Document ID: SEC-2011-1872-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-12-05T05:00Z

[Federal Register Volume 76, Number 233 (Monday, December 5, 2011)]
[Notices]
[Pages 75926-75932]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31045]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65847; File No. SR-NYSEArca-2011-81]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to the Listing and Trading of the 
Guggenheim Enhanced Short Duration High Yield Bond ETF Under NYSE Arca 
Equities Rule 8.600

November 29, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that, on November 14, 2011, NYSE Arca, Inc. 
(``Exchange'' or ``NYSE Arca'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade the following under NYSE 
Arca Equities Rule 8.600 (``Managed Fund Shares''): Guggenheim Enhanced 
Short Duration High Yield Bond ETF. The text of the proposed rule 
change is available at the Exchange, the Commission's Public Reference 
Room, and http://www.nyse.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the following Managed Fund 
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: Guggenheim 
Enhanced Short Duration High Yield Bond ETF (``Fund'').\4\ 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.\5\
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    \3\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \4\ The Commission has previously approved listing and trading 
on the Exchange of actively managed funds under Rule 8.600. See 
Securities Exchange Act Release Nos. 57801 (May 8, 2008), 73 FR 
27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving Exchange 
listing and trading of twelve actively-managed funds of the 
WisdomTree Trust); 61365 (January 15, 2010), 75 FR 4124 (January 26, 
2010) (SR-NYSEArca-2009-114) (order approving listing and trading of 
Grail McDonnell Fixed Income ETFs); 60981 (November 10, 2009), 74 FR 
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving 
listing of five fixed income funds of the PIMCO ETF Trust); 63329 
(November 17, 2010), 75 FR 71760 (November 24, 2010) (SR-NYSEArca-
2010-86) (order approving listing of Peritus High Yield ETF).
    \5\ The Trust is registered under the 1940 Act. On December 8, 
2010, the Trust filed with the Commission Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a) relating to the Fund (File 
Nos. 333-134551 and 811-21906) (``Registration Statement''). The 
description of the operation of the Trust and the Fund herein is 
based, in part, on the Registration Statement. In addition, the 
Commission has issued an order granting certain exemptive relief to 
the Trust under the 1940 Act. See Investment Company Act Release No. 
29271 (May 18, 2010) (File No. 812-13534) (``Exemptive Order'').

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[[Page 75927]]

