[Federal Register Volume 77, Number 248 (Thursday, December 27, 2012)]
[Notices]
[Pages 76326-76332]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-31120]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68488; File No. SR-NYSEArca-2012-14]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade the Guggenheim Enhanced Total
Return ETF Under NYSE Arca Equities Rule 8.600
December 20, 2012.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 thereunder,\3\
notice is hereby given that, on December 13, 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.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
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''): Guggenheim Enhanced
Total Return ETF. The text of the proposed rule change is available on
the Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
Guggenheim Enhanced Total Return ETF (the ``Fund'') under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares.\4\ The Shares will be offered by the Claymore Exchange-
Traded Fund Trust 2 (the ``Trust''),\5\ a statutory trust organized
under the laws of the State of Delaware and registered with the
Commission as an open-end management investment company.\6\
---------------------------------------------------------------------------
\4\ 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.
\5\ The Trust is registered under the 1940 Act. On June 9, 2011,
the Trust filed with the Commission an amendment to its registration
statement on Form N-1A under the Securities Act of 1933 (15 U.S.C.
77a) (``Securities Act'') and the 1940 Act relating to the Fund
(File Nos. 333-135105 and 811-21910) (the ``Registration
Statement''). The description of the operation of the Trust and the
Fund herein is based, in part, on the Registration Statement. In
addition, the Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act. See Investment
Company Act Release No. 29271 (May 18, 2010) (File No. 812-13534)
(``Exemptive Order'').
\6\ The Commission previously approved listing and trading on
the Exchange of the following actively managed funds under Rule
8.600. See Securities Exchange Act Release Nos. 57801 (May 8, 2008),
73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving
Exchange listing and trading of twelve actively-managed funds of the
WisdomTree Trust); 60981 (November 10, 2009), 74 FR 59594 (November
18, 2009) (SR-NYSEArca-2009-79) (order approving listing of five
fixed income funds of the PIMCO ETF Trust); 63329 (November 17,
2010), 75 FR 71760 (November 24, 2010) (SR-NYSEArca-2010-86) (order
approving listing of Peritus High Yield ETF); 64550 (May 26, 2011),
76 FR 32005 (June 2, 2011) (SR-NYSEArca-2011-11) (order approving
listing of Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced
Ultra-Short Bond ETF).
---------------------------------------------------------------------------
The investment adviser for the Fund is Guggenheim Funds Investment
Advisors, LLC (``Adviser''). The Bank of New York Mellon is the
custodian and transfer agent for the Fund. Guggenheim Funds
Distributors, LLC is the distributor for the Fund.
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing
[[Page 76327]]
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.\7\ In
addition, Commentary .06 further requires that personnel who make
decisions on the open-end fund's portfolio composition must be subject
to procedures designed to prevent the use and dissemination of material
nonpublic information regarding the open-end fund's portfolio. The
Adviser is affiliated with a broker-dealer and has represented that it
has implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio. In the event (a) the Adviser or any sub-
adviser becomes newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to such broker-dealer regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio.
---------------------------------------------------------------------------
\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and its related personnel are
subject to the provisions of Rule 204A-1 under the Advisers Act
relating to codes of ethics. This Rule requires investment advisers
to adopt a code of ethics that reflects the fiduciary nature of the
relationship to clients as well as compliance with other applicable
securities laws. Accordingly, procedures designed to prevent the
communication and misuse of non-public information by an investment
adviser must be consistent with Rule 204A-1 under the Advisers Act.
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful
for an investment adviser to provide investment advice to clients
unless such investment adviser has (i) adopted and implemented
written policies and procedures reasonably designed to prevent
violation, by the investment adviser and its supervised persons, of
the Advisers Act and the Commission rules adopted thereunder; (ii)
implemented, at a minimum, an annual review regarding the adequacy
of the policies and procedures established pursuant to subparagraph
(i) above and the effectiveness of their implementation; and (iii)
designated an individual (who is a supervised person) responsible
for administering the policies and procedures adopted under
subparagraph (i) above.
