Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to Listing and Trading of the Newfleet Multi-Sector Income ETF Under NYSE Arca Equities Rule 8.600, 15990-15994 [2013-05717]
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Federal Register / Vol. 78, No. 49 / Wednesday, March 13, 2013 / Notices
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 20549–1090, 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
offices 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–
NASDAQ–2013–038, and should be
submitted on or before April 3, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.9
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–05734 Filed 3–12–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69061; File No. SR–
NYSEArca–2013–01]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Relating to
Listing and Trading of the Newfleet
Multi-Sector Income ETF Under NYSE
Arca Equities Rule 8.600
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March 7, 2013.
I. Introduction
On January 4, 2013, 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
thereunder,2 a proposed rule change to
list and trade shares (‘‘Shares’’) of the
Newfleet Multi-Sector Income ETF
(‘‘Fund’’) under NYSE Arca Equities
Rule 8.600. The proposed rule change
was published for comment in the
Federal Register on January 23, 2013.3
The Commission received no comments
9 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 68666
(Jan. 16, 2013), 78 FR 4960 (‘‘Notice’’).
1 15
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on the proposed rule change. This order
grants approval of the proposed rule
change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade Shares of the Fund pursuant to
NYSE Arca Equities Rule 8.600, which
governs the listing and trading of
Managed Fund Shares on the Exchange.
The Shares will be offered by
AdvisorSharesTrust (‘‘Trust’’), a
statutory trust organized under the laws
of the State of Delaware and registered
with the Commission as an open-end
management investment company.4 The
investment manager to the Fund will be
AdvisorShares Investments LLC
(‘‘Adviser’’). Newfleet Asset
Management, LLC will serve as subadviser to the Fund (‘‘Sub-Adviser’’).
Foreside Fund Services, LLC will serve
as the distributor for the Fund. The
Bank of New York Mellon will serve as
the custodian and transfer agent for the
Fund. The Exchange represents that the
Adviser is not affiliated with a brokerdealer. The Exchange represents that the
Sub-Adviser is affiliated with a brokerdealer and has implemented a fire wall
with respect to its broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio, and will
be subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding the portfolio.5
Description of the Fund
Principal Investments
The Fund will, under normal market
conditions,6 invest at least eighty
4 The Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). On June 25,
2012, the Trust filed with the Commission an
amendment to its registration statement on Form N–
1A under the Securities Act of 1933 (‘‘Securities
Act’’) and under the 1940 Act relating to the Fund
(File Nos. 333–157876 and 811–22110)
(‘‘Registration Statement’’). In addition, the
Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act.
See Investment Company Act Release No. 29291
(May 28, 2010) (File No. 812–13677).
5 See NYSE Arca Equities Rule 8.600,
Commentary .06. In the event (a) the Adviser or the
Sub-Adviser becomes newly affiliated with a
broker-dealer, or (b) any new adviser or sub-adviser
becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to such brokerdealer regarding access to information concerning
the composition and/or changes to the portfolio,
and will be subject to procedures designed to
prevent the use and dissemination of material nonpublic information regarding such portfolio.
6 The term ‘‘under normal market conditions’’
includes, but is not limited to, the absence of
extreme volatility or trading halts in the fixed
income markets or the financial markets generally;
operational issues causing dissemination of
inaccurate market information; or force majeure
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percent (80%) in investment-grade fixed
income securities, which are fixed
income securities with credit ratings
within the four highest rating categories
of a nationally recognized statistical
rating organization. The Fund may
invest in unrated securities to a limited
extent if such security is determined by
the Sub-Adviser to be of comparable
quality.7 The average duration of the
Fund’s fixed income investments will
range from one to three years.
The Fund’s investment objective is to
provide a competitive level of current
income, consistent with preservation of
capital, while limiting fluctuations in
net asset value (‘‘NAV’’) due to changes
in interest rates. The Fund seeks to
apply extensive credit research and a
time-tested approach to capitalize on
opportunities across undervalued areas
of the bond markets.
The Sub-Adviser will seek to provide
diversification by allocating the Fund’s
investments among various sectors of
the fixed income markets, including
investment grade debt securities issued
primarily by U.S. issuers and
secondarily by non-U.S. issuers, as
follows:
• Securities issued or guaranteed as
to principal and interest by the U.S.
government, its agencies, authorities, or
instrumentalities, including
collateralized mortgage obligations, real
estate mortgage investment conduits,
and other pass-through securities;
• Non-agency 8 commercial mortgagebacked securities (‘‘CMBS’’), agency and
non-agency residential mortgage-backed
securities (‘‘RMBS’’), and other asset
backed securities; 9
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar
intervening circumstance.
7 In determining whether a security is of
‘‘comparable quality,’’ the Sub-Adviser will
consider, for example, whether the issuer of the
security has issued other rated securities; whether
the obligations under the security are guaranteed by
another entity and the rating of such guarantor (if
any); whether and (if applicable) how the security
is collateralized; other forms of credit enhancement
(if any); the security’s maturity date; liquidity
features (if any); relevant cash flow(s); valuation
features; other structural analysis; macroeconomic
analysis; and sector or industry analysis.
8 ‘‘Non-agency’’ securities are financial
instruments that have been issued by an entity that
is not a government-sponsored agency, such as the
Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, Federal Home
Loan Banks, or the Government National Mortgage
Association.
9 Although the Fund has not established a fixed
limit to the amount of non-agency securities in
which it will invest, at least 80% of the Fund’s net
assets will be, under normal market conditions,
invested in U.S. dollar denominated investment
grade fixed income securities. The liquidity of any
such security will be a factor in the selection of any
such security.
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• U.S. and non-U.S. corporate
bonds; 10
• Yankee bonds; 11
• Taxable municipal bonds and taxexempt municipal bonds; and
• Debt securities issued by foreign
governments and their political
subdivisions.
The Fund represents that the portfolio
will include a minimum of 13 nonaffiliated issuers of fixed income
securities. The Fund will only purchase
performing securities and not distressed
debt.12
In seeking to achieve the Fund’s
investment objective, the Sub-Adviser
will employ active sector rotation and
disciplined risk management in the
construction of the Fund’s portfolio.
The Fund’s investable assets will be
allocated among various sectors of the
fixed income market using a ‘‘topdown’’ 13 relative value approach that
looks at factors such as yield and
spreads, supply and demand,
investment environment, and sector
fundamentals. The Sub-Adviser will
select particular investments using a
bottom-up, fundamental research-driven
analysis that includes assessment of
credit risk, company management,
issuer capital structure, technical
market conditions, and valuations. The
Sub-Adviser will select securities it
believes offer the best potential to
achieve the Fund’s investment objective
of providing a high level of total return,
including a competitive level of current
income, while preserving capital.
