72730 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 

32 17 CFR 200.30–3(a)(12). 

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

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4Amendment No. 1 amends the proposed rule 

change in the following ways: (1) Specifies that the 

floating rate high yield corporate bonds in which 

the Fund invests generally must have a $100 

million par amount outstanding at the time of 

investment; (2) clarifies that senior loans in which 

the Fund may invest includes leveraged loans; and 

(3) specifies that the U.S. exchange-traded futures 

contracts, U.S. exchange-traded options on futures 

contracts and U.S. exchange-traded put and call 

options in which the Fund invests will trade on 

exchanges that are members of the Intermarket 

Surveillance Group. 

5A 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. 

6The Commission has approved listing and 

trading on the Exchange of a number of actively 

managed funds under Rule 8.600. See, e.g., 

Securities Exchange Act Release Nos. 69591 (May 

16, 2013), 78 FR 30372 (May 22, 2013) (SR– 

NYSEArca–2013–33) (order approving Exchange 

listing and trading of International Bear ETF); 69061 

(March 7, 2013), 78 FR 15990 (March 13, 2013) (SR– 

NYSEArca–2013–01) (order approving Exchange 

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 up to 90 days (i) as the 

Commission may designate if it finds 

such longer period to be appropriate 

and publishes its reasons for so finding 

or (ii) as to which the self-regulatory 

organization consents, the Commission 

will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

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

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEArca–2014–134 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2014–134. 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 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NYSEArca–2014–134, and should be 

submitted on or before December 29, 

2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.32

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–28643 Filed 12–5–14; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73717; File No. SR– 

NYSEArca–2014–126] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing of Proposed 

Rule Change, as Modified by 

Amendment No. 1, Relating to the 

Listing and Trading of Shares of the 

AdvisorShares Pacific Asset Enhanced 

Floating Rate ETF Under NYSE Arca 

Equities Rule 8.600 

December 2, 2014. 

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

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on 

November 19, 2014, NYSE Arca, Inc. 

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

with the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I and II below, which Items have 

been prepared by the Exchange. On 

November 26, 2014, the Exchange filed 

Amendment No. 1 to the proposal.4 The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as modified by Amendment No. 

1, 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 of the following under 

NYSE Arca Equities Rule 8.600 

(‘‘Managed Fund Shares’’): 

AdvisorShares Pacific Asset Enhanced 

Floating Rate ETF. The text of the 

proposed rule change is available on the 

Exchange’s Web site at www.nyse.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 those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

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

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

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

under NYSE Arca Equities Rule 8.600, 

which governs the listing and trading of 

Managed Fund Shares 5: AdvisorShares 

Pacific Asset Enhanced Floating Rate 

ETF (‘‘Fund’’).6 The Shares will be 

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listing and trading of Newfleet Multi-Sector Income 

ETF); and 67277 (June 27, 2012), 77 FR 39554 (July 

3, 2012) (SR–NYSEArca–2012–39) (order approving 

Exchange listing and trading of the Global Alpha & 

Beta ETF). 

7The Trust is registered under the 1940 Act. On 

June 25, 2014, the Trust filed with the Commission 

an amendment to its registration statement on Form 

N–1A under the Securities Act of 1933 (15 U.S.C. 

77a) (‘‘Securities Act’’) and under the 1940 Act 

relating to the Fund (File Nos. 333–157876 and 

811–22110) (‘‘Registration Statement’’). The 

description of the operation of the Trust and the 

Fund herein is based, in part, on the Registration 

Statement. In addition, the Commission has issued 

an order granting certain exemptive relief to the 

Trust under the 1940 Act. See Investment Company 

Act Release No. 29291 (May 28, 2010) (File No. 

812–13677) (‘‘Exemptive Order’’). 

8Pacific Life Fund Advisors LLC, a registered 

adviser, conducts its fixed income asset 

management business under the name Pacific Asset 

Management. 

9An investment adviser to an open-end fund is 

required to be registered under the Investment 

Advisers Act of 1940 (the ‘‘Advisers Act’’). As a 

result, the Adviser and Sub-Adviser and their 

related personnel are subject to the provisions of 

Rule 204A–1 under the Advisers Act relating to 

codes of ethics. This Rule requires investment 

advisers to adopt a code of ethics that reflects the 

fiduciary nature of the relationship to clients as 

well as compliance with other applicable securities 

laws. Accordingly, procedures designed to prevent 

the communication and misuse of non-public 

information by an investment adviser must be 

consistent with Rule 204A–1 under the Advisers 

Act. In addition, Rule 206(4)–7 under the Advisers 

Act makes it unlawful for an investment adviser to 

provide investment advice to clients unless such 

investment adviser has (i) adopted and 

implemented written policies and procedures 

reasonably designed to prevent violation, by the 

investment adviser and its supervised persons, of 

the Advisers Act and the Commission rules adopted 

thereunder; (ii) implemented, at a minimum, an 

annual review regarding the adequacy of the 

policies and procedures established pursuant to 

subparagraph (i) above and the effectiveness of their 

implementation; and (iii) designated an individual 

(who is a supervised person) responsible for 

administering the policies and procedures adopted 

under subparagraph (i) above. 

10The Sub-Adviser represents that Pacific Select 

Distributors, Inc. is a limited purpose broker-dealer 

with a primary business purpose of serving as 

distributor for mutual funds and variable annuity 

products. Pacific Select Distributors, Inc. does not 

engage in any brokerage or trading activity. 

11The term ‘‘under normal circumstances’’ 

includes, but is not limited to, the absence of 

adverse market, economic, political or other 

conditions, including extreme volatility or trading 

halts in the fixed income markets or the financial 

markets generally; operational issues causing 

dissemination of inaccurate market information; or 

force majeure type events such as systems failure, 

natural or man-made disaster, act of God, armed 

conflict, act of terrorism, riot or labor disruption or 

any similar intervening circumstance. 12Senior Loans and floating rate high yield 

corporate bonds are instruments with interest rates 

which float, adjust or vary periodically based upon 

a benchmark indicator, a specified adjustment 

schedule, or prevailing interest rates. Senior Loans 

will generally be purchased from banks or other 

financial institutions through assignments or 

participations. A direct interest in a Senior Loan 

may be acquired directly from the agent of the 

lender or another lender by assignment or an 

indirect interest may be acquired as a participation 

in another lender’s portion of a Senior Loan. 

13 Index Credit default swaps (CDX) can be used 

to gain exposure to a basket of credit risk by selling 

protection against default or other credit events or 

by buying protection in order to hedge broad market 

credit risk. Single name credit default swaps (CDS) 

can be used to allow the Fund to increase or 

decrease exposure to specific issuers through lower 

trading costs. Total return swaps (TRS) are contracts 

to obtain the total return of a reference asset or 

index in exchange for paying a financing cost. 

Interest rate swaps (IRS) are agreements between 

two parties to exchange one stream of interest 

payments for another. Each of these swaps is a type 

of derivative instrument, a financial contract whose 

value depends upon, or is derived from, the value 

of an underlying asset, reference rate or index, and 

may relate to bonds, loans, interest rates and related 

indexes. CDX, CDS, TRS and IRS are collectively 

referred to in the ‘‘Principal Investments’’ section 

of this filing as ‘‘swap agreements.’’ The Fund will 

typically use exchange-traded and over-the-counter 

(‘‘OTC’’) swap agreements as (i) a method to 

enhance returns; (ii) a substitute for taking a 

position in the underlying asset; and, (iii) as a part 

of a strategy designed to reduce exposure to other 

risks. To limit potential risks associated with such 

transactions, the Fund will segregate assets 

determined to be liquid by the Sub-Adviser in 

accordance with the 1940 Act to cover its 

obligations under derivative instruments. The Fund 

will include appropriate risk disclosure in its 

offering documents, including leveraging risk. The 

use of swap agreements will increase the Fund’s net 

exposure to a particular issue, fixed income markets 

or the financial markets generally. 14 In pursuing its investment objective, the Fund 

will seek to outperform the Credit Suisse 

Institutional Leveraged Loan Index (the ‘‘Index’’). 

offered by AdvisorShares Trust (the 

‘‘Trust’’), a statutory trust organized 

under the laws of the State of Delaware 

and registered with the Securities and 

Exchange Commission (the 

‘‘Commission’’) as an open-end 

management investment company.7 The 

investment adviser to the Fund will be 

AdvisorShares Investments, LLC (the 

‘‘Adviser’’). Pacific Asset Management 

(the ‘‘Sub-Adviser’’) 8, will be the subadvisor to the Fund, and is subject to 

the oversight of the Adviser and the 

Trust’s Board of Directors (‘‘Board’’). 