    The investment adviser for the Fund is Guggenheim Funds Investment 
Advisors, LLC (``Adviser''). The Bank of New York Mellon is the 
custodian and transfer agent for the Fund. Guggenheim Funds 
Distributors, Inc. is the distributor for the Fund.
    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\6\ In addition, 
Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Adviser is 
affiliated with a broker-dealer and has represented that it 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. 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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    \6\ 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.
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    According to the Registration Statement, the investment objective 
of the Fund is to seek to maximize total return, through monthly income 
and capital appreciation, consistent with capital preservation.
    The Fund will use an actively managed strategy that seeks to 
maximize total return, comprised of income and capital appreciation, 
and risk-adjusted returns in excess of the 3-month LIBOR while 
maintaining a low risk profile relative to below investment grade 
rated, longer-term, fixed income investments. The Fund will primarily 
invest in below investment grade rated bonds while opportunistically 
allocating to investment grade bonds and other select securities. The 
Fund's portfolio will maintain an effective duration of one year or 
less.
Primary Investments
    As a principal investment strategy, under normal market 
circumstances,\7\ the Fund will invest at least 80% of its net assets 
in debt securities which are below investment grade (``high yield'' 
bonds or ``junk bonds'').\8\ Bonds are considered to be below 
investment grade if they have a Standard & Poor's or Fitch credit 
rating of ``BB+'' or lower or a Moody's credit rating of ``Ba1'' or 
lower (collectively or individually, ``Below Investment Grade'') or 
bonds that are unrated and deemed to be of below investment grade 
quality as determined by the Adviser.\9\ The Fund's primary investments 
also may include floating rate or adjustable rate bonds,\10\ callable 
bonds with, as determined by the Adviser, a high probability of being 
redeemed prior to maturity,\11\ ``putable'' bonds (bonds that give the 
holder the right to sell the bond to the issuer prior to the bond's 
maturity) when the put date is within a 24 month period, ``busted'' 
convertible securities (a convertible security that is trading well 
below its conversion value minimizing the likelihood that it will ever 
reach its convertible price prior to maturity), and other types of 
securities, all of which may be rated at or below investment grade. The 
Fund will not invest in securities in default at the time of 
investment. According to the Registration Statement, the management 
process is intended to be highly flexible and responsive to market 
opportunities. For example, when interest rates are low and credit 
markets are healthy, the Fund may be overweight in callable bonds, 
which generally have a lower yield-to-call than yield-to-maturity, as 
well as bonds that are subject to company repurchases and tender 
offers. In weaker credit markets, the Fund may be overweight in bonds 
that are at maturity or have putable features. The Adviser anticipates 
that under normal market circumstances the Fund will invest 
approximately 20% of its assets in securities that will be called, 
tendered, or mature within 60 to 90 days.
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    \7\ The term ``under normal market 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. Email from Timothy J. Malinowski, Senior 
Director, NYSE Euronext, to Edward Y. Cho, Special Counsel, Division 
of Trading and Markets, Commission, dated November 22, 2011.
    \8\ As of August 30, 2011, the Adviser represents that there 
were approximately 1,100 high yield bond issues that mature on or 
before December 2016, representing $420 billion or approximately 40% 
of the total amount of high yield bonds outstanding. (Source: 
Barclays Capital). As of August 1, 2011, floating rate bank loans 
outstanding were $637 billion. (Source regarding floating rate bank 
loans: Credit Suisse Leveraged Finance Strategy Update, August 1, 
2011).
    \9\ The Fund's investments will be subject to credit risk. 
According to the Registration Statement, credit risk is the risk 
that issuers or guarantors of debt instruments or the counterparty 
to a derivatives contract, repurchase agreement or loan of portfolio 
securities is unable or unwilling to make timely interest and/or 
principal payments or otherwise honor its obligations. Debt 
instruments are subject to varying degrees of credit risk, which may 
be reflected in credit ratings. Credit rating downgrades and 
defaults (failure to make interest or principal payment) may 
potentially reduce the Fund's income and Share price.
    \10\ The Fund may invest in debt securities that have variable 
or floating interest rates which are readjusted on set dates (such 
as the last day of the month or calendar quarter) in the case of 
variable rates or whenever a specified interest rate change occurs 
in the case of a floating rate instrument. Variable or floating 
interest rates generally reduce changes in the market price of 
securities from their original purchase price because, upon 
readjustment, such rates approximate market rates. Accordingly, as 
interest rates decrease or increase, the potential for capital 
appreciation or depreciation is less for variable or floating rate 
securities than for fixed rate obligations.
    \11\ During periods of falling interest rates, an issuer of a 
callable bond may exercise its right to pay principal on an 
obligation earlier than expected, which may result in the Fund 
reinvesting proceeds at lower interest rates, resulting in a decline 
in the Fund's income.
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    The Adviser will commence the investment review process with a top-
down, macroeconomic outlook to determine both investment themes and 
relative value within each market sector and industry. Within these 
parameters, the Adviser will then apply detailed bottom-up security 
selection to select individual portfolio securities that the Adviser 
believes can add value from income and/or the potential for capital

