Document ID: SEC-2016-0884-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2016-05-23T04:00Z

[Federal Register Volume 81, Number 99 (Monday, May 23, 2016)]
[Notices]
[Pages 32364-32371]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-12014]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77847; File No. SR-NYSEArca-2016-64]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
Relating to the Listing and Trading of Shares of the AdvisorShares KIM 
Korea Equity ETF

May 17, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on May 2, 2016, 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. On May 13, 2016, the Exchange submitted Amendment No. 1 
to the proposed rule change, which replaces and supersedes the proposed 
rule change in its entirety. The Commission is publishing this notice 
to solicit comments on the proposed rule change, as modified by 
Amendment No. 1 thereto, 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 shares of the following 
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): 
AdvisorShares KIM Korea Equity ETF. The proposed rule change is 
available on the Exchange's Web site at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

[[Page 32365]]

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 Exchange proposes to list and trade shares (``Shares'') of the 
following under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares: \3\ AdvisorShares KIM Korea 
Equity ETF (``Fund''). The Shares will be offered by AdvisorShares 
Trust (the ``Trust''),\4\ an open-end management investment company.\5\ 
The investment adviser to the Fund will be AdvisorShares Investments 
LLC (the ``Adviser''). Korea Investment Management Co., Ltd., will be 
the Fund's sub-adviser (``Sub-Adviser''). Foreside Fund Services, LLC 
(the ``Distributor'') will be the principal underwriter and distributor 
of the Fund's Shares. The Bank of New York Mellon (the 
``Administrator'' or ``Custodian'') will serve as the administrator, 
custodian and transfer agent for the Fund.\6\
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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-1) (``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 Trust is registered under the 1940 Act. On March 25, 
2016, the Trust filed with the Commission amendments to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act'') and under the 1940 Act relating 
to the Fund (File Nos. 333-157876 and 811-22110) (``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. 29291 (May 28, 2010) (File No. 812-13677) 
(``Exemptive Order'').
    \5\ The Commission has approved listing and trading on the 
Exchange of a number of actively managed funds under Rule 8.600. 
See, e.g., Securities Exchange Act Release Nos. 63076 (October 12, 
2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order 
approving Exchange listing and trading of Cambria Global Tactical 
ETF); 63802 (January 31, 2011), 76 FR 6503 (February 4, 2011) (SR-
NYSEArca-2010-118) (order approving Exchange listing and trading of 
the SiM Dynamic Allocation Diversified Income ETF and SiM Dynamic 
Allocation Growth Income ETF); and 65468 (October 3, 2011), 76 FR 
62873 (October 11, 2011) (SR-NYSEArca-2011-51) (order approving 
Exchange listing and trading of TrimTabs Float Shrink ETF); 75023 
(May 21, 2015), 80 FR 30519 (May 28, 2015) (SR-NYSEArca-2014-100) 
(order approving proposed rule change relating to the listing and 
trading of shares of the SPDR SSgA Global Managed Volatility ETF 
under NYSE Arca Equities Rule 8.600); 77463 (March 29, 2016), 81 FR 
19255 (April 4, 2016) (SR-NYSEArca-2015-107) (order approving 
proposed rule change to list and trade shares of the REX Gold Hedged 
S&P 500 ETF and the REX Gold Hedged FTSE Emerging Markets ETF under 
NYSE Arca Equities Rule 8.600).
    \6\ This Amendment No. 1 to SR-NYSEArca-2016-49 [sic] replaces 
SR-NYSEArca-2016-49 [sic] as originally filed and supersedes such 
filing in its entirety.
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    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. 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.\7\ Commentary .06 to Rule 
8.600 is similar to Commentary .03(a)(i) and (iii) to NYSE Arca 
Equities Rule 5.2(j)(3); however, Commentary .06 in connection with the 
establishment of a ``fire wall'' between the investment adviser and the 
broker-dealer reflects the applicable open-end fund's portfolio, not an 
underlying benchmark index, as is the case with index-based funds. 
Neither the Adviser nor the Sub-Adviser is registered as a broker-
dealer. Neither the Adviser nor the Sub-Adviser is affiliated with a 
broker-dealer. In the event (a) the Adviser or the Sub-Adviser becomes 
a registered broker-dealer or becomes newly affiliated with a broker-
dealer, or (b) any new adviser or any sub-adviser is a registered 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to its relevant personnel or its 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the Fund's portfolio, and will be subject 
to procedures designed to prevent the use and dissemination of material 
non-public information regarding such portfolio.
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    \7\ 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 Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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Principal Investments
    According to the Registration Statement, the Fund will seek to 
provide long-term capital appreciation above the capital appreciation 
of its primary benchmark, the MSCI Korea Index, and other Korea-focused 
indexes. The Fund will seek to achieve its investment objective by 
investing primarily in growth-oriented stocks of any capitalization 
range listed on the Korea Exchange. Under normal circumstances,\8\ the 
Fund will invest at least 80% of its net assets (plus any borrowings 
for investment purposes) in equity securities listed on the Korea 
Exchange.\9\ The Sub-Adviser will manage the Fund's portfolio by buying 
and holding stocks of companies at attractive valuation that it 
believes have growth potential. The Sub-Adviser will focus on corporate 
fundamental research in its stock selection, often called ``bottom up'' 
analysis. The Sub-Adviser will invest the Fund's assets with a mid- to 
long-term view, typically

