Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to Listing and Trading of Shares of the PowerShares China A-Share Portfolio Under NYSE Arca Equities Rule 8.600, 41145-41149 [2013-16382]
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Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices
concurrently with the confirmation of a
transaction; and (g) trading information.
The Information Bulletin will also
advise ETP Holders of their suitability
obligations with respect to
recommended transactions to customers
in the Shares, and will state that ETP
Holders that carry customer accounts
should follow the FINRA Regulatory
Notice with respect to suitability.
(5) With respect to application of Rule
10A–3 under the Act,33 the Trust relies
on the exception contained in Rule
10A–3(c)(7).34
(6) The Sponsor represents that the
Trust will invest in Index Futures and
Collateral Assets in a manner consistent
with the Trust’s investment objective
and not to achieve additional leverage.
(7) With respect to Index Futures
traded on exchanges, not more than
10% of the weight of such Index Futures
in the aggregate shall consist of futures
contracts whose principal trading
market (a) is not a member of ISG or (b)
is a market with which the Exchange
does not have a comprehensive
surveillance sharing agreement,
provided that, so long as the Exchange
may obtain market surveillance
information with respect to transactions
occurring on the COMEX pursuant to
the ISG memberships of CME and
NYMEX, futures contracts whose
principal trading market is COMEX
shall not be subject to the prohibition in
(a) above.
(8) A minimum of 100,000 Shares of
the Trust will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations and
description of the Trust, including those
set forth above and in the Notice.35
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 36 and the rules and
regulations thereunder applicable to a
national securities exchange.
33 17
CFR 240.10A–3.
CFR 240.10A–3(c)(7).
35 The Commission notes that it does not regulate
the market for futures in which the Trust plans to
take positions, which is the responsibility of the
CFTC. The CFTC has the authority to set limits on
the positions that any person may take in futures.
These limits may be directly set by the CFTC or by
the markets on which the futures are traded. The
Commission has no role in establishing position
limits on futures even though such limits could
impact an exchange-traded product that is under
the jurisdiction of the Commission.
36 15 U.S.C. 78f(b)(5).
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34 17
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IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,37 that the
proposed rule change (SR–NYSEArca–
2013–48), 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.38
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013–16377 Filed 7–8–13; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69915; File No. SR–
NYSEArca–2013–56]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change Relating to
Listing and Trading of Shares of the
PowerShares China A-Share Portfolio
Under NYSE Arca Equities Rule 8.600
July 2, 2013.
I. Introduction
On May 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
PowerShares China A-Share Portfolio
(‘‘Fund’’) under NYSE Arca Equities
Rule 8.600. The proposed rule change
was published for comment in the
Federal Register on May 30, 2013.3 The
Commission received no comments on
the proposed rule change. This order
grants approval of the proposed rule
change.
II. Description of the Proposed Rule
Change
The Exchange proposes to list and
trade Shares of the Fund pursuant to
NYSE Arca Equities Rule 8.600, which
governs the listing and trading of
Managed Fund Shares on the Exchange.
The Shares will be offered by
PowerShares Actively Managed
Exchange-Traded Fund Trust (‘‘Trust’’),
a statutory trust organized under the
laws of the State of Delaware and
U.S.C. 78s(b)(2).
CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 69634
(May 23, 2013), 78 FR 32487 (‘‘Notice’’).
PO 00000
37 15
38 17
Frm 00121
Fmt 4703
Sfmt 4703
41145
registered with the Commission as an
open-end management investment
company.4 The investment adviser to
the Fund will be Invesco PowerShares
Capital Management LLC (‘‘Adviser’’).
Invesco Distributors, Inc. (‘‘Distributor’’)
will serve as the distributor of the Fund
Shares. The Bank of New York Mellon
Corporation (‘‘Administrator,’’ ‘‘Transfer
Agent,’’ or ‘‘Custodian’’) will serve as
administrator, custodian, and transfer
agent for the Fund. The Exchange states
that the Adviser is not a broker-dealer
but is affiliated with a broker-dealer and
has implemented a fire wall with
respect to its broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the Fund’s portfolio.5
The Fund’s investment objective will
be to seek to provide long term capital
appreciation. The Fund will seek to
achieve its investment objective by
using a quantitative, rules-based strategy
designed to provide returns that
correspond to the performance of the
FTSE China A50 Index (‘‘Benchmark’’).
The Benchmark is designed for
investors who seek exposure to China’s
domestic market through ‘‘A-Shares,’’
which are securities of companies that
are incorporated in mainland China and
that trade on the Shanghai Stock
Exchange or the Shenzhen Stock
Exchange. The Benchmark is comprised
of the securities of the largest 50 AShare companies, as determined by full
market capitalization, listed on the
Shanghai and Shenzhen Stock
Exchanges.
Under normal circumstances,6 the
Fund generally will invest at least 80%
4 The Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). On April 20,
2012, the Trust filed with the Commission a posteffective amendment to Form N–1A under the
Securities Act of 1933 and under the 1940 Act
relating to the Fund (File Nos. 333–147622 and
811–22148) (‘‘Registration Statement’’). The
Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act.
See Investment Company Act Release No. 28171
(February 27, 2008) (File No. 812–13386)
(‘‘Exemptive Order’’).
5 See NYSE Arca Equities Rule 8.600,
Commentary .06. In the event (a) the Adviser
becomes newly affiliated with a broker-dealer, or (b)
any new adviser or sub-adviser is a registered
broker-dealer or becomes affiliated with a brokerdealer, it will implement a fire wall with respect to
its relevant personnel or its broker-dealer affiliate
regarding access to information concerning the
composition and/or changes to the portfolio, and
will be subject to procedures designed to prevent
the use and dissemination of material non-public
information regarding such portfolio.
6 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of:
extreme volatility or trading halts in the equity
markets or the financial markets generally;
operational issues causing dissemination of
inaccurate market information; or force majeure
type events such as systems failure, natural or man-
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of its net assets in a combination of
investments whose collective
performance is designed to correspond
to the performance of the Benchmark.
These investments will be: (i) Futures
contracts on the Benchmark; (ii)
exchange-traded funds (‘‘ETFs’’) that
provide exposure to the China A-Shares
market (‘‘Underlying ETFs’’); 7 and (iii)
A-Shares included in the Benchmark, to
the extent permissible under Chinese
law. As described below, the Fund
expects to invest its remaining assets in
U.S. government securities, money
market instruments (including
repurchase agreements), cash, and cash
equivalent securities (i.e., corporate
commercial paper) to collateralize
investments in futures contracts or for
other purposes. Although the Fund will
seek to provide returns that generally
correspond to the performance of the
Benchmark, the Fund will be actively
managed by the Adviser and will not be
designed to track the performance of
any index.
