Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Proposing To List and Trade Shares of Treesdale Rising Rates ETF Under NYSE Arca Equities Rule 8.600, 44878-44889 [2014-18114]
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the Program. This press release must
disclose:
a. The date that the security is leaving
the Program and that leaving the
Program may have a negative impact on
the price and liquidity of the security
which could adversely impact a
purchaser’s subsequent sale of the
security; and
b. A hyperlink to the Web page
described in condition (5) below;
4. In place of the press releases
required by conditions (2) and (3) above,
an issuer of a participating ETP that is
not registered under the 1940 Act, or
sponsor on behalf of the issuer, may
provide prompt notice to the public
through the use of such other written
Regulation FD compliant methods
(other than Web site disclosure only)
that is designed to provide broad public
dissemination as provided in 17 CFR
243.101(e), provided, however, that such
other methods must contain all the
information required to be disclosed by
conditions (2) and (3) above;
5. The issuer of the participating ETP,
or sponsor on behalf of the issuer, must
provide prompt, prominent and
continuous disclosure on its Web site in
the location generally used to
communicate information to investors
about a particular security participating
in the Program, and for a security that
has a separate Web site, the security’s
Web site of:
a. The security participating in the
Program and ticker, date of entry into
the Program, and the amount of the CLP
Fee;
b. Risk factors investors should
consider when making an investment
decision, including that participation in
the Program may have potential impacts
on the price and liquidity of the
security; and
c. Termination date of the pilot,
anticipated date (if any) of the security
leaving the Program for any reason, date
of actual exit (if applicable), and that the
security leaving the Program could
adversely impact a purchaser’s
subsequent sale of the security; and
6. The Web site disclosure in
condition (5) above must be promptly
updated if a material change occurs
with respect to any information
contained in the disclosure.
This exemptive relief expires when
the pilot terminates, and is subject to
modification or revocation at any time
the Commission determines that such
action is necessary or appropriate in
furtherance of the purposes of the
Exchange Act. This exemptive relief is
limited solely to the payment of the CLP
Fee as set forth in New IP .03 for a
security that is an ETP participating in
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the Program,32 and does not extend to
any other activities, any other security
of the trust related to the participating
ETP, or any other issuers.33 In addition,
persons relying on this exemption are
directed to the anti-fraud and antimanipulation provisions of the
Exchange Act, particularly Sections 9(a)
and 10(b), and Rule 10b–5 thereunder.
Responsibility for compliance with
these and any other applicable
provisions of the federal securities laws
must rest with the persons relying on
this exemption. This order does not
represent Commission views with
respect to any other question that the
proposed activities may raise, including,
but not limited to the adequacy of the
disclosure required by federal securities
laws and rules, and the applicability of
other federal or state laws and rules to,
the proposed activities.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–18128 Filed 7–31–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–72679; File No. SR–
NYSEArca–2014–71]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Proposing To List and
Trade Shares of Treesdale Rising
Rates ETF Under NYSE Arca Equities
Rule 8.600
July 28, 2014.
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on July 14,
2014, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the self-regulatory organization. The
Commission is publishing this notice to
32 All ETPs that are allowed to participate in the
Program have a pool of underlying assets. See New
Rule 7.25(b)(2). Should the Program be modified to
include other ETPs, such as exchange-traded notes,
that do not have a pool of underlying assets, the
Commission would consider this a material change
and outside the scope of this exemptive relief.
33 Other activities, such as ETP redemptions, are
not covered by this exemptive relief.
34 17 CFR 200.30–3(a)(6).
1 15 U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
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solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to proposes to
list and trade the following under NYSE
Arca Equities Rule 8.600 (‘‘Managed
Fund Shares’’): Treesdale Rising Rates
ETF. The text of the proposed rule
change is available on the Exchange’s
Web site at www.nyse.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to list and
trade shares (‘‘Shares’’) of the following
under NYSE Arca Equities Rule 8.600,
which governs the listing and trading of
Managed Fund Shares:4 Treesdale
Rising Rates ETF (‘‘Fund’’).5 The Shares
4 A Managed Fund Share is a security that
represents an interest in an investment company
registered under the Investment Company Act of
1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as
an open-end investment company or similar entity
that invests in a portfolio of securities selected by
its investment adviser consistent with its
investment objectives and policies. In contrast, an
open-end investment company that issues
Investment Company Units, listed and traded on
the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that
correspond generally to the price and yield
performance of a specific foreign or domestic stock
index, fixed income securities index or combination
thereof.
5 The Commission has approved listing and
trading on the Exchange of a number of actively
managed funds under Rule 8.600. See, e.g.,
Securities Exchange Act Release Nos. 69591 (May
16, 2013), 78 FR 30372 (May 22, 2013) (SR–
NYSEArca–2013–33) (order approving Exchange
listing and trading of International Bear ETF); 69061
(March 7, 2013), 78 FR 15990 (March 13, 2013) (SR–
NYSEArca–2013–01) (order approving Exchange
listing and trading of Newfleet Multi-Sector Income
ETF); and 67277 (June 27, 2012), 77 FR 39554 (July
3, 2012) (SR–NYSEArca–2012–39) (order approving
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will be offered by AdvisorShares Trust
(the ‘‘Trust’’), a statutory trust organized
under the laws of the State of Delaware
and registered with the Securities and
Exchange Commission (the
‘‘Commission’’) as an open-end
management investment company.6 The
investment adviser to the Fund is
AdvisorShares Investments, LLC (the
‘‘Adviser’’). The sub-adviser to the Fund
is Treesdale Partners, LLC (‘‘SubAdviser’’), which will provide day-today portfolio management of the Fund.
Foreside Fund Services, LLC (the
‘‘Distributor’’) is the principal
underwriter and distributor of the
Fund’s Shares. The Bank of New York
Mellon (the ‘‘Administrator’’) serves as
the administrator, custodian, transfer
agent and fund accounting agent for the
Fund.
Commentary .06 to Rule 8.600
provides that, if the investment adviser
to the investment company issuing
Managed Fund Shares is affiliated with
a broker-dealer, such investment adviser
shall erect a ‘‘fire wall’’ between the
investment adviser and the brokerdealer with respect to access to
information concerning the composition
and/or changes to such investment
company portfolio. In addition,
Commentary .06 further requires that
personnel who make decisions on the
open-end fund’s portfolio composition
must be subject to procedures designed
to prevent the use and dissemination of
material nonpublic information
regarding the open-end fund’s
portfolio.7 Commentary .06 to Rule
Exchange listing and trading of the Global Alpha &
Beta ETF).
6 The Trust is registered under the 1940 Act. On
September 4, 2013, the Trust filed with the
Commission an amendment to its registration
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a) and under the 1940 Act
relating to the Fund (File Nos. 333–157876 and
811–22110) (‘‘Registration Statement’’). The
description of the operation of the Trust and the
Fund herein is based, in part, on the Registration
Statement. In addition, the Commission has issued
an order granting certain exemptive relief to the
Trust under the 1940 Act. See Investment Company
Act Release No. 29291 (May 28, 2010) (File No.
812–13677) (‘‘Exemptive Order’’).
7 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and Sub-Adviser and their
related personnel are subject to the provisions of
Rule 204A–1 under the Advisers Act relating to
codes of ethics. This Rule requires investment
advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as
well as compliance with other applicable securities
laws. Accordingly, procedures designed to prevent
the communication and misuse of non-public
information by an investment adviser must be
consistent with Rule 204A–1 under the Advisers
Act. In addition, Rule 206(4)–7 under the Advisers
Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such
investment adviser has (i) adopted and
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8.600 is similar to Commentary .03(a)(i)
and (iii) to NYSE Arca Equities Rule
5.2(j)(3); however, Commentary .06 in
connection with the establishment of a
‘‘fire wall’’ between the investment
adviser and the broker-dealer reflects
the applicable open-end fund’s
portfolio, not an underlying benchmark
index, as is the case with index-based
funds. Neither the Adviser nor the SubAdviser is a broker-dealer or is affiliated
with a broker-dealer. In the event (a) the
Adviser or Sub-Adviser becomes, or
becomes newly affiliated with, a brokerdealer, or (b) any new adviser or subadviser is, or becomes affiliated with, a
broker-dealer, it will implement a fire
wall with respect to its relevant
personnel or broker-dealer affiliate, as
applicable, regarding access to
information concerning the composition
and/or changes to the portfolio, and will
be subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio.
44879
According to the Registration
Statement, the Fund will seek to
generate current income while
providing protection for investors
against loss of principal in a rising
interest rate environment.
According to the Registration
Statement, the Fund will be actively
managed and thus will not seek to
replicate the performance of a specified
passive index of securities. Instead, it
will use an active investment strategy to
seek to meet its investment objectives.
The Sub-Adviser, subject to the
oversight of the Adviser and the Board
of Trustees, will have discretion on a
daily basis to manage the Fund’s
portfolio in accordance with the Fund’s
investment objectives and investment
policies.
According to the Registration
Statement, the Fund will seek to achieve
its investment objectives by investing,
under normal circumstances,8 at least
80% of its net assets in positions in
agency interest-only collateralized
mortgage obligations (‘‘CMOs’’),
interest-only swaps (‘‘IOS’’) that
reference interest only cash flows from
agency mortgage-backed securities
(‘‘MBS’’) pools with certain coupons
and specified origination periods
(‘‘Agency MBS IOS’’), interest rate
swaps, U.S. Treasury obligations,
including U.S. Treasury zero-coupon
bonds, and U.S. Treasury futures.9
Under normal circumstances, the SubAdviser will seek to generate enhanced
returns in an environment of rising
interest rates by investing in agency
interest-only CMOs and Agency MBS
IOS to maintain a negative portfolio
duration with a generally positive
current yield. Under normal
circumstances, the Fund will utilize the
U.S. Treasury obligations, U.S. Treasury
futures and interest rate swaps, which
are liquid interest rate products, to
manage duration risks. Aside from
Treasury futures, which will be
exchange traded,10 all the Fund’s
principal investments will be U.S.
dollar-denominated and traded over the
counter (‘‘OTC’’).
According to the Adviser, the
mortgage-backed securities market,
which includes interest-only CMOs, is
the largest sector of the U.S. fixed
income markets. It is diverse, with both
highly liquid instruments as well as less
liquid products. The primary focus of
the Fund will be on the Agency MBS
IOS sector, where liquidity is provided
by multiple market makers that actively
make two-sided markets. Additionally,
Markit publishes daily closing prices
based on dealer marks. Pricing in this
market is transparent and provided by
major market makers. The Agency MBS
IOS are analogous to interest-only CMOs
in swap form with differences in the
composition of underlying MBS
collateral. IOS are total rate of return
swaps.
According to the Registration
Statement, the Agency MBS IOS 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.
8 The term ‘‘under normal circumstances’’
includes, but is not limited to, the absence of
adverse market, economic, political or other
conditions, including extreme volatility or trading
halts in the equity markets or the financial markets
generally; operational issues causing dissemination
of inaccurate market information; or force majeure
type events such as systems failure, natural or manmade disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar
intervening circumstance.
9 According to the Registration Statement, CMOs
are debt obligations of a legal entity that are
collateralized by mortgages and divided into
classes. Futures contracts provide for the future sale
by one party and purchase by another party of a
specified amount of a specific security at a specified
future time and at a specified price. The Fund will
only use futures contracts that have U.S. Treasury
securities and interest rate swaps as their
underlying reference assets.
10 The futures in which the Fund may invest will
trade on markets that are members of the
Intermarket Surveillance Group (‘‘ISG’’) or that have
entered into a comprehensive surveillance
agreement with the Exchange.
Description of the Fund
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agency interest-only CMOs in which the
Fund will invest are intended to provide
significant negative duration exposure
and will generally benefit from rising
interest rates.11 The overall duration of
the Fund’s portfolio will generally range
from ¥5 to ¥15 years. Duration is a
measure used to determine the
sensitivity of a security’s price to
changes in interest rates. The longer a
security’s duration, the more sensitive it
will be to changes in interest rates. A
portfolio with negative duration
generally incurs a loss when interest
rates and yields fall. To counter the
impact of such potential losses, the
Fund’s negative duration may be partly
offset with long positions in U.S.
Treasury obligations, interest rate swaps
and other positive duration products.
According to the Registration
Statement, in determining the Fund’s
investment allocations, the Sub-Adviser
will perform both top-down and
security specific analysis. The overall
negative duration target and allocation
to specific subsectors of the mortgage
interest-only market will be based on
high-level macro and relative value
analysis across fixed income markets.
Using these targets, allocations to
individual positions will be made based
on detailed value analysis. Liquid U.S.
Treasury obligations and interest rate
swaps will be used to adjust the
portfolio to certain negative duration
targets. While such U.S. Treasury and
interest rate swap hedges may be
rebalanced daily, the portfolio of
Agency MBS IOS and agency interestonly CMOs will be less frequently
rebalanced.
According to the Registration
Statement, agency CMOs, including
agency interest-only CMOs, are typically
collateralized by portfolios of mortgage
pass-through securities guaranteed by
the Government National Mortgage
Association (‘‘Ginnie Mae’’), the Federal
Home Loan Mortgage Corporation
(‘‘Freddie Mac’’), or Federal National
Mortgage Association (‘‘Fannie Mae’’),
and the income payments on such
securities.12 CMOs, including agency
11 According to the Adviser, negative duration
reflects price sensitivity to interest rate changes that
is the inverse of how standard bond instruments
behave. Specifically, negative duration instruments
generally appreciate in price as interest rates rise.
12 According to the Registration Statement,
Ginnie Mae, a wholly owned United States
Government corporation, is one of the principal
governmental guarantor [sic] of mortgage-related
securities, such as agency CMOs. Ginnie Mae is
authorized to guarantee, with the full faith and
credit of the United States Government, the timely
payment of principal and interest on securities
issued by institutions approved by Ginnie Mae and
backed by pools of mortgages insured by the
Federal Housing Administration (the ‘‘FHA’’), or
guaranteed by the Department of Veterans Affairs
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interest-only CMOs, are structured into
multiple classes, often referred to as
‘‘tranches,’’ with each class bearing a
different stated maturity and entitled to
a different schedule for payments of
principal and interest, including prepayments.
The agency interest-only CMOs that
the Fund may invest in include agency
stripped mortgage-backed securities
(‘‘SMBS’’).13 According to the
Registration Statement, as CMOs have
evolved, some classes of CMO bonds
have become more common. For
example, the Fund may invest in agency
interest-only parallel-pay and planned
amortization class (‘‘PAC’’) CMOs and
agency interest-only multi-class pass
through certificates.14 Any CMO or
multi-class pass through structure that
includes PAC securities must also have
support tranches—known as support
bonds, companion bonds or non-PAC
bonds—which lend or absorb principal
cash flows to allow the PAC securities
to maintain their stated maturities and
final distribution dates within a range of
actual prepayment experience.
Consistent with the Fund’s investment
objectives and policies, the Sub-Adviser
may invest in various tranches of agency
interest-only CMO bonds, including
support bonds.
According to the Registration
Statement, the Fund may enter into
interest rate swaps. The Fund may
utilize swap agreements in an attempt to
gain exposure to the securities in a
market without actually purchasing
those securities, or to hedge a position.
