Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices 21827 

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

2 17 CFR 240.19b–4. 

3A 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–1) (‘‘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. 

4The Commission has previously 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); 58564 (September 

17, 2008), 73 FR 55194 (September 24, 2008) (SR– 

NYSEArca–2008–86) (order approving Exchange 

listing and trading of WisdomTree Dreyfus 

Emerging Currency Fund); 62604 (July 30, 2010), 75 

FR 47323 (August 5, 2010) (SR–NYSEArca–2010– 

49) (order approving listing and trading of 

WisdomTree Emerging Markets Local Debt Fund); 

63919 (February 16, 2011), 76 FR 10073 (February 

23, 2011) (SR–NYSEArca–2010–116) (order 

approving listing and trading of WisdomTree Asia 

Local Debt Fund); 64643 (June 10, 2011), 76 FR 

35062 (June 15, 2011) (SR–NYSEArca–2011–21) 

(order approving listing and trading of WisdomTree 

Global Real Return Fund); 65458 (September 30, 

2011), 76 FR 62112 (October 6, 2011) (SR– 

NYSEArca–2011–54) (order approving listing and 

trading of WisdomTree Dreyfus Australia and New 

Zealand Debt Fund); 66342 (February 7, 2012), 77 

FR 7623 (February 13, 2012) (SR–NYSEArca–2011– 

82) (order approving listing and trading of 

WisdomTree Emerging Markets Inflation Protection 

Bond Fund); and 66489 (February 29, 2012), 77 FR 

13379 (March 6, 2012) (SR–NYSEArca–2012–004) 

(order approving listing and trading of WisdomTree 

Emerging Markets Corporate Bond Fund). The 

Exchange believes the proposed rule change raises 

no significant issues not previously addressed in 

those prior Commission orders. 

5See registration statement on Form N–1A for the 

Trust under the Securities Act of 1933 (15 U.S.C. 

77a) and under the 1940 Act, dated October 8, 2010 

(File Nos. 333–132380 and 811–21864) 

(‘‘Registration Statement’’). The descriptions of the 

Fund and the Shares contained herein are based, in 

part, on information in the Registration Statement. 

6WisdomTree Investments, Inc. (‘‘WisdomTree 

Investments’’) is the parent company of 

WisdomTree Asset Management. 

7The Sub-Adviser will be responsible for day-today management of the Fund and, as such, typically 

will make all decisions with respect to portfolio 

holdings. The Adviser will have ongoing oversight 

responsibility. 

8The Commission has issued an order granting 

certain exemptive relief (‘‘Exemptive Order’’) to the 

Trust under the 1940 Act. See Investment Company 

Act Release No. 28171 (October 27, 2008) (File No. 

812–13458). In compliance with Commentary .05 to 

NYSE Arca Equities Rule 8.600, 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). 

9An 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. 

. 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66753; File No. SR– 

NYSEArca–2012–25] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of Proposed 

Rule Change Relating to Listing and 

Trading of the WisdomTree Brazil 

Bond Fund Under NYSE Arca Equities 

Rule 8.600 

April 6, 2012. 

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

Securities Exchange Act of 1934 

(‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that, 

on March 23, 2012, NYSE Arca, Inc. 

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

with the Securities and Exchange 

Commission (‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been substantially prepared by the 

Exchange. 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 

The Exchange proposes to list and 

trade shares (‘‘Shares’’) of the following 

fund of the WisdomTree Trust (‘‘Trust’’) 

under NYSE Arca Equities Rule 8.600 

(‘‘Managed Fund Shares’’): WisdomTree 

Brazil Bond Fund (‘‘Fund’’). The text of 

the proposed rule change is available at 

the Exchange, the Commission’s Public 

Reference Room, and www.nyse.com. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade Shares of the WisdomTree Brazil 

Bond Fund under NYSE Arca Equities 

Rule 8.600, which governs the listing 

and trading of Managed Fund Shares on 

the Exchange.3 The Fund will be an 

actively managed exchange-traded 

fund.4 The Shares will be offered by the 

Trust, which was established as a 

Delaware statutory trust on December 

15, 2005. The Trust is registered with 

the Commission as an investment 

company.5

Description of the Shares and the Fund 

WisdomTree Asset Management, Inc. 

