[Federal Register Volume 75, Number 54 (Monday, March 22, 2010)]
[Notices]
[Pages 13616-13618]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-6114]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61697; File No. SR-NYSEArca-2010-04]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Accelerated Approval of Proposed Rule Change Relating to the WisdomTree
Real Return Fund
March 12, 2010.
I. Introduction
On January 25, 2010, NYSE Arca, Inc. (``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 the shares (``Shares'') of the
WisdomTree Real Return Fund (``Fund'') under NYSE Arca Equities Rule
8.600. The proposed rule change was published for comment in the
Federal Register on February 23, 2010.\3\ The Commission received no
comment letters on the proposed rule change. This order approves the
proposed rule change on an accelerated basis.
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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. 61519 (February 16,
2010), 75 FR 8164 (``Notice'').
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II. Description of the Proposed Rule Change
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 on the Exchange.\4\ The Fund will be an actively-
managed exchange traded fund, and the Shares will be offered by the
WisdomTree Trust (``Trust''), a Delaware statutory trust that is
registered with the Commission as an investment company.\5\ WisdomTree
Asset Management, Inc. (``Adviser'') will be the investment adviser to
the Fund and is not affiliated with any broker-dealer. The Mellon
Capital Management Corporation (``Sub-Adviser''), which will serve as
the sub-adviser for the Fund, is affiliated with multiple broker-
dealers and, accordingly, 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.\6\ The Bank of New
York Mellon will be the administrator, custodian and transfer agent for
the Fund, and ALPS Distributors, Inc. will serve as the distributor for
the Fund.
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\4\ Managed Fund Shares are defined as securities that (a)
represent an interest in a registered investment company organized
as an open-end management investment company or similar entity that
invests in a portfolio of securities selected by the investment
company's investment adviser consistent with the investment
company's investment objectives and policies; (b) are issued in a
specified aggregate minimum number in return for a deposit of a
specified portfolio of securities and/or a cash amount with a value
equal to the next determined net asset value; and (c) when
aggregated in the same specified minimum number, may be redeemed at
a holder's request, which holder will be paid a specified portfolio
of securities and/or cash with a value equal to the next determined
net asset value. See NYSE Arca Equities Rule 8.600(c)(1).
\5\ See Trust Registration Statement on Form N-1A filed on
October 28, 2009 (File Nos. 333-132380 and 811-21864)
(``Registration Statement'').
\6\ See Commentary .07 to NYSE Arca Equities Rule 8.600
(requiring the use of ``fire walls'' between investment advisers and
affiliated broker-dealers with respect to access to information
concerning the composition and/or changes to the fund portfolio).
The Exchange represents that the Adviser and the Sub-Adviser of the
Funds, and their respective related personnel, are subject to Rule
204A-1 under the Investment Advisers Act of 1940 (``Advisers Act''),
which generally 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.
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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(d)
applicable to Managed Fund Shares \7\ and that the Shares will comply
with Rule 10A-3 under the Act,\8\ as provided by NYSE Arca Equities
Rule 5.3.
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\7\ 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.
\8\ See 17 CFR 240.10A-3.
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The Fund will seek to provide investors with total returns that
exceed the rate of inflation over long-term investment horizons. To
achieve its objective, the Fund intends to invest in a portfolio of
inflation-linked securities, such as U.S. Treasury Inflation Protected
Securities (``TIPS'') and other investment-grade fixed income
securities. The Fund will have targeted exposure to commodities and
commodity strategies.
While the Fund intends to invest up to 70% or more of the value of
its portfolio in TIPS, the Fund may invest in other types of inflation-
linked fixed income securities, such as investment-grade, floating-rate
fixed income securities linked to U.S. inflation rates that are issued
by the U.S. government, government agencies, or corporations. The Fund
may also invest in inflation-linked swaps, securities linked to
inflation rates outside the U.S., including securities or instruments
linked to rates in emerging market countries, and fixed income
securities that are not linked to inflation, such as U.S. government
securities. While the Fund intends to invest primarily in investment-
grade securities, the Fund may invest up to 10% of its net assets in
securities rated ``BB'' or lower by at least two nationally recognized
statistical rating organizations or, if unrated, deemed to be of
equivalent quality. The Fund may invest in securities with effective or
final maturities of any length and will seek to keep the average
effective duration of its portfolio between two and ten years. The Fund
may adjust its portfolio holdings or average effective duration based
on actual or anticipated changes in interest rates or credit quality.
The Fund also intends to have targeted exposure to commodities
across a number of sectors, such as energy, precious metals, and
agriculture, primarily through its investments in the
WisdomTree Real Return Investment Portfolio, Inc.
(``Subsidiary''),\9\ a wholly-owned subsidiary organized in the Cayman
Islands,\10\ as well as in
[[Page 13617]]
commodity-linked instruments on a limited basis. In addition, the Fund
and the Subsidiary may invest in swaps on commodities or commodity
indexes, commodity-based structured notes, and exchange-traded
commodity-based derivative products (collectively, ``Commodity-Linked
Instruments''). While the Fund will seek exposure to commodity markets,
it generally does not expect to invest in commodities directly in the
spot market. The Fund represents that investments in Commodity-Linked
Instruments must be consistent with the Fund's investment objective and
will not be used to enhance leverage and that neither the Fund nor the
Subsidiary will invest in non-U.S. equity securities, except for the
Fund's investment in the shares of the Subsidiary.\11\
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\9\ The Fund intends to invest up to 25% of its assets in the
Subsidiary. The Subsidiary intends to invest all of its assets in
Commodity-Linked Instruments and/or fixed income securities that
serve as collateral for its commodity exposure. The Subsidiary's
investments will be consolidated into the Fund's financial
statements, and the Fund's and Subsidiary's holdings will be
publicly available on a daily basis.
