Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change to List and Trade Shares of the AdvisorShares YieldPro ETF, 173-179 [2013-31367]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 1 (Thursday, January 2, 2014)]
[Notices]
[Pages 173-179]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-31367]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71193; File No. SR-NASDAQ-2013-155]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change to List and Trade Shares of 
the AdvisorShares YieldPro ETF

December 26, 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 December 13, 2013, The NASDAQ Stock Market LLC (``Nasdaq'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I, 
II, and III below, which Items have been prepared by Nasdaq. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    Nasdaq proposes to list and trade the shares of the AdvisorShares 
YieldPro ETF (the ``Fund'') of the AdvisorShares Trust (the ``Trust'') 
under Nasdaq Rule 5735 (``Managed Fund Shares'').\3\ The shares of the 
Fund are collectively referred to herein as the ``Shares.''
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    \3\ The Commission approved Nasdaq Rule 5735 in Securities 
Exchange Act Release No. 57962 (June 13, 2008), 73 FR 35175 (June 
20, 2008) (SR-NASDAQ-2008-039). There are already multiple actively-
managed funds listed on the Exchange; see Securities Exchange Act 
Release No. 66175 (February 29, 2012), 77 FR 13379 (March 6, 2012) 
(SR-NASDAQ-2012-004) (order approving listing and trading of 
WisdomTree Emerging Markets Corporate Bond Fund). Additionally, the 
Commission has previously approved the listing and trading of a 
number of actively-managed WisdomTree funds on NYSE Arca, Inc. 
pursuant to Rule 8.600 of that exchange. See, e.g., Securities 
Exchange Act Release No. 64643 (June 10, 2011), 76 FR 35062 (June 
15, 2011) (SR-NYSEArca-2011-21) (order approving listing and trading 
of WisdomTree Global Real Return Fund). The Exchange believes the 
proposed rule change raises no significant issues not previously 
addressed in those prior Commission orders.
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    The text of the proposed rule change is available at https://nasdaq.cchwallstreet.com/, at Nasdaq's principal office, 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, Nasdaq included statements 
concerning the purpose of, and basis for, the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. Nasdaq has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the Shares of the Fund 
under Nasdaq Rule 5735, which governs the listing and trading of 
Managed Fund Shares \4\ on the Exchange. The Fund will be an actively 
managed exchange-traded fund (``ETF''). The Shares will be offered by 
the Trust, which was established as a Delaware statutory trust on July 
30, 2007.\5\ The Trust is registered with the Commission as an 
investment company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\6\ The Fund is a 
series of the Trust.
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    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1)(the ``1940 Act'') organized as 
an open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Index Fund Shares, listed 
and traded on the Exchange under Nasdaq Rule 5705, seeks to provide 
investment results that correspond generally to the price and yield 
performance of a specific foreign or domestic stock index, fixed 
income securities index or combination thereof.
    \5\ The Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act (the ``Exemptive 
Order''). See Investment Company Act Release No. 28822 (July 20, 
2009) (File No. 812-13677). In compliance with Nasdaq Rule 
5735(b)(5), which applies to Managed Fund Shares based on an 
international or global portfolio, the Trust's application for 
exemptive relief under the 1940 Act states that the Fund will comply 
with the federal securities laws in accepting securities for 
deposits and satisfying redemptions with redemption securities, 
including that the securities accepted for deposits and the 
securities used to satisfy redemption requests are sold in 
transactions that would be exempt from registration under the 
Securities Act of 1933 (15 U.S.C. 77a).
    \6\ See Registration Statement on Form N-1A for the Trust, dated 
August 7, 2013 (File Nos. 333-157876 and 811-22110). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement.
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    AdvisorShares Investments, LLC will be the investment adviser 
(``Adviser'') to the Fund. The Elements Financial Group, LLC will be 
the investment sub-adviser (``Sub-Adviser'') to the Fund. Foreside Fund 
Services, LLC (the ``Distributor'') will be the principal underwriter 
and distributor of the Fund's Shares. The Bank of New York Mellon 
(``BNY Mellon'') will act as the administrator, accounting agent, 
custodian (``Custodian'') and transfer agent to the Fund.
