Document ID: SEC-2014-0493-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2014-03-27T04:00Z

[Federal Register Volume 79, Number 59 (Thursday, March 27, 2014)]
[Notices]
[Pages 17206-17212]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-06760]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71767; File No. SR-NYSEArca-2014-11]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change To List and Trade Shares of the SPDR 
SSgA Risk Aware ETF; SPDR SSgA Large Cap Risk Aware ETF; and SPDR SSgA 
Small Cap Risk Aware ETF Under NYSE Arca Equities Rule 8.600

March 21, 2014.

I. Introduction

    On January 24, 2014, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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 SPDR SSgA 
Risk Aware ETF; SPDR SSgA Large Cap Risk Aware ETF; and SPDR SSgA Small 
Cap Risk Aware ETF (each, a ``Fund'' and, collectively, ``Funds'') 
under NYSE Arca Equities Rule 8.600. The proposed rule change was 
published for comment in the Federal Register on February 7, 2014.\3\ 
The Commission received no comments on the proposed rule change. This 
order grants approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 71468 (Feb. 3, 
2014), 79 FR 7487 (``Notice'').
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II. Description of Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Funds 
pursuant to NYSE Arca Equities Rule 8.600, which governs the listing 
and trading of Managed Fund Shares on the Exchange. The Shares will be 
offered by SSgA Active ETF Trust (``Trust''), which is organized as a 
Massachusetts business trust and is registered with the Securities and 
Exchange Commission (``Commission'') as an open-end management 
investment company.\4\ SSgA Funds Management, Inc. (``Adviser'') will 
serve as the investment adviser to the Funds.\5\ State Street Global 
Markets, LLC (``Distributor'' or ``Principal Underwriter'') will be the 
principal underwriter and distributor of the Funds' Shares. State 
Street Bank and Trust Company (``Administrator,'' ``Custodian'' or 
``Transfer Agent'') will serve as administrator, custodian and transfer 
agent for the Funds.
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). The Exchange states that on December 14, 2012, 
the Trust filed with the Commission an amendment to its registration 
statement on Form N-1A under the Securities Act of 1933 (15 U.S.C. 
77a) (``Securities Act''), and under the 1940 Act relating to the 
Funds (File Nos. 333-173276 and 811-22542) (``Registration 
Statement''). In addition, the Exchange states that the Commission 
has issued an order granting certain exemptive relief to the Trust 
under the1940 Act. See Investment Company Act Release No. 29524 
(December 13, 2010) (File No. 812-13487) (``Exemptive Order'').
    \5\ The Exchange states that Adviser is not registered as a 
broker-dealer but 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 Funds' portfolios. The Exchange states that in the 
event (a) the Adviser or any sub-adviser becomes, or becomes newly 
affiliated with, a broker-dealer, or (b) any new adviser or sub-
adviser is, or becomes affiliated with, a broker-dealer, it will 
implement a fire wall with respect to its relevant personnel or 
broker-dealer affiliate regarding access to information concerning 
the composition and/or changes to a 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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    The Exchange has made the following representations and statements 
in describing the Funds and their respective investment strategies, 
including other portfolio holdings and investment restrictions.\6\
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    \6\ The Commission notes that additional information regarding 
the Trust, the Funds, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, portfolio holdings disclosure 
policies, distributions, and taxes, among other information, is 
included in the Notice and the Registration Statements, as 
applicable. See Notice and Registration Statement, supra notes 3 and 
4, respectively.
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General

    The Funds are intended to be managed in a ``master-feeder'' 
structure, under which each Fund will invest substantially all of its 
assets in a corresponding portfolio (each, a ``Portfolio'') (i.e. a 
``master fund''), which is a separate mutual fund registered under the 
1940 Act that has an identical investment objective. As a result, each 
Fund (i.e., a ``feeder fund'') will have an indirect interest in all of 
the securities and other assets owned by each corresponding Portfolio. 
Because of this indirect interest, each Fund's investment returns 
should be the same as those of the corresponding Portfolio, adjusted 
for the expenses of the Fund. In extraordinary instances, each Fund 
reserves the right to make direct investments in securities.
    The Adviser will manage the investments of each respective 
Portfolio. Under the master-feeder arrangement, investment advisory 
fees charged at the master-fund level are deducted from the advisory 
fees charged at the feeder-fund level. This arrangement avoids a 
``layering'' of fees, e.g., a Fund's total annual operating expenses 
would be no higher as a result of investing in a master-feeder 
arrangement than they would be if the Fund pursued its investment 
objectives directly. Each Fund may discontinue investing through the 
master-feeder arrangement and pursue its investment objectives directly 
if the Fund's Board of Trustees determines that doing so would be in 
the best interests of shareholders.
    The Funds will not be index Funds. The Funds will be actively 
managed and will not seek to replicate the performance of a specified 
index.

