[Federal Register Volume 76, Number 106 (Thursday, June 2, 2011)]
[Notices]
[Pages 32005-32008]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-13576]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64550; File No. SR-NYSEArca-2011-11]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to the Listing and Trading of
the Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced Ultra-
Short Bond ETF
May 26, 2011.
I. Introduction
On March 24, 2011, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities
[[Page 32006]]
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the
Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced Ultra-Short
Bond ETF (each a ``Fund,'' and, together, the ``Funds'') under NYSE
Arca Equities Rule 8.600. The proposed rule change was published in the
Federal Register on April 12, 2011.\3\ The Commission received no
comments on the proposal. This order grants approval of the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 64224 (April 7,
2011), 76 FR 20401 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to list and trade the Shares pursuant to NYSE
Arca Equities Rule 8.600. The Shares will be offered by the Claymore
Exchange-Traded Fund Trust (``Trust''), a statutory trust organized
under the laws of the State of Delaware and registered with the
Commission as an open-end management investment company.\4\ The
investment advisor for the Funds is Claymore Advisors, LLC
(``Investment Adviser''), The Bank of New York Mellon is the custodian
and transfer agent for the Funds, and Claymore Securities, Inc. is the
distributor for the Funds. The Exchange states that the Investment
Adviser is affiliated with a broker-dealer and 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.\5\
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\4\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). On July 26, 2010, the Trust filed with the
Commission Form N-1A under the Securities Act of 1933 (15 U.S.C.
77a) relating to the Funds (File Nos. 333-134551 and 811-21906)
(``Registration Statement'').
\5\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The
Exchange represents that, in the event (a) the Investment Adviser
becomes newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser becomes affiliated with a broker-dealer, such
adviser and/or sub-adviser will implement a fire wall with respect
to such broker-dealer regarding access to information concerning the
composition and/or changes to the portfolio.
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Guggenheim Enhanced Core Bond ETF
The investment objective of this Fund is to seek total returns
using a quantitative strategy comprised of income and capital
appreciation, and risk-adjusted returns in excess of the Barclays
Capital U.S. Aggregate Bond Index (``Benchmark''), while maintaining a
low-risk profile versus the Benchmark. The Fund's quantitative strategy
attempts to identify relative mispricing among the instruments of a
given asset class and to estimate future returns which may arise from
the correction of these mispricing levels. The quantitative portfolio
construction process then attempts to maximize expected returns due to
issue-specific mispricing while controlling for interest rate and
credit spread (i.e., differences in yield between different debt
instruments arising from differences in credit risk) risks. The average
duration of the Fund's debt holdings is expected to be generally
similar to the average duration of the Benchmark components.
The Fund primarily will invest in U.S. dollar-denominated
investment grade debt securities, rated Baa or higher by Moody's
Investors Service, Inc. (``Moody's''), or equivalently rated by
Standard & Poor's Rating Group (``S&P'') or Fitch Investor Services
(``Fitch''), or, if unrated, determined by the Investment Adviser to be
of comparable quality.\6\ The Fund may invest, without limitation, in
U.S. dollar-denominated debt securities of foreign issuers. The Fund
may also invest in debt securities denominated in foreign currencies.
The Investment Adviser may attempt to reduce foreign currency exchange
rate risk by entering into contracts with banks, brokers, or dealers to
purchase or sell securities or foreign currencies at a future date
(``forward contracts''). The Fund may invest no more than 10% in high
yield 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 Investment
Adviser believes are of comparable quality.
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\6\ The Investment Adviser's analysis is comprised of multiple
elements including collateral and counterparty risk, structural
analysis, quantitative analysis and relative value/market value at
risk analysis. Evaluation is also applied to collateral, historical
market data, and proprietary statistical models to evaluate specific
transactions. This analysis is applied against the macroeconomic
outlook, geopolitical issues, as well as considerations that more
directly affect the company's industry to determine an internally
assigned credit rating.
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The Fund may invest in a wide range of fixed income instruments
selected from, but not limited to, the following sectors: U.S. Treasury
securities, corporate bonds, emerging market debt, and non-dollar
denominated sovereign and corporate debt.\7\ The Fund may invest up to
10% of its assets in mortgage-backed securities (``MBS'') or in other
asset-backed securities. This limitation does not apply to securities
issued or guaranteed by Federal agencies and/or U.S. government
sponsored instrumentalities, such as the Government National Mortgage
Administration (``GNMA''), the Federal Housing Administration
(``FHA''), the Federal National Mortgage Association (``FNMA''), and
the Federal Home Loan Mortgage Corporation (``FHLMC'').