[[Page 75928]]

appreciation. Credit research may include an assessment of an issuer's 
profitability, its competitive positioning and management strength, as 
well as industry characteristics, liquidity, growth and other factors. 
The Adviser may sell a portfolio security due to changes in credit 
characteristics or outlook, as well as changes in portfolio strategy or 
cash flow needs. A portfolio security may also be sold and replaced 
with one that presents a better value or risk/reward profile. Except 
during periods of temporary defensive positioning, the Adviser 
generally expects to be fully-invested.
    The Adviser aims to manage the Fund so as to provide investors with 
a higher degree of principal stability than is typically available in a 
portfolio of lower-rated longer-term, fixed income investments. The 
Adviser intends to invest the Fund's assets in the securities of 
issuers in many different industries and intends to invest a maximum of 
2-3% of the Fund's assets in the securities of any one issuer, though 
the Fund is not restricted from maintaining positions of greater weight 
based upon the outlook for an issuer or during periods of relatively 
small asset levels of the Fund.
    The Fund may invest a portion of its assets in various types of 
U.S. Government obligations. The Fund also may invest in convertible 
securities, including bonds, debentures, notes, preferred stocks and 
other securities that may be converted into a prescribed amount of 
common stock or other equity securities at a specified price and time. 
The Fund may invest in municipal securities, and certificates of 
deposit.
    While the Adviser anticipates that the Fund will invest primarily 
in the debt securities of U.S.-registered companies, it may also invest 
in those of foreign companies in developed countries.\12\ The Fund may 
invest in U.S.-registered, dollar-denominated bonds of foreign 
corporations, governments, agencies and supra-national agencies.\13\
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    \12\ The Adviser considers developed countries to include 
Australia, Austria, Belgium, Canada, Denmark, Finland, France, 
Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, 
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, 
Sweden, Switzerland, the United Kingdom and the United States.
    \13\ According to the Registration Statement, such bonds have 
different risks than investing in U.S. companies. These include 
differences in accounting, auditing and financial reporting 
standards, the possibility of expropriation or confiscatory 
taxation, adverse changes in investment or exchange control 
regulations, political instability which could affect U.S. 
investments in foreign countries, and potential restrictions of the 
flow of international capital. Foreign companies may be subject to 
less governmental regulation than U.S. issuers. Moreover, individual 
foreign economies may differ favorably or unfavorably from the U.S. 
economy in such respects as growth of gross domestic product, rate 
of inflation, capital investment, resource self-sufficiency and 
balance of payment options.
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    The Fund will be managed in accordance with the principal 
investment strategies stated above, subject to the following investment 
restrictions: The Fund will not employ any leverage in order to meet 
its investment objective, and, consistent with the Exemptive Order, the 
Fund will not invest in derivatives including options, swaps or 
futures.
Other Investments
    As non-principal investment strategies, the Fund may invest its 
remaining assets in money market instruments (including other funds 
which invest exclusively in money market instruments), preferred 
securities, insurance-linked securities and structured notes (notes on 
which the amount of principal repayment and interest payments are based 
on the movement of one or more specified factors, such as the movement 
of a particular security or security index). The Fund may, from time to 
time, invest in money market instruments or other cash equivalents as 
part of a temporary defensive strategy to protect against temporary 
market declines. When the Fund takes a temporary defensive position 
that is inconsistent with its principal investment strategies, the Fund 
may not achieve its investment objective. The Fund may also invest, to 
a limited extent, in other pooled investment vehicles which are not 
registered investment companies under the 1940 Act; however, the Fund 
will not invest in hedge funds or commodity pools.
    The Fund may invest in commercial interests, including commercial 
paper and other short-term corporate instruments. Commercial paper 
consists of short-term promissory notes issued by corporations and may 
be traded in the secondary market after its issuance.
    The Fund may invest in zero-coupon or pay-in-kind securities. These 
securities are debt securities that do not make regular cash interest 
payments. Zero-coupon securities are sold at a deep discount to their 
face value. Pay-in-kind securities pay interest through the issuance of 
additional securities. Because zero-coupon and pay-in-kind securities 
do not pay current cash income, the price of these securities can be 
volatile when interest rates fluctuate.
    The Fund may invest up to 10% of its net assets in asset-backed 
securities issued or guaranteed by private issuers.
    The Fund may invest in the aggregate up to 15% of its net assets 
(taken at the time of investment) in: (1) Illiquid securities \14\ 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.\15\ Rule 144A 
securities are securities which, while privately placed, are eligible 
for purchase and

