Document ID: SEC-2014-0162-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-01-29T05:00Z

[Federal Register Volume 79, Number 19 (Wednesday, January 29, 2014)]
[Notices]
[Pages 4788-4793]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-01661]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71377; File No. SR-NYSEArca-2013-132]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment Nos. 2 and 3 
Thereto, To List and Trade Shares of Merk Hard Currency ETF Under NYSE 
Arca Equities Rule 8.600

January 23, 2014.

I. Introduction

    On November 22, 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'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the Merk 
Hard Currency ETF (``Fund'') of the Forum ETF Trust (``Trust''). The 
proposed rule change was published for comment in the Federal Register 
on December 11, 2013.\3\ On December 19, 2013, the Exchange (1) 
submitted but subsequently withdrew Amendment No. 1 to the proposed 
rule change, and (2) submitted Amendment No. 2 to the proposed rule 
change. On January 10, 2014, the Exchange submitted Amendment No. 3 to 
the proposed rule change.\4\ The Commission received no comments on the 
proposal. This order grants approval of the proposed rule change, as 
modified by Amendment Nos. 2 and 3 thereto.
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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. 70994 (Dec. 5, 
2013), 78 FR 75423 (``Notice'').
    \4\ In Amendment No. 2, the Exchange provided further 
information regarding where pricing information for certain Fund 
assets can be found and corrected certain cross references. In 
Amendment No. 3, the Exchange clarified: (1) that the Fund will not 
invest in any non-U.S. equity securities and that the Fund will not 
invest in American Depositary Receipts, European Depositary 
Receipts, Global Depositary Receipts (collectively referred to as 
``depositary receipts''), New York Registered Shares, or American 
Depositary Shares and removed all references thereto; and (2) where 
pricing information for spot currency transactions can be found. 
Because Amendment Nos. 2 and 3 do not materially affect the 
substance of the proposed rule change or raise novel or unique 
issues, Amendment Nos. 2 and 3 did not require notice and comment.
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund under 
NYSE Arca Equities Rule 8.600, which governs the listing and trading of 
Managed Fund Shares. The Shares will be offered by the Trust,\5\ a 
Delaware statutory trust that is registered with the Commission as an 
open-end management investment company. Forum Investment Advisors, LLC 
(``Investment Manager'') is the investment manager of the Fund. Merk 
Investments, LLC (``Investment Adviser'') is the investment adviser of 
the Fund.\6\ Foreside Fund Services LLC

[[Page 4789]]

is the Fund's principal underwriter and distributer of the Fund's 
Shares. Atlantic Fund Administration, LLC, an affiliate of the 
Investment Manager, serves as the administrator for the Fund. The Bank 
of New York Mellon Corporation serves as custodian and transfer agent 
for the Fund. The Exchange represents that neither the Investment 
Manager nor the Investment Adviser is a broker-dealer or is affiliated 
with a broker-dealer.\7\
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    \5\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On April 12, 2013, the Trust filed with the 
Commission an amendment to its registration statement on Form N-1A 
under the Securities Act of 1933 (``Securities Act'') and under the 
1940 Act relating to the Fund (File Nos. 333-180250 and 811-22679) 
(``Registration Statement''). In addition, the Exchange states that 
the Trust has obtained certain exemptive relief under the 1940 Act. 
See Investment Company Act Release No. 30549 (June 4, 2013) (File 
No. 812-13915-01) (``Exemptive Order'').
    \6\ The Investment Adviser will be responsible for the day-to-
day portfolio management of the Fund and, as such, will make all 
investment decisions for the Fund and is responsible for 
implementing the Fund's investment strategy. The Investment Manager 
will develop the overall investment program for the Fund (which 
includes working with the Investment Adviser to define principal 
investment strategies) and will be responsible for overseeing and 
reporting to the Board of the Trust regarding the Investment 
Adviser.
    \7\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that, in the event that (a) the Investment 
Manager or Investment Adviser becomes a registered broker-dealer or 
becomes newly affiliated with a broker-dealer, or (b) any new 
investment adviser is or becomes affiliated with a broker-dealer, it 
will implement a fire wall with respect to its relevant personnel or 
its broker-dealer affiliate, as the case may be, regarding access to 
information concerning the composition of, or changes to, the 
portfolio and will be subject to procedures designed to prevent the 
use and dissemination of material, non-public information regarding 
the portfolio.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategies, including other 
permitted portfolio holdings and investment restrictions.\8\
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    \8\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, portfolio holdings, disclosure 
policies, distributions, and taxes, among other information, is 
included in the Notice and the Registration Statement, as 
applicable. See Notice and Registration Statement, supra notes 3 and 
5, respectively.
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Description of the Fund

