[Federal Register Volume 75, Number 177 (Tuesday, September 14, 2010)]
[Notices]
[Pages 55840-55842]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-22835]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62856; File No. SR-NYSEArca-2010-68]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of a Proposed Rule Change Relating to Listing and Trading of
Shares of the PIMCO Build America Bond Strategy Fund
September 7, 2010.
I. Introduction
On July 14, 2010, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares (``Shares'') of the PIMCO
Build America Bond Strategy Fund (the ``Fund'') of the PIMCO ETF Trust
(the ``Trust'') under NYSE Arca Equities Rule 8.600 (Managed Fund
Shares). The proposed rule change was published in the Federal Register
on August 4, 2010.\3\ The Commission received no comments on the
proposal. This order approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62585 (July 28,
2010), 75 FR 47045 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to list and trade the Shares pursuant to NYSE
Arca Equities Rule 8.600, which governs the listing and trading of
Managed Fund Shares. The Shares will be offered by the Trust.\4\
Pacific Investment Management Company LLC (``PIMCO'') is the investment
adviser (``Adviser'') for the Fund.\5\ State Street Bank & Trust Co. is
the custodian and transfer agent for the Fund. The Trust's Distributor
is Allianz Global Investors Distributors LLC (the ``Distributor''), an
indirect subsidiary of Allianz Global Investors of America L.P.
(``AGI''), PIMCO's parent company.\6\ The Distributor is a registered
broker-dealer.\7\
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\4\ The Trust is a Delaware statutory trust that is registered
under the Investment Company Act of 1940 (15 U.S.C. 80a) (``1940
Act''). See Registration Statement on Amendment No. 15 to Form N-1A
for the Trust filed with the Securities and Exchange Commission on
March 10, 2010 (File Nos. 333-155395 and 811-22250) (the
``Registration Statement'').
\5\ The Exchange represents that the Adviser, as the investment
adviser of the Fund, and its related personnel, are subject to
Investment Advisers Act Rule 204A-1.
\6\ The Fund has received an order granting certain exemptive
relief to the Trust under the Investment Company Act of 1940 (15
U.S.C. 80a-1) (``1940 Act''). In compliance with Commentary .04 to
NYSE Arca Equities Rule 8.600, which applies to Managed Fund Shares,
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). See email from Tim
Malinowski, Senior Director, Global Index and Exchange Traded Funds,
Exchange, to Ronesha Butler and Kristie Diemer, Special Counsels,
Division, Commission, dated September 2, 2010, clarifying
applicability of Commentary .04.
\7\ 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. The Adviser is affiliated with a broker-dealer, Allianz
Global Investors Distributors LLC, and has implemented a fire wall
with respect to such broker-dealer regarding access to information
concerning the composition and/or changes to a portfolio.
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The Fund seeks to achieve its investment objective by investing
under
[[Page 55841]]
normal circumstances at least 80% of its assets in taxable municipal
debt securities publicly issued under the Build America Bond program.
The Build America Bond program was created as part of the American
Recovery and Reinvestment Act of 2009 (the ``2009 Act'') (``Build
America Bonds''). The Fund invests in U.S. dollar-denominated Fixed
Income Instruments that are primarily investment grade, but may invest
up to 20% of its total assets in high yield securities (``junk bonds'')
rated B or higher by Moody's Investors Service, Inc., or equivalently
rated by Standard & Poor's Ratings Services or Fitch, Inc., or, if
unrated, determined by PIMCO to be of comparable quality.\8\
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\8\ According to the Registration Statement, the Fund may invest
in ``Fixed Income Instruments,'' consistent with the Fund's
objective. Fixed Income Instruments, as used generally in the
Registration Statement, include:
Securities issued or guaranteed by the U.S. Government,
its agencies or government-sponsored enterprises (``U.S. Government
Securities'');
Corporate debt securities of U.S. and non-U.S. issuers,
including corporate commercial paper;
Mortgage-backed and other asset-backed securities;
Inflation-indexed bonds issued both by governments and
corporations;
Trust preferred securities;
Delayed funding loans and revolving credit facilities;
Bank certificates of deposit, fixed time deposits and
bankers' acceptances;
Repurchase agreements on Fixed Income Instruments and
reverse repurchase agreements on Fixed Income Instruments;
Debt securities issued by states or local governments
and their agencies, authorities and other government-sponsored
enterprises;
Obligations of non-U.S. governments or their
subdivisions, agencies and government-sponsored enterprises; and
Obligations of international agencies or supranational
entities.