[[Page 75929]]

resale pursuant to Rule 144A under the Securities Act of 1933 
(``Securities Act''). Rule 144A permits certain qualified institutional 
buyers, such as the Fund, to trade in privately placed securities even 
though such securities are not registered under the Securities Act.
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    \14\ The Fund may invest in master notes, which are demand notes 
that permit the investment of fluctuating amounts of money at 
varying rates of interest pursuant to arrangements with issuers who 
meet the quality criteria of the Fund. The interest rate on a master 
note may fluctuate based upon changes in specified interest rates, 
be reset periodically according to a prescribed formula or be a set 
rate. Although there is no secondary market in master demand notes, 
if such notes have a demand future, the payee may demand payment of 
the principal amount of the note upon relatively short notice. 
Master notes are generally illiquid and therefore subject to the 
Fund's percentage limitations for investments in illiquid 
securities. The Fund may invest up to 15% of its net assets in bank 
loans, which include participation interests (as described below). 
Any bank loans will be broadly syndicated and may be first or second 
liens; the Fund will not invest in third lien or mezzanine loans. 
The interest rate on bank loans and other adjustable rate securities 
typically resets every 90 days based upon then current interest 
rates. The Fund may purchase participations in corporate loans. 
Participation interests generally will be acquired from a commercial 
bank or other financial institution (``Lender'') or from other 
holders of a participation interest (``Participant''). The purchase 
of a participation interest either from a Lender or a Participant 
will not result in any direct contractual relationship with the 
borrowing company (``Borrower''). The Fund generally will have no 
right directly to enforce compliance by the Borrower with the terms 
of the credit agreement. Instead, the Fund will be required to rely 
on the Lender or the Participant that sold the participation 
interest, both for the enforcement of the Fund's rights against the 
Borrower and for the receipt and processing of payments due to the 
Fund under the loans. Under the terms of a participation interest, 
the Fund may be regarded as a member of the Participant, and thus 
the Fund is subject to the credit risk of both the Borrower and a 
Participant. Participation interests are generally subject to 
restrictions on resale. Generally, the Fund considers participation 
interests to be illiquid and therefore subject to the Fund's 
percentage limitations for investments in illiquid securities.
    \15\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14617 (March 18, 2008), footnote 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the ETF. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); Investment Company Act Release No. 17452 (April 
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under 
the Securities Act of 1933).
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    The Fund may invest in the securities of other investment companies 
(including money market funds). Under Section 12(d) of the 1940 Act, or 
as otherwise permitted by the Commission, the Fund's investment in 
investment companies is limited to, subject to certain exceptions, (i) 
3% of the total outstanding voting stock of any one investment company, 
(ii) 5% of the Fund's total assets with respect to any one investment 
company and (iii) 10% of the Fund's total assets of [sic] investment 
companies in the aggregate.\16\
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    \16\ 15 U.S.C. 80a-12(d).
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    The Fund may enter into repurchase \17\ and reverse repurchase 
agreements.\18\ The Fund also may invest in the securities of real 
estate investment trusts to the extent allowed by law, which pool 
investors' funds for investments primarily in commercial real estate 
properties.
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    \17\ Repurchase agreements are agreements pursuant to which 
securities are acquired by the Fund from a third party with the 
understanding that they will be repurchased by the seller at a fixed 
price on an agreed date. These agreements may be made with respect 
to any of the portfolio securities in which the Fund is authorized 
to invest. Repurchase agreements may be characterized as loans 
secured by the underlying securities. The Fund may enter into 
repurchase agreements with (i) Member banks of the Federal Reserve 
System having total assets in excess of $500 million and (ii) 
securities dealers (``Qualified Institutions''). The Adviser will 
monitor the continued creditworthiness of Qualified Institutions.
    \18\ Reverse repurchase agreements involve the sale of 
securities with an agreement to repurchase the securities at an 
agreed-upon price, date and interest payment and have the 
characteristics of borrowing. The securities purchased with the 
funds obtained from the agreement and securities collateralizing the 
agreement will have maturity dates no later than the repayment date. 
Generally the effect of such transactions is that the Fund can 
recover all or most of the cash invested in the portfolio securities 
involved during the term of the reverse repurchase agreement, while 
in many cases the Fund is able to keep some of the interest income 
associated with those securities.
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    The Fund may not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry or group of 
industries. This restriction does not apply to obligations issued or 
guaranteed by the U.S. Government, its agencies or 