SPDR SSgA Risk Aware ETF

    The SPDR SSgA Risk Aware ETF will seek to provide competitive 
returns compared to the broad U.S. equity market and capital 
appreciation.
    Under normal circumstances,\7\ the Fund will invest all of its 
assets in the SSgA Risk Aware Portfolio (``Risk

[[Page 17207]]

Aware Portfolio''), a separate series of the SSgA Master Trust with an 
identical investment objective as the Fund. As a result, the Fund will 
invest indirectly through the Risk Aware Portfolio.
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    \7\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the equity 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.
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    In seeking its objective, the Risk Aware Portfolio will invest in a 
diversified selection of equity securities included in the Russell 3000 
Index that the Adviser believes are aligned with predicted investor 
risk preferences.\8\ The Russell 3000 Index measures the performance of 
the largest 3,000 U.S. companies, including business development 
companies, representing approximately 98% of the investable U.S. equity 
market. The Russell 3000 Index is constructed to provide a 
comprehensive, unbiased, and stable barometer of the broad market and 
is completely reconstituted annually to ensure new and growing equities 
are reflected. As of September 30, 2013, the Russell 3000 Index was 
comprised of 2,965 stocks.
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    \8\ The Portfolios will invest only in equity securities that 
trade in markets that are members of the Intermarket Surveillance 
Group (``ISG'') or are parties to a comprehensive surveillance 
sharing agreement with the Exchange.
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    In selecting securities for the Risk Aware Portfolio, the Adviser 
will utilize a proprietary quantitative investment process to measure 
and predict investor risk preferences. This investment process 
recognizes that the attributes that render a particular security 
``risky'' or ``safe'' from an investor's perspective will change over 
time. The process therefore will begin with a broad set of plausible 
dimensions of risk, or factors that may be viewed by investors as 
contributing to a security's risk level at any given time. This set 
will include, among many other items, market beta, liquidity, and 
exposure to certain commodities, leading economic indicators, currency, 
credit risk, and performance differences between cyclical and defensive 
sectors. The Adviser will then use a sequence of procedures to develop 
a subset of attributes representing those it believes to be relevant to 
investors at a given time. This subset will help form the Adviser's 
forecast for aggregate risk appetite and assist the Adviser in 
generating the groups of securities likely to benefit the most and 
least in light of that forecast. Different predictions of risk appetite 
may result in portfolios that are more defensive or risk-seeking, based 
on what the market considers safe and/or risky at a given time. For 
example, during periods of anticipated investor preference for low 
risk, the Adviser will adjust the Risk Aware Portfolio's composition to 
be defensive and may increase exposure to large cap companies. On the 
other hand, during periods of anticipated investor preference for high 
risk, the Adviser will adjust the Risk Aware Portfolio's composition to 
be risk-seeking and may increase exposure to small cap companies. 
Similarly, exposures to value, growth, quality and other themes will 
vary depending on how they align with investor risk appetite at a given 
time. In periods of anticipated investor preference for moderate risk, 
the Risk Aware Portfolio's composition will more closely reflect the 
weighted composition of the Russell 3000 Index. The Adviser believes 
the ebbing and flowing of risk preferences give this strategy the 
potential to provide competitive returns relative to the Russell 3000 
Index over the long term. The Risk Aware Portfolio will be non-
diversified for purposes of the 1940 Act, and as a result may invest a 
greater percentage of its assets in a particular issuer than a 
diversified fund. However, it is expected that the Risk Aware Portfolio 
will have exposure to a diversified mix of equity securities.

