Document ID: SEC-2013-0345-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-02-15T05:00Z

[Federal Register Volume 78, Number 32 (Friday, February 15, 2013)]
[Notices]
[Pages 11238-11243]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03490]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68871; File No. SR-NYSEArca-2012-138]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change To List and Trade PIMCO Foreign 
Currency Strategy Exchange-Traded Fund Under NYSE Arca Equities Rule 
8.600

February 8, 2013.

I. Introduction

    On December 6, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the PIMCO 
Foreign Currency Strategy Exchange-Traded Fund (``Fund'') under NYSE 
Arca Equities Rule 8.600. The proposed rule change was published for 
comment in the Federal Register on December 26, 2012.\3\ The Commission 
received no comments on the proposal. 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. 68476 (December 19, 
2012), 77 FR 76121 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the 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 PIMCO ETF Trust (``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 is Pacific Investment Management Company 
LLC (``PIMCO'' or ``Adviser''). PIMCO Investments LLC serves as the 
distributor for the Fund. State Street Bank & Trust Co. serves as the 
custodian and transfer agent for the Fund. The Exchange represents that 
the 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 
portfolio.\5\
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On October 28, 2011, 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. 333-155395 and 811-22250) 
(``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. 28993 (November 10, 
2009) (File No. 812-13571).
    \5\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that in the event (a) the Adviser or any sub-
adviser becomes newly affiliated with a broker-dealer, or (b) any 
new adviser or sub-adviser becomes affiliated with a broker-dealer, 
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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Principal Investment Strategies

    The Fund will seek maximum total return,\6\ consistent with prudent 
investment management. The Fund will invest under normal circumstances 
\7\ at least 80% of its assets in currencies of, or Fixed Income 
Instruments \8\

[[Page 11239]]

