Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade the International Bear ETF Under NYSE Arca Equities Rule 8.600, 21475-21481 [2013-08327]
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Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room 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
NYSE. 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–NYSEMKT–2013–31, and
should be submitted on or before May
1, 2013.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.31
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–08326 Filed 4–9–13; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69303; File No. SR–
NYSEArca–2013–33]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change, as Modified by
Amendment No. 1, To List and Trade
the International Bear ETF Under NYSE
Arca Equities Rule 8.600
TKELLEY on DSK3SPTVN1PROD with NOTICES
April 4, 2013.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on March
21, 2013, NYSE Arca, Inc. (the
‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with
the Securities and Exchange
Commission (the ‘‘Commission’’) the
proposed rule change as described in
Items I and II, below, which Items have
been prepared by the self-regulatory
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
1 15
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade the following under NYSE Arca
Equities Rule 8.600 (‘‘Managed Fund
Shares’’): International Bear ETF. The
text of the proposed rule change is
available on the Exchange’s Web site at
www.nyse.com, at the principal office of
the Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
BILLING CODE 8011–01–P
31 17
organization. On April 3, 2013, the
Exchange filed Amendment No. 1 to the
proposed rule change.4 The Commission
is publishing this notice to solicit
comments on the proposed rule change,
as modified by Amendment No. 1, from
interested persons.
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
under NYSE Arca Equities Rule 8.600,
which governs the listing and trading of
Managed Fund Shares: 5 International
4 In Amendment No. 1, the Exchange made
certain technical changes to the proposed rule
change, including the substitution of the phrase
‘‘transact in’’ for the word ‘‘purchase’’ in the
following sentence on page 5 of this Notice: ‘‘The
Fund may transact in equity securities traded in the
U.S. on registered exchanges or, in the case of
American Depositary Receipts, the over-the-counter
market.’’
5 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
PO 00000
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Bear ETF (‘‘Fund’’).6 The Shares will be
offered by AdvisorShares Trust (the
‘‘Trust’’), a statutory trust organized
under the laws of the State of Delaware
and registered with the Securities and
Exchange Commission (the
‘‘Commission’’) as an open-end
management investment company.7 The
investment adviser to the Fund is
AdvisorShares Investments, LLC (the
‘‘Adviser’’). The Fund will have a subadviser (‘‘Sub-Adviser’’) that provides
day-to-day portfolio management of the
Fund. Foreside Fund Services, LLC (the
‘‘Distributor’’) is the principal
underwriter and distributor of the
Fund’s Shares. The Bank of New York
Mellon (the ‘‘Administrator’’) serves as
the administrator, custodian, transfer
agent and fund accounting agent for the
Fund.
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s
portfolio.8 Commentary .06 to Rule
6 The Commission has approved listing and
trading on the Exchange of a number of actively
managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 63076
(October 12, 2010), 75 FR 63874 (October 18, 2010)
(SR–NYSEArca–2010–79) (order approving
Exchange listing and trading of Cambria Global
Tactical ETF); 63802 (January 31, 2011), 76 FR 6503
(February 4, 2011) (SR–NYSEArca–2010–118)
(order approving Exchange listing and trading of the
SiM Dynamic Allocation Diversified Income ETF
and SiM Dynamic Allocation Growth Income ETF);
and 65468 (October 3, 2011), 76 FR 62873 (October
11, 2001) [sic] (SR–NYSEArca–2011–51) (order
approving Exchange listing and trading of TrimTabs
Float Shrink ETF).
7 The Trust is registered under the 1940 Act. On
October 19, 2012, the Trust filed with the
Commission an amendment to its registration
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a), and under the 1940 Act
relating to the Fund (File Nos. 333–157876 and
811–22110) (‘‘Registration Statement’’). The
description of the operation of the Trust and the
Fund herein is based, in part, on the Registration
Statement. In addition, the Commission has issued
an order granting certain exemptive relief to the
Trust under the 1940 Act. See Investment Company
Act Release No. 29291 (May 28, 2010) (File No.
812–13677) (‘‘Exemptive Order’’).
8 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
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8.600 is similar to Commentary .03(a)(i)
and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 in
connection with the establishment of a
‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. The Adviser is not affiliated with
a broker-dealer. In the event (a) the
Adviser becomes newly affiliated with a
broker-dealer, (b) the Sub-Adviser is
affiliated with a broker-dealer, or (c) 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.
TKELLEY on DSK3SPTVN1PROD with NOTICES
Description of the Fund
According to the Registration
Statement, the Fund’s investment
objective will be to seek capital
appreciation through short sales of
international equity securities.
According to the Registration
Statement, the Sub-Adviser will seek to
achieve the Fund’s investment objective
by short selling a portfolio of foreign
equity securities, U.S. exchange-listed
and traded equity securities of non-U.S.
organizations, and American Depositary
Receipts (‘‘ADRs’’), as described in more
detail herein. The Fund may invest in
such equity securities of any
capitalization range and in any market
sector at any time as necessary to seek
to achieve the Fund’s investment
objective. Under normal circumstances,9
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.
9 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
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at least 80% of the Fund’s net assets
will be such equity securities, which the
Fund will short sell.
According to the Registration
Statement, the Fund will be actively
managed and thus will not seek to
replicate the performance of a specified
passive index of securities. Instead, it
will use an active investment strategy to
seek to meet its investment objective.
The Sub-Adviser, subject to the
oversight of the Adviser and the Board
of Trustees, will have discretion on a
daily basis to manage the Fund’s
portfolio in accordance with the Fund’s
investment objective and investment
policies. The Sub-Adviser will utilize
various fundamental and technical
research techniques in security
selection. In selecting short positions,
the Sub-Adviser will seek to identify
securities that may be overvalued and
due for capital depreciation. Once a
position is included in the Fund’s
portfolio, it will be subject to regular
fundamental and technical risk
management review.
According to the Registration
Statement, the equity securities in
which the Fund may invest consist of
common stocks, preferred stocks,
warrants to acquire common stock,
securities convertible into common
stock, investments in master limited
partnerships, rights and REITs. The
Fund may transact in equity securities
traded in the U.S. on registered
exchanges or, in the case of ADRs, the
over-the-counter market. The Fund may
short sell up to 10% of its total assets
in unsponsored ADRs. The Fund may
invest in the equity securities of foreign
issuers, including the securities of
foreign issuers in emerging market
countries.10
According to the Registration
Statement, 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 ADRs,
adverse market, economic, political or other
conditions, including extreme volatility or trading
halts in the equity markets or the financial markets
generally; operational issues causing dissemination
of inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance.
