[Federal Register Volume 75, Number 249 (Wednesday, December 29, 2010)]
[Notices]
[Pages 82106-82108]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-32733]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63598; File No. SR-NYSEArca-2010-98]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to the Listing and Trading of
Shares of the WisdomTree Managed Futures Strategy Fund
December 22, 2010.
I. Introduction
On November 1, 2010, NYSE Arca, Inc. (``Exchange'') 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 WisdomTree Managed Futures Strategy Fund
(``Fund'') of the WisdomTree Trust (``Trust'') under NYSE Arca Equities
Rule 8.600. The proposed rule change was published for comment in the
Federal Register on November 17, 2010.\3\ The Commission received no
comments on the proposal. This order grants approval of 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. 63292 (November 9,
2010), 75 FR 70319 (``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, which is
registered with the Commission as an investment company.\4\ The Fund
will be an actively managed exchange-traded fund. WisdomTree Asset
Management, Inc. (``Adviser'') is the investment adviser to the Fund.
WisdomTree Investments, Inc. is the parent company of the Adviser.
Mellon Capital Management Corporation (``Sub-Adviser'') serves as the
sub-adviser for the Fund. The Bank of New York Mellon is the
administrator, custodian, and transfer agent for the Fund. ALPS
Distributors, Inc. serves as distributor for the Fund.
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\4\ See Registration Statement on Form N-1A for the Trust filed
with the Commission on July 22, 2010 (File Nos. 333-132380 and 811-
21864) (``Registration Statement''). The Registration Statement
became effective on September 20, 2010.
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The Fund is managed using a strategy designed to provide returns
that correspond to the performance of the Diversified Trends Indicator
\TM\ (``Benchmark'').\5\ The Fund seeks to achieve its investment
objective by investing substantially all of its assets in a combination
of commodity- and currency-linked investments (including investments
linked to U.S. Treasuries) designed to correspond to the performance of
the Benchmark, and U.S. government securities (as defined in Section
3(a)(42) of the Act, ``Government Securities'') that serve as
collateral or otherwise back the commodity- and currency-linked
investments.\6\ Specifically, the Fund will invest at least 70% of its
assets in a combination of: (i) listed commodity and financial futures
contracts included in the Benchmark; \7\ and (ii) forward currency
contracts based on currencies represented in the Benchmark, in each
case collateralized or otherwise backed by Government Securities. The
Fund may invest up to 30% of its assets in a combination of swap
transactions \8\ and
[[Page 82107]]
commodity-linked notes.\9\ The Fund's investments in listed futures
contracts, forward currency contracts, and swap transactions will be
backed by investments in Government Securities in an amount equal to
the exposure of such contracts.
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\5\ The Benchmark is designed to capture the economic benefit
derived from rising or declining price trends in the commodity,
currency, and U.S. Treasury futures markets. The Benchmark consists
of U.S. listed futures contracts on sixteen tangible commodities and
eight financial futures. The sixteen commodity futures contracts are
on: light crude oil, natural gas, RBOB gas, heating oil, soybeans,
corn, wheat, gold, silver, copper, live cattle, lean hogs, coffee,
cocoa, cotton, and sugar. The eight financial futures contracts are
on: the Australian dollar, British pound, Canadian dollar, Euro,
Japanese yen, Swiss franc, U.S. Treasury Notes, and U.S. Treasury
bonds. Each contract is sometimes referred to as a ``Component'' of
the Benchmark. Additional information relating to the Benchmark,
including, without limitation, the sector aggregations, weightings,
and position methodology can be found in the Registration Statement
and Notice. See Notice and Registration Statement, supra notes 3 and
4.
\6\ Additional information regarding the investments of the Fund
can be found in the Registration Statement and Notice. See id.
\7\ The Fund's investments in commodity futures contracts will
be limited by the application of position limits imposed by the
Commodity Futures Trading Commission and U.S. futures exchanges
intended to prevent undue influence on prices by a single trader or
group of affiliated traders. The Adviser represents that the Fund's
investment in futures contracts will be limited to investments in
the U.S. listed futures contracts included in the Benchmark, except
that the Fund may invest up to 10% of its assets in U.S. listed
commodity and currency futures contracts not included in the
Benchmark in a manner designed to achieve its investment objective.
