Document ID: SEC-2012-0249-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2012-02-13T05:00Z

[Federal Register Volume 77, Number 29 (Monday, February 13, 2012)]
[Notices]
[Pages 7647-7652]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-3216]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66343; File No. SR-NYSEArca-2011-85]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 3 
Thereto, Relating to the Listing and Trading of SPDR SSgA Real Assets 
ETF; SPDR SSgA Income Allocation ETF; SPDR SSgA Conservative Global 
Allocation ETF; SPDR SSgA Global Allocation ETF; and SPDR SSgA 
Aggressive Global Allocation ETF Under NYSE Arca Equities Rule 8.600

February 7, 2012.

I. Introduction

    On November 16, 2011, 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 the SPDR 
SSgA Real Assets ETF; SPDR SSgA Income Allocation ETF; SPDR SSgA 
Conservative Global Allocation ETF; SPDR SSgA Global Allocation ETF; 
and SPDR SSgA Aggressive Global Allocation ETF (each, a ``Fund'' and, 
collectively, ``Funds'') under NYSE Arca Equities Rule 8.600. The 
proposed rule change was published in the Federal Register on December 
7, 2011.\3\ On January 17, 2012, the Exchange filed Amendment No. 1 to 
the proposed rule

[[Page 7648]]

change (``Amendment No. 1'').\4\ On January 18, 2012, the Exchange 
filed Amendment No. 2 to the proposed rule change (``Amendment No. 
2'').\5\ On January 23, 2012, the Exchange further extended the time 
period for Commission action to February 8, 2012. On January 25, 2012, 
the Exchange filed Amendment No. 3 to the proposed rule change 
(``Amendment No. 3'').\6\ The Commission received no comments on the 
proposal. This order grants approval of the proposed rule change, as 
modified by Amendment No. 3 thereto.
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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. 65860 (December 1, 
2011), 76 FR 76464 (``Notice'').
    \4\ The Exchange withdrew Amendment No. 1 on January 18, 2012, 
and extended the time period for Commission action to January 25, 
2012.
    \5\ The Exchange withdrew Amendment No. 2 on January 25, 2012.
    \6\ The proposed rule change originally stated that ``[e]ach 
Fund may invest in the aggregate up to 15% of its net assets (taken 
at the time of investment) in: (1) Illiquid securities, (2) Rule 
144A securities, and (3) loan participation interests.'' Notice at 
76468, supra note 3. Amendment No. 3 amended the proposed rule 
change by deleting the phrase ``(taken at the time of investment)'' 
and replacing the term ``invest'' with ``hold.'' Because Amendment 
No. 3 seeks to maintain consistency with the Investment Company Act 
of 1940 (``1940 Act'') and the rules and regulations thereunder and 
does not materially alter the substance of the proposed rule change 
or raise any novel regulatory issues, the amendment is not subject 
to notice and comment.
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares under 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 Commission as an open-end management 
investment company.\7\ SSgA FM serves as the investment adviser to the 
Funds (``Adviser''). State Street Global Markets, LLC (``Distributor'') 
is the principal underwriter and distributor of the Funds' Shares. 
State Street Bank and Trust Company (``Administrator,'' ``Custodian,'' 
or ``Transfer Agent'') serves as administrator, custodian, and transfer 
agent for the Funds. The Exchange states that the Adviser is affiliated 
with a broker-dealer and has implemented a ``fire wall'' with respect 
to such broker-dealer regarding access to information concerning the 
composition and/or changes to the Funds' portfolios.\8\
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    \7\ The Trust is registered under the 1940 Act. On September 12, 
2011, the Trust filed with the Commission Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a) and the 1940 Act relating to 
the Funds (File Nos. 333-173276 and 811-22542) (``Registration 
Statement''). In addition, the Commission has issued an order 
granting certain exemptive relief to the Trust under the 1940 Act. 
See Investment Company Act Release No. 29524 (December 13, 2010) 
(File No. 812-13487) (``Exemptive Order'').
    \8\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that, in the event (a) the Adviser or any sub-
adviser becomes newly affiliated with a broker-dealer, or (b) any 
new adviser or sub-adviser becomes affiliated with a broker-dealer, 
such adviser and/or sub-adviser will implement a ``fire wall'' with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio, 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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SPDR SSgA Real Assets ETF