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Other Investments
While the Fund will invest at least
eighty percent (80%) in investmentgrade fixed income securities, in the
absence of normal market conditions the
Fund may invest 100% of its total
assets, without limitation, in short-term
high-quality debt securities and money
10 The Adviser expects that under normal market
conditions, the Fund will seek to invest at least
75% of its assets in corporate bond issuances that
have at least $100,000,000 par amount outstanding
in developed countries and at least $200,000,000
par amount outstanding in emerging market
countries.
11 Yankee bonds are denominated in U.S. dollars,
registered in accordance with the Securities Act and
publicly issued in the U.S. by foreign banks and
corporations.
12 Distressed debt is debt that is currently in
default and is not expected to pay the current
coupon.
13 A ‘‘top-down’’ portfolio management style
utilizes a tactical and globally diversified allocation
strategy in an attempt to reduce risk and increase
overall performance. This management style begins
with a look at the overall economic picture and
current market conditions and then narrows its
focus down to sectors, industries, or countries and
ultimately to individual companies. The final step
is a fundamental analysis of each individual
security and to a lesser extent technical analysis.
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market instruments either directly or
through exchange traded funds
(‘‘ETFs’’).14 The Fund may be invested
in this manner for extended periods
depending on the Sub-Adviser’s
assessment of market conditions. These
short-term debt instruments and money
market instruments include shares of
other mutual funds, commercial paper,
certificates of deposit, bankers’
acceptances, U.S. government securities,
repurchase and reverse repurchase
agreements,15 and bonds that are rated
BBB or higher.
The Fund may invest up to 20% of its
total assets in fixed-income securities
that are rated below investment grade at
the time of purchase. Such securities
include corporate high yield debt
securities, emerging market high yield
debt securities, and bank loans. In
addition, such securities may include
non-investment grade CMBS, RMBS, or
other asset-backed securities, or debt
securities issued by foreign issuers. If
certain of the Fund’s holdings
experience a decline in their credit
quality and fall below investment grade,
the Fund may continue to hold the
securities and they will not count
toward the Fund’s 20% investment
limit; however, the Fund will make
reasonable investment decisions relating
to the Fund’s holdings aligned with its
investment objective with respect to
such securities. Generally, the Fund will
limit its investments in corporate high
yield debt securities to 10% of its assets
and will limit its investments in nonU.S. issuers to 30% of its assets. The
Sub-Adviser will regularly review the
Fund’s portfolio construction,
endeavoring to minimize risk exposure
14 The ETFs in which the Fund may invest will
be registered under the 1940 Act and include
Investment Company Units (as described in NYSE
Arca Equities Rule 5.2(j)(3)); Portfolio Depositary
Receipts (as described in NYSE Arca Equities Rule
8.100); and Managed Fund Shares (as described in
NYSE Arca Equities Rule 8.600). Such ETFs all will
be listed and traded in the U.S. on registered
exchanges. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged or
inverse leveraged ETFs (e.g., 2X or 3X).
15 The Fund may enter into repurchase
agreements with financial institutions, which may
be deemed to be loans. The Fund follows certain
procedures designed to minimize the risks inherent
in such agreements. These procedures include
effecting repurchase transactions only with large,
well-capitalized, and well-established financial
institutions whose condition will be continually
monitored by the Sub-Adviser. In addition, the
value of the collateral underlying the repurchase
agreement will always be at least equal to the
repurchase price, including any accrued interest
earned on the repurchase agreement. In the event
of a default or bankruptcy by a selling financial
institution, the Fund will seek to liquidate such
collateral. Reverse repurchase agreements involve
sales by the Fund of portfolio assets concurrently
with an agreement by the Fund to repurchase the
same assets at a later date at a fixed price.
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15991
by closely monitoring portfolio
characteristics such as sector
concentration and portfolio duration
and by investing no more than 5% of
the Fund’s total assets in securities of
any single issuer (excluding the U.S.
government, its agencies, authorities, or
instrumentalities).
The Fund may invest in equity
securities.16 The Fund will purchase
such equity securities traded in the U.S.
on registered exchanges. Additionally,
the Fund may invest in the equity
securities of foreign issuers, including
the securities of foreign issuers in
emerging countries.17 With respect to its
equity securities investments, the Fund
will invest only in equity securities
(including Equity Financial
Instruments) that trade in markets that
are members of the Intermarket
Surveillance Group (‘‘ISG’’) or are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
16 Equity securities represent ownership interests
in a company or partnership and consist not only
of common stocks, which are one of the Fund’s
primary types of investments, but also preferred
stocks, warrants to acquire common stock,
securities convertible into common stock, and
investments in master limited partnerships.
17 The Fund may invest in issuers located outside
the United States directly, or in financial
instruments that are indirectly linked to the
performance of foreign issuers. Examples of such
financial instruments include American Depository
Receipts (‘‘ADRs’’), ‘‘ordinary shares,’’ and ‘‘New
York shares’’ (each of which is issued and traded
in the U.S.); and Global Depository Receipts
(‘‘GDRs’’), European Depository Receipts (‘‘EDRs’’),
and International Depository Receipts (‘‘IDRs’’),
which are traded on foreign exchanges (all of the
foregoing financial instruments are collectively
referred to as ‘‘Equity Financial Instruments’’).
ADRs are U.S. dollar denominated receipts
typically issued by U.S. banks and trust companies
that evidence ownership of underlying securities
issued by a foreign issuer. The underlying securities
may not necessarily be denominated in the same
currency as the securities into which they may be
converted. The underlying securities are held in
trust by a custodian bank or similar financial
institution in the issuer’s home country. The
depositary bank may not have physical custody of
the underlying securities at all times and may
charge fees for various services, including
forwarding dividends and interest and corporate
actions. Generally, ADRs in registered form are
designed for use in domestic securities markets.
Ordinary shares are shares of foreign issuers that are
traded abroad and on a U.S. exchange. New York
shares are shares that a foreign issuer has allocated
for trading in the U.S. ADRs, ordinary shares, and
New York shares all may be purchased with and
sold for U.S. dollars, which protects the Fund from
foreign settlement risks. GDRs, EDRs, and IDRs are
similar to ADRs in that they are certificates
evidencing ownership of shares of a foreign issuer,
however, GDRs, EDRs, and IDRs may be issued in
bearer form and denominated in other currencies,
and are generally designed for use in specific or
multiple securities markets outside the U.S. EDRs,
for example, are designed for use in European
securities markets while GDRs are designed for use
throughout the world.
