Document ID: SEC-2008-1185-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2008-08-26T04:00Z

[Federal Register: August 26, 2008 (Volume 73, Number 166)]
[
Notices]               
[Page 50385-50388]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26au08-106]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-58396; File No. SR-NYSEArca-2008-86]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 

of Proposed Rule Change Relating to Listing of the WisdomTree Dreyfus 

Emerging Markets Fund

August 20, 2008.

    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 August 11, 2008, NYSE Arca, Inc. (``NYSE Arca'' or 

``Exchange''), through its wholly owned subsidiary, NYSE Arca Equities, 

Inc. (``NYSE Arca Equities''), filed with the Securities and Exchange 

Commission (``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\ 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 shares of the following 

fund of the WisdomTree Trust (the ``Trust'') under NYSE Arca Equities 

Rule 8.600 (Managed Fund Shares): WisdomTree Dreyfus Emerging Markets 

Fund (``Fund''). The shares of the Fund are collectively referred to 

herein as the ``Shares.'' The text of the proposed rule change is 

available at the Exchange, the Commission's Public Reference Room, and 

www.nyse.com.

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

Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NYSE Arca included statements 

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

discussed

[[Page 50386]]

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 

Statutory Basis for, the Proposed Rule Change

1. Purpose

    The Exchange proposes to list and trade the Shares of the 

WisdomTree Dreyfus Emerging Markets Fund under NYSE Arca Equities Rule 

8.600, which governs the listing and trading of ``Managed Fund 

Shares,'' on the Exchange.\3\ The Fund will be an actively managed 

exchange traded fund. The Shares will be offered by the Trust, which 

was established as a Delaware statutory trust on December 15, 2005. The 

Trust is registered with the Commission as an investment company.\4\

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    \3\ The Commission approved NYSE Arca Equities Rule 8.600 and 

the listing and trading of certain funds of the PowerShares Actively 

Managed Funds Trust on the Exchange pursuant to Rule 8.600 in 

Securities Exchange Act Release No. 57619 (April 4, 2008) (SR-

NYSEArca-2008-25). The Commission approved listing and trading on 

the Exchange of twelve other actively-managed funds of the 

WisdomTree Trust in Securities Exchange Act Release No. 57801 (May 

8, 2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31).

    \4\ See Post-Effective Amendment No. 14 to Registration 

Statement on Form N-1A for the Trust (File Nos. 333-132380 and 811-

21864) (the ``Registration Statement''). The descriptions of the 

Fund and the Shares contained herein are based on information in the 

Registration Statement.

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Description of the Shares and the Fund

    WisdomTree Asset Management, Inc. (``WisdomTree Asset Management'') 

is the investment adviser to the Fund.\5\ WisdomTree Asset Management 

is not affiliated with any broker-dealer. The Bank of New York is the 

administrator, custodian and transfer agent for the Fund. ALPS 

Distributors, Inc. serves as the distributor for the Fund.\6\

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    \5\ WisdomTree Investments, Inc. (``WisdomTree Investments'') is 

the parent company of WisdomTree Asset Management.

    \6\ The Commission has issued an order granting certain 

exemptive relief to the Trust under the Investment Company Act of 

1940 (15 U.S.C. 80a-1) (``1940 Act''). See Investment Company Act 

Release No. 28174 (February 27, 2008) (File No. 812-13470). In 

compliance with Commentary .05 to NYSE Arca Equities Rule 8.600, 

which applies to Managed Fund Shares based on an international or 

global portfolio, the Trust's application for exemptive relief under 

the 1940 Act states that the Fund will comply with the federal 

securities laws in accepting securities for deposits and satisfying 

redemptions with redemption securities, including that the 

securities accepted for deposits and the securities used to satisfy 

redemption requests are sold in transactions that would be exempt 

from registration under the Securities Act of 1933 (15 U.S.C. 77a).

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    The Fund seeks to earn current income reflective of money market 

rates in emerging market currencies available to foreign investors, as 

well as provide exposure to changes in the value of emerging market 

currencies relative to the U.S. Dollar. Since the Fund's investment 

objective has been adopted as a non-fundamental investment policy, the 

Fund's investment objective may be changed without a vote of 

shareholders.