Swap agreements are two-party
contracts entered into primarily by
institutional investors for periods
(the ‘‘VA’’). Government-related guarantors (i.e., not
backed by the full faith and credit of the United
States Government) include the governmentsponsored corporations Fannie Mae and Freddie
Mac. Pass-through securities issued by Fannie Mae
are guaranteed as to timely payment of principal
and interest by Fannie Mae, but are not backed by
the full faith and credit of the United States
Government.
13 According to the Registration Statement SMBS
are derivative multi-class mortgage securities.
SMBSs may be issued by agencies or
instrumentalities of the U.S. government, or by
private originators of, or investors in, mortgage
loans, including savings and loan associations,
mortgage banks, commercial banks, investment
banks and special purpose entities of the foregoing.
SMBSs are usually structured with two classes that
receive different proportions of the interest and
principal distributions on a pool of mortgage assets.
14 According to the Registration Statement,
parallel-pay CMOs and multi-class pass-through
certificates are structured to provide payments of
principal on each payment date to more than one
class. PACs generally require payments of a
specified amount of principal on each payment
date. PACs are parallel-pay CMOs with the required
principal amount on such securities having the
highest priority after interest has been paid to all
classes.
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ranging from a day to more than oneyear. In a standard ‘‘swap’’ transaction,
two parties agree to exchange the
returns (or differentials in rates of
return) earned or realized on particular
predetermined investments or
instruments. The gross returns to be
exchanged or ‘‘swapped’’ between the
parties are calculated with respect to a
‘‘notional amount,’’ i.e., the return on or
increase in value of a particular dollar
amount invested in a ‘‘basket’’ of
securities representing a particular
index.
According to the Registration
Statement, the Fund’s obligations under
a swap agreement will be accrued daily
(offset against any amounts owing to the
Fund) and any accrued but unpaid net
amounts owed to a swap counterparty
will be covered by segregating assets
determined to be liquid. The Fund will
not enter into any swap agreement
unless the Adviser believes that the
other party to the transaction is
creditworthy.15
According to the Registration
Statement, the Fund may enter into
swap agreements to invest in a market
without owning or taking physical
custody of the underlying securities in
circumstances in which direct
investment is restricted for legal reasons
or is otherwise impracticable.
According to the Registration
Statement, the Fund intends to invest in
U.S. Treasury securities and U.S.
Treasury futures. U.S. Treasury
securities are backed by the full faith
and credit of the U.S. Treasury and
differ only in their interest rates,
maturities, and times of issuance. The
Fund may invest in U.S. Treasury zerocoupon bonds. These securities are U.S.
Treasury bonds which have been
stripped of their unmatured interest
coupons, the coupons themselves, and
receipts or certificates representing
interests in such stripped debt
obligations and coupons. Interest is not
paid in cash during the term of these
securities, but is accrued and paid at
maturity.
15 The Fund will seek, where possible, to use
counterparties, as applicable, whose financial status
is such that the risk of default is reduced. The
Adviser’s Execution Committee will evaluate the
creditworthiness of counterparties on an ongoing
basis. In addition to information provided by credit
agencies, the Adviser’s analysts will evaluate each
approved counterparty using various methods of
analysis, including the counterparty’s liquidity in
the event of default, the broker-dealer’s reputation,
the Adviser’s past experience with the brokerdealer, the Financial Industry Regulatory
Authority’s (‘‘FINRA’’) BrokerCheck and
disciplinary history and its share of market
participation.
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Other Investments
While the Fund’s principal
investments, under normal
circumstances,16 will be as described
above, the Fund may invest the balance
of its assets in the investments
described below.
According to the Registration
Statement, the Fund may invest in other
mortgage-related securities in addition
to the agency interest-only CMOs
described above. Such mortgage-related
securities are securities that directly or
indirectly represent a participation in,
or are secured by and payable from,
mortgage loans on real property. More
specifically, the Fund may hold MBS,
mortgage dollar rolls,17 CMO
residuals,18 and equity or debt securities
issued by agencies or instrumentalities
of the U.S. government or by private
originators of, or investors in, mortgage
loans, including savings and loan
associations homebuilders, mortgage
banks, commercial banks, investment
banks, partnerships, trusts, and special
purpose entities of the foregoing. In
addition to the agency interest-only
CMOs described above, the MBS that
the Fund will invest in are other agency
CMOs, non-agency CMOs (including
non-agency SMBS) and Adjustable Rate
Mortgage Backed Securities (‘‘ARMBS’’).
According to the Registration
Statement, such mortgage-related
16 See note 8, supra. According to the Registration
Statement, in the absence of normal circumstances
the Fund may invest 100% of its total assets,
without limitation, in debt securities and money
market instruments, either directly or through
exchange traded funds (‘‘ETFs’’). Debt securities
and money market instruments include shares of
other mutual funds, commercial paper, U.S.
government securities, repurchase agreements and
bonds that are rated BBB or higher. The Fund may
be invested in this manner for extended periods,
depending on the Sub-Adviser’s assessment of
market conditions. While the Fund is in a defensive
position, the opportunity to achieve its investment
objectives will be limited. Furthermore, to the
extent that the Fund invests in money market
mutual funds the Fund would bear its pro rata
portion of each such money market fund’s advisory
fees and operational expenses.
17 Dollar rolls are a type of repurchase transaction
in the mortgage pass-through securities market in
which the buy side trade counterparty of a ‘‘to be
announced’’ (‘‘TBA’’) trade agrees to sell off the
same TBA trade in the current month and to buy
back the same trade in a future month at a lower
price, constituting a forward contract.
18 According to the Registration Statement, CMO
residuals are mortgage securities issued by agencies
or instrumentalities of the U.S. government or by
private originators of, or investors in, mortgage
loans. The cash flow generated by the mortgage
assets underlying a series of CMOs is applied first
to make required payments of principal and interest
on the CMOs and second to pay the related
administrative expenses and any management fee of
the issuer. The residual in a CMO structure
generally represents the interest in any excess cash
flow remaining after making the foregoing
payments. Transactions in CMO residuals will
generally be completed only after careful review of
the characteristics of the securities in question.
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securities include privately issued
mortgage-related securities, where
issuers create pass-through pools of
conventional residential mortgage
loans.19 Timely payment of interest and
principal of these pools may be
supported by various forms of insurance
or guarantees, including individual
loan, title, pool and hazard insurance
and letters of credit, which may be
issued by governmental entities or
private insurers. The Fund may buy
mortgage-related securities without
insurance or guarantees if, through an
examination of the loan experience and
practices of the originators/servicers and
poolers, the Sub-Adviser determines
that the securities meet the Trust’s
investment quality standards. Privately
issued mortgage-related securities are
not traded on an exchange. The Fund
may purchase privately issued
mortgage-related securities that are
originated, packaged and serviced by
third party entities.
According to the Registration
Statement, the Fund may invest in assetbacked securities (‘‘ABSs’’), which are
bonds backed by pools of loans or other
receivables. ABSs are created from
many types of assets, including auto
loans, credit card receivables, home
equity loans, and student loans. ABSs
are issued through special purpose
vehicles that are bankruptcy remote
from the issuer of the collateral.
According to the Registration Statement,
the Fund may invest in each of
collateralized bond obligations
(‘‘CBOs’’), collateralized loan
obligations (‘‘CLOs’’), other
collateralized debt obligations (‘‘CDOs’’)
and other similarly structured
securities. CBOs, CLOs and other CDOs
are types of ABS. A CBO is a trust
which is often backed by a diversified
pool of high risk, below investment
grade fixed income securities. The
collateral can be from many different
types of fixed income securities such as
high yield debt, residential privately
issued mortgage-related securities,
commercial privately issued mortgagerelated securities, trust preferred
securities and emerging market debt. A
CLO is a trust typically collateralized by
a pool of loans, which may include,
19 According to the Registration Statement, in
determining whether and how much to invest in
privately issued mortgage-related securities, and
how to allocate those assets, the Sub-Adviser will
consider a number of factors. These include, but are
not limited to: (1) The nature of the borrowers (e.g.,
residential vs. commercial); (2) the collateral loan
type (e.g., for residential: First Lien—Jumbo/Prime,
First Lien—Alt-A, First Lien—Subprime, First
Lien—Pay-Option or Second Lien; for commercial:
Conduit, Large Loan or Single Asset/Single
Borrower); and (3) in the case of residential loans,
whether they are fixed rate or adjustable mortgages.
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among others, domestic and foreign
senior secured loans, senior unsecured
loans, and subordinate corporate loans,
including loans that may be rated below
investment grade or equivalent unrated
loans. Other CDOs are trusts backed by
other types of assets representing
obligations of various parties. Normally,
CBOs, CLOs and other CDOs are
privately offered and sold, and thus, are
not registered under the securities laws.
According to the Adviser, the Fund
will limit investments in ABS and MBS
that are issued or guaranteed by nongovernment entities to 15% of the
Fund’s net assets.
According to the Registration
Statement, in addition to interest–only
swaps and interest rate swaps, which
are primary investments, the Fund may
enter into other types of swap
agreements. The swap agreements will
have MBS as reference assets, including
CMOs.
According to the Registration
Statement, the Fund may invest directly
and indirectly in foreign currencies. The
Fund 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). Forward contracts
are generally traded in an interbank
market directly between currency
traders (usually large commercial banks)
and their customers. At the discretion of
the Adviser, the Fund may, but is not
obligated to, 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 in an effort to achieve
the Fund’s investment objective.
According to the Registration
Statement, the Fund may invest in
equity securities. The Fund may invest
in common stock, preferred stock,
warrants, convertible securities, master
limited partnerships (‘‘MLPs’’) and
rights. 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. MLPs are limited partnerships in
which the ownership units are publicly
traded.
According to the Registration
Statement, the Fund may invest in
shares of exchange traded real estate
investment trusts (‘‘REITs’’). REITs are
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pooled investment vehicles which
invest primarily in real estate or real
estate related loans. REITs are generally
classified as equity REITs, mortgage
REITs or a combination of equity and
mortgage REITs.
According to the Registration
Statement, the Fund may invest in
exchange-traded notes (‘‘ETNs’’).20 It is
expected that the ETN issuer’s credit
rating will be investment grade at the
time of investment.
According to the Registration
Statement, in addition to the U.S.
Treasury debt securities described
above, the Fund intends to invest in
other fixed income securities. The fixed
income securities the Fund may invest
in are variable and floating rate
instruments; bank obligations, including
certificates of deposit, bankers’
acceptances, and fixed time deposits;
commercial paper; U.S. government
securities other than U.S. Treasuries; 21
municipal securities; repurchase
agreements; reverse repurchase
agreements; corporate debt securities;
convertible securities; and MBS. Some
debt securities, such as zero coupon
bonds, do not make regular interest
payments but are issued at a discount to
their principal or maturity value. Except
as discussed herein, the Fund may
invest in investment-grade debt
securities, non-investment-grade debt
securities, and unrated debt securities.22
The Fund may invest assets in
20 ETNs are securities listed and traded on the
Exchange under NYSE Arca Equities Rule 5.2(j)(6)
(‘‘Index-Linked Securities’’). ETNs are senior,
unsecured unsubordinated debt securities issued by
an underwriting bank that are designed to provide
returns that are linked to a particular benchmark
less investor fees. ETNs have a maturity date and,
generally, are backed only by the creditworthiness
of the issuer.
21 According to the Registration Statement, some
obligations issued or guaranteed by U.S.
government agencies and instrumentalities,
including, for example, Ginnie Mae pass-through
certificates, are supported by the full faith and
credit of the U.S. Treasury. Other obligations issued
by or guaranteed by federal agencies, such as those
securities issued by Fannie Mae, are supported by
the discretionary authority of the U.S. government
to purchase certain obligations of the federal
agency, while other obligations issued by or
guaranteed by federal agencies, such as those of the
Federal Home Loan Banks, are supported by the
right of the issuer to borrow from the U.S. Treasury.
22 According to the Registration Statement, noninvestment-grade securities, also referred to as
‘‘high yield securities’’ or ‘‘junk bonds,’’ are debt
securities that are rated lower than the four highest
rating categories by a nationally recognized
statistical rating organization (for example, lower
than Baa3 by Moody’s Investors Service, Inc.
(‘‘Moody’s’’) or lower than BBB- by Standard and
Poor’s Ratings Services (‘‘S&P’’)) or are determined
to be of comparable quality by the Fund’s SubAdviser. The creditworthiness of the issuer, as well
as any financial institution or other party
responsible for payments on the security, will be
analyzed by the Sub-Adviser to determine whether
to purchase unrated bonds.
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obligations of foreign banks which meet
the conditions set forth herein.
According to the Registration
Statement, the Fund may seek to invest
in corporate debt securities
representative of one or more high yield
bond or credit derivative indices, which
may change from time to time. Selection
will generally be dependent on
independent credit analysis or
fundamental analysis performed by the
Sub-Adviser.
According to the Registration
Statement, the Fund may enter into
repurchase agreements with financial
institutions, which may be deemed to be
loans. The Fund will effect repurchase
transactions only with large, wellcapitalized and well-established
financial institutions whose condition
will be continually monitored by the
Sub-Adviser.
According to the Registration
Statement, the Fund may enter into
reverse repurchase agreements. Reverse
repurchase agreements involve sales by
the Fund of portfolio assets
concurrently with an agreement by the
Fund to repurchase the same assets at a
later date at a fixed price.
According to the Registration
Statement, the Fund will only invest in
commercial paper rated A–1 or A–2 by
S&P or Prime-1 or Prime-2 by Moody’s.
According to the Registration
Statement, the Fund may invest in
inflation-indexed bonds, which are
fixed income securities whose principal
value is periodically adjusted according
to the rate of inflation.
According to the Registration
Statement, the Fund may invest in
securities that are indirectly linked to
the performance of foreign issuers,
specifically: American Depositary
Receipts (‘‘ADRs’’), Global Depositary
Receipts (‘‘GDRs’’), European Depositary
Receipts (‘‘EDRs’’), International
Depository Receipts (‘‘IDRs’’), ‘‘ordinary
shares,’’ ‘‘New York shares’’ issued and
traded in the U.S.23 and exchange
traded products (‘‘ETPs’’).
23 ADRs are U.S. dollar denominated receipts
typically issued by U.S. banks and trust companies
that evidence ownership of underlying securities
issued by a foreign issuer. The underlying securities
may not necessarily be denominated in the same
currency as the securities into which they may be
converted. Generally, ADRs are designed for use in
domestic securities markets and are traded on
exchanges or OTC in the U.S. GDRs, EDRs, and
IDRs are similar to ADRs in that they are certificates
evidencing ownership of shares of a foreign issuer;
however, GDRs, EDRs, and IDRs may be issued in
bearer form and denominated in other currencies,
and are generally designed for use in specific or
multiple securities markets outside the U.S. EDRs,
for example, are designed for use in European
securities markets while GDRs are designed for use
throughout the world. Ordinary shares are shares of
foreign issuers that are traded abroad and on a U.S.
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According to the Registration
Statement, the Fund may invest in the
securities of other investment
companies to the extent that such an
investment would be consistent with
the requirements of Section 12(d)(1) of
the 1940 Act, or any rule, regulation or
order of the SEC or interpretation
thereof. Consistent with such
restrictions, the Fund may invest in
several different types of investment
companies from time to time, including
mutual funds, ETFs, closed-end funds,
and business development companies
(‘‘BDCs’’), when the Adviser or the SubAdviser believes such an investment is
in the best interests of the Fund and its
shareholders. Closed-end funds are
pooled investment vehicles that are
registered under the 1940 Act and
whose shares are listed and traded on
U.S. national securities exchanges. A
BDC is a less common type of closedend investment company that more
closely resembles an operating company
than a typical investment company.