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The Fund may invest in exchangetraded notes (‘‘ETNs’’).18
The Fund may invest in, to the extent
permitted by Section 12(d)(1) of the
1940 Act and the rules thereunder,19
other affiliated and unaffiliated funds,
such as open-end or closed-end
management investment companies,20
including other ETFs; provided that the
Fund, immediately after such purchase
or acquisition, does not own in the
aggregate: (i) More than 3% of the total
outstanding voting stock of the acquired
company; (ii) securities issued by the
acquired company having an aggregate
value in excess of 5% of the value of the
total assets of the Fund; or (iii)
securities issued by the acquired
company and all other investment
companies (other than Treasury stock of
the Fund) having an aggregate value in
excess of 10% of the value of the total
assets of the Fund.
The Fund also may invest in the
securities of other investment
companies if the Fund is part of a
‘‘master-feeder’’ structure or operates as
a fund of funds in compliance with
Section 12(d)(1)(E), (F) and (G) of the
1940 Act and the rules thereunder.21
Section 12(d)(1) prohibits another
investment company from selling its
shares to the Fund if, after the sale: (i)
the Fund owns more than 3% of the
other investment company’s voting
stock or (ii) the Fund and other
investment companies, and companies
controlled by them, own more than 10%
of the voting stock of such other
investment company. The Trust has
entered into agreements with several
unaffiliated ETFs that permit, pursuant
to a Commission order, the Fund to
purchase shares of those ETFs beyond
such limits set forth in Section 12(d)(1).
The Fund will only make such
investments in conformity with the
requirements of Subchapter M of the
Internal Revenue Code of 1986, as
amended (‘‘Code’’). The Fund will seek
to qualify for treatment as a Regulated
Investment Company under the Code.
The Fund may invest in the exchange
traded securities of pooled vehicles that
are not investment companies and, thus,
not required to comply with the
provisions of the 1940 Act. Such pooled
18 ETNs, also called index-linked securities as
would be listed, for example, under NYSE Arca
Equities Rule 5.2(j)(6), are senior, unsecured,
unsubordinated debt securities issued by an
underwriting bank that are designed to provide
returns that are linked to a particular benchmark
less investor fees.
19 15 U.S.C. 80a–12(d)(1).
20 Investment companies may include indexbased investments, such as ETFs that hold
substantially all of their assets in securities
representing a specific index.
21 15 U.S.C. 80a–12(d)(1)(E),(F) and (G).
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vehicles would be required to comply
with the provisions of other federal
securities laws, such as the Securities
Act. These pooled vehicles typically
hold commodities, such as gold or oil,
currency, or other property that is itself
not a security.
The Fund may invest in shares of
exchange-traded real estate investment
trusts.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities (calculated at the time
of investment), including Rule 144A
securities and loan participation
interests (e.g., bank loans). The Fund
will monitor its portfolio liquidity on an
ongoing basis to determine whether, in
light of current circumstances, an
adequate level of liquidity is being
maintained, and will consider taking
appropriate steps in order to maintain
adequate liquidity if, through a change
in values, net assets, or other
circumstances, more than 15% of the
Fund’s net assets are held in illiquid
securities. Illiquid securities include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.
The Fund may not (i) with respect to
75% of its total assets, purchase
securities of any issuer (except
securities issued or guaranteed by the
U.S. government, its agencies, or
instrumentalities, or shares of
investment companies) if, as a result,
more than 5% of its total assets would
be invested in the securities of such
issuer; or (ii) acquire more than 10% of
the outstanding voting securities of any
one issuer.
The Fund may not invest 25% or
more of its total assets in the securities
of one or more issuers conducting their
principal business activities in the same
industry or group of industries. This
limitation does not apply to investments
in securities issued or guaranteed by the
U.S. government, its agencies, or
instrumentalities, or shares of
investment companies. The Fund will
not invest 25% or more of its total assets
in any investment company that so
concentrates.
The Fund will not invest in options
contracts, futures contracts, or swap
agreements.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3
under the Exchange Act,22 as provided
22 17
PO 00000
CFR 240.10A–3.
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by NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares will be
outstanding at the commencement of
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio 23
will be made available to all market
participants at the same time. The
Fund’s investments will be consistent
with the Fund’s investment objective
and will not be used to enhance
leverage.
Additional information regarding the
Trust, Fund, and Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings, disclosure policies,
distributions and taxes, availability of
information, trading rules and halts, and
surveillance procedures, among other
things, can be found in the Notice and/
or the Registration Statement, as
applicable.24
III. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of
Section 6 of the Act 25 and the rules and
regulations thereunder applicable to a
national securities exchange.26 In
particular, the Commission finds that
the proposed rule change is consistent
with the requirements of Section 6(b)(5)
of the Act,27 which requires, among
other things, that the Exchange’s rules
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Commission notes
that the Fund and the Shares must
comply with the requirements of NYSE
Arca Equities Rule 8.600 to be listed and
traded on the Exchange.
The Commission finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Act,28 which sets
23 The term ‘‘Disclosed Portfolio’’ is defined in
NYSE Arca Equities Rule 8.600(c)(2).
24 See Notice and Registration Statement, supra
notes 3 and 4, respectively.
25 15 U.S.C. 78f.
26 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).
27 15 U.S.C. 78f(b)(5).
28 15 U.S.C. 78k–1(a)(1)(C)(iii).
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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. In addition, the Portfolio Indicative
Value, as defined in NYSE Arca Equities
Rule 8.600(c)(3), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the NYSE Arca Core
Trading Session (9:30 a.m. Eastern time
to 4:00 p.m. Eastern time).29 On each
business day, before commencement of
trading in Shares in the Core Trading
Session on the Exchange, the Fund will
disclose on the Trust’s Web site the
Disclosed Portfolio, as defined in NYSE
Arca Equities Rule 8.600(c)(2), that will
form the basis for the Fund’s calculation
of NAV at the end of the business day.30
The NAV of the Fund will be calculated
once each business day as of the
regularly scheduled close of trading
(normally, 4:00 p.m. Eastern time) on
the New York Stock Exchange, LLC.
Information regarding market price and
trading volume of the Shares will be
continually available on a real-time
basis throughout the day on brokers’
computer screens and other electronic
services. Information regarding the
previous day’s closing price and trading
volume information for the Shares will
be published daily in the financial
section of newspapers. In addition,
price information for the debt and other
securities and investments held by the
Fund will be available through major
market data vendors or on the
exchanges on which they are traded.
The Trust’s Web site will include a form
of the prospectus for the Fund and
additional data relating to NAV and
other applicable quantitative
information.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
29 According to the Exchange, several major
market data vendors display and/or make widely
available Portfolio Indicative Values taken from the
CTA or other data feeds.
