Document ID: SEC-2013-1909-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-11-12T05:00Z

[Federal Register Volume 78, Number 218 (Tuesday, November 12, 2013)]
[Notices]
[Pages 67427-67429]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-26935]

[[Page 67427]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70807; File No. SR-NYSEArca-2013-117]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Proposing to Amend 
the Rule Governing the Listing and Trading of Shares of the WisdomTree 
Global Real Return Fund

November 5, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on October 29, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. 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\ 15 U.S.C. 78a.
    \3\ 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 (``Managed Fund Shares''). [sic] proposes 
to [sic] reflect a change to the means of achieving the investment 
objective applicable to the WisdomTree Global Real Return Fund (the 
``Fund''). The Fund is currently listed and traded on the Exchange 
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares'').
    The text of the proposed rule change is available on the Exchange's 
Web site at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved the listing and trading on the Exchange 
of shares (``Shares'') of the Fund under NYSE Arca Equities Rule 8.600 
\4\ (``Managed Fund Shares'').\5\ The Shares are offered by the 
WisdomTree Trust (``Trust''), which was established as a Delaware 
statutory trust on December 15, 2005 and registered with the Commission 
as an open-end investment company.\6\ The Fund is currently listed and 
traded on the Exchange.
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    \4\ The Commission originally approved the listing and trading 
of the Shares on the Exchange on March 12, 2010 as Shares of the 
WisdomTree Real Return Fund. See Securities Exchange Act Release No. 
61697 (March 12, 2010), 75 FR 13616 (March 22, 2010) (SR-NYSEArca-
2010-04) (order approving listing and trading of WisdomTree Real 
Return Fund) (``March 2010 Order''); see also Securities Exchange 
Act Release No. 61519 (February 16, 2010), 75 FR 8164 (February 23, 
2010) (SR-NYSEArca-2010-04) (notice of proposal relating to 
WisdomTree Real Return Fund). Before the Shares were listed, the 
Commission approved a proposed rule change filed by the Exchange to 
seek certain changes to the Fund's investment strategy that were not 
reflected in the March 2010 Order. See Securities Exchange Act 
Release Nos. 64643 (June 10, 2011), 76 FR 35062 (June 15, 2011) (SR-
NYSEArca-2011-21) (order approving proposed rule change to list and 
trade the WisdomTree Global Real Return Fund) (``Prior Order''); and 
64411 (May 5, 2011), 76 FR 27127 (May 10, 2011) (SR-NYSEArca-2011-
21) (notice of filing of proposed rule change to list and trade 
WisdomTree Global Real Return Fund) (``Prior Notice'' and, together 
with the Prior Order, the ``Prior Release'').
    \5\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment advisor 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \6\ The Trust is registered with the Commission as an investment 
company and has filed a registration statement on Form N-1A (File 
Nos. 333-132380 and 811-21864) (``Registration Statement'') under 
the Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act'') and 
the Investment Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act''). 
On September 26, 2013, the Trust filed with the Commission a 
supplement to the Registration Statement. See Form 497, Supplement 
to Registration Statement on Form N-1A for the Trust. The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on the Registration Statement. The Commission has issued an 
order granting certain exemptive relief to the Trust under the 1940 
Act. See Investment Company Act Release No. 28471 (October 27, 2008) 
(File No. 812-13458) (``Exemptive Order''). In compliance with 
Commentary .04 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.
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Description of the Shares and the Fund
    WisdomTree Asset Management, Inc. is the investment adviser 
(``Adviser'') to the Fund. Western Asset Management Company serves as 
sub-adviser for the Fund (``Sub-Adviser'').\7\
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    \7\ Mellon Capital Management Corporation was cited as the Sub-
Adviser in the Prior Release.
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    In this proposed rule change, the Exchange proposes to make the 
following changes, described below, to the investment strategy the Sub-
Adviser will use to obtain the Fund's investment objectives (the 
``Proposed Amendments'').\8\ Under the Proposed Amendments, the Fund 
proposes to:
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    \8\ The Proposed Amendments described herein will be effective 
upon filing with the Commission of another amendment to the Trust's 
Registration Statement or supplement thereto. See note 5 [sic], 
supra. The Prior Notice stated that the Fund intends to invest at 
least 70% of its net assets in ``Fixed Income Securities'' as 
defined therein. The Adviser represents that the Adviser and the 
Sub-Adviser have managed and will continue to manage the Fund in the 
manner described in the Prior Notice, and the Fund will not 
implement the Proposed Amendments described herein until the instant 
proposed rule change is operative.
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    (1) Reduce the Fund's minimum investment in investment grade \9\ 
securities from 70% of Fund assets to 60% of Fund assets (and 
correspondingly, increase the percentage of Fund assets that may be 
invested in non-investment grade securities, including unrated 
securities that the Adviser or Sub-Adviser believes are of comparable 
quality to rated securities from 30% to 40% of Fund assets); \10\
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    \9\ The Adviser represents that the term ``investment grade'' 
for purposes of this proposed rule change mean securities rated in 
the Baa/BBB categories or above by one or more nationally recognized 
statistical rating organizations (``NRSROs''). If a security is 
rated by multiple NRSROs, the Fund will treat the security as being 
in the highest rating category received from an NRSRO.
    \10\ The determination by the Adviser or Sub-Adviser that an 
unrated security is of comparable quality to another security rated 
below investment grade will be based on, among other factors, a 
comparison between the unrated security and securities issued by 
similarly situated companies to determine where in the spectrum of 
credit quality the unrated security would fall. The Adviser or Sub-
Adviser would also perform an analysis of the unrated security and 
its issuer similar, to the extent possible, to that performed by a 
NRSRO in rating similar securities and issuers. See Credit Analysis 
of Portfolio Securities, Commission No-Action Letter (May 8, 1990).
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    (2) Increase the permitted percentage of the Fund's assets invested 
in more

