Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change To List and Trade Shares of the SPDR SSgA Risk Aware ETF; SPDR SSgA Large Cap Risk Aware ETF; and SPDR SSgA Small Cap Risk Aware ETF Under NYSE Arca Equities Rule 8.600, 17206-17212 [2014-06760]
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including a majority of the independent
directors or trustees, will find that the
advisory fees charged under such
contract are based on services provided
that will be in addition to, rather than
duplicative of, the services provided
under the advisory contract(s) of any
Fund in which the Investing
Management Company may invest.
These findings and their basis will be
recorded fully in the minute books of
the appropriate Investing Management
Company.
11. Any sales charges and/or service
fees charged with respect to shares of an
Investing Fund will not exceed the
limits applicable to a fund of funds as
set forth in NASD Conduct Rule 2830.
12. No Fund relying on the section
12(d)(1) relief will acquire securities of
any investment company or company
relying on section 3(c)(1) or 3(c)(7) of
the Act in excess of the limits contained
in section 12(d)(1)(A) of the Act, except
to the extent permitted by exemptive
relief from the Commission permitting
the Fund to purchase shares of other
investment companies for short-term
cash management purposes.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–06762 Filed 3–26–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71767; File No. SR–
NYSEArca–2014–11]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Order Granting Approval of
Proposed Rule Change To List and
Trade Shares of the SPDR SSgA Risk
Aware ETF; SPDR SSgA Large Cap
Risk Aware ETF; and SPDR SSgA
Small Cap Risk Aware ETF Under
NYSE Arca Equities Rule 8.600
tkelley on DSK3SPTVN1PROD with NOTICES
March 21, 2014.
I. Introduction
On January 24, 2014, 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’’) 1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of SPDR SSgA Risk Aware
ETF; SPDR SSgA Large Cap Risk Aware
ETF; and SPDR SSgA Small Cap Risk
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Aware ETF (each, a ‘‘Fund’’ and,
collectively, ‘‘Funds’’) under NYSE Arca
Equities Rule 8.600. The proposed rule
change was published for comment in
the Federal Register on February 7,
2014.3 The Commission received no
comments on the proposed rule change.
This order grants approval of the
proposed rule change.
II. Description of Proposed Rule Change
The Exchange proposes to list and
trade Shares of the Funds 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 SSgA
Active ETF Trust (‘‘Trust’’), which is
organized as a Massachusetts business
trust and is registered with the
Securities and Exchange Commission
(‘‘Commission’’) as an open-end
management investment company.4
SSgA Funds Management, Inc.
(‘‘Adviser’’) will serve as the investment
adviser to the Funds.5 State Street
Global Markets, LLC (‘‘Distributor’’ or
‘‘Principal Underwriter’’) will be the
principal underwriter and distributor of
the Funds’ Shares. State Street Bank and
Trust Company (‘‘Administrator,’’
‘‘Custodian’’ or ‘‘Transfer Agent’’) will
serve as administrator, custodian and
transfer agent for the Funds.
The Exchange has made the following
representations and statements in
describing the Funds and their
respective investment strategies,
including other portfolio holdings and
investment restrictions.6
3 See Securities Exchange Act Release No. 71468
(Feb. 3, 2014), 79 FR 7487 (‘‘Notice’’).
4 The Trust is registered under the Investment
Company Act of 1940 (‘‘1940 Act’’). The Exchange
states that on December 14, 2012, the Trust filed
with the Commission an amendment to its
registration statement on Form N–1A under the
Securities Act of 1933 (15 U.S.C. 77a) (‘‘Securities
Act’’), and under the 1940 Act relating to the Funds
(File Nos. 333–173276 and 811–22542)
(‘‘Registration Statement’’). In addition, the
Exchange states that the Commission has issued an
order granting certain exemptive relief to the Trust
under the1940 Act. See Investment Company Act
Release No. 29524 (December 13, 2010) (File No.
812–13487) (‘‘Exemptive Order’’).
5 The Exchange states that Adviser is not
registered as a broker-dealer but is affiliated with
a broker-dealer and has implemented a ‘‘fire wall’’
with respect to such broker-dealer regarding access
to information concerning the composition and/or
changes to the Funds’ portfolios. The Exchange
states that in the event (a) the Adviser or any subadviser becomes, or becomes newly affiliated with,
a broker-dealer, or (b) any new adviser or subadviser is, or becomes affiliated with, a brokerdealer, it will implement a fire wall with respect to
its relevant personnel or broker-dealer affiliate
regarding access to information concerning the
composition and/or changes to a portfolio, and will
be subject to procedures designed to prevent the use
and dissemination of material non-public
information regarding such portfolio.
6 The Commission notes that additional
information regarding the Trust, the Funds, and the
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General
The Funds are intended to be
managed in a ‘‘master-feeder’’ structure,
under which each Fund will invest
substantially all of its assets in a
corresponding portfolio (each, a
‘‘Portfolio’’) (i.e. a ‘‘master fund’’),
which is a separate mutual fund
registered under the 1940 Act that has
an identical investment objective. As a
result, each Fund (i.e., a ‘‘feeder fund’’)
will have an indirect interest in all of
the securities and other assets owned by
each corresponding Portfolio. Because
of this indirect interest, each Fund’s
investment returns should be the same
as those of the corresponding Portfolio,
adjusted for the expenses of the Fund.
In extraordinary instances, each Fund
reserves the right to make direct
investments in securities.
The Adviser will manage the
investments of each respective Portfolio.
Under the master-feeder arrangement,
investment advisory fees charged at the
master-fund level are deducted from the
advisory fees charged at the feeder-fund
level. This arrangement avoids a
‘‘layering’’ of fees, e.g., a Fund’s total
annual operating expenses would be no
higher as a result of investing in a
master-feeder arrangement than they
would be if the Fund pursued its
investment objectives directly. Each
Fund may discontinue investing
through the master-feeder arrangement
and pursue its investment objectives
directly if the Fund’s Board of Trustees
determines that doing so would be in
the best interests of shareholders.
The Funds will not be index Funds.
The Funds will be actively managed and
will not seek to replicate the
performance of a specified index.
SPDR SSgA Risk Aware ETF
The SPDR SSgA Risk Aware ETF will
seek to provide competitive returns
compared to the broad U.S. equity
market and capital appreciation.
Under normal circumstances,7 the
Fund will invest all of its assets in the
SSgA Risk Aware Portfolio (‘‘Risk
Shares, including investment strategies, risks, net
asset value (‘‘NAV’’) calculation, creation and
redemption procedures, fees, portfolio holdings
disclosure policies, distributions, and taxes, among
other information, is included in the Notice and the
Registration Statements, as applicable. See Notice
and Registration Statement, supra notes 3 and 4,
respectively.
7 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 manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance.
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Aware Portfolio’’), a separate series of
the SSgA Master Trust with an identical
investment objective as the Fund. As a
result, the Fund will invest indirectly
through the Risk Aware Portfolio.
In seeking its objective, the Risk
Aware Portfolio will invest in a
diversified selection of equity securities
included in the Russell 3000 Index that
the Adviser believes are aligned with
predicted investor risk preferences.8
The Russell 3000 Index measures the
performance of the largest 3,000 U.S.
companies, including business
development companies, representing
approximately 98% of the investable
U.S. equity market. The Russell 3000
Index is constructed to provide a
comprehensive, unbiased, and stable
barometer of the broad market and is
completely reconstituted annually to
ensure new and growing equities are
reflected. As of September 30, 2013, the
Russell 3000 Index was comprised of
2,965 stocks.
In selecting securities for the Risk
Aware Portfolio, the Adviser will utilize
a proprietary quantitative investment
process to measure and predict investor
risk preferences. This investment
process recognizes that the attributes
that render a particular security ‘‘risky’’
or ‘‘safe’’ from an investor’s perspective
will change over time. The process
therefore will begin with a broad set of
plausible dimensions of risk, or factors
that may be viewed by investors as
contributing to a security’s risk level at
any given time. This set will include,
among many other items, market beta,
liquidity, and exposure to certain
commodities, leading economic
indicators, currency, credit risk, and
performance differences between
cyclical and defensive sectors. The
Adviser will then use a sequence of
procedures to develop a subset of
attributes representing those it believes
to be relevant to investors at a given
time. This subset will help form the
Adviser’s forecast for aggregate risk
appetite and assist the Adviser in
generating the groups of securities likely
to benefit the most and least in light of
that forecast. Different predictions of
risk appetite may result in portfolios
that are more defensive or risk-seeking,
based on what the market considers safe
and/or risky at a given time. For
example, during periods of anticipated
investor preference for low risk, the
Adviser will adjust the Risk Aware
Portfolio’s composition to be defensive
and may increase exposure to large cap
8 The Portfolios will invest only in equity
securities that trade in markets that are members of
the Intermarket Surveillance Group (‘‘ISG’’) or are
parties to a comprehensive surveillance sharing
agreement with the Exchange.
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companies. On the other hand, during
periods of anticipated investor
preference for high risk, the Adviser
will adjust the Risk Aware Portfolio’s
composition to be risk-seeking and may
increase exposure to small cap
companies. Similarly, exposures to
value, growth, quality and other themes
will vary depending on how they align
with investor risk appetite at a given
time. In periods of anticipated investor
preference for moderate risk, the Risk
Aware Portfolio’s composition will
more closely reflect the weighted
composition of the Russell 3000 Index.
The Adviser believes the ebbing and
flowing of risk preferences give this
strategy the potential to provide
competitive returns relative to the
Russell 3000 Index over the long term.
The Risk Aware Portfolio will be nondiversified for purposes of the 1940 Act,
and as a result may invest a greater
percentage of its assets in a particular
issuer than a diversified fund. However,
it is expected that the Risk Aware
Portfolio will have exposure to a
diversified mix of equity securities.
