Document ID: SEC-2011-2003-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-12-22T05:00Z

[Federal Register Volume 76, Number 246 (Thursday, December 22, 2011)]
[Notices]
[Pages 79741-79748]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-32751]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65988; File No. SR-NYSEARCA-2011-95]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of the PIMCO 
Total Return Exchange Traded Fund Under NYSE Arca Equities Rule 8.600

 December 16, 2011.
    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 December 13, 2011, 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

[[Page 79742]]

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 list and trade the following under NYSE 
Arca Equities Rule 8.600 (``Managed Fund Shares''): PIMCO Total Return 
Exchange Traded Fund.
    The text of the proposed rule change is available at the Exchange, 
the Commission's Public Reference Room, and www.nyse.com.

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 Exchange proposes to list and trade the following Managed Fund 
Shares \4\ (``Shares'') under NYSE Arca Equities Rule 8.600: PIMCO 
Total Return Exchange Traded Fund (the ``Fund'').\5\ The Shares will be 
offered by PIMCO ETF 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.\6\
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    \4\ 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) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
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.
    \5\ The Commission has previously approved the listing and 
trading on the Exchange of other actively managed funds under Rule 
8.600. See, e.g., Securities Exchange Act Release Nos. 60981 
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (order approving Exchange listing and trading of five fixed 
income funds of the PIMCO ETF Trust); 61365 (January 15, 2010), 75 
FR 4124 (January 26, 2010) (SR-NYSEArca-2009-114) (order approving 
Exchange listing and trading of Grail McDonnell Fixed Income ETFs).
    \6\ The Trust is registered under the 1940 Act. On July 7, 2011, 
the Trust filed with the Commission Post-Effective Amendment No. 30 
to Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) 
(``1933 Act'') relating to the Fund (File Nos. 333-155395 and 811-
22250) (the ``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 the 1940 
Act. See Investment Company Act Release No. 28993 (November 10, 
2009) (File No. 812-13571) (``Exemptive Order'').
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    The investment manager to the Fund is Pacific Investment Management 
Company LLC (``PIMCO'' or the ``Adviser''). PIMCO Investments LLC 
serves as the distributor for the Fund (``Distributor''). State Street 
Bank & Trust Co. serves as the custodian and transfer agent for the 
Fund (``Transfer Agent'').
    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition, 
Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Adviser is 
affiliated with a broker-dealer and has implemented a ``fire wall'' 
with respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the Fund's portfolio. If 
PIMCO elects to hire a sub-adviser for the Fund that is also affiliated 
with a broker-dealer, such sub-adviser will implement a fire wall with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio. In the 
event (a) the Adviser or any sub-adviser becomes newly affiliated with 
a broker-dealer, or (b) any new manager, adviser or sub-adviser becomes 
affiliated with a broker-dealer, it will implement a fire wall with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio, and will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio.
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    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) Adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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    According to the Registration Statement, the Fund will seek maximum 
total return, consistent with preservation of capital and prudent 
investment management. The Fund will invest under normal market 
circumstances at least 65% of its total assets in a diversified 
portfolio of Fixed Income Instruments of varying maturities.\8\ ``Fixed 
Income Instruments'' include bonds, debt securities and other similar 
instruments issued by various U.S. and non-U.S. public- or private-
sector entities.\9\ The

[[Page 79743]]