Foreside Fund Services, LLC (the 

‘‘Distributor’’) will be the principal 

underwriter and distributor of the 

Fund’s Shares. The Bank of New York 

Mellon (the ‘‘Administrator’’) will serve 

as the administrator, custodian, transfer 

agent and fund accounting agent for the 

Fund. 

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. In addition, 

Commentary .06 further requires that 

personnel who make decisions on the 

open-end fund’s portfolio composition 

must be subject to procedures designed 

to prevent the use and dissemination of 

material nonpublic information 

regarding the open-end fund’s 

portfolio.9 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 Adviser is not registered as 

a broker-dealer or affiliated with a 

broker-dealer. The Sub-Adviser is not 

registered as a broker-dealer but is 

affiliated with Pacific Select 

Distributors, Inc., a registered brokerdealer.10

In the event (a) the Adviser or SubAdviser becomes, or becomes newly 

affiliated with, a broker-dealer, or (b) 

any new adviser or sub-adviser is, or 

becomes affiliated with, a broker-dealer, 

it will implement a fire wall with 

respect to its relevant personnel or 

broker-dealer affiliate, as applicable, 

regarding access to information 

concerning the composition and/or 

changes to the portfolio, and will be 

subject to procedures designed to 

prevent the use and dissemination of 

material non-public information 

regarding such portfolio. 

Principal Investments 

According to the Registration 

Statement, the Fund’s investment 

objective will seek to provide a high 

level of current income. 

Under normal circumstances,11 the 

Fund will invest at least 80% of its net 

assets (plus any borrowings for 

investment purposes) in floating rate 

loans and other floating rate debt 

securities, derivatives or other 

instruments that have economic 

interests similar to such securities (each 

as described further below). 

The Fund will attempt to achieve its 

investment objective through 

investments in a focused portfolio 

comprised primarily of senior secured 

floating rate loans (‘‘Senior Loans’’), 

floating rate high yield corporate 

bonds,12 index credit default swap 

agreements, single name credit default 

swap agreements, total return swap 

agreements,13 interest rate swap 

agreements and cash.14 The Fund will 

invest in Senior Loans that the Adviser 

or the Sub-Adviser deems to be highly 

liquid with readily available prices. The 

Fund will invest in Senior Loans rated 

C or higher by a credit rating agency 

registered as a nationally recognized 

statistical rating organization 

(‘‘NRSRO’’) with the Commission (for 

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15The Commission previously has approved 

listing and trading on NYSE Arca of an issue of 

Managed Fund Shares that primarily holds senior 

loans that include leveraged loans. See Securities 

Exchange Act Release No. 69244 (March 27, 2013), 

78 FR 19766 (April 2, 2013) (SR–NYSEArca–2013– 

08) (order approving listing and trading of SPDR 

Blackstone/GSO Senior Loan ETF under NYSE Arca 

Equities Rule 8.600). 

16Non-investment-grade securities, also referred 

to as ‘‘high yield securities’’ or ‘‘junk bonds,’’ are 

debt securities that are rated lower than the four 

highest rating categories by a nationally recognized 

statistical rating organization (for example, lower 

than Baa3 by Moody’s Investors Service, Inc. 

(‘‘Moody’s’’) or lower than BBB- by Standard & 

Poor’s (‘‘S&P’’)) or are determined to be of 

comparable quality by the Fund’s Sub-Adviser. 

17 Duration is a measure used to determine the 

sensitivity of a security’s price to changes in 

interest rates. The longer a security’s duration, the 

more sensitive it will be to changes in interest rates. 

18The Fund will seek, where possible, to use 

counterparties whose financial status is such that 

the risk of default is reduced; however, the risk of 

losses resulting from default is still possible. The 

Sub-Adviser will evaluate the creditworthiness of 

counterparties on an ongoing basis. In addition to 

information provided by credit agencies, the SubAdviser evaluates each approved counterparty 

using various methods of analysis, including 

earning updates, a broker-dealer’s reputation, the 

Sub-Adviser’s past experience with the brokerdealer, a counterparty’s liquidity and its share of 

market participation. 

19See note 23, infra. 

20Unless otherwise indicated, the Fund may 

invest up to 20% of its net assets in the types of 

investments referenced below in this section, 

subject to the limitations imposed by the Fund’s 

investment objective, policies, and restrictions 

described in the Fund’s Registration Statement, as 

well as the federal securities laws. 

example, Moody’s Investor Service, 

Inc.), or is unrated but considered to be 

of comparable quality by the Adviser or 

Sub-Adviser. The Fund will not invest 

in Senior Loans that are in default at the 

time of purchase. In addition, for 

investment purposes, the Senior Loan 

must have a par amount outstanding of 

$150 million or greater at the time the 

loan is originally issued.15 Floating rate 

high yield corporate bonds in which the 

Fund invests generally must have $100 

million or more par amount outstanding 

at the time of investment. 

According to the Fund’s Registration 

Statement, the Fund generally will 

invest in Senior Loans (including 

leveraged loans) that may be in the form 

of participations and assignments. A 

direct interest in a Senior Loan may be 

acquired directly from the agent of the 

lender or another lender by assignment 

or an indirect interest may be acquired 

as a participation in another lender’s 

portion of a Senior Loan. 

Generally, secured Senior Loans are 

secured by specific assets of the 

borrower. Senior Loans, and some 

floating rate high yield corporate bonds, 

are debt instruments that may have a 

right to payment that is senior to most 

other debts of the borrowers. Borrowers 

may include corporations, partnerships 

and other entities that operate in a 

variety of industries and geographic 

regions. Senior Loans in which the 

Fund will invest consist of domestic 

issuers and U.S. dollar denominated 

foreign issuers. 

Senior Loans and floating rate high 

yield corporate bonds in which the 

Fund intends to invest are expected to 

be rated below investment grade (i.e., 

high yield/high risk securities, 

sometimes called non-investment grade 

securities) 16 or, may not be rated by any 

nationally recognized rating service, and 

if unrated, of comparable quality as 

determined by the Sub-Adviser. 

Investment Characteristics 

According to the Registration 

Statement, the Sub-Adviser’s selection 

process will start with a top-down 

market analysis and will be 

complemented by bottom-up security 

selection. The strategy will aim to 

provide exposure to the most liquid 

segment of the bank loan marketplace. 

In general, the investable universe will 

be comprised of the largest loans in the 

Index. The factors considered by the 

Sub-Adviser when determining 

liquidity specifically for loans may 

include the frequency of trading or 

quotes, the number of dealers in the 

market willing to purchase or sell the 

loan, trading volume, the nature of the 

security, and the market for the security 

including prospects for future demand 

for the loan. 

Once the Sub-Adviser has determined 

the investable universe, both the macroeconomic environment and technical 

factors that could materially impact the 

credit markets are assessed. The SubAdviser then will determine an overall 

target of portfolio risk and leverage to 

employ for the near term. 

Once the Sub-Adviser has determined 

the target risk and investable universe, 

the Sub-Adviser will construct what is 

believed to be the most effective mix of 

investments in accordance with the 

overall portfolio guidelines. As a result, 

investments with the most favorable 

risk/reward analyses will tend to have a 

greater representation or leverage in the 

Fund’s portfolio. Due to the nature of 

the exchange-traded fund (‘‘ETF’’) 

structure and liquidity requirements, 

the portfolio will place a higher value 

on liquidity relative to products without 

such a requirement. The portfolio will 

be diversified by industry and issuer, 

with no individual issuer representing 

more than 5% of the portfolio. The 

typical duration positioning will be 

between 0.25 years to 0.75 years as 

determined by the Sub-Adviser.17

Once an investment is made, 

monitoring will take place each 

business day. Portfolio values will be 

monitored through daily third-party 

pricing. Credit updates will be captured 

through the Sub-Adviser’s research 

system. This system will serve as a 

centralized credit hub for the SubAdviser’s research team. The system 

will aggregate information such as 

portfolio holdings, outlooks, analyst 

comments, and investment theses for 

the portfolio management, operations, 

and credit teams. Investments will be 

sold based upon relative value 

opportunities or changes in corporate 

fundamentals. 

