Document ID: SEC-2013-0486-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-03-13T04:00Z

[Federal Register Volume 78, Number 49 (Wednesday, March 13, 2013)]
[Notices]
[Pages 15990-15994]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-05717]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69061; File No. SR-NYSEArca-2013-01]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to Listing and Trading of the 
Newfleet Multi-Sector Income ETF Under NYSE Arca Equities Rule 8.600

March 7, 2013.

I. Introduction

    On January 4, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Newfleet Multi-Sector Income ETF (``Fund'') under NYSE Arca Equities 
Rule 8.600. The proposed rule change was published for comment in the 
Federal Register on January 23, 2013.\3\ The Commission received no 
comments on the proposed rule change. This order grants approval of the 
proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68666 (Jan. 16, 
2013), 78 FR 4960 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant 
to NYSE Arca Equities Rule 8.600, which governs the listing and trading 
of Managed Fund Shares on the Exchange. The Shares will be offered by 
AdvisorSharesTrust (``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.\4\ The investment manager to 
the Fund will be AdvisorShares Investments LLC (``Adviser''). Newfleet 
Asset Management, LLC will serve as sub-adviser to the Fund (``Sub-
Adviser''). Foreside Fund Services, LLC will serve as the distributor 
for the Fund. The Bank of New York Mellon will serve as the custodian 
and transfer agent for the Fund. The Exchange represents that the 
Adviser is not affiliated with a broker-dealer. The Exchange represents 
that the Sub-Adviser is affiliated with a broker-dealer and has 
implemented a fire wall with respect to 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 the portfolio.\5\
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On June 25, 2012, the Trust filed with the 
Commission an amendment to its registration statement on Form N-1A 
under the Securities Act of 1933 (``Securities Act'') and under the 
1940 Act relating to the Fund (File Nos. 333-157876 and 811-22110) 
(``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).
    \5\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the 
event (a) the Adviser or the Sub-Adviser becomes newly affiliated 
with a broker-dealer, or (b) 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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Description of the Fund

Principal Investments
    The Fund will, under normal market conditions,\6\ invest at least 
eighty percent (80%) in investment-grade fixed income securities, which 
are fixed income securities with credit ratings within the four highest 
rating categories of a nationally recognized statistical rating 
organization. The Fund may invest in unrated securities to a limited 
extent if such security is determined by the Sub-Adviser to be of 
comparable quality.\7\ The average duration of the Fund's fixed income 
investments will range from one to three years.
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    \6\ The term ``under normal market conditions'' includes, but is 
not limited to, the absence of extreme volatility or trading halts 
in the fixed income 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.
    \7\ In determining whether a security is of ``comparable 
quality,'' the Sub-Adviser will consider, for example, whether the 
issuer of the security has issued other rated securities; whether 
the obligations under the security are guaranteed by another entity 
and the rating of such guarantor (if any); whether and (if 
applicable) how the security is collateralized; other forms of 
credit enhancement (if any); the security's maturity date; liquidity 
features (if any); relevant cash flow(s); valuation features; other 
structural analysis; macroeconomic analysis; and sector or industry 
analysis.
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    The Fund's investment objective is to provide a competitive level 
of current income, consistent with preservation of capital, while 
limiting fluctuations in net asset value (``NAV'') due to changes in 
interest rates. The Fund seeks to apply extensive credit research and a 
time-tested approach to capitalize on opportunities across undervalued 
areas of the bond markets.
    The Sub-Adviser will seek to provide diversification by allocating 
the Fund's investments among various sectors of the fixed income 
markets, including investment grade debt securities issued primarily by 
U.S. issuers and secondarily by non-U.S. issuers, as follows:
     Securities issued or guaranteed as to principal and 
interest by the U.S. government, its agencies, authorities, or 
instrumentalities, including collateralized mortgage obligations, real 
estate mortgage investment conduits, and other pass-through securities;
     Non-agency \8\ commercial mortgage-backed securities 
(``CMBS''), agency and non-agency residential mortgage-backed 
securities (``RMBS''), and other asset backed securities; \9\
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    \8\ ``Non-agency'' securities are financial instruments that 
have been issued by an entity that is not a government-sponsored 
agency, such as the Federal National Mortgage Association, Federal 
Home Loan Mortgage Corporation, Federal Home Loan Banks, or the 
Government National Mortgage Association.
    \9\ Although the Fund has not established a fixed limit to the 
amount of non-agency securities in which it will invest, at least 
80% of the Fund's net assets will be, under normal market 
conditions, invested in U.S. dollar denominated investment grade 
fixed income securities. The liquidity of any such security will be 
a factor in the selection of any such security.

