[Federal Register Volume 78, Number 204 (Tuesday, October 22, 2013)]
[Notices]
[Pages 62751-62760]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-24633]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70624; File No. SR-NYSEArca-2013-101]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the WisdomTree
Bloomberg U.S. Dollar Bullish Fund, WisdomTree Bloomberg U.S. Dollar
Bearish Fund, and the WisdomTree Commodity Currency Bearish Fund Under
NYSE Arca Equities Rule 8.600
October 8, 2013.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on September 26, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II 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\ 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 shares of the following
funds of the WisdomTree Trust (``Trust'') under NYSE Arca Equities Rule
8.600 (``Managed Fund Shares''): WisdomTree Bloomberg U.S. Dollar
Bullish Fund (``DI Bull Fund''); the WisdomTree Bloomberg U.S. Dollar
Bearish Fund (``DI Bear Fund,'' and with the DI Bull Fund, ``DI
Funds''); and the WisdomTree Commodity Currency Bearish Fund (``CC Bear
Fund,'' and collectively with the DI Funds, ``Funds''). The shares of
the Funds are collectively referred to herein as the ``Shares.'' 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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of the Funds
under NYSE Arca Equities Rule 8.600, which governs the listing and
trading of Managed Fund Shares on the Exchange.\3\ The Funds will be
actively-managed exchange traded funds (``ETFs'').\4\ The Shares will
be offered by the Trust, which was established as a Delaware statutory
trust on December 15, 2005. The Trust is registered with the Commission
as an investment company and has filed a registration statement on Form
N-1A (``Registration Statement'') with the Commission on behalf of each
of the Funds.\5\
---------------------------------------------------------------------------
\3\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of specific foreign or
domestic stock index, fixed income securities index, or combination
thereof.
\4\ The Commission previously approved listing and trading on
the Exchange of a number of actively managed funds under NYSE Arca
Equities Rule 8.600. See, e.g., 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); 58564 (September
17, 2008), 73 FR 55194 (September 24, 2008) (SR-NYSEArca-2008-86)
(order approving Exchange listing and trading of WisdomTree Dreyfus
Emerging Currency Fund); 62604 (July 30, 2010), 75 FR 47323 (August
5, 2010) (SR-NYSEArca-2010-49) (order approving listing and trading
of WisdomTree Emerging Markets Local Debt Fund); 62623 (August 2,
2010), 75 FR 47652 (August 6, 2010) (SR-NYSEArca-2010-51) (order
approving listing and trading of WisdomTree Dreyfus Commodity
Currency Fund); 63598 (December 22, 2010), 75 FR 82106 (December 29,
2010) (SR-NYSEArca-2010-98) (order approving listing and trading of
WisdomTree Managed Futures Strategy Fund); and 63919 (February 16,
2011), 76 FR 10073 (February 23, 2011) (SR-NYSEArca-2010-116) (order
approving listing and trading of WisdomTree Asia Local Debt Fund).
\5\ See Post-Effective Amendment No. 216 (DI Bull Fund), No. 217
(DI Bear Fund) and No. 218 (CC Bear Fund) to the Registration
Statement on Form N-1A for the Trust, each dated September 6, 2013
under the Securities Act of 1933 (15 U.S.C. 77a) (``Securities
Act'') and the 1940 Act. (File Nos. 333-132380 and 811-21864). The
descriptions of the Funds and the Shares contained herein are based
on information in 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.
28171 (October 27, 2008) (File No. 812-13458 (``Exemptive Order'')).
In compliance with Commentary .05 to NYSE Arca Equities Rule 8.600,
which applies to Managed Fund Shares based on an international or
global portfolio, the Trust's application for exemptive relief under
the 1940 Act states that the Funds will comply with the federal
securities laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used to satisfy
redemption requests are sold in transactions that would be exempt
from registration under the Securities Act.
---------------------------------------------------------------------------
[[Page 62752]]
Description of the Shares and the Funds
WisdomTree Asset Management, Inc. (``WisdomTree Asset Management'')
will be the investment adviser (``Adviser'') to each of the Funds.\6\
Mellon Capital Management (``Mellon'') will serve as sub-adviser for
each of the Funds (``Sub-Adviser'').\7\ The Bank of New York Mellon is
the administrator, custodian, and transfer agent for the Trust
(``Custodian'' or ``Transfer Agent''). ALPS Distributors, Inc. serves
as the distributor for the Trust (``Principal Underwriter''). Bloomberg
Finance L.P. (``Index Sponsor'') is the sponsor of the Bloomberg US
Dollar Total Return Index (``Bloomberg USD TR Index'') and the
Bloomberg Inverse US Dollar Total Return Index (``Bloomberg Inverse USD
TR Index,'' each an ``Index'' and together with the Bloomberg USD TR
Index, the ``Indexes''). Each Index is described more fully below.\8\
---------------------------------------------------------------------------
\6\ WisdomTree Investments, Inc. (``WisdomTree Investments'') is
the parent company of WisdomTree Asset Management.
\7\ The Sub-Adviser will be responsible for day-to-day
management of the Funds and, as such, typically makes all decisions
with respect to portfolio holdings. The Adviser will have ongoing
oversight responsibility.
\8\ Information regarding the Indexes and other indexes provided
by the Index Sponsor can be found at www.bloombergindexes.com. The
Index Sponsor is not a broker-dealer but is affiliated with one or
more broker-dealers. The Index Sponsor has implemented procedures
designed to prevent the illicit use and dissemination of material,
non-public information regarding the Indexes and has implemented a
``fire wall'' with regard to its affiliated broker-dealers regarding
the Indexes.
---------------------------------------------------------------------------
Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\9\ 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, non-public
information regarding the open-end fund's portfolio. Commentary .06 to
Rule 8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds. The
Adviser is not registered as a broker-dealer or affiliated with a
broker-dealer. The Sub-Adviser is not a broker-dealer but is affiliated
with one or more broker-dealers and has implemented a ``fire wall''
with respect to such broker-dealers regarding access to information
concerning the composition and/or changes to a Fund's portfolio. In
addition, Mellon personnel who make decisions regarding a Fund's
portfolio will be subject to procedures designed to prevent the use and
dissemination of material, non-public information regarding such Fund's
portfolio. In the event (a) the Adviser or Sub-Adviser becomes
registered as a broker-dealer or becomes newly affiliated with a
broker-dealer, or (b) any new adviser or sub-adviser is a registered
broker-dealer or becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to its relevant personnel or its
broker-dealer affiliate regarding access to information concerning the
composition and/or changes to the applicable Fund's portfolio, and will
be subject to procedures designed to prevent the use and dissemination
of material, non-public information regarding such portfolio.