An investment will generally be sold 

when the issue no longer offers relative 

value or an adverse change in corporate 

or sector fundamentals has occurred. 

Leverage 

To seek an increase in yield, the Fund 

expects to employ leverage to enhance 

potential return. The Fund may use 

leverage by (i) borrowing money, up to 

the maximum amount permitted under 

the 1940 Act, for investment purposes 

normally on a floating rate basis or (ii) 

through swap agreements. The timing 

and terms of leverage will be 

determined by the Sub-Adviser’s ETF 

Investment Committee. 

The Fund’s investments in swap 

agreements will be made in accordance 

with the 1940 Act and consistent with 

the Fund’s investment objective and 

policies.18

The Fund’s assets that are not 

invested directly in floating rate loans, 

floating rate high yield corporate bonds 

or swap agreements will be held in cash 

or cash equivalents, including money 

market instruments and exchange 

traded products (‘‘ETPs’’) 19 that invest 

in these and other highly liquid 

instruments, in order to cover its 

obligations under certain swap 

agreements. The larger the value of the 

Fund’s derivative positions, the more 

the Fund will be required to maintain 

cash or cash equivalents as collateral for 

such derivatives. 

Other (Non-Principal) Investments 

According to the Registration 

Statement, while the Fund, under 

normal circumstances, will invest at 

least 80% of its net assets in securities 

and financial instruments described 

above, the Fund may invest up to 20% 

of its net assets in the following 

securities and financial instruments.20

The Fund may invest in debt 

securities (other than those described in 

the Principal Investments section 

above), which are securities consisting 

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21Commercial paper is a short-term obligation 

with a maturity ranging from one to 270 days issued 

by banks, corporations and other borrowers. The 

Fund may invest in commercial paper rated A–1 or 

A–2 by S&P or Prime-1 or Prime-2 by Moody’s. 

22The Fund will invest in Junior Loans the 

Adviser or Sub-Adviser deems to be highly liquid 

with readily available prices. The Fund will invest 

in Junior Loans rated C or higher by a NRSRO, or 

is unrated but considered to be of comparable 

quality by the Adviser or Sub-Adviser. The Fund 

will not invest in Junior Loans that are in default 

at time of purchase. In addition, for investment 

purposes, the Junior Loan must have a par amount 

outstanding of $150 million or greater at the time 

the loan is originally issued. 

23For purposes of this proposed rule change, 

ETPs include Investment Company Units (as 

described in NYSE Arca Equities Rule 5.2(j)(3)); 

Index-Linked Securities (as described in NYSE Arca 

Equities Rule 5.2(j)(6)); Portfolio Depositary 

Receipts (as described in NYSE Arca Equities Rule 

8.100); Trust Issued Receipts (as described in NYSE 

Arca Equities Rule 8.200); Commodity-Based Trust 

Shares (as described in NYSE Arca Equities Rule 

8.201); Currency Trust Shares (as described in 

NYSE Arca Equities Rule 8.202); Commodity Index 

Trust Shares (as described in NYSE Arca Equities 

Rule 8.203); Trust Units (as described in NYSE Arca 

Equities Rule 8.500); and Managed Fund Shares (as 

described in NYSE Arca Equities Rule 8.600). The 

ETPs all will be listed and traded in the U.S. on 

registered exchanges. The Fund will invest in the 

securities of ETFs registered under the 1940 Act 

consistent with the requirements of Section 12(d)(1) 

of the 1940 Act, or any rule, regulation or order of 

the Commission or interpretation thereof. The Fund 

will only make such ETF investments in conformity 

with the requirements of Regulation M of the 

Internal Revenue Code of 1986, as amended (the 

‘‘Internal Revenue Code’’). While the Fund may 

invest in inverse ETPs, the Fund will not invest in 

leveraged or inverse leveraged ETPs (e.g., 2X or 3X). 

24ADRs are U.S. dollar denominated receipts 

typically issued by U.S. banks and trust companies 

that evidence ownership of underlying securities 

issued by a foreign issuer. The underlying securities 

may not necessarily be denominated in the same 

currency as the securities into which they may be 

converted. The underlying securities are held in 

trust by a custodian bank or similar financial 

institution in the issuer’s home country. The 

depositary bank may not have physical custody of 

the underlying securities at all times and may 

charge fees for various services, including 

forwarding dividends and interest and corporate 

actions. Generally, ADRs in registered form are 

designed for use in domestic securities markets and 

are traded on exchanges or OTC in the U.S. GDRs, 

EDRs, and IDRs are similar to ADRs in that they are 

certificates evidencing ownership of shares of a 

foreign issuer; however, GDRs, EDRs, and IDRs may 

be issued in bearer form and denominated in other 

currencies, and are generally designed for use in 

specific or multiple securities markets outside the 

U.S. EDRs, for example, are designed for use in 

European securities markets while GDRs are 

designed for use throughout the world. Ordinary 

shares are shares of foreign issuers that are traded 

abroad and on a U.S. exchange. New York shares 

are shares that a foreign issuer has allocated for 

Continued 

of a certificate or other evidence of a 

debt (secured or unsecured) on which 

the issuing company or governmental 

body promises to pay the holder thereof 

a fixed, variable, or floating rate of 

interest for a specified length of time, 

and to repay the debt on the specified 

maturity date. 

Debt securities include investmentgrade securities, non-investment-grade 

securities, and unrated securities. 

Selection of such debt securities will 

generally be dependent on an 

independent analysis performed by the 

Sub-Adviser. 

Debt securities in which the Fund 

may invest consist of the following: 

Bank Obligations of domestic and 

foreign banks, which may include 

certificates of deposit, commercial 

paper,21 bankers’ acceptances, and 

fixed time deposits. The Fund will 

not invest in fixed time deposits 

which (i) are not subject to 

prepayment; or (ii) provide for 

withdrawal penalties upon 

prepayment, if in the aggregate, more 

than 15% of its net assets would be 

invested in such deposits, repurchase 

agreements with remaining maturities 

of more than seven days or other 

illiquid assets; 

Corporate Debt, which are debt 

securities issued by businesses to 

finance their operations and consist of 

notes, corporate bonds, high yield 

bonds, debentures and commercial 

paper. The Fund may invest in 

corporate debt issued by domestic or 

foreign companies of all kinds, 

including those with small-, mid- and 

large-capitalizations. The Fund may 

also invest in corporate debt securities 

which are representative of one or 

more high yield bond or credit 

derivative indices, which may change 

from time to time; 

Asset-backed securities (‘‘ABS’’) are 

instruments created from many types 

of assets, including auto loans, credit 

card receivables, home equity loans, 

and student loans. ABS are issued 

through special purpose vehicles that 

are bankruptcy remote from the issuer 

of the collateral. The Fund may invest 

in ABS provided such securities are 

consistent with the Fund’s investment 

objectives and policies. The Fund will 

not invest more than 5% of its net 

assets in non-agency ABS; 

Mortgage Backed Securities (‘‘MBS’’) 

and mortgage-related securities, 

which are interests in pools of 

residential or commercial mortgage 

loans, including mortgage loans made 

by savings and loan institutions, 

mortgage bankers, commercial banks 

and others. Pools of mortgage loans 

are assembled as securities for sale to 

investors by various governmental, 

government-related and private 

organizations. The Fund also may 

invest in debt instruments which are 

secured with collateral consisting of 

mortgage-related securities. The Fund 

will not invest, however, more than 

5% of its net assets in mortgagerelated securities; 

Inflation-indexed bonds, which are debt 

securities whose principal value is 

periodically adjusted according to the 

rate of inflation; 

Floating rate loans (other than those 

described in the Principal 

Investments section above) consisting 

of (i) unsecured senior loans and (ii) 

secured and unsecured subordinated 

loans, second lien loans and 

subordinated bridge loans (‘‘Junior 

Loans’’).22 Unsecured senior loans 

and Junior Loans are subject to the 

same general risks of Senior Loans; 

however, due to their lower place in 

the borrower’s capital structure and 

possible unsecured status, unsecured 

senior loans and Junior Loans involve 

a higher degree of overall risk than 

Senior Loans of the same borrower; 

and, 

U.S. government securities, which are 

securities issued or guaranteed by the 

U.S. government or its agencies or 

instrumentalities. U.S. government 

securities consist of U.S. Treasury 

bills, U.S. Treasury notes, U.S. 

