[Federal Register Volume 76, Number 24 (Friday, February 4, 2011)]
[Notices]
[Pages 6503-6506]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-2457]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63802; File No. SR-NYSEArca-2010-118]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to the Listing and Trading of
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic
Allocation Growth Income ETF
January 31, 2011.
I. Introduction
On December 15, 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 following Managed Fund
Shares under NYSE Arca Equities Rule 8.600: SiM Dynamic Allocation
Diversified Income ETF and SiM Dynamic Allocation Growth Income ETF.
The proposed rule change was published for comment in the Federal
Register on December 28, 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. 63587 (December 21,
2010), 75 FR 81697 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to list and trade the shares (``Shares'') of
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic
Allocation Growth Income ETF (each a ``Fund'' and, collectively,
``Funds'') under NYSE Arca Equities Rule 8.600. The Shares will be
offered by AdvisorShares Trust (``Trust''), a statutory trust organized
under the laws of the State of Delaware and registered with the
Commission as an open-end management investment company.\4\ The
investment advisor to the Funds is AdvisorShares Investments, LLC
(``Advisor''), and Strategic Income Management, LLC (``Sub-Advisor'' or
``SiM'') serves as investment sub-advisor to the Funds. Foreside Fund
Services, LLC is the principal underwriter and distributor of the
Funds' Shares. The Bank of New York Mellon Corporation
(``Administrator'') serves as the administrator, custodian, transfer
agent, and fund accounting agent for the Funds. Each Fund is an
actively managed exchange-traded fund (``ETF'') and thus does not seek
to replicate the performance of a specified index, but uses an active
investment strategy to meet its investment objective. Accordingly, the
Sub-Advisor manages each Fund's portfolio in accordance with each
Fund's investment objective.
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\4\ The Trust is registered under the Investment Company Act of
1940 (``1940 Act''). On October 14, 2010, the Trust filed with the
Commission Post-Effective Amendment No. 13 to Form N-1A under the
Securities Act of 1933 (15 U.S.C. 77a) and under the 1940 Act
relating to the Funds (File Nos. 333-157876 and 811-22110)
(``Registration Statement'').
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SiM Dynamic Allocation Diversified Income ETF
This Fund's objective is to provide total return, consisting
primarily of reinvestment and growth of income with some long-term
capital appreciation. The Fund is considered a ``fund-of-funds'' that
will seek to achieve its investment objective by primarily investing in
other ETFs that offer diversified exposure to various investment types
(equities, bonds, etc.), global regions, countries, styles (market
capitalization, value, growth, etc.) or sectors, and exchange-traded
products (``ETPs,'' and, together with ETFs, ``Underlying ETPs'')
including, but not limited to, exchange-traded notes (``ETNs''),
exchange-traded currency trusts, and closed-end funds.\5\
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\5\ Underlying ETPs, which will be listed on a national
securities exchange, include: Investment Company Units (as described
in NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked Securities (as
described in NYSE Arca Equities Rule 5.2(j)(6)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
Trust Issued Receipts (as described in NYSE Arca Equities Rule
8.200); Commodity-Based Trust Shares (as described in NYSE Arca
Equities Rule 8.201); Currency Trust Shares (as described in NYSE
Arca Equities Rule 8.202); Commodity Index Trust Shares (as
described in NYSE Arca Equities Rule 8.203); Trust Units (as
described in NYSE Arca Equities Rule 8.500); Managed Fund Shares (as
described in NYSE Arca Equities Rule 8.600); and closed-end funds.
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[[Page 6504]]
The Fund will seek to offer the potential for total return from a
high level of income and a low level of capital growth, with exposure
to a low level of principal risk. The Fund, through its investments in
the Underlying ETPs, generally will invest at least 60% of its net
assets in domestic and international fixed-income funds. The Fund will
allocate its assets among Underlying ETPs in accordance with the Sub-
Advisor's outlook for the economy, the financial markets, and the
relative market valuations of the Underlying ETPs. The Fund will sell
interests or reduce investment exposure among market segments or
Underlying ETPs, if appropriate, when the Sub-Advisor's fundamental and
quantitative factors indicate a low relative strength of such market
segments and that such market segments are likely to underperform the
market as a whole.