(‘‘WisdomTree Asset Management’’) is 

the investment adviser (‘‘Adviser’’) to 

the Fund.6 WisdomTree Asset 

Management is not affiliated with any 

broker-dealer. Western Asset 

Management Company serves as subadviser for the Fund (‘‘Sub-Adviser’’).7

The Bank of New York Mellon is the 

administrator, custodian, and transfer 

agent for the Trust. ALPS Distributors, 

Inc. serves as the distributor for the 

Trust.8

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 brokerdealer with respect to access to 

information concerning the composition 

and/or changes to such investment 

company portfolio.9 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 non-public information 


wreier-aviles on DSK5TPTVN1PROD with NOTICES
21828 Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices 

10The 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 the Fund will invest a 

limited percentage of its assets in LPNs. 

11The category of ‘‘Brazilian debt’’ includes both 

U.S. dollar-denominated debt and non-U.S. or 

‘‘local’’ currency debt. The market for Brazilian 

local currency debt is larger and more actively 

traded than the market for Brazilian U.S. dollardenominated debt. According to the Emerging 

Markets Traders Association, the global dollar 

amount of emerging market debt instruments traded 

in the first two quarters of 2011 was $3.443 trillion, 

of which Brazil represented over $358 billion. This 

pace seems largely similar to the annual amounts 

traded in 2010 whereby $6.765 trillion globally and 

$958 billion in Brazilian debt traded between 

market participants. This marked a 52% increase 

globally and a 28% increase in Brazilian debt over 

the total volumes of each traded in 2009 ($4.4445 

trillion globally, $747 billion in Brazilian debt). 

Global turnover in local currency debt instruments 

in 2009 was $2.870 trillion, of which Brazilian debt 

represented $548 billion. (Source: Emerging 

Markets Traders Association Survey: Full Year 2010 

Emerging Markets Debt Trading, Emerging Markets 

Traders Association, March 22, 2011; Emerging 

Markets Traders Association 2009 Annual Debt 

Trading Volume Survey, March 8, 2010. Additional 

information relating to emerging market corporate 

bonds is available at: www.emta.org. See Form 19b– 

4 at 7, n.10. The Adviser represents that Brazilian 

sovereign debt is issued in large par size and tends 

to be very liquid. Real-denominated Brazilian debt 

issued by supranational entities is also actively 

traded. Intra-day, executable price quotations on 

such instruments are available from major brokerdealer 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. 

12The Adviser represents that the size and 

liquidity of the market for emerging market bonds, 

including Brazilian corporate bonds, generally has 

been increasing in recent years. Through the first 

three quarters of 2011, emerging market corporate 

bonds traded approximately $652 billion. The 

aggregate dollar amount of emerging market 

corporate bonds traded in 2010 was $841 billion. 

This constituted a 63% increase over the $514 

billion traded in 2009. As of January 31, 2012, the 

market for Brazilian corporate bonds represented 

22.48% ($95.83 billion) of the JPMorgan Corporate 

Emerging Market Bond Index Broad, the industry 

standard benchmark for emerging market corporate 

debt. Brazilian corporate debt represents the single 

largest country exposure of the index. Turnover in 

emerging market corporate debt accounted for 12% 

of the overall volume of emerging market debt of 

$4.445 trillion in 2009, an increase over the 9% 

share in 2008. Trading in Brazilian corporate debt 

accounted for approximately 8% of the overall 

trading in Brazilian debt in 2009, an increase over 

the approximately 6% share in 2008. (Source: 

JPMorgan, January 31, 2012; Emerging Markets 

Traders Association Press Releases, March 8, 2010, 

August 22, 2011, December 15, 2011.) Additional 

information relating to emerging market corporate 

bonds is available at: www.emta.org. 

regarding the open-end fund’s portfolio. 

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. The SubAdviser is affiliated with multiple 

broker-dealers and has implemented a 

‘‘fire wall’’ with respect to such brokerdealers regarding access to information 

concerning the composition and/or 

changes to the Fund’s portfolio. In 

addition, Sub-Adviser personnel who 

make decisions regarding the Fund’s 

portfolio are subject to procedures 

designed to prevent the use and 

dissemination of material non-public 

information regarding the Fund’s 

portfolio. 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. 

