Document ID: SEC-2008-1178-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-08-26T04:00Z

[Federal Register: August 26, 2008 (Volume 73, Number 166)]
[
Notices]               
[Page 50382-50385]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26au08-105]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58395; File No. SR-NYSEArca-2008-85]

 
Self-Regulatory Organizations; Notice of Filing of Proposed Rule 

Change by NYSE Arca, Inc. Relating to Listing and Trading of 

PowerShares Active U.S. Real Estate Fund

August 20, 2008.

    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 

1934 (the ``Exchange Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is 

hereby given that, on August 11, 2008, NYSE Arca, Inc. (``NYSE Arca'' 

or the ``Exchange'') filed with the Securities and Exchange Commission 

(the ``Commission'') the proposed rule change as described in Items I, 

II, and III below, which Items have been prepared by the Exchange. The 

Commission is publishing this notice to solicit comments on the 

proposed rule change from interested persons.

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

    \2\ 15 U.S.C. 78a.

    \3\ 17 CFR 240.19b-4.

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I. Self-Regulatory Organization's Statement of the Terms of Substance 

of the Proposed Rule Change

    NYSE Arca, through its wholly-owned subsidiary NYSE Arca Equities, 

Inc. (``NYSE Arca Equities'' or the ``Corporation''), proposes to list 

and trade the following under NYSE Arca Equities Rule 8.600 (``Managed 

Fund Shares''): the PowerShares Active U.S. Real Estate Fund. The text 

of the proposed rule change is available on the Exchange's Web site at 

http://www.nyse.com, at the Exchange's principal office and at the 

Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 

concerning the purpose of, and basis for, the proposed rule change and 

discussed any comments it received on the proposed rule change. The 

text of these statements may be examined at the places specified in 

Item IV below. The Exchange has prepared summaries, set forth in 

sections A, B, and C below, of the most significant parts of such 

statements.

[[Page 50383]]

A. Self-Regulatory Organization's Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule Change

1. Purpose

    The Exchange proposes to list and trade the following Managed Fund 

Shares \4\ (``Shares'') under NYSE Arca Equities Rule 8.600: The 

PowerShares Active U.S. Real Estate Fund (``Fund'').\5\ The Shares will 

be offered by PowerShares Actively Managed Exchange-Traded Fund Trust 

(the ``Trust''), a business trust organized under the laws of the State 

of Delaware and registered with the Commission as an open-end 

management investment company.\6\

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    \4\ A Managed Fund Share is a security that represents an 

interest in an investment company registered under the Investment 

Company Act of 1940 (15 U.S.C. 80a) (``1940 Act'') organized as an 

open-end investment company or similar entity that invests in a 

portfolio of securities selected by its investment adviser 

consistent with its investment objectives and policies. In contrast, 

an open-end investment company that issues Investment Company Units, 

listed and traded on the Exchange under NYSE Arca Equities Rule 

5.2(j)(3), seeks to provide investment results that correspond 

generally to the price and yield performance of a specific foreign 

or domestic stock index, fixed income securities index or 

combination thereof.

    \5\ The Commission previously approved listing and trading on 

the Exchange of the following PowerShares actively managed funds 

under Rule 8.600: PowerShares Active AlphaQ Fund, the PowerShares 

Active Alpha Multi-Cap Fund, the PowerShares Active Mega-Cap 

Portfolio and the PowerShares Active Low Duration Portfolio. See 

Securities Exchange Act Release No. 57619 (April 4, 2008), 73 FR 

19544 (April 10, 2008) (SR-NYSEArca-2008-25).

    \6\ The Trust is registered under the 1940 Act. On June 26, 

2008, the Trust filed with the Commission a Registration Statement 

for the Fund on Form N-1A under the Securities Act of 1933, as 

amended, (15 U.S.C. 77a), and under the 1940 Act relating to the 

Fund (File Nos. 333-147622 and 811-22148) (``Registration 

Statement''). The description of the operation of the Trust herein 

is based on the Registration Statement.

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    The Shares will conform to the initial and continued listing 

criteria under Rule 8.600. The Fund will not purchase or sell 

securities in markets outside the U.S. The Exchange represents that, 

for initial and/or continued listing, the Fund will be in compliance 

with Rule 10A-3 \7\ under the Exchange Act, as provided by NYSE Arca 

Equities Rule 5.3.

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    \7\ 17 CFR 240.10A-3.

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Description of the Fund

    Invesco PowerShares Capital Management LLC (the ``Adviser'') is the 

investment adviser for the Fund and is registered as an ``investment 

adviser'' under the Investment Advisers Act of 1940 (the ``Advisers 

Act'').\8\ Invesco Institutional (N.A.), Inc. (``Invesco 

Institutional'') is the Fund's primary investment sub-adviser and is 

also registered as an ``investment adviser'' under the Advisers Act. 