Treasury bonds, obligations issued by 

U.S. government agencies and 

instrumentalities which are supported 

by (i) the full faith and credit of the 

U.S. Treasury, (ii) the discretionary 

authority of the U.S. government, or 

(iii) the right of the issuer to borrow 

from the U.S. Treasury, and separately 

traded principal and interest 

components of securities guaranteed 

or issued by the U.S. government or 

its agencies, instrumentalities or 

sponsored enterprises if such 

components trade independently 

under the Separate Trading of 

Registered Interest and Principal of 

Securities program (‘‘STRIPS’’) or any 

similar program sponsored by the U.S. 

government, or U.S. Treasury zerocoupon bonds, which are U.S. 

Treasury bonds which have been 

stripped of their unmatured interest 

coupons, the coupons themselves, 

and receipts or certificates 

representing interests in such stripped 

debt obligations and coupons. 

The Fund may invest in issuers 

located outside the United States 

directly, or in financial instruments, 

ETFs or other ETPs that are indirectly 

linked to the performance of foreign 

issuers.23 Such financial instruments 

consist of American Depositary Receipts 

(‘‘ADRs’’), Global Depositary Receipts 

(‘‘GDRs’’), European Depositary Receipts 

(‘‘EDRs’’), International Depository 

Receipts (‘‘IDRs’’), ‘‘ordinary shares,’’ 

and ‘‘New York shares’’ issued and 

traded in the U.S.24

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trading in the U.S. ADRs, ordinary shares, and New 

York shares all may be purchased with and sold for 

U.S. dollars, which protects the Fund from the 

foreign settlement risks described below. ADRs may 

be sponsored or unsponsored, but unsponsored 

ADRs will not exceed 10% of the Fund’s net assets. 

Not more than 10% of the net assets of the Fund 

in the aggregate invested in equity securities (other 

than non-exchange-traded investment company 

securities) shall consist of equity securities whose 

principal market is not a member of the Intermarket 

Surveillance Group (‘‘ISG’’) or is a market with 

which the Exchange does not have a comprehensive 

surveillance sharing agreement. See note 40, infra. 

25Exchange-traded pooled investment vehicles 

include Trust Issued Receipts (as described in 

NYSE Arca Equities Rule 8.200); Commodity-Based 

Trust Shares (as described in NYSE Arca Equities 

Rule 8.201); Currency Trust Shares (as described in 

NYSE Arca Equities Rule 8.202); Commodity Index 

Trust Shares (as described in NYSE Arca Equities 

Rule 8.203); and Trust Units (as described in NYSE 

Arca Equities Rule 8.500). 

26The diversification standard is set forth in 

Section 5(b)(1) of the 1940 Act. See note 24, supra, 

regarding depositary receipts that the Fund may 

hold. 

27See 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). 

28 In reaching liquidity decisions, the Adviser or 

Sub-Adviser may consider the following factors: the 

frequency of trades and quotes for the security; the 

The Fund may trade U.S. exchangetraded futures contracts, U.S. exchangetraded or OTC options on futures 

contracts, and U.S. exchange-traded or 

OTC put and call options on securities 

and securities indices, as the SubAdviser determines is appropriate in 

seeking the Fund’s investment objective, 

and except as restricted by the Fund’s 

investment limitations. The Fund may 

purchase futures contracts and options 

to protect against a decline in the 

market value of the securities in its 

portfolio or to anticipate an increase in 

the market value of securities that the 

Fund may seek to purchase in the 

future. In addition, the Fund may sell 

futures contracts or write covered call 

options as a means of increasing the 

yield on its assets and as a means of 

providing limited protection against 

decreases in its market value. U.S. 

exchange-traded futures contracts, U.S. 

exchange-traded options on futures 

contracts and U.S. exchange-traded put 

and call options in which the Fund 

invests will trade on exchanges that are 

members of ISG. 

The Fund may invest in structured 

notes, which are debt obligations that 

also contain an embedded derivative 

component with characteristics that 

adjust the obligation’s risk/return 

profile. Generally, the performance of a 

structured note will track that of the 

underlying debt obligation and the 

derivative embedded within it. The 

Fund has the right to receive periodic 

interest payments from the issuer of the 

structured notes at an agreed-upon 

interest rate and a return of the 

principal at the maturity date. 

The Fund may invest in exchangetraded equity securities that represent 

ownership interests in a company or 

partnership and that consist of common 

stocks, preferred stocks, warrants to 

acquire common stock, securities 

convertible into common stock, 

investments in master limited 

partnerships, and rights. 

The Fund may invest in the securities 

of other investment companies to the 

extent that such an investment would be 

consistent with the requirements of 

Section 12(d)(1) of the 1940 Act, or any 

rule, regulation or order of the 

Commission or interpretation thereof. 

Consistent with the restrictions 

discussed above, the Fund may invest in 

several different types of investment 

companies from time to time, including 

mutual funds, ETFs, exchange and OTCtraded closed-end funds, and exchange 

and OTC-traded BDCs, when the 

Adviser or the Sub-Adviser believes 

such an investment is in the best 

interests of the Fund and its 

shareholders. For example, the Fund 

may elect to invest in another 

investment company when such an 

investment presents a more efficient 

investment option than buying 

securities individually. The Fund also 

may invest in investment companies 

that are included as components of an 

index, such as business development 

companies (‘‘BDCs’’), to seek to track the 

performance of that index. A BDC is a 

less common type of closed-end 

investment company that more closely 

resembles an operating company than a 

typical investment company. 

Investment companies may include 

index-based investments, such as ETFs 

that hold substantially all of their assets 

in securities representing a specific 

index as well as ETFs that are actively 

managed. 

The Fund may invest in the securities 

of exchange and OTC-traded pooled 

investment vehicles that are not 

investment companies and, thus, not 

required to comply with the provisions 

of the 1940 Act. These pooled vehicles 

typically hold commodities, such as 

gold or oil, currency, or other property 

that is itself not a security.25

The Fund may enter into repurchase 

agreements with financial institutions, 

which may be deemed to be loans. It is 

the current policy of the Fund not to 

invest in repurchase agreements that do 

not mature within seven days if any 

such investment, together with any 

other illiquid assets held by the Fund, 

amounts to more than 15% of the 

Fund’s net assets. The investments of 

the Fund in repurchase agreements, at 

times, may be substantial when, in the 

view of the Sub-Adviser, liquidity or 

other considerations so warrant. 

The Fund may engage in short sales 

transactions in which the Fund sells a 

security it does not own. 

The Fund may utilize swap 

agreements, other than those referenced 

in the Principal Investments section 

above, in an attempt to gain exposure to 

the securities in a market without 

actually purchasing those securities, or 

to hedge a position. Such swap 

agreements consist of interest rate caps, 

under which, in return for a premium, 

one party agrees to make payments to 

the other to the extent that interest rates 

exceed a specified rate, or ‘‘cap’’, 

interest rate floors, under which, in 

return for a premium, one party agrees 

to make payments to the other to the 

extent that interest rates fall below a 

specified level, or ‘‘floor’’; and interest 

rate collars, under which a party sells a 

cap and purchases a floor or vice versa 

in an attempt to protect itself against 

interest rate movements exceeding given 

minimum or maximum levels. 

Investment Restrictions 

According to the Registration 

Statement, the Fund may not: 

(i) With respect to 75% of its total 

assets, purchase securities of any issuer 

(except securities issued or guaranteed 

by the U.S. government, its agencies or 

instrumentalities or shares of 

investment companies) if, as a result, 

more than 5% of its total assets would 

be invested in the securities of such 

issuer; or (ii) acquire more than 10% of 

the outstanding voting securities of any 

one issuer. For purposes of this policy, 

the issuer of the underlying security 

will be deemed to be the issuer of any 

respective depositary receipt; 26 or 

(ii) [sic] Invest 25% or more of its 

total assets in the securities of one or 

more issuers conducting their principal 

business activities in the same industry 

or group of industries. This limitation 

does not apply to investments in 

securities issued or guaranteed by the 

U.S. government, its agencies or 

instrumentalities, or shares of 

investment companies. The Fund will 

not invest 25% or more of its total assets 

in any investment company that so 

concentrates.27

The Fund may hold up to an aggregate 

amount of 15% of its net assets in 

illiquid assets (calculated at the time of 

investment), including Rule 144A 

securities deemed illiquid by the 

Adviser or Sub-Adviser,28 in accordance 

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Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 72735 

number of dealers wishing to purchase or sell the 

security and the number of other potential 

purchasers; dealer undertakings to make a market 

in the security; and the nature of the security and 

the nature of the marketplace in which it trades 

(e.g., the time needed to dispose of the security, the 

method of soliciting offers and the mechanics of 

transfer). 

