[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Notices]
[Pages 10222-10226]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03276]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-68863; File No. SR-NYSEArca-2012-142]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change, as Modified by Amendment No. 1
Thereto, To List and Trade the Guggenheim Enhanced Total Return ETF
Under NYSE Arca Equities Rule 8.600
February 7, 2013.
I. Introduction
On December 13, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of the Guggenheim Enhanced Total Return ETF (``Fund'')
under NYSE Arca Equities Rule 8.600. The proposed rule change was
published for comment in the Federal Register on December 27, 2012.\3\
On February 4, 2013, the Exchange filed Amendment No. 1 to the proposed
rule change.\4\ The Commission received no comments on the proposed
[[Page 10223]]
rule change. This order grants approval of the proposed rule change, as
modified by Amendment No. 1 thereto.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 68488 (December 20,
2012), 77 FR 76326 (``Notice''). See also Securities Exchange Act
Release No. 68488 (December 20, 2012), 78 FR 1892 (January 9, 2013)
(SR-NYSEArca-2012-142) (correcting a typographical error by the
Federal Register to the File No. reference).
\4\ Amendment No. 1 amended the following sentence: ``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.'' As amended, the sentence reads: ``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 or principal-only securities.'' This amendment
was intended to clarify that the Fund will not invest in inverse
floaters. See Notice, supra note 3, at 76328. Because the changes
made by Amendment No. 1 do not materially alter the substance of the
proposed rule change or raise any novel regulatory issues, Amendment
No. 1 is not subject to notice and comment.
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II. Description of the Proposed Rule Change
The Exchange proposes to list and trade Shares of the Fund under
NYSE Arca Equities Rule 8.600, which governs the listing and trading of
Managed Fund Shares. The Shares will be offered by the Claymore
Exchange-Traded Fund Trust 2 (``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. 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. The Exchange states
that the Adviser is affiliated with a broker-dealer and that the
Adviser 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 Fund's portfolio.\6\
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\5\ The Trust is registered under the Investment Company Act of
1940 (``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 (``Securities Act'') and the 1940
Act relating to the Fund (File Nos. 333-135105 and 811-21910)
(``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\ See NYSE Arca Equities Rule 8.600, Commentary .06. 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.
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Guggenheim Enhanced Total Return ETF
The Fund's investment objective will be to seek maximum total
return, composed of income and capital appreciation. The Fund will
normally \7\ invest in a portfolio of fixed-income instruments of
varying maturities and equity securities.
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\7\ 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.
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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, collateralized loan
obligations, 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.\8\
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\8\ Generally, a corporate bond must have $100 million or more
par amount outstanding to be considered as an eligible investment.
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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.\9\
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\9\ 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.
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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 or principal-only
securities.\10\ This limitation does not apply to securities issued or
guaranteed by federal agencies or U.S. government sponsored
instrumentalities, such as the Government National Mortgage
Administration, the Federal Housing Administration, the Federal
National Mortgage Association, and the Federal Home Loan Mortgage
Corporation. The Fund may purchase or sell securities on a when-issued,
delayed-delivery, or forward-commitment basis and may engage in short
sales.
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\10\ See supra note 4.
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The Fund may invest in short-term instruments such as commercial
paper,\11\ repurchase agreements,\12\ and reverse repurchase
agreements.\13\ The Fund may invest in money market instruments
(including other funds that invest exclusively in money market
instruments). These investments in money market instruments may be as
part of a temporary defensive strategy to protect against temporary
market declines.
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\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.
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The Fund may invest in debt securities that have variable or
floating interest rates that 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
[[Page 10224]]
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, 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''), which pool investors' funds for investments primarily in
commercial real estate properties, to the extent allowed by law.
Investment in REITs may be the most practical available means for the
Fund to invest in the real estate industry.
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\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
markets that are parties to a comprehensive surveillance sharing
agreement with the Exchange.
\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)).
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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\
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\18\ 15 U.S.C. 80a-12(d).
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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\
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\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).
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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 its
instrumentalities.
The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities \20\ (calculated at the
[[Page 10225]]
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.
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\20\ 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 (``Lender'') or from other holders of a participation
interest (``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 (``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.
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The Fund intends to qualify for and to elect to be treated as a
separate regulated investment company under Subchapter M of the
Internal Revenue Code.\21\
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\21\ 26 U.S.C. 851.
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The Exchange represents that the Shares will conform to the initial
and continued listing criteria under NYSE Arca Equities Rule 8.600. The
Exchange further represents that, for initial and continued listing,
the Fund will be in compliance with Rule 10A-3 under the Exchange
Act,\22\ 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.