denominated in the currencies of, foreign (non-U.S.) countries, 
including, but not limited to, a combination of short-term Fixed Income 
Instruments, money market securities, and currency forwards \9\ backed 
by high-quality, low duration securities (``80% Holdings'').\10\ The 
Fund will seek exposure to foreign (non-U.S.) currencies likely to 
outperform the U.S. dollar over the long-term. Assets not invested in 
the 80% Holdings may be invested in other types of Fixed Income 
Instruments (e.g., Fixed Income Instruments denominated in U.S. 
dollars).
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    \6\ The ``total return'' sought by the Fund will consist of 
income and capital appreciation, if any, which generally arises from 
decreases in interest rates, foreign currency appreciation, or 
improving credit fundamentals for a particular sector or security.
    \7\ The term ``under normal circumstances'' 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.
    \8\ ``Fixed Income Instruments,'' as used generally in the 
Registration Statement, includes: debt securities issued or 
guaranteed by the U.S. Government, its agencies or government-
sponsored enterprises (``U.S. Government Securities''); corporate 
debt securities of U.S. and non-U.S. issuers, including convertible 
securities and corporate commercial paper; mortgage-backed and other 
asset-backed securities; inflation-indexed bonds issued both by 
governments and corporations; structured notes, including hybrid or 
``indexed'' securities and event-linked bonds; bank capital and 
trust preferred securities; loan participations and assignments; 
delayed funding loans and revolving credit facilities; bank 
certificates of deposit, fixed time deposits and bankers' 
acceptances; repurchase agreements on Fixed Income Instruments and 
reverse repurchase agreements on Fixed Income Instruments; debt 
securities issued by states or local governments and their agencies, 
authorities and other government-sponsored enterprises; obligations 
of non-U.S. governments or their subdivisions, agencies and 
government-sponsored enterprises; and obligations of international 
agencies or supranational entities. Only those Fixed Income 
Instruments that are denominated in foreign (non-U.S.) currencies 
count towards the 80% Holdings (as defined above).
    \9\ A forward foreign currency exchange contract involves an 
obligation to purchase or sell a specific currency at a future date 
at a price set at the time of the contract.
    \10\ In connection with its holdings in Fixed Income 
Instruments, the Fund will seek, where possible, to use 
counterparties, as applicable, whose financial status is such that 
the risk of default is reduced; however, the risk of losses 
resulting from default is still possible. PIMCO's Counterparty Risk 
Committee evaluates the creditworthiness of counterparties on an 
ongoing basis. In addition to information provided by credit 
agencies, PIMCO credit analysts evaluate each approved counterparty 
using various methods of analysis, including company visits, 
earnings updates, the broker-dealer's reputation, PIMCO's past 
experience with the broker-dealer, market levels for the 
counterparty's debt and equity, the counterparty's liquidity and its 
share of market participation.
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    The Fund may invest up to 50% of its total assets in securities and 
instruments that are economically tied to emerging market countries, 
which may include assets constituting the 80% Holdings.\11\ PIMCO will 
select the Fund's country and currency composition based on its 
evaluation of relative interest rates, inflation rates, exchange rates, 
monetary and fiscal policies, trade and current account balances, legal 
and political developments, and other specific factors PIMCO believes 
to be relevant. The Fund will normally limit its exposure to a single 
non-U.S. currency (from currency holdings or investments in securities 
denominated in that currency) to 20% of its total assets.
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    \11\ PIMCO generally considers an instrument to be economically 
tied to an emerging market country if the issuer or guarantor is a 
government of an emerging market country (or any political 
subdivision, agency, authority or instrumentality of such 
government), if the issuer or guarantor is organized under the laws 
of an emerging market country, or if the currency of settlement is a 
currency of an emerging market country. PIMCO has broad discretion 
to identify countries that it considers to qualify as emerging 
markets. In making investments in emerging market instruments, the 
Fund emphasizes those countries with relatively low gross national 
product per capita and with the potential for rapid economic growth. 
Emerging market countries are generally located in Asia, Africa, the 
Middle East, Latin America, and Eastern Europe.
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    The average portfolio duration of the Fund will vary based on 
PIMCO's forecast for interest rates and, under normal market 
conditions, will vary from zero to three years.\12\ The Fund may invest 
in both high yield securities (``junk bonds'') rated Ba, or investment 
grade securities rated Baa or higher, by Moody's Investors Service, 
Inc. (``Moody's''), or equivalently rated by Standard & Poor's Ratings 
Services (``S&P'') or Fitch, Inc. (``Fitch''), or, if unrated, 
determined by PIMCO to be of comparable quality.\13\ The Fund currently 
anticipates that at least 50% of issues of Fixed Income Instruments 
held by the Fund will be rated investment grade or determined by PIMCO 
to be of comparable quality.\14\ The Fund is non-diversified, which 
means that it may invest its assets in a smaller number of issuers than 
a diversified fund.
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    \12\ Duration is a measure used to determine the sensitivity of 
a security's price to changes in interest rates. The longer a 
security's duration, the more sensitive it will be to changes in 
interest rates.
    \13\ Securities rated Ba or lower by Moody's, or equivalently 
rated by S&P or Fitch, are sometimes referred to as ``high yield 
securities'' or ``junk bonds,'' while securities rated Baa or higher 
are referred to as ``investment grade.'' Unrated securities may be 
less liquid than comparably rated securities and involve the risk 
that the portfolio manager may not accurately evaluate the 
security's comparative credit rating. To the extent that the Fund 
invests in unrated securities, the Fund's success in achieving its 
investment objective may depend more heavily on the portfolio 
manager's creditworthiness analysis than if the Fund invested 
exclusively in rated securities. See note 14, infra.
    \14\ PIMCO utilizes sophisticated proprietary techniques in its 
creditworthiness analysis of unrated securities similar to the 
processes utilized by Moody's, S&P, and Fitch in their respective 
analyses of rated securities. For example, in making a ``comparable 
quality'' determination for an unrated security, PIMCO may evaluate 
the likelihood of payment by the obligor, the nature and provisions 
of the debt obligation, and the protection afforded by, and relative 
position of, the debt obligation in the event of bankruptcy, 
reorganization, or other arrangement under laws affecting creditors' 
rights. Upon consideration of these and other factors, PIMCO may 
determine that an unrated security is of comparable quality to rated 
securities in which the Fund may invest consistent with the Fund's 
credit quality guidelines described above.
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    While corporate debt securities and debt securities economically 
tied to an emerging market country generally must have $200 million or 
more par amount outstanding and significant par value traded to be 
considered as an eligible investment for the Fund, at least 80% of 
issues of such securities held by the Fund must have $200 million or 
more par amount outstanding. The Fund may invest up to 10% of its 
assets in mortgage-backed securities or in other asset-backed 
securities, although this limitation does not apply to securities 
issued or guaranteed by Federal agencies or U.S. government sponsored 
instrumentalities.
    The Fund may purchase or sell securities on a when-issued, delayed 
delivery, or forward commitment basis and may engage in short sales. 
The Fund may, without limitation, seek to obtain market exposure to the 
securities in which it primarily invests by entering into a series of 
purchase and sale contracts or by using other investment techniques 
(such as buy backs or dollar rolls).

