Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a Proposed Rule Change To List and Trade Shares of the Treesdale Rising Rates ETF Under NYSE Arca Equities Rule 8.600, 55845-55848 [2014-22117]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 79, Number 180 (Wednesday, September 17, 2014)]
[Notices]
[Pages 55845-55848]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-22117]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73082; File No. SR-NYSEArca-2014-71]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change To List and Trade Shares of the Treesdale Rising 
Rates ETF Under NYSE Arca Equities Rule 8.600

September 11, 2014.
    On July 14, 2014, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission (the 
``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Treesdale Rising Rates ETF (``Fund''). The proposed rule change was 
published for comment in the Federal Register on August 1, 2014.\4\ No 
comments have been received regarding the proposed rule change. This 
order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 72679 (July 28, 
2014), 79 FR 44878 (``Notice'').
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I. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares.\5\ The Shares will be offered by AdvisorShares Trust 
(``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 is the principal 
underwriter and distributor of the Fund's Shares. The Bank of New York 
Mellon serves as the administrator, custodian, transfer agent and fund 
accounting agent for the Fund.
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    \5\ 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.
    \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 
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).
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    The Exchange represents that neither the Adviser nor the Sub-
Adviser is a broker-dealer or is affiliated with a broker-dealer, and 
that 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\
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    \7\ See Notice, supra note 4, 79 FR at 44879.
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    The Exchange has made the following representations and statements 
regarding the Fund.\8\ The Fund will seek to generate current income 
while providing protection for investors against loss of principal in a 
rising interest rate environment. The Fund will seek to achieve its 
investment objectives by investing, under normal circumstances,\9\ at 
least 80% of its net assets in positions in agency interest-only 
collateralized mortgage obligations (``CMOs''),\10\ 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,\11\ U.S. 
Treasury obligations, including U.S. Treasury zero-coupon bonds, and 
U.S. Treasury futures.\12\ 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

[[Page 55846]]

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,\13\ 
all the Fund's principal investments will be U.S. dollar-denominated 
and traded over the counter (``OTC''). The overall duration of the 
Fund's portfolio will generally range from -5 to -15 years.\14\
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    \8\ Additional information regarding the Trust, the Fund, and 
the Shares, investment strategies, investment restrictions, risks, 
net asset value (``NAV'') calculation, creation and redemption 
procedures, fees, portfolio holdings, disclosure policies, 
distributions, and taxes, among other information, is included in 
the Notice and the Registration Statement, as applicable. See Notice 
and Registration Statement, supra notes 4 and 6, respectively.
    \9\ 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. 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.
    \10\ The agency interest-only CMOs that the Fund may invest in 
include agency stripped mortgage-backed securities (``SMBS''), which 
are derivative multi-class mortgage securities.
    \11\ 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. 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.
    \12\ The Fund will only use futures contracts that have U.S. 
Treasury securities and interest rate swaps as their underlying 
reference assets.
    \13\ 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.
    \14\ 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.
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Other Investments