10 According to the Registration Statement,
emerging or developing markets exist in countries
that are considered to be in the initial stages of
industrialization. The Fund will invest only in
foreign equity securities 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.
For a list of the current members of ISG, see
www.isgportal.org.
PO 00000
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Global Depositary Receipts (‘‘GDRs’’),
European Depositary Receipts (‘‘EDRs’’),
International Depository Receipts
(‘‘IDRs’’), ‘‘ordinary shares,’’ and ‘‘New
York shares.’’ 11 Except for up to 10% of
ADRs, which may be unsponsored, such
financial instruments will all be listed
and traded on registered exchanges in
the U.S. or markets that are members of
the ISG or are parties to a
comprehensive surveillance sharing
agreement with the Exchange.
According to the Registration
Statement, the Fund may engage
regularly in short sales transactions in
which the Fund sells a security it does
not own. To complete such a
transaction, the Fund must borrow or
otherwise obtain the security to make
delivery to the buyer. The Fund then is
obligated to replace the security
borrowed by purchasing the security at
the market price at the time of
replacement. The price at such time
may be more or less than the price at
which the security was sold by the
Fund.
According to the Registration
Statement, until the security is replaced,
the Fund will be required to pay to the
lender amounts equal to any dividends
or interest, which accrue during the
period of the loan. To borrow the
security, the Fund also may be required
to pay a premium, which would
increase the cost of the security sold.
The Fund may also use repurchase
agreements to satisfy delivery
obligations in short sales transactions.
The proceeds of the short sale will be
retained by the broker, to the extent
necessary to meet the margin
11 According to the Registration Statement, 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 and
are traded on exchanges or over-the-counter in the
U.S. 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. 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.
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requirements, until the short position is
closed out.
According to the Registration
Statement, until the Fund closes its
short position or replaces the borrowed
security, the Fund will: (a) Maintain a
segregated account containing cash or
liquid securities at such a level that (i)
the amount deposited in the account
plus the amount deposited with the
broker as collateral will equal the
current value of the security sold short
and (ii) the amount deposited in the
segregated account plus the amount
deposited with the broker as collateral
will not be less than the market value
of the security at the time the security
was sold short; or (b) otherwise cover
the Fund’s short position. The Fund
may use up to 100% of its portfolio to
engage in short sales transactions and
collateralize its open short positions.
TKELLEY on DSK3SPTVN1PROD with NOTICES
Other Investments
While the Fund will invest at least
80% of its assets as described above, the
Fund may invest in certain other
investments, as described below.
According to the Registration Statement,
the Fund may invest in exchange-traded
funds (‘‘ETFs’’) registered pursuant to
the 1940 Act, exchange-traded notes
(‘‘ETNs’’),12 and other exchange-traded
products (together with ETFs and ETNs,
collectively, ‘‘ETPs’’).13 The Fund will
invest only in ETPs that trade in
markets that are members of the ISG or
12 According to the Registration Statement, ETNs
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. ETNs have
a maturity date and, generally, are backed only by
the creditworthiness of the issuer. It is expected
that the issuer’s credit rating will be investment
grade at the time of investment.
13 ETPs may include Investment Company Units
(as described in NYSE Arca Equities Rule 5.2(j)(3));
Index-Linked Securities (as described in NYSE Arca
Equities Rule 5.2(j)(6)); Portfolio Depositary
Receipts (as described in NYSE Arca Equities Rule
8.100); Trust Issued Receipts (as described in NYSE
Arca Equities Rule 8.200); Commodity-Based Trust
Shares (as described in NYSE Arca Equities Rule
8.201); Currency Trust Shares (as described in
NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities
Rule 8.203); Trust Units (as described in NYSE Arca
Equities Rule 8.500); Managed Fund Shares (as
described in NYSE Arca Equities Rule 8.600), and
closed-end funds. The ETPs all will be listed and
traded in the U.S. on registered exchanges. The
Fund may invest in the securities of ETPs registered
under the 1940 Act consistent with the
requirements of Section 12(d)(1) of the 1940 Act, or
any rule, regulation or order of the Commission or
interpretation thereof. The Fund will only make
such investments in conformity with the
requirements of Section 817 of the Internal Revenue
Code of 1986. The Fund may invest in ETPs that
are pooled investment vehicles not registered
pursuant to the 1940 Act. Closed-end funds are
pooled investment vehicles that are registered
under the 1940 Act and whose shares are listed and
traded on U.S. national securities exchanges.
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are parties to a comprehensive
surveillance sharing agreement with the
Exchange.
According to the Registration
Statement, on a day-to-day basis, the
Fund may hold U.S. government
securities,14 short-term high quality
fixed income securities, money market
instruments, overnight and fixed-term
repurchase agreements, cash and cash
equivalents with maturities of one year
or less for investment purposes and to
cover its short positions.
According to the Registration
Statement, to respond to adverse
market, economic, political or other
conditions, the Fund may refrain from
short selling and increase its investment
in U.S. government securities, shortterm high quality fixed income
securities, money market instruments,
overnight and fixed-term repurchase
agreements, cash and cash equivalents
with maturities of one year or less. The
Fund may hold little or no short
positions for extended periods,
depending on the Sub-Adviser’s
assessment of market conditions.
According to the Registration
Statement, the Fund may invest in
several different types of investment
companies from time to time, including
mutual funds and business development
companies (‘‘BDCs’’),15 when the
Adviser or the Sub-Adviser believes
such an investment is in the best
interests of the Fund and its
shareholders. For example, the Fund
may elect to invest in another
investment company when such an
investment presents a more efficient
investment option than buying
securities individually. The Fund also
may invest in investment companies
that are included as components of an
index, such as BDCs, to seek to track the
performance of that index. The Fund
will invest only in BDCs that trade in
markets that are members of the ISG or
are parties to a comprehensive
14 The Fund may invest in U.S. government
securities and U.S. Treasury zero-coupon bonds.
Securities issued or guaranteed by the U.S.
government or its agencies or instrumentalities
include U.S. Treasury securities, which are backed
by the full faith and credit of the U.S. Treasury and
which differ only in their interest rates, maturities,
and times of issuance; U.S. Treasury bills, which
have initial maturities of one-year or less; U.S.
Treasury notes, which have initial maturities of one
to ten years; and U.S. Treasury bonds, which
generally have initial maturities of greater than ten
years.
15 According to the Registration Statement, a BDC
is a less common type of closed-end investment
company that more closely resembles an operating
company than a typical investment company. BDCs
generally focus on investing in, and providing
managerial assistance to, small, developing,
financially troubled, private companies or other
companies that may have value that can be realized
over time and with management assistance.
PO 00000
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21477
surveillance sharing agreement with the
Exchange.
