[Federal Register Volume 78, Number 211 (Thursday, October 31, 2013)]
[Notices]
[Pages 65407-65416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-25827]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-70754; File No. SR-NYSEArca-2013-105]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the SPDR MFS
Systematic Core Equity ETF, SPDR MFS Systematic Growth Equity ETF, and
SPDR MFS Systematic Value Equity ETF Under NYSE Arca Equities Rule
8.600
October 25, 2013.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on October 10, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the following
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): SPDR MFS
Systematic Core Equity ETF; SPDR MFS Systematic Growth Equity ETF; and
SPDR MFS Systematic Value Equity ETF. The text of the proposed rule
change is available on the Exchange's Web site at www.nyse.com, at the
principal office of the Exchange, and at the Commission's Public
Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares: SPDR MFS Systematic Core
Equity ETF; SPDR MFS Systematic Growth Equity ETF; and SPDR MFS
Systematic Value Equity ETF (each a ``Fund'' and, collectively, the
``Funds'').\4\ The Shares will be offered by SSgA Active ETF Trust (the
``Trust''), which is organized as a Massachusetts business trust and is
registered with the Commission as an open-end management investment
company.\5\ SSgA Funds Management, Inc. (the ``Adviser'' or ``SSgA
FM'') will serve as the investment adviser to the Funds. Massachusetts
Financial Services Company (the ``Sub-Adviser'' or ``MFS'') will be the
sub-adviser for the Funds.\6\ State Street Global Markets, LLC (the
``Distributor'' or ``Principal Underwriter'') will be the principal
underwriter and distributor of the Funds' Shares. State Street Bank and
Trust Company (the ``Administrator'', ``Custodian'' or ``Transfer
Agent'') will serve as administrator, custodian and transfer agent for
the Funds.\7\
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\4\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index or
combination thereof.
\5\ The Trust is registered under the 1940 Act. On December 21,
2012, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) (``Securities Act''), and under the 1940 Act
relating to the Funds (File Nos. 333-173276 and 811-22542)
(``Registration Statement''). The description of the operation of
the Trust and the Funds herein is based, in part, on the
Registration Statement. In addition, the Commission has issued an
order granting certain exemptive relief to the Trust under the1940
Act. See Investment Company Act Release No. 29524 (December 13,
2010) (File No. 812-13487) (``Exemptive Order'').
\6\ MFS is a subsidiary of Sun Life of Canada (U.S.) Financial
Services Holdings, Inc., which in turn is an indirect majority owned
subsidiary of Sun Life Financial Inc. (a diversified financial
services organization).
\7\ The Commission has previously approved listing and trading
on the Exchange of a number of actively managed funds under Rule
8.600. See, e.g., Securities Exchange Act Release Nos. 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); 60460 (August 7, 2009), 74 FR 41468
(August 17, 2009) (SR-NYSEArca-2009-55) (order approving listing of
Dent Tactical ETF); 62502 (July 15, 2010), 75 FR 42471 (July 21,
2010) (SR-NYSEArca-2010-57) (order approving listing of
AdviserShares WCM/BNY Mellon Focused Growth ADR ETF); 63076 (October
12, 2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79)
(order approving listing of Cambria Global Tactical ETF).
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Commentary .06 to Rule 8.600 provides that, if the investment
adviser to the investment company issuing Managed Fund Shares is
affiliated with a broker-dealer, such investment adviser shall erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio. In addition, Commentary
.06 further requires that personnel who make decisions on the open-end
fund's portfolio composition must be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding the open-end fund's portfolio.\8\ Commentary .06 to Rule
[[Page 65408]]
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 and Sub-Adviser are not registered as broker-dealers but are
affiliated with one or more broker-dealers and have implemented a
``fire wall'' with respect to such broker-dealers regarding access to
information concerning the composition and/or changes to the Funds'
portfolios. In the event (a) the Adviser or Sub-Adviser becomes a
registered 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, they will implement
a fire wall with respect to their relevant personnel or broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to a 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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\8\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and Sub-Adviser and their related
personnel are subject to the provisions of Rule 204A-1 under the
Advisers Act relating to codes of ethics. This Rule requires
investment advisers to adopt a code of ethics that reflects the
fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless such investment adviser
has (i) adopted and implemented written policies and procedures
reasonably designed to prevent violation, by the investment adviser
and its supervised persons, of the Advisers Act and the Commission
rules adopted thereunder; (ii) implemented, at a minimum, an annual
review regarding the adequacy of the policies and procedures
established pursuant to subparagraph (i) above and the effectiveness
of their implementation; and (iii) designated an individual (who is
a supervised person) responsible for administering the policies and
procedures adopted under subparagraph (i) above.
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SPDR MFS Systematic Core Equity ETF
According to the Registration Statement, the SPDR MFS Systematic
Core Equity ETF's investment objective will be to seek capital
appreciation. Under normal circumstances,\9\ the Fund will invest
substantially all of its assets in the SSgA MFS Systematic Core Equity
Portfolio (the ``Core Equity Portfolio''), a separate series of the
SSgA Master Trust with an identical investment objective as the Fund.