‘‘A-Shares’’ are shares of stock that are
issued by companies incorporated in
mainland China and that are traded in
Renminbi on the Shanghai Stock
Exchange or the Shenzhen Stock
Exchange. Due to strict controls
imposed by the Chinese government,
the Fund currently cannot invest
directly in A-Shares, which are
available only to domestic Chinese
investors and a limited pool of foreign
investors, including foreign investors
who have been approved as a Qualified
Foreign Institutional Investor (‘‘QFII’’)
by the China Securities Regulatory
Commission and have obtained a QFII
license. After obtaining a QFII license,
a QFII applies to China’s State
Administration of Foreign Exchange for
a specific aggregate dollar amount
investment quota of A-Shares (‘‘A-Share
Quota’’) in which the QFII can invest. In
order for the Fund to invest directly in
A-Shares, the Adviser would need to
apply for a QFII license and obtain an
A-Share Quota.
If the Adviser obtains a QFII license,
the Fund may invest directly in AShares through the QFII license. There
made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption, or any similar
intervening circumstance.
7 For purposes of this proposed rule change,
Underlying ETFs include Investment Company
Units (as described in NYSE Arca Equities Rule
5.2(j)(3)) and Managed Fund Shares (as described in
NYSE Arca Equities Rule 8.600). The Underlying
ETFs all will be listed and traded in the U.S. on
registered exchanges or the Stock Exchange of Hong
Kong Limited (‘‘HKSE’’), a wholly-owned
subsidiary of Hong Kong Exchanges and Clearing
Limited. Hong Kong Exchanges and Clearing
Limited is a member of the Intermarket Surveillance
Group (‘‘ISG’’).
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are no assurances that such a QFII
license would be granted, or that such
a license, if granted, would permit the
Fund to purchase A-Shares in an
amount necessary to provide the Fund
with sufficient A-Shares exposure.
Because it currently cannot invest in
A-Shares directly, the Fund will invest
primarily in futures contracts on the
Benchmark that provide exposure to the
China A-Shares market. These futures
contracts are listed on the Singapore
Exchange (‘‘SGX’’).8 By investing in
futures contracts on the Benchmark, the
Fund will have no direct ownership of
the A-Shares of the companies included
in the Benchmark, but the Fund will
gain exposure to the performance of
those companies.9
The Fund also may invest in
Underlying ETFs listed on U.S.
securities exchanges or on the HKSE
that provide exposure to China AShares.
The Fund will invest in futures
contracts on the Benchmark—
specifically, in SGX-listed futures
contracts—as a significant part of its
investment strategy. Generally, futures
contracts are a type of derivative whose
value depends upon, or is derived from,
the value of an underlying asset,
reference rate, or index. The Fund’s use
of futures contracts will be underpinned
by investments in short-term, high
quality U.S. Treasury Securities, money
market instruments, cash, and cash
equivalent securities, as described
below.10 The Trust’s Exemptive Order
is a member of the ISG.
contracts on the Benchmark were first
approved for investment by U.S. investors by the
Commodity Futures Trading Commission (‘‘CFTC’’)
in January 2012. Futures contracts on the
Benchmark have expirations ranging from the two
nearest consecutive months, and March, June,
September, and December on a 1-year cycle, and
provide investors the ability to invest based on their
view of the future direction or movement of the
Benchmark. FTSE International Limited (‘‘FTSE’’)
reviews constituents in the Benchmark quarterly
using data from the close of business on the
Monday following the third Friday in February,
May, August, and November. FTSE will implement
any constituent changes on the next trading day
following the third Friday in March, June,
September, and December.
10 With respect to certain kinds of futures entered
into by the Fund that involve obligations to make
future payments to third parties, under applicable
federal securities laws, rules, and interpretations
thereof, the Fund must ‘‘set aside’’ (referred to
sometimes as ‘‘asset segregation’’) liquid assets, or
engage in other measures to ‘‘cover’’ open positions
with respect to such transactions. With respect to
futures contracts that are not contractually required
to ‘‘cash-settle,’’ the Fund must cover its open
positions by setting aside liquid assets equal to the
contracts’ full, notional value. With respect to
futures contracts that are contractually required to
‘‘cash-settle,’’ the Fund may set aside liquid assets
in an amount equal to the Fund’s daily marked-tomarket (net) obligation rather than the notional
value of the futures contract.
PO 00000
8 SGX
9 Futures
Frm 00122
Fmt 4703
Sfmt 4703
places no limit on the amount of
derivatives in which the Fund can
invest. The futures contracts will be
used to simulate full investment in
China A-Share securities. To the extent
the Fund uses futures, it will do so only
in accordance with Rule 4.5 of the
Commodity Exchange Act (‘‘CEA’’).11
The Subsidiary
The Fund may seek to gain exposure
to the A-Shares market through
investments in a subsidiary organized in
the Cayman Islands (‘‘Subsidiary’’) that
in turn would make investments in
futures contracts that provide exposure
to China A-Shares. If utilized, the
Subsidiary would be wholly-owned and
controlled by the Fund, and its
investments would be consolidated into
the Fund’s financial statements. Should
the Fund invest in the Subsidiary, that
investment may not exceed 25% of the
Fund’s total assets at each quarter end
of the Fund’s fiscal year. Further,
should the Fund invest in the
Subsidiary, it would be expected to
provide the Fund with exposure to AShare returns within the limits of the
federal tax requirements applicable to
investment companies, such as the
Fund.