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\7\ The Fund will invest only in securities that the Investment
Adviser deems to be sufficiently liquid. While corporate bonds and
emerging market debt generally must have $200 million or more par
amount outstanding and significant par value traded to be considered
as an eligible investment, at least 80% of issues of corporate bonds
or corporate debt held by the Fund must have $200 million or more
par amount outstanding. The strategy follows an active quantitative
investment process that seeks excess returns to the Benchmark. The
strategy selects securities using a rigorous portfolio construction
approach to tightly control independent risk exposures such as fixed
income sector weights, sector specific yield curves, credit spreads,
prepayment risks, and others. Within those risk constraints, the
strategy utilizes relative value estimates to select individual
securities that can provide risk adjusted outperformance relative to
the Benchmark.
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The Fund may obtain exposure to the securities in which it normally
invests by engaging in various investment techniques, including, but
not limited to, forward purchase agreements, mortgage dollar roll, and
``TBA'' mortgage trading. The Fund also may invest directly in
exchange-traded funds (``ETFs'') and other investment companies that
provide exposure to fixed income securities similar to those securities
in which the Fund may invest in directly. The Fund will normally invest
at least 80% of its net assets in fixed income securities.
Guggenheim Enhanced Ultra-Short Bond ETF
The investment objective of this Fund is to seek maximum current
income, consistent with preservation of capital and daily liquidity.
The Fund will use a low duration strategy to seek to outperform the 1-3
month Treasury Bill Index in addition to providing returns in excess of
those available in U.S. Treasury bills, government repurchase
agreements, and money market funds, while providing preservation of
capital and daily liquidity. The Fund is not a money market fund and
thus does not seek to maintain a stable net asset value of $1.00 per
Share.
Under normal circumstances, the Fund expects to hold a diversified
portfolio of fixed income instruments of varying maturities, but that
have an average duration of less than 1 year. The Fund primarily will
invest in U.S. dollar-denominated investment grade debt securities,
rated Baa or higher by Moody's, or equivalently rated by S&P or Fitch
or, if unrated, determined by the Investment Adviser to be of
comparable quality. The Fund may invest, without limitation, in U.S.
dollar-denominated debt securities of foreign issuers. The Fund may
also
[[Page 32007]]
invest in debt securities denominated in foreign currencies. The
Investment Adviser may attempt to reduce foreign currency exchange rate
risk by entering into contracts with banks, brokers, or dealers to
purchase or sell securities or forward contracts. The Fund may invest
no more than 10% in junk bonds. The Fund may also invest in municipal
securities.
The Fund may invest a substantial portion of its assets in short-
term instruments, such as commercial paper and/or repurchase
agreements. The Fund may also invest in a wide range of fixed income
instruments selected from, but not limited to, the following sectors:
U.S. Treasury securities, corporate bonds, emerging market debt, and
non-dollar denominated sovereign and corporate debt.\8\ The Fund may
invest up to 10% of its assets in MBS or in other asset-backed
securities. This limitation does not apply to securities issued or
guaranteed by Federal agencies and/or U.S. government sponsored
instrumentalities, such as the GNMA, FHA, FNMA, and FHLMC.
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\8\ The Fund will invest only in securities that the Investment
Adviser deems to be sufficiently liquid. While corporate bonds and
emerging market debt generally must have $200 million or more par
amount outstanding and significant par value traded to be considered
as an eligible investment, at least 80% of issues of corporate bonds
or corporate debt held by the Fund must have $200 million or more
par amount outstanding.
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The Fund may obtain exposure to the securities in which it normally
invests by engaging in various investment techniques, including, but
not limited to, forward purchase agreements, mortgage dollar roll, and
``TBA'' mortgage trading. The Fund also may invest directly in ETFs and
other investment companies that provide exposure to fixed income
securities similar to those securities in which the Fund may invest in
directly. The Fund will normally invest at least 80% of its net assets
in fixed income securities.
Other Investments of the Funds
Each Fund may invest up to an aggregate amount of 15% of its net
assets in: (1) Illiquid securities; and (2) Rule 144A securities.
Illiquid securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets. With respect to investment in illiquid securities,
if changes in the values of a Fund's securities cause the Fund's
holdings of illiquid securities to exceed the 15% limitation (as if
liquid securities have become illiquid), the Fund will take such
actions as it deems appropriate and practicable to attempt to reduce
its holdings of illiquid securities. In addition, the Funds are
considered non-diversified under the 1940 Act and can invest a greater
portion of assets in securities of individual issuers than a
diversified fund. The Funds intend to maintain the level of
diversification necessary to qualify as a regulated investment company
under Subchapter M of the Internal Revenue Code of 1986, as amended. In
addition, the Funds will not invest in non-U.S. equity securities,
options contracts, futures contracts, or swap agreements.