SPDR SSgA Large Cap Risk Aware ETF
The SPDR SSgA Large Cap Risk
Aware ETF will seek to provide
competitive returns compared to the
large cap U.S. equity market and capital
appreciation.
Under normal circumstances,9 the
Fund will invest all of its assets in the
SSgA Large Cap Risk Aware Portfolio
(‘‘Large Cap Portfolio’’), a separate series
of the SSgA Master Trust with an
identical investment objective as the
Fund. As a result, the Fund will invest
indirectly through the Large Cap
Portfolio.
In seeking its objective, the Large Cap
Portfolio will invest in a diversified
selection of equity securities included
in the Russell 1000 Index that the
Adviser believes are aligned with
predicted investor risk preferences.10
The Russell 1000 Index measures the
performance of the large-cap segment of
the U.S. equity universe. It is a subset
of the Russell 3000® Index and includes
approximately 1,000 of the largest
securities, which may include business
development companies, based on a
combination of their market cap and
current index membership. The Russell
1000 Index represents approximately
92% of the U.S. market. The Russell
1000 Index is constructed to provide a
comprehensive and unbiased barometer
for the large-cap segment and is
completely reconstituted annually to
ensure new and growing equities are
9 See
supra note 7.
supra note 8.
10 See
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reflected. As of September 30, 2013, the
Russell 1000 Index was comprised of
1,003 stocks.
Under normal circumstances, the
Large Cap Portfolio will invest at least
80% of its net assets (plus the amount
of borrowings for investment purposes)
in securities of large-cap companies.
The Large Cap Portfolio considers largecap companies to be companies with
market capitalizations falling within the
range of the Russell 1000 Index at the
time of initial purchase. In selecting
securities for the Large Cap Portfolio,
the Adviser will utilize a proprietary
quantitative investment process to
measure and predict investor risk
preferences. This investment process
recognizes that the attributes that render
a particular security ‘‘risky’’ or ‘‘safe’’
from an investor’s perspective will
change over time. The process therefore
will begin with a broad set of plausible
dimensions of risk, or factors that may
be viewed by investors as contributing
to a security’s risk level at any given
time. This set includes, among many
other items, market beta, liquidity, and
exposure to certain commodities,
leading economic indicators, currency,
credit risk, and performance differences
between cyclical and defensive sectors.
The Adviser then will use a sequence of
procedures to develop a subset of
attributes representing those it believes
to be relevant to investors at a given
time. This subset will help form the
Adviser’s forecast for aggregate risk
appetite and assist the Adviser in
generating the groups of securities likely
to benefit the most and least in light of
that forecast. Different predictions of
risk appetite may result in portfolios
that are more defensive or risk-seeking,
based on what the market considers safe
and/or risky at a given time. For
example, during periods of anticipated
investor preference for low risk, the
Adviser will adjust the Large Cap
Portfolio’s composition to be defensive.
On the other hand, during periods of
anticipated investor preference for high
risk, the Adviser will adjust the Large
Cap Portfolio’s composition to be riskseeking. Similarly, exposures to value,
growth, quality and other themes will
vary depending on how they align with
investor risk appetite at a given time. In
periods of anticipated investor
preference for moderate risk, the Large
Cap Portfolio’s composition will more
closely reflect the weighted composition
of the Russell 1000 Index. The Adviser
believes the ebbing and flowing of risk
preferences give this strategy the
potential to provide competitive returns
relative to the Russell 1000 Index over
the long term. The Large Cap Portfolio
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will be non-diversified for purposes of
the 1940 Act, and as a result may invest
a greater percentage of its assets in a
particular issuer than a diversified fund.
However, it is expected that the Large
Cap Portfolio will have exposure to a
diversified mix of equity securities.
SPDR SSgA Small Cap Risk Aware ETF
The SPDR SSgA Small Cap Risk
Aware ETF will seek to provide
competitive returns compared to the
small cap U.S. equity market and capital
appreciation.
Under normal circumstances,11 the
Fund will invest all of its assets in the
SSgA Small Cap Risk Aware Portfolio
(‘‘Small Cap Portfolio’’), a separate
series of the SSgA Master Trust with an
identical investment objective as the
Fund. As a result, the Fund will invest
indirectly through the Small Cap
Portfolio.
In seeking its objective, the Small Cap
Portfolio will invest in a diversified
selection of equity securities included
in the Russell 2000 Index that the
Adviser believes are aligned with
predicted investor risk preferences.12
The Russell 2000 Index measures the
performance of the small-cap segment of
the U.S. equity market. The Russell
2000 Index is a subset of the Russell
3000® Index representing approximately
10% of the total market capitalization of
the Russell 3000® Index. The Russell
2000 Index includes approximately
2000 of the smallest securities,
including business development
companies, based on a combination of
their market cap and current index
membership. The Russell 2000 Index is
constructed to provide a comprehensive
and unbiased small-cap barometer and
is completely reconstituted annually to
ensure larger stocks do not distort the
performance and characteristics of the
true small-cap opportunity set. As of
September 30, 2013, the Russell 2000
Index was comprised of 1,962 securities.
Under normal circumstances, the
Small Cap Portfolio will invest at least
80% of its net assets (plus the amount
of borrowings for investment purposes)
in securities of small-cap companies.
The Small Cap Portfolio considers
small-cap companies to be companies
with market capitalizations falling
within the range of the Russell 2000
Index at the time of initial purchase. In
selecting securities for the Small Cap
Portfolio, the Adviser will utilize a
proprietary quantitative investment
process to measure and predict investor
risk preferences. This investment
process recognizes that the attributes
11 See
12 See
supra note 7.
supra note 8.
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that render a particular security ‘‘risky’’
or ‘‘safe’’ from an investor’s perspective
will change over time. The process
therefore will begin with a broad set of
plausible dimensions of risk, or factors
that may be viewed by investors as
contributing to a security’s risk level at
any given time. This set will include,
among many other items, market beta,
liquidity, and exposure to certain
commodities, leading economic
indicators, currency, credit risk, and
performance differences between
cyclical and defensive sectors. The
Adviser then will use a sequence of
procedures to develop a subset of
attributes representing those it believes
to be relevant to investors at a given
time. This subset will help form the
Adviser’s forecast for aggregate risk
appetite and assist the Adviser in
generating the groups of securities likely
to benefit the most and least in light of
that forecast. Different predictions of
risk appetite may result in portfolios
that are more defensive or risk-seeking,
based on what the market considers safe
and/or risky at a given time. For
example, during periods of anticipated
investor preference for low risk, the
Adviser will adjust the Small Cap
Portfolio’s composition to be defensive.
On the other hand, during periods of
anticipated investor preference for high
risk, the Adviser will adjust the Small
Cap Portfolio’s composition to be riskseeking. Similarly, exposures to value,
growth, quality and other themes will
vary depending on how they align with
investor risk appetite at a given time. In
periods of anticipated investor
preference for moderate risk, the Small
Cap Portfolio’s composition will more
closely reflect the weighted composition
of the Russell 2000 Index. The Adviser
believes the ebbing and flowing of risk
preferences give this strategy the
potential to provide competitive returns
relative to the Russell 2000 Index over
the long term. The Small Cap Portfolio
will be non-diversified for purposes of
the 1940 Act, and as a result may invest
a greater percentage of its assets in a
particular issuer than a diversified fund.
However, it is expected that the Small
Cap Portfolio will have exposure to a
diversified mix of equity securities.
Other Investments
While, under normal circumstances,
the Adviser, with respect to each
Portfolio, will invest at least 80% of
such Portfolio’s net assets in equity
securities, as described above, the
Adviser may invest up to 20% of a
Portfolio’s net assets in other securities
and financial instruments, as described
below.
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Each Fund may (either indirectly
through its investments in the
corresponding Portfolio or, in the
absence of normal circumstances,13
directly) invest in the following types of
investments. The investment practices
of the Portfolios are the same in all
material respects to those of the Funds.
In the absence of normal
circumstances, a Fund may (either
directly or through the corresponding
Portfolio) temporarily depart from its
normal investment policies and
strategies provided that the alternative
is consistent with the Fund’s investment
objective and is in the best interest of
the Fund. For example, a Fund may
hold a higher than normal proportion of
its assets in cash in times of extreme
market stress.
Each Portfolio may invest in short
term instruments, including money
market instruments (including money
market funds advised by the Adviser),
cash and cash equivalents on an
ongoing basis to provide liquidity or for
other reasons. Money market
instruments are generally short-term
investments that may include but are
not limited to: (i) Shares of money
market funds (including those advised
by the Adviser); (ii) obligations issued
or guaranteed by the U.S. Government,
its agencies or instrumentalities
(including government-sponsored
enterprises); (iii) negotiable certificates
of deposit (‘‘CDs’’), bankers’
acceptances, fixed time deposits and
other obligations of U.S. and foreign
banks (including foreign branches) and
similar institutions; (iv) commercial
paper rated at the date of purchase
‘‘Prime-1’’ by Moody’s Investor’s
Service or ‘‘A–1’’ by Standard & Poor’s,
or if unrated, of comparable quality as
determined by the Adviser; (v) nonconvertible corporate debt securities
(e.g., bonds and debentures) with
remaining maturities at the date of
purchase of not more than 397 days and
that satisfy the rating requirements set
forth in Rule 2a–7 under the 1940 Act;
and (vi) short-term U.S. dollardenominated obligations of foreign
banks (including U.S. branches) that, in
the opinion of the Adviser, are of
comparable quality to obligations of
U.S. banks which may be purchased by
a Portfolio. Commercial paper consists
of short-term, promissory notes issued
by banks, corporations and other
entities to finance short-term credit
needs. Any of these instruments may be
purchased on a current or a forwardsettled basis.