The Subsidiary would be able to
invest in futures contracts that would
provide exposure to A-Shares, as well in
other investments that would serve as
margin or collateral or otherwise
support the Subsidiary’s futures
positions. The Subsidiary, accordingly,
would be subject to the same general
investment policies and restrictions as
the Fund, except that unlike the Fund,
which must invest in futures contracts
in compliance with the requirements of
Subchapter M of the Internal Revenue
Code,12 federal securities laws, and the
CEA, the Subsidiary may invest without
limitation in futures. References to the
11 7 U.S.C. 1. To the extent the Fund uses futures
contracts, it will do so only in accordance with Rule
4.5 of the CEA. The Trust has filed a notice of
eligibility for exclusion from the definition of the
term ‘‘commodity pool operator’’ or ‘‘CPO’’ in
accordance with Rule 4.5 of the CEA. Under
amendments to Rule 4.5 adopted in February 2012,
an investment adviser of a registered investment
company may claim exclusion from registration as
a CPO only if the registered investment company
it advises uses futures contracts solely for ‘‘bona
fide hedging purposes’’ or limits its use of futures
contracts for non-bona fide hedging purposes in
specified ways. Because the Fund does not expect
to use futures contracts solely for ‘‘bona fide
hedging purposes,’’ the Fund will be subject to
rules that will require it to limit its use of positions
in futures contracts in accordance with the
requirements of amended Rule 4.5 unless the
Adviser otherwise complies with CPO regulation.
To the extent that the Fund is unable to rely on Rule
4.5, the Fund will be operated in accordance with
CFTC rules; the Adviser already is registered as a
CPO.
12 26 U.S.C. 851.
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investment strategies and risks of the
Fund include the investment strategies
and risks of the Subsidiary.
The Fund may utilize the Subsidiary,
but is not required to do so. If it is
utilized, the Subsidiary will not be
registered under the 1940 Act. As an
investor in the Subsidiary, the Fund, as
the Subsidiary’s sole shareholder,
would not have the protections offered
to investors in registered investment
companies. However, because the Fund
would wholly own and control the
Subsidiary, and the Fund and
Subsidiary would be managed by the
Adviser, the Subsidiary would not take
action contrary to the interests of the
Fund or the Fund’s shareholders. The
Board of Trustees of the Trust (‘‘Board’’)
has oversight responsibility for the
investment activities of the Fund,
including its investment in the
Subsidiary, and the Fund’s role as the
sole shareholder of the Subsidiary. Also,
in managing the Subsidiary’s portfolio,
the Adviser would be subject to the
same investment restrictions and
operational guidelines that apply to the
management of the Fund. Changes in
the laws of the United States, under
which the Fund is organized, or of the
Cayman Islands, under which the
Subsidiary is organized, could result in
the inability of the Fund or the
Subsidiary to operate as described in the
filing or in the Registration Statement
and could negatively affect the Fund
and its shareholders.
mstockstill on DSK4VPTVN1PROD with NOTICES
Other Investments
The Fund, under normal
circumstances, may invest no more than
20% of its net assets in other
investments such as money market
instruments (including repurchase
agreements, as described below), cash,
and cash equivalents to provide
liquidity or to collateralize its
investments in futures contracts. The
instruments in which the Fund may
invest include: (i) Short-term obligations
issued by the U.S. Government; 13 (ii)
short-term negotiable obligations of
commercial banks, fixed time
deposits,14 and bankers’ acceptances 15
of U.S. and foreign banks and similar
13 The Fund may invest in U.S. government
obligations. Obligations issued or guaranteed by the
U.S. Government, its agencies, and
instrumentalities include bills, notes, and bonds
issued by the U.S. Treasury, as well as ‘‘stripped’’
or ‘‘zero coupon’’ U.S. Treasury obligations
representing future interest or principal payments
on U.S. Treasury notes or bonds.
14 Time deposits are non-negotiable deposits
maintained in banking institutions for specified
periods of time at stated interest rates.
15 Banker’s acceptances are time drafts drawn on
commercial banks by borrowers, usually in
connection with international transactions.
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institutions; (iii) commercial paper rated
at the date of purchase ‘‘Prime-1’’ by
Moody’s Investors Service, Inc. or
‘‘A–1+’’ or ‘‘A–1’’ by Standard & Poor’s
or, if unrated, of comparable quality, as
the Adviser of the Fund determines; and
(iv) money market mutual funds.
The Fund may invest in the securities
of other investment companies
(including money market funds) beyond
the limits permitted under the 1940 Act,
subject to certain terms and conditions
set forth in a Commission exemptive
order issued pursuant to Section
12(d)(1)(J) of the 1940 Act.16
The Fund may enter into repurchase
agreements, which are agreements
pursuant to which securities are
acquired by the Fund from a third party
with the understanding that they will be
repurchased by the seller at a fixed price
on an agreed date. These agreements
may be made with respect to any of the
portfolio securities in which the Fund is
authorized to invest. Repurchase
agreements may be characterized as
loans secured by the underlying
securities. The Fund may enter into
repurchase agreements with (i) member
banks of the Federal Reserve System
having total assets in excess of $500
million and (ii) securities dealers
(‘‘Qualified Institutions’’). The Adviser
will monitor the continued
creditworthiness of Qualified
Institutions.
The Fund may enter into reverse
repurchase agreements, which involve
the sale of securities with an agreement
to repurchase the securities at an
agreed-upon price, date, and interest
payment and have the characteristics of
borrowing. The securities purchased
with the funds obtained from the
agreement and securities collateralizing
the agreement will have maturity dates
no later than the repayment date.
Investment Restrictions
The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage.
The Fund may hold up to an aggregate
amount of 15% of its net assets in
illiquid securities (calculated at the time
of investment). 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
16 Investment Company Act Release No. 30238
(October 23, 2012) (File No. 812–13820).
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Frm 00123
Fmt 4703
Sfmt 4703
41147
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 not use futures for
speculative purposes.
The Fund may not concentrate its
investments (i.e., invest more than 25%
of the value of its net assets) in
securities of issuers in any one industry
or group of industries. This restriction
does not apply to obligations issued or
guaranteed by the U.S. Government, its
agencies, or instrumentalities.
The Fund intends to qualify for, and
to elect to be treated as, a separate
regulated investment company under
Subchapter M of the Internal Revenue
Code.17
The Fund will not invest in any nonU.S. equity securities (other than shares
of the Subsidiary and Underlying ETFs
listed on HKSE), to the extent that the
Fund may not invest directly in China
A-Shares through the QFII license, as
described above. The Fund will not
invest in options or swaps.
Additional information regarding the
Trust and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosure policies,
distributions, and taxes, among other
things, is included in the Notice and
Registration Statement, as applicable.18
III. Discussion and Commission’s
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of
Section 6 of the Act 19 and the rules and
regulations thereunder applicable to a
national securities exchange.20 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,21 which
requires, among other things, that the
Exchange’s rules be designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, to foster cooperation
and coordination with persons engaged
in facilitating transactions in securities,
to remove impediments to and perfect
the mechanism of a free and open
market and a national market system,
17 26
U.S.C. 851.