    Under normal circumstances, the Fund may invest the balance of its 
assets in the investments described below.
    The Fund may invest in other mortgage-related securities in 
addition to the agency interest-only CMOs described above. More 
specifically, the Fund may hold: MBS; mortgage dollar rolls; \15\ CMO 
residuals; \16\ 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.
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    \15\ 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.
    \16\ 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.
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    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. The Fund also may invest in asset-backed securities 
(``ABSs''), which are bonds backed by pools of loans or other 
receivables.\17\ 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.\18\
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    \17\ ABSs are created from many types of assets, including auto 
loans, credit card receivables, home equity loans, and student 
loans. Collateralized bond obligations (``CBOs''), collateralized 
loan obligations (``CLOs''), and other collateralized debt 
obligations (``CDOs'') are types of ABS. Normally, CBOs, CLOs and 
other CDOs are privately offered and sold, and thus, are not 
registered under the securities laws.
    \18\ See Notice, supra note 4, 79 FR at 44881.
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    Other mortgage-related securities that the Fund may hold include 
privately issued mortgage-related securities, where issuers create 
pass-through pools of conventional residential mortgage loans.
    The Fund may enter into other types of swap agreements (in addition 
to interest-only swaps and interest rate swaps, which are primary 
investments). These swap agreements will have MBS as reference assets, 
including CMOs.
    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).
    The Fund may invest in equity securities. Specifically, the 
Exchange states that the Fund may invest in common stock, preferred 
stock, warrants, convertible securities, master limited partnerships, 
rights, and shares of exchange traded real estate investment trusts. 
The Fund may invest in: 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.; \19\ and 
exchange traded products (``ETPs''), including exchange-traded notes 
(``ETNs'').\20\ The Fund may invest in the securities of other 
investment companies, including mutual funds, ETFs, closed-end funds, 
and business development companies.
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    \19\ 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. See id. at 44882, n.23.
    \20\ It is expected that the ETN issuer's credit rating will be 
investment grade at the time of investment. See id. at 44882.
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    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; \21\ 
U.S. government securities other than U.S. Treasuries; municipal 
securities; repurchase agreements; reverse repurchase agreements; 
corporate debt securities; convertible securities; and MBS (as 
mentioned above). The Fund may invest assets in obligations of foreign 
banks which meet certain conditions.
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    \21\ 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. See id.
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    The Fund may enter into repurchase agreements with financial 
institutions, which may be deemed to be loans.\22\
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    \22\ 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. 
See id.
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    The Fund intends to invest in derivatives (other than the U.S. 
Treasury Futures, Agency MBS IOS and interest rate swaps discussed 
above). The derivatives in which the Fund may invest are: Other futures 
contracts; \23\ forward contracts; \24\ options, including options on 
futures; \25\ other swaps; hybrid instruments; \26\ and structured 
notes.
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    \23\ 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. The Fund will only use 
futures contracts that have U.S. Treasury securities and interest 
rate swaps as their underlying reference assets.
    \24\ Specifically, in addition to the forward currency exchange 
contracts discussed above, the Fund may invest in mortgage dollar 
rolls, which constitute forward contracts.
    \25\ 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. See id. The Fund may 
trade put and call options on securities, securities indices and 
currencies.
    \26\ 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. See id. at 44883.
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    The Fund 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).\27\
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    \27\ 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. See id.
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    All of the Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.

[[Page 55847]]

II. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \28\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\29\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\30\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Commission notes that the Fund and the Shares must comply 
with the requirements of NYSE Arca Equities Rule 8.600 for the Shares 
to be listed and traded on the Exchange.
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    \28\ 15 U.S.C. 78f.
    \29\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \30\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\31\ which sets forth Congress's finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. According to the 
Exchange, 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.\32\ 
Quotation and last-sale information for such U.S. exchange-listed 
securities will be available from the exchange on which they are 
listed.\33\ Quotation and last-sale information for exchange-listed 
options will be available via the Options Price Reporting 
Authority.\34\ 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.\35\ Additionally, 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.\36\ Pricing 
information regarding each asset class in which the Fund will invest 
generally is available through nationally recognized data service 
providers through subscription agreements.\37\
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    \31\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \32\ See Notice, supra note 4, 79 FR at 44886.
    \33\ See id.
    \34\ See id.
    \35\ See id.
    \36\ See id.
    \37\ See id.
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    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.\38\ On each business day, before commencement of 
trading in Shares in the Core Trading Session on the Exchange, the Fund 
will disclose on its Web site the Disclosed Portfolio, as defined in 
NYSE Arca Equities Rule 8.600(c)(2), that would form the basis for the 
Fund's calculation of NAV at the end of the business day.\39\ The NAV 
of the Fund will be determined once daily Monday through Friday, 
generally as of the regularly scheduled close of business of the New 
York Stock Exchange (normally 4:00 p.m. Eastern Time) on each day the 
New York Stock Exchange is open for trading. Information regarding 
market price and trading volume of the Shares would 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 would be published daily in the financial section of newspapers. 
The Web site for the Fund will include a form of the prospectus and 
additional data relating to NAV and other applicable quantitative 
information.
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    \38\ The Exchange states that several major market data vendors 
display or make widely available Portfolio Indicative Values taken 
from the CTA or other data feeds. See id. at 44886, n.34.
    \39\ 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. See id. at 44888.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share of 
the Fund will be calculated daily and that the NAV and the Disclosed 
Portfolio will be made available to all market participants at the same 
time.\40\ In addition, trading in the Shares would be subject to NYSE 
Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which trading in the Shares may be halted. The Exchange may halt 
trading in the Shares if trading is not occurring in the securities or 
financial instruments constituting the Disclosed Portfolio of the Fund, 
or if other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.\41\ Further, the 
Commission notes that the Reporting Authority that provides the 
Disclosed Portfolio of the Fund must implement and maintain, or be 
subject to, procedures designed to prevent the use and dissemination of 
material, non-public information regarding the actual components of the 
portfolio.\42\ In addition, the Exchange may obtain