instrumentalities.\19\
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    \19\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The Fund's portfolio holdings will be disclosed on its Web site 
(http://www.guggenheimfunds.com) daily after the close of trading on 
the Exchange and prior to the opening of trading on the Exchange the 
following day.
    The Fund intends to maintain the level of diversification necessary 
to qualify as a regulated investment company (``RIC'') under Subchapter 
M of the Internal Revenue Code of 1986, as amended.\20\
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    \20\ 26 U.S.C. 851. As a RIC, the Fund will not be subject to 
U.S. federal income tax on the portion of its taxable investment 
income and capital gains that it distributes to its shareholders. To 
qualify for treatment as a RIC, a company must annually distribute 
at least 90% of its net investment company taxable income (which 
includes dividends, interest and net short-term capital gains) and 
meet several other requirements relating to the nature of its income 
and the diversification of its assets. If the Fund fails to qualify 
for any taxable year as a RIC, all of its taxable income will be 
subject to tax at regular corporate income tax rates without any 
deduction for distributions to shareholders, and such distributions 
generally will be taxable to shareholders as ordinary dividends to 
the extent of the Fund's current and accumulated earnings and 
profits. In addition, in order to requalify for taxation as a RIC, 
the Fund may be required to recognize unrealized gains, pay 
substantial taxes and interest and make certain distributions. One 
of several requirements for RIC qualification is that the Fund must 
receive at least 90% of the Fund's gross income each year from 
dividends, interest, [sic] payments with respect to securities 
loans, gains from the sale or other disposition of stock, securities 
or foreign currencies, or other income derived with respect to the 
Fund's investments in stock, securities, foreign currencies and net 
income from an interest in a qualified publicly traded partnership 
(``90% Test''). A second requirement for qualification as a RIC is 
that the Fund must diversify its holdings so that, at the end of 
each fiscal quarter of the Fund's taxable year: (a) at least 50% of 
the market value of the Fund's total assets is represented by cash 
and cash items, U.S. Government securities, securities of other 
RICs, and other securities, with these other securities limited, in 
respect to any one issuer, to an amount not greater than 5% of the 
value of the Fund's total assets or 10% of the outstanding voting 
securities of such issuer; and (b) not more than 25% of the value of 
its total assets are invested in the securities (other than U.S. 
Government securities or securities of other RICs) of any one issuer 
or two or more issuers which the Fund controls and which are engaged 
in the same, similar, or related trades or businesses, or the 
securities of one or more qualified publicly traded partnership 
[sic] (``Asset Test'').
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    The Fund represents that the portfolio will include a minimum of 13 
non-affiliated issuers.
    The Fund will only purchase performing securities, not distressed 
debt. Distressed debt is debt that is currently in default and is not 
expected to pay the current coupon.
    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,\21\ as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of the Fund 
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 net asset value (``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.
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    \21\ 17 CFR 240.10A-3.
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    The Fund will not invest in non-U.S.-registered equity securities.
Creations and Redemptions of Shares
    Investors may create or redeem in Creation Unit size of 100,000 
Shares or aggregations thereof (``Creation Unit Aggregation'') through 
an Authorized Participant, as described in the Registration Statement. 
In order to purchase Creation Units of a Fund, an investor must 
generally deposit a designated portfolio of securities (``Deposit 
Securities'') (and/or an amount in cash in lieu of some or all of the 
Deposit Securities) per each Creation Unit Aggregation constituting a 
substantial replication, or representation, of the securities included 
in the Fund's portfolio as selected by the Adviser (``Fund 
Securities'') and generally make a cash payment referred to as the 
``Cash Component.'' The list of the names and the amounts of the 
Deposit Securities will be made available by the Fund's custodian 
through the facilities of the National Securities Clearing Corporation 
(``NSCC'') immediately prior to the opening of business each day of the 
NYSE Arca. The Cash Component represents the difference between the net 
asset value of a Creation Unit and the market value of the Deposit 
Securities.
    Shares may be redeemed only in Creation Unit size at their NAV on a 
day the NYSE Arca is open for business. The Fund's custodian will make 
available immediately prior to the opening of business each day of the 
NYSE Arca, through the facilities of NSCC, the list of the names and 
the amounts of the Fund's portfolio securities that will be applicable 
that day to redemption requests in proper form. Fund Securities 
received on redemption may not be identical to Deposit Securities which 
are applicable to purchases of Creation Units.
Net Asset Value
    The NAV per Share of the Fund will be determined once daily as of 
the close of the New York Stock Exchange (``NYSE''), usually 4 p.m. 
Eastern time (``E.T.''), each day the NYSE is open for trading, 
provided that any assets or