As a result, the Fund will invest indirectly through the Core Equity
Portfolio (as described below).\10\
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\9\ The term ``under normal circumstances'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the equity 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. In the
absence of normal circumstances, a Fund may (either directly or
through the corresponding Portfolio (as described below) temporarily
depart from its normal investment policies and strategies provided
that the alternative is consistent with a Fund's investment
objective and is in the best interest of a Fund. For example, a Fund
may hold a higher than normal proportion of its assets in cash in
times of extreme market stress.
\10\ According to the Registration Statement, the Funds are
intended to be managed in a ``master-feeder'' structure, under which
each Fund will invest substantially all of its assets in,
respectively, the Core Equity Portfolio, and, as described further
below, the SSgA MFS Systematic Growth Equity Portfolio or the SSgA
MFS Systematic Value Equity Portfolio (each of which is also
referred to herein as ``Portfolio'' and, collectively, the
``Portfolios''). Each Portfolio is a ``master fund, which is a
separate mutual fund that has an identical investment objective to
its respective Portfolio. As a result, each Fund (i.e., a ``feeder
fund'') has an indirect interest in all of the securities owned by
the corresponding Portfolio.\10\ Because of this indirect interest,
each Fund's investment returns should be the same as those of the
corresponding Portfolio, adjusted for the expenses of a Fund. In
extraordinary instances, each Fund reserves the right to make direct
investments in securities. Each Fund may discontinue investing
through the master-feeder arrangement and pursue its investment
objectives directly if the Fund's Board of Trustees determines that
doing so would be in the best interests of shareholders.
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Under normal circumstances, the Adviser or Sub-Adviser, with
respect to the Core Equity Portfolio, will invest at least 80% of such
Portfolio's net assets (plus the amount of borrowings for investment
purposes) in equity securities. Equity securities in which the
Portfolio may invest include common stocks, preferred stocks,
securities convertible into stocks, and real estate investment trusts
(``REITs''). REITs pool investors' funds for investment primarily in
income producing real estate or real estate loans or interests.
In selecting securities for the Core Equity Portfolio, MFS will
utilize a bottom-up approach to buying and selling investments for the
Portfolio. Investments are selected based on fundamental and
quantitative analysis. MFS uses fundamental analysis of individual
issuers and their potential in light of their financial condition, and
market, economic, political, and regulatory conditions to identify
potential investments. Factors considered may include analysis of an
issuer's earnings, cash flows, competitive position, and management
ability. MFS then uses quantitative models that systematically evaluate
an issuer's valuation, price and earnings momentum, earnings quality,
and other factors to select investments. While the Sub-Adviser may
invest the Core Equity Portfolio's assets in companies of any size, the
Sub-Adviser generally will focus on companies with large market
capitalizations. In selecting investments for the Core Equity
Portfolio, the Sub-Adviser is not constrained to any particular
investment style. The Sub-Adviser may invest the Core Equity
Portfolio's assets in the stocks of companies it believes have above
average earnings growth potential compared to other companies (growth
companies), in the stocks of companies it believes are undervalued
compared to their perceived worth (value companies), or in a
combination of growth and value companies.
The Adviser or Sub-Adviser may invest in exchange-traded products
(``ETPs'').\11\ ETPs include exchange-traded funds registered under the
1940 Act; exchange traded commodity trusts; and exchange traded notes
(``ETNs'').\12\ The Adviser or Sub-Adviser may invest up to 20% of its
total assets in one or more ETPs that are qualified publicly traded
partnerships (``QPTPs'') and whose principal activities are the buying
and selling of commodities or options, futures, or forwards with
respect to commodities. Income from QPTPs is generally qualifying
income for purposes of Subchapter M of the Internal Revenue Code.\13\
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\11\ For each of the Portfolios, ETPs include 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); Managed Fund
Shares (as described in NYSE Arca Equities Rule 8.600), and closed-
end funds. The ETPs all will be listed and traded in the U.S. on
registered exchanges. While the Funds may invest in inverse ETPs,
the Funds will not invest in leveraged or inverse leveraged ETPs
(e.g., 2X or 3X).
\12\ ETNs are debt obligations of investment banks which are
traded on exchanges and the returns of which are linked to the
performance of market indexes. In addition to trading ETNs on
exchanges, investors may redeem ETNs directly with the issuer on a
weekly basis, typically in a minimum amount of 50,000 units, or hold
the ETNs until maturity.
\13\ 26 U.S.C. 851 et seq. Examples of such entities are the
PowerShares DB Energy Fund, PowerShares DB Oil Fund, PowerShares DB
Precious Metals Fund, PowerShares DB Gold Fund, PowerShares DB
Silver Fund, PowerShares DB Base Metals Fund, and PowerShares DB
Agriculture Fund, which are listed and traded on the Exchange
pursuant to NYSE Arca Equities Rule 8.200.
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[[Page 65409]]
SPDR MFS Systematic Growth Equity ETF
According to the Registration Statement, the SPDR MFS Systematic
Growth Equity ETF's investment objective will be to seek capital
appreciation. Under normal circumstances, the Fund will invest
substantially all of its assets in the SSgA MFS Systematic Growth
Equity Portfolio (the ``Growth Equity Portfolio''), a separate series
of the SSgA Master Trust with an identical investment objective as the
Fund. As a result, the Fund will invest indirectly through the Growth
Equity Portfolio.
Under normal circumstances, the Adviser or Sub-Adviser, with
respect to the Growth Equity Portfolio, will invest at least 80% of
such Portfolio's net assets (plus the amount of borrowings for
investment purposes) in equity securities. Equity securities in which
the Growth Equity Portfolio may invest include common stocks, preferred
stocks, securities convertible into stocks, and REITs.