---------------------------------------------------------------------------
Principal Investment Strategies
According to the Registration Statement, the Fund's investment
objective is to seek maximum total return, comprised of income and
capital appreciation. The Fund will normally \8\ invest in a portfolio
of fixed income instruments of varying maturities and equity
securities.
---------------------------------------------------------------------------
\8\ The term ``normally'' includes, but is not limited to, the
absence of extreme volatility or trading halts in the securities
markets or the financial markets generally; circumstances under
which the Fund's investments are made for temporary defensive
purposes; operational issues causing dissemination of inaccurate
market information; or force majeure type events such as systems
failure, natural or man-made disaster, act of God, armed conflict,
act of terrorism, riot or labor disruption or any similar
intervening circumstance.
---------------------------------------------------------------------------
Fixed Income Instruments Investments
The fixed income instruments in which the Fund will invest include
bonds, debt securities and other similar instruments, such as Treasury
securities, collateralized mortgage obligations (``CMOs''),
collateralized loan obligations (``CLOs'') and mortgage- and asset-
backed securities, issued by various U.S. and non-U.S. public- or
private-sector entities. The Fund will normally invest at least 65% of
its assets in fixed income instruments.
In addition, the Fund may invest in U.S. and non-U.S. dollar-
denominated debt securities of U.S. and foreign corporations,
governments, agencies and supra-national agencies.\9\
---------------------------------------------------------------------------
\9\ Generally a corporate bond must have $100 million or more
par amount outstanding to be considered as an eligible investment.
---------------------------------------------------------------------------
While the Fund generally will invest more than 50% of its assets in
investment grade fixed income instruments, the Fund also expects to
invest to a maximum of 35% of its total assets in high yield debt
securities (``junk bonds''), which are debt securities that are rated
below investment grade by nationally recognized statistical rating
organizations, or are unrated securities that the Adviser believes are
of comparable quality. The Fund may invest up to 30% of its total
assets in debt securities denominated in foreign currencies, and may
invest without limitation in U.S. dollar-denominated debt securities of
foreign issuers. The Fund may invest up to 20% of its total assets in
debt securities and instruments that are economically tied to emerging
market countries.\10\
---------------------------------------------------------------------------
\10\ According to the Registration Statement, emerging market
countries are countries that major international financial
institutions, such as the World Bank, generally consider to be less
economically mature than developed nations. Emerging market
countries can include every nation in the world except the United
States, Canada, Japan, Australia, New Zealand and most countries
located in Western Europe. Generally a corporate bond of an issuer
in an emerging market must have $200 million or more par amount
outstanding to be considered as an eligible investment.
---------------------------------------------------------------------------
The Fund may invest in mortgage- or asset-backed securities and is
limited to 10% of its total assets in any combination of mortgage-
related or other asset-backed interest-only, principal-only or inverse
floater 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''). The Fund may
purchase or sell securities on a when-issued, delayed delivery or
forward commitment basis and may engage in short sales.
The Fund may invest in short-term instruments such as commercial
paper,\11\ repurchase agreement,\12\ and/or reverse repurchase
agreement.\13\ The Fund may invest in money market instruments
(including other funds which invest exclusively in money market
instruments). These investments in money market instruments may be as
part of a temporary defensive strategy to
[[Page 76328]]
protect against temporary market declines.
---------------------------------------------------------------------------
\11\ The commercial paper in which the Fund may invest includes
variable amount master demand notes and asset-backed commercial
paper. Commercial paper normally represents short-term unsecured
promissory notes issued in bearer form by banks or bank holding
companies, corporations, finance companies and other issuers.
