Document ID: SEC-2010-1181-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2010-08-05T04:00Z

[Federal Register: August 5, 2010 (Volume 75, Number 150)]
[Notices]               
[Page 47323-47326]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05au10-97]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62604; File No. SR-NYSEArca-2010-49]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, Regarding Listing and Trading of the WisdomTree Emerging 
Markets Local Debt Fund

July 30, 2010.

I. Introduction

    On June 10, 2010, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 of the WisdomTree Emerging Markets Local Debt 
Fund under NYSE Arca Equities Rule 8.600. On June 18, 2010, the 
Exchange filed Amendment No. 1 to the proposed rule change. The 
proposed rule change, as amended, was published for comment in the 
Federal Register on June 29, 2010.\3\ The Commission received no 
comments on the proposal. This order grants approval of 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. 62350 (June 22, 
2010), 75 FR 37502 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade shares (``Shares'') of the 
WisdomTree Emerging Markets Local Debt Fund (``Fund'') of the 
WisdomTree Trust (``Trust''), pursuant to NYSE Arca Equities Rule 
8.600, which governs the listing and trading of Managed Fund Shares on 
the Exchange. 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 and is registered with 
the Commission as an investment company.\4\ WisdomTree Asset 
Management, Inc. is the investment adviser (``Adviser'') to the Fund, 
and Mellon Capital Management Corporation serves as sub-adviser for the 
Fund (``Sub-Adviser'').\5\ The Exchange represents that the Shares will 
be subject to Rule 8.600(d), which sets forth the initial and continued 
listing criteria applicable to Managed Fund Shares. In addition, for 
initial and/or continued listing, the Shares will be in compliance with 
Rule 10A-3 under the Exchange Act,\6\ as provided by NYSE Arca Equities 
Rule 5.3.
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    \4\ The Fund has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission. See Post-Effective 
Amendment No. 32 to Registration Statement on Form N-1A for the 
Trust, dated March 19, 2010 (File Nos. 333-132380 and 811-21864), as 
amended on June 8, 2010.
    \5\ The Exchange represents that, while the Adviser is not 
affiliated with any broker-dealer, the Sub-Adviser is affiliated 
with multiple broker-dealers and has implemented a ``fire wall'' 
with respect to such broker-dealers regarding access to information 
concerning the composition and/or changes to the Fund's portfolio. 
In addition, MCM personnel who make decisions regarding the Fund's 
portfolio are subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding the 
Fund's portfolio. See Commentary .06 to NYSE Arca Equities Rule 
8.600.
    \6\ See 17 CFR 240.10A-3.
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    The Fund seeks to provide investors with a high level of total 
return consisting of both income and capital appreciation and is 
designed to provide exposure to a broad range of emerging market 
countries and issuers through investments in local currency debt 
instruments. Specifically, the Fund intends to invest in issuers in 
Asia,

[[Page 47324]]

