Document ID: SEC-2012-1283-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-08-07T04:00Z

[Federal Register Volume 77, Number 152 (Tuesday, August 7, 2012)]
[Notices]
[Pages 47131-47136]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19210]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67552; File No. SR-NYSEArca-2012-55]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to the Listing and Trading of 
the STARTM Global Buy-Write ETF Under NYSE Arca Equities 
Rule 8.600

August 1, 2012.

I. Introduction

    On May 31, 2012, 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

[[Page 47132]]

``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule 
change to list and trade shares (``Shares'') of the STARTM 
Global Buy-Write ETF (``Fund'') under NYSE Arca Equities Rule 8.600. 
The proposed rule change was published for comment in the Federal 
Register on June 18, 2012.\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. 67183 (June 12, 
2012), 77 FR 36314 (``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 on the Exchange. The Shares will be offered by 
AdvisorShares Trust (``Trust''), a statutory trust organized under the 
laws of the State of Delaware and registered with the Commission as an 
open-end management investment company.\4\ The investment adviser to 
the Fund is AdvisorShares Investments, LLC (``Adviser''). Partnervest 
Advisory Services, LLC serves as investment sub-adviser to the Fund 
(``Sub-Adviser'') and provides day-to-day portfolio management of the 
Fund. Foreside Fund Services, LLC is the principal underwriter and 
distributor of the Fund's Shares. The Bank of New York Mellon serves as 
administrator, custodian, and transfer agent for the Fund. The Exchange 
has represented that neither the Adviser nor the Sub-Adviser is 
affiliated with a broker-dealer.\5\
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On October 28, 2011, the Trust filed an 
amendment to its registration statement on Form N-1A under the 
Securities Act of 1933 (``1933 Act'') and under the 1940 Act 
relating to the Fund (File Nos. 333-157876 and 811-22110) 
(``Registration Statement''). In addition, the Commission has issued 
an order granting certain exemptive relief to the Trust under the 
1940 Act. See Investment Company Act Release No. 28822 (July 20, 
2009) (File No. 812-13488).
    \5\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the 
event (a) the Adviser or the Sub-Adviser becomes newly affiliated 
with a broker-dealer, or (b) any new adviser or sub-adviser becomes 
affiliated with a broker-dealer, it will implement a fire wall with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio, 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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    The Fund's investment objective is to seek consistent repeatable 
returns across all market cycles. The Fund is a ``fund-of-funds'' and, 
under normal market conditions,\6\ intends to invest at least 60% of 
its total assets in exchange-traded funds (``ETFs'') \7\ and exchange-
traded notes (``ETNs'') \8\ that seek to track a diversified basket of 
global indices and investment sectors, and in exchange-traded pooled 
investment vehicles that invest directly in commodities or currencies 
and that are registered pursuant to the 1933 Act (together with ETFs 
and ETNs, ``Underlying ETPs'') \9\ that meet certain selection criteria 
established by the Sub-Adviser. The selection criteria include size, 
historical track record, diversification among indices, the correlation 
of an index to other indices, and an ability to write exchange-listed 
covered call options on the particular Underlying ETP.\10\ An 
Underlying ETP may be disposed of should it no longer meet the 
selection criteria.
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    \6\ The term ``under normal market conditions'' includes, but is 
not limited to, the absence of extreme volatility or trading halts 
in the equity 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.
    \7\ For purposes of this proposed rule change, ETFs are 
securities registered under the 1940 Act such as those listed and 
traded on the Exchange under NYSE Arca Equities Rules 5.2(j)(3), 
8.100, and 8.600.
    \8\ For purposes of this proposed rule change, ETNs are 
securities that are registered pursuant to the 1933 Act such as 
those listed and traded on the Exchange pursuant to NYSE Arca 
Equities Rule 5.2(j)(6).
    \9\ Underlying ETPs include, in addition to ETFs and ETNs, the 
following securities: Trust Issued Receipts (as described in NYSE 
Arca Equities Rule 8.200); Commodity-Based Trust Shares (as 
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares 
(as described in NYSE Arca Equities Rule 8.202); Commodity Index 
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and 
closed-end funds. The Underlying ETPs all will be listed and traded 
in the U.S. on registered exchanges. The ETFs in which the Fund may 