    Paragraph (g) of Rule 5735 provides that if the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect a ``fire 
wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition,

[[Page 174]]

paragraph (g) further requires that personnel who make decisions on the 
open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the open-end fund's portfolio. Rule 5735(g) is 
similar to Nasdaq Rule 5705(b)(5)(A)(i); however, paragraph (g) in 
connection with the establishment of a ``fire wall'' between the 
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case 
with index-based funds. The Adviser is neither a broker-dealer nor 
affiliated with a broker-dealer. In the event (a) the Adviser becomes 
newly affiliated with a broker-dealer or registers as 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 and/or such broker-dealer 
affiliate, if applicable, 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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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and 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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AdvisorShares YieldPro ETF
Principal Investments
    According to the Registration Statement, the Fund's investment 
objective will be to provide current income and capital appreciation. 
The Fund will be an actively managed ETF that is a ``fund of funds'' 
seeking to achieve its investment objective by primarily investing in 
both long and short positions in other affiliated and unaffiliated ETFs 
\8\ that offer diversified exposure to fixed income and other income 
producing securities. The Fund's investments may, at various times, 
include bonds and instruments issued by the U.S. government,\9\ U.S. 
investment grade corporate debt, high yield bonds, municipal bonds, and 
mortgage-backed securities. The Fund will not invest in residential-
mortgage backed securities or other asset-backed securities. The Fund 
may also invest in equity, inverse or other types of ETFs to supplement 
its fixed income ETF positions. The Fund intends to invest the majority 
of its assets in investments that provide a competitive yield on a 
risk-adjusted basis. The Fund will also allocate its investments to 
instruments which provide little or no yield for diversification or 
risk management purposes.
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    \8\ As described in the Registration Statement, an ETF is an 
investment company registered under the 1940 Act that holds a 
portfolio of securities. Many ETFs are designed to track the 
performance of a securities index, including industry, sector, 
country and region indexes. ETFs included in the Fund will be listed 
and traded in the U.S. on registered exchanges. The Fund may invest 
in the securities of ETFs in excess of the limits imposed under the 
1940 Act pursuant to exemptive orders obtained by other ETFs and 
their sponsors from the Commission. The ETFs in which the Fund may 
invest include Index Fund Shares (as described in Nasdaq Rule 5705), 
Portfolio Depositary Receipts (as described in Nasdaq Rule 5705), 
and Managed Fund Shares (as described in Nasdaq Rule 5735). While 
the Fund may invest in inverse ETFs, the Fund will not invest in 
leveraged or inverse leveraged (e.g., 2X or -3X) ETFs.
    \9\ Such securities will include securities that are issued or 
guaranteed by the U.S. Treasury, by various agencies of the U.S. 
government, or by various instrumentalities, which have been 
established or sponsored by the U.S. government. U.S. Treasury 
obligations are backed by the ``full faith and credit'' of the U.S. 
government. Securities issued or guaranteed by federal agencies and 
U.S. government-sponsored instrumentalities may or may not be backed 
by the full faith and credit of the U.S. government.
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    In seeking to achieve its investment objective, the Fund may also 
invest directly (as discussed herein) in U.S.-traded fixed income and 
equity securities, certain derivatives described below, namely options, 
futures, and structured notes; and other exchange-traded products 
(``ETPs'').
    The Fund may trade put and call options on securities, securities 
indices and currencies. The Fund may purchase put and call options on 
securities to protect against a decline in the market value of the 
securities in its portfolio or to anticipate an increase in the market 
value of securities that the Fund may seek to purchase in the future. 
The Fund may write covered call options on securities as a means of 
increasing the yield on its assets and as a means of providing limited 
protection against decreases in its market value. The Fund may purchase 
and write options on an exchange or over-the-counter.