---------------------------------------------------------------------------
\9\ 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 the Sub-Adviser and their
related personnel are subject to the provisions of Rule 204A-1 under
the Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
---------------------------------------------------------------------------
WisdomTree Bloomberg U.S. Dollar Bullish Fund, WisdomTree Bloomberg
U.S. Dollar Bearish Fund, and WisdomTree Commodity Currency Bearish
Fund
DI Bull Fund--Index Information
The DI Bull Fund will be an actively managed fund that seeks to
provide total returns, before expenses, that exceed the performance of
the Bloomberg USD TR Index. The Bloomberg USD TR Index is based on the
Bloomberg US Dollar Index (BDXY), which tracks changes in the value of
the U.S. Dollar against a basket of developed and emerging market
currencies which are deemed to have the highest liquidity in the
currency markets and represent countries that make the largest
contribution to trade flows with the United States.\10\ The Bloomberg
USD TR Index additionally incorporates the impact of short-term
interest rate differences inherent in achieving such exposure by
incorporating the net interest rate differential between the short-term
interest rates in the U.S. and in the countries of those leading
currencies
[[Page 62753]]
and the daily federal funds rate. The Bloomberg USD TR Index is
structured to potentially benefit from a general rise in the level of
the U.S. Dollar relative to the basket of global currencies.
---------------------------------------------------------------------------
\10\ Data for the global currencies is derived, in part, from
the Bank for International Settlements Triennial Central Bank
Survey, December 2010 (``BIS Survey''). The global currencies
included in the Indexes are limited to the top twenty currencies in
terms of transaction volume, listed in the BIS Survey, under Table
3: ``Currency distribution of foreign exchange turnover,''
reflecting the percentage share of average daily turnover for the
applicable month and year (``Table 3''). See http://www.bis.org/publ/rpfxf10t.htm. Trade volume data for the currencies selected is
derived from the Board of Governors of the Federal Reserve System,
Foreign Exchange Rates--H.10 Release. See http://www.federalreserve.gov/Releases/H10/Summary/ (``Federal Reserve
Release''). The global currencies selected for the Indexes are
limited to the top twenty currencies by trade volume included in the
most recent Federal Reserve Release.
The Index Sponsor selects for both Indexes the top ten
currencies included in both the most recent BIS Survey and Federal
Reserve Release, giving equal weighting to both liquidity and trade
volume. The currencies selected are given weights in each Index
based equally on relative trade volume and relative liquidity as
compared with the other included currencies. The Indexes each
exclude any currency that is tied directly to the U.S. Dollar (e.g.,
Hong Kong Dollar) and limit the percentage weighting of the Chinese
Yuan Renminbi (``CNY'') to three percent of the total weight of each
Index, because the CNY is heavily managed by the Chinese government.
The Indexes also exclude any currency that would receive a weighting
of less than two percent of the Indexes, based on the relative
weighting formula described above.
As of December 31, 2012 (the date of the most recent
rebalancing of the Indexes), the components of each index were the
following: Euro (34.3%); Japanese Yen (16.2%); Canadian Dollar
(12.0%); British Pound (9.9%); Mexican Peso (8.5%); Australian
Dollar (5.5%); Swiss Franc (4.9%); Korean Won (3.6%); Chinese Yuan
Renminbi (3.0%); and Singapore Dollar (2.2%).
---------------------------------------------------------------------------
To be considered for the Bloomberg US Dollar Index (and,
accordingly, the Bloomberg USD TR Index and the Bloomberg Inverse USD
TR Index), currencies must rank high in terms of their countries' or
regions' contribution to overall trade in the U.S. or have high
standing in terms of rank in foreign exchange trading volume, although
they must have influence in both categories. The basket of currencies
will be selected and weighted using the U.S. trade volume reported by
the Federal Reserve \11\ as a proxy for contribution to trade flows and
foreign exchange turnover as reported in the BIS Survey as a proxy for
foreign exchange liquidity.\12\ Countries and their respective
currencies relative to the U.S. Dollar are ranked in terms of their
contribution to overall U.S. trade and the percentage of overall
transaction volume for their currencies. Exposure to individual
currencies whose movement has been largely regulated by their
government will be capped at three percent and currencies with
preliminary weights of less than two percent are removed. The final
weights are then derived by distributing the weight to the remaining
currencies in proportion to the preliminary weights. Currencies that
are strictly tied to the U.S. Dollar will be excluded.
---------------------------------------------------------------------------
\11\ The data used by the Index Sponsor to determine trading
volumes in each currency will derive from the Federal Reserve
Release, note 10, supra.
\12\ The transactional volume will be derived from the BIS
Survey, note 10, supra.
---------------------------------------------------------------------------
The Bloomberg USD TR Index's annual rebalance is done in December
every year with a reference date of the third Friday of the month and a
rebalance date after the close of the last U.S. trading date of the
month.
The Bloomberg US Dollar Index value is published real time under
the ticker BBDXY on Bloomberg. The Bloomberg USD TR Index (BBDXT) value
is generated once a day.
DI Bear Fund--Index Information
The DI Bear Fund will be an actively managed fund that seeks to
provide total returns, before expenses, that exceed the performance of
the Bloomberg Inverse USD TR Index. The Bloomberg Inverse USD TR Index
is based on the Bloomberg US Dollar Index (as described above), which
tracks changes in the value of the U.S. Dollar against a basket of
developed and emerging market currencies that have the highest
liquidity in the currency markets and the biggest trade flows with the
U.S. The Bloomberg Inverse USD TR Index additionally incorporates the
impact of short-term interest rates in the global currencies. The
Bloomberg Inverse USD TR Index is structured to potentially rise as
global currencies appreciate relative to the U.S. Dollar.
The Bloomberg Inverse USD TR Index's annual rebalance is done in
December every year with a reference date of the third Friday of the
month and a rebalance date after the close of the last U.S. trading
date of the month.
The Bloomberg Inverse USD TR Index (BBDXI) value is generated once
a day.
The Indexes seek contrasting positions in the same currencies and
the same weightings. The Bloomberg USD TR Index seeks to potentially
benefit from a rise in the U.S. Dollar against a basket of currencies,
while the Bloomberg Inverse USD TR Index seeks to potentially benefit
from a fall in the U.S. Dollar against the same basket of currencies.
The eligibility criteria for each of the Indexes and the method of
weighting the Indexes are the same.