    The Fund seeks to achieve its investment objective by investing in 

short-term securities and instruments designed to provide exposure to 

the currencies and money market rates of a specified set of emerging 

market countries. The set of countries is selected and reconstituted on 

annual basis with similar allocations to each country being established 

(in U.S. Dollar terms) at the reconstitution date and consequently 

reset each quarter. While the fund is actively managed, it will strive 

to adhere to these general parameters in both currency selection and 

approximate allocation, unless it is believed to be to the detriment of 

the fund. The reconstitution and allocation is described in more detail 

below.

    A basket of from 5 to 12 currencies is selected at least annually 

from a pool of eligible currencies to provide a representative and 

diversified proxy for developing market currencies relative to the U.S. 

Dollar. Countries and their capital markets are first classified as 

frontier, emerging, developing, and developed markets based on a number 

of quantitative and qualitative factors to determine eligibility. Only 

the currencies of countries and capital markets classified as 

developing or emerging markets will be deemed eligible. The selection 

of the constituent currencies is then driven by the liquidity and 

tradability of the individual currencies, a country's economic and 

capital market development, and optimizing regional and economic 

diversification. The Fund attempts to invest in instruments that 

provide exposure to the most liquid currencies in the geographical 

regions in which the Fund invests. The Fund will seek to provide an 

equally-weighted exposure to these currencies. The Fund will be 

rebalanced on a quarterly basis to maintain this equal weighting. The 

basket will be reconstituted each year following a similar 

classification and selection process. Significant events, such as the 

reclassification of a country's currency from developing to developed, 

may cause the Fund to reconstitute its portfolio more frequently than 

annually. At launch, the Fund initially will select a subset of the 

following markets: Brazil, Chile, China, the Czech Republic, Hungary, 

India, Malaysia, Mexico, Poland, Russia, South Africa, South Korea, 

Taiwan, Turkey, and Thailand.\7\

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    \7\ Data for the currencies of these countries is included in 

the Bank for International Settlements Triennial Central Bank 

Survey, December 2007 (``BIS Survey''). The Fund will invest in 

instruments that provide exposure to currencies selected from the 

top 42 currencies in the chart included in the BIS Survey 

(``Currency distribution of foreign exchange turnover''), reflecting 

the percentage share of average daily turnover for the applicable 

month and year.

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    In addition to using the BIS Survey to assess liquidity, the Fund's 

portfolio managers also use information about transaction volume, bid-

ask spreads, and average transaction size in each currency and in 

contracts and derivatives on such currencies to assess liquidity. This 

information is obtained through market observation, through 

subscription services and from publicly available sources.

    Because the market for money market instruments in these countries 

generally is less liquid and accessible to foreign investors than 

corresponding markets in more developed economies, the Fund intends to 

achieve exposure to the applicable non-U.S. market(s) by investing 

primarily in short term U.S. money market securities and also in 

forward currency contracts and swaps. The combination of U.S. money 

market securities with forward currency contracts and currency swaps is 

designed to create a position economically similar to a money market 

instrument denominated in a non-U.S. currency. A forward currency 

contract is an agreement to buy or sell a specific currency at a future 

date at a price set at the time of the contract. A currency swap is an 

agreement between two parties to exchange one currency for another at a 

future rate.\8\

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    \8\ The Fund may pursue its objectives through direct 

investments in money market instruments issued by entities in the 

applicable non-U.S. country and denominated in the applicable non-

U.S. currency when WisdomTree Asset Management believes it is in the 

best interest of the Fund to do so. The decision to secure exposure 

directly or indirectly will be a function of, among other things, 

market accessibility, credit exposure, and tax ramifications for 

foreign investors. If the Fund pursues direct investment, eligible 

investments will include short-term securities issued by the 

applicable foreign government and its agencies or instrumentalities, 

bank debt obligations and time deposits, bankers' acceptances, 

commercial paper, short-term corporate debt obligations, mortgage-

backed securities, and asset-backed securities.

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    The Fund generally will maintain a weighted average portfolio 

maturity of

[[Page 50387]]

90 days or less and will not purchase any money market instrument with 

a remaining maturity of more than 397 calendar days. The Fund will not 

invest in non-U.S. equity securities.