    According to the Registration Statement, the Fund may buy and sell 
futures contracts. The Fund will only enter into futures contracts that 
are traded on a national futures exchange regulated by the Commodities 
Futures Trading Commission (``CFTC'').\10\ The Fund may use futures 
contracts and related options for bona fide hedging; attempting to 
offset changes in the value of securities held or expected to be 
acquired or be disposed of; attempting to gain exposure to a particular 
market, index or instrument; or other risk management purposes. The 
Fund may buy and sell index futures contracts with respect to any index 
that is traded on a recognized exchange or board of trade.
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    \10\ To the extent the Fund invests in futures, options on 
futures or other instruments subject to regulation by the CFTC, it 
will do so in reliance on and in compliance with CFTC regulations in 
effect from time to time and in accordance with the Fund's policies. 
The Trust, on behalf of certain of its series, has filed a notice of 
eligibility for exclusion from the definition of the term 
``commodity pool operator'' in accordance with CFTC Regulation 4.5. 
Therefore, neither the Trust nor the Fund is deemed to be a 
``commodity pool'' or ``commodity pool operator'' with respect to 
the Fund under the Commodity Exchange Act (``CEA''), and they are 
not subject to registration or regulation as such under the CEA. In 
addition, as of the date of this filing, the Adviser is not deemed 
to be a ``commodity pool operator'' or ``commodity trading adviser'' 
with respect to the advisory services it provides to the Fund. The 
CFTC recently adopted amendments to CFTC Regulation 4.5 and has 
proposed additional regulatory requirements that may affect the 
extent to which the Fund invests in instruments that are subject to 
regulation by the CFTC and impose additional regulatory obligations 
on the Fund and the Adviser. The Fund reserves the right to engage 
in transactions involving futures, options thereon and swaps to the 
extent allowed by CFTC regulations in effect from time to time and 
in accordance with the Fund's policies.
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    The Fund may invest in structured notes, which are debt obligations 
that also contain an embedded derivative component with characteristics 
that adjust the obligation's risk/return profile. Generally, the 
performance of a structured note will track that of the underlying debt 
obligation and the derivative embedded within it. The Fund has the 
right to receive periodic interest payments from the issuer of the 
structured notes at an agreed-upon interest rate and a return of the 
principal at the maturity date.
    On a day-to-day basis, the Fund may hold money market 
instruments,\11\ cash, other cash equivalents, and ETPs that invest in 
these and other highly liquid instruments to collateralize its 
derivative or short positions.
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    \11\ For the Fund's purposes, money market instruments will 
include: Short-term, high-quality securities issued or guaranteed by 
U.S. governments, agencies and instrumentalities; non-convertible 
corporate debt securities with remaining maturities of not more than 
397 days that satisfy ratings requirements under Rule 2a-7 of the 
1940 Act; money market mutual funds; and deposits and other 
obligations of U.S. and non-U.S. banks and financial institutions. 
As a related matter, according to the Registration Statement, the 
Fund may invest in shares of money market mutual funds to the extent 
permitted by the 1940 Act.
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Other Investments
    The Fund may invest in certificates of deposit issued against funds 
deposited in a bank or savings and loan association. In addition, the 
Fund may invest in bankers' acceptances, which are short-term credit 
instruments used to finance commercial transactions.

[[Page 175]]

    The Fund also may invest in fixed time deposits, which are bank 
obligations payable at a stated maturity date and bearing interest at a 
fixed rate. Additionally, the Fund may invest in commercial paper, 
which are short-term unsecured promissory notes. The Fund may invest in 
commercial paper rated A-1 or A-2 by Standard and Poor's Rating 
Services (``S&P'') or Prime-1 or Prime-2 by Moody's Investors Service, 
Inc. (``Moody's) or, if unrated, judged by the Adviser to be of 
comparable quality. Together, these Other Investments will make up less 
than 20% of the Fund assets under normal circumstances.
Investment Restrictions
    According to the Registration Statement, the Fund may not invest 
more than 25% of the value of its total assets in securities of issuers 
in any one industry or group of industries. This restriction will not 
apply to obligations issued or guaranteed by the U.S. government, its 
agencies or instrumentalities, or securities of other investment 
companies.\12\
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    \12\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The Fund will not purchase securities of open-end or closed-end 
investment companies except in compliance with the 1940 Act.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment).\13\ 
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 assets. Illiquid assets 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.\14\
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    \13\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
    \14\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), FN 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the fund. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); Investment Company Act Release No. 17452 (April 
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under 
the Securities Act of 1933).