SPDR SSgA Large Cap Risk Aware ETF

    The SPDR SSgA Large Cap Risk Aware ETF will seek to provide 
competitive returns compared to the large cap U.S. equity market and 
capital appreciation.
    Under normal circumstances,\9\ the Fund will invest all of its 
assets in the SSgA Large Cap Risk Aware Portfolio (``Large Cap 
Portfolio''), a separate series of the SSgA Master Trust with an 
identical investment objective as the Fund. As a result, the Fund will 
invest indirectly through the Large Cap Portfolio.
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    \9\ See supra note 7.
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    In seeking its objective, the Large Cap Portfolio will invest in a 
diversified selection of equity securities included in the Russell 1000 
Index that the Adviser believes are aligned with predicted investor 
risk preferences.\10\ The Russell 1000 Index measures the performance 
of the large-cap segment of the U.S. equity universe. It is a subset of 
the Russell 3000[supreg] Index and includes approximately 1,000 of the 
largest securities, which may include business development companies, 
based on a combination of their market cap and current index 
membership. The Russell 1000 Index represents approximately 92% of the 
U.S. market. The Russell 1000 Index is constructed to provide a 
comprehensive and unbiased barometer for the large-cap segment and is 
completely reconstituted annually to ensure new and growing equities 
are reflected. As of September 30, 2013, the Russell 1000 Index was 
comprised of 1,003 stocks.
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    \10\ See supra note 8.
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    Under normal circumstances, the Large Cap Portfolio will invest at 
least 80% of its net assets (plus the amount of borrowings for 
investment purposes) in securities of large-cap companies. The Large 
Cap Portfolio considers large-cap companies to be companies with market 
capitalizations falling within the range of the Russell 1000 Index at 
the time of initial purchase. In selecting securities for the Large Cap 
Portfolio, the Adviser will utilize a proprietary quantitative 
investment process to measure and predict investor risk preferences. 
This investment process recognizes that the attributes that render a 
particular security ``risky'' or ``safe'' from an investor's 
perspective will change over time. The process therefore will begin 
with a broad set of plausible dimensions of risk, or factors that may 
be viewed by investors as contributing to a security's risk level at 
any given time. This set includes, among many other items, market beta, 
liquidity, and exposure to certain commodities, leading economic 
indicators, currency, credit risk, and performance differences between 
cyclical and defensive sectors. The Adviser then will use a sequence of 
procedures to develop a subset of attributes representing those it 
believes to be relevant to investors at a given time. This subset will 
help form the Adviser's forecast for aggregate risk appetite and assist 
the Adviser in generating the groups of securities likely to benefit 
the most and least in light of that forecast. Different predictions of 
risk appetite may result in portfolios that are more defensive or risk-
seeking, based on what the market considers safe and/or risky at a 
given time. For example, during periods of anticipated investor 
preference for low risk, the Adviser will adjust the Large Cap 
Portfolio's composition to be defensive. On the other hand, during 
periods of anticipated investor preference for high risk, the Adviser 
will adjust the Large Cap Portfolio's composition to be risk-seeking. 
Similarly, exposures to value, growth, quality and other themes will 
vary depending on how they align with investor risk appetite at a given 
time. In periods of anticipated investor preference for moderate risk, 
the Large Cap Portfolio's composition will more closely reflect the 
weighted composition of the Russell 1000 Index. The Adviser believes 
the ebbing and flowing of risk preferences give this strategy the 
potential to provide competitive returns relative to the Russell 1000 
Index over the long term. The Large Cap Portfolio

[[Page 17208]]

will be non-diversified for purposes of the 1940 Act, and as a result 
may invest a greater percentage of its assets in a particular issuer 
than a diversified fund. However, it is expected that the Large Cap 
Portfolio will have exposure to a diversified mix of equity securities.

