Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, Relating to Listing and Trading of Shares of the Guggenheim Total Return Bond ETF Under NYSE Arca Equities Rule 8.600, 57251-57261 [2015-23973]
Download as PDF
<![CDATA[
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
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
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
information that you wish to make
available publicly. All submissions
should refer to File Number SR–MSRB–
2015–09 and should be submitted on or
before October 13, 2015.
For the Commission, pursuant to
delegated authority.51
Brent J. Fields,
Secretary.
[FR Doc. 2015–23975 Filed 9–21–15; 8:45 am]
BILLING CODE 8011–01P
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–MSRB–2015–09 on the
subject line.
tkelley on DSK3SPTVN1PROD with NOTICES
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:
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change, as Modified by
Amendment No. 1, Relating to Listing
and Trading of Shares of the
Guggenheim Total Return Bond ETF
Under NYSE Arca Equities Rule 8.600
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549.
All submissions should refer to File
Number SR–MSRB–2015–09. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the MSRB. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
Pursuant to Section 19(b)(1) 1 of the
Securities Exchange Act of 1934
(‘‘Act’’) 2 and Rule 19b–4 thereunder,3
notice is hereby given that, on
September 1, 2015, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I, II, and III below, which Items
have been prepared by the selfregulatory organization. On September
15, 2015, the Exchange filed
Amendment No. 1 to the proposed rule
change.4 The Commission is publishing
this notice to solicit comments on the
proposed rule change, as modified by
Amendment No. 1, from interested
persons.
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–75930; File No. SR–
NYSEArca–2015–73]
September 16, 2015.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the following under
NYSE Arca Equities Rule 8.600
(‘‘Managed Fund Shares’’): Guggenheim
Total Return Bond 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.
51 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 15 U.S.C. 78a.
3 17 CFR 240.19b–4.
4 Amendment No. 1 replaces and supersedes the
original filing in its entirety.
1 15
PO 00000
Frm 00107
Fmt 4703
Sfmt 4703
57251
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
Guggenheim Total Return Bond ETF
(the ‘‘Fund’’) under NYSE Arca Equities
Rule 8.600, which governs the listing
and trading of Managed Fund Shares.5
The Shares will be offered by the
Claymore Exchange-Traded Fund Trust
2 (the ‘‘Trust’’),6 a statutory trust
organized under the laws of the State of
Delaware and registered with the
Commission as an open-end
management investment company.7
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
November 25, 2014, the Trust filed with the
Commission an amendment to its registration
statement on Form N–1A under the Securities Act
of 1933 (15 U.S.C. 77a) (‘‘Securities Act’’) and the
1940 Act relating to the Fund (File Nos. 333–
135105 and 811–21910) (the ‘‘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. 29271
(May 18, 2010) (File No. 812–13534) (‘‘Exemptive
Order’’).
7 The Commission previously approved listing
and trading on the Exchange of the following
actively managed funds under Rule 8.600. See
Securities Exchange Act Release Nos. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR–
NYSEArca–2008–31) (order approving Exchange
listing and trading of twelve actively-managed
E:\FR\FM\22SEN1.SGM
Continued
22SEN1
57252
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
The investment adviser for the Fund
is Guggenheim Partners Investment
Management, LLC (‘‘Adviser’’). The
Bank of New York Mellon is the
custodian and transfer agent for the
Fund. Guggenheim Funds Distributors,
LLC is the distributor for the Fund.8
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.9 In addition,
funds of the WisdomTree Trust); 60981 (November
10, 2009), 74 FR 59594 (November 18, 2009) (SR–
NYSEArca–2009–79) (order approving listing of five
fixed income funds of the PIMCO ETF Trust); 63329
(November 17, 2010), 75 FR 71760 (November 24,
2010) (SR–NYSEArca–2010–86) (order approving
listing of Peritus High Yield ETF) ; 64550 (May 26,
2011), 76 FR 32005 (June 2, 2011) (SR–NYSEArca–
2011–11) (order approving listing of Guggenheim
Enhanced Core Bond ETF and Guggenheim
Enhanced Ultra-Short Bond ETF).
8 The Commission has previously approved a
proposed rule change relating to listing and trading
of shares of the Guggenheim Enhanced Total Return
ETF under NYSE Arca Equities Rule 8.600. See
Securities Exchange Act Release Nos. 68488
(December 20, 2012), 77 FR 76326 (December 27,
2012) (SR–NYSEArca–2012–142) (notice of filing of
proposed rule change regarding listing and trading
of shares of the Guggenheim Enhanced Total Return
ETF under NYSE Arca Equities Rule 8.600) (the
‘‘Prior Notice’’); 68863 (February 7, 2013), 78 FR
10222 (February 13, 2013) (SR–NYSEArca–2012–
142) (order approving proposed rule change relating
to listing and trading of shares of the Guggenheim
Enhanced Total Return ETF under NYSE Arca
Equities Rule 8.600) (the ‘‘Prior Order’’ and,
together with the Prior Notice, the ‘‘Prior Release’’)).
Shares of the Guggenheim Enhanced Total Return
ETF have not commenced Exchange listing and
trading. The Guggenheim Total Return Bond ETF
would replace the Guggenheim Enhanced Total
Return ETF as approved in the Prior Release. As set
forth in the Registration Statement, the Fund’s
investments will differ from those described in the
Prior Release. This proposed rule change
supersedes the Prior Release in its entirety. In
addition, prior to commencement of trading of
Shares of the Fund, the Trust will file an
amendment to its Registration Statement to change
the name of the Guggenheim Enhanced Total
Return ETF to the Guggenheim Total Return Bond
ETF.
9 An investment adviser to an open-end fund is
required to be registered under the Investment
Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
result, the Adviser and its related personnel are
subject to the provisions of Rule 204A–1 under the
Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of
ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with
other applicable securities laws. Accordingly,
procedures designed to prevent the communication
and misuse of non-public information by an
investment adviser must be consistent with Rule
204A–1 under the Advisers Act. In addition, Rule
206(4)–7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment
advice to clients unless such investment adviser has
(i) adopted and implemented written policies and
procedures reasonably designed to prevent
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
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.
The Adviser is affiliated with a brokerdealer and has represented that it has
implemented a fire wall with respect to
its broker-dealer affiliate regarding
access to information concerning the
composition and/or changes to the
portfolio. In the event (a) the Adviser or
any sub-adviser becomes newly
affiliated with a broker-dealer, or (b) 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.
Principal Investment Strategies
According to the Registration
Statement, the Fund’s investment
objective is to seek maximum total
return, comprised of income and capital
appreciation. The Fund will normally 10
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.
10 The term ‘‘normally’’ includes, but is not
limited to, the absence of extreme volatility or
trading halts in the securities markets or the
financial markets generally; circumstances under
which the Fund’s investments are made for
temporary defensive purposes; 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.
11 See ‘‘The Fund’s Use of Derivatives,’’ infra. The
Fund will invest in the following derivative
instruments on Fixed-Income Securities: Foreign
exchange forward contracts, exchange-traded
futures on securities, indices, currencies and other
investments; exchange-traded and OTC options;
exchange-traded and OTC options on futures
contracts; exchange-traded and OTC interest rate
swaps, cross-currency swaps, total return swaps,
inflation swaps, and credit default swaps; and
options on such swaps.
12 For purposes of this filing, ETFs consist of
Investment Company Units (as described in NYSE
Arca Equities Rule 5.2(j)(3)), Portfolio Depositary
Receipts (as described in NYSE Arca Equities Rule
8.100; and Managed Fund Shares (as described in
NYSE Arca Equities Rule 8.600). All ETFs will be
listed and traded in the U.S. on a national securities
exchange. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged (e.g.,
2X, -2X, 3X or -3X) ETFs.
PO 00000
Frm 00108
Fmt 4703
Sfmt 4703
invest at least 80% of its assets in
‘‘Fixed-Income Instruments’’ (as defined
below) of varying maturities and of any
credit quality, which may be
represented by certain derivative
instruments as discussed below,11 and
exchange-traded funds (‘‘ETFs’’) 12 and
exchange-traded and over-the-counter
(‘‘OTC’’) closed-end funds (‘‘CEFs’’)
(which may include ETFs and CEFs
affiliated with the Fund) that invest
substantially all of their assets in FixedIncome Instruments (the ‘‘80% Policy’’).
The Fixed-Income Instruments in which
the Fund will invest, as described
further below, are the following. bonds,
including corporate bonds; 13 other debt
securities 14 of U.S. and non-U.S.
issuers; securities issued by the U.S.
government or its agencies,
instrumentalities or sponsored
corporations (including those not
backed by the full faith and credit of the
U.S. government); agency and nonagency mortgage-backed securities
(‘‘MBS’’) and asset-backed securities
(‘‘ABS’’); 15 U.S. agency mortgage passthrough securities; 16 repurchase
agreements; reverse repurchase
agreements; convertible securities; 17
13 The Adviser expects that normally the Fund
generally will seek to invest at least 75% of its
corporate bond assets in issuances that have at least
$100,000,000 par amount outstanding in developed
countries or at least $200,000,000 par amount
outstanding in emerging market countries.
14 Debt securities and other similar instruments
may be of varying maturities and of any credit
quality rating.
15 The MBS in which the Fund may invest may
also include residential mortgage-backed securities
(‘‘RMBS’’), collateralized mortgage obligations
(‘‘CMOs’’) and commercial mortgage-backed
securities (‘‘CMBS’’). The ABS in which the Fund
may invest include collateralized debt obligations
(‘‘CDOs’’). CDOs include collateralized bond
obligations (‘‘CBOs’’), collateralized loan
obligations (‘‘CLOs’’) and other similarly structured
securities. A CBO is a trust which is backed by a
diversified pool of high risk, below investment
grade fixed income securities. A CLO is a trust
typically collateralized by a pool of loans, which
may include 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.
16 The Fund will seek to obtain exposure to U.S.
agency mortgage pass-through securities primarily
through the use of ‘‘to-be-announced’’ or ‘‘TBA
transactions.’’ ‘‘TBA’’ refers to a commonly used
mechanism for the forward settlement of U.S.
agency mortgage pass-through securities, and not to
a separate type of mortgage-backed security. Most
transactions in mortgage pass-through securities
occur through the use of TBA transactions. TBA
transactions generally are conducted in accordance
with widely-accepted guidelines which establish
commonly observed terms and conditions for
execution, settlement and delivery.
17 According to the Registration Statement,
convertible securities include bonds, debentures,
notes, preferred stocks and other securities that may
be converted into a prescribed amount of common
stock or other equity securities at a specified price
and time.
E:\FR\FM\22SEN1.SGM
22SEN1
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
commercial instruments; 18 variable or
floating rate instruments and variable
rate demand instruments; 19 zerocoupon and pay-in-kind securities; 20
bank instruments, including certificates
of deposit (‘‘CDs’’), time deposits and
bankers’ acceptances from U.S. banks; 21
and participations in and assignments of
bank loans or corporate loans, which
loans include senior loans, syndicated
bank loans, junior loans, bridge loans,22
unfunded commitments,23 revolving
18 Commercial instruments include commercial
paper, master notes, asset-backed commercial paper
and other short-term corporate instruments.
Commercial paper normally represents short-term
unsecured promissory notes issued in bearer form
by banks or bank holding companies, corporations,
finance companies and other issuers. Commercial
paper may be traded in the secondary market after
its issuance. Master notes are demand notes that
permit the investment of fluctuating amounts of
money at varying rates of interest pursuant to
arrangements with issuers who meet the quality
criteria of the Fund. Master notes are generally
illiquid and therefore subject to the Fund’s
percentage limitations for investments in illiquid
securities. Asset-backed commercial paper is issued
by a special purpose entity that is organized to issue
the commercial paper and to purchase trade
receivables or other financial assets.
19 Variable or floating rate instruments and
variable rate demand instruments, including
variable amount master demand notes, will
normally involve industrial development or
revenue bonds that provide that the rate of interest
is set as a specific percentage of a designated base
rate (such as the prime rate) at a major commercial
bank. In addition, the interest rate on these
securities may be reset daily, weekly or on some
other reset period and may have a floor or ceiling
on interest rate changes. The Adviser will monitor
the pricing, quality and liquidity of the variable or
floating rate securities held by the Fund.
20 Zero-coupon and pay-in-kind securities are
debt securities that do not make regular cash
interest payments. Zero-coupon securities are sold
at a deep discount to their face value. Pay-in-kind
securities pay interest through the issuance of
additional securities.
21 A bankers’ acceptance is a bill of exchange or
time draft drawn on and accepted by a commercial
bank. A CD is a negotiable interest-bearing
instrument with a specific maturity.