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    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.\15\
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    \15\ 26 U.S.C. 851.
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    Under the 1940 Act, the Fund's investment in investment companies 
will be limited to, subject to certain exceptions: (i) 3% of the total 
outstanding voting stock of any one investment company, (ii) 5% of the 
Fund's total assets with respect to any one investment company, and 
(iii) 10% of the Fund's total assets with respect to investment 
companies in the aggregate.
    The Fund's investments will be consistent with the Fund's 
investment objective.
Net Asset Value
    According to the Registration Statement, the Fund's net asset value 
(``NAV'') will be determined as of the close of trading (normally 4:00 
p.m., Eastern time (``E.T.'')) on each day the New York Stock Exchange 
(``NYSE'') is open for business. NAV will be calculated for the Fund by 
taking the market price of the Fund's total assets, including interest 
or dividends accrued but not yet collected, less all liabilities, and 
dividing such amount by the total number of Shares outstanding. The 
result, rounded to the nearest cent, will be the NAV per Share. All 
valuations will be subject to review by the Trust's Board of Trustees 
or its delegate.
    The Fund's investments will be valued at market value or, in the 
absence of market value with respect to any investment, at fair value 
in accordance with valuation procedures adopted by the Trust's Board of 
Trustees and in accordance with the 1940 Act. Common stocks and equity 
securities (including shares of ETFs) traded on a domestic securities 
exchange will be valued at the last sales price on that exchange. The 
Fund will not invest in over-the-counter equity securities. Portfolio 
securities traded on more than one securities exchange will be valued 
at the last sale price or, if so disseminated by an exchange, the 
official closing price, as applicable, at the close of the exchange 
representing the principal exchange or market for such securities on 
the business day as of which such value is being determined. U.S. 
listed foreign equities and listed ADRs will be valued at the last 
sales price on the relevant exchange on the valuation date. If, 
however, neither the last sales price nor the official closing price is 
available, each of these securities will be valued at the mean of the 
most recent bid and ask prices on such day.
    Fixed income securities, including municipal bonds, mortgage-backed 
securities, treasuries, and corporate bonds, will be valued at the mean 
of the final bid and ask prices, and if a mean is not available, the 
security will be valued at the final bid price.
    Options will be valued at the mean of the final bid and ask prices 
on the same business day that such value is being determined at the 
close of the exchange representing the principal market for such 
securities. If the mean is not available, options will be valued using 
the last sales price at the close of the exchange. OTC options will be 
valued on the basis of the OTC pricing matrix provided by the trading 
broker. In both instances, third-party valuation services will value 
OTC options on behalf of the Fund.
    Non-listed ADRs will be valued at the last sales price, if 
available; otherwise, non-listed ADRs will be valued at the mean of the 
final bid and ask price from independent pricing services. Swaps will 
be valued using the mid-level quote as of 4:00 p.m. EST. Non-exchange-
traded derivatives, including swaps, will normally be valued on the 
basis of quotes obtained from brokers and dealers or pricing services 
using data reflecting the earlier closing of the principal markets for 
those assets. Prices obtained from independent pricing services use 
information provided by market makers or estimates of market values 
obtained from yield data relating to investments or securities with 
similar characteristics.
    Exchange-traded futures contracts will be valued at the closing 
price in the market where such contracts are principally traded. 
Established pricing methods and valuation policies and procedures 
outlined above may change, subject to the review and approval of the 
Trust's Fair Valuation Committee and Board of Trustees, as necessary.
    Certain securities may not be able to be priced by pre-established 
pricing methods. Such securities may be valued by the Board or its 
delegate at fair value.

