Document ID: SEC-2011-0833-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-06-15T04:00Z

[Federal Register Volume 76, Number 115 (Wednesday, June 15, 2011)]
[Notices]
[Pages 35062-35066]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-14849]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64643; File No. SR-NYSEArca-2011-21]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change To List and Trade the WisdomTree 
Global Real Return Fund

June 10, 2011.

I. Introduction

    On April 20, 2011, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade the shares (``Shares'') of the WisdomTree Global

[[Page 35063]]

Real Return Fund (``Fund'') under NYSE Arca Equities Rule 8.600.\3\ The 
proposed rule change was published for comment in the Federal Register 
on May 10, 2011.\4\ 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\ The Fund was formerly known as the ``WisdomTree Real Return 
Fund.'' See Securities Exchange Act Release No. 61697 (March 12, 
2010), 75 FR 13616 (March 22, 2010) (SR-NYSEArca-2010-04) (approving 
the listing and trading of the WisdomTree Real Return Fund) (``March 
12, 2010 Order''). The Fund Shares have not yet been listed and have 
not commenced trading on the Exchange because the Fund seeks to make 
certain changes to its investment strategy that are not reflected in 
the March 12, 2010 Order. The Exchange seeks to propose the listing 
and trading of Shares of the Fund based on this new investment 
strategy.
    \4\ See Securities Exchange Act Release No. 64411 (May 5, 2011), 
76 FR 27127 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares pursuant to NYSE 
Arca Equities Rule 8.600. The Fund will be an actively managed 
exchange-traded fund that is registered with the Commission as an 
investment company.\5\ The Shares will be offered by the WisdomTree 
Trust (``Trust''), a Delaware statutory trust established on December 
15, 2005. WisdomTree Asset Management, Inc. (``Adviser''), which will 
be the investment adviser to the Fund, is not affiliated with any 
broker-dealer. Mellon Capital Management Corporation (``Sub-Adviser''), 
which will serve as the sub-adviser for the Fund,\6\ is affiliated with 
multiple broker-dealers and, accordingly, has implemented a ``fire 
wall'' with respect to such broker-dealers regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio.\7\ The Bank of New York Mellon will be the administrator, 
custodian, and transfer agent for the Fund, and ALPS Distributors, Inc. 
will serve as the distributor for the Fund.
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    \5\ See Post Effective Amendment No. 43 to the Registration 
Statement on Form N-1A for the Trust filed with the Securities and 
Exchange Commission on February 4, 2011 (File Nos. 333-132380 and 
811-21864) (``Registration Statement''). In addition, the Commission 
has issued an order granting certain exemptive relief to the Trust 
under the Investment Company Act of 1940 (``1940 Act''). See 
Investment Company Act Release No. 28471 (October 27, 2008) (File 
No. 812-13458). In compliance with Commentary .04 to NYSE Arca 
Equities Rule 8.600, the Trust's application for exemptive relief 
under the 1940 Act states that the Fund will comply with the Federal 
securities laws in accepting securities for deposits and satisfying 
redemptions with redemption securities, including that the 
securities accepted for deposits and the securities used to satisfy 
redemption requests are sold in transactions that would be exempt 
from registration under the Securities Act of 1933.
    \6\ The Sub-Adviser will be responsible for the day-to-day 
management of the Fund and, as such, will typically make all 
decisions with respect to portfolio holdings. The Adviser will have 
ongoing oversight responsibility.
    \7\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that, in the event (a) the Adviser or the Sub-
Adviser becomes newly affiliated with a broker-dealer, or (b) any 
new adviser or sub-adviser becomes affiliated with a broker-dealer, 
such adviser and/or sub-adviser will implement a fire wall with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio.
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    The Fund will seek total returns that exceed the rate of inflation 
over long-term investment horizons. To achieve its objective, the Fund 
will invest in Fixed Income Securities \8\ and other instruments 
designed to provide protection against inflation. The Fund will be 
actively managed and will have targeted exposure to commodities and 
commodity strategies. Using this approach, the Fund will seek to 
provide investors with both inflation protection and income.
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    \8\ For these purposes, Fixed Income Securities include bonds, 
notes, or other debt obligations, such as government or corporate 
