[Federal Register Volume 77, Number 44 (Tuesday, March 6, 2012)]
[Notices]
[Pages 13379-13383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-5367]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66489; File No. SR-NASDAQ-2012-004]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Order 
Granting Approval of Proposed Rule Change Relating to the Listing and 
Trading of Shares of the Emerging Markets Corporate Bond Fund of the 
WisdomTree Trust

February 29, 2012.

I. Introduction

    On January 4, 2012, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade the shares (``Shares'') of the 
WisdomTree Emerging Markets Corporate Bond Fund (``Fund'') of the 
WisdomTree Trust (``Trust'') under Nasdaq Rule 5735. The proposed rule 
change was published for comment in the Federal Register on January 24, 
2012.\3\ The Commission received no comments on the proposal. This 
order grants approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 66175 (January 18, 
2012), 77 FR 3520 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares of the Fund 
under Nasdaq Rule 5735, 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. The Fund is registered with the Commission as an investment 
company and has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission.\4\ WisdomTree Asset 
Management, Inc. is the investment adviser (``Adviser'') to the 
Fund,\5\ and Western Asset Management Company serves as sub-adviser for 
the Fund (``Sub-Adviser'').\6\ 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.\7\ The 
Exchange states that, while the Adviser is not affiliated with any 
broker-dealer, the Sub-Adviser is affiliated with multiple broker-
dealers and 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

[[Page 13380]]

dissemination of material, non-public information regarding the Fund's 
portfolio.\8\
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    \4\ See Post-Effective Amendment No. 56 to Registration 
Statement on Form N-1A for the Trust, dated July 1, 2011 (File Nos. 
333-132380 and 811-21864).
    \5\ WisdomTree Investments, Inc. is the parent company of the 
Adviser.
    \6\ 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.
    \7\ The Commission has issued an order granting certain 
exemptive relief to the Trust under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). See Investment Company Act 
Release No. 28171 (October 27, 2008) (File No. 812-13458). In 
compliance with Nasdaq Rule 5735(b)(5), which applies to Managed 
Fund Shares based on an international or global portfolio, the 
Trust's application for exemptive relief under the 1940 Act states 
that the Fund will comply with the federal securities laws in 
accepting securities for deposits and satisfying redemptions with 
redemption securities, including that the securities accepted for 
deposits and the securities used to satisfy redemption requests are 
sold in transactions that would be exempt from registration under 
the Securities Act of 1933 (15 U.S.C. 77a).
    \8\ See Nasdaq Rule 5735(g). The Exchange further represents 
that, 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 a 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material, non-public information regarding 
such portfolio.
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WisdomTree Emerging Markets Corporate Bond Fund

