[Federal Register Volume 76, Number 70 (Tuesday, April 12, 2011)]
[Notices]
[Pages 20401-20406]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-8725]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64224; File No. SR-NYSEArca-2011-11]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of the
Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced Ultra-Short
Bond ETF
April 7, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 24, 2011, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change as described in Items I and II below, which Items
have been prepared by the Exchange. The Commission is publishing this
notice to solicit comments on the proposed rule change from interested
persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the following under NYSE
Arca Equities Rule 8.600: Guggenheim Enhanced Core Bond ETF and
Guggenheim Enhanced Ultra-Short Bond ETF. The text of the proposed rule
change is available at the Exchange, the Commission's Public Reference
Room, and http://www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade the following Managed Fund
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: Guggenheim
Enhanced Core Bond ETF and Guggenheim Enhanced Ultra-Short Bond ETF
(each a ``Fund,'' and, collectively, ``Funds'').\4\ The Shares will be
offered by the Claymore Exchange-Traded Fund 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.\5\
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\3\ A Managed Fund Share is a security that represents an
interest in an investment company registered under the Investment
Company Act of 1940 (15 U.S.C. 80a) (``1940 Act'') organized as an
open-end investment company or similar entity that invests in a
portfolio of securities selected by its investment adviser
consistent with its investment objectives and policies. In contrast,
an open-end investment company that issues Investment Company Units,
listed and traded on the Exchange under NYSE Arca Equities Rule
5.2(j)(3), seeks to provide investment results that correspond
generally to the price and yield performance of a specific foreign
or domestic stock index, fixed income securities index, or
combination thereof.
\4\ The Commission previously approved listing and trading on
the Exchange of the following actively managed funds under Rule
8.600. See Securities Exchange Act Release Nos. 57801 (May 8, 2008),
73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving
Exchange listing and trading of twelve actively-managed funds of the
WisdomTree Trust); 61365 (January 15, 2010), 75 FR 4124 (January 26,
2010) (SR-NYSEArca-2009-114) (order approving listing and trading of
Grail McDonnell Fixed Income ETFs); and 60981 (November 10, 2009),
74 FR 59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order
approving listing of five fixed income funds of the PIMCO ETF
Trust).
\5\ The Trust is registered under the 1940 Act. On July 26,
2010, the Trust filed with the Commission Form N-1A under the
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act'') relating
to the Funds (File Nos. 333-134551 and 811-21906) (``Registration
Statement''). The description of the operation of the Trust and the
Funds herein is based on the Registration Statement.
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The investment adviser for the Funds is Claymore Advisors, LLC
(``Investment Adviser''). The Bank of New York Mellon is the custodian
and transfer agent for the Funds. Claymore Securities, Inc. is the
distributor for the Funds.
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.\6\ 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 Investment
Adviser is affiliated with a broker-dealer and has represented that it
has implemented a fire wall with respect to its broker-
[[Page 20402]]
dealer affiliate regarding access to information concerning the
composition and/or changes to the portfolio. In the event (a) the
Investment Adviser becomes newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser becomes affiliated with a broker-
dealer, they will implement a fire wall with respect to such broker-
dealer regarding access to information concerning the composition and/
or changes to the portfolio.
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\6\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). As a result, the investment adviser is subject to the
provisions of Rule 204A-1 under the Advisers Act relating to codes
of ethics. This Rule 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. The Exchange
represents that the Investment Adviser and related personnel, are
subject to Advisers Act Rule 204A-1. In addition, Rule 206(4)-7
under the Advisers Act makes it unlawful for an investment adviser
to provide investment advice to clients unless such investment
adviser has (i) Adopted and implemented written policies and
procedures reasonably designed to prevent violation, by the
investment adviser 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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Guggenheim Enhanced Core Bond ETF
According to the Registration Statement, the investment objective
of the Guggenheim Enhanced Core Bond ETF is to seek total return,
comprised of income and capital appreciation. The Fund will use a
quantitative strategy to seek total returns, comprised of income and
capital appreciation, and risk-adjusted returns in excess of the
Barclays Capital U.S. Aggregate Bond Index (``Benchmark'') while
maintaining a low risk profile versus the Benchmark. The Fund's
quantitative strategy attempts to identify relative mispricing among
the instruments of a given asset class and estimate future returns
which may arise from the correction of these mispricing levels. The
quantitative portfolio construction process then attempts to maximize
expected returns due to issue-specific mispricing while controlling for
interest rate and credit spread (i.e., differences in yield between
different debt instruments arising from differences in credit risk)
risks. The average duration of the Fund's debt holdings is expected to
be generally similar to the average duration of the Benchmark
components.
