Document ID: SEC-2011-1273-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-08-24T04:00Z

[Federal Register Volume 76, Number 164 (Wednesday, August 24, 2011)]
[Notices]
[Pages 53004-53007]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-21592]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65161; File No. SR-NYSEArca-2011-53]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change by NYSE Arca, Inc. To Reflect a Change to the 
Benchmark Index Applicable to the Russell Equity ETF

August 18, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the

[[Page 53005]]

``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that, 
on August 3, 2011, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (the ``Commission'') 
the proposed rule change as described in Items I and II below, which 
Items have been prepared by the self-regulatory organization. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 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 reflect a change to the benchmark index 
applicable to Russell Equity ETF (the ``Fund,'' and formerly known as 
the ``One Fund''). Russell Equity ETF is currently listed and traded on 
the Exchange under NYSE Arca Equities Rule 8.600. 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved listing and trading on the Exchange of 
shares (``Shares'') of One Fund, a series of U.S. One Trust,\3\ under 
NYSE Arca Equities Rule 8.600 (``Managed Fund Shares'').\4\ As of 
February 23, 2011, Frank Russell Company (``Russell'') acquired U.S. 
One, Inc., the previous investment adviser for the Fund. As a result, 
the Fund's investment adviser became Russell Investment Management 
Company (``Adviser'').\5\ In addition, effective on April 15, 2011, the 
name of One Fund was changed to Russell Equity ETF and the name of U.S. 
One Trust was changed to Russell Exchange Traded Funds Trust 
(``Trust''). Further, on or about May 2, 2011, the custodian, transfer 
agent and administrator for the Fund changed from The Bank of New York 
to State Street Bank and Trust Company. These administrative changes 
were implemented as a result of the acquisition of U.S. One, Inc. by 
Russell. Shareholders of the Fund were notified of the changes to the 
Fund's name, the Trust's name, the Fund's investment adviser,\6\ and 
the custodian, transfer agent and administrator in the updated Fund 
prospectus, dated April 29, 2011, included in the Fund's annual 
prospectus mailing to shareholders.\7\
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    \3\ See Securities Exchange Act Release No. 61843 (April 5, 
2010), 75 FR 18558 (April 12, 2010) (SR-NYSEArca-2010-12) (``One 
Fund Order''). See also Securities Exchange Act Release No. 61689 
(March 11, 2010), 75 FR 13181 (March 18, 2010) (SR-NYSEArca-2010-12) 
(``One Fund Notice,'' and together with the One Fund Order, 
collectively, the ``One Fund Release'').
    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \5\ The Adviser is affiliated with multiple broker-dealers and 
has implemented a ``fire wall'' with respect to such broker-dealers 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio, and will continue to be in 
compliance with Commentary .06 to NYSE Arca Equities Rule 8.600. 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.
    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser and 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.
    \7\ See the Trust's Post-Effective Amendment No. 5 to Form N-1A, 
dated April 29, 2011 (File Nos. 333-160877; 811-22320) 
(``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. 29164 (March 1, 
2010) (File No. 812-13815 and 812-13658-01) (``Exemptive Order'').
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    In this proposed rule change, the Exchange proposes to reflect a 
change to the benchmark index applicable to the Fund.\8\
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    \8\ The Adviser represents that, for one year following 
implementation of the change to the benchmark Index, materials 
issued by the Fund relating to Fund performance, including materials 
posted on the Fund's Web site (http://www.russelletfs.com), will 
reference both the current benchmark and the new benchmark Index, in 
accordance with Item 27(b)(7) of Form N-1A under the 1940 Act. The 
Adviser represents that the benchmark Index change will be 
referenced on Russell's Web site, and that the quarterly fact sheet 
for the Fund, available on the Fund's Web site, will reference the 
current benchmark and the new benchmark Index for one year.
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    As a result of the acquisition of U.S. One, Inc. by Russell, the 
Fund seeks to change its underlying benchmark to the Russell Developed 
Large Cap Index (``Index'') from the Fund's current benchmark, the S&P 
500 Index.\9\ The Index offers investors access to the large-cap 
segment of the developed equity universe representing approximately 
75.4% of the global equity market. The Index includes the largest 
securities in the Russell Developed Index. As of May 31, 2010, the 
Index included 2,372 securities in 25 developed countries, with a 
market capitalization ranging from $238 billion to $1.3 billion; the 
weighted average market capitalization of Index components was $54.7 
billion; and the largest three Index securities and associated Index 
weights were ExxonMobil (1.58%); Apple Inc. (1.17%); and Chevron Corp. 
(0.79%). The current benchmark, the S&P 500 Index, includes 500 leading 
companies in leading industries of the U.S. economy, capturing 75% 
coverage of U.S. equities. It focuses on large capitalization 
securities and represents approximately 75% of the U.S. market 
capitalization. A committee determines the securities included based on 
a set of published guidelines. The Index includes the Russell 
1000[supreg], which represents 90% of U.S. market capitalization. It 
also includes an additional 1,372 securities which, as of

[[Page 53006]]

