Document ID: SEC-2011-0114-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-01-27T05:00Z

[Federal Register Volume 76, Number 18 (Thursday, January 27, 2011)]
[Notices]
[Pages 4968-4970]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-1710]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63737; File No. SR-NYSEArca-2010-107]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to Listing and Trading Shares 
of the AdvisorShares Active Bear ETF

January 19, 2011.

I. Introduction

    On November 23, 2010, NYSE Arca, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade 
shares (``Shares'') of the AdvisorShares Active Bear ETF (the ``Fund'') 
under NYSE Arca Equities Rule 8.600. The proposed rule change was 
published for comment in the Federal Register on December 13, 2010.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 63447 (December 7, 
2010), 75 FR 77681 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares pursuant to NYSE 
Arca Equities Rule 8.600, which governs the listing and trading of 
Managed Fund Shares. The Shares will be offered by AdvisorShares Trust 
(``Trust''), a statutory trust organized under the laws of the State of 
Delaware and registered with the Commission as an open-end management 
investment company.\4\ The investment advisor to the Fund is 
AdvisorShares Investments, LLC (the ``Advisor''). Ranger Alternative 
Management, L.P. is the sub-advisor (``Sub-Advisor'') to the Fund and 
the portfolio manager. Foreside Fund Services LLC is the distributor 
for the Fund. The Bank of New York Mellon Corporation is the 
administrator, custodian, transfer agent and fund accounting agent for 
the Fund.
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On September 22, 2010, the Trust filed with the 
Commission Post-Effective Amendment No. 12 to 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) (the 
``Registration Statement''). The Trust has also filed an Amended 
Application for an Order under Section 6(c) of the 1940 Act for 
exemptions from various provisions of the 1940 Act and rules 
thereunder (File No. 812-13677 dated May 28, 2010). The description 
of the operation of the Trust and the Fund herein is based on the 
Registration Statement.
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    The Fund's investment objective is to seek capital appreciation 
through short sales of domestically-traded equity securities. The Sub-
Advisor seeks to achieve that objective by short selling a portfolio of 
liquid mid- and large-cap U.S. exchange-traded equity securities, 
exchange-traded funds (``ETFs'') registered pursuant to the 1940 Act 
and exchange-traded products (``ETPs''), including exchange-traded 
notes (``ETNs'').\5\ The Fund generally targets composition of 20-50 
equity short positions, with an average individual position size 
generally ranging between 2-7% of the aggregate portfolio exposure. 
ETPs may be used to gain exposure in instances when the Sub-Advisor has 
a more bearish posture with respect to the broad market and will 
typically range between 10-15% of the Fund's portfolio. ETFs registered 
pursuant to the 1940 Act or other exchange-traded products not 
registered pursuant to the 1940 Act will be utilized to manage exposure 
to broad indexes or certain sectors. The Fund may invest in U.S. 
government securities and U.S. Treasury zero-coupon bonds. To respond 
to adverse market, economic, political or other conditions, the Fund 
may invest 100% of its total assets, without limitation, for extended 
periods if desired, in high-quality short-term debt securities and 
money market instruments, depending on the Sub-Advisor's assessment of 
market conditions.
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    \5\ The Fund may sell short only equity securities traded in the 
U.S. on registered exchanges. The Fund will not purchase or borrow 
illiquid securities or securities registered pursuant to Rule 144A 
under the Securities Act of 1933.
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    The Exchange represents that the Shares will be subject to NYSE 
Arca Equities Rule 8.600, which includes the initial and continued 
listing criteria applicable to Managed Fund Shares,\6\ and will comply 
with Rule 10A-3 under the Act,\7\ as provided by NYSE Arca Equities 
Rule 5.3. Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, distributions 
and