[[Page 32366]]

seeking to avoid short-term trading. In selecting investments for the 
Fund's portfolio, the Sub-Adviser will place emphasis on fundamentals 
rather than on short-term momentum and continuously monitor market 
risks. In deciding whether to sell investments in the Fund's portfolio, 
the Sub-Adviser will consider the following factors: A company's stock 
price reaches its target price; a company in the portfolio experiences 
negative fundamental changes; errors are found in the previous 
assumptions or forecasts of a company; and more profitable alternatives 
are found.
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    \8\ The term ``under normal circumstances'' means, without 
limitation, the absence of extreme volatility or trading halts in 
the equity 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.
    \9\ The Korea Exchange is a member of the Intermarket 
Surveillance Group (``ISG'').
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    In addition to individual stock selection, the Sub-Adviser will 
engage in sector allocation based on analysis of the macro economy and 
its effect on corporate competitiveness and industry cycles. This is 
often called ``top down'' analysis. The Sub-Adviser will strive to 
invest with large economic cycles as compared to short-term market 
trends and short-term supply and demand.
Other Investments
    While the Fund, under normal circumstances, will invest at least 
80% of its assets in the securities described above, the Fund may 
invest its remaining assets in the securities and financial instruments 
described below.
    In addition to the common stocks of Korean companies referenced in 
the Principal Investments section above, the Fund may invest in the 
following equity securities traded on a U.S. or foreign exchange or 
over-the-counter (``OTC''), including equity securities of foreign 
issuers in emerging countries: Common stocks, preferred stocks, 
warrants, rights, securities convertible into common stock, and 
investments in master limited partnerships (``MLPs'').
    The Fund will invest in issuers located outside the United States 
directly and may invest in exchange-traded funds (``ETFs''),\10\ 
exchange-traded notes (``ETNs'') \11\ and exchange-traded products 
(``ETPs'') \12\ that are indirectly linked to the performance of 
foreign issuers, and ``Depositary Receipts'', which are American 
Depositary Receipts (``ADRs''), Global Depositary Receipts (``GDRs''), 
European Depositary Receipts (``EDRs''), International Depositary 
Receipts (``IDRs''), ``ordinary shares,'' and ``New York shares'' 
issued and traded in the U.S.\13\
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    \10\ For purposes of this proposed rule change, ETFs are 
Investment Company Units (as described in NYSE Arca Equities Rule 
5.2(j)(3)); Portfolio Depositary Receipts (as described in NYSE Arca 
Equities Rule 8.100); and Managed Fund Shares (as described in NYSE 
Arca Equities Rule 8.600). The ETFs all will be listed and traded in 
the U.S. on registered exchanges. The Fund will invest in the 
securities of ETFs registered under the 1940 Act consistent with the 
requirements of Section 12(d)(1) of the 1940 Act, or any rule, 
regulation or order of the Commission or interpretation thereof. The 
Fund will only make such ETF investments in conformity with the 
requirements of Regulation M of the Internal Revenue Code of 1986, 
as amended. While the Fund may invest in inverse ETFs, the Fund will 
not invest in leveraged or inverse leveraged ETFs (e.g., 2X or 3X).
    \11\ ETNs include Index-Linked Securities (as described in NYSE 
Arca Equities Rule 5.2(j)(6)). While the Fund may invest in inverse 
ETNs, the Fund will not invest in leveraged or inverse leveraged 
ETNs (e.g., 2X or 3X).
    \12\ For purposes of this proposed rule change, ETPs include 
Trust Issued Receipts (as described in NYSE Arca Equities Rule 
8.200) and Currency Trust Shares (as described in NYSE Arca Equities 
Rule 8.202). While the Fund may invest in inverse ETPs, the Fund 
will not invest in leveraged or inverse leveraged ETPs (e.g., 2X or 
3X).
    \13\ According to the Registration Statement, ADRs are U.S. 
dollar denominated receipts typically issued by U.S. banks and trust 
companies that evidence ownership of underlying securities issued by 
a foreign issuer. The underlying securities may not necessarily be 
denominated in the same currency as the securities into which they 
may be converted. The underlying securities are held in trust by a 
