Document ID: SEC-2013-0632-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-04-02T04:00Z

[Federal Register Volume 78, Number 63 (Tuesday, April 2, 2013)]
[Notices]
[Pages 19766-19772]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-07585]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69244; File No. SR-NYSEArca-2013-08]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to the Listing and Trading of 
the SPDR Blackstone/GSO Senior Loan ETF Under NYSE Arca Equities Rule 
8.600

March 27, 2013.

I. Introduction

    On January 24, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the SPDR Blackstone/GSO Senior Loan ETF (``Fund''). The 
proposed rule change was published for comment in the Federal Register 
on February 13, 2013.\3\ The Commission received no comments on the 
proposed rule change. This order grants approval of the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68862 (February 7, 
2013), 78 FR 10233 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant 
to NYSE Arca Equities Rule 8.600, which governs the listing and trading 
of Managed Fund Shares. The Shares will be offered by SSgA Active ETF 
Trust (``Trust''), which is organized as a Massachusetts business trust 
and is registered with the Commission as an open-end management 
investment company.\4\ SSgA Funds Management, Inc. (``Adviser'') serves 
as the investment adviser to the Fund. GSO/Blackstone Debt Funds 
Management LLC will serve as sub-adviser (``Sub-Adviser'') \5\ to the 
Blackstone/GSO Senior Loan Portfolio (``Portfolio'') and the Fund, 
subject to supervision by the Adviser and the Trust's Board of Trustees 
(``Board''). State Street Global Markets, LLC will be the principal 
underwriter and distributor of the Fund's Shares, and State Street Bank 
and Trust Company (``Custodian'') will serve as administrator, 
custodian, and transfer agent for the Fund.
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On April 1, 2011, the Trust filed with the 
Commission Form N-1A under the Securities Act of 1933 and under the 
1940 Act relating to the Fund (File Nos. 333-173276 and 811-22542) 
(``Registration Statement''). In addition, the Exchange represents 
that the Trust has obtained certain exemptive relief under the 1940 
Act. See Investment Company Act Release No. 29524 (December 13, 
2010) (File No. 812-13487) (``Exemptive Order'').
    \5\ The Exchange represents that, in the event (a) the Adviser 
or Sub-Adviser becomes newly affiliated with a broker-dealer, or (b) 
any new adviser or sub-adviser becomes affiliated with a broker-
dealer, it will implement a fire wall with respect to such broker-
dealer regarding access to information concerning the composition 
and/or changes to the portfolio, and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding such portfolio.
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SPDR Blackstone/GSO Senior Loan ETF

    The investment objective of the Fund is to provide current income 
consistent with the preservation of capital. Under normal market 
conditions,\6\ the Fund will invest all of its assets in the shares of 
the Portfolio, a separate series of the SSgA Master Trust with an 
identical investment objective as the Fund. As a result, the Fund will 
invest indirectly through the Portfolio.
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    \6\ The terms ``under normal market conditions'' or ``under 
normal market circumstances'' include, but are not limited to, the 
absence of extreme volatility or trading halts in the fixed income 
markets or the financial markets generally; of operational issues 
causing dissemination of inaccurate market information; or of 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. In 
periods of extreme market disturbance, the Fund may take temporary 
defensive positions by overweighting its portfolio in cash/cash-like 
instruments; however, to the extent possible, the Sub-Adviser would 
continue to seek to achieve the Fund's investment objective. 
Specifically, the Portfolio and Fund would continue to invest in 
Senior Loans. In response to prolonged periods of constrained or 
difficult market conditions, the Sub-Adviser will likely focus on 
investing in the largest and most liquid loans available in the 
market.
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    According to the Exchange, in pursuing its investment objective, 
the Fund, under normal market conditions, will seek to outperform a 
primary and secondary loan index (as described below) by investing at 
least 80% of its net assets (plus any borrowings for investment 
purposes) in ``Senior Loans.'' \7\ The S&P/LSTA U.S. Leveraged Loan 100 
Index (``Primary Index'') comprises the 100 largest Senior Loans, as 
measured by the borrowed amounts outstanding.\8\ The Markit iBoxx USD 
Leveraged Loan Index (``Secondary Index'') selects the 100 most liquid 
Senior Loans in the market.\9\ In addition to size, liquidity is also 
measured, in part, based on the number of market makers who trade a 
specific Senior Loan and the number and size of transactions in the 
context of the prevailing bid/offer spread.
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    \7\ A detailed discussion of Senior Loans and the Senior Loan 
market can be found in the Notice, supra note 3, 78 FR at 10238-39.
    \8\ The ``Primary Index Committee,'' composed of employees of 
Standard & Poor's, Inc. (``S&P''), maintains the Primary Index. See 
id. at 10240.
    \9\ The oversight committee of the Markit iBoxx USD Leveraged 
Loans Indices (``Oversight Committee'') conducts an annual review of 
the loan market and the index rules relating to the Secondary Index. 
See id. at 10241. A detailed discussion of the Primary Index and 
Secondary Index can be found in the Notice, supra note 3, 78 FR at 
10239-42.
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    The Fund will not seek to track either the Primary or Secondary 
Index, but rather will seek to outperform those indices. In doing so, 
the Sub-Adviser represents that the Portfolio will primarily invest in 
Senior Loans.\10\ The Portfolio intends to hold a large percentage of 
the components of the Primary and Secondary Indices. It is

