Document ID: SEC-2013-0134-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-01-23T05:00Z

[Federal Register Volume 78, Number 15 (Wednesday, January 23, 2013)]
[Notices]
[Pages 4960-4966]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-01222]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68666; File No. SR-NYSEArca-2013-01]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of the Newfleet 
Multi-Sector Income ETF Under NYSE Arca Equities Rule 8.600

January 16, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on January 4, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') 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

    The Exchange proposes to list and trade the following under NYSE 
Arca Equities Rule 8.600 (``Managed Fund Shares''): Newfleet Multi-
Sector Income ETF. The text of the proposed rule change is available on 
the Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, 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 self-regulatory organization 
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 those 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.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the shares (``Shares'') of 
the Newfleet Multi-Sector Income ETF (the ``Fund'') \4\ under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares.\5\ The Shares will be offered by AdvisorSharesTrust (the 
``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.\6\
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    \4\ The Commission has previously approved the listing and 
trading on the Exchange of other actively managed funds under Rule 
8.600. See e.g., Securities Exchange Act Release Nos. 57801 (May 8, 
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order 
approving Exchange listing and trading of twelve actively-managed 
funds of the WisdomTree Trust); 60981 (November 10, 2009), 74 FR 
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving 
Exchange listing and trading of five fixed income funds of the PIMCO 
ETF Trust); 66321 (February 3, 2012) 77 FR 6850 (February 9, 2012) 
(SR-NYSEArca-2011-95) (order approving Exchange listing and trading 
of PIMCO Total Return ETF); 66670 (March 28, 2012) 77 FR 20087 
(April 3, 2012) (SR-NYSEArca-2012-09) (order approving Exchange 
listing and trading of PIMCO Global Advantage Inflation-Linked Bond 
Strategy Fund).
    \5\ 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-1) (``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.
    \6\ The Trust is registered under the 1940 Act. On June 25, 
2012, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) and the 1940 Act relating to the Fund (File Nos. 
333-157876 and 811-22110) (``Registration Statement''). The 
description of the operation of the Trust and the Fund herein is 
based, in part, on the 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. 
29291 (May 28, 2010) (File No. 812-13677) (``Exemptive Order'').
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    The investment manager to the Fund will be AdvisorShares 
Investments LLC (the ``Adviser''). Newfleet Asset Management, LLC will 
serve as sub-adviser to the Fund (``Sub-Adviser''). Foreside Fund 
Services, LLC will serve as the distributor for the Fund 
(``Distributor''). The Bank of New York Mellon will serve as the 
custodian and transfer agent for the Fund (``Custodian'', ``Transfer 
Agent'' or ``Administrator'').
    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser will erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition,

[[Page 4961]]

Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Sub-Adviser is 
affiliated with a broker-dealer and has implemented 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 the portfolio. The Adviser is 
not affiliated with a broker-dealer. 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, 
they 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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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and the 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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Description of the Fund
Principal Investments
    The Fund will, under normal market conditions,\8\ invest at least 
eighty percent (80%) in investment-grade fixed income securities, which 
are fixed income securities with credit ratings within the four highest 
rating categories of a nationally recognized statistical rating 
organization. The Fund may invest in unrated securities to a limited 
extent if such security is determined by the Sub-Adviser to be of 
comparable quality.\9\ The average duration of the Fund's fixed income 
investments will range from one to three years.
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    \8\ The term ``under normal market conditions'' includes, but is 
not limited to, the absence of 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.
    \9\ In determining whether a security is of ``comparable 
quality'', the Sub-Adviser will consider, for example, whether the 
issuer of the security has issued other rated securities; whether 
the obligations under the security are guaranteed by another entity 
and the rating of such guarantor (if any); whether and (if 
applicable) how the security is collateralized; other forms of 
credit enhancement (if any); the security's maturity date; liquidity 
features (if any); relevant cash flow(s); valuation features; other 
structural analysis; macroeconomic analysis and sector or industry 
analysis.
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    According to the Registration Statement, the Fund's investment 
objective is to provide a competitive level of current income, 
consistent with preservation of capital, while limiting fluctuations in 
net asset value (``NAV'') due to changes in interest rates. The Fund 
seeks to apply extensive credit research and a time tested approach to 
capitalize on opportunities across undervalued areas of the bond 
markets.
    The Sub-Adviser will seek to provide diversification by allocating 
the Fund's investments among various sectors of the fixed income 
markets including investment grade debt securities issued primarily by 
U.S. issuers and secondarily by non-U.S. issuers, as follows:
     Securities issued or guaranteed as to principal and 
interest by the U.S. government, its agencies, authorities or 
instrumentalities, including collateralized mortgage obligations 
(``CMOs''), real estate mortgage investment conduits (``REMICs'') and 
other pass-through securities;
     Non-agency \10\ commercial mortgage-backed securities 
(``CMBS''), agency and ``non-agency'' residential mortgage-backed 
securities (``RMBS'') \11\ and other asset backed securities;
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    \10\ ``Non-agency'' securities are financial instruments that 
have been issued by an entity that is not a government-sponsored 
agency, such as the Federal National Mortgage Association (``Fannie 
Mae''), Federal Home Loan Mortgage Corporation (``Freddie Mac''), 
Federal Home Loan Banks, or the Government National Mortgage 
Association (``Ginnie Mae'').
    \11\ Although the Fund has not established a fixed limit to the 
amount of non-agency securities in which it will invest, at least 
80% of the Fund's net assets will be, under normal market conditions 
(see note 8, supra), invested in U.S. dollar denominated investment 
grade fixed income securities. The liquidity of any such security 
will be a factor in the selection of any such security.
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     U.S. and non-U.S. corporate bonds; \12\
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    \12\ The Adviser expects that under normal market conditions, 
the Fund will seek to invest at least 75% of its assets in corporate 
bond issuances that have at least $100,000,000 par amount 
outstanding in developed countries and at least $200,000,000 par 
amount outstanding in emerging market countries.
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     Yankee bonds; \13\
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    \13\ Yankee bonds are denominated in U.S. dollars, registered in 
accordance with the Securities Act of 1933 and publicly issued in 
the U.S. by foreign banks and corporations.
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     Taxable municipal bonds, tax-exempt municipal bonds; and
     Debt securities issued by foreign governments and their 
political subdivisions.
    The Fund represents that the portfolio will include a minimum of 13 
non-affiliated issuers of fixed income securities. The Fund will only 
purchase performing securities, not distressed debt. Distressed debt is 
debt that is currently in default and is not expected to pay the 
current coupon.
    In seeking to achieve the Fund's investment objective, the Sub-
Adviser will employ active sector rotation and disciplined risk 
management in the construction of the Fund's portfolio. The Fund's 
investable assets will be allocated among various sectors of the fixed 
income market using a ``top-down'' \14\ relative value approach that 
looks at factors such as yield and spreads, supply and demand, 
investment environment, and sector fundamentals. The Sub-Adviser will 
select particular investments using a bottom-up, fundamental research 
driven analysis that includes assessment of credit risk, company 
management, issuer capital structure, technical market conditions, and 
valuations. The Sub-Adviser will select securities it believes offer 
the best potential to achieve the Fund's investment objective of 
providing a high level of total return, including a competitive level 
of current income, while preserving capital.
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    \14\ A ``top-down'' portfolio management style utilizes a 
tactical and globally diversified allocation strategy in an attempt 
to reduce risk and increase overall performance. This management 
style begins with a look at the overall economic picture and current 
market conditions and then narrows its focus down to sectors, 
industries or countries and ultimately to individual companies. The 
final step is a fundamental analysis of each individual security and 
to a lesser extent technical analysis.
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Other Investments
    As disclosed in the Registration Statement, while the Fund will 
invest at least eighty percent (80%) in investment-grade fixed income 
securities, the Fund may invest 100% of its total assets, without 
limitation, in short term high-quality debt securities and money market 
instruments either directly or through exchange traded funds (``ETFs'') 
\15\ in the absence of normal market conditions. The Fund may be 
invested in this manner for

