[Federal Register Volume 75, Number 124 (Tuesday, June 29, 2010)]
[Notices]
[Pages 37502-37507]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-15752]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62350; File No. SR-NYSEArca-2010-49]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change and Amendment No. 1 Thereto Regarding Listing
and Trading of the WisdomTree Emerging Markets Local Debt Fund
June 22, 2010.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on June 10, 2010, 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, II,
and III below, which Items have been prepared by the Exchange. On June
18, 2010, the Exchange filed Amendment No. 1 to the proposed rule
change. The Commission is publishing this notice to solicit comments on
the proposed rule change, as amended, from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 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 the shares of the following
fund of the WisdomTree Trust (the ``Trust'') under NYSE Arca Equities
Rule 8.600 (``Managed Fund Shares''): WisdomTree Emerging Markets Local
Debt Fund (the ``Fund''). The shares of the Fund are collectively
referred to herein as the ``Shares.'' The text of the proposed rule
change is available at the Exchange, the Commission's Public Reference
Room, and http://www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the Shares of the
WisdomTree Emerging Markets Local Debt Fund under NYSE Arca Equities
Rule 8.600, which governs the listing and trading of Managed Fund
Shares on the Exchange.\3\ The Fund will be an actively managed
exchange-traded fund. The Shares will be offered by the Trust, which
was established as a Delaware statutory trust on December 15, 2005. The
Trust is registered with the Commission as an investment company and
the Fund has filed a registration statement on Form N-1A
(``Registration Statement'') with the Commission.\4\
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\3\ The Commission approved NYSE Arca Equities Rule 8.600 and
the listing and trading of certain funds of the PowerShares Actively
Managed Funds Trust on the Exchange pursuant to Rule 8.600 in
Securities Exchange Act Release No. 57619 (April 4, 2008), 73 FR
19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission also
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);
58564 (September 17, 2008), 73 FR 55194 (September 24, 2008) (SR-
NYSEArca-2008-86) (order approving Exchange listing and trading of
WisdomTree Dreyfus Emerging Markets Fund).
\4\ See Post-Effective Amendment No. 32 to Registration
Statement on Form N-1A for the Trust, dated March 19, 2010 (File
Nos. 333-132380 and 811-21864), as amended June 8, 2010. The
descriptions of the Fund and the Shares contained herein are based
on information in the Registration Statement.
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Description of the Shares and the Fund
WisdomTree Asset Management, Inc. (``WisdomTree Asset Management'')
is the investment adviser (``Adviser'') to the Fund.\5\ WisdomTree
Asset Management is not affiliated with any broker-dealer. Mellon
Capital Management Corporation (``MCM'') serves as sub-adviser for the
Fund (``Sub-Adviser''). The Bank of New York Mellon is the
administrator, custodian and transfer agent for the Trust. ALPS
Distributors, Inc. serves as the distributor for the Trust.\6\
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\5\ WisdomTree Investments, Inc. (``WisdomTree Investments'') is
the parent company of WisdomTree Asset Management.
\6\ The Commission has issued an order granting certain
exemptive relief to the Trust under the Investment Company Act of
1940 (15 U.S.C. 80a-1) (``1940 Act''). See Investment Company Act
Release No. 28171 (October 27, 2008) (File No. 812-13458). In
compliance with Commentary .05 to NYSE Arca Equities Rule 8.600,
which applies to Managed Fund Shares based on an international or
global portfolio, the Trust's application for exemptive relief under
the 1940 Act states that the Fund will comply with the Federal
securities laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used to satisfy
redemption requests are sold in transactions that would be exempt
from registration under the Securities Act of 1933 (15 U.S.C. 77a).
