Document ID: SEC-2009-1396-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2009-10-01T04:00Z

[Federal Register: October 1, 2009 (Volume 74, Number 189)]
[Notices]               
[Page 50853-50855]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr01oc09-127]                         

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-60717; File No. SR-NYSEArca-2009-74]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 and Order Granting Accelerated Approval of a 
Proposed Rule Change, as Modified by Amendment No. 1, Relating To 
Listing Four Grail Advisors RP Exchange-Traded Funds

September 24, 2009.
    On August 12, 2009, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange''), through its wholly owned subsidiary, NYSE Arca Equities, 
Inc. (``NYSE Arca Equities''), filed with the Securities and Exchange 
Commission (``Commission''), pursuant to Section 19(b)(1) of the 
Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the following Grail Advisors actively-managed exchange-
traded funds: RP Growth ETF, RP Focused Large Cap Growth ETF, RP 
Technology ETF and the RP Financials

[[Page 50854]]

ETF (each an ``ETF'' or ``Fund'' and collectively the ``ETFs or 
``Funds''). The proposed rule change was published in the Federal 
Register on August 28, 2009.\3\ The Commission received no comments on 
the proposal. On September 21, 2009, the Exchange filed Amendment No. 
1.\4\ This order provides notice of the filing of Amendment No. 1, and 
approves the proposed rule change, as modified by Amendment No. 1, on 
an accelerated basis.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 60552 (August 20, 
2009), 74 FR 44417 (``Notice'').
    \4\ Amendment No. 1 reflects the issuer's decision that the 
creation and redemption unit size for each Fund would be 50,000 
Shares, not 25,000 shares as was stated in the Notice.
---------------------------------------------------------------------------

I. Description of the Proposal

    The Exchange proposes to list and trade the Shares pursuant to NYSE 
Arca Equities Rule 8.600, which governs the listing of Managed Fund 
Shares. The Shares will be offered by Grail Advisors ETF Trust 
(``Trust''),\5\ a statutory trust organized under the laws of the State 
of Delaware and registered with the Commission as an open-end 
management investment company. The investment objective of each of the 
Funds is long-term capital appreciation. The ETFs expect to invest 
primarily in the securities of US companies, and may also invest in US 
securities tied economically to foreign investments, such as American 
Depositary Receipts. None of the Funds will invest in non-U.S. equity 
securities.
---------------------------------------------------------------------------

    \5\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a) (``1940 Act''). On June 8, 2009, the Trust 
filed with the Commission post-effective Amendment No. 1 to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a), and under the 1940 Act relating to the Funds (File 
Nos. 333-148082 and 811-22154) (``Registration Statement''). The 
description of the operation of the Trust and the Funds herein is 
based on the Registration Statement.
---------------------------------------------------------------------------

    The Exchange states that the Shares will conform to the initial and 
continued listing criteria under NYSE Arca Equities Rule 8.600, and 
that the Funds will comply with Rule 10A-3 under the Act,\6\ as 
provided by NYSE Arca Equities Rule 5.3.
---------------------------------------------------------------------------

    \6\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    Additional information regarding the Funds, the Shares, the Funds' 
investment objectives, strategies, policies, and restrictions, risks, 
fees and expenses, creations and redemptions of Shares, availability of 
information, trading rules and halts, and surveillance procedures, 
among other things, can be found in the Registration Statement and in 
the Notice, as applicable.\7\
---------------------------------------------------------------------------

    \7\ See, supra, notes 3 and 5.
---------------------------------------------------------------------------

II. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning whether Amendment No. 1 to 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2009-74 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-2009-74. This 
file number should be included on the subject line if e-mail 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 inspection 
and copying in the Commission's Public Reference Room, 100 F Street, 
NE., Washington, DC 20549, on official business days between the hours 
of 10 a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2009-74 and should 
be submitted on or before October 22, 2009.

III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \8\ and the rules and regulations thereunder applicable to a 
national securities exchange.\9\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\10\ 
which requires, among other things, that the Exchange's rules be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission notes that the Shares must comply with 
the requirements of NYSE Arca Equities Rule 8.600 to be listed and 
traded on the Exchange.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78f.
    \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\ 17 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\11\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via the Consolidated Tape 
Association (``CTA'') high-speed line, and the Exchange will 
disseminate the Portfolio Indicative Value (``PIV'') at least every 15 
seconds during the Core Trading Session through the facilities of the 
CTA. In addition, the Fund will make available on its Web site on each 
business day the Disclosed Portfolio that will form the basis for its 
calculation of the net asset value (``NAV''), which will be determined 
as of the close of the regular trading session on the New York Stock 
Exchange (ordinarily 4 p.m. Eastern Time) on each business day. The 
Fund's Web site will also include additional quantitative information 
updated on a daily basis relating to trading volume, prices, and NAV. 
Information regarding the market price and volume of the Shares will be 
continually available on a real-time basis throughout the day via 
electronic services, and the previous day's closing price and trading 
volume information for the Shares will be published daily in the 
financial sections of newspapers.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    The Commission further believes that the proposal is reasonably 
designed to