In selecting securities for the Growth Equity Portfolio, MFS will
utilize a bottom-up approach to buying and selling investments for the
Growth Equity Portfolio. Investments are selected based on fundamental
and quantitative analysis. MFS uses fundamental analysis of individual
issuers and their potential in light of their financial condition, and
market, economic, political, and regulatory conditions to identify
potential investments. Factors considered may include analysis of an
issuer's earnings, cash flows, competitive position, and management
ability. MFS then uses quantitative models that systematically evaluate
an issuer's valuation, price and earnings momentum, earnings quality,
and other factors to select investments. While the Sub-Adviser may
invest the Growth Equity Portfolio's assets in companies of any size,
the Sub-Adviser generally will focus on companies with large market
capitalizations. In selecting investments for the Growth Equity
Portfolio, the Sub-Adviser will invest the Growth Equity Portfolio's
assets in the stocks of companies it believes have above average
earnings growth potential compared to other companies (growth
companies).
The Adviser or Sub-Adviser may invest in ETPs.\14\ The Adviser or
Sub-Adviser may invest up to 20% of the Fund's total assets in one or
more ETPs that are QPTPs and whose principal activities are the buying
and selling of commodities or options, futures, or forwards with
respect to commodities. Income from QPTPs is generally qualifying
income for purposes of Subchapter M of the Internal Revenue Code.\15\
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\14\ See note 11, supra.
\15\ See note 13, supra.
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SPDR MFS Systematic Value Equity ETF
According to the Registration Statement, the SPDR MFS Systematic
Value Equity ETF's investment objective will be to seek capital
appreciation. Under normal circumstances, the Fund will invest
substantially all of its assets in the SSgA MFS Systematic Value Equity
Portfolio (the ``Value Equity Portfolio''), a separate series of the
SSgA Master Trust with an identical investment objective as the Fund.
As a result, the Fund will invest indirectly through the Value Equity
Portfolio.
Under normal circumstances, the Adviser or Sub-Adviser, with
respect to the Value Equity Portfolio, will invest at least 80% of such
Portfolio's net assets (plus the amount of borrowings for investment
purposes) in equity securities. Equity securities in which the Value
Equity Portfolio may invest include common stocks, preferred stocks,
securities convertible into stocks, and REITs.
In selecting securities for the Value Equity Portfolio, MFS will
utilize a bottom-up approach to buying and selling investments for the
Value Equity Portfolio. Investments are selected based on fundamental
and quantitative analysis. MFS uses fundamental analysis of individual
issuers and their potential in light of their financial condition, and
market, economic, political, and regulatory conditions to identify
potential investments. Factors considered may include analysis of an
issuer's earnings, cash flows, competitive position, and management
ability. MFS then uses quantitative models that systematically evaluate
an issuer's valuation, price and earnings momentum, earnings quality,
and other factors to select investments. While the Sub-Adviser may
invest the Value Equity Portfolio's assets in companies of any size,
the Sub-Adviser generally will focus on companies with large market
capitalizations. In selecting investments for the Value Equity
Portfolio, the Sub-Adviser will invest the Value Equity Portfolio's
assets in the stocks of companies it believes are undervalued compared
to their perceived worth (value companies).
The Adviser or Sub-Adviser may invest in ETPs.\16\ The Adviser or
Sub-Adviser may invest up to 20% of the Fund's total assets in one or
more ETPs that are QPTPs and whose principal activities are the buying
and selling of commodities or options, futures, or forwards with
respect to commodities. Income from QPTPs is generally qualifying
income for purposes of Subchapter M of the Internal Revenue Code.\17\
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\16\ See note 11, supra.
\17\ See note 13, supra.
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Other Investments
While, under normal circumstances, the Adviser or Sub-Adviser, with
respect to each Portfolio, will invest at least 80% of such Portfolio's
net assets in equity securities, as described above, the Adviser or
Sub-Adviser may invest up to 20% of a Portfolio's net assets in other
securities and financial instruments, as described below.
A Fund may (indirectly through its investments in the respective
Portfolio or, in extraordinary circumstances, directly) invest in the
following types of investments. The investment practices of each
Portfolio will be the same in all material respects to those of its
respective Fund.
Each Portfolio may invest in bonds, including corporate bonds. The
investment return of corporate bonds reflects interest on the bond and
changes in the market value of the bond.
Each Portfolio may invest in collateralized loan obligations
(``CLOs''). A CLO is a financing company (generally called a Special
Purpose Vehicle), created to reapportion the risk and return
characteristics of a pool of assets. While the assets underlying CLOs
are typically ``senior loans'', the assets may also include (i)
unsecured loans, (ii) other debt securities that are rated below
investment grade, (iii) debt tranches of other CLOs and (iv) equity
securities incidental to investments in senior loans.
Each Portfolio may invest up to 10% of a Portfolio's net assets in
high yield debt securities.
The Portfolios may purchase U.S.-listed common stocks and U.S.-
listed preferred securities of foreign corporations, as well as U.S.
registered, dollar-denominated bonds of foreign corporations,
governments, agencies and supra-national entities.