WisdomTree Brazil Bond Fund 

According to the Registration 

Statement, the Fund will seek to 

provide investors with a high level of 

total return consisting of both income 

and capital appreciation. The Fund will 

be designed to provide exposure to a 

broad range of Brazilian government 

and corporate bonds through investment 

in both local currency (i.e., Brazilian 

real) and U.S. dollar-denominated Fixed 

Income Securities. For purposes of this 

proposed rule change, Fixed Income 

Securities will include bonds, notes, or 

other debt obligations, including loan 

participation notes (‘‘LPNs’’),10

inflation-linked debt, and debt 

securities issued by ‘‘supranational 

issuers,’’ such as the European 

Investment Bank, International Bank for 

Reconstruction and Development, and 

the International Finance Corporation, 

as well as development agencies 

supported by other national 

governments. The Fund may invest to a 

lesser extent in Money Market 

Securities and derivative instruments, 

as described below. 

The Fund will be designed to provide 

broad exposure to Brazilian government 

and corporate bonds and will invest in 

a range of instruments with varying 

credit risk and duration. The Fund 

intends to invest in bonds and debt 

instruments issued by the government 

of Brazil and its agencies and 

instrumentalities and bonds and other 

debt instruments issued by corporations 

organized in Brazil.11 The Fund also 

may invest in bonds and debt 

instruments denominated in Brazilian 

real and issued by supranational issuers, 

as described above. The Fund intends to 

invest at least 70% of its net assets in 

Fixed Income Securities. The Fund will 

invest only in corporate bonds that the 

Adviser or Sub-Adviser deems to be 

sufficiently liquid. Generally a corporate 

bond must have $200 million or more 

par amount outstanding and significant 

par value traded to be considered as an 

eligible investment.12 Economic and 

other conditions in Brazil may, from 

time to time, lead to a decrease in the 

average par amount outstanding of bond 

issuances. Therefore, although the Fund 

does not intend to do so, the Fund may 

invest up to 20% of its net assets in 

corporate bonds with less than $200 

million par amount outstanding, 

including up to 5% of its assets in 

corporate bonds with less than $100 

million par amount outstanding, if (i) 

The Adviser or Sub-Adviser deems such 

security to be sufficiently liquid based 

on its analysis of the market for such 

security (based on, for example, brokerdealer quotations or its analysis of the 

trading history of the security or the 

trading history of other securities issued 

by the issuer), (ii) such investment is 

consistent with the Fund’s goal of 

providing exposure to a broad range of 

Brazilian government and corporate 

bonds, and (iii) such investment is 

deemed by the Adviser or Sub-Adviser 

to be in the best interest of the Fund. 

According to the Registration 

Statement, the Fund typically will 

maintain aggregate portfolio duration of 

between two and ten years. Aggregate 

portfolio duration is a measure of the 

portfolio’s sensitivity to changes in the 

level of interest rates. The Fund’s actual 

portfolio duration may be longer or 

shorter depending upon market 

conditions. 

The universe of Brazilian Fixed 

Income Securities currently includes 

securities that are rated ‘‘investment 

grade’’ as well as ‘‘non-investment 

grade’’ securities. The Fund is designed 

to provide a broad-based, representative 

exposure to Brazilian government and 

corporate bonds and therefore will 

invest in both investment grade and 

non-investment grade securities in a 

manner designed to provide this 

exposure. The Fund currently expects 

that it will have 65% or more of its 

assets invested in investment grade 

securities, and no more than 35% of its 

assets invested in non-investment grade 

securities. Because the Fund is designed 

to provide exposure to a broad range of 

Brazilian government and corporate 

bonds, and because the debt ratings of 

the Brazilian government and those 

corporate issuers will change from time 

to time, the exact percentage of the 

Fund’s investments in investment grade 

and non-investment grade securities 

will change from time to time in 

response to economic events and 


wreier-aviles on DSK5TPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices 21829 

13As of January 31, 2012, Brazilian government 

debt was rated investment grade by S&P, Moody’s, 

and Fitch. See http://brasilstocks.com/bonds. See 

Form 19b–4 at 8, n.12. 14See 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). 15 26 U.S.C. 851. 