[[Page 19767]]

anticipated that the Portfolio, in accordance with its principal 
investment strategy, will invest approximately 50% to 75% of its net 
assets in Senior Loans that are eligible for inclusion and meet the 
liquidity thresholds of the Primary and/or the Secondary Indices. Each 
of the Portfolio's Senior Loan investments is expected to have no less 
than $250 million USD par outstanding.
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    \10\ The Sub-Adviser represents that, in general, the Portfolio 
(i.e., the master fund) is where investments will be held, which 
investments will primarily consist of Senior Loans and may, to a 
lesser extent, include ``other investments'' as described below. The 
Fund (i.e., the feeder fund) will invest in shares of the Portfolio 
and will not invest in other investments, but may be exposed to such 
investments by means of the Fund's investment in shares of the 
Portfolio. In extraordinary instances, the Fund reserves the right 
to make direct investments in Senior Loans and other investments.
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    The Sub-Adviser considers Senior Loans to be first lien senior 
secured floating rate bank loans. A Senior Loan is an advance or 
commitment of funds made by one or more banks or similar financial 
institutions to one or more corporations, partnerships, or other 
business entities and typically pays interest at a floating or 
adjusting rate that is determined periodically at a designated premium 
above a base lending rate, most commonly the London-Interbank Offered 
Rate. A Senior Loan is considered senior to all other unsecured claims 
against the borrower and senior to or pari passu with all other secured 
claims, meaning that in the event of a bankruptcy, the Senior Loan, 
together with other first lien claims, is entitled to be the first to 
be repaid out of proceeds of the assets securing the loans before other 
existing unsecured claims or interests receive repayment. However, in 
bankruptcy proceedings, there may be other claims, such as taxes or 
additional advances which take precedence.\11\
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    \11\ Senior Loans consist generally of obligations of companies 
and other entities (collectively, ``borrowers'') incurred for the 
purpose of reorganizing the assets and liabilities of a borrower; 
acquiring another company; taking over control of a company 
(leveraged buyout); temporary refinancing; or financing internal 
growth or other general business purposes. Senior Loans are often 
obligations of borrowers who have incurred a significant percentage 
of debt compared to equity issued and thus are highly leveraged.
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    According to the Exchange, the Portfolio will invest in Senior 
Loans that are made predominantly to businesses operating in North 
America, but may also invest in Senior Loans made to businesses 
operating outside of North America. The Portfolio may invest in Senior 
Loans directly, either from the borrower as part of a primary issuance 
or in the secondary market through assignments of portions of Senior 
Loans from third parties or participations in Senior Loans, which are 
contractual relationships with an existing lender in a loan facility 
whereby the Portfolio purchases the right to receive principal and 
interest payments on a loan, but the existing lender remains the record 
holder of the loan. Under normal market conditions, the Portfolio 
expects to maintain an average interest rate duration of less than 90 
days.
    In selecting securities for the Portfolio, the Sub-Adviser will 
seek to construct a portfolio of loans that it believes is less 
volatile than the general loan market. In addition, when making 
investments, the Sub-Adviser will seek to maintain appropriate 
liquidity and price transparency for the Portfolio. On an on-going 
basis, the Sub-Adviser will add or remove those individual loans that 
it believes will cause the Portfolio to outperform or underperform, 
respectively, either the Primary or Secondary Index.
    When identifying prospective investment opportunities in Senior 
Loans, the Sub-Adviser currently intends to invest primarily in Senior 
Loans that are below investment grade quality and will rely on 
fundamental credit analysis in an effort to attempt to minimize the 
loss of the Portfolio's capital.\12\ The Sub-Adviser expects to invest 
in Senior Loans or other debt of companies possessing the attributes 
described below, which it believes will help generate higher risk 