Each Portfolio may purchase investments in common stock of foreign
corporations in the form of depositary receipts, including American
Depositary Receipts (``ADRs''), Global Depositary Receipts (``GDRs'')
and European
[[Page 65410]]
Depositary Receipts (``EDRs'') (collectively ``Depositary
Receipts'').\18\
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\18\ According to the Registration Statement, Depositary
Receipts are receipts, typically issued by a bank or trust company,
which evidence ownership of underlying securities issued by a
foreign corporation. For ADRs, the depository is typically a U.S.
financial institution and the underlying securities are issued by a
foreign issuer. For other Depositary Receipts, the depository may be
a foreign or a U.S. entity, and the underlying securities may have a
foreign or a U.S. issuer. Depositary Receipts will not necessarily
be denominated in the same currency as their underlying securities.
Generally, ADRs, in registered form, are designed for use in the
U.S. securities market, and EDRs, in bearer form, are designated for
use in European securities markets. GDRs are tradable both in the
United States and in Europe and are designed for use throughout the
world. A Portfolio may invest in unsponsored ADRs. The issuers of
unsponsored ADRs are not obligated to disclose material information
in the United States, and, therefore, there may be less information
available regarding such issuers and there may not be a correlation
between such information and the market value of the Depositary
Receipts. Not more than 10% of the net assets of a Fund will be
invested in unsponsored ADRs.
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Each Portfolio may invest in sovereign debt. Sovereign debt
obligations are issued or guaranteed by foreign governments or their
agencies. Sovereign debt may be in the form of conventional securities
or other types of debt instruments such as loans or loan
participations.
Each Portfolio may invest in U.S. Government obligations. U.S.
Government obligations include securities issued or guaranteed as to
principal and interest by the U.S. Government, its agencies or
instrumentalities.
The Portfolios may invest in variable and floating rate securities.
Variable rate securities are instruments issued or guaranteed by
entities such as (1) U.S. Government, or an agency or instrumentality
thereof, (2) corporations, (3) financial institutions, (4) insurance
companies, or (5) trusts that have a rate of interest subject to
adjustment at regular intervals but less frequently than annually. A
variable rate security provides for the automatic establishment of a
new interest rate on set dates. The Portfolios may also purchase
floating rate securities. A floating rate security provides for the
automatic adjustment of its interest rate whenever a specified interest
rate changes. Interest rates on these securities are ordinarily tied
to, and are a percentage of, a widely recognized interest rate, such as
the yield on 90-day U.S. Treasury bills or the prime rate of a
specified bank.
Each Portfolio may invest in Variable Rate Demand Obligations
(VRDO). VRDOs are short-term tax exempt fixed income instruments whose
yield is reset on a periodic basis.\19\
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\19\ According to the Registration Statement, VRDO securities
tend to be issued with long maturities of up to 30 or 40 years;
however, they are considered short-term instruments because they
include a put feature which coincides with the periodic yield reset.
For example, a VRDO whose yield resets weekly will have a put
feature that is exercisable upon seven days' notice. VRDOs are put
back to a bank or other entity that serves as a liquidity provider,
who then tries to resell the VRDOs or, if unable to resell, holds
them in its own inventory. VRDOs are generally supported by either a
``Letter of Credit'' or a ``Stand-by Bond Purchase Agreement'' to
provide credit enhancement.
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The Portfolios may invest in inflation-protected public
obligations, commonly known as ``TIPS,'' of the U.S. Treasury, as well
as TIPS of major governments and emerging market countries, excluding
the United States. TIPS are a type of security issued by a government
that are designed to provide inflation protection to investors. TIPS
are income-generating instruments whose interest and principal payments
are adjusted for inflation.
The Portfolios may each invest in U.S. agency mortgage pass-through
securities. As described in the Registration Statement, the term ``U.S.
agency mortgage pass-through security'' refers to a category of pass-
through securities backed by pools of mortgages and issued by one of
several U.S. Government-sponsored enterprises: Government National
Mortgage Association (``Ginnie Mae''), Federal National Mortgage
Association (``Fannie Mae'') or Federal Home Loan Mortgage Corporation
(``Freddie Mac'').
The Portfolios will seek to obtain exposure to U.S. agency mortgage
pass-through securities primarily through the use of ``to-be-
announced'' or ``TBA transactions.'' ``TBA'' refers to a commonly used
mechanism for the forward settlement of U.S. agency mortgage pass-
through securities, and not to a separate type of mortgage-backed
security. Most transactions in mortgage pass-through securities occur
through the use of TBA transactions. TBA transactions generally are
conducted in accordance with widely-accepted guidelines which establish
commonly observed terms and conditions for execution, settlement and
delivery. In a TBA transaction, the buyer and seller decide on general
trade parameters, such as agency, settlement date, par amount, and
price.\20\
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\20\ According to the Registration Statement, to minimize the
risk of default by a counterparty, a Portfolio will enter into TBA
transactions only with established counterparties (such as major
broker-dealers) and the Adviser will monitor the creditworthiness of
such counterparties.
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The Portfolios may invest up to 15% of net assets in asset-backed
and commercial mortgaged-backed securities. Asset-backed securities are
securities backed by installment contracts, credit-card receivables or
other assets. Commercial mortgage-backed securities are securities
backed by commercial real estate properties. Both asset-backed and
commercial mortgage-backed securities represent interests in ``pools''
of assets in which payments of both interest and principal on the
securities are made on a regular basis. The payments are, in effect,
``passed through'' to the holder of the securities (net of any fees
paid to the issuer or guarantor of the securities).
