Document ID: SEC-2013-0679-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade the International Bear ETF Under NYSE Arca Equities Rule 8.600
Posted Date: 2013-04-10T04:00Z

[Federal Register Volume 78, Number 69 (Wednesday, April 10, 2013)]
[Notices]
[Pages 21475-21481]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08327]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69303; File No. SR-NYSEArca-2013-33]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1, To List and 
Trade the International Bear ETF Under NYSE Arca Equities Rule 8.600

April 4, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on March 21, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and 
II, below, which Items have been prepared by the self-regulatory 
organization. On April 3, 2013, the Exchange filed Amendment No. 1 to 
the proposed rule change.\4\ The Commission is publishing this notice 
to solicit comments on the proposed rule change, as modified by 
Amendment No. 1, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ In Amendment No. 1, the Exchange made certain technical 
changes to the proposed rule change, including the substitution of 
the phrase ``transact in'' for the word ``purchase'' in the 
following sentence on page 5 of this Notice: ``The Fund may transact 
in equity securities traded in the U.S. on registered exchanges or, 
in the case of American Depositary Receipts, the over-the-counter 
market.''
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade the following under NYSE 
Arca Equities Rule 8.600 (``Managed Fund Shares''): International Bear 
ETF. The text of the proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
following under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares: \5\ International Bear ETF 
(``Fund'').\6\ The Shares will be offered by AdvisorShares Trust (the 
``Trust''), a statutory trust organized under the laws of the State of 
Delaware and registered with the Securities and Exchange Commission 
(the ``Commission'') as an open-end management investment company.\7\ 
The investment adviser to the Fund is AdvisorShares Investments, LLC 
(the ``Adviser''). The Fund will have a sub-adviser (``Sub-Adviser'') 
that provides day-to-day portfolio management of the Fund. Foreside 
Fund Services, LLC (the ``Distributor'') is the principal underwriter 
and distributor of the Fund's Shares. The Bank of New York Mellon (the 
``Administrator'') serves as the administrator, custodian, transfer 
agent and fund accounting agent for the Fund.
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    \5\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \6\ The Commission has approved listing and trading on the 
Exchange of a number of actively managed funds under Rule 8.600. 
See, e.g., Securities Exchange Act Release Nos. 63076 (October 12, 
2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order 
approving Exchange listing and trading of Cambria Global Tactical 
ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR-
NYSEArca-2010-118) (order approving Exchange listing and trading of 
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic 
Allocation Growth Income ETF); and 65468 (October 3, 2011), 76 FR 
62873 (October 11, 2001) [sic] (SR-NYSEArca-2011-51) (order 
approving Exchange listing and trading of TrimTabs Float Shrink 
ETF).
    \7\ The Trust is registered under the 1940 Act. On October 19, 
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), and under the 1940 Act relating to the Fund (File 
Nos. 333-157876 and 811-22110) (``Registration Statement''). The 
description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
29291 (May 28, 2010) (File No. 812-13677) (``Exemptive Order'').
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    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio. In addition, Commentary 
.06 further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the open-end fund's portfolio.\8\ Commentary .06 to Rule

[[Page 21476]]

