[Federal Register Volume 76, Number 160 (Thursday, August 18, 2011)]
[Notices]
[Pages 51442-51446]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-21029]



[[Page 51442]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65126; File No. SR-NYSEArca-2011-51]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Managed Fund Shares of 
TrimTabs Float Shrink ETF Under NYSE Arca Equities Rule 8.600

August 12, 2011.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'' or ``Exchange Act'') \2\ and Rule 19b-4 
thereunder,\3\ notice is hereby given that, on July 29, 2011, NYSE 
Arca, Inc. (the ``Exchange'' or ``NYSE Arca'') filed with the 
Securities and Exchange Commission (the ``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the self-regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 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 TrimTabs Float Shrink ETF 
under NYSE Arca Equities Rule 8.600. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the following Managed Fund 
Shares \4\ (``Shares'') under NYSE Arca Equities Rule 8.600: the 
TrimTabs Float Shrink ETF (``Fund'').\5\ The Shares will be offered by 
AdvisorShares Trust (the ``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.\6\ The investment adviser to 
the Fund is AdvisorShares Investments, LLC (the ``Adviser''). Trim Tabs 
Asset Management, LLC (``TrimTabs'' or ``Sub-Adviser'') is the Fund's 
sub-adviser and provides day-to-day portfolio management of the Fund. 
Foreside Fund Services, LLC (the ``Distributor'') is the principal 
underwriter and distributor of the Fund's Shares.
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    \4\ 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.
    \5\ The Commission approved NYSE Arca Equities Rule 8.600 and 
the listing and trading of certain funds of the PowerShares Actively 
Managed Exchange-Traded Funds Trust on the Exchange pursuant to Rule 
8.600 in Securities Exchange Act Release No. 57619 (April 4, 2008), 
73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission 
also has approved listing and trading on the Exchange of a number of 
actively managed funds under Rule 8.600. See, e.g., 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); 
60460 (August 7, 2009), 74 FR 41468 (August 17, 2009) (SR-NYSEArca-
2009-55) (order approving listing of Dent Tactical ETF); 63737 
(January 19, 2011), 76 FR 4968 (January 27, 2011) (SR-NYSEArca-2010-
107) (order approving Exchange listing and trading of AdvisorShares 
Active Bear ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 
2011) (SR-NYSEArca-2010-118) (order approving Exchange listing and 
trading of SiM Dynamic Allocation Diversified Income ETF and SiM 
Dynamic Allocation Growth Income ETF).
    \6\ The Trust is registered under the 1940 Act. On January 19, 
2011, the Trust filed with the Commission Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a), and under the 1940 Act 
relating to the Fund (File Nos. 333-157876 and 811-22110) 
(``Registration Statement''). The description of the operation of 
the Trust and the Fund herein is based in part on the Registration 
Statement. In addition, the Commission has issued an order granting 
certain exemptive relief to the Trust under the1940 Act. See 
Investment Company Act Release No. 29291 (May 28, 2010) (File No. 
812-13677) (``Exemptive Order'').
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    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. 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.\7\ Commentary .06 to Rule 
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca 
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer reflects the applicable open-end fund's portfolio, not an 
underlying benchmark index, as is the case with index-based funds. 
Neither the Adviser nor the Sub-Adviser is affiliated with a broker-
dealer. 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, it will implement a fire wall 
with respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the 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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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and Sub-Adviser and their related 
personnel are 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. 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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Description of the Fund
    According to the Registration Statement, the Fund is an actively 
managed exchange-traded fund that seeks to achieve its investment 
objective primarily by investing in the broad U.S. equity market, as 
represented by the

[[Page 51443]]