average portfolio duration of the Fund normally will vary within two 
years (plus or minus) of the duration of the Barclays Capital U.S. 
Aggregate Index, which as of May 31, 2011 was 5.19 years.\10\
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    \8\ The term ``under normal market circumstances'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the fixed income markets or the financial markets 
generally; operational issues causing dissemination of inaccurate 
market information; or force majeure type events such as systems 
failure, natural or man-made disaster, act of God, armed conflict, 
act of terrorism, riot or labor disruption or any similar 
intervening circumstance.
    \9\ Described below are ``Fixed Income Instruments,'' as such 
term is used generally in the Registration Statement, in which the 
Fund will focus: Debt securities issued or guaranteed by the U.S. 
Government, its agencies or government-sponsored enterprises (``U.S. 
Government Securities''); corporate debt securities of U.S. and non-
U.S. issuers, including convertible securities and corporate 
commercial paper; mortgage-backed and other asset-backed securities; 
inflation-indexed bonds issued both by governments and corporations; 
structured notes, including hybrid or ``indexed'' securities and 
event-linked bonds; bank capital and trust preferred securities; 
loan participations and assignments; delayed funding loans and 
revolving credit facilities; bank certificates of deposit, fixed 
time deposits and bankers' acceptances; repurchase agreements on 
Fixed Income Instruments and reverse repurchase agreements on Fixed 
Income Instruments; debt securities issued by states or local 
governments and their agencies, authorities and other government-
sponsored enterprises; obligations of non-U.S. governments or their 
subdivisions, agencies and government-sponsored enterprises; and 
obligations of international agencies or supranational entities.
    Securities issued by U.S. Government agencies or government-
sponsored enterprises may not be guaranteed by the U.S. Treasury.
    \10\ Duration is a measure used to determine the sensitivity of 
a security's price to changes in interest rates. The longer a 
security's duration, the more sensitive it will be to changes in 
interest rates.
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    According to the Registration Statement, the Fund will invest 
primarily (under normal market circumstances, at least 65% of its total 
assets) in investment-grade Fixed Income Instruments, but may invest up 
to 10% of its total assets in high yield Fixed Income Instruments 
(``junk bonds'') rated B3 through Ba1 by Moody's Investors Service, 
Inc. (``Moody's''), or equivalently rated by Standard & Poor's Ratings 
Services (``S&P'') or Fitch, Inc. (``Fitch''), or, if unrated, 
determined by PIMCO to be of comparable quality.\11\
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    \11\ To the extent the Fund invests in unrated securities that 
PIMCO determines to be of comparable quality to rated securities 
that the Fund may purchase, the Fund's ability to achieve its 
objective may depend more heavily on PIMCO's creditworthiness 
analysis than if the Fund invested exclusively in rated securities.
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    The Fund may invest in variable and floating rate debt securities, 
which are securities that pay interest at rates that adjust whenever a 
specified interest rate changes and/or that reset on predetermined 
dates (such as the last day of a month or calendar quarter). The Fund 
may invest in floating rate debt instruments (``floaters'') and engage 
in credit spread trades. Variable and floating rate debt securities 
generally are less sensitive to interest rate changes but may decline 
in value if their interest rates do not rise as much, or as quickly, as 
interest rates in general. Conversely, floating rate debt securities 
will not generally increase in value if interest rates decline.
    The Fund may invest in debt securities and instruments that are 
economically tied to foreign (non-U.S.) countries. PIMCO generally 
considers an instrument to be economically tied to a non-U.S. country 
if the issuer is a foreign government (or any political subdivision, 
agency, authority or instrumentality of such government), or if the 
issuer is organized under the laws of a non-U.S. country. In the case 
of certain money market instruments, such instruments will be 
considered economically tied to a non-U.S. country if either the issuer 
or the guarantor of such money market instrument is organized under the 
laws of a non-U.S. country.
    The Fund may invest up to 15% of its total assets in securities and 
instruments that are economically tied to emerging market countries. 
PIMCO generally considers an instrument to be economically tied to an 
emerging market country if the issuer or guarantor is a government of 
an emerging market country (or any political subdivision, agency, 
authority or instrumentality of such government), if the issuer or 
guarantor is organized under the laws of an emerging market country, or 
if the currency of settlement of the security is a currency of an 
emerging market country.\12\
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    \12\ According to the Registration Statement, PIMCO has broad 
discretion to identify countries that it considers to qualify as 
emerging markets. In making investments in emerging market 
securities, the Fund emphasizes those countries with relatively low 
gross national product per capita and with the potential for rapid 
economic growth. Emerging market countries are generally located in 
Asia, Africa, the Middle East, Latin America and Eastern Europe. 
PIMCO will select the country based on its evaluation of relative 
interest rates, inflation rates, exchange rates, monetary and fiscal 