The Fund primarily will invest in U.S. dollar-denominated
investment grade debt securities, rated Baa or higher by Moody's
Investors Service, Inc. (``Moody's''), or equivalently rated by
Standard & Poor's Rating Group (``S&P'') or Fitch Investor Services
(``Fitch'') or, if unrated, determined by the Investment Adviser to be
of comparable quality.\7\ The Fund may invest, without limitation, in
U.S. dollar-denominated debt securities of foreign issuers. The Fund
may also invest in debt securities denominated in foreign currencies.
The Investment Adviser may attempt to reduce foreign currency exchange
rate risk by entering into contracts with banks, brokers, or dealers to
purchase or sell securities or foreign currencies at a future date
(``forward contracts''). The Fund may invest no more than 10% in high
yield securities (``junk bonds''), which are debt securities that are
rated below investment grade by nationally recognized statistical
rating organizations, or are unrated securities that the Investment
Adviser believes are of comparable quality.
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\7\ The Investment Adviser's analysis is comprised of multiple
elements including collateral and counterparty risk, structural
analysis, quantitative analysis, and relative value/market value at
risk analysis. Evaluation is also applied to collateral, historical
market data, and proprietary statistical models to evaluate specific
transactions. This analysis is applied against the macroeconomic
outlook, geopolitical issues as well as considerations that more
directly affect the company's industry to determine an internally
assigned credit rating.
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The Fund may invest in a wide range of fixed income instruments
selected from, but not limited to, the following sectors: U.S. Treasury
securities, corporate bonds, emerging market debt, and non-dollar
denominated sovereign and corporate debt.\8\ The Fund may invest up to
10% of its assets in mortgage-backed securities (``MBS'') or in other
asset-backed securities.\9\ This limitation does not apply to
securities issued or guaranteed by federal agencies and/or U.S.
government sponsored instrumentalities, such as the Government National
Mortgage Administration (``GNMA''), the Federal Housing Administration
(``FHA''), the Federal National Mortgage Association (``FNMA''), and
the Federal Home Loan Mortgage Corporation (``FHLMC'').
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\8\ The Fund will invest only in securities that the Investment
Adviser deems to be sufficiently liquid. While corporate bonds and
emerging market debt generally must have $200 million or more par
amount outstanding and significant par value traded to be considered
as an eligible investment, at least 80% of issues of corporate bonds
or corporate debt held by the Fund must have $200 million or more
par amount outstanding. The strategy follows an active quantitative
investment process that seeks excess returns to the Benchmark. The
strategy selects securities using a rigorous portfolio construction
approach to tightly control independent risk exposures such as fixed
income sector weights, sector specific yield curves, credit spreads,
prepayment risks, and others. Within those risk constraints, the
strategy utilizes relative value estimates to select individual
securities that can provide risk adjusted outperformance relative to
the Benchmark.
\9\ The Fund may invest in MBS or other asset-backed securities
issued or guaranteed by private issuers. The MBS in which the Fund
may invest may also include residential mortgage-backed securities
(``RMBS''), collateralized mortgage obligations (``CMOs''), and
commercial mortgage-backed securities (``CMBS''). The asset-backed
securities in which the Fund may invest include collateralized debt
obligations (``CDOs''). CDOs include collateralized bond obligations
(``CBOs''), collateralized loan obligations (``CLOs'') and other
similarly structured securities. A CBO is a trust which is backed by
a diversified pool of high risk, below investment grade fixed income
securities. A CLO is a trust typically collateralized by a pool of
loans, which may include, among others, domestic and foreign senior
secured loans, senior unsecured loans, and subordinate corporate
loans, including loans that may be rated below investment grade or
equivalent unrated loans.