Investment companies may include
index-based investments, such as ETFs
that hold substantially all of their assets
in securities representing a specific
index.
According to the Registration
Statement, in addition to the U.S.
Treasury Futures, Agency MBS IOS and
interest rate swaps discussed above, the
Fund intends to invest in other
derivatives. The derivatives in which
the Fund may invest are other futures
contracts, forward contracts,24 options,
options on futures, other swaps, hybrid
instruments and structured notes. The
Fund typically will use derivatives as a
substitute for taking a position directly
in the underlying asset and/or as part of
a strategy designed to reduce exposure
to other risks, such as currency risk. Not
more than 10% of the net assets of the
Fund in the aggregate shall consist of
options whose principal market is not a
member of ISG or is a market with
which the Exchange does not have a
comprehensive surveillance sharing
agreement.
exchange. New York shares are shares that a foreign
issuer has allocated for trading in the U.S. ADRs,
ordinary shares, and New York shares all may be
purchased with and sold for U.S. dollars. With the
exception of ADRs traded OTC, which will
comprise no more than 10% of the Fund’s net
assets, all equity securities, including, without
limitation, exchange-traded ADRs, GDRs, EDRs,
IDRs, New York shares and ordinary shares, that the
Fund may invest in will trade on markets that are
members of the ISG or that have entered into a
comprehensive surveillance agreement with the
Exchange.
24 Specifically, in addition to the forward
currency exchange contracts discussed above, the
Fund may invest in mortgage dollar rolls, which
constitute forward contracts.
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According to the Registration
Statement, the Fund will only enter into
futures contracts that are traded on a
national futures exchange regulated by
the Commodities Futures Trading
Commission (‘‘CFTC’’) and whose
principal market is a member of ISG or
is a market with which the Exchange
has a comprehensive surveillance
sharing agreement.25 The Fund will
only use futures contracts that have U.S.
Treasury securities and interest rate
swaps as their underlying reference
assets. The Fund may use futures
contracts and options on futures for
bona fide hedging; attempting to offset
changes in the value of securities held
or expected to be acquired or be
disposed of; attempting to gain exposure
to a particular market, index or
instrument; or other risk management
purposes. An option on a futures
contract gives the purchaser the right, in
exchange for a premium, to assume a
position in a futures contract at a
specified exercise price during the term
of the option.
According to the Registration
Statement, the Fund may write (sell)
and purchase put and call options on
indices and enter into related closing
transactions. According to the
Registration Statement, the Fund may
trade put and call options on securities,
securities indices and currencies, as the
Sub-Adviser determines is appropriate
in seeking the Fund’s investment
objective, and except as restricted by the
Fund’s investment limitations. The
Fund may purchase put and call options
on securities to protect against a decline
in the market value of the securities in
its portfolio or to anticipate an increase
in the market value of securities that the
25 To the extent the Fund invests in futures,
options on futures or other instruments subject to
regulation by the CFTC, it will do so in reliance on
and in compliance with CFTC regulations in effect
from time to time and in accordance with the
Fund’s policies. The Trust, on behalf of certain of
its series, has filed a notice of eligibility for
exclusion from the definition of the term
‘‘commodity pool operator’’ in accordance with
CFTC Regulation 4.5. Therefore, neither the Trust
nor the Fund is deemed to be a ‘‘commodity pool’’
or ‘‘commodity pool operator’’ with respect to the
Fund under the Commodity Exchange Act (‘‘CEA’’),
and they are not subject to registration or regulation
as such under the CEA. In addition, as of the date
of this filing, the Adviser is not deemed to be a
‘‘commodity pool operator’’ or ‘‘commodity trading
adviser’’ with respect to the advisory services it
provides to the Fund. The CFTC recently adopted
amendments to CFTC Regulation 4.5 and has
proposed additional regulatory requirements that
may affect the extent to which the Fund invests in
instruments that are subject to regulation by the
CFTC and impose additional regulatory obligations
on the Fund and the Adviser. The Fund reserves the
right to engage in transactions involving futures,
options thereon and swaps to the extent allowed by
CFTC regulations in effect from time to time and in
accordance with the Fund’s policies.
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Fund may seek to purchase in the
future. The Fund may write covered call
options on securities as a means of
increasing the yield on its assets and as
a means of providing limited protection
against decreases in its market value.
The Fund may purchase and write
options on an exchange or OTC.
According to the Registration
Statement, the Fund may invest in
hybrid instruments. A hybrid
instrument is a type of potentially highrisk derivative that combines a
traditional stock, bond, or commodity
with an option or forward contract.
Generally, the principal amount,
amount payable upon maturity or
redemption, or interest rate of a hybrid
is tied (positively or negatively) to the
price of some security, commodity,
currency or securities index or another
interest rate or some other economic
factor (each a ‘‘benchmark’’). The
interest rate or (unlike most fixed
income securities) the principal amount
payable at maturity of a hybrid security
may be increased or decreased,
depending on changes in the value of
the benchmark.
According to the Registration
Statement, certain hybrid instruments
may provide exposure to the
commodities markets. These are
derivative securities with one or more
commodity-linked components that
have payment features similar to
commodity futures contracts,
commodity options, or similar
instruments. Commodity-linked hybrid
instruments may be either equity or debt
securities, and are considered hybrid
instruments because they have both
security and commodity-like
characteristics. A portion of the value of
these instruments may be derived from
the value of a commodity, futures
contract, index or other economic
variable. The Fund will only invest in
commodity-linked hybrid instruments
that qualify, under applicable rules of
the CFTC, for an exemption from the
provisions of the CEA.
According to the Registration
Statement, the Fund may invest in
structured notes, which are debt
obligations that also contain an
embedded derivative component with
characteristics that adjust the
obligation’s risk/return profile.
Generally, the performance of a
structured note will track that of the
underlying debt obligation and the
derivative embedded within it. The
Fund have the right to receive periodic
interest payments from the issuer of the
structured notes at an agreed-upon
interest rate and a return of the
principal at the maturity date.
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44883
According to the Registration
Statement, the Fund, from time to time,
in the ordinary course of business, may
purchase securities on a when-issued,
delayed-delivery or forward
commitment basis (i.e., delivery and
payment can take place between a
month and 120 days after the date of the
transaction). The Fund will not
purchase securities on a when-issued,
delayed-delivery or forward
commitment basis if, as a result, more
than 15% of the Fund’s net assets would
be so invested.
Investment Restrictions
According to the Registration
Statement, the Fund may not purchase
or sell commodities or commodity
contracts unless acquired as a result of
ownership of securities or other
instruments issued by persons that
purchase or sell commodities or
commodities contracts; but this shall
not prevent the Fund from purchasing,
selling and entering into futures
contracts, options on financial futures
contracts, warrants, swaps, forward
contracts, foreign currency spot and
forward contracts or other derivative
instruments that are not related to
physical commodities. The Fund will
only use futures contracts that have U.S.
Treasury securities and interest rate
swaps as their underlying assets.
According to the Registration
Statement, the Fund may not, with
respect to 75% of its total assets,
purchase securities of any issuer (except
securities issued or guaranteed by the
U.S. government, its agencies or
instrumentalities or shares of
investment companies) if, as a result,
more than 5% of its total assets would
be invested in the securities of such
issuer; or acquire more than 10% of the
outstanding voting securities of any one
issuer.26
According to the Registration
Statement, the Fund may not invest
25% or more of its total assets in the
securities of one or more issuers
conducting their principal business
activities in the same industry or group
of industries. This limitation does not
apply to investments in securities
issued or guaranteed by the U.S.
government, its agencies or
instrumentalities, or shares of
investment companies. The Fund will
26 The diversification standard is set forth in
Section 5(b)(1) of the 1940 Act. According to the
Registration Statement, in the case of privately
issued mortgage-related securities, the Fund takes
the position that mortgage-related securities do not
represent interests in any particular ‘‘industry’’ or
group of industries. Therefore, the Fund may invest
more or less than 25% of its total assets in privately
issued mortgage-related securities.
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not invest 25% or more of its total assets
in any investment company that so
concentrates.27
According to the Registration
Statement, the Fund may hold up to an
aggregate amount of 15% of its net
assets in illiquid assets (calculated at
the time of investment), including
securities deemed illiquid by the
Adviser consistent with Commission
guidance. The Fund will monitor its
portfolio liquidity on an ongoing basis
to determine whether, in light of current
circumstances, an adequate level of
liquidity is being maintained, and will
consider taking appropriate steps in
order to maintain adequate liquidity if,
through a change in values, net assets,
or other circumstances, more than 15%
of the Fund’s net assets are held in
illiquid assets. Illiquid assets include
securities subject to contractual or other
restrictions on resale and other
instruments that lack readily available
markets as determined in accordance
with Commission staff guidance.28
According to the Registration
Statement, the Fund will seek to qualify
for treatment as a Regulated Investment
Company under the Internal Revenue
Code.29
The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage.
According to the Registration
Statement, while the Fund does not
anticipate doing so, the Fund may
borrow money for investment purposes.
The Fund may also borrow money to
facilitate management of the Fund’s
portfolio by enabling the Fund to meet
redemption requests when the
liquidation of portfolio instruments
27 See Form N–1A, Item 9. The Commission has
taken the position that a fund is concentrated if it
invests more than 25% of the value of its total
assets in any one industry. See, e.g., Investment
Company Act Release No. 9011 (October 30, 1975),
40 FR 54241 (November 21, 1975).
28 The Commission has stated that long-standing
Commission guidelines have required open-end
funds to hold no more than 15% of their net assets
in illiquid securities and other illiquid assets. See
Investment Company Act Release No. 28193 (March
11, 2008), 73 FR 14618 (March 18, 2008), footnote
34. See also, Investment Company Act Release No.
5847 (October 21, 1969), 35 FR 19989 (December
31, 1970) (Statement Regarding ‘‘Restricted
Securities’’); Investment Company Act Release No.
18612 (March 12, 1992), 57 FR 9828 (March 20,
1992) (Revisions of Guidelines to Form N–1A). A
fund’s portfolio security is illiquid if it cannot be
disposed of in the ordinary course of business
within seven days at approximately the value
ascribed to it by the fund. See Investment Company
Act Release No. 14983 (March 12, 1986), 51 FR
9773 (March 21, 1986) (adopting amendments to
Rule 2a–7 under the 1940 Act); Investment
Company Act Release No. 17452 (April 23, 1990),
55 FR 17933 (April 30, 1990) (adopting Rule 144A
under the Securities Act.
29 26 U.S.C. 851.
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would be inconvenient or
disadvantageous. Such borrowing is not
for investment purposes, will be repaid
by the Fund promptly and will be
consistent with the requirements of the
1940 Act and the rules thereunder.
According to the Registration
Statement, the Fund may lend portfolio
securities to brokers, dealers and other
financial organizations that meet capital
and other credit requirements or other
criteria established by the Fund’s Board
of Trustees. These loans, if and when
made, may not exceed 331⁄3% of the
total asset value of the Fund (including
the loan collateral). The Fund will not
lend portfolio securities to the Adviser,
Sub-Adviser, or their affiliates, unless it
has applied for and received specific
authority to do so from the Commission.
Loans of portfolio securities will be
fully collateralized by cash, letters of
credit or U.S. government securities,
and the collateral will be maintained in
an amount equal to at least 100% of the
current market value of the loaned
securities by marking to market daily.
Net Asset Value
According to the Registration
Statement, the Fund will calculate its
NAV by: (i) Taking the current market
value of its total assets; (ii) subtracting
any liabilities; and (iii) dividing that
amount by the total number of Shares
owned by shareholders. The Fund will
calculate NAV once each business day
as of the regularly scheduled close of
trading on the Exchange (normally, 4:00
p.m., Eastern Time).
In calculating NAV, the Fund’s
securities holdings will be valued based
on their last readily available market
price.
Futures contracts, exchange-traded
options, and options on futures, will be
valued at the closing settlement price
determined by the applicable exchange.
Other exchange-traded securities,
including equity securities (including
ETPs such as exchange-traded ADRs,
GDRs, EDRs, IDRs, ordinary shares, New
York shares, ETNs, and ETFs), and
exchange-traded REITs, will be valued
at market value, which will generally be
determined using the last reported
official closing or last trading price on
the exchange or market on which the
security is primarily traded at the time
of valuation or, if no sale has occurred,
at the last quoted bid price on the
primary market or exchange on which
they are traded. If market prices are
unavailable or the Fund believes that
they are unreliable, or when the value
of a security has been materially
affected by events occurring after the
relevant market closes, the Fund will
price those securities at fair value as
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determined in good faith using methods
approved by the Trust’s Board of
Trustees.
ADRs traded OTC will be valued on
the basis of the market closing price on
the exchange where the stock of the
foreign issuer that underlies the ADR is
listed. Investment company securities
(other than ETFs), including mutual
funds, closed end funds, and BDCs, will
be valued at net asset value.
Non-exchange-traded derivatives,
including forward contracts, swaps,
options traded OTC, options on futures
traded OTC, hybrid instruments and
structured notes, will normally be
valued on the basis of quotes obtained
from brokers and dealers or pricing
services using data reflecting the earlier
closing of the principal markets for
those assets. Prices obtained from
independent pricing services use
information provided by market makers
or estimates of market values obtained
from yield data relating to investments
or securities with similar characteristics.
Fixed income securities, including
CMOs (including agency interest-only
CMOs), CMO residuals, mortgage dollar
rolls, U.S. Treasury securities, other
obligations issued or guaranteed by U.S.
government agencies and
instrumentalities, bonds, bank
obligations, ABS, MBS, shares of other
mutual funds, commercial paper,
repurchase agreements, reverse
repurchase agreements, corporate debt
securities, municipal securities,
convertible securities, certificates of
deposits and bankers’ acceptances
generally trade in the OTC market rather
than on a securities exchange. The Fund
will generally value these portfolio
assets by relying on independent pricing
services. The Fund’s pricing services
will use valuation models or matrix
pricing to determine current value. In
general, pricing services use information
with respect to comparable bond and
note transactions, quotations from bond
dealers or by reference to other assets
that are considered comparable in such
characteristics as rating, interest rate,
maturity date, option adjusted spread
models, prepayment projections,
interest rate spreads and yield curves.
Matrix price is an estimated price or
value for a fixed-income security.
Matrix pricing is considered a form of
fair value pricing. The Fund’s debt
securities will generally be valued at bid
prices. In certain cases, some of the
Fund’s debt securities may be valued at
the mean between the last available bid
and ask prices.
Foreign exchange rates will be priced
using 4:00 p.m. (Eastern Time) mean
prices from major market data vendors.
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Creation and Redemption of Shares
According to the Registration
Statement, the Fund will issue and
redeem Shares on a continuous basis at
NAV in aggregated lots which shall
initially be of 25,000 Shares (each, a
‘‘Creation Unit’’).
All orders to create or redeem
Creation Units must be received by the
Distributor no later than 3:00 p.m.,
Eastern Time in order for the creation or
redemption of Creation Units to be
effected based on the NAV of Shares of
the Fund as next determined on such
date.