policies, trade and current account balances, legal and political 
developments and any other specific factors it believes to be 
relevant.
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    The Fund may invest, without limitation, in mortgage- or asset-
backed securities.\13\ The Fund may purchase or sell debt and equity 
securities on a when-issued, delayed delivery or forward commitment 
basis and may engage in short sales.
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    \13\ According to the Registration Statement, the value of some 
mortgage-or asset-backed securities may be particularly sensitive to 
changes in prevailing interest rates. Early repayment of principal 
on some mortgage-related securities may expose the Fund to a lower 
rate of return upon reinvestment of principal. When interest rates 
rise, the value of a mortgage-related security generally will 
decline; however, when interest rates are declining, the value of 
mortgage-related securities with prepayment features may not 
increase as much as other fixed income securities. The rate of 
prepayments on underlying mortgages will affect the price and 
volatility of a mortgage-related security, and may shorten or extend 
the effective maturity of the security beyond what was anticipated 
at the time of purchase. If unanticipated rates of prepayment on 
underlying mortgages increase the effective maturity of a mortgage-
related security, the volatility of the security can be expected to 
increase. The value of these securities may fluctuate in response to 
the market's perception of the creditworthiness of the issuers. 
Additionally, although mortgages and mortgage-related securities are 
generally supported by some form of government or private guarantee 
and/or insurance, there is no assurance that private guarantors or 
insurers will meet their obligations.
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    While corporate debt securities and debt securities economically 
tied to an emerging market country generally must have $200 million or 
more par amount outstanding and significant par value traded to be 
considered as an eligible investment for the Fund, at least 80% of 
issues of such securities held by the Fund must have $200 million or 
more par amount outstanding.
    According to the Registration Statement, the Fund may, without 
limitation, seek to obtain market exposure to the securities in which 
it primarily invests by entering into a series of purchase and sale 
contracts or by using other investment techniques (such as buy backs or 
dollar rolls). The ``total return'' sought by the Fund will consist of 
income earned on the Fund's investments, plus capital appreciation, if 
any, which generally arises from decreases in interest rates, foreign 
currency appreciation, or improving credit fundamentals for a 
particular sector or security.
    The Fund may also invest in Brady Bonds, which are debt securities 
created through the exchange of existing commercial bank loans to 
sovereign entities for new obligations in connection with a debt 
restructuring.
    The Fund may invest up to 30% of its total assets in securities 
denominated in foreign currencies, and may invest beyond this limit in 
U.S. dollar-denominated securities of foreign issuers, subject to the 
Fund's 10% of total assets limit on investments in preferred stock, 
convertible securities and other equity related securities.\14\ The 
Fund will normally limit its foreign currency exposure (from non-U.S. 
dollar-denominated securities or currencies) to 20% of its total 
assets.
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    \14\ The Fund will not invest in any non-U.S registered equity 
securities, except if such securities are traded on exchanges that 
are members of the Intermarket Surveillance Group (``ISG'').
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    The Fund may invest in municipal bonds. The types of municipal 
bonds in which the Fund may invest include municipal lease obligations, 
municipal general obligation bonds, municipal cash equivalents, and 
pre-refunded and escrowed to maturity municipal bonds. The Fund may 
also invest in industrial development bonds, which are municipal bonds 
issued by a government agency on behalf of a private sector company 
and, in most cases, are not backed by the credit of the issuing 
municipality and may therefore involve more risk. The Fund may also 
invest in securities issued by entities whose underlying assets are 
municipal bonds.
    The Fund may invest in pre-refunded municipal bonds, which are tax-
exempt bonds that have been refunded to a call date on or before the 
final maturity of principal and remain outstanding in the municipal 
market.\15\
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    \15\ The payment of principal and interest of the pre-refunded 
municipal bonds held by the Fund is funded from securities in a 
designated escrow account that holds U.S. Treasury securities or 
other obligations of the U.S. Government (including its agencies and 
instrumentalities (``Agency Securities'')). As the payment of 
principal and interest is generated from securities held in a 
designated escrow account, the pledge of the municipality has been 
fulfilled and the original pledge of revenue by the municipality is 
no longer in place. The escrow account securities pledged to pay the 
principal and interest of the pre-refunded municipal bond do not 
guarantee the price movement of the bond before maturity. Investment 
in pre-refunded municipal bonds held by the Fund may subject the 
Fund to interest rate risk, market risk and credit risk. In 
addition, while a secondary market exists for pre-refunded municipal 
bonds, if the Fund sells pre-refunded municipal bonds prior to 
maturity, the price received may be more or less than the original 
cost, depending on market conditions at the time of sale.