According to the Registration
Statement, the Fund may invest, under
normal circumstances, up to 10% of its
net assets in debt securities. Debt
securities include a variety of fixed
income obligations, including, but not
limited to, corporate debt securities,
government securities, municipal
securities, convertible securities, and
mortgage-backed securities. Debt
securities include investment-grade
securities, non-investment-grade
securities, and unrated securities. The
Fund may invest in non-investmentgrade securities.16 The Fund may invest
in variable and floating rate securities.
The Fund may enter into repurchase
agreements with financial institutions,
which may be deemed to be loans.17
The Fund may enter into reverse
repurchase agreements without limit as
part of the Fund’s investment strategy.18
However, the Fund does not expect to
engage, under normal circumstances, in
reverse repurchase agreements with
respect to more than 33 1⁄3% of its
assets.
According to the Registration
Statement, the Fund may invest directly
and indirectly in foreign currencies.
According to the Registration
Statement, the Fund, in the ordinary
course of business, may purchase
securities on a when-issued or delayeddelivery basis (i.e., delivery and
payment can take place between a
16 Non-investment-grade securities, also referred
to as ‘‘high-yield securities’’ or ‘‘junk bonds,’’ are
debt securities that are rated lower than the four
highest rating categories by a nationally recognized
statistical rating organization (for example, lower
than Baa3 by Moody’s Investors Service, Inc. or
lower than BBB—by Standard & Poor’s, a division
of The McGraw-Hill Companies, Inc.) or are
determined to be of comparable quality by the
Adviser or the Sub-Adviser.
17 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 SubAdviser. 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. It is the current policy of the Fund not
to invest in repurchase agreements that do not
mature within seven days if any such investment,
together with any other illiquid assets held by the
Fund, amount to more than 15% of the Fund’s net
assets.
18 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 will
establish a segregated account with the Trust’s
custodian bank in which the Fund will maintain
cash, cash equivalents or other portfolio securities
equal in value to the Fund’s obligations in respect
of reverse repurchase agreements. Such reverse
repurchase agreements could be deemed to be a
borrowing, but are not senior securities.
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month and 120 days after the date of the
transaction). These securities are subject
to market fluctuation and no interest
accrues to the purchaser during this
period. At the time the Fund makes the
commitment to purchase securities on a
when-issued or delayed-delivery basis,
the Fund will record the transaction and
thereafter reflect the value of the
securities, each day, in determining the
Fund’s net asset value (‘‘NAV’’). The
Fund will not purchase securities on a
when-issued or delayed-delivery basis
if, as a result, more than 15% of the
Fund’s net assets would be so invested.
According to the Registration
Statement, 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.19
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. The
Fund will not invest 25% or more of its
total assets in any investment company
that so concentrates. 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.20
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. 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
19 The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act.
20 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
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17:59 Apr 09, 2013
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markets as determined in accordance
with Commission staff guidance.21
According to the Registration
Statement, the Fund will seek to qualify
for treatment as a Regulated Investment
Company under the Internal Revenue
Code.22
The Fund will not invest in options
contracts, futures contracts or swap
agreements. The Fund’s investments
will be consistent with the Fund’s
investment objective and will not be
used to enhance leverage.
Net Asset Value
The Fund will calculate its NAV by:
(i) Taking the current market value of its
total assets; (ii) subtracting any
liabilities; and (iii) dividing that amount
by the total number of Shares owned by
shareholders.
The Fund will calculate NAV once
each business day as of the regularly
scheduled close of trading on the New
York Stock Exchange, LLC (the ‘‘NYSE’’)
(normally, 4:00 p.m., Eastern Time).
In calculating NAV, the Fund
generally will value its investment
portfolio at market price. If market
prices are unavailable or the Fund
believes that they are unreliable, or
when the value of a security has been
materially affected by events occurring
after the relevant market closes, the
Fund will price those securities at fair
value as determined in good faith using
methods approved by the Trust’s Board
of Trustees.
Creation and Redemption of Shares
According to the Registration
Statement, the Fund will issue and
redeem Shares on a continuous basis at
the NAV only in a large specified
number of Shares called a ‘‘Creation
Unit.’’ The Shares of the Fund will be
‘‘created’’ at their NAV by market
makers, large investors and institutions
only in block-size Creation Units of at
least 25,000 Shares.
21 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a-7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act.
22 26 U.S.C. 851.
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The Trust will issue and sell Shares
of the Fund only in Creation Units on
a continuous basis through the
Distributor, at their NAV next
determined after receipt, on any
business day, for an order received in
proper form. Creation Units of the Fund
will be sold only for cash. Creation
Units will be sold at the NAV next
computed, plus a transaction fee. All
orders to create Creation Units must be
placed for one or more Creation Unit
size aggregations of Shares. All orders to
create must be received by the
Distributor no later than 3:00 p.m.
Eastern Time, an hour before the close
of the regular trading session on the
NYSE (ordinarily 4:00 p.m. Eastern
Time) on the date such order is placed
in order for the creation of Creation
Units to be effected based on the NAV
of Shares of the Fund as next
determined on such date after receipt of
the order in proper form. All purchases
of the Fund will be effected through a
transfer of cash directly through DTC.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the Fund
through the Administrator and only on
a business day. The Trust will not
redeem Shares in amounts less than
Creation Units. The redemption
proceeds for a Creation Unit of the Fund
will consist solely of cash in an amount
equal to the NAV of the Shares being
redeemed, as next determined after
receipt of a request in proper form, less
a redemption transaction fee. An order
to redeem Creation Units will be
deemed received on the transmittal date
if such order is received by the
Administrator not later than 3:00 p.m.
Eastern Time, on such transmittal date;
such order will be effected based on the
NAV of the Fund as next determined.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600.
Consistent with NYSE Arca Equities
Rule 8.600(d)(2)(B)(ii), the Adviser will
implement and maintain, or be subject
to, procedures designed to prevent the
use and dissemination of material nonpublic information regarding the actual
components of the Fund’s portfolio. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3 23
under the Exchange Act, 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
23 17
E:\FR\FM\10APN1.SGM
CFR 240.10A–3.
10APN1
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Share will be calculated daily and that
the NAV and the Disclosed Portfolio as
defined in NYSE Arca Equities Rule
8.600(c)(2) will be made available to all
market participants at the same time.