29The 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 14618 (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). 

30 26 U.S.C. 851. 

31The Fund’s broad-based securities benchmark 

index will be identified in a future amendment to 

the Registration Statement following the Fund’s 

first full calendar year of performance. 

with Commission guidance. The Fund 

will monitor its portfolio liquidity on an 

ongoing basis to determine whether, in 

light of current circumstances, an 

adequate level of liquidity is being 

maintained, and will consider taking 

appropriate steps in order to maintain 

adequate liquidity if, through a change 

in values, net assets, or other 

circumstances, more than 15% of the 

Fund’s net assets are held in illiquid 

assets. Illiquid assets include securities 

subject to contractual or other 

restrictions on resale and other 

instruments that lack readily available 

markets as determined in accordance 

with Commission staff guidance.29

To respond to adverse market, 

economic, political or other conditions, 

the Fund may invest up to 100% of its 

total assets, without limitation, in debt 

securities and money market 

instruments, either directly or through 

ETPs (see supra note 23). The Fund may 

be invested in this manner for extended 

periods, depending on the SubAdviser’s assessment of market 

conditions. For purposes of this 

paragraph, debt securities and money 

market instruments include shares of 

mutual funds, commercial paper, 

certificates of deposit, bankers’ 

acceptances, U.S. government securities, 

repurchase agreements and bonds that 

are rated BBB or higher. 

According to the Registration 

Statement, the Fund will seek to qualify 

for treatment as a Regulated Investment 

Company (‘‘RIC’’) under the Internal 

Revenue Code.30

The Fund’s investments will be 

consistent with its investment objective 

and will not be used to provide multiple 

returns of a benchmark or to produce 

leveraged returns. The Fund’s 

investments will not be used to seek 

performance that is the multiple or 

inverse multiple (i.e., 2Xs and 3Xs) of 

the Fund’s primary broad-based 

securities benchmark index (as defined 

in Form N–1A).31

Net Asset Value 

The NAV per Share of the Fund will 

be computed by dividing the value of 

the net assets of the Fund (i.e., the value 

of its total assets less total liabilities) by 

the total number of Shares of the Fund 

outstanding, rounded to the nearest 

cent. Expenses and fees, including 

without limitation, the management, 

administration and distribution fees, are 

accrued daily and taken into account for 

purposes of determining NAV per 

Share. The NAV per Share for the Fund 

will be calculated by the Administrator 

and determined as of the close of the 

regular trading session on the New York 

Stock Exchange (‘‘NYSE’’) (ordinarily 

4:00 p.m., Eastern Time) on each day 

that such exchange is open. 

In computing the Fund’s NAV, the 

Fund’s securities holdings will be 

valued based on their last readily 

available market price. Price 

information on listed securities, 

including ETPs in which the Fund 

invests, will be taken from the exchange 

where the security is primarily traded. 

Other portfolio securities and assets for 

which market quotations are not readily 

available or determined to not represent 

the current fair value will be valued 

based on fair value as determined in 

good faith by the Fund’s Sub-Adviser in 

accordance with procedures adopted by 

the Board. 

U.S. exchange-traded options, 

exchange-traded swaps and exchangetraded closed end funds will be valued 

at the closing settlement price 

determined by the applicable exchange. 

Exchange-traded equity securities, 

including common stocks, preferred 

stocks, warrants, convertible securities, 

rights, pooled investment vehicles, 

exchange-traded BDC’s, master limited 

partnerships, ETPs, sponsored ADRs, 

GDRs, EDRs, IDRs, ordinary shares, and 

New York shares (collectively, 

‘‘Exchange-traded Equity’’) will be 

valued at market value, which will 

generally be determined using the last 

reported official closing or last trading 

price on the exchange or market on 

which the security is primarily traded at 

the time of valuation or, if no sale has 

occurred, at the last quoted bid price on 

the primary market or exchange on 

which they are traded. If market prices 

are unavailable or the Fund believes 

that they are unreliable, or when the 

value of a security has been materially 

affected by events occurring after the 

relevant market closes, the Fund will 

price those securities at fair value as 

determined in good faith using methods 

approved by the Trust’s Board. 

Unsponsored ADRs, which are traded 

OTC, will be valued on the basis of the 

market closing price on the exchange 

where the stock of the foreign issuer that 

underlies the ADR is listed. Investment 

company securities (other than ETFs, 

exchange-traded closed-end funds and 

exchange-traded BDCs), including 

mutual funds, OTC-traded closed-end 

funds, and OTC-traded BDCs, will be 

valued at net asset value. Non-exchangetraded derivatives, including swaps, 

options traded OTC, options on futures 

traded OTC, and certain structured 

notes, will normally be valued on the 

basis of quotes obtained from brokers 

and dealers or pricing services using 

data reflecting the earlier closing of the 

principal markets for those assets. Prices 

obtained from independent pricing 

services use information provided by 

market makers or estimates of market 

values obtained from yield data relating 

to investments or securities with similar 

characteristics. 

Futures contracts will be valued at the 

settlement or closing price determined 

by the applicable exchange. 

Debt securities, floating rate loans, 

other floating rate debt securities, Senior 

Loans, Junior Loans, U.S. Treasury 

securities, OTC-traded pooled 

investment vehicles, other obligations 

issued or guaranteed by U.S. 

government agencies and 

instrumentalities, STRIPs, zero-coupon 

bonds, bank obligations, corporate debt 

securities, ABS, mortgage-backed 

securities, mortgage-related securities, 

commercial paper, repurchase 

agreements, inflation-indexed bonds, 

certificates of deposits, bankers’ 

acceptances, and certain structured 

notes (collectively, ‘‘OTC-traded 

Securities’’) generally trade in the OTC 

market rather than on a securities 

exchange. The Fund will generally 

value OTC-traded Securities by relying 

on independent pricing services. The 

Fund’s pricing services will use 

valuation models or matrix pricing to 

determine current value. In general, 

pricing services use information with 

respect to comparable bond and note 

transactions, quotations from bond 

dealers or by reference to other 

securities that are considered 

comparable in such characteristics as 

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72736 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 

32The Adviser represents that, to the extent the 

Trust effects the creation of Shares in cash, such 

transactions will be effected in the same manner for 

all authorized participants. 

33The Adviser represents that, to the extent the 

Trust effects the redemption of Shares in cash, such 

transactions will be effected in the same manner for 

all authorized participants. 

34The Bid/Ask Price of the Fund’s Shares will be 

determined using the mid-point of the highest bid 

and the lowest offer on the Exchange as of the time 

of calculation of the Fund’s NAV. The records 

relating to Bid/Ask Prices will be retained by the 

Fund and its service providers. 

35Under accounting procedures followed by the 

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

will be booked and reflected in NAV on the current 

business day (‘‘T+1’’). Accordingly, the Fund will 

be able to disclose at the beginning of the business 

day the portfolio that will form the basis for the 

NAV calculation at the end of the business day. 

rating, interest rate, maturity date, 

option adjusted spread models, 

prepayment projections, interest rate 

spreads and yield curves. Matrix price 

is an estimated price or value for a 

fixed-income security. Matrix pricing is 

considered a form of fair value pricing. 

The Fund’s debt securities will 

generally be valued at bid prices. In 

certain cases, some of the Fund’s debt 

securities may be valued at the mean 

between the last available bid and ask 

prices. 

Foreign exchange rates will be priced 

using 4:00 p.m. (Eastern Time) mean 

prices from major market data vendors. 

Creation and Redemption of Shares 

According to the Registration 

Statement, the Fund will issue and 

redeem Shares on a continuous basis at 

NAV in aggregated lots which shall 

initially be of 25,000 Shares (each, a 

‘‘Creation Unit’’). 

All orders to create or redeem 

Creation Units must be received by the 

Distributor no later than 3:00 p.m., 

Eastern Time in order for the creation or 

redemption of Creation Units to be 

effected based on the NAV of Shares of 

the Fund as next determined on such 

date. 