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[[Page 79744]]

    The Fund may make short sales as part of its overall portfolio 
management strategies or to offset a potential decline in value of a 
security.
    The Fund may invest in bank capital securities. Bank capital 
securities are issued by banks to help fulfill their regulatory capital 
requirements. There are three common types of bank capital: Lower Tier 
II, Upper Tier II and Tier I. Bank capital is generally, but not 
always, of investment grade quality. Upper Tier II securities are 
commonly thought of as hybrids of debt and preferred stock. Upper Tier 
II securities are often perpetual (with no maturity date), callable and 
have a cumulative interest deferral feature. This means that under 
certain conditions, the issuer bank can withhold payment of interest 
until a later date. However, such deferred interest payments generally 
earn interest. Tier I securities often take the form of trust preferred 
securities.
    In selecting Fixed Income Instruments for the Fund, PIMCO will 
develop an outlook for interest rates, currency exchange rates and the 
economy, analyze credit and call risks, and use other security 
selection techniques. The proportion of the Fund's assets committed to 
investments in Fixed Income Instruments with particular characteristics 
(such as quality, sector, interest rate or maturity) will vary based on 
PIMCO's outlook for the U.S. economy and the economies of other 
countries in the world, the financial markets and other factors.
    PIMCO will attempt to identify areas of the bond market that are 
undervalued relative to the rest of the market. PIMCO will identify 
these areas by grouping Fixed Income Instruments into sectors such as: 
money markets, governments, corporates, mortgages, asset-backed and 
international. Sophisticated proprietary software then will assist in 
evaluating sectors and pricing specific securities. Once investment 
opportunities are identified, PIMCO will shift assets among sectors 
depending upon changes in relative valuations and credit spreads.

Other Portfolio Holdings

    This describes additional securities and investment techniques that 
may be used by the Fund from time to time. Most of the securities and 
investment techniques described herein are discretionary, which means 
that PIMCO can decide whether to use them or not.
    The Fund may engage in foreign currency transactions on a spot 
(cash) basis and enter into forward foreign currency exchange 
contracts. A forward foreign currency exchange contract, which involves 
an obligation to purchase or sell a specific currency at a future date 
at a price set at the time of the contract, reduces the Fund's exposure 
to changes in the value of the currency it will deliver and increases 
its exposure to changes in the value of the currency it will receive 
for the duration of the contract. Certain foreign currency transactions 
may also be settled in cash rather than the actual delivery of the 
relevant currency. The Fund may enter into these contracts to hedge 
against foreign exchange risk, to increase exposure to a foreign 
currency or to shift exposure to foreign currency fluctuations from one 
currency to another. The Fund may use one currency (or a basket of 
currencies) to hedge against adverse changes in the value of another 
currency (or a basket of currencies) when exchange rates between the 
two currencies are positively correlated. The Fund will segregate or 
``earmark'' assets determined to be liquid by PIMCO in accordance with 
the procedures established by the Fund's Board of Trustees (or, as 
permitted by applicable law, enter into certain offsetting positions) 
to cover its obligations under forward foreign currency exchange 
contracts entered into for non-hedging purposes.
    As disclosed in the Registration Statement, if PIMCO believes that 
economic or market conditions are unfavorable to investors, PIMCO may 
temporarily invest up to 100% of the Fund's assets in certain defensive 
strategies, including holding a substantial portion of the Fund's 
assets in cash, cash equivalents or other highly rated short-term debt 
securities, including debt securities issued or guaranteed by the U.S. 
government, its agencies or instrumentalities and affiliated money 
market and/or short-term bond funds.
    The Fund may invest in, to the extent permitted by Section 
12(d)(1)(A) of the 1940 Act, other affiliated and unaffiliated funds, 
such as open-end or closed-end management investment companies, 
including other exchange traded funds, provided that the Fund's 
investment in units or shares of investment companies and other open-
end collective investment vehicles will not exceed 10% of the Fund's 
net assets. The Fund may invest securities lending collateral in one or 
more money market funds to the extent permitted by Rule 12d1-1 under 
the 1940 Act, including series of PIMCO Funds, an affiliated open-end 
management investment company managed by PIMCO.
    The Fund may invest up to 10% of its total assets in preferred 
stock, convertible securities and other equity related securities.
    Consistent with the Exemptive Order, the Fund will not invest in 
options contracts, futures contracts or swap agreements.
    The Fund may not concentrate its investments in a particular 
industry, as that term is used in the 1940 Act, and as interpreted, 
modified, or otherwise permitted by regulatory authority having 
jurisdiction from time to time.\16\
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    \16\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The Fund may not, with respect to 75% of the Fund's total assets, 
purchase the securities of any issuer, except securities issued or 
guaranteed by the U.S. government or any of its agencies or 
instrumentalities, if, as a result (i) more than 5% of the Fund's total 
assets would be invested in the securities of that issuer, or (ii) the 
Fund would hold more than 10% of the outstanding voting securities of 
that issuer.\17\ For the purpose of this restriction, each state and 
each separate political subdivision, agency, authority or 
instrumentality of such state, each multi-state agency or authority, 
and each guarantor, if any, are treated as separate issuers of 
municipal bonds.
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    \17\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
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    The Fund may hold up to 15% of its net assets in illiquid 
securities.\18\