The Funds' Investment Methodologies
DI Bull Fund
According to the Registration Statement, under normal
circumstances,\13\ the DI Bull Fund will invest at least 80% of its net
assets in U.S.-issued and non-U.S.-issued money market securities,\14\
other U.S. government and investment grade non-U.S. government
securities (i.e., that are longer term than money market securities)
and short-term investment grade corporate debt securities,\15\ as well
as positions in currency forward contracts,\16\ listed currency options
and listed currency futures,\17\ currency swap
[[Page 62754]]
agreements,\18\ and spot currencies to provide a long exposure, which
is similar to price movements in the Bloomberg USD TR Index with the
incorporation of relative interest rates in the United States and
instruments in other representative countries.\19\ The DI Bull Fund
will seek this exposure through investments in money market securities
combined with a similar size notional position in currency forwards and
currency futures in the individual component currencies of the
Bloomberg USD TR Index. If a sufficiently liquid futures contract on
the Bloomberg USD TR Index or a related index is later developed, the
Fund may invest in such futures contract as a substitute for, or as a
complement to, futures contracts or forward contracts on the individual
currencies in the Bloomberg USD TR Index. Although the Fund may invest
in spot currencies, listed currency options, and currency swaps,
investments in such instruments are expected to be limited, in each
case to not more than 20% of Fund net assets. If, subsequent to an
investment, the 80% requirement is no longer met, the DI Bull Fund's
future investments will be made in a manner that will bring the Fund
into compliance with this policy. The Fund's investments in forward
contracts, listed options and listed futures contracts, and swap
agreements will be backed by investments in U.S. issued money market
securities, longer-term U.S. government securities, or other liquid
assets (e.g., commercial paper) in an amount equal to the exposure of
such contracts.
---------------------------------------------------------------------------
\13\ The term ``under normal circumstances'' as used herein
includes, but is not limited to, the absence of extreme volatility
or trading halts in the fixed income markets or the financial
markets generally; operational issues causing dissemination of
inaccurate market information; or force majeure type events such as
systems failure, natural or man-made disaster, act of God, armed
conflict, act of terrorism, riot or labor disruption or any similar
intervening circumstance.
\14\ As used herein, the term ``money market securities''
includes: short-term, high quality obligations issued or guaranteed
by the U.S. Treasury or the agencies or instrumentalities of the
U.S. government; short-term, high quality securities issued or
guaranteed by non-U.S. governments, agencies, and instrumentalities;
repurchase agreements backed by U.S. government and non-U.S.
government securities; money market mutual funds; and deposit and
other obligations of U.S. and non-U.S. banks and financial
institutions. All money market securities acquired by a Fund will be
rated investment grade, except that a Fund may invest in unrated
money market securities that are deemed by the Adviser or Sub-
Adviser to be of comparable quality to money market securities rated
investment grade. The determination by the Adviser or the Sub-
Adviser that an unrated security is of comparable quality to another
security rated investment grade will be based on, among other
factors, a comparison between the unrated security and securities
issued by similarly situated companies to determine where in the
spectrum of credit quality the unrated security would fall. The
Adviser or Sub-Adviser would also perform an analysis of the unrated
security and its issuer similar, to the extent possible, to that
performed by a nationally recognized statistical rating organization
(``NRSRO'') in rating similar securities and issuers. See Credit
Analysis of Portfolio Securities, Commission No-Action Letter (May
8, 1990).
The term ``investment grade,'' for purposes of money market
securities only, is intended to mean securities rated A1 or A2 by
one or more NRSROs. As used herein, the term ``U.S.-issued money
market securities'' means money market securities issued or
guaranteed by the U.S. government, repurchase agreements backed by
the U.S. government securities, and U.S.-based money market mutual
funds and deposits and other obligations of financial institutions
organized or having their principal place of business in the U.S.
``Non-U.S.-issued money market securities'' means money market
securities issued or guaranteed by a non-U.S. government, repurchase
agreements backed by non-U.S. government securities, non-U.S.-based
money market mutual funds, and deposits and other obligations of
financial institutions organized or having their principal place of
business outside the U.S.
\15\ According to the Adviser, ``investment grade'' means
securities (other than money market securities) rated in the Baa/BBB
categories or above by one or more NRSROs. If a security is rated by
multiple NRSROs and receives different ratings, the Fund will treat
the security as being rated in the highest rating category received
from an NRSRO. Rating categories may include sub-categories or
gradations indicating relative standing.
\16\ A currency forward contract is an agreement to buy or sell
a specific currency on a future date at a price set at the time of
the contract. Each of the Funds will invest only in currencies, and
instruments that provide exposure to such currencies, that have
significant foreign exchange turnover and are included in the BIS
Survey. To the extent a Fund invests in currencies, each Fund will
invest in currencies, and instruments that provide exposure to such
currencies, explicitly listed on Table 3 in the BIS Survey.
\17\ The exchange-listed currency options in which each of the
Funds may invest will be listed on exchanges in the U.S. or the
United Kingdom. The exchange-listed futures contracts in which each
of the Funds may invest will be listed on exchanges in the U.S., the
United Kingdom, Hong Kong, or Singapore. Each of the United
Kingdom's primary financial markets regulator, the Financial Conduct
Authority, Hong Kong's primary financial markets regulator, the
Securities and Futures Commission, and Singapore's primary financial
markets regulator, the Monetary Authority of Singapore, are
signatories to the International Organization of Securities
Commissions (``IOSCO'') Multilateral Memorandum of Understanding
(``MMOU''), which is a multi-party information sharing arrangement
among financial regulators. Both the Commission and the Commodity
Futures Trading Commission are signatories to the IOSCO MMOU.
Each of the exchange-listed currency options and exchange-
listed futures contracts in which a Fund may invest will be listed
on exchanges that are members of the Intermarket Surveillance Group
(``ISG'') or on an exchange with which the Exchange has entered into
a comprehensive surveillance sharing agreement.
\18\ A currency swap agreement is a foreign exchange agreement
between two institutions to exchange aspects (i.e., the principal
and interest payments) of a loan in one currency for equivalent
aspects of an equal in net present value loan in another currency.
The market for currency swaps in which each of the DI Funds and the
CC Bear Fund will invest is highly liquid. See BIS Survey, note 10,
supra, for daily turnover in currency swaps.
\19\ To the extent practicable, the DI Funds and the CC Bear
Fund will invest in swaps cleared through the facilities of a
centralized clearing house. The Funds may also invest in money
market securities that may serve as collateral for the futures
contracts, currency options, forward contracts, and currency swap
agreements.
The Adviser or Sub-Adviser will also attempt to mitigate each
Fund's credit risk by transacting only with large, well-capitalized
institutions using measures designed to determine the
creditworthiness of the counterparty. The Adviser or Sub-Adviser
will take various steps to limit counterparty credit risk which will
be described in the Registration Statement. Each Fund will enter
into forward contracts and swap agreements only with financial
institutions that meet certain credit quality standards and
monitoring policies. Each Fund may also use various techniques to
minimize credit risk, including early termination or reset and
payment, using different counterparties, and limiting the net amount
due from any individual counterparty. The Funds generally will
collateralize forward contracts and swap agreements with cash and/or
certain securities. Such collateral will generally be held for the
benefit of the counterparty in a segregated tri-party account at the
custodian to protect the counterparty against non-payment by the
Fund. In the event of a default by the counterparty, and a Fund is
owed money in the forward contract or swap transaction, the
applicable Fund will seek withdrawal of the collateral from the
segregated account and may incur certain costs exercising its right
with respect to the collateral.
