Document ID: SEC-2009-1839-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing of Grail McDonnell Fixed Income ETFs
Posted Date: 2009-12-30T05:00Z

[Federal Register: December 30, 2009 (Volume 74, Number 249)]
[Notices]               
[Page 69175-69180]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de09-133]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61227; File No. SR-NYSEArca-2009-114]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to the Listing of Grail McDonnell 
Fixed Income ETFs

December 22, 2009.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Exchange Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is 
hereby given that on December 16, 2009, NYSE Arca, Inc. (``NYSE Arca'' 
or the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by the self-
regulatory organization. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Exchange Act, 
NYSE Arca, through its wholly-owned subsidiary NYSE Arca Equities, Inc. 
(``NYSE Arca Equities'' or the ``Corporation''), proposes to list and 
trade the shares of the following funds under NYSE Arca Equities Rule 
8.600: Grail McDonnell Intermediate Municipal Bond ETF and the Grail 
McDonnell Core Taxable Bond ETF (each an ``ETF'' and, collectively, the 
``ETFs''). The shares of the ETFs are collectively referred to herein 
as the ``Shares.''
    The text of the proposed rule change is available on the Exchange's 
Web site at http://www.nyse.com, at the Exchange's principal office 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
    NYSE Exchange proposes to list and trade the Shares of the ETFs 
under NYSE Arca Equities Rule 8.600, which governs the listing and 
trading of Managed Fund Shares on the Exchange.\4\ Each of the ETFs 
will be an actively managed exchange traded fund each of which is a 
series of Grail Advisors ETF Trust (``Trust''). The Trust is registered 
with the Commission as an investment company.\5\
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    \4\ The Commission approved NYSE Arca Equities Rule 8.600 and 
the listing and trading of certain funds of the PowerShares Actively 
Managed Funds Trust on the Exchange pursuant to Rule 8.600 in 
Securities Exchange Act Release No. 57619 (April 4, 2008) 73 FR 
19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission also 
previously approved listing and trading on the Exchange, or trading 
on the Exchange pursuant to unlisted trading privileges (``UTP'') of 
the following actively managed funds under Rule 8.600: Securities 
Exchange Act Release Nos. 57626 (April 4, 2008), 73 FR 19923 (April 
11, 2008) (SR-NYSEArca-2008-28) (order approving trading on the 
Exchange pursuant to UTP of Bear Stearns Active ETF); 57801 (May 8, 
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order 
approving Exchange listing and trading of twelve actively-managed 
funds of the WisdomTree Trust); 59826 (April 28, 2009), 74 FR 20512 
(May 4, 2009) (SR-NYSEArca-2009-22) (order approving Exchange 
listing and trading of Grail American Beacon Large Cap Value ETF; 
60460 (August 7, 2009), 74 FR 41468 (August 17, 2009) (SR-NYSEArca-
2009-55) (order approving Exchange listing and trading of Dent 
Tactical ETF); 60717 (September 24, 2009), 74 FR 50853 (October 1, 
2009) (SR-NYSEArca-2009-74 (order approving listing of four Grail 
Advisors RP ETFs); 60975 (November 10, 2009), 74 FR 59590 (November 
18, 2009) (SR-NYSEArca-2009-83) (order approving listing of Grail 
American Beacon International Equity ETF); 60981 (November 10, 
2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order 
approving listing of five fixed income funds of the PIMCO ETF 
Trust).
    \5\ See Registration Statement on Form N-1A for the Trust filed 
with the Securities and Exchange Commission on October 5, 2009 (File 
Nos. 333-148082 and 811-22154) (the ``Registration Statement''). The 
descriptions of the ETFs and the Shares contained herein are based 
on information in the Registration Statement.