16The listed futures contracts in which the Fund 

may invest will be listed on exchanges either in the 

U.S. or in Brazil. Brazil’s primary financial markets 

regulator, the Comissao de Valores Mobiliarios, is 

a signatory to the International Organization of 

Securities Commissions (‘‘IOSCO’’) Multilateral 

Memorandum of Understanding (‘‘MMOU’’), which 

is a multi-party information sharing arrangement 

among major financial regulators. Both the 

Commission and the Commodity Futures Trading 

Commission are signatories to the IOSCO MMOU. 

17A forward currency contract is an agreement to 

buy or sell a specific currency on a future date at 

a price set at the time of the contract. 

18An interest rate swap involves the exchange of 

a floating interest rate payment for a fixed interest 

rate payment. 

19A total return swap is an agreement between 

two parties in which one party agrees to make 

payments of the total return of a reference asset in 

return for payments equal to a rate of interest on 

another reference asset. 

20The Fund may invest in credit-linked notes. A 

credit linked note is a type of structured note whose 

value is linked to an underlying reference asset. 

Credit linked notes typically provide periodic 

payments of interest as well as payment of principal 

upon maturity. The value of the periodic payments 

and the principal amount payable upon maturity 

are tied (positively or negatively) to a reference 

asset such as an index, government bond, interest 

rate, or currency exchange rate. The ongoing 

payments and principal upon maturity typically 

will increase or decrease depending on increases or 

decreases in the value of the reference asset. The 

Fund’s investments in credit-linked notes will be 

limited to notes providing exposure to Brazilian 

Fixed Income Securities. The Fund’s overall 

investment in credit-linked notes will not exceed 

25% of the Fund’s assets. 

21See 15 U.S.C. 80a–18; Investment Company Act 

Release No. 10666 (April 18, 1979), 44 FR 21258 

Continued 

changes to the credit ratings of the 

Brazilian government and corporate 

issuers.13 Within the non-investment 

grade category, some issuers and 

instruments are considered to be of 

lower credit quality and at higher risk 

of default. In order to limit its exposure 

to these more speculative credits, the 

Fund will not invest more than 15% of 

its assets in securities rated B or below 

by Moody’s, or equivalently rated by 

S&P or Fitch. The Fund does not intend 

to invest in unrated securities. However, 

it may do so to a limited extent, such 

as where a rated security becomes 

unrated, if such security is determined 

by the Adviser and Sub-Adviser to be of 

comparable quality. In determining 

whether a security is of ‘‘comparable 

quality,’’ the Adviser and Sub-Adviser 

will consider, for example, whether the 

issuer of the security has issued other 

rated securities. 

The Fund will hold Fixed Income 

Securities of at least 13 non-affiliated 

issuers. The Fund 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 its agencies and 

instrumentalities or governmentsponsored enterprises).14

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 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 (i) 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 (ii) 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) will represent 

more than 30% of the weight of the 

portfolio, and the five highest weighted 

portfolio securities of the Fund (other 

than U.S. government securities) will 

not in the aggregate account for more 

than 65% of the weight of the portfolio. 

For these purposes, the Fund may treat 

repurchase agreements collateralized by 

U.S. government securities as U.S. 

government securities. 

Money Market Securities 

The Fund intends to invest in Money 

Market Securities (as described below) 

in a manner consistent with its 

investment objective in order to help 

manage cash flows in and out of the 

Fund, such as in connection with 

payment of dividends or expenses and 

to satisfy margin requirements, to 

provide collateral, or to otherwise back 

investments in derivative instruments. 

For these purposes, Money Market 

Securities include: short-term, highquality 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 nonU.S. governments, agencies, and 

instrumentalities; repurchase 

agreements backed by U.S. government 

securities; money market mutual funds; 

and deposits and other obligations of 

U.S. and non-U.S. banks and financial 

institutions. All Money Market 

Securities acquired by the Fund will be 

rated investment grade. The Fund does 

not intend to invest in any unrated 

money market securities. However, it 

may do so, to a limited extent, such as 

where a rated Money Market Security 

becomes unrated, if such Money Market 

Security is determined by the Adviser or 

the Sub-Adviser to be of comparable 

quality. 