The Trust reserves the right to offer an
‘‘all cash’’ option for creations and
redemptions of Creation Units for the
Fund.30
The consideration for purchase of a
Creation Unit of each Fund generally
will consist of an in-kind deposit of a
designated portfolio of securities—the
‘‘Deposit Securities’’—per each Creation
Unit constituting a substantial
replication, or a representation, of the
securities included in the Fund’s
portfolio and an amount of cash—the
‘‘Cash Component.’’ Together, the
Deposit Securities and the Cash
Component will constitute the ‘‘Fund
Deposit,’’ which represents the
minimum initial and subsequent
investment amount for a Creation Unit
of the Fund. The Cash Component is an
amount equal to the difference between
the NAV of the Shares of the Fund (per
Creation Unit) and the market value of
the Deposit Securities.
In addition, the Trust reserves the
right to permit or require the
substitution of an amount of cash—i.e.,
a ‘‘cash in lieu’’ amount—to be added to
the Cash Component to replace any
Deposit Security which may not be
available in sufficient quantity for
delivery or which may not be eligible
for transfer through the clearing process,
or which may not be eligible for trading
by an authorized participant or the
investor for which it is acting.
Shares may be redeemed only in
Creation Units at their NAV next
determined after receipt of a redemption
request in proper form by the Fund
through the Administrator and only on
a business day. The Trust will not
redeem Shares of the Fund in amounts
less than Creation Units. Unless cash
redemptions are available or specified,
the redemption proceeds for a Creation
Unit generally will consist of ‘‘the Fund
Securities’’—as announced by the
Administrator on the business day of
the request for redemption received in
proper form—plus cash in an amount
equal to the difference between the NAV
of the Shares being redeemed, as next
determined after a receipt of a request
in proper form, and the value of the
Fund Securities, less a redemption
transaction fee. The Administrator,
through the National Securities Clearing
Corporation (‘‘NSCC’’), will make
available immediately prior to the
opening of business on the Exchange
(currently 9:30 a.m., Eastern Time) on
each business day, the Fund Securities
that will be applicable to redemption
requests received in proper form on that
day as well as the estimated Cash
Component.
According to the Registration
Statement, if it is not possible to effect
deliveries of the Fund Securities, for
example if the investor is not able to
accept delivery, the Trust may in its
discretion exercise its option to redeem
Shares of the Fund in cash, and the
redeeming beneficial owner will be
required to receive its redemption
proceeds in cash. In addition, an
investor may request a redemption in
cash which the Fund may, in its sole
discretion, permit.31 In either case, the
investor will receive a cash payment
equal to the NAV of its Shares based on
the NAV of Shares of the Fund next
determined after the redemption request
is received in proper form (minus a
redemption transaction fee and
additional charge for requested cash
redemptions, as described in the
Registration Statement). The Fund may
also, in its sole discretion, upon request
of a shareholder, provide such redeemer
a portfolio of securities which differs
from the exact composition of the
applicable Fund Securities but does not
differ in NAV.
Redemptions of Shares for Fund
Securities will be subject to compliance
with applicable federal and state
securities laws and the Fund (whether
or not it otherwise permits cash
redemptions) reserves the right to
redeem Creation Units for cash to the
extent that the Fund could not lawfully
deliver specific Fund Securities upon
redemptions or could not do so without
first registering the Fund Securities
under such laws. An authorized
participant or an investor for which it is
acting subject to a legal restriction with
respect to a particular stock included in
the Fund Securities applicable to the
redemption of a Creation Unit may be
paid an equivalent amount of cash.
30 The Adviser represents that, to the extent the
Trust effects the creation of Shares in cash, such
transactions will be effected in the same manner for
all authorized participants.
31 The Adviser represents that, to the extent the
Trust effects the redemption of Shares in cash, such
transactions will be effected in the same manner for
all authorized participants.
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44885
Availability of Information
The Fund’s Web site
(www.advisorshares.com), which will be
publicly available prior to the public
offering of Shares, will include a form
of the prospectus for the Fund that may
be downloaded. The Fund’s Web site
will include additional quantitative
information updated on a daily basis,
including, for the Fund, (1) daily trading
volume, the prior business day’s
reported closing price, NAV and midpoint of the bid/ask spread at the time
of calculation of such NAV (the ‘‘Bid/
Ask Price’’),32 and a calculation of the
premium and discount of the Bid/Ask
Price against the NAV, and (2) data in
chart format displaying the frequency
distribution of discounts and premiums
of the daily Bid/Ask Price against the
NAV, within appropriate ranges, for
each of the four previous calendar
quarters. On each business day, before
commencement of trading in Shares in
the Core Trading Session on the
Exchange, the Fund’s Web site will
disclose the Disclosed Portfolio that will
form the basis for the Fund’s calculation
of NAV at the end of the business day.33
On a daily basis, the Adviser, on
behalf of the Fund, will disclose on the
Fund’s Web site the following
information regarding each portfolio
holding of the Fund, as applicable to the
type of holding: Ticker symbol, CUSIP
number or other identifier, if any; a
description of the holding (including
the type of holding, such as the type of
swap); the identity of the security,
commodity, index, or other asset or
instrument underlying the holding, if
any; for options, the option strike price;
quantity held (as measured by, for
example, par value, notional value or
number of shares, contracts or units);
maturity date, if any; coupon rate, if
any; effective date, if any; market value
of the holding; and the percentage
weighting of the holding in the Fund’s
portfolio. The Web site information will
be publicly available at no charge.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and its Form N–CSR and Form
N–SAR, filed twice a year. The Trust’s
SAI and Shareholder Reports will be
32 The Bid/Ask Price of the Fund is determined
using the mid-point of the highest bid and the
lowest offer on the Exchange as of the time of
calculation of the Fund’s NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and
its service providers.
33 Under accounting procedures followed by the
Fund, trades made on the prior business day (‘‘T’’)
will be booked and reflected in NAV on the current
business day (‘‘T+1’’). Accordingly, the Fund will
be able to disclose at the beginning of the business
day the portfolio that will form the basis for the
NAV calculation at the end of the business day.
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available free upon request from the
Trust, and those documents and the
Form N–CSR and Form N–SAR may be
viewed on-screen or downloaded from
the Commission’s Web site at
www.sec.gov. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services. Information
regarding the previous day’s closing
price and trading volume information
for the Shares will be published daily in
the financial section of newspapers.
Quotation and last sale information
for the Shares and the underlying U.S.
exchange-traded equity securities will
be available via the Consolidated Tape
Association (‘‘CTA’’) high-speed line,
and from the national securities
exchange on which they are listed.
Quotation and last sale information for
exchange-listed options will be
available via the Options Price
Reporting Authority. Price information
regarding the futures contracts,
exchange-traded options, options on
futures, equity securities (including
ETPs such as exchange-listed ADRs,
GDRs, EDRs, IDRs, ordinary shares and
New York shares as well as ETNs, and
ETFs), and exchange-traded REITs, held
by the Fund will be available from the
U.S. and non-U.S. exchanges trading
such assets.
Quotation information from brokers
and dealers or pricing services will be
available for ADRs traded OTC;
investment company securities other
than ETFs; non-exchange-traded
derivatives, including forward contracts,
IOS and other swaps, options traded
OTC, options on futures, hybrid
instruments and structured notes; fixed
income securities, including CMOs
(including agency interest-only CMOs),
CMO residuals, mortgage dollar rolls,
U.S. Treasury securities, other
obligations issued or guaranteed by U.S.
government agencies and
instrumentalities, bonds, bank
obligations, ABS, MBS, shares of other
mutual funds, commercial paper,
repurchase agreements, reverse
repurchase agreements, corporate debt
securities, municipal securities,
convertible securities, certificates of
deposit and bankers’ acceptances.
Pricing information regarding each asset
class in which the Fund will invest is
generally available through nationally
recognized data service providers
through subscription agreements.
Foreign exchange prices are available
from major market data vendors.
In addition, the Portfolio Indicative
Value, as defined in NYSE Arca Equities
Rule 8.600(c)(3), will be widely
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disseminated at least every 15 seconds
during the Core Trading Session by one
or more major market data vendors.34
The dissemination of the Portfolio
Indicative Value, together with the
Disclosed Portfolio, will allow investors
to determine the value of the underlying
portfolio of the Fund on a daily basis
and will provide a close estimate of that
value throughout the trading day.
Additional information regarding the
Trust and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosure policies,
distributions and taxes is included in
the Registration Statement. All terms
relating to the Fund that are referred to,
but not defined in, this proposed rule
change are defined in the Registration
Statement.
Trading Halts
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares of
the Fund.35 Trading in Shares of the
Fund will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule
7.12 have been reached. Trading also
may be halted because of market
conditions or for reasons that, in the
view of the Exchange, make trading in
the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the securities and/or
the financial instruments comprising
the Disclosed Portfolio of the Fund; or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. Trading in the
Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets
forth circumstances under which Shares
of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m.
to 8 p.m. Eastern Time in accordance
with NYSE Arca Equities Rule 7.34
(Opening, Core, and Late Trading
Sessions). The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Equities Rule 7.6, Commentary .03,
34 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available Portfolio Indicative
Values taken from CTA or other data feeds.
35 See NYSE Arca Equities Rule 7.12,
Commentary .04.
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the minimum price variation (‘‘MPV’’)
for quoting and entry of orders in equity
securities traded on the NYSE Arca
Marketplace is $0.01, with the exception
of securities that are priced less than
$1.00 for which the MPV for order entry
is $0.0001.
The Shares will conform to the initial
and continued listing criteria under
NYSE Arca Equities Rule 8.600.
Consistent with NYSE Arca Equities
Rule 8.600(d)(2)(B)(ii), the Adviser will
implement and maintain, or be subject
to, procedures designed to prevent the
use and dissemination of material nonpublic information regarding the actual
components of the Fund’s portfolio. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3 36
under the Exchange Act, as provided by
NYSE Arca Equities Rule 5.3. A
minimum of 100,000 Shares will be
outstanding at the commencement of
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio as
defined in NYSE Arca Equities Rule
8.600(c)(2) will be made available to all
market participants at the same time.
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by FINRA on behalf of the
Exchange, which are designed to detect
violations of Exchange rules and
applicable federal securities laws. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable federal securities laws.37
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.38
36 17
CFR 240.10A–3.
surveils trading on the Exchange
pursuant to a regulatory services agreement. The
Exchange is responsible for FINRA’s performance
under this regulatory services agreement.
38 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the Disclosed Portfolio may trade on
markets that are members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement.
37 FINRA
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FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares, exchange-listed
equity securities, futures contracts and
exchange-listed options contracts with
other markets and other entities that are
members of the ISG and FINRA, on
behalf of the Exchange, may obtain
trading information regarding trading in
the Shares, exchange-listed equity
securities, futures contracts and
exchange-listed options contracts from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, exchange-listed equity
securities, futures contracts and
exchange-listed options contracts from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. As
noted above, with the exception of
ADRs traded OTC, which will comprise
no more than 10% of the Fund’s net
assets, all equity securities, including,
without limitation, exchange-traded
ADRs, GDRs, EDRs, IDRs, New York
shares and ordinary shares, that the
Fund may invest in will trade on
markets that are members of ISG or that
have entered into a comprehensive
surveillance agreement with the
Exchange. In addition, FINRA, on behalf
of the Exchange, is able to access, as
needed, trade information for certain
fixed income securities held by the
Fund reported to FINRA’s Trade
Reporting and Compliance Engine
(‘‘TRACE’’).
In addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin (‘‘Bulletin’’) of the
special characteristics and risks
associated with trading the Shares.
Specifically, the Bulletin will discuss
the following: (1) The procedures for
purchases and redemptions of Shares in
Creation Unit aggregations (and that
Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence
on its Equity Trading Permit Holders to
learn the essential facts relating to every
customer prior to trading the Shares; (3)
the risks involved in trading the Shares
during the Opening and Late Trading
Sessions when an updated Portfolio
Indicative Value will not be calculated
or publicly disseminated; (4) how
information regarding the Portfolio
Indicative Value is disseminated; (5) the
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requirement that Equity Trading Permit
Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Bulletin will
reference that the Fund is subject to
various fees and expenses described in
the Registration Statement. The Bulletin
will discuss any exemptive, no-action,
and interpretive relief granted by the
Commission from any rules under the
Exchange Act. The Bulletin will also
disclose that the NAV for the Shares
will be calculated after 4:00 p.m.
Eastern Time each trading day.
2. Statutory Basis
The basis under the Exchange Act for
this proposed rule change is the
requirement under Section 6(b)(5) 39
that an exchange have rules that are
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to, and
perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.600. The Exchange has in place
surveillance procedures that are
adequate to properly monitor trading in
the Shares in all trading sessions and to
deter and detect violations of Exchange
rules and applicable federal securities
laws. FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares, exchange-listed
equity securities, futures contracts and
exchange-listed options contracts with
other markets and other entities that are
members of the ISG and FINRA, on
behalf of the Exchange, may obtain
trading information regarding trading in
the Shares, exchange-listed equity
securities, futures contracts and
exchange-listed options contracts from
such markets and other entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, exchange-listed equity
securities, futures contracts and
exchange-listed options contracts from
markets and other entities that are
members of ISG or with which the
Exchange has in place a comprehensive
surveillance sharing agreement. As
noted above, with the exception of
ADRs traded OTC, which will comprise
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U.S.C. 78f(b)(5).
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44887
no more than 10% of the Fund’s net
assets, all equity securities, including,
without limitation, exchange-traded
ADRs, GDRs, EDRs, IDRs, New York
shares and ordinary shares, and
Treasury futures that the Fund may
invest in will trade on markets that are
members of ISG or that have entered
into a comprehensive surveillance
agreement with the Exchange. In
addition, FINRA, on behalf of the
Exchange, is able to access, as needed,
trade information for certain fixed
income securities held by the Fund
reported to TRACE. Not more than 10%
of the net assets of the Fund in the
aggregate shall consist of options whose
principal market is not a member of ISG
or is a market with which the Exchange
does not have a comprehensive
surveillance sharing agreement. The
Fund will limit investments in ABS and
MBS that are issued or guaranteed by
non-government entities to 15% of the
Fund’s net assets. The Fund may not
purchase or hold illiquid assets if, in the
aggregate, more than 15% of its net
assets would be invested in illiquid
securities. The Exchange may obtain
information via ISG from other
exchanges that are members of ISG or
with which the Exchange has entered
into a comprehensive surveillance
sharing agreement. Neither the Adviser
nor the Sub-Adviser is a broker-dealer
or is affiliated with a broker-dealer. In
the event (a) the Adviser becomes newly
affiliated with a broker-dealer, (b) the
Sub-Adviser becomes newly affiliated
with a broker-dealer, or (c) any new
adviser or sub-adviser becomes
affiliated with a broker-dealer, it will
implement a fire wall with respect to
such broker-dealer regarding access to
information concerning the composition
and/or changes to the portfolio, and will
be subject to procedures designed to
prevent the use and dissemination of
material non-public information
regarding such portfolio. The Fund’s
investments will be consistent with the
Fund’s investment objective and will
not be used to enhance leverage.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that the Exchange will
obtain a representation from the issuer
of the Shares that the NAV per Share
will be calculated daily and that the
NAV and the Disclosed Portfolio will be
made available to all market
participants at the same time. In
addition, a large amount of information
is publicly available regarding the Fund
and the Shares, thereby promoting
market transparency. Quotation and last
sale information for the Shares and the
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underlying U.S. exchange-traded equity
securities will be available via the CTA
high-speed line, and from the national
securities exchange on which they are
listed. Quotation and last sale
information for exchange-listed options
will be available via the Options Price
Reporting Authority. Price information
regarding the futures contracts,
exchange-traded options, options on
futures, equity (including ETPs such as
ADRs traded OTC, GDRs, EDRs, IDRs,
ordinary shares and New York shares as
well as ETNs, and ETFs), and exchangetraded REITs, held by the Fund will be
available from the U.S. and non-U.S.
exchanges trading such assets.