bonds, denominated in U.S. dollars or non-U.S. currencies.
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    The Fund intends to invest at least 70% of its net assets in Fixed 
Income Securities tied to U.S. inflation rates, such as U.S. Treasury 
Inflation Protected Securities (``TIPS''), as well as inflation-linked 
Fixed Income Securities tied to non-U.S. inflation rates. The Fund's 
investments outside the United States will focus on inflation-linked 
securities from countries that are leading exporters of global 
commodities, such as Australia, Brazil, Canada, Chile, and South 
Africa. The Fund will not invest more than 35% of its net assets in 
Fixed Income Securities of issuers in emerging markets. The Fund may 
invest in Fixed Income Securities that are not linked to inflation, 
such as U.S. or non-U.S. government bonds, as well as Fixed Income 
Securities that pay variable or floating rates.
    The Fund expects that it will have at least 70% of its assets 
invested in investment grade securities, and no more than 30% of its 
assets invested in non-investment grade securities. Because the debt 
ratings of issuers will change from time to time, the exact percentage 
of the Fund's investments in investment grade and non-investment grade 
Fixed Income Securities will change from time-to-time in response to 
economic events and changes to the credit ratings of such issuers. 
Within the non-investment grade category, some issuers and instruments 
are considered to be of lower credit quality and at higher risk of 
default. In order to limit its exposure to these more speculative 
credits, the Fund will not invest more than 10% of its assets in 
securities rated BB or below by Moody's, or equivalently rated by S&P 
or Fitch. The Fund does not intend to invest in unrated securities. 
However, it may do so to a limited extent, such as where a rated 
security becomes unrated, if such security is determined by the Adviser 
and Sub-Adviser to be of comparable quality.\9\
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    \9\ In determining whether a security is of ``comparable 
quality,'' the Adviser and Sub-Adviser will consider, for example, 
whether the issuer of the security has issued other rated 
securities.
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    While the Fund intends to focus its investments in Fixed Income 
Securities on bonds and other obligations of U.S. and non-U.S. 
governments and agencies, the Fund may invest up to 20% of its net 
assets in corporate bonds.\10\ The Fund may invest in securities with 
effective or final maturities of any length and will seek to keep the 
average effective duration of its portfolio between 2 and 8 years. The 
Fund's actual portfolio duration may be longer or shorter depending on 
market conditions.
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    \10\ The Fund will invest only in corporate bonds that the 
Adviser or Sub-Adviser deems to be sufficiently liquid. Generally, a 
corporate bond must have $200 million or more par amount outstanding 
and significant par value traded to be considered as an eligible 
investment. However, the Fund may invest up to 5% of its net assets 
in corporate bonds with less than $200 million par amount 
outstanding if (i) the Adviser or Sub-Adviser deems such security to 
be sufficiently liquid based on its analysis of the market for such 
security (based on, for example, broker-dealer quotations or its 
analysis of the trading history of the security or the trading 
history of other securities issued by the issuer), and (ii) such 
investment is deemed by the Adviser or Sub-Adviser to be in the best 
interest of the Fund.
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    The Fund intends to invest in Fixed Income Securities of at least 
13 non-affiliated issuers. The Fund will not concentrate 25% or more of 
the value of its total assets (taken at market value at the time of 
each investment) in any one industry, as that term is used in the 1940 
Act (except that this restriction does not apply to obligations issued 
by the U.S. government or any non-U.S. government or their respective 
agencies and instrumentalities, or government-sponsored enterprises). 
Although the Fund intends to invest in a variety of securities and 
instruments, the Fund will be considered non-diversified, which means 
that it may invest more of its assets in the securities of a smaller 
number of issuers than if it were a diversified Fund. In addition, the 
Fund intends to qualify each year as a regulated investment company 
under Subchapter M of the Internal Revenue Code of 1986, as amended, 
and no portfolio security held by the Fund (other than U.S. government 
securities and non-U.S. government securities) will represent more than 
30% of the weight of the Fund, and the five highest