Additional information regarding the Trust and the Shares, the
Funds' investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings and disclosure policies,
distributions and taxes, availability of information, trading rules and
halts, and surveillance procedures, among other things, can be found in
the Notice and the Registration Statement, as applicable.\9\
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\9\ See Notice and Registration Statement, supra notes 3 and 4,
respectively.
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III. Discussion and Commission's Findings
The Commission has carefully reviewed the proposed rule change and
finds that it is consistent with the requirements of Section 6 of the
Act \10\ and the rules and regulations thereunder applicable to a
national securities exchange.\11\ In particular, the Commission finds
that the proposal is consistent with Section 6(b)(5) of the Act,\12\
which requires, among other things, that the Exchange's rules be
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. The Commission notes that the Shares must comply with
the requirements of NYSE Arca Equities Rule 8.600 to be listed and
traded on the Exchange.
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\10\ 15 U.S.C. 78f.
\11\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\12\ 17 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\13\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association high-speed line. In addition, the Portfolio Indicative
Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session. On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Funds will disclose on their Web site the Disclosed
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will
form the basis for each Fund's calculation of the net asset value
(``NAV'') at the end of the business day.\14\ The NAV of each of the
Funds will normally be determined as of the close of the regular
trading session on the New York Stock Exchange (``NYSE'') (ordinarily
4:00 p.m. Eastern Time) on each business day. Price information for the
debt securities held by the Funds will be available through major
market data vendors, and a basket composition file, which includes 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 the National Securities Clearing Corporation. Information
regarding market price and trading 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, and
information regarding the previous day's closing price and trading
volume information will be published daily in the financial section of
newspapers. The Funds' Web site will also include a form of the
prospectus for the Funds, information relating to NAV, and other
quantitative and trading information.
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\13\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\14\ On a daily basis, the Investment Adviser will disclose for
each portfolio security or other financial instrument of the Funds
the following information: Ticker symbol (if applicable), name of
security or financial instrument, number of shares or dollar value
of financial instruments held in the portfolio, and percentage
weighting of the security or financial instrument in the portfolio.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV will
[[Page 32008]]
be calculated daily and that the NAV and the Disclosed Portfolio will
be made available to all market participants at the same time.\15\ In
addition, the Exchange will halt trading in the Shares under the
specific circumstances set forth in NYSE Arca Equities Rule
8.600(d)(2)(D), and may halt trading in the Shares to the extent to
which trading is not occurring in the securities and/or the financial
instruments comprising the Disclosed Portfolio of the Funds, or whether
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.\16\ Moreover, the
Exchange represents that the Investment Adviser is affiliated with a
broker-dealer and has implemented a ``fire wall'' with respect to the
affiliated broker-dealer regarding access to information concerning the
composition and/or changes to the Funds' portfolio.\17\ Further, the
Commission notes that the Reporting Authority that provides the
Disclosed Portfolio must implement and maintain, or be subject to,
procedures designed to prevent the use and dissemination of material
non-public information regarding the actual components of the
portfolio.\18\
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\15\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
\16\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii). With
respect to trading halts, the Exchange may consider other relevant
factors in exercising its discretion to halt or suspend trading in
the Shares of the Funds. Trading in Shares of the Funds 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.
\17\ See supra note 5 and accompanying text. With respect to the
Funds, the Exchange represents that the Investment Adviser and its
related personnel are subject to the provisions of Rule 204A-1 under
the Investment Advisers Act of 1940 (``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.
\18\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange's surveillance 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.
(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin
of the special characteristics and risks associated with trading the
Shares. Specifically, the Information Bulletin will discuss the
following: (a) The procedures for purchases and redemptions of Shares
in Creation Unit aggregations (and that Shares are not individually
redeemable); (b) 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; (c) the risks
involved in trading the Shares during the Opening and Late Trading
Sessions when an updated Portfolio Indicative Value will not be
calculated or publicly disseminated; (d) how information regarding the
Portfolio Indicative Value is disseminated; (e) the requirement that
ETP Holders deliver a prospectus to investors purchasing newly issued
Shares prior to or concurrently with the confirmation of a transaction;
and (f) trading and other information.
(5) For initial and/or continued listing, the Funds will be in
compliance with Rule 10A-3 under the Act,\19\ as provided by NYSE Arca
Equities Rule 5.3.
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\19\ See 17 CFR 240.10A-3.
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(6) The Funds will not invest in non-U.S. equity securities,
options contracts, futures contracts, or swap agreements.
(7) A minimum of 100,000 Shares of each Fund will be outstanding at
the commencement of trading on the Exchange.
This approval order is based on the Exchange's representations.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \20\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\20\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therfore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-NYSEArca-2011-11) be, and it
hereby is, approved.
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\21\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13576 Filed 6-1-11; 8:45 am]
BILLING CODE 8011-01-P