14048 Federal Register / Vol. 77, No. 46 / Thursday, March 8, 2012 / Notices 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 65847 

(November 29, 2011), 76 FR 75926 (‘‘Notice’’). 

4The Exchange withdrew Amendment No. 1 on 

January 18, 2012 and extended the time period for 

Commission action to January 25, 2012. On January 

23, 2012, the Exchange extended the time period for 

Commission action to February 8, 2012. 

5The Exchange withdrew Amendment No. 2 on 

February 29, 2012. 

6Amendment No. 3 amended the sentence: ‘‘The 

Fund may invest in the aggregate up to 15% of its 

net assets (taken at the time of investment) in: (1) 

Illiquid securities 13 and (2) Rule 144A securities.’’ 

The amended sentence reads: ‘‘The Fund may hold 

in the aggregate up to 15% of its net assets in (1) 

illiquid securities,13 and (2) Rule 144A securities.’’ 

Amendment No. 3 also amended the sentences: 

‘‘Master notes are generally illiquid and therefore 

subject to the Fund’s percentage limitations for 

investments in illiquid securities. The Fund may 

invest up to 15% of its net assets in bank loans, 

which include participation interests (as described 

below).’’ The amended sentences read: ‘‘Master 

notes are generally illiquid and therefore subject to 

the Fund’s percentage limitations for holdings of 

illiquid securities. The Fund may hold up to 15% 

of its net assets in bank loans, which include 

participation interests (as described below).’’ Lastly, 

Amendment No. 3 amended the sentence: 

‘‘Generally, the Fund considers participation 

interests to be illiquid and therefore subject to the 

Fund’s percentage limitations for investments in 

illiquid securities.’’ The amended sentence reads: 

‘‘Generally, the Fund considers participation 

interests to be illiquid and therefore subject to the 

Fund’s percentage limitations for holdings of 

illiquid securities.’’ For each of the amendments 

discussed above, the Exchange also made 

corresponding amendments to Exhibit 1 of the 

filing. The purpose of Amendment No. 3 was to 

make the proposed rule change more consistent 

with the Investment Company Act of 1940 (‘‘1940 

Act’’) requirements relating to restrictions on 

holdings of illiquid securities by registered openend management investment companies. Because 

Amendment No. 3 seeks to maintain consistency 

with the 1940 Act and rules and regulations 

thereunder, and does not materially alter the 

substance of the proposed rule change or raise any 

novel regulatory issues, the amendment is not 

subject to notice and comment. 

7The Trust is registered under the 1940 Act. On 

December 8, 2010, 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. 333–134551 and 

811–21906) (‘‘Registration Statement’’). In addition, 

the Commission has issued an order granting 

certain exemptive relief to the Trust under the 1940 

Act. See Investment Company Act Release No. 

29271 (May 18, 2010) (File No. 812–13534) 

(‘‘Exemptive Order’’). 

8See NYSE Arca Equities Rule 8.600, 

Commentary .06. In the event (a) the Adviser or any 

sub-adviser becomes newly affiliated with a brokerdealer, or (b) any new adviser or sub-adviser 

becomes affiliated with a broker-dealer, it will 

implement a fire wall with respect to such brokerdealer 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 nonpublic information regarding such portfolio. 

9The 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 manmade disaster, act of God, armed conflict, act of 

terrorism, riot or labor disruption or any similar 

intervening circumstance. 

10As of August 30, 2011, the Adviser represents 

that there were approximately 1,100 high yield 

bond issues that mature on or before December 

2016, representing $420 billion or approximately 

40% of the total amount of high yield bonds 

outstanding. (Source: Barclays Capital). As of 

August 1, 2011, floating rate bank loans outstanding 

were $637 billion. (Source regarding floating rate 

bank loans: Credit Suisse Leveraged Finance 

Strategy Update, August 1, 2011). 