Russell 3000[supreg] Index (``Index''). The Fund seeks to achieve this 
goal by investing in stocks with liquidity and fundamental 
characteristics that are historically associated with superior long-
term performance. The Sub-Adviser has designed the following 
quantitative stock selection rules to make allocation decisions and to 
protect against dramatic over or under weighting of individual 
securities in the Fund's portfolio.
    Decile Ranking of Russell 3000 Stocks. The Sub-Adviser ranks stocks 
in the Index based on the following criteria:
    I. The decrease in their outstanding shares over approximately the 
past 120 days (``float shrink'');
    II. The increase in free cash flow (the money available to the 
company that is not used to pay for its daily operations) over 
approximately the past 120 days; and
    III. The decrease in leverage over approximately the past 120 days. 
Leverage is measured as the ratio of total liabilities to total assets. 
The Sub-Adviser uses the relative decrease in leverage rather than 
amount of leverage itself as a criterion because the degree of leverage 
varies across industries.
    The top decile of each respective ranking consists of the stocks of 
the companies with (I) the strongest reduction in shares outstanding, 
(II) the strongest growth in free cash flow, and (III) the largest 
decrease in leverage, respectively.
Stock Selection Algorithm
    The Sub-Adviser uses an algorithm to give a relative weight to the 
three decile rankings, combining them in a single ranking (combined 
ranking). The algorithm places a higher weight on the float shrink 
ranking, followed by the free cash flow ranking, followed by the 
leverage ranking. The Fund under normal circumstances \8\ will invest 
in 80 to 120 stocks from among the top 10% of stocks in the combined 
ranking.
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    \8\ 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.
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    According to the Registration Statement, the Sub-Adviser's 
investment process is quantitative. Based on extensive historical 
research, the Sub-Adviser designed the following stock selection rules, 
which involve rebalancing, weighting, liquidity, and trading 
considerations:
Liquidity Screening
    Before trading, the Fund will estimate the liquidity impact of its 
suggested trades. Specifically, the Fund will avoid stocks whose 
average trading volume over the past 30 days would be less than 50% of 
the size of the Fund's proposed trades. As a result, the Fund will not 
invest in stocks that meet its investment criteria in terms of float 
shrink, free cash flow growth and leverage if their trading volume is 
below such levels. As a result, the Fund will not invest in stocks that 
it deems to be illiquid.
Weighting and Sector Allocation
    Although the Fund initially will invest an equal dollar amount in 
the stocks that meet its investment criteria, the Fund is not market 
capitalization weighted. As a result, the Fund will overweight small-
cap stocks and mid-cap stocks relative to traditional, market cap 
weighted indices.\9\
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    \9\ According to the Registration Statement, mid-sized companies 
may be more volatile than large-capitalization companies and returns 
on investments in stocks of mid-size companies could trail the 
returns on investments in stocks of larger or smaller companies. 
Stock prices of small capitalization companies may be more volatile 
than those of larger companies and therefore the Fund's Share price 
may be more volatile than those of funds that invest a larger 
percentage of their assets in stocks issued by larger-capitalization 
companies.
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    The relative weights of the sectors in the Fund may vary 
significantly from those of traditional, market cap weighted indices. 
Stocks with favorable liquidity characteristics may be concentrated in 
certain sectors. Sector concentration might increase the Fund's 
volatility over the short term. According to the Registration 
Statement, the Fund will not correct these sector effects because the 
Sub-Adviser's research shows that historically they are a source of 
long-term outperformance.
Other Investments
    To respond to adverse market, economic, political or other 
conditions, the Fund may invest 100% of its total assets, without 
limitation, in short-term, high-quality debt securities and money 
market instruments. The Fund may invest in these instruments for 
extended periods, depending on the Sub-Adviser's assessment of market 
conditions. These debt securities and money market instruments include 
shares of other mutual funds, commercial paper, certificates of 
deposit, bankers' acceptances, U.S. Government securities, including 
U.S. Treasury zero-coupon bonds, repurchase and reverse repurchase 
agreements \10\ and bonds that are BBB or higher.
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    \10\ According to the Registration Statement, the Fund may enter 
into repurchase agreements with financial institutions, which may be 
deemed to be loans. The Fund follows certain procedures designed to 
minimize the risks inherent in such agreements. These procedures 
include effecting repurchase transactions only with large, well-
capitalized and well-established financial institutions whose 
condition will be continually monitored by the Sub-Adviser. The Fund 
may enter into reverse repurchase agreements without limit as part 
of the Fund's investment strategy. Reverse repurchase agreements 
involve sales by the Fund of portfolio assets concurrently with an 
agreement by the Fund to repurchase the same assets at a later date 
at a fixed price.
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    Diversification. The Fund may not (i) with respect to 75% of its 
total assets, purchase securities of any issuer (except securities 
issued or guaranteed by the U.S. Government, its agencies or 
instrumentalities or shares of investment companies) if, as a result, 
more than 5% of its total assets would be invested in the securities of 
such issuer; or (ii) acquire more than 10% of the outstanding voting 
securities of any one issuer.\11\
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    \11\ The diversification standard is contained in Section 
5(b)(1) of the 1940 Act.
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    Concentration. The Fund may not invest 25% or more of its total 
assets in the securities of one or more issuers conducting their 
principal business activities in the same industry or group of 
industries. This limitation does not apply to investments in securities 
issued or guaranteed by the U.S. Government, its agencies or 
instrumentalities, or shares of investment companies. The Fund will not 
invest 25% or more of its total assets in any investment company that 
so concentrates.\12\
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    \12\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The Fund will not purchase illiquid securities.\13\ In addition, 
the Fund will not invest in non-U.S.-registered equity securities, loan 
participation agreements and Rule 144A securities.
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    \13\ A fund's portfolio security is illiquid if it cannot be 
disposed of in the ordinary course of business within seven days at 
approximately the value ascribed to it by the ETF. See Investment 
Company Act Release No. 14983 March 12, 1986), 51 FR 9773 (March 21, 
1986) (adopting amendments to Rule 2a-7 under the 1940 Act); 
Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 
17933 (April 30, 1990) (adopting Rule 144A under the Securities Act 
of 1933).
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    According to the Registration Statement, the Fund will seek to 
qualify for treatment as a Regulated Investment Company (``RIC'') under 
Subchapter M of the Internal Revenue Code.\14\
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    \14\ 26 U.S.C. 851. One of several requirements for RIC 
qualification is that a Fund must receive at least 90% of the Fund's 
gross income each year from dividends, interest, payments with 
respect to securities loans, gains from the sale or other 
disposition of stock, securities or foreign currencies, or other 
income derived with respect to the Fund's investments in stock, 
securities, foreign currencies and net income from an interest in a 
qualified publicly traded partnership (the ``90% Test''). A second 
requirement for qualification as a RIC is that a Fund must diversify 
its holdings so that, at the end of each fiscal quarter of the 
Fund's taxable year: (a) At least 50% of the market value of the 
Fund's total assets is represented by cash and cash items, U.S. 
Government securities, securities of other RICs, and other 
securities, with these other securities limited, in respect to any 
one issuer, to an amount not greater than 5% of the value of the 
Fund's total assets or 10% of the outstanding voting securities of 
such issuer; and (b) not more than 25% of the value of its total 
assets are invested in the securities (other than U.S. Government 
securities or securities of other RICs) of any one issuer or two or 
more issuers which the Fund controls and which are engaged in the 
same, similar, or related trades or businesses, or the securities of 
one or more qualified publicly traded partnership (the ``Asset 
Test'').