Derivative Instruments 

Consistent with the Exemptive Order, 

the Fund may use derivative 

instruments as part of its investment 

strategies. Examples of derivative 

instruments include listed futures 

contracts,16 forward currency contracts, 

non-deliverable forward currency 

contracts,17 currency swaps (e.g., 

Brazilian real vs. U.S. dollar), interest 

rate swaps,18 total return swaps,19

currency options, options on futures 

contracts, and credit-linked notes. 20

The Fund’s use of derivative 

instruments (other than credit-linked 

notes) will be collateralized or 

otherwise backed by investments in 

short term, high-quality U.S. money 

market securities and other liquid fixed 

income securities. The Fund expects 

that no more than 30% of the value of 

the Fund’s net assets will be invested in 

derivative instruments. Such 

investments will be consistent with the 

Fund’s investment objective and will 

not be used to enhance leverage. 

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, 

forward contracts, swap contracts, the 

purchase of securities on a when-issued 

or delayed delivery basis, or reverse 

repurchase agreements, under 

applicable federal securities laws, rules, 

and interpretations thereof, the Fund 

must ‘‘set aside’’ liquid assets or engage 

in other measures to ‘‘cover’’ open 

positions with respect to such 

transactions.21


wreier-aviles on DSK5TPTVN1PROD with NOTICES
21830 Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices 

(April 27, 1979); Dreyfus Strategic Investing, 

Commission No-Action Letter (June 22, 1987); 

Merrill Lynch Asset Management, L.P., Commission 

No-Action Letter (July 2, 1996). 

22The Fund will invest only in currencies, and 

instruments that provide exposure to such 

currencies, that have significant foreign exchange 

turnover and are included in the Bank for 

International Settlements, Triennial Central Bank 

Survey, Report on Global Foreign Exchange Market 

Activity in 2010 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. 

23The Commission has stated that long-standing 

Commission guidelines have required open-end 

funds to hold no more than 15% of their net assets 

in illiquid securities and other illiquid assets. See 

Investment Company Act Release No. 28193 (March 

11, 2008), 73 FR 14617 (March 18, 2008), footnote 

34. See also Investment Company Act Release No. 

5847 (October 21, 1969), 35 FR 19989 (December 

31, 1970) (Statement Regarding ‘‘Restricted 

Securities’’); Investment Company Act Release No. 

18612 (March 12, 1992), 57 FR 9828 (March 20, 

1992) (Revisions of Guidelines to Form N–1A). 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 fund. 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). 

24The 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 

(‘‘NAV Calculation Time’’). NAV per Share is 

calculated by dividing a Fund’s net assets by the 

number of Fund Shares outstanding. For more 

information regarding the valuation of Fund 

investments in calculating a Fund’s NAV, see the 

Registration Statement. 

25The Bid/Ask Price of the Fund will be 

determined using the midpoint of the highest bid 

and the lowest offer on the Exchange as of the time 

of calculation of such Fund’s NAV. The records 

relating to Bid/Ask Prices will be retained by the 

Fund and its service providers. 

26The Core Trading Session is 9:30 a.m. to 4 p.m., 

Eastern time. 

27Under accounting procedures followed by the 

Fund, trades made on the prior business day (‘‘T’’) 

will be booked and reflected in NAV on the current 

business day (‘‘T+1’’). Notwithstanding the 

foregoing, portfolio trades that are executed prior to 

the opening of the Exchange on any business day 

may be booked and reflected in NAV on such 

business day. Accordingly, the Fund will be able to 

disclose at the beginning of the business day the 

portfolio that will form the basis for the NAV 

calculation at the end of the business day. 

28Currently, it is the Exchange’s understanding 

that several major market data vendors display and/ 

or make widely available PIVs published via the 

Consolidated Tape Association (‘‘CTA’’) or other 

data feeds. 

The Fund may engage in foreign 

currency transactions, and may invest 

directly in foreign currencies in the 

form of bank and financial institution 

deposits, certificates of deposit, and 

bankers acceptances 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.22

The Fund may enter into repurchase 

agreements with counterparties that are 

deemed to present acceptable credit 

risks, and may enter into reverse 

repurchase agreements, which involve 

the sale of securities held by the Fund 

subject to its agreement to repurchase 

the securities at an agreed upon date or 

upon demand and at a price reflecting 

a market rate of interest. 