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[[Page 69176]]

Description of the Shares and the Funds
    Grail Advisors, LLC is each Fund's investment manager 
(``Manager''). McDonnell Investment Management, LLC (``McDonnell'' or 
``Sub-Adviser'') serves as each ETF's sub-adviser. The Bank of New York 
Mellon Corporation is the administrator, Fund accountant, transfer 
agent and custodian for the ETFs. ALPS Distributors, Inc. serves as the 
distributor of Creation Units for each ETF on an agency basis.
Grail McDonnell Intermediate Municipal Bond ETF
    According to the Registration Statement, the investment objective 
of the ETF is a high level of current tax-exempt income and higher 
risk-adjusted returns relative to its benchmark.\6\ The ETF invests, 
under normal circumstances, at least 80% of its net assets (plus the 
amount of any borrowings for investment purposes) in debt securities 
with interest payments exempt from federal income taxes. The ETF will 
typically invest in municipal securities and will invest, under normal 
market conditions, primarily in tax exempt general obligation, revenue 
and private activity bonds and notes, which are issued by or on behalf 
of states, territories or possessions of the U.S. and the District of 
Columbia and their political subdivisions, agencies and 
instrumentalities (including Puerto Rico, the Virgin Islands and Guam). 
The ETFs investments generally include municipal securities with a full 
range of maturities and broad issuer and geographic diversification. 
While the Fund may invest in securities of any maturity, under normal 
circumstances, the dollar-weighted average maturity of the portfolio is 
expected to range from three to ten years.
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    \6\ The benchmark for the Grail McDonnell Intermediate Municipal 
Bond ETF is the Barclays 3 to 15 Year National Municipal Bond Index, 
which is a rules-based, market-value-weighted index engineered for 
the long-term tax-exempt bond market. To be included in the index, 
bonds must be rated investment-grade (Baa3/BBB- or higher) by at 
least two of the following ratings agencies: Moody's, S&P, and 
Fitch.
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    The ETF invests primarily in investment grade securities, which are 
securities rated in one of the top four credit quality categories by at 
least one nationally recognized statistical rating organization rating 
that security (``rating agency''). The ETF considers pre-refunded bonds 
or escrowed to maturity municipal securities, regardless of rating, to 
be investment grade securities. The ETF may invest up to 20% of its net 
assets in high yield securities or below investment-grade securities 
rated BB+ (or comparable) or below by a rating agency or, if unrated, 
determined by McDonnell to be of comparable quality.
    The ETF may invest up to 20% of its assets in taxable debt 
securities. These may include securities issued by the U.S. Government, 
its agencies and instrumentalities, corporate debt securities, 
mortgage-backed and other asset-backed securities, and securities of 
other investment companies, including other exchange-traded funds. The 
ETF may only invest in U.S. dollar-denominated securities.
Grail McDonnell Core Taxable Bond ETF
    According to the Registration Statement, the investment objective 
of the ETF is a high level of current income and higher risk-adjusted 
returns relative to its benchmark.\7\ The ETF invests, under normal 
circumstances, at least 80% of its net assets (plus the amount of any 
borrowings for investment purposes) in debt securities. The ETF will 
invest primarily in investment-grade securities, including securities 
issued by the U.S. Government, its agencies and instrumentalities, 
municipal securities, mortgage-backed and other asset-backed 
securities, and corporate and bank obligations, including commercial 