\12\ Repurchase agreements are fixed-income securities in the
form of agreements backed by collateral. These agreements, which may
be viewed as a type of secured lending by the Fund, typically
involve the acquisition by the Fund of securities from the selling
institution (such as a bank or a broker dealer), coupled with the
agreement that the selling institution will repurchase the
underlying securities at a specified price and at a fixed time in
the future (or on demand). These agreements may be made with respect
to any of the portfolio securities in which the Fund is authorized
to invest. The Fund may enter into repurchase agreements with (i)
member banks of the Federal Reserve System having total assets in
excess of $500 million and (ii) securities dealers (``Qualified
Institutions''). The Adviser will monitor the continued
creditworthiness of Qualified Institutions. The Fund may accept a
wide variety of underlying securities as collateral for the
repurchase agreements entered into by the Fund. Such collateral may
include U.S. government securities, corporate obligations, equity
securities, municipal debt securities, mortgage-backed securities
and convertible securities. Any such securities serving as
collateral are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest).
\13\ Reverse repurchase agreements involve the sale of
securities with an agreement to repurchase the securities at an
agreed-upon price, date and interest payment and have the
characteristics of borrowing. The securities purchased with the
funds obtained from the agreement and securities collateralizing the
agreement will have maturity dates no later than the repayment date.
Generally the effect of such transactions is that the Fund can
recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while
in many cases the Fund is able to keep some of the interest income
associated with those securities.
---------------------------------------------------------------------------
The Fund may invest in debt securities that have variable or
floating interest rates which are readjusted on set dates (such as the
last day of the month or calendar quarter) in the case of variable
rates or whenever a specified interest rate change occurs in the case
of a floating rate instrument. The Fund will not, however, invest in
inverse floaters. Variable or floating interest rates generally reduce
changes in the market price of securities from their original purchase
price because, upon readjustment, such rates approximate market rates.
Accordingly, as interest rates decrease or increase, the potential for
capital appreciation or depreciation is less for variable or floating
rate securities than for fixed rate obligations. Many securities with
variable or floating interest rates purchased by the Fund will be
subject to payment of principal and accrued interest (usually within
seven days) on the Fund's demand. The terms of such demand instruments
require payment of principal and accrued interest by the issuer, a
guarantor and/or a liquidity provider. The Adviser will monitor the
pricing, quality and liquidity of the variable or floating rate
securities held by the Fund.
With respect to fixed income instrument investments, the Fund may,
without limitation, seek to obtain market exposure to the securities in
which it primarily invests by entering into a series of purchase and
sale contracts or by using other investment techniques (such as buy
backs or dollar rolls).
Equity Securities Investments
The Fund may invest up to 35% of its total assets in U.S. exchange
listed equity securities and foreign equity securities.\14\ The Fund
may invest up to 30% of its total assets in U.S. exchange listed
preferred stock, convertible securities \15\ and other equity-related
securities. The Fund may gain exposure to commodities through
investment of up to 30% of its total assets, which may include
investments in exchange-traded products (``Underlying ETPs'') \16\ and
exchange-traded notes (``ETNs'').\17\ The Fund may invest in the
securities of exchange listed real estate investment trusts (``REITs'')
to the extent allowed by law, which pool investors' funds for
investments primarily in commercial real estate properties. Investment
in REITs may be the most practical available means for the Fund to
invest in the real estate industry.
---------------------------------------------------------------------------
\14\ The foreign equity securities in which the Fund may invest
will be limited to securities that trade in markets that are members
of the Intermarket Surveillance Group (``ISG''), which includes all
U.S. national securities exchanges and certain foreign exchanges, or
are parties to a comprehensive surveillance sharing agreement with
the Exchange. See note 30, infra.
\15\ Convertible securities include bonds, debentures, notes,
preferred stocks and other securities that entitle the holder to
acquire common stock or other equity securities of the same or a
different issuer.
\16\ Underlying ETPs include Trust Issued Receipts (as described
in NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares
(as described in NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and
Trust Units (as described in NYSE Arca Equities Rule 8.500).
\17\ ETNs include Index-Linked Securities (as described in NYSE
Arca Equities Rule 5.2(j)(6)).
---------------------------------------------------------------------------
Other Investments
As a non-principal investment strategy, the Fund may invest in
insurance-linked securities and structured notes (notes on which the
amount of principal repayment and interest payments are based on the
movement of one or more specified factors, such as the movement of a
particular security or security index), other than ETNs. The Fund may
invest in certificates of deposit (``CDs''), time deposits and bankers'
acceptances from U.S. banks. A bankers' acceptance is a bill of
exchange or time draft drawn on and accepted by a commercial bank. A CD
is a negotiable interest-bearing instrument with a specific maturity.