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[[Page 51444]]

    Pursuant to the terms of the Exemptive Order, the Fund will not 
invest in options contracts, futures contracts or swap agreements. The 
Fund's investments will be consistent with the Fund's investment 
objective and will not be used to enhance leverage.
    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 Fund will be in 
compliance with Rule 10A-3 \15\ under the Exchange Act, as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares 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'') per Share will be calculated daily 
and that the NAV and the Disclosed Portfolio, as defined in NYSE Arca 
Equities Rule 8.600(c)(2), will be made available to all market 
participants at the same time.
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    \15\ 17 CFR 240.10A-3.
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Creation and Redemption of Shares
    The Fund issues and redeems Shares on a continuous basis at NAV 
only in a large specified number of Shares called a ``Creation Unit.'' 
The Shares of the Fund that trade on the Exchange are ``created'' at 
their NAV by Authorized Participants only in block-size Creation Units 
of at least 25,000 Shares. An Authorized Participant enters into an 
agreement (``Participant Agreement'') with the Distributor or uses a 
Depository Trust Company participant who has executed a Participant 
Agreement, and deposits into the Fund a portfolio of securities closely 
approximating the holdings of the Fund and a specified amount of cash, 
together totaling the NAV of the Creation Unit(s), in exchange for 
25,000 Shares of the Fund (or multiples thereof). Shares are not 
redeemable from the Fund except when aggregated in Creation Units. The 
prices at which creations and redemptions occur are based on the next 
calculation of NAV after an order is received in a form prescribed in 
the Participant Agreement.
Availability of Information
    The Fund's Web site (http://www.advisorshares.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for the Fund that may be downloaded. The 
Fund's Web site will include additional quantitative information 
updated on a daily basis, including, for the Fund, (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 (the 
``Bid/Ask Price''),\16\ 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 Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day.\17\
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    \16\ The Bid/Ask Price of the Fund will be determined using the 
highest bid and the lowest offer on the Exchange as of the time of 
calculation of the Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Fund and its service providers.
    \17\ 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''). 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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    On a daily basis, the Adviser will disclose on the Fund's Web site 
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 Web site 
information will be publicly available at no charge.
    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 the National Securities Clearing 
Corporation. The basket will represent one Creation Unit of the Fund.
    The NAV of the Fund 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.
    The Fund will calculate its NAV by: (i) Taking the current market 
value of its total assets; (ii) subtracting any liabilities; and (iii) 
dividing that amount by the total number of Shares owned by 
shareholders. The Fund will calculate NAV once each business day as of 
the regularly scheduled close of normal trading on the Exchange 
(normally, 4 p.m., Eastern Time). In calculating NAV, the Fund 
generally will value its investment portfolio at market price. If 
market prices are unavailable or the Fund thinks that they are 
unreliable, or when the value of a security has been materially 
affected by events occurring after the relevant market closes, the Fund 
will price those securities at fair value as determined in good faith 
using methods approved by the Fund's Board of Trustees.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its 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 for the Shares 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 the Exchange at least every 15 seconds during the Core Trading 
Session by one or more major market data venders. The dissemination of 
the Portfolio Indicative Value, together with the Disclosed Portfolio, 
will allow investors to