paper, corporate notes and bonds. While the ETF may invest in 
securities of any maturity, under normal circumstances, the average 
duration of the portfolio is typically expected to range from three to 
six years. Duration is a measure of the underlying portfolio's price 
sensitivity to changes in interest rates.
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    \7\ The benchmark for the Grail McDonnell Core Taxable Bond ETF 
is Barclays Aggregate Index, which represents securities that are 
SEC-registered, taxable, and dollar denominated. The index covers 
the U.S. investment grade fixed rate bond market, with index 
components for government and corporate securities, mortgage pass-
through securities, and asset-backed securities.
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    The ETF invests primarily in investment grade securities, which are 
securities rated in one of the top four credit quality categories by at 
least one rating agency. The ETF may invest up to 20% of its net assets 
in high yield securities or below investment-grade securities rated BB+ 
(or comparable) or below by a rating agency or, if unrated, determined 
by McDonnell to be of comparable quality.
    The ETF may invest without limit in securities issued by the U.S. 
Government, its agencies and instrumentalities, up to 90% of its assets 
in mortgage-backed and other asset-backed securities, (subject to the 
20% of Fund assets limitation for high yield securities or below 
investment-grade securities referenced above), and up to 80% of its 
assets in corporate bonds. In addition, the ETFs may invest up to 30% 
of its assets in municipal securities. The Fund may only invest in U.S. 
dollar-denominated securities. It may also invest in securities of 
other investment companies, including other Funds and money market 
funds.
    According to the Registration Statement, the Sub-Adviser, with 
respect to each of the ETFs, adheres to a total return investment 
philosophy in which the investment team seeks to reduce the ETFs' 
exposure to interest rate risk by limiting dependence on the timing of 
purchases and sales for the portfolio by controlling its interest rate 
sensitivity (i.e. duration) relative to the benchmark. McDonnell looks 
for opportunities to outperform the ETFs' stated risk tolerance/
benchmark by identifying relative value opportunities among sectors and 
securities, and exploiting the changing shape of the yield curve. The 
investment process employed by McDonnell utilizes fundamental credit 
analysis within a quantitative risk management framework in order to 
identify relative return opportunities across sectors, among securities 
and along the maturity/yield curve spectrum. Credit analysts and 
portfolio managers participate in regular periodic discussions of 
trends and opportunities in making sector and security selections.
    As discussed below, the ETFs may invest in derivative instruments, 
such as futures and interest rate, total return and credit default 
swaps. Investments in derivatives must be consistent with the ETFs' 
investment objective and may only be used to manage risk and not to 
enhance leverage.
    Under adverse market conditions, the ETFs may, for temporary 
defensive purposes, invest up to 100% of its assets in cash or cash 
equivalents, including investment grade short-term obligations. To the 
extent the Fund invokes this strategy, its ability to achieve its 
investment objective may be affected adversely.
    The Funds will not invest in non-U.S. equity securities.
Investment Policies of the ETFs
    The Registration Statement enumerates investment policies which may 
be changed with respect to an ETF only by a vote of the holders of a 
majority of the ETF's outstanding voting securities. Among these 
policies are the following: (1) Regarding diversification, the ETFs may 
not invest more than 5% of their total assets (taken at market value) 
in securities of any one issuer,