Latin America, Eastern Europe, Africa, and the Middle East. Likely 
country exposures include Brazil, Chile, Colombia, Hungary, Indonesia, 
Israel, Malaysia, Mexico, Peru, Poland, Russia, South Africa, South 
Korea, Thailand, and Turkey. The Fund intends to invest at least 70% of 
its net assets in debt instruments denominated in a currency other than 
the U.S. dollar issued by emerging market governments, government 
agencies, corporations, and supranational issuers, which include 
international organizations such as the European Investment Bank, 
International Bank for Reconstruction and Development, International 
Finance Corporation, or other regional development banks (collectively, 
``Debt Instruments''). The Fund expects to invest up to 20% of its net 
assets in emerging market corporate bonds. The Fund will invest only in 
corporate bonds that the Adviser or Sub-Adviser deems to be 
sufficiently liquid. Generally, a corporate bond must have $200 million 
or more par amount outstanding and significant par value traded to be 
considered as an eligible investment. Economic and other conditions in 
specific countries may, from time to time, lead to a decrease in the 
average par amount outstanding of bond issuances. Therefore, although 
the Fund does not intend to do so, the Fund may invest up to 5% of its 
net assets in corporate bonds with less than $200 million par amount 
outstanding if (i) the Adviser or Sub-Adviser deems such security to be 
sufficiently liquid based on its analysis of the market for such 
security (based on, for example, broker-dealer quotations or its 
analysis of the trading history of the security or the trading history 
of other securities issued by the issuer), (ii) such investment is 
consistent with the Fund's goal of providing exposure to a broad range 
of countries and issuers, and (iii) such investment is deemed by the 
Adviser or Sub-Adviser to be in the best interest of the Fund.
    The Fund will invest in both investment grade and non-investment 
grade securities in a manner designed to provide exposure to broad-
based emerging market debt. The Fund currently expects that it will 
have 75% or more of its assets invested in investment grade securities, 
and no more than 25% of its assets invested in non-investment grade 
securities. Because the Fund is designed to provide exposure to a broad 
range of emerging market countries and issuers and because the debt 
ratings of such countries and issuers will change from time to time, 
the exact percentage of the Fund's investments in investment grade and 
non-investment grade debt will change from time to time in response to 
economic events and changes to the credit ratings of such government 
and corporate issuers. Within the non-investment grade category some 
issuers and instruments are considered to be of lower credit quality 
and at higher risk of default. In order to limit its exposure to these 
more speculative credits, the Fund will not invest more than 15% of its 
assets in securities rated B or below by Moody's, or equivalently rated 
by S&P or Fitch. The Fund does not intend to invest in unrated 
securities. However, it may do so to a limited extent, such as where a 
rated security becomes unrated, if such security is determined by the 
Adviser and Sub-Adviser to be of comparable quality. In determining 
whether a security is of ``comparable quality,'' the Adviser and Sub-
Adviser will consider, for example, whether the issuer of the security 
has issued other rated securities.
    With respect to its limited investments in instruments other than 
Debt Instruments, the Fund may purchase short-term obligations issued 
or guaranteed by the U.S. Treasury or the agencies or instrumentalities 
of the U.S. government; may invest in short-term securities issued or 
guaranteed by non-U.S. governments, agencies and instrumentalities; may 
invest in deposits and other obligations of U.S. and non-U.S. banks and 
financial institutions; may invest in deposits and obligations of banks 
and financial institutions including certificates of deposit, time 
deposits, and bankers' acceptances.
    The Fund also may invest in corporate debt obligations with less 
than 397 calendar days remaining to maturity, purchase floating rate 
and adjustable rate obligations, such as demand notes, bonds, and 
commercial paper, and pursue its investment objective by investing some 
of its assets in other WisdomTree Funds based on foreign currencies. In 
addition, the Fund may use derivative instruments as part of its 
investment strategies. The examples of derivative instruments include 
forward currency contracts, non-deliverable forward currency contracts, 
currency and interest rate swaps, currency options, futures contracts, 
options on futures contracts, and swap agreements. The Fund's use of 
derivative instruments will be underpinned by investments in short 
term, high-quality U.S. money market securities. The Fund expects that 
no more than 30% of the value of the Fund's net assets will be invested 
in derivative instruments. Such investments will be consistent with the 
Fund's investment objective and will not be used to enhance leverage.
    With respect to certain kinds of derivative transactions entered 
into by the Fund that involve obligations to make future payments to 
third parties, including, but not limited to, futures, forward 
contracts, swap contracts, the purchase of securities on a when-issued 
or delayed delivery basis, or reverse repurchase agreements, under 
applicable Federal securities laws, rules, and interpretations thereof, 
the Fund must ``set aside'' liquid assets or engage in other measures 
to ``cover'' open positions with respect to such transactions.
    The Fund may engage in foreign currency transactions and may invest 
directly in foreign currencies in the form of bank and financial 
institution deposits, certificates of deposit, and bankers acceptances 
denominated in a specified non-U.S. currency. The Fund may also enter 
into forward currency contracts in order to ``lock in'' the exchange 
rate between the currency it will deliver and the currency it will 
receive for the duration of the contract.
    The Fund may enter into swap agreements, including interest rate 
swaps and currency swaps, and may buy or sell put and call options on 
foreign currencies either on exchanges or in the over-the-counter 
market. The Fund may also enter into repurchase agreements with 
counterparties that are deemed to present acceptable credit risks and 
reverse repurchase agreements involving the sale of securities held by 
the Fund, subject to its agreement to repurchase the securities at an 
agreed upon date or upon demand and at a price reflecting a market rate 
of interest.
    Lastly, the Fund may invest in the securities of other investment 
companies (including money market funds and exchange-traded funds). The 
Fund may invest up to an aggregate amount of 10% of its net assets in 
illiquid securities. Illiquid securities include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets. The Fund will not invest in non-U.S. 
equity securities.
    Additional details regarding the investment and trading policies of 
the Fund, creations and redemptions of the Shares, investment risks, 
NAV calculation, the dissemination of key values and availability of 
information about the underlying assets, trading halts, applicable 
trading rules, surveillance, and the Information Bulletin, among other 
things, can be