30 On a daily basis, the Fund will disclose for
each portfolio security or other financial instrument
of the Fund the following information: Ticker
symbol (if applicable), name of security or financial
instrument, number of shares or dollar value of
securities and financial instruments held in the
portfolio, and percentage weighting of the security
or financial instrument in the portfolio. The Web
site information will be publicly available at no
charge.
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necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Commission notes that the Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
will be made available to all market
participants at the same time.31 In
addition, trading in the Shares will be
subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. The Exchange
may halt trading in the Shares if trading
is not occurring in the securities and/or
the financial instruments constituting
the Disclosed Portfolio of the Fund, or
if other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present.32 Further, the
Commission notes that the Reporting
Authority that provides the Disclosed
Portfolio must implement and maintain,
or be subject to, procedures designed to
prevent the use and dissemination of
material, non-public information
regarding the actual components of the
portfolio.33 The Exchange states that it
has a general policy prohibiting the
distribution of material, non-public
information by its employees. The
Exchange also states that, while the
Adviser is not affiliated with a brokerdealer, the Sub-Adviser is affiliated with
a broker-dealer, and the Sub-Adviser
has implemented a fire wall with
respect to its broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material, non-public information
regarding the portfolio.34 The Exchange
31 See
NYSE Arca Equities Rule 8.600(d)(1)(B).
NYSE Arca Equities Rule 8.600(d)(2)(C)
(providing additional considerations for the
suspension of trading in or removal from listing of
Managed Fund Shares on the Exchange). With
respect to trading halts, the Exchange may consider
all relevant factors in exercising its discretion to
halt or suspend trading in the Shares of the Fund.
Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be
halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in
the Shares inadvisable.
33 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
34 See supra note 5 and accompanying text. The
Commission notes that an investment adviser to an
open-end fund is required to be registered under the
Investment Advisers Act of 1940 (‘‘Advisers Act’’).
As a result, the Adviser and Sub-Adviser and their
related personnel are subject to the provisions of
Rule 204A–1 under the Advisers Act relating to
codes of ethics. This Rule requires investment
advisers to adopt a code of ethics that reflects the
15993
will communicate as needed regarding
trading in the Shares with other markets
that are members of ISG or with which
the Exchange has in place a
comprehensive surveillance sharing
agreement. The Exchange represents
that the Fund will invest only in equity
securities and Equity Financial
Instruments that trade in markets that
are members of the ISG or are parties to
a comprehensive surveillance sharing
agreement with the Exchange.
The Exchange further represents that
the Shares are deemed to be equity
securities, thus rendering trading in the
Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. In support of this
proposal, the Exchange has made
representations, including:
(1) The Shares will conform to the
initial and continued listing criteria
under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) The Exchange’s surveillance
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.
(4) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders (‘‘ETP
Holders’’) in an Information Bulletin of
the special characteristics and risks
associated with trading the Shares.
Specifically, the Information Bulletin
will discuss the following: (a) The
procedures for purchases and
redemptions of Shares in Creation Unit
aggregations (and that Shares are not
individually redeemable); (b) NYSE
Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its
ETP Holders to learn the essential facts
relating to every customer prior to
trading the Shares; (c) the risks involved
in trading the Shares during the
32 See
PO 00000
Frm 00066
Fmt 4703
Sfmt 4703
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.
E:\FR\FM\13MRN1.SGM
13MRN1
mstockstill on DSK4VPTVN1PROD with NOTICES
15994
Federal Register / Vol. 78, No. 49 / Wednesday, March 13, 2013 / Notices
Opening and Late Trading Sessions
when an updated Portfolio Indicative
Value will not be calculated or publicly
disseminated; (d) how information
regarding the Portfolio Indicative Value
is disseminated; (e) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(5) For initial and/or continued
listing, the Fund will be in compliance
with Rule 10A–3 under the Exchange
Act,35 as provided by NYSE Arca
Equities Rule 5.3.
(6) The Fund will, under normal
market conditions, invest at least eighty
percent (80%) in investment-grade
securities, which are fixed income
securities with credit ratings within the
four highest rating categories of a
nationally recognized statistical rating
organization, or, if unrated, those
securities that the Sub-Adviser
determines to be of comparable quality.
(7) The Fund’s portfolio will include
a minimum of 13 non-affiliated issuers
of fixed income securities.
(8) The Fund will only purchase
performing securities and not distressed
debt.
(9) Generally, the Fund will limit its
investments in corporate high yield debt
securities to 10% of its assets and will
limit its investments in non-U.S. issuers
to 30% of its assets.
(10) Under normal market conditions,
the Fund will seek to invest at least 75%
of its assets in corporate bond issuances
that have at least $100,000,000 par
amount outstanding in developed
countries and at least $200,000,000 par
amount outstanding in emerging market
countries.
(11) The Fund will invest only in
equity securities (including Equity
Financial Instruments) that trade in
markets that are members of the ISG or
are parties to a comprehensive
surveillance sharing agreement with the
Exchange.
(12) The Fund will not invest in
options contracts, futures contracts, or
swap agreements.
(13) The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid securities, including
Rule 144A securities and loan
participation interests, and will monitor
its portfolio liquidity on an ongoing
basis to determine whether, in light of
current circumstances, an adequate
level of liquidity is being maintained,
and will consider taking appropriate
steps in order to maintain adequate
liquidity if, through a change in values,
35 17
CFR 240.10A–3.
VerDate Mar<15>2010
17:11 Mar 12, 2013
Jkt 229001
net assets, or other circumstances, more
than 15% of the Fund’s net assets are
held in illiquid securities.
(14) The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage. The Fund will not
invest in leveraged or inverse leveraged
ETFs.
(15) A minimum of 100,000 Shares of
the Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice, and the Exchange’s
description of the Fund.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 36 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,37 that the
proposed rule change (SR–NYSEArca–
2013–01) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.38
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–05717 Filed 3–12–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69063; File No. SR–FINRA–
2013–002]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Designation
of Longer Period for Commission
Action on Proposed Rule Change To
Amend FINRA Rule 2267 (Investor
Education and Protection)
March 7, 2013.
On January 7, 2013, Financial
Industry Regulatory Authority, Inc.
(‘‘FINRA’’) filed with the Securities and
Exchange Commission (‘‘SEC’’ or
‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend FINRA Rule 2267 (Investor
Education and Protection) to require
36 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
38 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
37 15
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
that members include a prominent
description of and link to FINRA
BrokerCheck, as prescribed by FINRA,
on their Web sites, social media pages,
and any comparable Internet presence,
and on Web sites, social media pages,
and any comparable Internet presence
relating to a member’s investment
banking or securities business
maintained by or on behalf of any
person associated with a member. The
proposed rule change was published for
comment in the Federal Register on
January 25, 2013.3 The Commission
received 24 comment letters on the
proposal.4
Section 19(b)(2) of the Act 5 provides
that, within 45 days of the publication
of notice of the filing of a proposed rule
3 See Securities Exchange Act Release No. 68700
(Jan. 18, 2013), 78 FR 5542.