[[Page 69177]]

other than obligations issued or guaranteed by the U.S. Government, its 
agencies and instrumentalities, or purchase more than 10% of the voting 
securities of any one issuer, with respect to 75% of the ETF's total 
assets; and (2) regarding concentration, the ETFs may not invest more 
than 25% of their total assets in the securities of companies primarily 
engaged in any one industry or group of industries provided that: (i) 
This limitation does not apply to obligations issued or guaranteed by 
the U.S. Government, its agencies and instrumentalities; and (ii) 
municipalities and their agencies and authorities are not deemed to be 
industries.
    The ETFs may not invest more than 15% of their net assets in 
illiquid securities, including time deposits and repurchase agreements 
that mature in more than seven days.\8\ For this purpose, ``illiquid 
securities'' are securities that the ETF may not sell or dispose of 
within seven days in the ordinary course of business at approximately 
the amount at which the ETF has valued the securities.
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    \8\ This is a non-fundamental investment restriction applicable 
to each Fund and may be changed with respect to a Fund by a vote of 
a majority of the Board.
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    According to the Registration Statement, in addition to the 
investment strategies described in the prospectus for the ETFs, the 
ETFs may invest in mortgage- or other asset-backed securities. 
Mortgage-related securities include mortgage pass-through securities, 
collateralized mortgage obligations (``CMOs''), commercial mortgage-
backed securities, mortgage dollar rolls, CMO residuals, stripped 
mortgage-backed securities (``SMBSs'') and other securities that 
directly or indirectly represent a participation in, or are secured by 
and payable from, mortgage loans on real property. In pursuing their 
individual objectives, the ETFs may, to the extent permitted by their 
investment objective and policies, purchase and sell (write) both put 
options and call options on securities, swap agreements, securities 
indexes, and enter into interest rate and index futures contracts and 
purchase and sell options on such futures contracts (``futures 
options'') for hedging purposes or to seek to replicate the composition 
and performance of a particular index, except that the ETFs do not 
intend to enter into transactions involving currency futures or 
options.
    An ETF also may enter into swap agreements with respect to interest 
rates and indexes of securities. An ETF may invest in structured notes. 
If other types of financial instruments, including other types of 
options, futures contracts, or futures options are traded in the 
future, an ETF also may use those instruments, provided that their use 
is consistent with the ETF's investment objective. An ETF may, to the 
extent specified in the Registration Statement, purchase and sell both 
put and call options on fixed income or other securities or indexes in 
standardized contracts traded on foreign or domestic securities 
exchanges, boards of trade, or similar entities, or quoted on Nasdaq or 
on an over-the-counter market, and agreements, sometimes called cash 
puts, which may accompany the purchase of a new issue of bonds from a 
dealer. An ETF will write call options and put options only if they are 
``covered.''
    An ETF may invest in futures contracts and options thereon with 
respect to, but not limited to, interest rates and security indexes. An 
ETF will only enter into futures contracts and futures options which 
are standardized and traded on a U.S. exchange, board of trade, or 
similar entity, or quoted on an automated quotation system. According 
to the Registration Statement, neither the Trust nor the Funds are 
deemed to be ``commodity pools'' or ``commodity pool operators'' under 
the Commodity Exchange Act, and are not subject to registration or 
regulation as such under the Commodity Exchange Act.
    An ETF may engage in swap transactions, including, but not limited 
to, swap agreements on interest rates or security indexes and specific 
securities. An ETF also may enter into options on swap agreements 
(``swap options''). The ETFs may purchase or otherwise receive warrants 
or rights. The ETFs may enter into repurchase agreements with banks and 
broker-dealers. An ETF may invest a portion of its assets in cash or 
cash items pending other investments or to maintain liquid assets 
required in connection with some of the ETF's investments. These cash 
items may include money market instruments, such as securities issued 
by the U.S. Government and its agencies, bankers' acceptances, 
commercial paper, and bank certificates of deposit.
    Each ETF may invest in municipal securities. The ETFs may invest in 
pooled real estate investment vehicles and other real estate-related 
investments such as securities of companies principally engaged in the 
real estate industry. Each ETF may invest in the securities of other 
investment companies to the extent permitted by law. Subject to 
applicable regulatory requirements, an ETF may invest in shares of both 
open- and closed-end investment companies (including money market funds 
and ETFs).
    Commentary .07 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.\9\ In addition, 
Commentary .07 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. Commentary .07 to 
Rule 8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca 
Equities Rule 5.2(j)(3); however, Commentary .07 in connection with the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer reflects the applicable open-end fund's portfolio, not an 
underlying benchmark index, as is the case with index-based funds. 
Grail Advisors, LLC is affiliated with a broker-dealer, Grail 
Securities, LLC, and has implemented a fire wall with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to a portfolio. The Sub-Adviser is not 
affiliated with a broker-dealer.\10\ Any

[[Page 69178]]