SPDR SSgA Small Cap Risk Aware ETF

    The SPDR SSgA Small Cap Risk Aware ETF will seek to provide 
competitive returns compared to the small cap U.S. equity market and 
capital appreciation.
    Under normal circumstances,\11\ the Fund will invest all of its 
assets in the SSgA Small Cap Risk Aware Portfolio (``Small Cap 
Portfolio''), a separate series of the SSgA Master Trust with an 
identical investment objective as the Fund. As a result, the Fund will 
invest indirectly through the Small Cap Portfolio.
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    \11\ See supra note 7.
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    In seeking its objective, the Small Cap Portfolio will invest in a 
diversified selection of equity securities included in the Russell 2000 
Index that the Adviser believes are aligned with predicted investor 
risk preferences.\12\ The Russell 2000 Index measures the performance 
of the small-cap segment of the U.S. equity market. The Russell 2000 
Index is a subset of the Russell 3000[supreg] Index representing 
approximately 10% of the total market capitalization of the Russell 
3000[supreg] Index. The Russell 2000 Index includes approximately 2000 
of the smallest securities, including business development companies, 
based on a combination of their market cap and current index 
membership. The Russell 2000 Index is constructed to provide a 
comprehensive and unbiased small-cap barometer and is completely 
reconstituted annually to ensure larger stocks do not distort the 
performance and characteristics of the true small-cap opportunity set. 
As of September 30, 2013, the Russell 2000 Index was comprised of 1,962 
securities.
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    \12\ See supra note 8.
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    Under normal circumstances, the Small Cap Portfolio will invest at 
least 80% of its net assets (plus the amount of borrowings for 
investment purposes) in securities of small-cap companies. The Small 
Cap Portfolio considers small-cap companies to be companies with market 
capitalizations falling within the range of the Russell 2000 Index at 
the time of initial purchase. In selecting securities for the Small Cap 
Portfolio, the Adviser will utilize a proprietary quantitative 
investment process to measure and predict investor risk preferences. 
This investment process recognizes that the attributes that render a 
particular security ``risky'' or ``safe'' from an investor's 
perspective will change over time. The process therefore will begin 
with a broad set of plausible dimensions of risk, or factors that may 
be viewed by investors as contributing to a security's risk level at 
any given time. This set will include, among many other items, market 
beta, liquidity, and exposure to certain commodities, leading economic 
indicators, currency, credit risk, and performance differences between 
cyclical and defensive sectors. The Adviser then will use a sequence of 
procedures to develop a subset of attributes representing those it 
believes to be relevant to investors at a given time. This subset will 
help form the Adviser's forecast for aggregate risk appetite and assist 
the Adviser in generating the groups of securities likely to benefit 
the most and least in light of that forecast. Different predictions of 
risk appetite may result in portfolios that are more defensive or risk-
seeking, based on what the market considers safe and/or risky at a 
given time. For example, during periods of anticipated investor 
preference for low risk, the Adviser will adjust the Small Cap 
Portfolio's composition to be defensive. On the other hand, during 
periods of anticipated investor preference for high risk, the Adviser 
will adjust the Small Cap Portfolio's composition to be risk-seeking. 
Similarly, exposures to value, growth, quality and other themes will 
vary depending on how they align with investor risk appetite at a given 
time. In periods of anticipated investor preference for moderate risk, 
the Small Cap Portfolio's composition will more closely reflect the 
weighted composition of the Russell 2000 Index. The Adviser believes 
the ebbing and flowing of risk preferences give this strategy the 
potential to provide competitive returns relative to the Russell 2000 
Index over the long term. The Small Cap Portfolio will be non-
diversified for purposes of the 1940 Act, and as a result may invest a 
greater percentage of its assets in a particular issuer than a 
diversified fund. However, it is expected that the Small Cap Portfolio 
will have exposure to a diversified mix of equity securities.

Other Investments

    While, under normal circumstances, the Adviser, with respect to 
each Portfolio, will invest at least 80% of such Portfolio's net assets 
in equity securities, as described above, the Adviser may invest up to 
20% of a Portfolio's net assets in other securities and financial 
instruments, as described below.
    Each Fund may (either indirectly through its investments in the 
corresponding Portfolio or, in the absence of normal circumstances,\13\ 
directly) invest in the following types of investments. The investment 
practices of the Portfolios are the same in all material respects to 
those of the Funds.
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    \13\ See supra note 7.
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    In the absence of normal circumstances, a Fund may (either directly 
or through the corresponding Portfolio) temporarily depart from its 
normal investment policies and strategies provided that the alternative 
is consistent with the Fund's investment objective and is in the best 
interest of the Fund. For example, a Fund may hold a higher than normal 
proportion of its assets in cash in times of extreme market stress.
    Each Portfolio may invest in short term instruments, including 
money market instruments (including money market funds advised by the 
Adviser), cash and cash equivalents on an ongoing basis to provide 
liquidity or for other reasons. Money market instruments are generally 
short-term investments that may include but are not limited to: (i) 
Shares of money market funds (including those advised by the Adviser); 
(ii) obligations issued or guaranteed by the U.S. Government, its 
agencies or instrumentalities (including government-sponsored 
enterprises); (iii) negotiable certificates of deposit (``CDs''), 
bankers' acceptances, fixed time deposits and other obligations of U.S. 
and foreign banks (including foreign branches) and similar 
institutions; (iv) commercial paper rated at the date of purchase 
``Prime-1'' by Moody's Investor's Service or ``A-1'' by Standard & 
Poor's, or if unrated, of comparable quality as determined by the 
Adviser; (v) non-convertible corporate debt securities (e.g., bonds and 
debentures) with remaining maturities at the date of purchase of not 
more than 397 days and that satisfy the rating requirements set forth 
in Rule 2a-7 under the 1940 Act; and (vi) short-term U.S. dollar-
denominated obligations of foreign banks (including U.S. branches) 
that, in the opinion of the Adviser, are of comparable quality to 
obligations of U.S. banks which may be purchased by a Portfolio. 
Commercial paper consists of short-term, promissory notes issued by 
banks, corporations and other entities to finance short-term credit 
needs. Any of these instruments may be purchased on a current or a 
forward-settled basis.
    Each Portfolio may invest in repurchase agreements with commercial

