Document ID: SEC-2010-1099-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2010-07-21T04:00Z

[Federal Register: July 21, 2010 (Volume 75, Number 139)]
[Notices]               
[Page 42471-42473]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21jy10-101]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-62502; File No. SR-NYSEArca-2010-57]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Accelerated Approval of Proposed Rule Change Regarding Listing and 
Trading Shares of AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF

July 15, 2010.
    On June 16, 2010, 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 
AdvisorShares WCM/BNY Mellon Focused Growth ADR ETF (the ``Fund'') 
under NYSE Arca Equities Rule 8.600 (Managed Fund Shares). The proposed 
rule change was published in the Federal Register on June 29, 2010.\3\ 
The Commission received no comments on the proposal. This order 
approves the proposed rule change on an accelerated basis.
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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. 62344 (June 21, 
2010), 75 FR 37498 (``Notice'').
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I. 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 of Managed Fund 
Shares. The Shares will be offered by AdvisorShares Trust (the 
``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 ADR Fund is 
AdvisorShares Investments, LLC (the ``Advisor''). WCM Investment 
Management (``WCM'') is the sub-advisor (``Sub-Advisor'') to the ADR 
Fund and the portfolio manager.\5\ The Sub-Advisor selects securities 
for the Fund in which to invest pursuant to an ``active'' management 
strategy for security selection and portfolio construction. The Fund's 
investment objective is long-term capital appreciation above 
international benchmarks such as the BNY Mellon Classic ADR Index, the 
Fund's primary benchmark, and the MSCI EAFE Index, the Fund's secondary 
benchmark. WCM seeks to achieve the Fund's investment objective by 
selecting a portfolio of U.S. traded securities of non-U.S. 
organizations included in the BNY Mellon Classic ADR Index. The BNY 
Mellon Classic ADR Index predominantly includes American Depositary 
Receipts (``ADRs'') and in addition includes other Depositary Receipts 
(``DRs''), which include Global Depositary Receipts (``GDRs''), Euro 
Depositary Receipts (``Euro DRs'') and New York Shares (``NYSs'').\6\
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    \4\ The Trust is registered under the 1940 Act. On April 23, 
2010, the Trust filed with the Commission Post-Effective Amendment 
No. 5 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 14, 2010) 
(``Exemptive Application'').
    \5\ The Exchange has represented that neither the Advisor nor 
the Sub-Advisor is affiliated with a broker-dealer.
    \6\ According to the Registration Statement, DRs, which include 
ADRs, GDRs, Euro DRs and NYSs, are negotiable securities that 
generally represent a non-U.S. company's publicly traded equity or 
debt. Depositary Receipts may be purchased in the U.S. secondary 
trading market. They may trade freely, just like any other security, 
either on an exchange or in the over-the-counter market. Although 
typically denominated in U.S. dollars, Depositary Receipts can also 
be denominated in Euros. Depositary Receipts can trade on all U.S. 
stock exchanges as well as on many European stock exchanges.
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    The Exchange states that the Shares will conform to the initial and 
continued listing criteria under NYSE Arca Equities Rule 8.600 
applicable to Managed Fund Shares \7\ and that the Shares will comply 
with Rule 10A-3 under the Act,\8\ as provided by NYSE Arca Equities 
Rule 5.3. Additionally, among other things, the composition of the 
Fund's portfolio, on a continual basis, will be subject to the 
following: component stocks that in the aggregate account for at least 
90% of the weight of the Fund's portfolio each shall have a minimum 
global market value of at least $100 million; component stocks that in 
the aggregate account for at least 70% of the weight of the Fund's 
portfolio each shall have a minimum global monthly trading volume of 
250,000 shares, or minimum global notional volume traded per month of 
$25,000,000, averaged over the last six months; a minimum of 20 
component stocks of which the most heavily weighted component stock 
shall not