Under normal market conditions, the Fund's portfolio will
generally:
Invest up to 85% of its assets in Underlying ETPs that
hold fixed-income securities as well as cash equivalents;
Not invest more than 40% of its net assets in Underlying
ETPs that primarily hold equity securities; and
Invest up to 20% of its assets in any single Underlying
ETP.
The Fund's portfolio may temporarily exceed these percentage ranges
for short periods without notice, and the Sub-Advisor, due to certain
market conditions, may alter the percentage ranges when it deems
appropriate.
SiM Dynamic Allocation Growth Income ETF
This Fund's objective is to provide total return, consisting
primarily of long-term capital appreciation with some reinvestment and
growth of income. The Fund is considered a ``fund-of-funds'' that will
seek to achieve its investment objective by primarily investing in
Underlying ETPs that offer diversified exposure to various investment
types (equities, bonds, etc.), global regions, countries, styles
(market capitalization, value, growth, etc.) or sectors, and ETPs
including, but not limited to, ETNs, exchange-traded currency trusts,
and closed-end funds.
In general, the Fund will seek to offer investors the potential for
total return from a low to medium level of income and a medium to high
level of capital growth, while exposing them to a medium to high level
of principal risk. The Fund, through its investments in the Underlying
ETPs, generally will invest at least 60% of its net assets in domestic
and international equity funds. The Fund will allocate its assets among
Underlying ETPs in accordance with the Sub-Advisor's outlook for the
economy, the financial markets, and the relative market valuations of
the Underlying ETPs. The Fund will sell interests or reduce investment
exposure among market segments or Underlying ETPs when the Sub-
Advisor's fundamental and quantitative factors indicate a low relative
strength of such market segments and that such market segments are
likely to underperform the market as a whole.
The Fund's portfolio will generally:
Invest up to 85% of its assets in Underlying ETPs that
hold equity securities as well as cash equivalents;
Not invest more than 40% of its net assets in Underlying
ETPs that primarily hold fixed-income securities; and
Invest up to 20% of its assets in any single Underlying
ETP.
The Fund's portfolio may temporarily exceed these percentage ranges
for short periods without notice, and the Sub-Advisor, due to certain
market conditions, may alter the percentage ranges when it deems
appropriate.
Other Investments
The Funds and the Underlying ETPs may invest in equity securities
representing ownership interests in a company or partnership and that
consist of common stocks, preferred stocks, warrants to acquire common
stock, securities convertible into common stock, and investments in
master limited partnerships.\6\ The Funds may enter into repurchase
agreements, which may be deemed to be loans, with financial
institutions, and reverse repurchase agreements as part of the Funds'
investment strategy. The Funds may also invest in U.S. government
securities, U.S. Treasury zero-coupon bonds, and shares of real estate
investment trusts, which are pooled investment vehicles that primarily
invest in real estate or real estate-related loans. To respond to
adverse market, economic, political, or other conditions, the Funds may
invest 100% of their total assets, without limitation, in high-quality
short-term debt securities and money market instruments.
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\6\ The Funds will hold only equity securities traded in the
United States on registered exchanges.
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Additional details regarding the Trust, Shares, and the Funds,
including, among other things, investment strategies, risks, creations
and redemptions of Shares, fees, portfolio holdings disclosure
policies, distributions, taxes, the calculation of the net asset value
(``NAV''), dissemination and availability of key information about the
Funds, trading halts, trading rules, surveillance, and the Information
Bulletin can be found in the Notice and the Registration Statement, as
applicable.\7\
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\7\ See supra notes 3 and 4.
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III. Discussion and Commission Findings
After careful consideration, the Commission finds that the proposed
rule change is consistent with the requirements of the Act and the
rules and regulations thereunder applicable to a national securities
exchange.\8\ In particular, the Commission finds that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act,\9\ which requires, among other things, that the Exchange's rules
be designed 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 it has approved the listing and trading of
other similar Managed Fund Shares.\10\
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\8\ 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).
\9\ 15 U.S.C. 78f(b)(5).