Each Portfolio may invest in restricted securities. Restricted
securities are securities that are not registered under the Securities
Act, but which can be offered and sold to ``qualified institutional
buyers'' under Rule 144A under the Securities Act.\21\ According to the
Registration Statement, when Rule 144A restricted securities present an
attractive investment opportunity and meet other selection criteria, a
Portfolio may make such investments whether or not such securities are
``illiquid'' depending on the market that exists for the particular
security. The Board has delegated the responsibility for determining
the liquidity of Rule 144A restricted securities that a Portfolio may
invest in to the Adviser.\22\
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\21\ 15 U.S.C. 77a.
\22\ See note 28, infra.
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The Portfolios may conduct foreign currency transactions on a spot
(i.e., cash) or forward basis (i.e., by entering into forward contracts
to purchase or sell foreign currencies). At the discretion of the
Adviser, the Portfolios may enter into forward currency exchange
contracts for hedging purposes to help reduce the risks and volatility
caused by changes in foreign currency exchange rates, or to gain
exposure to certain currencies.
Each Portfolio may invest a portion of its assets in Build America
Bonds.\23\
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\23\ According to the Registration Statement, Build America
Bonds offer an alternative form of financing to state and local
governments whose primary means for accessing the capital markets
has historically been through the issuance of tax-free municipal
bonds. Issuance of Build America Bonds ceased on December 31, 2010.
The Build America Bonds outstanding continue to be eligible for the
federal interest rate subsidy, which continues for the life of the
Build America Bonds; however, no bonds issued following expiration
of the Build America Bond program are eligible for the federal tax
subsidy.
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Each Portfolio may invest in repurchase agreements with commercial
banks, brokers or dealers to generate income from its excess cash
balances and to invest securities lending cash collateral. A repurchase
agreement is an
[[Page 65411]]
agreement under which a fund acquires a financial instrument (e.g., a
security issued by the U.S. Government or an agency thereof, a banker's
acceptance or a certificate of deposit) from a seller, subject to
resale to the seller at an agreed upon price and date (normally, the
next Business Day--as defined below). A repurchase agreement may be
considered a loan collateralized by securities. The resale price
reflects an agreed upon interest rate effective for the period the
instrument is held by a fund and is unrelated to the interest rate on
the underlying instrument.
Each Portfolio may enter into reverse repurchase agreements, which
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.
Each Portfolio may invest in commercial paper. Commercial paper
consists of short-term, promissory notes issued by banks, corporations
and other entities to finance short-term credit needs. These securities
generally are discounted but sometimes may be interest bearing.
In addition to repurchase agreements, each Portfolio may invest in
short-term instruments, including money market instruments, (including
money market funds advised by the Adviser), cash and cash equivalents,
on an ongoing basis to provide liquidity or for other reasons.\24\
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\24\ According to the Registration Statement, money market
instruments are generally short-term investments that may include
but are not limited to: (i) Shares of money market funds (including
those advised by the Adviser); (ii) obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities (including
government-sponsored enterprises); (iii) negotiable certificates of
deposit (``CDs''), bankers' acceptances, fixed time deposits and
other obligations of U.S. and foreign banks (including foreign
branches) and similar institutions; (iv) commercial paper rated at
the date of purchase ``Prime-1'' by Moody's Investor's Service or
``A-1'' by Standard & Poor's, or if unrated, of comparable quality
as determined by the Adviser; (v) non-convertible corporate debt
securities (e.g., bonds and debentures) with remaining maturities at
the date of purchase of not more than 397 days and that satisfy the
rating requirements set forth in Rule 2a-7 under the 1940 Act; and
(vi) short-term U.S. dollar-denominated obligations of foreign banks
(including U.S. branches) that, in the opinion of the Adviser, are
of comparable quality to obligations of U.S. banks which may be
purchased by a Portfolio. Commercial paper consists of short-term,
promissory notes issued by banks, corporations and other entities to
finance short-term credit needs. Any of these instruments may be
purchased on a current or a forward-settled basis.
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Each Portfolio may invest in the securities of other investment
companies, including affiliated funds, money market funds and closed-
end funds, subject to applicable limitations under Section 12(d)(1) of
the 1940 Act. Each Fund will invest substantially all of its assets in
the corresponding Portfolio.
Other Fund Restrictions
According to the Registration Statement, each Portfolio will be
classified as ``diversified.'' \25\ The Portfolios do not intend to
concentrate their investments in any particular industry.\26\ The
Portfolios intend to qualify for and to elect treatment as a separate
regulated investment company (``RIC'') under Subchapter M of the
Internal Revenue Code.\27\
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\25\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80a-5(b)(1)).
\26\ See Form N-1A, Item 9. The Commission has taken the
position that a fund is concentrated if it invests more than 25% of
the value of its total assets in any one industry. See, e.g.,
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR
54241 (November 21, 1975).
\27\ 26 U.S.C. 851 et seq.
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Each Portfolio 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 deemed illiquid by the Adviser or Sub-
Adviser, consistent with Commission guidance.\28\ The Portfolios will
monitor their respective 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.\29\
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\28\ In reaching liquidity decisions, the Adviser or 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;
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).