Notice and Registration Statement, supra
notes 3 and 4, respectively.
19 15 U.S.C. 78f.
20 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
21 15 U.S.C. 78f(b)(5).
18 See
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and, in general, to protect investors and
the public interest. The Commission
notes that the Fund and the Shares must
comply with the requirements of NYSE
Arca Equities Rule 8.600 to be listed and
traded on the Exchange.
The Commission finds that the
proposal to list and trade the Shares on
the Exchange is consistent with Section
11A(a)(1)(C)(iii) of the Act,22 which sets
forth Congress’s finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. Quotation
and last-sale information for the Shares
will be available via the Consolidated
Tape Association (‘‘CTA’’) high-speed
line. 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.23
On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund will disclose on its
Web site the Disclosed Portfolio, as
defined in NYSE Arca Equities Rule
8.600(c)(2), held by the Fund and the
Subsidiary that will form the basis for
the Fund’s calculation of NAV at the
end of the business day.24 The NAV per
Share of the Fund will be determined at
the close of regular trading (normally
4:00 p.m. Eastern Time) every day the
New York Stock Exchange is open. A
basket composition file, which will
include the security names and share
quantities to deliver in exchange for
Shares, together with estimates and
actual cash components, will be
publicly disseminated daily prior to the
opening of the Exchange via the
National Securities Clearing
Corporation. 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
22 15
U.S.C. 78k–1(a)(1)(C)(iii).
to the Exchange, several major
market data vendors widely disseminate Portfolio
Indicative Values taken from CTA or other data
feeds.
24 On a daily basis, the Fund will disclose for
each portfolio security, futures contract, and other
financial instrument of the Fund and the Subsidiary
the following information on the Fund’s Web site:
ticker symbol (if applicable); name of security,
futures contract, and financial instrument; number
of shares, if applicable, and dollar value of each
security, futures contract, and financial instrument
in the portfolio; and percentage weighting of the
security, futures contract, and financial instrument
in the portfolio. The Web site information will be
publicly available at no charge.
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23 According
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electronic services. Information on the
value and the constituents of the
Benchmark may be found on the Web
site of FTSE, the Benchmark’s provider.
Information regarding the previous
day’s closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers. The intra-day, closing,
and settlement prices of the portfolio
investments (e.g., futures contracts and
Underlying ETFs) are also readily
available from the exchanges trading
such securities or futures contracts,
automated quotation systems, published
or other public sources, or on-line
information services such as Bloomberg
or Reuters. The Fund’s Web site will
include a form of the prospectus for the
Fund and additional data relating to
NAV and other applicable quantitative
information.
The Commission further believes that
the proposal to list and trade the Shares
is reasonably designed to promote fair
disclosure of information that may be
necessary to price the Shares
appropriately and to prevent trading
when a reasonable degree of
transparency cannot be assured. The
Commission notes that the Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
will be made available to all market
participants at the same time.25 In
addition, trading in the Shares will be
subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. The Exchange
may halt trading in the Shares if trading
is not occurring in the securities, futures
contracts, and/or the financial
instruments comprising the Disclosed
Portfolio of the Fund, or if other
unusual conditions or circumstances
detrimental to the maintenance of a fair
and orderly market are present.26
Further, the Commission notes that the
Reporting Authority that provides the
Disclosed Portfolio must implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material, non-public
NYSE Arca Equities Rule 8.600(d)(1)(B).
NYSE Arca Equities Rule 8.600(d)(2)(C)
(providing additional considerations for the
suspension of trading in or removal from listing of
Managed Fund Shares on the Exchange). With
respect to trading halts, the Exchange may consider
all relevant factors in exercising its discretion to
halt or suspend trading in the Shares of the Fund.
Trading in Shares of the Fund will be halted if the
circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be
halted because of market conditions or for reasons
that, in the view of the Exchange, make trading in
the Shares inadvisable.
PO 00000
25 See
26 See
Frm 00124
Fmt 4703
Sfmt 4703
information regarding the actual
components of the portfolio.27 The
Commission notes that the Financial
Industry Regulatory Authority
(‘‘FINRA’’), on behalf of the Exchange,28
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 states that it
has a general policy prohibiting the
distribution of material, non-public
information by its employees. The
Exchange also states that the Adviser is
affiliated with a broker-dealer, and the
Adviser has implemented a fire wall
with respect to its broker-dealer affiliate
regarding access to information
concerning the composition and/or
changes to the portfolio.29
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 continued listing criteria
under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate
rules to facilitate transactions in the
Shares during all trading sessions.
(3) The Exchange represents that
trading in the Shares will be subject to
the existing trading surveillances,
administered by FINRA on behalf of the
27 See
NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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.
29 See supra note 5. 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 its 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.
28 The
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mstockstill on DSK4VPTVN1PROD with NOTICES
Federal Register / Vol. 78, No. 131 / Tuesday, July 9, 2013 / Notices
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.
(4) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit (‘‘ETP’’) Holders
in an Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Information Bulletin will discuss the
following: (a) The procedures for
purchases and redemptions of Shares in
Creation Units (and that Shares are not
individually redeemable); (b) NYSE
Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its
ETP Holders to learn the essential facts
relating to every customer prior to
trading the Shares; (c) the risks involved
in trading the Shares during the
Opening and Late Trading Sessions
when an updated Portfolio Indicative
Value will not be calculated or publicly
disseminated; (d) how information
regarding the Portfolio Indicative Value
will be disseminated; (e) the
requirement that ETP Holders deliver a
prospectus to investors purchasing
newly issued Shares prior to or
concurrently with the confirmation of a
transaction; and (f) trading information.
(5) For initial and/or continued
listing, the Fund will be in compliance
with Rule 10A–3 under the Exchange
Act,30 as provided by NYSE Arca
Equities Rule 5.3.
(6) The Fund will not invest in any
non-U.S. equity securities (other than
shares of the Subsidiary and Underlying
ETFs listed on HKSE), to the extent that
the Fund may not invest directly in
China A-Shares. To the extent that the
Fund invests directly in China AShares, not more than 10% of the
weight of the Fund’s portfolio in the
aggregate shall consist of such China AShares whose principal trading market
is not a member of ISG or is a market
with which the Exchange does not have
a comprehensive surveillance sharing
agreement.
