Document ID: SEC-2020-2040-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2020-12-22T05:00Z

[Federal Register Volume 85, Number 246 (Tuesday, December 22, 2020)]
[Notices]
[Pages 83665-83667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-28147]

[[Page 83665]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90683; File No. SR-NYSEArca-2020-94]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a 
Proposed Rule Change, as Modified by Amendments No. 1 and No. 2, To 
List and Trade Shares of the AdvisorShares Q Portfolio Blended 
Allocation ETF and AdvisorShares Q Dynamic Growth ETF Under NYSE Arca 
Rule 8.900-E

December 16, 2020.

I. Introduction

    On October 20, 2020, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) \1\ of the Securities 
Exchange Act of 1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ a 
proposed rule change to list and trade shares (``Shares'') of the 
following funds under NYSE Arca Rule 8.900-E (Managed Portfolio 
Shares): AdvisorShares Q Portfolio Blended Allocation ETF and 
AdvisorShares Q Dynamic Growth ETF (each a ``Fund'' and, collectively, 
the ``Funds''). The proposed rule change was published for comment in 
the Federal Register on November 9, 2020.\4\ On December 9, 2020, the 
Exchange filed Amendment No. 1 to the proposed rule change, which 
replaced and superseded the proposed rule change as originally filed, 
and on December 10, 2020, the Exchange filed Amendment No. 2 to the 
proposed rule change.\5\ The Commission has received no comment letters 
on the proposal. This order approves the proposed rule change, as 
modified by Amendments No. 1 and No. 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ See Securities Exchange Act Release No. 90323 (November 3, 
2020), 85 FR 71366.
    \5\ In Amendment No. 1, the Exchange: (1) Updated the status of 
the application for exemptive relief filed by the Trust (defined 
below); (2) modified its representation regarding the use of the 
Funds' investments; (3) supplemented its description of the Funds' 
NAVs; (4) disclosed the minimum number of shares that would be 
outstanding at the commencement of trading on the Exchange; and (5) 
made technical changes. In Amendment No. 2, the Exchange clarified 
its representation regarding the minimum number of Shares 
outstanding at the commencement of trading on the Exchange. Because 
Amendments No. 1 and No. 2 do not materially alter the substance of 
the proposed rule change, Amendment No. 2 is not subject to notice 
and comment. Both amendments are available on the Commission's 
website at: https://www.sec.gov/comments/sr-nysearca-2020-94/srnysearca202094.htm.
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II. Description of the Proposal 6
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    \6\ Additional information regarding the Fund, the Trust 
(defined infra), and the Shares can be found in Amendments No. 1 and 
No. 2, supra note 5, and the Registration Statement, infra note 7.
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    NYSE Arca Rule 8.900-E(b)(1) requires the Exchange to file separate 
proposals under Section 19(b) of the Act before listing and trading any 
series of Managed Portfolio Shares on the Exchange; thus, the Exchange 
submitted this proposal to list and trade the Shares. The Shares will 
be issued by the 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.\7\ The 
investment adviser to each Fund will be AdvisorShares Investments, LLC 
(``Adviser''). The investment sub-advisor to each Fund will be 
ThinkBetter, LLC. Foreside Fund Services, LLC (``Distributor'') will 
serve as the distributor of the Shares.
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    \7\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). On September 11, 2020, the 
Trust filed a registration statement on Form N-1A under the 
Securities Act of 1933 and the 1940 Act for the Funds (File Nos. 
333-157876 and 811-22110) (``Registration Statement''). The 
Commission issued an order granting exemptive relief to the Trust 
(``Exemptive Order'') under the 1940 Act on December 8, 2020 
(Investment Company Act Release No. 31431). The Exemptive Order was 
granted in response to the Trust's application for exemptive relief 
(``Exemptive Application'') (File No. 812-15146).
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    Each Fund's holdings will conform to the permissible investments as 
set forth in the Exemptive Application and Exemptive Order. Pursuant to 
the Exemptive Order, the only permissible investments for the Funds are 
the following, all of which trade on a U.S. exchange contemporaneously 
with the Shares: Exchange-traded funds (``ETFs''), exchange-traded 
notes, exchange-listed common stocks, exchange-traded American 
Depositary Receipts, exchange-traded real estate investment trusts, 
exchange-traded commodity pools, exchange-traded metals trusts, 
exchange-traded currency trusts and exchange-traded futures, as well as 
cash and cash equivalents (short-term U.S. Treasury securities, 
government money market funds, and repurchase agreements).\8\
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    \8\ See Amendment No. 1, supra note 5, at 6, n.7.
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    The AdvisorShares Q Portfolio Blended Allocation ETF is an actively 
managed ETF that is primarily a ``fund of funds.'' Its investment 
objective is to seek to maximize total return over the long-term. The 
Fund will invest in ETFs representing all asset classes, including, but 
not limited to, treasury bonds, municipal bonds, investment grade 
corporate bonds, high-yield U.S. corporate bonds, U.S. and foreign 
equities, and commodities.
    The AdvisorShares Q Dynamic Growth ETF is an actively managed ETF 
that is primarily a ``fund of funds.'' It will seek to achieve long-
term growth by investing in ETFs representing all asset classes, 
including, but not limited to, treasury bonds, municipal bonds, 
investment grade corporate bonds, high-yield U.S. corporate bonds, U.S. 
and foreign equities, commodities, and volatility products.
    Each Fund's investments, including derivatives, will be consistent 
with its investment objective and will not be used to enhance leverage 
(although certain derivatives and other investments may result in 
leverage). Each Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (e.g., 2X or -3X) of the 
Fund's benchmark.