\10\ See, e.g., Securities Exchange Act Release No. 63076
(October 12, 2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-
2010-79) (approving the listing and trading of the Cambria Global
Tactical ETF, which is a ``fund-of-funds'' that seeks to invest
primarily in other exchange-traded funds listed and traded in the
United States and certain other exchange-traded products including,
but not limited to, exchange-traded notes, exchange-traded currency
trusts, and closed-end funds).
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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,\11\ 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
[[Page 6505]]
last-sale information for the Shares will be available via the
Consolidated Tape Association high-speed line. In addition, the
Portfolio Indicative Value will be disseminated at least every 15
seconds during the Core Trading Session by one or more major market
data vendors. On each business day before commencement of trading in
Shares in the Core Trading Session on the Exchange, the Funds will
disclose on their website the Disclosed Portfolio, as defined in NYSE
Arca Equities Rule 8.600(c)(2), that will form the basis for the Funds'
calculation of NAV at the end of the business day.\12\ The NAV per
Share for the Funds will be calculated by the Administrator and
determined as of the close of the regular trading session on NYSE Arca
(ordinarily 4:00 p.m., Eastern Time) on each day that the Exchange is
open. Information regarding market price and trading volume of the
Underlying ETPs will be continually available on a real-time basis
throughout the day from major market data vendors, and last-sale and
closing price information for Underlying ETPs will be available on the
website of the national securities exchange on which such securities
are listed or through major market data vendors. Information regarding
market price and trading volume of the Shares will be continually
available on a real time basis through 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. The Funds' Web site will also include
a form of the Prospectus for the Funds, information relating to NAV,
and other quantitative and trading information. Further, a basket
composition file, which includes the security names and share
quantities required to be delivered in exchange for Fund Shares,
together with estimates and actual cash components, will be publicly
disseminated daily prior to the opening of the New York Stock Exchange
via the National Securities Clearing Corporation.
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\11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\12\ On a daily basis, the Advisor will disclose for each
portfolio security or other financial instrument of the Funds 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.
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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 of the Shares that the NAV and the
Disclosed Portfolio will be made available to all market participants
at the same time.\13\ In addition, the Exchange will halt trading in
the Shares under the specific circumstances set forth in NYSE Arca
Equities Rule 8.600(d)(2)(D), and may halt trading in the Shares to the
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Funds,
or whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.\14\ In addition,
NYSE Arca Equities Rule 8.600(d)(2)(B)(ii) requires that the Reporting
Authority that provides the Disclosed Portfolio 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. Further, the Commission notes that neither
the Advisor nor the Sub-Advisor is affiliated with a broker-dealer.\15\
In the event (a) the Advisor or the Sub-Advisor becomes newly
affiliated with a broker-dealer, or (b) any new advisor or sub-advisor
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 a
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio.
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\13\ See NYSE Arca Equities Rule 8.600(d)(1)(B) (also requiring
that the Exchange obtain a representation from the issuer that NAV
per Share for each Fund will be calculated daily).
\14\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii). With
respect to trading halts, the Exchange may consider other relevant
factors in exercising its discretion to halt or suspend trading in
the Shares of the Funds. Trading in Shares of the Funds will be
halted if the circuit breaker parameters in NYSE Arca Equities Rule
7.12 have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
\15\ See Commentary .06 to NYSE Arca Equities Rule 8.600. With
respect to the Funds, the Exchange represents that the Advisor and
Sub-Advisor, 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 advisor 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 advisor 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
advisor to provide investment advice to clients unless such
investment advisor has (i) adopted and implemented written policies
and procedures reasonably designed to prevent violation, by the
investment advisor 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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The Exchange represents that the Shares are deemed to be equity
securities, thus rendering trading in the Shares subject to the
Exchange's existing 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 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 in Creation Unit
aggregations (and that Shares are not individual 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) A minimum of 100,000 Shares for each Fund will be outstanding
at the
[[Page 6506]]
commencement of trading on the Exchange.
(6) For initial and/or continued listing, the Funds will be in
compliance with Rule 10A-3 under the Act.\16\
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\16\ 17 CFR 240.10A-3.
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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 \17\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\17\ 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,\18\ that the proposed rule change (SR-NYSEArca-2010-118), be, and
it hereby is, approved.
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\18\ 15 U.S.C. 78s(b)(2).
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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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-2457 Filed 2-3-11; 8:45 am]
BILLING CODE 8011-01-P