[Federal Register Volume 79, Number 216 (Friday, November 7, 2014)]
[Notices]
[Pages 66442-66445]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-26461]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-73512; File No. SR-NYSEArca-2014-107]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To
Reflect Changes to the Means of Achieving the Investment Objective
Applicable to the Guggenheim Enhanced Short Duration ETF
November 3, 2014.
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 21, 2014, 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. On October 29, 2014, the Exchange filed Amendment No. 1
to the proposal.\4\ The Commission is publishing this notice to solicit
comments on the proposed rule change, as modified by Amendment No. 1
thereto, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78s(b)(1).
\3\ 17 CFR 240.19b-4.
\4\ Amendment No. 1 clarified the last sentence in footnote 6 of
the proposed rule change filing and footnote 7 of the Exchange's
Exhibit 1 by replacing the sentence with the following: ``The asset-
back securities in which the Fund may invest include collateralized
debt obligations, as described in the Prior Release.''
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange proposes to submit a rule change to reflect changes to
the means of achieving the investment objective applicable to the
Guggenheim Enhanced Short Duration ETF (the ``Fund''). The shares of
the Fund are currently listed and traded on the Exchange under NYSE
Arca Equities Rule 8.600. The text of the proposed rule change is
available on the Exchange's Web site at www.nyse.com, at the principal
office of the Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Commission has approved listing and trading on the Exchange of
shares (``Shares'') of the Guggenheim Enhanced Short Duration ETF, a
series of Claymore Exchange-Traded Fund Trust (the ``Trust''),\5\ under
NYSE Arca
[[Page 66443]]
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares. The Shares of the Fund are currently listed and traded on
the Exchange under NYSE Arca Equities Rule 8.600.
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\5\ See Securities Exchange Act Release No. 64550 (May 26,
2011), 76 FR 32005 (June 2, 2011) (SR-NYSEArca-2011-11) (order
approving listing and trading on the Exchange of the Guggenheim
Enhanced Core Bond ETF and Guggenheim Enhanced Ultra-Short Bond ETF)
(``Prior Order''). See also Securities Exchange Act Release No.
64224 (April 7, 2011), 76 FR 20401 (April 12, 2011) (SR-NYSEArca-
2011-11) (``Prior Notice,'' and together with the Prior Order, the
``Prior Release''). The name of the Guggenheim Enhanced Ultra-Short
Bond ETF was changed to the Guggenheim Enhanced Short Duration Bond
ETF in a supplement to the Registration Statement (as defined below)
effective December 5, 2011, and was further changed to Guggenheim
Enhanced Short Duration ETF in a supplement to the Registration
Statement (as defined below) effective September 27, 2013
(``September 27, 2013 Amendment''). The Fund and the Shares are
currently in compliance with the listing standards and other rules
of the Exchange and the requirements set forth in the Prior Release.
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The Shares are offered by the Trust, a statutory trust organized
under the laws of the State of Delaware and registered with the
Commission as an open-end management investment company.\6\ The
investment advisor to the Fund is Guggenheim Funds Investment Advisors,
LLC (the ``Adviser'').\7\
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\6\ The Trust is registered under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (``1940 Act''). On September 27, 2013, 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
Fund (File Nos. 333-134551 and 811-21906) (``Registration
Statement''). The description of the operation of the Trust and the
Fund herein is based, in part, on the Registration Statement. In
addition, the Commission has issued an order granting certain
exemptive relief to the Trust under the 1940 Act. See Investment
Company Act Release No. 29271, May 18, 2010 (File No. 812-13534)
(``Exemptive Order'').
\7\ The Fund's investment advisor was previously named Claymore
Advisors, LLC. On September 10, 2010, Claymore Advisors, LLC changed
its name to Guggenheim Funds Investment Advisors, LLC.
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In this proposed rule change, the Exchange proposes to reflect
changes to the description of the measures the Adviser will utilize to
implement the Fund's investment objective, as described below.