[[Page 17209]]

banks, brokers or dealers to generate income from its excess cash 
balances and to invest securities lending cash collateral. The Exchange 
states that a repurchase agreement is an agreement under which a fund 
acquires a financial instrument (e.g., a security issued by the U.S. 
Government or an agency thereof, a banker's acceptance or a certificate 
of deposit) from a seller, subject to resale to the seller at an agreed 
upon price and date (normally, the next business day).
    Each Portfolio may invest in convertible securities. Convertible 
securities are bonds, debentures, notes, preferred stocks or other 
securities that may be converted or exchanged (by the holder or by the 
issuer) into shares of the underlying common stock (or cash or 
securities of equivalent value) at a stated exchange ratio. A 
convertible security may also be called for redemption or conversion by 
the issuer after a particular date and under certain circumstances 
(including a specified price) established upon issue.
    Each Portfolio may invest in U.S. Government obligations. U.S. 
Government obligations are a type of bond. U.S. Government obligations 
include securities issued or guaranteed as to principal and interest by 
the U.S. Government, its agencies or instrumentalities.
    Each Portfolio may invest in U.S. agency mortgage pass-through 
securities. The Exchange states that the term ``U.S. agency mortgage 
pass-through security'' refers to a category of pass-through securities 
backed by pools of mortgages and issued by one of several U.S. 
Government-sponsored enterprises: The Government National Mortgage 
Association (``Ginnie Mae''), Federal National Mortgage Association 
(``Fannie Mae''), or Federal Home Loan Mortgage Corporation (``Freddie 
Mac'').
    The Portfolios will seek to obtain exposure to U.S. agency mortgage 
pass-through securities primarily through the use of ``to-be-
announced'' or ``TBA transactions.'' The Exchange states that ``TBA'' 
refers to a commonly used mechanism for the forward settlement of U.S. 
agency mortgage pass-through securities, and not to a separate type of 
mortgage-backed security, and that most transactions in mortgage pass-
through securities occur through the use of TBA transactions.\14\
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    \14\ To minimize the risk of default by a counterparty, a 
Portfolio will enter into TBA transactions only with established 
counterparties (such as major broker-dealers) and the Adviser will 
monitor the creditworthiness of such counterparties.
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    Each Portfolio may purchase U.S. exchange-listed common stocks and 
U.S. exchange-listed preferred securities of foreign corporations. 
Investments in common stock of foreign corporations may also be in the 
form of American Depositary Receipts (``ADRs''), Global Depositary 
Receipts (``GDRs'') and European Depositary Receipts (``EDRs'') 
(collectively ``Depositary Receipts''). A Portfolio may invest in 
unsponsored Depositary Receipts.
    Each Portfolio may invest in bonds, including corporate bonds as 
well as U.S. registered, dollar-denominated bonds of foreign 
corporations, governments, agencies and supra-national entities. Each 
Portfolio may invest up to 10% of its net assets in high yield debt 
securities.
    The Portfolios may invest in inflation-protected public 
obligations, commonly known as ``TIPS,'' of the U.S. Treasury, as well 
as TIPS of major governments and emerging market countries, excluding 
the United States. The Exchange states that TIPS are a type of security 
issued by a government that are designed to provide inflation 
protection to investors.
    Each Portfolio may invest in variable and floating rate 
securities.\15\ The Exchange states that variable rate securities are 
instruments issued or guaranteed by entities such as (1) the U.S. 
government or an agency or instrumentality thereof, (2) corporations, 
(3) financial institutions, (4) insurance companies, or (5) trusts that 
have a rate of interest subject to adjustment at regular intervals but 
less frequently than annually.
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    \15\ A variable rate security provides for the automatic 
establishment of a new interest rate on set dates. A floating rate 