Each Portfolio may invest in
repurchase agreements with commercial
13 See
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banks, brokers or dealers to generate
income from its excess cash balances
and to invest securities lending cash
collateral. The Exchange states that a
repurchase agreement is an agreement
under which a fund acquires a financial
instrument (e.g., a security issued by the
U.S. Government or an agency thereof,
a banker’s acceptance or a certificate of
deposit) from a seller, subject to resale
to the seller at an agreed upon price and
date (normally, the next business day).
Each Portfolio may invest in
convertible securities. Convertible
securities are bonds, debentures, notes,
preferred stocks or other securities that
may be converted or exchanged (by the
holder or by the issuer) into shares of
the underlying common stock (or cash
or securities of equivalent value) at a
stated exchange ratio. A convertible
security may also be called for
redemption or conversion by the issuer
after a particular date and under certain
circumstances (including a specified
price) established upon issue.
Each Portfolio may invest in U.S.
Government obligations. U.S.
Government obligations are a type of
bond. U.S. Government obligations
include securities issued or guaranteed
as to principal and interest by the U.S.
Government, its agencies or
instrumentalities.
Each Portfolio may invest in U.S.
agency mortgage pass-through
securities. The Exchange states that the
term ‘‘U.S. agency mortgage passthrough security’’ refers to a category of
pass-through securities backed by pools
of mortgages and issued by one of
several U.S. Government-sponsored
enterprises: The Government National
Mortgage Association (‘‘Ginnie Mae’’),
Federal National Mortgage Association
(‘‘Fannie Mae’’), or Federal Home Loan
Mortgage Corporation (‘‘Freddie Mac’’).
The Portfolios will seek to obtain
exposure to U.S. agency mortgage passthrough securities primarily through the
use of ‘‘to-be-announced’’ or ‘‘TBA
transactions.’’ The Exchange states that
‘‘TBA’’ refers to a commonly used
mechanism for the forward settlement of
U.S. agency mortgage pass-through
securities, and not to a separate type of
mortgage-backed security, and that most
transactions in mortgage pass-through
securities occur through the use of TBA
transactions.14
Each Portfolio may purchase U.S.
exchange-listed common stocks and
U.S. exchange-listed preferred securities
14 To minimize the risk of default by a
counterparty, a Portfolio will enter into TBA
transactions only with established counterparties
(such as major broker-dealers) and the Adviser will
monitor the creditworthiness of such
counterparties.
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of foreign corporations. Investments in
common stock of foreign corporations
may also be in the form of American
Depositary Receipts (‘‘ADRs’’), Global
Depositary Receipts (‘‘GDRs’’) and
European Depositary Receipts (‘‘EDRs’’)
(collectively ‘‘Depositary Receipts’’). A
Portfolio may invest in unsponsored
Depositary Receipts.
Each Portfolio may invest in bonds,
including corporate bonds as well as
U.S. registered, dollar-denominated
bonds of foreign corporations,
governments, agencies and supranational entities. Each Portfolio may
invest up to 10% of its net assets in high
yield debt securities.
The Portfolios may invest in inflationprotected public obligations, commonly
known as ‘‘TIPS,’’ of the U.S. Treasury,
as well as TIPS of major governments
and emerging market countries,
excluding the United States. The
Exchange states that TIPS are a type of
security issued by a government that are
designed to provide inflation protection
to investors.
Each Portfolio may invest in variable
and floating rate securities.15 The
Exchange states that variable rate
securities are instruments issued or
guaranteed by entities such as (1) the
U.S. government or an agency or
instrumentality thereof, (2)
corporations, (3) financial institutions,
(4) insurance companies, or (5) trusts
that have a rate of interest subject to
adjustment at regular intervals but less
frequently than annually.
Each Portfolio may invest in Variable
Rate Demand Obligations (‘‘VRDOs’’).
The Exchange states that VRDOs are
short-term tax exempt fixed income
instruments whose yield is reset on a
periodic basis and that VRDO securities
tend to be issued with long maturities
of up to 30 or 40 years; however, they
are considered short-term instruments
because they include a put feature
which coincides with the periodic yield
reset.
Each Portfolio may invest in restricted
securities. The Exchange states that
restricted securities are securities that
are not registered under the Securities
Act, but which can be offered and sold
to ‘‘qualified institutional buyers’’ under
Rule 144A under the Securities Act.16
15 A variable rate security provides for the
automatic establishment of a new interest rate on
set dates. A floating rate security provides for the
automatic adjustment of its interest rate whenever
a specified interest rate changes. Interest rates on
these securities are ordinarily tied to, and are a
percentage of, a widely recognized interest rate,
such as the yield on 90-day U.S. Treasury bills or
the prime rate of a specified bank.
16 When Rule 144A restricted securities present
an attractive investment opportunity and meet other
selection criteria, a Portfolio may make such
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Each Portfolio may conduct foreign
currency transactions on a spot (i.e.,
cash) or forward basis (i.e., by entering
into forward contracts to purchase or
sell foreign currencies). At the
discretion of the Adviser, the Portfolios
may enter into forward currency
exchange contracts for hedging purposes
to help reduce the risks and volatility
caused by changes in foreign currency
exchange rates, or to gain exposure to
certain currencies.
Each Portfolio may invest in the
securities of other investment
companies, including affiliated funds,
money market funds and closed-end
funds, subject to applicable limitations
under Section 12(d)(1) of the 1940 Act.
Each Portfolio may invest in exchangetraded products (‘‘ETPs’’).17 ETPs
include exchange-traded funds
registered under the 1940 Act; exchange
traded commodity trusts; and exchange
traded notes (‘‘ETNs’’).18
The Adviser may invest up to 20% of
its total assets in one or more ETPs that
are qualified publicly traded
partnerships (‘‘QPTPs’’) and whose
principal activities are the buying and
selling of commodities or options,
futures, or forwards with respect to
commodities.19 The Exchange states
that a QPTP is an entity that is treated
as a partnership for federal income tax
investments whether or not such securities are
‘‘illiquid’’ depending on the market that exists for
the particular security. The Board has delegated the
responsibility for determining the liquidity of Rule
144A restricted securities that a Portfolio may
invest in to the Adviser. See infra note 20.
17 For each of the Portfolios, ETPs include
Investment Company Units (as described in NYSE
Arca Equities Rule 5.2(j)(3)); Index-Linked
Securities (as described in NYSE Arca Equities Rule
5.2(j)(6)); Portfolio Depositary Receipts (as
described in NYSE Arca Equities Rule 8.100); Trust
Issued Receipts (as described in NYSE Arca
Equities Rule 8.200); Commodity-Based Trust
Shares (as described in NYSE Arca Equities Rule
8.201); Currency Trust Shares (as described in
NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities
Rule 8.203); Trust Units (as described in NYSE Arca
Equities Rule 8.500); Managed Fund Shares (as
described in NYSE Arca Equities Rule 8.600), and
closed-end funds. The ETPs all will be listed and
traded in the U.S. on registered exchanges. While
a Fund may invest in inverse ETPs, a Fund will not
invest in leveraged or inverse leveraged ETPs (e.g.,
2X or 3X).
18 ETNs are debt obligations of investment banks
which are traded on exchanges and the returns of
which are linked to the performance of market
indexes. In addition to trading ETNs on exchanges,
investors may redeem ETNs directly with the issuer
on a weekly basis, typically in a minimum amount
of 50,000 units, or hold the ETNs until maturity.
19 The Exchange states that examples of such
entities are the PowerShares DB Energy Fund,
PowerShares DB Oil Fund, PowerShares DB
Precious Metals Fund, PowerShares DB Gold Fund,
PowerShares DB Silver Fund, PowerShares DB Base
Metals Fund, and PowerShares DB Agriculture
Fund, which are listed and traded on the Exchange
pursuant to NYSE Arca Equities Rule 8.200.
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purposes, subject to certain
requirements, and that income from
QPTPs is generally qualifying income
for purposes of Subchapter M of the
Internal Revenue Code.
The Portfolios may invest in real
estate investment trusts (‘‘REITs’’).
Each Portfolio may enter into reverse
repurchase agreements.
Neither the Funds nor the Portfolios
will invest in options contracts, futures
contracts, or swap agreements.
The Funds’ investments will be
consistent with the Funds’ investment
objectives and will not be used to
enhance leverage.
Each Fund is classified as ‘‘nondiversified.’’ Each Fund will be ‘‘nondiversified’’ under the 1940 Act and
may invest more of its assets in fewer
issuers than ‘‘diversified’’ funds.
The Funds do not intend to
concentrate their investments in any
particular industry.
The Funds intend to qualify for and
to elect treatment as a separate regulated
investment company under Subchapter
M of the Internal Revenue Code.
Each Portfolio may hold up to an
aggregate amount of 15% of its net
assets in illiquid securities (calculated
at the time of investment), including
Rule 144A securities deemed illiquid by
the Adviser.20 Each Portfolio 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 a
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.
III. Discussion and Commission’s
Findings
tkelley on DSK3SPTVN1PROD with NOTICES
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of
Section 6 of the Act 21 and the rules and
regulations thereunder applicable to a
20 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 in which it trades (e.g., the time
needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer).
21 15 U.S.C. 78f.