Quotation information from brokers and
dealers or pricing services will be
available for ADRs traded OTC;
investment company securities other
than ETFs; non-exchange-traded
derivatives, including forward contracts,
IOS and other swaps, options traded
OTC, options on futures, hybrid
instruments and structured notes; fixed
income securities, including CMOs
(including agency interest-only CMOs),
CMO residuals, mortgage dollar rolls,
U.S. Treasury securities, other
obligations issued or guaranteed by U.S.
government agencies and
instrumentalities, bonds, bank
obligations, ABS, MBS, shares of other
mutual funds, commercial paper,
repurchase agreements, reverse
repurchase agreements, corporate debt
securities, municipal securities,
convertible securities, certificates of
deposit and bankers’ acceptances.
Pricing information regarding each asset
class in which the Fund will invest is
generally available through nationally
recognized data service providers
through subscription agreements.
Foreign exchange prices are available
from major market data vendors. In
addition, the Portfolio Indicative Value
will be widely disseminated by the
Exchange at least every 15 seconds
during the Core Trading Session. The
Fund’s Web site will include a form of
the prospectus for the Fund that may be
downloaded, as well as additional
quantitative information updated on a
daily basis. On each business day,
before commencement of trading in
Shares in the Core Trading Session on
the Exchange, the Fund’s Web site will
disclose the Disclosed Portfolio that will
form the basis for the Fund’s calculation
of NAV at the end of the business day.
On a daily basis, the Adviser, on behalf
of the Fund, will disclose on the Fund’s
Web site the following information
regarding each portfolio holding of the
Fund, as applicable to the type of
holding: ticker symbol, CUSIP number
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or other identifier, if any; a description
of the holding (including the type of
holding, such as the type of swap); the
identity of the security, commodity,
index, or other asset or instrument
underlying the holding, if any; for
options, the option strike price; quantity
held (as measured by, for example, par
value, notional value or number of
shares, contracts or units); maturity
date, if any; coupon rate, if any;
effective date, if any; market value of the
holding; and the percentage weighting
of the holding in the Fund’s portfolio.
Moreover, prior to the commencement
of trading, the Exchange will inform its
Equity Trading Permit Holders in an
Information Bulletin of the special
characteristics and risks associated with
trading the Shares. Trading in Shares of
the Fund will be halted if the circuit
breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. Trading in the Shares will
be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth
circumstances under which Shares of
the Fund may be halted. In addition, as
noted above, investors will have ready
access to information regarding the
Fund’s holdings, the Portfolio Indicative
Value, the Disclosed Portfolio, and
quotation and last sale information for
the Shares.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
holdings, the Portfolio Indicative Value,
the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purpose of the Exchange Act. The
Exchange notes that the proposed rule
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change will facilitate the listing and
trading of an additional type of activelymanaged exchange-traded product that
will enhance competition among market
participants, to the benefit of investors
and the marketplace.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2014–71 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2014–71. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
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Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Section, 100 F Street NE.,
Washington, DC 20549 on official
business days between 10 a.m. and 3
p.m. Copies of the filing will also be
available for inspection and copying at
the Exchange’s principal office and on
its Internet Web site at www.nyse.com.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2014–71 and
should be submitted on or before
August 22, 2014.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.40
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2014–18114 Filed 7–31–14; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
comments on the proposed rule change
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to clarify for
Members 3 and non-Members the
Exchange’s use of certain data feeds for
order handling and execution, order
routing, and regulatory compliance. The
Exchange has designated this proposal
as non-controversial and provided the
Commission with the notice required by
Rule 19b–4(f)(6)(iii) under the Act.4
The text of the proposed rule change
is available at the Exchange’s Web site
at https://www.batstrading.com, at the
principal office of the Exchange, and at
the Commission’s Public Reference
Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
[Release No. 34–72685; File No. SR–BATS–
2014–029]
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of a Proposed
Rule Change To Clarify for Members
and Non-Members the Use of Certain
Data Feeds for Order Handling and
Execution, Order Routing and
Regulatory Compliance of BATS
Exchange, Inc.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange submits this filing to
clarify for Members and non-Members
the Exchange’s use of certain data feeds
for order handling and execution, order
routing, and regulatory compliance.
tkelley on DSK3SPTVN1PROD with NOTICES
July 28, 2014.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on July 15,
2014, BATS Exchange, Inc. (the
‘‘Exchange’’ or ‘‘BATS’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
40 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
VerDate Mar<15>2010
22:09 Jul 31, 2014
Jkt 232001
Order Handling and Execution
In order to calculate the national best
bid and offer (‘‘NBBO’’) in its Matching
Engine (the ‘‘ME’’), the Exchange uses
quotes disseminated by market centers
through proprietary data feeds
(generally referred to as ‘‘Direct Feeds’’)
as well as by the Securities Information
Processors (‘‘SIP’’). The ME uses quotes
disseminated from SIP feeds for the
Chicago Stock Exchange, Inc. and NYSE
MKT LLC. The Exchange notes that the
3 The term ‘‘Member’’ is defined as ‘‘any
registered broker or dealer that has been admitted
to membership in the Exchange. A Member will
have the status of a ‘‘member’’ of the Exchange as
that term is defined in Section 3(a)(3) of the Act.’’
See Exchange Rule 1.5(n).
4 17 CFR 240.19b–4(f)(6)(iii).
PO 00000
Frm 00152
Fmt 4703
Sfmt 4703
44889
ME receives Direct Feeds from the
Exchange’s affiliates, BATS Y-Exchange
Inc., EDGA Exchange, Inc., and EDGX
Exchange, Inc.
In addition to receiving Direct Feeds
and SIP feeds, the ME’s calculation of
the NBBO may be adjusted based on
orders sent to other venues with
protected quotations, execution reports
received from those venues, and certain
orders received by the Exchange
(collectively ‘‘Feedback’’). The
Exchange does not include its quotes in
the calculation of the Exchange’s NBBO
because the system is designed such
that all incoming orders are separately
compared to the Exchange’s Best Bid or
Offer and the Exchange calculated
NBBO, which together create a complete
view of the NBBO, prior to display,
execution, or routing.
Feedback from the receipt of
Intermarket Sweep Orders (‘‘ISOs’’) with
a time-in-force of Day (‘‘Day ISOs’’) and
feedback from the Exchange’s routing
broker/dealer, BATS Trading, Inc.,
(‘‘BATS Trading’’), as described below,
are used to augment the market data
received by Direct Feeds and the SIP
feeds. The Exchange’s ME will update
the NBBO upon receipt of a Day ISO.
When a Day ISO is posted on the BATS
Book,5 the ME uses the receipt of a Day
ISO as evidence that the protected
quotes have been cleared, and the ME
does not check away markets for equal
or better-priced protected quotes.6 The
ME will then display and execute nonISO orders at the same price as the Day
ISO.
All Feedback expires as soon as: (i)
One (1) second passes; (ii) the Exchange
receives new quote information; or (iii)
the Exchange receives updated
Feedback information. With the
exception of Day ISO Feedback, the
Exchange only generates Feedback
where the order was routed using one of
the following routing strategies: Parallel
D, Parallel 2D, Parallel T, SLIM, and
TRIM (collectively ‘‘Smart Order
Routing’’).7
5 See
Exchange Rule 1.5(e).
to Regulation NMS, a broker-dealer
routing a Day ISO is required to simultaneously
route one or more additional ISOs, as necessary, to
execute against the full displayed size of any
protected quote priced equal to or better than the
Day ISO. See also Question 5.02 in the ‘‘Division
of Trading and Markets, Responses to Frequently
Asked Questions Concerning Rule 611 and Rule 610
of Regulation NMS’’ (last updated April 4, 2008)
available at https://www.sec.gov/divisions/
marketreg/nmsfaq610-11.htm.
7 See Exchange Rule 11.13(a)(3). Thus, the
Exchange does not generate Feedback from routing
options where the User directs the Exchange to
route an order to a particular venue, such as
Destination Specific Orders and Directed ISOs, as
defined in Rules 11.9(c)(12) and 11.9(d)(2),
6 Pursuant
E:\FR\FM\01AUN1.SGM
Continued
01AUN1
]]>Agencies
[Federal Register Volume 79, Number 148 (Friday, August 1, 2014)]
[Notices]
[Pages 44878-44889]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18114]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-72679; File No. SR-NYSEArca-2014-71]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Proposing To List and Trade Shares of Treesdale
Rising Rates ETF Under NYSE Arca Equities Rule 8.600
July 28, 2014.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on July 14, 2014, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to proposes to list and trade the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''):
Treesdale Rising Rates ETF. The text of the proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares:\4\ Treesdale Rising Rates
ETF (``Fund'').\5\ The Shares
[[Page 44879]]
will be offered by AdvisorShares Trust (the ``Trust''), a statutory
trust organized under the laws of the State of Delaware and registered
with the Securities and Exchange Commission (the ``Commission'') as an
open-end management investment company.\6\ The investment adviser to
the Fund is AdvisorShares Investments, LLC (the ``Adviser''). The sub-
adviser to the Fund is Treesdale Partners, LLC (``Sub-Adviser''), which
will provide day-to-day portfolio management of the Fund. Foreside Fund
Services, LLC (the ``Distributor'') is the principal underwriter and
distributor of the Fund's Shares. The Bank of New York Mellon (the
``Administrator'') serves as the administrator, custodian, transfer
agent and fund accounting agent for the Fund.
---------------------------------------------------------------------------
\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
\5\ The Commission has approved listing and trading on the
Exchange of a number of actively managed funds under Rule 8.600.
See, e.g., Securities Exchange Act Release Nos. 69591 (May 16,
2013), 78 FR 30372 (May 22, 2013) (SR-NYSEArca-2013-33) (order
approving Exchange listing and trading of International Bear ETF);
69061 (March 7, 2013), 78 FR 15990 (March 13, 2013) (SR-NYSEArca-
2013-01) (order approving Exchange listing and trading of Newfleet
Multi-Sector Income ETF); and 67277 (June 27, 2012), 77 FR 39554
(July 3, 2012) (SR-NYSEArca-2012-39) (order approving Exchange
listing and trading of the Global Alpha & Beta ETF).
\6\ The Trust is registered under the 1940 Act. On September 4,
2013, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) and under the 1940 Act relating to the Fund (File
Nos. 333-157876 and 811-22110) (``Registration Statement''). The
description of the operation of the Trust and the Fund herein is
based, in part, on the Registration Statement. In addition, the
Commission has issued an order granting certain exemptive relief to
the Trust under the 1940 Act. See Investment Company Act Release No.
29291 (May 28, 2010) (File No. 812-13677) (``Exemptive Order'').
---------------------------------------------------------------------------
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio.\7\ Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds.
Neither the Adviser nor the Sub-Adviser is a broker-dealer or is
affiliated with a broker-dealer. In the event (a) the Adviser or 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, as applicable, regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio.
---------------------------------------------------------------------------
\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
---------------------------------------------------------------------------
Description of the Fund
According to the Registration Statement, the Fund will seek to
generate current income while providing protection for investors
against loss of principal in a rising interest rate environment.
According to the Registration Statement, the Fund will be actively
managed and thus will not seek to replicate the performance of a
specified passive index of securities. Instead, it will use an active
investment strategy to seek to meet its investment objectives. The Sub-
Adviser, subject to the oversight of the Adviser and the Board of
Trustees, will have discretion on a daily basis to manage the Fund's
portfolio in accordance with the Fund's investment objectives and
investment policies.
According to the Registration Statement, the Fund will seek to
achieve its investment objectives by investing, under normal
circumstances,\8\ at least 80% of its net assets in positions in agency
interest-only collateralized mortgage obligations (``CMOs''), interest-
only swaps (``IOS'') that reference interest only cash flows from
agency mortgage-backed securities (``MBS'') pools with certain coupons
and specified origination periods (``Agency MBS IOS''), interest rate
swaps, U.S. Treasury obligations, including U.S. Treasury zero-coupon
bonds, and U.S. Treasury futures.\9\ Under normal circumstances, the
Sub-Adviser will seek to generate enhanced returns in an environment of
rising interest rates by investing in agency interest-only CMOs and
Agency MBS IOS to maintain a negative portfolio duration with a
generally positive current yield. Under normal circumstances, the Fund
will utilize the U.S. Treasury obligations, U.S. Treasury futures and
interest rate swaps, which are liquid interest rate products, to manage
duration risks. Aside from Treasury futures, which will be exchange
traded,\10\ all the Fund's principal investments will be U.S. dollar-
denominated and traded over the counter (``OTC'').
---------------------------------------------------------------------------
\8\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of adverse market, economic, political or
other conditions, including extreme volatility or trading halts in
the equity markets or the financial markets generally; operational
issues causing dissemination of inaccurate market information; or
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance.
\9\ According to the Registration Statement, CMOs are debt
obligations of a legal entity that are collateralized by mortgages
and divided into classes. Futures contracts provide for the future
sale by one party and purchase by another party of a specified
amount of a specific security at a specified future time and at a
specified price. The Fund will only use futures contracts that have
U.S. Treasury securities and interest rate swaps as their underlying
reference assets.
\10\ The futures in which the Fund may invest will trade on
markets that are members of the Intermarket Surveillance Group
(``ISG'') or that have entered into a comprehensive surveillance
agreement with the Exchange.
---------------------------------------------------------------------------
According to the Adviser, the mortgage-backed securities market,
which includes interest-only CMOs, is the largest sector of the U.S.
fixed income markets. It is diverse, with both highly liquid
instruments as well as less liquid products. The primary focus of the
Fund will be on the Agency MBS IOS sector, where liquidity is provided
by multiple market makers that actively make two-sided markets.
Additionally, Markit publishes daily closing prices based on dealer
marks. Pricing in this market is transparent and provided by major
market makers. The Agency MBS IOS are analogous to interest-only CMOs
in swap form with differences in the composition of underlying MBS
collateral. IOS are total rate of return swaps.
According to the Registration Statement, the Agency MBS IOS and
[[Page 44880]]
agency interest-only CMOs in which the Fund will invest are intended to
provide significant negative duration exposure and will generally
benefit from rising interest rates.\11\ The overall duration of the
Fund's portfolio will generally range from -5 to -15 years. Duration is
a measure used to determine the sensitivity of a security's price to
changes in interest rates. The longer a security's duration, the more
sensitive it will be to changes in interest rates. A portfolio with
negative duration generally incurs a loss when interest rates and
yields fall. To counter the impact of such potential losses, the Fund's
negative duration may be partly offset with long positions in U.S.