security provides for the automatic adjustment of its interest rate 
whenever a specified interest rate changes. Interest rates on these 
securities are ordinarily tied to, and are a percentage of, a widely 
recognized interest rate, such as the yield on 90-day U.S. Treasury 
bills or the prime rate of a specified bank.
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    Each Portfolio may invest in Variable Rate Demand Obligations 
(``VRDOs''). The Exchange states that VRDOs are short-term tax exempt 
fixed income instruments whose yield is reset on a periodic basis and 
that VRDO securities tend to be issued with long maturities of up to 30 
or 40 years; however, they are considered short-term instruments 
because they include a put feature which coincides with the periodic 
yield reset.
    Each Portfolio may invest in restricted securities. The Exchange 
states that restricted securities are securities that are not 
registered under the Securities Act, but which can be offered and sold 
to ``qualified institutional buyers'' under Rule 144A under the 
Securities Act.\16\
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    \16\ When Rule 144A restricted securities present an attractive 
investment opportunity and meet other selection criteria, a 
Portfolio may make such investments whether or not such securities 
are ``illiquid'' depending on the market that exists for the 
particular security. The Board has delegated the responsibility for 
determining the liquidity of Rule 144A restricted securities that a 
Portfolio may invest in to the Adviser. See infra note 20.
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    Each Portfolio may conduct foreign currency transactions on a spot 
(i.e., cash) or forward basis (i.e., by entering into forward contracts 
to purchase or sell foreign currencies). At the discretion of the 
Adviser, the Portfolios may enter into forward currency exchange 
contracts for hedging purposes to help reduce the risks and volatility 
caused by changes in foreign currency exchange rates, or to gain 
exposure to certain currencies.
    Each Portfolio may invest in the securities of other investment 
companies, including affiliated funds, money market funds and closed-
end funds, subject to applicable limitations under Section 12(d)(1) of 
the 1940 Act. Each Portfolio may invest in exchange-traded products 
(``ETPs'').\17\ ETPs include exchange-traded funds registered under the 
1940 Act; exchange traded commodity trusts; and exchange traded notes 
(``ETNs'').\18\
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    \17\ For each of the Portfolios, ETPs include Investment Company 
Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Index-
Linked Securities (as described in NYSE Arca Equities Rule 
5.2(j)(6)); Portfolio Depositary Receipts (as described in NYSE Arca 
Equities Rule 8.100); Trust Issued Receipts (as described in NYSE 
Arca Equities Rule 8.200); Commodity-Based Trust Shares (as 
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares 
(as described in NYSE Arca Equities Rule 8.202); Commodity Index 
Trust Shares (as described in NYSE Arca Equities Rule 8.203); Trust 
Units (as described in NYSE Arca Equities Rule 8.500); Managed Fund 
Shares (as described in NYSE Arca Equities Rule 8.600), and closed-
end funds. The ETPs all will be listed and traded in the U.S. on 
registered exchanges. While a Fund may invest in inverse ETPs, a 
Fund will not invest in leveraged or inverse leveraged ETPs (e.g., 
2X or 3X).
    \18\ ETNs are debt obligations of investment banks which are 
traded on exchanges and the returns of which are linked to the 
performance of market indexes. In addition to trading ETNs on 
exchanges, investors may redeem ETNs directly with the issuer on a 
weekly basis, typically in a minimum amount of 50,000 units, or hold 
the ETNs until maturity.
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    The Adviser may invest up to 20% of its total assets in one or more 
ETPs that are qualified publicly traded partnerships (``QPTPs'') and 
whose principal activities are the buying and selling of commodities or 
options, futures, or forwards with respect to commodities.\19\ The 
Exchange states that a QPTP is an entity that is treated as a 
partnership for federal income tax