22 Bridge loans are short-term loan arrangements
(e.g., maturities that are generally less than one
year) typically made by a borrower following the
failure of the borrower to secure other intermediateterm or long-term permanent financing. A bridge
loan remains outstanding until more permanent
financing, often in the form of high yield notes, can
be obtained. Most bridge loans have a step-up
provision under which the interest rate increases
incrementally the longer the loan remains
outstanding so as to incentivize the borrower to
refinance as quickly as possible. In exchange for
entering into a bridge loan, the Fund typically will
receive a commitment fee and interest payable
under the bridge loan and may also have other
expenses reimbursed by the borrower. Bridge loans
may be subordinate to other debt and generally are
unsecured.
23 Unfunded commitments are contractual
obligations pursuant to which the Fund agrees in
writing to make one or more loans up to a specified
amount at one or more future dates. The underlying
loan documentation sets out the terms and
conditions of the lender’s obligation to make the
loans as well as the economic terms of such loans.
The portion of the amount committed by a lender
that the borrower has not drawn down is referred
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
credit facilities (‘‘revolvers’’),24 and
participation interests.25
With respect to Fixed Income
Instrument investments, the Fund may
invest in restricted securities (Rule
144A securities), which are subject to
legal restrictions on their sale. The Fund
has no target duration for its investment
portfolio.
In addition, with respect to Fixed
Income Instrument investments, the
Fund may, without limitation, seek to
obtain market exposure to the securities
in which it primarily invests by entering
into a series of purchase and sale
contracts or by using other investment
techniques (such as buy backs or dollar
rolls).
The Fund may also use leverage to the
extent permitted under the 1940 Act by
entering into reverse repurchase
agreements and borrowing transactions
(principally lines of credit) for
investment purposes. The Fund’s
exposure to reverse repurchase
agreements will be covered by securities
having a value equal to or greater than
such commitments. Under the 1940 Act,
reverse repurchase agreements are
considered borrowings. Although there
is no limit on the percentage of Fund
assets that can be used in connection
with reverse repurchase agreements, the
Portfolio does not expect to engage,
under normal circumstances, in reverse
repurchase agreements with respect to
more than 331/3% of its assets.
Other Investments
While the Fund normally will invest
at least 80% of its assets in the
securities and financial instruments
described above, the Fund may invest
its remaining assets in the securities and
financial instruments described below.
According to the Registration
Statement, the Fund may invest in
exchange-traded and OTC hybrid
instruments, which combine a
traditional stock, bond, or commodity
with an option or forward contract.
Generally, the principal amount,
amount payable upon maturity or
to as ‘‘unfunded.’’ Loan commitments may be
traded in the secondary market through dealer
desks at large commercial and investment banks
although these markets are generally not considered
liquid.
24 Revolving credit facilities (‘‘revolvers’’) are
borrowing arrangements in which the lender agrees
to make loans up to a maximum amount upon
demand by the borrower during a specified term.
As the borrower repays the loan, an amount equal
to the repayment may be borrowed again during the
term of the revolver. Revolvers usually provide for
floating or variable rates of interest.
25 All or a significant portion of the loans in
which the Fund will invest may be below
investment grade quality. There will be no
minimum par amount outstanding with respect to
loans in which the Fund may invest.
PO 00000
Frm 00109
Fmt 4703
Sfmt 4703
57253
redemption, or interest rate of a hybrid
is tied (positively or negatively) to the
price of some commodity, currency or
securities index or another interest rate
or some other economic factor
(‘‘underlying benchmark’’).26
According to the Registration
Statement, the Fund is permitted to
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.
According to the Registration
Statement, the Fund may invest in
credit-linked notes, which are a type of
structured note. The difference between
a credit default swap and a credit-linked
note is that the seller of a credit-linked
note receives the principal payment
from the buyer at the time the contract
is originated. Through the purchase of a
credit-linked note, the buyer assumes
the risk of the reference asset and funds
this exposure through the purchase of
the note. The buyer takes on the
exposure to the seller to the full amount
of the funding it has provided. The
seller has hedged its risk on the
reference asset without acquiring any
additional credit exposure. The Fund
has the right to receive periodic interest
payments from the issuer of the creditlinked note at an agreed-upon interest
rate and a return of principal at the
maturity date.
According to the Registration
Statement, the Fund may invest in risklinked securities (‘‘RLS’’), which are a
form of derivative issued by insurance
companies and insurance-related
special purpose vehicles that apply
securitization techniques to catastrophic
property and casualty damages.27
26 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 would only invest in
commodity-linked hybrid instruments that qualify,
under applicable rules of the Commodity Futures
Trading Commission, for an exemption from the
provisions of the Commodity Exchange Act (7
U.S.C. 1).
27 RLS are typically debt obligations for which the
return of principal and the payment of interest are
contingent on the non-occurrence of a pre-defined
‘‘trigger event.’’ Depending on the specific terms
E:\FR\FM\22SEN1.SGM
Continued
22SEN1
57254
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
The Fund may invest a portion of its
assets in high-quality money market
instruments on an ongoing basis to
provide liquidity.
The Fund may invest in U.S. and
foreign common stocks, both exchangelisted and OTC.
The Fund may gain exposure to
commodities through the use of
investments in exchange-traded
products (‘‘ETPs’’) 28 and exchangetraded notes (‘‘ETNs’’).29
The Fund may invest in the securities
of exchange-traded and OTC real estate
investment trusts (‘‘REITs’’).
tkelley on DSK3SPTVN1PROD with NOTICES
Investment Restrictions
The Fund may invest up to 20% of its
total assets in the aggregate in MBS and
ABS that are privately issued, nonagency and non-government sponsored
entity (‘‘Private MBS/ABS’’), and in
asset-backed commercial paper.30 Such
holdings would be subject to the
respective limitations on the Fund’s
investments in illiquid assets and high
yield securities. The liquidity of a
security, especially in the case of Private
MBS/ABS, will be a substantial factor in
the Fund’s security selection process.
The Fund may invest up to 20% of its
total assets in the aggregate in junior
loans, bridge loans, unfunded
commitments, and revolvers. Such
holdings would be subject to the
respective limitations on the Fund’s
investments in illiquid assets and high
yield securities. The liquidity of such
securities will be a substantial factor in
the Fund’s security selection process.
The Fund may invest in debt
securities and instruments that are
economically tied to emerging market
countries.31
and structure of the RLS, this trigger could be the
result of a hurricane, earthquake or some other
catastrophic event. Insurance companies securitize
this risk to transfer to the capital markets the truly
catastrophic part of the risk exposure. A typical RLS
provides for income and return of capital similar to
other fixed-income investments, but would involve
full or partial default if losses resulting from a
certain catastrophe exceeded a predetermined
amount.
28 Such ETPs include Trust Issued Receipts (as
described in NYSE Arca Equities Rule 8.200);
Commodity-Based Trust Shares (as described in
NYSE Arca Equities Rule 8.201); Currency Trust
Shares (as described in NYSE Arca Equities Rule
8.202); Commodity Index Trust Shares (as described
in NYSE Arca Equities Rule 8.203); and Trust Units
(as described in NYSE Arca Equities Rule 8.500).
29 ETNs include Index-Linked Securities (as
described in NYSE Arca Equities Rule 5.2(j)(6)).
30 See note 18, supra.
31 See note 13, supra. Generally, the Fund
considers an instrument to be economically tied to
an emerging market country through consideration
of some or all of the following factors: (i) Whether
the issuer is the government of the emerging market
country (or any political subdivision, agency,
authority or instrumentality of such government), or
is organized under the laws of the emerging market
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
The Fund may invest without
limitation in securities denominated in
foreign currencies and in U.S. dollardenominated securities of foreign
issuers.
The Fund may invest up to 331⁄3% of
its total assets in high yield debt
securities (‘‘junk bonds’’), which are
debt securities that are rated below
investment grade by nationally
recognized statistical rating
organizations, or are unrated securities
that the Adviser believes are of
comparable below investment grade
quality. The Fund may invest in
defaulted or distressed Private MBS/
ABS.
The Fund will be considered nondiversified and can invest a greater
portion of assets in securities of
individual issuers than a diversified
fund.32
The Fund may not invest more than
25% of the value of its net assets in
securities of issuers in any one industry
or group of industries. This restriction
does not apply to obligations issued or
guaranteed by the U.S. Government, its
agencies or instrumentalities.33
The Fund’s investments, including
investments in derivative instruments,
are subject to all of the restrictions
under the 1940 Act, including
restrictions with respect to illiquid
assets. 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 Rule
144A securities, Private MBS/ABS,
master notes, loans and loan
commitments deemed illiquid by the
Adviser,34 consistent with Commission
country; (ii) amount of the issuer’s revenues that are
attributable to the emerging market country; (iii) the
location of the issuer’s management; (iv) if the
security is secured or collateralized, the country in
which the security or collateral is located; and/or
(v) the currency in which the instrument is
denominated or currency fluctuations to which the
issuer is exposed.
32 A ‘‘non-diversified company,’’ as defined in
Section 5(b)(2) of the 1940 Act, means any
management company other than a diversified
company (as defined in Section 5(b)(1) of the 1940
Act).
33 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).
34 In reaching liquidity decisions with respect to
Rule 144A securities, the Adviser may consider the
following factors: The frequency of trades and
quotes for the security; the number of dealers
willing to purchase or sell the security and the
number of other potential purchasers; dealer
undertakings to make a market in the security; and
the nature of the security and the nature of the
marketplace in which it trades (e.g., the time
needed to dispose of the security, the method of
soliciting offers, and the mechanics of transfer).
PO 00000
Frm 00110
Fmt 4703
Sfmt 4703
guidance.35 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.36
The Fund intends to qualify for and
to elect to be treated as a separate
regulated investment company (‘‘RIC’’)
under Subchapter M of the Internal
Revenue Code.37
The Fund’s investments will be
consistent with the Fund’s investment
objective and will not be used to
enhance leverage. That is, while the
Fund will be permitted to borrow as
permitted under the 1940 Act, the
Fund’s investments will not be used to
seek performance that is the multiple or
inverse multiple (i.e., 2Xs and 3Xs) of
the Fund’s primary broad-based
securities benchmark index (as defined
in Form N–1A).38
The Fund’s Use of Derivatives
The Fund proposes to seek certain
exposures through derivative
transactions as described below. The
Fund may invest in the following
derivative instruments: Foreign
exchange forward contracts; exchangetraded futures on securities, indices,
currencies and other investments;
exchange-traded and OTC options;
exchange-traded and OTC options on
35 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 1933 Act).
36 See id.
37 26 U.S.C. 851.
38 The Fund’s broad-based securities benchmark
index will be identified in a future amendment to
the Registration Statement following the Fund’s
first full calendar year of performance.
E:\FR\FM\22SEN1.SGM
22SEN1
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
tkelley on DSK3SPTVN1PROD with NOTICES
futures contracts; exchange-traded and
OTC interest rate swaps, cross-currency
swaps, total return swaps, inflation
swaps and credit default swaps; and
options on such swaps (‘‘swaptions’’).39
Generally, derivatives are financial
contracts whose value depends upon, or
is derived from, the value of an
underlying asset, reference rate or
index, and may relate to stocks, bonds,
interest rates, currencies or currency
exchange rates, commodities, and
related indexes. The Fund may, but is
not required to, use derivative
instruments for risk management
purposes or as part of its investment
strategies.40 The Fund may also engage
in derivative transactions for
speculative purposes to enhance total
return, to seek to hedge against
fluctuations in securities prices, interest
rates or currency rates, to change the
effective duration of its portfolio, to
manage certain investment risks and/or
as a substitute for the purchase or sale
of securities or currencies.
Investments in derivative instruments
will be made in accordance with the
1940 Act and consistent with the Fund’s
investment objective and policies. As
described further below, the Fund will
typically use derivative instruments as a
substitute for taking a position in the
underlying asset and/or as part of a
strategy designed to reduce exposure to
other risks, such as interest rate or
currency risk. The Fund may also use
derivative instruments to enhance
returns. To limit the potential risk
associated with such transactions, the
Fund will segregate or ‘‘earmark’’ assets
determined to be liquid by the Adviser
in accordance with procedures
established by the Trust’s Board of
Trustees (the ‘‘Board’’) and in
accordance with the 1940 Act (or, as
permitted by applicable regulation,
enter into certain offsetting positions) to
cover its obligations under derivative
instruments. These procedures have
been adopted consistent with Section 18
39 Options on swaps are traded OTC. In the
future, in the event that there are exchange-traded
options on swaps, the Fund may invest in these
instruments.
40 The Fund will seek, where possible, to use
counterparties whose financial status is such that
the risk of default is reduced; however, the risk of
losses resulting from default is still possible. The
Adviser will monitor the financial standing of
counterparties on an ongoing basis. This monitoring
may include information provided by credit
agencies, as well as the Adviser’s credit analysts
and other team members who evaluate approved
counterparties using various methods of analysis,
including but not limited to earnings updates, the
counterparty’s reputation, the Adviser’s past
experience with the broker-dealer, market levels for
the counterparty’s debt and equity, the
counterparty’s liquidity and its share of market
participation.