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[[Page 15991]]

     U.S. and non-U.S. corporate bonds; \10\
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    \10\ The Adviser expects that under normal market conditions, 
the Fund will seek to invest at least 75% of its assets in corporate 
bond issuances that have at least $100,000,000 par amount 
outstanding in developed countries and at least $200,000,000 par 
amount outstanding in emerging market countries.
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     Yankee bonds; \11\
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    \11\ Yankee bonds are denominated in U.S. dollars, registered in 
accordance with the Securities Act and publicly issued in the U.S. 
by foreign banks and corporations.
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     Taxable municipal bonds and tax-exempt municipal bonds; 
and
     Debt securities issued by foreign governments and their 
political subdivisions.
    The Fund represents that the portfolio will include a minimum of 13 
non-affiliated issuers of fixed income securities. The Fund will only 
purchase performing securities and not distressed debt.\12\
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    \12\ Distressed debt is debt that is currently in default and is 
not expected to pay the current coupon.
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    In seeking to achieve the Fund's investment objective, the Sub-
Adviser will employ active sector rotation and disciplined risk 
management in the construction of the Fund's portfolio. The Fund's 
investable assets will be allocated among various sectors of the fixed 
income market using a ``top-down'' \13\ relative value approach that 
looks at factors such as yield and spreads, supply and demand, 
investment environment, and sector fundamentals. The Sub-Adviser will 
select particular investments using a bottom-up, fundamental research-
driven analysis that includes assessment of credit risk, company 
management, issuer capital structure, technical market conditions, and 
valuations. The Sub-Adviser will select securities it believes offer 
the best potential to achieve the Fund's investment objective of 
providing a high level of total return, including a competitive level 
of current income, while preserving capital.
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    \13\ A ``top-down'' portfolio management style utilizes a 
tactical and globally diversified allocation strategy in an attempt 
to reduce risk and increase overall performance. This management 
style begins with a look at the overall economic picture and current 
market conditions and then narrows its focus down to sectors, 
industries, or countries and ultimately to individual companies. The 
final step is a fundamental analysis of each individual security and 
to a lesser extent technical analysis.
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Other Investments

    While the Fund will invest at least eighty percent (80%) in 
investment-grade fixed income securities, in the absence of normal 
market conditions the Fund may invest 100% of its total assets, without 
limitation, in short-term high-quality debt securities and money market 
instruments either directly or through exchange traded funds 
(``ETFs'').\14\ The Fund may be invested in this manner for extended 
periods depending on the Sub-Adviser's assessment of market conditions. 
These short-term debt instruments and money market instruments include 
shares of other mutual funds, commercial paper, certificates of 
deposit, bankers' acceptances, U.S. government securities, repurchase 
and reverse repurchase agreements,\15\ and bonds that are rated BBB or 
higher.
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    \14\ The ETFs in which the Fund may invest will be registered 
under the 1940 Act and include 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). Such ETFs all will be listed and traded in the U.S. on 
registered exchanges. While the Fund may invest in inverse ETFs, the 
Fund will not invest in leveraged or inverse leveraged ETFs (e.g., 
2X or 3X).
    \15\ The Fund may enter into repurchase agreements with 
financial institutions, which may be deemed to be loans. 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. In the event of a default or bankruptcy by a 
selling financial institution, the Fund will seek to liquidate such 
collateral. 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.
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    The Fund may invest up to 20% of its total assets in fixed-income 
securities that are rated below investment grade at the time of 
purchase. Such securities include corporate high yield debt securities, 
emerging market high yield debt securities, and bank loans. In 
addition, such securities may include non-investment grade CMBS, RMBS, 
or other asset-backed securities, or debt securities issued by foreign 
issuers. If certain of the Fund's holdings experience a decline in 
their credit quality and fall below investment grade, the Fund may 
continue to hold the securities and they will not count toward the 
Fund's 20% investment limit; however, the Fund will make reasonable 
investment decisions relating to the Fund's holdings aligned with its 
investment objective with respect to such securities. Generally, the 
Fund will limit its investments in corporate high yield debt securities 
to 10% of its assets and will limit its investments in non-U.S. issuers 
to 30% of its assets. The Sub-Adviser will regularly review the Fund's 
portfolio construction, endeavoring to minimize risk exposure by 
closely monitoring portfolio characteristics such as sector 
concentration and portfolio duration and by investing no more than 5% 
of the Fund's total assets in securities of any single issuer 
(excluding the U.S. government, its agencies, authorities, or 
instrumentalities).
    The Fund may invest in equity securities.\16\ The Fund will 
purchase such equity securities traded in the U.S. on registered 
exchanges. Additionally, the Fund may invest in the equity securities 
of foreign issuers, including the securities of foreign issuers in 
emerging countries.\17\ With respect to its equity securities 
investments, the Fund will invest only in equity securities (including 
Equity Financial Instruments) that trade in markets that are members of 
the Intermarket Surveillance Group (``ISG'') or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.
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    \16\ Equity securities represent ownership interests in a 
company or partnership and consist not only of common stocks, which 
are one of the Fund's primary types of investments, but also 
preferred stocks, warrants to acquire common stock, securities 
convertible into common stock, and investments in master limited 
partnerships.
    \17\ 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 American Depository Receipts 
(``ADRs''), ``ordinary shares,'' and ``New York shares'' (each of 
which is issued and traded in the U.S.); and Global Depository 
Receipts (``GDRs''), European Depository Receipts (``EDRs''), and 
International Depository Receipts (``IDRs''), which are traded on 
foreign exchanges (all of the foregoing financial instruments are 
collectively referred to as ``Equity Financial Instruments''). 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. 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, 
which protects the Fund from foreign settlement risks. 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.