    The SPDR SSgA Real Assets ETF will seek to achieve a real return 
consisting of capital appreciation and current income. The Fund will 
invest substantially all of its assets in the SSgA Real Assets 
Portfolio (``Real Assets 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 Real Assets 
Portfolio. The Adviser will invest, under normal circumstances,\9\ at 
least 80% of the Real Assets Portfolio's net assets among exchange-
traded products (``ETPs'') that provide exposure to ``real assets.'' 
The Adviser considers ``real assets'' to include the following four 
primary asset classes: (i) Inflation protected securities issued by the 
U.S. government, its agencies, and/or instrumentalities, as well as 
inflation protected securities issued by foreign governments, agencies, 
and/or instrumentalities; (ii) domestic and international real estate 
securities; (iii) commodities; and (iv) publicly-traded companies in 
natural resources and/or commodities businesses. The Real Assets 
Portfolio will concentrate at least 25% of its assets in companies 
primarily involved in the energy sector and real estate industry 
through ETPs. The Real Assets Portfolio's allocation among those asset 
classes will be in proportions consistent with the Adviser's evaluation 
of the expected returns and risks of each asset class as well as the 
allocation that, in the Adviser's view, will best meet the Real Assets 
Portfolio's investment objective. The allocations to each asset class 
will change over time as the Adviser's expectations of each asset class 
shift. The Real Assets Portfolio's indirect holdings by virtue of 
investing in ETPs representing those asset classes will consist of a 
diversified mix of domestic and international equity securities, 
government and corporate bonds, inflation protected securities, 
commodities, and real estate investment trusts (``REITs''). ETPs may 
include exchange-traded funds that seek to track the performance of a 
market index (``Underlying ETFs'') (including Underlying ETFs managed 
by the Adviser), exchange-traded commodity trusts, and exchange-traded 
notes (``ETNs'').\10\
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    \9\ 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.
    \10\ For each of the Funds, 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.
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SPDR SSgA Income Allocation ETF

    The SPDR SSgA Income Allocation ETF will seek to provide a total 
return by focusing on investments in income and yield-generating 
assets. The Fund will invest substantially all of its assets in the 
SSgA Income Portfolio (``Income 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 Income 
Portfolio. The Adviser will invest the assets of the Income Portfolio 
among ETPs that provide exposure to four primary asset classes: (i) 
Equity, domestic, and international securities; (ii) investment grade 
and high yield debt securities; (iii) hybrid equity/debt (such as 
preferred stock and convertible securities); and (iv) REITs. The Income 
Portfolio's allocation among those asset classes will be in proportions 
consistent with the Adviser's evaluation of the expected returns and 
risks of each asset class as well as the allocation that, in the 
Adviser's view, will best meet the Income Portfolio's investment 
objective. The allocations to each asset class will change over time as 
the Adviser's expectations of each asset class shift. The Income 
Portfolio's indirect holdings by virtue of investing in ETPs 
representing these asset classes will consist of a diversified mix of 
domestic and international equity securities, investment grade and high 
yield government and corporate bonds, hybrid securities, such as 
preferred

[[Page 7649]]

stock and convertible securities, Build America Bonds, commodities, and 
REITs.