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[[Page 37503]]
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.\7\ In addition,
Commentary .06 further requires that personnel who make decisions on
the open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the open-end fund's portfolio. Commentary .06 to
Rule 8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the
establishment of a ``fire wall'' between the investment adviser and the
broker-dealer reflects the applicable open-end fund's portfolio, not an
underlying benchmark index, as is the case with index-based funds. MCM
is affiliated with multiple broker-dealers and has implemented a ``fire
wall'' with respect to such broker-dealers regarding access to
information concerning the composition and/or changes to the Fund's
portfolio.\8\ In addition, MCM personnel who make decisions regarding
the Fund's portfolio are subject to procedures designed to prevent the
use and dissemination of material nonpublic information regarding the
Fund's portfolio.
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\7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and Sub-Adviser 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.
\8\ The Exchange represents that the Adviser and Sub-Adviser,
and their related personnel, are subject to Investment Advisers Act
Rule 204A-1. This Rule specifically requires the adoption of a code
of ethics by an investment adviser to include, at a minimum: (i)
Standards of business conduct that reflect the firm's/personnel
fiduciary obligations; (ii) provisions requiring supervised persons
to comply with applicable Federal securities laws; (iii) provisions
that require all access persons to report, and the firm to review,
their personal securities transactions and holdings periodically as
specifically set forth in Rule 204A-1; (iv) provisions requiring
supervised persons to report any violations of the code of ethics
promptly to the chief compliance officer (``CCO'') or, provided the
CCO also receives reports of all violations, to other persons
designated in the code of ethics; and (v) provisions requiring the
investment adviser to provide each of the supervised persons with a
copy of the code of ethics with an acknowledgement by said
supervised persons. 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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WisdomTree Emerging Markets Local Debt Fund
According to the Registration Statement, the Fund seeks to provide
investors with a high level of total return consisting of both income
and capital appreciation. The Fund is an actively managed exchange-
traded fund (``ETF'') and is designed to provide exposure to a broad
range of emerging market countries and issuers through investment in
local currency debt instruments. A ``local currency'' debt instrument
is a bond, note or other debt obligation denominated in a currency
other than the U.S. dollar.
The Fund is designed to provide exposure to a broad range of
emerging market countries.\9\ The Fund intends to invest in issuers in
Asia, Latin America, Eastern Europe, Africa and the Middle East. Likely
country exposures include Brazil, Chile, Colombia, Hungary, Indonesia,
Israel, Malaysia, Mexico, Peru, Poland, Russia, South Africa, South
Korea, Thailand and Turkey. The Fund intends to invest at least 70% of
its net assets in debt instruments denominated in a currency other than
the U.S. dollar issued by emerging market governments, government
agencies, corporations and supranational issuers (``Debt
Instruments''). ``Supranational issuers'' include international
organizations such as the European Investment Bank, International Bank
for Reconstruction and Development, International Finance Corporation,
or other regional development banks.\10\ The Fund expects to invest up
to 20% of its net assets in emerging market corporate bonds. The Fund
will invest only in corporate bonds that the Adviser or Sub-Adviser
deems to be sufficiently liquid. Generally a corporate bond must have
$200 million or more par amount outstanding and significant par value
traded to be considered as an eligible investment.\11\ The Fund is
designed to
[[Page 37504]]
provide exposure to a broad range of emerging market countries and
issuers. Economic and other conditions in specific countries may, from
time to time, lead to a decrease in the average par amount outstanding
of bond issuances. Therefore, although the Fund does not intend to do
so, the Fund may invest up to 5% of its net assets in corporate bonds
with less than $200 million par amount outstanding if (i) the Adviser
or Sub-Adviser deems such security to be sufficiently liquid based on
its analysis of the market for such security (based on, for example,
broker-dealer quotations or its analysis of the trading history of the
security or the trading history of other securities issued by the
issuer), (ii) such investment is consistent with the Fund's goal of
providing exposure to a broad range of countries and issuers, and (iii)
such investment is deemed by the Adviser or Sub-Adviser to be in the
best interest of the Fund.
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\9\ According to the Registration Statement, while there is no
universally accepted definition of what constitutes an ``emerging
market,'' in general, emerging market countries are characterized by
developing commercial and financial infrastructure with significant
potential for economic growth and increased capital market
participation by foreign investors. The Adviser and Sub-Adviser look
at a variety of commonly-used factors when determining whether a
country is an ``emerging'' market. In general, the Adviser and Sub-
Adviser consider a country to be an emerging market if:
(1) It is either (a) classified by the World Bank in the lower
middle or upper middle income designation for one of the past 3
years (i.e., per capita gross national product of less than U.S.