11The Fund’s investments will be subject to 

credit risk. Credit risk is the risk that issuers or 

guarantors of debt instruments or the counterparty 

to a derivatives contract, repurchase agreement or 

loan of portfolio securities is unable or unwilling 

to make timely interest and/or principal payments 

or otherwise honor its obligations. Debt instruments 

are subject to varying degrees of credit risk, which 

may be reflected in credit ratings. Credit rating 

downgrades and defaults (failure to make interest 

or principal payment) may potentially reduce the 

Fund’s income and Share price. 

12The Fund may invest in debt securities that 

have variable or floating interest rates which are 

readjusted on set dates (such as the last day of the 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66507; File No. SR– 

NYSEArca–2011–81] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Granting Approval of 

Proposed Rule Change, as Modified by 

Amendment No. 3 Thereto, Relating to 

the Listing and Trading of the 

Guggenheim Enhanced Short Duration 

High Yield Bond ETF Under NYSE Arca 

Equities Rule 8.600 

March 2, 2012. 

I. Introduction 

On November 14, 2011, NYSE Arca, 

Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’), pursuant 

to Section 19(b)(1) of the Securities 

Exchange Act of 1934 (‘‘Act’’ or 

‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule change to 

list and trade shares (‘‘Shares’’) of the 

Guggenheim Enhanced Short Duration 

High Yield Bond ETF (‘‘Fund’’) under 

NYSE Arca Equities Rule 8.600. The 

proposed rule change was published for 

comment in the Federal Register on 

December 5, 2011.3 On January 17, 

2012, the Exchange filed Amendment 

No. 1 to the proposed rule change.4 On 

January 18, 2012, the Exchange filed 

Amendment No. 2 to the proposed rule 

change.5 On February 7, 2012, the 

Exchange extended the time period for 

Commission action to March 4, 2012. 

On February 29, 2012, the Exchange 

filed Amendment No. 3 to the proposed 

rule change.6 The Commission received 

no comments on the proposal. This 

order grants approval of the proposed 

rule change, as modified by Amendment 

No. 3 thereto. 

II. Description of the Proposed Rule 

Change 

The Exchange proposes to list and 

trade Shares of the Fund pursuant to 

NYSE Arca Equities Rule 8.600, which 

governs the listing and trading of 

Managed Fund Shares on the Exchange. 

The Shares will be offered by the 

Claymore Exchange-Traded Fund Trust 

(‘‘Trust’’),7 a statutory trust organized 

under the laws of the State of Delaware 

and registered with the Commission as 

an open-end management investment 

company. The investment adviser for 

the Fund is Guggenheim Funds 

Investment Advisors, LLC (‘‘Adviser’’). 

The Bank of New York Mellon is the 

custodian and transfer agent for the 

Fund. Guggenheim Funds Distributors, 

Inc. is the distributor for the Fund. The 

Adviser is affiliated with a broker-dealer 

and has represented that it has 

implemented a fire wall with respect to 

its broker-dealer affiliate regarding 

access to information concerning the 

composition and/or changes to the 

portfolio.8

Guggenheim Enhanced Short Duration 

High Yield Bond ETF 

The investment objective of the Fund 

is to seek to maximize total return, 

through monthly income and capital 

appreciation, consistent with capital 

preservation. The Fund will use an 

actively managed strategy that seeks to 

maximize total return, comprised of 

income and capital appreciation, and 

risk-adjusted returns in excess of the 3- 

month LIBOR, while maintaining a lowrisk profile relative to below investment 

grade rated, longer-term, fixed income 

investments. The Fund will primarily 

invest in below investment grade rated 

bonds while opportunistically allocating 

to investment grade bonds and other 

select securities. The Fund’s portfolio 

will maintain an effective duration of 

one year or less. 