\29\ 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 1933 Act).
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Neither the Funds nor the Portfolios will invest in options
contracts, futures contracts, or swap agreements.
With the exception of unsponsored ADRs, which will comprise no more
than 10% of a Fund's net assets, all equity securities in which the
Funds may invest will trade on markets that are members of the
Intermarket Surveillance Group (``ISG'') or that have entered into a
comprehensive surveillance agreement with the Exchange.\30\
---------------------------------------------------------------------------
\30\ See note 39, infra.
---------------------------------------------------------------------------
Each Fund's investments will be consistent with its respective
investment objective and will not be used to enhance leverage.
Net Asset Value
According to the Registration Statement, each Fund will calculate
net asset value (``NAV'') using the NAV of the respective Portfolio.
NAV per Share for each Portfolio will be computed by dividing the value
of the net assets of the Portfolio (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, will be accrued daily and taken into account for
purposes of determining NAV. The NAV of a Portfolio will be calculated
by the Custodian and determined at the close of the regular trading
session on the New York Stock Exchange (``NYSE'') (ordinarily 4:00 p.m.
Eastern time (``E.T.'')) on each day that such exchange is open,
provided that fixed-income assets (and, accordingly, a Portfolio's NAV)
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 (``SIFMA'') (or applicable exchange or
market on which a Portfolio's investments are traded) announces an
early closing time. Creation/redemption order cut-off times may also be
earlier on such days.
According to the Adviser, each Portfolio's investments will be
valued at market value or, in the absence of market value with respect
to any investment, at fair value in accordance with valuation
procedures adopted by the Board of Trustees of the Trust (``Board'')
and in accordance with the 1940 Act. Common stocks and equity
[[Page 65412]]
securities (including shares of ETFs) traded on a national securities
exchange will be valued at the last reported sale price or the official
closing price on that exchange where the stock is primarily traded on
the day that the valuation is made. Portfolio securities traded in the
over-the-counter market will be valued at the last reported sale price
on the valuation date. Foreign equities and listed ADRs will be valued
at the last sale or official closing price on the relevant exchange on
the valuation date. If, however, neither the last sales price nor the
official closing price is available, each of these securities will be
valued at either the last reported sale price or official closing price
as of the close of regular trading of the principal market on which the
security is listed consistent with the respective primary benchmark.
According to the Adviser, fixed income securities, including
municipal bonds, mortgage-backed securities, treasuries, corporate
bonds, and foreign bonds will generally be valued at bid prices
received from independent pricing services as of the announced closing
time for trading in fixed-income instruments in the respective market
or exchange. In determining the value of a fixed income investment,
pricing services determine valuations for normal institutional-size
trading units of such securities using valuation models or matrix
pricing, which incorporates yield and/or price with respect to bonds
that are considered comparable in characteristics such as rating,
interest rate and maturity date and quotations from securities dealers
to determine current value. Short-term investments that mature in less
than 60 days when purchased will be valued at cost adjusted for
amortization of premiums and accretion of discounts.
Any assets or liabilities denominated in currencies other than the
U.S. dollar are converted into U.S. dollars at the current market rates
on the date of valuation as quoted by one or more sources.
If a security's market price is not readily available or does not
otherwise accurately reflect the fair value of the security, the
security will be valued by another method that the Board believes will
better reflect fair value in accordance with the Trust's valuation
policies and procedures. The Board has delegated the process of valuing
securities for which market quotations are not readily available or do
not otherwise accurately reflect the fair value of the security to the
Pricing and Investment Committee (the ``Committee'').\31\ The
Committee, subject to oversight by the Board, may use fair value
pricing in a variety of circumstances, including but not limited to,
situations when trading in a security has been suspended or halted.
Accordingly, a Portfolio's net asset value may reflect certain
securities' 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 is materially different than the
value that could be received on the sale of the security.
---------------------------------------------------------------------------
\31\ The Pricing and Investment Committee has implemented
procedures designed to prevent the use and dissemination of
material, non-public information regarding the Portfolios and the
Funds.
---------------------------------------------------------------------------
The pre-established pricing methods and valuation policies and
procedures outlined above may change, subject to the review and
approval of the Committee and Board, as necessary.
Creation and Redemption of Shares
According to the Registration Statement, each Fund will offer and
issue Shares only in aggregations of a specified number of Shares
(each, a ``Creation Unit''). Creation Unit sizes will be 50,000 Shares
per Creation Unit. The Creation Unit size for a Fund may change. Each
Fund will issue and redeem Shares only in Creation Units at the NAV
next determined after receipt of an order on a continuous basis on a
``Business Day''. A Business Day with respect to a Fund will be,
generally, any day on which the NYSE is open for business. The NAV of a
Fund will be determined once each Business Day, normally as of the
close of trading on the NYSE (normally, 4:00 p.m. E.T.). An order to
purchase or redeem Creation Units will be deemed to be received on the
Business Day on which the order is placed provided that the order is
placed in proper form prior to the applicable cut-off time (typically
required by 2:00 p.m. E.T.).
The consideration for purchase of a Creation Unit of a Fund will
generally consist of the in-kind deposit of a designated portfolio of
securities (the ``Deposit Securities'') per each Creation Unit and a
specified cash payment (the ``Cash Component''). However, consideration
may consist of the cash value of the Deposit Securities (``Deposit
Cash'') and the Cash Component.