$9,385), or (b) classified by the World Bank as high income in each
of the last three years, but with a currency that has been primarily
traded on a non-delivered basis by offshore investors (e.g., Korea
and Taiwan); and
(2) The country's debt market is considered relatively
accessible by foreign investors in terms of capital flow and
settlement considerations; and
(3) The country has issued the equivalent of $5 billion in local
currency sovereign debt. The criteria used to evaluate whether a
country is an ``emerging market'' will change from time to time
based on economic and other events.
\10\ The category of ``emerging market bonds'' includes both
U.S. dollar-denominated debt and non-U.S. or ``local'' currency
debt. The market for local currency debt is larger and more actively
traded than the market for dollar-denominated debt. According to the
Emerging Markets Traders Association, the total dollar amount of
emerging market debt instruments traded in 2009 was $4.445 trillion.
Turnover in local currency debt instruments in 2009 was $2.870
trillion and accounted for approximately 65% of the total turnover
in emerging market bonds. (Source: Emerging Markets Traders
Association Press Release, March 8, 2010. Additional information
relating to emerging market corporate bonds is available at: http://www.emta.org.) As of September 30, 2009, the total market
capitalization of emerging market local currency sovereign debt in
the J.P. Morgan Government Bonds Index--Emerging Markets (``GBI-
EM'') was $625 billion. The GBI-EM is a widely followed index of
regularly traded, liquid, fixed-rate domestic currency government
bonds. As of the same date, the market capitalization of emerging
market dollar-denominated bonds in the J.P. Morgan Emerging Markets
Bond Index (``EMBI'') was $326 billion. The EMBI is a widely
followed index of U.S. dollar denominated debt instruments issued by
emerging market sovereign and quasi-sovereign entities. (Source:
J.P. Morgan as of September 30, 2009). The Adviser represents that
sovereign debt of many emerging market countries is issued in large
par size and tends to be very liquid. Locally-denominated debt
issued by supra-national entities is also actively traded. Intra-
day, executable price quotations on such instruments are available
from major broker-dealer firms. Intra-day price information is
available through subscription services, such as Bloomberg and
Thomson Reuters, which can be accessed by Authorized Participants
and other investors.
\11\ The Adviser represents that the size and liquidity of the
market for emerging market bonds, and in particular corporate bonds,
generally has been increasing in recent years. The aggregate dollar
amount of emerging market corporate bonds traded in 2009 was $514
billion, representing a 32% increase over the $380 billion traded in
2008. Turnover in emerging market corporate debt accounted for 12%
of the overall volume of emerging market debt of $4.445 trillion in
2009, an increase over the 9% share in 2008. (Source: Emerging
Markets Traders Association Press Release, March 8, 2010.)
Additional information relating to emerging market corporate bonds
is available at: http://www.emta.org. Emerging market corporate bond
issuance in 2010 was $68 billion (through March). Local currency
issuance made up 72% of the total $68 billion. (Source: Emerging
Markets Bonds Come of Age, Corporate Financing Week, March 2010
(http://www.corporatefinancingweek.com/file/87470/emerging-market-bond-markets-come-of-age.html)).
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According to the Registration Statement, the Fund typically will
maintain aggregate portfolio duration of between 2 and 7 years.
Aggregate portfolio duration is a measure of the portfolio's
sensitivity to changes in the level of interest rates. The Fund's
actual portfolio duration may be longer or shorter depending upon
market conditions.