Primary Investments 

As a principal investment strategy, 

under normal market circumstances,9

the Fund will invest at least 80% of its 

net assets in debt securities which are 

below investment grade (‘‘high yield’’ 

bonds or ‘‘junk bonds’’).10 Bonds are 

considered to be below investment 

grade if they have a Standard & Poor’s 

or Fitch credit rating of ‘‘BB+’’ or lower 

or a Moody’s credit rating of ‘‘Ba1’’ or 

lower or bonds that are unrated and 

deemed to be of below investment grade 

quality as determined by the Adviser.11

The Fund’s primary investments also 

may include floating rate or adjustable 

rate bonds,12 callable bonds with, as 


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Federal Register / Vol. 77, No. 46 / Thursday, March 8, 2012 / Notices 14049 

month or calendar quarter) in the case of variable 

rates or whenever a specified interest rate change 

occurs in the case of a floating rate instrument. 

Variable or floating interest rates generally reduce 

changes in the market price of securities from their 

original purchase price because, upon readjustment, 

such rates approximate market rates. Accordingly, 

as interest rates decrease or increase, the potential 

for capital appreciation or depreciation is less for 

variable or floating rate securities than for fixed rate 

obligations. 

13 During periods of falling interest rates, an 

issuer of a callable bond may exercise its right to 

pay principal on an obligation earlier than 

expected, which may result in the Fund reinvesting 

proceeds at lower interest rates, resulting in a 

decline in the Fund’s income. 

14The Adviser considers developed countries to 

include Australia, Austria, Belgium, Canada, 

Denmark, Finland, France, Germany, Greece, Hong 

Kong, Ireland, Israel, Italy, Japan, Netherlands, New 

Zealand, Norway, Portugal, Singapore, Spain, 

Sweden, Switzerland, the United Kingdom, and the 

United States. 

15Such bonds have different risks than investing 

in U.S. companies. These include differences in 

accounting, auditing, and financial reporting 

standards, the possibility of expropriation or 

confiscatory taxation, adverse changes in 

investment or exchange control regulations, 

political instability, which could affect U.S. 

investments in foreign countries, and potential 

restrictions of the flow of international capital. 

Foreign companies may be subject to less 

governmental regulation than U.S. issuers. 

Moreover, individual foreign economies may differ 

favorably or unfavorably from the U.S. economy in 

such respects as growth of gross domestic product, 

rate of inflation, capital investment, resource selfsufficiency, and balance of payment options. 

16The Fund may invest in master notes, which 

are demand notes that permit the investment of 

fluctuating amounts of money at varying rates of 

interest pursuant to arrangements with issuers who 

meet the quality criteria of the Fund. The interest 

rate on a master note may fluctuate based upon 

changes in specified interest rates, be reset 

periodically according to a prescribed formula or be 

a set rate. Although there is no secondary market 

in master demand notes, if such notes have a 

Continued 

determined by the Adviser, a high 

probability of being redeemed prior to 

maturity,13 ‘‘putable’’ bonds (bonds that 

give the holder the right to sell the bond 

to the issuer prior to the bond’s 

maturity) when the put date is within a 

24 month period, ‘‘busted’’ convertible 

securities (a convertible security that is 

trading well below its conversion value 

minimizing the likelihood that it will 

ever reach its convertible price prior to 

maturity), and other types of securities, 

all of which may be rated at or below 

investment grade. The Fund will not 

invest in securities in default at the time 

of investment. The management process 

is intended to be highly flexible and 

responsive to market opportunities. For 

example, when interest rates are low 

and credit markets are healthy, the Fund 

may be overweight in callable bonds, 

which generally have a lower yield-tocall than yield-to-maturity, as well as 

bonds that are subject to company 

repurchases and tender offers. In weaker 

credit markets, the Fund may be 

overweight in bonds that are at maturity 

or have putable features. The Adviser 

anticipates that under normal market 

circumstances the Fund will invest 

approximately 20% of its assets in 

securities that will be called, tendered, 

or mature within 60 to 90 days. 