\8\ The Fund will enter into over-the-counter swap transactions
only with respect to transactions based on (i) the return of the
Benchmark or any subset of the Benchmark, (ii) any Component in the
Benchmark, or (iii) any commodity or currency represented in the
Benchmark.
\9\ Commodity-linked notes are over-the-counter debt
instruments, typically issued by a bank or broker-dealer, that are
designed to provide cash flows linked to the value of a reference
asset. They provide exposure, which may include long and/or short
exposure, to the investment returns of the reference asset
underlying the note. The performance of these notes is determined by
the price movement of the reference asset underlying the note. The
Fund's investment in commodity-linked notes will be limited to notes
providing exposure to (i) the Benchmark or any subset of the
Benchmark, (ii) any Component of the Benchmark or (iii) any
commodity or currency represented in the Benchmark.
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The Fund will be managed so that the long and short exposure of the
Fund's portfolio is economically similar to the long and short
positions in the Benchmark. This does not, however, mean that the long
and short exposures will be identical. The Fund's positions in such
listed futures contracts may deviate from the Benchmark when the
Adviser or the Sub-Adviser believes it is in the best interest of the
Fund to do so.\10\ For example, the Fund may deviate from the Benchmark
in order to manage cash flows in and out of the Fund, such as in
connection with the payment of dividends or expenses, to manage
portfolio holdings around Benchmark changes, or to comply with the
Investment Company Act of 1940 (``1940 Act''), the Commodity Exchange
Act, the Internal Revenue Code of 1986, exchange position limits, or
other applicable laws, rules and regulations.
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\10\ The Sub-Adviser is responsible for day-to-day management of
the Fund and, as such, typically makes all decisions with respect to
portfolio holdings. The Adviser has ongoing oversight
responsibility.
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The Fund's investment in Government Securities will be limited to
investments: (i) to satisfy margin requirements, to provide collateral
or to otherwise back investments in commodity- and currency-linked
derivatives (such as futures contracts, forward contracts, and swaps);
(ii) to help manage cash flows in and out of the Fund, such as in
connection with the payment of dividends or expenses; or (iii) as a
substitute for investments in the listed U.S. Treasury futures
contracts included in the Benchmark. In addition, the Fund may invest
in money market instruments with remaining maturities of one year or
less, as well as cash and cash equivalents, in order to collateralize
or otherwise back its positions in listed futures contracts, forward
currency contracts, or swaps, or for cash management purposes. All
money market securities acquired by the Fund will be rated investment
grade. The Fund generally expects to maintain an average portfolio
maturity of 90 days or less on its investments in money market
securities.
The Fund will seek to gain exposure to the commodity and currency
markets, in whole or in part, through investments in a subsidiary
organized in the Cayman Islands (``Subsidiary''). The Subsidiary is
wholly-owned and controlled by the Fund, and its investments will be
consolidated into the Fund's financial statements. The Fund's and the
Subsidiary's holdings will be disclosed on the Fund's Web site on a
daily basis. The Fund's investment in the Subsidiary may not exceed 25%
of the Fund's total assets at the end of each fiscal quarter. The
Subsidiary's shares will be offered only to the Fund, and the Fund will
not sell shares of the Subsidiary to other investors. The Fund's use of
the Subsidiary is designed to help the Fund achieve exposure to
commodity and currency returns in a manner consistent with the federal
tax requirements applicable to the Fund and other regulated investment
companies. The Subsidiary will comply with the 1940 Act except that,
unlike the Fund, the Subsidiary may invest without limitation in
commodity- and currency-linked investments based on commodities and
currencies included within the Benchmark. The Subsidiary will otherwise
operate in the same manner as the Fund with regard to applicable
compliance policies and procedures. Because the Subsidiary's
investments are consolidated into the Fund's, the Fund's combined
holdings (including the investments of the Subsidiary) must comply with
the 1940 Act.\11\
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\11\ The Fund will not invest in non-U.S. equity securities
(other than shares of the Subsidiary).
