (‘‘SubAdviser’’).5 Foreside Fund Services, LLC is the principal underwriter and distributor of the Funds’ Shares. Citi Fund Services Ohio, Inc. will serve as administrator for the Funds; Citibank, NA will serve as custodian for the Funds; and Citi Fund Services Ohio, Inc. will serve as transfer agent for the Funds. 2 17 CFR 240.19b–4. Securities Exchange Act Release No. 68351 (December 4, 2012), 77 FR 73500 (‘‘Notice’’). 4 The Trust is registered under the Investment Company Act of 1940 (‘‘1940 Act’’). On September 10, 2012, the Trust filed with the Commission an amendment to its Form N–1A under the Securities Act of 1933 and under the 1940 Act relating to the Funds (File Nos. 333–180871 and 811–22700) (‘‘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. 29065 (December 1, 2009) (File No. 812–13638). 5 The 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 portfolio holdings of the Funds. The Sub-Adviser is also affiliated with a broker-dealer and has implemented a fire wall with respect to its broker dealer affiliate regarding access to information concerning the portfolio holdings of the Funds. In the event (a) the Adviser or SubAdviser becomes newly affiliated with a brokerdealer, 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 portfolio holdings of the Funds, and will be subject to procedures designed to prevent the use and dissemination of material, non-public information regarding such portfolios. srobinson on DSK4SPTVN1PROD with 3 See VerDate Mar<15>2010 16:47 Jan 28, 2013 Jkt 229001 As described below, each Fund will seek investment results that, before fees and expenses, generally correspond to the performance of a specified index (each, an ‘‘Underlying Index’’) provided by S&P Dow Jones Indices LLC (‘‘Index Provider’’).6 Each Underlying Index is comprised of all the equity securities in one of the S&P 500 Index, S&P Financial Select Sector Index, or S&P Energy Select Sector Index (each, a ‘‘Reference Index’’) and short (written) call options on each of the option eligible securities in the relevant Reference Index that meet, among others, stock and option price criteria of the Underlying Index methodology.7 The Exchange submitted this proposed rule change because the Underlying Indices for the Funds do not meet all of the ‘‘generic’’ listing requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) applicable to the listing of Investment Company Units based upon an index of ‘‘US Component Stocks.’’ 8 Specifically, Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) 9 sets forth the requirements to be met by components of an index or portfolio of US Component Stocks. As described further below, each of the Underlying Indices consists of all the equity securities in one of the Reference Indices and short (written) call options on each of the option eligible securities in the relevant Reference Index that meet, among others, the stock and option price 6 Each of the Underlying Indices is provided by the Index Provider, which is unaffiliated with the Funds, the Adviser, or the Sub-Adviser. The Index Provider maintains, calculates, and publishes information regarding each of the Underlying Indices. The Index Provider is not a broker-dealer and is not affiliated with a broker-dealer and has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Underlying Indices. 7 The Underlying Index methodology is available at www.standardandpoors.com/indices. The Exchange provides that, as of October 26, 2012, such criteria include, among others, that no call options will be written if the equity security price is less than $10, and no call options will be written at prices below $0.15. The Index Provider may amend the methodology from time to time. In such case, the methodology would be updated accordingly on the Web site. 8 NYSE Arca Equities Rule 5.2(j)(3) provides that the term ‘‘US Component Stock’’ shall mean an equity security that is registered under Sections 12(b) or 12(g) of the Exchange Act or an American Depositary Receipt, the underlying equity security of which is registered under Sections 12(b) or 12(g) of the Exchange Act. 9 Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) states, in part, that the components of an index of US Component Stocks, upon the initial listing of a series of Units pursuant to Rule 19b– 4(e) under the Exchange Act shall be NMS Stocks as defined in Rule 600 of Regulation NMS under the Exchange Act. See 17 CFR 242.600(b)(47) (defining ‘‘NMS Stock’’ as any NMS Security other than an option). PO 00000 Frm 00098 Fmt 4703 Sfmt 4703 criteria of the Underlying Index methodology. All securities in the Reference Indices are listed and traded on a U.S. national securities exchange and the options on the option eligible securities of companies in the Reference Indices are traded on a U.S. national options exchange. The market value of the call options will not represent more than 10% of the total weight of any of the Underlying Indices. The Exchange has represented that the Underlying Indices meet all requirements of NYSE Arca Equities Rule 5.2(j)(3) and Commentary .01(a)(A) thereto, except that the Underlying Indices include call options, which are not NMS Stocks as defined in Rule 600 of Regulation NMS.10 Horizons S&P 500 Covered Call ETF The Horizons S&P 500 Covered Call ETF will seek investment results that, before fees and expenses, generally correspond to the performance of the Fund’s Underlying Index, which is the S&P 500 Stock Covered Call Index. The Fund seeks correlation of 0.95 or better between its performance and the performance of its Underlying Index. A figure of 1.00 would represent perfect correlation. As described below, the Underlying Index is comprised of all the equity securities 11 in the Fund’s Reference Index, which is the S&P 500 Index, and short (written) call options on each of the option eligible securities in the Reference Index that meet, among others, the stock and option price criteria of the Underlying Index methodology.12 The Fund will invest at least 80% of its total assets in securities that comprise its Underlying Index. The Reference Index for the Fund is a float-adjusted market capitalization weighted index containing equity securities of 500 industrial, information technology, utility, and financial companies amongst other Global Industry Classification Standard (‘‘GICS®’’) sectors, regarded as generally representative of the U.S. stock market. A float-adjusted market capitalization weighted index weights each index component according to its market capitalization, using the number of shares that are readily available for purchase on the open market. The Underlying Index for the Fund measures the performance of a 10 See id. 11 ‘‘Equity securities’’ includes all U.S. common equities listed on the Exchange, the New York Stock Exchange, NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Select Market, and the NASDAQ Capital Market. Business development companies and real estate investment trusts (‘‘REITs’’) are eligible for inclusion as equity securities, with the exception of mortgage REITs. 12 See note 7, supra. E:\FR\FM\29JAN1.SGM 29JAN1 Federal Register / Vol. 78, No. 19 / Tuesday, January 29, 2013 / Notices srobinson on DSK4SPTVN1PROD with hypothetical portfolio that employs a covered call strategy. It consists of long positions in companies in the Reference Index and out-of-the-money call options 13 that are written (sold) systematically on the option eligible securities of companies in the Reference Index that meet, among others, the stock and option price criteria of the Underlying Index methodology. The Fund will be an index fund that employs a ‘‘passive management’’ investment strategy in seeking to achieve its objective. The Adviser’s strategy will consist of holding an equity portfolio indexed to the Reference Index and writing (selling) covered call options on these equity securities, which options will be indexed to the Underlying Index, generally one standard deviation ‘‘outof-the-money.’’ 14 Options are written systematically ‘‘out-of-the-money’’ in accordance with the index methodology based on the prevailing individual level of volatility for each of the equity securities. The Underlying Index provides a benchmark measure of the total return of this hypothetical portfolio. Because a covered call strategy generates income in the form of premiums on the written options, the Underlying Index is generally expected to provide higher total returns with lower volatility than the Reference Index in most market environments, with the exception of when the equity market is rallying rapidly. The options in the Underlying Index will be traded on national securities exchanges. As of August 31, 2012, the Reference Index and Underlying Index included common stocks of 500 companies, 499 of which are option eligible, with a market capitalization range of between approximately $1 billion and $622 billion. As of that date, the Underlying Index also included short (written) call options on 434 option eligible securities of the Reference Index, representing 13 An ‘‘out-of-the-money’’ call option is one in which the exercise (or ‘‘strike’’) price of the option is above the market price of the security. 