\10\ The Exchange states that the Subsidiary is subject to the
same investment restrictions as the Fund and will operate in the
same manner as the Fund with regard to applicable compliance
policies and procedures (other than investments in Commodity-Linked
Instruments). Although the Subsidiary is not registered as an
investment company under the Investment Company Act of 1940 (``1940
Act''), the Adviser will manage both the Fund and the Subsidiary,
and the Fund's Board of Trustees will oversee the operation of the
Fund and its investment in the Subsidiary. Because the Subsidiary's
investments are consolidated into those of the Fund, the Fund's
combined holdings are required to comply with the 1940 Act. In
addition, the Fund is the sole shareholder of the Subsidiary and
does not expect shares of the Subsidiary to be offered or sold to
other investors.
\11\ 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.
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The Fund may invest up to an aggregate amount of 15% 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.\12\ The liquidity of
securities purchased by the Fund which are eligible for resale pursuant
to Rule 144A will be monitored by the Fund on an ongoing basis. In the
event that such a security is deemed to be no longer liquid, the Fund's
holdings will be reviewed to determine what action, if any, is required
to ensure that the retention of such security does not result in the
Fund having more than 15% of its assets invested in illiquid or not
readily marketable securities.
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\12\ A security is deemed ``illiquid'' if it can not be sold or
disposed of in the ordinary course of business within seven days at
a price that approximates fair market value.
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Additional information regarding the Trust, the Fund, the Shares,
the investment objectives, strategies, policies, and restrictions,
risks, fees and expenses, creation and redemption procedures, portfolio
holdings, 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.\13\
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\13\ See supra notes 3 and 5.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that NYSE Arca's
proposal to list and trade the Shares is consistent with the
requirements of Section 6 of the Act \14\ and the rules and regulations
thereunder applicable to a national securities exchange.\15\ In
particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\16\ which requires, among
other things, that the Exchange's rules be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, 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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\14\ 15 U.S.C. 78f.
\15\ 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).
\16\ 15 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,\17\ 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's high-speed line, and the Portfolio Indicative Value
(``PIV'') will be updated and disseminated by one or more major market
data vendors at least every 15 seconds during the Core Trading Session.
In addition, the Fund will make available on its Web site on each
business day before the commencement of trading in Shares in the Core
Trading Session the Disclosed Portfolio \18\ that will form the basis
for the calculation of the NAV, which will be determined at the end of
the business day. The Fund's Web site will also include additional
quantitative information updated on a daily basis relating to NAV.
Information regarding the market price and trading volume of the Shares
will be continually available on a real-time basis throughout the day
on brokers' computer screens and other electronic services, and the
previous day's closing price and trading volume information will be
published daily in the financial section of newspapers.
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\17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\18\ The Adviser will disclose for each portfolio security or
other financial instrument of the Fund the following information:
ticker symbol (if applicable), name of security or financial
instrument, number of shares or dollar value of financial
instruments held in the portfolio, and percentage weighting of the
security or financial instrument in the portfolio. The Commission
notes that the Reporting Authority providing 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. See
NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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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 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.\19\ 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 such series until such time as the NAV or the Disclosed
Portfolio is available to all market participants.\20\ Further, if the
PIV is not being disseminated as required, the Exchange may halt
trading during the day in which the interruption 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.\21\ The Exchange represents that the
Sub-Adviser is affiliated with multiple broker-dealers and,
accordingly, has implemented a ``fire wall'' with respect to such
broker-dealers regarding access to information concerning the
[[Page 13618]]
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 each of the
portfolios.\22\
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\19\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
\20\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
\21\ 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.
\22\ See supra note 18.
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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 conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600.
(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 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.\23\
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\23\ See supra note 8.
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(5) The Fund and the Subsidiary will not invest in non-U.S. equity
securities, except that the Fund will invest in shares issued by the
Subsidiary.
(6) The Fund's investments in Commodity-Linked Instruments will be
consistent with the Fund's investment objective and will not be used to
enhance leverage.
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. Accelerated Approval
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\24\ for approving the proposal prior to the thirtieth day
after the date of publication of the Notice in the Federal Register.
The Commission notes that it has approved the listing and trading on
the Exchange of shares of other actively managed exchange-traded funds
based on a portfolio of securities, the characteristics of which are
similar to those to be invested by the Fund.\25\ The Commission also
notes that it has not received any comments regarding this proposal.
The Commission believes that the proposal to list and trade the Shares
of the Fund do not raise any novel regulatory issues and accelerating
approval of this proposal should benefit investors by creating, without
undue delay, additional competition in the market for Managed Fund
Shares.
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\24\ 15 U.S.C. 78s(b)(2).
\25\ See, e.g., Securities Exchange Act Release Nos. 57514
(March 17, 2008), 73 FR 15230 (March 21, 2008) (SR-Amex-2008-02)
(approving the listing and trading of shares of the Bear Stearns
Current Yield Fund); 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008)
(SR-NYSEArca-2008-31) (approving the listing and trading of shares
of twelve actively-managed funds of the WisdomTree Trust); 60981
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (approving the listing and trading of shares of five
actively-managed fixed income funds of the PIMCO ETF Trust); and
61365 (January 15, 2010), 75 FR 4124 (January 26, 2010) (SR-
NYSEArca-2009-114) (approving the listing and trading of shares of
two actively-managed funds of the Grail Advisors ETF Trust).
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\26\ that the proposed rule change (SR-NYSEArca-2010-04) be, and it
hereby is, approved on an accelerated basis.
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\26\ 15 U.S.C. 78s(b)(1).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\27\
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\27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6114 Filed 3-19-10; 8:45 am]
BILLING CODE 8011-01-P