custodian bank or similar financial institution in the issuer's home 
country. The depositary bank may not have physical custody of the 
underlying securities at all times and may charge fees for various 
services, including forwarding dividends and interest and corporate 
actions. Generally, ADRs in registered form are designed for use in 
domestic securities markets and are traded on exchanges or over-the-
counter in the U.S. GDRs, EDRs, and IDRs are similar to ADRs in that 
they are certificates evidencing ownership of shares of a foreign 
issuer, however, GDRs, EDRs, and IDRs may be issued in bearer form 
and denominated in other currencies, and are generally designed for 
use in specific or multiple securities markets outside the U.S. 
EDRs, for example, are designed for use in European securities 
markets while GDRs are designed for use throughout the world. 
Ordinary shares are shares of foreign issuers that are traded abroad 
and on a U.S. exchange. New York shares are shares that a foreign 
issuer has allocated for trading in the U.S. ADRs, ordinary shares, 
and New York shares all may be purchased with and sold for U.S. 
dollars. Not more than 10% of the Fund's assets will be invested in 
non-exchange-traded ADRs. Other ADRs in which the Fund invests will 
be exchange-traded.
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    The Fund may invest in the securities of non-exchange-traded 
investment company securities to the extent that such an investment 
would be consistent with the requirements of Section 12(d)(1) of the 
1940 Act, or any rule, regulation or order of the Commission or 
interpretation thereof. Consistent with such restrictions discussed 
above, the Fund may invest in U.S. and non-U.S. exchange-listed closed-
end funds and business development companies (``BDCs''). Except with 
respect to ETFs, as described above,\14\ the Fund will not invest in 
inverse, leveraged, or inverse leveraged investment company securities.
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    \14\ See note 11, supra.
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    The Fund may invest in U.S. government securities. Securities 
issued or guaranteed by the U.S. government or its agencies or 
instrumentalities include the following: U.S. Treasury securities, 
which are backed by the full faith and credit of the U.S. Treasury and 
which differ only in their interest rates, maturities, and times of 
issuance; U.S. Treasury bills, which have initial maturities of one 
year or less; U.S. Treasury notes, which have initial maturities of one 
to ten years; U.S. Treasury bonds, which generally have initial 
maturities of greater than ten years; and U.S. Treasury zero-coupon 
bonds. The Fund may invest in certain U.S. government securities that 
are issued or guaranteed by agencies or instrumentalities of the U.S. 
government including, but not limited to, obligations of U.S. 
government agencies or instrumentalities such as the Federal National 
Mortgage Association (``Fannie Mae''), the Federal Home Loan Mortgage 
Corporation (``Freddie Mac''), and the Government National Mortgage 
Association (``Ginnie Mae'').
    The Fund may invest in non-exchange-traded convertible securities 
that are bonds, debentures, notes, or other securities that may be 
converted or exchanged (by the holder or by the issuer) into shares of 
the underlying common stock (or cash or securities of equivalent value) 
at a stated exchange ratio.
    The Fund may invest in shares of U.S. or non-U.S. exchange-traded 
real estate investment trusts (``REITs'').
    The Fund may invest in repurchase agreements and reverse repurchase 
agreements.
    The Fund may purchase securities on a when-issued, delayed-delivery 
or forward commitment basis (i.e., delivery and payment can take place 
between a month and 120 days after the date of the transaction).
    To respond to adverse market, economic, political or other 
conditions, the Fund may invest up to 100% of its total assets in high-
quality, short-term debt securities and money market instruments either 
directly or through ETFs. The Fund may be invested in this manner for 
extended periods, depending on the Sub-Advisor's assessment of market 
conditions. Debt securities and money market instruments are the 
following: Shares of other mutual funds, commercial paper, certificates 
of deposit, bankers' acceptances, U.S. government securities, 
repurchase agreements, and bonds that are rated BBB or higher.
Investment Restrictions
    According to the Registration Statement, the Fund will be 
classified as