Investment Selection Techniques

    In selecting investments for the Fund, PIMCO will develop an 
outlook for interest rates, currency exchange rates, and the economy; 
analyze credit and call risks; and use other asset selection 
techniques. The proportion of the Fund's investments in securities with 
particular characteristics (such as quality, sector, interest rate, or 
maturity) will vary based on PIMCO's outlook for the U.S. economy and 
the economies of other countries in the world, the financial markets, 
and other factors. In seeking to identify undervalued currencies, PIMCO 
may consider many factors, including but not limited to longer-term 
analysis of relative interest rates, inflation rates, real exchange 
rates, purchasing power parity, trade account balances, and current 
account balances, as well as other factors that influence exchange 
rates such as flows, market technical trends, and government policies. 
With respect to fixed income investing, PIMCO will attempt to identify 
areas of the bond market that are undervalued relative to the rest of 
the market. PIMCO identifies these areas by grouping Fixed Income 
Instruments into sectors such as money markets, governments, 
corporates, mortgages, asset-backed, and international. Sophisticated 
proprietary software then will assist in evaluating sectors and pricing 
specific investments. Once investment opportunities are identified, 
PIMCO will shift assets among sectors depending upon changes in 
relative valuations, credit spreads, and other factors.

Additional Information Regarding Principal Investment Strategies \15\
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    \15\ Many of the investment strategies of the Fund are 
discretionary, which means that PIMCO can decide from time to time 
whether to use them or not.
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    The Fund will invest in currencies and Fixed Income Instruments 
that are

[[Page 11240]]