    The Fund issues and redeems Shares on a continuous basis at net 

asset value (``NAV'') \9\ only in large blocks of shares, typically 

50,000 shares or more (``Creation Units''), in transactions with 

authorized participants. Creations of the Fund are usually in exchange 

for cash and redemptions are usually in exchange for a basket of U.S. 

money market instruments and/or a designated amount of cash. Once 

created, Shares of the Fund trade on the secondary market in amounts 

less than a Creation Unit. For more information regarding the Shares 

and the Fund, including investment strategies, risks, creation and 

redemption procedures, fees, portfolio holdings disclosure policies, 

distributions and taxes, see the Registration Statement.

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    \9\ The NAV of the Fund's shares generally is calculated once 

daily Monday through Friday as of the close of regular trading on 

the New York Stock Exchange, generally 4:00 p.m. Eastern time (the 

``NAV Calculation Time''). NAV per share is calculated by dividing 

the Fund's net assets by the number of Fund shares outstanding. For 

more information regarding the valuation of Fund investments in 

calculating the Fund's NAV, see the Registration Statement.

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Availability of Information

    The Fund's Web site (www.wisdomtree.com), which will be publicly 

available prior to the public offering of Shares, will include a form 

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

will include additional quantitative information updated on a daily 

basis, including, for the Fund: (1) The prior business day's reported 

NAV, mid-point of the bid/ask spread at the time of calculation of such 

NAV (the ``Bid/Ask Price''),\10\ 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 

\11\ on the Exchange, the Trust will disclose on its Web site the 

identities and quantities of the portfolio of securities and other 

assets (the ``Disclosed Portfolio'') held by each Fund that will form 

the basis for the Fund's calculation of NAV at the end of the business 

day.\12\ The Web site and information will be publicly available at no 

charge.

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    \10\ The Bid/Ask Price of the Fund is determined using the 

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

of the time of calculation of such Fund's NAV. The records relating 

to Bid/Ask Prices will be retained by the Fund and their service 

providers.

    \11\ The Core Trading Session is 9:30 a.m. to 4 p.m. Eastern 

time.

    \12\ 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''). Notwithstanding the 

foregoing, portfolio trades that are executed prior to the opening 

of the Exchange on any business day may be booked and reflected in 

NAV on such business day. 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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    In addition, an estimated value, defined in Rule 8.600 as the 

``Portfolio Indicative Value,'' that reflects an estimated intraday 

value of the Fund's portfolio, will be disseminated. The Portfolio 

Indicative Value will be based upon the current value for the 

components of the Disclosed Portfolio and will be updated and 

disseminated by the Exchange at least every 15 seconds during the Core 

Trading Session on the Exchange through the facilities of the 

Consolidated Tape Association. 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 to provide a close estimate of that value 

throughout the trading day.

    Information regarding market price and volume of the Shares is and 

will be continually available on a real-time basis throughout the day 

on brokers' computer screens and other electronic services. The 

previous day's closing price and trading volume information will be 

published daily in the financial section of newspapers. Quotation and 

last sale information for the Shares will be available via the 

Consolidated Tape Association high-speed line.

Initial and Continued Listing

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

initial and continued listing criteria applicable to Managed Fund 

Shares. A minimum of 100,000 Shares will be required to be outstanding 

at the commencement of trading. The Exchange states that this minimum 

number of Shares required to be outstanding is comparable to 

requirements that have been applied to previously listed series of 

exchange-traded funds. The Exchange believes that the proposed minimum 

number of Shares outstanding at the start of trading will be sufficient 

to provide market liquidity. The Exchange represents that, for initial 

and/or continued listing, the Shares must be in compliance with Rule 

10A-3\13\ under the Exchange Act, as provided by NYSE Arca Equities 

Rule 5.3.

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    \13\ See 17 CFR 240.10A-3.

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    The Exchange represents that it will obtain a representation (prior 

to listing of the Fund) from the Trust that the NAV per Share will be 

calculated daily and made available to all market participants at the 

same time.