[[Page 17210]]

purposes, subject to certain requirements, and that income from QPTPs 
is generally qualifying income for purposes of Subchapter M of the 
Internal Revenue Code.
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    \19\ The Exchange states that examples of such entities are the 
PowerShares DB Energy Fund, PowerShares DB Oil Fund, PowerShares DB 
Precious Metals Fund, PowerShares DB Gold Fund, PowerShares DB 
Silver Fund, PowerShares DB Base Metals Fund, and PowerShares DB 
Agriculture Fund, which are listed and traded on the Exchange 
pursuant to NYSE Arca Equities Rule 8.200.
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    The Portfolios may invest in real estate investment trusts 
(``REITs'').
    Each Portfolio may enter into reverse repurchase agreements.
    Neither the Funds nor the Portfolios will invest in options 
contracts, futures contracts, or swap agreements.
    The Funds' investments will be consistent with the Funds' 
investment objectives and will not be used to enhance leverage.
    Each Fund is classified as ``non-diversified.'' Each Fund will be 
``non-diversified'' under the 1940 Act and may invest more of its 
assets in fewer issuers than ``diversified'' funds.
    The Funds do not intend to concentrate their investments in any 
particular industry.
    The Funds intend to qualify for and to elect treatment as a 
separate regulated investment company under Subchapter M of the 
Internal Revenue Code.
    Each Portfolio may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities deemed illiquid by the Adviser.\20\ Each 
Portfolio will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of a Fund's 
net assets are held in illiquid securities. Illiquid securities include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.
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    \20\ In reaching liquidity decisions, the Adviser may consider 
the following factors: The frequency of trades and quotes for the 
security; the number of dealers wishing to purchase or sell the 
security and the number of other potential purchasers; dealer 
undertakings to make a market in the security; and the nature of the 
security and the nature of the marketplace in which it trades (e.g., 
the time needed to dispose of the security, the method of soliciting 
offers, and the mechanics of transfer).
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \21\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\22\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\23\ 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 Funds and the Shares must 
comply with the initial and continued listing criteria in NYSE Arca 
Equities Rule 8.600 for the Shares to be listed and traded on the 
Exchange.
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    \21\ 15 U.S.C. 78f.
    \22\ 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).
    \23\ 15 U.S.C. 78f(b)(5).
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    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,\24\ 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 of each Fund will be available via the 
Consolidated Tape Association (``CTA'') highspeed line. In addition, 
the IOPV,\25\ which is the Portfolio Indicative Value as defined in 
NYSE Arca Equities Rule 8.600(c)(3), will be widely disseminated at 
least every 15 seconds during the Core Trading Session by one or more 
major market data vendors.\26\ On each business day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Funds will disclose on their Web site the Disclosed 
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will 
form the basis for the Funds' calculation of NAV at the end of the 
business day.\27\ In addition, a basket composition file, which 
includes the security names and share quantities required to be 
delivered in exchange for each Fund's Shares, together with estimates 
and actual cash components, will be publicly disseminated daily prior 
to the opening of the New York Stock Exchange, LLC (``NYSE'') via the 
National Securities Clearing Corporation. The basket will represent one 
creation unit of a Fund. The NAV of each Fund will be determined once 
each business day, normally as of the close of normal trading on the 
NYSE (normally, 4:00 p.m., Eastern Time).\28\ 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. 
The intra-day, closing, and settlement prices of the Portfolio 
securities and other assets held by the Funds and Portfolios are 
readily available from the national securities exchanges trading such 
securities, automated quotation systems, published or other public 
sources, or online information services such as Bloomberg or Reuters. 
Quotation and last sale information for the underlying U.S. exchange-
traded equities, including exchange-traded ETPs, will be available via 
the CTA high-speed line and from the national securities exchange on 
which they are listed. Pricing information regarding each asset class 
in which the Funds or Portfolios will invest is generally available 
through nationally recognized data service providers through 
subscription arrangements. Quotation information from brokers and 
dealers or pricing services will be available for fixed income 
securities, including U.S. Government obligations, other money market 
instruments, repurchase and reverse repurchase agreements,

[[Page 17211]]