[[Page 55848]]

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. The Commission also notes that 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.\43\ The Exchange states that it has a 
general policy prohibiting the distribution of material, non-public 
information by its employees.\44\ The Exchange represents that neither 
the Adviser or the Sub-Adviser is a broker-dealer and are not 
affiliated with a broker-dealer, and that 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.\45\
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    \40\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \41\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing 
additional considerations for the suspension of trading in or 
removal from listing of Managed Fund Shares on the Exchange). With 
respect to trading halts, the Exchange may consider all relevant 
factors in exercising its discretion to halt or suspend trading in 
the Shares. Trading in Shares 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.
    \42\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \43\ See Notice, supra note 4, 79 FR at 44887.
    \44\ See id.
    \45\ See text accompanying note 7, supra. An investment adviser 
to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``Advisers Act''). As a result, the 
Adviser and its related personnel are subject to the provisions of 
Rule 204A-1 under the Advisers Act relating to codes of ethics. This 
Rule requires investment advisers to adopt a code of ethics that 
reflects the fiduciary nature of the relationship to clients as well 
as compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) Trading in the Shares will be subject to the existing 
surveillance procedures administered by FINRA on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws, and 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 
federal securities laws applicable to trading on the Exchange.
    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares in Creation 
Units (and that Shares are not individually redeemable); (b) NYSE Arca 
Equities Rule 9.2(a), which imposes a duty of due diligence on its 
Equity Trading Permit Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (c) the risks involved in 
trading the Shares during the Opening and Late Trading Sessions when an 
updated Portfolio Indicative Value will not be calculated or publicly 
disseminated; (d) how information regarding the Portfolio Indicative 
Value is disseminated; (e) the requirement that Equity Trading Permit 
Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\46\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \46\ 17 CFR 240.10A-3.
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    (6) The Fund may hold up to an aggregate amount of 15% of its net 
assets (calculated at the time of investment) in assets deemed illiquid 
by the Adviser, consistent with Commission guidance.
    (7) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    (8) 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.
    (9) 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.
    (10) ADRs traded OTC will comprise no more than 10% of the Fund's 
net assets,
    (11) All equity securities except for ADRs traded OTC will trade on 
markets that are members of the ISG or that have entered into a 
comprehensive surveillance agreement with the Exchange.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \47\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \47\ 15 U.S.C. 78f(b)(5).
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III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\48\ that the proposed rule change (SR-NYSEArca-2014-71) be, and it 
hereby is, approved.
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    \48\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\49\
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    \49\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-22117 Filed 9-16-14; 8:45 am]
BILLING CODE 8011-01-P