Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade the International Bear ETF Under NYSE Arca Equities Rule 8.600, 30372-30376 [2013-12162]

Download as PDF 30372 Federal Register / Vol. 78, No. 99 / Wednesday, May 22, 2013 / Notices open market and a national market system, and, in general, to protect investors and the public interest. Clarifying the manner in which the Marketing Fee exemption for strategy transactions can be accomplished will eliminate any confusion and provide a clear procedure for applicants to get such an exemption for their strategy transactions, thereby removing impediments to and perfecting the mechanism of a free and open market. B. Self-Regulatory Organization’s Statement on Burden on Competition CBOE does not believe that the proposed rule change will impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The Exchange does not believe that the proposed rule change will impose any burden on intramarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed change does not change to whom the Marketing Fee exemption for strategy executions applies; it merely states the manner for those executing such transactions to receive the exemption. The Exchange does not believe that the proposed rule change will impose any burden on intermarket competition that is not necessary or appropriate in furtherance of the purposes of the Act because the proposed change because only applies to trading on CBOE and does not amend any fees, or to whom such fees apply. To the extent that the more clear explanation of the manner by which a market participant executing a strategy transaction may apply for such transaction’s exemption from the Marketing Fee may be attractive to market participants on other exchanges, such market participants may elect to become market participants on CBOE. TKELLEY on DSK3SPTVN1PROD with NOTICES C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange neither solicited nor received comments on the proposed rule change. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act 6 and paragraph (f) of Rule 19b–4 7 thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may 6 15 7 17 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f). VerDate Mar<15>2010 16:59 May 21, 2013 Jkt 229001 temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the Commission takes such action, the Commission will institute proceedings to determine whether the proposed rule change should be approved or disapproved. submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR–CBOE– 2013–051 and should be submitted on or before June 12, 2013. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.8 Kevin M. O’Neill, Deputy Secretary. 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: [FR Doc. 2013–12164 Filed 5–21–13; 8:45 am] 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 Number SR–CBOE–2013–051 on the subject line. Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade the International Bear ETF Under NYSE Arca Equities Rule 8.600 Paper Comments • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–CBOE–2013–051. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (https://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the 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 PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69591; File No. SR– NYSEArca–2013–33] May 16, 2013. I. Introduction On March 21, 2013, NYSE Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of the International Bear ETF (‘‘Fund’’) under NYSE Arca Equities Rule 8.600. On April 3, 2013, the Exchange filed Amendment No. 1 to the proposed rule change.3 The proposed rule change, as modified by Amendment No. 1 thereto, was published for comment in the Federal Register on April 10, 2013.4 The Commission received no comments on the proposal. This order approves the proposed rule change, as modified by Amendment No. 1 thereto. II. Description of the Proposal The Exchange proposes to list and trade Shares of the Fund under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares. The Shares will be offered by AdvisorShares Trust (‘‘Trust’’), a statutory trust organized under the laws of the State of Delaware and registered 8 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 In Amendment No. 1, the Exchange made certain technical changes to the proposed rule change. 4 See Securities Exchange Act Release No. 69303 (April 4, 2013), 78 FR 21475 (‘‘Notice’’). 1 15 E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 78, No. 99 / Wednesday, May 22, 2013 / Notices with the Commission as an open-end management investment company.5 The investment adviser to the Fund is AdvisorShares Investments, LLC (‘‘Adviser’’). The Fund will have a subadviser (‘‘Sub-Adviser’’) that provides day-to-day portfolio management of the Fund. Foreside Fund Services, LLC will be the principal underwriter and distributor of the Fund’s Shares. The Bank of New York Mellon will serve as the administrator, custodian, transfer agent, and accounting agent for the Fund. According to the Exchange, the Adviser is not affiliated with a brokerdealer.6 TKELLEY on DSK3SPTVN1PROD with NOTICES Principle Investments 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’’). 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,7 at least 80% of the Fund’s net assets will be such equity securities, which the Fund will short sell. 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 SubAdviser, subject to the oversight of the 5 The Trust is registered under the Investment Company Act of 1940 (‘‘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 and the 1940 Act relating to the Fund (File Nos. 333–157876 and 811–22110) (‘‘Registration Statement’’). In addition, the Commission has issued an order granting certain exemptive relief to the Trust under the 1940 Act. See Investment Company Act Release No. 29291 (May 28, 2010) (File No. 812–13677). 6 See NYSE Arca Equities Rule 8.600, Commentary .06. 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. 7 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 manmade disaster, act of God, armed conflict, act of terrorism, riot or labor disruption, or any similar intervening circumstance. VerDate Mar<15>2010 16:59 May 21, 2013 Jkt 229001 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 SubAdviser 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. 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.8 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.’’ 