4 See Letter from Charles Barker, dated January
29, 2013; Letter from David M. Sobel, Esq., Abel/
Noser Corp., dated January 30, 2013; Letter from
Pamela Albanese, Legal Intern, and Christine
Lazaro, Esq., Acting Director, St. John’s University
School of Law, Securities Arbitration Clinic, dated
February 4, 2013; Letter from Peter J. Chepucavage,
General Counsel, Plexus Consulting Group, LLC,
dated February 6, 2013; Letter from Jonathan W.
Evans and Michael S. Edmiston, Jonathan W. Evans
Associates, dated February 10, 2013; Letter from
Scott R. Shewan, Pape Shewan, LLP, dated
February 11, 2013; Letter from David Neuman,
Stoltmann Law Offices, dated February 12, 2013;
Letter from Barry D. Estell, dated February 12, 2013;
Letter from Scott C. Ilgenfritz, President, Public
Investors Arbitration Bar Association, dated
February 13, 2013; Letter from Bert Savage, dated
February 13, 2013; Letter from William A. Jacobson,
Esq., Associate Clinical Professor, Cornell Law
School, Director, Securities Law Clinic, and
Alexander Wingate, Cornell Law School, dated
February 14, 2013; Letter from A. Heath Abshure,
President, North American Securities
Administrators Association, Inc., dated February
15, 2013; Letter from Robert J. McCarthy, Director
of Regulatory Policy, Wells Fargo Advisors, LLC,
dated February 15, 2013; Letter from Tamara K.
Salmon, Senior Associate Counsel, Investment
Company Institute, dated February 15, 2013; Letter
from David T. Bellaire, Esq., Executive Vice
President & General Counsel, Financial Services
Institute, dated February 15, 2013; Letter from Scott
A. Eichhorn, Supervising Attorney, and Julianne S.
Bisceglia, Legal Intern, University of Miami School
of Law, Investor Rights Clinic, dated February 15,
2013; Letter from Melissa MacGregor, Managing
Director and Associate General Counsel, Securities
Industry and Financial Markets Association, dated
February 15, 2013; Letter from Brendan Daly, Legal
and Compliance Counsel, Commonwealth Financial
Network, dated February 15, 2013; Letter from
James Cooper, Chief Operating Officer, Zions Direct,
dated February 15, 2013; Letter from Melissa
Callison, Vice President, Compliance, Charles
Schwab & Co., Inc, dated February 15, 2013; Letter
from James Smith, Chief Compliance Officer,
BlackRock Investments, LLC, Ned Montenecourt,
Chief Compliance Officer, BlackRock Capital
Markets, LLC, BlackRock Execution Services, and
Joanne Medero, Managing Director, BlackRock, Inc.,
dated February 15, 2013; Letter from Clifford E.
Kirsch and Eric A. Arnold, Sutherland Asbill &
Brennan LLP, for the Committee of Annuity
Insurers, dated February 15, 2013; Letter from
Steven B. Caruso, Maddox Hargett Caruso, P.C.,
dated February 16, 2013; and Letter from Lisa
Catalano, Esq., dated February 18, 2013.
5 15 U.S.C. 78s(b)(2).
E:\FR\FM\13MRN1.SGM
13MRN1
]]>Agencies
[Federal Register Volume 78, Number 49 (Wednesday, March 13, 2013)]
[Notices]
[Pages 15990-15994]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05717]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69061; File No. SR-NYSEArca-2013-01]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to Listing and Trading of the
Newfleet Multi-Sector Income ETF Under NYSE Arca Equities Rule 8.600
March 7, 2013.
I. Introduction
On January 4, 2013, 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 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
Newfleet Multi-Sector Income ETF (``Fund'') under NYSE Arca Equities
Rule 8.600. The proposed rule change was published for comment in the
Federal Register on January 23, 2013.\3\ The Commission received no
comments on the proposed rule change. This order grants approval of the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 68666 (Jan. 16,
2013), 78 FR 4960 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to list and trade Shares of the Fund pursuant
to NYSE Arca Equities Rule 8.600, which governs the listing and trading
of Managed Fund Shares on the Exchange. The Shares will be offered by
AdvisorSharesTrust (``Trust''), a statutory trust organized under the
laws of the State of Delaware and registered with the Commission as an
open-end management investment company.\4\ The investment manager to
the Fund will be AdvisorShares Investments LLC (``Adviser''). Newfleet
Asset Management, LLC will serve as sub-adviser to the Fund (``Sub-
Adviser''). Foreside Fund Services, LLC will serve as the distributor
for the Fund. The Bank of New York Mellon will serve as the custodian
and transfer agent for the Fund. The Exchange represents that the
Adviser is not affiliated with a broker-dealer. The Exchange represents
that the Sub-Adviser is affiliated with a broker-dealer and has
implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the Fund's portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding the portfolio.\5\
---------------------------------------------------------------------------
\4\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). On June 25, 2012, the Trust filed with the
Commission an amendment to its registration statement on Form N-1A
under the Securities Act of 1933 (``Securities Act'') and under the
1940 Act relating to the Fund (File Nos. 333-157876 and 811-22110)
(``Registration Statement''). In addition, the Commission has issued
an order granting certain exemptive relief to the Trust under the
1940 Act. See Investment Company Act Release No. 29291 (May 28,
2010) (File No. 812-13677).
\5\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the
event (a) the Adviser or the Sub-Adviser becomes newly affiliated
with a broker-dealer, or (b) any new adviser or sub-adviser becomes
affiliated with a broker-dealer, it will implement a fire wall with
respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the portfolio, and will
be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio.
---------------------------------------------------------------------------
Description of the Fund
Principal Investments
The Fund will, under normal market conditions,\6\ invest at least
eighty percent (80%) in investment-grade fixed income securities, which
are fixed income securities with credit ratings within the four highest
rating categories of a nationally recognized statistical rating
organization. The Fund may invest in unrated securities to a limited
extent if such security is determined by the Sub-Adviser to be of
comparable quality.\7\ The average duration of the Fund's fixed income
investments will range from one to three years.
---------------------------------------------------------------------------
\6\ The term ``under normal market conditions'' includes, but is
not limited to, the absence of extreme volatility or trading halts
in the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar intervening
circumstance.
