[Federal Register Volume 77, Number 96 (Thursday, May 17, 2012)]
[Notices]
[Pages 29429-29435]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-11928]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66973; File No. SR-NYSEArca-2012-39]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating To Listing and Trading the Global
Alpha & Beta ETF Pursuant to NYSE Arca Equities Rule 8.600
May 11, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
[[Page 29430]]
thereunder,\2\ notice is hereby given that, on April 30, 2012, 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 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 following under NYSE
Arca Equities Rule 8.600 (``Managed Fund Shares''): Global Alpha & Beta
ETF. 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, 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
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the following Managed Fund
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: Global
Alpha & Beta ETF (``Fund'').\4\ The Shares will be offered by
AdvisorShares Trust (``Trust''), a statutory trust organized under the
laws of the State of Delaware and registered with the Commission as an
open-end management investment company.\5\ The investment adviser to
the Fund is AdvisorShares Investments, LLC (``Adviser''). Your Source
Financial, PLC (``Sub-Adviser'') is the Fund's sub-adviser and provides
day-to-day portfolio management of the Fund. Foreside Fund Services,
LLC (``Distributor'') is the principal underwriter and distributor of
the Fund's Shares. The Bank of New York Mellon (``Administrator'')
serves as the administrator, custodian, transfer agent, and fund
accounting agent for the Fund.
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\3\ 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.
\4\ The Commission approved NYSE Arca Equities Rule 8.600 and
the listing and trading of certain funds of the PowerShares Actively
Managed Exchange-Traded Fund Trust on the Exchange pursuant to Rule
8.600 in Securities Exchange Act Release No. 57619 (April 4, 2008),
73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission
also has approved listing and trading on the Exchange of a number of
actively managed funds under Rule 8.600. See, e.g., Securities
Exchange Act Release Nos. 63076 (October 12, 2010), 75 FR 63874
(October 18, 2010) (SR-NYSEArca-2010-79) (order approving Exchange
listing and trading of Cambria Global Tactical ETF); 63802 (January
31, 2011), 76 FR 6503 (February 4, 2011) (SR-NYSEArca-2010-118)
(order approving Exchange listing and trading of the SiM Dynamic
Allocation Diversified Income ETF and SiM Dynamic Allocation Growth
Income ETF); and 65468 (October 3, 2011), 76 FR 62873 (October 11,
2001) (SR-NYSEArca-2011-51) (order approving Exchange listing and
trading of TrimTabs Float Shrink ETF).
\5\ The Trust is registered under the 1940 Act. On January 30,
2012, the Trust filed with the Commission Form N-1A under the
Securities Act of 1933 (15 U.S.C. 77a) and under the 1940 Act
relating to the Fund (File Nos. 333-157876 and 811-22110)
(``Registration Statement''). The description of the operation of
the Trust and the Fund herein is based, in part, on the Registration
Statement. In addition, the Commission has issued an order granting
certain exemptive relief to the Trust under the 1940 Act. See
Investment Company Act Release No. 29291 (May 28, 2010) (File No.
812-13677) (``Exemptive Order'').
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Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio.\6\ Commentary .06 to Rule
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds.
Neither the Adviser nor the Sub-Adviser is affiliated with a broker-
dealer. In the event (a) the Adviser or the 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.
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\6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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Description of the Fund
According to the Registration Statement, the Fund's investment
objective is long-term capital growth. The Fund is an exchange-traded
fund (``ETF'') that is actively managed and thus does not seek to
replicate the performance of a specific index.
The Fund is a ``fund of funds'' that seeks to achieve its
investment objective by investing, under normal conditions,\7\ 80% or
more in other U.S.-listed exchange-traded products (``Underlying
[[Page 29431]]
ETPs''),\8\ U.S. exchange-listed common stock of issuers of any
capitalization range, and U.S. exchange-listed sponsored American
Depositary Receipts (``ADRs'') \9\ that provide investment exposure to
global equity markets and that meet certain selection criteria
established by the Sub-Adviser.