14 A covered call strategy is generally considered to be an investment strategy in which an investor buys a security, and sells a call option that corresponds to the security. In return for a premium, the Fund will give the purchaser of the option written by the Fund either the right to buy the security from the Fund at an exercise price or the right to receive a cash payment equal to the difference between the value of the security and the exercise (or ‘‘strike’’) price, if the value is above the exercise price on or before the expiration date of the option. In addition, the covered call options hedge against a decline in the price of the securities on which they are written to the extent of the premium the Fund receives. A covered call strategy is generally used in a neutral-to-bullish market environment, where a slow and steady rise in market prices is anticipated. VerDate Mar<15>2010 16:47 Jan 28, 2013 Jkt 229001 0.6% of the total weight 15 of the Underlying Index. The Fund will generally use a replication methodology, meaning it will invest in all of the securities comprising the Underlying Index in proportion to the weightings in the Underlying Index. However, the Fund may from time-to-time utilize a sampling methodology under various circumstances where it may not be possible or practicable to purchase all of the equity securities and write (sell) all of the call options comprising the Underlying Index. The Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the Underlying Index is so concentrated. The Fund will be non-diversified under the 1940 Act and, therefore, may invest a greater percentage of its assets in a particular issue in comparison to a ‘‘diversified’’ fund. Moreover, in pursuing its objective, the Fund may hold the securities of a single issuer in an amount exceeding 10% of the outstanding voting securities of the issuer, subject to restrictions imposed by the Internal Revenue Code of 1986, as amended (‘‘Code’’). Horizons S&P Financial Select Sector Covered Call ETF The Horizons S&P Financial Select Sector Covered Call ETF will seek investment results that, before fees and expenses, generally correspond to the performance of the Fund’s Underlying Index, which is the S&P 500 Financial Select Sector Stock Covered Call Index. The Fund seeks correlation of 0.95 or better between its performance and the performance of its Underlying Index. A figure of 1.00 would represent perfect correlation. As described below, the Underlying Index is comprised of all the equity securities 16 in the Fund’s Reference Index, which is the S&P Financial Select Sector Index, and short (written) call options on the option eligible securities of companies in the Reference Index that meet, among others, the stock and option price criteria of the Underlying Index methodology.17 The Fund will invest at least 80% of its total assets in the securities that comprise its Underlying Index. The Reference Index for the Fund is a rules-based, modified market 15 This calculation is based on the absolute value of the short call option position which has a negative mark-to-market value. 16 See note 11, supra. 17 See note 7, supra. PO 00000 Frm 00099 Fmt 4703 Sfmt 4703 6163 capitalization weighted index that is designed to track the movements of public companies that are components of the S&P 500 Index and are classified in the GICS® sector, Financials. A modified market capitalization weighted index first weights each index component according to its market capitalization, using the number of shares that are readily available for purchase on the open market, then imposes limits on the weight of individual index components and redistributes any excess weight across the remaining index components. A wide array of diversified financial service firms are featured in this sector with business lines ranging from investment management to commercial and investment banking. The Underlying Index for the Fund measures the performance of a hypothetical portfolio that employs a covered call strategy. It consists of long positions in companies in the Reference Index and out-of-the-money call options 18 that are written (sold) systematically on the option eligible securities of companies in the Reference Index that meet, among others, the stock and option price criteria of the Underlying Index methodology. The Fund will be an index fund that employs a ‘‘passive management’’ investment strategy in seeking to achieve its objective. The Adviser’s strategy will consist of holding an equity portfolio indexed to the Reference Index and writing (selling) covered call options on these equity securities indexed to the Underlying Index, which options will be generally one standard deviation ‘‘out-of-themoney.’’ 19 Options are written systematically ‘‘out-of-the-money’’ in accordance with the index methodology based on the prevailing individual level of volatility for each of the equity securities. The Underlying Index provides a benchmark measure of the total return of this hypothetical portfolio. Because a covered call strategy generates income in the form of premiums on the written options, the Underlying Index is generally expected to provide higher total returns with lower volatility than the Reference Index in most market environments, with the exception of when the equity market is rallying rapidly. The options in the Underlying Index will be traded on national securities exchanges. As of August 31, 2012, the Reference Index and Underlying Index included common stocks of 81 companies, of 18 See 19 See E:\FR\FM\29JAN1.SGM note 13, supra. note 14, supra. 29JAN1 6164 Federal Register / Vol. 78, No. 19 / Tuesday, January 29, 2013 / Notices srobinson on DSK4SPTVN1PROD with which all 81 are option eligible, with a market capitalization range of between approximately $2 billion and $181 billion. As of that date, the Underlying Index also included short (written) call options on 65 option eligible securities of the Reference Index, representing 0.7% of the total weight 20 of the Underlying Index. The Fund will generally use a replication methodology, meaning it will invest in all of the securities comprising the Underlying Index in proportion to the weightings in the Underlying Index. However, the Fund may from time-to-time utilize a sampling methodology under various circumstances where it may not be possible or practicable to purchase all of the equity securities and write (sell) all of the call options comprising the Underlying Index. The Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the Underlying Index is so concentrated. The Fund will be non-diversified under the 1940 Act and, therefore, may invest a greater percentage of its assets in a particular issue in comparison to a ‘‘diversified’’ fund. Moreover, in pursuing its objective, the Fund may hold the securities of a single issuer in an amount exceeding 10% of the outstanding voting securities of the issuer, subject to restrictions imposed by the Code. Horizons S&P Energy Select Sector Covered Call ETF The Horizons S&P Energy Select Sector Covered Call ETF will seek investment results that, before fees and expenses, generally correspond to the performance of the Fund’s Underlying Index, which is the S&P 500 Energy Select Sector Stock Covered Call Index. The Fund seeks correlation of 0.95 or better between its performance and the performance of its Underlying Index. A figure of 1.00 would represent perfect correlation. As described below, the Underlying Index is comprised of all the equity securities 21 in the Fund’s Reference Index, which is the S&P Energy Select Sector Index, and short (written) call options on the option eligible securities of companies in the Reference Index that meet, among others, the stock and option price criteria of the Underlying Index methodology.22 The Fund will invest at least 80% of its total assets in the note 15, supra. note 11, supra. 22 See note 7, supra. securities that comprise its Underlying Index. The Reference Index for the Fund is a rules-based, modified market capitalization weighted index that is designed to track the movements of public companies that are components of the S&P 500 Index and are classified in the GICS® sector, Energy. A modified market capitalization weighted index first weights each index component according to its market capitalization, using the number of shares that are readily available for purchase on the open market, then imposes limits on the weight of individual index components and redistributes any excess weight across the remaining index components. Energy companies in this sector primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services. The Underlying Index for the Fund measures the performance of a hypothetical portfolio that employs a covered call strategy. It consists of long positions in companies in the Reference Index and out-of-the-money call options 23 that are written (sold) systematically on the option eligible securities of companies in the Reference Index that meet, among others, the stock and option price criteria of the Underlying Index methodology. The Fund will be an index fund that employs a ‘‘passive management’’ investment strategy in seeking to achieve its objective. The Adviser’s strategy will consist of holding an equity portfolio indexed to the Reference Index and writing (selling) covered call options on these equity securities, which options will be indexed to the Underlying Index, generally one standard deviation ‘‘outof-the-money.’’ 