SPDR SSgA Conservative Global Allocation ETF

    The SPDR SSgA Conservative Global Allocation ETF will seek to 
provide current income, capital preservation, and the avoidance of 
excessive portfolio volatility. The Fund will invest substantially all 
of its assets in the SSgA Conservative Global Allocation Portfolio 
(``Conservative Allocation 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 Conservative 
Allocation Portfolio. The Adviser will invest the assets of the 
Conservative Allocation Portfolio among ETPs that provide exposure to 
domestic and international debt and equity securities with a larger 
allocation to debt securities than to other asset classes. The 
Conservative Allocation Portfolio has a higher allocation to fixed 
income securities than to equity securities. These fixed income 
securities tend to be less volatile than traditional equity securities. 
The Conservative Allocation Portfolio typically will allocate 
approximately 60% of its assets to debt related securities, though this 
percentage can vary based on the Adviser's tactical decisions. The 
allocations to each asset class will change over time as the Adviser's 
expectations of each asset class shift. The Conservative Allocation 
Portfolio's indirect holdings by virtue of investing in ETPs 
representing these asset classes will consist of a diversified mix of 
domestic and international, including emerging markets, equity 
securities across all market capitalizations, investment grade and high 
yield government and corporate bonds, inflation protected securities, 
mortgage pass through securities, commercial mortgage backed 
securities, asset backed securities, commodities, and REITs.

SPDR SSgA Global Allocation ETF

    The SPDR SSgA Global Allocation ETF will seek to provide current 
income and capital preservation, with a secondary emphasis on capital 
appreciation. The Fund will invest substantially all of its assets in 
the SSgA Global Allocation Portfolio (``Global Allocation 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 Global Allocation Portfolio. The Adviser will invest the 
assets of the Global Allocation Portfolio among ETPs that provide 
balanced exposure to domestic and international debt and equity 
securities. The Global Allocation Portfolio typically will allocate 
approximately 60% of its assets to equity securities, though this 
percentage can vary based on the Adviser's tactical decisions. The 
allocations to each asset class will change over time as the Adviser's 
expectations of each asset class shift. The Global Allocation 
Portfolio's indirect holdings by virtue of investing in ETPs 
representing these asset classes will consist of a diversified mix of 
domestic and international, including emerging market, equity 
securities across all market capitalizations, investment grade and high 
yield government and corporate bonds, inflation protected securities, 
mortgage pass through securities, commercial mortgage backed 
securities, asset backed securities, commodities, and REITs.

SPDR SSgA Aggressive Global Allocation ETF

    The SPDR SSgA Aggressive Global Allocation ETF will seek to provide 
capital appreciation, with a secondary emphasis on current income. The 
Fund will invest substantially all of its assets in the SSgA Aggressive 
Global Allocation Portfolio (``Aggressive Allocation Portfolio'' and, 
together with the Real Assets Portfolio, Income Portfolio, Conservative 
Allocation Portfolio, and Global Allocation Portfolio, collectively, 
``Portfolios''), 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 Aggressive Allocation Portfolio. The 
Adviser will invest the assets of the Aggressive Allocation Portfolio 
among ETPs that provide exposure to domestic and international debt and 
equity securities with a larger allocation to equity securities than 
the other asset classes. The Aggressive Allocation Portfolio will have 
a higher allocation to equity securities than to fixed income 
securities. These equity securities will tend to be more volatile than 
traditional equity securities. The Aggressive Allocation Portfolio 
typically will allocate approximately 80% or more of its assets to 
equity securities, though this percentage can vary based on the 
Adviser's tactical decisions. The Aggressive Allocation Portfolio's 
indirect holdings by virtue of investing in ETPs representing these 
asset classes will consist of a diversified mix of domestic and 
international, including emerging market, equity securities across all 
market capitalizations, investment grade and high yield government and 
corporate bonds, inflation protected securities, mortgage pass through 
securities, commercial mortgage backed securities, asset backed 
securities, government and corporate bonds, commodities, and REITs.

Master-Feeder Structure of the Funds

    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 ``master fund,'' which is a separate mutual 
fund 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 owned by each corresponding master fund.\11\ Because of this 
indirect interest, each Fund's investment returns should be the same as 
those of the corresponding master fund, adjusted for the expenses of 
the feeder fund. In extraordinary instances, each Fund reserves the 
right to make direct investments in securities.
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    \11\ Each master fund is registered under the 1940 Act.
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    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. In addition, 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.
    Each Fund is classified as a ``diversified'' investment company 
under the 1940 Act. The Funds, other than the SPDR SSgA Real Assets 
ETF, will not concentrate their investments in any particular industry 
or sector. The SPDR SSgA Real Assets ETF will concentrate its 
investments (i.e., invest more than 25% of its assets) in companies 
primarily involved in the energy and real estate industries. In 
addition, the Funds intend to qualify for and to elect treatment as a 
separate regulated investment company under Subchapter M of the 
Internal Revenue Code.