TKELLEY on DSK3SPTVN1PROD with NOTICES
Availability of Information
The Fund’s Web site
(www.advisorshares.com), which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Fund’s Web site
will include additional quantitative
information updated on a daily basis,
including, for the Fund, (1) daily trading
volume, the prior business day’s
reported closing price, NAV and midpoint of the bid/ask spread at the time
of calculation of such NAV (the ‘‘Bid/
Ask Price’’),24 and a calculation of the
premium and discount of the Bid/Ask
Price against the NAV, and (2) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund’s Web site will
disclose the Disclosed Portfolio that will
form the basis for the Fund’s calculation
of NAV at the end of the business day.25
On a daily basis, the Fund’s Web site
will disclose for each portfolio security
and other financial instrument of the
Fund the following information: ticker
symbol (if applicable), name of security
and financial instrument, number of
shares and dollar value of securities and
financial instruments held in the
portfolio, and percentage weighting of
the security and financial instrument in
the portfolio. The Web site information
will be publicly available at no charge.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and its Form N–CSR and Form
N–SAR, filed twice a year. The Trust’s
SAI and Shareholder Reports will be
available free upon request from the
Trust, and those documents and the
Form N–CSR and Form N–SAR may be
viewed on-screen or downloaded from
24 The Bid/Ask Price of the Fund is determined
using the mid-point of the highest bid and the
lowest offer on the Exchange as of the time of
calculation of the Fund’s NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and
its service providers.
25 Under accounting procedures followed by the
Fund, trades made on the prior business day (‘‘T’’)
will be booked and reflected in NAV on the current
business day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the business
day the portfolio that will form the basis for the
NAV calculation at the end of the business day.
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17:59 Apr 09, 2013
Jkt 229001
the Commission’s Web site at
www.sec.gov. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services. Information
regarding the previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last sale information for
the Shares will be available via the
Consolidated Tape Association (‘‘CTA’’)
high-speed line, and, for the underlying
securities, will be available from the
securities exchanges on which they are
listed. Information regarding the equity
securities, debt securities, fixed income
instruments, and other investments held
by the Fund will be available from the
U.S. and non-U.S. securities exchanges
trading such securities, automated
quotation systems, published or other
public sources, or on-line information
services such as Bloomberg or Reuters.
In addition, the Portfolio Indicative
Value, as defined in NYSE Arca Equities
Rule 8.600 (c)(3), will be widely
disseminated at least every 15 seconds
during the Core Trading Session by one
or more major market data vendors.26
The dissemination of the Portfolio
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of the Fund on a daily basis
and will provide a close estimate of that
value throughout the trading day.
Additional information regarding the
Trust and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosure policies,
distributions and taxes is included in
the Registration Statement. All terms
relating to the Fund that are referred to,
but not defined in, this proposed rule
change are defined in the Registration
Statement.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund.27 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
26 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Portfolio Indicative
Values taken from CTA or other data feeds.
27 See NYSE Arca Equities Rule 7.12,
Commentary .04.
PO 00000
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21479
the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund; or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets
forth circumstances under which Shares
of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m.
to 8 p.m. Eastern Time in accordance
with NYSE Arca Equities Rule 7.34
(Opening, Core, and Late Trading
Sessions). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Equities Rule 7.6, Commentary .03,
the minimum price variation (‘‘MPV’’)
for quoting and entry of orders in equity
securities traded on the NYSE Arca
Marketplace is $0.01, with the exception
of securities that are priced less than
$1.00 for which the MPV for order entry
is $0.0001.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws.28 The Exchange
represents that these procedures are
adequate to properly monitor Exchange
trading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and
applicable federal securities laws.
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations. FINRA, on behalf of
the Exchange, will communicate as
28 FINRA surveils trading on the Exchange
pursuant to a regulatory services agreement. The
Exchange is responsible for FINRA’s performance
under this regulatory services agreement.
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needed regarding trading in the Shares
with other markets that are members of
the ISG or with which the Exchange has
in place a comprehensive surveillance
sharing agreement.29 Except for up to
10% of ADRs, which may be
unsponsored, the Fund will invest only
in equity securities (including financial
instruments that are linked to the
performance of foreign issuers),30 ETPs
and BDCs that trade in markets that are
members of the ISG or are parties to a
comprehensive surveillance sharing
agreement with the Exchange.
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
TKELLEY on DSK3SPTVN1PROD with NOTICES
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its Equity Trading Permit Holders to
learn the essential facts relating to every
customer prior to trading the Shares; (3)
the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated Portfolio
Indicative Value will not be calculated
or publicly disseminated; (4) how
information regarding the Portfolio
Indicative Value is disseminated; (5) the
requirement that Equity Trading Permit
Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Exchange Act. The Bulletin will also
disclose that the NAV for the Shares
will be calculated after 4:00 p.m.
Eastern Time each trading day.
29 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio for the Fund
may trade on markets that are members of ISG or
with which the Exchange has in place a
comprehensive surveillance sharing agreement.
30 See note 11, supra, and accompanying text.
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17:59 Apr 09, 2013
Jkt 229001
2. Statutory Basis
The basis under the Exchange Act for
this proposed rule change is the
requirement under Section 6(b)(5)31 that
an exchange have rules that are
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to, and
perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws. Except for up to 10% of ADRs,
which may be unsponsored, the Fund
will invest only in equity securities
(including financial instruments that are
linked to the performance of foreign
issuers),32 ETPs and BDCs that trade in
markets that are members of the ISG or
are parties to a comprehensive
surveillance sharing agreement with the
Exchange. The Exchange may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. The Adviser is not
affiliated with a broker-dealer. In the
event the Sub-Adviser is affiliated with
a broker-dealer, it will implement a fire
wall with respect to such broker-dealer
regarding access to information
concerning the composition and/or
changes to the portfolio, and will be
subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio. The Fund may
not purchase or hold illiquid securities
if, in the aggregate, more than 15% of
its net assets would be invested in
illiquid securities. The Fund will not
invest in options contracts, futures
contracts or swap agreements. The
Fund’s investments will be consistent
with the Fund’s investment objective
and will not be used to enhance
leverage. The proposed rule change is
designed to promote just and equitable
principles of trade and to protect
investors and the public interest in that
the Exchange will obtain a
31 15
U.S.C. 78f(b)(5).
note 11, supra, and accompanying text.
32 See
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Sfmt 4703
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. Information regarding
the equity securities, debt securities,
fixed income instruments, and other
investments held by the Fund will be
available from the U.S. and non-U.S.
securities exchanges trading such
securities, automated quotation systems,
published or other public sources, or
on-line information services such as
Bloomberg or Reuters. In addition, a
large amount of information is publicly
available regarding the Fund and the
Shares, thereby promoting market
transparency. Quotation and last sale
information for the Shares will be
available via the CTA high-speed line.