(7) The Fund will invest solely in
SGX-listed futures contracts on the
Benchmark. It is possible that the
futures contracts on the Benchmark may
become listed on other exchanges that
are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement, at
which time the Fund may invest in
those futures contracts listed on such
30 17
CFR 240.10A–3.
VerDate Mar<15>2010
17:44 Jul 08, 2013
Jkt 229001
exchanges. To the extent that the Fund
or the Subsidiary were to invest in
futures contracts on the Benchmark that
were traded on exchanges other than
SGX, not more than 10% of the weight
of such futures contracts held by the
Fund or the Subsidiary in the aggregate
would consist of components whose
principal trading market is not a
member of ISG or is a market with
which the Exchange does not have a
comprehensive surveillance sharing
agreement. The Fund will not invest in
options or swaps. The Fund’s
investments will be consistent with its
investment objective and will not be
used to enhance leverage.
(8) The Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid securities (calculated
at the time of investment).
(9) Should the Fund invest in the
Subsidiary, that investment may not
exceed 25% of the Fund’s total assets at
each quarter end of the Fund’s fiscal
year.
(10) A minimum of 100,000 Shares of
the Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations and
description of the Fund, including those
set forth above and in the Notice.31
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 32 and the rules and
regulations thereunder applicable to a
national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,33 that the
proposed rule change (SR–NYSEArca–
2013–56) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013–16382 Filed 7–8–13; 8:45 am]
BILLING CODE 8011–01–P
31 The Commission notes that it does not regulate
the market for futures in which the Fund plans to
take positions. Limits on the positions that any
person may take in futures may be directly set by
the CFTC or by the markets on which the futures
are traded. The Commission has no role in
establishing position limits on futures even though
such limits could impact an exchange-traded
product that is under the jurisdiction of the
Commission.
32 15 U.S.C. 78f(b)(5).
33 15 U.S.C. 78s(b)(2).
34 17 CFR 200.30–3(a)(12).
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
41149
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–69913; File No. SR–FINRA–
2013–027]
Self-Regulatory Organizations;
Financial Industry Regulatory
Authority, Inc.; Notice of Filing of a
Proposed Rule Change Relating to
Amendments to FINRA Rules 2360 and
4210 in Connection With OCC Cleared
Over-the-Counter Options
July 2, 2013.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 28,
2013, Financial Industry Regulatory
Authority, Inc. (‘‘FINRA’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by FINRA. 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
FINRA is proposing to amend: (1)
FINRA Rule 2360 (Options) to treat
over-the-counter (‘‘OTC’’) options
cleared by The Options Clearing
Corporation (‘‘OCC’’) as conventional
options for purposes of the rule; and (2)
FINRA Rule 4210 (Margin
Requirements) to treat OTC options
cleared by the OCC as listed options
with respect to applicable margin
requirements.
The text of the proposed rule change
is available on FINRA’s Web site at
https://www.finra.org, at the principal
office of FINRA 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,
FINRA 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 these statements
may be examined at the places specified
in Item IV below. FINRA has prepared
summaries, set forth in sections A, B,
and C below, of the most significant
aspects of such statements.
1 15
2 17
E:\FR\FM\09JYN1.SGM
U.S.C. 78s(b)(1).
CFR 240.19b–4.
09JYN1
]]>Agencies
[Federal Register Volume 78, Number 131 (Tuesday, July 9, 2013)]
[Notices]
[Pages 41145-41149]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16382]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69915; File No. SR-NYSEArca-2013-56]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to Listing and Trading of
Shares of the PowerShares China A-Share Portfolio Under NYSE Arca
Equities Rule 8.600
July 2, 2013.
I. Introduction
On May 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
PowerShares China A-Share Portfolio (``Fund'') under NYSE Arca Equities
Rule 8.600. The proposed rule change was published for comment in the
Federal Register on May 30, 2013.\3\ The Commission received no
comments on the proposed rule change. This order grants approval of the
proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 69634 (May 23,
2013), 78 FR 32487 (``Notice'').
---------------------------------------------------------------------------
II. Description of the Proposed Rule Change
The Exchange proposes to list and trade Shares of the Fund pursuant
to NYSE Arca Equities Rule 8.600, which governs the listing and trading
of Managed Fund Shares on the Exchange. The Shares will be offered by
PowerShares Actively Managed Exchange-Traded Fund Trust (``Trust''), a
statutory trust organized under the laws of the State of Delaware and
registered with the Commission as an open-end management investment
company.\4\ The investment adviser to the Fund will be Invesco
PowerShares Capital Management LLC (``Adviser''). Invesco Distributors,
Inc. (``Distributor'') will serve as the distributor of the Fund
Shares. The Bank of New York Mellon Corporation (``Administrator,''
``Transfer Agent,'' or ``Custodian'') will serve as administrator,
custodian, and transfer agent for the Fund. The Exchange states that
the Adviser is not a broker-dealer but is affiliated with a broker-
dealer and has implemented a fire wall with respect to its broker-
dealer affiliate regarding access to information concerning the
composition and/or changes to the Fund's portfolio.\5\
---------------------------------------------------------------------------
\4\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). On April 20, 2012, the Trust filed with the
Commission a post-effective amendment to Form N-1A under the
Securities Act of 1933 and under the 1940 Act relating to the Fund
(File Nos. 333-147622 and 811-22148) (``Registration Statement'').
The Commission has issued an order granting certain exemptive relief
to the Trust under the 1940 Act. See Investment Company Act Release
No. 28171 (February 27, 2008) (File No. 812-13386) (``Exemptive
Order'').
\5\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the
event (a) the Adviser becomes newly affiliated with a broker-dealer,
or (b) any new adviser or sub-adviser is a registered broker-dealer
or becomes affiliated with a broker-dealer, it will implement a fire
wall with respect to its relevant personnel or its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio, and will be subject to procedures
designed to prevent the use and dissemination of material non-public
information regarding such portfolio.
---------------------------------------------------------------------------
The Fund's investment objective will be to seek to provide long
term capital appreciation. The Fund will seek to achieve its investment
objective by using a quantitative, rules-based strategy designed to
provide returns that correspond to the performance of the FTSE China
A50 Index (``Benchmark''). The Benchmark is designed for investors who
seek exposure to China's domestic market through ``A-Shares,'' which
are securities of companies that are incorporated in mainland China and
that trade on the Shanghai Stock Exchange or the Shenzhen Stock
Exchange. The Benchmark is comprised of the securities of the largest
50 A-Share companies, as determined by full market capitalization,
listed on the Shanghai and Shenzhen Stock Exchanges.