    The Fund's investment objective is to seek to profit from a rise in 
hard currencies relative to the U.S. dollar. The Fund will be actively 
managed and does not seek to replicate the performance of a specified 
index. Under normal market conditions,\9\ the Fund will invest at least 
80% of the value of its net assets (plus borrowings for investment 
purposes) in a basket of hard currency-denominated investments composed 
of high-quality, short-term \10\ debt instruments, physical gold, and 
gold-related securities.\11\
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    \9\ The term ``under normal market conditions'' 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.
    \10\ According to the Exchange, the Fund will define ``short-
term'' based upon an instrument's remaining maturity period, not the 
initial maturity period. For example, a twenty-year bond with three 
months remaining until maturity will be considered to be a short-
term debt instrument.
    \11\ ``Gold-related securities'' are exchange-traded products 
(``ETPs'') that invest directly in gold bullion. ETPs that hold 
gold, physically or indirectly, are not regulated under the 1940 Act 
and are not afforded the protections thereunder.
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    The term ``hard currencies'' is used to describe currencies of 
countries pursuing what the Investment Adviser believes to be ``sound'' 
monetary policy and gold.\12\ Sound monetary policy is defined by the 
Investment Adviser as a monetary policy providing an environment 
fostering long-term price stability. The Investment Adviser considers 
gold to be the only currency with intrinsic value and, as such, 
qualifies as a hard currency.
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    \12\ Provided that the Investment Adviser deems the following 
currencies to be backed by sound monetary policy, ``hard 
currencies'' include, without limitation: Argentine Peso (ARS); 
Australian Dollar (AUD); Brazilian Real (BRL); British Pound (GBP); 
Canadian Dollar (CAD); Chilean Peso (CLP); Chinese Renminbi (CNY); 
Colombian Peso (COP); Czech Koruna (CZK); Danish Krone (DKK); Euro 
(EUR); Hong Kong Dollar (HKD); Hungarian Forint (HUF); Iceland Krona 
(ISK); Indian Rupee (INR); Indonesian Rupiah (IDR); Israeli Shekel 
(ILS); Japanese Yen (JPY); Malaysian Ringgit (MYR); Mexican Peso 
(MXN); New Zealand Dollar (NZD); Norwegian Krone (NOK); Pakistani 
Rupee (PKR); Peruvian New Sol (PEN); Philippine Peso (PHP); Polish 
Zloty (PLN); Russian Ruble (RUB); Singapore Dollar (SGD); South 
African Rand (ZAR); South Korean Won (KRW); Swedish Krona (SEK); 
Swiss Franc (CHF); Taiwanese Dollar (TWD); Thai Baht (THB); Thai 
Baht Onshore (THO); Turkish Lira (TRY); U.S. Dollar (USD); and 
successor currencies of the aforementioned currencies, if any.
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    The term ``high-quality'' refers to debt instruments rated in the 
top three ratings by a U.S. nationally recognized ratings service, or 
that the Investment Adviser considers comparable in quality to debt 
instruments rated in the top three ratings.\13\
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    \13\ In determining which instruments are comparable in quality 
to instruments rated in the top three ratings, the Investment 
Adviser will evaluate the relative creditworthiness of issuers and 
the relative credit quality of debt issues. Consideration may be 
given to an issuer's financial strength, capacity for timely payment 
and ability to withstand adverse financial developments, as well as 
any ratings assigned to other instruments issued by that issuer.
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    The Investment Adviser will determine currency allocations based on 
an analysis of monetary policies pursued by central banks and economic 
environments. The Investment Adviser will search for currencies that, 
in the Investment Adviser's opinion, are backed by sound monetary 
policy or gold. Once this determination has been made, money market or 
other debt instruments will be selected to create a liquid portfolio of 
short duration and high credit quality.
    The Fund will specifically seek the currency risk of select 
countries pursuing what the Investment Adviser believes are sound 
monetary policies. As long-term price stability is unlikely to be 
achieved by most currencies, if any, the Investment Adviser will focus 
on a country's monetary policy that fosters such stability. The 
Investment Adviser will invest in a basket of hard currency-denominated 
investments that may include physical gold and gold-related securities 
to reduce the Fund's exposure to the risks of any one currency. The 
Investment Adviser may adapt the currency allocations as its analysis 
of monetary policies and economic environments evolves.
    The Investment Adviser may sacrifice yield in return for high 
credit quality of debt securities. The Investment Adviser may limit or 
exclude currencies if, in the Investment Adviser's opinion, the 
potential for appreciation is not backed by sound monetary policy.
    If the Investment Adviser deems a currency crisis likely, it is 
possible that the Fund will restrict its investments to a few 
currencies that meet the Investment Adviser's investment criteria for 
sound monetary policies and practices.