Together, the Deposit Securities or Deposit Cash, as applicable,
and the Cash Component will constitute the ``Fund Deposit,'' which
represents the minimum initial and subsequent investment amount for a
Creation Unit of any Fund. The ``Cash Component'' is an amount equal to
the difference between the NAV of the Shares (per Creation Unit) and
the market value of the Deposit Securities or Deposit Cash, as
applicable. 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 or Deposit Cash, as applicable.
The Custodian, through the National Securities Clearing Corporation
(``NSCC''), will make available on each Business Day, immediately prior
to the opening of business on the Exchange (currently 9:30 a.m. E.T.),
the list of the names and the required number of shares of each Deposit
Security or the required amount of Deposit Cash, as applicable, to be
included in the current Fund Deposit (based on information at the end
of the previous Business Day) for a Fund.
The Trust reserves the right to permit or require the substitution
of an amount of cash (i.e., a ``cash in lieu'' amount) to be added to
the Cash Component to replace any Deposit Security, as described in the
Registration Statement.
Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by a
Fund through the Transfer Agent and only on a Business Day.
With respect to each Fund, the Custodian, through the NSCC, will
make available immediately prior to the opening of business on the
Exchange (currently 9:30 a.m. E.T.) on each Business Day, the list of
the names and share quantities of each Fund's portfolio securities that
will be applicable (subject to possible amendment or correction) to
redemption requests received in proper form on that day (``Fund
Securities'').
Redemption proceeds for a Creation Unit typically will be paid in-
kind; however, such proceeds may be paid in cash or a combination of
in-kind and cash, as determined by the Trust. With respect to in-kind
redemptions of a Fund, redemption proceeds for a Creation Unit 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 a receipt of a request in
proper form, and the value of the Fund Securities (the ``Cash
Redemption Amount''), less a fixed redemption transaction fee and any
applicable additional variable charge. All persons redeeming Shares
during a Business Day will be treated in the same manner with
[[Page 65413]]
respect to payment of proceeds in-kind, in cash, or in a combination
thereof.
The Trust may, in its discretion, exercise its option to redeem
Shares in cash, and the redeeming Shareholders will be required to
receive its redemption proceeds in cash, as described in the
Registration Statement. The investor will receive a cash payment equal
to the NAV of its Shares based on the NAV of Shares of the relevant
Fund next determined after the redemption request is received in proper
form.
Availability of Information
The Funds' Web site (www.spdrs.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 Funds' Web
site will include additional quantitative information updated on a
daily basis, including, for the Funds, (1) daily trading volume, the
prior business day's reported closing price, NAV and mid-point of the
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask
Price''),\32\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the
frequency distribution of discounts and premiums of the daily Bid/Ask
Price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. On each business day, before commencement
of trading in Shares in the Core Trading Session on the Exchange, the
Funds will disclose on their Web site the Disclosed Portfolio as
defined in NYSE Arca Equities Rule 8.600(c)(2) that will form the basis
for the Funds' calculation of NAV at the end of the business day.\33\
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\32\ The Bid/Ask Price of the Funds will be determined using the
mid-point of the highest bid and the lowest offer on the Exchange as
of the time of calculation of the Funds' NAV. The records relating
to Bid/Ask Prices will be retained by the Funds and their service
providers.
\33\ Under accounting procedures 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''). Accordingly, the Funds
will be able to disclose at the beginning of the business day the
portfolio that will form the basis for the NAV calculation at the
end of the business day.
---------------------------------------------------------------------------
On a daily basis, the Adviser will disclose for each portfolio
security and other financial instrument of the Funds and of the
Portfolios the following information on the Funds' Web site: Ticker
symbol (if applicable), name of security and financial instrument,
number of shares (if applicable) and dollar value of financial
instruments held in the portfolio, and percentage weighting of the
security and financial instrument in the portfolio. The Web site
information will be publicly available at no charge.
In addition, a basket composition file, which includes the security
names and share quantities required to be delivered in exchange for a
Fund's Shares, together with estimated and cash component, will be
publicly disseminated daily prior to the opening of the NYSE via NSCC.
The basket represents one Creation Unit of each Fund.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Funds' Shareholder Reports, and the Trust's
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and
Shareholder Reports are available free upon request from the Trust, and
those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov.
Information regarding market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line and, for the ETPs, will be available from the
national securities exchange on which they are listed.
Every fifteen seconds during NYSE Arca Core Trading Session, an
indicative optimized portfolio value (``IOPV'') relating to each Fund
will be disseminated by one or more major market data vendors.\34\ The
IOPV is the Portfolio Indicative Value as defined in NYSE Arca Equities
Rule 8.600(c)(3).\35\ The IOPV is based on a pro-rata slice of a
Portfolio's holdings, all of which will be included in each respective
IOPV. The dissemination of the Portfolio Indicative Value, together
with the Disclosed Portfolio, will allow investors to determine the
value of the underlying portfolio of the Funds and of the Portfolios on
a daily basis and to provide a close estimate of that value throughout
the trading day. The intra-day, closing and settlement prices of the
Portfolio securities are also readily available from the exchanges
trading such securities, automated quotation systems, published or
other public sources, or on-line information services such as Bloomberg
or Reuters.