In addition, the Portfolio Indicative
Value will be widely disseminated by
the Exchange at least every 15 seconds
during the Core Trading Session. The
Fund’s Web site will include a form of
the prospectus for the Fund that may be
downloaded, as well as additional
quantitative information updated on a
daily basis. On each business day,
before commencement of trading in
Shares in the Core Trading Session on
the Exchange, the Fund’s Web site will
disclose the Disclosed Portfolio that will
form the basis for the Fund’s calculation
of NAV at the end of the business day.
On a daily basis, the Fund’s Web site
will disclose for each portfolio security
and other financial instrument of the
Fund the following information: ticker
symbol (if applicable), name of security
and financial instrument, number of
shares and dollar value of securities and
financial instruments held in the
portfolio, and percentage weighting of
the security and financial instrument in
the portfolio. Moreover, prior to the
commencement of trading, the Exchange
will inform its Equity Trading Permit
Holders in an Information Bulletin of
the special characteristics and risks
associated with trading the Shares.
Trading in Shares of the Fund will be
halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have
been reached or because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable. Trading in the
Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets
forth circumstances under which Shares
of the Fund may be halted. In addition,
as noted above, investors will have
ready access to information regarding
the Fund’s holdings, the Portfolio
Indicative Value, the Disclosed
E:\FR\FM\10APN1.SGM
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Federal Register / Vol. 78, No. 69 / Wednesday, April 10, 2013 / Notices
Portfolio, and quotation and last sale
information for the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Portfolio Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Exchange Act. The
Exchange notes that the proposed rule
change will facilitate the listing and
trading of additional types of activelymanaged exchange-traded products that
will enhance competition among market
participants, to the benefit of investors
and the marketplace.
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.
TKELLEY on DSK3SPTVN1PROD with NOTICES
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
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17:59 Apr 09, 2013
Jkt 229001
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
No. SR–NYSEArca-2013–33 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File No.
SR–NYSEArca–2013–33. 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
Web site (https://www.sec.gov/rules/
sro.shtml). Copies of the submission, all
subsequent amendments, all written
statements with respect to the proposed
rule change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File No. SR–NYSEArca–
2013–33 and should be submitted on or
before May 1, 2013.
PO 00000
21481
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2013–08327 Filed 4–9–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69286; File No. SR–NYSE–
2013–07]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Notice of
Designation of a Longer Period for
Commission Action on Proposed Rule
Change Amending NYSE Rules 451
and 465, and the Related Provisions of
Section 402.10 of the NYSE Listed
Company Manual, Which Provide a
Schedule for the Reimbursement of
Expenses by Issuers to NYSE Member
Organizations for the Processing of
Proxy Materials and Other Issuer
Communications Provided To
Investors Holding Securities in Street
Name, and To Establish a Five-Year
Fee for the Development of an
Enhanced Brokers Internet Platform
April 3, 2013.
On February 1, 2013, New York Stock
Exchange LLC (‘‘NYSE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’)1 and Rule 19b–4
thereunder,2 a proposed rule change to
amend the fees set forth in NYSE Rules
451 and 465, and the related provisions
of Section 402.10 of the NYSE Listed
Company Manual, for the
reimbursement of expenses by issuers to
NYSE member organizations for the
processing of proxy materials and other
issuer communications provided to
investors holding securities in street
name, and to establish a five-year fee for
the development of an enhanced brokers
internet platform. The proposed rule
change was published for comment in
the Federal Register on February 22,
2013.3 The Commission received 24
comments on the proposal.4
33 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. 68936
(February 15, 2013), 78 FR 12381.
4 See letters to Elizabeth M. Murphy, Secretary,
Commission from Charles V. Rossi, President, The
Securities Transfer Association, dated February 20,
2013 and March 4, 2013; Karen V. Danielson,
President, Shareholder Services Association, dated
March 4, 2013; Jeanne M. Shafer, dated March 6,
2013; David W. Lovatt, dated March 6, 2013;
Stephen Norman, Chair, The Independent Steering
1 15
Continued
Frm 00144
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]]>Agencies
[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21475-21481]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08327]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69303; File No. SR-NYSEArca-2013-33]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, To List and
Trade the International Bear ETF Under NYSE Arca Equities Rule 8.600
April 4, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on March 21, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and
II, below, which Items have been prepared by the self-regulatory
organization. On April 3, 2013, the Exchange filed Amendment No. 1 to
the proposed rule change.\4\ The Commission is publishing this notice
to solicit comments on the proposed rule change, as modified by
Amendment No. 1, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ In Amendment No. 1, the Exchange made certain technical
changes to the proposed rule change, including the substitution of
the phrase ``transact in'' for the word ``purchase'' in the
following sentence on page 5 of this Notice: ``The Fund may transact
in equity securities traded in the U.S. on registered exchanges or,
in the case of American Depositary Receipts, the over-the-counter
market.''
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the following under NYSE
Arca Equities Rule 8.600 (``Managed Fund Shares''): International Bear
ETF. The text of the proposed rule change is available on the
Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares: \5\ International Bear ETF
(``Fund'').\6\ The Shares will be offered by AdvisorShares Trust (the
``Trust''), a statutory trust organized under the laws of the State of
Delaware and registered with the Securities and Exchange Commission
(the ``Commission'') as an open-end management investment company.\7\
The investment adviser to the Fund is AdvisorShares Investments, LLC
(the ``Adviser''). The Fund will have a sub-adviser (``Sub-Adviser'')
that provides day-to-day portfolio management of the Fund. Foreside
Fund Services, LLC (the ``Distributor'') is the principal underwriter
and distributor of the Fund's Shares. The Bank of New York Mellon (the
``Administrator'') serves as the administrator, custodian, transfer
agent and fund accounting agent for the Fund.
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\5\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
\6\ The Commission has approved listing and trading on the
Exchange of a number of actively managed funds under Rule 8.600.
See, e.g., Securities Exchange Act Release Nos. 63076 (October 12,
2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order
approving Exchange listing and trading of Cambria Global Tactical
ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR-
NYSEArca-2010-118) (order approving Exchange listing and trading of
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic
Allocation Growth Income ETF); and 65468 (October 3, 2011), 76 FR
62873 (October 11, 2001) [sic] (SR-NYSEArca-2011-51) (order
approving Exchange listing and trading of TrimTabs Float Shrink
ETF).
\7\ The Trust is registered under the 1940 Act. On October 19,
2012, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a), and under the 1940 Act relating to the Fund (File
Nos. 333-157876 and 811-22110) (``Registration Statement''). The
description of the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement. In addition, the
Commission has issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment Company Act Release No.
29291 (May 28, 2010) (File No. 812-13677) (``Exemptive Order'').
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Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio.\8\ Commentary .06 to Rule
[[Page 21476]]
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds. The
Adviser is not affiliated with a broker-dealer. In the event (a) the
Adviser becomes newly affiliated with a broker-dealer, (b) the Sub-
Adviser is affiliated with a broker-dealer, or (c) 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.