[[Page 47325]]

found in the Notice and/or the Registration Statement, as 
applicable.\7\
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    \7\ See supra notes 3 and 4.
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III. Discussion and Commission's Findings

    After careful consideration, the Commission finds that the proposed 
rule change to list and trade the Shares of the Fund is consistent with 
the requirements of the Act and the rules and regulations thereunder 
applicable to a national securities exchange.\8\ In particular, the 
Commission finds that the proposed rule change is consistent with the 
requirements of Section 6(b)(5) of the Act,\9\ which requires, among 
other things, that the Exchange's rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system.
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    \8\ 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).
    \9\ 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 also consistent with Section 11A(a)(1)(C)(iii) of 
the Act,\10\ 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 regarding the Shares will be available via the 
Consolidated Tape Association's high-speed line. On each business day 
before commencement of trading in the Shares in the Core Trading 
Session on the Exchange, the Trust will disclose on its Web site the 
identities and quantities of the portfolio of securities and other 
assets (``Disclosed Portfolio'') held by the Fund that will form the 
basis for the Fund's calculation of the NAV at the end of the business 
day.\11\ The Disclosed Portfolio will include, as applicable, the 
names, quantity, percentage weighting and market value of securities, 
and other assets held by the Fund and the characteristics of such 
assets. In addition, an estimated value that reflects an estimated 
intraday value of the Fund's portfolio, defined in NYSE Arca Equities 
Rule 8.600 as the ``Portfolio Indicative Value,'' will also 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 one or more major market data vendors at 
least every 15 seconds during the Core Trading Session on the Exchange. 
In addition, during hours when the markets for securities in the Fund's 
portfolio are closed, the Portfolio Indicative Value will be updated at 
least every 15 seconds during the Core Trading Session to reflect 
currency exchange fluctuations. The Web site for the Fund (http://
www.wisdomtree.com) will contain the prospectus and additional data 
relating to NAV and other applicable quantitative information.
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    \10\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \11\ 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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    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 Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV and the 
Disclosed Portfolio will be made available to all market participants 
at the same time. If the Exchange becomes aware that the NAV or 
Disclosed Portfolio with respect to the Shares is not disseminated to 
all market participants at the same time, it will halt trading in the 
Shares until such time as the NAV or Disclosed Portfolio is available 
to all market participants. Further, the Exchange may halt trading 
during the day in which an interruption to the dissemination of the 
Portfolio Indicative Value occurs. If the interruption to the 
dissemination of the Portfolio Indicative Value 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.\12\ The Exchange also represents that the Sub-Adviser, 
which is affiliated with multiple broker-dealers, has implemented a 
``fire wall'' with respect to such broker-dealers regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio. In addition, Sub-Adviser personnel who make decisions 
regarding the Fund's portfolio are subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding the Fund's portfolio.\13\ Finally, 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.\14\
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    \12\ See NYSE Arca Equities Rule 8.600(d)(2)(D). 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: (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.
    \13\ See supra note 5 and accompanying text.
    \14\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    The Exchange has represented that the Shares are deemed 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 the following:
    (1) The Shares will be subject to NYSE Arca Equities Rule 8.600(d), 
which sets forth the initial and continued listing criteria applicable 
to Managed Fund Shares.
    (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 
Portfolio Indicative Value will not be calculated or publicly 
disseminated; (d) how information

[[Page 47326]]

regarding the Portfolio Indicative Value is disseminated; (e) 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) A minimum of 100,000 Shares will be outstanding at the 
commencement of trading on the Exchange.
    (6) For initial and continued listing, the Shares must be in 
compliance with Rule 10A-3 under the Act.\15\
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    \15\ See supra note 6.
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    This approval order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-NYSEArca-2010-49), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \16\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-19246 Filed 8-3-10; 8:45 am]
BILLING CODE 8010-01-P