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\7\ ``Normal conditions'' as used herein includes, but is not
limited to, the absence of adverse market, economic, political or
other conditions, including extreme volatility or trading halts in
the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
\8\ Underlying ETPs include 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);
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); Trust Units (as
described in NYSE Arca Equities Rule 8.500); Managed Fund Shares (as
described in NYSE Arca Equities Rule 8.600); and closed-end funds.
The Underlying ETPs all will be listed and traded in the U.S. on
registered exchanges. The Underlying ETPs in which the Fund may
invest will primarily be index-based ETFs that hold substantially
all of their assets in securities representing a specific index. The
Fund intends to invest in ETFs consistent with the requirements of
Section 12(d)(1) of the 1940 Act, or any rule, regulation, or order
of the Commission or interpretation thereof. The Fund will only make
such investments in conformity with the requirements of Subchapter M
of the Internal Revenue Code of 1986, as amended (``Code'').
\9\ ADRs are U.S. dollar denominated receipts representing
interests in the securities of a foreign issuer, which securities
may not necessarily be denominated in the same currency as the
securities into which they may be converted. ADRs are receipts
typically issued by United States banks and trust companies which
evidence ownership of underlying securities issued by a foreign
corporation. Generally, ADRs in registered form are designed for use
in domestic securities markets and are traded on exchanges or over-
the-counter in the United States. The Fund may invest up to 10% of
total assets in ADRs traded over-the-counter.
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The Sub-Adviser will seek to achieve the Fund's investment
objective by implementing a ``top-down'' portfolio management style.
This management style begins with a look at the overall economic
picture and current market conditions and then narrows its focus down
to sectors, industries, or countries and ultimately to individual
companies. The final step is a fundamental analysis of each individual
security and to a lesser extent technical analysis. A ``top-down''
portfolio management style utilizes a tactical and globally diversified
allocation strategy in an attempt to reduce risk and increase overall
performance.
Prior to making an investment for the Fund, the Sub-Adviser will
consider two indicators: (i) the 200-day moving average of the S&P 500
Index (``Index''); and (ii) an inverted yield curve.\10\ If the Index
is below its 200-day moving average or if the yield curve is inverted,
the Sub-Adviser will maintain a defensive position in the Fund's
portfolio.\11\
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\10\ An inverted yield curve occurs when short-term interest
rates exceed long term rates and historically has been viewed as an
indicator of a pending economic recession.
\11\ Such a defensive position would be a more conservative
allocation involving any combination of (a) reducing equity
exposures (i.e., U.S. exchange-listed common stock and U.S.
exchange-listed ADRs), (b) investing in inverse ETFs (the Fund may
invest up to 10% of its total assets in leveraged, inverse, or
inverse leveraged Underlying ETPs), and (c) increasing investments
in short-term, high-quality debt securities and money market
instruments, cash, and cash equivalents, including through
increasing investments in U.S. exchange-listed Underlying ETPs
holding short-term debt or cash and cash equivalents.
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The Fund's asset allocation and performance baseline benchmark is
the Index. The Index consists of ten separate industry sectors--each of
which has a weighting in the Index as a whole. In selecting investments
for the Fund's portfolio, the Sub-Adviser will seek to add value by
overweighting sectors that the Sub-Adviser expects to perform well and
underweighting sectors that it expects to perform poorly.
The Sub-Adviser seeks to maintain diversification among and across
economic sectors, industries, and countries. The Sub-Adviser will
consider the following factors when selling investments in the Fund's
portfolio: (i) Whether an equity security has reached a price
considered to be fully valued; (ii) business or sector risk exposure to
a specific security or class of securities; (iii) overvaluation or
overweighting of the position in the Fund's portfolio; (iv) change in
risk tolerance; and (v) identification of a better opportunity.
Other Investments
While the Fund will invest at least 80% in the Underlying ETPs,
U.S. exchange-listed common stock of issuers of any capitalization
range, and U.S. exchange-listed sponsored ADRs, on a day-to-day basis,
the Fund may hold the remainder of its assets in, under normal
conditions,\12\ money market instruments, cash, other cash equivalents,
and other highly liquid instruments.
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\12\ See note 8, supra.