The Fund typically will issue and 

redeem Creation Units principally for 

cash, calculated based on the NAV per 

Share, multiplied by the number of 

Shares representing a Creation Unit 

(‘‘Deposit Cash’’), plus a fixed and/or 

variable transaction fee; however, the 

Trust reserves the right to permit or 

require Creation Units to be issued in 

exchange for the Deposit Securities 

together with the Cash Component, 

described below. 32

The consideration for purchase of a 

Creation Unit of each Fund generally 

will consist of an in-kind deposit of a 

designated portfolio of securities—the 

‘‘Deposit Securities’’—per each Creation 

Unit constituting a substantial 

replication, or a representation, of the 

securities included in the Fund’s 

portfolio and an amount of cash—the 

‘‘Cash Component.’’ Together, the 

Deposit Securities and the Cash 

Component will constitute the ‘‘Fund 

Deposit,’’ which represents the 

minimum initial and subsequent 

investment amount for a Creation Unit 

of the Fund. The Cash Component is an 

amount equal to the difference between 

the NAV of the Shares of the Fund (per 

Creation Unit) and the market value of 

the Deposit Securities. 

In addition, the Trust reserves the 

right to permit or require the 

substitution of an amount of cash—i.e., 

a ‘‘cash in lieu’’ amount—to be added to 

the Cash Component to replace any 

Deposit Security which may not be 

available in sufficient quantity for 

delivery or which may not be eligible 

for transfer through the clearing process, 

or which may not be eligible for trading 

by an authorized participant or the 

investor for which it is acting. 

Shares may be redeemed only in 

Creation Units at their NAV next 

determined after receipt of a redemption 

request in proper form by the Fund 

through the Administrator and only on 

a business day. The Trust will not 

redeem Shares of the Fund in amounts 

less than Creation Units. Unless cash 

redemptions are available or specified, 

the redemption proceeds for a Creation 

Unit generally will consist of the ‘‘Fund 

Securities’’—as announced by the 

Administrator on the business day of 

the request for redemption received in 

proper form—plus cash in an amount 

equal to the difference between the NAV 

of the Shares being redeemed, as next 

determined after a receipt of a request 

in proper form, and the value of the 

Fund Securities, less a redemption 

transaction fee. 

The Administrator, through the 

National Securities Clearing Corporation 

(‘‘NSCC’’), will make available 

immediately prior to the opening of 

business on the Exchange (currently 

9:30 a.m., Eastern Time) on each 

business day, the Fund Securities, 

Deposit Securities and Fund Deposit, 

that will be applicable to creation and 

redemption requests received in proper 

form on that day as well as the 

estimated Cash Component. 

According to the Registration 

Statement, if it is not possible to effect 

deliveries of the Fund Securities, for 

example if the investor is not able to 

accept delivery, the Trust may in its 

discretion exercise its option to redeem 

Shares of the Fund in cash, and the 

redeeming beneficial owner will be 

required to receive its redemption 

proceeds in cash. In addition, an 

investor may request a redemption in 

cash which the Fund may, in its sole 

discretion, permit.33 In either case, the 

investor will receive a cash payment 

equal to the NAV of its Shares based on 

the NAV of Shares of the Fund next 

determined after the redemption request 

is received in proper form (minus a 

redemption transaction fee and 

additional charge for requested cash 

redemptions, as described in the 

Registration Statement). The Fund may 

also, in its sole discretion, upon request 

of a shareholder, provide such redeemer 

a portfolio of securities which differs 

from the exact composition of the 

applicable Fund Securities but does not 

differ in NAV. 

Redemptions of Shares for Fund 

Securities will be subject to compliance 

with applicable federal and state 

securities laws and the Fund (whether 

or not it otherwise permits cash 

redemptions) reserves the right to 

redeem Creation Units for cash to the 

extent that the Fund could not lawfully 

deliver specific Fund Securities upon 

redemptions or could not do so without 

first registering the Fund Securities 

under such laws. An authorized 

participant or an investor for which it is 

acting subject to a legal restriction with 

respect to a particular stock included in 

the Fund Securities applicable to the 

redemption of a Creation Unit may be 

paid an equivalent amount of cash. 

Availability of Information 

The Fund’s Web site 

(www.advisorshares.com), which will be 

publicly available prior to the public 

offering of Shares, will include a form 

of the prospectus for the Fund that may 

be downloaded. The Fund’s Web site 

will include additional quantitative 

information updated on a daily basis, 

including, for the Fund, (1) daily trading 

volume, the prior business day’s 

reported closing price, NAV and midpoint of the bid/ask spread at the time 

of calculation of such NAV (the ‘‘Bid/

Ask Price’’),34 and a calculation of the 

premium and discount of the Bid/Ask 

Price against the NAV, and (2) data in 

chart format displaying the frequency 

distribution of discounts and premiums 

of the daily Bid/Ask Price against the 

NAV, within appropriate ranges, for 

each of the four previous calendar 

quarters. On each business day, before 

commencement of trading in Shares in 

the Core Trading Session on the 

Exchange, the Fund’s Web site will 

disclose the Disclosed Portfolio that will 

form the basis for the Fund’s calculation 

of NAV at the end of the business day.35

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Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 72737 

36Currently, it is the Exchange’s understanding 

that several major market data vendors display and/ 

or make widely available Portfolio Indicative 

Values taken from CTA or other data feeds. The 

Portfolio Indicative Value calculation will be an 

estimate of the value of the Fund’s NAV per Share 

using market data converted into U.S. dollars at the 

current currency rates. The Portfolio Indicative 

Value price will be based on quotes and closing 

prices from the securities’ local market and may not 

reflect events that occur subsequent to the local 

market’s close. Premiums and discounts between 

the Portfolio Indicative Value and the market price 

of the Shares may occur. This should not be viewed 

as a ‘‘real-time’’ update of the NAV per Share of the 

Fund, which will be calculated only once a day. 

37See NYSE Arca Equities Rule 7.12, 

Commentary .04. 

38 17 CFR 240.10A–3. 

The Fund will disclose on the Fund’s 

Web site the following information 

regarding each portfolio holding, as 

applicable to the type of holding: Ticker 

symbol, CUSIP number or other 

identifier, if any; a description of the 

holding (including the type of holding, 

such as the type of swap); the identity 

of the security, commodity, index or 

other asset or instrument underlying the 

holding, if any; for options, the option 

strike price; quantity held (as measured 

by, for example, par value, notional 

value or number of shares, contracts or 

units); maturity date, if any; coupon 

rate, if any; effective date, if any; market 

value of the holding; and the percentage 

weighting of the holding in the Fund’s 

portfolio. The Web site information will 

be publicly available at no charge. 

In addition, a basket composition file, 

which includes the security names and 

share quantities, if applicable, required 

to be delivered in exchange for the 

Fund’s Shares, together with estimates 

and actual cash components, will be 

publicly disseminated daily prior to the 

opening of the Exchange via the NSCC. 

The basket represents one Creation Unit 

of the Fund. The NAV of Shares of the 

Fund will normally be determined as of 

the close of the regular trading session 

on the Exchange (ordinarily 4:00 p.m. 

Eastern Time) on each business day. 

Authorized participants may refer to the 

basket composition file for information 

regarding securities and financial 

instruments that may comprise the 

Fund’s basket on a given day. 

Investors can also obtain the Trust’s 

Statement of Additional Information 

(‘‘SAI’’), the Fund’s shareholder reports, 

and its Form N–CSR and Form N–SAR, 

filed twice a year. The Trust’s SAI and 

Shareholder Reports will be available 

free upon request from the Trust, and 

those documents and the Form N–CSR 

and Form N–SAR may be viewed onscreen or downloaded from the 

Commission’s Web site at www.sec.gov. 

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. Information regarding the 

previous day’s closing price and trading 

volume information for the Shares will 

be published daily in the financial 

section of newspapers. 

Quotation and last sale information 

for the Shares and the underlying U.S. 

Exchange-traded Equity will be 

available via the Consolidated Tape 

Association (‘‘CTA’’) high-speed line, 

and from the national securities 

exchange on which they are listed. 

Quotation and last sale information for 

exchange-listed options cleared via the 

Options Clearing Corporation will be 

available via the Options Price 

Reporting Authority. Price information 

regarding exchange-traded options, 

exchange-traded swaps, exchangetraded closed end funds, futures and 

Exchange-traded Equity held by the 

Fund will be available from the U.S. and 

non-U.S. exchanges trading such assets. 