24 Options are written systematically ‘‘out-of-the-money’’ in accordance with the index methodology based on the prevailing individual level of volatility for each of the equity securities. The Underlying Index provides a benchmark measure of the total return of this hypothetical portfolio. Because a covered call strategy generates income in the form of premiums on the written options, the Underlying Index is generally expected to provide higher total returns with lower volatility than the Reference Index in most market environments, with the exception of when the equity market is rallying rapidly. The options in the Underlying Index will be traded on national securities exchanges. As of August 31, 2012, the Reference Index 20 See 21 See VerDate Mar<15>2010 16:47 Jan 28, 2013 23 See 24 See Jkt 229001 PO 00000 note 13, supra. note 14, supra. Frm 00100 Fmt 4703 and Underlying Index included common stocks of 45 companies, of which all 45 are option eligible, with a market capitalization range of between approximately $1 billion and $276 billion. As of that date, the Underlying Index also included short (written) call options on 42 option eligible securities of the Reference Index, representing 0.6% of the total weight 25 of the Underlying Index. The Fund generally will use a replication methodology, meaning it will invest in all of the securities comprising the Underlying Index in proportion to the weightings in the Underlying Index. However, the Fund may from time to time utilize a sampling methodology under various circumstances where it may not be possible or practicable to purchase all of the equity securities and write (sell) all of the call options comprising the Underlying Index. The Fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to approximately the same extent that the Underlying Index is so concentrated. The Fund will be non-diversified under the 1940 Act and, therefore, may invest a greater percentage of its assets in a particular issue in comparison to a ‘‘diversified’’ fund. Moreover, in pursuing its objective, the Fund may hold the securities of a single issuer in an amount exceeding 10% of the outstanding voting securities of the issuer, subject to restrictions imposed by the Code. Investment Guidelines Each Fund will write (sell) call options on the option eligible securities of companies in its Reference Index to the same extent as such short call options are included in its Underlying Index. The Funds will utilize options in accordance with Rule 4.5 of the Commodity Exchange Act (‘‘CEA’’). The Trust, on behalf of the Funds, has filed a notice of eligibility for exclusion from the definition of the term ‘‘commodity pool operator’’ in accordance with Rule 4.5 so that the Funds are not subject to registration or regulation as a commodity pool operator under the CEA. Other Investments Each Fund may invest in short-term instruments, including money market instruments, on an ongoing basis to provide liquidity for cash equitization, funding, or under abnormal market conditions. Money market instruments 25 See Sfmt 4703 E:\FR\FM\29JAN1.SGM note 15, supra. 29JAN1 srobinson on DSK4SPTVN1PROD with Federal Register / Vol. 78, No. 19 / Tuesday, January 29, 2013 / Notices are generally short-term investments that may include but are not limited to: (i) Shares of money market funds; (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable certificates of deposit, bankers’ acceptances, fixed time deposits, and other obligations of U.S. and foreign banks (including foreign branches) and similar institutions; (iv) commercial paper rated at the date of purchase ‘‘Prime-1’’ by Moody’s or ‘‘A– 1’’ by S&P, or if unrated, of comparable quality as determined by the SubAdviser; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the date of purchase of not more than 397 days and that satisfy the rating requirements set forth in Rule 2a–7 under the 1940 Act; and (vi) short-term U.S. dollar-denominated obligations of foreign banks (including U.S. branches) that, in the opinion of the Sub-Adviser, are of comparable quality to obligations of U.S. banks which may be purchased by a Fund. Any of these instruments may be purchased on a current or a forward-settled basis. Each Fund may invest in the securities of other investment companies, subject to applicable limitations under Section 12(d)(1) of the 1940 Act. A 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. The Funds will monitor their portfolio liquidity on an ongoing basis to determine whether, in the 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 a Fund’s net assets are held in illiquid securities and other illiquid assets. Each Fund will seek to qualify for treatment as a regulated investment company under the Code. Additional information regarding the Trust, the Funds, and the Shares, including investment strategies, risks, creation and redemption procedures, fees, portfolio holdings disclosure policies, distributions, and taxes, among other things, is included in the Notice and Registration Statement, as applicable.26 26 See Notice and Registration Statement, supra notes 3 and 4. VerDate Mar<15>2010 16:47 Jan 28, 2013 Jkt 229001 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 27 and the rules and regulations thereunder applicable to a national securities exchange.28 In particular, the Commission finds that the proposed rule change is consistent with the requirements of Section 6(b)(5) of the Act,29 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 Funds and the Shares must comply with the applicable requirements of NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2) 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,30 which sets forth Congress’s 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. The intra-day, closing, and settlement prices of the portfolio securities held by the Funds will be readily available from the securities exchanges trading such securities, automated quotation systems, published or other public sources, or on-line information services such as Bloomberg or Reuters. The value of each Underlying Index will be widely disseminated by one or more major market data vendors at least every 15 seconds during the NYSE Arca Core Trading Session (9:30 a.m. to 4:00 p.m., Eastern Time), and information regarding the components of each 27 15 U.S.C. 78f. 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). 29 15 U.S.C. 78f(b)(5). 30 15 U.S.C. 78k–1(a)(1)(C)(iii). 28 In PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 6165 Reference Index and Underlying Index and their percentage weightings will be available from the Index Provider and major market data vendors. In addition, quotation and last-sale information for the components of the Underlying Indices and Reference Indices will be available from the exchanges on which they trade. An indicative optimized portfolio value (‘‘IOPV’’) for the Shares for each Fund will be widely disseminated at least every 15 seconds during the NYSE Arca Core Trading Session by one or more major market data vendors.31 On each business day, prior to commencement of trading of the Shares in the Core Trading Session on the Exchange, the Funds will disclose on their Web site the securities and financial instruments in each Fund’s portfolio that will form the basis for each Fund’s calculation of net asset value (‘‘NAV’’) at the end of the business day.32 Each Fund’s NAV will be determined as of the close of the New York Stock Exchange (‘‘NYSE’’) (normally 4:00 p.m., Eastern Time) on each day the NYSE is open for trading. Each Fund, through the National Securities Clearing Corporation, will make publicly available on each business day, prior to the opening of business on the Exchange (currently 9:30 a.m., Eastern Time), a basket composition file for each Fund, which includes the security names and share quantities required to be delivered in exchange for that Fund’s Shares, together with estimates and actual cash components, which basket will represent one Creation Unit of the relevant Fund.33 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 for the Shares will be published daily in the financial section of newspapers. The Adviser’s 31 See NYSE Arca Equities Rule 5.2(j)(3), Commentaries .01(b)(2) and .01(c). According to the Exchange, several major market data vendors widely disseminate IOPVs taken from the CTA or other data feeds. See Notice, supra note 3, at 73505. 32 On a daily basis, each Fund will disclose for each portfolio security and other financial instrument of the Fund the following information on the Funds’ Web site: ticker symbol (if applicable), name of securities and financial instruments, number of shares or dollar value of securities and financial instruments held in the portfolio, and percentage weighting of the securities and financial instruments in the portfolio. The Web site information will be publicly available at no charge. 