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The average portfolio duration of the Fund normally varies within
two years (plus or minus) of the duration of The Barclays Capital Build
America Bond Index, which as of June 25, 2010, was approximately 12
years.
Municipal bonds generally are issued by or on behalf of states and
local governments and their agencies, authorities and other
instrumentalities. Unlike most municipal bonds, interest received on
Build America Bonds is subject to federal and state income tax.
Pursuant to the 2009 Act, issuers of ``direct pay'' Build America Bonds
(i.e., taxable municipal bonds issued to provide funds for qualified
capital expenditures) are entitled to receive payments from the U.S.
Treasury over the life of the bond equal to 35% (or 45% in the case of
Recovery Zone Economic Development Bonds) of the interest paid. The
federal interest subsidy continues for the life of the bonds.\9\
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\9\ Issuance of Build America Bonds will cease on December 31,
2010 unless the relevant provisions of the 2009 Act are extended. In
the event that the Build America Bond program is not extended, the
Build America Bonds outstanding at such time will 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 will be
eligible for the federal tax subsidy. If the Build America Bond
program is not extended, the Fund will evaluate the Fund's
investment strategy and make appropriate changes that it believes
are in the best interests of the Fund, including changing the Fund's
investment strategy to invest in other taxable municipal securities.
The Exchange has represented that in the event the Build America
Bond program is not extended and the Fund determines to change its
investment strategy, the Exchange will file a proposed rule change
pursuant to Rule 19b-4 under the Act to permit continued listing of
the Fund, and the Fund has represented to the Exchange that it will
not change its investment strategy until such proposed rule change
is approved by the Commission or becomes effective under Section
19(b) of the Act.
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The Exchange states that the Shares will be subject to the initial
and continued listing criteria under NYSE Arca Equities Rule 8.600
applicable to Managed Fund Shares \10\ and that the Shares will comply
with Rule 10A-3 under the Act,\11\ as provided by NYSE Arca Equities
Rule 5.3.
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\10\ The Exchange states that a minimum of 100,000 Shares will
be outstanding at the commencement of trading on the Exchange, and
the Exchange will obtain a representation from the issuer of the
Shares that the net asset value (``NAV'') per Share will be
calculated daily and that the NAV and the Disclosed Portfolio will
be made available to all market participants at the same time. See
Notice, supra note 3.
\11\ 17 CFR 240.10A-3.
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Additional information regarding the Trust, the Fund, the Shares,
the Fund's investment objectives, strategies, policies, and
restrictions, risks, fees and expenses, creation and redemption
procedures, portfolio holdings and policies, distributions and taxes,
availability of information, trading rules and halts, and surveillance
procedures, among other things, can be found in the Registration
Statement and in the Notice, as applicable.\12\
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\12\ See supra notes 3 and 4.
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III. Discussion and Commission Findings
The Commission has carefully reviewed the proposed rule change and
finds that it is consistent with the requirements of Section 6 of the
Act \13\ and the rules and regulations thereunder applicable to a
national securities exchange.\14\ In particular, the Commission finds
that the proposal is consistent with Section 6(b)(5) of the Act,\15\
which requires, among other things, that the Exchange's rules be
designed to promote just and equitable principles of trade, to remove
impediments to and perfect the mechanism of a free and open market and
a national market system, and, in general, to protect investors and the
public interest. The Commission notes that the Shares must comply with
the requirements of NYSE Arca Equities Rule 8.600 to be listed and
traded on the Exchange.