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The Exchange states that the Shares will be subject to NYSE Arca
Equities Rule 8.600(d), which sets forth the initial and continued
listing criteria applicable to Managed Fund Shares,\12\ and that the
Shares must comply with Rule 10A-3 under the Act,\13\ as provided by
NYSE Arca Equities Rule 5.3, for initial and/or continued listing.
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.\14\
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\12\ 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 for the Fund
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.
\13\ 17 CFR 240.10A-3.
\14\ See Notice and Registration Statement, supra notes 3 and 4.
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III. Discussion and Commission's 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 \15\ and the rules and regulations thereunder applicable to a
national securities exchange.\16\ In particular, the Commission finds
that the proposal is consistent with Section 6(b)(5) of the Act,\17\
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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\15\ 15 U.S.C. 78f.
\16\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\17\ 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,\18\ 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 high-speed line. Intra-day and end-of-day prices for the
Benchmark,\19\ the listed futures contracts included in the Benchmark,
the commodities and currencies represented in the Benchmark, and the
forward currency contracts, swaps,
[[Page 82108]]
notes and other derivatives based on the Benchmark are readily
available through Bloomberg, other major market data providers, and
broker-dealers. On each business day, before commencement of trading in
Shares in the Core Trading Session on the Exchange, the Trust will
disclose on its Web site the identities and quantities of the portfolio
of securities and other assets (``Disclosed Portfolio'') held by the
Fund and the Subsidiary that will form the basis for the Fund's
calculation of NAV at the end of the business day.\20\ In addition, an
estimated value, defined in NYSE Arca Equities Rule 8.600 as the
``Portfolio Indicative Value,'' that reflects an estimated intra-day
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. Information
regarding market price and trading 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. Information
regarding the previous day's closing price and trading volume
information will be published daily in the financial section of
newspapers. The Fund's Web site (http://www.wisdomtree.com) will
include a form of the Prospectus and other quantitative information
relating to NAV, updated on a daily basis, for the Fund.
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\18\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\19\ Intra-day prices for the Benchmark are updated and
disseminated at least every 15 seconds during the Core Trading
Session on the Exchange. The Core Trading Session is 9:30 a.m. to 4
p.m. Eastern Time.
\20\ The Disclosed Portfolio will disclose the following
information: Ticker symbol (if applicable), name or description of
security or investment, number of shares or dollar value of
investments held in the portfolio, and percentage weighting of the
security or investment in the portfolio.
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The Commission further believes that the proposal to list and trade
the Shares 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 available to all market participants at the same time.\21\ If the
Exchange becomes aware that the NAV or the Disclosed Portfolio is not
disseminated 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.\22\ In addition, if the Portfolio Indicative
Value is not being disseminated as required, the Exchange may halt
trading during the day in which the interruption to the dissemination
of the Portfolio Indicative Value occurs; if the interruption to the
dissemination of the Portfolio Indicative Value 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.\23\ Moreover, the Exchange represents that the Sub-
Adviser 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.\24\ In the event (a) the Adviser or the Sub-Adviser becomes
newly affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser becomes affiliated with a broker-dealer, they will be required
to implement a fire wall with respect to such broker-dealer regarding
access to information concerning the composition and/or changes to the
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.\25\
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\21\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\22\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
\23\ See 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.
\24\ The Exchange represents that the Adviser is not affiliated
with any broker-dealer.
\25\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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The Exchange has represented that the Shares are deemed to be
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 has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) 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.
(4) 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 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 Portfolio Indicative Value will
not be calculated or publicly disseminated; (d) how information
regarding the Portfolio Indicative Value 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.
(5) For initial and/or continued listing, the Shares must be in
compliance with Rule 10A-3 under the Act.\26\
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\26\ 17 CFR 240.10A-3.
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(6) The Fund will not invest in non-U.S. equity securities (other
than shares of the Subsidiary).
(7) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
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 Section 6(b)(5) of the Act\27\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\27\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\28\ that the proposed rule change (SR-NYSEArca-2010-98), be, and
it hereby is, approved.
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\28\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\29\
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\29\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-32733 Filed 12-28-10; 8:45 am]
BILLING CODE 8011-01-P