Invesco Aim Distributors, Inc. (the ``Distributor'') serves as the 

principal underwriter and distributor for the Fund. The Adviser is 

affiliated with the Distributor, a broker-dealer. As required by NYSE 

Arca Equities Rule 8.600, Commentary .07, the Exchange represents that 

the Adviser has implemented a ``fire wall'' with respect to such 

broker-dealer regarding access to information concerning the 

composition and/or changes to the Fund's portfolio.

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    \8\ 15 U.S.C. 80b-1. The Exchange represents that the Adviser 

and its related personnel, are subject to Advisers Act Rule 204A-1. 

This Rule specifically requires the adoption of a code of ethics by 

an investment adviser to include, at a minimum: (i) Standards of 

business conduct that reflect the firm's/personnel fiduciary 

obligations; (ii) provisions requiring supervised persons to comply 

with applicable federal securities laws; (iii) provisions that 

require all access persons to report, and the firm to review, their 

personal securities transactions and holdings periodically as 

specifically set forth in Rule 204A-1; (iv) provisions requiring 

supervised persons to report any violations of the code of ethics 

promptly to the chief compliance officer (``CCO'') or, provided the 

CCO also receives reports of all violations, to other persons 

designated in the code of ethics; and (v) provisions requiring the 

investment adviser to provide each of the supervised persons with a 

copy of the code of ethics with an acknowledgement by said 

supervised persons. 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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    According to the Registration Statement, the Fund has an investment 

objective of high total return through growth of capital and current 

income. It seeks to achieve its investment objective by investing, 

under normal market conditions, at least 80% of its assets in 

securities of companies that are principally engaged in the U.S. real 

estate industry. A company is considered to be principally engaged in 

the U.S. real estate industry if (i) it derives 50% of its revenues or 

profits from the ownership, leasing, construction, financing or sale of 

U.S. real estate; or (ii) it has at least 50% of the value of its 

assets invested in U.S. real estate. The Fund plans to invest 

principally in equity real estate investment trusts (``REITs''). Equity 

REITs pool investors'' funds for investments primarily in real estate 

properties or real estate-related loans (such as mortgages). The Fund 

may also invest in real estate operating companies (``REOCs''), as well 

as securities of other companies principally engaged in the U.S. real 

estate industry. REOCs are similar to REITs, except that REOCs reinvest 

their earnings into the business, rather than distributing them to 

unitholders like REITs. The 80% investment policy is non-fundamental 

and requires 60 days' prior written notice to shareholders before it 

can be changed.

    In constructing the portfolio, the sub-advisers (as described in 

the Registration Statement) analyze quantitative and statistical 

metrics to identify attractively priced securities. The security and 

portfolio evaluation process is generally conducted monthly. The sub-

advisers will consider selling or reducing a security position if (i) 

The relative attractiveness of a security falls below desired levels; 

(ii) a particular security's risk/return profile changes significantly; 

or (iii) a more attractive investment opportunity is identified.

    Creations and redemptions of Shares occur in large specified blocks 

of Shares, referred to as ``Creation Units''. The Creation Unit size 

for the Fund is 50,000 Shares.

    The NAV of the Fund will normally be determined as of the close of 

the regular trading session on the NYSE (ordinarily 4 p.m. Eastern 

Time) on each business day.

Availability of Information

    The Fund's Web site (http://www.powershares.com), which will be 

publicly available prior to the public offering of Shares, will include 

a form of the Prospectus for the Fund that may be downloaded. The Web 

site will include additional quantitative information updated on a 

daily basis, including, for the Fund, (1) daily trading volume, the 

prior business day's reported closing price, NAV and mid-point of the 

Bid/Ask spread at the time of calculation of such NAV (the ``Bid/Ask 

Price''),\9\ and a calculation of the premium and discount of the Bid/

Ask Price against the NAV, and (2) data in chart format displaying the 

frequency distribution of discounts and premiums of the daily Bid/Ask 

Price against the NAV, within appropriate ranges, for each of the four 

previous calendar quarters. On each business day, before commencement 

of trading in Shares in the Core Trading Session on the Exchange, the 

Fund will disclose on its

[[Page 50384]]

Web site the Disclosed Portfolio as defined in proposed Rule 

8.600(c)(2) that will form the basis for the Fund's calculation of NAV 

at the end of the business day.\10\ The Web site information will be 

publicly available at no charge.