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The Fund may invest in other types of equity securities. Equity
securities represent ownership interests in a company or partnership
and consist not only of common stocks, which are one of the Fund's
primary types of investments, but also preferred stocks, warrants to
acquire common stock, securities convertible into common stock, and
investments in master limited partnerships.
The Fund may invest in exchange-traded notes (``ETNs'').\13\ The
Fund may invest in U.S. government securities and U.S. Treasury zero-
coupon bonds.
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\13\ ETNs, also called index-linked securities as would be
listed, for example, under NYSE Arca Equities Rule 5.2(j)(6), are
senior, unsecured unsubordinated debt securities issued by an
underwriting bank that are designed to provide returns that are
linked to a particular benchmark less investor fees.
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In the absence of normal conditions,\14\ the Fund may invest 100%
of its total assets, without limitation, in high-quality debt
securities and money market instruments either directly or through its
investments in ETFs. The Fund may be invested in these instruments for
extended periods, depending on the Sub-Adviser's assessment of market
conditions. These debt securities and money market instruments include
shares of other mutual funds, commercial paper, certificates of
deposit, bankers' acceptances, U.S. Government securities, repurchase
agreements,\15\ and bonds that are rated BBB or higher.
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\14\ See note 8, supra.
\15\ The Fund may enter into repurchase agreements with
financial institutions, which may be deemed to be loans. The Fund
follows certain procedures designed to minimize the risks inherent
in such agreements. These procedures include effecting repurchase
transactions only with large, well-capitalized, and well-established
financial institutions whose condition will be continually monitored
by the Sub-Adviser. In addition, the value of the collateral
underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such
collateral. In addition, the Fund may enter into reverse repurchase
agreements as part of the Fund's investment strategy. Reverse
repurchase agreements involve sales by the Fund of portfolio assets
concurrently with an agreement by the Fund to repurchase the same
assets at a later date at a fixed price.
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The Fund may not (i) with respect to 75% of its total assets,
purchase securities of any issuer (except securities issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
or shares of investment companies) if, as a result, more than 5% of its
total assets would be invested in the securities of such issuer; or
(ii) acquire more than 10% of the outstanding voting securities of any
one issuer. For purposes of this policy, the issuer of an ADR will be
deemed to be the issuer of the respective underlying security.\16\
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\16\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act.
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The Fund may not invest 25% or more of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry or group of industries. The Fund will
not invest 25% or more of its total assets in any investment company
that so concentrates. This limitation does not apply to investments in
securities issued or guaranteed by the
[[Page 29432]]
U.S. Government, its agencies or instrumentalities, or shares of
investment companies. For purposes of this policy, the issuer of ADRs
will be deemed to be the issuer of the respective underlying
security.\17\
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\17\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
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The Fund will not purchase illiquid securities, including Rule 144A
securities and loan participations.\18\ While the Fund does not
anticipate doing so, the Fund may hold securities that become illiquid,
including securities that are not readily marketable and Rule 144A
securities. The Fund will not hold more than 15% of the Fund's net
assets in illiquid securities including Rule 144A securities and loan
participations. If the percentage of the Fund's net assets invested in
illiquid securities exceeds 15% due to market activity, the Fund will
take appropriate measures to reduce its holdings of illiquid
securities.
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\18\ 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
14617 (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''); and 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 ETF. 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); and Investment Company
Act Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990)
(adopting Rule 144A under the Securities Act of 1933).
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While the Fund may invest up to 10% of its total assets in
leveraged, inverse, or inverse leveraged Underlying ETPs, such
investments will not be used to enhance the leverage of the Fund as a
whole and will otherwise be consistent with the Fund's investment
objective.
Consistent with the Exemptive Order, the Fund will not invest in
options contracts, futures contracts, or swap agreements. The Fund may
invest up to 10% of total assets in ADRs traded over-the-counter.\19\
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\19\ See note 10, supra.
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The Fund will not invest in any non-U.S. registered equity
security, including depositary receipts.