adjusted total returns. The Sub-Adviser does not intend to purchase 
Senior Loans that are in default; however, the Portfolio may hold a 
Senior Loan that has defaulted subsequent to its purchase by the 
Portfolio.
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    \12\ The Portfolio will primarily invest in securities 
(including Senior Loans) which typically will be rated below 
investment grade. Securities rated below investment grade, commonly 
referred to as ``junk'' or ``high yield'' securities, include 
securities that are rated Ba1/BB+/BB+ or below by Moody's Investors 
Service, Inc. (``Moody's''), Fitch Inc., or S&P, respectively, and 
may involve greater risks than securities in higher rating 
categories.
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    The Sub-Adviser intends to invest in Senior Loans or other debt of 
companies that it believes have developed strong positions within their 
respective markets and exhibit the potential to maintain sufficient 
cash flows and profitability to service their obligations in a range of 
economic environments. The Sub-Adviser will seek Senior Loans or other 
debt of companies that it believes possess advantages in scale, scope, 
customer loyalty, product pricing, or product quality versus their 
competitors, thereby minimizing business risk and protecting 
profitability.
    The Sub-Adviser intends to invest primarily in Senior Loans or 
other debt of established companies which have demonstrated a record of 
profitability and cash flows over several economic cycles. The Sub-
Adviser believes such companies are well-positioned to maintain 
consistent cash flow to service and repay their obligations and 
maintain growth in their businesses or market share. The Sub-Adviser 
does not intend to invest in Senior Loans or other debt of primarily 
start-up companies, companies in turnaround situations, or companies 
with speculative business plans.
    The Sub-Adviser intends to focus on investments in which the Senior 
Loans or other debt of a target company has an experienced management 
team with an established track record of success. The Sub-Adviser will 
typically require companies to have in place proper incentives to align 
management's goals with the Portfolio's goals.
    The Sub-Adviser will seek to invest in Senior Loans or other debt 
broadly among companies and industries, thereby potentially reducing 
the risk of a downturn in any one company or industry having a 
disproportionate impact on the value of the Portfolio's holdings. 
However, as a result of its investment in participations in loans and 
the fact that originating banks may be deemed issuers of loans, the 
Portfolio may be deemed to concentrate its investments in the financial 
services industries. Loans, and the collateral securing them, are 
typically monitored by agents for the lenders, which may be the 
originating bank or banks.\13\
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    \13\ According to the Exchange, the Portfolio may be reliant on 
the creditworthiness of the agent bank and other intermediate 
participants in a Senior Loan, in addition to the borrower, since 
rights that may exist under the loan against the borrower if the 
borrower defaults are typically asserted by or through the agent 
bank or intermediate participant. Agents are typically large 
commercial banks, although for Senior Loans that are not broadly 
syndicated, they can also include thrift institutions, insurance 
companies, or finance companies (or their affiliates). Such 
companies may be especially susceptible to the effects of changes in 
interest rates resulting from changes in U.S. or foreign fiscal or 
monetary policies, governmental regulations affecting capital 
raising activities, or other economic or market fluctuations. It is 
the expectation that the Portfolio will only invest in broadly 
syndicated loans.
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    The Portfolio and the Fund are expected to be managed in a 
``master-feeder'' structure, under which the Fund, under normal market 
conditions, will invest all of its assets in the Portfolio, the 
corresponding ``master fund,'' which is a separate 1940 Act-registered 
mutual fund that has an identical investment objective. As a result, 
the Fund (i.e., a ``feeder fund'') has an indirect interest in all of 
the securities owned by the Portfolio. Because of this indirect 
interest, the Fund's investment returns should be the same as those of 
the Portfolio, adjusted for the expenses of the Fund. In extraordinary 
instances, the Fund reserves the right to make direct investments.