9 Except for up to 10% of 8 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. 9 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 PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 30373 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. 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. 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 requirements, until the short position is closed out. 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. The 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. E:\FR\FM\22MYN1.SGM 22MYN1 30374 Federal Register / Vol. 78, No. 99 / Wednesday, May 22, 2013 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES Fund may invest in exchange-traded funds (‘‘ETFs’’) registered pursuant to the 1940 Act, exchange-traded notes (‘‘ETNs’’),10 and other exchange-traded products (together with ETFs and ETNs, collectively, ‘‘ETPs’’).11 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. The Fund may invest in several different types of investment companies from time to time, including mutual funds and business development companies (‘‘BDCs’’),12 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 10 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. 11 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. 12 According to the Exchange, 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. VerDate Mar<15>2010 16:59 May 21, 2013 Jkt 229001 are parties to a comprehensive surveillance sharing agreement with the Exchange. 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.13 The Fund may invest in variable and floating rate securities. 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. The Fund may enter into repurchase agreements with financial institutions, which may be deemed to be loans.15 The Fund may enter into reverse repurchase agreements without limit as part of the Fund’s investment strategy.16 13 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. 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 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, amounts to more than 15% of the Fund’s net assets. 16 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 PO 00000 Frm 00108 Fmt 4703 Sfmt 4703 However, the Fund does not expect to engage, under normal circumstances, in reverse repurchase agreements with respect to more than 331⁄3% of its assets. The Fund also may invest directly and indirectly in foreign currencies. 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 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. 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 SubAdviser’s assessment of market conditions. 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. In addition, 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. 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. E:\FR\FM\22MYN1.SGM 22MYN1 Federal Register / Vol. 78, No. 99 / Wednesday, May 22, 2013 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES Government, its agencies or instrumentalities, or shares of investment companies. 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. The Fund will seek to qualify for treatment as a Regulated Investment Company under the Internal Revenue Code. 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. Additional information regarding the Fund; Shares; investment objective, strategies, methodology, and restrictions; risks; fees and expenses; creations and redemptions of Shares; availability of information; trading rules and halts; and surveillance procedures, among other things, can be found in the Registration Statement and in the Notice, as applicable.17 III. Discussion and Commission’s Findings After careful review, the Commission finds that the Exchange’s proposal to list and trade the Shares is consistent with the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.18 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Exchange Act,19 which requires, among other things, that the Exchange’s rules be designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the 17 See Notice and Registration Statement, supra notes 4 and 5, respectively. 18 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 19 15 U.S.C. 78f(b)(5). VerDate Mar<15>2010 16:59 May 21, 2013 Jkt 229001 public interest. The Commission notes that the Fund and the Shares must comply with the requirements of NYSE Arca Equities Rule 8.600 to be listed and traded on the Exchange. The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Exchange Act,20 which sets forth Congress’ finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. Quotation and last-sale information for the Shares will be available via the Consolidated Tape Association (‘‘CTA’’) high-speed line, and for the underlying securities, 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. 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 through one or more major market data vendors.21 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, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for the Fund’s calculation of NAV at the end of the business day.22 The Fund will calculate NAV once each business day as of the regularly scheduled close of trading on the New York Stock Exchange, LLC (normally 4:00 p.m. Eastern Time). The Web site for the Fund will include a form of the prospectus for the Fund and additional data relating to NAV and other 20 15 U.S.C. 78k–1(a)(1)(C)(iii). Notice, supra note 4, 78 FR at 21479. According to the Exchange, several major market data vendors display and/or make widely available Portfolio Indicative Values taken from CTA or other data feeds 22 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 21 See PO 00000 Frm 00109 Fmt 4703 Sfmt 4703 30375 applicable quantitative information. 