According to the Registration Statement, the Fund will seek to
qualify for treatment as a Regulated Investment Company (``RIC'') under
the Code.\20\
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\20\ 26 U.S.C. 851. One of several requirements for RIC
qualification is that the Fund must receive at least 90% of the
Fund's gross income each year from dividends, interest, payments
with respect to securities loans, gains from the sale or other
disposition of stock, securities or foreign currencies, or other
income derived with respect to the Fund's investments in stock,
securities, foreign currencies, and net income from an interest in a
qualified publicly traded partnership (``90% Test''). A second
requirement for qualification as a RIC is that the Fund must
diversify its holdings so that, at the end of each fiscal quarter of
the Fund's taxable year: (a) At least 50% of the market value of the
Fund's total assets is represented by cash and cash items, U.S.
Government securities, securities of other RICs, and other
securities, with these other securities limited, in respect to any
one issuer, to an amount not greater than 5% of the value of the
Fund's total assets or 10% of the outstanding voting securities of
such issuer; and (b) not more than 25% of the value of its total
assets are invested in the securities (other than U.S. Government
securities or securities of other RICs) of any one issuer or two or
more issuers which the Fund controls and which are engaged in the
same, similar, or related trades or businesses, or the securities of
one or more qualified publicly traded partnership (``Asset Test'').
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Net Asset Value
The Fund will calculate its Net Asset Value (``NAV'') by: (i)
Taking the current market value of its total assets; (ii) subtracting
any liabilities; and (iii) dividing that amount by the total number of
Shares owned by shareholders. The Fund will calculate NAV once each
business day as of the regularly scheduled close of trading on the New
York Stock Exchange, LLC (``NYSE'') (normally, 4:00 p.m., Eastern Time
(``E.T.'')). In calculating NAV, the Fund will generally value its
investment portfolio at market price. If market prices are unavailable
or the Fund thinks that they are unreliable or when the value of a
security has been materially affected by events occurring after the
relevant market closes, the Fund will price those securities at fair
value as determined in good faith using methods approved by the Fund's
Board of Trustees.
Creation and Redemption of Shares
According to the Registration Statement, the Fund will issue and
redeem Shares on a continuous basis at the NAV only in a large
specified number of Shares called a ``Creation Unit.'' The Shares of
the Fund that trade on the Exchange will be ``created'' at their NAV by
market makers, large investors, and institutions only in block-size
Creation Units of at least 25,000 Shares. A ``creator'' will enter into
an authorized participant agreement (``Participant Agreement'') with
the Distributor or use a Depository Trust Company participant who has
executed a Participant Agreement (``Authorized Participant''), and will
deposit into the Fund a portfolio of securities closely approximating
the holdings of the Fund and a specified amount of cash, together
totaling the NAV of the Creation Unit(s), in exchange for 25,000 Shares
of the Fund (or multiples thereof).
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Fund through the Administrator and only on a business day. The Trust
will not redeem Shares in amounts less than Creation Units. Beneficial
owners must accumulate enough Shares in the secondary market to
constitute a Creation Unit in order to have such Shares redeemed by the
Trust. Unless cash redemptions are available or specified for the Fund,
the redemption proceeds for a Creation Unit generally consist of Fund
securities--as announced by the Administrator on the business day of
the request for redemption received in proper form--plus cash in an
amount equal to the difference between the NAV of the Shares being
redeemed, as next determined after a receipt of a request in proper
form, and the value of the Fund securities, less a redemption
transaction fee.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and
maintain, or be subject to, procedures designed to prevent the use and
dissemination of material non-public information regarding the actual
components of the Fund's portfolio. The Exchange represents that, for
initial and/or continued listing, the Fund will be in compliance with
Rule 10A-3 under the Exchange Act,\21\ as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares will be outstanding at
the commencement of trading on the Exchange. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio,
as defined in NYSE Arca Equities Rule 8.600(c)(2), will be made
available to all market participants at the same time.
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\21\ 17 CFR 240.10A-3.
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Availability of Information
The Fund's Web site (www.advisorshares.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Fund that may be downloaded. The Fund's Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-
[[Page 29433]]
point of the bid/ask spread at the time of calculation of such NAV
(``Bid/Ask Price''),\22\ 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 that will form the basis for the Fund's calculation of NAV at
the end of the business day.\23\
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\22\ 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 the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\23\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Fund
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
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On a daily basis, the Adviser will disclose for each portfolio
security and other financial instrument of the Fund the following
information: Ticker symbol (if applicable), name of security and
financial instrument, number of shares or dollar value of securities
and financial instruments held in the portfolio, and percentage
weighting of the security and financial instrument in the portfolio.