The Adviser will commence the 

investment review process with a topdown, macroeconomic outlook to 

determine both investment themes and 

relative value within each market sector 

and industry. Within these parameters, 

the Adviser will then apply detailed 

bottom-up security selection to select 

individual portfolio securities that the 

Adviser believes can add value from 

income and/or the potential for capital 

appreciation. Credit research may 

include an assessment of an issuer’s 

profitability, its competitive positioning 

and management strength, as well as 

industry characteristics, liquidity, 

growth, and other factors. The Adviser 

may sell a portfolio security due to 

changes in credit characteristics or 

outlook, as well as changes in portfolio 

strategy or cash flow needs. A portfolio 

security may also be sold and replaced 

with one that presents a better value or 

risk/reward profile. Except during 

periods of temporary defensive 

positioning, the Adviser generally 

expects to be fully-invested. 

The Adviser aims to manage the Fund 

so as to provide investors with a higher 

degree of principal stability than is 

typically available in a portfolio of 

lower-rated longer-term, fixed income 

investments. The Adviser intends to 

invest the Fund’s assets in the securities 

of issuers in many different industries 

and intends to invest a maximum of 2– 

3% of the Fund’s assets in the securities 

of any one issuer, though the Fund is 

not restricted from maintaining 

positions of greater weight based upon 

the outlook for an issuer or during 

periods of relatively small asset levels of 

the Fund. 

The Fund may invest a portion of its 

assets in various types of U.S. 

government obligations. The Fund also 

may invest in convertible securities, 

including bonds, debentures, notes, 

preferred stocks, and other securities 

that may be converted into a prescribed 

amount of common stocks or other 

equity securities at a specified price and 

time. The Fund may invest in municipal 

securities and certificates of deposit. 

While the Adviser anticipates that the 

Fund will invest primarily in the debt 

securities of U.S.-registered companies, 

it may also invest in those of foreign 

companies in developed countries.14

The Fund may invest in U.S.-registered, 

dollar-denominated bonds of foreign 

corporations, governments, agencies, 

and supra-national agencies.15

The Fund will be managed in 

accordance with the principal 

investment strategies stated above, 

subject to the following investment 

restrictions: The Fund will not employ 

any leverage in order to meet its 

investment objective, and, consistent 

with the Exemptive Order, the Fund 

will not invest in derivatives, including 

options, swaps, or futures. 

Other Investments 

As non-principal investment 

strategies, the Fund may invest its 

remaining assets in money market 

instruments (including other funds 

which invest exclusively in money 

market instruments), preferred 

securities, insurance-linked securities, 

and structured notes (notes on which 

the amount of principal repayment and 

interest payments are based on the 

movement of one or more specified 

factors, such as the movement of a 

particular security or security index). 

The Fund may, from time to time, invest 

in money market instruments or other 

cash equivalents as part of a temporary 

defensive strategy to protect against 

temporary market declines. When the 

Fund takes a temporary defensive 

position that is inconsistent with its 

principal investment strategies, the 

Fund may not achieve its investment 

objective. The Fund may also invest, to 

a limited extent, in other pooled 

investment vehicles which are not 

registered investment companies under 

the 1940 Act; however, the Fund will 

not invest in hedge funds or commodity 

pools. 

The Fund may invest in commercial 

interests, including commercial paper 

and other short-term corporate 

instruments. Commercial paper consists 

of short-term promissory notes issued 

by corporations and may be traded in 

the secondary market after its issuance. 

The Fund may invest in zero-coupon 

or pay-in-kind securities. These 

securities are debt securities that do not 

make regular cash interest payments. 

Zero-coupon securities are sold at a 

deep discount to their face value. Payin-kind securities pay interest through 

the issuance of additional securities. 

Because zero-coupon and pay-in-kind 

securities do not pay current cash 

income, the price of these securities can 

be volatile when interest rates fluctuate. 

The Fund may invest up to 10% of its 

net assets in asset-backed securities 

issued or guaranteed by private issuers. 

The Fund may hold in the aggregate 

up to 15% of its net assets in: (1) Illiquid 

securities 16 and (2) Rule 144A 


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14050 Federal Register / Vol. 77, No. 46 / Thursday, March 8, 2012 / Notices 

demand future, the payee may demand payment of 

the principal amount of the note upon relatively 

short notice. Master notes are generally illiquid and 

therefore subject to the Fund’s percentage 

limitations for holdings of illiquid securities. See 

supra note 6. The Fund may hold up to 15% of its 

net assets in bank loans, which include 

participation interests (as described below). See id. 