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    \9\ The Bid/Ask Price of the Fund is determined using the 

highest bid and the lowest offer on the Exchange as of the time of 

calculation of the Fund's NAV. The records relating to Bid/Ask 

Prices will be retained by the Fund and their service providers.

    \10\ Under accounting procedures followed by the Fund, trades 

made on the prior business day (``T'') will be booked and reflected 

in NAV on the current business day (``T+1''). Accordingly, the Fund 

will be able to disclose at the beginning of the business day the 

portfolio that will form the basis for the NAV calculation at the 

end of the business day.

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    Investors can also obtain the Trust's Statement of Additional 

Information (``SAI''), the Fund's Shareholder Reports, and its Form N-

CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 

Reports are available free upon request from the Trust, and those 

documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 

downloaded from the Commission's Web site at http://www.sec.gov.

    Information regarding market price and trading volume of the Shares 

is and 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 will be published daily in the financial section of 

newspapers. Quotation and last sale information for the Shares will be 

available via the Consolidated Tape Association (``CTA'') high-speed 

line. In addition, the Portfolio Indicative Value, as defined in NYSE 

Arca Equities Rule 8.600(c)(3), will be disseminated by the Exchange at 

least every 15 seconds during the Core Trading Session through the 

facilities of CTA. The dissemination of the Portfolio Indicative Value, 

together with the Disclosed Portfolio, will allow investors to 

determine the value of the underlying portfolio of a Fund on a daily 

basis and to provide a close estimate of that value throughout the 

trading day.

    For more information regarding the Shares and the Fund, including 

investment strategies, risks, creation and redemption procedures, fees, 

portfolio holdings disclosure policies, distributions and taxes, see 

the Registration Statement. All terms relating to the Fund that are 

referred to, but not defined in, this proposed rule change are defined 

in the Registration Statement.

Initial and Continued Listing Criteria

    The Fund will be subject to the initial and continued listing 

criteria of NYSE Arca Equities Rule 8.600(d). The Exchange has 

established that a minimum of 100,000 Shares will be required to be 

outstanding at the time of commencement of trading on the Exchange. In 

addition, the Exchange will obtain a representation from the Fund 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 Halts

    With respect to trading halts, the Exchange may consider all 

relevant factors in exercising its discretion to halt or suspend 

trading in the Shares of the Fund.\11\ Trading in Shares of the Fund 

will be halted if the circuit breaker parameters in NYSE Arca Equities 

Rule 7.12 have been reached. Trading also may be halted because of 

market conditions or for reasons that, in the view of the Exchange, 

make trading in the Shares inadvisable. These may include: (1) The 

extent to which trading is not occurring in the securities comprising 

the Disclosed Portfolio and/or the Financial Instruments of the Fund; 

or (2) whether other unusual conditions or circumstances detrimental to 

the maintenance of a fair and orderly market are present. Trading in 

the Shares will be subject to Rule 8.600(d)(2)(D), which sets forth 

circumstances under which Shares of the Fund may be halted.

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    \11\ See NYSE Arca Equities Rule 7.12, Commentary .04.

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Trading Rules

    The Exchange deems the Shares to be equity securities, thus 

rendering trading in the Shares subject to the Exchange's existing 

rules governing the trading of equity securities. Shares will trade on 

the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern Time in 

accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 

Trading Sessions). The Exchange has appropriate rules to facilitate 

transactions in the Shares during all trading sessions. The minimum 

trading increment for Shares on the Exchange will be $0.01.

Surveillance

    The Exchange intends to utilize its existing surveillance 

procedures applicable to derivative products (which include Managed 

Fund Shares) to monitor trading in the Shares. The Exchange represents 

that these procedures are adequate to properly monitor Exchange trading 

of the Shares in all trading sessions and to deter and detect 

violations of Exchange rules and applicable federal securities laws.

    The Exchange's current trading surveillance focuses on detecting 

securities trading outside their normal patterns. When such situations 

are detected, surveillance analysis follows and investigations are 

opened, where appropriate, to review the behavior of all relevant 

parties for all relevant trading violations.

    The Exchange may obtain information via the Intermarket 

Surveillance Group (``ISG'') from other exchanges who are members of 

the ISG.\12\ In addition, the Exchange also has a general policy 

prohibiting the distribution of material, non-public information by its 

employees.

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    \12\ For a list of the current members of ISG, see http://

www.isgportal.org.

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Information Bulletin

    Prior to the commencement of trading, the Exchange will inform its 

ETP Holders in an Information Bulletin (``Bulletin'') of the special 

characteristics and risks associated with trading the Shares. 