Trading Halts

    With respect to trading halts, the Exchange may consider all 

relevant factors in exercising its discretion to halt or suspend 

trading in the Shares of the Fund. Shares of the Funds will be halted 

if the ``circuit breaker'' parameters in NYSE Arca Equities Rule 7.12 

are reached. Trading may be halted because of market conditions or for 

reasons that, in the view of the Exchange, make trading in the Shares 

inadvisable. These may include: (1) The extent to which trading is not 

occurring in the securities comprising the Disclosed Portfolio and/or 

the financial instruments of the Fund; or (2) whether other unusual 

conditions or circumstances detrimental to the maintenance of a fair 

and orderly market are present. Trading in the Shares will be subject 

to Rule 8.600(d)(2)(D), which sets forth circumstances under which 

Shares of the Fund may be halted.

Trading Rules

    The Exchange deems the Shares to be equity securities, thus 

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

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

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

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

Trading Sessions). The Exchange has appropriate rules to facilitate 

transactions in the Shares during all trading sessions. The minimum 

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

Surveillance

    The Exchange intends to utilize its existing surveillance 

procedures applicable to derivative products (which includes 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

[[Page 50388]]

securities trading outside their normal patterns. When such situations 

are detected, surveillance analysis follows and investigations are 

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

parties for all relevant trading violations.

    The Exchange may obtain information via the Intermarket 

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

the ISG.\14\

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    \14\ For a list of the current members of ISG, see 

www.isgportal.org. The Exchange notes that not all of the components 

of the Disclosed Portfolio for the Fund may trade on exchanges that 

are members of ISG.

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    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 

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),\15\ which imposes a duty of due 

diligence on its ETP Holders to learn the essential facts relating to 

every customer prior to trading the Shares; (3) the risks involved in 

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

updated Portfolio Indicative Value will not be calculated or publicly 

disseminated; (4) how information regarding the Portfolio Indicative 

Value is disseminated; (5) the requirement that ETP Holders deliver a 

prospectus to investors purchasing newly issued Shares prior to or 

concurrently with the confirmation of a transaction; and (6) trading 

information.

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    \15\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder, 

before recommending a transaction, must have reasonable grounds to 

believe that the recommendation is suitable for the customer based 

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

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

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

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

ETP Holder shall make reasonable efforts to obtain information 

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

objectives, and any other information that the ETP Holder believes 

would be useful to make a recommendation. See Securities Exchange 

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

(SR-PCX-2005-115).

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

to various fees and expenses described in the Registration Statement. 

The Bulletin will discuss any exemptive, no-action, and interpretive 

relief granted by the Commission from any rules under the Exchange Act. 

The Bulletin will also disclose that the NAV for the Shares will be 

calculated after 4 p.m. Eastern time each trading day.

2. Statutory Basis

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

the requirement under Section 6(b)(5)\16\ that an exchange have rules 

that are designed to prevent fraudulent and manipulative acts and 

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

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

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

Exchange believes that the proposed rule change will facilitate the 

listing and trading of an additional type of exchange-traded product 

that will enhance competition among market participants, to the benefit 

of investors and the marketplace. In addition, the listing and trading 

criteria set forth in Rule 8.600 are intended to protect investors and 

the public interest.

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    \16\ 15 U.S.C. 78f(b)(5).

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

    NYSE Arca 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

    The Exchange has neither solicited nor received written comments on 

the proposed rule change.

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

Commission Action

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

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

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

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

which the Exchange consents, the Commission will:

    A. By order approve such 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 (www.sec.gov/

rules/sro.shtml ); or

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

File Number SR-NYSEArca-2008-86 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 

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

All submissions should refer to File Number SR-NYSEArca-2008-86. This 

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

To help the Commission process and review your comments more 

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

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

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

written statements with respect to the proposed rule change that are 

filed with the Commission, and all written communications relating to 

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

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

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

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

Washington, DC 20549, on official business days between the hours of 10 

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

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

comments received will be posted without change; the Commission does 

not edit personal identifying information from submissions. You should 

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

submissions should refer to File Number SR-NYSEArca-2008-86 and should 

be submitted on or before September 16, 2008.

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

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

pursuant to delegated authority.\17\

Florence E. Harmon,

Acting Secretary.

 [FR Doc. E8-19708 Filed 8-25-08; 8:45 am]

BILLING CODE 8010-01-P