Document ID: SEC-2012-1769-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-10-31T04:00Z

[Federal Register Volume 77, Number 211 (Wednesday, October 31, 2012)]
[Notices]
[Pages 65920-65927]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-26740]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68108; File No. SR-NYSEArca-2012-117]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of Shares of 
the Pring Turner Business Cycle ETF Under NYSE Arca Equities Rule 8.600

October 25, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b 4 thereunder,\2\ notice is hereby given 
that, on October 17, 2012, 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 self-regulatory 
organization. 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\ 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''): The Pring Turner 
Business Cycle 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 shares (``Shares'') of the 
Pring Turner Business Cycle ETF (``Fund'') under NYSE Arca Equities 
Rule 8.600, which governs the listing and trading of Managed Fund 
Shares.\3\ The Shares will be offered by AdvisorShares Trust (the

[[Page 65921]]

``Trust'') \4\, a statutory trust organized under the laws of the State 
of Delaware and registered with the Commission as an open-end 
management investment company.\5\ The investment adviser to the Fund is 
AdvisorShares Investments, LLC (the ``Adviser''). Pring Turner Capital 
Group (``Sub-Adviser'') is the Fund's sub-adviser and provides day-to-
day portfolio management of the Fund. Foreside Fund Services, LLC (the 
``Distributor'') is the principal underwriter and distributor of the 
Fund's Shares. The Bank of New York Mellon (the ``Administrator'') 
serves as the administrator, custodian, transfer agent and fund 
accounting agent for the Fund.
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    \3\ 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.
    \4\ The Trust is registered under the 1940 Act. On October 12, 
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 under 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'').
    \5\ The Commission has approved listing and trading on the 
Exchange of a number of actively managed funds under Rule 8.600. 
See, e.g., Securities Exchange Act Release Nos. 63076 (October 12, 
2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order 
approving Exchange listing and trading of Cambria Global Tactical 
ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR-
NYSEArca-2010-118) (order approving Exchange listing and trading of 
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic 
Allocation Growth Income ETF); and 65468 (October 3, 2011), 76 FR 
62873 (October 11, 2011) (SR-NYSEArca-2011-51) (order approving 
Exchange listing and trading of TrimTabs Float Shrink ETF).
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    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 shall 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. In addition, 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.\6\ Commentary .06 to Rule 
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca 
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer reflects the applicable open-end fund's portfolio, not an 
underlying benchmark index, as is the case with index-based funds. 
Neither the Adviser nor the Sub-Adviser is 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, 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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    \6\ 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 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
    According to the Registration Statement, the Fund's investment 
objective is to seek long-term total return from capital appreciation 
and income. The overriding investment goal of the Fund is to protect 
the value of the Fund's portfolio during unfavorable market conditions 
and to grow the value of the Fund's portfolio in favorable market 
conditions. Utilizing its proprietary business cycle research, the Sub-
Adviser proactively will change the Fund's asset allocation and sector 
emphasis in seeking to minimize the Fund's portfolio risk and to 
optimize portfolio returns throughout the business cycle. The Sub-
Adviser will invest the Fund's portfolio in securities that provide 
diversified exposure to the three primary asset classes (i.e., stocks, 
bonds and commodities) across a wide range of economic sectors.
    In seeking its objective, the Fund may invest in U.S. and foreign 
equity securities; debt securities; exchange-traded products 
(``Underlying ETPs''); \7\ and cash and cash equivalents, as described 
below. The Fund may invest in equity securities of any capitalization 
range and in any market sector at any time as necessary to seek to 
achieve the Fund's investment objective.
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    \7\ Underlying ETPs include Investment Company Units (as 
described in NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked 
Securities (as described in NYSE Arca Equities Rule 5.2(j)(6)); 
Portfolio Depositary Receipts (as described in NYSE Arca Equities 
Rule 8.100); 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); Trust Units (as 
described in NYSE Arca Equities Rule 8.500); Managed Fund Shares (as 
described in NYSE Arca Equities Rule 8.600), and closed-end funds. 
The Underlying ETPs all will be listed and traded in the U.S. on 
registered exchanges. The Fund may invest in the securities of 
Underlying ETPs registered under the 1940 Act 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 
Fund will only make such investments in conformity with the 
requirements of Section 817 of the Internal Revenue Code of 1986. 
The Underlying ETPs in which the Fund may invest will primarily be 
index-based exchange-traded funds that hold substantially all of 
their assets in securities representing a specific index. While the 
Fund may invest in inverse Underlying ETPs, the Fund will not invest 
in leveraged (e.g., 2X, -2X, 3X or -3X) Underlying ETPs.
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Investment Process and Portfolio Construction
    According to the Registration Statement, the Sub-Adviser will 
utilize Pring Turner's ``six-stage'' business cycle strategy as its 
basis for developing strategic asset allocation and sector emphasis 
decisions for the Fund's portfolio. The investment strategy dynamically 
allocates among stock, bond, commodity and cash segments based on a 
proprietary model that accounts for the current stage of the economic 
business cycle. The methodology is substantially similar to the 
investment process developed and utilized by Pring Turner Capital Group 
since 1988.
    In managing the Fund, the Sub-Adviser will consider multiple layers 
of analysis of the three primary asset classes. The Sub-Adviser will 
use a multi-step process to build and dynamically manage the Fund's 
portfolio to optimize portfolio returns as financial markets 
sequentially rotate through the typical four to five year business 
cycle swings.
    First, the Sub-Adviser will take a broad look at each of the three 
primary asset classes to determine whether each is in either a secular 
bull market or a secular bear market. Next, utilizing its