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\8\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``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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Description of the Fund
According to the Registration Statement, the Fund's investment
objective will be to seek capital appreciation through short sales of
international equity securities.
According to the Registration Statement, the Sub-Adviser will seek
to achieve the Fund's investment objective by short selling a portfolio
of foreign equity securities, U.S. exchange-listed and traded equity
securities of non-U.S. organizations, and American Depositary Receipts
(``ADRs''), as described in more detail herein. The Fund may invest in
such equity securities of any capitalization range and in any market
sector at any time as necessary to seek to achieve the Fund's
investment objective. Under normal circumstances,\9\ at least 80% of
the Fund's net assets will be such equity securities, which the Fund
will short sell.
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\9\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of adverse market, economic, political or
other conditions, including extreme volatility or trading halts in
the equity markets or the financial markets generally; operational
issues causing dissemination of inaccurate market information; or
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance.
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According to the Registration Statement, the Fund will be actively
managed and thus will not seek to replicate the performance of a
specified passive index of securities. Instead, it will use an active
investment strategy to seek to meet its investment objective. The Sub-
Adviser, subject to the oversight of the Adviser and the Board of
Trustees, will have discretion on a daily basis to manage the Fund's
portfolio in accordance with the Fund's investment objective and
investment policies. The Sub-Adviser will utilize various fundamental
and technical research techniques in security selection. In selecting
short positions, the Sub-Adviser will seek to identify securities that
may be overvalued and due for capital depreciation. Once a position is
included in the Fund's portfolio, it will be subject to regular
fundamental and technical risk management review.
According to the Registration Statement, the equity securities in
which the Fund may invest consist of common stocks, preferred stocks,
warrants to acquire common stock, securities convertible into common
stock, investments in master limited partnerships, rights and REITs.
The Fund may transact in equity securities traded in the U.S. on
registered exchanges or, in the case of ADRs, the over-the-counter
market. The Fund may short sell up to 10% of its total assets in
unsponsored ADRs. The Fund may invest in the equity securities of
foreign issuers, including the securities of foreign issuers in
emerging market countries.\10\
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\10\ According to the Registration Statement, emerging or
developing markets exist in countries that are considered to be in
the initial stages of industrialization. The Fund will invest only
in foreign equity securities 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. For
a list of the current members of ISG, see www.isgportal.org.
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According to the Registration Statement, 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 ADRs, Global
Depositary Receipts (``GDRs''), European Depositary Receipts
(``EDRs''), International Depository Receipts (``IDRs''), ``ordinary
shares,'' and ``New York shares.'' \11\ Except for up to 10% of ADRs,
which may be unsponsored, such financial instruments will all be listed
and traded on registered exchanges in the U.S. or markets that are
members of the ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange.
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\11\ According to the Registration Statement, 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 and are traded on exchanges or over-the-
counter in the U.S. 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.
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.
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According to the Registration Statement, the Fund may engage
regularly in short sales transactions in which the Fund sells a
security it does not own. To complete such a transaction, the Fund must
borrow or otherwise obtain the security to make delivery to the buyer.
The Fund then is obligated to replace the security borrowed by
purchasing the security at the market price at the time of replacement.
The price at such time may be more or less than the price at which the
security was sold by the Fund.
According to the Registration Statement, until the security is
replaced, the Fund will be required to pay to the lender amounts equal
to any dividends or interest, which accrue during the period of the
loan. To borrow the security, the Fund also may be required to pay a
premium, which would increase the cost of the security sold. The Fund
may also use repurchase agreements to satisfy delivery obligations in
short sales transactions. The proceeds of the short sale will be
retained by the broker, to the extent necessary to meet the margin
[[Page 21477]]
requirements, until the short position is closed out.
According to the Registration Statement, until the Fund closes its
short position or replaces the borrowed security, the Fund will: (a)
Maintain a segregated account containing cash or liquid securities at
such a level that (i) the amount deposited in the account plus the
amount deposited with the broker as collateral will equal the current
value of the security sold short and (ii) the amount deposited in the
segregated account plus the amount deposited with the broker as
collateral will not be less than the market value of the security at
the time the security was sold short; or (b) otherwise cover the Fund's
short position. The Fund may use up to 100% of its portfolio to engage
in short sales transactions and collateralize its open short positions.
Other Investments
While the Fund will invest at least 80% of its assets as described
above, the Fund may invest in certain other investments, as described
below. According to the Registration Statement, the Fund may invest in
exchange-traded funds (``ETFs'') registered pursuant to the 1940 Act,
exchange-traded notes (``ETNs''),\12\ and other exchange-traded
products (together with ETFs and ETNs, collectively, ``ETPs'').\13\ The
Fund will invest only in ETPs 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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\12\ According to the Registration Statement, ETNs 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. ETNs have a maturity date
and, generally, are backed only by the creditworthiness of the
issuer. It is expected that the issuer's credit rating will be
investment grade at the time of investment.
\13\ ETPs may include Investment Company Units (as described in
NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked Securities (as
described in NYSE Arca Equities Rule 5.2(j)(6)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
Trust Issued Receipts (as described in NYSE Arca Equities Rule
8.200); Commodity-Based Trust Shares (as described in NYSE Arca
Equities Rule 8.201); Currency Trust Shares (as described in NYSE
Arca Equities Rule 8.202); Commodity Index Trust Shares (as
described in NYSE Arca Equities Rule 8.203); Trust Units (as
described in NYSE Arca Equities Rule 8.500); Managed Fund Shares (as
described in NYSE Arca Equities Rule 8.600), and closed-end funds.
The ETPs all will be listed and traded in the U.S. on registered
exchanges. The Fund may invest in the securities of ETPs registered
under the 1940 Act consistent with the requirements of Section
12(d)(1) of the 1940 Act, or any rule, regulation or order of the
Commission or interpretation thereof. The Fund will only make such
investments in conformity with the requirements of Section 817 of
the Internal Revenue Code of 1986. The Fund may invest in ETPs that
are pooled investment vehicles not registered pursuant to the 1940
Act. Closed-end funds are pooled investment vehicles that are
registered under the 1940 Act and whose shares are listed and traded
on U.S. national securities exchanges.
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According to the Registration Statement, on a day-to-day basis, the
Fund may hold U.S. government securities,\14\ short-term high quality
fixed income securities, money market instruments, overnight and fixed-
term repurchase agreements, cash and cash equivalents with maturities
of one year or less for investment purposes and to cover its short
positions.
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\14\ The Fund may invest in U.S. government securities and U.S.