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendments No. 1 and No. 2, to list and trade 
the Shares is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.\9\ In 
particular, the Commission finds that the proposed rule change, as 
modified by Amendment No. 1, is consistent with Section 6(b)(5) of the 
Act,\10\ 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 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.
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    \9\ 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).
    \10\ 15 U.S.C. 78f(b)(5).
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    The Adviser is not registered as a broker-dealer but is affiliated 
with a broker-dealer.\11\ The Adviser has implemented and will maintain 
a ``fire wall'' with respect to its broker-dealer affiliate regarding 
access to information concerning the composition and/or changes to a 
Fund's portfolio and Creation Basket.\12\ Any person related to the 
Adviser or the Trust who makes decisions pertaining to a Fund's 
portfolio composition or that has access to information regarding a 
Fund's portfolio or changes thereto or the

[[Page 83666]]

Creation Basket will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio or changes thereto and the Creation Basket.\13\ Further, any 
person or entity, including an AP Representative,\14\ custodian, 
Reporting Authority, distributor, or administrator, who has access to 
information regarding the Fund's portfolio composition or changes 
thereto or its Creation Basket, must be subject to procedures designed 
to prevent the use and dissemination of material nonpublic information 
regarding the applicable Fund portfolio or changes thereto or the 
Creation Basket.\15\ Moreover, if any such person or entity is 
registered as a broker-dealer or affiliated with a broker-dealer, such 
person or entity must erect and maintain a ``fire wall'' between the 
person or entity and the broker-dealer with respect to access to 
information concerning the composition of and/or changes to such Fund's 
portfolio or Creation Basket.\16\
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    \11\ See Amendment No. 1, supra note 5, at 5.
    \12\ See id. See also NYSE Arca Rule 8.900-E(c)(5) (defining 
``Creation Basket'').
    \13\ See Amendment No. 1, supra note 5, at 5. Furthermore, the 
Exchange represents that in the event that (a) the Adviser or any 
sub-adviser becomes registered as a broker-dealer or becomes newly 
affiliated with a broker-dealer, or (b) any new adviser or sub-
adviser is a registered broker-dealer or becomes affiliated with a 
broker-dealer, the Adviser will implement and maintain a fire wall 
with respect to personnel of the broker-dealer or broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio and/or Creation Basket. See id.
    \14\ See NYSE Arca Rule 8.900-E(c)(5) (defining ``AP 
Representative'').
    \15\ See Amendment No. 1, supra note 5, at 5-6. See also NYSE 
Arca Rule 8.900-E(b)(5).
    \16\ See Amendment No. 1, supra note 5, at 6. See also NYSE Arca 
Rule 8.900-E(b)(5).
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    The Exchange states that trading in the Shares will be subject to 
the Exchange's surveillance procedures for derivative products, and 
that its surveillance procedures are adequate to properly monitor the 
trading of the Shares on the Exchange during all trading sessions and 
to deter and detect violations of Exchange rules and the applicable 
federal securities laws.\17\ NYSE Arca Rule 8.900-E(b)(3) requires each 
Fund's investment adviser to, upon request by the Exchange, or the 
Financial Industry Regulatory Authority (``FINRA'') on behalf of the 
Exchange, to make available the daily portfolio holdings of each series 
of Managed Portfolio Shares. The Exchange states that it has a general 
policy prohibiting the distribution of material, non-public information 
by its employees.\18\ Similarly, FINRA Rule 9910(d) generally prohibits 
FINRA employees from disseminating or disclosing, for a purpose 
unnecessary to the performance of FINRA job responsibilities any 
nonpublic information obtained in the course of his or her employment.
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    \17\ See Amendment No. 1, supra note 5, at 14.
    \18\ See id.
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    The Commission also finds that the proposal is consistent with 
Section 11A(a)(1)(C)(iii) of the Act,\19\ which sets forth Congress's 