Any bank loans will be broadly syndicated and may 

be first or second liens; the Fund will not invest in 

third lien or mezzanine loans. The interest rate on 

bank loans and other adjustable rate securities 

typically resets every 90 days based upon then 

current interest rates. The Fund may purchase 

participations in corporate loans. Participation 

interests generally will be acquired from a 

commercial bank or other financial institution 

(‘‘Lender’’) or from other holders of a participation 

interest (‘‘Participant’’). The purchase of a 

participation interest either from a Lender or a 

Participant will not result in any direct contractual 

relationship with the borrowing company 

(‘‘Borrower’’). The Fund generally will have no 

right directly to enforce compliance by the 

Borrower with the terms of the credit agreement. 

Instead, the Fund will be required to rely on the 

Lender or the Participant that sold the participation 

interest, both for the enforcement of the Fund’s 

rights against the Borrower and for the receipt and 

processing of payments due to the Fund under the 

loans. Under the terms of a participation interest, 

the Fund may be regarded as a member of the 

Participant, and thus the Fund is subject to the 

credit risk of both the Borrower and a Participant. 

Participation interests are generally subject to 

restrictions on resale. Generally, the Fund considers 

participation interests to be illiquid and therefore 

subject to the Fund’s percentage limitations for 

holdings of illiquid securities. See id. 

17See supra note 6. 

18 15 U.S.C. 80a–12(d). 

19Repurchase agreements are agreements 

pursuant to which securities are acquired by the 

Fund from a third party with the understanding that 

they will be repurchased by the seller at a fixed 

price on an agreed date. These agreements may be 

made with respect to any of the portfolio securities 

in which the Fund is authorized to invest. 

Repurchase agreements may be characterized as 

loans secured by the underlying securities. The 

Fund may enter into repurchase agreements with (i) 

member banks of the Federal Reserve System 

having total assets in excess of $500 million and (ii) 

securities dealers (‘‘Qualified Institutions’’). The 

Adviser will monitor the continued 

creditworthiness of Qualified Institutions. 

20Reverse repurchase agreements involve the sale 

of securities with an agreement to repurchase the 

securities at an agreed-upon price, date and interest 

payment and have the characteristics of borrowing. 

The securities purchased with the funds obtained 

from the agreement and securities collateralizing 

the agreement will have maturity dates no later than 

the repayment date. Generally the effect of such 

transactions is that the Fund can recover all or most 

of the cash invested in the portfolio securities 

involved during the term of the reverse repurchase 

agreement, while in many cases the Fund is able to 

keep some of the interest income associated with 

those securities. 

21 26 U.S.C. 851. 

22 17 CFR 240.10A–3. 

23See Notice and Registration Statement, supra 

notes 3 and 7, respectively. 

24 15 U.S.C. 78f. 

25 In approving this proposed rule change, the 

Commission notes that it has considered the 

proposed rule’s impact on efficiency, competition, 

and capital formation. See 15 U.S.C. 78c(f). 

26 15 U.S.C. 78f(b)(5). 

27 15 U.S.C. 78k–1(a)(1)(C)(iii). 

securities.17 Illiquid securities include 

securities subject to contractual or other 

restrictions on resale and other 

instruments that lack readily available 

markets. Rule 144A securities are 

securities which, while privately 

placed, are eligible for purchase and 

resale pursuant to Rule 144A under the 

Securities Act of 1933. Rule 144A 

permits certain qualified institutional 

buyers, such as the Fund, to trade in 

privately placed securities even though 

such securities are not registered under 

the Securities Act of 1933. 