---------------------------------------------------------------------------
Positioning for a stronger U.S. Dollar through a mixture of these
securities and financial instruments is intended to provide a return
reflective of the changes in the U.S. Dollar against the specified
currencies, the U.S. cash rate, and the spread of U.S. interest rates
against foreign interest rates.
The Fund may invest directly in foreign currencies in the form of
bank and financial institution deposits, certificates of deposit, and
bankers acceptances denominated in a specified non-U.S. currency, and
may enter into foreign currency exchange transactions. As stated above,
the Fund may also conduct its foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market.
In order to reduce interest rate risk, the Fund will generally
maintain a weighted average portfolio maturity with respect to money
market securities of 180 days or less on average (not to exceed 18
months) and will not purchase any money market securities with a
remaining maturity of more than 397 calendar days. The ``average
portfolio maturity'' of the Fund will be the average of all current
maturities of the individual securities in the Fund's portfolio. The
Fund's actual portfolio duration may be longer or shorter depending on
market conditions.
The Exchange notes that the Fund's fixed income investment
portfolio will meet the listing criteria for index-based, fixed income
ETFs contained in NYSE Arca Equities Rule 5.2(j)(3), Commentary
.02.\20\
---------------------------------------------------------------------------
\20\ See NYSE Arca Equities Rule 5.2(j)(3), Commentary .02
governing fixed income based Investment Company Units. The
requirements of Rule 5.2(j)(3), Commentary .02(a) include the
following: (i) The index or portfolio must consist of Fixed Income
Securities (as defined generally to include the Fund's holdings in
money market and other fixed income securities) (Rule 5.2(j)(3),
Commentary.02(a)(1)); (ii) components that in the aggregate account
for at least 75% of the weight of the index or portfolio must each
have a minimum original principal amount outstanding of $100 million
or more (Rule 5.2(j)(3), Commentary.02(a)(2)); (iii) a component may
be a convertible security, however, once the convertible security
converts to an underlying equity security, the component is removed
from the index or portfolio (Rule 5.2(j)(3), Commentary.02(a)(3));
(iv) no component fixed-income security (excluding Treasury
Securities) will represent more than 30% of the weight of the index
or portfolio, and the five highest weighted component fixed-income
securities do not in the aggregate account for more than 65% of the
weight of the index or portfolio (Rule 5.2(j)(3),
Commentary.02(a)(4)); and (v) an underlying index or portfolio
(excluding exempted securities) must include securities from a
minimum of 13 non-affiliated issuers (Rule 5.2(j)(3),
Commentary.02(a)(5)).
---------------------------------------------------------------------------
DI Bear Fund
According to the Registration Statement, under normal
circumstances,\21\ the DI Bear Fund will invest at least 80% of its net
assets in money market securities, other U.S. government and investment
grade non-U.S. government securities (i.e., that are longer term than
money market securities) and short-term investment grade corporate debt
securities \22\ and positions in currency forward contracts,\23\ listed
currency options and currency futures,\24\ currency swap
agreements,\25\ and spot currencies to provide a short exposure, which
is similar to price movements in the Bloomberg Inverse USD TR Index
with the incorporation of relative interest rates in the United States
and instruments in other representative countries.\26\ The DI Bear Fund
will seek this exposure through investments in money market securities
combined with a similar size notional position in currency forwards and
currency futures in the individual component currencies of the
Bloomberg Inverse USD TR Index. If a sufficiently liquid futures
contract on the Bloomberg Inverse USD TR Index or a related index is
later developed, the Fund may invest in such futures contract as a
substitute for, or in [sic] complement to futures contracts or forward
contracts on, the individual component currencies of the Bloomberg
Inverse USD TR Index. Although the Fund may invest in spot currencies,
currency options, and currency swaps, investments in such instruments
are expected to be limited, in each case to not more than 20% of Fund
net assets. If, subsequent to an investment, the 80% requirement is no
longer met, the DI Bear Fund's future investments will be made in a
manner that will bring the Fund into compliance with this policy. The
Fund's investments in forward contracts, listed options contracts,
listed futures contracts, and swap agreements will be backed by
investments in U.S. issued money market securities, longer-term U.S.
government securities, or
[[Page 62755]]
other liquid assets (e.g., commercial paper) in an amount equal to the
exposure of such contracts.
---------------------------------------------------------------------------
\21\ See note 13, supra.
\22\ See note 15, supra, regarding the definition of
``investment grade.''
\23\ See note 16, supra, regarding currency forward contracts.
\24\ See note 17, supra, regarding listed currency options and
listed futures contracts in which the Fund may invest.
\25\ See note 18, supra, regarding currency swap agreements.
\26\ See note 19, supra.
---------------------------------------------------------------------------
Positioning for a weaker U.S. Dollar through a mixture of these
securities and financial instruments is intended to provide a return
reflective of the change in the basket of currencies relative to the
U.S. Dollar, the rate of U.S.-issued money market securities, and the
spread of foreign interest rates over the U.S. Dollar.
The Fund may invest directly in foreign currencies in the form of
bank and financial institution deposits, certificates of deposit, and
bankers acceptances denominated in a specified non-U.S. currency, and
may enter into foreign currency exchange transactions. As stated above,
the Fund may also conduct its foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market.
In order to reduce interest rate risk, the Fund will generally
maintain a weighted average portfolio maturity with respect to money
market securities of 180 days or less on average (not to exceed 18
months) and will not purchase any money market securities with a
remaining maturity of more than 397 calendar days. The ``average
portfolio maturity'' of the Fund will be the average of all current
maturities of the individual securities in the Fund's portfolio. The
Fund's actual portfolio duration may be longer or shorter depending on
market conditions.
The Exchange notes that the Fund's investment portfolio in fixed
income securities will meet the listing criteria for index-based, fixed
income ETFs contained in NYSE Arca Equities Rule 5.2(j)(3), Commentary
.02.\27\
---------------------------------------------------------------------------
\27\ See note 20, supra.
---------------------------------------------------------------------------
CC Bear Fund
The CC Bear Fund will be an actively-managed fund that seeks to
provide total returns reflective of changes in the value of the U.S.
Dollar relative to the currencies of selected commodity exporters and
the difference between the relative short-term interest rates in the
United States and comparable interest rates available for the
investments in the currencies of those selected commodity exporters.
The CC Bear Fund will seek to potentially benefit from appreciation in
the U.S. Dollar relative to the selected commodity currencies. As used
herein, the term ``commodity currency'' generally means the currency of
a country whose economic success is commonly identified with the
production and export of commodities (such as precious metals, oil,
agricultural products, or other raw materials) and whose value is
closely linked to the value of such commodities. These countries
currently include Australia, Brazil, Canada, Chile, Indonesia, Mexico,
New Zealand, Norway, Russia, and South Africa.