33 A Creation Unit of each Fund will consist of at least 50,000 Shares, and will be issued and redeemed for securities in which the Fund invests, cash, or both securities and cash. E:\FR\FM\29JAN1.SGM 29JAN1 6166 Federal Register / Vol. 78, No. 19 / Tuesday, January 29, 2013 / Notices Web site will also include a form of the prospectus for the Funds, information relating to NAV (updated daily), and other quantitative and trading 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 will be made available to all market participants at the same time.34 If the IOPV or the relevant Underlying Index value of a Fund is not being disseminated as required, the Exchange may halt trading during the day in which the disruption occurs. If the interruption to the dissemination of the applicable IOPV or Underlying Index value persists past the trading day in which it occurred, the Exchange will halt trading.35 In addition, if the Exchange becomes aware that the NAV of a Fund is not being disseminated to all market participants at the same time, it will halt trading in the Shares of such Fund on the Exchange until such time as the NAV is available to all market participants. The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees. The Exchange states that the Adviser and the Sub-Adviser are affiliated with brokerdealers and have implemented a fire wall with respect to their respective broker-dealer affiliates regarding access to information concerning the portfolio holdings of the Funds.36 The Exchange 34 See NYSE Arca Equities Rule 5.2(j)(3)(A)(v). respect to trading halts, the Exchange may consider all relevant factors in exercising its discretion to halt or suspend trading in the Shares of a Fund. Trading in Shares of a Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached. Trading also may be halted because of market conditions or for reasons that, in the view of the Exchange, make trading in the Shares inadvisable. These may include: (1) the extent to which trading is not occurring in the securities and/or the financial instruments comprising the relevant Fund’s portfolio; or (2) whether other unusual conditions or circumstances detrimental to the maintenance of a fair and orderly market are present. 36 See notes 5 and 6, supra. The Commission also 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 srobinson on DSK4SPTVN1PROD with 35 With VerDate Mar<15>2010 16:47 Jan 28, 2013 Jkt 229001 further states that the Index Provider is neither a broker-dealer nor affiliated with a broker-dealer, and has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Underlying Indices. The Commission notes that the Exchange would be able to obtain information with respect to the equity securities and options comprising the Underlying Indices and which will be held by the Funds because such equity securities and options will be listed and traded on U.S. national securities exchanges, all of which are members of the Intermarket Surveillance Group (‘‘ISG’’). 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 continued listing standards under NYSE Arca Equities Rules 5.2(j)(3) and 5.5(g)(2) applicable to Investment Company Units shall apply to the Shares. (2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (3) The Exchange’s surveillance procedures applicable to derivative products, which include Investment Company Units, 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. All equity securities and options comprising the Underlying Indices are listed and traded on U.S. exchanges, which are members of ISG. (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 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. PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 will discuss the following: (a) the procedures for purchases and redemptions of Shares in Creation Units (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 IOPV will not be calculated or publicly disseminated; (d) how information regarding the IOPV is disseminated; (e) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information. (5) The market value of the call options included in each Underlying Index will not represent more than 10% of the total weight of each Underlying Index. Each call option included in each Underlying Index must meet the criteria of the Underlying Index methodology, which methodology is publicly available. (6) Each Fund seeks a correlation over time of 0.95 or better between the Fund’s performance and the performance of its Underlying Index. A figure of 1.00 would represent perfect correlation. (7) A Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities. (8) Each Fund will invest at least 80% of its total assets in securities that comprise its applicable Underlying Index. (9) A minimum of 100,000 Shares for each Fund will be outstanding as of the start of trading on the Exchange. (10) For initial and continued listing, each Fund will be in compliance with Rule 10A–3 under the Act,37 as provided by NYSE Arca Equities Rule 5.3. The Exchange further represents that the Funds and the Shares will comply with all other requirements applicable to Investment Company Units including, but not limited to, requirements relating to the dissemination of key information such as the value of the Underlying Indices, IOPV, and NAV, rules governing the trading of equity securities, trading hours, trading halts, surveillance, information barriers, and Information Bulletin to ETP Holders (each as described in more detail herein and in the Notice), as set forth in Exchange rules applicable to Investment Company 37 17 E:\FR\FM\29JAN1.SGM CFR 240.10A–3. 29JAN1 Federal Register / Vol. 78, No. 19 / Tuesday, January 29, 2013 / Notices Units and prior Commission orders approving the listing rules applicable to the listing and trading of Investment Company Units. 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 Funds. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act 38 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,39 that the proposed rule change (SR– NYSEArca2012–131) be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.40 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–01811 Filed 1–28–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [File No. 500–1] Order of Suspension of Trading; In the Matter of Medis Technologies Ltd., Modern Medical Modalities Corp., National Datacomputer, Inc., New Media Lottery Services, Inc., Sino-Bon Entertainment, Inc., Tamir Biotechnology, Inc., and Techmedia Advertising, Inc., srobinson on DSK4SPTVN1PROD with January 25, 2013. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Medis Technologies Ltd. because it has not filed any periodic reports since the period ended June 30, 2009. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Modern Medical Modalities Corp. because it has not filed any periodic reports since the period ended September 30, 2010. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of National Datacomputer, Inc. because it has not filed any periodic reports since the period ended December 31, 2010. 38 15 U.S.C. 78f(b)(5). 39 15 U.S.C. 78s(b)(2). 40 17 CFR 200.30–3(a)(12). VerDate Mar<15>2010 17:39 Jan 28, 2013 Jkt 229001 It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of New Media Lottery Services, Inc. because it has not filed any periodic reports since the period ended April 30, 2010. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Sino-Bon Entertainment, Inc. because it has not filed any periodic reports since the period ended September 30, 2010. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Tamir Biotechnology, Inc. because it has not filed any periodic reports since the period ended January 31, 2011. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Techmedia Advertising, Inc. because it has not filed any periodic reports since the period ended April 30, 2010. The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed companies. Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the securities of the above-listed companies is suspended for the period from 9:30 a.m. EST on January 25, 2013, through 11:59 p.m. EST on February 7, 2013. By the Commission. Jill M. Peterson, Assistant Secretary. [FR Doc. 2013–01962 Filed 1–25–13; 11:15 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION 6167 concerning the securities of Montavo, Inc. because it has not filed any periodic reports since the period ended June 30, 2011. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of OBN Holdings, Inc. because it has not filed any periodic reports since the period ended March 31, 2010. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of PrepaYd, Inc. because it has not filed any periodic reports since the period ended December 31, 2010. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Ready Welder Corp. because it has not filed any periodic reports since the period ended September 30, 2010. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Snowdon Resources Corp. because it has not filed any periodic reports since the period ended January 31, 2011. The Commission is of the opinion that the public interest and the protection of investors require a suspension of trading in the securities of the above-listed companies. Therefore, it is ordered, pursuant to Section 12(k) of the Securities Exchange Act of 1934, that trading in the securities of the above-listed companies is suspended for the period from 9:30 a.m. EST on January 25, 2013, through 11:59 p.m. EST on February 7, 2013. By the Commission. Jill M. Peterson, Assistant Secretary. [FR Doc. 2013–01964 Filed 1–25–13; 11:15 am] BILLING CODE 8011–01–P [File No. 500–1] In the Matter of Largo Vista Group, Ltd., Montavo, Inc., OBN Holdings, Inc., PrepaYd, Inc., Ready Welder Corp., and Snowdon Resources Corp.; Order of Suspension of Trading January 25, 2013. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information concerning the securities of Largo Vista Group, Ltd. because it has not filed any periodic reports since the period ended September 30, 2008. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 SECURITIES AND EXCHANGE COMMISSION [File No. 500–1] Order of Suspension of Trading; In the Matter of Law Enforcement Associates Corp., Matrixx Resource Holdings, Inc., Mortgage Assistance Center Corp., Sino Shipping Holdings, Inc., Sonnen Corp., Superior Oil & Gas Co., Tekoil & Gas Corp., Trend Mining Co., and Unico, Inc. January 25, 2013. It appears to the Securities and Exchange Commission that there is a lack of current and accurate information E:\FR\FM\29JAN1.SGM 29JAN1