The Web site information will be publicly available at no charge.
In addition, 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. 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 its 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 of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last-sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line, and, for the underlying securities, will be
available from the national securities exchange on which they are
listed. In addition, the Portfolio Indicative Value, as defined in NYSE
Arca Equities Rule 8.600(c)(3), will be widely disseminated at least
every 15 seconds during the Core Trading Session by one or more major
market data vendors.\24\ The dissemination of the Portfolio Indicative
Value, together with the Disclosed Portfolio, will allow investors to
determine the value of the underlying portfolio of the Fund on a daily
basis and will provide a close estimate of that value throughout the
trading day.
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\24\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values published on CTA or other data feeds.
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Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes is included in the Registration Statement. All
terms relating to the Fund that are referred to, but not defined in,
this proposed rule change are defined in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund.\25\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Fund may be
halted.
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\25\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 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.
Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (which include 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
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 that are members of
ISG or with which the Exchange has entered into a comprehensive
surveillance sharing agreement.\26\ In addition, the Exchange could
obtain information from the U.S. exchanges on which the Underlying
ETPs, common stock, exchange-listed ADRs, and other U.S. exchange-
listed securities are listed and traded.
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\26\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Fund may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. All Underlying ETPs
and securities in which the Fund may invest will be listed on
securities exchanges, all of which are members of ISG or are parties
to a comprehensive surveillance sharing agreement with the Exchange,
provided that the Fund may invest up to 10% of total assets in ADRs
traded over-the-counter. See note 10, supra.
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[[Page 29434]]
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 Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its 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.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. 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) \27\ that an exchange have rules
that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\27\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement. All Underlying ETPs and securities in which the Fund may
invest will be listed on securities exchanges, all of which are members
of ISG or have entered into a comprehensive surveillance sharing
agreement with the Exchange, provided that the Fund may invest up to
10% of total assets in ADRs traded over-the-counter. While the Fund may
invest up to 10% of its total assets in leveraged, inverse, or inverse
leveraged Underlying ETPs, such investments will not be used to enhance
the leverage of the Fund as a whole and will otherwise be consistent
with the Fund's investment objective. The Fund will not hold more than
15% of the Fund's net assets in illiquid securities, including Rule
144A securities and loan participations. Consistent with the Exemptive
Order, the Fund will not invest in options contracts, futures
contracts, or swap agreements. The Fund will not invest in any non-U.S.
registered equity security, including depositary receipts.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Fund and the Shares,
thereby promoting market transparency. Quotation and last-sale
information for the Shares will be available via the CTA high-speed
line. In addition, the Portfolio Indicative Value will be widely
disseminated by the Exchange at least every 15 seconds during the Core
Trading Session. The Fund's Web site will include a form of the
prospectus for the Fund that may be downloaded, as well as additional
quantitative information updated on a daily basis. On each business
day, before commencement of trading in Shares in the Core Trading
Session on the Exchange, the Fund 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. On a daily basis, the Adviser
will disclose for each portfolio security or other financial instrument
of the Fund the following information: Ticker symbol, name of security
and/or financial instrument, number of shares or dollar value of
securities and financial instruments held in the portfolio, and
percentage weighting of the security and/or financial instrument in the
portfolio. 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. Trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Fund may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Portfolio Indicative
Value, the Disclosed Portfolio, and quotation and last-sale information
for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Fund's holdings,
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation
and last-sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
[[Page 29435]]
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (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 self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2012-39 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2012-39. 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 (http://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 10:00 a.m.
and 3:00 p.m. Copies of the filing will also be available for
inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. All comments received will be posted
without change; the Commission does not edit personal identifying
information from submissions. You should submit only information that
you wish to make available publicly. All submissions should refer to
File Number SR-NYSEArca-2012-39 and should be submitted on or before
June 7, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\28\
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\28\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-11928 Filed 5-16-12; 8:45 am]
BILLING CODE 8011-01-P