Other Investments

    While each Fund will invest substantially all of its assets in its 
respective Portfolio, each Fund may

[[Page 7650]]

directly invest in certain other investments, as described below.
    Each Fund may (either directly or through its investments in its 
corresponding Portfolio) invest in the following types of investments: 
money market instruments, such as repurchase agreements, money market 
funds (including money market funds managed by the Adviser), variable 
rate demand notes, U.S. government and U.S. government agency 
securities, loan-focused closed-end funds, and collateralized loan 
obligation debt securities. Each Fund may invest in preferred 
securities and in convertible securities.\12\
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    \12\ 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. If a convertible security held by a Fund is 
called for redemption or conversion, the Fund could be required to 
tender it for redemption, convert it into the underlying common 
stock, or sell it to a third party.
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    Each Fund may invest in bonds, including corporate bonds, high 
yield debt securities, sovereign debt,\13\ and U.S. government 
obligations.\14\ Each Fund may also invest in Variable Rate Demand 
Obligations (``VRDOs'').\15\
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    \13\ Sovereign debt obligations are issued or guaranteed by 
foreign governments or their agencies. Sovereign debt may be in the 
form of conventional securities or other types of debt instruments 
such as loans or loan participations. Governmental entities 
responsible for repayment of the debt may be unable or unwilling to 
repay the principal and pay interest when due, and may require 
renegotiation or reschedule of debt payments. In addition, prospects 
for repayment of principal and payment of interest may depend on 
political as well as economic factors. Although some sovereign debt, 
such as Brady Bonds, is collateralized by U.S. government 
securities, repayment of principal and payment of interest is not 
guaranteed by the U.S. government.
    \14\ U.S. government obligations are a type of bond and include 
securities issued or guaranteed as to principal and interest by the 
U.S. government, its agencies or instrumentalities.
    \15\ VRDOs are short-term tax exempt fixed income instruments 
whose yield is reset on a periodic basis. 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. For example, 
a VRDO with a yield that resets weekly will have a put feature that 
is exercisable upon seven days notice. VRDOs are put back to a bank 
or other entity that serves as a liquidity provider, who then tries 
to resell the VRDOs or, if unable to resell, holds them in its own 
inventory. VRDOs are generally supported by either a Letter of 
Credit or a Stand-by Bond Purchase Agreement to provide credit 
enhancement.
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    The Funds 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 U.S.\16\
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    \16\ TIPS are a type of security issued by a government and are 
designed to provide inflation protection to investors.
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    The Funds 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).
    Each Fund may invest in repurchase agreements with commercial 
banks, brokers, or dealers to generate income from its excess cash 
balances and to invest securities lending cash collateral.\17\
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    \17\ 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). A repurchase agreement may be considered a loan collateralized 
by securities.
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    Each Fund may enter into reverse repurchase agreements, which 
involve the sale of securities with an agreement to repurchase the 
securities at an agreed upon price, date, and interest payment and have 
the characteristics of borrowing.
    Each Fund may invest in commercial paper.\18\ In addition to 
repurchase agreements, each Fund may invest in short-term instruments, 
including money market instruments, (including money market funds 
advised by the Adviser), repurchase agreements, cash and cash 
equivalents, on an ongoing basis to provide liquidity or for other 
reasons.
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    \18\ Commercial paper consists of short-term, promissory notes 
issued by banks, corporations, and other entities to finance short-
term credit needs. These securities generally are discounted but 
sometimes may be interest bearing.
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    In certain situations or market conditions, 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.\19\ For example, a Fund may hold a 
higher than normal proportion of its assets in cash in times of extreme 
market stress. Each Fund may (either directly or through its 
investments in its corresponding Portfolio) borrow money from a bank as 
permitted by the 1940 Act or other governing statute, by applicable 
rules thereunder, or by Commission or other regulatory agency with 
authority over the Fund, but only for temporary or emergency purposes.
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    \19\ Such situations and conditions include, but are not limited 
to, trading halts in the equities or fixed income markets or 
disruptions in 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 addition to ETPs, each Fund may invest in the securities of 
other investment companies, including money market funds, subject to 
applicable limitations under Section 12(d)(1) of the 1940 Act. A Fund 
may also invest in the securities of other investment companies if such 
securities are the only investment securities held by the Fund, such as 
through a master-feeder arrangement. Each Fund will pursue its 
respective investment objective through such an arrangement. To the 
extent allowed by law, regulation, each Fund's investment restrictions, 
and the Trust's exemptive relief under the 1940 Act, a Fund may invest 
its assets in securities of investment companies that are money market 
funds, including those advised by the Adviser or otherwise affiliated 
with the Adviser, in excess of the limits discussed above.
    The Funds may purchase U.S. exchange-listed common stocks and 
preferred securities of foreign corporations, as well as U.S.-
registered, dollar-denominated bonds of foreign corporations, 
governments, agencies, and supra-national entities.
    A Fund's 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'').\20\ Depositary 
Receipts are receipts, typically issued by a bank or trust company, 
which evidence ownership of underlying securities issued by a foreign 
corporation. For ADRs, the depository is typically a U.S. financial 
institution and the underlying securities are issued by a foreign 
issuer. For other Depositary Receipts, the depository may be a foreign 
or a U.S. entity, and the underlying securities may have a foreign or a 
U.S. issuer. Depositary Receipts will not necessarily be denominated in 
the same currency as their underlying securities. Generally, ADRs, in 
registered form, are designed for use in the U.S. securities market, 
and EDRs, in bearer form, are designated for use in European securities 
markets. GDRs are tradable both in the U.S. and in Europe