May 31, 2010, were listed in other developed countries. The Adviser 
represents that the investment objective of the Fund has not changed, 
the Index more accurately represents the investment strategy of the 
Fund, and the change to the Fund's benchmark will not impact the 
investment objective or the principal investment strategies for the 
Fund.
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    \9\ The change to the Fund's benchmark Index will be effective 
upon filing with the Commission of an amendment to the Trust's 
Registration Statement.
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    The Adviser has represented that it believes the Index is an 
appropriate broad-based benchmark index for the Fund and the Fund's 
investment objective. As represented in the One Fund Release, the 
Fund's investment objective is to seek long-term capital appreciation. 
[sic] by investing at least 80% of its total assets in exchange-traded 
funds (``Underlying ETFs'') that track various securities indices 
comprised of large, mid and small capitalization companies in the 
United States, Europe and Asia, as well as other developed and emerging 
markets. As stated in the One Fund Release, the Adviser intends to hold 
Underlying ETFs that hold equity securities of large, mid and small 
capitalization companies in the United States, as well as other 
developed countries and developing countries, and that give the Fund 
exposure to most major developed and developing markets around the 
world.\10\ Thus, whereas the S&P 500 Index mostly reflects U.S.-based 
companies, the Index includes a broader range of issuers from both the 
domestic and international markets, and such range is consistent with, 
and should better reflect, the Fund's investment objective.
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    \10\ The Adviser employs an asset allocation strategy focused on 
increasing shareholder return and reducing risk through exposure to 
a variety of domestic and foreign market segments. The Adviser's 
asset allocation strategy pre-determines a target mix of investment 
types for the Fund to achieve its investment objective and then 
implements the strategy by selecting securities that best represent 
each of the desired investment types. The strategy also calls for 
periodic review of the Fund's holdings as markets rise and fall to 
ensure that the portfolio adheres to the target mix and indicates 
purchases and sales necessary to return to the target mix. The 
Adviser selects Underlying ETFs based on their ability to accurately 
represent the underlying stock market to which the Adviser seeks 
exposure for the Fund, and seeks to construct a portfolio that will 
outperform its benchmark. Additionally, the Adviser seeks to 
maintain a low after-tax cost structure for the Fund and, therefore, 
also evaluates ETFs based on their underlying costs. The Adviser 
employs a buy and hold strategy, meaning that it buys and holds 
securities for a long period of time, with minimal portfolio 
turnover. The Fund, using a buy and hold strategy, seeks to achieve 
its investment objective through investment in Underlying ETFs that 
track certain securities indices. While the Fund intends to 
primarily invest in Underlying ETFs that hold equity securities, the 
Adviser may also invest in Underlying ETFs that may hold U.S. and 
foreign government debt and investment grade corporate bonds. 
According to the Registration Statement, the Fund does not invest in 
derivatives. See One Fund Release, note 4, supra.
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    Except for the changes noted above, all other representations made 
in the One Fund Release remain unchanged.\11\ The Fund will continue to 
comply with all initial and continued listing requirements under NYSE 
Arca Equities Rule 8.600.
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    \11\ See note 3, supra.
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2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5) \12\ 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.
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    \12\ 15 U.S.C. 78f(b)(5).
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    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 Fund's benchmark Index will continue to be a broad-based 
index of large capitalization companies. The Index represents 
approximately 75.4% of the global equity market and includes the 
largest securities in the Russell Developed Index. As of May 31, 2010, 
the Index included 2,372 securities in 25 developed countries, with a 
market capitalization ranging from $238 billion to $1.3 billion; the 
weighted average market capitalization of Index components was $54.7 
billion. The Fund's investment objective is to seek long-term capital 
appreciation by investing at least 80% of its total assets in 
Underlying ETFs that track various securities indices comprised of 
large, mid and small capitalization companies in the United States, 
Europe and Asia, as well as other developed and emerging markets. All 
Underlying ETFs are listed and traded on a national securities 
exchange. The Index includes a broader range of issuers from both the 
domestic and international markets compared to the S&P 500 Index, and 
such range is consistent with, and should better reflect, the Fund's 
investment objective. The Adviser represents that the investment 
objective of the Fund has not changed, the Index more accurately 
represents the investment strategy of the Fund, and the change to the 
Fund's benchmark will not impact the investment objective or the 
principal investment strategies for the Fund. Except for Underlying 
ETFs that may hold non-U.S. issues, the Fund will not otherwise invest 
in non-U.S.-registered issues. Except for the changes noted above, all 
other representations made in the One Fund Release remain unchanged. 
The Fund will continue to comply with all initial and continued listing 
requirements under NYSE Arca Equities Rule 8.600.
    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 new benchmark Index will continue to be calculated and 
disseminated in a manner consistent with representations in the One 
Fund Order. The Adviser has represented that it believes the Index is 
an appropriate broad-based benchmark index for the Fund. In addition, 
the Adviser has represented that the change to the Fund's benchmark 
will not impact shareholders of the Fund, and that the new benchmark 
Index more accurately reflects the Fund's principal investment strategy 
and will not result in a change to such strategy.
    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 permit the Fund to utilize an 
alternative broad-based, large capitalization benchmark Index that the 
Adviser believes is an appropriate benchmark for the Fund. The change 
to the Fund's benchmark Index will be effective upon filing with the 
Commission of an amendment to the Trust's Registration Statement.

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

[[Page 53007]]

organization consents, the Commission will:
    (A) By order approve or disapprove the proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, 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 e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2011-53 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-2011-53. This 
file number should be included on the subject line if e-mail 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 Section, 100 
F Street, NE., Washington, DC 20549-1090, on official business days 
between 10 a.m. and 3 p.m. Copies of the filing will also be available 
for inspection and copying at the NYSE's principal office and on its 
Internet Web site at http://www.nyse.com. 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-2011-53 and should be submitted 
on or before September 14, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\13\
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    \13\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-21592 Filed 8-23-11; 8:45 am]
BILLING CODE 8011-01-P