The universe of emerging markets local currency debt currently
includes securities that are rated ``investment grade'' as well as
``non-investment grade'' securities. The Fund is designed to provide a
broad-based, representative exposure to emerging market debt and
therefore will invest in both investment grade and non-investment grade
securities in a manner designed to provide this exposure. The Fund
currently expects that it will have 75% or more of its assets invested
in investment grade securities, and no more than 25% of its assets
invested in non-investment grade securities. Because the Fund is
designed to provide exposure to a broad range of emerging market
countries and issuers, and because the debt ratings of such countries
and issuers will change from time to time, the exact percentage of the
Fund's investments in investment grade and non-investment grade debt
will change from time to time in response to economic events and
changes to the credit ratings of such government and corporate issuers.
Within the non-investment grade category some issuers and instruments
are considered to be of lower credit quality and at higher risk of
default. In order to limit its exposure to these more speculative
credits, the Fund will not invest more than 15% of its assets in
securities rated B or below by Moody's, or equivalently rated by S&P or
Fitch. The Fund does not intend to invest in unrated securities.
However, it may do so to a limited extent, such as where a rated
security becomes unrated, if such security is determined by the Adviser
and Sub-Adviser to be of comparable quality. In determining whether a
security is of ``comparable quality,'' the Adviser and Sub-Adviser will
consider, for example, whether the issuer of the security has issued
other rated securities.
All money market securities acquired by the Fund will be rated
investment grade or, if unrated, deemed to be of equivalent quality.
The Fund does not intend to invest in any unrated money market
securities.
The Fund will not concentrate 25% or more of the value of its total
assets (taken at market value at the time of each investment) in any
one industry, as that term is used in the 1940 Act (except that this
restriction does not apply to obligations issued by the U.S.
government, or any non-U.S. government, or their respective agencies
and instrumentalities or government-sponsored enterprises).
The Fund intends to qualify each year as a regulated investment
company (a ``RIC'') under Subchapter M of the Internal Revenue Code of
1986, as amended. The Fund will invest its assets, and otherwise
conduct its operations, in a manner that is intended to satisfy the
qualifying income, diversification and distribution requirements
necessary to establish and maintain RIC qualification under Subchapter
M.
In addition to satisfying the above referenced RIC diversification
requirements, no portfolio security held by the Fund (other than U.S.
government securities and non-U.S. government securities) will
represent more than 30% of the weight of the Fund and the five highest
weighted portfolio securities of the Fund (other than U.S. government
securities and/or non-U.S. government securities) will not in the
aggregate account for more than 65% of the weight of the Fund. For
these purposes, the Fund may treat repurchase agreements collateralized
by U.S. government securities or non-U.S. government securities as U.S.
or non-U.S. government securities, as applicable.
The Fund will invest, under normal circumstances, at least 80% of
the value of its net assets in investments that are tied economically
to the particular country or geographic region suggested by the Fund's
name (i.e., emerging markets).
With respect to its limited investments in instruments other than
Debt Instruments, the Fund may purchase short-term obligations issued
or guaranteed by the U.S. Treasury or the agencies or instrumentalities
of the U.S. government; may invest in short-term securities issued or
guaranteed by non-U.S. governments, agencies and instrumentalities; may
invest in deposits and other obligations of U.S. and non-U.S. banks and
financial institutions; may invest in deposits and obligations of banks
and financial institutions including certificates of deposit, time
deposits, and bankers' acceptances.
The Fund also may invest in corporate debt obligations with less
than 397 calendar days remaining to maturity, and may purchase floating
rate and adjustable rate obligations, such as demand notes, bonds, and
commercial paper. The Fund may pursue its investment objective by
investing some of its assets in other WisdomTree Funds based on foreign
currencies, as described in the Registration Statement.
The Fund may use derivative instruments as part of its investment
strategies. The examples of derivative instruments include forward
currency contracts, non-deliverable forward currency contracts,
currency and interest rate swaps, currency options, futures contracts,
options on futures contracts and swap agreements. The Fund's use of
derivative instruments will be underpinned by investments in short
term, high-quality U.S. money market securities. The Fund expects that
no more than 30% of the value of the Fund's net assets will be invested
in derivative instruments. Such investments will be consistent with the
Fund's investment objective and will not be used to enhance leverage.