Agencies

[Federal Register Volume 78, Number 19 (Tuesday, January 29, 2013)]
[Notices]
[Pages 6161-6167]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01811]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68708; File No. SR-NYSEArca-2012-131]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to Listing and Trading of 
Shares of the Horizons S&P 500 Covered Call ETF, Horizons S&P Financial 
Select Sector Covered Call ETF, and Horizons S&P Energy Select Sector 
Covered Call ETF Under NYSE Arca Equities Rule 5.2(j)(3)

January 23, 2013.

I. Introduction

    On November 21, 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 ``Exchange Act'') \1\ and Rule 19b-4

[[Page 6162]]

thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the Horizons S&P 500 Covered Call ETF, Horizons S&P 
Financial Select Sector Covered Call ETF, and Horizons S&P Energy 
Select Sector Covered Call ETF (each, a ``Fund,'' and collectively, 
``Funds'') under NYSE Arca Equities Rule 5.2(j)(3). The proposed rule 
change was published in the Federal Register on December 10, 2012.\3\ 
The Commission received no comments on the proposal. This order grants 
approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68351 (December 4, 
2012), 77 FR 73500 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares of the Funds 
under Commentary .01 to NYSE Arca Equities Rule 5.2(j)(3), which 
governs the listing and trading of Investment Company Units. The Shares 
will be offered by Exchange Traded Concepts Trust II (``Trust''), which 
is organized as a Delaware statutory trust and is registered with the 
Commission as an open-end management investment company.\4\ The 
investment adviser to the Funds is Exchange Traded Concepts, LLC 
(``Adviser''), and the sub-adviser to the Funds is Horizons ETFs 
Management (USA) LLC (``Sub-Adviser'').\5\ Foreside Fund Services, LLC 
is the principal underwriter and distributor of the Funds' Shares. Citi 
Fund Services Ohio, Inc. will serve as administrator for the Funds; 
Citibank, NA will serve as custodian for the Funds; and Citi Fund 
Services Ohio, Inc. will serve as transfer agent for the Funds.
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On September 10, 2012, the Trust filed with the 
Commission an amendment to its Form N-1A under the Securities Act of 
1933 and under the 1940 Act relating to the Funds (File Nos. 333-
180871 and 811-22700) (``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. 
29065 (December 1, 2009) (File No. 812-13638).
    \5\ The 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 portfolio holdings of 
the Funds. The Sub-Adviser is also affiliated with a broker-dealer 
and has implemented a fire wall with respect to its broker dealer 
affiliate regarding access to information concerning the portfolio 
holdings of the Funds. 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 portfolio holdings of 
the Funds, and will be subject to procedures designed to prevent the 
use and dissemination of material, non-public information regarding 
such portfolios.
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    As described below, each Fund will seek investment results that, 
before fees and expenses, generally correspond to the performance of a 
specified index (each, an ``Underlying Index'') provided by S&P Dow 
Jones Indices LLC (``Index Provider'').\6\ Each Underlying Index is 
comprised of all the equity securities in one of the S&P 500 Index, S&P 
Financial Select Sector Index, or S&P Energy Select Sector Index (each, 
a ``Reference Index'') and short (written) call options on each of the 
option eligible securities in the relevant Reference Index that meet, 
among others, stock and option price criteria of the Underlying Index 
methodology.\7\
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    \6\ Each of the Underlying Indices is provided by the Index 
Provider, which is unaffiliated with the Funds, the Adviser, or the 
Sub-Adviser. The Index Provider maintains, calculates, and publishes 
information regarding each of the Underlying Indices. The Index 
Provider is not a broker-dealer and is not affiliated with a broker-
dealer and has implemented procedures designed to prevent the use 
and dissemination of material, non-public information regarding the 
Underlying Indices.
    \7\ The Underlying Index methodology is available at 
www.standardandpoors.com/indices. The Exchange provides that, as of 
October 26, 2012, such criteria include, among others, that no call 
options will be written if the equity security price is less than 
$10, and no call options will be written at prices below $0.15. The 
Index Provider may amend the methodology from time to time. In such 
case, the methodology would be updated accordingly on the Web site.
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    The Exchange submitted this proposed rule change because the 
Underlying Indices for the Funds do not meet all of the ``generic'' 
listing requirements of Commentary .01(a)(A) to NYSE Arca Equities Rule 
5.2(j)(3) applicable to the listing of Investment Company Units based 
upon an index of ``US Component Stocks.'' \8\ Specifically, Commentary 
.01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) \9\ sets forth the 
requirements to be met by components of an index or portfolio of US 
Component Stocks. As described further below, each of the Underlying 
Indices consists of all the equity securities in one of the Reference 
Indices and short (written) call options on each of the option eligible 
securities in the relevant Reference Index that meet, among others, the 
stock and option price criteria of the Underlying Index methodology. 
All securities in the Reference Indices are listed and traded on a U.S. 
national securities exchange and the options on the option eligible 
securities of companies in the Reference Indices are traded on a U.S. 
national options exchange. The market value of the call options will 
not represent more than 10% of the total weight of any of the 
Underlying Indices. The Exchange has represented that the Underlying 
Indices meet all requirements of NYSE Arca Equities Rule 5.2(j)(3) and 
Commentary .01(a)(A) thereto, except that the Underlying Indices 
include call options, which are not NMS Stocks as defined in Rule 600 
of Regulation NMS.\10\
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    \8\ NYSE Arca Equities Rule 5.2(j)(3) provides that the term 
``US Component Stock'' shall mean an equity security that is 
registered under Sections 12(b) or 12(g) of the Exchange Act or an 
American Depositary Receipt, the underlying equity security of which 
is registered under Sections 12(b) or 12(g) of the Exchange Act.
    \9\ Commentary .01(a)(A) to NYSE Arca Equities Rule 5.2(j)(3) 
states, in part, that the components of an index of US Component 
Stocks, upon the initial listing of a series of Units pursuant to 
Rule 19b-4(e) under the Exchange Act shall be NMS Stocks as defined 
in Rule 600 of Regulation NMS under the Exchange Act. See 17 CFR 
242.600(b)(47) (defining ``NMS Stock'' as any NMS Security other 
than an option).
    \10\ See id.
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Horizons S&P 500 Covered Call ETF

    The Horizons S&P 500 Covered Call ETF will seek investment results 
that, before fees and expenses, generally correspond to the performance 
of the Fund's Underlying Index, which is the S&P 500 Stock Covered Call 
Index. The Fund seeks correlation of 0.95 or better between its 
performance and the performance of its Underlying Index. A figure of 
1.00 would represent perfect correlation. As described below, the 
Underlying Index is comprised of all the equity securities \11\ in the 
Fund's Reference Index, which is the S&P 500 Index, and short (written) 
call options on each of the option eligible securities in the Reference 
Index that meet, among others, the stock and option price criteria of 
the Underlying Index methodology.\12\ The Fund will invest at least 80% 
of its total assets in securities that comprise its Underlying Index.
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    \11\ ``Equity securities'' includes all U.S. common equities 
listed on the Exchange, the New York Stock Exchange, NYSE MKT, the 
NASDAQ Global Select Market, the NASDAQ Select Market, and the 
NASDAQ Capital Market. Business development companies and real 
estate investment trusts (``REITs'') are eligible for inclusion as 
equity securities, with the exception of mortgage REITs.
    \12\ See note 7, supra.
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    The Reference Index for the Fund is a float-adjusted market 
capitalization weighted index containing equity securities of 500 
industrial, information technology, utility, and financial companies 
amongst other Global Industry Classification Standard 
(``GICS[supreg]'') sectors, regarded as generally representative of the 
U.S. stock market. A float-adjusted market capitalization weighted 
index weights each index component according to its market 
capitalization, using the number of shares that are readily available 
for purchase on the open market.
    The Underlying Index for the Fund measures the performance of a