[[Page 32367]]

a diversified investment company under the 1940 Act.\15\
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    \15\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund intends to qualify as a ``regulated investment company'' 
for purposes of the Internal Revenue Code of 1986.\16\
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    \16\ 26 U.S.C. 851.
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    The Fund may hold up to an aggregate amount of 15% of its net 
assets in assets deemed illiquid by the Adviser.\17\ The Fund will 
monitor its portfolio liquidity on an ongoing basis to determine 
whether, in light of current circumstances, an adequate level of 
liquidity is being maintained, and will consider taking appropriate 
steps in order to maintain adequate liquidity if, through a change in 
values, net assets, or other circumstances, more than 15% of the Fund's 
net assets are held in illiquid assets. Illiquid assets include 
securities subject to contractual or other restrictions on resale and 
other instruments that lack readily available markets as determined in 
accordance with Commission staff guidance.\18\
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    \17\ Under the supervision of the Fund's Board of Trustees 
(``Board''), the Adviser determines the liquidity of the Fund's 
investments. In determining the liquidity of the Fund's investments, 
the Adviser may consider various factors, including (1) the 
frequency and volume of trades and quotations; (2) the number of 
dealers and prospective purchasers in the marketplace; (3) dealer 
undertakings to make a market; and (4) the nature of the security 
and the market in which it trades (including any demand, put or 
tender features, the mechanics and other requirements for transfer, 
any letters of credit or other credit enhancement features, any 
ratings, the number of holders, the method of soliciting offers, the 
time required to dispose of the security, and the ability to assign 
or offset the rights and obligations of the security).
    \18\ 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 
14618 (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 fund. 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 1933 Act).
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    The Fund may not:
    (a) With respect to 75% of its total assets, (i) purchase 
securities of any issuer (except securities issued or guaranteed by the 
U.S. government, its agencies or instrumentalities or shares of 
investment companies) if, as a result, more than 5% of its total assets 
would be invested in the securities of such issuer, or (ii) acquire 
more than 10% of the outstanding voting securities of any one issuer.
    (b) Invest 25% or more of its total assets in the securities of one 
or more issuers conducting their principal business activities in the 
same industry or group of industries. This limitation does not apply to 
investments in securities issued or guaranteed by the U.S. government, 
its agencies or instrumentalities, or shares of investment companies. 
The Fund will not invest 25% or more of its total assets in any 
investment company that so concentrates.
    The Fund will not invest in options, futures, swaps or forward 
contracts.
    The Fund's investments will be consistent with its investment 
objective and will not be used to provide multiple returns of a 
benchmark or to produce leveraged returns. The Fund's investments will 
not be used to seek performance that is the multiple or inverse 
multiple (e.g., 2Xs and 3Xs) of the Fund's primary broad-based 
securities benchmark index (as defined in Form N-1A).\19\
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    \19\ The Fund's broad-based securities benchmark index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
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Creation and Redemption of Shares