Treasury obligations, interest rate swaps and other positive duration
products.
---------------------------------------------------------------------------
\11\ According to the Adviser, negative duration reflects price
sensitivity to interest rate changes that is the inverse of how
standard bond instruments behave. Specifically, negative duration
instruments generally appreciate in price as interest rates rise.
---------------------------------------------------------------------------
According to the Registration Statement, in determining the Fund's
investment allocations, the Sub-Adviser will perform both top-down and
security specific analysis. The overall negative duration target and
allocation to specific subsectors of the mortgage interest-only market
will be based on high-level macro and relative value analysis across
fixed income markets. Using these targets, allocations to individual
positions will be made based on detailed value analysis. Liquid U.S.
Treasury obligations and interest rate swaps will be used to adjust the
portfolio to certain negative duration targets. While such U.S.
Treasury and interest rate swap hedges may be rebalanced daily, the
portfolio of Agency MBS IOS and agency interest-only CMOs will be less
frequently rebalanced.
According to the Registration Statement, agency CMOs, including
agency interest-only CMOs, are typically collateralized by portfolios
of mortgage pass-through securities guaranteed by the Government
National Mortgage Association (``Ginnie Mae''), the Federal Home Loan
Mortgage Corporation (``Freddie Mac''), or Federal National Mortgage
Association (``Fannie Mae''), and the income payments on such
securities.\12\ CMOs, including agency interest-only CMOs, are
structured into multiple classes, often referred to as ``tranches,''
with each class bearing a different stated maturity and entitled to a
different schedule for payments of principal and interest, including
pre-payments.
---------------------------------------------------------------------------
\12\ According to the Registration Statement, Ginnie Mae, a
wholly owned United States Government corporation, is one of the
principal governmental guarantor [sic] of mortgage-related
securities, such as agency CMOs. Ginnie Mae is authorized to
guarantee, with the full faith and credit of the United States
Government, the timely payment of principal and interest on
securities issued by institutions approved by Ginnie Mae and backed
by pools of mortgages insured by the Federal Housing Administration
(the ``FHA''), or guaranteed by the Department of Veterans Affairs
(the ``VA''). Government-related guarantors (i.e., not backed by the
full faith and credit of the United States Government) include the
government-sponsored corporations Fannie Mae and Freddie Mac. Pass-
through securities issued by Fannie Mae are guaranteed as to timely
payment of principal and interest by Fannie Mae, but are not backed
by the full faith and credit of the United States Government.
---------------------------------------------------------------------------
The agency interest-only CMOs that the Fund may invest in include
agency stripped mortgage-backed securities (``SMBS'').\13\ According to
the Registration Statement, as CMOs have evolved, some classes of CMO
bonds have become more common. For example, the Fund may invest in
agency interest-only parallel-pay and planned amortization class
(``PAC'') CMOs and agency interest-only multi-class pass through
certificates.\14\ Any CMO or multi-class pass through structure that
includes PAC securities must also have support tranches--known as
support bonds, companion bonds or non-PAC bonds--which lend or absorb
principal cash flows to allow the PAC securities to maintain their
stated maturities and final distribution dates within a range of actual
prepayment experience. Consistent with the Fund's investment objectives
and policies, the Sub-Adviser may invest in various tranches of agency
interest-only CMO bonds, including support bonds.
---------------------------------------------------------------------------
\13\ According to the Registration Statement SMBS are derivative
multi-class mortgage securities. SMBSs may be issued by agencies or
instrumentalities of the U.S. government, or by private originators
of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks, investment banks and
special purpose entities of the foregoing. SMBSs are usually
structured with two classes that receive different proportions of
the interest and principal distributions on a pool of mortgage
assets.
\14\ According to the Registration Statement, parallel-pay CMOs
and multi-class pass-through certificates are structured to provide
payments of principal on each payment date to more than one class.
PACs generally require payments of a specified amount of principal
on each payment date. PACs are parallel-pay CMOs with the required
principal amount on such securities having the highest priority
after interest has been paid to all classes.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund may enter into
interest rate swaps. The Fund may utilize swap agreements in an attempt
to gain exposure to the securities in a market without actually
purchasing those securities, or to hedge a position. Swap agreements
are two-party contracts entered into primarily by institutional
investors for periods ranging from a day to more than one-year. In a
standard ``swap'' transaction, two parties agree to exchange the
returns (or differentials in rates of return) earned or realized on
particular predetermined investments or instruments. The gross returns
to be exchanged or ``swapped'' between the parties are calculated with
respect to a ``notional amount,'' i.e., the return on or increase in
value of a particular dollar amount invested in a ``basket'' of
securities representing a particular index.
According to the Registration Statement, the Fund's obligations
under a swap agreement will be accrued daily (offset against any
amounts owing to the Fund) and any accrued but unpaid net amounts owed
to a swap counterparty will be covered by segregating assets determined
to be liquid. The Fund will not enter into any swap agreement unless
the Adviser believes that the other party to the transaction is
creditworthy.\15\
---------------------------------------------------------------------------
\15\ The Fund will seek, where possible, to use counterparties,
as applicable, whose financial status is such that the risk of
default is reduced. The Adviser's Execution Committee will evaluate
the creditworthiness of counterparties on an ongoing basis. In
addition to information provided by credit agencies, the Adviser's
analysts will evaluate each approved counterparty using various
methods of analysis, including the counterparty's liquidity in the
event of default, the broker-dealer's reputation, the Adviser's past
experience with the broker-dealer, the Financial Industry Regulatory
Authority's (``FINRA'') BrokerCheck and disciplinary history and its
share of market participation.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund may enter into
swap agreements to invest in a market without owning or taking physical
custody of the underlying securities in circumstances in which direct
investment is restricted for legal reasons or is otherwise
impracticable.
According to the Registration Statement, the Fund intends to invest
in U.S. Treasury securities and U.S. Treasury futures. U.S. Treasury
securities are backed by the full faith and credit of the U.S. Treasury
and differ only in their interest rates, maturities, and times of
issuance. The Fund may invest in U.S. Treasury zero-coupon bonds. These
securities are U.S. Treasury bonds which have been stripped of their
unmatured interest coupons, the coupons themselves, and receipts or
certificates representing interests in such stripped debt obligations
and coupons. Interest is not paid in cash during the term of these
securities, but is accrued and paid at maturity.
[[Page 44881]]
Other Investments
While the Fund's principal investments, under normal
circumstances,\16\ will be as described above, the Fund may invest the
balance of its assets in the investments described below.
---------------------------------------------------------------------------
\16\ See note 8, supra. According to the Registration Statement,
in the absence of normal circumstances the Fund may invest 100% of
its total assets, without limitation, in debt securities and money
market instruments, either directly or through exchange traded funds
(``ETFs''). Debt securities and money market instruments include
shares of other mutual funds, commercial paper, U.S. government
securities, repurchase agreements and bonds that are rated BBB or
higher. The Fund may be invested in this manner for extended
periods, depending on the Sub-Adviser's assessment of market
conditions. While the Fund is in a defensive position, the
opportunity to achieve its investment objectives will be limited.
Furthermore, to the extent that the Fund invests in money market
mutual funds the Fund would bear its pro rata portion of each such
money market fund's advisory fees and operational expenses.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund may invest in
other mortgage-related securities in addition to the agency interest-
only CMOs described above. Such mortgage-related securities are
securities that directly or indirectly represent a participation in, or
are secured by and payable from, mortgage loans on real property. More
specifically, the Fund may hold MBS, mortgage dollar rolls,\17\ CMO
residuals,\18\ and equity or debt securities issued by agencies or
instrumentalities of the U.S. government or by private originators of,
or investors in, mortgage loans, including savings and loan
associations homebuilders, mortgage banks, commercial banks, investment
banks, partnerships, trusts, and special purpose entities of the
foregoing. In addition to the agency interest-only CMOs described
above, the MBS that the Fund will invest in are other agency CMOs, non-
agency CMOs (including non-agency SMBS) and Adjustable Rate Mortgage
Backed Securities (``ARMBS'').
---------------------------------------------------------------------------
\17\ Dollar rolls are a type of repurchase transaction in the
mortgage pass-through securities market in which the buy side trade
counterparty of a ``to be announced'' (``TBA'') trade agrees to sell
off the same TBA trade in the current month and to buy back the same
trade in a future month at a lower price, constituting a forward
contract.
\18\ According to the Registration Statement, CMO residuals are
mortgage securities issued by agencies or instrumentalities of the
U.S. government or by private originators of, or investors in,
mortgage loans. The cash flow generated by the mortgage assets
underlying a series of CMOs is applied first to make required
payments of principal and interest on the CMOs and second to pay the
related administrative expenses and any management fee of the
issuer. The residual in a CMO structure generally represents the
interest in any excess cash flow remaining after making the
foregoing payments. Transactions in CMO residuals will generally be
completed only after careful review of the characteristics of the
securities in question.
---------------------------------------------------------------------------
According to the Registration Statement, such mortgage-related
securities include privately issued mortgage-related securities, where
issuers create pass-through pools of conventional residential mortgage
loans.\19\ Timely payment of interest and principal of these pools may
be supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance and letters of
credit, which may be issued by governmental entities or private
insurers. The Fund may buy mortgage-related securities without
insurance or guarantees if, through an examination of the loan
experience and practices of the originators/servicers and poolers, the
Sub-Adviser determines that the securities meet the Trust's investment
quality standards. Privately issued mortgage-related securities are not
traded on an exchange. The Fund may purchase privately issued mortgage-
related securities that are originated, packaged and serviced by third
party entities.
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\19\ According to the Registration Statement, in determining
whether and how much to invest in privately issued mortgage-related
securities, and how to allocate those assets, the Sub-Adviser will
consider a number of factors. These include, but are not limited to:
(1) The nature of the borrowers (e.g., residential vs. commercial);
(2) the collateral loan type (e.g., for residential: First Lien--
Jumbo/Prime, First Lien--Alt-A, First Lien--Subprime, First Lien--
Pay-Option or Second Lien; for commercial: Conduit, Large Loan or
Single Asset/Single Borrower); and (3) in the case of residential
loans, whether they are fixed rate or adjustable mortgages.
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According to the Registration Statement, the Fund may invest in
asset-backed securities (``ABSs''), which are bonds backed by pools of
loans or other receivables. ABSs are created from many types of assets,
including auto loans, credit card receivables, home equity loans, and
student loans. ABSs are issued through special purpose vehicles that
are bankruptcy remote from the issuer of the collateral. According to
the Registration Statement, the Fund may invest in each of
collateralized bond obligations (``CBOs''), collateralized loan
obligations (``CLOs''), other collateralized debt obligations
(``CDOs'') and other similarly structured securities. CBOs, CLOs and
other CDOs are types of ABS. A CBO is a trust which is often backed by
a diversified pool of high risk, below investment grade fixed income
securities. The collateral can be from many different types of fixed
income securities such as high yield debt, residential privately issued
mortgage-related securities, commercial privately issued mortgage-
related securities, trust preferred securities and emerging market
debt. A CLO is a trust typically collateralized by a pool of loans,
which may include, among others, domestic and foreign senior secured
loans, senior unsecured loans, and subordinate corporate loans,
including loans that may be rated below investment grade or equivalent
unrated loans. Other CDOs are trusts backed by other types of assets
representing obligations of various parties. Normally, CBOs, CLOs and
other CDOs are privately offered and sold, and thus, are not registered
under the securities laws.
According to the Adviser, the Fund will limit investments in ABS
and MBS that are issued or guaranteed by non-government entities to 15%
of the Fund's net assets.
According to the Registration Statement, in addition to interest-
only swaps and interest rate swaps, which are primary investments, the
Fund may enter into other types of swap agreements. The swap agreements
will have MBS as reference assets, including CMOs.
According to the Registration Statement, the Fund may invest
directly and indirectly in foreign currencies. The Fund 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). Forward contracts are generally traded in an interbank
market directly between currency traders (usually large commercial
banks) and their customers. At the discretion of the Adviser, the Fund
may, but is not obligated to, 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 in an effort to achieve the Fund's
investment objective.
According to the Registration Statement, the Fund may invest in
equity securities. The Fund may invest in common stock, preferred
stock, warrants, convertible securities, master limited partnerships
(``MLPs'') and rights. 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. MLPs are limited partnerships in which the ownership units
are publicly traded.
According to the Registration Statement, the Fund may invest in
shares of exchange traded real estate investment trusts (``REITs'').
REITs are
[[Page 44882]]
pooled investment vehicles which invest primarily in real estate or
real estate related loans. REITs are generally classified as equity
REITs, mortgage REITs or a combination of equity and mortgage REITs.
According to the Registration Statement, the Fund may invest in
exchange-traded notes (``ETNs'').\20\ It is expected that the ETN
issuer's credit rating will be investment grade at the time of
investment.
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\20\ ETNs are securities listed and traded on the Exchange under
NYSE Arca Equities Rule 5.2(j)(6) (``Index-Linked Securities'').
ETNs are senior, unsecured unsubordinated debt securities issued by
an underwriting bank that are designed to provide returns that are
linked to a particular benchmark less investor fees. ETNs have a
maturity date and, generally, are backed only by the
creditworthiness of the issuer.
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According to the Registration Statement, in addition to the U.S.
Treasury debt securities described above, the Fund intends to invest in
other fixed income securities. The fixed income securities the Fund may
invest in are variable and floating rate instruments; bank obligations,
including certificates of deposit, bankers' acceptances, and fixed time
deposits; commercial paper; U.S. government securities other than U.S.
Treasuries; \21\ municipal securities; repurchase agreements; reverse
repurchase agreements; corporate debt securities; convertible
securities; and MBS. Some debt securities, such as zero coupon bonds,
do not make regular interest payments but are issued at a discount to
their principal or maturity value. Except as discussed herein, the Fund
may invest in investment-grade debt securities, non-investment-grade
debt securities, and unrated debt securities.\22\ The Fund may invest
assets in obligations of foreign banks which meet the conditions set
forth herein.
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\21\ According to the Registration Statement, some obligations
issued or guaranteed by U.S. government agencies and
instrumentalities, including, for example, Ginnie Mae pass-through
certificates, are supported by the full faith and credit of the U.S.
Treasury. Other obligations issued by or guaranteed by federal
agencies, such as those securities issued by Fannie Mae, are
supported by the discretionary authority of the U.S. government to
purchase certain obligations of the federal agency, while other
obligations issued by or guaranteed by federal agencies, such as
those of the Federal Home Loan Banks, are supported by the right of
the issuer to borrow from the U.S. Treasury.
\22\ According to the Registration Statement, non-investment-
grade securities, also referred to as ``high yield securities'' or
``junk bonds,'' are debt securities that are rated lower than the
four highest rating categories by a nationally recognized
statistical rating organization (for example, lower than Baa3 by
Moody's Investors Service, Inc. (``Moody's'') or lower than BBB- by
Standard and Poor's Ratings Services (``S&P'')) or are determined to
be of comparable quality by the Fund's Sub-Adviser. The
creditworthiness of the issuer, as well as any financial institution
or other party responsible for payments on the security, will be
analyzed by the Sub-Adviser to determine whether to purchase unrated
bonds.
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According to the Registration Statement, the Fund may seek to
invest in corporate debt securities representative of one or more high
yield bond or credit derivative indices, which may change from time to
time. Selection will generally be dependent on independent credit
analysis or fundamental analysis performed by the Sub-Adviser.
