Document ID: SEC-2011-0763-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-06-02T04:00Z

[Federal Register Volume 76, Number 106 (Thursday, June 2, 2011)]
[Notices]
[Pages 32005-32008]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-13576]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64550; File No. SR-NYSEArca-2011-11]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to the Listing and Trading of 
the Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced Ultra-
Short Bond ETF

May 26, 2011.

I. Introduction

    On March 24, 2011, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities

[[Page 32006]]

Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of the 
Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced Ultra-Short 
Bond ETF (each a ``Fund,'' and, together, the ``Funds'') under NYSE 
Arca Equities Rule 8.600. The proposed rule change was published in the 
Federal Register on April 12, 2011.\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. 64224 (April 7, 
2011), 76 FR 20401 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares pursuant to NYSE 
Arca Equities Rule 8.600. The Shares will be offered by the Claymore 
Exchange-Traded Fund 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 advisor for the Funds is Claymore Advisors, LLC 
(``Investment Adviser''), The Bank of New York Mellon is the custodian 
and transfer agent for the Funds, and Claymore Securities, Inc. is the 
distributor for the Funds. The Exchange states that the Investment 
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 July 26, 2010, the Trust filed with the 
Commission Form N-1A under the Securities Act of 1933 (15 U.S.C. 
77a) relating to the Funds (File Nos. 333-134551 and 811-21906) 
(``Registration Statement'').
    \5\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that, in the event (a) the Investment Adviser 
becomes newly affiliated with a broker-dealer, or (b) any new 
adviser or sub-adviser becomes affiliated with a broker-dealer, such 
adviser and/or sub-adviser will implement a fire wall with respect 
to such broker-dealer regarding access to information concerning the 
composition and/or changes to the portfolio.
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Guggenheim Enhanced Core Bond ETF

    The investment objective of this Fund is to seek total returns 
using a quantitative strategy comprised of income and capital 
appreciation, and risk-adjusted returns in excess of the Barclays 
Capital U.S. Aggregate Bond Index (``Benchmark''), while maintaining a 
low-risk profile versus the Benchmark. The Fund's quantitative strategy 
attempts to identify relative mispricing among the instruments of a 
given asset class and to estimate future returns which may arise from 
the correction of these mispricing levels. The quantitative portfolio 
construction process then attempts to maximize expected returns due to 
issue-specific mispricing while controlling for interest rate and 
credit spread (i.e., differences in yield between different debt 
instruments arising from differences in credit risk) risks. The average 
duration of the Fund's debt holdings is expected to be generally 
similar to the average duration of the Benchmark components.
    The Fund primarily will invest in U.S. dollar-denominated 
investment grade debt securities, rated Baa or higher by Moody's 
Investors Service, Inc. (``Moody's''), or equivalently rated by 
Standard & Poor's Rating Group (``S&P'') or Fitch Investor Services 
(``Fitch''), or, if unrated, determined by the Investment Adviser to be 
of comparable quality.\6\ The Fund may invest, without limitation, in 
U.S. dollar-denominated debt securities of foreign issuers. The Fund 
may also invest in debt securities denominated in foreign currencies. 
The Investment Adviser may attempt to reduce foreign currency exchange 
rate risk by entering into contracts with banks, brokers, or dealers to 
purchase or sell securities or foreign currencies at a future date 
(``forward contracts''). The Fund may invest no more than 10% in high 
yield securities (``junk bonds''), which are debt securities that are 
rated below investment grade by nationally recognized statistical 
rating organizations, or are unrated securities that the Investment 
Adviser believes are of comparable quality.
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    \6\ The Investment Adviser's analysis is comprised of multiple 
elements including collateral and counterparty risk, structural 
analysis, quantitative analysis and relative value/market value at 
risk analysis. Evaluation is also applied to collateral, historical 
market data, and proprietary statistical models to evaluate specific 
transactions. This analysis is applied against the macroeconomic 
outlook, geopolitical issues, as well as considerations that more 
directly affect the company's industry to determine an internally 
assigned credit rating.
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    The Fund may invest in a wide range of fixed income instruments 
selected from, but not limited to, the following sectors: U.S. Treasury 
securities, corporate bonds, emerging market debt, and non-dollar 
denominated sovereign and corporate debt.\7\ The Fund may invest up to 
10% of its assets in mortgage-backed securities (``MBS'') or in other 
asset-backed securities. This limitation does not apply to securities 
issued or guaranteed by Federal agencies and/or U.S. government 
sponsored instrumentalities, such as the Government National Mortgage 
Administration (``GNMA''), the Federal Housing Administration 
(``FHA''), the Federal National Mortgage Association (``FNMA''), and 
the Federal Home Loan Mortgage Corporation (``FHLMC'').
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    \7\ The Fund will invest only in securities that the Investment 
Adviser deems to be sufficiently liquid. While corporate bonds and 
emerging market debt generally must have $200 million or more par 
amount outstanding and significant par value traded to be considered 
as an eligible investment, at least 80% of issues of corporate bonds 
or corporate debt held by the Fund must have $200 million or more 
par amount outstanding. The strategy follows an active quantitative 
investment process that seeks excess returns to the Benchmark. The 
strategy selects securities using a rigorous portfolio construction 
approach to tightly control independent risk exposures such as fixed 
income sector weights, sector specific yield curves, credit spreads, 
prepayment risks, and others. Within those risk constraints, the 
strategy utilizes relative value estimates to select individual 
securities that can provide risk adjusted outperformance relative to 
the Benchmark.
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    The Fund may obtain exposure to the securities in which it normally 
invests by engaging in various investment techniques, including, but 
not limited to, forward purchase agreements, mortgage dollar roll, and 
``TBA'' mortgage trading. The Fund also may invest directly in 
exchange-traded funds (``ETFs'') and other investment companies that 
provide exposure to fixed income securities similar to those securities 
in which the Fund may invest in directly. The Fund will normally invest 
at least 80% of its net assets in fixed income securities.