[[Page 65922]]

robust historical business cycle research, the current condition of the 
business cycle will be determined. Given the three primary asset 
classes, each of which will either be in a cyclical bull or bear 
market, there will be a total of six possible turning points, or ``Six 
Stages'' of a business cycle. The Sub-Adviser has developed three 
models or barometers, one for each asset class, constructed from a 
combination of trend following, momentum, and inter-asset 
relationships, in order to identify the current stage of a business 
cycle. The barometers are designed to identify significant market 
turning points (cyclical peaks and troughs) for each asset class as 
early in a new trend as possible.
    Then the Sub-Adviser will determine the broad asset allocation 
levels for the Fund's portfolio utilizing a stage analysis. Generally, 
throughout the business cycle stages, the Fund's portfolio will consist 
of the following allocation changes: Equity--approximately 30%-90%; \8\ 
bond--approximately 0%-50%; commodities--approximately 0%-20%; \9\ and 
cash balances--approximately 0%-40%. In seeking to achieve the Fund's 
investment objective, the Sub-Adviser will make gradual asset 
allocation shifts and sector emphasis adjustments as the business cycle 
progresses.
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    \8\ U.S.-listed real estate investment trusts (``REITs'') will 
be included in the Fund's equity allocation.
    \9\ The Fund will not hold physical commodities or commodity 
futures. The Fund's commodity exposure may be achieved through a 
combination of commodity-related Underlying ETPs and/or commodity-
related equity securities.
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    Once the current business cycle stage and asset allocation level is 
determined, the Sub-Adviser once again will utilize historical 
performance data to determine which economic sectors outperform or 
underperform in the specific stage. For instance, in the deflationary 
part of the business cycle consumer staples and utilities may be 
appropriate sectors to emphasize, and in the inflationary part of the 
cycle energy and industrials may be outperformers. Since not every 
cycle is the same, historical performance data will be compared with 
actual sector behavior in the current cycle. The Sub-Adviser may 
utilize technical analysis tools including relative strength, trend and 
chart reading to determine timely sector emphasis (and de-emphasis) 
candidates.
    The Sub-Adviser then will utilize a combination of intermediate 
trend (two to six month time frame) technical market indicators to 
further manage risk and enhance the Fund's portfolio returns. The Sub-
Adviser will use gradual asset allocation and sector emphasis shifts to 
better manage risks and generate consistent returns.
    The final step of the investment process will be the selection of 
appropriate individual securities and/or Underlying ETPs to best take 
advantage of the business cycle stage and preferred economic sectors. 
In addition to technical analysis methods like relative strength, trend 
and charting disciplines, the Sub-Adviser will utilize fundamental 
analysis to determine quality, value, and income characteristics. The 
Sub-Adviser will attempt to emphasize holdings in those securities that 
show positive fundamental attributes and dependable income.
Fund Investments
    According to the Registration Statement, the equity securities in 
which the Fund may invest include common and preferred stock, Master 
Limited Partnerships, rights,\10\ U.S.- listed REITs, and depositary 
receipts, including American Depositary Receipts (``ADRs''), as well as 
Global Depositary Receipts (``GDRs''), which are certificates 
evidencing ownership of shares of a foreign issuer. Depositary receipts 
may be sponsored or unsponsored.\11\ The Fund may invest in issuers 
located outside the United States, or in financial instruments that are 
indirectly linked to the performance of foreign issuers. Examples of 