\7\ In determining whether a security is of ``comparable
quality,'' the Sub-Adviser will consider, for example, whether the
issuer of the security has issued other rated securities; whether
the obligations under the security are guaranteed by another entity
and the rating of such guarantor (if any); whether and (if
applicable) how the security is collateralized; other forms of
credit enhancement (if any); the security's maturity date; liquidity
features (if any); relevant cash flow(s); valuation features; other
structural analysis; macroeconomic analysis; and sector or industry
analysis.
---------------------------------------------------------------------------
The Fund's investment objective is to provide a competitive level
of current income, consistent with preservation of capital, while
limiting fluctuations in net asset value (``NAV'') due to changes in
interest rates. The Fund seeks to apply extensive credit research and a
time-tested approach to capitalize on opportunities across undervalued
areas of the bond markets.
The Sub-Adviser will seek to provide diversification by allocating
the Fund's investments among various sectors of the fixed income
markets, including investment grade debt securities issued primarily by
U.S. issuers and secondarily by non-U.S. issuers, as follows:
Securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies, authorities, or
instrumentalities, including collateralized mortgage obligations, real
estate mortgage investment conduits, and other pass-through securities;
Non-agency \8\ commercial mortgage-backed securities
(``CMBS''), agency and non-agency residential mortgage-backed
securities (``RMBS''), and other asset backed securities; \9\
---------------------------------------------------------------------------
\8\ ``Non-agency'' securities are financial instruments that
have been issued by an entity that is not a government-sponsored
agency, such as the Federal National Mortgage Association, Federal
Home Loan Mortgage Corporation, Federal Home Loan Banks, or the
Government National Mortgage Association.
\9\ Although the Fund has not established a fixed limit to the
amount of non-agency securities in which it will invest, at least
80% of the Fund's net assets will be, under normal market
conditions, invested in U.S. dollar denominated investment grade
fixed income securities. The liquidity of any such security will be
a factor in the selection of any such security.
---------------------------------------------------------------------------
[[Page 15991]]
U.S. and non-U.S. corporate bonds; \10\
---------------------------------------------------------------------------
\10\ The Adviser expects that under normal market conditions,
the Fund will seek to invest at least 75% of its assets in corporate
bond issuances that have at least $100,000,000 par amount
outstanding in developed countries and at least $200,000,000 par
amount outstanding in emerging market countries.
---------------------------------------------------------------------------
Yankee bonds; \11\
---------------------------------------------------------------------------
\11\ Yankee bonds are denominated in U.S. dollars, registered in
accordance with the Securities Act and publicly issued in the U.S.
by foreign banks and corporations.
---------------------------------------------------------------------------
Taxable municipal bonds and tax-exempt municipal bonds;
and
Debt securities issued by foreign governments and their
political subdivisions.
The Fund represents that the portfolio will include a minimum of 13
non-affiliated issuers of fixed income securities. The Fund will only
purchase performing securities and not distressed debt.\12\
---------------------------------------------------------------------------
\12\ Distressed debt is debt that is currently in default and is
not expected to pay the current coupon.
---------------------------------------------------------------------------
In seeking to achieve the Fund's investment objective, the Sub-
Adviser will employ active sector rotation and disciplined risk
management in the construction of the Fund's portfolio. The Fund's
investable assets will be allocated among various sectors of the fixed
income market using a ``top-down'' \13\ relative value approach that
looks at factors such as yield and spreads, supply and demand,
investment environment, and sector fundamentals. The Sub-Adviser will
select particular investments using a bottom-up, fundamental research-
driven analysis that includes assessment of credit risk, company
management, issuer capital structure, technical market conditions, and
valuations. The Sub-Adviser will select securities it believes offer
the best potential to achieve the Fund's investment objective of
providing a high level of total return, including a competitive level
of current income, while preserving capital.
---------------------------------------------------------------------------
\13\ A ``top-down'' portfolio management style utilizes a
tactical and globally diversified allocation strategy in an attempt
to reduce risk and increase overall performance. This management
style begins with a look at the overall economic picture and current
market conditions and then narrows its focus down to sectors,
industries, or countries and ultimately to individual companies. The
final step is a fundamental analysis of each individual security and
to a lesser extent technical analysis.
---------------------------------------------------------------------------
Other Investments
While the Fund will invest at least eighty percent (80%) in
investment-grade fixed income securities, in the absence of normal
market conditions the Fund may invest 100% of its total assets, without
limitation, in short-term high-quality debt securities and money market
instruments either directly or through exchange traded funds
(``ETFs'').\14\ The Fund may be invested in this manner for extended
periods depending on the Sub-Adviser's assessment of market conditions.
These short-term debt instruments and money market instruments include
shares of other mutual funds, commercial paper, certificates of
deposit, bankers' acceptances, U.S. government securities, repurchase
and reverse repurchase agreements,\15\ and bonds that are rated BBB or
higher.
---------------------------------------------------------------------------
\14\ The ETFs in which the Fund may invest will be registered
under the 1940 Act and include Investment Company Units (as
described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
and Managed Fund Shares (as described in NYSE Arca Equities Rule
8.600). Such ETFs all will be listed and traded in the U.S. on
registered exchanges. While the Fund may invest in inverse ETFs, the
Fund will not invest in leveraged or inverse leveraged ETFs (e.g.,
2X or 3X).
\15\ The Fund may enter into repurchase agreements with
financial institutions, which may be deemed to be loans. The Fund
follows certain procedures designed to minimize the risks inherent
in such agreements. These procedures include effecting repurchase
transactions only with large, well-capitalized, and well-established
financial institutions whose condition will be continually monitored
by the Sub-Adviser. In addition, the value of the collateral
underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such
collateral. Reverse repurchase agreements involve sales by the Fund
of portfolio assets concurrently with an agreement by the Fund to
repurchase the same assets at a later date at a fixed price.
---------------------------------------------------------------------------
The Fund may invest up to 20% of its total assets in fixed-income
securities that are rated below investment grade at the time of
purchase. Such securities include corporate high yield debt securities,
emerging market high yield debt securities, and bank loans. In
addition, such securities may include non-investment grade CMBS, RMBS,
or other asset-backed securities, or debt securities issued by foreign
issuers. If certain of the Fund's holdings experience a decline in
their credit quality and fall below investment grade, the Fund may
continue to hold the securities and they will not count toward the
Fund's 20% investment limit; however, the Fund will make reasonable
investment decisions relating to the Fund's holdings aligned with its
investment objective with respect to such securities. Generally, the
Fund will limit its investments in corporate high yield debt securities
to 10% of its assets and will limit its investments in non-U.S. issuers
to 30% of its assets. The Sub-Adviser will regularly review the Fund's
portfolio construction, endeavoring to minimize risk exposure by
closely monitoring portfolio characteristics such as sector
concentration and portfolio duration and by investing no more than 5%
of the Fund's total assets in securities of any single issuer
(excluding the U.S. government, its agencies, authorities, or
instrumentalities).