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. For the reasons discussed below, the Commission 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 in the Shares when a reasonable degree of certain 
pricing transparency cannot be assured and, as such, the Commission 
believes the proposal is reasonably designed to maintain a fair and 
orderly market for trading the Shares. Specifically, as required by 
NYSE Arca Rule 8.900-E(d)(1)(B), the Exchange will obtain a 
representation from the issuer that the net asset value (``NAV'') per 
Share of each Fund will be calculated daily and will be made available 
to all market participants at the same time.\20\ Information regarding 
market price and trading volume of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services.\21\ Quotation and last-sale 
information for the Shares will be available via the Consolidated Tape 
Association high-speed line.\22\ In addition, the Verified Intraday 
Indicative Value (``VIIV''), as defined in NYSE Arca Rule 8.900-
E(c)(2),\23\ will be widely disseminated by the Reporting Authority 
and/or one or more major market data vendors in one second intervals 
during the Exchange's Core Trading Session and will be disseminated to 
all market participants at the same time.\24\ Moreover, the Funds' 
website, www.advisorshares.com, will include a form of the prospectus 
for each Fund that may be downloaded. The Funds' website will include 
additional quantitative information updated on a daily basis, 
including, for each Fund, the prior Business Day's NAV, market closing 
price or mid-point of the bid/ask spread at the time of calculation of 
such NAV (``Bid/Ask Price''),\25\ and a calculation of the premium and 
discount of the market closing price or Bid/Ask Price against the NAV. 
The website and information will be publicly available at no 
charge.\26\
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    \19\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \20\ See Amendment No. 1, supra note 5, at 14.
    \21\ See id. at 11.
    \22\ See id.
    \23\ NYSE Arca Rule 8.900-E(c)(2) defines the term ``Verified 
Intraday Indicative Value'' as the indicative value of a Managed 
Portfolio Share based on all of the holdings of a series of Managed 
Portfolio Shares as of the close of business on the prior business 
day and, for corporate actions, based on the applicable holdings as 
of the opening of business on the current business day, priced and 
disseminated in one second intervals during the Core Trading Session 
by the Reporting Authority. NYSE Arca Rule 8.900-E(c)(8) defines the 
term ``Reporting Authority'' with respect to a particular series of 
Managed Portfolio Shares as the Exchange, an institution, or a 
reporting service designated by the Exchange or by the exchange that 
lists a particular series of Managed Portfolio Shares (if the 
Exchange is trading such series pursuant to unlisted trading 
privileges), as the official source for calculating and reporting 
information relating to such series, including, but not limited to, 
the NAV, the VIIV, or other information relating to the issuance, 
redemption, or trading of Managed Portfolio Shares. A series of 
Managed Portfolio Shares may have more than one Reporting Authority, 
each having different functions.
    \24\ See Amendment No. 1, supra note 5, at 11-12.
    \25\ The Bid/Ask Price of the Shares will be the mid-point 
between the current national best bid and offer at the time of 
calculation of a Fund's NAV. The records relating to Bid/Ask Prices 
will be retained by the Funds or their service providers. See 
Amendment No. 1, supra note 5, at 11, n.15.
    \26\ See id. at 11.
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    Additionally, the Exchange's rules regarding trading halts should 
help ensure the maintenance of fair and orderly markets for the Shares. 
Trading in the Shares will be subject to NYSE Arca Rule 8.900-
E(d)(2)(C), which sets forth circumstances under which trading in the 
Shares will be halted. NYSE Arca Rule 8.900-E(d)(2)(C)(i) provides that 
the Exchange may consider all relevant factors in exercising its 
discretion to halt trading in a series of Managed Portfolio Shares. 
Trading may be halted because of market conditions or for reasons that, 
in the view of the Exchange, make trading in the series of Managed 
Portfolio Shares inadvisable. These may include: (a) The extent to 
which trading is not occurring in the securities and/or the financial 
instruments composing the portfolio; or (b) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present.\27\ Further, NYSE

[[Page 83667]]