[[Page 35064]]

weighted portfolio securities of the Fund (other than U.S. government 
securities and/or non-U.S. government securities) will not in the 
aggregate account for more than 65% of the weight of the Fund.
    The Fund intends to invest in Money Market Securities \11\ in order 
to help manage cash flows in and out of the Fund, such as in connection 
with payment of dividends or expenses and to satisfy margin 
requirements, to provide collateral, or to otherwise back investments 
in derivative instruments. All Money Market Securities acquired by the 
Fund will be rated investment grade. The Fund does not intend to invest 
in any unrated Money Market Securities.
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    \11\ For these purposes, Money Market Securities include: Short-
term, high-quality obligations issued or guaranteed by the U.S. 
Treasury or the agencies or instrumentalities of the U.S. 
government; short-term, high-quality securities issued or guaranteed 
by non-U.S. governments, agencies, and instrumentalities; repurchase 
agreements backed by U.S. government securities; money market mutual 
funds; and deposits and other obligations of U.S. and non-U.S. banks 
and financial institutions.
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    The Fund may use derivative instruments as part of its investment 
strategies. The Fund expects that no more than 30% of the value of the 
Fund's net assets will be invested in derivative instruments. Such 
investments will be consistent with the Fund's investment objective and 
will not be used to enhance leverage. The Fund's use of derivative 
instruments will be collateralized or otherwise backed by investments 
in short-term, high-quality U.S. money market securities. The Fund may 
engage in foreign currency transactions and may invest directly in 
foreign currencies in the form of bank and financial institution 
deposits, certificates of deposit, and bankers acceptances denominated 
in a specified non-U.S. currency. The Fund also may enter into forward 
currency contracts in order to ``lock in'' the exchange rate between 
the currency it will deliver and the currency it will receive for the 
duration of the contract.\12\ In addition, the Fund may invest in the 
securities of other investment companies (including money market funds 
and ETFs) and up to an aggregate amount of 15% of its net assets in 
illiquid securities, including securities subject to contractual or 
other restrictions on resale and other instruments that lack readily 
available markets.
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    \12\ The Fund and the Subsidiary (as defined herein) will invest 
only in currencies, and instruments that provide exposure to such 
currencies, that have significant foreign exchange turnover and are 
included in the Bank for International Settlements Triennial Central 
Bank Survey, December 2007 (``BIS Survey''). Specifically, the Fund 
and Subsidiary may invest in currencies, and instruments that 
provide exposure to such currencies, selected from the top 40 
currencies (as measured by percentage share of average daily 
turnover for the applicable month and year) included in the BIS 
Survey.
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    The Fund intends to have targeted exposure to commodities across a 
number of sectors, such as energy, precious metals, and agriculture, 
primarily through its investments in a wholly-owned subsidiary 
organized in the Cayman Islands (``Subsidiary''). The Subsidiary is 
wholly-owned and controlled by the Fund, and its investments will be 
consolidated into the Fund's financial statements. The Fund's 
investment in the Subsidiary may not exceed 25% of the Fund's total 
assets at the end of each fiscal quarter. The Subsidiary's shares will 
be offered only to the Fund, and the Fund will not sell shares of the 
Subsidiary to other investors. The Fund will not invest in any non-U.S. 
equity securities (other than shares of the Subsidiary). The Subsidiary 
will comply with the 1940 Act and will have essentially the same 
compliance policies and procedures as the Fund, except that, unlike the 
Fund, the Subsidiary may invest without limitation in commodity-linked 
investments.\13\ The Subsidiary will otherwise operate in essentially 
the same manner as the Fund. Because the Subsidiary's investments are 
consolidated into the Fund's, the Fund's combined holdings (including 
the investments in the Subsidiary) must comply with the 1940 Act.
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    \13\ The Subsidiary will achieve exposure to commodities through 
investments in a combination of listed commodity futures, commodity 
index swaps, and structured notes that provide commodity returns. 
The Subsidiary's investments will be subject to applicable 
requirements of the Commodity Exchange Act and rules thereunder, and 
to rules of the applicable U.S. futures exchanges. The Subsidiary's 
investments in commodity futures contracts will be limited by the 
application of position limits imposed by the Commodity Futures 
Trading Commission and U.S. futures exchanges intended to prevent 
undue influence on prices by a single trader or group of affiliated 
traders. The Adviser has represented that the Subsidiary intends to 
invest only in listed futures contracts that are heavily traded and 
are based on some of the world's most liquid and actively-traded 
commodities. The Subsidiary intends to invest in or have exposure to 
the following listed futures contracts: Cocoa; coffee; corn; cotton; 
light crude oil; gold; heating oil; high grade copper; lean hogs; 
live cattle; natural gas; silver; soybeans; sugar; unleaded gas; and 
wheat. In addition, the Subsidiary intends to enter into over-the-
counter swap transactions only with respect to transactions based on 
the commodities described herein or on major commodity indexes or 
indicators, such as the S&P GSCI Total Return Index, Dow Jones-UBS 
Commodity Returns Index or the AFT Commodity Trends Indicator. The 
Subsidiary also may invest in commodity-linked notes, which will be 
limited to notes providing exposure to the commodities described 
herein or any commodity index.
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    Additional information regarding the Trust, the Fund, the Shares, 
the investment objectives, strategies, policies, and restrictions, 
risks, fees and expenses, creation and redemption procedures, portfolio 
holdings, distributions and taxes, availability of information, trading 
rules and halts, and surveillance procedures, among other things, can 
be found in the Registration Statement and in the Notice, as 
applicable.\14\
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    \14\ See supra notes 4 and 5.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that NYSE Arca's 
proposal to list and trade the Shares of the Fund is consistent with 
the requirements of Section 6 of the Act \15\ and the rules and 
regulations thereunder applicable to a national securities 
exchange.\16\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\17\ which 
requires, among other things, that the Exchange's rules be designed to 
prevent fraudulent and manipulative acts and practices, to promote just 
and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission notes that 
the Shares must comply with the requirements of NYSE Arca Equities Rule 
8.600 to be listed and traded on the Exchange.
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    \15\ 15 U.S.C. 78f.
    \16\ 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).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\18\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via the Consolidated Tape 
Association high-speed line, and the Portfolio Indicative Value, as 
defined in NYSE Arca Equities Rule 8.600(c)(3), will be updated and 
disseminated by one or more major market data vendors at least every 15 
seconds during the