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
of the 1940 Act and related Commission
guidance. In addition, the Fund will
include appropriate risk disclosure in
its offering documents, including
leveraging risk. Leveraging risk is the
risk that certain transactions of the
Fund, including the Fund’s use of
derivatives, may give rise to leverage,
causing the Fund to be more volatile
than if it had not been leveraged.41
Because the markets for certain
securities, or the securities themselves,
may be unavailable or cost prohibitive
as compared to derivative instruments,
suitable derivative transactions may be
an efficient alternative for the Fund to
obtain the desired asset exposure.
The Adviser believes that derivatives
can be an economically attractive
substitute for an underlying physical
security that the Fund would otherwise
purchase. For example, the Fund could
purchase Treasury futures contracts
instead of physical Treasuries or could
sell credit default protection on a
corporate bond instead of buying a
physical bond. Economic benefits
include potentially lower transaction
costs or attractive relative valuation of a
derivative versus a physical bond (e.g.,
differences in yields).
The Adviser further believes that
derivatives can be used as a more liquid
means of adjusting portfolio duration as
well as targeting specific areas of yield
curve exposure, with potentially lower
transaction costs than the underlying
securities (e.g., interest rate swaps may
have lower transaction costs than
physical bonds). Similarly, money
market futures can be used to gain
exposure to short-term interest rates in
order to express views on anticipated
changes in central bank policy rates. In
addition, derivatives can be used to
protect client assets through selectively
hedging downside (or ‘‘tail risks’’) in the
Fund.
The Fund also can use derivatives to
increase or decrease credit exposure.
Index credit default swaps (CDX) can be
used to gain exposure to a basket of
credit risk by ‘‘selling protection’’
against default or other credit events, or
to hedge broad market credit risk by
‘‘buying protection’’. Single name credit
default swaps (CDS) can be used to
allow the Fund to increase or decrease
exposure to specific issuers, saving
investor capital through lower trading
costs. The Fund can use total return
swap contracts to obtain the total return
of a reference asset or index in exchange
for paying a financing cost. A total
41 To mitigate leveraging risk, the Adviser will
segregate or ‘‘earmark’’ liquid assets or otherwise
cover the transactions that may give rise to such
risk.
PO 00000
Frm 00111
Fmt 4703
Sfmt 4703
57255
return swap may be more efficient than
buying underlying securities of an
index, potentially lowering transaction
costs.
The Fund may attempt to reduce
foreign currency exchange rate risk by
entering into contracts with banks,
brokers or dealers to purchase or sell
foreign currencies at a future date
(‘‘forward contracts’’).42
The Adviser believes that the use of
derivatives will allow the Fund to
selectively add diversifying sources of
return from selling options. Option
purchases and sales can also be used to
hedge specific exposures in the
portfolio, and can provide access to
return streams available to long-term
investors such as the persistent
difference between implied and realized
volatility. Option strategies can generate
income or improve execution prices
(i.e., covered calls).
In addition to the Fund’s use of
derivatives in connection with its 80%
Policy, under the proposal the Fund
would seek to invest in derivative
instruments not based on Fixed-Income
Instruments, consistent with the Fund’s
investment restrictions relating to
exposure to those asset classes.
Valuation Methodology for Purposes of
Determining Net Asset Value
According to the Registration
Statement, the net asset value (‘‘NAV’’)
of the Fund’s Shares will be determined
by dividing the total value of the Fund’s
portfolio investments and other assets,
less any liabilities, by the total number
of Shares outstanding. Fund Shares will
be valued as of the close of regular
trading (normally 4:00 p.m., Eastern
time (‘‘E.T.’’)) (the ‘‘NYSE Close’’) on
each day NYSE Arca is open (‘‘Business
Day’’). Information that becomes known
to the Fund or its agents after the NAV
has been calculated on a particular day
will not generally be used to
retroactively adjust the price of a
portfolio asset or the NAV determined
earlier that day. The Fund reserves the
right to change the time its NAV is
calculated if the Fund closes earlier, or
as permitted by the Commission.
For purposes of calculating NAV,
portfolio securities and other assets for
which market quotes are readily
available will be valued at market value.
Market value will generally be
determined on the basis of last reported
sales prices, or if no sales are reported,
42 A foreign currency forward contract is a
negotiated agreement between the contracting
parties to exchange a specified amount of currency
at a specified future time at a specified rate. The
rate can be higher or lower than the spot rate
between the currencies that are the subject of the
contract.
E:\FR\FM\22SEN1.SGM
22SEN1
tkelley on DSK3SPTVN1PROD with NOTICES
57256
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
based on quotes obtained from a
quotation reporting system, established
market makers, or pricing services.
Domestic and foreign fixed income
securities and non-exchange-traded
derivatives 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. Exchangetraded options and options on futures
will generally be valued at the
settlement price determined by the
applicable exchange.
Derivatives for which market quotes
are readily available will be valued at
market value. Local closing prices will
be used for all instrument valuation
purposes. Futures will be valued at the
last reported sale or settlement price on
the day of valuation. Swaps traded on
exchanges such as the Chicago
Mercantile Exchange (‘‘CME’’) or the
Intercontinental Exchange (‘‘ICE–US’’)
will use the applicable exchange closing
price where available.
Foreign currency-denominated
derivatives will generally be valued as
of the respective local region’s market
close.
With respect to specific derivatives:
• Currency spot and forward rates
from major market data vendors 43 will
generally be determined as of the NYSE
Close.
• Exchange-traded futures will
generally be valued at the settlement
price of the relevant exchange.
• A total return swap on an index
will be valued at the publicly available
index price. The index price, in turn, is
determined by the applicable index
calculation agent, which generally
values the securities underlying the
index at the last reported sale price.
• Equity total return swaps will
generally be valued using the actual
underlying equity at local market
closing, while bank loan total return
swaps will generally be valued using the
evaluated underlying bank loan price
minus the strike price of the loan.
• Exchange-traded non-equity
options, (for example, options on bonds,
Eurodollar options and U.S. Treasury
options), index options, and options on
futures will generally be valued at the
43 Major market data vendors may include, but are
not limited to: Thomson Reuters, JPMorgan Chase
PricingDirect Inc., Markit Group Limited,
Bloomberg, Interactive Data Corporation or other
major data vendors.
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
official settlement price determined by
the relevant exchange, if available.
• OTC and exchange-traded equity
options will generally be valued on a
basis of quotes obtained from a
quotation reporting system, established
market makers, or pricing services or at
the settlement price of the applicable
exchange.
• OTC foreign currency (FX) options
will generally be valued by pricing
vendors.
• All other swaps such as interest rate
swaps, inflation swaps, swaptions,
credit default swaps, and CDX/CDS will
generally be valued by pricing services.
Exchange-traded equity securities
(including common stocks, ETPs, ETFs,
ETNs, CEFs, exchange-traded
convertible securities, REITs and
preferred securities) will be valued at
the official closing price or the last
trading price on the exchange or market
on which the security is primarily
traded at the time of valuation. If no
sales or closing prices are reported
during the day, exchange-traded equity
securities will generally be valued at the
mean of the last available bid and ask
quotation on the exchange or market on
which the security is primarily traded,
or using other market information
obtained from quotation reporting
systems, established market makers, or
pricing services. Investment company
securities that are not exchange-traded
will be valued at NAV. Equity securities
traded OTC will be valued based on
price quotations obtained from a brokerdealer who makes markets in such
securities or other equivalent
indications of value provided by a thirdparty pricing service. Structured notes,
exchange-traded and OTC hybrids and
RLS will be valued based on prices
obtained from an independent pricing
vendor such as IDC or Reuters or on the
basis of prices obtained from brokers
and dealers. Fixed Income Instruments
will generally be valued on the basis of
independent pricing services or quotes
obtained from brokers and dealers.
If a foreign security’s value has
materially changed after the close of the
security’s primary exchange or principal
market but before the NYSE Close, the
security will be valued at fair value
based on procedures established and
approved by the Board. Foreign
securities that do not trade when the
NYSE is open will also be valued at fair
value.
The Board has adopted policies and
procedures for the valuation of the
Fund’s investments (the ‘‘Valuation
Procedures’’). Pursuant to the Valuation
Procedures, the Board has delegated to
a valuation committee, consisting of
representatives from Guggenheim’s
PO 00000
Frm 00112
Fmt 4703
Sfmt 4703
investment management, fund
administration, legal and compliance
departments (the ‘‘Valuation
Committee’’), the day-to-day
responsibility for implementing the
Valuation Procedures, including, under
most circumstances, the responsibility
for determining the fair value of the
Fund’s securities or other assets.
Valuations of the Fund’s securities are
supplied primarily by pricing services
appointed pursuant to the processes set
forth in the Valuation Procedures. The
Valuation Committee convenes
monthly, or more frequently as needed
and will review the valuation of all
assets which have been fair valued for
reasonableness. The Fund’s officers,
through the Valuation Committee and
consistent with the monitoring and
review responsibilities set forth in the
Valuation Procedures, regularly review
procedures used by, and valuations
provided by, the pricing services.
Debt securities with a maturity of
greater than 60 days at acquisition will
be valued at prices that reflect broker/
dealer supplied valuations or are
obtained from independent pricing
services, which may consider the trade
activity, treasury spreads, yields or price
of bonds of comparable quality, coupon,
maturity, and type, as well as prices
quoted by dealers who make markets in
such securities. Short-term securities
with remaining maturities of 60 days or
less will be valued at market price, or
if a market price is not available, at
amortized cost, provided such amount
approximates market value. Money
market instruments will be valued at net
asset value.
Generally, trading in foreign securities
markets is substantially completed each
day at various times prior to the close
of the NYSE. The values of foreign
securities are determined as of the close
of such foreign markets or the close of
the NYSE, if earlier. All investments
quoted in foreign currency will be
valued in U.S. dollars on the basis of the
foreign currency exchange rates
prevailing at the close of U.S. business
at 4:00 p.m. E.T. The Valuation
Committee will determine the current
value of such foreign securities by
taking into consideration certain factors
which may include those discussed
above, as well as the following factors,
among others: The value of the
securities traded on other foreign
markets, closed-end fund trading,
foreign currency exchange activity, and
the trading prices of financial products
that are tied to foreign securities. In
addition, under the Valuation
Procedures, the Valuation Committee
and the Adviser are authorized to use
prices and other information supplied
E:\FR\FM\22SEN1.SGM
22SEN1
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
by a third party pricing vendor in
valuing foreign securities.
Investments for which market
quotations are not readily available will
be fair valued as determined in good
faith by the Adviser, subject to review
by the Valuation Committee, pursuant
to methods established or ratified by the
Board. Valuations in accordance with
these methods are intended to reflect
each security’s (or asset’s) ‘‘fair value.’’
Each such determination will be based
on a consideration of all relevant
factors, which are likely to vary from
one pricing context to another.
Examples of such factors may include,
but are not limited to: (i) The type of
security, (ii) the initial cost of the
security, (iii) the existence of any
contractual restrictions on the security’s
disposition, (iv) the price and extent of
public trading in similar securities of
the issuer or of comparable companies,
(v) quotations or evaluated prices from
broker-dealers and/or pricing services,
(vi) information obtained from the
issuer, analysts, and/or the appropriate
stock exchange (for exchange traded
securities), (vii) an analysis of the
company’s financial statements, and
(viii) an evaluation of the forces that
influence the issuer and the market(s) in
which the security is purchased and
sold (e.g., the existence of pending
merger activity, public offerings or
tender offers that might affect the value
of the security).
Investments initially valued in
currencies other than the U.S. dollar
will be converted to the U.S. dollar
using exchange rates obtained from
pricing services. As a result, the NAV of
the Fund’s Shares may be affected by
changes in the value of currencies in
relation to the U.S. dollar. The value of
securities traded in markets outside the
United States or denominated in
currencies other than the U.S. dollar
may be affected significantly on a day
that the NYSE is closed. As a result, to
the extent that the Fund holds foreign
(non-U.S.) securities, the NAV of the
Fund’s Shares may change when an
investor cannot purchase, redeem or
exchange shares.
tkelley on DSK3SPTVN1PROD with NOTICES
Derivatives Valuation Methodology for
Purposes of Determining Intra-Day
Indicative Value
On each Business Day, before
commencement of trading in Fund
Shares on NYSE Arca, the Fund will
disclose on its Web site the identities
and quantities of the portfolio
instruments and other assets held by the
Fund that will form the basis for the
Fund’s calculation of NAV at the end of
the Business Day.