Treasury zero-coupon bonds. Securities issued or guaranteed by the
U.S. government or its agencies or instrumentalities include U.S.
Treasury securities, which are backed by the full faith and credit
of the U.S. Treasury and which differ only in their interest rates,
maturities, and times of issuance; U.S. Treasury bills, which have
initial maturities of one-year or less; U.S. Treasury notes, which
have initial maturities of one to ten years; and U.S. Treasury
bonds, which generally have initial maturities of greater than ten
years.
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According to the Registration Statement, to respond to adverse
market, economic, political or other conditions, the Fund may refrain
from short selling and increase its investment in U.S. government
securities, short-term high quality fixed income securities, money
market instruments, overnight and fixed-term repurchase agreements,
cash and cash equivalents with maturities of one year or less. The Fund
may hold little or no short positions for extended periods, depending
on the Sub-Adviser's assessment of market conditions.
According to the Registration Statement, the Fund may invest in
several different types of investment companies from time to time,
including mutual funds and business development companies
(``BDCs''),\15\ when the Adviser or the Sub-Adviser believes such an
investment is in the best interests of the Fund and its shareholders.
For example, the Fund may elect to invest in another investment company
when such an investment presents a more efficient investment option
than buying securities individually. The Fund also may invest in
investment companies that are included as components of an index, such
as BDCs, to seek to track the performance of that index. The Fund will
invest only in BDCs 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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\15\ According to the Registration Statement, a BDC is a less
common type of closed-end investment company that more closely
resembles an operating company than a typical investment company.
BDCs generally focus on investing in, and providing managerial
assistance to, small, developing, financially troubled, private
companies or other companies that may have value that can be
realized over time and with management assistance.
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According to the Registration Statement, the Fund may invest, under
normal circumstances, up to 10% of its net assets in debt securities.
Debt securities include a variety of fixed income obligations,
including, but not limited to, corporate debt securities, government
securities, municipal securities, convertible securities, and mortgage-
backed securities. Debt securities include investment-grade securities,
non-investment-grade securities, and unrated securities. The Fund may
invest in non-investment-grade securities.\16\ The Fund may invest in
variable and floating rate securities.
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\16\ Non-investment-grade securities, also referred to as
``high-yield securities'' or ``junk bonds,'' are debt securities
that are rated lower than the four highest rating categories by a
nationally recognized statistical rating organization (for example,
lower than Baa3 by Moody's Investors Service, Inc. or lower than
BBB--by Standard & Poor's, a division of The McGraw-Hill Companies,
Inc.) or are determined to be of comparable quality by the Adviser
or the Sub-Adviser.
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The Fund may enter into repurchase agreements with financial
institutions, which may be deemed to be loans.\17\ The Fund may enter
into reverse repurchase agreements without limit as part of the Fund's
investment strategy.\18\ However, the Fund does not expect to engage,
under normal circumstances, in reverse repurchase agreements with
respect to more than 33 \1/3\% of its assets.
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\17\ 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. It is the current policy of the
Fund not to invest in repurchase agreements that do not mature
within seven days if any such investment, together with any other
illiquid assets held by the Fund, amount to more than 15% of the
Fund's net assets.
\18\ 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 will establish a segregated account with the Trust's custodian
bank in which the Fund will maintain cash, cash equivalents or other
portfolio securities equal in value to the Fund's obligations in
respect of reverse repurchase agreements. Such reverse repurchase
agreements could be deemed to be a borrowing, but are not senior
securities.
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According to the Registration Statement, the Fund may invest
directly and indirectly in foreign currencies.
According to the Registration Statement, the Fund, in the ordinary
course of business, may purchase securities on a when-issued or
delayed-delivery basis (i.e., delivery and payment can take place
between a
[[Page 21478]]
month and 120 days after the date of the transaction). These securities
are subject to market fluctuation and no interest accrues to the
purchaser during this period. At the time the Fund makes the commitment
to purchase securities on a when-issued or delayed-delivery basis, the
Fund will record the transaction and thereafter reflect the value of
the securities, each day, in determining the Fund's net asset value
(``NAV''). The Fund will not purchase securities on a when-issued or
delayed-delivery basis if, as a result, more than 15% of the Fund's net
assets would be so invested.
According to the Registration Statement, 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.\19\
---------------------------------------------------------------------------
\19\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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The Fund may not invest 25% or more of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry or group of industries. The Fund will
not invest 25% or more of its total assets in any investment company
that so concentrates. 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.\20\
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\20\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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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. 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.\21\
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\21\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act.
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According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment Company under the
Internal Revenue Code.\22\
---------------------------------------------------------------------------
\22\ 26 U.S.C. 851.
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The Fund will not invest in options contracts, futures contracts or
swap agreements. The Fund's investments will be consistent with the
Fund's investment objective and will not be used to enhance leverage.
Net Asset Value
The Fund will calculate its NAV by: (i) Taking the current market
value of its total assets; (ii) subtracting any liabilities; and (iii)
dividing that amount by the total number of Shares owned by
shareholders.
The Fund will calculate NAV once each business day as of the
regularly scheduled close of trading on the New York Stock Exchange,
LLC (the ``NYSE'') (normally, 4:00 p.m., Eastern Time).
In calculating NAV, the Fund generally will value its investment
portfolio at market price. If market prices are unavailable or the Fund
believes that they are unreliable, or when the value of a security has
been materially affected by events occurring after the relevant market
closes, the Fund will price those securities at fair value as
determined in good faith using methods approved by the Trust's Board of
Trustees.
Creation and Redemption of Shares
According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis at the NAV only in a large
specified number of Shares called a ``Creation Unit.'' The Shares of
the Fund will be ``created'' at their NAV by market makers, large
investors and institutions only in block-size Creation Units of at
least 25,000 Shares.
The Trust will issue and sell Shares of the Fund only in Creation
Units on a continuous basis through the Distributor, at their NAV next
determined after receipt, on any business day, for an order received in
proper form. Creation Units of the Fund will be sold only for cash.
Creation Units will be sold at the NAV next computed, plus a
transaction fee. All orders to create Creation Units must be placed for
one or more Creation Unit size aggregations of Shares. All orders to
create must be received by the Distributor no later than 3:00 p.m.
