Document ID: SEC-2013-1603-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-09-13T04:00Z

[Federal Register Volume 78, Number 178 (Friday, September 13, 2013)]
[Notices]
[Pages 56764-56766]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-22256]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70347; File No. SR-NYSEArca-2013-85]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to Changes 
to the Means of Achieving the Investment Objective Applicable to the 
AdvisorShares QAM Equity Hedge ETF

September 9, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on August 27, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to reflect changes to the means of achieving 
the investment objective applicable to the AdvisorShares QAM Equity 
Hedge ETF (``Fund''). The Fund is currently listed and traded on the 
Exchange under NYSE Arca Equities Rule 8.600. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved listing and trading on the Exchange of 
shares (``Shares'') of the AdvisorShares QAM Equity Hedge ETF, a series 
of AdvisorShares Trust (``Trust''),\4\ under NYSE Arca Equities Rule 
8.600, which governs the listing and trading of Managed Fund Shares. 
The Fund is currently listed and traded on the Exchange under NYSE Arca 
Equities Rule 8.600.
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    \4\ See Securities Exchange Act Release No. 67559 (August 1, 
2012), 77 FR 47482 (August 8, 2012) (SR-NYSEArca-2012-57) (``Prior 
Order''). See also Securities Exchange Act Release No. 67196 (June 
13, 2012), 77 FR 36591(June 19, 2012) (SR-NYSEArca-2012-57) (``Prior 
Notice,'' and together with the Prior Order, the ``Prior Release''). 
The Fund and the Shares are currently in compliance with the listing 
standards and other rules of the Exchange and the requirements set 
forth in the Prior Release.
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    The Shares are offered by the Trust, a statutory trust organized 
under the laws of the State of Delaware and registered with the 
Commission as an open-end management investment company.\5\ The 
investment advisor to the Fund is AdvisorShares Investments, LLC 
(``Adviser''). Commerce Asset Management is the sub-advisor (``Sub-
Adviser'') to the Fund and provides day-to-day portfolio management of 
the Fund.
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    \5\ The Trust is registered under the Investment Company Act of 
1940 (15 U.S.C. 80a-1) (``1940 Act''). On September 16, 2011, the 
Trust filed with the Commission an amendment to its registration 
statement on Form N-1A under the Securities Act of 1933 (15 U.S.C. 
77a) (``Securities Act'') and under the 1940 Act relating to the 
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. 28822 (July 20, 2009) (File No. 812-13488) 
(``Exemptive Order'').
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    In this proposed rule change, the Exchange proposes to reflect 
changes to the description of the measures the Sub-Adviser will utilize 
to implement the Fund's investment objective.\6\
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    \6\ The changes described herein will be effective upon filing 
with the Commission of another amendment to the Trust's Registration 
Statement. See note 5, supra. The Adviser represents that the 
Adviser and Sub-Adviser have managed and will continue to manage the 
Fund in the manner described in the Prior Release, and will not 
implement the changes described herein until the instant proposed 
rule change is operative.
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    As stated in the Prior Release, in managing the Fund's portfolio, 
among other proprietary analytics, the Sub-Adviser utilizes Markov 
Processes International, LLC's (``MPI'') Dynamic Style Analysis 
(``DSA'') patented hedge fund analysis software to help select the 
Fund's investments and determine the allocation among such investments. 
The Sub-Adviser identifies approximately 50 market factors that track 
the aggregated exposure and approximate the returns of the selected 
universe of long/short equity hedge funds. The Sub-Adviser uses DSA and 
other proprietary analytics to define and track the various market 
factors and relative exposures and to adjust the Fund's portfolio as 
necessary. As stated in the Prior Release, the Fund's portfolio 
typically consists of up to 50 Underlying ETPs and other securities.
    Going forward, the Fund proposes to implement the following changes 
from the representations made in the Prior Release. First, in managing 
the Fund's portfolio, the Fund will no longer utilize the MPI DSA 
software. Instead, the Sub-Adviser will utilize, among other 
proprietary analytics, its own quantitative techniques, including time 
dependent factor approximations, to help select the Fund's investments 
and determine the allocation among such investments. The Sub-Adviser 
will use quantitative analysis including other proprietary analytics to 
define and track the various market factors and relative exposures and 
to adjust the Fund's portfolio as necessary. Second, the Sub-Adviser 
will identify approximately 100, instead of approximately 50, market 
factors that track the aggregated exposure and approximate the returns 
of the selected universe of long/short equity hedge funds.\7\ Third, 
the Fund's portfolio typically will consist of between 40 and 80, 
instead of up to 50, Underlying ETPs and other securities, as described 
in the Prior Release.
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    \7\ As stated in the Prior Release, at any given time, such 
market factors may include country exposure, sector exposure, 
industry exposure, and currency exposure. In seeking to achieve its 
investment objective, the Fund seeks to remain invested at all times 
in securities or derivatives (as described in the Prior Release) 
that provide the desired exposures to market factors.
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    The Adviser represents that the purpose of this change is, first, 
to provide additional flexibility to the Sub-Adviser to meet the Fund's 
investment objective by substantially increasing the number of market 
factors that track the aggregated exposure and approximate the returns 
of the selected universe of long/short equity hedge funds. Such an