8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca 
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer reflects the applicable open-end fund's portfolio, not an 
underlying benchmark index, as is the case with index-based funds. The 
Adviser is not affiliated with a broker-dealer. In the event (a) the 
Adviser becomes newly affiliated with a broker-dealer, (b) the Sub-
Adviser is affiliated with a broker-dealer, or (c) any new adviser or 
sub-adviser becomes affiliated with a broker-dealer, it will implement 
a fire wall with respect to such broker-dealer regarding access to 
information concerning the composition and/or changes to the portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \8\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and Sub-Adviser and their 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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Description of the Fund
    According to the Registration Statement, the Fund's investment 
objective will be to seek capital appreciation through short sales of 
international equity securities.
    According to the Registration Statement, the Sub-Adviser will seek 
to achieve the Fund's investment objective by short selling a portfolio 
of foreign equity securities, U.S. exchange-listed and traded equity 
securities of non-U.S. organizations, and American Depositary Receipts 
(``ADRs''), as described in more detail herein. The Fund may invest in 
such equity securities of any capitalization range and in any market 
sector at any time as necessary to seek to achieve the Fund's 
investment objective. Under normal circumstances,\9\ at least 80% of 
the Fund's net assets will be such equity securities, which the Fund 
will short sell.
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    \9\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of adverse market, economic, political or 
other conditions, including 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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    According to the Registration Statement, the Fund will be actively 
managed and thus will not seek to replicate the performance of a 
specified passive index of securities. Instead, it will use an active 
investment strategy to seek to meet its investment objective. The Sub-
Adviser, subject to the oversight of the Adviser and the Board of 
Trustees, will have discretion on a daily basis to manage the Fund's 
portfolio in accordance with the Fund's investment objective and 
investment policies. The Sub-Adviser will utilize various fundamental 
and technical research techniques in security selection. In selecting 
short positions, the Sub-Adviser will seek to identify securities that 
may be overvalued and due for capital depreciation. Once a position is 
included in the Fund's portfolio, it will be subject to regular 
fundamental and technical risk management review.
    According to the Registration Statement, the equity securities in 
which the Fund may invest consist of common stocks, preferred stocks, 
warrants to acquire common stock, securities convertible into common 
stock, investments in master limited partnerships, rights and REITs. 
The Fund may transact in equity securities traded in the U.S. on 
registered exchanges or, in the case of ADRs, the over-the-counter 
market. The Fund may short sell up to 10% of its total assets in 
unsponsored ADRs. The Fund may invest in the equity securities of 
foreign issuers, including the securities of foreign issuers in 
emerging market countries.\10\
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    \10\ According to the Registration Statement, emerging or 
developing markets exist in countries that are considered to be in 
the initial stages of industrialization. The Fund will invest only 
in foreign 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. For 
a list of the current members of ISG, see www.isgportal.org.
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    According to the Registration Statement, the Fund may invest in 
issuers located outside the United States directly, or in financial 
instruments that are indirectly linked to the performance of foreign 
issuers. Examples of such financial instruments include ADRs, Global 
Depositary Receipts (``GDRs''), European Depositary Receipts 
(``EDRs''), International Depository Receipts (``IDRs''), ``ordinary 
shares,'' and ``New York shares.'' \11\ Except for up to 10% of ADRs, 
which may be unsponsored, such financial instruments will all be listed 
and traded on registered exchanges in the U.S. or markets that are 
members of the ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange.
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    \11\ According to the Registration Statement, ADRs are U.S. 
dollar denominated receipts typically issued by U.S. banks and trust 
companies that evidence ownership of underlying securities issued by 
a foreign issuer. The underlying securities may not necessarily be 
denominated in the same currency as the securities into which they 
may be converted. The underlying securities are held in trust by a 
custodian bank or similar financial institution in the issuer's home 
country. The depositary bank may not have physical custody of the 
underlying securities at all times and may charge fees for various 
services, including forwarding dividends and interest and corporate 
actions. Generally, ADRs in registered form are designed for use in 
domestic securities markets and are traded on exchanges or over-the-
counter in the U.S. GDRs, EDRs, and IDRs are similar to ADRs in that 
they are certificates evidencing ownership of shares of a foreign 
issuer, however, GDRs, EDRs, and IDRs may be issued in bearer form 
and denominated in other currencies, and are generally designed for 
use in specific or multiple securities markets outside the U.S. 
EDRs, for example, are designed for use in European securities 
markets while GDRs are designed for use throughout the world. 
Ordinary shares are shares of foreign issuers that are traded abroad 
and on a U.S. exchange. New York shares are shares that a foreign 
issuer has allocated for trading in the U.S. ADRs, ordinary shares, 
and New York shares all may be purchased with and sold for U.S. 
dollars.
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    According to the Registration Statement, the Fund may engage 
regularly in short sales transactions in which the Fund sells a 
security it does not own. To complete such a transaction, the Fund must 
borrow or otherwise obtain the security to make delivery to the buyer. 
The Fund then is obligated to replace the security borrowed by 
purchasing the security at the market price at the time of replacement. 
The price at such time may be more or less than the price at which the 
security was sold by the Fund.
    According to the Registration Statement, until the security is 
replaced, the Fund will be required to pay to the lender amounts equal 
to any dividends or interest, which accrue during the period of the 
loan. To borrow the security, the Fund also may be required to pay a 
premium, which would increase the cost of the security sold. The Fund 
may also use repurchase agreements to satisfy delivery obligations in 
short sales transactions. The proceeds of the short sale will be 
retained by the broker, to the extent necessary to meet the margin