Specifically, the Bulletin will discuss the following: (1) The 

procedures for purchases and redemptions of Shares in Creation Unit 

aggregations (and that Shares are not individually redeemable); (2) 

NYSE Arca Equities Rule 9.2(a),\13\ 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; (3) the risks involved in 

trading the Shares during the Opening and Late Trading Sessions when an 

updated Portfolio Indicative Value will not be calculated or publicly 

disseminated; (4) how information regarding the Portfolio Indicative 

Value is disseminated; (5) 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 (6) trading 

information.

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    \13\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder, 

before recommending a transaction, must have reasonable grounds to 

believe that the recommendation is suitable for the customer based 

on any facts disclosed by the customer as to his other security 

holdings and as to his financial situation and needs. Further, the 

rule provides, with a limited exception, that prior to the execution 

of a transaction recommended to a non-institutional customer, the 

ETP Holder shall make reasonable efforts to obtain information 

concerning the customer's financial status, tax status, investment 

objectives, and any other information that the ETP Holder believes 

would be useful to make a recommendation. See Securities Exchange 

Act Release No. 54026 (June 21, 2006), 71 FR 36850 (June 28, 2006) 

(SR-PCX-2005-115).

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    In addition, the Bulletin will reference that the Fund is subject 

to various fees and expenses described in the Registration Statement. 

The Bulletin will discuss any exemptive, no-action,

[[Page 50385]]

and interpretive relief granted by the Commission from any rules under 

the Exchange Act. The Bulletin will also disclose that the NAV for the 

Shares will be calculated after 4 p.m. Eastern Time each trading day.

2. Statutory Basis

    The basis under the Exchange Act for this proposed rule change is 

the requirement under Section 6(b)(5) \14\ that an exchange have rules 

that are designed to prevent fraudulent and manipulative acts and 

practices, to promote just and equitable principles of trade, to remove 

impediments to, and perfect the mechanism of a free and open market 

and, in general, to protect investors and the public interest. The 

Exchange believes that the proposed rule change will facilitate the 

listing and trading of an additional type of actively managed exchange-

traded product that will enhance competition among market participants, 

to the benefit of investors and the marketplace.

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    \14\ 15 U.S.C. 78f(b)(5).

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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 

impose any burden on competition that is not necessary or appropriate 

in furtherance of the purposes of the Exchange Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 

Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 

proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 

Commission Action

    Within 35 days of the date of publication of this notice in the 

Federal Register or within such longer period (i) as the Commission may 

designate up to 90 days of such date if it finds such longer period to 

be appropriate and publishes its reasons for so finding or (ii) as to 

which the self-regulatory organization consents, the Commission will:

    (A) By order approve the proposed rule change, or

    (B) Institute proceedings to determine whether the proposed rule 

change should be disapproved.

    The Exchange has requested accelerated approval of this proposed 

rule change prior to the 30th day after the date of publication of the 

notice in the Federal Register.\15\ The Commission is considering 

granting accelerated approval of the proposed rule change at the end of 

a 15-day comment period.

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    \15\ E-mail from Michael Cavalier, Associate General Counsel, 

NYSE Euronext, to Edward Cho and Christopher Chow, Special Counsels, 

Commission, dated August 13, 2008.

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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 

arguments concerning the foregoing, including whether the proposed rule 

change is consistent with the Exchange Act. Comments may be submitted 

by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://

www.sec.gov/rules/sro.shtml); or

     Send an e-mail to rule-comments@sec.gov. Please include 

File Number SR-NYSEArca-2008-85 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 

and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090.

    All submissions should refer to File Number SR-NYSEArca-2008-85. 

This file number should be included on the subject line if e-mail is 

used. To help the Commission process and review your comments more 

efficiently, please use only one method. The Commission will post all 

comments on the Commission's Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the submission, all subsequent amendments, 

all written statements with respect to the proposed rule change that 

are filed with the Commission, and all written communications relating 

to the proposed rule change between the Commission and any person, 

other than those that may be withheld from the public in accordance 

with the provisions of 5 U.S.C. 552, will be available for inspection 

and copying in the Commission's Public Reference Room, 100 F Street, 

NE., Washington, DC 20549, on official business days between the hours 

of 10 a.m. and 3 p.m. Copies of the filing also will be available for 

inspection and copying at the principal office of the Exchange. All 

comments received will be posted without change; the Commission does 

not edit personal identifying information from submissions. You should 

submit only information that you wish to make available publicly. All 

submissions should refer to File Number SR-NYSEArca-2008-85 and should 

be submitted on or before September 10, 2008.

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    \16\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 

pursuant to delegated authority.\16\

Florence E. Harmon,

Acting Secretary.

[FR Doc. E8-19707 Filed 8-25-08; 8:45 am]

BILLING CODE 8010-01-P