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\13\ 15 U.S.C. 78f.
\14\ In approving this proposed rule change the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
\15\ 17 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\16\ which sets forth Congress' finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for and transactions in securities. Quotation and last-sale
information for the Shares will be available via the Consolidated Tape
Association (``CTA'') high-speed line, and the Exchange will
disseminate the Portfolio Indicative Value (``PIV'') at least every 15
seconds during the Core Trading Session on the Exchange. In addition,
the Fund will make available on a website on each business day the
identities and quantities of the portfolio of securities and other
assets (``Disclosed Portfolio'') that will form the basis for the
calculation of the NAV, which will be determined as of the close of the
regular trading session on the Exchange (ordinarily 4 p.m. Eastern
Time) on each business day. The Fund's website will also include
additional quantitative information updated on a daily basis relating
to trading volume, prices, and NAV. Information regarding the market
price and volume of the Shares will be continually available on a real-
time basis throughout the day via electronic services, and the previous
day's closing price and trading volume information for the Shares will
be published daily in the financial sections of newspapers.
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\16\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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The Commission further believes that the proposal is reasonably
designed to promote fair disclosure of information that may be
necessary to price the Shares appropriately and to prevent trading when
a reasonable degree of transparency cannot be assured. The Commission
notes that the Exchange will obtain a representation from the issuer
that the NAV per Share will be calculated daily and that the NAV and
the Disclosed Portfolio will be made
[[Page 55842]]
available to all market participants at the same time.\17\
Additionally, if it becomes aware that the NAV or the Disclosed
Portfolio is not disseminated daily to all market participants at the
same time, the Exchange will halt trading in the Shares until such
information is available to all market participants.\18\ Further, if
the PIV is not being disseminated as required, the Exchange may halt
trading during the day in which the disruption occurs; if the
interruption persists past the trading day in which it occurred, the
Exchange will halt trading no later than the beginning of the trading
day following the interruption.\19\ The Exchange represents that the
Adviser is affiliated with a broker-dealer, Allianz Global Investors
Distributors LLC, and has implemented a ``fire wall'' between it and
its broker-dealer affiliate with respect to access to information
concerning the composition and/or changes to the Fund's portfolio.
Further, the Commission notes that the Reporting Authority that
provides the Disclosed Portfolio must implement and maintain, or be
subject to, procedures designed to prevent the use and dissemination of
material non-public information regarding the actual components of the
portfolio.\20\
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\17\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\18\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
\19\ Id. Trading in the Shares may also 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.
\20\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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The Exchange has represented that the Shares are equity securities
subject to the Exchange's rules governing the trading of equity
securities. In support of this proposal, the Exchange has made
representations, including:
(1) The Shares will be subject to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600(d).
(2) The Exchange's surveillance 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.
(3) 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.
Specifically, the Information Bulletin will discuss the following: (a)
The procedures for purchases and redemptions of Shares in Creation
Units and that Shares are not individually redeemable; (b) NYSE Arca
Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP
Holders to learn the essential facts relating to every customer prior
to trading the Shares; (c) the risks involved in trading the Shares
during the Opening and Late Trading Sessions when an updated PIV will
not be calculated or publicly disseminated; (d) how information
regarding the PIV is disseminated; (e) the requirement that ETP Holders
deliver a prospectus to investors purchasing newly issued Shares prior
to or concurrently with the confirmation of a transaction; and (f)
trading information.
(4) The Fund will be in compliance with Rule 10A-3 under the Act.
(5) The Fund will not invest in non-U.S. equity securities.
This approval order is based on the Exchange's representations.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\21\ that the proposed rule change (SR-NYSEArca-2010-68), be, and
it hereby is, approved.
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\21\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\22\
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\22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-22835 Filed 9-13-10; 8:45 am]
BILLING CODE 8010-01-P