[[Page 21477]]

requirements, until the short position is closed out.
    According to the Registration Statement, until the Fund closes its 
short position or replaces the borrowed security, the Fund will: (a) 
Maintain a segregated account containing cash or liquid securities at 
such a level that (i) the amount deposited in the account plus the 
amount deposited with the broker as collateral will equal the current 
value of the security sold short and (ii) the amount deposited in the 
segregated account plus the amount deposited with the broker as 
collateral will not be less than the market value of the security at 
the time the security was sold short; or (b) otherwise cover the Fund's 
short position. The Fund may use up to 100% of its portfolio to engage 
in short sales transactions and collateralize its open short positions.
Other Investments
    While the Fund will invest at least 80% of its assets as described 
above, the Fund may invest in certain other investments, as described 
below. According to the Registration Statement, the Fund may invest in 
exchange-traded funds (``ETFs'') registered pursuant to the 1940 Act, 
exchange-traded notes (``ETNs''),\12\ and other exchange-traded 
products (together with ETFs and ETNs, collectively, ``ETPs'').\13\ The 
Fund will invest only in ETPs that trade in markets that are members of 
the ISG or are parties to a comprehensive surveillance sharing 
agreement with the Exchange.
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    \12\ According to the Registration Statement, ETNs are senior, 
unsecured unsubordinated debt securities issued by an underwriting 
bank that are designed to provide returns that are linked to a 
particular benchmark less investor fees. ETNs have a maturity date 
and, generally, are backed only by the creditworthiness of the 
issuer. It is expected that the issuer's credit rating will be 
investment grade at the time of investment.
    \13\ ETPs may 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. The Fund may invest in the securities of ETPs registered 
under the 1940 Act consistent with the requirements of Section 
12(d)(1) of the 1940 Act, or any rule, regulation or order of the 
Commission or interpretation thereof. The Fund will only make such 
investments in conformity with the requirements of Section 817 of 
the Internal Revenue Code of 1986. The Fund may invest in ETPs that 
are pooled investment vehicles not registered pursuant to the 1940 
Act. Closed-end funds are pooled investment vehicles that are 
registered under the 1940 Act and whose shares are listed and traded 
on U.S. national securities exchanges.
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    According to the Registration Statement, on a day-to-day basis, the 
Fund may hold U.S. government securities,\14\ short-term high quality 
fixed income securities, money market instruments, overnight and fixed-
term repurchase agreements, cash and cash equivalents with maturities 
of one year or less for investment purposes and to cover its short 
positions.
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    \14\ The Fund may invest in U.S. government securities and U.S. 
Treasury zero-coupon bonds. Securities issued or guaranteed by the 
U.S. government or its agencies or instrumentalities include U.S. 
Treasury securities, which are backed by the full faith and credit 
of the U.S. Treasury and which differ only in their interest rates, 
maturities, and times of issuance; U.S. Treasury bills, which have 
initial maturities of one-year or less; U.S. Treasury notes, which 
have initial maturities of one to ten years; and U.S. Treasury 
bonds, which generally have initial maturities of greater than ten 
years.
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    According to the Registration Statement, to respond to adverse 
market, economic, political or other conditions, the Fund may refrain 
from short selling and increase its investment in U.S. government 
securities, short-term high quality fixed income securities, money 
market instruments, overnight and fixed-term repurchase agreements, 
cash and cash equivalents with maturities of one year or less. The Fund 
may hold little or no short positions for extended periods, depending 
on the Sub-Adviser's assessment of market conditions.
    According to the Registration Statement, the Fund may invest in 
several different types of investment companies from time to time, 
including mutual funds and business development companies 