With respect to certain kinds of derivative transactions entered
into by the Fund that involve obligations to make future payments to
third parties, including, but not limited to, futures, forward
contracts, swap contracts, the purchase of securities on a when-issued
or delayed delivery basis, or reverse repurchase agreements, under
[[Page 37505]]
applicable Federal securities laws, rules, and interpretations thereof,
the Fund must ``set aside'' liquid assets, or engage in other measures
to ``cover'' open positions with respect to such transactions.
The Fund may engage in foreign currency transactions, and may
invest directly in foreign currencies in the form of bank and financial
institution deposits, certificates of deposit, and bankers acceptances
denominated in a specified non-U.S. currency. The Fund may enter into
forward currency contracts in order to ``lock in'' the exchange rate
between the currency it will deliver and the currency it will receive
for the duration of the contract.
The Fund may enter into swap agreements, including interest rate
swaps and currency swaps, and may buy or sell put and call options on
foreign currencies either on exchanges or in the over-the-counter
market. The Fund may enter into repurchase agreements with
counterparties that are deemed to present acceptable credit risks, and
may enter into reverse repurchase agreements, which involve the sale of
securities held by the Fund subject to its agreement to repurchase the
securities at an agreed upon date or upon demand and at a price
reflecting a market rate of interest.
The Fund may invest in the securities of other investment companies
(including money market funds and ETFs). The Fund may invest up to an
aggregate amount of 10% of its net assets in illiquid securities.
Illiquid securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets.
The Fund will not invest in non-U.S. equity securities.
The Shares
The Fund issues and redeems Shares on a continuous basis at net
asset value (``NAV'') \12\ only in large blocks of Shares (``Creation
Units'') in transactions with authorized participants. Currently,
Creation Units generally consist of 100,000 Shares, though this may
change from time to time. Creation Units are not expected to consist of
less than 50,000 Shares. The Fund generally issues and redeems Creation
Units in exchange for a portfolio of money market securities closely
approximating the holdings of the Fund or a designated basket of non-
U.S. currency and/or an amount of U.S. cash. Once created, Shares of
the Fund trade on the secondary market in amounts less than a Creation
Unit.
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\12\ The NAV of the Fund's Shares generally is calculated once
daily Monday through Friday as of the close of regular trading on
the New York Stock Exchange, generally 4 p.m. Eastern time (the
``NAV Calculation Time''). NAV per Share is calculated by dividing
the Fund's net assets by the number of Fund Shares outstanding. For
more information regarding the valuation of Fund investments in
calculating the Fund's NAV, see the Registration Statement.
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Additional information regarding the Shares and the Fund, including
investment strategies, risks, creation and redemption procedures, fees,
portfolio holdings disclosure policies, distributions and taxes is
included in the Registration Statement.
Availability of Information
The Fund's Web site (http://www.wisdomtree.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the Prospectus for the Fund that may be downloaded. The Web
site will include additional quantitative information updated on a
daily basis, including, for the Fund: (1) The prior business day's
reported NAV, mid-point of the bid/ask spread at the time of
calculation of such NAV (the ``Bid/Ask Price''),\13\ 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 \14\ on the Exchange, the Trust will
disclose on its Web site the identities and quantities of the portfolio
of securities and other assets (the ``Disclosed Portfolio'') held by
the Fund that will form the basis for the Fund's calculation of NAV at
the end of the business day.\15\ The Disclosed Portfolio will include,
as applicable, the names, quantity, percentage weighting and market
value of securities, and other assets held by the Fund and the
characteristics of such assets. The Web site and information will be
publicly available at no charge.
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\13\ The Bid/Ask Price of the Fund is determined using the
midpoint of the highest bid and the lowest offer on the Exchange as
of the time of calculation of such Fund's NAV. The records relating
to Bid/Ask Prices will be retained by the Fund and its service
providers.
\14\ The Core Trading Session is 9:30 a.m. to 4 p.m. Eastern
time.