[[Page 75930]]

liabilities denominated in currencies other than the U.S. dollar shall 
be translated into U.S. dollars at the prevailing market rates on the 
date of valuation as quoted by one or more major banks or dealers that 
makes a two-way market in such currencies (or a data service provider 
based on quotations received from such banks or dealers); and U.S. 
fixed income instruments may be valued as of the announced closing time 
for trading in fixed income instruments on any day that the Securities 
Industry and Financial Markets Association announces an early closing 
time.
    NAV per Share will be determined by dividing the value of the 
Fund's portfolio securities, cash and other assets (including accrued 
interest), less all liabilities (including accrued expenses), by the 
total number of Shares outstanding. Debt securities will be valued at 
the mean between the last available bid and ask prices for such 
securities or, if such prices are not available, at prices for 
securities of comparable maturity, quality, and type. The Fund's debt 
securities may also be valued based on price quotations or other 
equivalent indications of value provided by a third-party pricing 
service.
    Short-term securities for which market quotations are not readily 
available will be valued at amortized cost, which approximates market 
value. To the extent the Fund invests in bank loans, the loans will 
generally be fair valued using evaluated quotes provided by an 
independent pricing service. Prices provided by the pricing services 
may be determined without exclusive reliance on quoted prices, and may 
reflect appropriate factors such as, among others, market quotes, 
ratings, tranche type, industry, company performance, spread, 
individual trading characteristics and other market data. Equity 
securities will be valued at the last reported sale price on the 
principal exchange or on the principal OTC market on which such 
securities are traded, as of the close of regular trading on the NYSE 
on the day the securities are being valued or, if there are no sales, 
at the mean of the most recent bid and ask prices. Equity securities 
that are traded primarily on the NASDAQ Stock Market will be valued at 
the NASDAQ Official Closing Price.
    Securities for which market quotations are not readily available, 
including restricted securities, will be valued by the Adviser by a 
method that the Adviser believes accurately reflects fair value, 
pursuant to policies adopted by the Board of Trustees. Securities will 
be valued at fair value when market quotations are not readily 
available or are deemed unreliable, such as when a security's value or 
meaningful portion of the Fund's portfolio is believed to have been 
materially affected by a significant event. Such events may include a 
natural disaster, an economic event like a bankruptcy filing, a trading 
halt in a security, an unscheduled early market close or a substantial 
fluctuation in domestic and foreign markets that has occurred between 
the close of the principal exchange and the NYSE Arca.
Availability of Information
    The Fund's Web site, which will be publicly available prior to the 
public offering of Shares, will include a form of the prospectus for 
the Fund that may be downloaded. The Fund's Web site will include 
additional quantitative information updated on a daily basis, 
including, for the Fund, (1) Daily trading volume, the prior business 
day's reported closing price, NAV and mid-point of the bid/ask spread 
at the time of calculation of such NAV (the ``Bid/Ask Price''),\22\ and 
a calculation of the premium and discount of the Bid/Ask Price against 
the NAV, and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Fund will disclose on its Web site the Disclosed Portfolio as defined 
in NYSE Arca Equities Rule 8.600(c)(2) that will form the basis for 
each Fund's calculation of NAV at the end of the business day.\23\
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    \22\ The Bid/Ask Price of the Fund will be determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \23\ Under accounting procedures followed by the Fund, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Fund 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business day.
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    On a daily basis, the Adviser will disclose on the Fund's Web site 
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 
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. In addition, price 
information for the debt securities held by the Fund will be available 
through major market data vendors.
    In addition, 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 
NSCC. The basket represents one Creation Unit of the Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and Form N-CSR 
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at http://www.sec.gov. 
Information regarding market price and trading volume for the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares 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 Core Trading Session.\24\ The dissemination of the 
Portfolio Indicative Value, together with the Disclosed Portfolio, will 
allow investors to determine the value of the underlying portfolio of 
the Fund on a daily basis and to provide a close estimate of that value 
throughout the trading day.
---------------------------------------------------------------------------

