Document ID: SEC-2016-0650-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2016-04-15T04:00Z

[Federal Register Volume 81, Number 73 (Friday, April 15, 2016)]
[Notices]
[Pages 22337-22344]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08641]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77576; File No. SR-NYSEArca-2016-46]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of AdvisorShares 
Cornerstone Small Cap ETF Under NYSE Arca Equities Rule 8.600

April 11, 2016.
    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 28, 2016, 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, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade the shares of the following 
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): 
AdvisorShares Cornerstone Small Cap ETF. 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:\4\ AdvisorShares 
Cornerstone Small Cap ETF (``Fund''). The Shares will be offered by 
AdvisorShares Trust (the ``Trust''),\5\ an open-end management 
investment company.\6\ The investment adviser to the Fund will be 
AdvisorShares Investments LLC (the ``Adviser''). Cornerstone Investment 
Partners will be the Fund's sub-adviser (``Sub-Adviser''). Foreside 
Fund Services, LLC (the ``Distributor'') will be the principal 
underwriter and distributor of the

[[Page 22338]]

Fund's Shares. The Bank of New York Mellon (the ``Administrator'' or 
``Custodian'') will serve as the administrator, custodian and transfer 
agent for the Fund.
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    \4\ 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.
    \5\ The Trust is registered under the 1940 Act. On January 26, 
2016, the Trust filed with the Commission amendments 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. 29291(May 28, 2010) (File No. 812-13677) 
(``Exemptive Order'').
    \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, 2011) (SR-NYSEArca-2011-51) (order approving 
Exchange listing and trading of TrimTabs Float Shrink ETF).
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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.\7\ Commentary .06 to Rule 
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. 
Neither the Adviser nor the Sub-Adviser is registered as a broker-
dealer. Neither the Adviser nor the Sub-Adviser is affiliated with a 
broker-dealer. In the event (a) the Adviser or the Sub-Adviser becomes 
a registered broker-dealer or becomes newly affiliated with a broker-
dealer, or (b) any new adviser or any sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to its relevant personnel or its 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the Fund's 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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    \7\ 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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Principal Investments
    According to the Registration Statement, the investment objective 
of the Fund will be to seek to provide total return through long-term 
capital appreciation and current income. Under normal circumstances,\8\ 
the Fund will invest at least 80% of its net assets (plus any 
borrowings for investment purposes) in common stocks of small cap 
companies traded on a U.S. or foreign exchange or over-the-counter 
(``OTC''). The Sub-Adviser generally defines a small cap company as one 
having a market capitalization less than the market cap of the largest 
company in the Russell 2000 Index (the ``Index'') at the time of 
acquisition. In choosing securities of U.S. and foreign companies with 
market capitalization rankings between 1000 and 2800, the Sub-Adviser 
will create an investable universe of 1800 companies for the Fund 
similar to the components of the Index, but excluding the smallest 200 
market capitalization securities in the Index. Sector weights will be 
constrained relative to Index sector weights and will be determined by 
the relative attractiveness of the specific sector. Securities will be 