[[Page 7651]]

and are designed for use throughout the world. Each Fund may invest up 
to 10% of its assets in unsponsored Depositary Receipts. The issuers of 
unsponsored Depositary Receipts are not obligated to disclose material 
information in the U.S., and, therefore, there may be less information 
available regarding such issuers and there may not be a correlation 
between such information and the market value of the Depositary 
Receipts.
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    \20\ The foreign equity securities in which the Funds may invest 
will be limited to securities that trade in markets that are members 
of the Intermarket Surveillance Group (``ISG''), which includes all 
U.S. national securities exchanges and certain foreign exchanges, or 
are parties to a comprehensive surveillance sharing agreement with 
the Exchange.
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    Each Fund may hold in the aggregate up to 15% of its net assets in: 
(1) Illiquid securities, (2) Rule 144A securities, and (3) loan 
participation interests. An illiquid asset is any asset which may not 
be sold or disposed of in the ordinary course of business within seven 
days at approximately the value at which a Fund has valued the 
investment.
    In accordance with the Exemptive Order, the Funds will not invest 
in options, futures, or swaps. Each Fund's investments will be 
consistent with its respective investment objective and will not be 
used to enhance leverage.
    Except for ETPs that may hold non-U.S. issues and Depositary 
Receipts, the Funds will not otherwise invest in non-U.S.-registered 
issues.
    Additional information regarding the Trust, the Funds, and the 
Shares, including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, distributions 
and taxes is included in the Registration Statement. All terms relating 
to the Funds that are referred to, but not defined in, this proposed 
rule change are defined in the Notice and/or Registration Statement, as 
applicable.\21\
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    \21\ See Notice and Registration Statement, supra notes 3 and 7, 
respectively.
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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 \22\ and the rules and regulations thereunder applicable to a 
national securities exchange.\23\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\24\ 
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 requirements of NYSE Arca Equities Rule 8.600 to 
be listed and traded on the Exchange.
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    \22\ 15 U.S.C. 78f.
    \23\ 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).
    \24\ 17 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,\25\ 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 high-speed line and, for the ETPs, will be available 
from the national securities exchange(s) on which they are listed.\26\ 
In addition, the Indicative Optimized Portfolio Value (``IOPV''),\27\ 
which is the Portfolio Indicative Value (``PIV'') as defined in NYSE 
Arca Equities Rule 8.600(c)(3), will be widely disseminated by one or 
more major market data vendors at least every 15 seconds during the 
Core Trading Session.\28\ 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 the net asset value (``NAV'') at 
the end of the business day.\29\ The NAV of a Fund will be determined 
once each business day, normally 4:00 p.m. Eastern Time. A basket 
composition file, which includes the security names and share 
quantities required to be delivered in exchange for Fund Shares, 
together with estimates and actual cash components, will be publicly 
disseminated daily prior to the opening of the New York Stock Exchange 
via the National Securities Clearing Corporation. Information regarding 
market price and trading volume of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services, and 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 Funds' Web site will also include a form of the prospectus for the 
Funds, information relating to NAV (updated daily), and other 
quantitative and trading information.
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    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \26\ The intra-day, closing, and settlement prices of the 
portfolio securities are also readily available on automated 
quotation systems, published or other public sources, or online 
information services such as Bloomberg or Reuters.
    \27\ The IOPV calculations will be 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. This should not be viewed as a ``real-time'' update of 
the NAV per Share of the Funds, which will be calculated only once a 
day.
    \28\ According to the Exchange, several major market data 
vendors display and/or make widely available PIVs published on the 
Consolidated Tape Association or other data feeds. See Notice at 
76470, supra note 3.
    \29\ On a daily basis, the Adviser will disclose for each 
portfolio security or other financial instrument of the Funds and of 
the Portfolios 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.
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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 Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.\30\ 
In addition, the Exchange will halt trading in the Shares under the 
specific circumstances set forth in NYSE Arca Equities Rule 
8.600(d)(2)(D) and may halt trading in the Shares if trading is not 
occurring in the securities and/or the financial instruments comprising 
the Disclosed Portfolio of the Funds, or if other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.\31\ 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