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
In order to provide additional
information regarding the intra-day
value of Shares of the Fund, the NYSE
Arca or a market data vendor will
disseminate every 15 seconds through
the facilities of the Consolidated Tape
Association or other widely
disseminated means an updated Intraday Indicative Value (‘‘IIV’’) for the
Fund as calculated by a third party
market data provider.
A third party market data provider
will calculate the IIV for the Fund. For
the purposes of determining the IIV, the
third party market data provider’s
valuation of derivatives is expected to
be similar to their valuation of all
securities. The third party market data
provider may use market quotes if
available or may fair value securities
against proxies (such as swap or yield
curves).
With respect to specific derivatives:
• Foreign currency derivatives may
be valued intraday using market quotes,
or another proxy as determined to be
appropriate by the third party market
data provider.
• Futures may be valued intraday
using the relevant futures exchange
data, or another proxy as determined to
be appropriate by the third party market
data provider.
• Interest rate swaps and crosscurrency swaps may be mapped to a
swap curve and valued intraday based
on changes of the swap curve, or
another proxy as determined to be
appropriate by the third party market
data provider.
• Index credit default swaps (such as,
CDX/CDS) may be valued using intraday
data from market vendors, or based on
underlying asset price, or another proxy
as determined to be appropriate by the
third party market data provider.
• Total return swaps may be valued
intraday using the underlying asset
price, or another proxy as determined to
be appropriate by the third party market
data provider.
• Exchange listed options may be
valued intraday using the relevant
exchange data, or another proxy as
determined to be appropriate by the
third party market data provider.
• OTC options and swaptions may be
valued intraday through option
valuation models (e.g., Black-Scholes) or
using exchange traded options as a
proxy, or another proxy as determined
to be appropriate by the third party
market data provider.
Disclosed Portfolio
The Fund’s disclosure of derivative
positions in the Disclosed Portfolio will
include information that market
participants can use to value these
PO 00000
Frm 00113
Fmt 4703
Sfmt 4703
57257
positions intraday. On a daily basis, the
Adviser will disclose on the Fund’s Web
site the following information regarding
each portfolio holding, 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.
Impact on Arbitrage Mechanism
The Adviser believes there will be
minimal, if any, impact to the arbitrage
mechanism as a result of the use of
derivatives. Market makers and
participants should be able to value
derivatives as long as the positions are
disclosed with relevant information.
The Adviser believes that the price at
which Shares trade will continue to be
disciplined by arbitrage opportunities
created by the ability to purchase or
redeem creation Shares at their NAV,
which should ensure that Shares will
not trade at a material discount or
premium in relation to their NAV.
The Adviser does not believe there
will be any significant impacts to the
settlement or operational aspects of the
Fund’s arbitrage mechanism due to the
use of derivatives. Because derivatives
generally are not eligible for in-kind
transfer, they will typically be
substituted with a ‘‘cash in lieu’’
amount when the Fund processes
purchases or redemptions of creation
units in-kind.
Creations and Redemptions of Shares
Investors may create or redeem in
Creation Unit size of 100,000 Shares or
aggregations thereof (‘‘Creation Unit’’)
through an Authorized Participant, as
described in the Registration Statement.
The size of a Creation Unit is subject to
change. In order to purchase Creation
Units of the Fund, an investor must
generally deposit a designated portfolio
of securities (the ‘‘Deposit Securities’’)
(and/or an amount in cash in lieu of
some or all of the Deposit Securities) per
each Creation Unit constituting a
substantial replication, or
representation, of the securities
included in the Fund’s portfolio as
selected by the Adviser (‘‘Fund
Securities’’) and generally make a cash
E:\FR\FM\22SEN1.SGM
22SEN1
57258
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
payment referred to as the ‘‘Cash
Component.’’ The list of the names and
the amounts of the Deposit Securities
will be made available by the Fund’s
custodian through the facilities of the
National Securities Clearing Corporation
(‘‘NSCC’’) immediately prior to the
opening of the NYSE Arca Core Trading
Session (9:30 a.m. to 4:00 p.m. E.T. The
Cash Component will represent the
difference between the NAV of a
Creation Unit and the market value of
the Deposit Securities.
Shares may be redeemed only in
Creation Unit size at their NAV on a day
the NYSE Arca is open for business. The
Fund’s custodian will make available
immediately prior to the opening of the
NYSE Arca Core Trading Session,
through the facilities of NSCC, the list
of the names and the amounts of the
Fund Securities that will be applicable
that day to redemption requests in
proper form. Fund Securities received
on redemption may not be identical to
Deposit Securities which are applicable
to purchases of Creation Units. The
creation/redemption order cut-off time
for the Fund will be 4:00 p.m. E.T.
tkelley on DSK3SPTVN1PROD with NOTICES
Availability of Information
The Fund’s Web site
(www.guggenheiminvestments.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’’),44 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 will disclose on its
Web site the Disclosed Portfolio as
defined in NYSE Arca Equities Rule
8.600(c)(2) that will form the basis for
the Fund’s calculation of NAV at the
end of the Business Day.45
In addition, a basket composition file,
which will include the security names
and share quantities required to be
delivered in exchange for Fund Shares,
together with estimates and actual cash
components, will be publicly
disseminated daily prior to the opening
of the NYSE via NSCC. The basket
represents one Creation Unit of the
Fund.
Investors can also obtain the Trust’s
Statement of Additional Information
(‘‘SAI’’), the Fund’s Shareholder
Reports, and Form N–CSR and Form N–
SAR, filed twice a year. The Trust’s SAI
and Shareholder Reports are available
free upon request from the Trust, and
those documents and the Form N–CSR
and Form N–SAR may be viewed onscreen or downloaded from the
Commission’s Web site at www.sec.gov.
Information regarding market price and
trading volume for 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, U.S.
exchange-traded common stocks, hybrid
instruments, REITs, CEFs, ETFs, ETPs
and ETNs will be available via the
Consolidated Tape Association (‘‘CTA’’)
high-speed line. Price information for
OTC REITs, OTC common stocks, OTC
CEFs, OTC options, money market
instruments, forwards, structured notes,
RLS, OTC derivative instruments and
OTC hybrid instruments will be
available from major market data
vendors. Intra-day and closing price
information for exchange-traded options
and futures will be available from the
applicable exchange and from major
market data vendors. In addition, price
information for U.S. exchange-traded
options is available from the Options
Price Reporting Authority. Quotation
information from brokers and dealers or
independent pricing services will be
available for Fixed Income Instruments.
In addition, the Portfolio Indicative
Value, as defined in NYSE Arca Equities
Rule 8.600(c)(3), will be widely
disseminated by one or more major
market data vendors at least every 15
seconds during the Core Trading
Session.46 The dissemination of the
44 The Bid/Ask Price of Shares of the Fund will
be 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.
45 Under accounting procedures to be followed by
the Fund, trades made on the prior Business Day
(‘‘T’’) will be booked and reflected in NAV on the
current Business Day (‘‘T+1’’). 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.
46 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
PO 00000
Frm 00114
Fmt 4703
Sfmt 4703
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 provide a close estimate
of that value throughout the trading day.
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.47 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. E.T. 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. The
Exchange represents that, for initial
and/or continued listing, the Fund will
be in compliance with Rule 10A–3 48
under the Act, as provided by NYSE
Arca Equities Rule 5.3. A minimum of
100,000 Shares of the Fund will be
outstanding at the commencement of
or make widely available Portfolio Indicative
Values taken from CTA or other data feeds.
47 See NYSE Arca Equities Rule 7.12,
Commentary .04.
48 17 CFR 240.10A–3.
E:\FR\FM\22SEN1.SGM
22SEN1
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
trading on the Exchange. The Exchange
will obtain a representation from the
issuer of the Shares that the NAV per
Share will be calculated daily and that
the NAV and the Disclosed Portfolio
will be made available to all market
participants at the same time.
tkelley on DSK3SPTVN1PROD with NOTICES
Surveillance
The Exchange represents that trading
in the Shares will be subject to the
existing trading surveillances,
administered by the Financial Industry
Regulatory Authority (‘‘FINRA’’) on
behalf of the Exchange, which are
designed to detect violations of
Exchange rules and applicable federal
securities laws. 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 federal
securities laws applicable to trading on
the Exchange.49
The surveillances referred to above
generally focus on detecting securities
trading outside their normal patterns,
which could be indicative of
manipulative or other violative activity.
When such situations are detected,
surveillance analysis follows and
investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations.
FINRA, on behalf of the Exchange,
will communicate as needed regarding
trading in the Shares, certain exchangetraded options and futures, certain
exchange-traded equities (including
ETFs, ETPs. ETNs, CEFs, certain
common stocks and certain REITs) with
other markets or other entities that are
members of the Intermarket
Surveillance Group (‘‘ISG’’),50 and
FINRA may obtain trading information
regarding trading in the Shares, certain
exchange-traded options and futures,
certain exchange-traded equities
(including ETFs, ETPs. ETNs, CEFs,
certain common stocks and certain
REITs) from such markets or entities. In
addition, the Exchange may obtain
information regarding trading in the
Shares, certain exchange-traded options
and futures, certain exchange-traded
equities (including ETFs, ETPs. ETNs,
CEFs, certain common stocks and
certain REITs) from markets or other
49 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.
50 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.
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
entities that are members of ISG or with
which the Exchange has in place a
comprehensive surveillance sharing
agreement.51 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’’).
Not more than 10% of the net assets
of the Fund in the aggregate invested in
equity securities (other than nonexchange-traded investment company
securities) shall consist of equity
securities whose principal market is not
a member of the ISG or is a market with
which the Exchange does not have a
comprehensive surveillance sharing
agreement. Furthermore, not more than
10% of the net assets of the Fund in the
aggregate invested in futures contracts
or exchange-traded options contracts
shall consist of futures contracts or
exchange-traded options contracts
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.
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 (‘‘ETP’’) 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 Units (and that Shares are not
individually redeemable); (2) NYSE
Arca Equities Rule 9.2(a), which
imposes a duty of due diligence on its
ETP Holders to learn the essential facts
relating to every customer prior to
trading the Shares; (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
and the Disclosed Portfolio is
disseminated; (5) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
51 Certain of the exchange-traded equity securities
in which the Fund may invest may trade in markets
that are not members of ISG.
PO 00000
Frm 00115
Fmt 4703
Sfmt 4703
57259
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
Act. The Bulletin will also disclose that
the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each
trading day.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 52 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 federal securities laws
applicable to trading on the Exchange.
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 Adviser is
affiliated with a broker-dealer and has
represented that it has implemented a
fire wall with respect to its brokerdealer affiliate regarding access to
information concerning the composition
and/or changes to the portfolio. 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.
FINRA, on behalf of the Exchange, will
communicate as needed regarding
trading in the Shares, certain exchangetraded options and futures, certain
exchange-traded equities (including
ETFs, ETPs. ETNs, CEFs, certain
common stocks and certain REITs) with
other markets or other entities that are
members of the ISG, and FINRA may
obtain trading information regarding
trading in the Shares, certain exchangetraded options and futures, certain
exchange-traded equities (including
52 15
E:\FR\FM\22SEN1.SGM
U.S.C. 78f(b)(5).
22SEN1
tkelley on DSK3SPTVN1PROD with NOTICES
57260
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
ETFs, ETPs. ETNs, CEFs, certain
common stocks and certain REITs) from
such markets or entities. In addition, the
Exchange may obtain information
regarding trading in the Shares, certain
exchange-traded options and futures,
certain exchange-traded equities
(including ETFs, ETPs. ETNs, CEFs,
certain common stocks and certain
REITs) from markets or other entities
that are members of ISG or with which
the Exchange has in place a
comprehensive surveillance sharing
agreement. 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 TRACE.
The Fund’s disclosure of derivative
positions in the Disclosed Portfolio will
include information that market
participants can use to value these
positions intraday. On a daily basis, the
Fund will disclose on the Fund’s Web
site the following information regarding
each portfolio holding, 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. Price information for the debt
and equity securities held by the Fund
will be available through major market
data vendors and on the applicable
securities exchanges on which such
securities are listed and traded. In
addition, a large amount of information
will be publicly available regarding the
Fund and the Shares, thereby promoting
market transparency. Moreover, the
Portfolio Indicative Value will be
widely disseminated by one or more
major market data vendors at least every
15 seconds during the Exchange’s Core
Trading Session. 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 that
will form the basis for the Fund’s
calculation of NAV at the end of the
Business Day. Information regarding
market price and trading volume of the
Shares will be continually available on
a real-time basis throughout the day on
brokers’ computer screens and other
electronic services, and quotation and
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
last sale information will be available
via the CTA high-speed line. The Web
site for the Fund will include a form of
the prospectus for the Fund and
additional data relating to NAV and
other applicable quantitative
information. Moreover, prior to the
commencement of trading, the Exchange
will inform its ETP 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, and 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. Not more than 10% of the
net assets of the Fund in the aggregate
invested in equity securities (other than
non-exchange-traded investment
company securities) shall consist of
equity securities whose principal
market is not a member of the ISG or is
a market with which the Exchange does
not have a comprehensive surveillance
sharing agreement. Furthermore, not
more than 10% of the net assets of the
Fund in the aggregate invested in
futures contracts or exchange-traded
options contracts shall consist of futures
contracts or exchange-traded options
contracts 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. In addition, as noted above,
investors will have ready access to
information regarding the Fund’s
PO 00000
Frm 00116
Fmt 4703
Sfmt 4703
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 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 primarily
holds fixed income securities, which
may be represented by certain derivative
instruments as discussed above, which
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 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, as modified by Amendment No.