Principal Investments

    As noted above, under normal market conditions,\14\ the Fund will 
invest at least 80% of the value of its net assets (plus borrowings for 
investment purposes) in hard currency-denominated investments composed 
of high-quality, short-term debt instruments,\15\ physical gold, and 
gold-related securities.
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    \14\ See supra note 9.
    \15\ See supra note 10.
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    To try to reduce interest rate and credit risk to its portfolio, 
the Fund will seek to maintain a weighted average portfolio maturity of 
less than eighteen months, although the Fund may maintain a weighted 
average portfolio maturity of greater than eighteen months at any given 
time. In addition, the Fund will only buy money market or other short-
term debt instruments that are rated in the top three ratings by U.S. 
nationally recognized ratings services or that the Investment Adviser 
considers comparable in quality to instruments rated in the top three 
ratings.\16\
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    \16\ See supra note 13.
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    The high quality, short term debt instruments in which the Fund 
will primarily invest include: U.S. dollar- and non-U.S. dollar-
denominated money market instruments and similar securities; debt 
obligations issued by the

[[Page 4790]]

U.S. and foreign national, provincial, state or municipal governments 
or their political subdivisions or agencies, central banks, sovereign 
entities, supranational organizations or special purpose entities 
organized or backed by any of the foregoing entities (``Special Purpose 
Entities''); debt instruments issued by U.S. and foreign corporations; 
\17\ and debt obligations issued by entities that the Investment 
Adviser considers to be comparable to entities in the categories 
enumerated above.
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    \17\ The Fund will typically invest only in debt instruments 
that the Investment Adviser deems to be sufficiently liquid at time 
of investment. Generally, a debt instrument must have $100 million 
(or an equivalent value if denominated in a currency other than U.S. 
dollars) or more par amount outstanding and significant par value 
traded to be considered sufficiently liquid at the time of 
investment. The Fund may invest up to 25% of its total assets in 
debt instrument having a lower par amount outstanding to the extent 
the Investment Advisor determines such an investment to be 
appropriate. In any such determination, the Investment Advisor will 
evaluate the relative creditworthiness of issuers and the relative 
credit quality of debt issues. Consideration may be given to an 
issuer's financial strength, capacity for timely payment, and 
ability to withstand adverse financial developments.
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    Money market instruments in which the Fund may invest include 
short-term government securities, floating and variable-rate notes, 
certificates of deposit, time deposits, bankers' acceptances, 
commercial paper, and other short-term liquid instruments.
    Securities issued by the U.S. Government in which the Fund may 
invest include short-term U.S. Treasury obligations and short-term debt 
obligations. The Fund may also purchase certificates not issued by the 
U.S. Department of the Treasury, which evidence ownership of future 
interest, principal, or interest and principal payments on obligations 
issued by the U.S. Department of the Treasury. The Fund may invest in 
obligations issued or guaranteed by U.S. Government agencies.\18\ The 
Fund may also invest in separated or divided U.S. government 
securities.\19\ Foreign government securities may include direct 
obligations, as well as obligations guaranteed by the foreign 
government and obligations issued by Special Purpose Entities.
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    \18\ Obligations issued or guaranteed by U.S. Government 
agencies include: (1) obligations issued or guaranteed by U.S. 
Government agencies and instrumentalities that are backed by the 
full faith and credit of the U.S. Government; and (2) securities 
that are guaranteed by agencies or instrumentalities of the U.S. 
Government but are not backed by the full faith and credit of the 
U.S. Government.
    \19\ These instruments represent a single interest or principal 
payment on a U.S. government security that has been separated from 
all the other interest payments as well as the security itself. 
While the components of such instruments are drawn from U.S. 
government securities, separated or divided securities may be formed 
by non-governmental institutions.