First, the Prior Release stated that the Fund may invest up to 10%
of its assets in mortgage-backed securities (``MBS'') or in other
asset-backed securities (``ABS'')\8\; this limitation does not apply to
securities issued or guaranteed by federal agencies and/or U.S.
government sponsored instrumentalities, such as the Government National
Mortgage Administration (``GNMA''), the Federal Housing Administration
(``FHA''), the Federal National Mortgage Association (``FNMA''), and
the Federal Home Loan Mortgage Corporation (``FHLMC''). Going forward,
the Fund proposes to have this limit apply to such privately issued
MBS; however, the Fund may invest up to 50% of its assets in ABS \9\
that are not mortgage-related. This 50% limitation would not apply to
securities issued or guaranteed by federal agencies and/or U.S.
government sponsored instrumentalities, such as the GNMA, FHA, FNMA,
and FHLMC. In addition, such holdings would be subject to the
respective limitations on the Fund's investments in illiquid assets and
high yield securities, as described below.
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\8\ As stated in the Prior Release, the Fund may invest in MBS
or other asset-backed securities issued or guaranteed by private
issuers. The MBS in which the Fund may invest may also include
residential mortgage-backed securities, collateralized mortgage
obligations and commercial mortgage-backed securities. The asset-
backed securities in which the Fund may invest include
collateralized debt obligations, as described in the Prior Release.
\9\ ABS are bonds backed by pools of loans or other receivables.
ABS are securitized by a wide variety of assets and are generally
broken into 3 categories: consumer, commercial, and corporate. The
consumer category includes credit card, auto loan, student loan, and
timeshare loan ABS. The commercial category includes trade
receivables, equipment leases, oil receivables, film receivables,
rental cars, aircraft securitizations, ship and container
securitizations, whole business securitizations, and diversified
payment right securitizations. Corporate ABS include cash flow
collateralized loan obligations, collateralized by both middle
market and broadly syndicated bank loans. ABS are issued through
special purpose vehicles that are bankruptcy remote from the issuer
of the collateral. The credit quality of an ABS tranche depends on
the performance of the underlying assets and the structure. To
protect ABS investors from the possibility that some borrowers could
miss payments or even default on their loans, ABS include various
forms of credit enhancement.
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The Adviser represents that this change to the Fund's investment
limitations would allow the Adviser to better achieve the Fund's
investment objective to seek maximum current income, consistent with
preservation of capital and daily liquidity. Moreover, the Fund's
increased investment in ABS that are not mortgage-related will continue
to adhere to the Fund's investment strategy of investing in short
duration fixed income securities.\10\
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\10\ The Fund will target floating rate, shorter maturity,
shorter spread duration and other amortizing securities. These
securities' maturity and spread duration are consistent with the
Fund's investment objective.
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Because the Fund may invest no more than 10% of its net assets in
high yield securities (``junk bonds''), which are debt securities that
are rated below investment grade by nationally recognized statistical
rating organizations (``NRSROs''), or are unrated securities that the
Adviser believes are of comparable quality, the preponderance of the
Fund's investments in ABS will be in investment grade instruments. Due
to the quality of ABS in which the Fund will invest, the Adviser does
not expect that the Fund's additional investments in ABS that are not
mortgage-related will expose the Fund to additional liquidity risk.
Second, the Prior Release stated that the Fund may invest up to an
aggregate amount of 15% of its net assets in: (1) Illiquid securities;
and (2) Rule 144A securities. Going forward, the Fund proposes that the
Fund may hold up to an aggregate amount of 15% of its net assets in
illiquid assets (calculated at the time of investment),\11\ including
Rule 144A securities deemed illiquid by the Adviser, consistent with
Commission guidance.\12\ The Exchange notes that the Commission has
approved proposals that have included similar representations relating
to issues of Managed Fund Shares proposed to be listed and traded on
the Exchange.\13\ The Adviser represents that the Adviser and the
Trust's Board of Trustees will continue to evaluate each Rule 144A
security based on the Fund's valuation procedures to oversee liquidity
and valuation concerns. With respect to investment in illiquid assets,
if changes in the values of the Fund's assets cause the Fund's holdings
of illiquid assets to exceed the 15% limitation (as if liquid assets
have become illiquid), the Fund will take such actions as it deems
appropriate and practicable to attempt to reduce its holdings of
illiquid assets.
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\11\ In reaching liquidity decisions, the 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).
\12\ 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).
\13\ See, e.g., Securities Exchange Act Release No. 70282
(August 29, 2013), 78 FR 54700 (September 5, 2013) (order approving
listing and trading on the exchange of First Trust Inflation Managed
Fund).