targeted to be equally weighted within the sectors, but may shift with 
price movements.
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    \8\ The term ``under normal circumstances'' means, without 
limitation, the absence of extreme volatility or trading halts in 
the equity markets or the financial markets generally; operational 
issues causing dissemination of inaccurate market information; or 
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    According to the Registration Statement, the Sub-Adviser's 
investment philosophy is based on the view that the market often 
misprices fundamental improvements and is slow to recognize improving 
fundamentals, particularly in small cap stocks. The Sub-Adviser will 
seek to benefit from the volatility of small cap stocks by 
participating in upside volatility while reducing exposure to downside 
volatility. The Sub-Adviser generally intends to select stocks that 
satisfy three basic criteria: (1) Analysts have positively revised 
their forward looking estimates of the company's profitability and the 
company has generated earnings in excess of analyst expectations; (2) 
balance sheet strength; and (3) financial flexibility, as determined by 
measuring a company's ability to meet debt and capital expenditure 
requirements. The 1800 companies included in the investable universe 
will be ranked according to these criteria, and the most attractive 
companies will then be considered for inclusion within the strategy, 
subject to risk controls and the Fund's investment objective.
Other Investments
    While the Fund, under normal circumstances, will invest at least 
80% of its assets in the securities described above, the Fund may 
invest its remaining assets in the securities and financial instruments 
described below.
    In addition to the common stocks of small cap companies referenced 
in the Principal Investments section above, the Fund may invest in the 
following equity securities traded on a U.S. or foreign exchange or 
OTC: common stocks, preferred stocks, rights, warrants, convertible 
securities, and master limited partnerships (``MLPs''). The Fund may 
invest in issuers located outside the United States directly, or in 
exchange-traded funds (``ETFs'') \9\ or exchange-traded notes 
(``ETNs'') that are indirectly linked to the performance of foreign 
issuers; \10\ or ``Depositary Receipts'', which are the following: 
American Depositary Receipts (``ADRs''), Global Depositary Receipts 
(``GDRs''), European Depositary Receipts (``EDRs''), International 
Depository Receipts (``IDRs''), ``ordinary shares,'' and ``New York 
shares'' issued and traded in the U.S.\11\
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    \9\ For purposes of this proposed rule change, ETFs are 
Investment Company Units (as described in NYSE Arca Equities Rule 
5.2(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca 
Equities Rule 8.100); and Managed Fund Shares (as described in NYSE 
Arca Equities Rule 8.600). The ETFs all will be listed and traded in 
the U.S. on registered exchanges. The Fund will invest in the 
securities of ETFs 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 ETF investments in conformity with the 
requirements of Regulation M of the Internal Revenue Code of 1986, 
as amended (the ``Internal Revenue Code''). While the Fund may 
invest in inverse ETFs, the Fund will not invest in leveraged or 
inverse leveraged ETFs (e.g., 2X or 3X).
    \10\ ETNs include Index-Linked Securities (as described in NYSE 
Arca Equities Rule5.2(j)(6)). While the Fund may invest in inverse 
ETNs, the Fund will not invest in leveraged or inverse leveraged 
ETNs (e.g., 2X or 3X).
    \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. Generally, ADRs in registered form are designed for use in 
domestic securities markets and are traded on exchanges or OTC 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. No more than 10% of the Fund's net 
assets will be invested in non-exchange-listed ADRs.