[[Page 176]]

The use of fair value pricing by the Fund will be governed by valuation 
procedures adopted by the Board and in accordance with the provisions 
of the 1940 Act. These securities generally include, but are not 
limited to, restricted securities (securities which may not be publicly 
sold without registration under the Securities Act of 1933) for which a 
pricing service is unable to provide a market price; securities whose 
trading has been formally suspended; a security whose market price is 
not available from a pre-established pricing source; a security with 
respect to which an event has occurred that is likely to materially 
affect the value of the security after the market has closed but before 
the calculation of the Fund's net asset value or make it difficult or 
impossible to obtain a reliable market quotation; and a security whose 
price, as provided by the pricing service, does not reflect the 
security's ``fair value.'' As a general principle, the current ``fair 
value'' of a security would appear to be the amount which the owner 
might reasonably expect to receive for the security upon its current 
sale. The use of fair value prices by the Fund generally results in the 
prices used by the Fund that may differ from current market quotations 
or official closing prices on the applicable exchange. A variety of 
factors may be considered in determining the fair value of such 
securities.
Creation and Redemption of Shares
    The Trust will issue and sell Shares of the Fund only in Creation 
Unit aggregations, and only in aggregations of at least 25,000 Shares, 
on a continuous basis through the Distributor, without a sales load, at 
the NAV next determined after receipt, on any business day, of an order 
in proper form.
    The consideration for purchase of Creation Unit aggregations of the 
Fund may consist of (i) cash in lieu of all or a portion of the Deposit 
Securities, as defined below, and/or (ii) a designated portfolio of 
securities determined by the Adviser that generally will conform to the 
holdings of the Fund consistent with its investment objective (the 
``Deposit Securities'') per each Creation Unit aggregation and 
generally an amount of cash (the ``Cash Component'') computed as 
described below. Together, the Deposit Securities and the Cash 
Component (including the cash in lieu amount) will constitute the 
``Fund Deposit,'' which will represent the minimum initial and 
subsequent investment amount for a Creation Unit aggregation of the 
Fund.
    The consideration for redemption of Creation Unit aggregations of 
the Fund may consist of (i) cash in lieu of all or a portion of the 
Fund Securities as defined below, and/or (ii) a designated portfolio of 
securities determined by the Adviser that generally will conform to the 
holdings of the Fund consistent with its investment objective per each 
Creation Unit aggregation (``Fund Securities'') and generally a Cash 
Component, as described below.
    The Cash Component is sometimes also referred to as the Balancing 
Amount. The Cash Component will serve the function of compensating for 
any differences between the NAV per Creation Unit aggregation and the 
Deposit Amount (as defined below). For example, for a creation the Cash 
Component will be an amount equal to the difference between the NAV of 
Fund Shares (per Creation Unit aggregation) and the ``Deposit 
Amount''--an amount equal to the market value of the Deposit Securities 
and/or cash in lieu of all or a portion of the Deposit Securities. If 
the Cash Component is a positive number (i.e., the NAV per Creation 
Unit aggregation exceeds the Deposit Amount), the Authorized 
Participant (defined below) will deliver the Cash Component. If the 
Cash Component is a negative number (i.e., the NAV per Creation Unit 
aggregation is less than the Deposit Amount), the Authorized 
Participant will receive the Cash Component.
    The Custodian, through the National Securities Clearing Corporation 
(``NSCC''), will make available on each business day, prior to the 
opening of business of the NYSE (currently 9:30 a.m., E.T.), the list 
of the names and the quantity of each Deposit Security to be included 
in the current Fund Deposit (based on information at the end of the 
previous business day). Such Fund Deposit will be applicable, subject 
to any adjustments as described below, in order to effect creations of 
Creation Unit aggregations of the Fund until such time as the next-
announced composition of the Deposit Securities is made available. The 
Custodian, through the NSCC, will also make available on each business 
day, prior to the opening of business of the NYSE (currently 9:30 a.m., 
E.T.), the list of the names and the quantity of each security to be 
included (based on information at the end of the previous business 
day), subject to any adjustments as described below, in order to affect 
redemptions of Creation Unit aggregations of the Fund until such time 
as the next-announced composition of the Fund Securities is made 
available.