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,23 and information regarding the previous day’s closing price and trading volume information for the Shares will be published daily in the financial section of newspapers.24 The Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Exchange will obtain a representation from the issuer of the Shares that the NAV per Share will be calculated daily and that the NAV and the Disclosed Portfolio will be made available to all market participants at the same time.25 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,26 and trading in the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth additional circumstances under which Shares of the Fund may be halted.27 The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees. Consistent with NYSE Arca Equities Rule 8.600(d)(2)(B)(ii), the Adviser, as the Reporting Authority, must implement and maintain, or be subject to, procedures designed to prevent the use and dissemination of material, nonpublic information regarding the actual components of the Fund’s portfolio.28 The Exchange states that the Adviser is not affiliated with a broker-dealer.29 23 See Notice, supra note 4, 78 FR at 21479. id. 25 See id. 26 These reasons may include: (1) The extent to which trading is not occurring in the securities and/ or the financial instruments composing 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. 27 See NYSE Arca Equities Rule 8.600(d)(2)(D). 28 See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii). 29 An investment adviser to an open-end fund is required to be registered under the Investment Advisers Act of 1940 (‘‘Advisers Act’’). As a result, the Adviser and Sub-Adviser and their related personnel are subject to the provisions of Rule 204A–1 under the Advisers Act relating to codes of ethics. This Rule requires investment advisers to adopt a code of ethics that reflects the fiduciary 24 See E:\FR\FM\22MYN1.SGM Continued 22MYN1 30376 Federal Register / Vol. 78, No. 99 / Wednesday, May 22, 2013 / Notices TKELLEY on DSK3SPTVN1PROD with NOTICES 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. The Commission notes that the Financial Industry Regulatory Authority (‘‘FINRA’’), on behalf of the Exchange,30 will communicate as 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. The Exchange represents that the Shares are deemed to be equity securities, thus rendering trading in the Shares subject to the Exchange’s existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including: (1) The Shares will conform to the initial and continuing listing criteria under NYSE Arca Equities Rule 8.600. (2) The Exchange represents that trading in the Shares will be subject to the existing trading surveillances, administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws and 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. (3) 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),31 ETPs, and BDCs that trade in 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. 30 The Exchange states that, while 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. 31 See notes 8 and 9, supra, and accompanying text. VerDate Mar<15>2010 16:59 May 21, 2013 Jkt 229001 markets that are members of the ISG or are parties to a comprehensive surveillance sharing agreement with the Exchange. (4) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (5) 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. Specifically, the Information Bulletin will discuss the following: (a) The procedures for purchases and redemptions of Shares and that Shares are not individually redeemable; (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its Equity Trading Permit Holders to learn the essential facts relating to every customer prior to trading the Shares; (c) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated Portfolio Indicative Value will not be calculated or publicly disseminated; (d) how information regarding the Portfolio Indicative Value is disseminated; (e) the requirement that Equity Trading Permit Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information. (6) For initial and continued listing, the Fund will be in compliance with Rule 10A–3 under the Exchange Act,32 as provided by NYSE Arca Equities Rule 5.3.33 (7) The Fund will not invest in options contracts, futures contracts, or swap agreements. (8) The Fund’s investments will be consistent with its respective investment objective and will not be used to enhance leverage. (9) 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. (10) A minimum of 100,000 Shares for the Fund will be outstanding at the commencement of trading on the Exchange. This approval order is based on all of the Exchange’s representations, including those set forth above and in the Notice, and the Exchange’s description of the Fund. For the foregoing reasons, the Commission finds that the proposed rule change, as modified by Amendment No. 1 thereto, is consistent with Section 32 17 CFR 240.10A–3. Notice, supra note 4, 78 FR at 21478. 33 See PO 00000 Frm 00110 Fmt 4703 Sfmt 4703 6(b)(5) of the Act 34 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Exchange Act,35 that the proposed rule change (SR– NYSEArca–2013–33), as modified by Amendment No. 1 thereto, be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.36 Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2013–12162 Filed 5–21–13; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–69589; File No. SR–BYX– 2013–014] Self-Regulatory Organizations; BATS Y-Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Related to Fees for Use of BATS Y-Exchange, Inc. May 16, 2013. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’),1 and Rule 19b–4 thereunder,2 notice is hereby given that on May 3, 2013, BATS Y-Exchange, Inc. (the ‘‘Exchange’’ or ‘‘BYX’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II and III below, which Items have been prepared by the Exchange. The Exchange has designated the proposed rule change as one establishing or changing a member due, fee, or other charge imposed by the Exchange under Section 19(b)(3)(A)(ii) of the Act 3 and Rule 19b–4(f)(2) thereunder,4 which renders the proposed rule change effective upon filing with the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of the Substance of the Proposed Rule Change The Exchange proposes to amend the fee schedule applicable to Members 5 34 15 U.S.C. 78f(b)(5). U.S.C. 78s(b)(2). 36 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 3 15 U.S.C. 78s(b)(3)(A)(ii). 4 17 CFR 240.19b–4(f)(2). 5 A Member is any registered broker or dealer that has been admitted to membership in the Exchange. 35 15 E:\FR\FM\22MYN1.SGM 22MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 78, Number 99 (Wednesday, May 22, 2013)]
[Notices]
[Pages 30372-30376]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12162]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69591; File No. SR-NYSEArca-2013-33]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To List and Trade the International Bear ETF Under NYSE Arca 
Equities Rule 8.600