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[[Page 22339]]

    The Fund may invest in the securities of other investment companies 
to the extent that such an investment would be 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. 
Consistent with such restrictions discussed above, the Fund may invest 
in U.S. exchange-listed closed-end funds and business development 
companies (``BDCs''). Except with respect to ETFs, as described 
above,\12\ the Fund will not invest in inverse, leveraged, or inverse 
leveraged investment company securities.
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    \12\ See note 9, supra.
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    With respect to the Fund's investments in the equity securities of 
foreign issuers, the Fund may invest in the equity securities of 
foreign issuers in emerging countries.
    The Fund may invest in the securities of exchange-traded pooled 
vehicles that are not investment companies and, thus, not required to 
comply with the provisions of the 1940 Act.\13\ These pooled vehicles 
typically hold commodities, such as gold or oil, currency, or other 
property that is itself not a security.
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    \13\ For purposes of this filing, ``exchange-traded pooled 
vehicles'' consist of Equity Gold Shares (as described in NYSE Arca 
Equities Rule 5.2(j)(5)); 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); and 
Commodity Futures Trust Shares (as described in NYSE Arca Equities 
Rule 8.204). The exchange-traded pooled vehicles all will be listed 
and traded in the U.S. on registered exchanges. While the Fund may 
invest in inverse exchange-traded pooled vehicles, the Fund will not 
invest in leveraged or inverse leveraged exchange-traded pooled 
vehicles (e.g., 2X or 3X).
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    The Fund may invest in shares of real estate investment trusts 
(``REITs'') that are U.S. exchange-listed.
    The Fund may enter into repurchase agreements with financial 
institutions, which may be deemed to be loans.
    The Fund may enter into reverse repurchase agreements as part of 
the Fund's investment strategy.\14\
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    \14\ According to the Registration Statement, reverse repurchase 
agreements involve sales of portfolio assets by the Fund 
concurrently with an agreement by the Fund to repurchase the same 
assets at a later date at a fixed price. Generally, the effect of 
such a transaction is that the Fund can recover all or most of the 
cash invested in the portfolio securities involved during the term 
of the reverse repurchase agreement, while the Fund will be able to 
keep the interest income associated with those portfolio securities. 
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.
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    The Fund may invest in U.S. government securities. Securities 
issued or guaranteed by the U.S. government or its agencies or 
instrumentalities include the following: 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. The Fund may invest in certain 
U.S. government securities that are issued or guaranteed by agencies or 
instrumentalities of the U.S. government including, but not limited to, 
obligations of U.S. government agencies or instrumentalities such as 
the Federal National Mortgage Association (``Fannie Mae''), the Federal 
Home Loan Mortgage Corporation (``Freddie Mac''), and the Government 
National Mortgage Association (``Ginnie Mae'').
    The Fund may invest in U.S. exchange-traded equity options, U.S. 
exchange-traded index options, and U.S. exchange-traded stock index 
futures contracts, all of which are traded in markets that are members 
of the Intermarket Surveillance Group (ISG'') or with which the 
Exchange has in place a comprehensive surveillance sharing agreement.
    The Fund may invest in U.S. exchange-traded ``passive foreign 
investment companies'' (``PFICs''), which are generally certain non-
U.S. corporations that receive at least 75% of their annual gross 
income from passive sources (such as interest, dividends, certain rents 
and royalties or capital gains) or that hold at least 50% of their 
assets in investments producing such passive income.
    The Fund, from time to time, in the ordinary course of business, 
may purchase securities on a when-issued, delayed-delivery or forward 
commitment basis (i.e., delivery and payment can take place between a 
month and 120 days after the date of the transaction).
    According to the Registration Statement, to respond to adverse 
market, economic, political or other conditions, the Fund may invest up 
to 100% of its total assets, without limitation, in high-quality, 
short-term debt securities and money market instruments either directly 
or through ETFs. The Fund may be invested in this manner for extended 
periods, depending on the Sub-Advisor's assessment of market 
conditions. Debt securities and money market instruments are the 
following: shares of other mutual funds, commercial paper, certificates 
of deposit, bankers' acceptances, U.S. government securities, 
repurchase agreements, and bonds that are rated BBB or higher.
Investment Restrictions
    According to the Registration Statement, the Fund will be 
classified as a diversified investment company under the 1940 Act.\15\
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    \15\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund intends to qualify as a ``regulated investment company'' 
for purposes of the Internal Revenue Code of 1986.\16\
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    \16\ 26 U.S.C. 851.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid assets.\17\ 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 assets. Illiquid assets include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available

[[Page 22340]]