Eastern Time, an hour before the close of the regular trading session
on the NYSE (ordinarily 4:00 p.m. Eastern Time) on the date such order
is placed in order for the creation of Creation Units to be effected
based on the NAV of Shares of the Fund as next determined on such date
after receipt of the order in proper form. All purchases of the Fund
will be effected through a transfer of cash directly through DTC.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through the Administrator and only on a business day. The Trust
will not redeem Shares in amounts less than Creation Units. The
redemption proceeds for a Creation Unit of the Fund will consist solely
of cash in an amount equal to the NAV of the Shares being redeemed, as
next determined after receipt of a request in proper form, less a
redemption transaction fee. An order to redeem Creation Units will be
deemed received on the transmittal date if such order is received by
the Administrator not later than 3:00 p.m. Eastern Time, on such
transmittal date; such order will be effected based on the NAV of the
Fund as next determined.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will 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 Fund's portfolio. The Exchange represents that, for
initial and/or continued listing, the Fund will be in compliance with
Rule 10A-3 \23\ under the Exchange Act, 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
[[Page 21479]]
Share will be calculated daily and that the NAV and the Disclosed
Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) will be
made available to all market participants at the same time.
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\23\ 17 CFR 240.10A-3.
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Availability of Information
The Fund's Web site (www.advisorshares.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\24\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund's Web site will disclose the Disclosed Portfolio that will form
the basis for the Fund's calculation of NAV at the end of the business
day.\25\
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\24\ The Bid/Ask Price of the Fund is determined using the mid-
point of the highest bid and the lowest offer on the Exchange as of
the time of calculation of the Fund's NAV. The records relating to
Bid/Ask Prices will be retained by the Fund and its service
providers.
\25\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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On a daily basis, the Fund's Web site will disclose for each
portfolio security and other financial instrument of the Fund the
following information: ticker symbol (if applicable), name of security
and financial instrument, number of shares and dollar value of
securities and financial instruments held in the portfolio, and
percentage weighting of the security and financial instrument in the
portfolio. The Web site information will be publicly available at no
charge.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports will be available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov. Information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line, and, for the underlying securities, will be
available from the securities exchanges on which they are listed.
Information regarding the equity securities, debt securities, fixed
income instruments, and other investments held by the Fund will be
available from the U.S. and non-U.S. securities exchanges trading such
securities, automated quotation systems, published or other public
sources, or on-line information services such as Bloomberg or Reuters.
In addition, the Portfolio Indicative Value, as defined in NYSE Arca
Equities Rule 8.600 (c)(3), will be widely disseminated at least every
15 seconds during the Core Trading Session by one or more major market
data vendors.\26\ The dissemination of the Portfolio Indicative Value,
together with the Disclosed Portfolio, will allow investors to
determine the value of the underlying portfolio of the Fund on a daily
basis and will provide a close estimate of that value throughout the
trading day.
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\26\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
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Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement. All terms relating
to the Fund that are referred to, but not defined in, this proposed
rule change are defined in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\27\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted.
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\27\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern Time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\28\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and applicable federal securities laws.
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\28\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations. FINRA, on
behalf of the Exchange, will communicate as
[[Page 21480]]
needed regarding trading in the Shares with other markets that are
members of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\29\ Except for up to 10%
of ADRs, which may be unsponsored, the Fund will invest only in equity
securities (including financial instruments that are linked to the
performance of foreign issuers),\30\ ETPs and BDCs 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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\29\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
\30\ See note 11, supra, and accompanying text.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'')
of the special characteristics and risks associated with trading the
Shares. Specifically, the Bulletin will discuss the following: (1) The
procedures for purchases and redemptions of Shares in Creation Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its Equity Trading Permit Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated Portfolio Indicative Value will not be
calculated or publicly disseminated; (4) how information regarding the
Portfolio Indicative Value is disseminated; (5) the requirement that
Equity Trading Permit Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. Eastern Time each trading day.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5)\31\ that an exchange have rules
that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\31\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. Except for up to 10% of ADRs, which
may be unsponsored, the Fund will invest only in equity securities
(including financial instruments that are linked to the performance of
foreign issuers),\32\ ETPs and BDCs that trade in markets that are
members of the ISG or are parties to a comprehensive surveillance
sharing agreement with the Exchange. The Exchange may obtain
information via ISG from other exchanges that are members of ISG or
with which the Exchange has entered into a comprehensive surveillance
sharing agreement. The Adviser is not affiliated with a broker-dealer.
In the event the Sub-Adviser is affiliated with a broker-dealer, it
will implement a fire wall with respect to such broker-dealer regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio. The Fund may not purchase or hold illiquid securities if, in
the aggregate, more than 15% of its net assets would be invested in
illiquid securities. The Fund will not invest in options contracts,
futures contracts or swap agreements. The Fund's investments will be
consistent with the Fund's investment objective and will not be used to
enhance leverage. The proposed rule change is designed to promote just
and equitable principles of trade and to protect investors and the
public interest in that the Exchange will obtain a representation from
the issuer of the Shares that the NAV per Share will be calculated
daily and that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time. Information
regarding the equity securities, debt securities, fixed income
instruments, and other investments held by the Fund will be available
from the U.S. and non-U.S. securities exchanges trading such
securities, automated quotation systems, published or other public
sources, or on-line information services such as Bloomberg or Reuters.
In addition, a large amount of information is publicly available
regarding the Fund and the Shares, thereby promoting market
transparency. Quotation and last sale information for the Shares will
be available via the CTA high-speed line. In addition, the Portfolio
Indicative Value will be widely disseminated by the Exchange at least
every 15 seconds during the Core Trading Session. The Fund's Web site
will include a form of the prospectus for the Fund that may be
downloaded, as well as additional quantitative information updated on a
daily basis. On each business day, before commencement of trading in
Shares in the Core Trading Session on the Exchange, the Fund's Web site
will disclose the Disclosed Portfolio that will form the basis for the
Fund's calculation of NAV at the end of the business day. On a daily
basis, the Fund's Web site will disclose for each portfolio security
and other financial instrument of the Fund the following information:
ticker symbol (if applicable), name of security and financial
instrument, number of shares and dollar value of securities and
financial instruments held in the portfolio, and percentage weighting
of the security and financial instrument in the portfolio. Moreover,
prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares. Trading
in Shares of the Fund will be halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. Trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Fund may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Portfolio Indicative
Value, the Disclosed
[[Page 21481]]
Portfolio, and quotation and last sale information for the Shares.
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\32\ See note 11, supra, and accompanying text.
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The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Exchange Act. The Exchange notes
that the proposed rule change will facilitate the listing and trading
of additional types of actively-managed exchange-traded products that
will enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File No. SR-NYSEArca-2013-33 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File No. SR-NYSEArca-2013-33. 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 Web site (https://www.sec.gov/rules/sro.shtml). Copies
of the submission, all subsequent amendments, all written statements
with respect to the proposed rule change that are filed with the
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Room, 100 F Street, NE., Washington,
DC 20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of such filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change; the Commission does not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly. All
submissions should refer to File No. SR-NYSEArca-2013-33 and should be
submitted on or before May 1, 2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08327 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P