such financial instruments include ADRs, GDRs, European Depositary 
Receipts (``EDRs''), International Depository Receipts (``IDRs''), 
``ordinary shares,'' and ``New York shares'' issued and traded in the 
United States.\12\ The U.S. equity securities in which the Fund will 
invest will be listed on a national securities exchange, except that 
the Fund may invest up to 10% of total assets in ADRs that are not 
listed on any national securities exchange and that are traded over-
the-counter.\13\ The Fund also may invest in equity securities of 
foreign issuers; the foreign equity securities, including any 
depositary receipts, in which the Fund may invest will be limited to 
securities that trade in markets that are members of the Intermarket 
Surveillance Group (``ISG''), which includes all U.S. national 
securities exchanges and certain foreign exchanges, or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.\14\
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    \10\ As described in the Registration Statement, a right is a 
privilege granted to existing shareholders of a corporation to 
subscribe to shares of a new issue of common stock before it is 
issued. Rights normally have a short life of usually two to four 
weeks, are freely transferable and entitle the holder to buy the new 
common stock at a lower price than the public offering price. 
Generally, rights do not carry the right to receive dividends or 
exercise voting rights with respect to the underlying securities, 
and do not represent any rights in the assets of the issuer. In 
addition, their value does not necessarily change with the value of 
the underlying securities, and they cease to have value if they are 
not exercised on or before their expiration date.
    \11\ The Fund generally will invest in sponsored ADRs but it may 
invest up to 10% of total assets in unsponsored ADRs.
    \12\ ADRs are U.S. dollar denominated receipts representing 
interests in the securities of a foreign issuer, which securities 
may not necessarily be denominated in the same currency as the 
securities into which they may be converted. ADRs are receipts 
typically issued by United States banks and trust companies which 
evidence ownership of underlying securities issued by a foreign 
corporation. Generally, ADRs in registered form are designed for use 
in domestic securities markets and are traded on exchanges or over-
the-counter in the United States. 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 United States exchange. New York shares are shares 
that a foreign issuer has allocated for trading in the United 
States. ADRs, ordinary shares, and New York shares all may be 
purchased with and sold for U.S. Dollars.
    \13\ See note 12, supra.
    \14\ See note 12, supra and note 29, infra.
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    From time to time, the Sub-Adviser may invest a portion of the 
Fund's portfolio in unleveraged inverse ETFs to stabilize the Fund's 
portfolio values. An unleveraged inverse ETF is designed to provide a 
return opposite of an index or other benchmark, typically for a single 
trading day.
    The Fund may invest in debt securities. A debt security is a 
security consisting of a certificate or other evidence of a debt 
(secured or unsecured) on which the issuing company or governmental 
body promises to pay the holder thereof a fixed, variable, or floating 
rate of interest for a specified length of time, and to repay the debt 
on the specified maturity date. Some debt securities, such as zero 
coupon bonds, do not make regular interest payments but are issued at a 
discount to their principal or maturity value. Debt securities include 
a variety of fixed income obligations, including, but not limited to, 
corporate debt securities, government securities, municipal securities, 
convertible securities, and mortgage-backed securities. Debt securities 
include investment-grade securities, non-investment-grade securities, 
and unrated securities. Investments in non-investment grade debt 
securities will be limited to 15% of the Fund's net assets.