[[Page 19768]]

    The Sub-Adviser will manage the investments of the Portfolio. Under 
the master-feeder arrangement, investment advisory fees charged at the 
master fund level are deducted from the advisory fees charged at the 
feeder fund level. According to the Exchange, this arrangement avoids a 
``layering'' of fees, e.g., the Fund's total annual operating expenses 
would be no higher as a result of investing in a master-feeder 
arrangement than they would be if the Fund pursued its investment 
objectives directly. In addition, the Fund may discontinue investing 
through the master-feeder arrangement and pursue its investment 
objectives directly if the Trust's Board determines that doing so would 
be in the best interests of shareholders.
    According to the Exchange, historically, the amount of public 
information available about a specific Senior Loan has been less 
extensive than if the loan were registered or exchange-traded. As noted 
above, the loans in which the Portfolio will invest will, in most 
instances, be Senior Loans, which are secured and senior to other 
indebtedness of the borrower. Each Senior Loan will generally be 
secured by collateral such as accounts receivable; inventory; 
equipment; real estate; intangible assets such as trademarks, 
copyrights, and patents; and securities of subsidiaries or affiliates. 
The value of the collateral generally will be determined by reference 
to financial statements of the borrower, by an independent appraisal, 
by obtaining the market value of such collateral (in the case of cash 
or securities if readily ascertainable), or by other customary 
valuation techniques considered appropriate by the Sub-Adviser. The 
value of collateral may decline after the Portfolio's investment, and 
collateral may be difficult to sell in the event of default. 
Consequently, the Portfolio may not receive all the payments to which 
it is entitled. By virtue of their senior position and collateral, 
Senior Loans typically provide lenders with the first right to cash 
flows or proceeds from the sale of a borrower's collateral if the 
borrower becomes insolvent (subject to the limitations of bankruptcy 
law, which may provide higher priority to certain claims such as 
employee salaries, employee pensions, and taxes). This means Senior 
Loans are generally repaid before unsecured bank loans, corporate 
bonds, subordinated debt, trade creditors, and preferred or common 
stockholders. To the extent that the Portfolio invests in unsecured 
loans, if the borrower defaults on such loans, there is no specific 
collateral on which the lender can foreclose. If the borrower defaults 
on a subordinated loan, the collateral may not be sufficient to cover 
both the senior and subordinated loans.
    There is no organized exchange on which loans are traded, and 
reliable market quotations may not be readily available. A majority of 
the Portfolio's assets are likely to be invested in loans that are less 
liquid than securities traded on national exchanges. Loans with reduced 
liquidity involve greater risk than securities with more liquid 
markets. Available market quotations for such loans may vary over time, 
and if the credit quality of a loan unexpectedly declines, secondary 
trading of that loan may decline for a period of time. During periods 
of infrequent trading, valuing a loan can be more difficult, and buying 
and selling a loan at an acceptable price can be more difficult and 
delayed. In the event that the Portfolio voluntarily or involuntarily 
liquidates Portfolio assets during periods of infrequent trading, it 
may not receive full value for those assets. Therefore, elements of 
judgment may play a greater role in the valuation of loans. To the 
extent that a secondary market exists for certain loans, the market may 
be subject to irregular trading activity, wide bid/ask spreads, and 
extended trade settlement periods.
    Senior Loans will usually require, in addition to scheduled 
payments of interest and principal, the prepayment of the Senior Loan 
from free cash flow. The degree to which borrowers prepay Senior Loans, 
whether as a contractual requirement or at their election, may be 
affected by general business conditions, the financial condition of the 
borrower, and competitive conditions among loan investors, among other 
factors. As such, prepayments cannot be predicted with accuracy. Recent 
market conditions, including falling default rates among others, have 
led to increased prepayment frequency and loan renegotiations. These 
renegotiations are often on terms more favorable to borrowers. Upon a 
prepayment, either in part or in full, the actual outstanding debt on 
which the Portfolio derives interest income will be reduced. However, 
the Portfolio may receive a prepayment penalty fee assessed against the 
prepaying borrower.