[[Page 35065]]

Core Trading Session. In addition, the Trust will disclose on its Web 
site on each business day before the commencement of trading in Shares 
in the Core Trading Session the Disclosed Portfolio,\19\ as defined in 
NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for the 
calculation of the net asset value (``NAV''), which will be determined 
at the end of each business day.\20\ The Fund's Web site will also 
include additional quantitative information updated on a daily basis 
relating to NAV. Information regarding the market price and trading 
volume of the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and the previous day's closing price and trading volume 
information will be published daily in the financial section of 
newspapers. In addition, the intra-day, executable price quotations 
and/or end-of-day prices on futures contracts, commodities, and other 
Fund investments are available from major broker-dealer firms and/or 
through subscription services, such as Bloomberg and Thomson Reuters. 
The Fund's Web site will also include a form of the prospectus, 
information relating to NAV, and other quantitative and trading 
information.
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    \18\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \19\ The Adviser will disclose for each portfolio security or 
other financial instrument of the Fund the following information: 
Ticker symbol (if applicable), name or description of security or 
financial instrument; number of shares or dollar value of financial 
instruments held in the portfolio; and percentage weighting of the 
security or financial instrument in the portfolio.
    \20\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of regular trading 
on the New York Stock Exchange, generally 4 p.m. Eastern time.
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    The Commission further believes that the proposal is reasonably 
designed to promote fair disclosure of information that may be 
necessary to price the Shares appropriately and to prevent trading when 
a reasonable degree of transparency cannot be assured. The Commission 
notes that the Exchange will obtain a representation from the issuer 
that the NAV per share for the Fund will be calculated daily and that 
the NAV and the Disclosed Portfolio will be made available to all 
market participants at the same time.\21\ In addition, the Exchange 
will halt trading in the Shares under the specific circumstances set 
forth in NYSE Arca Equities Rule 8.600(d)(2)(D), and may halt trading 
in the Shares to the extent to which trading is not occurring in the 
securities and/or the financial instruments comprising the Disclosed 
Portfolio of the Funds, or whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.\22\ The Exchange represents that the Sub-Adviser is 
affiliated with multiple broker-dealers and, accordingly, has 
implemented a ``fire wall'' with respect to such broker-dealers 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio.\23\ 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.\24\
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    \21\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \22\ With respect to trading halts, the Exchange may consider 
other relevant factors in exercising its discretion to halt or 
suspend trading in the Shares of the Funds. Trading in Shares of the 
Funds 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.
    \23\ See supra note 7 and accompanying text. With respect to the 
Fund, the Exchange represents that the Adviser and Sub-Adviser and 
their related personnel are subject to the provisions of Rule 204A-1 
under the Investment Advisers Act of 1940 (``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.
    \24\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will be subject to NYSE Arca Equities Rule 8.600(d), 
which sets forth the initial and continued listing criteria applicable 
to Managed Fund Shares.
    (2) The Exchange's surveillance 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.
    (3) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares and that Shares 
are not individually redeemable; (b) NYSE Arca Equities Rule 9.2(a), 
which imposes a duty of due diligence on its ETP Holders to learn the 
essential facts relating to every customer prior to trading the Shares; 
(c) the risks involved in trading the Shares during the Opening and 
Late Trading Sessions when an updated Portfolio Indicative Value will 
not be calculated or publicly disseminated; (d) how information 
regarding the Portfolio Indicative Value is disseminated; (e) the 
requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (f) trading information.
    (4) For initial and/or continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act.\25\
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    \25\ See 17 CFR 240.10A-3.
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    (5) The Fund will not invest in non-U.S. equity securities (other 
than shares of the Subsidiary).
    (6) The Fund's investments in derivative instruments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage.
    (7) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    This approval order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \26\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \26\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\27\ that the proposed rule change (SR-NYSEArca-2011-21) be, and it 
hereby is, approved.
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    \27\ 15 U.S.C. 78s(b)(1).
    \28\ 17 CFR 200.30-3(a)(12).

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    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-14849 Filed 6-14-11; 8:45 am]
BILLING CODE 8011-01-P