---------------------------------------------------------------------------
\34\ The IOPV calculations are estimates of the value of the
Funds' NAV per Share using market data converted into U.S. dollars
at the current currency rates. The IOPV price is based on quotes and
closing prices from the securities' local market and may not reflect
events that occur subsequent to the local market's close. Premiums
and discounts between the IOPV and the market price may occur. This
should not be viewed as a ``real-time'' update of the NAV per Share
of the Funds, which is calculated only once a day.
\35\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IOPVs
taken from CTA or other data feeds.
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Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement. All terms relating
to the Funds that are referred to, but not defined in, this proposed
rule change are defined in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Funds.\36\ Trading in Shares of the Funds
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Funds;
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.
---------------------------------------------------------------------------
\36\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------
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
[[Page 65414]]
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.
The Shares of each Fund will conform to the initial and continued
listing criteria under NYSE Arca Equities Rule 8.600. The Exchange
represents that, for initial and/or continued listing, the Funds will
be in compliance with Rule 10A-3 \37\ under the Act, 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.
---------------------------------------------------------------------------
\37\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
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.\38\ 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.
---------------------------------------------------------------------------
\38\ 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 and exchange-traded securities
underlying the Shares 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 and exchange-traded
securities underlying the Shares from such markets and other entities.
In addition, the Exchange may obtain information regarding trading in
the Shares and exchange-traded securities underlying the Shares from
markets and other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing
agreement.\39\
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\39\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Funds may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------
With the exception of unsponsored ADRs, which will comprise no more
than 10% of a Fund's net assets, all equity securities that the Fund
may invest in will trade on markets that are members of ISG or that
have entered into a comprehensive surveillance agreement with the
Exchange.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Units (and that Shares are not individually redeemable);
(2) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due
diligence on its ETP Holders to learn the essential facts relating to
every customer prior to trading the Shares; (3) the risks involved in
trading the Shares during the Opening and Late Trading Sessions when an
updated Portfolio Indicative Value will not be calculated or publicly
disseminated; (4) how information regarding the Portfolio Indicative
Value is disseminated; (5) the requirement that ETP Holders deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
In addition, the Bulletin will reference that the Funds are 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) \40\ 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.
---------------------------------------------------------------------------
\40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Adviser and Sub-Adviser have
implemented a ``fire wall'' with respect to its respective affiliated
broker-dealer regarding access to information concerning the
composition and/or changes to the Funds' portfolios. In addition, the
Trust's Pricing and Investment Committee has implemented procedures
designed to prevent the use and dissemination of material, non-public
information regarding the Portfolios and the Funds. FINRA, on behalf of
the Exchange, will communicate as needed regarding trading in the
Shares and exchange-traded securities underlying the Shares 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 and exchange-traded securities underlying the
Shares from such markets and other entities. In addition, the Exchange
may obtain information regarding trading in the Shares and exchange-
traded securities underlying the Shares from markets and other entities
that are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement. With the exception of
unsponsored ADRs, which will comprise no more than 10% of the Fund's
net assets, all equity securities that the Fund may invest in will
trade on markets that are members of ISG or that have entered into a
comprehensive surveillance agreement with the Exchange. The Portfolios
may invest up to 15% of net assets in asset-backed and commercial
mortgaged-backed securities, as described above. The Portfolios will
invest only in equity securities that trade in markets that are members
of the ISG or are parties to a
[[Page 65415]]
comprehensive surveillance sharing agreement with the Exchange. While
the Funds may invest in inverse ETPs, the Funds will not invest in
leveraged or inverse leveraged ETPs (e.g., 2X or 3X). Neither the Funds
nor the Portfolios will invest in options contracts, futures contracts,
or swap agreements.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is publicly available regarding the Funds and the Shares,
thereby promoting market transparency. The Funds' portfolio holdings
will be disclosed on their Web site daily after the close of trading on
the Exchange and prior to the opening of trading on the Exchange the
following day. Moreover, the IOPV will be widely disseminated by one or
more major market data vendors at least every 15 seconds during the
Exchange's Core Trading Session. On each business day, before
commencement of trading in Shares in the Core Trading Session on the
Exchange, the Funds will disclose on their Web site the Disclosed
Portfolio that will form the basis for the Funds' calculation of NAV at
the end of the business day. Information regarding market price and
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other
electronic services, and quotation and last sale information will be
available via the CTA high-speed line. The Web site for the Funds will
include a form of the prospectus for the Funds and additional data
relating to NAV and other applicable quantitative information.
Moreover, prior to the commencement of trading, the Exchange will
inform its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares. Trading
in Shares of the Funds will be halted if the circuit breaker parameters
in NYSE Arca Equities Rule 7.12 have been reached or because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable, and trading in the Shares will be
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth
circumstances under which Shares of the Funds may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Funds' holdings, the IOPV, the Disclosed
Portfolio, and quotation and last sale information for the Shares.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Funds' holdings,
the IOPV, the Disclosed Portfolio, and quotation and last sale
information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that,
under normal circumstances, will invest principally in equity
securities and that will enhance competition with respect to such
products 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 (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 No. SR-NYSEARCA-2013-105 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 No. SR-NYSEARCA-2013-105. 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 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 such 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 No. SR-NYSEArca-2013-105 and should be
submitted on or before November 21, 2013.
[[Page 65416]]
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. 2013-25827 Filed 10-30-13; 8:45 am]
BILLING CODE 8011-01-P