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Third, the Prior Release stated that the Fund primarily will invest
in U.S. dollar-denominated investment grade debt securities rated Baa
or higher by Moody's Investors Service, Inc. (``Moody's''), or
equivalently rated by Standard & Poor's Rating Group (``S&P'') or Fitch
Investor Services (``Fitch''), or, if unrated, determined by the
Adviser to be of comparable quality.
Going forward, the Exchange proposes to change the representation
that the Fund primarily will invest in U.S. dollar-denominated
investment grade debt securities rated Baa or higher, as described
above, to a representation that
[[Page 66444]]
the Fund primarily will invest in U.S. dollar-denominated investment
grade debt securities rated Baa3 or higher by Moody's,\14\ or
equivalently rated by S&P, Fitch, or by any other NRSRO, or, if
unrated, determined by the Adviser to be of comparable quality. By
being permitted to invest in U.S. dollar-denominated investment grade
debt securities rated Baa3 or higher, as described above, the Fund will
be able to invest in a broader range of investment grade debt
securities, which will assist the Fund in meeting its investment
objective. In addition, by being permitted to consider ratings issued
by all NRSROs, which are registered with the Commission, the Fund will
be able to assess a broader range of available information regarding
the characteristics and quality of securities that it may consider for
investment.
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\14\ Baa3 is the lowest tier within the Baa rating.
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Fourth, the Prior Release stated that the Fund will invest at least
80% of its net assets in fixed income securities. Going forward, the
Fund proposes that it will invest at least 80% of its net assets in
fixed income securities, and in exchange-traded funds (``ETFs'') and
closed-end funds that invest substantially all of their assets in fixed
income securities.\15\ All such ETFs and closed-end funds would be
listed on a U.S. national securities exchange. The Adviser represents
that, by allowing the Fund to invest in ETFs and closed-end funds that
invest substantially all of their assets in fixed-income securities and
have such investments count towards the Fund's 80% threshold (thus
allowing the Fund to invest in excess of 20% of its assets in such ETFs
and closed-end funds), the Fund may be able to realize its investment
objective in a more diversified and efficient manner than is currently
available under the Fund's current 20% limitation on non-fixed income
securities investments. Possible increased investments in such ETFs and
closed-end funds would give the Fund access to a diverse set of fixed-
income securities in an efficient fashion, with the liquidity and
transparency of a U.S. exchange-traded security.
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\15\ For purposes of this filing, ETFs include Investment
Company Units (as described in NYSE Arca Equities Rule 5.2(j)(3));
Portfolio Depositary Receipts (as described in NYSE Arca Equities
Rule 8.100); and Managed Fund Shares (as described in NYSE Arca
Equities Rule 8.600). The Fund will invest in the securities of ETFs
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.
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The Exchange notes that the Prior Release stated that the Fund is
considered non-diversified under the 1940 Act and can invest a greater
portion of assets in securities of individual issuers than a
diversified fund.\16\ In the September 27, 2013 Amendment, the Trust
amended this representation to state that the Fund is considered a
diversified fund. This change was made because, in view of the Fund's
investments, the Fund has been operating in a manner consistent with a
diversified fund for three years and, pursuant to Commission guidance,
the Fund has amended its disclosure in that regard. The revised
representation in the September 27, 2013 Amendment reflects this fact.
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\16\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80a-5(b)(1)). The Fund intends to
maintain the level of diversification necessary to qualify as a
regulated investment company (``RIC'') under Subchapter M of the
Internal Revenue Code of 1986, as amended (26 U.S.C. 851).
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The Adviser represents that there is no change to the Fund's
investment objective. The Fund will continue to comply with all initial
and continued listing requirements under NYSE Arca Equities Rule 8.600.
Except for the changes noted above, all other facts presented and
representations made in the Prior Release remain unchanged.