The Fund may invest in the securities 

of other investment companies 

(including money market funds and 

exchange-traded funds). 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).23 Illiquid securities include 

securities subject to contractual or other 

restrictions on resale and other 

instruments that lack readily available 

markets. 

The Fund will not invest in non-U.S. 

equity securities. 

The Shares 

The Fund will issue and redeem 

Shares on a continuous basis at net asset 

value (‘‘NAV’’) 24 only in large blocks of 

Shares (‘‘Creation Units’’) in 

transactions with authorized 

participants. Currently, a Creation Unit 

consists of 100,000 Shares. The Fund 

will issue and redeem Creation Units in 

exchange for a portfolio of Fixed Income 

Securities closely approximating the 

holdings of the Fund and/or an amount 

of cash in U.S. dollars. Once created, 

Shares of the Fund will trade on the 

secondary market in amounts less than 

a Creation Unit. 

Creations and redemptions must be 

made by an authorized participant or 

through a firm that is either a member 

of the National Securities Clearing 

Corporation or a Depository Trust 

Company participant, and in each case, 

must have executed an agreement with 

the Distributor with respect to creations 

and redemptions of Creation Units. 

Creation and redemption orders must be 

entered by 4 p.m., Eastern time. 

Additional information regarding the 

Shares and the Fund, including 

investment strategies, risks, creation and 

redemption procedures, fees, portfolio 

holdings disclosure policies, 

distributions, and taxes is included in 

the Registration Statement. 

Availability of Information 

The Fund’s Web site 

(www.wisdomtree.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 Web site will 

include additional quantitative 

information updated on a daily basis, 

including, for the Fund: (1) The prior 

business day’s reported NAV, mid-point 

of the bid/ask spread at the time of 

calculation of such NAV (‘‘Bid/Ask 

Price’’),25 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 26 on the 

Exchange, the Trust will disclose on its 

Web site the identities and quantities of 

the portfolio of securities and other 

assets (‘‘Disclosed Portfolio’’) held by 

the Fund that will form the basis for the 

Fund’s calculation of NAV at the end of 

the business day.27 The Disclosed 

Portfolio will include, as applicable, the 

names, quantity, percentage weighting, 

and market value of Fixed Income 

Securities and other assets held by the 

Fund and the characteristics of such 

assets. The Web site and information 

will be publicly available at no charge. 

In addition, for the Fund, an 

estimated value, defined in Rule 8.600 

as the Portfolio Indicative Value (‘‘PIV’’) 

that reflects an estimated intra-day 

value of the Fund’s portfolio, will be 

disseminated. The PIV 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 Core Trading 

Session on the Exchange.28 In addition, 

during hours when the markets for 

Fixed Income Securities in the Fund’s 

portfolio are closed, the PIV will be 

updated at least every 15 seconds 

during the Core Trading Session to 

reflect currency exchange fluctuations. 

The dissemination of the PIV, together 

with the Disclosed Portfolio, will allow 

investors to 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. 

Information regarding market price 

and volume of the Shares will be 

continually available on a real-time 

basis throughout the day on brokers’ 


wreier-aviles on DSK5TPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices 21831 

29See 17 CFR 240.10A–3. 

30For a list of the current members of ISG, see 

www.isgportal.org. The Exchange notes that not all 

of the components of the Disclosed Portfolio for the 

Fund may trade on exchanges that are members of 

the ISG or with which the Exchange has in place 

a comprehensive surveillance sharing agreement. 

See note 16, supra. 31 15 U.S.C. 78f(b)(5). 

computer screens and other electronic 

services. The previous day’s closing 

price and trading volume information 

will be published daily in the financial 

section of newspapers. Quotation and 

last-sale information for the Shares will 

be available via the CTA high-speed 

line. 

Intra-day and end-of-day prices are 

readily available through major market 

data providers and broker-dealers for 

the Fixed Income Securities, Money 

Market Securities, and derivative 

instruments held by the Fund. 

Initial and Continued Listing 

The Shares will be subject to Rule 

8.600, which sets forth the initial and 

continued listing criteria applicable to 

Managed Fund Shares. The Exchange 

represents that, for initial and/or 

continued listing, the Fund must be in 

compliance with Rule 10A–3 under the 

Exchange Act,29 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 NAV and the Disclosed 

Portfolio will be made available to all 

market participants at the same time. 