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\22\ 17 CFR 240.10A-3.
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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).\23\
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\23\ The Exchange represents that the Fund's broad-based
securities benchmark index will be identified in an amendment to the
Registration Statement to be filed following the Fund's first full
calendar year of performance.
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Additional information regarding the Trust, the Fund, and the
Shares, including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes, among other things, is included in the Notice
and Registration Statement, as applicable.\24\
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\24\ See Notice and Registration Statement, supra notes 3 and 5,
respectively.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6 of the Act \25\
and the rules and regulations thereunder applicable to a national
securities exchange.\26\ In particular, the Commission finds that the
proposed rule change is consistent with Section 6(b)(5) of the Act,\27\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. The Commission notes that
the Fund and the Shares must comply with the requirements of NYSE Arca
Equities Rule 8.600 to be listed and traded on the Exchange.
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\25\ 15 U.S.C. 78f.
\26\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\27\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\28\ which sets forth Congress's finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association (``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.\29\ 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.\30\ The NAV per Share of the Fund will
be determined as of the close of the New York Stock Exchange (usually
4:00 p.m. Eastern Time) each day the New York Stock Exchange is open
for trading, and 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 New York Stock Exchange via the National Securities Clearing
Corporation. 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. 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. The Fund's Web site will
include a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information.
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\28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\29\ According to the Exchange, several major market data
vendors display and/or make widely available Portfolio Indicative
Values taken from CTA or other data feeds.
\30\ On a daily basis, the Adviser will disclose for each
portfolio security and other financial instrument of the Fund the
following information on the Fund's Web site: 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.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV 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.\31\
In addition, 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. The Exchange
[[Page 10226]]
may halt trading in the Shares if trading is not occurring in the
securities or the financial instruments constituting the Disclosed
Portfolio of the Fund, or if other unusual conditions or circumstances
detrimental to the maintenance of a fair and orderly market are
present.\32\ Further, the Commission notes that the Reporting Authority
that provides the Disclosed Portfolio must implement and maintain, or
be subject to, procedures designed to prevent the use and dissemination
of material non-public information regarding the actual components of
the portfolio.\33\ All of the equity investments to be held by the
Fund, including the non-U.S.-listed equity securities, will trade in
markets that are ISG members or markets that are parties to a
comprehensive surveillance sharing agreement with the Exchange.\34\ The
Exchange represents that it 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. The
Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its employees. The
Exchange also states that the Adviser is affiliated with a broker-
dealer and that the Adviser 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.\35\
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\31\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\32\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing
additional considerations for the suspension of trading in or
removal from listing of Managed Fund Shares on the Exchange). With
respect to trading halts, the Exchange may consider other relevant
factors in exercising its discretion to halt or suspend trading in
the Shares of the Fund. 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.
\33\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
\34\ See supra note 14.
\35\ See supra note 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 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.
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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
(1) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange's surveillance procedures applicable to derivative
products, which include Managed Fund Shares, 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.\36\
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\36\ See supra note 14.
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(4) Prior to the commencement of trading, the Exchange will inform
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin
of the special characteristics and risks associated with trading the
Shares. Specifically, the Information Bulletin will discuss the
following: (a) The procedures for purchases and redemptions of Shares
in Creation Units (and that Shares are not individually redeemable);
(b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (c) the risks involved in
trading the Shares during the Opening and Late Trading Sessions, when
an updated Portfolio Indicative Value will not be calculated or
publicly disseminated; (d) how information regarding the Portfolio
Indicative Value is disseminated; (e) the requirement that ETP Holders
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; and (f)
trading information.
(5) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Exchange Act,\37\ as provided by
NYSE Arca Equities Rule 5.3.
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\37\ 17 CFR 240.10A-3.
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(6) While the Fund generally will invest more than 50% of its
assets in investment-grade fixed-income instruments, the Fund may
invest up to 35% of its total assets in high-yield debt securities.
(7) 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 its investment objective and will
not be used to enhance leverage.
(8) The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities, master demand notes, and loan
participation interests.\38\
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\38\ See supra note 20.
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(9) A minimum of 100,000 Shares of the Fund will be outstanding at
the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations
and description of the Fund, including those set forth above and in the
Notice.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act\39\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\39\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\40\ that the proposed rule change (SR-NYSEArca-2012-142), as
modified by Amendment No. 1 thereto be, and it hereby is, approved.
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\40\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\41\
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\41\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03276 Filed 2-12-13; 8:45 am]
BILLING CODE 8011-01-P