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[[Page 15992]]

    The Fund may invest in exchange-traded notes (``ETNs'').\18\
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    \18\ ETNs, also called index-linked securities as would be 
listed, for example, under NYSE Arca Equities Rule 5.2(j)(6), 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.
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    The Fund may invest in, to the extent permitted by Section 12(d)(1) 
of the 1940 Act and the rules thereunder,\19\ other affiliated and 
unaffiliated funds, such as open-end or closed-end management 
investment companies,\20\ including other ETFs; provided that the Fund, 
immediately after such purchase or acquisition, does not own in the 
aggregate: (i) More than 3% of the total outstanding voting stock of 
the acquired company; (ii) securities issued by the acquired company 
having an aggregate value in excess of 5% of the value of the total 
assets of the Fund; or (iii) securities issued by the acquired company 
and all other investment companies (other than Treasury stock of the 
Fund) having an aggregate value in excess of 10% of the value of the 
total assets of the Fund.
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    \19\ 15 U.S.C. 80a-12(d)(1).
    \20\ Investment companies may include index-based investments, 
such as ETFs that hold substantially all of their assets in 
securities representing a specific index.
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    The Fund also may invest in the securities of other investment 
companies if the Fund is part of a ``master-feeder'' structure or 
operates as a fund of funds in compliance with Section 12(d)(1)(E), (F) 
and (G) of the 1940 Act and the rules thereunder.\21\ Section 12(d)(1) 
prohibits another investment company from selling its shares to the 
Fund if, after the sale: (i) the Fund owns more than 3% of the other 
investment company's voting stock or (ii) the Fund and other investment 
companies, and companies controlled by them, own more than 10% of the 
voting stock of such other investment company. The Trust has entered 
into agreements with several unaffiliated ETFs that permit, pursuant to 
a Commission order, the Fund to purchase shares of those ETFs beyond 
such limits set forth in Section 12(d)(1). The Fund will only make such 
investments in conformity with the requirements of Subchapter M of the 
Internal Revenue Code of 1986, as amended (``Code''). The Fund will 
seek to qualify for treatment as a Regulated Investment Company under 
the Code.
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    \21\ 15 U.S.C. 80a-12(d)(1)(E),(F) and (G).
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    The Fund may invest in the exchange traded securities of pooled 
vehicles that are not investment companies and, thus, not required to 
comply with the provisions of the 1940 Act. Such pooled vehicles would 
be required to comply with the provisions of other federal securities 
laws, such as the Securities Act. These pooled vehicles typically hold 
commodities, such as gold or oil, currency, or other property that is 
itself not a security.
    The Fund may invest in shares of exchange-traded real estate 
investment trusts.
    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 and loan participation interests (e.g., 
bank loans). 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.
    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.
    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. 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 will not invest in options contracts, futures contracts, 
or swap agreements.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\22\ 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 \23\ will be made available to all market 
participants at the same time. The Fund's investments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage.
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    \22\ 17 CFR 240.10A-3.
    \23\ The term ``Disclosed Portfolio'' is defined in NYSE Arca 
Equities Rule 8.600(c)(2).
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    Additional information regarding the Trust, Fund, and Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings, disclosure policies, 
distributions and taxes, availability of information, trading rules and 
halts, and surveillance procedures, among other things, can be found in 
the Notice and/or the Registration Statement, as applicable.\24\
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    \24\ See Notice and Registration Statement, supra notes 3 and 4, 
respectively.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \25\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\26\ In particular, the Commission finds that the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act,\27\ which requires, among other things, that the 
Exchange's rules be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Commission notes that the Fund and the Shares must comply with the 
requirements of NYSE Arca Equities Rule 8.600 to be listed and traded 
on the Exchange.
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    \25\ 15 U.S.C. 78f.
    \26\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \27\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\28\ which sets