[[Page 7652]]

portfolio.\32\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. The Exchange also represents that the Adviser is affiliated 
with a broker-dealer and has implemented a ``fire wall'' with respect 
to such broker-dealer regarding access to information concerning the 
composition and/or changes to the Funds' portfolios.\33\ The Commission 
also notes that the Exchange can obtain information with respect to the 
ETPs from the U.S. exchanges, which are all members of the ISG, listing 
and trading such ETPs.
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    \30\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \31\ With respect to trading halts, the Exchange may consider 
other relevant factors in exercising its discretion to halt or 
suspend trading in the Shares of the Funds. Trading in Shares of the 
Funds will be halted if the circuit breaker parameters in NYSE Arca 
Equities Rule 7.12 have been reached. Trading also may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the Shares inadvisable.
    \32\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \33\ See supra note 8 and accompanying text. The Commission 
notes 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.
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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:
    (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) The Exchange's surveillance procedures applicable to derivative 
products, which include Managed Fund Shares, 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.
    (4) 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 Unit 
Aggregations (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 PIV will not be calculated or publicly 
disseminated; (d) how information regarding the PIV 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 
and other information.
    (5) For initial and/or continued listing, the Funds will be in 
compliance with Rule 10A-3 under the Act,\34\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \34\ See 17 CFR 240.10A-3.
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    (6) Each Fund: (a) Will not invest in non-U.S.-registered issues 
(except for ETPs that may hold non-U.S. issues and Depositary 
Receipts);\35\ (b) may hold in the aggregate up to 15% of its net 
assets in (i) illiquid securities, (ii) Rule 144A securities, and (iii) 
loan participation interests; and (c) in accordance with the Exemptive 
Order, will not invest in options, futures, or swaps.
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    \35\ See supra note 20 and accompanying text.
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    (7) Each Fund's investments will be consistent with its respective 
investment objective and will not be used to enhance leverage.
    (8) 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 the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 3 thereto, is consistent with 
Section 6(b)(5) of the Act \36\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \36\ 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,\37\ that the proposed rule change (SR-NYSEArca-2011-85), as 
modified by Amendment No. 3 thereto, be, and it hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-3216 Filed 2-10-12; 8:45 am]
BILLING CODE 8011-01-P