[[Page 51445]]

determine the value of the underlying portfolio of the Fund on a daily 
basis and to provide a close estimate of that value throughout the 
trading day. The intra-day, closing and settlement prices of the 
portfolio securities are also readily available from the national 
securities exchanges trading such securities, automated quotation 
systems, published or other public sources, or on-line information 
services such as Bloomberg or Reuters.
    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. All terms relating 
to the Fund that are referred to, but not defined in, this proposed 
rule change are defined 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 Fund.\18\ Trading in Shares of the Fund 
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 Fund; 
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 Fund may be 
halted.
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    \18\ 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 
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 [sic] a comprehensive 
surveillance sharing agreement.\19\ In addition, the Exchange could 
obtain information from the U.S. exchanges on which the securities held 
by the Fund are listed and traded.
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    \19\ 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 Fund 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 Fund is 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 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) \20\ 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.
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    \20\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable Federal securities laws. The Exchange may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. The Fund will achieve its investment objective primarily by 
investing in the broad U.S. equity market as represented by the Russell 
3000[supreg] Index, the components of which are listed and traded on 
U.S. exchange markets. The Fund will not purchase illiquid securities. 
In addition, the Fund will not invest in non-U.S.-registered equity 
securities, loan participation agreements and Rule 144A securities. 
Further, the Fund will not invest in options, futures or swaps. The 
Fund's investments will be consistent with the Fund's investment 
objective

[[Page 51446]]

and will not be used to enhance leverage.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. The Fund's portfolio holdings 
will be disclosed on its Web site daily after the close of trading on 
the Exchange and prior to the opening of trading on the Exchange the 
following day. Moreover, the Portfolio Indicative Value will be 
disseminated by one or more major market data vendors at least every 15 
seconds during the Exchange's Core Trading Session. On each business 
day, before commencement of trading in Shares in the Core Trading 
Session on the Exchange, the Fund will disclose on its Web site the 
Disclosed Portfolio that will form the basis for the Fund's calculation 
of NAV at the end of the business day. 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. The Web site 
for the Fund will include a form of the prospectus for the Fund and 
additional data relating to NAV and other applicable quantitative 
information. Moreover, 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. 
Trading in Shares of the Fund 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, and 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 Fund may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the Portfolio Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it 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. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for 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 will:
    (A) by order approve or disapprove the 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

    <bullet> Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
    <bullet> Send an e-mail to <a href="/cdn-cgi/l/email-protection#88fafde4eda5ebe7e5e5ede6fcfbc8fbedeba6efe7fe"><span class="__cf_email__" data-cfemail="780a0d141d551b1715151d160c0b380b1d1b561f170e">[email protected]</span></a>. Please include 
File Number SR-NYSEArca-2011-51 on the subject line.

Paper Comments

    <bullet> Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2011-51. 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 Section, 100 
F Street, NE., Washington, DC 20549-1090, on official business days 
between 10 a.m. and 3 p.m. Copies of the filing will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at http://www.nyse.com. 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 Number SR-NYSEArca-2011-51 and should be submitted 
on or before September 8, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-21029 Filed 8-17-11; 8:45 am]
BILLING CODE 8011-01-P


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