    The identity and quantity of the Deposit Securities required for a 
Fund Deposit for the Shares may change as rebalancing adjustments and 
corporate action events are reflected within the Fund from time to time 
by the Adviser consistent with the investment objective of the Fund. In 
addition, the Trust will reserve the right to permit or require the 
substitution of an amount of cash, i.e., a ``cash in lieu'' amount, to 
be added to the Cash Component to replace any Deposit Security that may 
not be available in sufficient quantity for delivery or which might not 
be eligible for trading by an Authorized Participant or the investor 
for which it is acting or other relevant reason.
    In addition to the list of names and numbers of securities 
constituting the current Deposit Securities of a Fund Deposit, the 
Custodian, through the NSCC, will also make available on each business 
day, the estimated Cash Component, effective through and including the 
previous business day, per Creation Unit aggregation of the Fund.
    According to the Registration Statement, to be eligible to place 
orders with respect to creations and redemptions of Creation Units, an 
entity must be (i) a ``Participating Party,'' i.e., a broker-dealer or 
other participant in the clearing process through the continuous net 
settlement system of the NSCC or (ii) a Depository Trust Company 
(``DTC'') Participant (a ``DTC Participant''). In addition, each 
Participating Party or DTC Participant (each, an ``Authorized 
Participant'') must execute an agreement that has been agreed to by the 
Distributor and the Custodian with respect to purchases and redemptions 
of Creation Units.
    All orders to create Creation Unit aggregations must be received by 
the Distributor no later than 3:00 p.m., Eastern time, an hour earlier 
than the closing time of the regular trading session on the NYSE 
(ordinarily 4:00 p.m., E.T.), in each case on the date such order is 
placed in order for creations of Creation Unit aggregations to be 
effected based on the NAV of Shares of the Fund as next determined on 
such date after receipt of the order in proper form.
    In order to redeem Creation Units of the Fund, an Authorized 
Participant must submit an order to redeem for one or more Creation 
Units. All such orders must be received by the Distributor in proper 
form no later than 3:00 p.m., Eastern time, an hour earlier than the 
close of regular trading on the NYSE (ordinarily 4:00 p.m. E.T.), in 
order to receive that day's closing NAV per Share.
Availability of Information
    The Fund's Web site (www.advisorshares.com), which will be publicly 
available prior to the public

[[Page 177]]

offering of Shares, will include a form of the prospectus for the Fund 
that may be downloaded. The Web site will include the Fund's ticker, 
Cusip and exchange information along with additional quantitative 
information updated on a daily basis, including, for the Fund: (1) 
Daily trading value, the prior business day's reported NAV and closing 
price, mid-point of the bid/ask spread at the time of calculation of 
such NAV (the ``Bid/Ask Price'') \16\ and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. On each 
business day, before commencement of trading in Shares in the Regular 
Market Session \17\ on the Exchange, the Fund will disclose on its Web 
site the identities and quantities of the portfolio of securities and 
other assets (the ``Disclosed Portfolio'' as defined in Nasdaq Rule 
5735(c)(2)) held by the Fund that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\18\ The Disclosed 
Portfolio will include, as applicable, the names, quantity, percentage 
weighting and market value of securities and other assets held by the 
Fund and the characteristics of such assets. The Web site and 
information will be publicly available at no charge.
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    \16\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \17\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 4 a.m. to 9:30 
a.m. E.T.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 
4:15 p.m. E.T.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. 
to 8 p.m. E.T.).
    \18\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). 
Notwithstanding the foregoing, portfolio trades that are executed 
prior to the opening of the Exchange on any business day may be 
booked and reflected in NAV on such business day. Accordingly, the 
Fund will be able to disclose at the beginning of the business day 
the portfolio that will form the basis for the NAV calculation at 
the end of the business day.
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    In addition, for the Fund, an estimated value, defined in Rule 
5735(c)(3) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio, will be disseminated. 