    The Fund seeks to provide a high level of total return consisting 
of both income and capital appreciation. To achieve its objective, the 
Fund will invest in debt securities of corporations that are domiciled 
or economically tied to emerging market countries.\9\ Specifically, the 
Fund intends to achieve its investment objectives through direct and 
indirect investments in Corporate and Quasi-Sovereign Debt. For these 
purposes, Corporate and Quasi-Sovereign Debt includes fixed-income 
securities of emerging market countries, such as bonds, notes, or other 
debt obligations, including loan participation notes (``LPNs''),\10\ as 
well as other instruments, such as derivative instruments 
collateralized by Money Market Securities as described below. Quasi-
Sovereign Debt, specifically, refers to fixed income securities or debt 
obligations that are issued by companies or agencies that may receive 
financial support or backing from the local government (collectively, 
``Quasi-Sovereign Institutions'').
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    \9\ According to the Adviser, while there is no universally 
accepted definition of what constitutes an ``emerging market,'' in 
general, emerging market countries are characterized by developing 
commercial and financial infrastructure with significant potential 
for economic growth and increased capital market participation by 
foreign investors. The Adviser and Sub-Adviser look at a variety of 
commonly-used factors when determining whether a country is an 
``emerging'' market. In general, the Adviser and Sub-Adviser 
consider a country to be an emerging market if:
    (1) It is either (a) classified by the World Bank in the lower 
middle or upper middle income designation for one of the past 5 
years (i.e., per capita gross national product of less than U.S. 
$9,385), (b) has not been a member of the Organisation for Economic 
Co-operation and Development (``OECD'') for the past five years, or 
(c) classified by the World Bank as high income and a member in OECD 
in each of the last five years, but with a currency that has been 
primarily traded on a non-delivered basis by offshore investors 
(e.g., Korea and Taiwan); and
    (2) the country's debt market is considered relatively 
accessible by foreign investors in terms of capital flow and 
settlement considerations.
    This definition could be expanded or exceptions made depending 
on the evolution of market and economic conditions.
    \10\ The Fund may invest in LPNs with a minimum outstanding 
principal amount of $200 million that the Adviser or Sub-Adviser 
deems to be liquid. The Adviser represents that LPNs denominated in 
U.S. dollars are the predominant form of corporate debt financing in 
certain emerging markets, particularly in Russia, where they 
constitute approximately 70% of the corporate debt market 
(approximately $40 billion outstanding). In aggregate, LPNs 
represented over 11% of the JP Morgan Emerging Markets Corporate 
Bond Index as of November 30, 2011. The Exchange states that LPNs 
are typically eligible for settlement at Eurcoclear, Clearstream, or 
in the U.S., through The Depository Trust Company. Moreover, intra-
day quotations in LPNs are generally available from major broker-
dealers and data vendors, such as Bloomberg.
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    Under normal circumstances,\11\ the Fund will invest at least 80% 
of its net assets in Corporate and Quasi-Sovereign Debt that are fixed 
income securities. Fixed income securities include debt instruments, 
such as bonds, notes, and other obligations, denominated in U.S. 
dollars or local currencies. Fixed income securities include Money 
Market Securities as defined below. Fixed income securities do not 
include derivatives.
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    \11\ The term ``under normal 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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    The Fund intends to provide exposure across several geographic 
regions and countries by investing in Corporate and Quasi-Sovereign 
Debt from the following regions: Asia, Latin America, Eastern Europe, 
Africa, and the Middle East. Within these regions, the Fund is likely 
to invest in countries such as: Argentina, Brazil, Chile, China, 
Colombia, Hong Kong, India, Indonesia, Israel, Jamaica, Kazakhstan, 
Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, Singapore, 
Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Trinidad & 
Tobago, Turkey, Ukraine, and the United Arab Emirates. This list may 
change based on market developments. The Fund's credit exposures are 
consistently monitored from a risk perspective and may be modified, 
reduced, or eliminated. The Fund's exposure to any single issuer 
generally will be limited to 10% of the Fund's assets. The percentage 
of the Fund's assets in a specific region, country, or issuer will 
change from time to time. The Fund's exposure to any one country 
generally will be limited to 30% of the Fund's assets, though this 
percentage may change in response to economic events and changes to the 
credit ratings of the Corporate and Quasi-Sovereign Debt of such 
countries.
    The universe of emerging market Corporate and Quasi-Sovereign Debt 
currently includes securities that are rated ``investment grade'' as 
well as ``non-investment grade.'' The Fund intends to provide a broad 
exposure to emerging market Corporate and Quasi-Sovereign Debt and 
therefore will invest in both investment grade and non-investment grade 
securities. The Fund expects to have 65% or more of its assets invested 
in investment grade securities, though this percentage may change in 
response to economic events and changes to the credit ratings of such 
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. Although the Fund does not intend to invest in unrated 
securities, 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 invest only in corporate bonds that the Adviser or 
Sub-Adviser deems to be sufficiently liquid.\12\ The Fund will only buy 
performing debt securities and will not buy distressed debt. 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 may

[[Page 13381]]