markets as determined in accordance with Commission staff guidance.\18\
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    \17\ Under the supervision of the Fund's Board of Trustees 
(``Board''), the Adviser determines the liquidity of the Fund's 
investments. In determining the liquidity of the Fund's investments, 
the Adviser may consider various factors, including (1) the 
frequency and volume of trades and quotations; (2) the number of 
dealers and prospective purchasers in the marketplace; (3) dealer 
undertakings to make a market; and (4) the nature of the security 
and the market in which it trades (including any demand, put or 
tender features, the mechanics and other requirements for transfer, 
any letters of credit or other credit enhancement features, any 
ratings, the number of holders, the method of soliciting offers, the 
time required to dispose of the security, and the ability to assign 
or offset the rights and obligations of the security).
    \18\ 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 1933 Act).
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    The Fund will not:
    (a) with respect to 75% of its total assets, (i) 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.
    (b) 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. 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. 
The Fund will not invest 25% or more of its total assets in any 
investment company that so concentrates.
    The Fund's investments will be consistent with its investment 
objective and will not be used to provide multiple returns of a 
benchmark or to produce leveraged returns. The Fund's investments will 
not be used to seek performance that is the multiple or inverse 
multiple (e.g., 2Xs and 3Xs) of the Fund's primary broad-based 
securities benchmark index (as defined in Form N-1A).\19\
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    \19\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
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Creation and Redemption of Shares
    Shares may be created and redeemed in ``Creation Unit'' size 
aggregations of at least 25,000 Shares. The size of a Creation Unit is 
subject to change. In order to purchase Creation Units of the Fund, an 
investor must generally deposit a designated portfolio of securities 
(the ``Deposit Securities'') (and/or an amount in cash in lieu of some 
or all of the Deposit Securities) and generally make a cash payment 
referred to as the ``Cash Component''. The list of the names and the 
amounts of the Deposit Securities will be made available by the 
Administrator through the facilities of the National Securities 
Clearing Corporation (``NSCC'') immediately prior to the opening of 
business each day of the NYSE Arca. The Cash Component represents the 
difference between the net asset value (``NAV'') of a Creation Unit and 
the market value of the Deposit Securities. Creations and redemptions 
of Shares may only be made through an ``Authorized Participant'', as 
described in the Registration Statement.
    Shares may be redeemed only in Creation Units at their NAV and only 
on a day that the NYSE Arca is open for business. The Administrator 
will make available immediately prior to the opening of business each 
day, through the facilities of the NSCC, the list of the names and the 
amounts of the Fund's portfolio securities that will be applicable that 
day to redemption requests in proper form (``Fund Securities''). Fund 
Securities received on redemption may not be identical to Deposit 
Securities, which are applicable to purchases of Creation Units.
    Unless cash redemptions or partial cash redemptions are available 
or specified for the Fund, the redemption proceeds will consist of the 
Fund Securities, plus cash in an amount equal to the difference between 
the NAV of Shares being redeemed as next determined after receipt by 
the transfer agent of a redemption request in proper form, and the 
value of the Fund Securities (the ``Cash Redemption Amount''), less the 
applicable redemption fee and, if applicable, any transfer taxes.\20\
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    \20\ The Fund may, in certain circumstances, allow cash 
creations or partial cash creations but not redemptions (or vice 
versa) if the Adviser or Sub-Adviser believes it will allow the Fund 
to adjust its portfolio in a manner which is more efficient for 
shareholders. The Fund may allow creations or redemptions to be 
conducted partially in cash only where certain instruments are (i) 
in the case of the purchase of a Creation Unit, not available in 
sufficient quantity for delivery; (ii) not eligible for transfer 
through either the NSCC or the Depository Trust Company (``DTC''); 
or (iii) not eligible for trading due to local trading restrictions, 
local restrictions on securities transfers or other similar 
circumstances. To the extent the Fund allows creations or 
redemptions to be conducted wholly or partially in cash, such 
transactions will be effected in the same manner for all Authorized 
Participants on a given day except where: (i) Such instruments are, 
in the case of the purchase of a Creation Unit, not available to a 
particular Authorized Participant in sufficient quantity; (ii) such 
instruments are not eligible for trading by an Authorized 
Participant or the investor on whose behalf the Authorized 
Participant is acting; or (iii) a holder of Shares of the Fund would 
be subject to unfavorable income tax treatment if the holder 
receives redemption proceeds in kind.
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Net Asset Value
    The NAV per Share of the Fund will be computed by dividing the 
value of the net assets of the Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares of the 
Fund outstanding, rounded to the nearest cent. Expenses and fees, 
including without limitation, the management, administration and 
distribution fees, will be accrued daily and taken into account for 
purposes of determining NAV per Share. The NAV per Share for the Fund 
will be calculated by the Administrator and determined as of the 
regularly scheduled close of normal trading on the New York Stock 
Exchange (``NYSE'') (normally 4:00 p.m. Eastern Time) on each day that 
the NYSE is open.
    In computing the Fund's NAV, the Fund's securities holdings will be 
valued based on their last readily available market price. Price 
information on listed securities, including ETFs in which the Fund 
invests, will be taken from the exchange where the security is 
primarily traded. Other portfolio securities and assets for which 
market quotations are not readily available or determined to not 
represent the current fair value will be valued based on fair value as 
determined in good faith by the Fund's Sub-Adviser in accordance with 
procedures adopted by the Fund's Board of Trustees (``Board'').
    U.S. exchange-traded options will be valued at the closing 
settlement price determined by the applicable exchange. Exchange-traded 
equity securities, including common stocks, ETFs, ETNs, exchange-traded 
pooled vehicles, preferred stocks, rights, warrants, convertible 
securities, closed-end funds, certain Depositary Receipts, MLPs, REITs, 
BDCs and PFICs will be valued at market value, which will generally be 
determined using the last reported official closing or last trading 
price on the exchange or market on which the security is primarily 
traded at the time of valuation or, if no sale has occurred, at the 
last quoted bid price on the primary market or exchange on which they 
are traded. 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 Fund's Board.