invest will primarily be index-based ETFs that hold substantially 
all of their assets in securities representing a specific index.
    \10\ The options in which the Fund will invest will be U.S. 
exchange-listed.
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    The Fund currently intends to invest primarily in the securities of 
ETFs consistent with the requirements of Section 12(d)(1) of the 1940 
Act, or any rule, regulation, or order of the Commission or 
interpretation thereof. The Underlying ETPs in which the Fund will 
invest will primarily be Underlying ETPs that hold substantially all of 
their assets in securities representing a country (or region) specific 
index.
    The Sub-Adviser seeks to achieve the Fund's investment objective by 
using a proprietary overwrite strategy known as Volatility Enhanced 
Global Appreciation (``VEGA''). Through VEGA, the Fund will invest in 
Underlying ETPs in combination with call options on generally all such 
Underlying ETPs to seek cumulative price appreciation from the 
portfolio's global exposure while generating an additional return 
stream from the sale of covered call and/or cash-secured put 
options.\11\ While the Fund is permitted to invest up to 40% of its 
total assets in call options on Underlying ETPs, the Adviser expects 
that, under normal market conditions, the Fund will invest no more than 
15% in such call options on a daily basis. To the extent cash and cash 
equivalents in the Fund's portfolio serve as collateral for cash-
secured put options, such cash and cash equivalents may not be invested 
in Underlying ETPs, additional options, or other similar investments in 
pursuit of the Fund's investment objective. Rather, on a day-to-day 
basis, such collateral may be invested in U.S. Government securities, 
short-term, high-quality fixed income securities, money market 
instruments, cash, and other cash equivalents with maturities of one 
year or less, or Underlying ETPs that hold such investments.\12\
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    \11\ A covered call option involves holding a long position in a 
particular asset, in this case shares of an Underlying ETP, and 
writing a call option on that same asset with the goal of realizing 
additional income from the option premium. A put option is a 
contract that gives the owner of the option the right to sell a 
specified amount of the asset underlying the option at a specified 
price (``strike price'') within a specified time. When a put option 
is exercised or assigned, the writer of the option is obligated to 
purchase the requisite amount of the asset underlying the option to 
complete the sale. A put option is considered cash-secured when the 
writer of the put option segregates an amount of cash or cash 
equivalents sufficient to cover the purchase price of the asset 
underlying the option.
    \12\ All options written on indices or securities must be 
covered. A written call option on a security may be covered if a 
fund: (1) Owns the security underlying the call until the option is 
exercised or expires; (2) holds an American-style call on the same 
security as the call written with an exercise price (a) no greater 
than the exercise price of the call written or (b) greater than the 
exercise price of the call written if the difference is maintained 
by the fund in cash or other liquid assets designated on the fund's 
records or placed in a segregated account with the fund's custodian; 
(3) has an absolute and immediate right to acquire the security 
without additional cost (or if additional consideration is required, 
cash or other liquid assets in such amount have been segregated); or 
(4) segregates cash or other liquid assets on the fund's records or 
with the custodian in an amount equal to (when added to any margin 
on deposit) the current market value of the call option, but not 
less than the exercise price, marked to market daily. If the call 
option is exercised by the purchaser during the option period, the 
seller is required to deliver the underlying security against 
payment of the exercise price or pay the difference. The seller's 
obligation terminates upon expiration of the option period or when 
the seller executes a closing purchase transaction with respect to 
such option. All put options written by the Fund will be covered by: 
(1) Segregating cash, cash equivalents, such as U.S. Treasury 
securities or overnight repurchase agreements, or other liquid 
assets on the Fund's records or with the custodian having a value at 
least equal to the exercise price of the option (less cash received, 
if any); or (2) holding a put option on the same security as the 
option written where the exercise price of the written put option is 
(i) equal to or higher than the exercise price of the option written 
or (ii) less than the exercise price of the option written provided 
the Fund segregates cash or other liquid assets in the amount of the 
difference.