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 (1) the Adviser or Sub-
Adviser deems such security to be sufficiently liquid based on its 
analysis of the market for such security (for example, broker-dealer 
quotations or trading history of the security or other securities 
issued by the issuer), (2) such investment is deemed by the Adviser or 
Sub-Adviser to be in the best interest of the Fund, and (3) such 
investment is deemed consistent with the Fund's goal of providing broad 
exposure to a broad range emerging markets countries and issuers.
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    \12\ The Adviser represents that the size and liquidity of the 
global market for corporate bonds of emerging market issuers 
generally has been increasing in recent years. The aggregate dollar 
amount of emerging market corporate bonds traded in the first two 
quarters of 2011 ($490 billion) represented a 36.4% increase 
compared to the first two quarters of 2010 ($359 billion). This 
growth is consistent with the 71% increase in volume for calendar 
year 2010 ($879.45 billion) over 2009. The $514 billion traded in 
2009 represented a substantial increase over the amount traded in 
2008 ($380 billion). Turnover in emerging market corporate debt in 
the first two quarters of 2011 was approximately 14.2% of the 
overall volume of emerging market debt of $3.443 trillion. In 2010, 
emerging market corporate bonds accounted for 16% of the total 
$6.765 trillion of emerging market debt trading. This represents a 
meaningful increase relative to calendar year 2009 where turnover in 
emerging market corporate debt accounted for 12% of the overall 
volume of emerging market debt ($4.445 trillion). These figures 
compared to only a 9% share in 2008. (Source: Emerging Markets 
Traders Association Press Release(s), December 8, 2010, August 12, 
2010, May 20, 2010, March 8, 2010, March 22, 2011, June 17, 2011 and 
August 22, 2011).
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    The Fund may invest in Corporate and Quasi-Sovereign Debt with 
effective or final maturities of any length, but the Fund will seek to 
keep the average effective duration of its portfolio between two and 
ten years under normal market conditions. Effective duration is an 
indication of an investment's interest rate risk or how sensitive an 
investment or a fund is to changes in interest rates. Generally, a fund 
or instrument with a longer effective duration is more sensitive to 
interest rate fluctuations, and, therefore, more volatile, than a fund 
with a shorter effective duration. The Fund's actual portfolio duration 
may be longer or shorter depending on market conditions.
    The Fund intends to invest in Corporate and Quasi-Sovereign Debt of 
at least 13 non-affiliated issuers and will not concentrate 25% or more 
of the value of its total assets (taken at market value at the time of 
each investment) in any one industry, as that term is used in the 1940 
Act (except that this restriction does not apply to obligations issued 
by the U.S. government or their respective agencies and 
instrumentalities or government-sponsored enterprises).

Money Market 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. Under normal circumstances, the Fund may 
invest up to 25% of its net assets in Money Market Securities, although 
it may exceed this amount where the Adviser or Sub-Adviser deems such 
investment to be necessary or advisable, due to market conditions. 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 deposit 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.