[[Page 79745]]

Certain illiquid securities may require pricing at fair value as 
determined in good faith under the supervision of the Fund's Board of 
Trustees. The term ``illiquid securities'' for this purpose means 
securities that cannot be disposed of within seven days in the ordinary 
course of business at approximately the amount at which the Fund has 
valued the securities. Certain financial instruments, including, but 
not limited to, Rule 144A securities, loan participations and 
assignments, delayed funding loans, revolving credit facilities, and 
fixed- and floating-rate loans will be included in the 15% limitation 
on illiquid securities.\19\
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    \18\ 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), 
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 
ETF. 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 
1933 Act).
    \19\ The Fund may invest in fixed- and floating-rate loans, 
which investments generally will be in the form of loan 
participations and assignments of portions of such loans. 
Participations and assignments involve special types of risk, 
including credit risk, interest rate risk, liquidity risk, and the 
risks of being a lender. The Fund may also enter into, or acquire 
participations in, delayed funding loans and revolving credit 
facilities, in which a lender agrees to make loans up to a maximum 
amount upon demand by the borrower during a specified term. These 
commitments may have the effect of requiring the Fund to increase 
its investments in a company at a time when it might not otherwise 
decide to do so (including at a time when the company's financial 
condition makes it unlikely that such amounts will be repaid). To 
the extent that the Fund is committed to advance additional funds it 
will segregate or ``earmark'' assets determined to be liquid by 
PIMCO in accordance with procedures established by the Fund's Board 
of Trustees in an amount sufficient to meet such commitments.
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    The Fund intends to qualify annually and elect to be treated as a 
regulated investment company under Subchapter M of the Internal Revenue 
Code.\20\
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    \20\ 26 U.S.C. 851. According to the Registration Statement, to 
qualify as a regulated investment company, the Fund generally must, 
among other things, (a) Derive in each taxable year at least 90% of 
its gross income from dividends, interest, payments with respect to 
securities loans, and gains from the sale or other disposition of 
stock, securities or foreign currencies, net income from certain 
``qualified publicly traded partnerships,'' or other income derived 
with respect to its business of investing in such stock, securities 
or currencies (``Qualifying Income Test''); (b) diversify its 
holdings so that, at the end of each quarter of the taxable year, 
(i) at least 50% of the market value of the Fund's assets is 
represented by cash, U.S. Government securities, the securities of 
other regulated investment companies and other securities, with such 
other securities of any one issuer limited for the purposes of this 
calculation to an amount not greater than 5% of the value of the 
Fund's total assets and 10% of the outstanding voting securities of 
such issuer, and (ii) not more than 25% of the value of its total 
assets is invested in the securities of any one issuer (other than 
U.S. Government securities or the securities of other regulated 
investment companies), the securities of certain controlled issuers 
in the same or similar trades or businesses, or the securities of 
one or more ``qualified publicly traded partnerships''; and (c) 
distribute each taxable year the sum of (i) at least 90% of its 
investment company taxable income (which includes dividends, 
interest and net short-term capital gains in excess of any net long-
term capital losses) and (ii) 90% of its tax exempt interest, net of 
expenses allocable thereto.
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    The Fund will not invest in any non-U.S registered equity 
securities, except if such securities are traded on exchanges that are 
ISG members. The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's 
broad-based securities market index (as defined in Form N-1A).
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca 
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the Fund's portfolio. The Exchange represents that, for 
initial and/or continued listing, the Fund will be in compliance with 
Rule 10A-3 \21\ under the Exchange Act, as provided by NYSE Arca 
Equities Rule 5.3. A minimum of 100,000 Shares will be outstanding at 
the commencement of trading on the Exchange. 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.
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    \21\ 17 CFR 240.10A-3.
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Creations and Redemptions of Shares