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According to the Registration Statement, the Fund may obtain
exposure to the securities in which it normally invests by engaging in
various investment techniques, including, but not limited to, forward
purchase agreements, mortgage dollar roll, and ``TBA'' mortgage
trading.\10\ The Fund also may invest directly in exchange-traded funds
(``ETFs'') and other investment companies that provide exposure to
fixed income securities similar to those securities in which the Fund
may invest in directly.
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\10\ A mortgage dollar roll involves the sale of a MBS by one of
the Funds and its agreement to repurchase the instrument (or one
which is substantially similar) at a specified time and price. A TBA
transaction is a method of trading MBS. In a TBA transaction, the
buyer and seller agree upon general trade parameters such as agency,
settlement date, par amount, and price. The actual pools delivered
generally are determined two days prior to the settlement date.
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The Fund will normally invest at least 80% of its net assets in
fixed income securities.
Guggenheim Enhanced Ultra-Short Bond ETF
According to the Registration Statement, the investment objective
of the Guggenheim Enhanced Ultra-Short Bond ETF is to seek maximum
current income, consistent with preservation of capital and daily
liquidity. The Fund uses a low duration strategy to seek to outperform
the 1-3 month Treasury Bill Index in addition to providing returns in
excess of those available in U.S. Treasury bills, government repurchase
agreements, and money market funds, while providing preservation of
capital and daily liquidity. The Fund is not a money market fund and
thus does not seek to maintain a stable net asset value of $1.00 per
Share.
The Fund expects, under normal circumstances,\11\ to hold a
diversified portfolio of fixed income instruments of varying
maturities, but that have an average duration of less than 1 year. The
Fund primarily will invest in U.S. dollar-denominated investment grade
debt securities, rated Baa or higher by Moody's, or equivalently rated
by S&P or Fitch or, if unrated, determined by the Investment Adviser to
be of comparable quality.\12\ The Fund may invest, without limitation,
in U.S. dollar-denominated debt securities of foreign issuers. The Fund
may also invest in debt securities denominated in
[[Page 20403]]
foreign currencies. The Investment Adviser may attempt to reduce
foreign currency exchange rate risk by entering into contracts with
banks, brokers, or dealers to purchase or sell securities or forward
contracts. The Fund may invest no more than 10% in junk bonds. The Fund
may also invest in municipal securities.
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\11\ The term ``under normal market circumstances'' includes,
but is not limited to, the absence of extreme volatility or trading
halts in the fixed income markets or the financial markets
generally; operational issues causing dissemination of inaccurate
market information; or force majeure type events such as systems
failure, natural or man-made disaster, act of God, armed conflict,
act of terrorism, riot or labor disruption, or any similar
intervening circumstance.
\12\ See note 7, supra.
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The Fund may invest a substantial portion of its assets in short-
term instruments such as commercial paper \13\ and/or repurchase
agreements.\14\ The Fund may also invest in a wide range of fixed
income instruments selected from, but not limited to, the following
sectors: U.S. Treasury securities, corporate bonds, emerging market
debt, and non-dollar denominated sovereign and corporate debt.\15\ The
Fund may invest up to 10% of its assets in MBS or in other asset-backed
securities.\16\ This limitation does not apply to securities issued or
guaranteed by federal agencies and/or U.S. government sponsored
instrumentalities, such as the GNMA, FHA, FNMA, and FHLMC.