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national securities exchange.22 In
particular, the Commission finds that
the proposal is consistent with Section
6(b)(5) of the Act,23 which requires,
among other things, that the Exchange’s
rules be designed to promote just and
equitable principles of trade, to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect investors and the
public interest. The Commission notes
that the Funds and the Shares must
comply with the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600 for the Shares 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,24 which sets
forth Congress’ finding that it is in the
public interest and appropriate for the
protection of investors and the
maintenance of fair and orderly markets
to assure the availability to brokers,
dealers, and investors of information
with respect to quotations for, and
transactions in, securities. Quotation
and last-sale information for the Shares
of each Fund will be available via the
Consolidated Tape Association (‘‘CTA’’)
highspeed line. In addition, the IOPV,25
which is the Portfolio Indicative Value
as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated
at least every 15 seconds during the
Core Trading Session by one or more
major market data vendors.26 On each
business day, before commencement of
trading in Shares in the Core Trading
Session on the Exchange, the Funds will
disclose on their Web site the Disclosed
Portfolio, as defined in NYSE Arca
Equities Rule 8.600(c)(2), that will form
the basis for the Funds’ calculation of
NAV at the end of the business day.27
22 In approving this proposed rule change, the
Commission has considered the proposed rule’s
impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
23 15 U.S.C. 78f(b)(5).
24 15 U.S.C. 78k–1(a)(1)(C)(iii).
25 According to the Exchange, the IOPV
calculations are estimates of the value of the Funds’
NAV per Share using market data converted into
U.S. dollars at the current currency rates. The IOPV
price will be based on quotes and closing prices
from the securities’ local market and may not reflect
events that occur subsequent to the local market’s
close. Premiums and discounts between the IOPV
and the market price may occur. The IOPV should
not be viewed as a ‘‘real-time’’ update of the NAV
per Share of a Fund, which is calculated only once
a day.
26 According to the Exchange, several major
market data vendors display and/or make widely
available IOPVs taken from CTA or other data feeds.
27 On a daily basis, the Adviser will disclose for
each portfolio security and other financial
instrument of the Funds and of the Portfolios the
following information on the Funds’ Web site:
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In addition, a basket composition file,
which includes the security names and
share quantities required to be delivered
in exchange for each Fund’s Shares,
together with estimates and actual cash
components, will be publicly
disseminated daily prior to the opening
of the New York Stock Exchange, LLC
(‘‘NYSE’’) via the National Securities
Clearing Corporation. The basket will
represent one creation unit of a Fund.
The NAV of each Fund will be
determined once each business day,
normally as of the close of normal
trading on the NYSE (normally, 4:00
p.m., Eastern Time).28 Information
regarding market price and trading
volume of the Shares will be continually
available on a real-time basis throughout
the day on brokers’ computer screens
and other electronic services.
Information regarding the previous
day’s closing price and trading volume
information for the Shares will be
published daily in the financial section
of newspapers. The intra-day, closing,
and settlement prices of the Portfolio
securities and other assets held by the
Funds and Portfolios are readily
available from the national securities
exchanges trading such securities,
automated quotation systems, published
or other public sources, or online
information services such as Bloomberg
or Reuters. Quotation and last sale
information for the underlying U.S.
exchange-traded equities, including
exchange-traded ETPs, will be available
via the CTA high-speed line and from
the national securities exchange on
which they are listed. Pricing
information regarding each asset class in
which the Funds or Portfolios will
invest is generally available through
nationally recognized data service
providers through subscription
arrangements. Quotation information
from brokers and dealers or pricing
services will be available for fixed
income securities, including U.S.
Government obligations, other money
market instruments, repurchase and
reverse repurchase agreements,
ticker symbol (if applicable), name of security and
financial instrument, number of shares or dollar
value of financial instruments held in the portfolio,
and percentage weighting of the security and
financial instrument in the portfolio. The Web site
information will be publicly available at no charge.
28 Each Fund will calculate NAV using the NAV
of the respective Portfolio. The NAV of a Portfolio
will be calculated by the Custodian and determined
at the close of the regular trading session on the
NYSE (ordinarily 4:00 p.m. Eastern time) on each
day that the NYSE is open, provided that assets
(and, accordingly, a Portfolio’s NAV) may be valued
as of the announced closing time for trading in
instruments on any day that the applicable
exchange or market on which a Portfolio’s
investments are traded announces an early closing
time.
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tkelley on DSK3SPTVN1PROD with NOTICES
convertible securities, U.S. agency
mortgage pass-through securities,
unsponsored Depositary Receipts,
corporate bonds, TIPS, variable floating
rate securities (including VRDOs), and
spot and forward currency transactions
held by the Funds and Portfolios. The
Funds’ Web site will include a form of
the prospectus for the Funds 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
Exchange will obtain a representation
from the issuer of the Shares that the
NAV per Share of each Fund will be
calculated daily, and that the NAV and
the Disclosed Portfolio for each Fund
will be made available to all market
participants at the same time. Trading in
Shares of a Fund will be halted if the
circuit breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable,29 and trading in the Shares
will be subject to NYSE Arca Equities
Rule 8.600(d)(2)(D), which sets forth
additional circumstances under which
trading in the Shares of a Fund may be
halted. The Exchange states that it has
a general policy prohibiting the
distribution of material, non-public
information by its employees.
Consistent with NYSE Arca Equities
Rule 8.600(d)(2)(B)(ii), the Reporting
Authority must implement and
maintain, or be subject to, procedures
designed to prevent the use and
dissemination of material, non-public
information regarding the actual
components of the Funds’ portfolios. In
addition, the Exchange states that the
Adviser has implemented a ‘‘fire wall’’
with respect to its affiliated brokerdealer regarding access to information
concerning the composition or changes
to the Funds’ portfolios.30 The Exchange
29 These reasons may include: (1) The extent to
which trading is not occurring in the securities or
the financial instruments composing the Disclosed
Portfolio of a Fund; or (2) whether other unusual
conditions or circumstances detrimental to the
maintenance of a fair and orderly market are
present. 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 Funds.
30 See supra note 5. The Exchange states that an
investment adviser to an open-end fund is required
to be registered under the Investment Advisers Act
of 1940 (‘‘Advisers Act’’). As a result, the Adviser
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represents that trading in the Shares
will be subject to the existing trading
surveillances, administered by the
Financial Industry Regulatory Authority
(‘‘FINRA’’) on behalf of the Exchange,
which are designed to detect violations
of Exchange rules and applicable federal
securities laws.31 The Exchange further
represents that these procedures are
adequate to properly monitor Exchangetrading of the Shares in all trading
sessions and to deter and detect
violations of Exchange rules and
applicable federal securities laws.
Moreover, prior to the commencement
of trading, the Exchange states that it
will inform its Equity Trading Permit
Holders in an Information Bulletin of
the special characteristics and risks
associated with trading the Shares.
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 the
following:
(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) FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares and underlying
equity securities (including, without
limitation, sponsored ADRs and ETPs)
and other exchange-traded securities
with other markets and other entities
that are members of ISG, and FINRA, on
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 nonpublic 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.
31 The Exchange states that FINRA surveils
trading on the Exchange pursuant to a regulatory
services agreement and that the Exchange is
responsible for FINRA’s performance under this
regulatory services agreement.
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17211
behalf of the Exchange, may obtain
trading information regarding trading in
the Shares and underlying equity
securities (including, without
limitation, sponsored ADRs and ETPs)
and other exchange-traded securities
from such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares and underlying equity securities
(including, without limitation,
sponsored ADRs and ETPs) and other
exchange-traded securities from markets
and other entities that are members of
ISG or with which the Exchange has in
place a comprehensive surveillance
sharing agreement.
(4) The Portfolios will invest only in
equity securities that trade in markets
that are members of the ISG or are
parties to a comprehensive surveillance
sharing agreement with the Exchange.
(5) Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Specifically, the
Information Bulletin will discuss the
following: (a) The procedures for
purchases and redemptions of Shares 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
Equity Trading Permit Holders to learn
the essential facts relating to every
customer prior to trading the Shares; (c)
the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated IOPV will
not be calculated or publicly
disseminated; (d) how information
regarding the IOPV is disseminated; (e)
the requirement that Equity Trading
Permit Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (f)
trading information.
(6) For initial and continued listing,
the Funds will be in compliance with
Rule 10A–3 under the Act,32 as
provided by NYSE Arca Equities Rule
5.3.
(7) Each Portfolio may hold up to an
aggregate amount of 15% of its net
assets in illiquid securities (calculated
at the time of investment), including
Rule 144A securities deemed illiquid by
the Adviser, consistent with
Commission guidance.
(8) Under normal circumstances, each
Fund will invest all of its assets in its
corresponding Portfolio. Furthermore,
under normal circumstances, the
Adviser, with respect to each Portfolio,
32 17
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will invest at least 80% of such
Portfolio’s net assets in equity
securities.
(9) Neither the Funds nor the
Portfolios will invest in options
contracts, futures contracts, or swap
agreements.
(10) A Portfolio will enter into TBA
transactions only with established
counterparties (such as major brokerdealers) and the Adviser will monitor
the creditworthiness of such
counterparties.
(11) Each Fund’s investments will be
consistent with its investment objective
and will not be used to enhance
leverage. While the Funds may invest in
inverse ETFs, the Funds will not invest
in leveraged or inverse leveraged ETFs
(e.g., 2X or 3X).
(12) A minimum of 100,000 Shares for
each Fund will be outstanding at the
commencement of trading on the
Exchange.
This approval order is based on all of
the Exchange’s representations,
including those set forth above and in
the Notice, and the Exchange’s
description of the Funds.
For the foregoing reasons, the
Commission finds that the proposed
rule change is consistent with Section
6(b)(5) of the Act 33 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,34 that the
proposed rule change (SR–NYSEArca–
2014–11) be, and it hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–06760 Filed 3–26–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–71764; File No. SR–CBOE–
2014–003]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Order Granting Approval
of Proposed Rule Change To List and
Trade CBOE Short-Term Volatility
Index Options
March 21, 2014.