CDs are issued by banks and savings and loan institutions in exchange
for the deposit of funds and normally can be traded in the secondary
market prior to maturity. A time deposit is a non-negotiable receipt
issued by a bank in exchange for the deposit of funds. Like a CD, it
earns a specified rate of interest over a definite period of time;
however, it cannot be traded in the secondary market.
The Fund may invest in zero-coupon or pay-in-kind securities. These
securities are debt securities that do not make regular cash interest
payments. Zero-coupon securities are sold at a deep discount to their
face value. Pay-in-kind securities pay interest through the issuance of
additional securities. Because zero-coupon and pay-in-kind securities
do not pay current cash income, the price of these securities can be
volatile when interest rates fluctuate.
The Fund may use delayed delivery transactions as an investment
technique. Delayed delivery transactions, also referred to as forward
commitments, involve commitments by the Fund to dealers or issuers to
acquire or sell securities at a specified future date beyond the
customary settlement for such securities. These commitments may fix the
payment price and interest rate to be received or paid on the
investment. The Fund may purchase securities on a delayed delivery
basis to the extent that it can anticipate having available cash on the
settlement date. Delayed delivery agreements will not be used as a
speculative or leverage technique.
The Adviser may attempt to reduce foreign currency exchange rate
risk by entering into contracts with banks, brokers or dealers to
purchase or sell foreign currencies at a future date (``forward
contracts'').
The Fund may invest in the securities of other investment
companies. Under Section 12(d) of the 1940 Act, or as otherwise
permitted by the Commission, the Fund's investment in investment
companies is limited to, subject to certain exceptions, (i) 3% of the
total outstanding voting stock of any one investment company, (ii) 5%
of the Fund's total assets with respect to any one investment company
and (iii) 10% of the Fund's total assets with respect to investment
companies in the aggregate.\18\
---------------------------------------------------------------------------
\18\ 15 U.S.C. 80a-12(d).
---------------------------------------------------------------------------
The Fund will be considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund.\19\
---------------------------------------------------------------------------
\19\ A ``non-diversified company'', as defined in Section
5(b)(2) of the 1940 Act, means any management company other than a
diversified company (as defined in Section 5(b)(1) of the 1940 Act).
---------------------------------------------------------------------------
The Fund may not invest more than 25% of the value of its net
assets in securities of issuers in any one industry or group of
industries. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities.\20\
---------------------------------------------------------------------------
\20\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
---------------------------------------------------------------------------
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities \21\ (calculated at the
[[Page 76329]]
time of investment), including Rule 144A securities. The Fund will
monitor its portfolio liquidity on an ongoing basis to determine
whether, in light of current circumstances, an adequate level of
liquidity is being maintained, and will consider taking appropriate
steps in order to maintain adequate liquidity if, through a change in
values, net assets, or other circumstances, more than 15% of the Fund's
net assets are held in illiquid securities and other illiquid assets.
Illiquid securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets as determined in accordance with Commission staff
guidance.\22\
---------------------------------------------------------------------------
\21\ The Fund may invest in master demand notes, which are
demand notes that permit the investment of fluctuating amounts of
money at varying rates of interest pursuant to arrangements with
issuers who meet the quality criteria of the Fund. The interest rate
on a master demand note may fluctuate based upon changes in
specified interest rates, be reset periodically according to a
prescribed formula or be a set rate. Although there is no secondary
market in master demand notes, if such notes have a demand feature,
the payee may demand payment of the principal amount of the note
upon relatively short notice. Master demand notes are generally
illiquid and therefore subject to the Fund's percentage limitations
for holdings in illiquid securities. In addition, the Fund may
purchase participations in corporate loans. Participation interests
generally will be acquired from a commercial bank or other financial
institution (a ``Lender'') or from other holders of a participation
interest (a ``Participant''). The purchase of a participation
interest either from a Lender or a Participant will not result in
any direct contractual relationship with the borrowing company (the
``Borrower''). The Fund generally will have no right directly to
enforce compliance by the Borrower with the terms of the credit
agreement. Instead, the Fund will be required to rely on the Lender
or the Participant that sold the participation interest, both for
the enforcement of the Fund's rights against the Borrower and for
the receipt and processing of payments due to the Fund under the
loans. Under the terms of a participation interest, the Fund may be
regarded as a member of the Participant, and thus the Fund is
subject to the credit risk of both the Borrower and a Participant.