[[Page 6163]]

hypothetical portfolio that employs a covered call strategy. It 
consists of long positions in companies in the Reference Index and out-
of-the-money call options \13\ that are written (sold) systematically 
on the option eligible securities of companies in the Reference Index 
that meet, among others, the stock and option price criteria of the 
Underlying Index methodology.
---------------------------------------------------------------------------

    \13\ An ``out-of-the-money'' call option is one in which the 
exercise (or ``strike'') price of the option is above the market 
price of the security.
---------------------------------------------------------------------------

    The Fund will be an index fund that employs a ``passive 
management'' investment strategy in seeking to achieve its objective. 
The Adviser's strategy will consist of holding an equity portfolio 
indexed to the Reference Index and writing (selling) covered call 
options on these equity securities, which options will be indexed to 
the Underlying Index, generally one standard deviation ``out-of-the-
money.'' \14\ Options are written systematically ``out-of-the-money'' 
in accordance with the index methodology based on the prevailing 
individual level of volatility for each of the equity securities. The 
Underlying Index provides a benchmark measure of the total return of 
this hypothetical portfolio.
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    \14\ A covered call strategy is generally considered to be an 
investment strategy in which an investor buys a security, and sells 
a call option that corresponds to the security. In return for a 
premium, the Fund will give the purchaser of the option written by 
the Fund either the right to buy the security from the Fund at an 
exercise price or the right to receive a cash payment equal to the 
difference between the value of the security and the exercise (or 
``strike'') price, if the value is above the exercise price on or 
before the expiration date of the option. In addition, the covered 
call options hedge against a decline in the price of the securities 
on which they are written to the extent of the premium the Fund 
receives. A covered call strategy is generally used in a neutral-to-
bullish market environment, where a slow and steady rise in market 
prices is anticipated.
---------------------------------------------------------------------------

    Because a covered call strategy generates income in the form of 
premiums on the written options, the Underlying Index is generally 
expected to provide higher total returns with lower volatility than the 
Reference Index in most market environments, with the exception of when 
the equity market is rallying rapidly. The options in the Underlying 
Index will be traded on national securities exchanges. As of August 31, 
2012, the Reference Index and Underlying Index included common stocks 
of 500 companies, 499 of which are option eligible, with a market 
capitalization range of between approximately $1 billion and $622 
billion. As of that date, the Underlying Index also included short 
(written) call options on 434 option eligible securities of the 
Reference Index, representing 0.6% of the total weight \15\ of the 
Underlying Index.
---------------------------------------------------------------------------

    \15\ This calculation is based on the absolute value of the 
short call option position which has a negative mark-to-market 
value.
---------------------------------------------------------------------------

    The Fund will generally use a replication methodology, meaning it 
will invest in all of the securities comprising the Underlying Index in 
proportion to the weightings in the Underlying Index. However, the Fund 
may from time-to-time utilize a sampling methodology under various 
circumstances where it may not be possible or practicable to purchase 
all of the equity securities and write (sell) all of the call options 
comprising the Underlying Index.
    The Fund will concentrate its investments (i.e., hold 25% or more 
of its total assets) in a particular industry or group of industries to 
approximately the same extent that the Underlying Index is so 
concentrated. The Fund will be non-diversified under the 1940 Act and, 
therefore, may invest a greater percentage of its assets in a 
particular issue in comparison to a ``diversified'' fund. Moreover, in 
pursuing its objective, the Fund may hold the securities of a single 
issuer in an amount exceeding 10% of the outstanding voting securities 
of the issuer, subject to restrictions imposed by the Internal Revenue 
Code of 1986, as amended (``Code'').

Horizons S&P Financial Select Sector Covered Call ETF

    The Horizons S&P Financial Select Sector Covered Call ETF will seek 
investment results that, before fees and expenses, generally correspond 
to the performance of the Fund's Underlying Index, which is the S&P 500 
Financial Select Sector Stock Covered Call Index. The Fund seeks 
correlation of 0.95 or better between its performance and the 
performance of its Underlying Index. A figure of 1.00 would represent 
perfect correlation. As described below, the Underlying Index is 
comprised of all the equity securities \16\ in the Fund's Reference 
Index, which is the S&P Financial Select Sector Index, and short 
(written) call options on the option eligible securities of companies 
in the Reference Index that meet, among others, the stock and option 
price criteria of the Underlying Index methodology.\17\ The Fund will 
invest at least 80% of its total assets in the securities that comprise 
its Underlying Index.
---------------------------------------------------------------------------

    \16\ See note 11, supra.
    \17\ See note 7, supra.
---------------------------------------------------------------------------

    The Reference Index for the Fund is a rules-based, modified market 
capitalization weighted index that is designed to track the movements 
of public companies that are components of the S&P 500 Index and are 
classified in the GICS[supreg] sector, Financials. A modified market 
capitalization weighted index first weights each index component 
according to its market capitalization, using the number of shares that 
are readily available for purchase on the open market, then imposes 
limits on the weight of individual index components and redistributes 
any excess weight across the remaining index components. A wide array 
of diversified financial service firms are featured in this sector with 
business lines ranging from investment management to commercial and 
investment banking.
    The Underlying Index for the Fund measures the performance of a 
hypothetical portfolio that employs a covered call strategy. It 
consists of long positions in companies in the Reference Index and out-
of-the-money call options \18\ that are written (sold) systematically 
on the option eligible securities of companies in the Reference Index 
that meet, among others, the stock and option price criteria of the 
Underlying Index methodology.
---------------------------------------------------------------------------

    \18\ See note 13, supra.
---------------------------------------------------------------------------

    The Fund will be an index fund that employs a ``passive 
management'' investment strategy in seeking to achieve its objective. 
The Adviser's strategy will consist of holding an equity portfolio 
indexed to the Reference Index and writing (selling) covered call 
options on these equity securities indexed to the Underlying Index, 
which options will be generally one standard deviation ``out-of-the-
money.'' \19\ Options are written systematically ``out-of-the-money'' 
in accordance with the index methodology based on the prevailing 
individual level of volatility for each of the equity securities. The 
Underlying Index provides a benchmark measure of the total return of 
this hypothetical portfolio.
---------------------------------------------------------------------------

    \19\ See note 14, supra.
---------------------------------------------------------------------------

    Because a covered call strategy generates income in the form of 
premiums on the written options, the Underlying Index is generally 
expected to provide higher total returns with lower volatility than the 
Reference Index in most market environments, with the exception of when 
the equity market is rallying rapidly. The options in the Underlying 
Index will be traded on national securities exchanges. As of August 31, 
2012, the Reference Index and Underlying Index included common stocks 
of 81 companies, of

[[Page 6164]]

which all 81 are option eligible, with a market capitalization range of 
between approximately $2 billion and $181 billion. As of that date, the 
Underlying Index also included short (written) call options on 65 
option eligible securities of the Reference Index, representing 0.7% of 
the total weight \20\ of the Underlying Index.
---------------------------------------------------------------------------

    \20\ See note 15, supra.
---------------------------------------------------------------------------

    The Fund will generally use a replication methodology, meaning it 
will invest in all of the securities comprising the Underlying Index in 
proportion to the weightings in the Underlying Index. However, the Fund 
may from time-to-time utilize a sampling methodology under various 
circumstances where it may not be possible or practicable to purchase 
all of the equity securities and write (sell) all of the call options 
comprising the Underlying Index.
    The Fund will concentrate its investments (i.e., hold 25% or more 
of its total assets) in a particular industry or group of industries to 
approximately the same extent that the Underlying Index is so 
concentrated. The Fund will be non-diversified under the 1940 Act and, 
therefore, may invest a greater percentage of its assets in a 
particular issue in comparison to a ``diversified'' fund. Moreover, in 
pursuing its objective, the Fund may hold the securities of a single 
issuer in an amount exceeding 10% of the outstanding voting securities 
of the issuer, subject to restrictions imposed by the Code.

