[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Notices]
[Pages 10073-10076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3984]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63919; File No. SR-NYSEArca-2010-116]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change, as Modified by Amendment No. 1
Thereto, Relating to the Listing and Trading of the WisdomTree Asia
Local Debt Fund
February 16, 2011.
I. Introduction
On December 13, 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 shares of the WisdomTree Asia
Local Debt Fund (f/k/a WisdomTree Asia Bond Fund) under NYSE Arca
Equities Rule 8.600. The proposed rule change was published for comment
in the Federal Register on January 3, 2011.\3\ On February 15, 2011,
the Exchange filed Amendment No. 1 to the proposed rule change.\4\ The
Commission received no comments on the proposal. This order grants
approval of the proposed rule change, as amended.
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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. 63609 (December 27,
2010), 76 FR 194 (``Notice'').
\4\ In Amendment No. 1, the Exchange modified the name of the
Fund from ``WisdomTree Asia Bond Fund'' to ``WisdomTree Asia Local
Debt Fund,'' updated references to the amended Registration
Statement (as defined herein), and clarified that the Fund intends
to invest in issuers in Australia and New Zealand. Because such
modifications are either technical in nature or clarifications, the
amendment does not require notice and comment.
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II. Description of the Proposal
The Exchange proposes to list and trade shares (``Shares'') of the
WisdomTree Asia Local Debt Fund (``Fund'') of the WisdomTree Trust
(``Trust'') under NYSE Arca Equities Rule 8.600, which governs the
listing and trading of Managed Fund Shares on the Exchange. 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 and is registered with the Commission as an
investment company.\5\ WisdomTree Asset Management, Inc. (``WisdomTree
Asset Management'') is the investment adviser (``Adviser'') to the
Fund,\6\ and Mellon Capital Management serves as sub-adviser for the
Fund (``Sub-Adviser'').\7\ The Bank of New York Mellon is the
administrator, custodian, and transfer agent for the Trust, and ALPS
Distributors, Inc. serves as the distributor for the Trust.
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\5\ The Fund has filed a registration statement on Form N-1A
(``Registration Statement'') with the Commission. See Post-Effective
Amendment No. 42 to Registration Statement on Form N-1A for the
Trust, dated January 24, 2011 (File Nos. 333-132380 and 811-21864).
\6\ WisdomTree Investments, Inc. is the parent company of
WisdomTree Asset Management.
\7\ 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 seeks to provide investors with a high level of total
return consisting of both income and capital appreciation. The Fund is
designed to provide exposure to a broad range of Asian government and
corporate bonds through investment in both local currency (e.g., Hong
Kong dollar; South Korean won) and U.S. dollar-
[[Page 10074]]
denominated Fixed Income Securities.\8\ The Fund seeks to achieve its
investment objective through direct and indirect investments in Fixed
Income Securities issued by governments and corporations in Asian
countries and intends to focus on the developing/emerging market
economies in Asia, primarily China, Hong Kong, India, Indonesia, South
Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand.
While the Fund is permitted to invest in developed market economies,
this is not a focus of the Fund. However, the Fund intends to invest in
issuers in Australia and New Zealand.
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\8\ Fixed Income Securities include bonds, notes or other debt
obligations, such as government or corporate bonds, denominated in
local currencies or U.S. dollars, as well as issues denominated in
Asian local currencies that are issued by ``supranational issuers,''
such as the European Investment Bank, International Bank for
Reconstruction and Development, and the International Finance
Corporation, as well as development agencies supported by other
national governments.
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The Fund intends to invest at least 70% of its net assets in Fixed
Income Securities. The Fund expects to invest up to 20% of its net
assets in Asian 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. Economic and other conditions in Asia 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 Asian government and corporate
bonds, and (iii) such investment is deemed by the Adviser or Sub-
Adviser to be in the best interest of the Fund. The Fund will hold
Fixed Income Securities of at least 13 non-affiliated issuers.
The Fund is designed to provide a broad-based, representative
exposure to Asian government and corporate bonds and therefore will
invest in both investment grade and non-investment grade securities in
a manner designed to provide this exposure. The Fund 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 Asian government and corporate bonds, and
because the debt ratings of the Asian governments and those corporate
issuers will change from time to time, the exact percentage of the
Fund's investments in investment grade and non-investment grade
securities will change from time to time in response to economic events
and changes to the credit ratings of the Asian 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. The Fund will not invest in non-U.S.
equity securities.
The Fund intends to invest in Money Market Securities in order to
help manage cash flows in and out of the Fund, such as in connection
with payment of dividends or expenses, and to satisfy margin
requirements, to provide collateral or to otherwise back investments in
derivative instruments. For these purposes, Money Market Securities
include: short-term, high-quality obligations issued or guaranteed by
the U.S. Treasury or the agencies or instrumentalities of the U.S.
government; short-term, high-quality securities issued or guaranteed by
non-U.S. governments, agencies and instrumentalities; repurchase
agreements backed by U.S. government securities; money market mutual
funds; and deposits and other obligations of U.S. and non-U.S. banks
and financial institutions. All Money Market Securities acquired by the
Fund will be rated investment grade, except that the Fund may invest in
unrated Money Market Securities that are deemed by the Adviser or Sub-
Adviser to be of comparable quality to money market securities rated
investment grade.