Participation interests are generally subject to restrictions on
resale. Generally, the Fund considers participation interests to be
illiquid and therefore subject to the Fund's percentage limitations
for holdings in illiquid securities.
\22\ The Commission has stated that long-standing Commission
guidelines have required open-end funds to hold no more than 15% of
their net assets in illiquid securities and other illiquid assets.
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR
14618 (March 18, 2008), footnote 34. See also Investment Company Act
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970)
(Statement Regarding ``Restricted Securities''); Investment Company
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992)
(Revisions of Guidelines to Form N-1A). A fund's portfolio security
is illiquid if it cannot be disposed of in the ordinary course of
business within seven days at approximately the value ascribed to it
by the fund. See Investment Company Act Release No. 14983 (March 12,
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7
under the 1940 Act); Investment Company Act Release No. 17452 (April
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under
the Securities Act).
---------------------------------------------------------------------------
The Fund intends to qualify for and to elect to be treated as a
separate regulated investment company (``RIC'') under Subchapter M of
the Internal Revenue Code.\23\
---------------------------------------------------------------------------
\23\ 26 U.S.C. 851.
---------------------------------------------------------------------------
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents
that, for initial and/or continued listing, the Fund will be in
compliance with Rule 10A-3 \24\ under the Exchange Act, as provided by
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund
will be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the net asset value (``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.
---------------------------------------------------------------------------
\24\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
Consistent with the Exemptive Order, the Fund will not invest in
options contracts, futures contracts or swap agreements.
The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. That is,
while the Fund will be permitted to borrow as permitted under the 1940
Act, the Fund's investments will not be used to seek performance that
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's
primary broad-based securities benchmark index (as defined in Form N-
1A).\25\
---------------------------------------------------------------------------
\25\ The Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------
Creations and Redemptions of Shares
Investors may create or redeem in Creation Unit size of 100,000
Shares or aggregations thereof (``Creation Unit'') through an
Authorized Participant, as described in the Registration Statement. In
order to purchase Creation Units of a Fund, an investor must generally
deposit a designated portfolio of securities (the ``Deposit
Securities'') (and/or an amount in cash in lieu of some or all of the
Deposit Securities) per each Creation Unit constituting a substantial
replication, or representation, of the securities included in the
Fund's portfolio as selected by the Adviser (``Fund Securities'') and
generally make a cash payment referred to as the ``Cash Component.''
The list of the names and the amounts of the Deposit Securities will be
made available by the Fund's custodian through the facilities of the
National Securities Clearing Corporation (``NSCC'') immediately prior
to the opening of the NYSE Arca Core Trading Session (9:30 a.m. to 4:00
p.m. Eastern time (``E.T.'')). The Cash Component will represent the
difference between the NAV of a Creation Unit and the market value of
the Deposit Securities.
Shares may be redeemed only in Creation Unit size at their NAV on a
day the NYSE Arca is open for business. The Fund's custodian will make
available immediately prior to the opening of the NYSE Arca Core
Trading Session, through the facilities of NSCC, the list of the names
and the amounts of the Fund's portfolio constituents that will be
applicable that day to redemption requests in proper form. Fund
Securities received on redemption may not be identical to Deposit
Securities which are applicable to purchases of Creation Units.
Net Asset Value
The NAV per Share of the Fund will be determined once daily as of
the close of the New York Stock Exchange (``NYSE''), usually 4:00 p.m.