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\13\ Commercial paper consists of short-term, promissory notes
issued by banks, corporations and other entities to finance short-
term credit needs. These securities generally are discounted but
sometimes may be interest bearing. As of year end 2010, $1.058
trillion commercial paper was outstanding, and, as of February 28,
2011, $1.123 trillion commercial paper was outstanding. The daily
average commercial paper market issuance in 2010 was $84.343
billion, with 65% having a maturity of 1-4 days, 8% having a
maturity of 5-9 days, 4% having a maturity of 10-20 days, 11% having
a maturity of 21-40 days, 4% having a maturity of 41-80 days, and 8%
having a maturity of 81 days or more. As of March 16, 2011, the
daily average commercial paper market issuance was $78.780 billion,
with 58% having a maturity of 1-4 days, 9% having a maturity of 5-9
days, 5% having a maturity of 10-20 days, 12% having a maturity of
21-40 days, 5% having a maturity of 41-80 days, and 11% having a
maturity of 81days or more. (Source: Federal Reserve).
\14\ The Fund may invest a substantial portion of its assets in
short-term instruments such as repurchase agreements. Repurchase
agreements are fixed-income securities in the form of agreements
backed by collateral. These agreements, which may be viewed as a
type of secured lending by the Fund, typically involve the
acquisition by the Fund of securities from the selling institution
(such as a bank or a broker-dealer), coupled with the agreement that
the selling institution will repurchase the underlying securities at
a specified price and at a fixed time in the future (or on demand).
The underlying securities which serve as collateral for the
repurchase agreements entered into by the Fund may include U.S.
government securities, corporate obligations, and convertible
securities, and are marked-to-market daily in order to maintain full
collateralization (typically purchase price plus accrued interest).
\15\ The Fund will invest only in securities that the Investment
Adviser deems to be sufficiently liquid. While corporate bonds and
emerging market debt generally must have $200 million or more par
amount outstanding and significant par value traded to be considered
as an eligible investment, at least 80% of issues of corporate bonds
or corporate debt held by the Fund must have $200 million or more
par amount outstanding.
\16\ The Fund may invest in MBS or other asset-backed securities
issued or guaranteed by private issuers. The MBS in which the Fund
may invest may also include RMBS, CMOs and CMBS. The asset-backed
securities in which the Fund may invest include CDOs.
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According to the Registration Statement, the Fund may obtain
exposure to the securities in which it normally invests by engaging in
various investment techniques, including, but not limited to, forward
purchase agreements, mortgage dollar roll, and ``TBA'' mortgage
trading. The Fund also may invest directly in ETFs and other investment
companies that provide exposure to fixed income securities similar to
those securities in which the Fund may invest in directly.
The Fund will normally invest at least 80% of its net assets in
fixed income securities.
Other Investments
Each Fund may invest up to an aggregate amount of 15% of its net
assets in: (1) Illiquid securities; and (2) Rule 144A securities.
Illiquid securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets. With respect to investment in illiquid securities,
if changes in the values of a Fund's securities cause the Fund's
holdings of illiquid securities to exceed the 15% limitation (as if
liquid securities have become illiquid), the Fund will take such
actions as it deems appropriate and practicable to attempt to reduce
its holdings of illiquid securities.
The Funds may invest in Rule 144A securities. Rule 144A securities
are securities which, while privately placed, are eligible for purchase
and resale pursuant to Rule 144A under the Securities Act. According to
the Registration Statement, this rule permits certain qualified
institutional buyers, such as the Funds, to trade in privately placed
securities even though such securities are not registered under the
Securities Act.
The Funds' portfolio holdings will be disclosed on their Web site
(http://www.guggenheimfunds.com) daily after the close of trading on
the Exchange and prior to the opening of trading on the Exchange the
following day.
The Funds are considered non-diversified under the 1940 Act and can
invest a greater portion of assets in securities of individual issuers
than a diversified fund. The Funds intend 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.\17\
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\17\ 26 U.S.C. 851. As a RIC, each Fund will not be subject to
U.S. federal income tax on the portion of its taxable investment
income and capital gains that it distributes to its shareholders. To
qualify for treatment as a RIC, a company must annually distribute
at least 90% of its net investment company taxable income (which
includes dividends, interest, and net short-term capital gains) and
meet several other requirements relating to the nature of its income
and the diversification of its assets. If a Fund fails to qualify
for any taxable year as a RIC, all of its taxable income will be
subject to tax at regular corporate income tax rates without any
deduction for distributions to shareholders, and such distributions
generally will be taxable to shareholders as ordinary dividends to
the extent of a Fund's current and accumulated earnings and profits.