Under normal circumstances,\6\ the Fund generally will invest at
least 80%
[[Page 41146]]
of its net assets in a combination of investments whose collective
performance is designed to correspond to the performance of the
Benchmark. These investments will be: (i) Futures contracts on the
Benchmark; (ii) exchange-traded funds (``ETFs'') that provide exposure
to the China A-Shares market (``Underlying ETFs''); \7\ and (iii) A-
Shares included in the Benchmark, to the extent permissible under
Chinese law. As described below, the Fund expects to invest its
remaining assets in U.S. government securities, money market
instruments (including repurchase agreements), cash, and cash
equivalent securities (i.e., corporate commercial paper) to
collateralize investments in futures contracts or for other purposes.
Although the Fund will seek to provide returns that generally
correspond to the performance of the Benchmark, the Fund will be
actively managed by the Adviser and will not be designed to track the
performance of any index.
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\6\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of: extreme volatility or trading halts in
the equity markets or the financial markets generally; operational
issues causing dissemination of inaccurate market information; or
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption, or any similar intervening circumstance.
\7\ For purposes of this proposed rule change, Underlying ETFs
include Investment Company Units (as described in NYSE Arca Equities
Rule 5.2(j)(3)) and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). The Underlying ETFs all will be listed and
traded in the U.S. on registered exchanges or the Stock Exchange of
Hong Kong Limited (``HKSE''), a wholly-owned subsidiary of Hong Kong
Exchanges and Clearing Limited. Hong Kong Exchanges and Clearing
Limited is a member of the Intermarket Surveillance Group (``ISG'').
---------------------------------------------------------------------------
``A-Shares'' are shares of stock that are issued by companies
incorporated in mainland China and that are traded in Renminbi on the
Shanghai Stock Exchange or the Shenzhen Stock Exchange. Due to strict
controls imposed by the Chinese government, the Fund currently cannot
invest directly in A-Shares, which are available only to domestic
Chinese investors and a limited pool of foreign investors, including
foreign investors who have been approved as a Qualified Foreign
Institutional Investor (``QFII'') by the China Securities Regulatory
Commission and have obtained a QFII license. After obtaining a QFII
license, a QFII applies to China's State Administration of Foreign
Exchange for a specific aggregate dollar amount investment quota of A-
Shares (``A-Share Quota'') in which the QFII can invest. In order for
the Fund to invest directly in A-Shares, the Adviser would need to
apply for a QFII license and obtain an A-Share Quota.
If the Adviser obtains a QFII license, the Fund may invest directly
in A-Shares through the QFII license. There are no assurances that such
a QFII license would be granted, or that such a license, if granted,
would permit the Fund to purchase A-Shares in an amount necessary to
provide the Fund with sufficient A-Shares exposure.
Because it currently cannot invest in A-Shares directly, the Fund
will invest primarily in futures contracts on the Benchmark that
provide exposure to the China A-Shares market. These futures contracts
are listed on the Singapore Exchange (``SGX'').\8\ By investing in
futures contracts on the Benchmark, the Fund will have no direct
ownership of the A-Shares of the companies included in the Benchmark,
but the Fund will gain exposure to the performance of those
companies.\9\
---------------------------------------------------------------------------
\8\ SGX is a member of the ISG.
\9\ Futures contracts on the Benchmark were first approved for
investment by U.S. investors by the Commodity Futures Trading
Commission (``CFTC'') in January 2012. Futures contracts on the
Benchmark have expirations ranging from the two nearest consecutive
months, and March, June, September, and December on a 1-year cycle,
and provide investors the ability to invest based on their view of
the future direction or movement of the Benchmark. FTSE
International Limited (``FTSE'') reviews constituents in the
Benchmark quarterly using data from the close of business on the
Monday following the third Friday in February, May, August, and
November. FTSE will implement any constituent changes on the next
trading day following the third Friday in March, June, September,
and December.
---------------------------------------------------------------------------
The Fund also may invest in Underlying ETFs listed on U.S.
securities exchanges or on the HKSE that provide exposure to China A-
Shares.
The Fund will invest in futures contracts on the Benchmark--
specifically, in SGX-listed futures contracts--as a significant part of
its investment strategy. Generally, futures contracts are a type of
derivative whose value depends upon, or is derived from, the value of
an underlying asset, reference rate, or index. The Fund's use of
futures contracts will be underpinned by investments in short-term,
high quality U.S. Treasury Securities, money market instruments, cash,
and cash equivalent securities, as described below.\10\ The Trust's
Exemptive Order places no limit on the amount of derivatives in which
the Fund can invest. The futures contracts will be used to simulate
full investment in China A-Share securities. To the extent the Fund
uses futures, it will do so only in accordance with Rule 4.5 of the
Commodity Exchange Act (``CEA'').\11\
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\10\ With respect to certain kinds of futures entered into by
the Fund that involve obligations to make future payments to third
parties, under applicable federal securities laws, rules, and
interpretations thereof, the Fund must ``set aside'' (referred to
sometimes as ``asset segregation'') liquid assets, or engage in
other measures to ``cover'' open positions with respect to such
transactions. With respect to futures contracts that are not
contractually required to ``cash-settle,'' the Fund must cover its
open positions by setting aside liquid assets equal to the
contracts' full, notional value. With respect to futures contracts
that are contractually required to ``cash-settle,'' the Fund may set
aside liquid assets in an amount equal to the Fund's daily marked-
to-market (net) obligation rather than the notional value of the
futures contract.
\11\ 7 U.S.C. 1. To the extent the Fund uses futures contracts,
it will do so only in accordance with Rule 4.5 of the CEA. The Trust
has filed a notice of eligibility for exclusion from the definition
of the term ``commodity pool operator'' or ``CPO'' in accordance
with Rule 4.5 of the CEA. Under amendments to Rule 4.5 adopted in
February 2012, an investment adviser of a registered investment
company may claim exclusion from registration as a CPO only if the
registered investment company it advises uses futures contracts
solely for ``bona fide hedging purposes'' or limits its use of
futures contracts for non-bona fide hedging purposes in specified
ways. Because the Fund does not expect to use futures contracts
solely for ``bona fide hedging purposes,'' the Fund will be subject
to rules that will require it to limit its use of positions in
futures contracts in accordance with the requirements of amended
Rule 4.5 unless the Adviser otherwise complies with CPO regulation.