economically tied to foreign (non-U.S.) countries. PIMCO generally 
considers an instrument to be economically tied to a non-U.S. country 
if the issuer is a foreign government (or any political subdivision, 
agency, authority, or instrumentality of such government), or if the 
issuer is organized under the laws of a non-U.S. country. In the case 
of certain money market instruments, such instruments will be 
considered economically tied to a non-U.S. country if either the issuer 
or the guarantor of such money market instrument is organized under the 
laws of a non-U.S. country.
    The Fund will invest in foreign currencies and may invest in Fixed 
Income Instruments denominated in foreign (non-U.S.) currencies or 
receive revenues in foreign currencies, and may engage in foreign 
currency transactions on a spot (cash) basis and enter into forward 
foreign currency exchange contracts.\16\ A forward foreign currency 
exchange contract, which involves an obligation to purchase or sell a 
specific currency at a future date at a price set at the time of the 
contract, reduces the Fund's exposure to changes in the value of the 
currency it will deliver and increases its exposure to changes in the 
value of the currency it will receive for the duration of the contract. 
Certain foreign currency transactions may also be settled in cash 
rather than the actual delivery of the relevant currency. The effect on 
the value of the Fund is similar to selling securities denominated in 
one currency and purchasing securities denominated in another currency. 
A contract to sell foreign currency would limit any potential gain 
which might be realized if the value of the hedged currency increases. 
The Fund may enter into these contracts to hedge against foreign 
exchange risk, to increase exposure to a foreign currency, or to shift 
exposure to foreign currency fluctuations from one currency to another. 
Suitable hedging transactions may not be available in all circumstances 
and there can be no assurance that the Fund will engage in such 
transactions at any given time or from time to time.
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    \16\ The Fund will limit its investments in currencies to those 
currencies with a minimum average daily foreign exchange turnover of 
USD $1 billion, as determined by the Bank for International 
Settlements (``BIS'') Triennial Central Bank Survey. As of the most 
recent BIS Triennial Central Bank Survey, at least 52 separate 
currencies had minimum average daily foreign exchange turnover of 
USD $1 billion. For a list of eligible BIS currencies, see 
www.bis.org.
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    The Fund may invest in variable and floating rate debt securities, 
which are securities that pay interest at rates that adjust whenever a 
specified interest rate changes or that reset on predetermined dates 
(such as the last day of a month or calendar quarter). To the extent 
the Fund invests in variable and floating rate debt securities that are 
deemed illiquid, the Fund will limit such holdings to an amount 
consistent with the 15% limitation on illiquid securities discussed 
below. The Fund may invest in floating rate debt instruments 
(``floaters'') and engage in credit spread trades. Variable and 
floating rate securities generally are less sensitive to interest rate 
changes, but may decline in value if their interest rates do not rise 
as much, or as quickly, as interest rates in general. Conversely, 
floating rate securities will not generally increase in value if 
interest rates decline.
    The Fund may invest in bank capital securities. Bank capital 
securities are issued by banks to help fulfill their regulatory capital 
requirements. There are two common types of bank capital: Tier I and 
Tier II. Bank capital is generally, but not always, of investment grade 
quality. Tier I securities are typically exchange-traded and often take 
the form of trust preferred securities. Tier II securities are commonly 
thought of as hybrids of debt and preferred stock. Tier II securities 
are typically traded over-the-counter, are often perpetual (with no 
maturity date), are callable, and have a cumulative interest deferral 
feature. This means that under certain conditions, the issuer bank can 
withhold payment of interest until a later date. However, such deferred 
interest payments generally earn interest.
    The Fund may make short sales as part of its overall portfolio 
management strategies or to offset a potential decline in value of a 
security.

Other Portfolio Holdings and Non-Principal Investment Strategies

    For the purpose of achieving income, the Fund may lend its 
portfolio securities to brokers, dealers, and other financial 
institutions, provided that a number of conditions are satisfied, 
including that the loan is fully collateralized. When the Fund lends 
portfolio securities, its investment performance will continue to 
reflect changes in the value of the securities loaned, and the Fund 
will also receive a fee or interest on the collateral. Cash collateral 
received by the Fund in securities lending transactions may be invested 
in short-term liquid Fixed Income Instruments or in money market or 
short-term mutual funds or similar investment vehicles, including 
affiliated money market or short-term mutual funds.
    The Fund may invest in, to the extent permitted by Section 
12(d)(1)(A) of the 1940 Act, other affiliated and unaffiliated funds, 
such as open-end or closed-end management investment companies, 
including other exchange traded funds, provided that the Fund's 
investment in units or shares of investment companies and other open-
end collective investment vehicles will not exceed 10% of the Fund's 
total assets. The Fund may invest in securities lending collateral in 
one or more money market funds to the extent permitted by Rule 12d1-1 
under the 1940 Act, including series of PIMCO Funds, an affiliated 
open-end management investment company managed by PIMCO.
    Subject to the restrictions and limitations of the 1940 Act, the 
Fund may elect to pursue its investment objective either by investing 
directly in securities or instruments, or by investing in one or more 
underlying investment vehicles or companies that have substantially 
similar investment objectives and policies as the Fund.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment). 
Certain financial instruments, including, but not limited to, Rule 144A 
securities, loan participations and assignments, delayed funding loans, 
revolving credit facilities,\17\ and fixed- and floating-rate loans 
\18\ will be included in the 15% limitation on illiquid securities. The 
Fund will monitor its portfolio liquidity on an ongoing basis to 
determine whether, in light of current circumstances, an adequate level 
of liquidity is being maintained, and the Fund will consider taking 
appropriate steps in order to maintain adequate