In addition, in order to requalify for taxation as a RIC, a Fund may
be required to recognize unrealized gains, pay substantial taxes and
interest, and make certain distributions.
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The Shares will conform to the initial and continued listing
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents
that, for initial and/or continued listing, the Funds will be in
compliance with Rule 10A-3 under the Exchange Act,\18\ as provided by
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of each Fund
will be outstanding at the commencement of trading on the Exchange. The
Exchange will obtain a representation from the issuer of the Shares
that the net asset value (``NAV'') will be calculated daily, and the
NAV and the Disclosed Portfolio will be made available to all market
participants at the same time.
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\18\ 17 CFR 240.10A-3.
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The Funds will not invest in non-U.S. equity securities. In
addition, the Funds will not invest in options contracts, futures
contracts, or swap agreements.
Creations and Redemptions of Shares
Investors may create or redeem in Creation Unit size of 100,000
Shares or aggregations thereof (``Creation Unit Aggregation'') through
an Authorized Participant, as described in the Registration Statement.
In order to purchase Creation Units of a Fund, an investor must
generally deposit a designated portfolio of securities (``Deposit
Securities'') and/or an amount in cash in lieu of some or all of the
Deposit Securities per each Creation Unit Aggregation constituting a
substantial replication, or representation, of the securities included
in the Fund's portfolio as selected by the Investment Adviser (``Fund
Securities'') and generally make a cash payment referred to as the
``Cash Component.'' The list of the names and the amounts of the
Deposit Securities will be made available by the Funds' custodian
through the facilities of the
[[Page 20404]]
National Securities Clearing Corporation (``NSCC'') immediately prior
to the opening of business each day of the NYSE Arca. The Cash
Component represents the difference between the NAV of a Creation Unit
and the market value of the Deposit Securities.
Shares may be redeemed only in Creation Unit size at their NAV on a
day the NYSE Arca is open for business. The Funds' custodian will make
available immediately prior to the opening of business each day of the
NYSE Arca, through the facilities of NSCC, the list of the names and
the amounts of the Funds' portfolio securities that will be applicable
that day to redemption requests in proper form (``Fund Securities'').
Fund Securities received on redemption may not be identical to Deposit
Securities which are applicable to purchases of Creation Units.
Availability of Information
The Funds' Web site, which will be publicly available prior to the
public offering of Shares, will include a form of the Prospectus for
the Funds that may be downloaded. The Funds' website will include
additional quantitative information updated on a daily basis,
including, for the Funds, (1) daily trading volume, the prior business
day's reported closing price, NAV and mid-point of the bid/ask spread
at the time of calculation of such NAV (``Bid/Ask Price''),\19\ and a
calculation of the premium and discount of the Bid/Ask Price against
the NAV, and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily Bid/Ask Price
against the NAV, within appropriate ranges, for each of the four
previous calendar quarters. 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
each Fund's calculation of NAV at the end of the business day.\20\
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\19\ The Bid/Ask Price of the Funds will be determined using the
highest bid and the lowest offer on the Exchange as of the time of
calculation of each Fund's NAV. The records relating to Bid/Ask
Prices will be retained by the Funds and its service providers.
\20\ Under accounting procedures followed by the Funds, trades
made on the prior business day (``T'') will be booked and reflected
in NAV on the current business day (``T+1''). Accordingly, the Funds
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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On a daily basis, the Investment Adviser 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. The website
information will be publicly available at no charge. In addition, price
information for the debt securities held by the Funds will be available
through major market data vendors.
In addition, 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 (``NYSE'') via NSCC. The basket represents one Creation
Unit of each of the Funds. The NAV of each of the Funds will normally
be determined as of the close of the regular trading session on the
NYSE (ordinarily 4 p.m. Eastern Time) on each business day.
Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Funds' Shareholder Reports, and Form N-CSR,
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at http://www.sec.gov.