[[Page 42472]]

exceed 25% of the weight of the portfolio, and the five most heavily 
weighted component stocks shall not exceed 60% of the weight of the 
portfolio; and each non-U.S. equity security underlying ADRs held by 
the Fund will be listed and traded on an exchange that has last-sale 
reporting. Additional information regarding the Trust, the Fund, the 
Shares, the Fund's investment objectives, strategies, policies, and 
restrictions, risks, fees and expenses, creation and redemption 
procedures, portfolio holdings and policies, distributions and taxes, 
availability of information, trading rules and halts, and surveillance 
procedures, among other things, can be found in the Notice and 
Registration Statement, as applicable.\9\
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    \7\ 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.
    \8\ 17 CFR 240.10A-3.
    \9\ See supra notes 3 and 4.
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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. 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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    \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).
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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,\13\ 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, and the Portfolio Indicative Value 
(``PIV'') will be updated and disseminated by one or more major market 
data vendors at least every 15 seconds during the Core Trading Session. 
In addition, the Fund will make available on its Web site on each 
business day, before the commencement of trading in Shares in the Core 
Trading Session, the Disclosed Portfolio that will form the basis for 
the calculation of the NAV, which will be determined at the end of the 
business day.\14\ The Fund's Web site will also include additional 
quantitative information updated on a daily basis relating to daily 
trading volume, 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''),\15\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV and 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. Information regarding the market price and 
volume of the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other 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.
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    \13\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \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.
    \15\ 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 the NAV. The records relating to Bid/
Ask Prices will be retained by the Fund and its service providers.
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    The Commission further believes that the proposal 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 
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.\16\ 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.\17\ 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.\18\ The Exchange 
represents that neither the Advisor nor the Sub-Advisor is affiliated 
with a broker-dealer. However, 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 each of the portfolios.\19\
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    \16\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \17\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
    \18\ 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: (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.
    \19\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    The Exchange has deemed the Shares 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'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.
    (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 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) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to

[[Page 42473]]

or concurrently with the confirmation of a transaction; and (f) trading 
information.
    (4) The Funds will be in compliance with Rule 10A-3 under the Act.
    (5) The Funds will not invest in non-U.S. equity securities outside 
of U.S. markets. 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.

III. Accelerated Approval

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\20\ for approving the proposal prior to the thirtieth day 
after the date of publication of the Notice in the Federal Register. 
The Commission notes that it has approved the listing and trading on 
the Exchange of shares of other actively managed exchange-traded funds 
based on a portfolio of securities, the characteristics of which are 
similar to those to be invested by the Fund.\21\ The Commission also 
notes that it has not received any comments regarding this proposal, 
nor did it receive any comments on a previously filed proposed rule 
change relating to the Fund.\22\ The Commission believes that the 
proposal to list and trade the Shares of the Fund do not raise any 
novel regulatory issues and accelerating approval of this proposal 
should benefit investors by creating, without undue delay, additional 
competition in the market for Managed Fund Shares.
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    \20\ 15 U.S.C. 78s(b)(2).
    \21\ See, e.g., Securities Exchange Act Release Nos. 61365 
(January 15, 2010), 75 FR 4124 (January 26, 2010) (SR-NYSEArca-2009-
114) (approving the listing and trading of shares of two actively 
managed funds of the Grail Advisors ETF Trust) and 60975 (November 
10, 2009), 74 FR 59590 (November 18, 2009) (SR-NYSEArca-2009-83) 
(approving the listing and trading of shares of the Grail American 
Beacon International Equity ETF).
    \22\ The Exchange previously filed a proposed rule change 
relating to listing on the Exchange of the AdvisorShares WCM/BNY 
Mellon Focused Growth ADR ETF in File No. SR-NYSEArca-2010-07. See 
Securities Exchange Act Release No. 61642 (March 3, 2010), 75 FR 
11216 (March 10, 2010). No comments were received on the proposal. 
The Exchange withdrew the proposed rule change on April 9, 2010. See 
Securities Exchange Act Release No. 61953 (April 21, 2010), 75 FR 
22169 (April 27, 2010).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NYSEArca-2010-57), be, and 
it hereby is, approved on an accelerated basis.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-17749 Filed 7-20-10; 8:45 am]
BILLING CODE 8010-01-P