May 16, 2013.

I. Introduction

    On March 21, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
International Bear ETF (``Fund'') under NYSE Arca Equities Rule 8.600. 
On April 3, 2013, the Exchange filed Amendment No. 1 to the proposed 
rule change.\3\ The proposed rule change, as modified by Amendment No. 
1 thereto, was published for comment in the Federal Register on April 
10, 2013.\4\ The Commission received no comments on the proposal. This 
order approves the proposed rule change, as modified by Amendment No. 1 
thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the Exchange made certain technical 
changes to the proposed rule change.
    \4\ See Securities Exchange Act Release No. 69303 (April 4, 
2013), 78 FR 21475 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade Shares of the Fund under 
NYSE Arca Equities Rule 8.600, which governs the listing and trading of 
Managed Fund Shares. The Shares will be offered by AdvisorShares Trust 
(``Trust''), a statutory trust organized under the laws of the State of 
Delaware and registered

[[Page 30373]]

with the Commission as an open-end management investment company.\5\ 
The investment adviser to the Fund is AdvisorShares Investments, LLC 
(``Adviser''). The Fund will have a sub-adviser (``Sub-Adviser'') that 
provides day-to-day portfolio management of the Fund. Foreside Fund 
Services, LLC will be the principal underwriter and distributor of the 
Fund's Shares. The Bank of New York Mellon will serve as the 
administrator, custodian, transfer agent, and accounting agent for the 
Fund. According to the Exchange, the Adviser is not affiliated with a 
broker-dealer.\6\
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    \5\ The Trust is registered under the Investment Company Act of 
1940 (``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 and the 1940 Act relating to the 
Fund (File Nos. 333-157876 and 811-22110) (``Registration 
Statement''). In addition, the Commission has issued an order 
granting certain exemptive relief to the Trust under the 1940 Act. 
See Investment Company Act Release No. 29291 (May 28, 2010) (File 
No. 812-13677).
    \6\ See NYSE Arca Equities Rule 8.600, Commentary .06. 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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Principle Investments

    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''). 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,\7\ at least 
80% of the Fund's net assets will be such equity securities, which the 
Fund will short sell.
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    \7\ 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.
---------------------------------------------------------------------------

    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.
    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.\8\
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    \8\ 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.
---------------------------------------------------------------------------

    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.'' \9\ 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.
---------------------------------------------------------------------------

    \9\ 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.
---------------------------------------------------------------------------

    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. 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 requirements, until the short position is closed out.
    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. The

[[Page 30374]]

Fund may invest in exchange-traded funds (``ETFs'') registered pursuant 
to the 1940 Act, exchange-traded notes (``ETNs''),\10\ and other 
exchange-traded products (together with ETFs and ETNs, collectively, 
``ETPs'').\11\ 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.
---------------------------------------------------------------------------

    \10\ 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.
    \11\ 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.
---------------------------------------------------------------------------

    The Fund may invest in several different types of investment 
companies from time to time, including mutual funds and business 
development companies (``BDCs''),\12\ 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.
---------------------------------------------------------------------------

    \12\ According to the Exchange, 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.
---------------------------------------------------------------------------

    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.\13\ The Fund may invest in variable and floating rate 
securities. 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.
---------------------------------------------------------------------------

    \13\ 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.
    \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.
---------------------------------------------------------------------------

    The Fund may enter into repurchase agreements with financial 
institutions, which may be deemed to be loans.\15\ The Fund may enter 
into reverse repurchase agreements without limit as part of the Fund's 
investment strategy.\16\ 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. The Fund also may invest 
directly and indirectly in foreign currencies.
---------------------------------------------------------------------------

    \15\ 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, amounts to more than 15% of the 
Fund's net assets.
    \16\ 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.
---------------------------------------------------------------------------

    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 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.
    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.
    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. In addition, 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.

[[Page 30375]]

Government, its agencies or instrumentalities, or shares of investment 
companies.
    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.
    The Fund will seek to qualify for treatment as a Regulated 
Investment Company under the Internal Revenue Code. 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.
    Additional information regarding the Fund; Shares; investment 
objective, strategies, methodology, and restrictions; risks; fees and 
expenses; creations and redemptions of Shares; availability of 
information; trading rules and halts; and surveillance procedures, 
among other things, can be found in the Registration Statement and in 
the Notice, as applicable.\17\
---------------------------------------------------------------------------