[[Page 4962]]

extended periods depending on the Sub-Adviser's assessment of market 
conditions. These short-term debt instruments and money market 
instruments include shares of other mutual funds, commercial paper, 
certificates of deposit, bankers' acceptances, U.S. government 
securities, repurchase and reverse repurchase agreements \16\ and bonds 
that are rated BBB or higher.
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    \15\ The ETFs in which the Fund may invest will be registered 
under the 1940 Act and include Investment Company Units (as 
described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio 
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); 
Managed Fund Shares (as described in NYSE Arca Equities Rule 8.600); 
and closed-end funds. Such ETFs all will be listed and traded in the 
U.S. on registered exchanges. While the Fund may invest in inverse 
ETFs, the Fund will not invest in leveraged or inverse leveraged 
ETFs (e.g., 2X or 3X).
    \16\ The Fund may enter into repurchase agreements with 
financial institutions, which may be deemed to be loans. The Fund 
follows certain procedures designed to minimize the risks inherent 
in such agreements. These procedures include effecting repurchase 
transactions only with large, well-capitalized and well-established 
financial institutions whose condition will be continually monitored 
by the Sub-Adviser. In addition, the value of the collateral 
underlying the repurchase agreement will always be at least equal to 
the repurchase price, including any accrued interest earned on the 
repurchase agreement. In the event of a default or bankruptcy by a 
selling financial institution, the Fund will seek to liquidate such 
collateral. Reverse repurchase agreements involve sales by the Fund 
of portfolio assets concurrently with an agreement by the Fund to 
repurchase the same assets at a later date at a fixed price.
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    The Fund may invest up to 20% of its total assets in fixed-income 
securities that are rated below investment grade at the time of 
purchase. Such securities include corporate high yield debt securities, 
emerging market high yield debt securities, and bank loans. In 
addition, such securities may include non-investment grade CMBS, RMBS, 
or other asset-backed securities, or debt securities issued by foreign 
issuers. If certain of the Fund's holdings experience a decline in 
their credit quality and fall below investment grade, the Fund may 
continue to hold the securities and they will not count toward the 
Fund's 20% investment limit; however, the Fund will make reasonable 
investment decisions relating to the Fund's holdings aligned with its 
investment objective with respect to such securities. Generally, the 
Fund will limit its investments in corporate high yield debt securities 
to 10% of its assets and will limit its investments in non-U.S. issuers 
to 30% of its assets. The Sub-Adviser will regularly review the Fund's 
portfolio construction, endeavoring to minimize risk exposure by 
closely monitoring portfolio characteristics such as sector 
concentration and portfolio duration and by investing no more than 5% 
of the Fund's total assets in securities of any single issuer 
(excluding the U.S. government, its agencies, authorities or 
instrumentalities).
    The Fund may invest in equity securities. Equity securities 
represent ownership interests in a company or partnership and consist 
not only of common stocks, which are one of the Fund's primary types of 
investments, but also preferred stocks, warrants to acquire common 
stock, securities convertible into common stock, and investments in 
master limited partnerships. The Fund will purchase such equity 
securities traded in the U.S. on registered exchanges. Additionally, 
the Fund may invest in the equity securities of foreign issuers, 
including the securities of foreign issuers in emerging countries.\17\ 
With respect to its equity securities investments, the Fund will invest 
only in equity securities (including Equity Financial Instruments) that 
trade in markets that are members of the Intermarket Surveillance Group 
(``ISG'') or are parties to a comprehensive surveillance sharing 
agreement with the Exchange.\18\
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    \17\ As disclosed in the Registration Statement, the Fund may 
invest in issuers located outside the United States directly, or in 
financial instruments that are indirectly linked to the performance 
of foreign issuers. Examples of such financial instruments include 
American Depository Receipts (``ADRs''), ``ordinary shares,'' and 
``New York shares'' (each of which is issued and traded in the 
U.S.); and Global Depository Receipts (``GDRs''), European 
Depository Receipts (``EDRs'') and International Depository Receipts 
(``IDRs''), which are traded on foreign exchanges (all of the 
foregoing financial instruments collectively defined as ``Equity 