The Fund may invest in the securities 

of other investment companies 

(including money market funds). Under 

Section 12(d) of the 1940 Act, or as 

otherwise permitted by the Commission, 

the Fund’s investment in investment 

companies is limited to, subject to 

certain exceptions, (i) 3% of the total 

outstanding voting stock of any one 

investment company, (ii) 5% of the 

Fund’s total assets with respect to any 

one investment company and (iii) 10% 

of the Fund’s total assets in investment 

companies in the aggregate.18

The Fund may enter into 

repurchase 19 and reverse repurchase 

agreements.20 The Fund also may invest 

in the securities of real estate 

investment trusts to the extent allowed 

by law, which pool investors’ funds for 

investments primarily in commercial 

real estate properties. 

The Fund may not invest 25% or 

more of the value of its total assets in 

securities of issuers in any one industry 

or group of industries. This restriction 

does not apply to obligations issued or 

guaranteed by the U.S. government, its 

agencies, or instrumentalities. 

The Fund’s portfolio holdings will be 

disclosed on its Web site 

(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 Fund intends to maintain the 

level of diversification necessary to 

qualify as a regulated investment 

company under Subchapter M of the 

Internal Revenue Code of 1986, as 

amended.21 The Fund represents that 

the portfolio will include a minimum of 

13 non-affiliated issuers. The Fund will 

only purchase performing securities, not 

distressed debt. Distressed debt is debt 

that is currently in default and is not 

expected to pay the current coupon. 

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 

under the Exchange Act,22 as provided 

by NYSE Arca Equities Rule 5.3. A 

minimum of 100,000 Shares of the 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’’) 

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 Fund will not invest in 

non-U.S.-registered equity securities. 

Additional information regarding the 

Trust, Fund, Shares, Fund’s investment 

strategies, risks, creation and 

redemption procedures, fees, portfolio 

holdings and disclosure policies, 

distributions and taxes, availability of 

information, trading rules and halts, and 

surveillance procedures, among other 

things, can be found in the Notice and 

the Registration Statement, as 

applicable.23

III. Discussion and Commission’s 

Findings 

After careful review, the Commission 

finds that the proposed rule change is 

consistent with the requirements of 

Section 6 of the Act 24 and the rules and 

regulations thereunder applicable to a 

national securities exchange.25 In 

particular, the Commission finds that 

the proposed rule change is consistent 

with the requirements of Section 6(b)(5) 

of the Act,26 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 NYSE 

Arca Equities Rule 8.600 to be listed and 

traded on the Exchange. 

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,27 which sets 

forth Congress’s 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 via the Consolidated 

Tape Association (‘‘CTA’’) high-speed 


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28According to the Exchange, several major 

market data vendors display and/or make widely 

available Portfolio Indicative Values published on 

CTA or other data feeds. 

29On 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. 

30See NYSE Arca Equities Rule 8.600(d)(1)(B). 

31See NYSE Arca Equities Rule 8.600(d)(2)(C). 

With respect to trading halts, the Exchange may 

consider other relevant factors in exercising its 

discretion to halt or suspend trading in the Shares 

of the Fund. 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. 

32See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii). 

33See supra note 8. 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 its 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 nonpublic 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. 

34 17 CFR 240.10A–3. 

line. In addition, the Portfolio Indicative 

Value, as defined in NYSE Arca Equities 

Rule 8.600(c)(3), will be widely 

disseminated by one or more major 

market data vendors at least every 15 

seconds during the Core Trading 

Session.28 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, as 

defined in NYSE Arca Equities Rule 

8.600(c)(2), that will form the basis for 

the Fund’s calculation of NAV at the 

end of the business day.29 The NAV per 

Share of the Fund will be determined 

once daily as of the close of the New 

York Stock Exchange (‘‘NYSE’’), usually 

4 p.m. Eastern Time, each day the NYSE 

is open for trading, provided that any 

assets or liabilities denominated in 

currencies other than the U.S. dollar 

shall be translated into U.S. dollars at 

the prevailing market rates on the date 

of valuation as quoted by one or more 

major banks or dealers that makes a twoway market in such currencies (or a data 

service provider based on quotations 

received from such banks or dealers); 

and U.S. fixed income instruments may 

be valued as of the announced closing 

time for trading in fixed income 

instruments on any day that the 

Securities Industry and Financial 

Markets Association announces an early 

closing time. Information regarding 

market price and trading volume for the 

Shares 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. In 

addition, price information for the debt 

securities held by the Fund will be 

available through major market data 

vendors. 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. 

