Document ID: SEC-2014-0380-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-03-06T05:00Z

[Federal Register Volume 79, Number 44 (Thursday, March 6, 2014)]
[Notices]
[Pages 12721-12724]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-04921]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71635; File No. SR-NYSEArca-2014-18]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Reflect Changes 
to the Means of Achieving the Investment Objective Applicable to the 
Newfleet Multi-Sector Income ETF

February 28, 2014.
    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 February 26, 2014, 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 Exchange. 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 reflect changes to the means of achieving 
the investment objective applicable to the Newfleet Multi-Sector Income 
ETF (the ``Fund''). The shares of the Fund are currently listed and 
traded on the Exchange under NYSE Arca Equities Rule 8.600. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved listing and trading on the Exchange of 
shares (``Shares'') of the Newfleet Multi-Sector Income ETF, which are 
offered by AdvisorShares Trust (the ``Trust''),\4\ under NYSE Arca 
Equities Rule 8.600, which governs the listing and trading of Managed 
Fund Shares. The Shares of the Fund are currently listed and traded on 
the Exchange under NYSE Arca Equities Rule 8.600.
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    \4\ See Securities Exchange Act Release No. 69061 (March 7, 
2013), 78 FR 15990 (March 13, 2013) (SR-NYSEArca-2013-01) (order 
approving listing and trading on the Exchange of the Newfleet Multi-
Sector Income ETF) (``Prior Order''). See also Securities Exchange 
Act Release No. 68666 (January 16, 2013), 78 FR 4960 (January 23, 
2013) (SR-NYSEArca-2013-01) (``Prior Notice,'' and together with the 
Prior Order, the ``Prior Release''). The Fund and the Shares are 
currently in compliance with the listing standards and other rules 
of the Exchange and the requirements set forth in the Prior Release.
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    The Shares are offered by the Trust, a statutory trust organized 
under the laws of the State of Delaware and registered with the 
Commission as an

[[Page 12722]]