Horizons S&P Energy Select Sector Covered Call ETF

    The Horizons S&P Energy Select Sector Covered Call ETF will seek 
investment results that, before fees and expenses, generally correspond 
to the performance of the Fund's Underlying Index, which is the S&P 500 
Energy Select Sector Stock Covered Call Index. The Fund seeks 
correlation of 0.95 or better between its performance and the 
performance of its Underlying Index. A figure of 1.00 would represent 
perfect correlation. As described below, the Underlying Index is 
comprised of all the equity securities \21\ in the Fund's Reference 
Index, which is the S&P Energy Select Sector Index, and short (written) 
call options on the option eligible securities of companies in the 
Reference Index that meet, among others, the stock and option price 
criteria of the Underlying Index methodology.\22\ The Fund will invest 
at least 80% of its total assets in the securities that comprise its 
Underlying Index.
---------------------------------------------------------------------------

    \21\ See note 11, supra.
    \22\ See note 7, supra.
---------------------------------------------------------------------------

    The Reference Index for the Fund is a rules-based, modified market 
capitalization weighted index that is designed to track the movements 
of public companies that are components of the S&P 500 Index and are 
classified in the GICS[supreg] sector, Energy. A modified market 
capitalization weighted index first weights each index component 
according to its market capitalization, using the number of shares that 
are readily available for purchase on the open market, then imposes 
limits on the weight of individual index components and redistributes 
any excess weight across the remaining index components. Energy 
companies in this sector primarily develop and produce crude oil and 
natural gas, and provide drilling and other energy-related services.
    The Underlying Index for the Fund measures the performance of a 
hypothetical portfolio that employs a covered call strategy. It 
consists of long positions in companies in the Reference Index and out-
of-the-money call options \23\ that are written (sold) systematically 
on the option eligible securities of companies in the Reference Index 
that meet, among others, the stock and option price criteria of the 
Underlying Index methodology.
---------------------------------------------------------------------------

    \23\ See note 13, supra.
---------------------------------------------------------------------------

    The Fund will be an index fund that employs a ``passive 
management'' investment strategy in seeking to achieve its objective. 
The Adviser's strategy will consist of holding an equity portfolio 
indexed to the Reference Index and writing (selling) covered call 
options on these equity securities, which options will be indexed to 
the Underlying Index, generally one standard deviation ``out-of-the-
money.'' \24\ Options are written systematically ``out-of-the-money'' 
in accordance with the index methodology based on the prevailing 
individual level of volatility for each of the equity securities. The 
Underlying Index provides a benchmark measure of the total return of 
this hypothetical portfolio.
---------------------------------------------------------------------------

    \24\ See note 14, supra.
---------------------------------------------------------------------------

    Because a covered call strategy generates income in the form of 
premiums on the written options, the Underlying Index is generally 
expected to provide higher total returns with lower volatility than the 
Reference Index in most market environments, with the exception of when 
the equity market is rallying rapidly. The options in the Underlying 
Index will be traded on national securities exchanges. As of August 31, 
2012, the Reference Index and Underlying Index included common stocks 
of 45 companies, of which all 45 are option eligible, with a market 
capitalization range of between approximately $1 billion and $276 
billion. As of that date, the Underlying Index also included short 
(written) call options on 42 option eligible securities of the 
Reference Index, representing 0.6% of the total weight \25\ of the 
Underlying Index.
---------------------------------------------------------------------------

    \25\ See note 15, supra.
---------------------------------------------------------------------------

    The Fund generally will use a replication methodology, meaning it 
will invest in all of the securities comprising the Underlying Index in 
proportion to the weightings in the Underlying Index. However, the Fund 
may from time to time utilize a sampling methodology under various 
circumstances where it may not be possible or practicable to purchase 
all of the equity securities and write (sell) all of the call options 
comprising the Underlying Index.
    The Fund will concentrate its investments (i.e., hold 25% or more 
of its total assets) in a particular industry or group of industries to 
approximately the same extent that the Underlying Index is so 
concentrated. The Fund will be non-diversified under the 1940 Act and, 
therefore, may invest a greater percentage of its assets in a 
particular issue in comparison to a ``diversified'' fund. Moreover, in 
pursuing its objective, the Fund may hold the securities of a single 
issuer in an amount exceeding 10% of the outstanding voting securities 
of the issuer, subject to restrictions imposed by the Code.

Investment Guidelines

    Each Fund will write (sell) call options on the option eligible 
securities of companies in its Reference Index to the same extent as 
such short call options are included in its Underlying Index. The Funds 
will utilize options in accordance with Rule 4.5 of the Commodity 
Exchange Act (``CEA''). The Trust, on behalf of the Funds, has filed a 
notice of eligibility for exclusion from the definition of the term 
``commodity pool operator'' in accordance with Rule 4.5 so that the 
Funds are not subject to registration or regulation as a commodity pool 
operator under the CEA.

Other Investments

    Each Fund may invest in short-term instruments, including money 
market instruments, on an ongoing basis to provide liquidity for cash 
equitization, funding, or under abnormal market conditions. Money 
market instruments

[[Page 6165]]

are generally short-term investments that may include but are not 
limited to: (i) Shares of money market funds; (ii) obligations issued 
or guaranteed by the U.S. government, its agencies or instrumentalities 
(including government-sponsored enterprises); (iii) negotiable 
certificates of deposit, bankers' acceptances, fixed time deposits, and 
other obligations of U.S. and foreign banks (including foreign 
branches) and similar institutions; (iv) commercial paper rated at the 
date of purchase ``Prime-1'' by Moody's or ``A-1'' by S&P, or if 
unrated, of comparable quality as determined by the Sub-Adviser; (v) 
non-convertible corporate debt securities (e.g., bonds and debentures) 
with remaining maturities at the date of purchase of not more than 397 
days and that satisfy the rating requirements set forth in Rule 2a-7 
under the 1940 Act; and (vi) short-term U.S. dollar-denominated 
obligations of foreign banks (including U.S. branches) that, in the 
opinion of the Sub-Adviser, are of comparable quality to obligations of 
U.S. banks which may be purchased by a Fund. Any of these instruments 
may be purchased on a current or a forward-settled basis.
    Each Fund may invest in the securities of other investment 
companies, subject to applicable limitations under Section 12(d)(1) of 
the 1940 Act.
    A 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. The Funds will monitor their portfolio 
liquidity on an ongoing basis to determine whether, in the 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 a Fund's net assets are held 
in illiquid securities and other illiquid assets.
    Each Fund will seek to qualify for treatment as a regulated 
investment company under the Code.
    Additional information regarding the Trust, the Funds, and the 
Shares, including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, 
distributions, and taxes, among other things, is included in the Notice 
and Registration Statement, as applicable.\26\
---------------------------------------------------------------------------