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. Shares of the Fund will be 

halted if the ‘‘circuit breaker’’ 

parameters in NYSE Arca Equities Rule 

7.12 are reached. 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 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 Rule 

8.600(d)(2)(D), which sets forth 

circumstances under which Shares of 

the Fund may be halted. 

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 

includes 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 who are 

members of the ISG or with which the 

Exchange has entered into a 

comprehensive surveillance sharing 

agreement.30

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 

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 PIV will not be 

calculated or publicly disseminated; (4) 

how information regarding the PIV 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) 31

that an exchange have rules that are 

designed to prevent fraudulent and 

manipulative acts and practices, to 

promote just and equitable principles of 

trade, to remove impediments to, and 

perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest. 

The Exchange believes that the 

proposed rule change 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 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, SubAdviser personnel who make decisions 

regarding the Fund’s portfolio are 

subject to procedures designed to 

prevent the use and dissemination of 


wreier-aviles on DSK5TPTVN1PROD with NOTICES
21832 Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices 

material nonpublic information 

regarding the Fund’s portfolio. The 

Fund intends to invest at least 70% of 

its net assets in Fixed Income Securities. 

The Fund will invest only in corporate 

bonds that the Adviser or Sub-Adviser 

deems to be sufficiently liquid. 

Generally a corporate bond must have 

$200 million or more par amount 

outstanding and significant par value 

traded to be considered as an eligible 

investment. The Fund currently expects 

that it will have 65% or more of its 

assets invested in investment grade 

securities, and no more than 35% of its 

assets invested in non-investment grade 

securities. Money Market Securities 

acquired by the Fund will generally be 

rated investment grade, except, to a 

limited extent, such as where a rated 

Money Market Security becomes 

unrated, if such Money Market Security 

is determined by the Adviser or the SubAdviser to be of comparable quality. 

The Fund expects that no more than 

30% of the value of the Fund’s net 

assets will be invested in derivative 

instruments. 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). 

Such investments will be consistent 

with the Fund’s investment objective 

and will not be used to enhance 

leverage. The Fund will not invest in 

any non-U.S. equity securities. 

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. Moreover, the PIV 

will be widely 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 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 PIV, 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 activelymanaged 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 PIV, 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 Exchange 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 Exchange 

Act. Comments may be submitted by 

any of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rulecomments@sec.gov. Please include File 

Number SR–NYSEArca–2012–25 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2012–25. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/ 

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 


wreier-aviles on DSK5TPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 70 / Wednesday, April 11, 2012 / Notices 21833 

32 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Pursuant to ISE Rule 100(37A), a Priority 

Customer is a person or entity that is not a broker 

or dealer in securities, and does not place more 

than 390 orders in listed options per day on average 

during a calendar month for its own beneficial 

account. 

4Pursuant to ISE Rule 1900(f) of the Distributive 

Linkage rules, a customer is an individual or 

organization that is not a broker-dealer. 

5See Securities and Exchange Act Release No. 

60791 (October 5, 2009), 74 FR 52521 (October 13, 

2009) (SR–ISE–2009–74). 

6See Securities and Exchange Act Release No. 

66589 (March 14, 2012), 76 [sic] FR 16311 (March 

20, 2012) (SR–ISE–2012–13). 

7See Securities and Exchange Act Release No. 

66367 (February 9, 2012), 77 FR 8934 (February 15, 

2012) (SR–Phlx-2012–15). 

business days between 10 a.m. and 3 

p.m. Copies of the filing will also be 

available for inspection and copying at 

the Exchange’s principal office and on 

its Internet Web site at 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–2012–25 and 

should be submitted on or before May 

2, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.32

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–8717 Filed 4–10–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66746; File No. SR–ISE– 

2012–28] 

Self-Regulatory Organizations; 

International Securities Exchange, 

LLC; Notice of Filing and Immediate 

Effectiveness of Proposed Rule 

Change To Increase the Route-Out Fee 

for Priority Customer Orders and 

Modify the Rebate for Primary Market 

Makers That Send Intermarket Sweep 

Orders 

April 5, 2012. 