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    The Fund may invest in U.S. and foreign corporate debt obligations. 
Corporate debt obligations include corporate bonds, debentures, notes, 
commercial paper, and other similar corporate debt instruments. In 
addition, the Fund also may invest in corporate debt securities 
registered and sold in the U.S. by foreign issuers (sometimes called 
Yankee bonds) and those sold outside the U.S. by foreign or U.S. 
issuers (sometimes called Eurobonds).
    The Fund may invest in investment-grade debt securities and non-
investment-grade debt securities. Investment-grade means rated in the 
top four long-term rating categories, or unrated and determined by the 
Investment Adviser to be of comparable quality. The Fund may invest up 
to 5% of its total assets in non-investment-grade debt securities, 
including defaulted securities, however the Fund does not expect to 
invest up to 5% in defaulted securities.
    The Fund may invest in physical gold and gold-related securities. 
To the extent that the Fund invests in gold, it may do so by investing 
directly in physical gold or indirectly by investing through U.S.-
listed ETPs \20\ that invest in gold bullion.
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    \20\ Such ETPs may include the following securities: Trust 
Issued Receipts (as described in NYSE Arca Equities Rule 8.200) and 
Commodity-Based Trust Shares (as described in NYSE Arca Equities 
Rule 8.201). The Fund may invest in ETPs which are not registered 
under the 1940 Act. The Fund may invest in ETPs sponsored by the 
Investment Adviser or its affiliates.
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Other Investments

    In addition to the principal investments in hard currency-
denominated investments described above, the Fund may make certain 
other investments. In addition to the U.S.-listed ETPs that the Fund 
may use as an indirect investment in gold, the Fund may invest in other 
ETPs, including exchange-traded funds (``ETFs'') \21\ and exchange 
traded notes (``ETNs'').\22\
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    \21\ For purposes of this proposed rule change, ETFs are 
securities that are registered pursuant to the 1940 Act such as 
those listed and traded on the Exchange pursuant to NYSE Arca 
Equities Rules 5.2(j)(3), 8.100, and 8.600.
    \22\ For purposes of this proposed rule change, ETNs are 
securities that are registered pursuant to the Securities Act such 
as those listed and traded on the Exchange pursuant to NYSE Arca 
Equities Rule 5.2(j)(6).
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    The Fund may enter into repurchase agreements. If the Fund enters 
into a repurchase agreement, it will maintain possession of the 
purchased securities and any underlying collateral. The Fund may also 
enter into reverse repurchase agreements. A counterparty to a reverse 
repurchase agreement must be a primary dealer that reports to the 
Federal Reserve Bank of New York or one of the largest 100 commercial 
banks in the United States.
    While the Fund is permitted to invest in exchange-listed common and 
preferred stock and warrants, the Exchange states that the Fund will 
not generally invest in such assets. The Fund will not invest in any 
non-U.S. equity securities.
    The Fund may invest in convertible securities, which include debt 
securities, preferred stock, or other securities that may be converted 
into, or exchanged for, a given amount of common stock of the same or a 
different issuer during a specified period and at a specified price in 
the future.
    The Fund may invest in variable amount master demand notes. All 
variable amount master demand notes acquired by the Fund will be 
payable within a prescribed notice period not to exceed seven days.
    The Fund may hold cash in bank deposits in foreign currencies. The 
Fund may conduct foreign currency exchange transactions either on a 
spot (cash) basis at the spot rate prevailing in the foreign exchange 
market or by entering into a forward foreign currency contract. The 
Fund may enter into forward 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.
    For the purpose of hedging, efficient portfolio management, 
generating income, or enhancement of returns, the Fund may, from time 
to time, enter into forward currency contracts,\23\ including currency 
forwards and cross currency forwards. The Fund may enter into forward 
currency contracts to hedge against risks arising from securities the 
Fund owns or anticipates purchasing, or the U.S. dollar value of 
interest and dividends paid on those securities.\24\ The Fund may 
invest in a combination of forward currency contracts and U.S. dollar-
denominated instruments in an attempt to obtain an investment result