    \17\ See Notice and Registration Statement, supra notes 4 and 5, 
respectively.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    After careful review, the Commission finds that the Exchange's 
proposal to list and trade the Shares is consistent with the Exchange 
Act and the rules and regulations thereunder applicable to a national 
securities exchange.\18\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Exchange 
Act,\19\ which requires, among other things, that the Exchange's rules 
be designed to promote just and equitable principles of trade, to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system, and, in general, to protect 
investors and the public interest. The Commission notes that the Fund 
and the Shares must comply with the requirements of NYSE Arca Equities 
Rule 8.600 to be listed and traded on the Exchange.
---------------------------------------------------------------------------

    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Exchange Act,\20\ which sets forth Congress' finding that it is in the 
public interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via the Consolidated Tape 
Association (``CTA'') high-speed line, and for the underlying 
securities, 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. 
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 through one or more major market data 
vendors.\21\ 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, as defined in NYSE Arca Equities 
Rule 8.600(c)(2), that will form the basis for the Fund's calculation 
of NAV at the end of the business day.\22\ The Fund will calculate NAV 
once each business day as of the regularly scheduled close of trading 
on the New York Stock Exchange, LLC (normally 4:00 p.m. Eastern Time). 
The Web site for the Fund will include a form of the prospectus for the 
Fund and additional data relating to NAV and other applicable 
quantitative information. 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,\23\ and information regarding the previous day's 
closing price and trading volume information for the Shares will be 
published daily in the financial section of newspapers.\24\
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \21\ See Notice, supra note 4, 78 FR at 21479. According to the 
Exchange, several major market data vendors display and/or make 
widely available Portfolio Indicative Values taken from CTA or other 
data feeds
    \22\ 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
    \23\ See Notice, supra note 4, 78 FR at 21479.
    \24\ See id.
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Exchange will obtain a representation from the issuer of 
the Shares that the NAV per Share will be calculated daily and that the 
NAV and the Disclosed Portfolio will be made available to all market 
participants at the same time.\25\ 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,\26\ and trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth additional circumstances 
under which Shares of the Fund may be halted.\27\ The Exchange states 
that it has a general policy prohibiting the distribution of material, 
non-public information by its employees. Consistent with NYSE Arca 
Equities Rule 8.600(d)(2)(B)(ii), the Adviser, as the Reporting 
Authority, must implement and maintain, or be subject to, procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the actual components of the Fund's 
portfolio.\28\ The Exchange states that the Adviser is not affiliated 
with a broker-dealer.\29\

[[Page 30376]]

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. The Commission notes that the Financial Industry Regulatory 
Authority (``FINRA''), on behalf of the Exchange,\30\ will communicate 
as 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.
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    \25\ See id.
    \26\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities and/or the financial instruments 
composing 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.
    \27\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
    \28\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \29\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser and Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) Adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
    \30\ The Exchange states that, while 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 Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will conform to the initial and continuing listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange represents that trading in the Shares will be 
subject to the existing trading surveillances, administered by FINRA on 
behalf of the Exchange, which are designed to detect violations of 
Exchange rules and applicable federal securities laws and 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.
    (3) 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),\31\ 
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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    \31\ See notes 8 and 9, supra, and accompanying text.
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    (4) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (5) 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. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares and that Shares 
are not individually redeemable; (b) NYSE Arca Equities Rule 9.2(a), 
which imposes a duty of due diligence on its Equity Trading Permit 
Holders to learn the essential facts relating to every customer prior 
to trading the Shares; (c) the risks involved in trading the Shares 
during the Opening and Late Trading Sessions when an updated Portfolio 
Indicative Value will not be calculated or publicly disseminated; (d) 
how information regarding the Portfolio Indicative Value is 
disseminated; (e) the requirement that Equity Trading Permit Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (f) 
trading information.
    (6) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\32\ as provided by 
NYSE Arca Equities Rule 5.3.\33\
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    \32\ 17 CFR 240.10A-3.
    \33\ See Notice, supra note 4, 78 FR at 21478.
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    (7) The Fund will not invest in options contracts, futures 
contracts, or swap agreements.
    (8) The Fund's investments will be consistent with its respective 
investment objective and will not be used to enhance leverage.
    (9) 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.
    (10) A minimum of 100,000 Shares for the Fund will be outstanding 
at the commencement of trading on the Exchange.

This approval order is based on all of the Exchange's representations, 
including those set forth above and in the Notice, and the Exchange's 
description of the Fund.

    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1 thereto, is consistent with 
Section 6(b)(5) of the Act \34\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \34\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Exchange Act,\35\ that the proposed rule change (SR-NYSEArca-2013-33), 
as modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \35\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-12162 Filed 5-21-13; 8:45 am]
BILLING CODE 8011-01-P

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