[Federal Register Volume 73, Number 166 (Tuesday, August 26, 2008)]
[Notices]
[Pages 50385-50388]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-19708]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-58396; File No. SR-NYSEArca-2008-86]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing of the WisdomTree Dreyfus
Emerging Markets Fund
August 20, 2008.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on August 11, 2008, NYSE Arca, Inc. (``NYSE Arca'' or
``Exchange''), through its wholly owned subsidiary, NYSE Arca Equities,
Inc. (``NYSE Arca Equities''), 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
Exchange. The Commission is publishing this notice to solicit comments
on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the shares of the following
fund of the WisdomTree Trust (the ``Trust'') under NYSE Arca Equities
Rule 8.600 (Managed Fund Shares): WisdomTree Dreyfus Emerging Markets
Fund (``Fund''). The shares of the Fund are collectively referred to
herein as the ``Shares.'' The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NYSE Arca included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed
[[Page 50386]]
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of the
WisdomTree Dreyfus Emerging Markets Fund under NYSE Arca Equities Rule
8.600, which governs the listing and trading of ``Managed Fund
Shares,'' on the Exchange.\3\ The Fund will be an actively managed
exchange traded fund. The Shares will be offered by the Trust, which
was established as a Delaware statutory trust on December 15, 2005. The
Trust is registered with the Commission as an investment company.\4\
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\3\ The Commission approved NYSE Arca Equities Rule 8.600 and
the listing and trading of certain funds of the PowerShares Actively
Managed Funds Trust on the Exchange pursuant to Rule 8.600 in
Securities Exchange Act Release No. 57619 (April 4, 2008) (SR-
NYSEArca-2008-25). The Commission approved listing and trading on
the Exchange of twelve other actively-managed funds of the
WisdomTree Trust in Securities Exchange Act Release No. 57801 (May
8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31).
\4\ See Post-Effective Amendment No. 14 to Registration
Statement on Form N-1A for the Trust (File Nos. 333-132380 and 811-
21864) (the ``Registration Statement''). The descriptions of the
Fund and the Shares contained herein are based on information in the
Registration Statement.
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Description of the Shares and the Fund
WisdomTree Asset Management, Inc. (``WisdomTree Asset Management'')
is the investment adviser to the Fund.\5\ WisdomTree Asset Management
is not affiliated with any broker-dealer. The Bank of New York is the
administrator, custodian and transfer agent for the Fund. ALPS
Distributors, Inc. serves as the distributor for the Fund.\6\
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\5\ WisdomTree Investments, Inc. (``WisdomTree Investments'') is
the parent company of WisdomTree Asset Management.
\6\ The Commission has issued an order granting certain
exemptive relief to the Trust under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (``1940 Act''). See Investment Company Act
Release No. 28174 (February 27, 2008) (File No. 812-13470). In
compliance with Commentary .05 to NYSE Arca Equities Rule 8.600,
which applies to Managed Fund Shares based on an international or
global portfolio, the Trust's application for exemptive relief under
the 1940 Act states that the Fund will comply with the federal
securities laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used to satisfy
redemption requests are sold in transactions that would be exempt
from registration under the Securities Act of 1933 (15 U.S.C. 77a).
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The Fund seeks to earn current income reflective of money market
rates in emerging market currencies available to foreign investors, as
well as provide exposure to changes in the value of emerging market
currencies relative to the U.S. Dollar. Since the Fund's investment
objective has been adopted as a non-fundamental investment policy, the
Fund's investment objective may be changed without a vote of
shareholders.
The Fund seeks to achieve its investment objective by investing in
short-term securities and instruments designed to provide exposure to
the currencies and money market rates of a specified set of emerging
market countries. The set of countries is selected and reconstituted on
annual basis with similar allocations to each country being established
(in U.S. Dollar terms) at the reconstitution date and consequently
reset each quarter. While the fund is actively managed, it will strive
to adhere to these general parameters in both currency selection and
approximate allocation, unless it is believed to be to the detriment of
the fund. The reconstitution and allocation is described in more detail
below.
A basket of from 5 to 12 currencies is selected at least annually
from a pool of eligible currencies to provide a representative and
diversified proxy for developing market currencies relative to the U.S.