[[Page 22341]]

    OTC-traded common stocks, preferred stocks, rights, warrants, 
convertible securities, and MLPs will be valued at the last reported 
sale price from the OTC Bulletin Board or OTC Link LLC on the valuation 
date. If such OTC-traded security does not trade on a particular day, 
then the mean between the last quoted closing bid and asked price will 
be used.
    U.S. government securities, repurchase agreements and reverse 
repurchase agreements will be valued at prices supplied by approved 
pricing services.
    Investment company securities (other than exchange-traded 
investment company securities) will be valued at NAV.
    Futures contracts will be valued at the settlement or closing price 
determined by the applicable exchange.
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''),\21\ 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 will disclose on its Web site the Disclosed Portfolio that will 
form the basis for the Fund's calculation of NAV at the end of the 
business day.\22\
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    \21\ The Bid/Ask Price of Shares of the Fund will be 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.
    \22\ 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 Adviser, on behalf of the Fund, will disclose 
on the Fund's Web site the following information regarding each 
portfolio holding, as applicable to the type of holding: Ticker symbol, 
CUSIP number or other identifier, if any; a description of the holding 
(including the type of holding); the identity of the security, index, 
or other asset or instrument underlying the holding, if any; for 
options, the option strike price; quantity held (as measured by, for 
example, par value, notional value or number of shares, contracts or 
units; maturity date, if any; coupon rate, if any; effective date, if 
any; market value of the holding; and the percentage weighting of the 
holding in the Fund's portfolio. The Web site information will be 
publicly available at no charge.
    In addition, a basket composition file, which includes the security 
names and share quantities (as applicable) 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 NYSE via the NSCC. The basket will represent one Creation Unit of 
the Fund.
    Investors can also obtain the Fund'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 and U.S. exchange-listed equity securities, including common 
stocks, ETFs, ETNs, exchange-traded pooled vehicles, preferred stocks, 
rights, warrants, convertible securities, closed-end funds, MLPs, 
REITs, BDCs, PFICs and certain Depository Receipts will be available 
via the Consolidated Tape Association (``CTA'') high-speed line, and 
will be available from the national securities exchange on which they 
are listed. Prices related to foreign exchange-traded common stocks, 
preferred stocks, rights, warrants, convertible securities and MLPs 
will be available from the applicable exchange or from major market 
data vendors. Intra-day and closing price information relating to OTC-
traded common stocks, preferred stocks, rights, warrants, convertible 
securities and MLPs will be available from major market data vendors. 
Quotation and last sale information for futures will be available from 
the exchange on which they are listed. Quotation and last sale 
information for exchange-listed options cleared via the Options 
Clearing Corporation will be available via the Options Price Reporting 
Authority. Price information regarding investment company securities 
(other than exchange-traded investment company securities) will be 
available from the applicable fund. Price information regarding U.S. 
government securities, repurchase agreements, and reverse repurchase 
agreements may be obtained from brokers and dealers who make markets in 
such securities or through nationally recognized pricing services 
through subscription agreements.
    In addition, the Portfolio Indicative Value, as defined in NYSE 
Arca Equities Rule 8.600 (c)(3), based on current information regarding 
the value of the securities and other assets in the Disclosed 
Portfolio, will be widely disseminated at least every 15 seconds during 
the Core Trading Session by one or more major market data vendors.\23\ 
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. The Portfolio 
Indicative Value should not be viewed as a ``real-time'' update of the 
NAV per Share of the Fund, which will be calculated once per day.
---------------------------------------------------------------------------