1, 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–2015–73 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Brent J. Fields, Secretary, Securities
E:\FR\FM\22SEN1.SGM
22SEN1
Federal Register / Vol. 80, No. 183 / Tuesday, September 22, 2015 / Notices
and Exchange Commission, 100 F Street
NE., Washington, DC 20549–1090.
All submissions should refer to File
Number SR–NYSEArca-2015–73. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference 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 principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–NYSEArca–2015–73 and
should be submitted on or before
October 13, 2015.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.53
Brent J. Fields,
Secretary.
[FR Doc. 2015–23973 Filed 9–21–15; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
1 15
[Release No. 34–75925; File No. 10–222]
tkelley on DSK3SPTVN1PROD with NOTICES
September 15, 2015.
On August 21, 2015, Investors’
Exchange, LLC (‘‘IEX’’) submitted to the
Securities and Exchange Commission
(‘‘Commission’’) a Form 1 application
under the Securities Exchange Act of
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
17:39 Sep 21, 2015
Jkt 235001
U.S.C. 78s(f).
Amendment No. 1, IEX submitted updated
portions of its Form 1 application, including
revised exhibits, a revised version of the proposed
IEX Rule Book, and revised Addenda C–2, C–3, C–
4, D–1, D–2, F–1, F–2, F–3, F–4, F–5, F–6, F–7, F–
8, F–9, F–10, F–11, F–12, F–13.
3 See 15 U.S.C. 78s(a). Alternatively, if the
Commission does not grant the registration, it will
institute proceedings to determine whether
registration should be approved or denied. See 15
U.S.C. 78s(a)(1)(B).
4 See proposed IEX Rule 11.190(h)(2). See also
Exhibit E to IEX’s Form 1 submission, at 17.
Specifically, a non-displayed order on IEX with a
limit price more aggressive than the midpoint of the
NBBO would be priced at the midpoint, and the
price would automatically be adjusted in response
to changes in the NBBO to be equal to the less
2 In
Investors’ Exchange, LLC; Notice of
Filing of Application, as Amended, for
Registration as a National Securities
Exchange Under Section 6 of the
Securities Exchange Act of 1934
53 17
1934 (‘‘Exchange Act’’), seeking
registration as a national securities
exchange under Section 6 of the
Exchange Act.1 On September 9, 2015,
IEX submitted Amendment No. 1 to its
Form 1 application.2 IEX’s Form 1
application, as amended, provides
detailed information on how it proposes
to satisfy the requirements of the
Exchange Act.
The Commission is publishing this
notice to solicit comments on IEX’s
Form 1 application, as amended. The
Commission will take any comments it
receives into consideration in making its
determination about whether to grant
IEX’s request to register as a national
securities exchange. The Commission
will grant the registration if it finds that
the requirements of the Exchange Act
and the rules and regulations
thereunder with respect to IEX are
satisfied.3
IEX currently operates an alternative
trading system (‘‘ATS’’) for the trading
of equity securities. If the Commission
approves IEX’s application to become a
national securities exchange, IEX would
transition trading in each symbol to the
exchange and ultimately close its ATS.
IEX would operate a fully automated
electronic book for orders to buy or sell
securities with a continuous, automated
matching function. IEX would not have
a physical trading floor. Liquidity
would be derived from orders to buy
and orders to sell submitted to IEX
electronically by its registered brokerdealer members from remote locations,
as well as from quotes submitted
electronically by members that chose to
register under IEX rules as market
makers on IEX and be subject to certain
specified requirements and obligations.
One notable feature of IEX’s proposed
trading rules is the proposed ‘‘Midpoint
Price Constraint’’ price sliding process
for non-displayed orders, which would
prevent non-displayed limit orders from
posting at a price more aggressive than
the midpoint of the national best bid
and offer.4 In addition, IEX is proposing
PO 00000
Frm 00117
Fmt 4703
Sfmt 4703
57261
a discretionary peg order type, which, if
unexecuted upon entry, would post
non-displayed and would exercise
discretion only when IEX does not
consider that the national best bid or
national best offer for a particular
security is in the process of changing
based on a pre-determined set of
conditions described in IEX’s proposed
rule.5
IEX would be wholly owned by its
parent company, IEX Group, Inc.
(‘‘IEXG’’), which would appoint IEX’s
initial Board of Directors. If approved by
the Commission, within 90 days after
the date of its approval to operate as a
national securities exchange, IEX would
undertake a petition process by which
members could elect Member
Representative Directors to the Board, as
specified in the proposed Amended and
Restated Operating Agreement of IEX.6
A description of the manner of
operation of IEX’s proposed system can
be found in Exhibit E to IEX’s Form 1
application. The proposed rulebook for
the proposed IEX exchange can be
found in Exhibit B to IEX’s Form 1
application, and the governing
documents for both IEX and IEXG can
be found in Exhibits A and C,
respectively. A listing of the officers and
directors of IEX can be found in Exhibit
J to IEX’s Form 1 application. IEX’s
Form 1 application, as amended,
including all of the Exhibits referenced
above, is available online at
www.sec.gov/rules/other.shtml as well
as at the Commission’s Public Reference
Room.
Interested persons are invited to
submit written data, views, and
arguments concerning IEX’s Form 1, as
amended, including whether the
application is consistent with the
Exchange 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 10–
222 on the subject line.
aggressive of the order’s limit price or the midpoint
of the NBBO. See also proposed IEX Rule
11.230(a)(4)(D) (concerning the ‘‘Book Recheck’’
functionality), and Exhibit E to IEX’s Form 1
submission, at 19 (describing the ‘‘Book Recheck’’
functionality).
5 See proposed IEX Rule 11.190(b)(10)
(concerning the discretionary peg order type) and
11.190(g) (concerning quote stability). See also
Exhibit E to IEX’s Form 1 submission, at 14–15.
6 See IEX Amended and Restated Operating
Agreement Article III, Section 4(g). See also Exhibit
J to IEX’s Form 1 submission, at 37.
E:\FR\FM\22SEN1.SGM
22SEN1
]]>Agencies
[Federal Register Volume 80, Number 183 (Tuesday, September 22, 2015)]
[Notices]
[Pages 57251-57261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-23973]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-75930; File No. SR-NYSEArca-2015-73]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, Relating to
Listing and Trading of Shares of the Guggenheim Total Return Bond ETF
Under NYSE Arca Equities Rule 8.600
September 16, 2015.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on September 1, 2015, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. On September 15, 2015, the Exchange filed Amendment No. 1
to the proposed rule change.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as modified by
Amendment No. 1, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
\4\ Amendment No. 1 replaces and supersedes the original filing
in its entirety.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''):
Guggenheim Total Return Bond 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
Guggenheim Total Return Bond ETF (the ``Fund'') under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares.\5\ The Shares will be offered by the Claymore Exchange-
Traded Fund Trust 2 (the ``Trust''),\6\ a statutory trust organized
under the laws of the State of Delaware and registered with the
Commission as an open-end management investment company.\7\
---------------------------------------------------------------------------
\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 November 25,
2014, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) (``Securities Act'') and the 1940 Act relating to
the Fund (File Nos. 333-135105 and 811-21910) (the ``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. 29271 (May 18, 2010) (File No. 812-13534)
(``Exemptive Order'').
\7\ The Commission previously approved listing and trading on
the Exchange of the following actively managed funds under Rule
8.600. See Securities Exchange Act Release Nos. 57801 (May 8, 2008),
73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving
Exchange listing and trading of twelve actively-managed funds of the
WisdomTree Trust); 60981 (November 10, 2009), 74 FR 59594 (November
18, 2009) (SR-NYSEArca-2009-79) (order approving listing of five
fixed income funds of the PIMCO ETF Trust); 63329 (November 17,
2010), 75 FR 71760 (November 24, 2010) (SR-NYSEArca-2010-86) (order
approving listing of Peritus High Yield ETF) ; 64550 (May 26, 2011),
76 FR 32005 (June 2, 2011) (SR-NYSEArca-2011-11) (order approving
listing of Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced
Ultra-Short Bond ETF).
---------------------------------------------------------------------------
[[Page 57252]]
The investment adviser for the Fund is Guggenheim Partners
Investment Management, LLC (``Adviser''). The Bank of New York Mellon
is the custodian and transfer agent for the Fund. Guggenheim Funds
Distributors, LLC is the distributor for the Fund.\8\
---------------------------------------------------------------------------
\8\ The Commission has previously approved a proposed rule
change relating to listing and trading of shares of the Guggenheim
Enhanced Total Return ETF under NYSE Arca Equities Rule 8.600. See
Securities Exchange Act Release Nos. 68488 (December 20, 2012), 77
FR 76326 (December 27, 2012) (SR-NYSEArca-2012-142) (notice of
filing of proposed rule change regarding listing and trading of
shares of the Guggenheim Enhanced Total Return ETF under NYSE Arca
Equities Rule 8.600) (the ``Prior Notice''); 68863 (February 7,
2013), 78 FR 10222 (February 13, 2013) (SR-NYSEArca-2012-142) (order
approving proposed rule change relating to listing and trading of
shares of the Guggenheim Enhanced Total Return ETF under NYSE Arca
Equities Rule 8.600) (the ``Prior Order'' and, together with the
Prior Notice, the ``Prior Release'')). Shares of the Guggenheim
Enhanced Total Return ETF have not commenced Exchange listing and
trading. The Guggenheim Total Return Bond ETF would replace the
Guggenheim Enhanced Total Return ETF as approved in the Prior
Release. As set forth in the Registration Statement, the Fund's
investments will differ from those described in the Prior Release.
This proposed rule change supersedes the Prior Release in its
entirety. In addition, prior to commencement of trading of Shares of
the Fund, the Trust will file an amendment to its Registration
Statement to change the name of the Guggenheim Enhanced Total Return
ETF to the Guggenheim Total Return Bond ETF.
---------------------------------------------------------------------------
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.\9\ 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. The Adviser is
affiliated with a broker-dealer and has represented that it has
implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio. In the event (a) the Adviser or any sub-
adviser becomes newly affiliated with a broker-dealer, or (b) 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.
---------------------------------------------------------------------------
\9\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
---------------------------------------------------------------------------
Principal Investment Strategies
According to the Registration Statement, the Fund's investment
objective is to seek maximum total return, comprised of income and
capital appreciation. The Fund will normally \10\ invest at least 80%
of its assets in ``Fixed-Income Instruments'' (as defined below) of
varying maturities and of any credit quality, which may be represented
by certain derivative instruments as discussed below,\11\ and exchange-
traded funds (``ETFs'') \12\ and exchange-traded and over-the-counter
(``OTC'') closed-end funds (``CEFs'') (which may include ETFs and CEFs
affiliated with the Fund) that invest substantially all of their assets
in Fixed-Income Instruments (the ``80% Policy''). The Fixed-Income
Instruments in which the Fund will invest, as described further below,
are the following. bonds, including corporate bonds; \13\ other debt
securities \14\ of U.S. and non-U.S. issuers; securities issued by the
U.S. government or its agencies, instrumentalities or sponsored
corporations (including those not backed by the full faith and credit
of the U.S. government); agency and non-agency mortgage-backed
securities (``MBS'') and asset-backed securities (``ABS''); \15\ U.S.
agency mortgage pass-through securities; \16\ repurchase agreements;
reverse repurchase agreements; convertible securities; \17\
[[Page 57253]]
commercial instruments; \18\ variable or floating rate instruments and
variable rate demand instruments; \19\ zero-coupon and pay-in-kind
securities; \20\ bank instruments, including certificates of deposit
(``CDs''), time deposits and bankers' acceptances from U.S. banks; \21\
and participations in and assignments of bank loans or corporate loans,
which loans include senior loans, syndicated bank loans, junior loans,
bridge loans,\22\ unfunded commitments,\23\ revolving credit facilities
(``revolvers''),\24\ and participation interests.\25\
---------------------------------------------------------------------------
\10\ The term ``normally'' includes, but is not limited to, the
absence of extreme volatility or trading halts in the securities
markets or the financial markets generally; circumstances under
which the Fund's investments are made for temporary defensive
purposes; 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.