[[Page 4791]]

that is substantially the same as a direct investment in a foreign 
currency-denominated instrument. For hedging purposes, the Fund may 
invest in forward currency contracts to hedge either specific 
transactions (transaction hedging) or portfolio positions (position 
hedging).\25\
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    \23\ A forward currency contract is an obligation to purchase or 
sell a specific currency at a future date, which may be any fixed 
number of days from the date of the contract agreed upon by the 
parties, at a price set at the time of the contract.
    \24\ To the extent the Fund retains various U.S. fixed-income 
instruments to settle derivative contracts, the Investment Adviser 
expects such instruments to generate income for the Fund. The value 
of such investments (to the extent used to cover the Fund's net 
exposure under the forward foreign currency contracts and similar 
instruments) and forward contracts and other instruments that 
provide investment exposure to currencies will be counted for 
purposes of the Fund's 80% policy.
    \25\ The Investment Adviser seeks to mitigate counterparty risk 
associated with forward currency contracts by employing multiple 
brokers to execute trades and by monitoring the creditworthiness of 
counterparties through analysis of credit ratings available through 
U.S. nationally recognized ratings services.
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    In order to respond to adverse market, economic, political, or 
other conditions, the Fund may assume a temporary defensive position 
that is inconsistent with its principal investment strategies and 
invest, without limitation, in cash or cash equivalents (including 
commercial paper, certificates of deposit, banker's acceptances, and 
time deposits) which may be U.S. dollar-denominated.

Investment Restrictions

    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 Investment 
Adviser consistent with Commission guidance \26\ and master demand 
notes. 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.
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    \26\ In reaching liquidity decisions, the Investment Adviser may 
consider the following factors: the frequency of trades and quotes 
for the security; the 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).
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    The Fund may not purchase a security if, as a result, more than 25% 
of its total assets would be invested in securities of issuers 
conducting their principal business activities in the same industry. 
For purposes of this limitation, there is no limit on investments in 
U.S. government securities and repurchase agreements covering U.S. 
government securities. With respect to foreign government securities, 
the Fund treats each foreign government or sovereign as its own 
industry.
    Although the Fund intends to invest in a variety of securities and 
instruments, the Fund will be considered ``non-diversified' for the 
purposes of the 1940 Act, 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.
    The Fund will use leveraged investment techniques only when the 
Investment Adviser believes that leveraging and the returns available 
to the Fund from investing the cash will provide investors with a 
potentially higher return. Such leveraged investment techniques include 
borrowing, repurchase agreements, reverse repurchase agreements, and 
securities lending. The Fund will not invest in leveraged or inverse 
leveraged ETPs. Such investments will not be used to enhance the 
leverage of the Fund as a whole and will otherwise be consistent with 
the Fund's investment objective.
    The Fund will not directly invest in options contracts, futures 
contracts, or swap agreements. The Fund intends, for each taxable year, 
to qualify for treatment as a ``regulated investment company'' under 
Subchapter M of the Internal Revenue Code of 1986, as amended.\27\
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    \27\ 26 U.S.C. 851.
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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 \28\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\29\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\30\ 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 Fund and the Shares must comply 
with the initial and continued listing criteria in NYSE Arca Equities 
Rule 8.600 for the Shares to be listed and traded on the Exchange.
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    \28\ 15 U.S.C. 78f.
    \29\ 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).
    \30\ 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,\31\ 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 and underlying U.S. exchange-traded 
equities, including, without limitation, ETPs (including ETFs and 
ETNs), common and preferred stock, and warrants, will be available via 
the Consolidated Tape Association (``CTA'') high-speed line. Quotation 
information from brokers and dealers or pricing services will be 
available for spot currency transactions, forwards, fixed income 
securities, other money market instruments, and repurchase and reverse 
repurchase agreements held by the Fund. Price information for the 
Fund's portfolio securities and other instruments is generally readily 
available through major market data vendors, automated quotation 
systems, published or other public sources and, for listed securities, 
the securities exchange on which they are listed and traded. Investors 
may obtain on a 24-hour basis gold pricing information based on the 
spot price for an ounce of gold from various financial information 
service providers, such as Reuters and Bloomberg.\32\
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    \31\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \32\ According to the Exchange, Reuters and Bloomberg provide at 
no charge on their Web sites delayed information regarding the spot 
price of gold, as well as information about news and developments in 
the gold market. Reuters and Bloomberg also offer a professional 
service to subscribers for a fee that provides information on gold 
prices directly from market participants. ICAP plc provides an 
electronic trading platform called EBS for the trading of spot gold, 
as well as a feed of live streaming prices to Reuters and Moneyline 
Telerate subscribers. The Exchange also states that there are a 
variety of other public Web sites providing information on gold, 
ranging from those specializing in precious metals to sites 
maintained by major newspapers, such as The Wall Street Journal. In 
addition, the daily London noon Fix is publicly available at no 
charge at www.thebulliondesk.com.
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    On each business day, before commencement of trading of Shares in 
the Core Trading Session on the Exchange, the Fund will disclose on its 
Web site the identities and quantities of the portfolio of securities 
and other assets (``Disclosed Portfolio'') held by the Fund and that 
will form the basis for the Fund's calculation of NAV at the