(``BDCs''),\15\ when the Adviser or the Sub-Adviser believes such an 
investment is in the best interests of the Fund and its shareholders. 
For example, the Fund may elect to invest in another investment company 
when such an investment presents a more efficient investment option 
than buying securities individually. The Fund also may invest in 
investment companies that are included as components of an index, such 
as BDCs, to seek to track the performance of that index. The Fund will 
invest only in BDCs that trade in markets that are members of the ISG 
or are parties to a comprehensive surveillance sharing agreement with 
the Exchange.
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    \15\ According to the Registration Statement, a BDC is a less 
common type of closed-end investment company that more closely 
resembles an operating company than a typical investment company. 
BDCs generally focus on investing in, and providing managerial 
assistance to, small, developing, financially troubled, private 
companies or other companies that may have value that can be 
realized over time and with management assistance.
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    According to the Registration Statement, the Fund may invest, under 
normal circumstances, up to 10% of its net assets in debt securities. 
Debt securities include a variety of fixed income obligations, 
including, but not limited to, corporate debt securities, government 
securities, municipal securities, convertible securities, and mortgage-
backed securities. Debt securities include investment-grade securities, 
non-investment-grade securities, and unrated securities. The Fund may 
invest in non-investment-grade securities.\16\ The Fund may invest in 
variable and floating rate securities.
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    \16\ Non-investment-grade securities, also referred to as 
``high-yield securities'' or ``junk bonds,'' are debt securities 
that are rated lower than the four highest rating categories by a 
nationally recognized statistical rating organization (for example, 
lower than Baa3 by Moody's Investors Service, Inc. or lower than 
BBB--by Standard & Poor's, a division of The McGraw-Hill Companies, 
Inc.) or are determined to be of comparable quality by the Adviser 
or the Sub-Adviser.
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    The Fund may enter into repurchase agreements with financial 
institutions, which may be deemed to be loans.\17\ The Fund may enter 
into reverse repurchase agreements without limit as part of the Fund's 
investment strategy.\18\ However, the Fund does not expect to engage, 
under normal circumstances, in reverse repurchase agreements with 
respect to more than 33 \1/3\% of its assets.
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    \17\ The Fund follows certain procedures designed to minimize 
the risks inherent in such agreements. These procedures include 
effecting repurchase transactions only with large, well-capitalized 
and well-established financial institutions whose condition will be 
continually monitored by the Sub-Adviser. In addition, the value of 
the collateral underlying the repurchase agreement will always be at 
least equal to the repurchase price, including any accrued interest 
earned on the repurchase agreement. It is the current policy of the 
Fund not to invest in repurchase agreements that do not mature 
within seven days if any such investment, together with any other 
illiquid assets held by the Fund, amount to more than 15% of the 
Fund's net assets.
    \18\ Reverse repurchase agreements involve sales by the Fund of 
portfolio assets concurrently with an agreement by the Fund to 
repurchase the same assets at a later date at a fixed price. The 
Fund will establish a segregated account with the Trust's custodian 
bank in which the Fund will maintain cash, cash equivalents or other 
portfolio securities equal in value to the Fund's obligations in 
respect of reverse repurchase agreements. Such reverse repurchase 
agreements could be deemed to be a borrowing, but are not senior 
securities.
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    According to the Registration Statement, the Fund may invest 
directly and indirectly in foreign currencies.
    According to the Registration Statement, the Fund, in the ordinary 
course of business, may purchase securities on a when-issued or 
delayed-delivery basis (i.e., delivery and payment can take place 
between a