[[Page 67428]]

speculative debt securities (``Speculative Debt'') from not more than 
10% of Fund assets invested in securities rated BB or below by Standard 
& Poor's Corporation (``S&P'') or equivalently rated by Moody's 
Investors Service (``Moody's'') or Fitch Ratings (``Fitch'') to not 
more than 15% of Fund assets invested in securities rated B or below by 
S&P or equivalently rated by Moody's or Fitch; \11\ and
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    \11\ Debt securities rated B or below represent over 44% of the 
$1.2 trillion high yield bond market. Source: Merrill Lynch High 
Yield Master II Index. The Average Daily Trading Volume (``ADTV'') 
of U.S. corporate bonds rated B has typically been comparable to, 
and often higher, than the ADTV of U.S. corporate bonds rated BB 
between January 2005 and June 2013. Source: http://www.sifma.org/research/statistics.aspx.
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    (3) Eliminate the current 20% limitation on investments in 
corporate bonds and include corporate bonds \12\ within the 70% minimum 
intended investment in Fixed Income Securities.
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    \12\ The Exchange notes that the Prior Release did not specify a 
limit to the Fund's investments in Rule 144A securities not deemed 
illiquid by the Adviser or Sub-Adviser. Under this proposed rule 
change, the Fund may therefore invest without limit in corporate 
bonds that are Rule 144A securities and are deemed liquid by the 
Adviser or Sub-Adviser. The Fund may also invest up to 15% of the 
Fund's net assets (calculated at the time of investment) in illiquid 
assets, including Rule 144A securities that are deemed illiquid by 
the Adviser or Sub-Adviser, consistent with Commission guidance. The 
Commission has stated that long-standing Commission guidelines have 
required open-end funds to hold no more than 15% of their net assets 
in illiquid securities and other illiquid assets. See Investment 
Company Act Release No. 28193 (March 11, 2008), 73 FR 14618 (March 
18, 2008), footnote 34. See also, Investment Company Act Release No. 
5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) (Statement 
Regarding ``Restricted Securities''); Investment Company Act Release 
No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) (Revisions 
of Guidelines to Form N-1A). A fund's portfolio security is illiquid 
if it cannot be disposed of in the ordinary course of business 
within seven days at approximately the value ascribed to it by the 
fund. See Investment Company Act Release No. 14983 (March 12, 1986), 
51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 under 
the 1940 Act); Investment Company Act Release No. 17452 (April 23, 
1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under the 
Securities Act).
    In reaching liquidity decisions, the Adviser or Sub-Adviser may 
consider the following factors: the frequency of trades and quotes 
for the security; the number of dealers wishing to purchase or sell 
the security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
securities and the nature of the marketplace trades (e.g., the time 
needed to dispose of the security, the method of soliciting offers, 
and the mechanics of transfer).
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    The Adviser represents that the Fund's investments in non-
investment grade debt securities and corporate bonds, will in each case 
be limited to securities that are liquid with readily available 
quotations.\13\ The Adviser represents that there is no change to the 
Fund's investment objective.\14\ The Fund will continue to comply with 
all initial and continued listing requirements under NYSE Arca Equities 
Rule 8.600.
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    \13\ The average daily trading volume (``ADTV'') in non-
investment grade U.S. corporate debt (including both publicly traded 
and Rule 144A securities) during each of the first two calendar 
quarters of 2013 exceeded $10 billion, as compared with an ADTV for 
investment grade U.S. corporate debt exceeding $16 billion. Source: 
http://www.sifma.org/research/statistics.aspx. Intra-day prices on 
non-investment grade debt securities are available through TradeWeb 
and Market Axess.
    \14\ The Proposed Amendments will be effective upon filing with 
the Commission of an amendment to the Trust's Registration Statement 
and upon effectiveness and operativeness of this proposal.
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    Except for the Proposed Amendments noted above, all other facts 