[[Page 11241]]

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.
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    \17\ The Fund may enter into, or acquire participations in, 
delayed funding loans and revolving credit facilities, in which a 
lender agrees to make loans up to a maximum amount upon demand by 
the borrower during a specified term. These commitments may have the 
effect of requiring the Fund to increase its investments in a 
company at a time when it might not otherwise decide to do so 
(including at a time when the company's financial condition makes it 
unlikely that such amounts will be repaid). To the extent that the 
Fund is committed to advance additional funds, it will segregate or 
``earmark'' assets determined to be liquid by PIMCO in accordance 
with procedures established by the Fund's Board of Trustees in an 
amount sufficient to meet such commitments.
    \18\ The Fund may invest in fixed- and floating-rate loans, 
which investments generally will be in the form of loan 
participations and assignments of portions of such loans. 
Participations and assignments involve special types of risk, 
including credit risk, interest rate risk, liquidity risk, and the 
risks of being a lender.
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    The Fund intends to qualify annually and elect to be treated as a 
regulated investment company under Subchapter M of the Internal Revenue 
Code. The Fund may not concentrate its investments in a particular 
industry, as that term is used in the 1940 Act, and as interpreted, 
modified, or otherwise permitted by regulatory authority having 
jurisdiction from time to time.
    If PIMCO believes that economic or market conditions are 
unfavorable to investors, PIMCO may temporarily invest up to 100% of 
the Fund's assets in certain defensive strategies, including holding a 
substantial portion of the Fund's assets in cash, cash equivalents, or 
other highly rated short-term securities, including securities issued 
or guaranteed by the U.S. government, its agencies, or 
instrumentalities.
    The Fund will not invest in any non-U.S registered equity 
securities, except if such securities are traded on exchanges that are 
members of the Intermarket Surveillance Group (``ISG'').
    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (i.e., 2X and 3X) of the Fund's 
broad-based securities market index (as defined in Form N-1A).\19\
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    \19\ The Exchange represents that the Fund's broad-based 
securities market 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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    The Fund will not invest in options contracts, futures contracts, 
or swap agreements, in accordance with the Trust's Exemptive Order.
    Additional information regarding the Trust, the Fund, and the 
Shares, including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings, disclosure policies, 
distributions, and taxes is included in the Notice and Registration 
Statement.\20\
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    \20\ See supra, notes 3 and 4, respectively.
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \21\ and the rules and regulations thereunder applicable to a 
national securities exchange.\22\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\23\ 
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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    \21\ 15 U.S.C. 78f.
    \22\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \23\ 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,\24\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association (``CTA'') high-speed line. In addition, the Portfolio 
Indicative Value (``PIV''), as defined in NYSE Arca Equities Rule 
8.600(c)(3), will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Exchange's Core 
Trading Session.\25\ 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,\26\ as defined 
in NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for 
the Fund's calculation of the net asset value (``NAV'') at the end of 
the business day.\27\ The NAV of the Fund's Shares will be calculated 
once daily Monday through Friday as of the close of trading on the New 
York Stock Exchange (generally, 4:00 p.m. Eastern Time). In addition, 
information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services, and 
information regarding the previous day's closing price and trading 
volume information for the Shares will be published daily in the 
financial section of newspapers. The 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. Price information for 
the debt securities and other financial instruments held by the Fund 
will be available through major market data vendors. Further, a basket 
composition file, which includes the security names and share 
quantities, if 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 New York 
Stock Exchange via the National Securities Clearing Corporation. The 
basket represents one ``Creation Unit'' of the Fund.
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    \24\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \25\ According to the Exchange, several major market data 
vendors display or make widely available PIVs taken from CTA or 
other data feeds.
    \26\ On a daily basis, the Adviser will disclose for each 
portfolio security or other financial instrument of the Fund the 
following information: ticker symbol (if applicable), name of 
security and financial instrument, number of shares or dollar value 
of securities and financial instruments held in the portfolio, and 
percentage weighting of the security and financial instrument in the 
portfolio. The Web site information will be publicly available at no 
charge.
    \27\ 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. 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.\28\ 
In addition, the Exchange will halt trading in the Shares under the 
specific