    \24\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values published on CTA or other data feeds.
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    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, distributions 
and taxes is included in the Registration Statement.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of

[[Page 75931]]

the Fund.\25\ Trading in Shares of the Fund will be halted if the 
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been 
reached. Trading also may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the Shares 
inadvisable. These may include: (1) The extent to which trading is not 
occurring in the securities and/or the financial instruments comprising 
the Disclosed Portfolio of the Fund; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. Trading in the 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.
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    \25\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with 
NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading 
Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which include Managed 
Fund Shares) to monitor trading in the Shares. The Exchange represents 
that these procedures are adequate to properly monitor Exchange trading 
of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws.
    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. When such situations 
are detected, surveillance analysis follows and investigations are 
opened, where appropriate, to review the behavior of all relevant 
parties for all relevant trading violations.
    The Exchange may obtain information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges that are members of 
ISG or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement.\26\
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    \26\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    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: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit Aggregations (and that Shares are not individually 
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (4) how information regarding the 
Portfolio Indicative Value is disseminated; (5) 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 (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Exchange Act. 
The Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5) \27\ that an exchange have rules 
that are designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Exchange may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. According to the Registration Statement, the Fund will not 
employ any leverage in order to meet its investment objective; and the 
Fund will not invest in derivative securities including options, swaps 
or futures. The Fund will not invest in securities in default at the 
time of investment.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Adviser is affiliated with a broker-dealer and has represented 
that it 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. The Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time. In 
addition, a large amount of information is publicly available regarding 
the Fund and the Shares, thereby promoting market transparency. The 
Fund's portfolio holdings will be disclosed on its Web site daily after 
the close of trading on the Exchange and prior to the opening of 
trading on the Exchange the following day. Moreover, the Portfolio 
Indicative Value will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Exchange's 
Core Trading Session. On each business day, before commencement of 
trading in Shares in the Core Trading Session on the Exchange, the Fund 
will disclose on its Web site the Disclosed Portfolio that will form 
the basis for the Fund's calculation of NAV at the end of the business 
day. Information regarding market price and trading volume of the 
Shares is and will be continually available on a real-time basis 
throughout

[[Page 75932]]

the day on brokers' computer screens and other electronic services, and 
quotation and last sale information will be available via the CTA high-
speed line. The Web site for the Fund will include a form of the 
prospectus for the Fund and additional data relating to NAV and other 
applicable quantitative information. Moreover, prior to the 
commencement of trading, the Exchange will inform its ETP Holders in an 
Information Bulletin of the special characteristics and risks 
associated with trading the Shares. Trading in Shares of the Fund will 
be halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached or because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable, and trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted. In addition, as noted above, 
investors will have ready access to information regarding the Fund's 
holdings, the Portfolio Indicative Value, the Disclosed Portfolio, and 
quotation and last sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2011-81 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2011-81. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2011-81 and should 
be submitted on or before December 27, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
Kevin M. O'Neill,
Deputy Secretary.
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    \28\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2011-31045 Filed 12-2-11; 8:45 am]
BILLING CODE 8011-01-P