[[Page 4969]]

taxes is included in the Registration Statement and in the Notice.\8\
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    \6\ The Exchange states that a minimum of 100,000 Shares will be 
outstanding at the commencement of trading on the Exchange, and the 
Exchange will obtain a representation from the issuer of the Shares 
that the net asset value (``NAV'') per Share will be calculated 
daily and that the NAV and the Disclosed Portfolio will be made 
available to all market participants at the same time. See Notice, 
supra note 3.
    \7\ 17 CFR 240.10A-3.
    \8\ See Notice and Registration Statement, supra notes 3 and 4, 
respectively.
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \9\ and the rules and regulations thereunder applicable to a 
national securities exchange.\10\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\11\ 
which requires, among other things, that the Exchange's rules be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission notes that the Shares must comply with 
the requirements of NYSE Arca Equities Rule 8.600 to be listed and 
traded on the Exchange.
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    \9\ 15 U.S.C. 78f.
    \10\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\12\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via the Consolidated Tape 
Association high-speed line. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Fund will disclose on its Web site the Disclosed Portfolio as defined 
in NYSE Arca Equities Rule 8.600(c)(2) \13\ that will form the basis 
for the Fund's calculation of NAV at the end of the business day.\14\ 
The Web site for the Fund (http://www. advisorshares.com) will contain 
the prospectus for the Fund and additional data relating to NAV and 
other applicable quantitative information.
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    \12\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \13\ ``Disclosed Portfolio'' is defined as the identities and 
quantities of the securities and other assets held by the Investment 
Company that will form the basis for the Investment Company's 
calculation of net asset value at the end of the business day. The 
Disclosed Portfolio will disclose the following information: Ticker 
symbol (if applicable), name or description of security or 
investment, number of shares or dollar value of investments held in 
the portfolio, and percentage weighting of the security or 
investment in the portfolio.
    \14\ 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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    Portfolio Indicative Value (``PIV''), as defined in NYSE Arca 
Equities Rule 8.600(c)(3), will be disseminated by one or more major 
market data vendors at least every 15 seconds during the Core Trading 
Session. The PIV will be based upon the current value for the 
components of the Disclosed Portfolio, and will be updated and 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session on the Exchange. Information 
regarding market price and trading volume of the Shares is and will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information will be published daily in the financial section of 
newspapers.
    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Exchange will obtain a representation from the issuer 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.\15\ If the Exchange becomes aware that the NAV or the 
Disclosed Portfolio is not disseminated to all market participants at 
the same time, the Exchange will halt trading in the Shares until such 
information is available to all market participants.\16\ In addition, 
if the PIV is not being disseminated as required, the Exchange may halt 
trading during the day in which the interruption to the dissemination 
of the PIV occurs; if the interruption to the dissemination of the PIV 
persists past the trading day in which it occurred, the Exchange will 
halt trading no later than the beginning of the trading day following 
the interruption.\17\
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    \15\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \16\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
    \17\ See id. Trading in the Shares may also 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, for 
example: (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.
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    The Exchange represents that neither the Advisor nor the Sub-
Advisor is affiliated with a broker-dealer. In the event the Adviser or 
the Sub-Adviser become affiliated with a broker-dealer, or any new 
adviser or sub-adviser becomes affiliated with a broker-dealer, they 
will be required to implement a fire wall with respect to such broker-
dealer regarding access to information concerning the composition and/
or changes to the portfolio.\18\ Further, the Commission notes that the 
Reporting Authority that provides the Disclosed Portfolio must 
implement and maintain, or be subject to, procedures designed to 
prevent the use and dissemination of material non-public information 
regarding the actual components of the portfolio.\19\
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    \18\ See also Commentary .06 to NYSE Arca Equities Rule 8.600.
    \19\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    The Exchange has represented that the Shares are deemed to be 
equity securities subject to the Exchange's rules governing the trading 
of equity securities. In support of this proposal, the Exchange has 
made representations, including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable Federal 
securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares in Creation Unit 
Aggregations and that Shares are not individually redeemable; (b) NYSE 
Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its 
ETP Holders to learn the essential facts relating to every customer 
prior to trading the Shares; (c) the risks involved in trading the 
Shares during the Opening and Late Trading Sessions when an updated PIV 
will not be calculated or publicly disseminated; (d) how information 
regarding the PIV is disseminated; (e)

[[Page 4970]]

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 (f) trading information.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act.
    (6) The Fund may sell short only equity securities traded in the 
U.S. on registered exchanges.
    (7) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.

This order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \20\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \20\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSEArca-2010-107), be, and 
it hereby is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1710 Filed 1-26-11; 8:45 am]
BILLING CODE 8011-01-P