[[Page 56765]]

increase will permit the Fund to include a broader range of market 
sectors in the mid- and large-cap equity securities and Underlying ETPs 
in which the Fund invests, and will further the Fund's objective to 
seek capital appreciation. Second, the Fund will utilize proprietary 
quantitative techniques to select the Fund's investments and 
allocations, which will provide the Fund with additional control over 
its investments. Third, the Fund will substantially increase the 
maximum number of Underlying ETPs and other securities that will 
compose the Fund's portfolio, which will also provide additional 
flexibility to the Fund to include a broader range of securities in 
furtherance of the Fund's investment objectives.
    The Exchange also notes that the Prior Release stated that the Sub-
Adviser is affiliated with a broker-dealer. The Adviser represents that 
the Sub-Adviser is no longer affiliated with a broker-dealer.
    The Adviser represents that there is no change to the Fund's 
investment objective. The Fund will continue to comply with all initial 
and continued listing requirements under NYSE Arca Equities Rule 8.600. 
Except for the changes noted above, all other facts presented and 
representations made in the Prior Release remain unchanged. All terms 
referenced but not defined herein are defined in the Prior Release.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \8\ 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.
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    \8\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will continue to be listed and traded on the Exchange pursuant 
to the initial and continued listing criteria in NYSE Arca Equities 
Rule 8.600. The Adviser represents that the purpose of this change is, 
first, to provide additional flexibility to the Sub-Adviser to meet the 
Fund's investment objective by substantially increasing the number of 
market factors that track the aggregated exposure and approximate the 
returns of the selected universe of long/short equity hedge funds. Such 
an increase will permit the Fund to include a broader range of market 
sectors in the mid- and large-cap equity securities and Underlying ETPs 
in which the Fund invests, and will further the Fund's objective to 
seek capital appreciation. Second, the Fund will utilize proprietary 
quantitative techniques to select the Fund's investments and 
allocations, which will provide the Fund with additional control over 
its investments. Third, the Fund will substantially increase the 
maximum number of Underlying ETPs and other securities that will 
compose the Fund's portfolio, which will also provide additional 
flexibility to the Fund to include a broader range of securities in 
furtherance of the Fund's investment objectives. The Adviser represents 
that there is no change to the Fund's investment objective. The Fund 
will continue to comply with all initial and continued listing 
requirements under NYSE Arca Equities Rule 8.600.
    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 Adviser represents that there is no change to the Fund's 
investment objective. The Fund will continue to comply with all initial 
and continued listing requirements under NYSE Arca Equities Rule 8.600. 
The Adviser represents that the purpose of this change is to provide 
additional flexibility to the Sub-Adviser to meet the Fund's investment 
objective, as discussed above.
    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 the Fund will continue to comply with all 
initial and continued listing requirements under NYSE Arca Equities 
Rule 8.600. The Adviser represents that the purpose of this change is 
to provide additional flexibility to the Sub-Adviser to meet the Fund's 
investment objective, as discussed above. The Adviser represents that 
there is no change to the Fund's investment objective. Except for the 
changes noted above, all other representations made in the Prior 
Release remain unchanged.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act. The proposed changes to the 
Fund's means of achieving the investment objective will permit the Fund 
to invest in a broader number of market sectors and a greater number of 
Underlying ETPs and other securities, and will enhance competition 
among issues of Managed Fund Shares that invest in equity securities.