    \26\ See Notice and Registration Statement, supra notes 3 and 4.
---------------------------------------------------------------------------

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 \27\ and the rules and regulations thereunder applicable to a 
national securities exchange.\28\ In particular, the Commission finds 
that the proposed rule change is consistent with the requirements of 
Section 6(b)(5) of the Act,\29\ 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 Funds and the Shares 
must comply with the applicable requirements of NYSE Arca Equities 
Rules 5.2(j)(3) and 5.5(g)(2) to be listed and traded on the Exchange.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f.
    \28\ 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).
    \29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\30\ which sets forth Congress's 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. The intra-day, closing, and 
settlement prices of the portfolio securities held by the Funds will be 
readily available from the securities exchanges trading such 
securities, automated quotation systems, published or other public 
sources, or on-line information services such as Bloomberg or Reuters. 
The value of each Underlying Index will be widely disseminated by one 
or more major market data vendors at least every 15 seconds during the 
NYSE Arca Core Trading Session (9:30 a.m. to 4:00 p.m., Eastern Time), 
and information regarding the components of each Reference Index and 
Underlying Index and their percentage weightings will be available from 
the Index Provider and major market data vendors. In addition, 
quotation and last-sale information for the components of the 
Underlying Indices and Reference Indices will be available from the 
exchanges on which they trade. An indicative optimized portfolio value 
(``IOPV'') for the Shares for each Fund will be widely disseminated at 
least every 15 seconds during the NYSE Arca Core Trading Session by one 
or more major market data vendors.\31\ On each business day, prior to 
commencement of trading of the Shares in the Core Trading Session on 
the Exchange, the Funds will disclose on their Web site the securities 
and financial instruments in each Fund's portfolio that will form the 
basis for each Fund's calculation of net asset value (``NAV'') at the 
end of the business day.\32\ Each Fund's NAV will be determined as of 
the close of the New York Stock Exchange (``NYSE'') (normally 4:00 
p.m., Eastern Time) on each day the NYSE is open for trading. Each 
Fund, through the National Securities Clearing Corporation, will make 
publicly available on each business day, prior to the opening of 
business on the Exchange (currently 9:30 a.m., Eastern Time), a basket 
composition file for each Fund, which includes the security names and 
share quantities required to be delivered in exchange for that Fund's 
Shares, together with estimates and actual cash components, which 
basket will represent one Creation Unit of the relevant Fund.\33\ 
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 for the Shares will be published daily in the financial section 
of newspapers. The Adviser's

[[Page 6166]]

Web site will also include a form of the prospectus for the Funds, 
information relating to NAV (updated daily), and other quantitative and 
trading information.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \31\ See NYSE Arca Equities Rule 5.2(j)(3), Commentaries 
.01(b)(2) and .01(c). According to the Exchange, several major 
market data vendors widely disseminate IOPVs taken from the CTA or 
other data feeds. See Notice, supra note 3, at 73505.
    \32\ On a daily basis, each Fund will disclose for each 
portfolio security and other financial instrument of the Fund the 
following information on the Funds' Web site: ticker symbol (if 
applicable), name of securities and financial instruments, number of 
shares or dollar value of securities and financial instruments held 
in the portfolio, and percentage weighting of the securities and 
financial instruments in the portfolio. The Web site information 
will be publicly available at no charge.
    \33\ A Creation Unit of each Fund will consist of at least 
50,000 Shares, and will be issued and redeemed for securities in 
which the Fund invests, cash, or both securities and cash.
---------------------------------------------------------------------------

    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 will be made available to all market 
participants at the same time.\34\ If the IOPV or the relevant 
Underlying Index value of a Fund is not being disseminated as required, 
the Exchange may halt trading during the day in which the disruption 
occurs. If the interruption to the dissemination of the applicable IOPV 
or Underlying Index value persists past the trading day in which it 
occurred, the Exchange will halt trading.\35\ In addition, if the 
Exchange becomes aware that the NAV of a Fund is not being disseminated 
to all market participants at the same time, it will halt trading in 
the Shares of such Fund on the Exchange until such time as the NAV is 
available to all market participants. The Exchange states that it has a 
general policy prohibiting the distribution of material, non-public 
information by its employees. The Exchange states that the Adviser and 
the Sub-Adviser are affiliated with broker-dealers and have implemented 
a fire wall with respect to their respective broker-dealer affiliates 
regarding access to information concerning the portfolio holdings of 
the Funds.\36\ The Exchange further states that the Index Provider is 
neither a broker-dealer nor affiliated with a broker-dealer, and has 
implemented procedures designed to prevent the use and dissemination of 
material, non-public information regarding the Underlying Indices. The 
Commission notes that the Exchange would be able to obtain information 
with respect to the equity securities and options comprising the 
Underlying Indices and which will be held by the Funds because such 
equity securities and options will be listed and traded on U.S. 
national securities exchanges, all of which are members of the 
Intermarket Surveillance Group (``ISG'').
---------------------------------------------------------------------------

    \34\ See NYSE Arca Equities Rule 5.2(j)(3)(A)(v).
    \35\ 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 a Fund. Trading in Shares of a Fund will be 
halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) the extent 
to which trading is not occurring in the securities and/or the 
financial instruments comprising the relevant Fund's portfolio; or 
(2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present.
    \36\ See notes 5 and 6, supra. The Commission also 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.
---------------------------------------------------------------------------

    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 continued listing standards under NYSE Arca Equities Rules 
5.2(j)(3) and 5.5(g)(2) applicable to Investment Company Units shall 
apply to the Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures applicable to derivative 
products, which include Investment Company Units, 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. All equity securities and options comprising 
the Underlying Indices are listed and traded on U.S. exchanges, which 
are members of ISG.
    (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 Units (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 IOPV will not be calculated or publicly 
disseminated; (d) how information regarding the IOPV is disseminated; 
(e) the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (f) trading information.
    (5) The market value of the call options included in each 
Underlying Index will not represent more than 10% of the total weight 
of each Underlying Index. Each call option included in each Underlying 
Index must meet the criteria of the Underlying Index methodology, which 
methodology is publicly available.
    (6) Each Fund seeks a correlation over time of 0.95 or better 
between the Fund's performance and the performance of its Underlying 
Index. A figure of 1.00 would represent perfect correlation.
    (7) A Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities.
    (8) Each Fund will invest at least 80% of its total assets in 
securities that comprise its applicable Underlying Index.
    (9) A minimum of 100,000 Shares for each Fund will be outstanding 
as of the start of trading on the Exchange.
    (10) For initial and continued listing, each Fund will be in 
compliance with Rule 10A-3 under the Act,\37\ as provided by NYSE Arca 
Equities Rule 5.3.
---------------------------------------------------------------------------

    \37\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    The Exchange further represents that the Funds and the Shares will 
comply with all other requirements applicable to Investment Company 
Units including, but not limited to, requirements relating to the 
dissemination of key information such as the value of the Underlying 
Indices, IOPV, and NAV, rules governing the trading of equity 
securities, trading hours, trading halts, surveillance, information 
barriers, and Information Bulletin to ETP Holders (each as described in 
more detail herein and in the Notice), as set forth in Exchange rules 
applicable to Investment Company

[[Page 6167]]

Units and prior Commission orders approving the listing rules 
applicable to the listing and trading of Investment Company Units. 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 Funds.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \38\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\39\ that the proposed rule change (SR-NYSEArca2012-131) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \39\ 15 U.S.C. 78s(b)(2).
    \40\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\40\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01811 Filed 1-28-13; 8:45 am]
BILLING CODE 8011-01-P