The Fund may use derivative instruments as part of its investment
strategies. Examples of derivative instruments include listed futures
contracts,\9\ forward currency contracts, non-deliverable forward
currency contracts, currency and interest rate swaps, currency options,
options on futures contracts, swap agreements and credit-linked
notes.\10\ The Fund's use of derivative instruments (other than credit-
linked notes) will be collateralized or otherwise backed 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.
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\9\ The listed futures contracts in which the Fund will invest
may be listed on exchanges either in the U.S. or in either Hong Kong
or Singapore.
\10\ The Fund's investments in credit-linked notes will be
limited to notes providing exposure to Asian Fixed Income
Securities. The Fund's overall investment in credit-linked notes
will not exceed 25% of the Fund's assets.
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The Fund may invest in the securities of other investment companies
(including money market funds and exchange-traded funds). 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.
Additional details regarding the Trust and the Fund, the investment
objective and strategies, creations and redemptions of the Shares,
investment risks, net asset value (``NAV'') calculation, the
dissemination of key values and availability of information about the
underlying assets, trading halts, applicable trading rules,
surveillance, and the Information Bulletin, among other things, can be
found in the Notice and/or the Registration Statement, as
applicable.\11\
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\11\ See supra notes 3 and 5.
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III. Discussion and Commission's Findings
After careful consideration, the Commission finds that the proposed
rule change to list and trade the Shares of the Fund is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\12\ In particular, the
Commission finds that the proposed rule change is consistent
[[Page 10075]]
with the requirements of Section 6(b)(5) of the Act,\13\ 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, and to remove impediments to and perfect the mechanism of a
free and open market and a national market system. The Commission notes
that the Shares and Fund must comply with the requirements of NYSE Arca
Equities Rule 8.600, among other Exchange rules, to be listed and
traded on the Exchange.
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\12\ 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).
\13\ 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 also consistent with Section 11A(a)(1)(C)(iii) of
the Act,\14\ 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 regarding the Shares will be available via the
Consolidated Tape Association's high-speed line. On each business day
before commencement of trading in the Shares in the Core Trading
Session\15\ 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 that will form the
basis for the Fund's calculation of NAV at the end of the business
day.\16\ The Disclosed Portfolio will include, as applicable, the
names, quantity, percentage weighting, and market value of Fixed Income
Securities and other assets held by the Fund and the characteristics of
such assets. 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 4:00 p.m. Eastern time. In addition,
an estimated value that reflects an estimated intraday value of the
Fund's portfolio, defined in NYSE Arca Equities Rule 8.600 as the
``Portfolio Indicative Value,'' will also 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. Intra-day and end-of-day prices for the Fixed
Income Securities, Money Market Securities, and derivative instruments
held by the Fund are readily available through major market data
providers and broker-dealers. The Web site for the Fund (http://www.wisdomtree.com) will include a form of the prospectus and
additional data relating to NAV and other applicable quantitative
information.
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\14\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\15\ The Core Trading Session is 9:30 a.m. to 4:00 p.m. Eastern
time.
\16\ 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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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.\17\ If the Exchange becomes aware that the NAV or
Disclosed Portfolio with respect to the Shares is not disseminated to
all market participants at the same time, it will halt trading in the
Shares until such time as the NAV or Disclosed Portfolio is available
to all market participants. Further, the Exchange may halt trading
during the day in which an 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.\18\ The Exchange also represents that the Sub-Adviser,
which is affiliated with multiple broker-dealers, 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. In addition, Sub-Adviser personnel who make decisions
regarding the Fund's portfolio are subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding the Fund's portfolio.\19\ Finally, 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). 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 and/or the financial
instruments comprising the Disclosed Portfolio of the Fund; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.
\19\ See Commentary .06 to NYSE Arca Equities Rule 8.600. 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.
\20\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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The Exchange has represented that the Shares are deemed 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 the following:
(1) The Shares will be subject to NYSE Arca Equities Rule 8.600,
which sets forth the initial and continued listing criteria applicable
to Managed Fund Shares.
(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 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
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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 will be outstanding at the
commencement of trading on the Exchange.
(6) For initial and/or continued listing, the Shares must be in
compliance with Rule 10A-3 under the Act.\21\
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\21\ See 17 CFR 240.10A-3.
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,\22\ that the proposed rule change (SR-NYSEArca-2010-116), as
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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\22\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3984 Filed 2-22-11; 8:45 am]
BILLING CODE 8011-01-P