convertible securities, U.S. agency mortgage pass-through securities, 
unsponsored Depositary Receipts, corporate bonds, TIPS, variable 
floating rate securities (including VRDOs), and spot and forward 
currency transactions held by the Funds and Portfolios. The Funds' Web 
site will include a form of the prospectus for the Funds and additional 
data relating to NAV and other applicable quantitative information.
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    \24\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \25\ According to the Exchange, the IOPV calculations are 
estimates of the value of the Funds' NAV per Share using market data 
converted into U.S. dollars at the current currency rates. The IOPV 
price will be based on quotes and closing prices from the 
securities' local market and may not reflect events that occur 
subsequent to the local market's close. Premiums and discounts 
between the IOPV and the market price may occur. The IOPV should not 
be viewed as a ``real-time'' update of the NAV per Share of a Fund, 
which is calculated only once a day.
    \26\ According to the Exchange, several major market data 
vendors display and/or make widely available IOPVs taken from CTA or 
other data feeds.
    \27\ On a daily basis, the Adviser will disclose for each 
portfolio security and other financial instrument of the Funds and 
of the Portfolios the following information on the Funds' Web site: 
ticker symbol (if applicable), name of security and financial 
instrument, number of shares or dollar value of financial 
instruments held in the portfolio, and percentage weighting of the 
security and financial instrument in the portfolio. The Web site 
information will be publicly available at no charge.
    \28\ Each Fund will calculate NAV using the NAV of the 
respective Portfolio. The NAV of a Portfolio will be calculated by 
the Custodian and determined at the close of the regular trading 
session on the NYSE (ordinarily 4:00 p.m. Eastern time) on each day 
that the NYSE is open, provided that assets (and, accordingly, a 
Portfolio's NAV) may be valued as of the announced closing time for 
trading in instruments on any day that the applicable exchange or 
market on which a Portfolio's investments are traded announces an 
early closing time.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to 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 Exchange will obtain a representation from the issuer of 
the Shares that the NAV per Share of each Fund will be calculated 
daily, and that the NAV and the Disclosed Portfolio for each Fund will 
be made available to all market participants at the same time. Trading 
in Shares of a 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,\29\ and trading in the Shares will 
be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
additional circumstances under which trading in the Shares of a Fund 
may be halted. The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. Consistent with NYSE Arca Equities Rule 8.600(d)(2)(B)(ii), 
the Reporting Authority 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 Funds' 
portfolios. In addition, the Exchange states that the Adviser has 
implemented a ``fire wall'' with respect to its affiliated broker-
dealer regarding access to information concerning the composition or 
changes to the Funds' portfolios.\30\ The Exchange represents that 
trading in the Shares will be subject to the existing trading 
surveillances, administered by the Financial Industry Regulatory 
Authority (``FINRA'') on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and applicable federal securities 
laws.\31\ The Exchange further 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. Moreover, prior to the 
commencement of trading, the Exchange states that it will inform its 
Equity Trading Permit Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares.
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    \29\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities or the financial instruments 
composing the Disclosed Portfolio of a Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance 
of a fair and orderly market are present. 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 
Funds.
    \30\ See supra note 5. The Exchange states that an investment 
adviser to an open-end fund is required to be registered under the 
Investment Advisers Act of 1940 (``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.
    \31\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement and that the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including the following:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares and underlying equity securities 
(including, without limitation, sponsored ADRs and ETPs) and other 
exchange-traded securities with other markets and other entities that 
are members of ISG, and FINRA, on behalf of the Exchange, may obtain 
trading information regarding trading in the Shares and underlying 
equity securities (including, without limitation, sponsored ADRs and 
ETPs) and other exchange-traded securities from such markets and other 
entities. In addition, the Exchange may obtain information regarding 
trading in the Shares and underlying equity securities (including, 
without limitation, sponsored ADRs and ETPs) and other exchange-traded 
securities from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
    (4) The Portfolios will invest only in equity securities that trade 
in markets that are members of the ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.
    (5) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares in creation 
units (and that Shares are not individually redeemable); (b) NYSE Arca 
Equities Rule 9.2(a), which imposes a duty of due diligence on its 
Equity Trading Permit 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 IOPV will not be calculated or publicly disseminated; (d) how 
information regarding the IOPV is disseminated; (e) the requirement 
that Equity Trading Permit Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (f) trading information.
    (6) For initial and continued listing, the Funds will be in 
compliance with Rule 10A-3 under the Act,\32\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \32\ 17 CFR 240.10A-3.
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    (7) Each Portfolio may hold up to an aggregate amount of 15% of its 
net assets in illiquid securities (calculated at the time of 
investment), including Rule 144A securities deemed illiquid by the 
Adviser, consistent with Commission guidance.
    (8) Under normal circumstances, each Fund will invest all of its 
assets in its corresponding Portfolio. Furthermore, under normal 
circumstances, the Adviser, with respect to each Portfolio,

[[Page 17212]]

will invest at least 80% of such Portfolio's net assets in equity 
securities.
    (9) Neither the Funds nor the Portfolios will invest in options 
contracts, futures contracts, or swap agreements.
    (10) A Portfolio will enter into TBA transactions only with 
established counterparties (such as major broker-dealers) and the 
Adviser will monitor the creditworthiness of such counterparties.
    (11) Each Fund's investments will be consistent with its investment 
objective and will not be used to enhance leverage. While the Funds may 
invest in inverse ETFs, the Funds will not invest in leveraged or 
inverse leveraged ETFs (e.g., 2X or 3X).
    (12) A minimum of 100,000 Shares for each Fund will be outstanding 
at the commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Notice, and 
the Exchange's description of the Funds.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \33\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \33\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\34\ that the proposed rule change (SR-NYSEArca-2014-11) be, and it 
hereby is, approved.
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    \34\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\35\
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    \35\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-06760 Filed 3-26-14; 8:45 am]
BILLING CODE 8011-01-P