Financial Instruments''). ADRs are U.S. dollar denominated receipts 
typically issued by U.S. banks and trust companies that evidence 
ownership of underlying securities issued by a foreign issuer. The 
underlying securities may not necessarily be denominated in the same 
currency as the securities into which they may be converted. The 
underlying securities are held in trust by a custodian bank or 
similar financial institution in the issuer's home country. The 
depositary bank may not have physical custody of the underlying 
securities at all times and may charge fees for various services, 
including forwarding dividends and interest and corporate actions. 
Generally, ADRs in registered form are designed for use in domestic 
securities markets. GDRs, EDRs, and IDRs are similar to ADRs in that 
they are certificates evidencing ownership of shares of a foreign 
issuer, however, GDRs, EDRs, and IDRs may be issued in bearer form 
and denominated in other currencies, and are generally designed for 
use in specific or multiple securities markets outside the U.S. 
EDRs, for example, are designed for use in European securities 
markets while GDRs are designed for use throughout the world. 
Ordinary shares are shares of foreign issuers that are traded abroad 
and on a U.S. exchange. New York shares are shares that a foreign 
issuer has allocated for trading in the U.S. ADRs, ordinary shares, 
and New York shares all may be purchased with and sold for U.S. 
dollars, which protects the Fund from foreign settlement risks.
    \18\ See note 35, infra.
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    The Fund may invest in exchange-traded notes (``ETNs'').\19\
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    \19\ ETNs, also called index-linked securities as would be 
listed, for example, under NYSE Arca Equities Rule 5.2(j)(6), are 
senior, unsecured unsubordinated debt securities issued by an 
underwriting bank that are designed to provide returns that are 
linked to a particular benchmark less investor fees.
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    The Fund may invest in, to the extent permitted by Section 12(d)(1) 
of the 1940 Act and the rules thereunder,\20\ other affiliated and 
unaffiliated funds, such as open-end or closed-end management 
investment companies,\21\ including other ETFs; provided that the Fund, 
immediately after such purchase or acquisition, does not own in the 
aggregate: (i) More than 3% of the total outstanding voting stock of 
the acquired company; (ii) securities issued by the acquired company 
having an aggregate value in excess of 5% of the value of the total 
assets of the Fund; or (iii) securities issued by the acquired company 
and all other investment companies (other than Treasury stock of the 
Fund) having an aggregate value in excess of 10% of the value of the 
total assets of the Fund.
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    \20\ 15 U.S.C. 80a-12(d)(1).
    \21\ As disclosed in the Registration Statement, investment 
companies may include index-based investments, such as ETFs that 
hold substantially all of their assets in securities representing a 
specific index.
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    According to the Registration Statement, the Fund also may invest 
in the securities of other investment companies if the Fund is part of 
a ``master-feeder'' structure or operates as a fund of funds in 
compliance with Section 12(d)(1)(E), (F) and (G) of the 1940 Act and 
the rules thereunder.\22\ Section 12(d)(1) prohibits another investment 
company from selling its shares to the Fund if, after the sale: (i) The 
Fund owns more than 3% of the other investment company's voting stock 
or (ii) the Fund and other investment companies, and companies 
controlled by them, own more than 10% of the voting stock of such other 
investment company. The Trust has entered into agreements with several 
unaffiliated ETFs that permit, pursuant to a Commission order, the Fund 
to purchase shares of those ETFs beyond the Section 12(d)(1) limits 
described above. The Fund will only make such investments in conformity 
with the requirements of Subchapter M of the Internal Revenue Code of 
1986, as amended (the ``Code''). According to the Registration 
Statement, the Fund will seek to qualify for treatment as a Regulated 
Investment Company (``RIC'') under the Code.\23\
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    \22\ 15 U.S.C. 80a-12(d)(1)(E),(F) and (G).
    \23\ 26 U.S.C. 851.
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    The Fund may invest in the exchange traded securities of pooled 
vehicles that are not investment companies and, thus, not required to 
comply with the provisions of the 1940 Act. Such pooled vehicles would 
be required to comply with the provisions of other federal securities 
laws, such as the Securities Act of 1933. These pooled vehicles 
typically hold commodities, such as