    \23\ 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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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.\24\ 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

[[Page 22342]]

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.
---------------------------------------------------------------------------

    \24\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

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, 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.
    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, as the Reporting 
Authority, 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 \25\ under the 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 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.
---------------------------------------------------------------------------

    \25\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Exchange or 
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.\26\ 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 federal securities laws applicable to 
trading on the Exchange.
---------------------------------------------------------------------------

    \26\ 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.
    The Exchange or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares and certain underlying 
exchange-traded equity securities (including common stocks, ETFs, ETNs, 
exchange-traded pooled vehicles, MLPs, REITs, BDCs, PFICs and certain 
Depository Receipts), options and futures with other markets and other 
entities that are members of the ISG, and the Exchange or FINRA, on 
behalf of the Exchange, may obtain trading information regarding 
trading in such securities and financial instruments from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in such securities and financial instruments from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.\27\
---------------------------------------------------------------------------

    \27\ 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.
---------------------------------------------------------------------------

    Not more than 10% of the net assets of the Fund in the aggregate 
invested in equity securities (other than non-exchange-traded 
investment company securities) shall consist of equity securities whose 
principal market is not a member of the ISG or is a market with which 
the Exchange does not have a comprehensive surveillance sharing 
agreement.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability of Exchange 
rules and surveillance procedures shall constitute continued listing 
requirements for listing the Shares on the Exchange.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Equities Rule 5.5(m).
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 and the Disclosed Portfolio 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 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 Act for this proposed rule change is the 
requirement under Section 6(b)(5) \28\ 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

[[Page 22343]]

and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \28\ 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. The Exchange or FINRA, on behalf of 
the Exchange, will communicate as needed regarding trading in the 
Shares, certain underlying exchange-traded equity securities (including 
common stocks, ETFs, ETNs, exchange-traded pooled vehicles, REITs, 
BDCs, PFICs and certain Depository Receipts), options and futures with 
other markets and other entities that are members of the ISG, and the 
Exchange or FINRA, on behalf of the Exchange, may obtain trading 
information regarding trading in such securities and financial 
instruments from such markets and other entities. In addition, the 
Exchange may obtain information regarding trading in such securities 
and financial instruments from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. Not more than 10% of the net assets of 
the Fund in the aggregate invested in equity securities shall consist 
of equity securities whose principal market is not a member of the ISG 
or is a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement. Neither the Adviser nor the Sub-Adviser 
is registered as a broker-dealer. Neither the Adviser nor the Sub-
Adviser is registered as a broker-dealer. [sic] Neither the Adviser nor 
the Sub-Adviser [sic] The Fund's investments will be consistent with 
its investment objective and will not be used to provide multiple 
returns of a benchmark or to produce leveraged returns. The Fund's 
investments will not be used to seek performance that is the multiple 
or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's primary broad-
based securities benchmark index (as defined in Form N-1A.
    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. In addition, a large amount of 
information will be 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 at least every 15 seconds during the Core Trading Session 
by one or more major market data vendors. 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 will disclose on 
its Web site 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 Adviser, on behalf of the Fund, will disclose on the Fund's 
Web site the following information regarding each portfolio holding, as 
applicable to the type of holding: Ticker symbol, CUSIP number or other 
identifier, if any; a description of the holding (including the type of 
holding); the identity of the security, index, or other asset or 
instrument underlying the holding, if any; for options, the option 
strike price; quantity held (as measured by, for example, par value, 
notional value or number of shares, contracts or units; maturity date, 
if any; coupon rate, if any; effective date, if any; market value of 
the holding; and the percentage weighting of the holding in the Fund's 
portfolio. The Web site information will be publicly available at no 
charge.
    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 Portfolio, and quotation and last sale information 
for the Shares.
    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 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. 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 Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded product that 
primarily holds equity securities and 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 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,

[[Page 22344]]

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-2016-46 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2016-46. 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 Number SR-NYSEArca-2016-46 and should 
be submitted on or before May 6, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-08641 Filed 4-14-16; 8:45 am]
 BILLING CODE 8011-01-P