Quotation information from brokers 

and dealers or pricing services will be 

available for unsponsored ADRs; nonexchange-traded derivatives (including 

swaps, options traded OTC, options on 

futures traded OTC and certain 

structured notes); and OTC-traded 

Securities. Price information for 

investment company securities (other 

than ETFs, exchange-traded closed end 

funds and exchange-traded BDCs) is 

available from the applicable 

investment company’s Web site and 

from market data vendors. Pricing 

information regarding each asset class in 

which the Fund will invest will 

generally be available through 

nationally recognized data service 

providers through subscription 

agreements. Foreign exchange prices are 

available from major market data 

vendors. 

In addition, the Portfolio Indicative 

Value, as defined in NYSE Arca Equities 

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

disseminated at least every 15 seconds 

during the Core Trading Session by one 

or more major market data vendors.36

The dissemination of the Portfolio 

Indicative Value, together with the 

Disclosed Portfolio, will allow investors 

to determine the value of the underlying 

portfolio of the Fund on a daily basis 

and will provide a close estimate of that 

value throughout the trading day. 

Additional information regarding the 

Trust and the Shares, including 

investment strategies, risks, creation and 

redemption procedures, fees, portfolio 

holdings disclosure policies, 

distributions and taxes is included in 

the Registration Statement. All terms 

relating to the Fund that are referred to, 

but not defined in, this proposed rule 

change are defined in the Registration 

Statement. 

Trading Halts 

With respect to trading halts, the 

Exchange may consider all relevant 

factors in exercising its discretion to 

halt or suspend trading in the Shares of 

the Fund.37 Trading in Shares of the 

Fund will be halted if the circuit breaker 

parameters in NYSE Arca Equities Rule 

7.12 have been reached. Trading also 

may be halted because of market 

conditions or for reasons that, in the 

view of the Exchange, make trading in 

the Shares inadvisable. These may 

include: (1) The extent to which trading 

is not occurring in the securities and/or 

the financial instruments comprising 

the Disclosed Portfolio of the Fund; or 

(2) whether other unusual conditions or 

circumstances detrimental to the 

maintenance of a fair and orderly 

market are present. Trading in the 

Shares will be subject to NYSE Arca 

Equities Rule 8.600(d)(2)(D), which sets 

forth circumstances under which Shares 

of the Fund may be halted. 

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. 

The Shares will conform to the initial 

and continued listing criteria under 

NYSE Arca Equities Rule 8.600. 

Consistent with NYSE Arca Equities 

Rule 8.600(d)(2)(B)(ii), the Adviser will 

implement and maintain, or be subject 

to, procedures designed to prevent the 

use and dissemination of material nonpublic information regarding the actual 

components of the Fund’s portfolio. The 

Exchange represents that, for initial 

and/or continued listing, the Fund will 

be in compliance with Rule 10A–3 38

under the Act, as provided by NYSE 

Arca Equities Rule 5.3. A minimum of 

100,000 Shares will be outstanding at 

the commencement of trading on the 

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72738 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 

39FINRA surveils trading on the Exchange 

pursuant to a regulatory services agreement. The 

Exchange is responsible for FINRA’s performance 

under this regulatory services agreement. 40For a list of the current members of ISG, see 

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

components of the Disclosed Portfolio may trade on 

markets that are members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. 41 15 U.S.C. 78f(b)(5). 

Exchange. 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 as defined in 

NYSE Arca Equities Rule 8.600(c)(2) 

will be made available to all market 

participants at the same time. 

Surveillance 

The Exchange represents that trading 

in the Shares will be subject to the 

existing trading surveillances, 

administered by the Financial Industry 

Regulatory Authority (‘‘FINRA’’) on 

behalf of the Exchange, which are 

designed to detect violations of 

Exchange rules and applicable federal 

securities laws. 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 federal 

securities laws applicable to trading on 

the Exchange.39

The surveillances referred to above 

generally focus on detecting securities 

trading outside their normal patterns, 

which could be indicative of 

manipulative or other violative activity. 

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.40

FINRA, on behalf of the Exchange, 

will communicate as needed regarding 

trading in the Shares, exchange-traded 

equity securities, futures contracts and 

exchange-traded options contracts with 

other markets and other entities that are 

members of the ISG, and FINRA, on 

behalf of the Exchange, may obtain 

trading information regarding trading in 

the Shares, exchange-traded equity 

securities, futures contracts and 

exchange-traded options contracts from 

such markets and other entities. In 

addition, the Exchange may obtain 

information regarding trading in the 

Shares, exchange-traded equity 

securities, futures contracts and 

exchange-traded options contracts from 

markets and other entities that are 

members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. In 

addition, FINRA, on behalf of the 

Exchange, is able to access, as needed, 

trade information for certain fixed 

income securities held by the Fund 

reported to FINRA’s Trade Reporting 

and Compliance Engine (‘‘TRACE’’). 

Not more than 10% of the net assets 

of the Fund in the aggregate invested in 

equity securities (other than nonexchange-traded investment company 

securities) shall consist of equity 

securities whose principal market is not 

a member of the ISG or is a market with 

which the Exchange does not have a 

comprehensive surveillance sharing 

agreement. In addition, not more than 

10% of the net assets of the Fund in the 

aggregate invested in exchange-traded 

options contracts shall consist of 

options contracts whose principal 

market is not a member of the ISG or is 

a market with which the Exchange does 

not have a comprehensive surveillance 

sharing agreement. 

In addition, the Exchange also has a 

general policy prohibiting the 

distribution of material, non-public 

information by its employees. 

Information Bulletin 

Prior to the commencement of 

trading, the Exchange will inform its 

Equity Trading Permit 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 Equity Trading Permit Holders to 

learn the essential facts relating to every 

customer prior to trading the Shares; (3) 

the risks involved in trading the Shares 

during the Opening and Late Trading 

Sessions when an updated Portfolio 

Indicative Value will not be calculated 

or publicly disseminated; (4) how 

information regarding the Portfolio 

Indicative Value and the Disclosed 

Portfolio is disseminated; (5) the 

requirement that Equity Trading Permit 

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 

Act. The Bulletin will also disclose that 

the NAV for the Shares will be 

calculated after 4:00 p.m. Eastern Time 

each trading day. 

2. Statutory Basis 

The basis under the Act for this 

proposed rule change is the requirement 

under Section 6(b)(5) 41 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. FINRA, on behalf of the Exchange, 

will communicate as needed regarding 

trading in the Shares, exchange-traded 

equity securities, futures contracts and 

exchange-traded options contracts with 

other markets and other entities that are 

members of the ISG, and FINRA, on 

behalf of the Exchange, may obtain 

trading information regarding trading in 

the Shares, exchange-traded equity 

securities, futures contracts and 

exchange-traded options contracts from 

such markets and other entities. In 

addition, the Exchange may obtain 

information regarding trading in the 

Shares, exchange-traded equity 

securities, futures contracts and 

exchange-traded options contracts from 

markets and other entities that are 

members of ISG or with which the 

Exchange has in place a comprehensive 

surveillance sharing agreement. In 

addition, FINRA, on behalf of the 

Exchange, is able to access, as needed, 

trade information for certain fixed 

income securities held by the Fund 

reported to TRACE. Not more than 10% 

of the net assets of the Fund in the 

aggregate invested in equity securities 

(other than non-exchange-traded 

investment company securities) shall 

consist of equity securities whose 

principal market is not a member of the 

ISG or is a market with which the 

Exchange does not have a 

comprehensive surveillance sharing 

agreement. The Fund may invest up to 

5% of net assets in non-agency ABS. 

The Fund may invest up to 5% of net 

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Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 72739 

assets in mortgage-related securities. 

The Fund may not purchase or hold 

illiquid assets if, in the aggregate, more 

than 15% of its net assets would be 

invested in illiquid assets. The Adviser 

is not registered as a broker-dealer or 

affiliated with a broker-dealer. The SubAdviser is not registered as a brokerdealer but is affiliated with Pacific 

Select Distributors, Inc., a registered 

broker-dealer. The Sub-Adviser 

represents that Pacific Select 

Distributors, Inc. is a limited purpose 

broker-dealer with a primary business 

purpose of serving as distributor for 

mutual funds and variable annuity 

products. Pacific Select Distributors, 

Inc. does not engage in any brokerage or 

trading activity. 