Moreover, the Intraday Indicative Value, available on the NASDAQ OMX 
Information LLC proprietary index data service \19\ will be based upon 
the current value for the components of the Disclosed Portfolio and 
will be updated and widely disseminated by one or more major market 
data vendors and broadly displayed at least every 15 seconds during the 
Regular Market Session. Information regarding the ETFs, other ETPs, 
options, futures, equity securities, debt securities, and other 
investments held by the Fund will be available from the U.S. securities 
exchanges trading such securities, in the case of exchange-traded 
securities, as well as automated quotation systems, published or other 
public sources, or on-line information services such as Bloomberg or 
Reuters. Additionally, OTC pricing information is available at 
www.otcbb.com.
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    \19\ Currently, the NASDAQ OMX Global Index Data Service 
(``GIDS'') is the NASDAQ OMX global index data feed service, 
offering real-time updates, daily summary messages, and access to 
widely followed indexes and Intraday Indicative Values for ETFs. 
GIDS provides investment professionals with the daily information 
needed to track or trade NASDAQ OMX indexes, listed ETFs, or third-
party partner indexes and ETFs.
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    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    Intra-day, executable price quotations on the securities and other 
assets held by the Fund, will be available from major broker-dealer 
firms or on the exchange on which they are traded, as applicable. 
Intra-day price information will also be available through subscription 
services, such as Bloomberg, Markit and Thomson Reuters, which can be 
accessed by Authorized Participants and other investors.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's Shareholder Reports, and 
its Form N-CSR and Form N-SAR, filed twice a year. The Fund's SAI and 
Shareholder Reports will be available free upon request from the Fund, 
and those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov. 
Information regarding market price and volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information for the Shares will 
be published daily in the financial section of newspapers. Quotation 
and last sale information for the Shares will be available via Nasdaq 
proprietary quote and trade services, as well as in accordance with the 
Unlisted Trading Privileges and the Consolidated Tape Association plans 
for the Shares and any underlying exchange-traded products.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
Fund holdings disclosure policies, distributions and taxes will be 
included in the Registration Statement. All terms relating to the Fund 
that are referred to, but not defined in, this proposed rule change are 
defined in the Registration Statement.
Initial and Continued Listing
    The Shares will be subject to Rule 5735, which sets forth the 
initial and continued listing criteria applicable to Managed Fund 
Shares. The Exchange represents that, for initial and/or continued 
listing, the Fund must be in compliance with Rule 10A-3 \20\ under the 
Act. A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
---------------------------------------------------------------------------

    \20\ See 17 CFR 240.10A-3.
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Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. Nasdaq will halt trading in the 
Shares under the conditions specified in Nasdaq Rules 4120 and 4121, 
including the trading pauses under Nasdaq Rules 4120(a)(11) and (12). 
Trading may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the Shares inadvisable. 
These may include: (1) The extent to which trading is not occurring in 
the securities and other assets constituting the Disclosed Portfolio of 
the Fund; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. Trading in the Shares also will be subject to Rule 
5735(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted.
Trading Rules
    Nasdaq deems the Shares to be equity securities, thus rendering 
trading in the Shares subject to Nasdaq's existing rules

[[Page 178]]

governing the trading of equity securities. Nasdaq will allow trading 
in the Shares from 4:00 a.m. until 8:00 p.m. E.T. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in Nasdaq Rule 5735(b)(3), the minimum 
price variation for quoting and entry of orders in Managed Fund Shares 
traded on the Exchange is $0.01.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by both Nasdaq and 
also the Financial Industry Regulatory Authority (``FINRA'') on behalf 
of the Exchange, which are designed to detect violations of Exchange 
rules and applicable federal securities laws.\21\ The Exchange 
represents that these procedures are adequate to properly monitor 
Exchange trading of the Shares in all trading sessions and to deter and 
detect violations of Exchange rules and applicable federal securities 
laws.
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    \21\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
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    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and other exchange-traded securities 
and instruments held by the Fund with other markets and other entities 
that are members of the Intermarket Surveillance Group (``ISG'') \22\ 
and FINRA may obtain trading information regarding trading in the 
Shares and exchange-traded securities and instruments held by the Fund 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares and exchange-traded 
securities and instruments held by the Fund from markets and other 
entities that are members of ISG, which includes securities and futures 
exchanges, or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. Such securities and instruments will 
comprise at least 90% of the Fund's assets at all times.