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

Securities Exchange Act of 1934 (the 

‘‘Exchange Act’’) 1 and Rule 19b–4 

thereunder,2 notice is hereby given that 

on March 30, 2012, the International 

Securities Exchange, LLC (the 

‘‘Exchange’’ or the ‘‘ISE’’) filed with the 

Securities and Exchange Commission 

(the ‘‘Commission’’) the proposed rule 

change as described in Items I and II 

below, which Items have been prepared 

by the Exchange. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change 

from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The ISE is proposing to raise a fee 

related to the execution of Priority 

Customer orders subject to linkage 

handling. The text of the proposed rule 

change is available on the Exchange’s 

Web site (http://www.ise.com), at the 

principal office of the Exchange, 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, 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 these statements may be examined at 

the places specified in Item IV below. 

The self-regulatory organization 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 

The purpose of this proposed rule 

change is to raise a fee related to the 

execution of Priority Customer 3 orders 

subject to linkage handling (‘‘Linkage 

Fee’’). 

On August 31, 2009, the Exchange 

implemented the new Options Order 

Protection and Locked/Crossed Market 

Plan (‘‘Distributive Linkage’’) and the 

use of Intermarket Sweep Orders 

(‘‘ISOs’’). Consistent with Distributive 

Linkage and pursuant to ISE rules, the 

Exchange’s Primary Market Makers 

(‘‘PMMs’’) have an obligation to address 

customer 4 orders when there is a better 

market displayed on another exchange. 

ISE’s PMMs meet this obligation via the 

use of ISOs. In meeting their obligations, 

PMMs may incur fees when they send 

ISOs, especially when sending ISOs to 

exchanges that charge ‘‘taker’’ fees. To 

minimize the PMM’s financial burden 

and help offset such fees, the ISE 

amended its schedule of fees on October 

1, 2009 to adopt a rebate for the PMM 

of $0.20 per contract on all ISO orders 

sent to an away exchange (regardless of 

the fee charged by the exchange where 

the ISO order sent away was executed).5

With the costs associated with servicing 

Priority Customer orders that must be 

executed at another exchange coupled 

with the cost of funding the existing fee 

credit, the Exchange recently adopted 

the Linkage Fee, at a rate of $0.25 per 

contract, for executions that result from 

the PMM routing ISOs to another 

exchange in a limited number of 

symbols.6 The Linkage Fee is only 

charged for Priority Customer orders 

that are routed to an away exchange in 

symbols that are subject to the 

Exchange’s modified maker/taker 

pricing model. These symbols, which 

currently number 101, are identified on 

the Exchange’s Schedule of Fees as 

Select Symbols. Priority Customer 

orders that are routed out to another 

exchange are charged the Linkage Fee at 

the current rate instead of the standard 

taker fee applicable to the Select 

Symbols. 

The Linkage Fee allows the Exchange 

to equitably assess reasonable fees 

incurred for processing such orders, and 

permit the Exchange to recoup 

administrative and other costs. 

However, because the fees assessed by 

other exchanges vary considerably, the 

Exchange has determined that instead of 

providing PMMs with a rebate of $0.20 

per contract, it will now simply rebate 

to PMMs the actual transaction fee 

assessed by the exchange to which the 

order is routed, while requiring the 

PMM to make every effort, all things 

being equal, to route the order to the 

lowest cost away market. Furthermore, 

as a result of recent fee changes, notably 

the taker fee increases adopted by 

NASDAQ OMX PHLX, Inc.,7 the overall 

cost to PMMs has risen significantly and 

will likely cause the overall rebate level 

to the PMMs incurred by the Exchange 

to rise also. To offset this increased 

rebate, the Exchange also proposes to 

increase the Linkage Fee from $0.25 per 

contract to $0.35 per contract. 

The Exchange notes that it currently 

has a similar fee and credit for Customer 

(Professional) orders. Specifically, the 

Exchange currently charges PMMs a fee 

of $0.45 per contract for executions of 

Customer (Professional) orders that are 

routed to one or more exchanges in 

connection with Distributive Linkage, 

and also provides PMMs with a credit 

equal to the fee charged by the 

destination exchange for such Customer 

(Professional) orders, but not more than 


wreier-aviles on DSK5TPTVN1PROD with NOTICES