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. Quotation and last 

sale information for the Shares and the 

underlying U.S. Exchange-traded Equity 

will be available via the CTA high-speed 

line, and from the national securities 

exchange on which they are listed. 

Quotation and last sale information for 

exchange-listed options cleared via the 

Options Clearing Corporation will be 

available via the Options Price 

Reporting Authority. Price information 

regarding exchange-traded options, 

exchange-traded swaps, exchangetraded closed end funds, futures and 

Exchange-traded Equity held by the 

Fund will be available from the U.S. and 

non-U.S. exchanges trading such assets. 

Quotation information from brokers and 

dealers or pricing services will be 

available for unsponsored ADRs; nonexchange-traded derivatives (including 

swaps, options traded OTC, options on 

futures traded OTC and certain 

structured notes); and OTC-traded 

Securities. Price information for 

investment company securities (other 

than ETFs, exchange-traded closed end 

funds and exchange-traded BDCs) is 

available from the investment 

company’s Web site and from market 

data vendors. Pricing information 

regarding each asset class in which the 

Fund will invest will generally be 

available through nationally recognized 

data service providers through 

subscription agreements. Foreign 

exchange prices are available from 

major market data vendors. The Fund 

will disclose on the Fund’s Web site the 

following information regarding each 

portfolio holding, as applicable to the 

type of holding: Ticker symbol, CUSIP 

number or other identifier, if any; a 

description of the holding (including 

the type of holding, such as the type of 

swap); the identity of the security, 

commodity, index or other asset or 

instrument underlying the holding, if 

any; for options, the option strike price; 

quantity held (as measured by, for 

example, par value, notional value or 

number of shares, contracts or units); 

maturity date, if any; coupon rate, if 

any; effective date, if any; market value 

of the holding; and the percentage 

weighting of the holding in the Fund’s 

portfolio. Moreover, prior to the 

commencement of trading, the Exchange 

will inform its Equity Trading Permit 

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. Trading in the 

Shares will be subject to NYSE Arca 

Equities Rule 8.600(d)(2)(D), which sets 

forth circumstances under which Shares 

of the Fund may be halted. In addition, 

as noted above, investors will have 

ready access to information regarding 

the Fund’s holdings, the Portfolio 

Indicative Value, the Disclosed 

Portfolio, and quotation and last sale 

information for the Shares. 

The proposed rule change is designed 

to perfect the mechanism of a free and 

open market and, in general, to protect 

investors and the public interest in that 

it will facilitate the listing and trading 

of an additional type of 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 Portfolio Indicative Value, 

the Disclosed Portfolio, and quotation 

and last sale information for the Shares. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purpose of the Act. The Exchange 

notes that the proposed rule change will 

facilitate the listing and trading of an 

additional type of actively-managed 

exchange-traded product that will 

enhance competition among market 

participants, to the benefit of investors 

and the marketplace. 

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 

up to 90 days (i) as the Commission may 

designate if it finds such longer period 

to be appropriate and publishes its 

reasons for so finding or (ii) as to which 

the self-regulatory organization 

consents, the Commission will: 

(A) By order approve or disapprove 

the proposed rule change, or 

(B) institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• 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–2014–126 on 

the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2014–126. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

mstockstill on DSK4VPTVN1PROD with NOTICES

72740 Federal Register / Vol. 79, No. 235 / Monday, December 8, 2014 / Notices 

42 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

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

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

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

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing will also be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NYSEArca–2014–126 and should be 

submitted on or before December 29, 

2014. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.42

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2014–28644 Filed 12–5–14; 8:45 am] 

BILLING CODE P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–73719; File No. SR–Phlx– 

2014–76] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change To Adopt AntiInternalization Functionality for 

Registered Market Makers on the PHLX 

Options Market 

December 2, 2014. 

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 November 

28, 2014, NASDAQ OMX PHLX LLC 

(‘‘Phlx,’’ ‘‘PHLX,’’ or ‘‘Exchange’’) filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) a 

proposed rule change as described in 

Items I, II, and III 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 Exchange proposes to adopt antiinternalization functionality for 

registered market makers on the PHLX 

Options Market. 

While these amendments are effective 

upon filing, the Exchange has 

designated the proposed amendments to 

be operative on or before January 15, 

2015. 

The text of the proposed rule change 

is below; proposed new language is 

italicized; proposed deletions are in 

brackets. 

* * * * * 

Rule 1080. Phlx XL and Phlx XL II 

(a)–(o) No Change. 

(p) Execution Protections 

(1) Acceptable Trade Range. 

(A) After the opening, the System will 

calculate an Acceptable Trade Range to 

limit the range of prices at which an 

order or quote (except an All-or-none 

order) will be allowed to execute. The 

Acceptable Trade Range is calculated by 

taking the Reference Price, plus or 

minus a value to be determined by the 

Exchange. (i.e., the Reference Price ¥ 

(x) for sell orders/quotes and the 

Reference Price + (x) for buy orders/

quotes). Upon receipt of a new order/

quote, the Reference Price is the 

National Best Bid (‘‘NBB’’) for sell 

orders and the National Best Offer 

(‘‘NBO’’) for buy orders/quotes or the 

last price at which the order/quote is 

posted whichever is higher for a buy 

order/quote or lower for a sell order/

quote. 

(B) If an order/quote reaches the outer 

limit of the Acceptable Trade Range (the 

‘‘Threshold Price’’) without being fully 

executed, it will be posted at the 

Threshold Price for a brief period, not 

to exceed one second (‘‘Posting 

Period’’), to allow more liquidity to be 

collected, unless a Quote Exhaust has 

occurred, in which case the Quote 

Exhaust process in Rule 1082(a)(ii)(B)(3) 

will ensue, triggering a new Reference 

Price. Upon posting, either the current 

Threshold Price of the order or an 

updated NBB for buy orders or the NBO 

for sell orders (whichever is higher for 

a buy order/lower for a sell order) then 

becomes the Reference Price for 

calculating a new Acceptable Trade 

Range. If the order/quote remains 

unexecuted, a New Acceptable Trade 

Range will be calculated and the order/ 

quote will execute, route, or post up to 

the new Acceptable Trade Range 

Threshold Price, unless a member 

organization has requested that their 

orders be returned if posted at the outer 

limit of the Acceptable Trade Range (in 

which case, the order will be returned). 

This process will repeat until either (i) 

the order/quote is executed, cancelled, 

or posted at its limit price or (ii) the 

order has been subject to a configurable 

number of instances of the Acceptable 

Trade Range as determined by the 

Exchange (in which case it will be 

returned). 

(C) During the Posting Period, the 

Exchange will disseminate as a 

quotation: (i) The Threshold Price for 

the remaining size of the order 

triggering the Acceptable Trade Range 

and (ii) on the opposite side of the 

market, the best price will be displayed 

using the ‘‘non-firm’’ indicator message 

in accordance with the specifications of 

the network processor. Following the 

Posting Period, the Exchange will return 

to a normal trading state and 

disseminate its best bid and offer. 

(2) Anti-Internalization—Quotes and 

orders entered by Specialists and 

Registered Options Traders (as defined 

in Rule 1014) using the same Phlx badge 

will not be executed against quotes and 

orders entered on the opposite side of 

the market using the same badge. In 

such a case, the System will cancel the 

resting quote or order back to the 

entering party prior to execution. This 

functionality shall not apply in any 

auction or with respect to complex 

transactions. 

(3) Order Price Protection (‘‘OPP’’). 

OPP is a feature of Phlx XL that 

prevents certain day limit, good til 

cancelled, immediate or cancel, and allor-none orders at prices outside of preset standard limits from being accepted 

by the system. OPP applies to all 

options but does not apply to market 

orders, stop limit orders, Intermarket 

Sweep Orders or complex orders. 

(A) OPP is operational each trading 

day after the opening until the close of 

trading, except during trading halts. The 

Exchange may also temporarily 

deactivate OPP from time to time on an 

intraday basis at its discretion if it 

determines that volatility warrants 

deactivation. Members will be notified 

of intraday OPP deactivation due to 

volatility and any subsequent intraday 

reactivation by the Exchange through 

the issuance of system status messages. 

(B) OPP will reject incoming orders 

that exceed certain parameters 

according to the following algorithm. 

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