[[Page 21478]]

month and 120 days after the date of the transaction). These securities 
are subject to market fluctuation and no interest accrues to the 
purchaser during this period. At the time the Fund makes the commitment 
to purchase securities on a when-issued or delayed-delivery basis, the 
Fund will record the transaction and thereafter reflect the value of 
the securities, each day, in determining the Fund's net asset value 
(``NAV''). The Fund will not purchase securities on a when-issued or 
delayed-delivery basis if, as a result, more than 15% of the Fund's net 
assets would be so invested.
    According to the Registration Statement, the Fund may not (i) with 
respect to 75% of its total assets, purchase securities of any issuer 
(except securities issued or guaranteed by the U.S. Government, its 
agencies or instrumentalities or shares of investment companies) if, as 
a result, more than 5% of its total assets would be invested in the 
securities of such issuer; or (ii) acquire more than 10% of the 
outstanding voting securities of any one issuer.\19\
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    \19\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund may not invest 25% or more of its total assets in the 
securities of one or more issuers conducting their principal business 
activities in the same industry or group of industries. The Fund will 
not invest 25% or more of its total assets in any investment company 
that so concentrates. This limitation does not apply to investments in 
securities issued or guaranteed by the U.S. Government, its agencies or 
instrumentalities, or shares of investment companies.\20\
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    \20\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The Fund may 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. The Fund 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 the 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.\21\
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    \21\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the Securities Act.
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    According to the Registration Statement, the Fund will seek to 
qualify for treatment as a Regulated Investment Company under the 
Internal Revenue Code.\22\
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    \22\ 26 U.S.C. 851.
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    The Fund will not invest in options contracts, futures contracts or 
swap agreements. The Fund's investments will be consistent with the 
Fund's investment objective and will not be used to enhance leverage.
Net Asset Value
    The Fund will calculate its NAV by: (i) Taking the current market 
value of its total assets; (ii) subtracting any liabilities; and (iii) 
dividing that amount by the total number of Shares owned by 
shareholders.
    The Fund will calculate NAV once each business day as of the 
regularly scheduled close of trading on the New York Stock Exchange, 
LLC (the ``NYSE'') (normally, 4:00 p.m., Eastern Time).
    In calculating NAV, the Fund generally will value its investment 
portfolio at market price. If market prices are unavailable or the Fund 
believes that they are unreliable, or when the value of a security has 
been materially affected by events occurring after the relevant market 
closes, the Fund will price those securities at fair value as 
determined in good faith using methods approved by the Trust's Board of 
Trustees.
Creation and Redemption of Shares
    According to the Registration Statement, the Fund will issue and 
redeem Shares on a continuous basis at the NAV only in a large 
specified number of Shares called a ``Creation Unit.'' The Shares of 
the Fund will be ``created'' at their NAV by market makers, large 
investors and institutions only in block-size Creation Units of at 
least 25,000 Shares.
    The Trust will issue and sell Shares of the Fund only in Creation 
Units on a continuous basis through the Distributor, at their NAV next 
determined after receipt, on any business day, for an order received in 
proper form. Creation Units of the Fund will be sold only for cash. 
Creation Units will be sold at the NAV next computed, plus a 
transaction fee. All orders to create Creation Units must be placed for 
one or more Creation Unit size aggregations of Shares. All orders to 
create must be received by the Distributor no later than 3:00 p.m. 
Eastern Time, an hour before the close of the regular trading session 
on the NYSE (ordinarily 4:00 p.m. Eastern Time) on the date such order 
is placed in order for the creation of Creation Units to be effected 
based on the NAV of Shares of the Fund as next determined on such date 
after receipt of the order in proper form. All purchases of the Fund 
will be effected through a transfer of cash directly through DTC.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through the Administrator and only on a business day. The Trust 
will not redeem Shares in amounts less than Creation Units. The 
redemption proceeds for a Creation Unit of the Fund will consist solely 
of cash in an amount equal to the NAV of the Shares being redeemed, as 
next determined after receipt of a request in proper form, less a 
redemption transaction fee. An order to redeem Creation Units will be 
deemed received on the transmittal date if such order is received by 
the Administrator not later than 3:00 p.m. Eastern Time, on such 
transmittal date; such order will be effected based on the NAV of the 
Fund as next determined.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca 
Equities Rule 8.600(d)(2)(B)(ii), the Adviser will implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the Fund's portfolio. The Exchange represents that, for 
initial and/or continued listing, the Fund will be in compliance with 
Rule 10A-3 \23\ under the Exchange Act, as provided by NYSE Arca 
Equities Rule 5.3. A minimum of 100,000 Shares will be outstanding at 
the commencement of trading on the Exchange. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per