E.T., each day the NYSE is open for trading, provided that (a) any
assets or liabilities denominated in currencies other than the U.S.
dollar shall be translated into U.S. dollars at the prevailing market
rates on the date of valuation as quoted by one or more major banks or
dealers that makes a two-way market in such currencies (or a data
service provider based on quotations received from such banks or
dealers); and (b) U.S. fixed income instruments may be valued as of the
announced closing time for trading in fixed income instruments on any
day that the Securities Industry and Financial Markets Association
announces an early closing time. NAV per Share is determined by
dividing the value of the Fund's portfolio securities, cash and other
assets (including accrued interest), less all liabilities (including
accrued expenses), by the total number of Shares outstanding.
Debt securities will be valued at the mean between the last
available bid and ask prices for such securities or, if such prices are
not available, at prices for securities of comparable maturity,
quality, and type. The Fund's debt securities, including some or all of
the mortgage-backed securities in which the Fund invests, may also be
valued based on price quotations or other equivalent indications of
value provided by a third-party pricing service. Any such third-party
pricing service may use a variety of methodologies to value some or all
of the Fund's debt securities to determine the market price. For
example, the prices of securities with characteristics similar to those
held by the Fund may be used to assist with the pricing process. In
addition, the pricing service may use proprietary pricing models.
Short-term securities for which market quotations are not readily
available will be valued at amortized cost, which approximates market
value. Equity securities will be valued at the last reported sale price
on the principal exchange on which such securities are traded, as of
the close of regular trading
[[Page 76330]]
on the NYSE on the day the securities are being valued or, if there are
no sales, at the mean of the most recent bid and ask prices. Equity
securities that are traded primarily on the NASDAQ Stock Market will be
valued at the NASDAQ Official Closing Price. Securities for which
market quotations (or other market valuations such as those obtained
from a pricing service) are not readily available, including restricted
securities, will be valued by a method that the Fund's Board of
Trustees believes accurately reflects fair value. Securities will be
valued at fair value when market quotations are not readily available
or are deemed unreliable, such as when a security's value or meaningful
portion of the Fund's portfolio is believed to have been materially
affected by a significant event. Such events may include a natural
disaster, an economic event like a bankruptcy filing, a trading halt in
a security, an unscheduled early market close or a substantial
fluctuation in domestic and foreign markets that has occurred between
the close of the principal exchange and the NYSE. In such a case, the
value for a security is likely to be different from the last quoted
market price. In addition, due to the subjective and variable nature of
fair market value pricing, it is possible that the value determined for
a particular asset may be materially different from the value realized
upon such asset's sale.
Availability of Information
The Fund's Web site (www.guggenheiminvestments.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the prospectus for the Fund that may be downloaded. The
Fund's Web site will include additional quantitative information
updated on a daily basis, including, for the Fund, (1) daily trading
volume, the prior business day's reported closing price, NAV and mid-
point of the bid/ask spread at the time of calculation of such NAV (the
``Bid/Ask Price''),\26\ and a calculation of the premium and discount
of the Bid/Ask Price against the NAV, and (2) data in chart format
displaying the frequency distribution of discounts and premiums of the
daily Bid/Ask Price against the NAV, within appropriate ranges, for
each of the four previous calendar quarters. On each business day,
before commencement of trading in Shares in the Core Trading Session on
the Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) that will
form the basis for the Fund's calculation of NAV at the end of the
business day.\27\
---------------------------------------------------------------------------
\26\ The Bid/Ask Price of the Fund will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\27\ Under accounting procedures to be followed by the Fund,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T + 1'').
Accordingly, the Fund will be able to disclose at the beginning of
the business day the portfolio that will form the basis for the NAV
calculation at the end of the business day.
---------------------------------------------------------------------------
On a daily basis, the Adviser will disclose on the Fund's Web site
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, price information for the debt and equity
securities held by the Fund will be available through major market data
vendors and on the securities exchanges on which such securities are
listed and traded.