Derivative Instruments and Other Investments

    The Fund may use derivative instruments as part of its investment 
strategy. Examples of derivative instruments include forward currency 
contracts, interest rate swaps, total return swaps, credit linked 
notes, and combinations of investments that provide similar exposure to 
local currency debt, such as investment in U.S. dollar denominated 
bonds combined with forward currency positions or swaps. If forward 
currency and swaps positions are not being implemented in combination 
with U.S. dollar denominated bonds, the Fund's use of forward contracts 
and swaps will be combined with investments in short-term, high quality 
U.S. money market instruments and will be designed to provide exposure 
similar to investments in local currency deposits.
    The Fund expects that no more than 20% 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. For example, the Fund may engage in swap 
transactions that provide exposure to corporate debt or interest rates. 
The Fund also may buy or sell listed currency futures contracts.\13\
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    \13\ The exchange-listed futures contracts in which the Fund may 
invest may be listed on exchanges in the U.S., London, Hong Kong or 
Singapore. Each of the United Kingdom's primary financial markets 
regulator, the Financial Services Authority, Hong Kong's primary 
financial markets regulator, the Securities and Futures Commission, 
and Singapore's primary financial markets regulator, the Monetary 
Authority of Singapore, are signatories to the International 
Organization of Securities Commissions (``IOSCO'') Multilateral 
Memorandum of Understanding (``MMOU''), which is a multi-party 
information sharing arrangement among financial regulators. Both the 
Commission and the Commodity Futures Trading Commission are 
signatories to the IOSCO MMOU.
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    With respect to certain kinds of derivative transactions entered 
into by the Fund that involve obligations to make future payments to 
third parties, including, but not limited to, futures and forward 
contracts, swap contracts, the purchase of securities on a when-issued 
or delayed delivery basis, or reverse repurchase agreements, the Fund, 
in accordance with applicable federal securities laws, rules, and 
interpretations thereof, will ``set aside'' liquid assets, or engage in 
other measures to ``cover'' open positions with respect to such 
transactions.
    The Fund may engage in foreign currency transactions, and may 
invest directly in foreign currencies in the form of bank and financial 
institution deposits and certificates of deposit denominated in a 
specified non-U.S. currency. The Fund may enter into forward currency 
contracts in order to ``lock in'' the exchange rate between the 
currency it will deliver and the currency it will receive for the 
duration of the contract.\14\
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    \14\ The Fund will invest only in currencies, and instruments 
that provide exposure to such currencies, which have significant 
foreign exchange turnover and are included in the Bank for 
International Settlements Triennial Central Bank Survey, December 
2010 (``BIS Survey''). The Fund may invest in currencies, and 
instruments that provide exposure to such currencies, selected from 
the top 40 currencies (as measured by percentage share of average 
daily turnover for the applicable month and year) included in the 
BIS Survey.
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    The Fund may invest in the securities of other investment companies 
(including money market funds and ETFs). The Fund may hold up to an 
aggregate amount of 15% of its net assets in (1) illiquid securities; 
(2) Rule 144A securities; and (3) loan interests (such as loan 
participations and assignments, but not including LPNs). The Commission 
staff has interpreted the term ``illiquid'' in this context to mean a 
security that cannot be sold or disposed of within seven days in the 
ordinary course of business at approximately the amount at which a fund 
has valued such security.
    The Fund will not invest in any non-U.S. equity securities. In 
addition, the Fund intends to qualify each year as a regulated 
investment company (``RIC'') under Subchapter M of the Internal Revenue 
Code of 1986, as amended.\15\
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    \15\ 26 U.S.C. 851. The Fund will invest its assets, and 
otherwise conduct its operations, in a manner that is intended to 
satisfy the qualifying income, diversification, and distribution 
requirements necessary to establish and maintain RIC qualification 
under Subchapter M. The Subchapter M diversification tests generally 
require that (1) the Fund invest no more than 25% of its total 
assets in securities (other than securities of the U.S. government 
or other RICs) of any one issuer or two or more issuers that are 
controlled by the Fund and that are engaged in the same, similar or 
related trades or businesses, and (2) at least 50% of the Fund's 
total assets consist of cash and cash items, U.S. government 
securities, securities of other RICs and other securities, with 
investments in such other securities limited in respect of any one 
issuer to an amount not greater than 5% of the value of the Fund's 
total assets and 10% of the outstanding voting securities of such 
issuer. In addition to satisfying the above referenced RIC 
diversification requirements, no portfolio security held by the Fund 
(other than U.S. government securities and non-U.S. government 
securities) will represent more than 30% of the weight of the Fund's 
portfolio and the five highest weighted portfolio securities of the 
Fund (other than U.S. government securities and/or non-U.S. 
government securities) will not in the aggregate account for more 
than 65% of the weight of the Fund's portfolio. For these purposes, 
the Fund may treat repurchase agreements collateralized by U.S. 
government securities or non-U.S. government securities as U.S. or 
non-U.S. government securities, as applicable.

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[[Page 13382]]