[[Page 4792]]

end of the business day.\33\ In addition, the Portfolio Indicative 
Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), that will be 
based upon the current value for the components of the Disclosed 
Portfolio, will be widely disseminated at least every 15 seconds during 
the Core Trading Session by one or more major market data vendors.\34\ 
The Fund will calculate its NAV as of the close of trading on the 
Exchange (normally 4:00 p.m., Eastern Time) on each weekday except on 
days when the Exchange is closed.\35\ 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. 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.
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    \33\ On a daily basis, the Fund will disclose for each portfolio 
security and other financial instrument of the Fund the following 
information: ticker symbol (if applicable), name or description of 
security and financial instrument, number of shares or dollar value 
of securities and financial instruments held in the portfolio, and 
percentage weighting of securities and financial instruments in the 
portfolio. The Web site information will be publicly available at no 
charge.
    \34\ According to the Exchange, several major market data 
vendors display or make widely available Portfolio Indicative Values 
taken from CTA or other data feeds.
    \35\ According to the Exchange, the Fund will value securities 
for which market quotations are readily available at current market 
value, except for money market instruments with a maturity of sixty 
days or less, which may be valued at amortized cost. Securities for 
which market quotations are readily available, such as exchange-
listed common stock and preferred stock and warrants, will be valued 
using the last reported sales price provided by independent pricing 
services as of the close of trading on the Exchange. In the absence 
of sales, such securities will be valued at the mean of the last bid 
and ask prices. Non-exchange-traded securities for which quotations 
are readily available will be valued at the mean between the current 
bid and ask prices. Debt securities, including master demand notes 
and convertible securities, may be valued at prices supplied by the 
Fund's pricing agents based on broker or dealer-supplied valuations 
or matrix pricing, a method of valuing securities by reference to 
the value of other securities with similar characteristics such as 
rating, interest rate, and maturity. Forward currency contracts will 
be valued at the mean of bid and ask prices for the time period 
interpolated from rates reported by an independent pricing service 
for proximate time periods. Spot currency transactions 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. Repurchase agreements and 
reverse repurchase agreements will generally be valued at par. Gold 
will generally be valued at prices supplied by the Fund's pricing 
agents based on the spot price for an ounce of gold. Investments in 
open-end registered investment companies will be valued at their 
NAV, and investments in other ETPs will be valued using market 
prices.
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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. 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,\36\ 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. The Exchange states that 
it has a general policy prohibiting the distribution of material, non-
public information by its employees. Consistent with NYSE Arca Equities 
Rule 8.600(d)(2)(B)(ii), the Reporting Authority 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 Fund's portfolio. In addition, the Exchange states 
that neither the Investment Manager nor the Investment Adviser is a 
broker-dealer or is affiliated with a broker-dealer.\37\ 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.\38\ The Exchange further represents that these 
procedures are adequate to properly monitor Exchange trading of the 
Shares in all trading sessions and to deter and detect violations of 
Exchange rules and applicable federal securities laws. Moreover, prior 
to the commencement of trading, the Exchange states that it 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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    \36\ These reasons may include: (1) the extent to which trading 
is not occurring in the securities 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. With respect to trading 
halts, the Exchange may consider all relevant factors in exercising 
its discretion to halt of suspend trading in the Shares of the Fund.
    \37\ See supra note 7 and accompanying text. The Exchange states 
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 Investment Manager, the Investment 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 the 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.
    \38\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement and that 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 the following:
    (1) The Shares will be subject to NYSE Arca Equities Rule 8.600, 
which sets forth the initial and continued listing criteria applicable 
to Managed Fund Shares.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange represents that its 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
    (4) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and underlying equity securities 
(including, without limitation, ETPs (including ETFs and ETNs), common 
and preferred stock and warrants, and any other exchange-traded 
products) with other markets and other entities that are members of the 
Intermarket Surveillance Group (``ISG''),