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[[Page 47133]]

    The Sub-Adviser will use VEGA, a proprietary quantitative and 
qualitative investment process, to determine the optimal Underlying 
ETPs and options for the strategy. The process focuses on the 
performance of a comprehensive portfolio of assets based on the 
combination of risk, return, and their correlation to each other. 
Consistent with VEGA, call options will be sold on generally all of the 
Underlying ETPs at a strike price equivalent to targets based on 
volatility and quantitative criteria. As calls are covered and/or 
expire, additional options on the Underlying ETPs will be sold. The 
average time until expiration for the option portfolio will be 
typically one quarter (91 days) or less, so that premiums may be 
received on options on Underlying ETPs approximately four times per 
year. The Sub-Adviser, however, will reserve the right to close out or 
enter into options on a more or less frequent basis in its discretion 
if it believes it is in the best interest of the Fund. The Sub-Adviser 
periodically will monitor the performance of the Fund's portfolio and 
systematically rebalance and initiate tactical shifts in the underlying 
investments when the strategy indicates it is both optimal and 
beneficial to do so.
    VEGA is designed to generate quarterly returns in the form of 
premiums received from the sale of covered call and/or cash-secured put 
options. The amount of the premium will typically be determined at the 
start of the quarter, and realized either at expiration or sooner if 
the strategy determines that conditions warrant covering the short 
option position beforehand.\13\
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    \13\ The risks of covered call writing include the potential for 
the market to rise sharply. In such instance, the buyer of the call 
option would likely acquire the Underlying ETP from the Fund and the 
return on that Underlying ETP would be limited to the premium 
received and the difference between the strike price and the 
purchase price until such time as the Underlying ETP is repurchased 
as applicable. The risks of cash-secured put writing include the 
potential for the price of the Underlying ETP to decline 
significantly causing the put writer, the Fund, to have an 
unrealized loss due to the high stock purchase price.
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    Except for premium amounts required for transactional and portfolio 
management purposes, the Sub-Adviser, in its discretion, may allocate 
the accumulated premium in ``principal protection'' and/or 
``reinvestment strategies,'' as described below.
    The ``principal protection'' feature is intended as a means to 
profit and/or hedge against potential price declines of 20% or greater 
of Underlying ETPs. The feature may be implemented when volatility 
declines and/or security prices rise, and the Sub-Adviser determines 
the cost of principal protection to be beneficial. The cost of the 
protection is expected to be paid from accumulated option premiums, but 
principal may be used. The use of principal protection entails the 
purchase of put options on Underlying ETPs representing some or all of 
the Fund's portfolio holdings. The risk of buying long puts is limited 
to the loss of the premium paid for the purchase of the put. Option 
premiums received by the Fund will remain in cash or cash equivalents 
or may be invested in Underlying ETPs that invest primarily in U.S. 
treasuries or other cash equivalent securities.
    The Sub-Adviser also will utilize a ``reinvestment strategy'' 
whereby accumulated option premiums may be reinvested back into 
additional shares of Underlying ETPs held by the Fund based on the Sub-
Adviser's view of the market.

Principal Fund Investments

    The Fund, through its investment in Underlying ETPs, may invest in 
equity securities. Equity securities represent ownership interests in a 
company or partnership and consist of common stocks, preferred stocks, 
warrants to acquire common stock, securities convertible into common 
stock, and investments in master limited partnerships, rights, and 
depositary receipts, including American Depositary Receipts (``ADRs'') 
and Global Depositary Receipts (``GDRs''). The Fund, through its 
investment in Underlying ETPs, may purchase equity securities traded in 
the U.S. on registered exchanges or the over-the-counter market.
    The Fund, through its investment in Underlying ETPs, may invest in 
the equity securities of foreign issuers, including the securities of 
foreign issuers in emerging countries. Emerging or developing markets 
exist in countries that are considered to be in the initial stages of 
industrialization.
    The Fund, through its investment in Underlying ETPs, may invest in 
closed-end funds, pooled investment vehicles that are registered under 
the 1940 Act and whose shares are listed and traded on U.S. national 
securities exchanges.
    The Fund, or the Underlying ETPs in which it invests, may invest in 
U.S. government securities. Securities issued or guaranteed by the U.S. 
government or its agencies or instrumentalities include U.S. Treasury 
securities, which are backed by the full faith and credit of the U.S. 
Treasury and which differ only in their interest rates, maturities, and 
times of issuance. Certain U.S. government securities are issued or 
guaranteed by agencies or instrumentalities of the U.S. government 
including, but not limited to, obligations of U.S. government agencies 
or instrumentalities such as Fannie Mae, Freddie Mac, the Government 
National Mortgage Association, the Small Business Administration, the 
Federal Farm Credit Administration, the Federal Home Loan Banks, Banks 
for Cooperatives (including the Central Bank for Cooperatives), the 
Federal Land Banks, the Federal Intermediate Credit Banks, the 
Tennessee Valley Authority, the Export-Import Bank of the United 
States, the Commodity Credit Corporation, the Federal Financing Bank, 
the Student Loan Marketing Association, the National Credit Union 
Administration, and the Federal Agricultural Mortgage Corporation.
    The Fund, through its investments in Underlying ETPs from time to 
time, in the ordinary course of business, may purchase securities on a 
when-issued or delayed-delivery basis (i.e., delivery and payment can 
take place between a month and 120 days after the date of the 
transaction).
    The Fund, or the Underlying ETPs in which it invests, may invest in 
U.S. Treasury zero-coupon bonds. The Fund, through its investment in 
ETFs, may invest in shares of real estate investment trusts.