presented and representations made in the Rule 19b-4 filing underlying 
the Prior Release remain unchanged. The Adviser represents that the 
Proposed Amendments would be consistent with the Exemptive Order under 
the 1940 Act and the rules thereunder.
    Terms used herein but not otherwise defined shall have the meanings 
ascribed to them in the Rule 19b-4 filing underlying the Prior 
Release.\15\
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    \15\ See note 4, supra.
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    The Exchange notes that the Commission has previously approved for 
listing other actively-managed exchange-traded funds that collectively 
include each of the conditions contained in the Proposed 
Amendments.\16\
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    \16\ See Securities Exchange Act Release No. 68863 (February 7, 
2013), 78 FR 10222 (February 13, 2013) (order approving listing and 
trading of Guggenheim Enhanced Total Return ETF)(SR-NYSEArca-2012-
142) (``Guggenheim ETF Order''). The Guggenheim ETF Order permitted 
the Guggenheim Enhanced Total Return ETF to invest in a manner 
consistent with the Proposed Amendments. See, also, Securities 
Exchange Act Release No. 68073 (October 19, 2012), 77 FR 65237 
(October 25, 2013) (SR-NASDAQ-2012-98) (order approving listing and 
trading of WisdomTree Global Corporate Bond Fund, explicitly 
permitting that fund to invest up to 45% of its assets in non-
investment grade securities and up to 15% of its assets in 
securities rated B or below by S&P or equivalently rated by Moody's 
or Fitch). The WisdomTree Global Corporate Bond Fund, therefore, is 
permitted to invest a higher percentage of that fund's assets in 
non-investment grade securities (45%) than is proposed under this 
proposed rule change (40%).
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \17\ 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.
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    \17\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed on the Exchange pursuant to the initial and 
continued listing criteria in NYSE Arca Equities Rule 8.600. As 
discussed below, the Exchange believes that the Proposed Amendments 
will not either individually, nor taken collectively, make the Shares 
more difficult to value or make them susceptible to manipulation, but 
rather the Proposed Amendments will retain conditions on Fund 
investments that are intended to result in such underlying investments 
being generally liquid and transparent. As stated above, the Fund:
    (1) Proposes to reduce the Fund's minimum investment in investment 
grade securities from 70% of Fund assets to 60% of Fund assets (and 
correspondingly, increase the percentage of Fund assets that may be 
invested in non-investment grade securities, including unrated 
securities that the Adviser or Sub-Adviser believes are of comparable 
quality to rated securities from 30% to 40% of Fund assets). The 
Exchange believes that this proposal is consistent with the Act, and 
Section 6(b)(5) in particular, because the Fund will continue to 
principally hold investment grade assets and, as stated above, the 
Adviser represents that the Fund will invest solely in non-investment 
grade securities that are liquid and for which intra-day quotes are 
readily available.
    (2) Proposes to invest not more than 15% of its assets in in 
securities rated B or below by S&P or equivalently rated by Moody's or 
Fitch. The Exchange believes that this proposal is consistent with the 
Act, and Section 6(b)(5) in particular, because, although the proposed 
rule change would increase the percentage of Speculative Debt in which 
the Fund may invest, and lowers from BB to B the minimum investment 
rating for such Speculative Debt, the Adviser represents that the Fund 
will invest solely in Speculative Debt securities that are liquid and 
for which intra-day quotes are readily available.
    (3) Proposes to eliminate the current 20% limitation on investments 
in corporate bonds and include corporate bonds within the 70% minimum 
investment in Fixed Income Securities. As stated in the Prior Release, 
the Fund generally will limit its investment in corporate bonds to 
corporate bonds having a minimum par amount outstanding of not less 
than $200 million. The Exchange believes that this proposal is 
consistent with the Act, and Section 6(b)(5) in particular, because, 
the Adviser represents that the Fund will invest solely in corporate 
debt