[[Page 65923]]

    The Fund may invest in variable and floatingrate securities.\15\
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    \15\ Variable and floating rate instruments involve certain 
obligations that may carry variable or floating rates of interest, 
and may involve a conditional or unconditional demand feature. Such 
instruments bear interest at rates which are not fixed, but which 
vary with changes in specified market rates or indices. The interest 
rates on these securities may be reset daily, weekly, quarterly, or 
some other reset period, and may have a set floor or ceiling on 
interest rate changes. There is a risk that the current interest 
rate on such obligations may not accurately reflect excising market 
interest rates. A demand instrument with a demand notice exceeding 
seven days may be considered illiquid if there is no secondary 
market for such security.
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    The Fund may invest in U.S. government securities and U.S. Treasury 
zero-coupon bonds. 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; U.S. Treasury bills, which have initial maturities 
of one-year or less; U.S. Treasury notes, which have initial maturities 
of one to ten years; and U.S. Treasury bonds, which generally have 
initial maturities of greater than ten years.\16\
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    \16\ 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 (``Ginnie Mae''), 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 (``Farmer Mac'').
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    According to the Registration Statement, 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. 
These short-term debt instruments and money market instruments include 
shares of other mutual funds, commercial paper, certificates of 
deposit, bankers' acceptances, and U.S. government securities. The 
Fund, 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). These securities are subject to market fluctuation and no 
interest accrues to the purchaser during this period. At the time the 
Fund makes the commitment to purchase securities on a when-issued or 
delayed-delivery basis, the Fund will record the transaction and 
thereafter reflect the value of the securities, each day, in 
determining the Fund's net asset value (``NAV''). The Fund will not 
purchase securities on a when-issued or delayed-delivery basis if, as a 
result, more than 15% of the Fund's net assets would be so invested.
    The Fund may engage in short sales transactions in which the Fund 
sells a security it does not own.
    The Fund may enter into repurchase agreements with financial 
institutions, which may be deemed to be loans.\17\ The Fund may enter 
into reverse repurchase agreements without limit as part of the Fund's 
investment strategy.\18\ However, the Fund does not expect to engage, 
under normal circumstances, in reverse repurchase agreements with 
respect to more than 33\1/3\% of its assets.
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    \17\ 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. It is the current policy of the 
Fund not to invest in repurchase agreements that do not mature 
within seven days if any such investment, together with any other 
illiquid assets held by the Fund, amount to more than 15% of the 
Fund's net assets.
    \18\ 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. 
Generally, the effect of such a transaction is that the Fund can 
recover all or most of the cash invested in the portfolio securities 
involved during the term of the reverse repurchase agreement, while 
the Fund will be able to keep the interest income associated with 
those portfolio securities. Such transactions are advantageous only 
if the interest cost to the Fund of the reverse repurchase 
transaction is less than the cost of obtaining the cash otherwise. 
Opportunities to achieve this advantage may not always be available, 
and the Fund intends to use the reverse repurchase technique only 
when it will be advantageous to the Fund. The Fund will establish a 
segregated account with the Trust's custodian bank in which the Fund 
will maintain cash, cash equivalents or other portfolio securities 
equal in value to the Fund's obligations in respect of reverse 
repurchase agreements. Such reverse repurchase agreements could be 
deemed to be a borrowing, but are not senior securities.
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Investment Policies and Restrictions
    According to the Registration Statement, 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. For purposes of this 
policy, the issuer of a depositary receipt will be deemed to be the 
issuer of the respective underlying security.\19\
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    \19\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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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. The Fund will 
not invest 25% or more of its total assets in any investment company 
that so concentrates. 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. For purposes of 
this policy the issuer of ADRs will be deemed to be the issuer of the 
respective underlying security.\20\
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    \20\ 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 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.\21\
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    \21\ 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.