[[Page 21479]]

Share will be calculated daily and that the NAV and the Disclosed 
Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) will be 
made available to all market participants at the same time.
---------------------------------------------------------------------------

    \23\ 17 CFR 240.10A-3.
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Availability of Information
    The Fund's Web site (www.advisorshares.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\24\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Fund's Web site will disclose the Disclosed Portfolio that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day.\25\
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    \24\ The Bid/Ask Price of the Fund is determined using the mid-
point of the highest bid and the lowest offer on the Exchange as of 
the time of calculation of the Fund's NAV. The records relating to 
Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \25\ Under accounting procedures followed by the Fund, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Fund 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business day.
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    On a daily basis, the Fund's Web site will disclose for each 
portfolio security and other financial instrument of the Fund the 
following information: ticker symbol (if applicable), name of security 
and financial instrument, number of shares and dollar value of 
securities and 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.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports will be available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at www.sec.gov. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line, and, for the underlying securities, will be 
available from the securities exchanges on which they are listed. 
Information regarding the equity securities, debt securities, fixed 
income instruments, and other investments held by the Fund will be 
available from the U.S. and non-U.S. securities exchanges trading such 
securities, automated quotation systems, published or other public 
sources, or on-line information services such as Bloomberg or Reuters. 
In addition, 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\ The dissemination of the Portfolio Indicative Value, 
together with the Disclosed Portfolio, will allow investors to 
determine the value of the underlying portfolio of the Fund on a daily 
basis and will provide a close estimate of that value throughout the 
trading day.
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    \26\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from CTA or other data feeds.
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    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, distributions 
and taxes is included in the Registration Statement. All terms relating 
to the Fund that are referred to, but not defined in, this proposed 
rule change are defined in the Registration Statement.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\27\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments comprising the Disclosed Portfolio of the Fund; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of the Fund may be 
halted.
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    \27\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. Eastern Time in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
Surveillance
    The Exchange 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.\28\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and applicable federal securities laws.
---------------------------------------------------------------------------

    \28\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations. FINRA, on 
behalf of the Exchange, will communicate as

[[Page 21480]]