[[Page 4793]]

and FINRA, on behalf of the Exchange, may obtain trading information 
regarding trading in the Shares and underlying equity securities 
(including, without limitation, ETPs (including ETFs and ETNs), common 
and preferred stock and warrants, and any other exchange-traded 
products) from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in the Shares and 
underlying equity securities (including, without limitation, ETPs 
(including ETFs and ETNs), common and preferred stock and warrants, and 
any other exchange-traded products) from markets that are members of 
ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. The ETPs (including ETFs and ETNs), 
common and preferred stock, and warrants in which the Fund may invest 
all will be listed and traded on an exchange which is a member 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.
    (5) 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 Portfolio Indicative Value will not be 
calculated or publicly disseminated; (d) how information regarding the 
Portfolio Indicative Value 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.
    (6) For initial and continued listing, the Fund must be in 
compliance with Rule 10A-3 under the Act,\39\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \39\ See 17 CFR 240.10A-3.
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    (7) 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 Investment 
Adviser consistent with Commission guidance, and master demand notes.
    (8) The Fund will only buy money market or other short-term debt 
instruments that are rated in the top three ratings by U.S. nationally 
recognized ratings services or that the Investment Adviser considers 
comparable in quality to instruments rated in the top three ratings. 
The Fund may only invest up to 5% of its total assets in non-
investment-grade debt securities.
    (9) If the Fund enters into a repurchase agreement, it will 
maintain possession of the purchased securities and any underlying 
collateral. A counterparty to a reverse repurchase agreement must be a 
primary dealer that reports to the Federal Reserve Bank of New York or 
one of the largest 100 commercial banks in the United States.
    (10) The Fund will not invest in: (a) Any non-U.S. equity 
securities; (b) options contracts, futures contracts, or swap 
agreements; and (c) leveraged or inverse leveraged ETPs.
    (11) The Fund will typically invest only in debt instruments that 
the Investment Adviser deems to be sufficiently liquid at time of 
investment. Generally a debt instrument must have $100 million (or an 
equivalent value if denominated in a currency other than U.S. dollars) 
or more par amount outstanding and significant par value traded to be 
considered sufficiently liquid at the time of investment. The Fund may 
invest up to 25% of its total assets in debt instruments having a lower 
par amount outstanding to the extent the Investment Advisor determines 
such an investment to be appropriate. In any such determination, the 
Investment Advisor will evaluate the relative creditworthiness of 
issuers and the relative credit quality of debt issues. Consideration 
may be given to an issuer's financial strength, capacity for timely 
payment, and ability to withstand adverse financial developments.
    (12) 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 the Notice, and 
the Exchange's description of the Funds.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \40\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \40\ 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,\41\ that the proposed rule change (SR-NYSEArca-2013-132), as 
modified by Amendment Nos. 2 and 3 thereto, be, and it hereby is, 
approved.
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    \41\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\42\
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    \42\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2014-01661 Filed 1-28-14; 8:45 am]
BILLING CODE 8011-01-P