Guggenheim Enhanced Ultra-Short Bond ETF

    The investment objective of this Fund is to seek maximum current 
income, consistent with preservation of capital and daily liquidity. 
The Fund will use a low duration strategy to seek to outperform the 1-3 
month Treasury Bill Index in addition to providing returns in excess of 
those available in U.S. Treasury bills, government repurchase 
agreements, and money market funds, while providing preservation of 
capital and daily liquidity. The Fund is not a money market fund and 
thus does not seek to maintain a stable net asset value of $1.00 per 
Share.
    Under normal circumstances, the Fund expects to hold a diversified 
portfolio of fixed income instruments of varying maturities, but that 
have an average duration of less than 1 year. The Fund primarily will 
invest in U.S. dollar-denominated investment grade debt securities, 
rated Baa or higher by Moody's, or equivalently rated by S&P or Fitch 
or, if unrated, determined by the Investment Adviser to be of 
comparable quality. The Fund may invest, without limitation, in U.S. 
dollar-denominated debt securities of foreign issuers. The Fund may 
also

[[Page 32007]]

invest in debt securities denominated in foreign currencies. The 
Investment Adviser may attempt to reduce foreign currency exchange rate 
risk by entering into contracts with banks, brokers, or dealers to 
purchase or sell securities or forward contracts. The Fund may invest 
no more than 10% in junk bonds. The Fund may also invest in municipal 
securities.
    The Fund may invest a substantial portion of its assets in short-
term instruments, such as commercial paper and/or repurchase 
agreements. The Fund may also invest in a wide range of fixed income 
instruments selected from, but not limited to, the following sectors: 
U.S. Treasury securities, corporate bonds, emerging market debt, and 
non-dollar denominated sovereign and corporate debt.\8\ The Fund may 
invest up to 10% of its assets in MBS or in other asset-backed 
securities. This limitation does not apply to securities issued or 
guaranteed by Federal agencies and/or U.S. government sponsored 
instrumentalities, such as the GNMA, FHA, FNMA, and FHLMC.
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    \8\ The Fund will invest only in securities that the Investment 
Adviser deems to be sufficiently liquid. While corporate bonds and 
emerging market debt generally must have $200 million or more par 
amount outstanding and significant par value traded to be considered 
as an eligible investment, at least 80% of issues of corporate bonds 
or corporate debt held by the Fund must have $200 million or more 
par amount outstanding.
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    The Fund may obtain exposure to the securities in which it normally 
invests by engaging in various investment techniques, including, but 
not limited to, forward purchase agreements, mortgage dollar roll, and 
``TBA'' mortgage trading. The Fund also may invest directly in ETFs and 
other investment companies that provide exposure to fixed income 
securities similar to those securities in which the Fund may invest in 
directly. The Fund will normally invest at least 80% of its net assets 
in fixed income securities.