[[Page 4963]]

gold or oil, currency, or other property that is itself not a security.
    The Fund may invest in shares of exchange-traded real estate 
investment trusts (``REITs'').
    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 (e.g. 
bank loans). 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.\24\
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    \24\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act of 1933).
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    The Fund may not (i) 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, more than 5% of its 
total assets would be invested in the securities of such issuer; or 
(ii) acquire more than 10% of the outstanding voting securities of any 
one issuer.\25\
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    \25\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act (15 U.S.C. 80a-5).
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    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.\26\
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    \26\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The Fund will not invest in options contracts, futures contracts or 
swap agreements.
    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 \27\ under the Exchange Act, as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares 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 NAV per Share will be calculated daily and that the NAV and 
the Disclosed Portfolio \28\ will be made available to all market 
participants at the same time. The Fund's investments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage.
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    \27\ 17 CFR 240.10A-3.
    \28\ The term ``Disclosed Portfolio'' is defined in NYSE Arca 
Equities Rule 8.600(c)(2).
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Creations and Redemptions of Shares
    According to the Registration Statement, Shares of the Fund will be 
``created'' at their NAV \29\ by authorized participants only in block-
size aggregations of at least 50,000 Shares (``Creation Units''). The 
consideration for purchase of a Creation Unit of the Fund will 
generally consist of an in-kind deposit of a designated portfolio of 
securities (``Deposit Securities'') per each Creation Unit constituting 
a substantial replication, or a representation, of the securities 
included in the Fund's portfolio and an amount of cash (the ``Cash 
Component''). Together, the Deposit Securities and the Cash Component 
will constitute the ``Fund Deposit,'' which will represent the minimum 
initial and subsequent investment amount for a Creation Unit of the 
Fund. The Cash Component will be an amount equal to the difference 
between the NAV of the Shares (per Creation Unit) and the market value 
of the Deposit Securities. If the Cash Component is a positive number 
(i.e., the NAV per Creation Unit exceeds the market value of the 
Deposit Securities), the Cash Component will be such positive amount. 
If the Cash Component is a negative number (i.e., the NAV per Creation 
Unit is less than the market value of the Deposit Securities), the Cash 
Component will be such negative amount and the creator will be entitled 
to receive cash from the Fund in an amount equal to the Cash Component. 
The Cash Component will serve the function of compensating for any 
differences between the NAV per Creation Unit and the market value of 
the Deposit Securities.
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    \29\ The Fund will calculate NAV by: (i) Taking the current 
market value of its total assets; (ii) subtracting any liabilities; 
and (iii) dividing that amount by the total number of Shares owned 
by shareholders. NAV will be calculated once each business day as of 
the regularly scheduled close of trading on the New York Stock 
Exchange, LLC (``NYSE'') (normally, 4:00 p.m., Eastern time). For 
more information regarding the valuation of Fund investments in 
calculating the Fund's NAV, see the Registration Statement.
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    The Administrator, through the National Securities Clearing 
Corporation (``NSCC'') will make available on each business day, 
immediately prior to the opening of business on the Exchange (currently 
9:30 a.m., Eastern time), the list of the names and the required amount 
of Deposit Securities to be included in the current Fund Deposit (based 
on information at the end of the previous business day) for the 
Fund.\30\ Such Fund Deposit will be applicable, subject to any 
adjustments as described above, in order to effect creations of 
Creation Units of the Fund until such time as the next-announced 
composition of the Deposit Securities is made available.
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    \30\ According to the Registration statement, the identity and 
amount of Deposit Securities required for a Fund Deposit for the 
Fund will change as rebalancing adjustments and corporate action 
events are reflected from time to time by the Sub-Adviser with a 
view to the investment objective of the Fund. In addition, the Trust 
will reserve the right to permit or require the substitution of an 
amount of cash--i.e., a ``cash in lieu'' amount--to be added to the 
Cash Component to replace any Deposit Security which may not be 
available in sufficient quantity for delivery or which may not be 
eligible for transfer, or which may not be eligible for trading. In 
addition to the list of names and numbers of securities constituting 
the current Deposit Securities of a Fund Deposit, the Administrator, 
through the NSCC, will also make available on each business day, the 
estimated Cash Component, effective through and including the 
previous business day, per outstanding Creation Unit of the Fund.
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    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Distributor and the Fund through the Administrator and only on a 
business day. The Trust will not redeem Shares in amounts less than 
Creation Units. Unless cash redemptions are available or specified for 
the Fund, the redemption proceeds for a Creation Unit generally consist 
of ``Fund Securities''--

[[Page 4964]]