According to the Registration Statement, under normal
circumstances,\28\ the CC Bear Fund will invest at least 80% of its net
assets, plus the amount of any borrowings for investment purposes, in
investments that are tied economically to selected commodity producing
countries available to U.S investors that make a significant
contribution to the global export of commodities. Such investments may
include a combination of positions in money market securities, other
U.S. government and investment grade non-U.S. government securities
(i.e., that are longer term than money market securities) and short-
term investment grade corporate debt securities,\29\ with investments
in currency forwards,\30\ listed currency options and listed currency
futures,\31\ currency swaps,\32\ and spot currencies to provide
exposure to the change in value of the U.S. dollar relative to selected
commodity currencies.\33\ The CC Bear Fund will seek this exposure
through investments in money market securities combined with a similar
size notional position in currency forwards and currency futures in the
individual selected currencies. Although the Fund may invest in spot
currencies, listed currency options, and currency swaps, investments in
such instruments are expected to be limited, in each case to not more
than 20% of Fund net assets. If, subsequent to an investment, the 80%
requirement is no longer met, the CC Bear Fund's future investments
will be made in a manner that will bring the Fund into compliance with
this policy.
---------------------------------------------------------------------------
\28\ See note 13, supra.
\29\ See note 15, supra, regarding definition of ``investment
grade.''
\30\ See note 16, supra, regarding currency forward contracts.
\31\ See note 17, supra, regarding listed currency option and
listed futures contracts in which the Fund may invest.
\32\ See note 18, supra, regarding currency swap agreements.
\33\ See note 19, supra.
---------------------------------------------------------------------------
The Fund's investments in forward contracts, listed options
contracts, listed futures contracts, and currency swap agreements will
be backed by investments in U.S. issued money market securities,
longer-term U.S. government securities, or other liquid assets (e.g.,
commercial paper) in an amount equal to the exposure of such contracts.
In addition to seeking broad exposure to the movements in the U.S.
Dollar relative to the commodity currencies, the Fund intends to seek
exposure across currencies correlated to each of their key commodity
groups: Industrial metals; precious metals; energy; agriculture; and
livestock. The CC Bear Fund generally will invest only in currencies
that ``float'' relative to other currencies.\34\ The Fund will invest
only in currencies that it deems sufficiently liquid and accessible.
---------------------------------------------------------------------------
\34\ The value of a floating currency is largely determined by
supply and demand and prevailing market rates. In contrast, the
value of a ``fixed'' currency is generally set by a government or
central bank at an official exchange rate. The Fund therefore
generally does not intend to invest in the currency of certain major
commodity producers, such as China, Saudi Arabia, and the United
Arab Emirates, since their respective currencies are fixed or
otherwise closely linked to the U.S. dollar.
---------------------------------------------------------------------------
The Fund may invest directly in foreign currencies in the form of
bank and financial institution deposits, certificates of deposit, and
bankers acceptances denominated in a specified non-U.S. currency, and
may enter into foreign currency exchange transactions. As stated above,
the Fund may also conduct its foreign currency exchange transactions on
a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market.
Positioning for a stronger U.S. Dollar through a mixture of these
securities and financial instruments is intended to provide a return
reflective of the changes in the U.S. Dollar against the specified
currencies, the U.S. cash rate, and the spread of foreign interest
rates against U.S. interest rates.
In order to reduce interest rate risk, the Fund will generally
maintain a weighted average portfolio maturity with respect to money
market securities of 90 days or less. The ``average portfolio
maturity'' of the Fund will be the average of all current maturities of
the individual securities in the Fund's portfolio. The Fund's actual
portfolio duration may be longer or shorter depending on market
conditions.
The CC Bear Fund is actively-managed and is not tied to an index.
The Exchange notes, however, that the Fund's investment portfolio in
fixed income securities will meet the listing criteria for index-based,
fixed income ETFs contained in NYSE Arca Equities Rule 5.2(j)(3).\35\
---------------------------------------------------------------------------
\35\ See note 20, supra.
---------------------------------------------------------------------------
Other Investments of the Funds
Each Fund reserves the right to invest in fixed income securities
and cash, without limitation, as determined by the
[[Page 62756]]
Adviser or Sub-Adviser in response to adverse market, economic,
political, or other conditions. Each Fund may also ``hedge'' or
minimize its respective exposures to one or more foreign currencies in
response to such conditions.
While each Fund, under normal circumstances, will invest at least
80% of its net assets in securities and other financial instruments as
described above, each Fund may invest its remaining assets in other
securities and financial instruments, as generally described below.
Each Fund may invest in the securities of other investment
companies and exchange-traded products,'' including other ETFs
registered under the 1940 Act (``ETPs'').\36\
---------------------------------------------------------------------------
\36\ When used herein, ETPs may include, without limitation,
Investment Company Units (as described in NYSE Arca Equities Rule
5.2(j)(3)); Index-Linked Securities (as described in NYSE Arca
Equities Rule 5.2.(j)(6)); Portfolio Depositary Receipts (as
described in NYSE Arca Equities Rule 8.100); Trust-Issued Receipts
(as described in NYSE Arca Equities Rule 8.200); Commodity-Based
Trust Shares (as described in NYSE Arca Equities Rule 8.201);
Currency Trust Shares (as described in NYSE Arca Equities Rule
8.202); Commodity Index Trust Shares (as described in NYSE Arca
Equities Rule 8.203); Trust Units (as described in NYSE Arca
Equities Rule 8.500); and Managed Fund Shares (as described in NYSE
Arca Equities Rule 8.600). The ETPs in which the Funds may invest
all will be listed and traded on U.S. registered exchanges. The
Funds will invest in the securities of ETPs registered under the
1940 Act consistent with the requirements of Section 12(d)(1) of the
1940 Act or any rule, regulation or order of the Commission or
interpretation thereof. The Funds will only make such investments in
conformity with the requirements of Section 817 of the Internal
Revenue Code of 1986. The ETPs in which the Funds may invest will
primarily be indexed-based ETFs that hold substantially all of their
assets in securities representing a specific index. While the Funds
may invest in inverse ETPs, the Funds will not invest in leveraged
(e.g., 2X, -2X, 3X, or -3X) ETPs.
---------------------------------------------------------------------------
Each Fund may hold up to an aggregate of 15% of its net assets in
illiquid securities (calculated at the time of investment), including
Rule 144A securities deemed illiquid by the Adviser or Sub-Adviser in
accordance with Commission guidance.\37\ Each 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 a Fund's net assets are held
in illiquid securities. 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.\38\
---------------------------------------------------------------------------
\37\ A Fund's Sub-Adviser will be responsible for complying with
the Fund's restrictions on investing in illiquid securities. In
doing that, the Sub-Adviser makes ongoing determinations about the
liquidity of Rule 144A securities that the respective Fund may
invest in. In reaching liquidity decisions, the Sub-Adviser may
consider the following factors: the frequency of trades and quotes
for the security; the number of dealers wishing to purchase or sell
the security and the number of other potential purchasers and dealer
undertakings to make a market in the security; and the nature of the
security and the nature of the marketplace trades (e.g., the time
needed to dispose of the security, the method of soliciting offers,
and the mechanics of transfer).