needed regarding trading in the Shares with other markets that are 
members of the ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.\29\ Except for up to 10% 
of ADRs, which may be unsponsored, the Fund will invest only in equity 
securities (including financial instruments that are linked to the 
performance of foreign issuers),\30\ ETPs and BDCs that trade in 
markets that are members of the ISG or are parties to a comprehensive 
surveillance sharing agreement with the Exchange.
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    \29\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
    \30\ See note 11, supra, and accompanying text.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'') 
of the special characteristics and risks associated with trading the 
Shares. Specifically, the Bulletin will discuss the following: (1) The 
procedures for purchases and redemptions of Shares in Creation Unit 
aggregations (and that Shares are not individually redeemable); (2) 
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence 
on its Equity Trading Permit Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (4) how information regarding the 
Portfolio Indicative Value is disseminated; (5) the requirement that 
Equity Trading Permit Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Exchange Act. 
The Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. Eastern Time each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5)\31\ that an exchange have rules 
that are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. Except for up to 10% of ADRs, which 
may be unsponsored, the Fund will invest only in equity securities 
(including financial instruments that are linked to the performance of 
foreign issuers),\32\ ETPs and BDCs that trade in markets that are 
members of the ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange. The Exchange may obtain 
information via ISG from other exchanges that are members of ISG or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement. The Adviser is not affiliated with a broker-dealer. 
In the event the Sub-Adviser is affiliated with a broker-dealer, it 
will implement a fire wall with respect to such broker-dealer regarding 
access to information concerning the composition and/or changes to the 
portfolio, and will be subject to procedures designed to prevent the 
use and dissemination of material non-public information regarding such 
portfolio. The Fund may not purchase or hold illiquid securities if, in 
the aggregate, more than 15% of its net assets would be invested in 
illiquid securities. The Fund will not invest in options contracts, 
futures contracts or swap agreements. The Fund's investments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage. The proposed rule change is designed to promote just 
and equitable principles of trade and to protect investors and the 
public interest in that the Exchange will obtain a representation from 
the issuer of the Shares that the NAV per Share will be calculated 
daily and that the NAV and the Disclosed Portfolio will be made 
available to all market participants at the same time. Information 
regarding the equity securities, debt securities, fixed income 
instruments, and other investments held by the Fund will be available 
from the U.S. and non-U.S. securities exchanges trading such 
securities, automated quotation systems, published or other public 
sources, or on-line information services such as Bloomberg or Reuters. 
In addition, a large amount of information is publicly available 
regarding the Fund and the Shares, thereby promoting market 
transparency. Quotation and last sale information for the Shares will 
be available via the CTA high-speed line. In addition, the Portfolio 
Indicative Value will be widely disseminated by the Exchange at least 
every 15 seconds during the Core Trading Session. The Fund's Web site 
will include a form of the prospectus for the Fund that may be 
downloaded, as well as additional quantitative information updated on a 
daily basis. On each business day, before commencement of trading in 
Shares in the Core Trading Session on the Exchange, the Fund's Web site 
will disclose the Disclosed Portfolio that will form the basis for the 
Fund's calculation of NAV at the end of the business day. On a daily 
basis, the Fund's Web site will disclose for each portfolio security 
and other financial instrument of the Fund the following information: 
ticker symbol (if applicable), name of security and financial 
instrument, number of shares and dollar value of securities and 
financial instruments held in the portfolio, and percentage weighting 
of the security and financial instrument in the portfolio. Moreover, 
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. Trading 
in Shares of the Fund will be halted if the circuit breaker parameters 
in NYSE Arca Equities Rule 7.12 have been reached or because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Trading in the Shares will be 
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the Portfolio Indicative 
Value, the Disclosed

[[Page 21481]]

Portfolio, and quotation and last sale information for the Shares.
---------------------------------------------------------------------------

    \32\ See note 11, supra, and accompanying text.
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    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Exchange Act. The Exchange notes 
that the proposed rule change will facilitate the listing and trading 
of additional types of actively-managed exchange-traded products that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

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

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

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:
Electronic Comments
     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File No. SR-NYSEArca-2013-33 on the subject line.
Paper Comments
     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File No. SR-NYSEArca-2013-33. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Web site (http://www.sec.gov/rules/sro.shtml). Copies 
of the submission, all subsequent amendments, all written statements 
with respect to the proposed rule change that are filed with the 
Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for Web site viewing and printing in 
the Commission's Public Reference Room, 100 F Street, NE., Washington, 
DC 20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of such filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NYSEArca-2013-33 and should be 
submitted on or before May 1, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-08327 Filed 4-9-13; 8:45 am]
BILLING CODE 8011-01-P