as announced by the Administrator on the business day of the request 
for redemption received in proper form--plus cash in an amount equal to 
the difference between the NAV of the Shares being redeemed, as next 
determined after a receipt of a request in proper form, and the value 
of the Fund Securities (the ``Cash Redemption Amount''), less a 
redemption transaction fee. In the event that the Fund Securities have 
a value greater than the NAV of the Shares, a compensating cash payment 
equal to the differential is required to be made by or through an 
authorized participant by the redeeming shareholder.
    The Administrator, through the NSCC, will make available 
immediately prior to the opening of business on the Exchange (currently 
9:30 a.m., Eastern time) on each business day, the Fund Securities that 
will be applicable (subject to possible amendment or correction) to 
redemption requests received in proper form on that day. Fund 
Securities received on redemption may not be identical to Deposit 
Securities which are applicable to creations of Creation Units.
    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings, disclosure policies, 
distributions and taxes is included in 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.
Availability of Information
    The Trust's Web site (www.Advisorshares.com), which will be 
publicly available, will include a form of the prospectus for the Fund 
that may be downloaded. The Trust's 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''),\31\ 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'' (9:30 a.m. Eastern time to 4:00 
p.m. Eastern time) on the Exchange, the Fund will disclose on the 
Trust's 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.\32\
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    \31\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of 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 its service 
providers.
    \32\ 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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    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 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. In 
addition, price information for the debt and other securities and 
investments held by the Fund will be available through major market 
data vendors or on the exchanges on which they are traded.
    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 www.sec.gov. 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. 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 widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session.\33\ The dissemination of the 
Portfolio Indicative Value, together with the Disclosed Portfolio, will 
allow investors to determine the value of the underlying portfolio of 
the Fund on a daily basis and will provide a close estimate of that 
value throughout the trading day.
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    \33\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from the CTA or other data feeds.
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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.\34\ 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 and/or the 
financial instruments comprising 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. 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.
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    \34\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

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 4:00 a.m. to 8:00 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. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
Surveillance
    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

[[Page 4965]]

securities laws. 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 surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. 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 
will communicate as needed regarding trading in the Shares with other 
markets that are members of the Intermarket Surveillance Group 
(``ISG'') or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\35\
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    \35\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all components of the 
Fund's portfolio may trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
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    As stated earlier, the Fund will invest only in equity securities 
and Equity Financial Instruments that trade in markets that are members 
of the ISG or are parties to a comprehensive surveillance sharing 
agreement with the Exchange.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``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), 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.
    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, 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 4:00 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) \36\ 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.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. The Fund will, under normal market conditions, principally 
invest in investment-grade securities, which are securities with credit 
ratings within the four highest rating categories of a nationally 
recognized statistical rating organization or, if unrated, those 
securities that the Sub-Adviser determines to be of comparable 
quality.\37\ The Sub-Adviser is affiliated with a broker-dealer and has 
implemented 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 the 
portfolio. The Adviser is not affiliated with a broker-dealer. In the 
event (a) the Adviser becomes newly affiliated with a broker-dealer, or 
(b) any new adviser or sub-adviser becomes affiliated with a broker-
dealer, they 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 the portfolio. Price information for the debt and other 
securities and investments held by the Fund will be available through 
major market data vendors or on the exchanges on which they are traded. 
The Fund's investments will be consistent with the Fund's investment 
objective and will not be used to enhance leverage. The Fund may invest 
up to 20% of its total assets in fixed-income securities that are rated 
below investment grade at the time of purchase. Generally, the Fund 
will limit its investments in corporate high yield debt securities to 
10% of its assets and will limit its investments in non-U.S. issuers to 
30% of its assets. 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 (e.g. bank loans). 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. With respect to its equity securities investments, 
the Fund will invest only in equity securities (including Equity 
Financial Instruments) that trade in markets that are members of the 
ISG or are parties to a comprehensive surveillance sharing agreement 
with the Exchange. The Fund will not invest in options contracts, 
futures contracts or swap agreements.
---------------------------------------------------------------------------

    \37\ See note 9, supra.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
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. In addition, a large amount of 
information is publicly available regarding the Fund and the Shares, 
thereby promoting market transparency. Moreover, the

[[Page 4966]]

Portfolio Indicative Value will be widely disseminated by one or more 
major market data vendors at least every 15 seconds during the 
Exchange's Core Trading Session. On each business day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Fund will disclose on the Trust's Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day. The Trust's Web site will include a form 
of the prospectus for the Fund and additional data relating to NAV and 
other applicable quantitative information. Moreover, prior to the 
commencement of trading, the Exchange will inform its ETP Holders in an 
Information Bulletin of the special characteristics and risks 
associated with trading the Shares. 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, and 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. In addition, as noted above, 
investors will have ready access to information regarding the Fund's 
holdings, the Portfolio Indicative Value, the Disclosed Portfolio, and 
quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it 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. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.

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 Act. 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.

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 45 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 or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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 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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2013-01 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549.

All submissions should refer to File Number SR-NYSEArca-2013-01. This 
file number should be included on the subject line if email 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-2013-01 and should be submitted on or before 
February 13, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01222 Filed 1-22-13; 8:45 am]
BILLING CODE 8011-01-P