\38\ 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).
---------------------------------------------------------------------------
According to the Registration Statement, with respect to each of
the Funds, the Funds each intend to qualify each year as a regulated
investment company (``RIC'') under Subchapter M of the Internal Revenue
Code of 1986, as amended.\39\
---------------------------------------------------------------------------
\39\ 26 U.S.C. 851.
---------------------------------------------------------------------------
None of the Funds will concentrate 25% or more of the value of its
respective total assets (taken at market value at the time of each
investment) in any one industry, as that term is used in the 1940 Act
(except that this restriction does not apply to obligations issued by
the U.S. government or its agencies and instrumentalities).\40\
---------------------------------------------------------------------------
\40\ 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 (Oct. 30, 1975), 40 FR 54241
(November 21, 1975).
---------------------------------------------------------------------------
None of the Funds will invest in any non-U.S. equity securities.
Each Fund's investments will be consistent with the Fund's respective
investment objective and will not be used to enhance leverage.
The Shares
The Funds will issue and redeem Shares on a continuous basis at net
asset value (``NAV'') \41\ only in large blocks of Shares (``Creation
Units'') in transactions with Authorized Participants (as defined
below). Creation Units generally will consist of 100,000 Shares, though
this may change from time to time. Creation Units are not expected to
consist of less than 50,000 Shares. The Funds will each issue and
redeem Creation Units in exchange for a portfolio of money market
securities and other instruments closely approximating the holdings of
such Fund or a combination of money market securities, other
instruments (``Deposit Securities''), and/or an amount of U.S. cash
representing one or more Deposit Securities (``Deposit Cash''). Once
created, Shares of the Funds will trade on the secondary market in
amounts less than a Creation Unit.
---------------------------------------------------------------------------
\41\ The NAV of each Fund's Shares generally is calculated once
daily Monday through Friday as of the close of regular trading on
the New York Stock Exchange, generally 4:00 p.m. Eastern time or
``E.T.'' (``NAV Calculation Time''). NAV per Share is calculated by
dividing a Fund's net assets by the number of Fund Shares
outstanding. For more information regarding the valuation of Fund
investments in calculating a Fund's NAV, see the Registration
Statement for such Fund.
---------------------------------------------------------------------------
Together, the Deposit Securities and/or Deposit Cash and the Cash
Component will constitute the ``Fund Deposit,'' which represents the
minimum initial and subsequent investment amount for a Creation Unit of
the applicable Fund. The ``Cash Component'' will be an amount equal to
the difference between the NAV of the Shares (per Creation Unit) and
the market value of the Deposit Securities (e.g., if the NAV per
Creation Unit is less than the market value of the Deposit Securities,
the Cash Component will be a corresponding negative amount and the
creator will be entitled to receive cash in an amount equal to the Cash
Component). The Cash Component will serve the function of compensating
for any differences between the NAV per Creation Unit and the market
value of the Deposit Securities and/or Deposit Cash, as applicable.
According to the Registration Statement, to be eligible to place
orders with respect to creations and redemptions of Creation Units, an
entity must be (i) a ``Participating Party,'' i.e., a broker-dealer or
other participant in the clearing process through the Continuous Net
Settlement System of the National Securities Clearing Corporation
(``NSCC''), or (ii) a Depository Trust Company (``DTC'') participant.
In addition, each Participating Party or DTC participant (each, an
``Authorized Participant'') must execute an agreement that has been
agreed to by the Principal Underwriter and the Transfer Agent, and that
has been accepted by the Trust, with respect to purchases and
redemptions of Creation Units.
[[Page 62757]]
The Custodian, through the NSCC, will make available on each
business day, immediately prior to the opening of business on the
Exchange's Core Trading Session (currently 9:30 a.m. E.T.), the list of
names and the required number of each Deposit Security and/or Deposit
Cash, as applicable, to be included in the current Fund Deposit (based
on information at the end of the previous business day) for the
applicable Fund. Such Fund Deposit is subject to any applicable
adjustments, in order to effect purchases of Creation Units of the Fund
until such time as the next-announced composition of the Deposit
Securities and/or Deposit Cash, as applicable, is made available.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
applicable Fund through the Transfer Agent and only on a business day.
With respect to the Fund, the Custodian, through the NSCC, will
make available immediately prior to the opening of business on the
Exchange (9:30 a.m. E.T.) on each business day, the list of the names
and quantities of the applicable Fund's portfolio securities (``Fund
Securities'') that will be applicable (subject to possible amendment or
correction) to redemption requests received in proper form on that day.
Fund Securities on redemption may not be identical to Deposit
Securities.
Redemption proceeds for a Creation Unit will be paid either in-kind
or in cash or a combination thereof, as determined by the Trust. With
respect to in-kind redemptions of the Fund, redemption proceeds will
consist of Fund Securities as announced by the Custodian on the
business day of the request for redemption received in proper form plus
cash in an amount equal to the difference between the NAV of the Shares
being redeemed, as next determined after receipt of a request in proper
form, and the value of the Fund Securities (``Cash Redemption
Amount''), less a fixed redemption transaction fee and any applicable
variable charge as set forth in the Registration Statement. In the
event the Fund Securities have a value greater than the NAV of the
Shares, a compensating cash payment equal to the differential will be
required to be made by or through an Authorized Participant by the
redeeming shareholder. Notwithstanding the foregoing, at the Trust's
discretion, an Authorized Participant may receive the corresponding
cash value of the securities in lieu of the in-kind securities value
representing one of more Fund Securities.
The creation/redemption order cut-off time for the Funds is
expected to be 4:00 p.m. E.T. for purchases/redemptions of Shares. On
days when the Exchange closes earlier than normal, the applicable Fund
may require orders for Creation Units to be placed earlier in the day.
Additional information regarding the Shares and the Funds,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes is included in the Registration Statement.
Net Asset Value
The NAV per Share for each of the Funds will be computed by
dividing the value of the net assets of each Fund (i.e., the value of
its total assets less total liabilities) by the total number of Shares
outstanding, rounded to the nearest cent. Expenses and fees, including
the management fees, are accrued daily and taken into account for
purposes of determining NAV.\42\ The NAV of each Fund will be
calculated by the Custodian and determined at the close of regular
trading session on the Exchange (ordinarily 4:00 p.m. E.T.) on each day
that the Exchange is open, provided that fixed-income assets 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 (or the applicable exchange or market on which the
applicable Fund's investments are traded) announces an early closing
time. Creation/redemption order cut-off times may also be earlier on
such days.