[[Page 67429]]

securities that are liquid and for which intra-day quotes are readily 
available.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Adviser represents that there is no change to the Fund's 
investment objective. The Fund will continue to comply with all initial 
and continued listing requirements under NYSE Arca Equities Rule 8.600. 
The Adviser represents that the purpose of the proposed rule change is 
to provide additional flexibility to the Sub-Adviser to meet the Fund's 
investment objective by: (1) Reducing the Fund's minimum intended 
investment in investment grade securities from 70% of Fund assets to 
60% of Fund assets (and correspondingly, increase the percentage of 
Fund assets that may be invested in non-investment grade securities, 
including unrated securities that the Adviser or Sub-Adviser believes 
are of comparable quality to rated securities from 30% to 40% of Fund 
assets); (2) increasing the percentage of the Fund's Speculative Debt 
from currently not more than 10% of Fund assets invested in securities 
rated BB or below by S&P or equivalently rated by Moody's or Fitch to 
not more than 15% of Fund assets invested in securities rated B or 
below by S&P or equivalently rated by Moody's or Fitch; and (3) 
eliminating the current 20% limitation on investments in corporate 
bonds.
    The Adviser represents that the Proposed Amendments are therefore 
consistent with the Exemptive Order under the 1940 Act and the rules 
thereunder. Except for the changes noted regarding the Proposed 
Amendments above, all other representations made in the Prior Release 
remain unchanged.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the continued listing and 
trading of an actively-managed exchange-traded product that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. The Fund will continue to comply with 
all initial and continued listing requirements under NYSE Arca Equities 
Rule 8.600.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange believes the 
proposed rule change will permit the Adviser and Sub-Adviser additional 
flexibility in achieving the Fund's investment objective, and will 
permit the Fund to better compete with other issues of Managed Fund 
Shares that are subject to investment parameters and limitations 
similar to those in the Proposed Amendments.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received from Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.
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    \18\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \19\ 17 CFR 240.19b-4(f)(6).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \20\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
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    \20\ 15 U.S.C. 78s(b)(2)(B).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-NYSEArca-2013-117 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File No. SR-NYSEArca-2013-117. This 
file number should be included on the subject line if email 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 Web site (http://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 Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such 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 No. SR-NYSEArca-2013-117 and should be 
submitted on or before December 3, 2013.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-26935 Filed 11-8-13; 8:45 am]
BILLING CODE 8011-01-P