    According to the Registration Statement, Shares of the Fund that 
trade in the secondary market will be ``created'' at NAV \22\ by 
Authorized Participants only in block-size Creation Units of 100,000 
Shares or multiples thereof. The Fund will offer and issue Shares at 
their NAV per Share generally in exchange for a basket of debt 
securities held by the Fund (the ``Deposit Securities'') together with 
a deposit of a specified cash payment (the ``Cash Component''). 
Alternatively, the Fund may issue Creation Units in exchange for a 
specified all-cash payment (``Cash Deposit''). Similarly, Shares can be 
redeemed only in Creation Units, generally in-kind for a portfolio of 
debt securities held by the Fund and/or for a specified amount of cash.
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    \22\ The NAV of the Fund's Shares generally is calculated once 
daily Monday through Friday as of the close of regular trading on 
the New York Stock Exchange (``NYSE''), generally 4 p.m. Eastern 
time (``E.T.'') (the ``NAV Calculation Time'') on any business day. 
NAV per Share is calculated by dividing the Fund's net assets by the 
number of Fund Shares outstanding. For more information regarding 
the valuation of Fund investments in calculating the Fund's NAV, see 
the Registration Statement.
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    Except when aggregated in Creation Units, Shares are not redeemable 
by the Fund. The prices at which creations and redemptions will occur 
will be based on the next calculation of NAV after an order is 
received. PIMCO will make available on each business day via the 
National Securities Clearing Corporation (``NSCC''), prior to the 
opening of business (subject to amendments) on the Exchange (currently 
9:30 a.m., E.T.), the identity and the required amount of each Deposit 
Security and the amount of the Cash Component (or Cash Deposit) to be 
included in the current Fund Deposit \23\ (based on information at the 
end of the previous business day). Creations and redemptions must be 
made by an Authorized Participant or through a firm that is either a 
participant in the Continuous Net Settlement System of the NSCC or a 
Depository Trust Company participant, and in each case, must have 
executed an agreement with the Distributor and Transfer Agent with 
respect to creations and redemptions of Creation Unit aggregations.
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    \23\ The Deposit Securities and Cash Component or, 
alternatively, the Cash Deposit, constitute the ``Fund Deposit,'' 
which represents the investment amount for a Creation Unit of the 
Fund.
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    Additional information regarding the Trust, the Fund and the 
Shares, including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings, disclosure policies, 
distributions and taxes is included in the Registration Statement. All 
terms relating to the Fund that are referred to but not defined in this 
proposed rule change are defined in the Registration Statement.

Availability of Information

    The Trust's Web site (www.pimcoetfs.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Trust's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (the

[[Page 79746]]

``Bid/Ask Price''),\24\ and a calculation of the premium and discount 
of the Bid/Ask Price against the NAV, and (2) 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. On each business day, 
before commencement of trading in Shares in the Core Trading Session 
(9:30 a.m. E.T. to 4 p.m. E.T.) on the Exchange, the Fund will disclose 
on the Trust's Web site the Disclosed Portfolio as defined in NYSE Arca 
Equities Rule 8.600(c)(2) that will form the basis for the Fund's 
calculation of NAV at the end of the business day.\25\
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    \24\ 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 Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \25\ 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.
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    On a daily basis, the Adviser will disclose for each portfolio 
security or other financial instrument of the Fund the following 
information: Ticker symbol (if applicable), name of security or 
financial instrument, number of shares or dollar value of financial 
instruments held in the portfolio, and percentage weighting of the 
security or financial instrument in the portfolio. The Web site 
information will be publicly available at no charge. In addition, price 
information for the debt securities held by the Fund will be available 
through major market data vendors.
    In addition, a basket composition file, which includes the security 
names and share quantities, if applicable, required to be delivered in 
exchange for Fund Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the NYSE via the NSCC. The basket represents one Creation Unit of the 
Fund. The NAV of the Fund will normally be determined as of the close 
of the regular trading session on the NYSE (ordinarily 4 p.m. E.T.) on 
each business day.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at www.sec.gov. 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. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the Portfolio Indicative Value, 
as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session. \26\ The dissemination of the 
Portfolio Indicative Value, together with the Disclosed Portfolio, will 
allow investors to determine the value of the underlying portfolio of 
the Fund on a daily basis and to provide a close estimate of that value 
throughout the trading day.
---------------------------------------------------------------------------

    \26\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values published on CTA or other data feeds.
---------------------------------------------------------------------------

Trading Halts

    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\27\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may 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 and/or the 
financial instruments comprising the Disclosed Portfolio of the Fund; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of the Fund may be 
halted.
---------------------------------------------------------------------------

    \27\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules

    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. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.