Dollar. Countries and their capital markets are first classified as
frontier, emerging, developing, and developed markets based on a number
of quantitative and qualitative factors to determine eligibility. Only
the currencies of countries and capital markets classified as
developing or emerging markets will be deemed eligible. The selection
of the constituent currencies is then driven by the liquidity and
tradability of the individual currencies, a country's economic and
capital market development, and optimizing regional and economic
diversification. The Fund attempts to invest in instruments that
provide exposure to the most liquid currencies in the geographical
regions in which the Fund invests. The Fund will seek to provide an
equally-weighted exposure to these currencies. The Fund will be
rebalanced on a quarterly basis to maintain this equal weighting. The
basket will be reconstituted each year following a similar
classification and selection process. Significant events, such as the
reclassification of a country's currency from developing to developed,
may cause the Fund to reconstitute its portfolio more frequently than
annually. At launch, the Fund initially will select a subset of the
following markets: Brazil, Chile, China, the Czech Republic, Hungary,
India, Malaysia, Mexico, Poland, Russia, South Africa, South Korea,
Taiwan, Turkey, and Thailand.\7\
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\7\ Data for the currencies of these countries is included in
the Bank for International Settlements Triennial Central Bank
Survey, December 2007 (``BIS Survey''). The Fund will invest in
instruments that provide exposure to currencies selected from the
top 42 currencies in the chart included in the BIS Survey
(``Currency distribution of foreign exchange turnover''), reflecting
the percentage share of average daily turnover for the applicable
month and year.
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In addition to using the BIS Survey to assess liquidity, the Fund's
portfolio managers also use information about transaction volume, bid-
ask spreads, and average transaction size in each currency and in
contracts and derivatives on such currencies to assess liquidity. This
information is obtained through market observation, through
subscription services and from publicly available sources.
Because the market for money market instruments in these countries
generally is less liquid and accessible to foreign investors than
corresponding markets in more developed economies, the Fund intends to
achieve exposure to the applicable non-U.S. market(s) by investing
primarily in short term U.S. money market securities and also in
forward currency contracts and swaps. The combination of U.S. money
market securities with forward currency contracts and currency swaps is
designed to create a position economically similar to a money market
instrument denominated in a non-U.S. currency. A forward currency
contract is an agreement to buy or sell a specific currency at a future
date at a price set at the time of the contract. A currency swap is an
agreement between two parties to exchange one currency for another at a
future rate.\8\
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\8\ The Fund may pursue its objectives through direct
investments in money market instruments issued by entities in the
applicable non-U.S. country and denominated in the applicable non-
U.S. currency when WisdomTree Asset Management believes it is in the
best interest of the Fund to do so. The decision to secure exposure
directly or indirectly will be a function of, among other things,
market accessibility, credit exposure, and tax ramifications for
foreign investors. If the Fund pursues direct investment, eligible
investments will include short-term securities issued by the
applicable foreign government and its agencies or instrumentalities,
bank debt obligations and time deposits, bankers' acceptances,
commercial paper, short-term corporate debt obligations, mortgage-
backed securities, and asset-backed securities.
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The Fund generally will maintain a weighted average portfolio
maturity of
[[Page 50387]]
90 days or less and will not purchase any money market instrument with
a remaining maturity of more than 397 calendar days. The Fund will not
invest in non-U.S. equity securities.
The Fund issues and redeems Shares on a continuous basis at net
asset value (``NAV'') \9\ only in large blocks of shares, typically
50,000 shares or more (``Creation Units''), in transactions with
authorized participants. Creations of the Fund are usually in exchange
for cash and redemptions are usually in exchange for a basket of U.S.
money market instruments and/or a designated amount of cash. Once
created, Shares of the Fund trade on the secondary market in amounts
less than a Creation Unit. For more information regarding the Shares
and the Fund, including investment strategies, risks, creation and
redemption procedures, fees, portfolio holdings disclosure policies,
distributions and taxes, see the Registration Statement.
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\9\ The NAV of the Fund's shares generally is calculated once
daily Monday through Friday as of the close of regular trading on
the New York Stock Exchange, generally 4:00 p.m. Eastern time (the
``NAV Calculation Time''). NAV per share is calculated by dividing
the Fund's net assets by the number of Fund shares outstanding. For
more information regarding the valuation of Fund investments in
calculating the Fund's NAV, see the Registration Statement.
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Availability of Information
The Fund's Web site (www.wisdomtree.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 Web site
will include additional quantitative information updated on a daily
basis, including, for the Fund: (1) The prior business day's reported
NAV, mid-point of the bid/ask spread at the time of calculation of such
NAV (the ``Bid/Ask Price''),\10\ 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
\11\ on the Exchange, the Trust will disclose on its Web site the
identities and quantities of the portfolio of securities and other
assets (the ``Disclosed Portfolio'') held by each Fund that will form
the basis for the Fund's calculation of NAV at the end of the business
day.\12\ The Web site and information will be publicly available at no
charge.