I. Introduction
On January 27, 2014, the Chicago
Board Options Exchange, Incorporated
(‘‘Exchange’’ or ‘‘CBOE’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list options on the CBOE Short-Term
Volatility Index (‘‘VXST’’). The
proposed rule change was published for
comment in the Federal Register on
February 6, 2014.3 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 A.M. cash-settled, European-style
options on the VXST, which will expire
every week. According to the Exchange,
VXST is designed to measure investors’
consensus view of future (nine day)
expected stock market volatility, and
VXST options will trade alongside the
existing CBOE Volatility Index (‘‘VIX’’)
options (which expire on a monthly
basis and measure a 30 day period of
implied volatility).4 The Exchange states
that the calculation of VXST is based on
the VIX methodology as applied to
option series on the S&P 500 index that
expire on every Friday.5 The constituent
S&P 500 index options that expire on a
Friday (i.e., nine days from the VXST
option expiration date, which is
typically a Wednesday in the preceding
week) may include the following types
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 71458
(January 31, 2014), 79 FR 7239 (‘‘Notice’’).
4 According to the Exchange, the VXST index was
introduced by CBOE on October 1, 2013 and has
been disseminated at least once a day on every
trading day since that time. See Notice, supra note
3, at 7239–40.
5 The Exchange states that VXST is calculated in
the same manner as other volatility indexes (e.g.,
VIX). A more detailed explanation of the method
used to calculate the VIX may be found on the
CBOE’s Web site at https://www.cboe.com/micro/
vix/vixwhite.pdf. See Notice, supra note 3, at 7240.
tkelley on DSK3SPTVN1PROD with NOTICES
2 17
33 15
U.S.C. 78f(b)(5).
U.S.C. 78s(b)(2).
35 17 CFR 200.30–3(a)(12).
34 15
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of options on the S&P 500 index:
Standard monthly options, End-of-Week
(‘‘EOW’’) expirations, and Quarterly
Index (‘‘QIX’’) expirations. According to
the Exchange, because some of the
constituent options used to calculate
VXST are A.M.-settled and some are
P.M.-settled, the amount of time covered
by a specific contract will vary slightly
depending on the type of series used for
any given A.M.-settled VXST option.6
Similar to VIX and VIX options, the
cash (spot) VXST value will be
calculated using premium quotations
and the exercise settlement value for
VXST options will be calculated using
the actual opening premium prices of
the constituent S&P 500 index options
on the expiration day of the VXST
option.7 The Exchange will compute
values for VXST on a real-time basis
throughout each trading day, from
approximately 8:30 a.m. (Chicago time)
until approximately 3:15 p.m. (Chicago
time).8 VXST levels will be calculated
by CBOE and generally disseminated at
15-second intervals to major market data
vendors.9 The trading hours for VXST
options will be from 8:30 a.m. to 3:15
p.m. (Chicago time).10
The Exchange proposes to list up to
12 near-term VXST option expiration
weeks, and that new series will be
permitted to be added up to and
including on the last day of trading for
an expiring VXST option contract.11
As proposed, the exercise settlement
value for a VXST option will be
calculated on the specific date (usually
a Wednesday) identified in the option
symbol for the series.12 If that
6 For a VXST option contract calculated using
A.M.-settled standard S&P 500 index options, the
period of implied volatility covered by the contract
will be exactly nine days. For a VXST option
contract calculated using P.M.-settled EOW or QIX
on the S&P 500 index, the period of implied
volatility covered by the contract will be nine days,
plus 390 minutes. See Notice, supra note 3, at 7240.
7 See id.
8 See id.
9 According to the Exchange, when VIX options
and VXST options expire on the same day, as the
calculator of volatility indexes, CBOE would not
begin disseminating the spot (cash) values for any
volatility index that CBOE calculates until the S&P
500 index option series that CBOE will use to
calculate the exercise settlement value for VIX
options have opened. On all other VXST option
expiration days, as the calculator of volatility
indexes, CBOE would not begin disseminating the
spot (cash) values for any volatility index that
CBOE calculates until the S&P 500 index option
series that CBOE will use to calculate the exercise
settlement value for VXST options have opened.
See id., at n. 8.
10 See id., at 7241.
11 See CBOE Rules 24.9(a)(2) and 24.9.01(c).
12 See CBOE Rule 24.9(a)(6). According to the
Exchange, option symbols are constructed as
follows: Symbol + Expiration Date (Year, Month,
Day) + Call or Put + Strike Price (in dollars to three
decimal places). See Notice, supra note 3, at n. 14.
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]]>Agencies
[Federal Register Volume 79, Number 59 (Thursday, March 27, 2014)]
[Notices]
[Pages 17206-17212]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-06760]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-71767; File No. SR-NYSEArca-2014-11]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change To List and Trade Shares of the SPDR
SSgA Risk Aware ETF; SPDR SSgA Large Cap Risk Aware ETF; and SPDR SSgA
Small Cap Risk Aware ETF Under NYSE Arca Equities Rule 8.600
March 21, 2014.
I. Introduction
On January 24, 2014, 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'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of SPDR SSgA
Risk Aware ETF; SPDR SSgA Large Cap Risk Aware ETF; and SPDR SSgA Small
Cap Risk Aware ETF (each, a ``Fund'' and, collectively, ``Funds'')
under NYSE Arca Equities Rule 8.600. The proposed rule change was
published for comment in the Federal Register on February 7, 2014.\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. 71468 (Feb. 3,
2014), 79 FR 7487 (``Notice'').
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II. Description of Proposed Rule Change
The Exchange proposes to list and trade Shares of the Funds
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 SSgA Active ETF Trust (``Trust''), which is organized as a
Massachusetts business trust and is registered with the Securities and
Exchange Commission (``Commission'') as an open-end management
investment company.\4\ SSgA Funds Management, Inc. (``Adviser'') will
serve as the investment adviser to the Funds.\5\ State Street Global
Markets, LLC (``Distributor'' or ``Principal Underwriter'') will be the
principal underwriter and distributor of the Funds' Shares. State
Street Bank and Trust Company (``Administrator,'' ``Custodian'' or
``Transfer Agent'') will serve as administrator, custodian and transfer
agent for the Funds.
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\4\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). The Exchange states that on December 14, 2012,
the Trust filed with the Commission an amendment to its registration
statement on Form N-1A under the Securities Act of 1933 (15 U.S.C.
77a) (``Securities Act''), and under the 1940 Act relating to the
Funds (File Nos. 333-173276 and 811-22542) (``Registration
Statement''). In addition, the Exchange states that the Commission
has issued an order granting certain exemptive relief to the Trust
under the1940 Act. See Investment Company Act Release No. 29524
(December 13, 2010) (File No. 812-13487) (``Exemptive Order'').
\5\ The Exchange states that Adviser is not registered as a
broker-dealer but is affiliated with a broker-dealer and has
implemented a ``fire wall'' with respect to such broker-dealer
regarding access to information concerning the composition and/or
changes to the Funds' portfolios. The Exchange states that in the
event (a) the Adviser or any sub-adviser becomes, or becomes newly
affiliated with, a broker-dealer, or (b) any new adviser or sub-
adviser is, or becomes affiliated with, a broker-dealer, it will
implement a fire wall with respect to its relevant personnel or
broker-dealer affiliate regarding access to information concerning
the composition and/or changes to a 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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The Exchange has made the following representations and statements
in describing the Funds and their respective investment strategies,
including other portfolio holdings and investment restrictions.\6\
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\6\ The Commission notes that additional information regarding
the Trust, the Funds, and the Shares, including investment
strategies, risks, net asset value (``NAV'') calculation, creation
and redemption procedures, fees, portfolio holdings disclosure
policies, distributions, and taxes, among other information, is
included in the Notice and the Registration Statements, as
applicable. See Notice and Registration Statement, supra notes 3 and
4, respectively.
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General
The Funds are intended to be managed in a ``master-feeder''
structure, under which each Fund will invest substantially all of its
assets in a corresponding portfolio (each, a ``Portfolio'') (i.e. a
``master fund''), which is a separate mutual fund registered under the
1940 Act that has an identical investment objective. As a result, each
Fund (i.e., a ``feeder fund'') will have an indirect interest in all of
the securities and other assets owned by each corresponding Portfolio.
Because of this indirect interest, each Fund's investment returns
should be the same as those of the corresponding Portfolio, adjusted
for the expenses of the Fund. In extraordinary instances, each Fund
reserves the right to make direct investments in securities.
The Adviser will manage the investments of each respective
Portfolio. Under the master-feeder arrangement, investment advisory
fees charged at the master-fund level are deducted from the advisory
fees charged at the feeder-fund level. This arrangement avoids a
``layering'' of fees, e.g., a Fund's total annual operating expenses
would be no higher as a result of investing in a master-feeder
arrangement than they would be if the Fund pursued its investment
objectives directly. Each Fund may discontinue investing through the
master-feeder arrangement and pursue its investment objectives directly
if the Fund's Board of Trustees determines that doing so would be in
the best interests of shareholders.
The Funds will not be index Funds. The Funds will be actively
managed and will not seek to replicate the performance of a specified
index.
SPDR SSgA Risk Aware ETF
The SPDR SSgA Risk Aware ETF will seek to provide competitive
returns compared to the broad U.S. equity market and capital
appreciation.
Under normal circumstances,\7\ the Fund will invest all of its
assets in the SSgA Risk Aware Portfolio (``Risk
[[Page 17207]]
Aware Portfolio''), a separate series of the SSgA Master Trust with an
identical investment objective as the Fund. As a result, the Fund will
invest indirectly through the Risk Aware Portfolio.
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\7\ 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.