\11\ See ``The Fund's Use of Derivatives,'' infra. The Fund will
invest in the following derivative instruments on Fixed-Income
Securities: Foreign exchange forward contracts, exchange-traded
futures on securities, indices, currencies and other investments;
exchange-traded and OTC options; exchange-traded and OTC options on
futures contracts; exchange-traded and OTC interest rate swaps,
cross-currency swaps, total return swaps, inflation swaps, and
credit default swaps; and options on such swaps.
\12\ For purposes of this filing, ETFs consist of Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3)),
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100; and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). All ETFs will be listed and traded in the U.S.
on a national securities exchange. While the Fund may invest in
inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X,
3X or -3X) ETFs.
\13\ The Adviser expects that normally the Fund generally will
seek to invest at least 75% of its corporate bond assets in
issuances that have at least $100,000,000 par amount outstanding in
developed countries or at least $200,000,000 par amount outstanding
in emerging market countries.
\14\ Debt securities and other similar instruments may be of
varying maturities and of any credit quality rating.
\15\ The MBS in which the Fund may invest may also include
residential mortgage-backed securities (``RMBS''), collateralized
mortgage obligations (``CMOs'') and commercial mortgage-backed
securities (``CMBS''). The ABS in which the Fund may invest include
collateralized debt obligations (``CDOs''). CDOs include
collateralized bond obligations (``CBOs''), collateralized loan
obligations (``CLOs'') and other similarly structured securities. A
CBO is a trust which is backed by a diversified pool of high risk,
below investment grade fixed income securities. A CLO is a trust
typically collateralized by a pool of loans, which may include
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.
\16\ The Fund will seek to obtain exposure to U.S. agency
mortgage pass-through securities primarily through the use of ``to-
be-announced'' or ``TBA transactions.'' ``TBA'' refers to a commonly
used mechanism for the forward settlement of U.S. agency mortgage
pass-through securities, and not to a separate type of mortgage-
backed security. Most transactions in mortgage pass-through
securities occur through the use of TBA transactions. TBA
transactions generally are conducted in accordance with widely-
accepted guidelines which establish commonly observed terms and
conditions for execution, settlement and delivery.
\17\ According to the Registration Statement, convertible
securities include bonds, debentures, notes, preferred stocks and
other securities that may be converted into a prescribed amount of
common stock or other equity securities at a specified price and
time.
\18\ Commercial instruments include commercial paper, master
notes, asset-backed commercial paper and other short-term corporate
instruments. Commercial paper normally represents short-term
unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations, finance companies and other
issuers. Commercial paper may be traded in the secondary market
after its issuance. Master notes are demand notes that permit the
investment of fluctuating amounts of money at varying rates of
interest pursuant to arrangements with issuers who meet the quality
criteria of the Fund. Master notes are generally illiquid and
therefore subject to the Fund's percentage limitations for
investments in illiquid securities. Asset-backed commercial paper is
issued by a special purpose entity that is organized to issue the
commercial paper and to purchase trade receivables or other
financial assets.
\19\ Variable or floating rate instruments and variable rate
demand instruments, including variable amount master demand notes,
will normally involve industrial development or revenue bonds that
provide that the rate of interest is set as a specific percentage of
a designated base rate (such as the prime rate) at a major
commercial bank. In addition, the interest rate on these securities
may be reset daily, weekly or on some other reset period and may
have a floor or ceiling on interest rate changes. The Adviser will
monitor the pricing, quality and liquidity of the variable or
floating rate securities held by the Fund.
\20\ Zero-coupon and pay-in-kind securities are debt securities
that do not make regular cash interest payments. Zero-coupon
securities are sold at a deep discount to their face value. Pay-in-
kind securities pay interest through the issuance of additional
securities.
\21\ A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. A CD is a negotiable
interest-bearing instrument with a specific maturity.
\22\ Bridge loans are short-term loan arrangements (e.g.,
maturities that are generally less than one year) typically made by
a borrower following the failure of the borrower to secure other
intermediate-term or long-term permanent financing. A bridge loan
remains outstanding until more permanent financing, often in the
form of high yield notes, can be obtained. Most bridge loans have a
step-up provision under which the interest rate increases
incrementally the longer the loan remains outstanding so as to
incentivize the borrower to refinance as quickly as possible. In
exchange for entering into a bridge loan, the Fund typically will
receive a commitment fee and interest payable under the bridge loan
and may also have other expenses reimbursed by the borrower. Bridge
loans may be subordinate to other debt and generally are unsecured.
\23\ Unfunded commitments are contractual obligations pursuant
to which the Fund agrees in writing to make one or more loans up to
a specified amount at one or more future dates. The underlying loan
documentation sets out the terms and conditions of the lender's
obligation to make the loans as well as the economic terms of such
loans. The portion of the amount committed by a lender that the
borrower has not drawn down is referred to as ``unfunded.'' Loan
commitments may be traded in the secondary market through dealer
desks at large commercial and investment banks although these
markets are generally not considered liquid.
\24\ Revolving credit facilities (``revolvers'') are borrowing
arrangements in which the lender agrees to make loans up to a
maximum amount upon demand by the borrower during a specified term.
As the borrower repays the loan, an amount equal to the repayment
may be borrowed again during the term of the revolver. Revolvers
usually provide for floating or variable rates of interest.
\25\ All or a significant portion of the loans in which the Fund
will invest may be below investment grade quality. There will be no
minimum par amount outstanding with respect to loans in which the
Fund may invest.
---------------------------------------------------------------------------
With respect to Fixed Income Instrument investments, the Fund may
invest in restricted securities (Rule 144A securities), which are
subject to legal restrictions on their sale. The Fund has no target
duration for its investment portfolio.
In addition, with respect to Fixed Income Instrument investments,
the Fund may, without limitation, seek to obtain market exposure to the
securities in which it primarily invests by entering into a series of
purchase and sale contracts or by using other investment techniques
(such as buy backs or dollar rolls).
The Fund may also use leverage to the extent permitted under the
1940 Act by entering into reverse repurchase agreements and borrowing
transactions (principally lines of credit) for investment purposes. The
Fund's exposure to reverse repurchase agreements will be covered by
securities having a value equal to or greater than such commitments.
Under the 1940 Act, reverse repurchase agreements are considered
borrowings. Although there is no limit on the percentage of Fund assets
that can be used in connection with reverse repurchase agreements, the
Portfolio does not expect to engage, under normal circumstances, in
reverse repurchase agreements with respect to more than 331/3% of its
assets.
Other Investments
While the Fund normally will invest at least 80% of its assets in
the securities and financial instruments described above, the Fund may
invest its remaining assets in the securities and financial instruments
described below.
According to the Registration Statement, the Fund may invest in
exchange-traded and OTC hybrid instruments, which combine 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 commodity, currency or securities
index or another interest rate or some other economic factor
(``underlying benchmark'').\26\
---------------------------------------------------------------------------
\26\ 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 would
only invest in commodity-linked hybrid instruments that qualify,
under applicable rules of the Commodity Futures Trading Commission,
for an exemption from the provisions of the Commodity Exchange Act
(7 U.S.C. 1).
---------------------------------------------------------------------------
According to the Registration Statement, the Fund is permitted to
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.
According to the Registration Statement, the Fund may invest in
credit-linked notes, which are a type of structured note. The
difference between a credit default swap and a credit-linked note is
that the seller of a credit-linked note receives the principal payment
from the buyer at the time the contract is originated. Through the
purchase of a credit-linked note, the buyer assumes the risk of the
reference asset and funds this exposure through the purchase of the
note. The buyer takes on the exposure to the seller to the full amount
of the funding it has provided. The seller has hedged its risk on the
reference asset without acquiring any additional credit exposure. The
Fund has the right to receive periodic interest payments from the
issuer of the credit-linked note at an agreed-upon interest rate and a
return of principal at the maturity date.
According to the Registration Statement, the Fund may invest in
risk-linked securities (``RLS''), which are a form of derivative issued
by insurance companies and insurance-related special purpose vehicles
that apply securitization techniques to catastrophic property and
casualty damages.\27\
---------------------------------------------------------------------------
\27\ RLS are typically debt obligations for which the return of
principal and the payment of interest are contingent on the non-
occurrence of a pre-defined ``trigger event.'' Depending on the
specific terms and structure of the RLS, this trigger could be the
result of a hurricane, earthquake or some other catastrophic event.
Insurance companies securitize this risk to transfer to the capital
markets the truly catastrophic part of the risk exposure. A typical
RLS provides for income and return of capital similar to other
fixed-income investments, but would involve full or partial default
if losses resulting from a certain catastrophe exceeded a
predetermined amount.
---------------------------------------------------------------------------
[[Page 57254]]
The Fund may invest a portion of its assets in high-quality money
market instruments on an ongoing basis to provide liquidity.
The Fund may invest in U.S. and foreign common stocks, both
exchange-listed and OTC.
The Fund may gain exposure to commodities through the use of
investments in exchange-traded products (``ETPs'') \28\ and exchange-
traded notes (``ETNs'').\29\
---------------------------------------------------------------------------
\28\ Such ETPs include Trust Issued Receipts (as described in
NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares
(as described in NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and
Trust Units (as described in NYSE Arca Equities Rule 8.500).
\29\ ETNs include Index-Linked Securities (as described in NYSE
Arca Equities Rule 5.2(j)(6)).
---------------------------------------------------------------------------
The Fund may invest in the securities of exchange-traded and OTC
real estate investment trusts (``REITs'').
Investment Restrictions
The Fund may invest up to 20% of its total assets in the aggregate
in MBS and ABS that are privately issued, non-agency and non-government
sponsored entity (``Private MBS/ABS''), and in asset-backed commercial
paper.\30\ Such holdings would be subject to the respective limitations
on the Fund's investments in illiquid assets and high yield securities.
The liquidity of a security, especially in the case of Private MBS/ABS,
will be a substantial factor in the Fund's security selection process.
---------------------------------------------------------------------------
\30\ See note 18, supra.
---------------------------------------------------------------------------
The Fund may invest up to 20% of its total assets in the aggregate
in junior loans, bridge loans, unfunded commitments, and revolvers.
Such holdings would be subject to the respective limitations on the
Fund's investments in illiquid assets and high yield securities. The
liquidity of such securities will be a substantial factor in the Fund's
security selection process.
The Fund may invest in debt securities and instruments that are
economically tied to emerging market countries.\31\
---------------------------------------------------------------------------
\31\ See note 13, supra. Generally, the Fund considers an
instrument to be economically tied to an emerging market country
through consideration of some or all of the following factors: (i)
Whether the issuer is the government of the emerging market country
(or any political subdivision, agency, authority or instrumentality
of such government), or is organized under the laws of the emerging
market country; (ii) amount of the issuer's revenues that are
attributable to the emerging market country; (iii) the location of
the issuer's management; (iv) if the security is secured or
collateralized, the country in which the security or collateral is
located; and/or (v) the currency in which the instrument is
denominated or currency fluctuations to which the issuer is exposed.
---------------------------------------------------------------------------
The Fund may invest without limitation in securities denominated in
foreign currencies and in U.S. dollar-denominated securities of foreign
issuers.
The Fund may invest up to 33\1/3\% of its total assets in high
yield debt securities (``junk bonds''), which are debt securities that
are rated below investment grade by nationally recognized statistical
rating organizations, or are unrated securities that the Adviser
believes are of comparable below investment grade quality. The Fund may
invest in defaulted or distressed Private MBS/ABS.
The Fund will be considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund.\32\
---------------------------------------------------------------------------
\32\ A ``non-diversified company,'' as defined in Section
5(b)(2) of the 1940 Act, means any management company other than a
diversified company (as defined in Section 5(b)(1) of the 1940 Act).
---------------------------------------------------------------------------
The Fund may not invest more than 25% of the value of its net
assets in securities of issuers in any one industry or group of
industries. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities.\33\
---------------------------------------------------------------------------
\33\ 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).
---------------------------------------------------------------------------
The Fund's investments, including investments in derivative
instruments, are subject to all of the restrictions under the 1940 Act,
including restrictions with respect to illiquid assets. 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 Rule 144A
securities, Private MBS/ABS, master notes, loans and loan commitments
deemed illiquid by the Adviser,\34\ consistent with Commission
guidance.\35\ 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.\36\
---------------------------------------------------------------------------
\34\ In reaching liquidity decisions with respect to Rule 144A
securities, the Adviser may consider the following factors: The
frequency of trades and quotes for the security; the number of
dealers willing to purchase or sell the security and the number of
other potential purchasers; dealer undertakings to make a market in
the security; and the nature of the security and the nature of the
marketplace in which it trades (e.g., the time needed to dispose of
the security, the method of soliciting offers, and the mechanics of
transfer).