To the extent that the Fund is unable to rely on Rule 4.5, the Fund
will be operated in accordance with CFTC rules; the Adviser already
is registered as a CPO.
---------------------------------------------------------------------------
The Subsidiary
The Fund may seek to gain exposure to the A-Shares market through
investments in a subsidiary organized in the Cayman Islands
(``Subsidiary'') that in turn would make investments in futures
contracts that provide exposure to China A-Shares. If utilized, the
Subsidiary would be wholly-owned and controlled by the Fund, and its
investments would be consolidated into the Fund's financial statements.
Should the Fund invest in the Subsidiary, that investment may not
exceed 25% of the Fund's total assets at each quarter end of the Fund's
fiscal year. Further, should the Fund invest in the Subsidiary, it
would be expected to provide the Fund with exposure to A-Share returns
within the limits of the federal tax requirements applicable to
investment companies, such as the Fund.
The Subsidiary would be able to invest in futures contracts that
would provide exposure to A-Shares, as well in other investments that
would serve as margin or collateral or otherwise support the
Subsidiary's futures positions. The Subsidiary, accordingly, would be
subject to the same general investment policies and restrictions as the
Fund, except that unlike the Fund, which must invest in futures
contracts in compliance with the requirements of Subchapter M of the
Internal Revenue Code,\12\ federal securities laws, and the CEA, the
Subsidiary may invest without limitation in futures. References to the
[[Page 41147]]
investment strategies and risks of the Fund include the investment
strategies and risks of the Subsidiary.
---------------------------------------------------------------------------
\12\ 26 U.S.C. 851.
---------------------------------------------------------------------------
The Fund may utilize the Subsidiary, but is not required to do so.
If it is utilized, the Subsidiary will not be registered under the 1940
Act. As an investor in the Subsidiary, the Fund, as the Subsidiary's
sole shareholder, would not have the protections offered to investors
in registered investment companies. However, because the Fund would
wholly own and control the Subsidiary, and the Fund and Subsidiary
would be managed by the Adviser, the Subsidiary would not take action
contrary to the interests of the Fund or the Fund's shareholders. The
Board of Trustees of the Trust (``Board'') has oversight responsibility
for the investment activities of the Fund, including its investment in
the Subsidiary, and the Fund's role as the sole shareholder of the
Subsidiary. Also, in managing the Subsidiary's portfolio, the Adviser
would be subject to the same investment restrictions and operational
guidelines that apply to the management of the Fund. Changes in the
laws of the United States, under which the Fund is organized, or of the
Cayman Islands, under which the Subsidiary is organized, could result
in the inability of the Fund or the Subsidiary to operate as described
in the filing or in the Registration Statement and could negatively
affect the Fund and its shareholders.
Other Investments
The Fund, under normal circumstances, may invest no more than 20%
of its net assets in other investments such as money market instruments
(including repurchase agreements, as described below), cash, and cash
equivalents to provide liquidity or to collateralize its investments in
futures contracts. The instruments in which the Fund may invest
include: (i) Short-term obligations issued by the U.S. Government; \13\
(ii) short-term negotiable obligations of commercial banks, fixed time
deposits,\14\ and bankers' acceptances \15\ of U.S. and foreign banks
and similar institutions; (iii) commercial paper rated at the date of
purchase ``Prime-1'' by Moody's Investors Service, Inc. or ``A-1+'' or
``A-1'' by Standard & Poor's or, if unrated, of comparable quality, as
the Adviser of the Fund determines; and (iv) money market mutual funds.
---------------------------------------------------------------------------
\13\ The Fund may invest in U.S. government obligations.
Obligations issued or guaranteed by the U.S. Government, its
agencies, and instrumentalities include bills, notes, and bonds
issued by the U.S. Treasury, as well as ``stripped'' or ``zero
coupon'' U.S. Treasury obligations representing future interest or
principal payments on U.S. Treasury notes or bonds.
\14\ Time deposits are non-negotiable deposits maintained in
banking institutions for specified periods of time at stated
interest rates.
\15\ Banker's acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with international
transactions.
---------------------------------------------------------------------------
The Fund may invest in the securities of other investment companies
(including money market funds) beyond the limits permitted under the
1940 Act, subject to certain terms and conditions set forth in a
Commission exemptive order issued pursuant to Section 12(d)(1)(J) of
the 1940 Act.\16\
---------------------------------------------------------------------------
\16\ Investment Company Act Release No. 30238 (October 23, 2012)
(File No. 812-13820).
---------------------------------------------------------------------------
The Fund may enter into repurchase agreements, which are agreements
pursuant to which securities are acquired by the Fund from a third
party with the understanding that they will be repurchased by the
seller at a fixed price on an agreed date. These agreements may be made
with respect to any of the portfolio securities in which the Fund is
authorized to invest. Repurchase agreements may be characterized as
loans secured by the underlying securities. The Fund may enter into
repurchase agreements with (i) member banks of the Federal Reserve
System having total assets in excess of $500 million and (ii)
securities dealers (``Qualified Institutions''). The Adviser will
monitor the continued creditworthiness of Qualified Institutions.
The Fund may enter into reverse repurchase agreements, which
involve the sale of securities with an agreement to repurchase the
securities at an agreed-upon price, date, and interest payment and have
the characteristics of borrowing. The securities purchased with the
funds obtained from the agreement and securities collateralizing the
agreement will have maturity dates no later than the repayment date.
Investment Restrictions
The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment).
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 not use futures for speculative purposes.
The Fund may not concentrate its investments (i.e., invest more
than 25% of the value of its net assets) in securities of issuers in
any one industry or group of industries. This restriction does not
apply to obligations issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities.
The Fund intends to qualify for, and to elect to be treated as, a
separate regulated investment company under Subchapter M of the
Internal Revenue Code.\17\
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\17\ 26 U.S.C. 851.
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The Fund will not invest in any non-U.S. equity securities (other
than shares of the Subsidiary and Underlying ETFs listed on HKSE), to
the extent that the Fund may not invest directly in China A-Shares
through the QFII license, as described above. The Fund will not invest
in options or swaps.
Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes, among other things, is included in the Notice
and Registration Statement, as applicable.\18\
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\18\ See Notice and Registration Statement, supra notes 3 and 4,
respectively.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \19\
and the rules and regulations thereunder applicable to a national
securities exchange.\20\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\21\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system,
[[Page 41148]]
and, in general, to protect investors and the public interest. The
Commission notes that the Fund and the Shares must comply with the
requirements of NYSE Arca Equities Rule 8.600 to be listed and traded
on the Exchange.
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\19\ 15 U.S.C. 78f.
\20\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\21\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\22\ which sets forth Congress's finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association (``CTA'') high-speed line. 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.\23\ On each
business day, before commencement of trading in Shares in the Core
Trading Session on the Exchange, the Fund will disclose on its Web site
the Disclosed Portfolio, as defined in NYSE Arca Equities Rule
8.600(c)(2), held by the Fund and the Subsidiary that will form the
basis for the Fund's calculation of NAV at the end of the business
day.\24\ The NAV per Share of the Fund will be determined at the close
of regular trading (normally 4:00 p.m. Eastern Time) every day the New
York Stock Exchange is open. A basket composition file, which will
include the security names and share quantities to deliver in exchange
for Shares, together with estimates and actual cash components, will be
publicly disseminated daily prior to the opening of the Exchange via
the National Securities Clearing Corporation. 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 on the value and the
constituents of the Benchmark may be found on the Web site of FTSE, the
Benchmark's provider. Information regarding the previous day's closing
price and trading volume information for the Shares will be published
daily in the financial section of newspapers. The intra-day, closing,
and settlement prices of the portfolio investments (e.g., futures
contracts and Underlying ETFs) are also readily available from the
exchanges trading such securities or futures contracts, automated
quotation systems, published or other public sources, or on-line
information services such as Bloomberg or Reuters. The Fund's Web site
will include a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information.
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\22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\23\ According to the Exchange, several major market data
vendors widely disseminate Portfolio Indicative Values taken from
CTA or other data feeds.
\24\ On a daily basis, the Fund will disclose for each portfolio
security, futures contract, and other financial instrument of the
Fund and the Subsidiary the following information on the Fund's Web
site: ticker symbol (if applicable); name of security, futures
contract, and financial instrument; number of shares, if applicable,
and dollar value of each security, futures contract, and financial
instrument in the portfolio; and percentage weighting of the
security, futures contract, and financial instrument in the
portfolio. The Web site information will be publicly available at no
charge.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time.\25\
In addition, trading in the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. The Exchange may halt trading
in the Shares if trading is not occurring in the securities, futures
contracts, and/or the financial instruments comprising the Disclosed
Portfolio of the Fund, or if other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present.\26\ Further, the Commission notes that the Reporting Authority
that provides the Disclosed Portfolio must implement and maintain, or
be subject to, procedures designed to prevent the use and dissemination
of material, non-public information regarding the actual components of
the portfolio.\27\ The Commission notes that the Financial Industry
Regulatory Authority (``FINRA''), on behalf of the Exchange,\28\ 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
states that it has a general policy prohibiting the distribution of
material, non-public information by its employees. The Exchange also
states that the Adviser is affiliated with a broker-dealer, and the
Adviser has implemented a fire wall with respect to its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio.\29\
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\25\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\26\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing
additional considerations for the suspension of trading in or
removal from listing of Managed Fund Shares on the Exchange). With
respect to trading halts, the Exchange may consider all relevant
factors in exercising its discretion to halt or suspend trading in
the Shares of the Fund. Trading in Shares of the Fund will be halted
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12
have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
\27\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
\28\ 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.
\29\ See supra note 5. 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 its related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) Adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange represents that trading in the Shares will be
subject to the existing trading surveillances, administered by FINRA on
behalf of the
[[Page 41149]]
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.
(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin
of the special characteristics and risks associated with trading the
Shares. Specifically, the Information Bulletin will discuss the
following: (a) The procedures for purchases and redemptions of Shares
in Creation Units (and that Shares are not individually redeemable);
(b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (c) the risks involved in
trading the Shares during the Opening and Late Trading Sessions when an
updated Portfolio Indicative Value will not be calculated or publicly
disseminated; (d) how information regarding the Portfolio Indicative
Value will be disseminated; (e) the requirement that ETP Holders
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; and (f)
trading information.
(5) For initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\30\ as provided by
NYSE Arca Equities Rule 5.3.
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\30\ 17 CFR 240.10A-3.
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(6) The Fund will not invest in any non-U.S. equity securities
(other than shares of the Subsidiary and Underlying ETFs listed on
HKSE), to the extent that the Fund may not invest directly in China A-
Shares. To the extent that the Fund invests directly in China A-Shares,
not more than 10% of the weight of the Fund's portfolio in the
aggregate shall consist of such China A-Shares whose principal trading
market is not a member of ISG or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement.
(7) The Fund will invest solely in SGX-listed futures contracts on
the Benchmark. It is possible that the futures contracts on the
Benchmark may become listed on other exchanges that are members of ISG
or with which the Exchange has in place a comprehensive surveillance
sharing agreement, at which time the Fund may invest in those futures
contracts listed on such exchanges. To the extent that the Fund or the
Subsidiary were to invest in futures contracts on the Benchmark that
were traded on exchanges other than SGX, not more than 10% of the
weight of such futures contracts held by the Fund or the Subsidiary in
the aggregate would consist of components whose principal trading
market is not a member of ISG or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement. The Fund
will not invest in options or swaps. The Fund's investments will be
consistent with its investment objective and will not be used to
enhance leverage.
(8) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment).
(9) Should the Fund invest in the Subsidiary, that investment may
not exceed 25% of the Fund's total assets at each quarter end of the
Fund's fiscal year.
(10) A minimum of 100,000 Shares of the Fund will be outstanding at
the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's
representations and description of the Fund, including those set forth
above and in the Notice.\31\
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\31\ The Commission notes that it does not regulate the market
for futures in which the Fund plans to take positions. Limits on the
positions that any person may take in futures may be directly set by
the CFTC or by the markets on which the futures are traded. The
Commission has no role in establishing position limits on futures
even though such limits could impact an exchange-traded product that
is under the jurisdiction of the Commission.
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For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \32\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\32\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\33\ that the proposed rule change (SR-NYSEArca-2013-56) be, and it
hereby is, approved.
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\33\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
Elizabeth M. Murphy,
Secretary.
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\34\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-16382 Filed 7-8-13; 8:45 am]
BILLING CODE 8011-01-P