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

    Because the proposed rule change does not: (i) Significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act \9\ and Rule 19b-
4(f)(6) thereunder.\10\
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    \9\ 15 U.S.C. 78s(b)(3)(A).
    \10\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \11\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\12\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission notes that 
waiver of the operative delay would permit the Fund to immediately 
implement the changes proposed herein.
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    \11\ Id.
    \12\ 17 CFR 240.19b-4(f)(6)(iii).
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    Under the proposal,\13\ (1) the Fund would seek to employ certain

[[Page 56766]]

proprietary techniques, in lieu of the MPI DSA software, in addition to 
other proprietary analytics, to help select and determine the 
allocation of its investments and to define and track the various 
market factors and relative exposures and to adjust the Fund's 
portfolio, as necessary, (2) the Sub-Adviser would seek to identify 
approximately 100, instead of approximately 50, market factors that 
track the aggregated exposure and approximate the returns of the 
selected universe of long/short equity hedge funds, and (3) the Fund's 
portfolio would seek to consist of between 40 and 80, instead of up to 
50, Underlying ETPs and other securities. The Commission believes that 
utilizing certain proposed proprietary techniques, in addition to other 
proprietary analytics, increasing the number of identifiable market 
factors to track the aggregated exposure and approximate the returns of 
the selected universe of long/short equity hedge funds and raising the 
maximum number of Underlying ETPs and other securities in which the 
Fund may invest would allow for additional flexibility for the Fund to 
include a broader and more diversified range of market sectors and 
securities investments, in furtherance of the Fund's investment 
objective to seek investment results that exceed the risk adjusted 
performance of approximately 50% of the long/short equity hedge fund 
universe, as defined by the HFRI Equity Hedge (Total) Index 
constituents.\14\ In addition, the Exchange represents that, by 
investing in a broader range of market sectors, the Sub-Adviser may be 
able to reduce some of the market risk associated with investment in a 
smaller number of market sectors and reduce price volatility in the 
Fund's Shares.
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    \13\ In the proposed rule change, the Exchange also clarified 
that the Sub-Adviser is no longer affiliated with a broker-dealer. 
The Commission notes that, as stated in the Prior Release, in the 
event the Sub-Adviser becomes newly 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.
    \14\ See Prior Release, supra note 4 (providing additional 
details regarding the investment objective of the Fund).
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    The Exchange represents that the Fund's investment objective is not 
changing, all other representations made in the Prior Release remain 
unchanged, and the Fund will continue to comply with all of the listing 
requirements under NYSE Arca Equities Rule 8.600. For the foregoing 
reasons, the Commission believes that the proposed change does not 
raise novel or unique regulatory issues and is consistent with the 
protection of investors and the public interest. Therefore, the 
Commission waives the 30-day operative delay requirement and designates 
the proposed rule change as operative upon filing.\15\
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    \15\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 Number SR-NYSEArca-2013-85 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2013-85. 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 Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for 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 the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File No. SR-NYSEArca-2013-85 and should be 
submitted on or before October 4, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\16\
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    \16\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-22256 Filed 9-12-13; 8:45 am]
BILLING CODE 8011-01-P