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    \22\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) Nasdaq Rule 2111A, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value is disseminated; (4) the risks involved 
in trading the Shares during the Pre-Market and Post-Market Sessions 
when an updated Intraday Indicative Value will not be calculated or 
publicly disseminated; (5) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (6) trading 
information.
    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV calculation time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
Web site.
2. Statutory Basis
    Nasdaq believes that the proposal is consistent with Section 6(b) 
of the Act in general and Section 6(b)(5) of the Act in particular in 
that it is 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, and to remove impediments to and perfect 
the mechanism of a free and open market and in general, to protect 
investors and the public interest.
    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Nasdaq Rule 5735. The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances, administered by both Nasdaq and also 
FINRA on behalf of the Exchange, which are designed to detect 
violations of Exchange rules and applicable federal securities laws. In 
addition, paragraph (g) of Nasdaq Rule 5735 further requires that 
personnel who make decisions on the open-end fund's portfolio 
composition must be subject to procedures designed to prevent the use 
and dissemination of material, non-public information regarding the 
open-end fund's portfolio. The Fund's investments will be consistent 
with the Fund's investment objective. FINRA may obtain information via 
ISG from other exchanges that are members of ISG. In addition, the 
Exchange may obtain information regarding trading in the Shares and 
other exchange-traded securities and instruments held by the Fund from 
markets and other entities that are members of ISG, which includes 
securities and futures exchanges, or with which the Exchange has in 
place a comprehensive surveillance sharing agreement. Such securities 
and instruments will comprise at least 90% of the Fund's assets at all 
times. The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets (calculated at the time of investment).
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Moreover, the Intraday 
Indicative Value, available on the NASDAQ OMX Information LLC 
proprietary index data service will be widely disseminated by one or 
more

[[Page 179]]

major market data vendors at least every 15 seconds during the Regular 
Market Session. Information regarding the ETFs, other ETPs, options, 
futures, equity securities, debt securities, and other investments held 
by the Fund will be available from the U.S. securities exchanges 
trading such securities, in the case of exchange-traded securities, as 
well as automated quotation systems, published or other public sources, 
or on-line information services such as Bloomberg or Reuters. On each 
business day, before commencement of trading in Shares in the Regular 
Market Session on the Exchange, the Fund will disclose on its Web site 
the Disclosed Portfolio of the Fund that will form the basis for the 
Fund's calculation of NAV at the end of the business day. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last sale information for the Shares will be available via Nasdaq 
proprietary quote and trade services, as well as in accordance with the 
Unlisted Trading Privileges and the Consolidated Tape Association plans 
for the Shares and any underlying exchange-traded products. Intra-day 
price information will be available through subscription services, such 
as Bloomberg, Markit and Thomson Reuters, which can be accessed by 
Authorized Participants and other investors.
    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. Trading in Shares of the Fund will be halted 
under the conditions specified in Nasdaq Rules 4120 and 4121 or because 
of market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable, and trading in the Shares will 
be subject to Nasdaq Rule 5735(d)(2)(D), which sets forth circumstances 
under which Shares of the Fund may be halted. In addition, as noted 
above, investors will have ready access to information regarding the 
Fund's holdings, the Intraday Indicative Value, the Disclosed 
Portfolio, and quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares 
and other exchange-traded securities and instruments held by the Fund 
with other markets and other entities that are members of the ISG and 
FINRA may obtain trading information regarding trading in the Shares 
and other exchange-traded securities and instruments held by the Fund 
from such markets and other entities. Furthermore, as noted above, 
investors will have ready access to information regarding the Fund's 
holdings, the Intraday Indicative Value, the Disclosed Portfolio, and 
quotation and last sale information for the Shares.
    For the above reasons, Nasdaq believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The Exchange believes that 
the proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded fund that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2013-155 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2013-155. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2013-155, and should 
be submitted on or before January 23, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2013-31367 Filed 12-31-13; 8:45 am]
BILLING CODE 8011-01-P