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.30 In 

addition, the Exchange will halt trading 

in the Shares under the specific 

circumstances set forth in NYSE Arca 

Equities Rule 8.600(d)(2)(D) and may 

halt trading in the Shares if trading is 

not occurring in the securities and/or 

the financial instruments comprising 

the Disclosed Portfolio of the Fund, or 

if other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present.31 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.32 The Exchange states that it 

has a general policy prohibiting the 

distribution of material, non-public 

information by its employees. The 

Exchange also states that the Adviser is 

affiliated with a broker-dealer, and the 

Adviser has implemented a fire wall 

with respect to its broker-dealer affiliate 

regarding access to information 

concerning the composition and/or 

changes to the portfolio.33

The Exchange represents that the 

Shares are deemed to be equity 

securities, thus rendering trading in the 

Shares subject to the Exchange’s 

existing rules governing the trading of 

equity securities. In support of this 

proposal, the Exchange has made 

representations, including: 

(1) The Shares will conform to the 

initial and continued listing criteria 

under NYSE Arca Equities Rule 8.600. 

(2) The Exchange has appropriate 

rules to facilitate transactions in the 

Shares during all trading sessions. 

(3) The Exchange’s surveillance 

procedures applicable to derivative 

products, which include Managed Fund 

Shares, are adequate to properly 

monitor Exchange trading of the Shares 

in all trading sessions and to deter and 

detect violations of Exchange rules and 

applicable federal securities laws. 

(4) Prior to the commencement of 

trading, the Exchange will inform its 

Equity Trading Permit (‘‘ETP’’) Holders 

in an Information Bulletin of the special 

characteristics and risks associated with 

trading the Shares. Specifically, the 

Information Bulletin will discuss the 

following: (a) The procedures for 

purchases and redemptions of Shares in 

Creation Unit Aggregations (and that 

Shares are not individually redeemable); 

(b) NYSE Arca Equities Rule 9.2(a), 

which imposes a duty of due diligence 

on its ETP Holders to learn the essential 

facts relating to every customer prior to 

trading the Shares; (c) the risks involved 

in trading the Shares during the 

Opening and Late Trading Sessions 

when an updated Portfolio Indicative 

Value will not be calculated or publicly 

disseminated; (d) how information 

regarding the Portfolio Indicative Value 

is disseminated; (e) the requirement that 

ETP Holders deliver a prospectus to 

investors purchasing newly issued 

Shares prior to or concurrently with the 

confirmation of a transaction; and (f) 

trading information. 

(5) For initial and/or continued 

listing, the Fund will be in compliance 

with Rule 10A–3 under the Exchange 

Act,34 as provided by NYSE Arca 

Equities Rule 5.3. 

(6) The Fund will not: (a) Invest in 

non-U.S.-registered equity securities; (b) 

employ any leverage in order to meet its 


wreier-aviles on DSK5TPTVN1PROD with NOTICES
14052 Federal Register / Vol. 77, No. 46 / Thursday, March 8, 2012 / Notices 

35See supra note 6. 

36 15 U.S.C. 78f(b)(5). 

37 15 U.S.C. 78s(b)(2). 

38 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3NASD Rule 1011(k) defines a ‘‘material change 

in business operations’’ as including, but not 

limited to: (1) Removing or modifying a 

membership agreement restriction; (2) market 

making, underwriting, or acting as a dealer for the 

first time; and (3) adding business activities that 

require a higher minimum net capital under SEA 

Rule 15c3–1. 

investment objective; and (c) consistent 

with the Exemptive Order, invest in 

derivatives, including options, swaps, or 

futures. 

(7) The Fund may hold in the 

aggregate up to 15% of its net assets in: 

(a) Illiquid securities; and (b) Rule 144A 

securities.35

(8) A minimum of 100,000 Shares of 

the Fund will be outstanding at the 

commencement of trading on the 

Exchange. 