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In seeking its objective, the Risk Aware Portfolio will invest in a
diversified selection of equity securities included in the Russell 3000
Index that the Adviser believes are aligned with predicted investor
risk preferences.\8\ The Russell 3000 Index measures the performance of
the largest 3,000 U.S. companies, including business development
companies, representing approximately 98% of the investable U.S. equity
market. The Russell 3000 Index is constructed to provide a
comprehensive, unbiased, and stable barometer of the broad market and
is completely reconstituted annually to ensure new and growing equities
are reflected. As of September 30, 2013, the Russell 3000 Index was
comprised of 2,965 stocks.
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\8\ The Portfolios will invest only in equity securities that
trade in markets that are members of the Intermarket Surveillance
Group (``ISG'') or are parties to a comprehensive surveillance
sharing agreement with the Exchange.
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In selecting securities for the Risk Aware Portfolio, the Adviser
will utilize a proprietary quantitative investment process to measure
and predict investor risk preferences. This investment process
recognizes that the attributes that render a particular security
``risky'' or ``safe'' from an investor's perspective will change over
time. The process therefore will begin with a broad set of plausible
dimensions of risk, or factors that may be viewed by investors as
contributing to a security's risk level at any given time. This set
will include, among many other items, market beta, liquidity, and
exposure to certain commodities, leading economic indicators, currency,
credit risk, and performance differences between cyclical and defensive
sectors. The Adviser will then use a sequence of procedures to develop
a subset of attributes representing those it believes to be relevant to
investors at a given time. This subset will help form the Adviser's
forecast for aggregate risk appetite and assist the Adviser in
generating the groups of securities likely to benefit the most and
least in light of that forecast. Different predictions of risk appetite
may result in portfolios that are more defensive or risk-seeking, based
on what the market considers safe and/or risky at a given time. For
example, during periods of anticipated investor preference for low
risk, the Adviser will adjust the Risk Aware Portfolio's composition to
be defensive and may increase exposure to large cap companies. On the
other hand, during periods of anticipated investor preference for high
risk, the Adviser will adjust the Risk Aware Portfolio's composition to
be risk-seeking and may increase exposure to small cap companies.
Similarly, exposures to value, growth, quality and other themes will
vary depending on how they align with investor risk appetite at a given
time. In periods of anticipated investor preference for moderate risk,
the Risk Aware Portfolio's composition will more closely reflect the
weighted composition of the Russell 3000 Index. The Adviser believes
the ebbing and flowing of risk preferences give this strategy the
potential to provide competitive returns relative to the Russell 3000
Index over the long term. The Risk Aware Portfolio will be non-
diversified for purposes of the 1940 Act, and as a result may invest a
greater percentage of its assets in a particular issuer than a
diversified fund. However, it is expected that the Risk Aware Portfolio
will have exposure to a diversified mix of equity securities.
SPDR SSgA Large Cap Risk Aware ETF
The SPDR SSgA Large Cap Risk Aware ETF will seek to provide
competitive returns compared to the large cap U.S. equity market and
capital appreciation.
Under normal circumstances,\9\ the Fund will invest all of its
assets in the SSgA Large Cap Risk Aware Portfolio (``Large Cap
Portfolio''), a separate series of the SSgA Master Trust with an
identical investment objective as the Fund. As a result, the Fund will
invest indirectly through the Large Cap Portfolio.
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\9\ See supra note 7.
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In seeking its objective, the Large Cap Portfolio will invest in a
diversified selection of equity securities included in the Russell 1000
Index that the Adviser believes are aligned with predicted investor
risk preferences.\10\ The Russell 1000 Index measures the performance
of the large-cap segment of the U.S. equity universe. It is a subset of
the Russell 3000[supreg] Index and includes approximately 1,000 of the
largest securities, which may include business development companies,
based on a combination of their market cap and current index
membership. The Russell 1000 Index represents approximately 92% of the
U.S. market. The Russell 1000 Index is constructed to provide a
comprehensive and unbiased barometer for the large-cap segment and is
completely reconstituted annually to ensure new and growing equities
are reflected. As of September 30, 2013, the Russell 1000 Index was
comprised of 1,003 stocks.
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\10\ See supra note 8.
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Under normal circumstances, the Large Cap Portfolio will invest at
least 80% of its net assets (plus the amount of borrowings for
investment purposes) in securities of large-cap companies. The Large
Cap Portfolio considers large-cap companies to be companies with market
capitalizations falling within the range of the Russell 1000 Index at
the time of initial purchase. In selecting securities for the Large Cap
Portfolio, the Adviser will utilize a proprietary quantitative
investment process to measure and predict investor risk preferences.
This investment process recognizes that the attributes that render a
particular security ``risky'' or ``safe'' from an investor's
perspective will change over time. The process therefore will begin
with a broad set of plausible dimensions of risk, or factors that may
be viewed by investors as contributing to a security's risk level at
any given time. This set includes, among many other items, market beta,
liquidity, and exposure to certain commodities, leading economic
indicators, currency, credit risk, and performance differences between
cyclical and defensive sectors. The Adviser then will use a sequence of
procedures to develop a subset of attributes representing those it
believes to be relevant to investors at a given time. This subset will
help form the Adviser's forecast for aggregate risk appetite and assist
the Adviser in generating the groups of securities likely to benefit
the most and least in light of that forecast. Different predictions of
risk appetite may result in portfolios that are more defensive or risk-
seeking, based on what the market considers safe and/or risky at a
given time. For example, during periods of anticipated investor
preference for low risk, the Adviser will adjust the Large Cap
Portfolio's composition to be defensive. On the other hand, during
periods of anticipated investor preference for high risk, the Adviser
will adjust the Large Cap Portfolio's composition to be risk-seeking.
Similarly, exposures to value, growth, quality and other themes will
vary depending on how they align with investor risk appetite at a given
time. In periods of anticipated investor preference for moderate risk,
the Large Cap Portfolio's composition will more closely reflect the
weighted composition of the Russell 1000 Index. The Adviser believes
the ebbing and flowing of risk preferences give this strategy the
potential to provide competitive returns relative to the Russell 1000
Index over the long term. The Large Cap Portfolio
[[Page 17208]]
will be non-diversified for purposes of the 1940 Act, and as a result
may invest a greater percentage of its assets in a particular issuer
than a diversified fund. However, it is expected that the Large Cap
Portfolio will have exposure to a diversified mix of equity securities.
SPDR SSgA Small Cap Risk Aware ETF
The SPDR SSgA Small Cap Risk Aware ETF will seek to provide
competitive returns compared to the small cap U.S. equity market and
capital appreciation.
Under normal circumstances,\11\ the Fund will invest all of its
assets in the SSgA Small Cap Risk Aware Portfolio (``Small Cap
Portfolio''), a separate series of the SSgA Master Trust with an
identical investment objective as the Fund. As a result, the Fund will
invest indirectly through the Small Cap Portfolio.
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\11\ See supra note 7.
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In seeking its objective, the Small Cap Portfolio will invest in a
diversified selection of equity securities included in the Russell 2000
Index that the Adviser believes are aligned with predicted investor
risk preferences.\12\ The Russell 2000 Index measures the performance
of the small-cap segment of the U.S. equity market. The Russell 2000
Index is a subset of the Russell 3000[supreg] Index representing
approximately 10% of the total market capitalization of the Russell
3000[supreg] Index. The Russell 2000 Index includes approximately 2000
of the smallest securities, including business development companies,
based on a combination of their market cap and current index
membership. The Russell 2000 Index is constructed to provide a
comprehensive and unbiased small-cap barometer and is completely
reconstituted annually to ensure larger stocks do not distort the
performance and characteristics of the true small-cap opportunity set.
As of September 30, 2013, the Russell 2000 Index was comprised of 1,962
securities.
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\12\ See supra note 8.
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Under normal circumstances, the Small Cap Portfolio will invest at
least 80% of its net assets (plus the amount of borrowings for
investment purposes) in securities of small-cap companies. The Small
Cap Portfolio considers small-cap companies to be companies with market
capitalizations falling within the range of the Russell 2000 Index at
the time of initial purchase. In selecting securities for the Small Cap
Portfolio, the Adviser will utilize a proprietary quantitative
investment process to measure and predict investor risk preferences.
This investment process recognizes that the attributes that render a
particular security ``risky'' or ``safe'' from an investor's
perspective will change over time. The process therefore will begin
with a broad set of plausible dimensions of risk, or factors that may
be viewed by investors as contributing to a security's risk level at
any given time. This set will include, among many other items, market
beta, liquidity, and exposure to certain commodities, leading economic
indicators, currency, credit risk, and performance differences between
cyclical and defensive sectors. The Adviser then will use a sequence of
procedures to develop a subset of attributes representing those it
believes to be relevant to investors at a given time. This subset will
help form the Adviser's forecast for aggregate risk appetite and assist
the Adviser in generating the groups of securities likely to benefit
the most and least in light of that forecast. Different predictions of
risk appetite may result in portfolios that are more defensive or risk-
seeking, based on what the market considers safe and/or risky at a
given time. For example, during periods of anticipated investor
preference for low risk, the Adviser will adjust the Small Cap
Portfolio's composition to be defensive. On the other hand, during
periods of anticipated investor preference for high risk, the Adviser
will adjust the Small Cap Portfolio's composition to be risk-seeking.
Similarly, exposures to value, growth, quality and other themes will
vary depending on how they align with investor risk appetite at a given
time. In periods of anticipated investor preference for moderate risk,
the Small Cap Portfolio's composition will more closely reflect the
weighted composition of the Russell 2000 Index. The Adviser believes
the ebbing and flowing of risk preferences give this strategy the
potential to provide competitive returns relative to the Russell 2000
Index over the long term. The Small Cap Portfolio will be non-
diversified for purposes of the 1940 Act, and as a result may invest a
greater percentage of its assets in a particular issuer than a
diversified fund. However, it is expected that the Small Cap Portfolio
will have exposure to a diversified mix of equity securities.