In addition, a basket composition file, which will include the
security names and share quantities required to be delivered in
exchange for Fund Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via NSCC. The basket represents one Creation Unit of the Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and Form N-CSR
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov. Information
regarding market price and trading volume for the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line. In addition, the Portfolio Indicative Value,
as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session.\28\ The dissemination of the
Portfolio Indicative Value, together with the Disclosed Portfolio, will
allow investors to determine the value of the underlying portfolio of
the Fund on a daily basis and provide a close estimate of that value
throughout the trading day.
---------------------------------------------------------------------------
\28\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------
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.
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.\29\ 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.
---------------------------------------------------------------------------
\29\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading
Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on
[[Page 76331]]
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 ISG from other
exchanges that are members of ISG or with which the Exchange has
entered into a comprehensive surveillance sharing agreement.\30\ All of
the equity investments to be held by the Fund, including the non-U.S.-
listed equity securities held by the Fund, will trade in markets that
are ISG members or are parties to a comprehensive surveillance sharing
agreement with the Exchange.
---------------------------------------------------------------------------
\30\ 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.
---------------------------------------------------------------------------
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Units (and that Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (3) the risks involved in
trading the Shares during the Opening and Late Trading Sessions when an
updated Portfolio Indicative Value will not be calculated or publicly
disseminated; (4) how information regarding the Portfolio Indicative
Value 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) \31\ 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.
---------------------------------------------------------------------------
\31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. While the Fund generally will
invest more than 50% of its assets in investment grade fixed income
instruments, the Fund also expects to invest to a maximum of 35% of its
total assets in high yield debt securities. The Fund may invest up to
30% of its total assets in debt securities denominated in foreign
currencies, and may invest without limitation in U.S. dollar-
denominated debt securities of foreign issuers. The Fund may invest up
to 20% of its total assets in debt securities and instruments that are
economically tied to emerging market countries. The Fund may invest in
mortgage- or asset-backed securities and is limited to 10% of its total
assets in any combination of mortgage-related or other asset-backed
interest-only, principal-only or inverse floater securities. (This
limitation does not apply to securities issued or guaranteed by federal
agencies and/or U.S. government sponsored instrumentalities, such as
GNMA, FHA, FNMA and FHLMC.) 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. While
the Fund may hold non-U.S. equity securities, the Fund will only invest
in non-U.S. equity securities that trade in markets that are members of
the ISG or are parties to comprehensive surveillance sharing agreements
with the Exchange. The Fund may hold in the aggregate up to 15% of its
net assets in illiquid securities, including Rule 144A securities. The
Fund will not employ any leverage in order to meet its investment
objective. The Fund will not invest in derivative securities including
options, swaps or futures.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Adviser is affiliated with a broker-dealer and has represented
that it has implemented a fire wall with respect to its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio. The Exchange will obtain a
representation from the issuer of the Shares that the NAV per Share
will be calculated daily and that the NAV and the Disclosed Portfolio
will be made available to all market participants at the same time. On
a daily basis, the Adviser will disclose on the Fund's Web site 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. Price information for the debt and equity securities held by
the Fund will be available through major market data vendors and on the
securities exchanges on which such securities are listed and traded. In
addition, a large amount of information will be publicly available
regarding the Fund and the Shares, thereby promoting market
transparency. Moreover, the Portfolio Indicative Value will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Exchange's Core Trading Session. On each business
day, before commencement of trading in Shares in the Core Trading
Session on
[[Page 76332]]
the Exchange, the Fund will disclose on its Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services, and quotation and last sale information will be
available via the CTA high-speed line. The Web site for the Fund will
include a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information.
Moreover, prior to the commencement of trading, the Exchange will
inform its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares. Trading
in Shares of the Fund will be halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable, and trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Fund may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Portfolio Indicative
Value, the Disclosed Portfolio, and quotation and last sale information
for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
an additional type of actively-managed exchange-traded product that
will enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. 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.
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-2012-142 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-2012-142.
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 Room, 100 F
Street NE, Washington, DC 20549, on official business days between the
hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be
available for inspection and copying at the principal office of the
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-2012-142 and should be submitted on or before January 17,
2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
---------------------------------------------------------------------------
\32\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31120 Filed 12-26-12; 8:45 am]
BILLING CODE 8011-01-P