Other Investments

    To respond to adverse market, economic, political, or other 
conditions, the Fund may invest 100% of its total assets, without 
limitation, in high-quality debt securities and money market 
instruments either directly or through Underlying ETPs. The Fund may be 
invested in this manner for extended periods depending on the Sub-
Adviser's assessment of market conditions. Debt securities and money 
market instruments include shares of other mutual funds, commercial 
paper, certificates of deposit, bankers' acceptances, U.S. Government 
securities, repurchase agreements, and bonds that are BBB or higher. 
The Fund may also invest a substantial portion of its assets in such 
instruments at any time to maintain liquidity or pending

[[Page 47134]]

selection of investments in accordance with its policies.
    The Fund may invest in derivatives, including, for example, 
options, futures, options on futures, and swaps. While the Fund 
currently does not intend to invest in swaps, it may invest up to 10% 
of its total assets in swaps. The Fund may invest in derivatives to 
gain market exposure, enhance returns, or hedge against market 
declines.
    Other than options on Underlying ETPs in which the Fund may invest, 
as described above, the Fund may trade U.S. exchange-listed put and 
call options on other securities, securities indices, and currencies, 
as the Sub-Adviser determines is appropriate in seeking the Fund's 
investment objective and except as restricted by the Fund's investment 
limitations.\14\ While the Fund may invest in put and call options on 
other securities, the Adviser expects that, under normal market 
conditions, the Fund will invest from 0% up to 10% in such put and call 
options on a daily basis.
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    \14\ See supra note 10.
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    The Fund may invest up to 10% of its total assets in futures 
contracts and related options on futures contracts for bona fide 
hedging; attempting to offset changes in the value of securities held 
or expected to be acquired or be disposed of; attempting to gain 
exposure to a particular market, index, or instrument; or other risk 
management purposes. To the extent the Fund uses futures and/or options 
on futures, it will do so in accordance with Rule 4.5 under the 
Commodity Exchange Act (``CEA'').\15\
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    \15\ The Exchange represents that the Trust, on behalf of all of 
its series, including the Fund, has filed a notice of eligibility 
for exclusion from the definition of the term ``commodity pool 
operator'' in accordance with Rule 4.5 and, therefore, the Fund is 
not subject to registration or regulation as a commodity pool 
operator under the CEA.
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    The Fund may enter into repurchase agreements with financial 
institutions, which may be deemed to be loans. The Fund also may enter 
into reverse repurchase agreements without limit as part of the Fund's 
investment strategy.
    The Fund may not with respect to 75% of its total assets, purchase 
securities of any issuer (except securities issued or guaranteed by the 
U.S. Government, its agencies or instrumentalities, or shares of 
investment companies) if, as a result, (i) more than 5% of its total 
assets would be invested in the securities of such issuer, or (ii) more 
than 10% of the outstanding voting securities of any one issuer would 
be held by the Fund. For purposes of this policy, the issuer of the 
underlying security will be deemed to be the issuer of any respective 
depositary receipt.
    The Fund may not invest 25% or more of its total assets in the 
securities of one or more issuers conducting their principal business 
activities in the same industry or group of industries. This limitation 
does not apply to investments in securities issued or guaranteed by the 
U.S. Government, its agencies or instrumentalities, or shares of 
investment companies. The Fund will not invest 25% or more of its total 
assets in any investment company that so concentrates.
    The Fund 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 and loan participation interests. 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 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.
    According to the Registration Statement, the Fund will seek to 
qualify for treatment as a Regulated Investment Company under the 
Internal Revenue Code.
    Except for Underlying ETPs that may hold non-U.S. issues, the Fund 
will not otherwise invest in non-U.S.-registered issues.
    The Fund does not intend to invest in leveraged, inverse, or 
inverse leveraged Underlying ETPs. The Fund's investments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage. That is, while the Fund will be permitted to borrow 
as permitted under the 1940 Act, the Fund's investments will not be 
used to seek performance that is the multiple or inverse multiple 
(i.e., 2Xs and 3Xs) of the Fund's broad-based securities market index 
(as defined in Form N-1A).\16\
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    \16\ The Fund's broad-based securities market index, which is to 
be determined, will be identified in an amendment to the 
Registration Statement.
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    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\17\ as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for the Fund 
will be outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares 
that the net asset value (``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.
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    \17\ 17 CFR 240.10A-3.
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    Additional information regarding the Trust, Fund, Shares, Fund's 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings and disclosure policies, distributions and taxes, 
availability of information, trading rules and halts, and surveillance 
procedures, among other things, can be found in the Notice and/or the 
Registration Statement, as applicable.\18\
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    \18\ 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 \19\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\20\ In particular, the Commission finds that the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act,\21\ 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 Fund and 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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    \19\ 15 U.S.C. 78f.
    \20\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \21\ 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,\22\ which sets forth Congress's finding that it is in the public 
interest and appropriate for the protection of investors and the

