Document ID: SEC-2009-1627-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of a Proposed Rule Change To List and Trade Shares of the Grail American Beacon International Equity ETF
Posted Date: 2009-11-18T05:00Z

[Federal Register: November 18, 2009 (Volume 74, Number 221)]
[Notices]               
[Page 59590-59592]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18no09-100]                         

=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60975; File No. SR-NYSEArca-2009-83]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of a Proposed Rule Change To List and Trade Shares of the 
Grail American Beacon International Equity ETF

November 10, 2009.

    On September 18, 2009, 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''), 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 Grail American Beacon International Equity ETF 
(``Fund'') under NYSE Arca Equities Rule 8.600. The proposed rule 
change was published in the Federal Register on October 9, 2009.\3\ The 
Commission received no comments on the proposal. This order grants 
approval of the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60773 (October 2, 
2009), 74 FR 52288 (``Notice'').
---------------------------------------------------------------------------

I. Description of the Proposal

    The Exchange proposes to list and trade the Shares of the Fund 
pursuant to NYSE Arca Equities Rule 8.600, which governs the listing of 
Managed Fund Shares.\4\ The Shares will be offered by Grail Advisors' 
ETF 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.\5\ Grail Advisors, LLC (``Manager''), a 
majority owned subsidiary of Grail Partners, LLC, is the Fund's 
investment manager, and American Beacon Advisors, Inc. (``ABA'') is the 
Fund's sub-adviser.\6\ In addition, Lazard Asset Management LLC, 
Templeton Investment Counsel, LLC, and The Boston Company Asset 
Management, LLC (collectively, ``Other Sub-Advisers'') each is a sub-
adviser to the Fund and each is affiliated with a broker-dealer. The 
Exchange states that the Shares will conform to the initial and 
continued listing criteria under NYSE Arca Equities Rule 8.600 and that 
the Fund will be in compliance with Rule 10A-3 under the Act.\7\
---------------------------------------------------------------------------

    \4\ See NYSE Arca Equities Rule 8.600.
    \5\ The Exchange states that the Trust is registered under the 
Investment Company Act of 1940 (``1940 Act'') and that, on April 29, 
2009, the Trust filed with the Commission pre-effective Amendment 
No. 3 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. 333-148082 and 811-22154) 
(``Registration Statement'').
    \6\ The Exchange represents that, while ABA is not affiliated 
with a broker-dealer, the Manager is affiliated with a broker-
dealer, Grail Securities, LLC.
    \7\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    The Fund's investment objective is long-term capital appreciation. 
It seeks to achieve its investment objective by investing at least 80% 
of its net assets (plus the amount of any borrowings for investment 
purposes) in common stocks and securities convertible into common 
stocks of issuers based in at least three different countries located 
outside the United States. The Fund will primarily hold securities of 
large capitalization companies \8\ that have last sale reporting in the 
countries in which it invests and will primarily invest in countries in 
the Morgan Stanley Capital International Europe Australasia Far East 
Index.
---------------------------------------------------------------------------

    \8\ The Fund considers companies with market capitalizations of 
more than $1 billion to be large capitalization companies. Thus, at 
least 50% of the Fund's assets invested in securities of companies 
will be in companies with market capitalizations of more than $1 
billion.
---------------------------------------------------------------------------

    Creations and redemptions of Fund Shares will generally be in-kind, 
with a specified cash component. Authorized Participants or the 
investors on whose behalf the Authorized Participants are acting 
(``Investors''), however, may deliver in connection with creations or 
receive in connection with redemptions cash in lieu of one or more in-
kind securities. Specifically, in connection with creations or 
redemptions, an Authorized Participant or Investor may transact in 
cash, in whole or in part, at the sole discretion of the Fund; 
provided, however, that the cash amount delivered or received shall not 
exceed 10% of the value of the in-kind creation or redemption basket, 
unless the Authorized Participant or Investor is subject to legal 
restrictions with respect to delivery or receipt of one or more 
securities in the in-kind creation or redemption basket, or the Fund is 
in a temporary defensive position. The creation unit size for the Fund 
will be 50,000 Shares.
    Additional information regarding the Fund, the Shares, the Fund's 
investment objective (including other non-primary investments and 
investments permitted for temporary defensive purposes), investment 
strategies, policies, and restrictions, risks, fees and expenses, 
creations and redemptions of Shares, availability of information, 
trading rules and halts, and surveillance procedures, among other 
things, can be found in the Registration Statement and in the Notice, 
as applicable.\9\
---------------------------------------------------------------------------

    \9\ See supra notes 3 and 5.
---------------------------------------------------------------------------

II. 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 \10\ and the rules and regulations thereunder applicable to a 
national securities exchange.\11\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\12\ 
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.
---------------------------------------------------------------------------

    \10\ 15 U.S.C. 78f.
    \11\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \12\ 17 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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, 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 (``CTA'') high-speed line, and the Exchange will 
disseminate the Portfolio Indicative Value (``PIV'') at least every 15 
seconds during the Core Trading Session through the facilities of the 
CTA. In addition, the Fund will make available on its Web site on each 
business day before commencement of trading of the Core Trading Session 
the Disclosed Portfolio \13\ that will form the