Other Investments
While, under normal circumstances, the Adviser, with respect to
each Portfolio, will invest at least 80% of such Portfolio's net assets
in equity securities, as described above, the Adviser may invest up to
20% of a Portfolio's net assets in other securities and financial
instruments, as described below.
Each Fund may (either indirectly through its investments in the
corresponding Portfolio or, in the absence of normal circumstances,\13\
directly) invest in the following types of investments. The investment
practices of the Portfolios are the same in all material respects to
those of the Funds.
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\13\ See supra note 7.
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In the absence of normal circumstances, a Fund may (either directly
or through the corresponding Portfolio) temporarily depart from its
normal investment policies and strategies provided that the alternative
is consistent with the Fund's investment objective and is in the best
interest of the Fund. For example, a Fund may hold a higher than normal
proportion of its assets in cash in times of extreme market stress.
Each Portfolio may invest in short term instruments, including
money market instruments (including money market funds advised by the
Adviser), cash and cash equivalents on an ongoing basis to provide
liquidity or for other reasons. Money market instruments are generally
short-term investments that may include but are not limited to: (i)
Shares of money market funds (including those advised by the Adviser);
(ii) obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities (including government-sponsored
enterprises); (iii) negotiable certificates of deposit (``CDs''),
bankers' acceptances, fixed time deposits and other obligations of U.S.
and foreign banks (including foreign branches) and similar
institutions; (iv) commercial paper rated at the date of purchase
``Prime-1'' by Moody's Investor's Service or ``A-1'' by Standard &
Poor's, or if unrated, of comparable quality as determined by the
Adviser; (v) non-convertible corporate debt securities (e.g., bonds and
debentures) with remaining maturities at the date of purchase of not
more than 397 days and that satisfy the rating requirements set forth
in Rule 2a-7 under the 1940 Act; and (vi) short-term U.S. dollar-
denominated obligations of foreign banks (including U.S. branches)
that, in the opinion of the Adviser, are of comparable quality to
obligations of U.S. banks which may be purchased by a Portfolio.
Commercial paper consists of short-term, promissory notes issued by
banks, corporations and other entities to finance short-term credit
needs. Any of these instruments may be purchased on a current or a
forward-settled basis.
Each Portfolio may invest in repurchase agreements with commercial
[[Page 17209]]
banks, brokers or dealers to generate income from its excess cash
balances and to invest securities lending cash collateral. The Exchange
states that a repurchase agreement is an agreement under which a fund
acquires a financial instrument (e.g., a security issued by the U.S.
Government or an agency thereof, a banker's acceptance or a certificate
of deposit) from a seller, subject to resale to the seller at an agreed
upon price and date (normally, the next business day).
Each Portfolio may invest in convertible securities. Convertible
securities are bonds, debentures, notes, preferred stocks or other
securities that may be converted or exchanged (by the holder or by the
issuer) into shares of the underlying common stock (or cash or
securities of equivalent value) at a stated exchange ratio. A
convertible security may also be called for redemption or conversion by
the issuer after a particular date and under certain circumstances
(including a specified price) established upon issue.
Each Portfolio may invest in U.S. Government obligations. U.S.
Government obligations are a type of bond. U.S. Government obligations
include securities issued or guaranteed as to principal and interest by
the U.S. Government, its agencies or instrumentalities.
Each Portfolio may invest in U.S. agency mortgage pass-through
securities. The Exchange states that the term ``U.S. agency mortgage
pass-through security'' refers to a category of pass-through securities
backed by pools of mortgages and issued by one of several U.S.
Government-sponsored enterprises: The Government National Mortgage
Association (``Ginnie Mae''), Federal National Mortgage Association
(``Fannie Mae''), or Federal Home Loan Mortgage Corporation (``Freddie
Mac'').
The Portfolios will seek to obtain exposure to U.S. agency mortgage
pass-through securities primarily through the use of ``to-be-
announced'' or ``TBA transactions.'' The Exchange states that ``TBA''
refers to a commonly used mechanism for the forward settlement of U.S.
agency mortgage pass-through securities, and not to a separate type of
mortgage-backed security, and that most transactions in mortgage pass-
through securities occur through the use of TBA transactions.\14\
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\14\ To minimize the risk of default by a counterparty, a
Portfolio will enter into TBA transactions only with established
counterparties (such as major broker-dealers) and the Adviser will
monitor the creditworthiness of such counterparties.
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Each Portfolio may purchase U.S. exchange-listed common stocks and
U.S. exchange-listed preferred securities of foreign corporations.
Investments in common stock of foreign corporations may also be in the
form of American Depositary Receipts (``ADRs''), Global Depositary
Receipts (``GDRs'') and European Depositary Receipts (``EDRs'')
(collectively ``Depositary Receipts''). A Portfolio may invest in
unsponsored Depositary Receipts.
Each Portfolio may invest in bonds, including corporate bonds as
well as U.S. registered, dollar-denominated bonds of foreign
corporations, governments, agencies and supra-national entities. Each
Portfolio may invest up to 10% of its net assets in high yield debt
securities.
The Portfolios may invest in inflation-protected public
obligations, commonly known as ``TIPS,'' of the U.S. Treasury, as well
as TIPS of major governments and emerging market countries, excluding
the United States. The Exchange states that TIPS are a type of security
issued by a government that are designed to provide inflation
protection to investors.
Each Portfolio may invest in variable and floating rate
securities.\15\ The Exchange states that variable rate securities are
instruments issued or guaranteed by entities such as (1) the U.S.
government or an agency or instrumentality thereof, (2) corporations,
(3) financial institutions, (4) insurance companies, or (5) trusts that
have a rate of interest subject to adjustment at regular intervals but
less frequently than annually.
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\15\ A variable rate security provides for the automatic
establishment of a new interest rate on set dates. A floating rate
security provides for the automatic adjustment of its interest rate
whenever a specified interest rate changes. Interest rates on these
securities are ordinarily tied to, and are a percentage of, a widely
recognized interest rate, such as the yield on 90-day U.S. Treasury
bills or the prime rate of a specified bank.
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Each Portfolio may invest in Variable Rate Demand Obligations
(``VRDOs''). The Exchange states that VRDOs are short-term tax exempt
fixed income instruments whose yield is reset on a periodic basis and
that VRDO securities tend to be issued with long maturities of up to 30
or 40 years; however, they are considered short-term instruments
because they include a put feature which coincides with the periodic
yield reset.
Each Portfolio may invest in restricted securities. The Exchange
states that restricted securities are securities that are not
registered under the Securities Act, but which can be offered and sold
to ``qualified institutional buyers'' under Rule 144A under the
Securities Act.\16\
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\16\ When Rule 144A restricted securities present an attractive
investment opportunity and meet other selection criteria, a
Portfolio may make such investments whether or not such securities
are ``illiquid'' depending on the market that exists for the
particular security. The Board has delegated the responsibility for
determining the liquidity of Rule 144A restricted securities that a
Portfolio may invest in to the Adviser. See infra note 20.
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Each Portfolio may conduct foreign currency transactions on a spot
(i.e., cash) or forward basis (i.e., by entering into forward contracts
to purchase or sell foreign currencies). At the discretion of the
Adviser, the Portfolios may enter into forward currency exchange
contracts for hedging purposes to help reduce the risks and volatility
caused by changes in foreign currency exchange rates, or to gain
exposure to certain currencies.
Each Portfolio may invest in the securities of other investment
companies, including affiliated funds, money market funds and closed-
end funds, subject to applicable limitations under Section 12(d)(1) of
the 1940 Act. Each Portfolio may invest in exchange-traded products
(``ETPs'').\17\ ETPs include exchange-traded funds registered under the
1940 Act; exchange traded commodity trusts; and exchange traded notes
(``ETNs'').\18\
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\17\ For each of the Portfolios, ETPs include Investment Company
Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Index-
Linked Securities (as described in NYSE Arca Equities Rule
5.2(j)(6)); Portfolio Depositary Receipts (as described in NYSE Arca
Equities Rule 8.100); Trust Issued Receipts (as described in NYSE
Arca Equities Rule 8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares
(as described in NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities Rule 8.203); Trust
Units (as described in NYSE Arca Equities Rule 8.500); Managed Fund
Shares (as described in NYSE Arca Equities Rule 8.600), and closed-
end funds. The ETPs all will be listed and traded in the U.S. on
registered exchanges. While a Fund may invest in inverse ETPs, a
Fund will not invest in leveraged or inverse leveraged ETPs (e.g.,
2X or 3X).
\18\ ETNs are debt obligations of investment banks which are
traded on exchanges and the returns of which are linked to the
performance of market indexes. In addition to trading ETNs on
exchanges, investors may redeem ETNs directly with the issuer on a
weekly basis, typically in a minimum amount of 50,000 units, or hold
the ETNs until maturity.
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The Adviser may invest up to 20% of its total assets in one or more
ETPs that are qualified publicly traded partnerships (``QPTPs'') and
whose principal activities are the buying and selling of commodities or
options, futures, or forwards with respect to commodities.\19\ The
Exchange states that a QPTP is an entity that is treated as a
partnership for federal income tax
[[Page 17210]]
purposes, subject to certain requirements, and that income from QPTPs
is generally qualifying income for purposes of Subchapter M of the
Internal Revenue Code.
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\19\ The Exchange states that examples of such entities are the
PowerShares DB Energy Fund, PowerShares DB Oil Fund, PowerShares DB
Precious Metals Fund, PowerShares DB Gold Fund, PowerShares DB
Silver Fund, PowerShares DB Base Metals Fund, and PowerShares DB
Agriculture Fund, which are listed and traded on the Exchange
pursuant to NYSE Arca Equities Rule 8.200.