Other Investments

    The Fund may (indirectly through its investments in the Portfolio 
or, in extraordinary circumstances, directly) invest in certain other 
types of investments. According to the Exchange, in addition to the 
principal investments described above, the Portfolio may invest in 
bonds, including corporate bonds, high-yield debt securities, and U.S. 
Government obligations.\14\ The Portfolio also may invest in preferred 
securities.
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    \14\ U.S. Government obligations are a type of bond and include 
securities issued or guaranteed as to principal and interest by the 
U.S. Government or its agencies or instrumentalities. The Portfolio 
also may purchase U.S.-registered, dollar-denominated bonds of 
foreign corporations, governments, agencies, and supra-national 
entities.
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    The Portfolio may invest in repurchase agreements with commercial 
banks, brokers, or dealers to generate income from its excess cash 
balances and its securities lending cash collateral.\15\ In addition, 
the Portfolio may enter into reverse repurchase agreements, which 
involve the sale of securities with an agreement to repurchase the 
securities at an agreed-upon price, date, and interest payment and have 
the characteristics of borrowing. The Portfolio also may invest in 
commercial paper.\16\
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    \15\ A repurchase agreement is an agreement under which the 
Portfolio acquires a financial instrument (e.g., a security issued 
by the U.S. government or an agency thereof, a banker's acceptance 
or a certificate of deposit) from a seller, subject to resale to the 
seller at an agreed-upon price and date (normally, the next business 
day). A repurchase agreement may be considered a loan collateralized 
by securities.
    \16\ Commercial paper consists of short-term promissory notes 
issued by banks, corporations, and other entities to finance short-
term credit needs. These securities generally are discounted, but 
sometimes may be interest bearing.
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    Subject to limitations, the Portfolio may invest in secured loans 
that are not first lien loans or loans that are unsecured. These loans 
have the same characteristics as Senior Loans except that such loans 
are not first in priority of repayment and/or may not be secured by 
collateral. Accordingly, the risks associated with these loans are 
higher than the risks for loans with first priority over the 
collateral. Because these loans are lower in priority and/or unsecured, 
they are subject to the additional risk that the cash flow of the 
borrower may be insufficient to meet scheduled payments after giving 
effect to the secured obligations of the borrower or in the case of a 
default, recoveries may be lower for unsecured loans than for secured 
loans.\17\
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    \17\ According to the Exchange, secured loans that are not first 
lien and loans that are unsecured generally have greater price 
volatility than Senior Loans and may be less liquid. There is also a 
possibility that originators will not be able to sell participations 
in these loans, which would create greater credit risk exposure for 
the holders of such loans. Secured loans that are not first lien and 
loans that are unsecured share the same risks as other below 
investment grade instruments.
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    The Portfolio may invest in short-term instruments, including money 
market instruments (including money market funds advised by the 
Adviser), cash, and

[[Page 19769]]

cash equivalents, on an ongoing basis to provide liquidity or for other 
reasons.
    The Portfolio may invest in the securities of other investment 
companies, including closed-end funds (including loan-focused closed 
end funds), subject to applicable limitations under Section 12(d)(1) of 
the 1940 Act.\18\ To the extent allowed by law, the Portfolio's 
investment restrictions, and the Trust's Exemptive Order, the Portfolio 
may invest its assets in securities of investment companies that are 
money market funds, including those advised by the Adviser or otherwise 
affiliated with the Adviser, in excess of the limits discussed above.
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    \18\ The Portfolio may invest in other debt or fixed income 
exchange-traded funds (``ETFs''), such as securities listed on the 
Exchange under NYSE Arca Equities Rules 5.2(j)(3), 8.100, and 8.600 
(including other ETFs managed by the Adviser). ETFs may be 
structured as investment companies that are registered under the 
1940 Act, typically as open-end funds or unit investment trusts. 
These ETFs are generally based on specific domestic and foreign 
market securities indices.
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    In addition, the Portfolio may invest in exchange-traded notes, 
such as securities listed on the Exchange under NYSE Arca Equities Rule 
5.2(j)(6), which are debt obligations of investment banks that are 
traded on exchanges and the returns of which are linked to the 
performance of certain reference assets, which may include market 
indexes.
    The Portfolio will not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry; however it may be 
deemed to concentrate its investment in any of the industries or group 
of industries in the financial services sector (consisting of financial 
institutions, including commercial banks, insurance companies, and 
other financial companies and their respective holding companies) to 
the extent that the banks originating or acting as agents for the 
lenders, or granting or acting as intermediaries in participation 
interests, in loans held by the Portfolio are deemed to be issuers of 
such loans.
    The Portfolio may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities, junior subordinated loans, and 
unsecured loans deemed illiquid by the Adviser and Sub-Adviser. The 
Portfolio 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 
Portfolio's net assets are held in illiquid securities. Illiquid 
securities 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.
    Except for investments in ETFs that may hold non-U.S. issues, the 
Portfolio will not otherwise invest in non-U.S.-registered equity 
issues. In addition, the Portfolio will not invest in options 
contracts, futures contracts, or swap agreements.
    In certain situations or market conditions, the Portfolio may 
temporarily depart from its normal investment policies and strategies 
provided that the alternative is consistent with the Portfolio's 
investment objective and is in the best interest of the Portfolio. For 
example, the Portfolio may hold a higher than normal proportion of its 
assets in cash in times of extreme market stress.\19\ The Portfolio may 
borrow money from a bank as permitted by the 1940 Act or other 
governing statute, by applicable rules thereunder, or by Commission or 
other regulatory agency with authority over the Portfolio, but only for 
temporary or emergency purposes.
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    \19\ See note 6, supra.
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    The Portfolio will be classified as a ``diversified'' investment 
company under the 1940 Act and intends to qualify for and to elect 
treatment as a separate regulated investment company under Subchapter M 
of the Internal Revenue Code.
    The Portfolio's investments will be consistent with the Portfolio's 
investment objective and will not be used to enhance leverage.