---------------------------------------------------------------------------
\42\ International Data Corporation (``IDC'') is expected to be
the primary price source for each Fund's assets. Each Fund may also
rely, however, on other recognized third-party pricing sources,
including without limitation, Bloomberg, WM Reuters, JP Morgan,
Markit, and JJ Kenney, to provide prices for certain asset
categories including, among others, currency swaps, currency forward
contracts, spot currencies, and corporate securities, in each case
as approved or ratified, from time to time, by the applicable Fund's
board of trustees. Exchange listed instruments will be valued, based
on the end of day exchange prices of those instruments.
---------------------------------------------------------------------------
In calculating a Fund's NAV per Share, the Fund's investment will
generally be valued using market valuations. A market valuation
generally means a valuation (i) obtained from an exchange, a pricing
service, or a major market maker (or dealer), (ii) based on a price
quotation or other equivalent indication of value supplied by an
exchange, a pricing service, or a major market maker or dealer, or
(iii) based on amortized cost, for securities with remaining maturities
of 60 days or less. The Adviser may use various pricing services or
discontinue the use of any pricing service, as approved by the
applicable Fund's board of trustees (``Board'') from time to time. A
price obtained from a pricing service based on such pricing service's
valuation matrix may be considered a market valuation. Any assets or
liabilities denominated in currencies other than the U.S. dollar will
be converted into U.S. dollars at the current market rates on the date
of valuation as quoted by one or more sources.
In the event that current market valuations are not readily
available or such valuations do not reflect current market value, the
Trust's procedures require the Trust's Valuation Committee to determine
a security's or other asset's fair value in accordance with the 1940
Act if a market price is not readily available.\43\ In determining such
value, the Trust's Valuation Committee may consider, among other
things, (i) price comparisons among multiple sources, (ii) a review of
corporate actions and news events, and (iii) a review of relevant
financial indicators (e.g., movement in interest rates and market
indices). In these cases a Fund's NAV may reflect certain portfolio
securities' or other assets' fair values rather than their market
prices. Fair value pricing involves subjective judgments and it is
possible that the fair value determination for a security or other
asset is materially different than the value that could be realized
upon the sale of the security.
---------------------------------------------------------------------------
\43\ The Trust's Board has established a Valuation Committee
that is composed of officers of the Trust, investment management
personnel of the Adviser and senior operations and administrative
personnel of the applicable Sub-Adviser. The Valuation Committee is
responsible for the valuation and revaluation of any portfolio
investments for which market quotations are not readily available.
The Valuation Committee has implemented procedures designed to
prevent the use and dissemination of material, non-public
information regarding valuation and revaluation of any portfolio
investment.
---------------------------------------------------------------------------
Availability of Information
The Funds' Web site (www.wisdomtree.com), which will be publicly
available prior to the public offering of Shares, will include a form
of the prospectus for the Funds that may be downloaded. The Web site
will include additional quantitative information updated on a daily
basis, including, for each Fund: (1) The prior business day's reported
NAV, mid-point of the bid/ask spread at the time of calculation of such
NAV (``Bid/Ask
[[Page 62758]]
Price''),\44\ 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 \45\ on the Exchange,
the Trust will disclose on its Web site the identities and quantities
of the portfolio of securities and other assets (``Disclosed
Portfolio'') held by each Fund that will form the basis for each Fund's
calculation of NAV at the end of the business day.\46\ The Disclosed
Portfolio will include, as applicable, the names, quantity, percentage
weighting, and market value of money market securities and other assets
held by the Fund and the characteristics of such assets. The Web site
and information will be publicly available at no charge.
---------------------------------------------------------------------------
\44\ The Bid/Ask Price of a 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 such Fund's NAV. The records relating
to Bid/Ask Prices will be retained by each Fund and its service
providers.
\45\ The Core Trading Session is 9:30 a.m. to 4:00 p.m. E.T.
\46\ Under accounting procedures to be followed by the Funds,
trades made on the prior business day (``T'') will be booked and
reflected in NAV on the current business day (``T+1'').
Notwithstanding the foregoing, portfolio trades that are executed
prior to the opening of the Exchange on any business day may be
booked and reflected in NAV on such business day. Accordingly, each
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.
---------------------------------------------------------------------------
In addition, for each Fund, an estimated value, defined in Rule
8.600 as the ``Portfolio Indicative Value,'' that reflects an estimated
intraday value of the Fund's portfolio, will be widely
disseminated.\47\ The Portfolio Indicative Value will be based upon the
current value for the components of the Disclosed Portfolio and will be
updated and disseminated by one or more major market data vendors at
least every 15 seconds during the Core Trading Session on the Exchange.
In addition, during hours when the markets for money market securities
in a Fund's portfolio are closed, the Portfolio Indicative Value will
be updated at least every 15 seconds during the Core Trading Session to
reflect currency exchange fluctuations.
---------------------------------------------------------------------------
\47\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from the Consolidated Tape
Association (``CTA'') or other data feeds.
---------------------------------------------------------------------------
The dissemination of the Portfolio Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of each Fund on a daily basis and to provide a
close estimate of that value throughout the trading day.
Intra-day executable price quotations on money market securities
and other Fund fixed income securities, currency forwards, currency
options, currency futures, currency swaps, and foreign exchange are
available from major broker-dealer firms. Price information for listed
currency options, listed currency futures, and ETPs is available from
the exchange on which they trade. Intra-day price information is
available through subscription services, such as Bloomberg and Thomson
Reuters, which can be accessed by Authorized Participants and other
investors. Information regarding market price and volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. The
previous day's closing price and trading volume information will be
published daily in the financial section of newspapers. Quotation and
last-sale information for the Shares will be available via the CTA
high-speed line.
Initial and Continued Listing
The Shares will be subject to Rule 8.600, which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Funds must be in compliance with Rule 10A-3 under the
Act,\48\ as provided by NYSE Arca Equities Rule 5.3. A minimum of
100,000 Shares for each 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 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.
---------------------------------------------------------------------------
\48\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------
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 a Fund. Shares of each Fund will be halted if
the ``circuit breaker'' parameters in NYSE Arca Equities Rule 7.12 are
reached. These may include: (1) The extent to which trading is not
occurring in the securities or the financial instruments comprising the
Disclosed Portfolio of a 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 a Fund may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws.\49\ 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.
---------------------------------------------------------------------------
\49\ FINRA surveils trading on the Exchange pursuant to a
regulatory services agreement. The Exchange is responsible for
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------
The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. 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.