[[Page 15993]]

forth Congress's finding that it is in the public interest and 
appropriate for the protection of investors and the maintenance of fair 
and orderly markets to assure the availability to brokers, dealers, and 
investors of information with respect to quotations for, and 
transactions in, securities. Quotation and last-sale information for 
the Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the Portfolio Indicative Value, 
as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the NYSE Arca Core Trading Session (9:30 a.m. Eastern 
time to 4:00 p.m. Eastern time).\29\ On each business day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Fund will disclose on the Trust's Web site the Disclosed 
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will 
form the basis for the Fund's calculation of NAV at the end of the 
business day.\30\ The NAV of the Fund will be calculated once each 
business day as of the regularly scheduled close of trading (normally, 
4:00 p.m. Eastern time) on the New York Stock Exchange, LLC. 
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. In addition, price information for the debt and 
other securities and investments held by the Fund will be available 
through major market data vendors or on the exchanges on which they are 
traded. The Trust's Web site will include a form of the prospectus for 
the Fund and additional data relating to NAV and other applicable 
quantitative information.
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    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \29\ According to the Exchange, several major market data 
vendors display and/or make widely available Portfolio Indicative 
Values taken from the CTA or other data feeds.
    \30\ On a daily basis, the Fund will disclose for each portfolio 
security or other financial instrument of the Fund the following 
information: Ticker symbol (if applicable), name of security or 
financial instrument, number of shares or dollar value of securities 
and financial instruments held in the portfolio, and percentage 
weighting of the security or financial instrument in the portfolio. 
The Web site information will be publicly available at no charge.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.\31\ 
In addition, 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. The Exchange may halt trading 
in the Shares if trading is not occurring in the securities and/or the 
financial instruments constituting the Disclosed Portfolio of the Fund, 
or if other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.\32\ Further, the 
Commission notes that the Reporting Authority that provides the 
Disclosed Portfolio must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the actual components of the 
portfolio.\33\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. The Exchange also states that, while the Adviser is not 
affiliated with a broker-dealer, the Sub-Adviser is affiliated with a 
broker-dealer, and the Sub-Adviser has implemented a fire wall with 
respect to its broker-dealer affiliate 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 the portfolio.\34\ The 
Exchange will communicate as needed regarding trading in the Shares 
with other markets that are members of ISG or with which the Exchange 
has in place a comprehensive surveillance sharing agreement. The 
Exchange represents that the Fund will invest only in equity securities 
and Equity Financial Instruments 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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    \31\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \32\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing 
additional considerations for the suspension of trading in or 
removal from listing of Managed Fund Shares on the Exchange). 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. 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.
    \33\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \34\ See supra note 5 and accompanying text. The Commission 
notes that an investment adviser to an open-end fund is required to 
be registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser and 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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    The Exchange further represents that the Shares are deemed to be 
equity securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders (``ETP Holders'') in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares. Specifically, the Information Bulletin will discuss 
the following: (a) The procedures for purchases and redemptions of 
Shares in Creation Unit aggregations (and that Shares are not 
individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which 
imposes a duty of due diligence on its ETP Holders to learn the 
essential facts relating to every customer prior to trading the Shares; 
(c) the risks involved in trading the Shares during the

[[Page 15994]]

Opening and Late Trading Sessions when an updated Portfolio Indicative 
Value will not be calculated or publicly disseminated; (d) how 
information regarding the Portfolio Indicative Value is disseminated; 
(e) the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (f) trading information.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\35\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \35\ 17 CFR 240.10A-3.
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    (6) The Fund will, under normal market conditions, invest at least 
eighty percent (80%) in investment-grade securities, which are fixed 
income securities with credit ratings within the four highest rating 
categories of a nationally recognized statistical rating organization, 
or, if unrated, those securities that the Sub-Adviser determines to be 
of comparable quality.
    (7) The Fund's portfolio will include a minimum of 13 non-
affiliated issuers of fixed income securities.
    (8) The Fund will only purchase performing securities and not 
distressed debt.
    (9) Generally, the Fund will limit its investments in corporate 
high yield debt securities to 10% of its assets and will limit its 
investments in non-U.S. issuers to 30% of its assets.
    (10) Under normal market conditions, the Fund will seek to invest 
at least 75% of its assets in corporate bond issuances that have at 
least $100,000,000 par amount outstanding in developed countries and at 
least $200,000,000 par amount outstanding in emerging market countries.
    (11) The Fund will invest only in equity securities (including 
Equity Financial Instruments) that trade in markets that are members of 
the ISG or are parties to a comprehensive surveillance sharing 
agreement with the Exchange.
    (12) The Fund will not invest in options contracts, futures 
contracts, or swap agreements.
    (13) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities, including Rule 144A securities and loan 
participation interests, and 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.
    (14) The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. The Fund 
will not invest in leveraged or inverse leveraged ETFs.
    (15) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations, including those set forth above and in the Notice, and 
the Exchange's description of the Fund.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \36\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \36\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-NYSEArca-2013-01) be, and it 
hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-05717 Filed 3-12-13; 8:45 am]
BILLING CODE 8011-01-P