[[Page 11242]]

circumstances set forth in NYSE Arca Equities Rule 8.600(d)(2)(D), and 
may halt trading in the Shares if trading is not occurring in the 
securities 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.\29\ The Exchange will consider the suspension of trading in or 
removal from listing of the Shares if the PIV is no longer calculated 
or available or the Disclosed Portfolio is not made available to all 
market participants at the same time.\30\ The Exchange represents that 
the 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 
portfolio.\31\ The Commission notes that the Adviser's personnel who 
make decisions on the Fund's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the Fund's portfolio.\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 Commission also notes that the Fund will not invest in 
any non-U.S.-registered equity securities, except if such securities 
are traded on exchanges that are members of the ISG, and the Exchange 
would be able to obtain surveillance information via ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement.
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    \28\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \29\ 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.
    \30\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii).
    \31\ 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 its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
    \32\ See Commentary .06 to NYSE Arca Equities Rule 8.600.
    \33\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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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 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.
    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the 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 Opening and Late Trading 
Sessions when an updated PIV will not be calculated or publicly 
disseminated; (d) how information regarding the PIV is disseminated; 
(e) the requirement that 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 continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act,\34\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \34\ See 17 CFR 240.10A-3.
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    (6) The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment). 
Certain financial instruments, including, but not limited to, Rule 144A 
securities, loan participations and assignments, delayed funding loans, 
revolving credit facilities, and fixed- and floating-rate loans will be 
included in the 15% limitation on illiquid securities.
    (7) The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.
    (8) The Fund will normally limit its exposure to a single non-U.S. 
currency (from currency holdings or investments in securities 
denominated in that currency) to 20% of its total assets. The Fund 
currently anticipates that at least 50% of issues of Fixed Income 
Instruments held by the Fund will be rated investment grade or 
determined by PIMCO to be of comparable quality. In addition, while 
corporate debt securities and debt securities economically tied to an 
emerging market country generally must have $200 million or more par 
amount outstanding and significant par value traded to be considered as 
an eligible investment for the Fund, at least 80% of issues of such 
securities held by the Fund must have $200 million or more par amount 
outstanding.
    (9) The Fund will not invest in any non-U.S.-registered equity 
securities, except if such securities are traded on exchanges that are 
members of the ISG. The Exchange would be able to obtain surveillance 
information via ISG from other exchanges that are members of ISG or 
with which the Exchange has entered into a comprehensive surveillance 
sharing agreement.
    (10) The Fund will not invest in options contracts, futures 
contracts, or swap agreements, in accordance with the Trust's Exemptive 
Order.
    (11) 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 the Exchange's representations and 
description of the Fund, including those set forth above and in the 
Notice.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \35\ and the 
rules and

[[Page 11243]]

regulations thereunder applicable to a national securities exchange.
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    \35\ 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,\36\ that the proposed rule change (SR-NYSEArca-2012-138) be, and 
it hereby is, approved.
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    \36\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
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    \37\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03490 Filed 2-14-13; 8:45 am]
BILLING CODE 8011-01-P