Criteria To Be Applied to the Fund

    While the Fund, which would be listed pursuant to the criteria 
applicable to actively managed funds under NYSE Arca Equities Rule 
8.600, is not eligible for listing under NYSE Arca Equities Rule 
5.2(j)(3) applicable to listing and trading of Investment Company Units 
based on a securities index, the Adviser and Sub-Adviser represent 
that, under normal market conditions, the Fund would generally satisfy 
the generic fixed income initial listing requirements in NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02 on a continuous basis measured 
at the time of purchase, as described below.\20\
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    \20\ NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 sets 
forth generic listing criteria applicable to listing under Rule 19b-
4(e) under the Exchange Act of Investment Company Units (``Units'') 
based on an index or portfolio of ``Fixed Income Securities,'' which 
are debt securities that are notes, bonds, debentures, or evidence 
of indebtedness that include, but are not limited to, U.S. 
Department of Treasury securities (``Treasury Securities''), 
government-sponsored entity securities (``GSE Securities''), 
municipal securities, trust preferred securities, supra-national 
debt, and debt of a foreign country or a subdivision thereof. NYSE 
Arca Equities Rule 5.2(j)(3), Commentary .02(a) is as follows:
    (a) Eligibility Criteria for Index Components. Upon the initial 
listing of a series of Units pursuant to Rule 19b-4(e) under the 
Exchange Act, the components of an index or portfolio underlying a 
series of Units shall meet the following criteria:
    (1) The index or portfolio must consist of Fixed Income 
Securities;
    (2) Components that in aggregate account for at least 75% of the 
weight of the index or portfolio each shall have a minimum original 
principal amount outstanding of $100 million or more;
    (3) A component may be a convertible security, however, once the 
convertible security component converts to the underlying equity 
security, the component is removed from the index or portfolio;
    (4) No component fixed-income security (excluding Treasury 
Securities and GSE Securities) shall represent more than 30% of the 
weight of the index or portfolio, and the five most heavily weighted 
component fixed-income securities in the index or portfolio shall 
not in the aggregate account for more than 65% of the weight of the 
index or portfolio;
    (5) An underlying index or portfolio (excluding one consisting 
entirely of exempted securities) must include a minimum of 13 non-
affiliated issuers; and
    (6) Component securities that in aggregate account for at least 
90% of the weight of the index or portfolio must be either (a) from 
issuers that are required to file reports pursuant to Sections 13 
and 15(d) of the Exchange Act; (b) from issuers that have a 
worldwide market value of its outstanding common equity held by non-
affiliates of $700 million or more; (c) from issuers that have 
outstanding securities that are notes, bonds debentures, or evidence 
of indebtedness having a total remaining principal amount of at 
least $1 billion; (d) exempted securities as defined in Section 
3(a)(12) of the Exchange Act; or (e) from issuers that are a 
government of a foreign country or a political subdivision of a 
foreign country.
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    With respect to the requirement of Commentary .02(a)(1), the Fund 
(through its investment in the Portfolio) will invest at least 80% of 
its net assets (plus any borrowings for investment purposes) in Senior 
Loans. The Adviser and Sub-Adviser expect that substantially all of the 
Fund's assets will be invested in Fixed Income Securities or cash/cash-
like instruments.
    With respect to the requirement of Commentary .02(a)(2), the 
Portfolio's Adviser and Sub-Adviser expect that substantially all, but 
at least 75%, of the Portfolio will be invested in loans that have an 
aggregate outstanding exposure of greater than $100 million.
    With respect to the requirement of Commentary .02(a)(3), the Sub-
Adviser represents that the Portfolio will not typically invest in 
convertible securities; however, should the Portfolio make such 
investments, the Sub-Adviser would direct the Portfolio to divest any 
converted equity security as soon as practicable.