\35\ 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 1933 Act).
\36\ See id.
---------------------------------------------------------------------------
The Fund intends to qualify for and to elect to be treated as a
separate regulated investment company (``RIC'') under Subchapter M of
the Internal Revenue Code.\37\
---------------------------------------------------------------------------
\37\ 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. That is,
while the Fund will be permitted to borrow as permitted under the 1940
Act, the Fund's investments will not be used to seek performance that
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's
primary broad-based securities benchmark index (as defined in Form N-
1A).\38\
---------------------------------------------------------------------------
\38\ The Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------
The Fund's Use of Derivatives
The Fund proposes to seek certain exposures through derivative
transactions as described below. The Fund may invest in the following
derivative instruments: Foreign exchange forward contracts; exchange-
traded futures on securities, indices, currencies and other
investments; exchange-traded and OTC options; exchange-traded and OTC
options on
[[Page 57255]]
futures contracts; exchange-traded and OTC interest rate swaps, cross-
currency swaps, total return swaps, inflation swaps and credit default
swaps; and options on such swaps (``swaptions'').\39\ Generally,
derivatives are financial contracts whose value depends upon, or is
derived from, the value of an underlying asset, reference rate or
index, and may relate to stocks, bonds, interest rates, currencies or
currency exchange rates, commodities, and related indexes. The Fund
may, but is not required to, use derivative instruments for risk
management purposes or as part of its investment strategies.\40\ The
Fund may also engage in derivative transactions for speculative
purposes to enhance total return, to seek to hedge against fluctuations
in securities prices, interest rates or currency rates, to change the
effective duration of its portfolio, to manage certain investment risks
and/or as a substitute for the purchase or sale of securities or
currencies.
---------------------------------------------------------------------------
\39\ Options on swaps are traded OTC. In the future, in the
event that there are exchange-traded options on swaps, the Fund may
invest in these instruments.
\40\ The Fund will seek, where possible, to use counterparties
whose financial status is such that the risk of default is reduced;
however, the risk of losses resulting from default is still
possible. The Adviser will monitor the financial standing of
counterparties on an ongoing basis. This monitoring may include
information provided by credit agencies, as well as the Adviser's
credit analysts and other team members who evaluate approved
counterparties using various methods of analysis, including but not
limited to earnings updates, the counterparty's reputation, the
Adviser's past experience with the broker-dealer, market levels for
the counterparty's debt and equity, the counterparty's liquidity and
its share of market participation.
---------------------------------------------------------------------------
Investments in derivative instruments will be made in accordance
with the 1940 Act and consistent with the Fund's investment objective
and policies. As described further below, the Fund will typically use
derivative instruments as a substitute for taking a position in the
underlying asset and/or as part of a strategy designed to reduce
exposure to other risks, such as interest rate or currency risk. The
Fund may also use derivative instruments to enhance returns. To limit
the potential risk associated with such transactions, the Fund will
segregate or ``earmark'' assets determined to be liquid by the Adviser
in accordance with procedures established by the Trust's Board of
Trustees (the ``Board'') and in accordance with the 1940 Act (or, as
permitted by applicable regulation, enter into certain offsetting
positions) to cover its obligations under derivative instruments. These
procedures have been adopted consistent with Section 18 of the 1940 Act
and related Commission guidance. In addition, the Fund will include
appropriate risk disclosure in its offering documents, including
leveraging risk. Leveraging risk is the risk that certain transactions
of the Fund, including the Fund's use of derivatives, may give rise to
leverage, causing the Fund to be more volatile than if it had not been
leveraged.\41\ Because the markets for certain securities, or the
securities themselves, may be unavailable or cost prohibitive as
compared to derivative instruments, suitable derivative transactions
may be an efficient alternative for the Fund to obtain the desired
asset exposure.
---------------------------------------------------------------------------
\41\ To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that
may give rise to such risk.
---------------------------------------------------------------------------
The Adviser believes that derivatives can be an economically
attractive substitute for an underlying physical security that the Fund
would otherwise purchase. For example, the Fund could purchase Treasury
futures contracts instead of physical Treasuries or could sell credit
default protection on a corporate bond instead of buying a physical
bond. Economic benefits include potentially lower transaction costs or
attractive relative valuation of a derivative versus a physical bond
(e.g., differences in yields).
The Adviser further believes that derivatives can be used as a more
liquid means of adjusting portfolio duration as well as targeting
specific areas of yield curve exposure, with potentially lower
transaction costs than the underlying securities (e.g., interest rate
swaps may have lower transaction costs than physical bonds). Similarly,
money market futures can be used to gain exposure to short-term
interest rates in order to express views on anticipated changes in
central bank policy rates. In addition, derivatives can be used to
protect client assets through selectively hedging downside (or ``tail
risks'') in the Fund.
The Fund also can use derivatives to increase or decrease credit
exposure. Index credit default swaps (CDX) can be used to gain exposure
to a basket of credit risk by ``selling protection'' against default or
other credit events, or to hedge broad market credit risk by ``buying
protection''. Single name credit default swaps (CDS) can be used to
allow the Fund to increase or decrease exposure to specific issuers,
saving investor capital through lower trading costs. The Fund can use
total return swap contracts to obtain the total return of a reference
asset or index in exchange for paying a financing cost. A total return
swap may be more efficient than buying underlying securities of an
index, potentially lowering transaction costs.
The Fund may attempt to reduce foreign currency exchange rate risk
by entering into contracts with banks, brokers or dealers to purchase
or sell foreign currencies at a future date (``forward
contracts'').\42\
---------------------------------------------------------------------------
\42\ A foreign currency forward contract is a negotiated
agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate.
The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.
---------------------------------------------------------------------------
The Adviser believes that the use of derivatives will allow the
Fund to selectively add diversifying sources of return from selling
options. Option purchases and sales can also be used to hedge specific
exposures in the portfolio, and can provide access to return streams
available to long-term investors such as the persistent difference
between implied and realized volatility. Option strategies can generate
income or improve execution prices (i.e., covered calls).
In addition to the Fund's use of derivatives in connection with its
80% Policy, under the proposal the Fund would seek to invest in
derivative instruments not based on Fixed-Income Instruments,
consistent with the Fund's investment restrictions relating to exposure
to those asset classes.
Valuation Methodology for Purposes of Determining Net Asset Value
According to the Registration Statement, the net asset value
(``NAV'') of the Fund's Shares will be determined by dividing the total
value of the Fund's portfolio investments and other assets, less any
liabilities, by the total number of Shares outstanding. Fund Shares
will be valued as of the close of regular trading (normally 4:00 p.m.,
Eastern time (``E.T.'')) (the ``NYSE Close'') on each day NYSE Arca is
open (``Business Day''). Information that becomes known to the Fund or
its agents after the NAV has been calculated on a particular day will
not generally be used to retroactively adjust the price of a portfolio
asset or the NAV determined earlier that day. The Fund reserves the
right to change the time its NAV is calculated if the Fund closes
earlier, or as permitted by the Commission.
For purposes of calculating NAV, portfolio securities and other
assets for which market quotes are readily available will be valued at
market value. Market value will generally be determined on the basis of
last reported sales prices, or if no sales are reported,
[[Page 57256]]
based on quotes obtained from a quotation reporting system, established
market makers, or pricing services. Domestic and foreign fixed income
securities and non-exchange-traded derivatives will normally be valued
on the basis of quotes obtained from brokers and dealers or pricing
services using data reflecting the earlier closing of the principal
markets for those assets. Prices obtained from independent pricing
services use information provided by market makers or estimates of
market values obtained from yield data relating to investments or
securities with similar characteristics. Exchange-traded options and
options on futures will generally be valued at the settlement price
determined by the applicable exchange.
Derivatives for which market quotes are readily available will be
valued at market value. Local closing prices will be used for all
instrument valuation purposes. Futures will be valued at the last
reported sale or settlement price on the day of valuation. Swaps traded
on exchanges such as the Chicago Mercantile Exchange (``CME'') or the
Intercontinental Exchange (``ICE-US'') will use the applicable exchange
closing price where available.
Foreign currency-denominated derivatives will generally be valued
as of the respective local region's market close.
With respect to specific derivatives:
Currency spot and forward rates from major market data
vendors \43\ will generally be determined as of the NYSE Close.
---------------------------------------------------------------------------
\43\ Major market data vendors may include, but are not limited
to: Thomson Reuters, JPMorgan Chase PricingDirect Inc., Markit Group
Limited, Bloomberg, Interactive Data Corporation or other major data
vendors.
---------------------------------------------------------------------------
Exchange-traded futures will generally be valued at the
settlement price of the relevant exchange.
A total return swap on an index will be valued at the
publicly available index price. The index price, in turn, is determined
by the applicable index calculation agent, which generally values the
securities underlying the index at the last reported sale price.
Equity total return swaps will generally be valued using
the actual underlying equity at local market closing, while bank loan
total return swaps will generally be valued using the evaluated
underlying bank loan price minus the strike price of the loan.
Exchange-traded non-equity options, (for example, options
on bonds, Eurodollar options and U.S. Treasury options), index options,
and options on futures will generally be valued at the official
settlement price determined by the relevant exchange, if available.
OTC and exchange-traded equity options will generally be
valued on a basis of quotes obtained from a quotation reporting system,
established market makers, or pricing services or at the settlement
price of the applicable exchange.
OTC foreign currency (FX) options will generally be valued
by pricing vendors.
All other swaps such as interest rate swaps, inflation
swaps, swaptions, credit default swaps, and CDX/CDS will generally be
valued by pricing services.
Exchange-traded equity securities (including common stocks, ETPs,
ETFs, ETNs, CEFs, exchange-traded convertible securities, REITs and
preferred securities) will be valued at the official closing price or
the last trading price on the exchange or market on which the security
is primarily traded at the time of valuation. If no sales or closing
prices are reported during the day, exchange-traded equity securities
will generally be valued at the mean of the last available bid and ask
quotation on the exchange or market on which the security is primarily
traded, or using other market information obtained from quotation
reporting systems, established market makers, or pricing services.
Investment company securities that are not exchange-traded will be
valued at NAV. Equity securities traded OTC will be valued based on
price quotations obtained from a broker-dealer who makes markets in
such securities or other equivalent indications of value provided by a
third-party pricing service. Structured notes, exchange-traded and OTC
hybrids and RLS will be valued based on prices obtained from an
independent pricing vendor such as IDC or Reuters or on the basis of
prices obtained from brokers and dealers. Fixed Income Instruments will
generally be valued on the basis of independent pricing services or
quotes obtained from brokers and dealers.
If a foreign security's value has materially changed after the
close of the security's primary exchange or principal market but before
the NYSE Close, the security will be valued at fair value based on
procedures established and approved by the Board. Foreign securities
that do not trade when the NYSE is open will also be valued at fair
value.
The Board has adopted policies and procedures for the valuation of
the Fund's investments (the ``Valuation Procedures''). Pursuant to the
Valuation Procedures, the Board has delegated to a valuation committee,
consisting of representatives from Guggenheim's investment management,
fund administration, legal and compliance departments (the ``Valuation
Committee''), the day-to-day responsibility for implementing the
Valuation Procedures, including, under most circumstances, the
responsibility for determining the fair value of the Fund's securities
or other assets. Valuations of the Fund's securities are supplied
primarily by pricing services appointed pursuant to the processes set
forth in the Valuation Procedures. The Valuation Committee convenes
monthly, or more frequently as needed and will review the valuation of
all assets which have been fair valued for reasonableness. The Fund's
officers, through the Valuation Committee and consistent with the
monitoring and review responsibilities set forth in the Valuation
Procedures, regularly review procedures used by, and valuations
provided by, the pricing services.
Debt securities with a maturity of greater than 60 days at
acquisition will be valued at prices that reflect broker/dealer
supplied valuations or are obtained from independent pricing services,
which may consider the trade activity, treasury spreads, yields or
price of bonds of comparable quality, coupon, maturity, and type, as
well as prices quoted by dealers who make markets in such securities.
Short-term securities with remaining maturities of 60 days or less will
be valued at market price, or if a market price is not available, at
amortized cost, provided such amount approximates market value. Money
market instruments will be valued at net asset value.
Generally, trading in foreign securities markets is substantially
completed each day at various times prior to the close of the NYSE. The
values of foreign securities are determined as of the close of such
foreign markets or the close of the NYSE, if earlier. All investments
quoted in foreign currency will be valued in U.S. dollars on the basis
of the foreign currency exchange rates prevailing at the close of U.S.
business at 4:00 p.m. E.T. The Valuation Committee will determine the
current value of such foreign securities by taking into consideration
certain factors which may include those discussed above, as well as the
following factors, among others: The value of the securities traded on
other foreign markets, closed-end fund trading, foreign currency
exchange activity, and the trading prices of financial products that
are tied to foreign securities. In addition, under the Valuation
Procedures, the Valuation Committee and the Adviser are authorized to
use prices and other information supplied
[[Page 57257]]
by a third party pricing vendor in valuing foreign securities.