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 a portfolio.
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    \9\ 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 Manager and Sub-adviser 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.
    \10\ The Exchange represents that Grail Advisors, LLC, as the 
investment adviser of the Funds, and McDonnell, the sub-adviser, and 
their related personnel, are subject to Investment Advisers Act Rule 
204A-1. This Rule specifically requires the adoption of a code of 
ethics by an investment adviser to include, at a minimum: (i) 
Standards of business conduct that reflect the firm's/personnel 
fiduciary obligations; (ii) provisions requiring supervised persons 
to comply with applicable federal securities laws; (iii) provisions 
that require all access persons to report, and the firm to review, 
their personal securities transactions and holdings periodically as 
specifically set forth in Rule 204A-1; (iv) provisions requiring 
supervised persons to report any violations of the code of ethics 
promptly to the chief compliance officer (``CCO'') or, provided the 
CCO also receives reports of all violations, to other persons 
designated in the code of ethics; and (v) provisions requiring the 
investment adviser to provide each of the supervised persons with a 
copy of the code of ethics with an acknowledgement by said 
supervised persons. 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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Availability of Information
    The ETFs' Web site (http://www.grailadvisors.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the prospectus for each ETF that may be downloaded. The Web 
site will include additional quantitative information updated on a 
daily basis, including, for the ETFs: (1) the prior business day's 
reported NAV, mid-point of the bid/ask spread at the time of 
calculation of such NAV (the ``Bid/Ask Price''),\11\ 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 \12\ on the Exchange, the Trust will 
disclose on its Web site the identities and quantities of the portfolio 
of securities and other assets (the ``Disclosed Portfolio'') held by 
the ETFs that will form the basis for the ETFs' calculation of NAV at 
the end of the business day.\13\ The Web site and information will be 
publicly available at no charge.
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    \11\ The Bid/Ask Price of each ETF is determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the NAV. The records relating to Bid/
Ask Prices will be retained by each ETF and its service providers.
    \12\ The Core Trading Session is 9:30 a.m. to 4 p.m. Eastern 
time.
    \13\ Under accounting procedures followed by the ETF, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Notwithstanding the 
foregoing, portfolio trades that are executed prior to the opening 
of the Exchange on any business day may be booked and reflected in 
NAV on such business day. Accordingly, each ETF 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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    In addition, for each ETF, an estimated value, defined in NYSE Arca 
Equities Rule 8.600 as the ``Portfolio Indicative Value,'' that 
reflects an estimated intraday value of the ETF's portfolio, will be 
disseminated. The Portfolio Indicative Value will be based upon the 
current value for the components of the Disclosed Portfolio and will be 
updated and disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session. The 
dissemination of the Portfolio Indicative Value, together with the 
Disclosed Portfolio, will allow investors to determine the value of the 
underlying portfolio of an ETF on a daily basis and to provide a close 
estimate of that value throughout the trading day.
    Information regarding market price and volume of the Shares is and 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. The 
previous day's closing price and trading volume information 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 high-speed line.
    On a daily basis, the ETFs will disclose on the ETFs' Web site for 
each portfolio security or other financial instrument of the ETF 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.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the ETF'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 http://www.sec.gov. 
Information regarding market price and trading volume of the Shares is 
and 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 will be published daily in the financial section of 
newspapers. Additional information regarding the Shares and the ETFs, 
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 ETFs that are referred to, but not defined in, this proposed 
rule change are defined in the Registration Statement.
Initial and Continued Listing
    The Shares will be subject to NYSE Arca Equities Rule 8.600(d), 
which sets forth the initial and continued listing criteria applicable 
to Managed Fund Shares. The Exchange represents that, for initial and/
or continued listing, the Shares must be in compliance with Rule 10A-3 
\14\ 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 
per Share will be calculated daily and that the net asset value and the 
Disclosed Portfolio will be made available to all market participants 
at the same time.
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    \14\ See 17 CFR 240.10A-3.
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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 ETFs. Shares of the ETFs will be halted if 
the ``circuit breaker'' parameters in NYSE Arca Equities Rule 7.12 are 
reached. Trading 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 comprising the Disclosed Portfolio and/or 
the financial instruments of the ETFs; 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 ETFs may be halted.
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. Eastern time in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate

[[Page 69179]]

transactions in the Shares during all trading sessions. The minimum 
trading increment for Shares on the Exchange will be $0.01.
Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which includes 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 Intermarket 
Surveillance Group (``ISG'') from other exchanges who are members of 
ISG.\15\
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    \15\ For a list of the current members of ISG, see http://
www.isgportal.org. The Exchange notes that not all of the components 
of the Disclosed Portfolio for the ETFs may trade on exchanges that 
are members of ISG.
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    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 
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 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 ETFs are 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 4:00 p.m. Eastern time 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) \16\ 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. The 
Exchange believes that the proposed rule change will facilitate the 
listing and trading of additional types of exchange-traded products 
that will enhance competition among market participants, to the benefit 
of investors and the marketplace. In addition, the listing and trading 
criteria set forth in NYSE Arca Equities Rule 8.600 are intended to 
protect investors and the public interest.
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    \16\ 15 U.S.C. 78f(b)(5).
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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.

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

    Within 35 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 Exchange consents, the Commission will:
    (A) by order approve such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.
    The Exchange has requested accelerated approval of this proposed 
rule change prior to the 30th day after the date of publication of 
notice in the Federal Register. The Commission is considering granting 
accelerated approval of the proposed rule change at the end of a 15-day 
comment period.

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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2009-114 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-2009-114. 
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

[[Page 69180]]

should submit only information that you wish to make available 
publicly. All submissions should refer to File Number SR-NYSEArca-2009-
114 and should be submitted on or before January 14, 2010.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E9-30919 Filed 12-29-09; 8:45 am]

BILLING CODE 8011-01-P