According to the Registration Statement, the Fund may enter into
repurchase agreements with financial institutions, which may be deemed
to be loans. The Fund will effect repurchase transactions only with
large, well-capitalized and well-established financial institutions
whose condition will be continually monitored by the Sub-Adviser.
According to the Registration Statement, the Fund may enter into
reverse repurchase agreements. Reverse repurchase agreements involve
sales by the Fund of portfolio assets concurrently with an agreement by
the Fund to repurchase the same assets at a later date at a fixed
price.
According to the Registration Statement, the Fund will only invest
in commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by
Moody's.
According to the Registration Statement, the Fund may invest in
inflation-indexed bonds, which are fixed income securities whose
principal value is periodically adjusted according to the rate of
inflation.
According to the Registration Statement, the Fund may invest in
securities that are indirectly linked to the performance of foreign
issuers, specifically: American Depositary Receipts (``ADRs''), Global
Depositary Receipts (``GDRs''), European Depositary Receipts
(``EDRs''), International Depository Receipts (``IDRs''), ``ordinary
shares,'' ``New York shares'' issued and traded in the U.S.\23\ and
exchange traded products (``ETPs'').
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\23\ ADRs are U.S. dollar denominated receipts typically issued
by U.S. banks and trust companies that evidence ownership of
underlying securities issued by a foreign issuer. The underlying
securities may not necessarily be denominated in the same currency
as the securities into which they may be converted. Generally, ADRs
are designed for use in domestic securities markets and are traded
on exchanges or OTC in the U.S. GDRs, EDRs, and IDRs are similar to
ADRs in that they are certificates evidencing ownership of shares of
a foreign issuer; however, GDRs, EDRs, and IDRs may be issued in
bearer form and denominated in other currencies, and are generally
designed for use in specific or multiple securities markets outside
the U.S. EDRs, for example, are designed for use in European
securities markets while GDRs are designed for use throughout the
world. Ordinary shares are shares of foreign issuers that are traded
abroad and on a U.S. exchange. New York shares are shares that a
foreign issuer has allocated for trading in the U.S. ADRs, ordinary
shares, and New York shares all may be purchased with and sold for
U.S. dollars. With the exception of ADRs traded OTC, which will
comprise no more than 10% of the Fund's net assets, all equity
securities, including, without limitation, exchange-traded ADRs,
GDRs, EDRs, IDRs, New York shares and ordinary shares, that the Fund
may invest in will trade on markets that are members of the ISG or
that have entered into a comprehensive surveillance agreement with
the Exchange.
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According to the Registration Statement, the Fund may invest in the
securities of other investment companies to the extent that such an
investment would be consistent with the requirements of Section
12(d)(1) of the 1940 Act, or any rule, regulation or order of the SEC
or interpretation thereof. Consistent with such restrictions, the Fund
may invest in several different types of investment companies from time
to time, including mutual funds, ETFs, closed-end funds, and business
development companies (``BDCs''), when the Adviser or the Sub-Adviser
believes such an investment is in the best interests of the Fund and
its shareholders. Closed-end funds are pooled investment vehicles that
are registered under the 1940 Act and whose shares are listed and
traded on U.S. national securities exchanges. A BDC is a less common
type of closed-end investment company that more closely resembles an
operating company than a typical investment company. Investment
companies may include index-based investments, such as ETFs that hold
substantially all of their assets in securities representing a specific
index.
According to the Registration Statement, in addition to the U.S.
Treasury Futures, Agency MBS IOS and interest rate swaps discussed
above, the Fund intends to invest in other derivatives. The derivatives
in which the Fund may invest are other futures contracts, forward
contracts,\24\ options, options on futures, other swaps, hybrid
instruments and structured notes. The Fund typically will use
derivatives as a substitute for taking a position directly in the
underlying asset and/or as part of a strategy designed to reduce
exposure to other risks, such as currency risk. Not more than 10% of
the net assets of the Fund in the aggregate shall consist of options
whose principal market is not a member of ISG or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement.
---------------------------------------------------------------------------
\24\ Specifically, in addition to the forward currency exchange
contracts discussed above, the Fund may invest in mortgage dollar
rolls, which constitute forward contracts.
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[[Page 44883]]
According to the Registration Statement, the Fund will only enter
into futures contracts that are traded on a national futures exchange
regulated by the Commodities Futures Trading Commission (``CFTC'') and
whose principal market is a member of ISG or is a market with which the
Exchange has a comprehensive surveillance sharing agreement.\25\ The
Fund will only use futures contracts that have U.S. Treasury securities
and interest rate swaps as their underlying reference assets. The Fund
may use futures contracts and options on futures for bona fide hedging;
attempting to offset changes in the value of securities held or
expected to be acquired or be disposed of; attempting to gain exposure
to a particular market, index or instrument; or other risk management
purposes. An option on a futures contract gives the purchaser the
right, in exchange for a premium, to assume a position in a futures
contract at a specified exercise price during the term of the option.
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\25\ To the extent the Fund invests in futures, options on
futures or other instruments subject to regulation by the CFTC, it
will do so in reliance on and in compliance with CFTC regulations in
effect from time to time and in accordance with the Fund's policies.
The Trust, on behalf of certain of its series, has filed a notice of
eligibility for exclusion from the definition of the term
``commodity pool operator'' in accordance with CFTC Regulation 4.5.
Therefore, neither the Trust nor the Fund is deemed to be a
``commodity pool'' or ``commodity pool operator'' with respect to
the Fund under the Commodity Exchange Act (``CEA''), and they are
not subject to registration or regulation as such under the CEA. In
addition, as of the date of this filing, the Adviser is not deemed
to be a ``commodity pool operator'' or ``commodity trading adviser''
with respect to the advisory services it provides to the Fund. The
CFTC recently adopted amendments to CFTC Regulation 4.5 and has
proposed additional regulatory requirements that may affect the
extent to which the Fund invests in instruments that are subject to
regulation by the CFTC and impose additional regulatory obligations
on the Fund and the Adviser. The Fund reserves the right to engage
in transactions involving futures, options thereon and swaps to the
extent allowed by CFTC regulations in effect from time to time and
in accordance with the Fund's policies.
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According to the Registration Statement, the Fund may write (sell)
and purchase put and call options on indices and enter into related
closing transactions. According to the Registration Statement, the Fund
may trade put and call options on securities, securities indices and
currencies, as the Sub-Adviser determines is appropriate in seeking the
Fund's investment objective, and except as restricted by the Fund's
investment limitations. The Fund may purchase put and call options on
securities to protect against a decline in the market value of the
securities in its portfolio or to anticipate an increase in the market
value of securities that the Fund may seek to purchase in the future.
The Fund may write covered call options on securities as a means of
increasing the yield on its assets and as a means of providing limited
protection against decreases in its market value. The Fund may purchase
and write options on an exchange or OTC.
According to the Registration Statement, the Fund may invest in
hybrid instruments. A hybrid instrument is a type of potentially high-
risk derivative that combines a traditional stock, bond, or commodity
with an option or forward contract. Generally, the principal amount,
amount payable upon maturity or redemption, or interest rate of a
hybrid is tied (positively or negatively) to the price of some
security, commodity, currency or securities index or another interest
rate or some other economic factor (each a ``benchmark''). The interest
rate or (unlike most fixed income securities) the principal amount
payable at maturity of a hybrid security may be increased or decreased,
depending on changes in the value of the benchmark.
According to the Registration Statement, certain hybrid instruments
may provide exposure to the commodities markets. These are derivative
securities with one or more commodity-linked components that have
payment features similar to commodity futures contracts, commodity
options, or similar instruments. Commodity-linked hybrid instruments
may be either equity or debt securities, and are considered hybrid
instruments because they have both security and commodity-like
characteristics. A portion of the value of these instruments may be
derived from the value of a commodity, futures contract, index or other
economic variable. The Fund will only invest in commodity-linked hybrid
instruments that qualify, under applicable rules of the CFTC, for an
exemption from the provisions of the CEA.
According to the Registration Statement, the Fund may invest in
structured notes, which are debt obligations that also contain an
embedded derivative component with characteristics that adjust the
obligation's risk/return profile. Generally, the performance of a
structured note will track that of the underlying debt obligation and
the derivative embedded within it. The Fund have the right to receive
periodic interest payments from the issuer of the structured notes at
an agreed-upon interest rate and a return of the principal at the
maturity date.
According to the Registration Statement, the Fund, from time to
time, in the ordinary course of business, may purchase securities on a
when-issued, delayed-delivery or forward commitment basis (i.e.,
delivery and payment can take place between a month and 120 days after
the date of the transaction). The Fund will not purchase securities on
a when-issued, delayed-delivery or forward commitment basis if, as a
result, more than 15% of the Fund's net assets would be so invested.
Investment Restrictions
According to the Registration Statement, the Fund may not purchase
or sell commodities or commodity contracts unless acquired as a result
of ownership of securities or other instruments issued by persons that
purchase or sell commodities or commodities contracts; but this shall
not prevent the Fund from purchasing, selling and entering into futures
contracts, options on financial futures contracts, warrants, swaps,
forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities.
The Fund will only use futures contracts that have U.S. Treasury
securities and interest rate swaps as their underlying assets.
According to the Registration Statement, the Fund may not, with
respect to 75% of its total assets, purchase securities of any issuer
(except securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities or shares of investment companies) if, as
a result, more than 5% of its total assets would be invested in the
securities of such issuer; or acquire more than 10% of the outstanding
voting securities of any one issuer.\26\
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\26\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act. According to the Registration Statement, in
the case of privately issued mortgage-related securities, the Fund
takes the position that mortgage-related securities do not represent
interests in any particular ``industry'' or group of industries.
Therefore, the Fund may invest more or less than 25% of its total
assets in privately issued mortgage-related securities.
---------------------------------------------------------------------------
According to the Registration Statement, the Fund may not invest
25% or more of its total assets in the securities of one or more
issuers conducting their principal business activities in the same
industry or group of industries. This limitation does not apply to
investments in securities issued or guaranteed by the U.S. government,
its agencies or instrumentalities, or shares of investment companies.
The Fund will
[[Page 44884]]
not invest 25% or more of its total assets in any investment company
that so concentrates.\27\
---------------------------------------------------------------------------
\27\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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According to the Registration Statement, the Fund may hold up to an
aggregate amount of 15% of its net assets in illiquid assets
(calculated at the time of investment), including securities deemed
illiquid by the Adviser consistent with Commission guidance. The Fund
will monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid assets. Illiquid assets include
securities subject to contractual or other restrictions on resale and
other instruments that lack readily available markets as determined in
accordance with Commission staff guidance.\28\
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\28\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also, Investment Company
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31,
1970) (Statement Regarding ``Restricted Securities''); Investment
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio
security is illiquid if it cannot be disposed of in the ordinary
course of business within seven days at approximately the value
ascribed to it by the fund. See Investment Company Act Release No.
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act.
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According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment Company under the
Internal Revenue Code.\29\
---------------------------------------------------------------------------
\29\ 26 U.S.C. 851.
---------------------------------------------------------------------------
The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage.
According to the Registration Statement, while the Fund does not
anticipate doing so, the Fund may borrow money for investment purposes.
The Fund may also borrow money to facilitate management of the Fund's
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio instruments would be inconvenient or
disadvantageous. Such borrowing is not for investment purposes, will be
repaid by the Fund promptly and will be consistent with the
requirements of the 1940 Act and the rules thereunder.
According to the Registration Statement, the Fund may lend
portfolio securities to brokers, dealers and other financial
organizations that meet capital and other credit requirements or other
criteria established by the Fund's Board of Trustees. These loans, if
and when made, may not exceed 33\1/3\% of the total asset value of the
Fund (including the loan collateral). The Fund will not lend portfolio
securities to the Adviser, Sub-Adviser, or their affiliates, unless it
has applied for and received specific authority to do so from the
Commission. Loans of portfolio securities will be fully collateralized
by cash, letters of credit or U.S. government securities, and the
collateral will be maintained in an amount equal to at least 100% of
the current market value of the loaned securities by marking to market
daily.
Net Asset Value
According to the Registration Statement, the Fund will calculate
its NAV by: (i) Taking the current market value of its total assets;
(ii) subtracting any liabilities; and (iii) dividing that amount by the
total number of Shares owned by shareholders. The Fund will calculate
NAV once each business day as of the regularly scheduled close of
trading on the Exchange (normally, 4:00 p.m., Eastern Time).
In calculating NAV, the Fund's securities holdings will be valued
based on their last readily available market price.
Futures contracts, exchange-traded options, and options on futures,
will be valued at the closing settlement price determined by the
applicable exchange. Other exchange-traded securities, including equity
securities (including ETPs such as exchange-traded ADRs, GDRs, EDRs,
IDRs, ordinary shares, New York shares, ETNs, and ETFs), and exchange-
traded REITs, will be valued at market value, which will generally be
determined using the last reported official closing or last trading
price on the exchange or market on which the security is primarily
traded at the time of valuation or, if no sale has occurred, at the
last quoted bid price on the primary market or exchange on which they
are traded. If market prices are unavailable or the Fund believes that
they are unreliable, or when the value of a security has been
materially affected by events occurring after the relevant market
closes, the Fund will price those securities at fair value as
determined in good faith using methods approved by the Trust's Board of
Trustees.
ADRs traded OTC will be valued on the basis of the market closing
price on the exchange where the stock of the foreign issuer that
underlies the ADR is listed. Investment company securities (other than
ETFs), including mutual funds, closed end funds, and BDCs, will be
valued at net asset value.
Non-exchange-traded derivatives, including forward contracts,
swaps, options traded OTC, options on futures traded OTC, hybrid
instruments and structured notes, will normally be valued on the basis
of quotes obtained from brokers and dealers or pricing services using
data reflecting the earlier closing of the principal markets for those
assets. Prices obtained from independent pricing services use
information provided by market makers or estimates of market values
obtained from yield data relating to investments or securities with
similar characteristics.
Fixed income securities, including CMOs (including agency interest-
only CMOs), CMO residuals, mortgage dollar rolls, U.S. Treasury
securities, other obligations issued or guaranteed by U.S. government
agencies and instrumentalities, bonds, bank obligations, ABS, MBS,
shares of other mutual funds, commercial paper, repurchase agreements,
reverse repurchase agreements, corporate debt securities, municipal
securities, convertible securities, certificates of deposits and
bankers' acceptances generally trade in the OTC market rather than on a
securities exchange. The Fund will generally value these portfolio
assets by relying on independent pricing services. The Fund's pricing
services will use valuation models or matrix pricing to determine
current value. In general, pricing services use information with
respect to comparable bond and note transactions, quotations from bond
dealers or by reference to other assets that are considered comparable
in such characteristics as rating, interest rate, maturity date, option
adjusted spread models, prepayment projections, interest rate spreads
and yield curves. Matrix price is an estimated price or value for a
fixed-income security. Matrix pricing is considered a form of fair
value pricing. The Fund's debt securities will generally be valued at
bid prices. In certain cases, some of the Fund's debt securities may be
valued at the mean between the last available bid and ask prices.
Foreign exchange rates will be priced using 4:00 p.m. (Eastern
Time) mean prices from major market data vendors.