[[Page 50855]]

promote fair disclosure of information that may be necessary to price 
the Shares appropriately and to prevent trading when a reasonable 
degree of transparency cannot be assured. The Commission notes that the 
Exchange will obtain a representation from the Fund 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.\12\ Additionally, if it becomes aware that the NAV or the 
Disclosed Portfolio is not disseminated daily to all market 
participants at the same time, the Exchange will halt trading in the 
Shares until such information is available to all market 
participants.\13\ Further, if the PIV is not being disseminated as 
required, the Exchange may halt trading during the day in which the 
disruption occurs; if the interruption persists past the day in which 
it occurred, the Exchange will halt trading no later than the beginning 
of the trading day following the interruption.\14\ The Exchange 
represents that the Manager has implemented a ``fire wall'' between it 
and its broker-dealer affiliate with respect to access to information 
concerning the composition and/or changes to the Fund's portfolio. 
Similarly, one of the sub-advisors, Wedgewood, a registered broker-
dealer, also has implemented such a ``fire wall.'' \15\ Any additional 
Fund subadvisers affiliated with a broker-dealer will be required to 
implement a firewall to prevent its broker-dealer affiliate from 
accessing information concerning the composition and/or changes to the 
Fund's portfolio.\16\ Further, the Commission notes that the Reporting 
Authority that provides the Disclosed Portfolio must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the portfolio.\17\
---------------------------------------------------------------------------

    \12\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \13\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
    \14\ Trading in the Shares may also be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) The extent 
to which trading is not occurring in the securities comprising the 
Disclosed Portfolio and/or the financial instruments of the Fund; or 
(2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present.
    \15\ The Exchange also represents that RP, the Fund's primary 
sub-adviser, is not affiliated with a broker-dealer, and that any 
additional Fund sub-advisers that are affiliated with a broker-
dealer will be required to implement a fire wall with respect to 
such broker-dealer regarding access to information concerning the 
composition and/or changes to the portfolio.
    \16\ See Notice, 74 FR at 44420.
    \17\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
---------------------------------------------------------------------------

    The Exchange has represented that the Shares are equity securities 
subject to the Exchange's rules governing the trading of equity 
securities. In support of this proposal, the Exchange has made 
representations, including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable Federal 
securities laws.
    (3) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Circular will discuss the following: (a) 
The procedures for purchases and redemptions of Shares and that Shares 
are not individually redeemable; (b) NYSE Arca Equities Rule 9.2(a), 
which imposes a duty of due diligence on its ETP Holders to learn the 
essential facts relating to every customer prior to trading the Shares; 
(c) the risks involved in trading the Shares during the Opening and 
Late Trading Sessions when an updated PIV will not be calculated or 
publicly disseminated; (d) how information regarding the PIV is 
disseminated; (e) the requirement that ETP Holders deliver a prospectus 
to investors purchasing newly issued Shares prior to or concurrently 
with the confirmation of a transaction; and (f) trading information.
    (4) The Funds will be in compliance with Rule 10A-3 under the Act.
    (5) The Funds will not invest in non-U.S. equity securities.
    This approval order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.
    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\18\ for approving the proposal prior to the thirtieth day 
after the date of publication of the Notice in the Federal Register. 
The Commission notes that it has approved the listing and trading on 
the Exchange of shares of other actively managed exchange-traded funds 
based on a portfolio of securities, the characteristics of which are 
similar to those to be invested by the Fund.\19\ The Commission also 
notes that it has received no comments regarding the proposed rule 
change. Further, the Commission believes that the increased creation 
and redemption unit sizes for the Funds described in Amendment No. 1 
\20\ do not raise any regulatory concerns. The Commission finds that 
the proposed rule change does not raise any novel regulatory issues and 
believes that accelerating approval of this proposal should benefit 
investors by creating, without undue delay, additional competition in 
the market for Managed Fund Shares.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(2).
    \19\ See, e.g., Securities Exchange Act Release Nos. 58512 
(September 11, 2008), 73 FR 53915 (September 17, 2008) (SR-NYSEArca-
2008-85) (approving the listing and trading of shares of the 
PowerShares Active U.S. Real Estate Fund); and 57619 (April 4, 
2008), 73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25) (approving 
the listing and trading of shares of the PowerShares Active AlphaQ 
Fund, PowerShares Active Alpha Multi-Cap Fund, and PowerShares 
Active Mega-Cap Portfolio, among other funds).
    \20\ See supra note 4.
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSEArca-2009-74), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved on 
an accelerated basis.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78s(b)(2).
    \22\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-23626 Filed 9-30-09; 8:45 am]

BILLING CODE 8011-01-P