open-end management investment company.\5\ The investment manager to 
the Fund is AdvisorShares Investments LLC (the ``Adviser''). Newfleet 
Asset Management, LLC is the sub-adviser to the Fund (``Sub-Adviser'').
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    \5\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). On June 25, 2012 the Trust 
filed with the Commission an amendment to its registration statement 
on Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) 
(``Securities Act''), and under the 1940 Act relating to the ] [sic] 
Fund (File Nos. 333-157876 and 811-22110) (``Registration 
Statement''). The description of the operation of the Trust and the 
Fund herein is based, in part, on the Registration Statement. In 
addition, the Commission has issued an order granting certain 
exemptive relief to the Trust under the1940 Act. See Investment 
Company Act Release No. 29291 (File No. 812-13677) (``Exemptive 
Order'').
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    In this proposed rule change, the Exchange proposes to reflect 
changes to the description of the measures the Adviser and Sub-Adviser 
will utilize to implement the Fund's investment objective, as described 
below.\6\
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    \6\ The changes described herein will be effective upon filing 
with the Commission of another amendment to the Trust's Registration 
Statement. See note 4 [sic], supra. The Adviser represents that the 
Adviser and Sub-Adviser have managed and will continue to manage the 
Fund in the manner described in the Prior Release, and will not 
implement the changes described herein until the instant proposed 
rule change is operative.
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    The Prior Release stated that the Fund may hold up to an aggregate 
amount of 15% of its net assets in illiquid securities (calculated at 
the time of investment), including Rule 144A securities and loan 
participation interests (e.g., bank loans). Going forward, the Fund 
proposes that the Fund may hold up to an aggregate amount of 15% of its 
net assets in illiquid assets (calculated at the time of investment), 
including Rule 144A securities and loan participation interests, 
including bank loans, that are deemed illiquid by the Adviser, 
consistent with Commission guidance.\7\ Thus, only those Rule 144A 
securities and loan participation interests, including bank loans, that 
are deemed illiquid by the Adviser would be included in the limitation 
of 15% of net assets in illiquid assets.\8\
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    \7\ See note 24 of the Prior Notice.
    \8\ Currently, Rule 144A securities and loan participation 
interests, including bank loans, are subject to the Fund's 15% 
limitation on holdings in illiquid assets, whether or not such loan 
participation interests are deemed illiquid by the Adviser.
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    The Adviser has represented that it will invest generally in loan 
participation interests, including bank loans, that it deems highly 
liquid, with readily available prices.\9\
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    \9\ The Exchange notes that the Commission has previously 
approved listing and trading on the Exchange of the SPDR Blackstone/
GSO Senior Loan ETF which principally holds senior loans, including 
bank loans. See Securities Exchange Act Release No. 69244 (March 27, 
2013), 78 FR 19766 (April 2, 2013) (SR-NYSEArca-2013-08). The 
Commission also has recently issued a notice of filing and immediate 
effectiveness of a proposed rule change relating to investments in 
leveraged loans by the Peritus High Yield ETF. See Securities 
Exchange Act Release No. 70284 (August 29, 2013), 78 FR 54715 
(September 5, 2013) (SR-NYSEArca-2013-83). In each case, loans 
deemed illiquid by the respective fund adviser are subject to the 
respective fund's 15% limitation on holdings in illiquid assets. 
However, the funds may otherwise hold loans not deemed illiquid by 
the respective fund adviser.
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    In reaching liquidity decisions relating to Rule 144A securities 
and loan participation interests, the 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 security 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.)
    The Exchange notes that the Commission has approved similar 
representations relating to issues of Managed Fund Shares proposed to 
be listed and traded on the Exchange.\10\ The Adviser represents that 
the Adviser and the Trust's Board of Trustees will continue to evaluate 
each 144A security and loan participation interest based on the Fund's 
valuation procedures to oversee liquidity and valuation concerns.\11\
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    \10\ See, e.g., Securities Exchange Act Release No. 70282 
(August 29, 2013), 78 FR 54700 (September 5, 2013) (order approving 
listing and trading on the Exchange of First Trust Inflation Managed 
Fund).
    \11\ As noted in the Prior Release, the Fund may invest up to 
20% of its total assets in fixed-income securities that are rated 
below investment grade at the time of purchase. Such securities 
include bank loans and other securities enumerated in the Prior 
Release.
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    The Fund will invest in loan participation interests, including 
bank loans, rated C or higher by a nationally recognized statistical 
rating organization (``NRSRO'') or is unrated but considered to be of 
comparable quality by the Adviser or Sub-Adviser.\12\ The Fund will not 
invest in loan participation interests that are in default at time of 
purchase. The Fund will only invest in U.S. dollar-denominated loan 
participation interests. In addition, for investment purposes, a loan 
participation interest must have a par amount outstanding of U.S. $150 
million or greater at the time it is originally issued.
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    \12\ In determining whether a security is of ``comparable 
quality'', the Sub-Adviser will consider, for example, whether the 
issuer of the security has issued other rated securities; whether 
the obligations under the security are guaranteed by another entity 
and the rating of such guarantor (if any); whether and (if 
applicable) how the security is collateralized; other forms of 
credit enhancement (if any); the security's maturity date; liquidity 
features (if any); relevant cash flow(s); valuation features; other 
structural analysis; macroeconomic analysis and sector or industry 
analysis.
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    In computing the Fund's net asset value per Share, Rule 144A 
securities and loan participation interests will be valued based on 
price quotations and other equivalent indications of value provided by 
a third party pricing service.
    Intra-day and closing price information for Rule 144A securities 
and loan participation interests is available from major market data 
vendors.
    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.
    Except for the changes noted above, all other facts presented and 
representations made in the Prior Release remain unchanged.
    All terms referenced but not defined herein are defined in the 
Prior Release.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \13\ 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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    \13\ 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 continue to be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in NYSE Arca Equities 
Rule 8.600. With respect to the 15% limitation on investments in 
illiquid securities, the Exchange notes that the Commission has 
approved similar representations relating to issues of Managed Fund 
Shares proposed to be listed and traded on the Exchange.\14\ The 
Adviser represents that the Adviser and the Trust's Board of Trustees 
will continue to evaluate each 144A security based on the Fund's 
valuation procedures to oversee liquidity and valuation concerns. With 
respect to the proposal that loan participation interests, including 
bank loans, that are deemed illiquid by the Adviser be