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[[Page 65924]]

    According to the Registration Statement, the Fund will seek to 
qualify for treatment as a Regulated Investment Company (``RIC'') under 
the Internal Revenue Code.\22\
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    \22\ 26 U.S.C. 851.
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    Consistent with the Exemptive Order, the Fund will not invest in 
options contracts, futures contracts or swap agreements. The Fund's 
investments will be consistent with the Fund's investment objective and 
will not be used to enhance leverage.
Net Asset Value
    The Fund will calculate its 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.
    The Fund will calculate NAV once each business day as of the 
regularly scheduled close of normal trading on the New York Stock 
Exchange, LLC (the ``NYSE'') (normally, 4:00 p.m., Eastern Time).
    In calculating NAV, the Fund generally will value its investment 
portfolio at market prices. For exchange-traded Fund assets, the Fund 
will use closing prices from the applicable exchanges; for non-
exchange-traded Fund assets, the Fund will use market data vendor 
quotations or a valuation agent. If market prices are unavailable or 
the Fund believes that they are unreliable, or when the value of a 
security has been materially affected by events occurring after the 
relevant market closes, the Fund will price those securities at fair 
value as determined in good faith using methods approved by the Trust's 
Board of Trustees.
Creation and Redemption of Shares
    According to the Registration Statement, the Fund will issue and 
redeem Shares on a continuous basis at the NAV only in a large 
specified number of Shares called a ``Creation Unit.'' The Shares of 
the Fund that trade on the Exchange will be ``created'' at their NAV by 
market makers, large investors and institutions only in block-size 
Creation Units of at least 25,000 Shares. A ``creator'' will enter into 
an authorized participant agreement with the Distributor or use a 
Depository Trust Company participant who has executed such a 
participant agreement, and will deposit into the Fund a portfolio of 
securities closely approximating the holdings of the Fund and a 
specified amount of cash, together totaling the NAV of the Creation 
Unit(s), in exchange for at least 25,000 Shares of the Fund (or 
multiples thereof).
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by 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''--
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, less a redemption transaction fee. The 
Administrator, through the National Securities Clearing Corporation, 
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 to redemption requests received 
in proper form on that day.
    According to the Registration Statement, if it is not possible to 
effect deliveries of the Fund Securities, the Trust may in its 
discretion exercise its option to redeem such Shares in cash, and the 
redeeming beneficial owner will be required to receive its redemption 
proceeds in cash. In addition, an investor may request a redemption in 
cash which the Fund may, in its sole discretion, permit.\23\ In either 
case, the investor will receive a cash payment equal to the NAV of its 
Shares based on the NAV of Shares of the Fund next determined after the 
redemption request is received in proper form (minus a redemption 
transaction fee and additional charge for requested cash redemptions, 
as described in the Registration Statement). The Fund may also, in its 
sole discretion, upon request of a shareholder, provide such redeemer a 
portfolio of securities which differs from the exact composition of the 
Fund Securities but does not differ in NAV. Redemptions of Shares for 
Fund Securities will be subject to compliance with applicable federal 
and state securities laws and the Fund (whether or not it otherwise 
permits cash redemptions) reserves the right to redeem Creation Units 
for cash to the extent that the Fund could not lawfully deliver 
specific Fund Securities upon redemptions or could not do so without 
first registering the Fund Securities under such laws. An authorized 
participant or an investor for which it is acting subject to a legal 
restriction with respect to a particular stock included in the Fund 
Securities applicable to the redemption of a Creation Unit may be paid 
an equivalent amount of cash.
---------------------------------------------------------------------------

    \23\ The Adviser represents that, to the extent the Trust 
effects the redemption of Shares in cash, such transactions will be 
effected in the same manner for all authorized participants.
---------------------------------------------------------------------------

    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca 
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the Fund's portfolio. The Exchange represents that, for 
initial and/or continued listing, the Fund will be in compliance with 
Rule 10A-3 \24\ 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 
as defined in NYSE Arca Equities Rule 8.600(c)(2) will be made 
available to all market participants at the same time.
---------------------------------------------------------------------------

    \24\ 17 CFR 240.10A-3.
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Availability of Information
    The Fund's Web site (www.advisorshares.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 Fund'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''),\25\ 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