\15\ Under accounting procedures followed by the Fund, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Notwithstanding the
foregoing, portfolio trades that are executed prior to the opening
of the Exchange on any business day may be booked and reflected in
NAV on such business day. Accordingly, the Fund will be able to
disclose at the beginning of the business day the portfolio that
will form the basis for the NAV calculation at the end of the
business day.
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In addition, for the Fund, an estimated value, defined in Rule
8.600 as the ``Portfolio Indicative Value,'' that reflects an estimated
intraday value of the Fund's portfolio, will be disseminated. The
Portfolio Indicative Value will be based upon the current value for the
components of the Disclosed Portfolio and will be updated and
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session on the Exchange. In addition,
during hours when the markets for securities in the Fund's portfolio
are closed, the Portfolio Indicative Value will be updated at least
every 15 seconds during the Core Trading Session to reflect currency
exchange fluctuations.
The dissemination of the Portfolio Indicative Value, together with
the Disclosed Portfolio, will allow investors to determine the value of
the underlying portfolio of the Fund on a daily basis and to provide a
close estimate of that value throughout the trading day.
Information regarding market price and volume of the Shares is and
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services. The
previous day's closing price and trading volume information will be
published daily in the financial section of newspapers. Quotation and
last sale information for the Shares will be available via the
Consolidated Tape Association high-speed line.
Initial and Continued Listing
The Shares will be subject to Rule 8.600(d), which sets forth the
initial and continued listing criteria applicable to Managed Fund
Shares. The Exchange represents that, for initial and/or continued
listing, the Shares must be in compliance with Rule 10A-3 under the
Exchange Act,\16\ as provided by NYSE Arca Equities Rule 5.3. A minimum
of 100,000 Shares will be outstanding at the commencement of trading on
the Exchange. The Exchange will obtain a representation from the issuer
of the Shares that the net asset value and the Disclosed Portfolio will
be made available to all market participants at the same time.
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\16\ See 17 CFR 240.10A-3.
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Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. Shares of the Fund will be
[[Page 37506]]
halted if the ``circuit breaker'' parameters in NYSE Arca Equities Rule
7.12 are reached. Trading 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 comprising the Disclosed Portfolio
and/or the financial instruments of the Fund; or (2) whether other
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present. Trading in the Shares will be
subject to Rule 8.600(d)(2)(D), which sets forth circumstances under
which Shares of the Fund may be halted.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern time 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.
Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (which includes Managed
Fund Shares) to monitor trading in the Shares. The Exchange represents
that these procedures are adequate to properly monitor Exchange trading
of the Shares in all trading sessions and to deter and detect
violations of Exchange rules and applicable Federal securities laws.
The Exchange's current trading surveillance focuses on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
The Exchange may obtain information via the Intermarket
Surveillance Group (``ISG'') from other exchanges who are members of
the ISG.\17\
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\17\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all of the components
of the Disclosed Portfolio for the Fund may trade on exchanges that
are members of the ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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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
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 Unit
aggregations (and that Shares are not individually redeemable); (2)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its ETP Holders to learn the essential facts relating to every
customer prior to trading the Shares; (3) the risks involved in trading
the Shares during the Opening and Late Trading Sessions when an updated
Portfolio Indicative Value will not be calculated or publicly
disseminated; (4) how information regarding the Portfolio Indicative
Value is disseminated; (5) the requirement that ETP Holders deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
In addition, the Bulletin will reference that the Fund is subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. Eastern time each trading day.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5) \18\ 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. The
Exchange believes that the proposed rule change will facilitate the
listing and trading of additional types of exchange-traded products
that will enhance competition among market participants, to the benefit
of investors and the marketplace. In addition, the listing and trading
criteria set forth in Rule 8.600 are intended to protect investors and
the public interest.
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\18\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve 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 e-mail to [email protected]. Please include
File Number SR-NYSEArca-2010-49 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2010-49.
This file number should be included on the subject line if e-mail 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
[[Page 37507]]
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 a.m. and 3
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 Number SR-NYSEArca-2010-49 and should be submitted
on or before July 20, 2010.
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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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-15752 Filed 6-28-10; 8:45 am]
BILLING CODE 8010-01-P