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. Quotation and last-sale information for the Shares will be
available via the Consolidated Tape Association (``CTA'') high-speed
line. In addition, the Portfolio Indicative Value, as defined in NYSE
Arca Equities Rule 8.600(c)(3), will be disseminated by one or more
major market data vendors at least every 15 seconds during the Core
Trading Session. The dissemination of the Portfolio Indicative Value,
together with the Disclosed Portfolio, will allow investors to
determine the value of the underlying portfolio of each Fund on a daily
basis and to provide a close estimate of that value throughout the
trading day.
Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies,
distributions, and taxes is included in the Registration Statement.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Funds.\21\ 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. 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 Funds;
or (2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. Trading in
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D),
which sets forth circumstances under which Shares of the Funds may be
halted.
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\21\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern Time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
The Exchange intends to utilize its existing surveillance
procedures applicable to derivative products (which include Managed
Fund Shares) to monitor trading in the Shares. The Exchange represents
that these 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.
The Exchange's current trading surveillance focuses on detecting
[[Page 20405]]
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
The Exchange may obtain information via the Intermarket
Surveillance Group (``ISG'') from other exchanges that are members of
ISG or with which the Exchange has entered into a surveillance sharing
agreement.\22\
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\22\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio for the Funds may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
Equity Trading Permit (``ETP'') Holders in an Information Bulletin
(``Bulletin'') of the special characteristics and risks associated with
trading the Shares. Specifically, the Bulletin will discuss the
following: (1) The procedures for purchases and redemptions of Shares
in Creation Unit Aggregations (and that Shares are not individually
redeemable); (2) 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; (3) 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; (4) how information regarding the
Portfolio Indicative Value is disseminated; (5) 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 (6) trading information.
In addition, the Bulletin will reference that the Funds are subject
to various fees and expenses described in the Registration Statement.
The Bulletin will discuss any exemptive, no-action, and interpretive
relief granted by the Commission from any rules under the Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. Eastern Time each trading day.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5) \23\ that an exchange have rules
that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest. The
Exchange believes that the proposed rule change will facilitate the
listing and trading of an additional type of actively-managed exchange-
traded product that will enhance competition among market participants,
to the benefit of investors and the marketplace. The Funds primarily
will invest in U.S. dollar-denominated investment grade debt
securities, rated Baa or higher by Moody's, or equivalently rated by
S&P or Fitch or, if unrated, determined by the Investment Adviser to be
of comparable quality. At least 80% of issues of corporate bonds or
corporate debt held by each Fund must have $200 million or more par
amount outstanding. The Funds will not invest in non-U.S. equity
securities.
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\23\ 15 U.S.C. 78f(b)(5).
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In addition, the Funds will not invest in options contracts,
futures contracts, or swap agreements. The Funds' portfolio holdings
will be disclosed on their website daily after the close of trading on
the Exchange and prior to the opening of trading on the Exchange the
following day. The Portfolio Indicative Value, as defined in NYSE Arca
Equities Rule 8.600(c)(3), will be disseminated by one or more major
market data vendors at least every 15 seconds during the Core Trading
Session. 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, and quotation and last-sale information will be available via
the CTA high-speed line. Trading in Shares of the Funds will be halted
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have
been reached or because of market conditions or for reasons that, in
the view of the Exchange, make trading in the Shares inadvisable.
Trading in the Shares will be subject to NYSE Arca Equities Rule
8.600(d)(2)(D), which sets forth circumstances under which Shares of
the Funds may be halted. The Exchange will obtain a representation from
the issuer of the Shares that the NAV will be calculated daily, and the
NAV and the Disclosed Portfolio will be made available to all market
participants at the same time.
In addition, the Exchange has in place surveillance procedures that
are adequate to properly monitor trading in the Shares. 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission shall:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File Number SR-NYSEArca-2011-11 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
[[Page 20406]]
All submissions should refer to File Number SR-NYSEArca-2011-11. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of the filing will also be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File No. SR-
NYSEArca-2011-11 and should be submitted on or before May 3, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
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\24\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-8725 Filed 4-11-11; 8:45 am]
BILLING CODE 8011-01-P