[[Page 19770]]

    With respect to the requirement of Commentary .02(a)(4), the Sub-
Adviser represents that the Portfolio will not concentrate its 
investments in excess of 30% in any one security (excluding Treasury 
Securities and GSE Securities) and will not invest more than 65% of its 
assets in five or fewer securities (excluding Treasury Securities and 
GSE Securities).
    With respect to the requirement of Commentary .02(a)(5), the Sub-
Adviser represents that the Portfolio will invest in Senior Loans 
issued to at least 13 non-affiliated borrowers.
    With respect to the requirements of Commentary .02(a)(6), the Sub-
Adviser represents that the Portfolio may make investments on a 
continuous basis in compliance with such requirement at the time of 
purchase; however, the market for Senior Loans differs in several 
material respects from the market of other fixed income securities 
(e.g., bonds). A significant percentage of the Senior Loan market would 
not meet the criteria set forth in Commentary .02(a)(6), but would be 
readily tradable in the secondary market. For the 12-month period 
ending August 12, 2012, 53.4% of the borrowers of primary Senior Loans 
(also known as leveraged loans) had total indebtedness of $1 billion or 
less and Senior Loans outstanding of $250 million or more (Source: 
S&P). In order to add to the Portfolio's diversification and to expand 
the Portfolio's investment universe, the Portfolio may invest in Senior 
Loans borrowed by entities that would not meet the criteria set forth 
in Commentary .02(a)(6) above, provided the borrower has at least $250 
million outstanding in Senior Loans. The Senior Loans borrowed by such 
entities would be well known to participants in the Senior Loan 
markets, would typically attract multiple market makers, and would 
share the liquidity and transparency characteristics of senior secured 
debt borrowed by entities meeting the criteria in the generic listing 
criteria of NYSE Arca Equities Rule 5.2(j)(3), Commentary .02.
    Additional information regarding the Fund, the Portfolio, and the 
Shares, including investment strategies, risks, Senior Loan market, 
Primary and Secondary Indices, creation and redemption procedures, 
fees, Portfolio holdings disclosure policies, distributions and taxes 
is included in the Notice and Registration Statement.\21\
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    \21\ See Notice and Registration Statement, supra notes 3 and 4, 
respectively.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \22\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\23\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\24\ which 
requires, among other things, that the Exchange's rules be designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general, to protect investors and the public 
interest. The Commission notes that the Shares will be listed and 
traded on the Exchange pursuant to the initial and continued listing 
criteria in NYSE Arca Equities Rule 8.600.
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    \22\ 15 U.S.C. 78f.
    \23\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \24\ 17 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\25\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. 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 Consolidated Tape Association 
(``CTA'') high-speed line. The intra-day, closing and settlement prices 
of the Portfolio securities, including Senior Loans and other assets, 
will also readily available from the national securities exchanges 
trading such securities, automated quotation systems, published or 
other public sources, or on-line information services. The Portfolio 
Indicative Value (``PIV''), as defined in NYSE Arca Equities Rule 
8.600(c)(3), will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Exchange's Core 
Trading Session.\26\ On each business day, before commencement of 
trading in Shares in the Core Trading Session on the Exchange, the Fund 
will disclose on its Web site the Disclosed Portfolio, as defined in 
NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for the 
Fund's calculation of net asset value (``NAV'') at the end of the 
business day.\27\ The NAV of the Fund will be calculated by the 
Custodian and determined at the close of the regular trading session on 
the New York Stock Exchange (ordinarily 4:00 p.m. Eastern time) on each 
day that such exchange is open. 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. In addition, a 
basket composition file, which includes the security names, amount, and 
share quantities, as 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 New York Stock Exchange via the National Securities Clearing 
Corporation. The Primary Index and Secondary Index descriptions are 
publicly available, and information, including values, components, and 
weightings, is updated and provided daily on a subscription basis by 
S&P and Markit, respectively. Complete methodologies for the Primary 
and Secondary Index are made available on the Web sites of S&P and 
Markit, respectively. 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.
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    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \26\ According to the Exchange, several major market data 
vendors display and/or make widely available PIVs taken from the CTA 
or other data feeds. See Notice, supra note 3, 78 FR at 10243, n.43.
    \27\ On a daily basis, the Disclosed Portfolio will include each 
portfolio security, including Senior Loans, and other financial 
instruments of the Portfolio with the following information on the 
Fund's Web site: ticker symbol (if applicable), name of security and 
financial instrument, number of shares (if applicable) and dollar 
value of securities (including Senior Loans) and financial 
instruments held in the Portfolio, and percentage weighting of the 
security and financial instrument in the Portfolio.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The 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.