Arca Rule 8.900-E(d)(2)(C)(ii) provides that, if the Exchange becomes 
aware that: (i) The VIIV of a series of Managed Portfolio Shares is not 
being calculated or disseminated in one second intervals, as required; 
(ii) the NAV with respect to a series of Managed Portfolio Shares is 
not disseminated to all market participants at the same time; (iii) the 
holdings of a series of Managed Portfolio Shares are not made available 
on at least a quarterly basis as required under the 1940 Act; or (iv) 
such holdings are not made available to all market participants at the 
same time (except as otherwise permitted under the applicable Exemptive 
Order or no-action relief granted by the Commission or Commission staff 
to the Investment Company with respect to the series of Managed 
Portfolio Shares), it will halt trading in such series until such time 
as the VIIV, the NAV, or the holdings are available, as required.
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    \27\ The Exemptive Application provides that the Investment 
Company or their agent will request that the Exchange halt trading 
in the applicable series of Managed Portfolio Shares where: (i) The 
intraday indicative values calculated by the calculation engines 
differ by more than 25 basis points for 60 seconds in connection 
with pricing of the VIIV; or (ii) holdings representing 10% or more 
of a series of Managed Portfolio Shares' portfolio have become 
subject to a trading halt or otherwise do not have readily available 
market quotations. Any such requests will be one of many factors 
considered in order to determine whether to halt trading in a series 
of Managed Portfolio Shares, and the Exchange retains sole 
discretion in determining whether trading should be halted. As 
provided in the Exemptive Application, each series of Managed 
Portfolio Shares would employ a pricing verification agent to 
continuously compare two intraday indicative values during regular 
trading hours in order to ensure the accuracy of the VIIV. See id. 
at 13, n.19.
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    In support of this proposal, the Exchange has also made the 
following representations:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Rule 8.900-E, as well as all terms in the 
Exemptive Order.\28\
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    \28\ See id. at 14.
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    (2) The Exchange states that a minimum of 100,000 Shares of each 
Fund will be outstanding at the commencement of trading on the 
Exchange.\29\
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    \29\ See Amendment No. 2, supra note 5, at 3.
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    (3) The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities.\30\
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    \30\ See Amendment No. 1, supra note 5, at 13.
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    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders (``ETP Holders'') in an Information 
Bulletin (``Bulletin'') of the special characteristics and risks 
associated with trading the Shares.\31\
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    \31\ The Bulletin will discuss the following: (1) The procedures 
for purchases and redemptions of Shares; (2) NYSE Arca Rule 9.2-
E(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; (3) how information regarding the VIIV is 
disseminated; (4) the requirement that ETP Holders deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; (5) trading 
information; and (6) that the portfolio holdings of the Shares are 
not disclosed on a daily basis. See id. at 14-15.
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    (5) FINRA, on behalf of the Exchange, or the regulatory staff of 
the Exchange, or both, will communicate as needed regarding trading in 
the Shares and certain exchange-traded instruments with other markets 
and other entities that are members of the Intermarket Surveillance 
Group (``ISG''), and FINRA, on behalf of the Exchange, or the 
regulatory staff of the Exchange, or both, may obtain trading 
information regarding trading such securities from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and certain exchange-traded instruments 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.\32\
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    \32\ See id. at 14.
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    (6) The Exchange represents that, for initial and/or continued 
listing, each Fund will be in compliance with Rule 10A-3 under the 
Act.\33\
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    \33\ See id. at 6, n.6.
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    This approval order is based on all of the Exchange's statements 
and representations set forth above and in Amendments No. 1 and No. 2. 
Additionally, the Exchange states that all statements and 
representations made in its proposal regarding (a) the description of 
the portfolio or reference assets, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
rules shall constitute continued listing requirements for listing the 
Shares on the Exchange, as provided under NYSE Arca Rule 8.900-E(b)(1). 
The issuer of the Shares will be required to represent to the Exchange 
that it will advise the Exchange of any failure by a Fund to comply 
with the continued listing requirements, and, pursuant to its 
obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If a 
Fund is not in compliance with the applicable listing requirements, the 
Exchange will commence delisting procedures under NYSE Arca Rule 5.5-
E(m).\34\
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    \34\ See id. at 14.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendments No. 1 and No. 2, is consistent 
with Section 6(b)(5) of the Act \35\ and Section 11A(a)(1)(C)(iii) of 
the Act \36\ and the rules and regulations thereunder applicable to a 
national securities exchange.
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    \35\ 15 U.S.C. 78f(b)(5).
    \36\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-NYSEArca-2020-94), as 
modified by Amendments No. 1 and No. 2, be, and it hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-28147 Filed 12-21-20; 8:45 am]
BILLING CODE 8011-01-P