[[Page 47135]]

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 (``CTA'') high-speed line, and, for the Underlying 
ETPs, will be available from the national securities exchanges on which 
they are listed. Quotation and last-sale information for the U.S. 
exchange-listed options in which the Fund will invest will be available 
from the applicable U.S. options exchange via the Options Price 
Reporting Authority. In addition, the Portfolio Indicative Value, 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 Core Trading Session.\23\ 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 NAV at the end of the 
business day.\24\ The Fund will calculate NAV once each business day as 
of the regularly scheduled close of trading on the New York Stock 
Exchange (``NYSE'') (normally 4:00 p.m., Eastern Time). 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. In addition, the intra-day, closing, and 
settlement prices of the other portfolio securities and instruments 
held by the Fund will be readily available from the national securities 
exchanges trading such securities, automated quotation systems, 
published or other public sources, or on-line information services, 
such as Bloomberg or Reuters. The Fund's Web site 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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    \22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \23\ According to the Exchange, several major market data 
vendors widely disseminate Portfolio Indicative Values taken from 
the CTA or other data feeds.
    \24\ On a daily basis, the Adviser will disclose for each 
portfolio security and other financial instrument of the Fund the 
following information on the Fund's Web site: Ticker symbol (if 
applicable), name of security and financial instrument, number of 
shares or dollar value of securities and financial instruments held 
in the portfolio, and percentage weighting of the security and 
financial instrument in the portfolio. The Web site information will 
be publicly available at no charge.
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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 Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.\25\ 
In addition, trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted. The Exchange may halt trading 
in the Shares if trading is not occurring in the securities and/or the 
financial instruments comprising the Disclosed Portfolio of the Fund, 
or if other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.\26\ 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.\27\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. The Exchange also states that neither the Adviser nor the 
Sub-Adviser is affiliated with a broker-dealer.\28\ Moreover, the 
Exchange represents that it is able to obtain information from the U.S. 
exchanges, all of which are members of the Intermarket Surveillance 
Group (``ISG''), on which the Underlying ETPs and options are listed 
and traded.
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    \25\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \26\ 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). 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 Fund. Trading in Shares of the Fund will be halted 
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 
have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
    \27\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \28\ See supra note 5. 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.
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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's surveillance procedures applicable to derivative 
products, which include Managed Fund Shares, 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 (``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 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 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

[[Page 47136]]

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.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\29\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \29\ 17 CFR 240.10A-3.
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    (6) The options contracts held by the Fund will be U.S. exchange-
listed. Except for Underlying ETPs that may hold non-U.S. issues, the 
Fund will not otherwise invest in non-U.S.-registered issues. The 
Exchange may obtain information via ISG from other exchanges that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. In addition, the Exchange is able to 
obtain information from the U.S. exchanges, all of which are ISG 
members, on which the Underlying ETPs and options are listed and 
traded.
    (7) The Fund does not intend to invest in leveraged, inverse, or 
inverse leveraged Underlying ETPs. The Fund's investments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage.
    (8) While the Fund is permitted to invest up to 40% of its total 
assets in call options on Underlying ETPs, the Adviser expects that, 
under normal market conditions, the Fund will invest no more than 15% 
in such call options on a daily basis.
    (9) The Fund may invest up to 10% of its total assets in futures 
contracts and related options on futures contracts. While the Fund may 
invest in put and call options on securities other than Underlying 
ETPs, the Adviser expects that, under normal market conditions, the 
Fund will invest from 0% to up to 10% in such put and call options on a 
daily basis. While the Fund currently does not intend to invest in 
swaps, it may invest up to 10% of its total assets in swaps.
    (10) The Fund 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 and loan participation interests.
    (11) 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 Fund.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \30\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \30\ 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,\31\ that the proposed rule change (SR-NYSEArca-2012-55) be, and it 
hereby is, approved.
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    \31\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19210 Filed 8-6-12; 8:45 am]
BILLING CODE 8011-01-P