Surveillance

    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which include Managed 
Fund Shares) to monitor trading in the Shares. The Exchange represents 
that these procedures are adequate to properly monitor Exchange trading 
of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable Federal securities laws.
    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. When such situations 
are detected, surveillance analysis follows and investigations are 
opened, where appropriate, to review the behavior of all relevant 
parties for all relevant trading violations.
    The Exchange may obtain information via the ISG from other 
exchanges that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\28\
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    \28\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement. See note 15, supra.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.

Information Bulletin

    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit aggregations (and that Shares are not individually 
redeemable); (2) 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

[[Page 79747]]

trading the Shares; (3) the risks involved in trading the Shares during 
the Opening and Late Trading Sessions when an updated Portfolio 
Indicative Value will not be calculated or publicly disseminated; (4) 
how information regarding the Portfolio Indicative Value is 
disseminated; (5) the requirement that ETP Holders deliver a prospectus 
to investors purchasing newly issued Shares prior to or concurrently 
with the confirmation of a transaction; and (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Exchange Act. 
The Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5) \29\ 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.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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 and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable Federal securities laws. The Exchange may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. According to the Registration Statement, the Fund will 
invest under normal market circumstances at least 65% of its total 
assets in a diversified portfolio of Fixed Income Instruments of 
varying maturities. The Fund will invest primarily (under normal market 
circumstances, at least 65% of its total assets) in investment-grade 
Fixed Income Instruments, but may invest up to 10% of its total assets 
in high yield Fixed Income Instruments rated B3 through Ba1 by Moody's 
or equivalently rated by S&P or Fitch, or, if unrated, determined by 
PIMCO to be of comparable quality. At least 80% of issues of corporate 
debt securities and debt securities economically tied to an emerging 
market country held by the Fund must have $200 million or more par 
amount outstanding. The Fund will not invest in options contracts, 
futures contracts or swap agreements. The Fund will not invest in any 
non-U.S registered equity securities, except if such securities are 
traded on exchanges that are ISG members. The Fund's investments will 
be consistent with the Fund's investment objective and will not be used 
to enhance leverage; that is, the Fund's investments will not be used 
to seek performance that is the multiple or inverse multiple (i.e., 2Xs 
and 3Xs) of the Fund's broad-based securities market index (as defined 
in Form N-1A).
    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 Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. The Fund's portfolio 
holdings will be disclosed on its Web site daily after the close of 
trading on the Exchange and prior to the opening of trading on the 
Exchange the following day. Moreover, the Portfolio Indicative Value 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Exchange's Core Trading Session. On 
each business day, before commencement of trading in Shares in the Core 
Trading Session on the Exchange, the Fund will disclose on its Web site 
the Disclosed Portfolio that will form the basis for the Fund's 
calculation of NAV at the end of the business day. 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, and quotation 
and last sale information will be available via the CTA high-speed 
line. The Web site for the Fund will include a form of the prospectus 
for the Fund and additional data relating to NAV and other applicable 
quantitative information. Moreover, 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. Trading in Shares of the Fund will be halted if the 
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been 
reached or because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable, and 
trading in the Shares will be subject to NYSE Arca Equities Rule 
8.600(d)(2)(D), which sets forth circumstances under which Shares of 
the Fund may be halted. In addition, as noted above, investors will 
have ready access to information regarding the Fund's holdings, the 
Portfolio Indicative Value, the Disclosed Portfolio, and quotation and 
last sale information for the Shares.
    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 listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. The Adviser is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. In addition, the 
Fund's Reporting Authority will implement and maintain, or be subject 
to, procedures designed to prevent the use and dissemination of 
material non-public information regarding the actual components of the 
Fund's portfolio.

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.

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.

[[Page 79748]]

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

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-2011-95 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-2011-95. 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 Section, 100 F Street 
NE., Washington, DC 20549-1090, on official business days between 10 
a.m. and 3 p.m. Copies of the filing will also be available for 
inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-2011-95 and should be submitted on or before 
January 12, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-32751 Filed 12-21-11; 8:45 am]
BILLING CODE 8011-01-P