All terms referenced but not defined herein are defined in the
Prior Release.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \17\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\17\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will continue to be listed and traded on the Exchange pursuant
to the initial and continued listing criteria in NYSE Arca Equities
Rule 8.600. The Adviser represents that increasing the Fund's
flexibility to invest in ABS that are not mortgage-related would allow
the Adviser to better achieve the Fund's investment objective to seek
maximum current income, consistent with preservation of capital and
daily liquidity. Moreover, the Fund's increased investment in ABS that
are not mortgage-related will continue to adhere to the Fund's
investment strategy of investing in short duration fixed income
securities. In addition, such holdings would be subject to the
limitation of the Fund's investments in illiquid assets, as described
above. Because the Fund may invest no more than 10% of its net assets
in junk bonds, which are debt securities that are rated below
investment grade by nationally recognized statistical rating
organizations, or are unrated securities that the Adviser believes are
of comparable quality, the preponderance of the Fund's investments in
ABS will be in investment grade instruments. With respect to the 15%
limitation on investments in illiquid assets, including Rule 144A
securities deemed illiquid by the Adviser, consistent with Commission
guidance, the Exchange notes that the Commission has approved proposals
that have included similar representations relating to issues of
Managed Fund Shares proposed to be listed and traded on the
Exchange.\18\ The Adviser represents that the Adviser and the Trust's
Board of Trustees will continue to evaluate each Rule 144A security
based on the Fund's valuation procedures to oversee liquidity and
valuation concerns.
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\18\ See note 12, supra [sic].
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With respect to the representation above that the Fund primarily
will invest in U.S. dollar-denominated investment grade debt securities
rated Baa3 or higher (instead of Baa or higher) by Moody's, or
equivalently rated by S&P, Fitch, or by any other NRSRO, or, if
unrated, determined by the Adviser to be of comparable quality, by
being permitted to invest in U.S. dollar-denominated investment grade
debt securities rated Baa3 or higher, as described above, the Fund will
be able to invest in a broader range of investment grade debt
securities, which will assist the Fund in meeting its investment
objective. In addition, with respect to the Fund utilizing ratings of
any NRSRO, rather than only enumerated NRSROs, in connection with its
fixed income investments, by being permitted to consider ratings issued
by all NRSROs, which are registered with the Commission, the Fund will
be able to assess a broader range of available information regarding
the characteristics and quality of securities that it may consider for
investment.
With respect to the proposal for the Fund to invest at least 80% of
its net assets in fixed income securities, and in ETFs and closed-end
funds that invest substantially all of their assets in fixed income
securities, the Exchange notes that all such ETFs and closed-end funds
would be listed on a U.S. national
[[Page 66445]]
securities exchange. The Adviser represents that, by allowing the Fund
to invest in ETFs and closed-end funds that invest substantially all of
their assets in fixed-income securities and have such investments count
towards the Fund's 80% threshold, the Fund may be able to realize its
investment objective in a more diversified and efficient manner than is
currently available under the Fund's current 20% limitation on non-
fixed income securities investments. Possible increased investments in
such ETFs and closed-end funds would give the Fund access to a diverse
set of fixed-income securities in an efficient fashion, with the
liquidity and transparency of a U.S. exchange-traded security.
With respect to the Fund's operation as a diversified Fund, this
change was made because, in view of the Fund's investments, the Fund
has been operating in a manner consistent with a diversified fund for
three years and, pursuant to Commission guidance, the Fund has amended
its disclosure in that regard. The revised representation in the
September 27, 2013 Amendment reflects this fact.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Adviser represents that there is no change to the Fund's
investment objective. The Fund will continue to comply with all initial
and continued listing requirements under NYSE Arca Equities Rule 8.600.
The Adviser represents that the purpose of the proposed changes is to
provide additional flexibility to the Adviser to meet the Fund's
investment objective, as discussed above.
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 the Fund will continue to comply with all
initial and continued listing requirements under NYSE Arca Equities
Rule 8.600. The Adviser represents that the purpose of the proposed
changes is to provide additional flexibility to the Adviser to meet the
Fund's investment objective, as discussed above. The Adviser represents
that there is no change to the Fund's investment objective. Except for
the changes noted above, all other facts presented and representations
made in the Prior Release remain unchanged.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act. The proposed changes to the
Fund's means of achieving the investment objective will permit the Fund
to adjust its portfolio to allow the Fund to continue to meet its
investment objectives in the most efficient manner possible and will
enhance competition among issues of Managed Fund Shares that invest in
fixed income securities.
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 such 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-2014-107 on the subject line.
Paper Comments
Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2014-107. 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-2014-107 and should
be submitted on or before November 28, 2014.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26461 Filed 11-6-14; 8:45 am]
BILLING CODE 8011-01-P