FINRA, on behalf of the Exchange, will communicate as needed
regarding trading in the Shares, ETPs, futures contracts, and options
contracts with other markets and other entities that are members of the
ISG, and FINRA, on behalf of the Exchange, may obtain trading
information regarding trading in the Shares, ETPs, futures contracts,
and
[[Page 62759]]
options contracts from such markets and other entities. In addition,
the Exchange may obtain information regarding trading in the Shares,
ETPs, futures contracts, and options contracts from markets and other
entities that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement.\50\ The ETPs,
currency options, and currency futures held by the Funds all will be
traded on registered exchanges that are ISG members or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
\50\ 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 a 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 of Shares in a Fund, the
Exchange will inform its Equity Trading Permit Holders in an
Information Bulletin (``Bulletin'') of the special characteristics and
risks associated with trading the Shares. Specifically, the Bulletin
will discuss the following: (1) The procedures for purchases and
redemptions of Shares in Creation Unit aggregations (and that Shares
are not individually redeemable); (2) NYSE Arca Equities Rule 9.2(a),
which imposes a duty of due diligence on its Equity Trading Permit
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 Equity Trading Permit 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 a 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 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 Act for this proposed rule change is the
requirement under Section 6(b)(5) \51\ 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.
---------------------------------------------------------------------------
\51\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the propose rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed on the Exchange pursuant to the initial and
continued listing criteria in NYSE Arca Equities Rule 8.600. The
Exchange has in place surveillance procedures that are adequate to
properly monitor trading in the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws. The Adviser is not registered as, or affiliated, with
a broker-dealer. Mellon is not a broker-dealer, but it is affiliated
with multiple broker-dealers and has implemented a ``fire wall'' with
respect to such broker-dealers regarding access to information
concerning the composition and/or changes to a Fund's portfolio. In the
event (a) the Adviser or Sub-Adviser becomes registered as, or the
Adviser becomes newly affiliated with, a broker-dealer, or (b) any new
adviser or sub-adviser is registered as or is affiliated with a broker-
dealer, they will implement a fire wall with respect to such broker-
dealer regarding access to information concerning the composition and/
or changes to the applicable Fund's portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material,
non-public information regarding such portfolio. In addition, Sub-
Adviser personnel who make decisions regarding each Fund's portfolio
are subject to procedures designed to prevent the use and dissemination
of material, non-public information regarding the Fund's portfolio. The
Index Sponsor is not a broker-dealer but is affiliated with one or more
broker-dealers. The Index Sponsor has implemented procedures designed
to prevent the illicit use and dissemination of material, non-public
information regarding the Indexes and has implemented a ``fire wall''
with respect to such broker-dealers regarding the Indexes. FINRA, on
behalf of the Exchange, will communicate as needed regarding trading in
the Shares, ETPs, futures contracts, and options contracts with other
markets and other entities that are members of the ISG and FINRA, and
on behalf of the Exchange, may obtain trading information regarding
trading in the Shares, ETPs, futures contracts, and options contracts
from such markets and other entities. In addition, the Exchange may
obtain information regarding trading in the Shares, ETPs, futures
contracts, and options contracts from markets and other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. The ETPs, currency
options, and currency futures held by the Funds all will be traded on
registered exchanges that are ISG members or with which the Exchange
has in place a comprehensive surveillance sharing agreement. The
holdings of the Funds will be comprised primarily of money market
securities and related investments in derivative instrument such as
forward contracts, listed futures contracts, currency options, and swap
agreements, as well as spot currencies. Each Fund's fixed income
investment portfolio will meet the listing criteria for index-based,
fixed income ETFs contained in NYSE Arca Equities Rule 5.2(j)(3),
Commentary .02.\52\ Each of the Funds will invest only in currencies,
and instruments that provide exposure to such currencies, that have
significant foreign exchange turnover and are included in the BIS
Survey. To the extent practicable, each Fund will invest in swaps
cleared through the facilities of a centralized clearinghouse. The
Funds' investments in currency forward contracts, listed futures
contracts, listed options contracts, and swap agreements will be backed
by investments in U.S. issued money market securities, longer-term U.S.
government securities, or other liquid assets (e.g., commercial paper)
in an amount equal to the exposure of such contracts. The Funds
therefore will not use derivative instruments to enhance leverage. The
listed currency options contracts and listed futures contracts in which
the Funds will invest will be listed on U.S. exchanges regulated by the
Commission or the CFTC, as applicable, or on specified foreign
exchanges that are members of ISG and whose regulators are signatories
to the IOSCO MMOU. The Funds will limit investments in illiquid
securities, including Rule 144A securities deemed illiquid by the Sub-
Adviser, to 15% of net assets in conformance with Commission guidance,
and they will not invest in non-U.S. equity securities.
[[Page 62760]]
Each Fund's investments will be consistent with that Fund's investment
objective and will not be used to enhance leverage. While the Fund may
invest in inverse ETPs, the Fund will not invest in leveraged (e.g.,
2X, -2X, 3X, or -3X) ETPs.
---------------------------------------------------------------------------
\52\ See note 20, supra.
---------------------------------------------------------------------------
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share of each Fund will be calculated daily
every day the NYSE is open, and that the applicable NAV and Disclosed
Portfolio will be made available to all market participants at the same
time. In addition, a large amount of publicly available information
will be publicly available regarding the Funds and the Shares, thereby
promoting market transparency.
The Exchange believes that the proposed rule change will facilitate
the listing and trading of additional types of exchange-traded products
that will enhance competition among market participants, to the benefit
of investors and the marketplace. In addition, the listing and trading
criteria set forth in Rule 8.600 are intended to protect investors and
the public interest. Each Fund's portfolio holdings that will form the
basis for the Fund's calculation of NAV will be disclosed on its Web
site daily after the close of trading on the Exchange and prior to the
opening of trading of Shares in the Core Trading Session on the
Exchange the following day. In addition, the Portfolio Indicative
Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be
disseminated by the CTA or by one or more major market data vendors at
least every 15 seconds during the Core Trading Session. 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. In addition, the Exchange has in place surveillance procedures
that are adequate to properly monitor trading in the Shares. The Web
site for the Funds will include a form of the applicable prospectuses
for the Funds and additional data relating to the 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 Funds will
be halted if the circuit breaker parameters in NYSE Arca Rule 7.12 have
been reached in the applicable Fund or because of market condition 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 Rule 8.600(d)(2)(D), which sets forth circumstances under which
trading in Shares of the Funds may be halted. In addition, as noted
above, investors will have ready access to information regarding the
Funds' holdings, the Portfolio Indicative Values, the Disclosed
Portfolios, and quotation and last-sale information for the Shares of
the Funds.
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 purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of
additional actively-managed exchange-traded products that will enhance
competition among market participants, to the benefit of investors and
the marketplace.
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 up to 90 days after
publication (i) as the Commission may designate 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-2013-101 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-2013-101.
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-2013-101 and should be submitted on or before November 12,
2013.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
---------------------------------------------------------------------------
\53\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-24633 Filed 10-21-13; 8:45 am]
BILLING CODE 8011-01-P