[[Page 65925]]

the Core Trading Session on the Exchange, the Fund will disclose on its 
Web site the Disclosed Portfolio that will form the basis for the 
Fund's calculation of NAV at the end of the business day.\26\
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    \25\ The Bid/Ask Price of the Fund is 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.
    \26\ 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.
---------------------------------------------------------------------------

    On a daily basis, the Adviser will disclose for each portfolio 
security and other financial instrument of the Fund the following 
information: ticker symbol (if applicable); name and, when available, 
the individual identifier (CUSIP) of the security and/or financial 
instrument; number of shares and 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, a basket composition file (i.e., the Fund Securities), 
which includes the security names and share quantities(as applicable) 
required to be delivered in exchange for Fund Shares, together with 
estimates and actual cash components, will be publicly disseminated 
daily prior to the opening of the NYSE via the National Securities 
Clearing Corporation. The basket will represent one Creation Unit of 
the Fund.
    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 will be 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, and, for the underlying securities that are 
exchange-listed, will be available from the national securities 
exchange on which they are listed. In addition, the Portfolio 
Indicative Value, as defined in NYSE Arca Equities Rule 8.600 (c)(3), 
will be widely disseminated at least every 15 seconds during the Core 
Trading Session by one or more major market data vendors.\27\ 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.
---------------------------------------------------------------------------

    \27\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

    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.
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.\28\ 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.
---------------------------------------------------------------------------

    \28\ 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 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. 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 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 ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement.\29\ In 
addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
---------------------------------------------------------------------------

    \29\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. All Underlying ETPs 
and securities in which the Fund may invest will be listed on 
securities exchanges, all of which are members of ISG or are parties 
to a comprehensive surveillance sharing agreement with the Exchange, 
provided that the Fund may invest up to 10% of total assets in ADRs 
traded over-the-counter. See note 12, supra.
---------------------------------------------------------------------------

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

[[Page 65926]]

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) \30\ 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.
---------------------------------------------------------------------------

    \30\ 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. Neither the Adviser nor the Sub-Adviser is affiliated with a 
broker-dealer. All Underlying ETPs and securities in which the Fund may 
invest will be listed on securities exchanges, all of which are members 
of ISG or have entered into a comprehensive surveillance sharing 
agreement with the Exchange, provided that the Fund may invest up to 
10% of total assets in ADRs that are not listed on any national 
securities exchange and are traded over-the-counter. The Fund may not 
purchase or hold illiquid securities if, in the aggregate, more than 
15% of its net assets would be invested in illiquid securities. The 
Fund will not invest in leveraged (e.g., 2X, -2X, 3X or -3X) Underlying 
ETPs. Consistent with the Exemptive Order, the Fund will not invest in 
options contracts, futures contracts or swap agreements. The Fund's 
investments will be consistent with the Fund's investment objective and 
will not be used to enhance leverage.
    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. Quotation and last sale 
information for the Shares will be available via the CTA high-speed 
line. In addition, the Portfolio Indicative Value will be widely 
disseminated by the Exchange at least every 15 seconds during the Core 
Trading Session. The Fund's Web site will include a form of the 
prospectus for the Fund that may be downloaded, as well as additional 
quantitative information updated on a daily basis. 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 that will form the basis for the Fund's calculation 
of NAV at the end of the business day. On a daily basis, the Adviser 
will disclose for each portfolio security or other financial instrument 
of the Fund the following information: ticker symbol, name and, when 
available, the individual identifier (CUSIP) of the security and/or 
financial instrument; number of shares or dollar value of securities 
and financial instruments held in the portfolio; and percentage 
weighting of the security and/or financial instrument in the portfolio. 
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. 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.

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.

[[Page 65927]]

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-2012-117 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 20549-1090.

    All submissions should refer to File Number SR-NYSEArca-2012-117. 
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 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-2012-117 and should be submitted on or before November 21, 
2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\31\
---------------------------------------------------------------------------

    \31\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-26740 Filed 10-30-12; 8:45 am]
BILLING CODE 8011-01-P