[[Page 44885]]
Creation and Redemption of Shares
According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis at NAV in aggregated lots which
shall initially be of 25,000 Shares (each, a ``Creation Unit'').
All orders to create or redeem Creation Units must be received by
the Distributor no later than 3:00 p.m., Eastern Time in order for the
creation or redemption of Creation Units to be effected based on the
NAV of Shares of the Fund as next determined on such date.
The Trust reserves the right to offer an ``all cash'' option for
creations and redemptions of Creation Units for the Fund.\30\
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\30\ The Adviser represents that, to the extent the Trust
effects the creation of Shares in cash, such transactions will be
effected in the same manner for all authorized participants.
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The consideration for purchase of a Creation Unit of each Fund
generally will consist of an in-kind deposit of a designated portfolio
of securities--the ``Deposit Securities''--per each Creation Unit
constituting a substantial replication, or a representation, of the
securities included in the Fund's portfolio and an amount of cash--the
``Cash Component.'' Together, the Deposit Securities and the Cash
Component will constitute the ``Fund Deposit,'' which represents the
minimum initial and subsequent investment amount for a Creation Unit of
the Fund. The Cash Component is an amount equal to the difference
between the NAV of the Shares of the Fund (per Creation Unit) and the
market value of the Deposit Securities.
In addition, the Trust reserves the right to permit or require the
substitution of an amount of cash--i.e., a ``cash in lieu'' amount--to
be added to the Cash Component to replace any Deposit Security which
may not be available in sufficient quantity for delivery or which may
not be eligible for transfer through the clearing process, or which may
not be eligible for trading by an authorized participant or the
investor for which it is acting.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through the Administrator and only on a business day. The Trust
will not redeem Shares of the Fund in amounts less than Creation Units.
Unless cash redemptions are available or specified, the redemption
proceeds for a Creation Unit generally will consist of ``the Fund
Securities''--as announced by the Administrator on the business day of
the request for redemption received in proper form--plus cash in an
amount equal to the difference between the NAV of the Shares being
redeemed, as next determined after a receipt of a request in proper
form, and the value of the Fund Securities, less a redemption
transaction fee. The Administrator, through the National Securities
Clearing Corporation (``NSCC''), will make available immediately prior
to the opening of business on the Exchange (currently 9:30 a.m.,
Eastern Time) on each business day, the Fund Securities that will be
applicable to redemption requests received in proper form on that day
as well as the estimated Cash Component.
According to the Registration Statement, if it is not possible to
effect deliveries of the Fund Securities, for example if the investor
is not able to accept delivery, the Trust may in its discretion
exercise its option to redeem Shares of the Fund in cash, and the
redeeming beneficial owner will be required to receive its redemption
proceeds in cash. In addition, an investor may request a redemption in
cash which the Fund may, in its sole discretion, permit.\31\ In either
case, the investor will receive a cash payment equal to the NAV of its
Shares based on the NAV of Shares of the Fund next determined after the
redemption request is received in proper form (minus a redemption
transaction fee and additional charge for requested cash redemptions,
as described in the Registration Statement). The Fund may also, in its
sole discretion, upon request of a shareholder, provide such redeemer a
portfolio of securities which differs from the exact composition of the
applicable Fund Securities but does not differ in NAV.
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\31\ The Adviser represents that, to the extent the Trust
effects the redemption of Shares in cash, such transactions will be
effected in the same manner for all authorized participants.
---------------------------------------------------------------------------
Redemptions of Shares for Fund Securities will be subject to
compliance with applicable federal and state securities laws and the
Fund (whether or not it otherwise permits cash redemptions) reserves
the right to redeem Creation Units for cash to the extent that the Fund
could not lawfully deliver specific Fund Securities upon redemptions or
could not do so without first registering the Fund Securities under
such laws. An authorized participant or an investor for which it is
acting subject to a legal restriction with respect to a particular
stock included in the Fund Securities applicable to the redemption of a
Creation Unit may be paid an equivalent amount of cash.
Availability of Information
The Fund's Web site (www.advisorshares.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\32\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Fund's Web site will disclose the Disclosed Portfolio that will form
the basis for the Fund's calculation of NAV at the end of the business
day.\33\
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\32\ The Bid/Ask Price of the Fund is determined using the mid-
point of the highest bid and the lowest offer on the Exchange as of
the time of calculation of the Fund's NAV. The records relating to
Bid/Ask Prices will be retained by the Fund and its service
providers.
\33\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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On a daily basis, the Adviser, on behalf of the Fund, will disclose
on the Fund's Web site the following information regarding each
portfolio holding of the Fund, as applicable to the type of holding:
Ticker symbol, CUSIP number or other identifier, if any; a description
of the holding (including the type of holding, such as the type of
swap); the identity of the security, commodity, index, or other asset
or instrument underlying the holding, if any; for options, the option
strike price; quantity held (as measured by, for example, par value,
notional value or number of shares, contracts or units); maturity date,
if any; coupon rate, if any; effective date, if any; market value of
the holding; and the percentage weighting of the holding in the Fund's
portfolio. The Web site information will be publicly available at no
charge.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports will be
[[Page 44886]]
available free upon request from the Trust, and those documents and the
Form N-CSR and Form N-SAR may be viewed on-screen or downloaded from
the Commission's Web site at www.sec.gov. Information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services. Information regarding the previous day's
closing price and trading volume information for the Shares will be
published daily in the financial section of newspapers.
Quotation and last sale information for the Shares and the
underlying U.S. exchange-traded equity securities will be available via
the Consolidated Tape Association (``CTA'') high-speed line, and from
the national securities exchange on which they are listed. Quotation
and last sale information for exchange-listed options will be available
via the Options Price Reporting Authority. Price information regarding
the futures contracts, exchange-traded options, options on futures,
equity securities (including ETPs such as exchange-listed ADRs, GDRs,
EDRs, IDRs, ordinary shares and New York shares as well as ETNs, and
ETFs), and exchange-traded REITs, held by the Fund will be available
from the U.S. and non-U.S. exchanges trading such assets.
Quotation information from brokers and dealers or pricing services
will be available for ADRs traded OTC; investment company securities
other than ETFs; non-exchange-traded derivatives, including forward
contracts, IOS and other swaps, options traded OTC, options on futures,
hybrid instruments and structured notes; fixed income securities,
including CMOs (including agency interest-only CMOs), CMO residuals,
mortgage dollar rolls, U.S. Treasury securities, other obligations
issued or guaranteed by U.S. government agencies and instrumentalities,
bonds, bank obligations, ABS, MBS, shares of other mutual funds,
commercial paper, repurchase agreements, reverse repurchase agreements,
corporate debt securities, municipal securities, convertible
securities, certificates of deposit and bankers' acceptances. Pricing
information regarding each asset class in which the Fund will invest is
generally available through nationally recognized data service
providers through subscription agreements. Foreign exchange prices are
available from major market data vendors.
In addition, the Portfolio Indicative Value, as defined in NYSE
Arca Equities Rule 8.600(c)(3), will be widely disseminated at least
every 15 seconds during the Core Trading Session by one or more major
market data vendors.\34\ The dissemination of the Portfolio Indicative
Value, together with the Disclosed Portfolio, will allow investors to
determine the value of the underlying portfolio of the Fund on a daily
basis and will provide a close estimate of that value throughout the
trading day.
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\34\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
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Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement. All terms relating
to the Fund that are referred to, but not defined in, this proposed
rule change are defined in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\35\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted.
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\35\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern Time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the actual
components of the Fund's portfolio. The Exchange represents that, for
initial and/or continued listing, the Fund will be in compliance with
Rule 10A-3 \36\ under the Exchange Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares will be outstanding at
the commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
as defined in NYSE Arca Equities Rule 8.600(c)(2) will be made
available to all market participants at the same time.
---------------------------------------------------------------------------
\36\ 17 CFR 240.10A-3.
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Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by FINRA on behalf
of the Exchange, which are designed to detect violations of Exchange
rules and applicable federal securities laws. The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities
laws.\37\
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\37\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.\38\
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\38\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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[[Page 44887]]
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, exchange-listed equity securities,
futures contracts and exchange-listed options contracts with other
markets and other entities that are members of the ISG and FINRA, on
behalf of the Exchange, may obtain trading information regarding
trading in the Shares, exchange-listed equity securities, futures
contracts and exchange-listed options contracts from such markets and
other entities. In addition, the Exchange may obtain information
regarding trading in the Shares, exchange-listed equity securities,
futures contracts and exchange-listed options contracts from markets
and other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. As noted
above, with the exception of ADRs traded OTC, which will comprise no
more than 10% of the Fund's net assets, all equity securities,
including, without limitation, exchange-traded ADRs, GDRs, EDRs, IDRs,
New York shares and ordinary shares, that the Fund may invest in will
trade on markets that are members of ISG or that have entered into a
comprehensive surveillance agreement with the Exchange. In addition,
FINRA, on behalf of the Exchange, is able to access, as needed, trade
information for certain fixed income securities held by the Fund
reported to FINRA's Trade Reporting and Compliance Engine (``TRACE'').
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'')
of the special characteristics and risks associated with trading the
Shares. Specifically, the Bulletin will discuss the following: (1) The
procedures for purchases and redemptions of Shares in Creation Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its Equity Trading Permit Holders to learn the essential facts
relating to every customer prior to trading the Shares; (3) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated Portfolio Indicative Value will not be
calculated or publicly disseminated; (4) how information regarding the
Portfolio Indicative Value is disseminated; (5) the requirement that
Equity Trading Permit Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (6) trading information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. Eastern Time each trading day.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5) \39\ that an exchange have rules
that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\39\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. FINRA, on behalf of the Exchange,
will communicate as needed regarding trading in the Shares, exchange-
listed equity securities, futures contracts and exchange-listed options
contracts with other markets and other entities that are members of the
ISG and FINRA, on behalf of the Exchange, may obtain trading
information regarding trading in the Shares, exchange-listed equity
securities, futures contracts and exchange-listed options contracts
from such markets and other entities. In addition, the Exchange may
obtain information regarding trading in the Shares, exchange-listed
equity securities, futures contracts and exchange-listed options
contracts from markets and other entities that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement. As noted above, with the exception of ADRs traded
OTC, which will comprise no more than 10% of the Fund's net assets, all
equity securities, including, without limitation, exchange-traded ADRs,
GDRs, EDRs, IDRs, New York shares and ordinary shares, and Treasury
futures that the Fund may invest in will trade on markets that are
members of ISG or that have entered into a comprehensive surveillance
agreement with the Exchange. In addition, FINRA, on behalf of the
Exchange, is able to access, as needed, trade information for certain
fixed income securities held by the Fund reported to TRACE. Not more
than 10% of the net assets of the Fund in the aggregate shall consist
of options whose principal market is not a member of ISG or is a market
with which the Exchange does not have a comprehensive surveillance
sharing agreement. The Fund will limit investments in ABS and MBS that
are issued or guaranteed by non-government entities to 15% of the
Fund's net assets. The Fund may not purchase or hold illiquid assets
if, in the aggregate, more than 15% of its net assets would be invested
in illiquid securities. The Exchange may obtain information via ISG
from other exchanges that are members of ISG or with which the Exchange
has entered into a comprehensive surveillance sharing agreement.
Neither the Adviser nor the Sub-Adviser is a broker-dealer or is
affiliated with a broker-dealer. In the event (a) the Adviser becomes
newly affiliated with a broker-dealer, (b) the Sub-Adviser becomes
newly affiliated with a broker-dealer, or (c) any new adviser or sub-
adviser becomes affiliated with a broker-dealer, it will implement a
fire wall with respect to such broker-dealer regarding access to
information concerning the composition and/or changes to the portfolio,
and will be subject to procedures designed to prevent the use and
dissemination of material non-public information regarding such
portfolio. The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Quotation and last sale
information for the Shares and the
[[Page 44888]]
underlying U.S. exchange-traded equity securities will be available via
the CTA high-speed line, and from the national securities exchange on
which they are listed. Quotation and last sale information for
exchange-listed options will be available via the Options Price
Reporting Authority. Price information regarding the futures contracts,
exchange-traded options, options on futures, equity (including ETPs
such as ADRs traded OTC, GDRs, EDRs, IDRs, ordinary shares and New York
shares as well as ETNs, and ETFs), and exchange-traded REITs, held by
the Fund will be available from the U.S. and non-U.S. exchanges trading
such assets. Quotation information from brokers and dealers or pricing
services will be available for ADRs traded OTC; investment company
securities other than ETFs; non-exchange-traded derivatives, including
forward contracts, IOS and other swaps, options traded OTC, options on
futures, hybrid instruments and structured notes; fixed income
securities, including CMOs (including agency interest-only CMOs), CMO
residuals, mortgage dollar rolls, U.S. Treasury securities, other
obligations issued or guaranteed by U.S. government agencies and
instrumentalities, bonds, bank obligations, ABS, MBS, shares of other
mutual funds, commercial paper, repurchase agreements, reverse
repurchase agreements, corporate debt securities, municipal securities,
convertible securities, certificates of deposit and bankers'
acceptances. Pricing information regarding each asset class in which
the Fund will invest is generally available through nationally
recognized data service providers through subscription agreements.
Foreign exchange prices are available from major market data vendors.
In addition, the Portfolio Indicative Value will be widely disseminated
by the Exchange at least every 15 seconds during the Core Trading
Session. The Fund's Web site will include a form of the prospectus for
the Fund that may be downloaded, as well as additional quantitative
information updated on a daily basis. On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Fund's Web site will disclose the Disclosed Portfolio
that will form the basis for the Fund's calculation of NAV at the end
of the business day. On a daily basis, the Adviser, on behalf of the
Fund, will disclose on the Fund's Web site the following information
regarding each portfolio holding of the Fund, as applicable to the type
of holding: ticker symbol, CUSIP number or other identifier, if any; a
description of the holding (including the type of holding, such as the
type of swap); the identity of the security, commodity, index, or other
asset or instrument underlying the holding, if any; for options, the
option strike price; quantity held (as measured by, for example, par
value, notional value or number of shares, contracts or units);
maturity date, if any; coupon rate, if any; effective date, if any;
market value of the holding; and the percentage weighting of the
holding in the Fund's portfolio. Moreover, prior to the commencement of
trading, the Exchange will inform its Equity Trading Permit Holders in
an Information Bulletin of the special characteristics and risks
associated with trading the Shares. Trading in Shares of the Fund will
be halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached or because of market conditions or for reasons
that, in the view of the Exchange, make trading in the Shares
inadvisable. Trading in the Shares will be subject to NYSE Arca
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the Portfolio Indicative Value, the Disclosed Portfolio, and
quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation
and last sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Exchange Act. The Exchange notes
that the proposed rule change will facilitate the listing and trading
of an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2014-71 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2014-71. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the
[[Page 44889]]
Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for Web site viewing and printing in
the Commission's Public Reference Section, 100 F Street NE.,
Washington, DC 20549 on official business days between 10 a.m. and 3
p.m. Copies of the filing will also be available for inspection and
copying at the Exchange's principal office and on its Internet Web site
at www.nyse.com. All comments received will be posted without change;
the Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSEArca-2014-71 and should be submitted on or before August 22, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\40\
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\40\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-18114 Filed 7-31-14; 8:45 am]
BILLING CODE 8011-01-P