[[Page 12723]]

included in the limitation of 15% of net assets in illiquid assets, the 
Adviser has represented that it will invest generally in participation 
interests, including bank loans, that it deems highly liquid, with 
readily available prices. In reaching liquidity decisions relating to 
Rule 144A securities and loan participation interests, the 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 
security 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). In computing the Fund's net asset value per 
Share, Rule 144A securities and loan participation interests will be 
valued based on price quotations and other equivalent indications of 
value provided by a third party pricing service. Intra-day and closing 
price information for Rule 144A securities and loan participation 
interests is available from major market data vendors. The Commission 
has previously approved or published notice of effectiveness of 
proposed rule changes for actively-managed exchange-traded funds with 
respect to which loans are subject to the respective fund's 15% 
limitation on holdings in illiquid assets.\15\
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    \14\ See note 10, supra.
    \15\ See note 9, supra.
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    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 this change is to provide 
additional flexibility to the Adviser to meet the Fund's investment 
objective, as discussed above.
    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 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 this change is 
to provide additional flexibility to the Adviser to meet the Fund's 
investment objective, as discussed above. The Adviser represents that 
there is no change to the Fund's investment objective. Except for the 
changes noted above, all other representations made in the Prior 
Release remain unchanged.

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 purposes of the Act. The proposed changes to the 
Fund's means of achieving the investment objective will permit the Fund 
to adjust its portfolio to allow the Fund to continue to meet its 
investment objectives by investing in illiquid assets and bank loans in 
a manner consistent with other actively-managed exchange-traded funds 
and will enhance competition among issues of Managed Fund Shares that 
invest in fixed income securities.

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

    Because the foregoing 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 for 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 
\16\ and Rule 19b-4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) normally does 
not become operative for 30 days after the date of filing. However, 
Rule 19b-4(f)(6)(iii) permits the Commission to designate a shorter 
time if such action is consistent with the protection of investors and 
the public interest. The Exchange requests that the Commission waive 
the 30-day operative delay to accommodate certain investments by the 
Fund and Exchange trading of the Shares of the Fund without delay. The 
Commission believes that waiving the 30-day operative delay is 
consistent with the protection of investors and the public 
interest.\18\ As stated in the proposal, the proposed changes do not 
alter the Fund's investment objective. Under the proposal, the Fund 
seeks to hold up to an aggregate amount of 15% of its net assets in 
illiquid assets (calculated at the time of investment), including Rule 
144A securities and loan participation interests, including bank loans, 
that are deemed illiquid by the Adviser, consistent with Commission 
guidance. Thus, under the proposal only those Rule 144A securities and 
loan participation interests, including bank loans, that are deemed 
illiquid by the Adviser would be included in the limitation of 15% of 
net assets in illiquid assets, rather than all Rule 144A securities and 
loan participation interests, as is currently the case. According to 
the Exchange, the Adviser will invest generally in loan participation 
interests, including bank loans, that it deems highly liquid, with 
readily available prices. In addition, the Exchange states that in 
reaching liquidity decisions relating to Rule 144A securities and loan 
participation interests, the 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 security 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). Furthermore, according to the Exchange, the Adviser and the 
Trust's Board of Trustees will continue to evaluate each 144A security 
and loan participation interest based on the Fund's valuation 
procedures to oversee liquidity and valuation concerns. The Exchange 
represents that, except for the changes in the proposal, all other 
facts and representations made in the Prior Release remain unchanged 
and that the Fund will continue to comply with all initial and 
continued listing requirements under NYSE Arca Equities Rule 8.600. The 
Commission notes that it has approved the listing and trading of shares 
of other actively managed exchange-traded funds that are permitted to 
similarly invest in Rule 144A securities and loan participation

[[Page 12724]]

interests.\19\ Because the proposed changes do not alter the Fund's 
investment objective and do not raise any novel or unique regulatory 
issues, the Commission designates the proposed rule change as operative 
upon filing.
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    \18\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \19\ See, e.g., Securities Exchange Act Release No. 69244 (March 
27, 2013), 78 FR 19766 (April 2, 2013) (SR-NYSEArca-2013-08) (order 
granting approval of proposed rule change to list and trade shares 
of the SPDR Blackstone/GSO Senior Loan ETF).
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    At any time within 60 days of the filing of the 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.

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 Number SR-NYSEArca-2014-18 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 Number SR-NYSEArca-2014-18. 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 Internet 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 will also 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 Number SR-NYSEArca-2014-18 and should 
be submitted on or before March 27, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-04921 Filed 3-5-14; 8:45 am]
BILLING CODE 8011-01-P