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The Portfolios may invest in real estate investment trusts
(``REITs'').
Each Portfolio may enter into reverse repurchase agreements.
Neither the Funds nor the Portfolios will invest in options
contracts, futures contracts, or swap agreements.
The Funds' investments will be consistent with the Funds'
investment objectives and will not be used to enhance leverage.
Each Fund is classified as ``non-diversified.'' Each Fund will be
``non-diversified'' under the 1940 Act and may invest more of its
assets in fewer issuers than ``diversified'' funds.
The Funds do not intend to concentrate their investments in any
particular industry.
The Funds intend to qualify for and to elect treatment as a
separate regulated investment company under Subchapter M of the
Internal Revenue Code.
Each Portfolio may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities deemed illiquid by the Adviser.\20\ Each
Portfolio 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 a 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.
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\20\ 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 in which it trades (e.g.,
the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer).
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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 \21\
and the rules and regulations thereunder applicable to a national
securities exchange.\22\ In particular, the Commission finds that the
proposal is consistent with Section 6(b)(5) of the Act,\23\ which
requires, among other things, that the Exchange's rules be designed to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of a free and open market and a national
market system, and, in general, to protect investors and the public
interest. The Commission notes that the Funds and the Shares must
comply with the initial and continued listing criteria in NYSE Arca
Equities Rule 8.600 for the Shares to be listed and traded on the
Exchange.
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\21\ 15 U.S.C. 78f.
\22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\23\ 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,\24\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares of each Fund will be available via the
Consolidated Tape Association (``CTA'') highspeed line. In addition,
the IOPV,\25\ which is the Portfolio Indicative Value as defined in
NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated at
least every 15 seconds during the Core Trading Session by one or more
major market data vendors.\26\ On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Funds will disclose on their Web site the Disclosed
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will
form the basis for the Funds' calculation of NAV at the end of the
business day.\27\ In addition, a basket composition file, which
includes the security names and share quantities required to be
delivered in exchange for each Fund's Shares, together with estimates
and actual cash components, will be publicly disseminated daily prior
to the opening of the New York Stock Exchange, LLC (``NYSE'') via the
National Securities Clearing Corporation. The basket will represent one
creation unit of a Fund. The NAV of each Fund will be determined once
each business day, normally as of the close of normal trading on the
NYSE (normally, 4:00 p.m., Eastern Time).\28\ Information regarding
market price and trading volume of the Shares will be continually
available on a real-time basis throughout the day on brokers' computer
screens and other electronic services. Information regarding the
previous day's closing price and trading volume information for the
Shares will be published daily in the financial section of newspapers.
The intra-day, closing, and settlement prices of the Portfolio
securities and other assets held by the Funds and Portfolios are
readily available from the national securities exchanges trading such
securities, automated quotation systems, published or other public
sources, or online information services such as Bloomberg or Reuters.
Quotation and last sale information for the underlying U.S. exchange-
traded equities, including exchange-traded ETPs, will be available via
the CTA high-speed line and from the national securities exchange on
which they are listed. Pricing information regarding each asset class
in which the Funds or Portfolios will invest is generally available
through nationally recognized data service providers through
subscription arrangements. Quotation information from brokers and
dealers or pricing services will be available for fixed income
securities, including U.S. Government obligations, other money market
instruments, repurchase and reverse repurchase agreements,
[[Page 17211]]
convertible securities, U.S. agency mortgage pass-through securities,
unsponsored Depositary Receipts, corporate bonds, TIPS, variable
floating rate securities (including VRDOs), and spot and forward
currency transactions held by the Funds and Portfolios. The Funds' Web
site will include a form of the prospectus for the Funds and additional
data relating to NAV and other applicable quantitative information.
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\24\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\25\ According to the Exchange, the IOPV calculations are
estimates of the value of the Funds' NAV per Share using market data
converted into U.S. dollars at the current currency rates. The IOPV
price will be based on quotes and closing prices from the
securities' local market and may not reflect events that occur
subsequent to the local market's close. Premiums and discounts
between the IOPV and the market price may occur. The IOPV should not
be viewed as a ``real-time'' update of the NAV per Share of a Fund,
which is calculated only once a day.
\26\ According to the Exchange, several major market data
vendors display and/or make widely available IOPVs taken from CTA or
other data feeds.
\27\ On a daily basis, the Adviser will disclose for each
portfolio security and other financial instrument of the Funds and
of the Portfolios the following information on the Funds' Web site:
ticker symbol (if applicable), name of security and financial
instrument, number of shares or dollar value of financial
instruments held in the portfolio, and percentage weighting of the
security and financial instrument in the portfolio. The Web site
information will be publicly available at no charge.
\28\ Each Fund will calculate NAV using the NAV of the
respective Portfolio. The NAV of a Portfolio will be calculated by
the Custodian and determined at the close of the regular trading
session on the NYSE (ordinarily 4:00 p.m. Eastern time) on each day
that the NYSE is open, provided that assets (and, accordingly, a
Portfolio's NAV) may be valued as of the announced closing time for
trading in instruments on any day that the applicable exchange or
market on which a Portfolio's investments are traded announces an
early closing time.
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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 Exchange will obtain a representation from the issuer of
the Shares that the NAV per Share of each Fund will be calculated
daily, and that the NAV and the Disclosed Portfolio for each Fund will
be made available to all market participants at the same time. Trading
in Shares of a Fund will be halted if the circuit breaker parameters in
NYSE Arca Equities Rule 7.12 have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable,\29\ and trading in the Shares will
be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
additional circumstances under which trading in the Shares of a Fund
may be halted. The Exchange states that it has a general policy
prohibiting the distribution of material, non-public information by its
employees. Consistent with NYSE Arca Equities Rule 8.600(d)(2)(B)(ii),
the Reporting Authority must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material,
non-public information regarding the actual components of the Funds'
portfolios. In addition, the Exchange states that the Adviser has
implemented a ``fire wall'' with respect to its affiliated broker-
dealer regarding access to information concerning the composition or
changes to the Funds' portfolios.\30\ The Exchange represents that
trading in the Shares will be subject to the existing trading
surveillances, administered by the Financial Industry Regulatory
Authority (``FINRA'') on behalf of the Exchange, which are designed to
detect violations of Exchange rules and applicable federal securities
laws.\31\ The Exchange further 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. Moreover, prior to the
commencement of trading, the Exchange states that it will inform its
Equity Trading Permit Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares.
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\29\ These reasons may include: (1) The extent to which trading
is not occurring in the securities or the financial instruments
composing the Disclosed Portfolio of a Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance
of a fair and orderly market are present. 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
Funds.
\30\ See supra note 5. The Exchange states that an investment
adviser to an open-end fund is required to be registered under the
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the
Adviser and 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.
\31\ The Exchange states that FINRA surveils trading on the
Exchange pursuant to a regulatory services agreement and that the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including the following:
(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) FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares and underlying equity securities
(including, without limitation, sponsored ADRs and ETPs) and other
exchange-traded securities with other markets and other entities that
are members of ISG, and FINRA, on behalf of the Exchange, may obtain
trading information regarding trading in the Shares and underlying
equity securities (including, without limitation, sponsored ADRs and
ETPs) and other exchange-traded securities from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and underlying equity securities (including,
without limitation, sponsored ADRs and ETPs) and other exchange-traded
securities from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
(4) The Portfolios will invest only in equity securities that trade
in markets that are members of the ISG or are parties to a
comprehensive surveillance sharing agreement with the Exchange.
(5) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit Holders in an Information Bulletin of the
special characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (a)
The procedures for purchases and redemptions of Shares 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
Equity Trading Permit Holders to learn the essential facts relating to
every customer prior to trading the Shares; (c) the risks involved in
trading the Shares during the Opening and Late Trading Sessions when an
updated IOPV will not be calculated or publicly disseminated; (d) how
information regarding the IOPV is disseminated; (e) the requirement
that Equity Trading Permit Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (f) trading information.
(6) For initial and continued listing, the Funds will be in
compliance with Rule 10A-3 under the Act,\32\ as provided by NYSE Arca
Equities Rule 5.3.
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\32\ 17 CFR 240.10A-3.
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(7) Each Portfolio may hold up to an aggregate amount of 15% of its
net assets in illiquid securities (calculated at the time of
investment), including Rule 144A securities deemed illiquid by the
Adviser, consistent with Commission guidance.
(8) Under normal circumstances, each Fund will invest all of its
assets in its corresponding Portfolio. Furthermore, under normal
circumstances, the Adviser, with respect to each Portfolio,
[[Page 17212]]
will invest at least 80% of such Portfolio's net assets in equity
securities.
(9) Neither the Funds nor the Portfolios will invest in options
contracts, futures contracts, or swap agreements.
(10) A Portfolio will enter into TBA transactions only with
established counterparties (such as major broker-dealers) and the
Adviser will monitor the creditworthiness of such counterparties.
(11) Each Fund's investments will be consistent with its investment
objective and will not be used to enhance leverage. While the Funds may
invest in inverse ETFs, the Funds will not invest in leveraged or
inverse leveraged ETFs (e.g., 2X or 3X).
(12) A minimum of 100,000 Shares for each Fund will be outstanding
at the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's
representations, including those set forth above and in the Notice, and
the Exchange's description of the Funds.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \33\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\33\ 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,\34\ that the proposed rule change (SR-NYSEArca-2014-11) be, and it
hereby is, approved.
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\34\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
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\35\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06760 Filed 3-26-14; 8:45 am]
BILLING CODE 8011-01-P