    Additional information regarding the Shares and the Fund, including 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings disclosure policies, availability of Fund values and 
other information, and distributions and taxes, among other things, can 
be found in the Notice and/or Registration Statement, as 
applicable.\16\
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    \16\ See supra notes 3 and 4, and accompanying text, 
respectively.
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III. Discussion and Commission Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \17\ and the rules and regulations thereunder applicable to a 
national securities exchange.\18\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\19\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission notes that 
the Fund and the Shares must comply with the requirements of Nasdaq 
Rule 5735 to be listed and traded on the Exchange.
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    \17\ 15 U.S.C. 78f.
    \18\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \19\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\20\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available on NASDAQ OMX Global 
Index Data Service (``GIDS''),\21\ which contains information for 
widely followed indexes and ETFs. On each business day, before 
commencement of trading in Shares in the Regular Market Session \22\ 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 net asset value (``NAV'') at the end of the 
business day.\23\ The NAV of the Fund's Shares generally will be 
calculated once daily Monday through Friday as of the close of regular 
trading on the New York Stock Exchange, generally 4 p.m. Eastern 
time.\24\ Moreover, the Intraday Indicative Value, available on GIDS, 
will be based upon the current value for the components of the 
Disclosed Portfolio and will be updated and widely disseminated by one 
or more major market data vendors at least every 15 seconds during the 
Regular Market Session.\25\ In addition, information regarding market 
price and trading volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services, and the previous day's closing price and 
trading volume information for the Shares will be published daily in 
the financial section of newspapers. Intra-day, executable price 
quotations on emerging market Corporate and Quasi-Sovereign Debt, as 
well as derivative instruments, will be available from major broker-
dealer firms. Intra-day price information is available through 
subscription services, such as Bloomberg and Thomson Reuters, which can 
be accessed by authorized participants and other investors. 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.
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    \20\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \21\ GIDS is the NASDAQ OMX global index data feed service, 
offering real-time updates, daily summary messages, and access to 
widely followed indexes and ETFs. GIDS provides investment 
professionals with the daily and historical information needed to 
track or trade NASDAQ OMX indexes, listed ETFs, or third-party 
partner indexes and ETFs.
    \22\ See Nasdaq Rule 4120(b)(4) (describing the three trading 
sessions on the Exchange: (1) Pre-Market Session from 7 a.m. to 9:30 
a.m.; (2) Regular Market Session from 9:30 a.m. to 4 p.m. or 4:15 
p.m.; and (3) Post-Market Session from 4 p.m. or 4:15 p.m. to 8 
p.m.).
    \23\ 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.
    \24\ Under accounting procedures to be 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.
    \25\ In addition, during hours when the markets for local debt 
in the Fund's portfolio are closed, the Intraday Indicative Value 
will be updated at least every 15 seconds during the Regular Market 
Session to reflect currency exchange fluctuations.
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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 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, the Exchange will halt trading in the Shares under the 
conditions specified in Nasdaq Rules 4120 and 4121. Trading 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 also will be subject to Rule 
5735(d)(2)(D), which sets forth circumstances under which Shares of the 
Fund may be halted. The Exchange will consider the suspension of 
trading in or removal from listing of the Shares if the Intraday 
Indicative Value is no longer calculated or available or the Disclosed 
Portfolio is not made available to all market participants at the same 
time.\26\ The Exchange

[[Page 13383]]

represents that the Sub-Adviser is affiliated with multiple broker-
dealers and 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.\27\ Further, the 
Commission notes that the Reporting Authority that provides the 
Disclosed Portfolio must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the actual components of the 
portfolio.\28\ The Exchange states that it prohibits the distribution 
of material, non-public information by its employees.
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    \26\ See Nasdaq Rule 5735(d)(2)(C)(ii).
    \27\ See Nasdaq Rule 5735(g), supra note 8 and accompanying 
text. The Commission notes that 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 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.
    \28\ See Nasdaq Rule 5735(d)(2)(B)(ii).
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will be subject to Nasdaq Rule 5735, 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) Trading of the Shares will be subject to the Financial Industry 
Regulatory Authority's (``FINRA'') surveillance procedures for 
derivative products, including Managed Fund Shares.\29\ The Exchange's 
surveillance procedures are adequate to properly monitor the trading of 
the Shares on Nasdaq during all trading sessions and to deter and 
detect violations of Exchange rules and the applicable federal 
securities laws.
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    \29\ The Exchange states that FINRA surveils trading on Nasdaq 
pursuant to a regulatory services agreement. Nasdaq is responsible 
for FINRA's performance under this regulatory services agreement.
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    (4) Prior to the commencement of trading, the Exchange will inform 
its members in an Information Circular of the special characteristics 
and risks associated with trading the Shares. Specifically, the 
Information Circular will discuss the following: (a) The procedures for 
purchases and redemptions of Shares in Creation Units (and that Shares 
are not individually redeemable); (b) Nasdaq Rule 2310, which imposes 
suitability obligations on Nasdaq members with respect to recommending 
transactions in the Shares to customers; (c) how information regarding 
the Intraday Indicative Value is disseminated; (d) the risks involved 
in trading the Shares during the Pre-Market and Post-Market Sessions 
when an updated Intraday Indicative Value will not be calculated or 
publicly disseminated; (e) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (f) trading 
information.
    (5) For initial and/or continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act.\30\
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    \30\ See 17 CFR 240.10A-3.
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    (6) The Fund may hold up to an aggregate amount of 15% of its net 
assets in (a) illiquid securities, (b) Rule 144A securities, and (c) 
loan interests (such as loan participations and assignments, but not 
including LPNs).
    (7) The Fund will not invest in any non-U.S. registered equity 
securities.
    (8) The Fund expects that no more than 20% 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.
    (9) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \31\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \31\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change (SR-NASDAQ-2012-004) be, and it 
hereby is, approved.
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    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5367 Filed 3-5-12; 8:45 am]
BILLING CODE 8011-01-P