The Fund may invest in equity securities.\16\ The Fund will
purchase such equity securities traded in the U.S. on registered
exchanges. Additionally, the Fund may invest in the equity securities
of foreign issuers, including the securities of foreign issuers in
emerging countries.\17\ With respect to its equity securities
investments, the Fund will invest only in equity securities (including
Equity Financial Instruments) that trade in markets that are members of
the Intermarket Surveillance Group (``ISG'') or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
---------------------------------------------------------------------------
\16\ Equity securities represent ownership interests in a
company or partnership and consist not only of common stocks, which
are one of the Fund's primary types of investments, but also
preferred stocks, warrants to acquire common stock, securities
convertible into common stock, and investments in master limited
partnerships.
\17\ The Fund may invest in issuers located outside the United
States directly, or in financial instruments that are indirectly
linked to the performance of foreign issuers. Examples of such
financial instruments include American Depository Receipts
(``ADRs''), ``ordinary shares,'' and ``New York shares'' (each of
which is issued and traded in the U.S.); and Global Depository
Receipts (``GDRs''), European Depository Receipts (``EDRs''), and
International Depository Receipts (``IDRs''), which are traded on
foreign exchanges (all of the foregoing financial instruments are
collectively referred to as ``Equity Financial Instruments''). ADRs
are U.S. dollar denominated receipts typically issued by U.S. banks
and trust companies that evidence ownership of underlying securities
issued by a foreign issuer. The underlying securities may not
necessarily be denominated in the same currency as the securities
into which they may be converted. The underlying securities are held
in trust by a custodian bank or similar financial institution in the
issuer's home country. The depositary bank may not have physical
custody of the underlying securities at all times and may charge
fees for various services, including forwarding dividends and
interest and corporate actions. Generally, ADRs in registered form
are designed for use in domestic securities markets. Ordinary shares
are shares of foreign issuers that are traded abroad and on a U.S.
exchange. New York shares are shares that a foreign issuer has
allocated for trading in the U.S. ADRs, ordinary shares, and New
York shares all may be purchased with and sold for U.S. dollars,
which protects the Fund from foreign settlement risks. GDRs, EDRs,
and IDRs are similar to ADRs in that they are certificates
evidencing ownership of shares of a foreign issuer, however, GDRs,
EDRs, and IDRs may be issued in bearer form and denominated in other
currencies, and are generally designed for use in specific or
multiple securities markets outside the U.S. EDRs, for example, are
designed for use in European securities markets while GDRs are
designed for use throughout the world.
---------------------------------------------------------------------------
[[Page 15992]]
The Fund may invest in exchange-traded notes (``ETNs'').\18\
---------------------------------------------------------------------------
\18\ ETNs, also called index-linked securities as would be
listed, for example, under NYSE Arca Equities Rule 5.2(j)(6), are
senior, unsecured, unsubordinated debt securities issued by an
underwriting bank that are designed to provide returns that are
linked to a particular benchmark less investor fees.
---------------------------------------------------------------------------
The Fund may invest in, to the extent permitted by Section 12(d)(1)
of the 1940 Act and the rules thereunder,\19\ other affiliated and
unaffiliated funds, such as open-end or closed-end management
investment companies,\20\ including other ETFs; provided that the Fund,
immediately after such purchase or acquisition, does not own in the
aggregate: (i) More than 3% of the total outstanding voting stock of
the acquired company; (ii) securities issued by the acquired company
having an aggregate value in excess of 5% of the value of the total
assets of the Fund; or (iii) securities issued by the acquired company
and all other investment companies (other than Treasury stock of the
Fund) having an aggregate value in excess of 10% of the value of the
total assets of the Fund.
---------------------------------------------------------------------------
\19\ 15 U.S.C. 80a-12(d)(1).
\20\ Investment companies may include index-based investments,
such as ETFs that hold substantially all of their assets in
securities representing a specific index.
---------------------------------------------------------------------------
The Fund also may invest in the securities of other investment
companies if the Fund is part of a ``master-feeder'' structure or
operates as a fund of funds in compliance with Section 12(d)(1)(E), (F)
and (G) of the 1940 Act and the rules thereunder.\21\ Section 12(d)(1)
prohibits another investment company from selling its shares to the
Fund if, after the sale: (i) the Fund owns more than 3% of the other
investment company's voting stock or (ii) the Fund and other investment
companies, and companies controlled by them, own more than 10% of the
voting stock of such other investment company. The Trust has entered
into agreements with several unaffiliated ETFs that permit, pursuant to
a Commission order, the Fund to purchase shares of those ETFs beyond
such limits set forth in Section 12(d)(1). The Fund will only make such
investments in conformity with the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (``Code''). The Fund will
seek to qualify for treatment as a Regulated Investment Company under
the Code.
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\21\ 15 U.S.C. 80a-12(d)(1)(E),(F) and (G).
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The Fund may invest in the exchange traded securities of pooled
vehicles that are not investment companies and, thus, not required to
comply with the provisions of the 1940 Act. Such pooled vehicles would
be required to comply with the provisions of other federal securities
laws, such as the Securities Act. These pooled vehicles typically hold
commodities, such as gold or oil, currency, or other property that is
itself not a security.
The Fund may invest in shares of exchange-traded real estate
investment trusts.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities and loan participation interests (e.g.,
bank loans). The Fund will monitor its portfolio liquidity on an
ongoing basis to determine whether, in light of current circumstances,
an adequate level of liquidity is being maintained, and will consider
taking appropriate steps in order to maintain adequate liquidity if,
through a change in values, net assets, or other circumstances, more
than 15% of the Fund's net assets are held in illiquid securities.
Illiquid securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets as determined in accordance with Commission staff
guidance.
The Fund may not (i) with respect to 75% of its total assets,
purchase securities of any issuer (except securities issued or
guaranteed by the U.S. government, its agencies, or instrumentalities,
or shares of investment companies) if, as a result, more than 5% of its
total assets would be invested in the securities of such issuer; or
(ii) acquire more than 10% of the outstanding voting securities of any
one issuer.
The Fund may not invest 25% or more of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry or group of industries. This limitation
does not apply to investments in securities issued or guaranteed by the
U.S. government, its agencies, or instrumentalities, or shares of
investment companies. The Fund will not invest 25% or more of its total
assets in any investment company that so concentrates.
The Fund will not invest in options contracts, futures contracts,
or swap agreements.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents
that, for initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\22\ as provided by
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares will be
outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio \23\ will be made available to all market
participants at the same time. The Fund's investments will be
consistent with the Fund's investment objective and will not be used to
enhance leverage.