[[Page 59591]]

basis for its calculation of the net asset value (``NAV''), which will 
be determined as of the close of the regular trading session on the New 
York Stock Exchange (ordinarily 4 p.m. Eastern Time) on each business 
day. In addition, a basket composition file, which includes the 
security names and share quantities 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 New York Stock Exchange via the National Securities Clearing 
Corporation. The Fund's Web site will also include additional 
quantitative information updated on a daily basis relating to trading 
volume, prices, and NAV. Information regarding the market price and 
trading volume of the Shares will be continually available on a real-
time basis throughout the day via electronic services, and the previous 
day's closing price and trading volume information for the Shares will 
be published daily in the financial sections of newspapers.
---------------------------------------------------------------------------

    \13\ The Exchange represents that the Fund will disclose on the 
Fund's Web site for each portfolio security or other financial 
instrument of the Fund the following information: Ticker symbol (if 
applicable), name of security or financial instrument, number of 
shares or dollar value of financial instruments held in the 
portfolio, and percentage weighting of the security or financial 
instrument in the portfolio.
---------------------------------------------------------------------------

    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 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. 
Additionally, if it becomes aware that the NAV or the Disclosed 
Portfolio is not disseminated daily 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. Further, if the 
PIV is not being disseminated as required, the Exchange may halt 
trading during the day in which the disruption occurs; if the 
interruption persists past the day in which it occurred, the Exchange 
will halt trading no later than the beginning of the trading day 
following the interruption.\14\ The Exchange states that each sub-
adviser to the Fund has represented that they have implemented a ``fire 
wall'' between it and its respective broker-dealer affiliate(s) with 
respect to access to information concerning the composition and/or 
changes to the Fund's portfolio.\15\ 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.\16\
---------------------------------------------------------------------------

    \14\ See NYSE Arca Equities Rule 8.600(d)(2)(D). The Exchange 
states that 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.
    \15\ See supra note 6 and accompanying text. Commentary .07 to 
NYSE Arca Equities Rule 8.600 requires that, if an investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser 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 the investment company portfolio. Commentary .07 
also requires personnel, who make decisions on the investment 
company'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. See Commentary 
.07 to NYSE Arca Equities Rule 8.600. The Exchange represents that 
Grail Advisors, LLC is affiliated with a broker-dealer, Grail 
Securities, LLC, and has implemented a fire wall with respect to 
such broker-dealer regarding access to information concerning the 
composition and/or changes to the portfolio. The Exchange further 
represents that Grail Advisors, LLC, as the investment adviser of 
the Fund, and each of the sub-advisers of the Fund, and their 
respective personnel, are subject to Investment Advisers Act Rule 
204A-1.
    \16\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
---------------------------------------------------------------------------

    The Exchange has represented that the Shares are equity securities 
subject to the Exchange's rules governing the trading of equity 
securities and 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). 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 intends to utilize its existing surveillance 
procedures applicable to derivative products (which include Managed 
Fund Shares) to monitor trading in the Shares. 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. 
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 Intermarket Surveillance Group (``ISG'') from other 
exchanges that are members of ISG.\17\ In addition, the Exchange also 
has a general policy prohibiting the distribution of material, non-
public information by its employees.
---------------------------------------------------------------------------

    \17\ The Exchange represents that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG, and the Exchange may not have in place comprehensive 
surveillance sharing agreements with such markets. The Commission 
notes that the Fund will be investing primarily in securities of 
foreign large capitalization companies with market capitalizations 
of more than $1 billion and that are subject to last-sale reporting. 
In addition, the Commission notes that though, an Authorized 
Participant may transact in cash, in whole or in part, with the Fund 
in connection with creations or redemptions, the cash amount 
delivered or received may not exceed 10% of the value of the in-kind 
creation or redemption basket, subject to certain limited 
conditions.
    The Commission further notes that the Fund, as an investment 
company registered under the 1940 Act, is subject to the 
diversification standards included in Section 5(b)(1) of the 1940 
Act. The Exchange represents that the Fund's fundamental policies, 
which may be changed only by a vote of the holders of a majority of 
the Fund's outstanding voting securities, are as follows: (1) 
Regarding diversification, the Fund may not invest more than 5% of 
its total assets (taken at market value) in securities of any one 
issuer, other than obligations issued by the U.S. Government, its 
agencies and instrumentalities, or purchase more than 10% of the 
voting securities of any one issuer, with respect to 75% of the 
Fund's total assets; and (2) regarding concentration, the Fund may 
not invest more than 25% of its total assets in the securities of 
companies primarily engaged in any one industry or group of 
industries provided that (a) this limitation does not apply to 
obligations issued or guaranteed by the U.S. Government, its 
agencies and instrumentalities, and (b) municipalities and their 
agencies and authorities are not deemed to be industries.
---------------------------------------------------------------------------

    (3) 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 Circular will discuss the following: (a) 
The procedures for purchases and redemptions of Shares 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) the requirement that ETP Holders deliver a prospectus 
to

[[Page 59592]]

investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (f) trading information.
    (4) The Fund will be in compliance with Rule 10A-3 under the 
Act.\18\ This approval order is based on the Exchange's 
representations.
---------------------------------------------------------------------------

    \18\ See supra note 7.
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \19\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \19\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

III. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NYSEArca-2009-83) be, and it 
hereby is, approved.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
---------------------------------------------------------------------------

    \21\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-27604 Filed 11-17-09; 8:45 am]

BILLING CODE 8011-01-P