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\10\ The Bid/Ask Price of the Fund is determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of such Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and their service
providers.
\11\ The Core Trading Session is 9:30 a.m. to 4 p.m. Eastern
time.
\12\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Notwithstanding the
foregoing, portfolio trades that are executed prior to the opening
of the Exchange on any business day may be booked and reflected in
NAV on such business day. Accordingly, the Fund will be able to
disclose at the beginning of the business day the portfolio that
will form the basis for the NAV calculation at the end of the
business day.
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In addition, an estimated value, defined in Rule 8.600 as the
``Portfolio Indicative Value,'' that reflects an estimated intraday
value of the Fund's portfolio, will be disseminated. The Portfolio
Indicative Value will be based upon the current value for the
components of the Disclosed Portfolio and will be updated and
disseminated by the Exchange at least every 15 seconds during the Core
Trading Session on the Exchange through the facilities of the
Consolidated Tape Association. 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 to provide a close estimate of that value
throughout the trading day.
Information regarding market price and volume of the Shares is and
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. The
previous day's closing price and trading volume information will be
published daily in the financial section of newspapers. Quotation and
last sale information for the Shares will be available via the
Consolidated Tape Association high-speed line.
Initial and Continued Listing
The Shares will be subject to Rule 8.600(d), which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. A minimum of 100,000 Shares will be required to be outstanding
at the commencement of trading. The Exchange states that this minimum
number of Shares required to be outstanding is comparable to
requirements that have been applied to previously listed series of
exchange-traded funds. The Exchange believes that the proposed minimum
number of Shares outstanding at the start of trading will be sufficient
to provide market liquidity. The Exchange represents that, for initial
and/or continued listing, the Shares must be in compliance with Rule
10A-3\13\ under the Exchange Act, as provided by NYSE Arca Equities
Rule 5.3.
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\13\ See 17 CFR 240.10A-3.
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The Exchange represents that it will obtain a representation (prior
to listing of the Fund) from the Trust that the NAV per Share will be
calculated daily and made available to all market participants at the
same time.
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. Shares of the Funds will be halted
if the ``circuit breaker'' parameters in NYSE Arca Equities Rule 7.12
are reached. Trading may be halted because of market conditions or for
reasons that, in the view of the Exchange, make trading in the Shares
inadvisable. These may include: (1) The extent to which trading is not
occurring in the securities comprising the Disclosed Portfolio and/or
the financial instruments 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 Rule 8.600(d)(2)(D), which sets forth circumstances under which
Shares of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. The minimum
trading increment for Shares on the Exchange will be $0.01.
Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (which includes Managed
Fund Shares) to monitor trading in the Shares. The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable federal securities laws.
The Exchange's current trading surveillance focuses on detecting
[[Page 50388]]
securities trading outside their normal patterns. 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.
The Exchange may obtain information via the Intermarket
Surveillance Group (``ISG'') from other exchanges who are members of
the ISG.\14\
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\14\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all of the components
of the Disclosed Portfolio for the Fund may trade on exchanges that
are members of ISG.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
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 Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a),\15\ 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 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.
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\15\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder,
before recommending a transaction, must have reasonable grounds to
believe that the recommendation is suitable for the customer based
on any facts disclosed by the customer as to his other security
holdings and as to his financial situation and needs. Further, the
rule provides, with a limited exception, that prior to the execution
of a transaction recommended to a non-institutional customer, the
ETP Holder shall make reasonable efforts to obtain information
concerning the customer's financial status, tax status, investment
objectives, and any other information that the ETP Holder believes
would be useful to make a recommendation. See Securities Exchange
Act Release No. 54026 (June 21, 2006), 71 FR 36850 (June 28, 2006)
(SR-PCX-2005-115).
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In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4 p.m. Eastern time each trading day.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5)\16\ 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 will facilitate the
listing and trading of an additional type of exchange-traded product
that will enhance competition among market participants, to the benefit
of investors and the marketplace. In addition, the listing and trading
criteria set forth in Rule 8.600 are intended to protect investors and
the public interest.
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\16\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
NYSE Arca does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (www.sec.gov/
rules/sro.shtml ); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2008-86 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2008-86. This
file number should be included on the subject line if e-mail 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 (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 inspection and
copying in the Commission's Public Reference Room, 100 F Street, NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2008-86 and should
be submitted on or before September 16, 2008.
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\17\ CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-19708 Filed 8-25-08; 8:45 am]
BILLING CODE 8010-01-P