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\22\ 17 CFR 240.10A-3.
\23\ The term ``Disclosed Portfolio'' is defined in NYSE Arca
Equities Rule 8.600(c)(2).
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Additional information regarding the Trust, Fund, and Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings, disclosure policies,
distributions and taxes, availability of information, trading rules and
halts, and surveillance procedures, among other things, can be found in
the Notice and/or the Registration Statement, as applicable.\24\
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\24\ See Notice and Registration Statement, supra notes 3 and 4,
respectively.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \25\
and the rules and regulations thereunder applicable to a national
securities exchange.\26\ In particular, the Commission finds that the
proposed rule change is consistent with the requirements of Section
6(b)(5) of the Act,\27\ which requires, among other things, that the
Exchange's rules be designed to prevent fraudulent and manipulative
acts and practices, to promote just and equitable principles of trade,
to foster cooperation and coordination with persons engaged in
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
The Commission notes that the Fund and the Shares must comply with the
requirements of NYSE Arca Equities Rule 8.600 to be listed and traded
on the Exchange.
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\25\ 15 U.S.C. 78f.
\26\ 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).
\27\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\28\ which sets
[[Page 15993]]
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. In addition, the Portfolio Indicative Value,
as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the NYSE Arca Core Trading Session (9:30 a.m. Eastern
time to 4:00 p.m. Eastern time).\29\ On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Fund will disclose on the Trust's Web site the Disclosed
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will
form the basis for the Fund's calculation of NAV at the end of the
business day.\30\ The NAV of the Fund will be calculated once each
business day as of the regularly scheduled close of trading (normally,
4:00 p.m. Eastern time) on the New York Stock Exchange, LLC.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. In addition, price information for the debt and
other securities and investments held by the Fund will be available
through major market data vendors or on the exchanges on which they are
traded. The Trust's Web site will include a form of the prospectus for
the Fund and additional data relating to NAV and other applicable
quantitative information.
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\28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\29\ According to the Exchange, several major market data
vendors display and/or make widely available Portfolio Indicative
Values taken from the CTA or other data feeds.
\30\ On a daily basis, the Fund will disclose for each portfolio
security or other financial instrument of the Fund the following
information: Ticker symbol (if applicable), name of security or
financial instrument, number of shares or dollar value of securities
and financial instruments held in the portfolio, and percentage
weighting of the security or financial instrument in the portfolio.
The Web site information will be publicly available at no charge.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.\31\
In addition, trading in the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. The Exchange may halt trading
in the Shares if trading is not occurring in the securities and/or the
financial instruments constituting the Disclosed Portfolio of the Fund,
or if other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.\32\ Further, the
Commission notes that the Reporting Authority that provides the
Disclosed Portfolio must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of the
portfolio.\33\ The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees. The Exchange also states that, while the Adviser is not
affiliated with a broker-dealer, the Sub-Adviser is affiliated with a
broker-dealer, and the Sub-Adviser has implemented a fire wall with
respect to its broker-dealer affiliate regarding access to information
concerning the composition and/or changes to the portfolio, and will be
subject to procedures designed to prevent the use and dissemination of
material, non-public information regarding the portfolio.\34\ The
Exchange will communicate as needed regarding trading in the Shares
with other markets that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. The
Exchange represents that the Fund will invest only in equity securities
and Equity Financial Instruments that trade in markets that are members
of the ISG or are parties to a comprehensive surveillance sharing
agreement with the Exchange.
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\31\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\32\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing
additional considerations for the suspension of trading in or
removal from listing of Managed Fund Shares on the Exchange). With
respect to trading halts, the Exchange may consider all relevant
factors in exercising its discretion to halt or suspend trading in
the Shares of the Fund. Trading in Shares of the Fund will be halted
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12
have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
\33\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
\34\ See supra note 5 and accompanying text. The Commission
notes that an investment adviser to an open-end fund is required to
be registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) Adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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The Exchange further represents that the Shares are deemed to be
equity securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange's surveillance procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws.
(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders (``ETP Holders'') in an Information
Bulletin of the special characteristics and risks associated with
trading the Shares. Specifically, the Information Bulletin will discuss
the following: (a) The procedures for purchases and redemptions of
Shares in Creation Unit aggregations (and that Shares are not
individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its ETP Holders to learn the
essential facts relating to every customer prior to trading the Shares;
(c) the risks involved in trading the Shares during the
[[Page 15994]]
Opening and Late Trading Sessions when an updated Portfolio Indicative
Value will not be calculated or publicly disseminated; (d) how
information regarding the Portfolio Indicative Value is disseminated;
(e) the requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (f) trading information.
(5) For initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\35\ as provided by
NYSE Arca Equities Rule 5.3.
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\35\ 17 CFR 240.10A-3.
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(6) The Fund will, under normal market conditions, invest at least
eighty percent (80%) in investment-grade securities, which are fixed
income securities with credit ratings within the four highest rating
categories of a nationally recognized statistical rating organization,
or, if unrated, those securities that the Sub-Adviser determines to be
of comparable quality.
(7) The Fund's portfolio will include a minimum of 13 non-
affiliated issuers of fixed income securities.
(8) The Fund will only purchase performing securities and not
distressed debt.
(9) Generally, the Fund will limit its investments in corporate
high yield debt securities to 10% of its assets and will limit its
investments in non-U.S. issuers to 30% of its assets.
(10) Under normal market conditions, the Fund will seek to invest
at least 75% of its assets in corporate bond issuances that have at
least $100,000,000 par amount outstanding in developed countries and at
least $200,000,000 par amount outstanding in emerging market countries.
(11) The Fund will invest only in equity securities (including
Equity Financial Instruments) that trade in markets that are members of
the ISG or are parties to a comprehensive surveillance sharing
agreement with the Exchange.
(12) The Fund will not invest in options contracts, futures
contracts, or swap agreements.
(13) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities, including Rule 144A securities and loan
participation interests, and will monitor its portfolio liquidity on an
ongoing basis to determine whether, in light of current circumstances,
an adequate level of liquidity is being maintained, and will consider
taking appropriate steps in order to maintain adequate liquidity if,
through a change in values, net assets, or other circumstances, more
than 15% of the Fund's net assets are held in illiquid securities.
(14) The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. The Fund
will not invest in leveraged or inverse leveraged ETFs.
(15) A minimum of 100,000 Shares of the Fund will be outstanding at
the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice, and
the Exchange's description of the Fund.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \36\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\36\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\37\ that the proposed rule change (SR-NYSEArca-2013-01) be, and it
hereby is, approved.
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\37\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05717 Filed 3-12-13; 8:45 am]
BILLING CODE 8011-01-P