Other Investments of the Funds

    Each Fund may invest up to an aggregate amount of 15% of its net 
assets in: (1) Illiquid securities; and (2) Rule 144A securities. 
Illiquid securities include securities subject to contractual or other 
restrictions on resale and other instruments that lack readily 
available markets. With respect to investment in illiquid securities, 
if changes in the values of a Fund's securities cause the Fund's 
holdings of illiquid securities to exceed the 15% limitation (as if 
liquid securities have become illiquid), the Fund will take such 
actions as it deems appropriate and practicable to attempt to reduce 
its holdings of illiquid securities. In addition, the Funds are 
considered non-diversified under the 1940 Act and can invest a greater 
portion of assets in securities of individual issuers than a 
diversified fund. The Funds intend to maintain the level of 
diversification necessary to qualify as a regulated investment company 
under Subchapter M of the Internal Revenue Code of 1986, as amended. In 
addition, the Funds will not invest in non-U.S. equity securities, 
options contracts, futures contracts, or swap agreements.
    Additional information regarding the Trust and the Shares, the 
Funds' investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings and 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 the Registration Statement, as applicable.\9\
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    \9\ See Notice and Registration Statement, 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 \10\ and the rules and regulations thereunder applicable to a 
national securities exchange.\11\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\12\ 
which requires, among other things, that the Exchange's rules be 
designed to promote just and equitable principles of trade, 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 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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    \10\ 15 U.S.C. 78f.
    \11\ 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).
    \12\ 17 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,\13\ 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 high-speed line. In addition, the Portfolio Indicative 
Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), will be 
disseminated by one or more major market data vendors at least every 15 
seconds during the Core Trading Session. On each business day, before 
commencement of trading in Shares in the Core Trading Session on the 
Exchange, the Funds will disclose on their Web site the Disclosed 
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will 
form the basis for each Fund's calculation of the net asset value 
(``NAV'') at the end of the business day.\14\ The NAV of each of the 
Funds will normally be determined as of the close of the regular 
trading session on the New York Stock Exchange (``NYSE'') (ordinarily 
4:00 p.m. Eastern Time) on each business day. Price information for the 
debt securities held by the Funds will be available through major 
market data vendors, and a basket composition file, which includes the 
security names and share quantities 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 National Securities Clearing Corporation. Information 
regarding market price and trading volume of the Shares is and 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 will be published daily in the financial section of 
newspapers. The Funds' Web site will also include a form of the 
prospectus for the Funds, information relating to NAV, and other 
quantitative and trading information.
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    \13\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \14\ On a daily basis, the Investment Adviser will disclose for 
each portfolio security or other financial instrument of the Funds 
the following information: Ticker symbol (if applicable), name of 
security or financial instrument, number of shares or dollar value 
of financial instruments held in the portfolio, and percentage 
weighting of the security or financial instrument in the portfolio.
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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 will

[[Page 32008]]

be calculated daily and that the NAV and the Disclosed Portfolio will 
be made available to all market participants at the same time.\15\ In 
addition, the Exchange will halt trading in the Shares under the 
specific circumstances set forth in NYSE Arca Equities Rule 
8.600(d)(2)(D), and may halt trading in the Shares to the extent to 
which trading is not occurring in the securities and/or the financial 
instruments comprising the Disclosed Portfolio of the Funds, or whether 
other unusual conditions or circumstances detrimental to the 
maintenance of a fair and orderly market are present.\16\ Moreover, the 
Exchange represents that the Investment Adviser is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to the 
affiliated broker-dealer regarding access to information concerning the 
composition and/or changes to the Funds' portfolio.\17\ 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.\18\
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    \15\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
    \16\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii). With 
respect to trading halts, the Exchange may consider other relevant 
factors in exercising its discretion to halt or suspend trading in 
the Shares of the Funds. Trading in Shares of the Funds 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.
    \17\ See supra note 5 and accompanying text. With respect to the 
Funds, the Exchange represents that the Investment Adviser and its 
related personnel are subject to the provisions of Rule 204A-1 under 
the Investment Advisers Act of 1940 (``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.
    \18\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    The Exchange 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 (``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 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 and other information.
    (5) For initial and/or continued listing, the Funds will be in 
compliance with Rule 10A-3 under the Act,\19\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \19\ See 17 CFR 240.10A-3.
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    (6) The Funds will not invest in non-U.S. equity securities, 
options contracts, futures contracts, or swap agreements.
    (7) A minimum of 100,000 Shares of each Fund will be outstanding at 
the commencement of trading on the Exchange.
    This approval order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \20\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \20\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therfore ordered, pursuant to Section 19(b)(2) of the 
Act,\21\ that the proposed rule change (SR-NYSEArca-2011-11) be, and it 
hereby is, approved.
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    \21\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-13576 Filed 6-1-11; 8:45 am]
BILLING CODE 8011-01-P