This approval order is based on the 

Exchange’s representations. 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act 36 and the rules and 

regulations thereunder applicable to a 

national securities exchange. 

IV. Conclusion 

It is therefore ordered, pursuant to 

Section 19(b)(2) of the Act,37 that the 

proposed rule change (SR–NYSEArca– 

2011–81), as modified by Amendment 

No. 3 thereto, be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.38

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–5610 Filed 3–7–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66508; File No. SR–FINRA– 

2012–018] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Proposed Rule Change To Amend 

NASD Rules 1012 (General Provisions) 

and 1017 (Application for Approval of 

Change in Ownership, Control, or 

Business Operations) To Adopt New 

Standardized Electronic Form CMA 

March 2, 2012. 

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 February 

28, 2012, Financial Industry Regulatory 

Authority, Inc. (‘‘FINRA’’) (f/k/a 

National Association of Securities 

Dealers, Inc. (‘‘NASD’’)) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I, II, 

and III below, which Items have been 

prepared by FINRA. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing to amend NASD 

Rules 1012 (General Provisions) and 

1017 (Application for Approval of 

Change in Ownership, Control, or 

Business Operations) to adopt new 

standardized electronic Form CMA. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA 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 these statements 

may be examined at the places specified 

in Item IV below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

NASD Rule 1017 (Application for 

Approval of Change in Ownership, 

Control, or Business Operations) 

provides parameters for certain changes 

in a member’s ownership, control, or 

business operations that would require 

a continuing membership application. 

Among other things, those changes 

include a merger of a member with 

another member, a direct or indirect 

acquisition by a member of another 

member, a change in equity ownership 

or partnership capital of the member 

that results in one person or entity 

directly or indirectly owning or 

controlling 25 percent or more of the 

equity or partnership capital, or a 

material change in business operations 

as defined in NASD Rule 1011(k) 

(‘‘material change in business 

operations’’).3 Currently, NASD Rule 

1017 does not require an applicant 

seeking approval of a change of 

ownership, control, or business 

operations (‘‘continuing membership 

applicant’’ or ‘‘applicant’’) to submit a 

standardized form as part of its 

continuing membership application and 

provides little detail regarding an 

application’s required contents. Instead, 

each applicant is responsible for 

determining the contents of its 

continuing membership application. 

This often results in information 

deficiencies, which in turn, creates 

unnecessary delays in efficiently 

processing the applications. NASD Rule 

1017 also generally requires a 

continuing membership application to 

be filed in the district office in which an 

applicant’s principal place of business 

is located. Additionally, NASD Rule 

1012 (General Provisions) provides that, 

unless otherwise prescribed by FINRA, 

applicants may submit continuing 

membership applications via first-class 

mail, overnight courier, or handdelivery (or facsimile upon agreement 

by FINRA and the applicant). 

This manner of submitting a 

continuing membership application 

reduces the overall efficiency of the 

process and also creates unnecessary 

delays in properly forwarding 

information within FINRA, such as in 

conveying information to and from the 

centralized Membership Application 

Program Group formed in January 2011. 

To address these deficiencies, the 

proposed rule change amends NASD 

Rule 1012 to require continuing 

membership applicants to file an 

application in the manner prescribed in 

Rule 1017. In addition, the proposed 

rule change amends NASD Rule 1017(b) 

to require continuing membership 

applicants to file an application in the 

manner prescribed by FINRA with the 

Department of Member Regulation (‘‘the 

Department’’) and to include the 

completed Form CMA as part of the 

contents of a continuing membership 

application. 

New Form CMA will provide 

continuing membership applicants with 

the benefits of a streamlined application 

process that new member applicants 

currently experience via the 

standardized online Form NMA and is 

intended to significantly reducing 

administrative delays that exists in 

today’s manual application processes. 

New Form CMA is structured 

similarly to revisions proposed for Form 

NMA with adjustments in the content of 


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