[[Page 19771]]

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,\28\ and trading in the Shares 
will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets 
forth additional circumstances under which Shares of the Fund may be 
halted.\29\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. Further, the Commission notes that the Reporting Authority 
that provides the Disclosed Portfolio must implement and maintain, or 
be subject to, procedures designed to prevent the use and dissemination 
of material, non-public information regarding the actual components of 
the portfolio.\30\ The Adviser and the Sub-Adviser are each affiliated 
with a broker-dealer and have 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.\31\ The Primary 
Index Committee has implemented procedures designed to prevent the use 
and dissemination of material, non-public information regarding the 
Primary Index, and the Oversight Committee has implemented procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the Secondary Index. The Exchange further 
represents that S&P and Markit are not broker-dealers or affiliated 
with a broker-dealer, and each has implemented procedures designed to 
prevent the use and dissemination of material, non-public information 
regarding the Primary Index and Secondary Index, respectively. The 
Commission also notes that the Financial Industry Regulatory Authority 
(``FINRA''), on behalf of the Exchange,\32\ will communicate as needed 
regarding trading in the Shares with other markets that are members of 
the Intermarket Surveillance Group (``ISG'') or with which the Exchange 
has in place a comprehensive surveillance sharing agreement.
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    \28\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities and/or the financial instruments 
composing 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.
    \29\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing 
additional considerations for the suspension of trading in or 
removal from listing of Managed Fund Shares on the Exchange).
    \30\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \31\ See note 5, supra and accompanying text. The Commission 
notes that an investment adviser to an open-end fund is required to 
be registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser and Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
    \32\ The Exchange states that, while FINRA surveils trading on 
the Exchange pursuant to a regulatory services agreement, the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange represents that trading in the Shares will be 
subject to the existing trading surveillances, administered by FINRA on 
behalf of the Exchange, which are designed to detect violations of 
Exchange rules and applicable federal securities laws and 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.
    (4) 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. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares in Creation Unit 
aggregations (and that Shares are not individually redeemable); (b) 
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence 
on its Equity Trading Permit Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (c) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated PIV will not be calculated or publicly 
disseminated; (d) how information regarding the PIV is disseminated; 
(e) 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 (f) trading 
information.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act,\33\ as provided by NYSE Arca 
Equities Rule 5.3.
---------------------------------------------------------------------------

    \33\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (6) It is anticipated that the Portfolio, in accordance with its 
principal investment strategy, will invest approximately 50% to 75% of 
its net assets in Senior Loans that are eligible for inclusion and meet 
the liquidity thresholds of the Primary and/or the Secondary Indices. 
Each of the Portfolio's Senior Loan investments will have no less than 
$250 million USD par outstanding. The Sub-Adviser does not intend to 
purchase Senior Loans that are in default, and it is the expectation 
that the Portfolio will only invest in broadly syndicated loans.
    (7) Under normal market conditions, the Fund would generally 
satisfy the generic fixed income initial listing requirements in NYSE 
Arca Equities Rule 5.2(j)(3), Commentary .02 on a continuous basis 
measured at the time of purchase.
    (8) The Fund will not invest in non-U.S.-registered equity issues 
(except for Underlying ETFs that may hold non-U.S. issues). The 
Portfolio may hold in the aggregate up to 15% of its net assets in 
illiquid securities (calculated at the time of investment), including 
Rule 144A securities, junior subordinated loans, and unsecured loans 
deemed illiquid by the Adviser and Sub-Adviser. The Portfolio will not 
invest in options contracts, futures contracts, or swap agreements.
    (9) The Portfolio's and Fund's investments will be consistent with 
the Portfolio's and Fund's investment objective and will not be used to 
enhance leverage.
    (10) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in

[[Page 19772]]

the Notice, and the Exchange's description of the Fund.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \34\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \34\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\35\ that the proposed rule change (SR-NYSEArca-2013-08) be, and it 
hereby is, approved.
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    \35\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\36\
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    \36\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-07585 Filed 4-1-13; 8:45 am]
BILLING CODE 8011-01-P