Investments for which market quotations are not readily available
will be fair valued as determined in good faith by the Adviser, subject
to review by the Valuation Committee, pursuant to methods established
or ratified by the Board. Valuations in accordance with these methods
are intended to reflect each security's (or asset's) ``fair value.''
Each such determination will be based on a consideration of all
relevant factors, which are likely to vary from one pricing context to
another. Examples of such factors may include, but are not limited to:
(i) The type of security, (ii) the initial cost of the security, (iii)
the existence of any contractual restrictions on the security's
disposition, (iv) the price and extent of public trading in similar
securities of the issuer or of comparable companies, (v) quotations or
evaluated prices from broker-dealers and/or pricing services, (vi)
information obtained from the issuer, analysts, and/or the appropriate
stock exchange (for exchange traded securities), (vii) an analysis of
the company's financial statements, and (viii) an evaluation of the
forces that influence the issuer and the market(s) in which the
security is purchased and sold (e.g., the existence of pending merger
activity, public offerings or tender offers that might affect the value
of the security).
Investments initially valued in currencies other than the U.S.
dollar will be converted to the U.S. dollar using exchange rates
obtained from pricing services. As a result, the NAV of the Fund's
Shares may be affected by changes in the value of currencies in
relation to the U.S. dollar. The value of securities traded in markets
outside the United States or denominated in currencies other than the
U.S. dollar may be affected significantly on a day that the NYSE is
closed. As a result, to the extent that the Fund holds foreign (non-
U.S.) securities, the NAV of the Fund's Shares may change when an
investor cannot purchase, redeem or exchange shares.
Derivatives Valuation Methodology for Purposes of Determining Intra-Day
Indicative Value
On each Business Day, before commencement of trading in Fund Shares
on NYSE Arca, the Fund will disclose on its Web site the identities and
quantities of the portfolio instruments and other assets held by the
Fund that will form the basis for the Fund's calculation of NAV at the
end of the Business Day.
In order to provide additional information regarding the intra-day
value of Shares of the Fund, the NYSE Arca or a market data vendor will
disseminate every 15 seconds through the facilities of the Consolidated
Tape Association or other widely disseminated means an updated Intra-
day Indicative Value (``IIV'') for the Fund as calculated by a third
party market data provider.
A third party market data provider will calculate the IIV for the
Fund. For the purposes of determining the IIV, the third party market
data provider's valuation of derivatives is expected to be similar to
their valuation of all securities. The third party market data provider
may use market quotes if available or may fair value securities against
proxies (such as swap or yield curves).
With respect to specific derivatives:
Foreign currency derivatives may be valued intraday using
market quotes, or another proxy as determined to be appropriate by the
third party market data provider.
Futures may be valued intraday using the relevant futures
exchange data, or another proxy as determined to be appropriate by the
third party market data provider.
Interest rate swaps and cross-currency swaps may be mapped
to a swap curve and valued intraday based on changes of the swap curve,
or another proxy as determined to be appropriate by the third party
market data provider.
Index credit default swaps (such as, CDX/CDS) may be
valued using intraday data from market vendors, or based on underlying
asset price, or another proxy as determined to be appropriate by the
third party market data provider.
Total return swaps may be valued intraday using the
underlying asset price, or another proxy as determined to be
appropriate by the third party market data provider.
Exchange listed options may be valued intraday using the
relevant exchange data, or another proxy as determined to be
appropriate by the third party market data provider.
OTC options and swaptions may be valued intraday through
option valuation models (e.g., Black-Scholes) or using exchange traded
options as a proxy, or another proxy as determined to be appropriate by
the third party market data provider.
Disclosed Portfolio
The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Adviser will
disclose on the Fund's Web site the following information regarding
each portfolio holding, 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.
Impact on Arbitrage Mechanism
The Adviser believes there will be minimal, if any, impact to the
arbitrage mechanism as a result of the use of derivatives. Market
makers and participants should be able to value derivatives as long as
the positions are disclosed with relevant information. The Adviser
believes that the price at which Shares trade will continue to be
disciplined by arbitrage opportunities created by the ability to
purchase or redeem creation Shares at their NAV, which should ensure
that Shares will not trade at a material discount or premium in
relation to their NAV.
The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of the Fund's arbitrage
mechanism due to the use of derivatives. Because derivatives generally
are not eligible for in-kind transfer, they will typically be
substituted with a ``cash in lieu'' amount when the Fund processes
purchases or redemptions of creation units in-kind.
Creations and Redemptions of Shares
Investors may create or redeem in Creation Unit size of 100,000
Shares or aggregations thereof (``Creation Unit'') through an
Authorized Participant, as described in the Registration Statement. The
size of a Creation Unit is subject to change. In order to purchase
Creation Units of the Fund, an investor must generally deposit a
designated portfolio of securities (the ``Deposit Securities'') (and/or
an amount in cash in lieu of some or all of the Deposit Securities) per
each Creation Unit constituting a substantial replication, or
representation, of the securities included in the Fund's portfolio as
selected by the Adviser (``Fund Securities'') and generally make a cash
[[Page 57258]]
payment referred to as the ``Cash Component.'' The list of the names
and the amounts of the Deposit Securities will be made available by the
Fund's custodian through the facilities of the National Securities
Clearing Corporation (``NSCC'') immediately prior to the opening of the
NYSE Arca Core Trading Session (9:30 a.m. to 4:00 p.m. E.T. The Cash
Component will represent the difference between the NAV of a Creation
Unit and the market value of the Deposit Securities.
Shares may be redeemed only in Creation Unit size at their NAV on a
day the NYSE Arca is open for business. The Fund's custodian will make
available immediately prior to the opening of the NYSE Arca Core
Trading Session, through the facilities of NSCC, the list of the names
and the amounts of the Fund Securities that will be applicable that day
to redemption requests in proper form. Fund Securities received on
redemption may not be identical to Deposit Securities which are
applicable to purchases of Creation Units. The creation/redemption
order cut-off time for the Fund will be 4:00 p.m. E.T.
Availability of Information
The Fund's Web site (www.guggenheiminvestments.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''),\44\ 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 will disclose on its Web site the Disclosed
Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) that will
form the basis for the Fund's calculation of NAV at the end of the
Business Day.\45\
---------------------------------------------------------------------------
\44\ The Bid/Ask Price of Shares of the Fund will be 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.
\45\ Under accounting procedures to be followed by the Fund,
trades made on the prior Business Day (``T'') will be booked and
reflected in NAV on the current Business Day (``T+1''). 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.
---------------------------------------------------------------------------
In addition, a basket composition file, which will include the
security names and share quantities required to be delivered in
exchange for Fund Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via NSCC. The basket represents one Creation Unit of the Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and Form N-CSR
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are 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 for 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, U.S. exchange-traded common stocks, hybrid instruments, REITs,
CEFs, ETFs, ETPs and ETNs will be available via the Consolidated Tape
Association (``CTA'') high-speed line. Price information for OTC REITs,
OTC common stocks, OTC CEFs, OTC options, money market instruments,
forwards, structured notes, RLS, OTC derivative instruments and OTC
hybrid instruments will be available from major market data vendors.
Intra-day and closing price information for exchange-traded options and
futures will be available from the applicable exchange and from major
market data vendors. In addition, price information for U.S. exchange-
traded options is available from the Options Price Reporting Authority.
Quotation information from brokers and dealers or independent pricing
services will be available for Fixed Income Instruments. In addition,
the Portfolio Indicative Value, as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated by one or more major market
data vendors at least every 15 seconds during the Core Trading
Session.\46\ 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 provide a close estimate of that value throughout the trading
day.
---------------------------------------------------------------------------
\46\ 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.
---------------------------------------------------------------------------
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.\47\ 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.
---------------------------------------------------------------------------
\47\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------
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. E.T. 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. The Exchange represents
that, for initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 \48\ under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be
outstanding at the commencement of
[[Page 57259]]
trading on the Exchange. The Exchange will obtain a representation from
the issuer of the Shares that the NAV per Share will be calculated
daily and that the NAV and the Disclosed Portfolio will be made
available to all market participants at the same time.
---------------------------------------------------------------------------
\48\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws. 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 federal securities laws applicable to trading on the
Exchange.\49\
---------------------------------------------------------------------------
\49\ 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.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, certain exchange-traded options and
futures, certain exchange-traded equities (including ETFs, ETPs. ETNs,
CEFs, certain common stocks and certain REITs) with other markets or
other entities that are members of the Intermarket Surveillance Group
(``ISG''),\50\ and FINRA may obtain trading information regarding
trading in the Shares, certain exchange-traded options and futures,
certain exchange-traded equities (including ETFs, ETPs. ETNs, CEFs,
certain common stocks and certain REITs) from such markets or entities.
In addition, the Exchange may obtain information regarding trading in
the Shares, certain exchange-traded options and futures, certain
exchange-traded equities (including ETFs, ETPs. ETNs, CEFs, certain
common stocks and certain REITs) from markets or other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\51\ 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'').
---------------------------------------------------------------------------
\50\ 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.
\51\ Certain of the exchange-traded equity securities in which
the Fund may invest may trade in markets that are not members of
ISG.
---------------------------------------------------------------------------
Not more than 10% of the net assets of the Fund in the aggregate
invested in equity securities (other than non-exchange-traded
investment company securities) shall consist of equity securities whose
principal market is not a member of the ISG or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement. Furthermore, not more than 10% of the net assets of the Fund
in the aggregate invested in futures contracts or exchange-traded
options contracts shall consist of futures contracts or exchange-traded
options contracts 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.
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 (``ETP'') 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 Units (and that Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (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 and the Disclosed Portfolio is disseminated; (5) the requirement
that ETP Holders deliver a prospectus to investors purchasing newly
issued Shares prior to or concurrently with the confirmation of a
transaction; and (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 Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \52\ 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.
---------------------------------------------------------------------------
\52\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
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
federal securities laws applicable to trading on the Exchange.
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 Adviser is affiliated with a broker-dealer and has represented
that it has implemented a fire wall with respect to its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio. 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.
FINRA, on behalf of the Exchange, will communicate as needed regarding
trading in the Shares, certain exchange-traded options and futures,
certain exchange-traded equities (including ETFs, ETPs. ETNs, CEFs,
certain common stocks and certain REITs) with other markets or other
entities that are members of the ISG, and FINRA may obtain trading
information regarding trading in the Shares, certain exchange-traded
options and futures, certain exchange-traded equities (including
[[Page 57260]]
ETFs, ETPs. ETNs, CEFs, certain common stocks and certain REITs) from
such markets or entities. In addition, the Exchange may obtain
information regarding trading in the Shares, certain exchange-traded
options and futures, certain exchange-traded equities (including ETFs,
ETPs. ETNs, CEFs, certain common stocks and certain REITs) from markets
or other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. 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 TRACE.
The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Fund will
disclose on the Fund's Web site the following information regarding
each portfolio holding, 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. Price
information for the debt and equity securities held by the Fund will be
available through major market data vendors and on the applicable
securities exchanges on which such securities are listed and traded. In
addition, a large amount of information will be publicly available
regarding the Fund and the Shares, thereby promoting market
transparency. Moreover, the Portfolio Indicative Value will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Exchange's Core Trading Session. 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 that will form the basis for the Fund's calculation
of NAV at the end of the Business Day. Information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services, and quotation and last sale information will
be available via the CTA high-speed line. The Web site for the Fund
will include a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information.
Moreover, prior to the commencement of trading, the Exchange will
inform its ETP 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, and 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. Not more than 10% of the net assets of
the Fund in the aggregate invested in equity securities (other than
non-exchange-traded investment company securities) shall consist of
equity securities whose principal market is not a member of the ISG or
is a market with which the Exchange does not have a comprehensive
surveillance sharing agreement. Furthermore, not more than 10% of the
net assets of the Fund in the aggregate invested in futures contracts
or exchange-traded options contracts shall consist of futures contracts
or exchange-traded options contracts 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. 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 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
primarily holds fixed income securities, which may be represented by
certain derivative instruments as discussed above, which 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 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, as modified by Amendment No. 1, 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-2015-73 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities
[[Page 57261]]
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2015-73. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference 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 principal office of the Exchange. All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2015-73 and should be submitted
on or before October 13, 2015.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
---------------------------------------------------------------------------
\53\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Brent J. Fields,
Secretary.
[FR Doc. 2015-23973 Filed 9-21-15; 8:45 am]
BILLING CODE 8011-01-P