    According to the Registration Statement, the Trust will issue and 
sell Shares of the Fund only in ``Creation Units'' of at least 25,000 
Shares on a continuous basis through the Distributor, at their net 
asset value (``NAV'') next determined after receipt, on any business 
day, of an order received in proper form.
    Creation Units of the Fund will be sold only for cash (``Cash 
Purchase Amount''). Creation Units will be sold at the NAV next 
computed, plus a transaction fee. The Trust reserves the right to offer 
an in-kind option for creations of Creation Units for the Fund.
    To be eligible to place orders with the Distributor to create a 
Creation Unit of the Fund, an entity must be (i) a ``Participating 
Party,'' i.e., a broker-dealer or other participant in the clearing 
process through the Continuous Net Settlement System of the National 
Securities Clearing Corporation (``NSCC''), a clearing agency that is 
registered with the Commission; or (ii) a Depository Trust Company 
(``DTC '') Participant, and, in each case, must have executed an 
agreement with the Trust, the Distributor and the Administrator with 
respect to creations and redemptions of Creation Units (``Participant 
Agreement''). A Participating Party and DTC Participant are 
collectively referred to as an ``Authorized Participant.''
    All orders to create Creation Units must be received by the 
Distributor no later than the close of the regular trading session on 
the Exchange (ordinarily 4:00 p.m., Eastern Time), in each case on the 
date such order is placed in order for the creation of Creation Units 
to be effected based on the NAV of Shares of the Fund as next 
determined on such date after receipt of the order in proper form.
    All purchases of the Fund will be effected through a transfer of 
cash directly through DTC.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through the Administrator and only on a business day.
    The redemption proceeds for a Creation Unit of the Fund will 
consist solely of cash in an amount equal to the NAV of the Shares 
being redeemed, as next determined after receipt of a request in proper 
form, less a redemption transaction fee (the ``Cash Redemption 
Amount''). The Trust reserves the right to offer an in-kind option for 
redemptions of Creation Units for the Fund.\20\
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    \20\ Creations or redemptions conducted in cash will be effected 
in the same manner for all Authorized Participants.
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    The right of redemption may be suspended or the date of payment 
postponed with respect to the Fund (1) for any period during which the 
NYSE is closed (other than customary weekend and holiday closings); (2) 
for any period during which trading on the NYSE is suspended or 
restricted; (3) for any period during which an emergency exists as a 
result of which disposal of the Shares of the Fund or determination of 
the Shares' NAV is not reasonably practicable; or (4) in such other 
circumstance as is permitted by the Commission.
Net Asset Value
    According to the Registration Statement, the Fund will calculate 
NAV by (i) taking the current market value of its total assets, (ii) 
subtracting any liabilities, and (iii) dividing that amount by the 
total number of Shares owned by shareholders.
    The Fund will calculate NAV once each business day as of the 
regularly scheduled close of normal trading on the New York Stock 
Exchange (the ``NYSE'') (normally 4:00 p.m. Eastern Time).
    In calculating NAV, the Fund generally will value its portfolio

[[Page 32368]]

investments at market prices. Given that the Fund's investments 
generally trade on a foreign exchange, they will be valued based on 
their closing prices on that exchange, subject to possible adjustment. 
Investments in stocks traded on the Korea Exchange will be valued based 
on the applicable closing price on the Korea Exchange.
    The NAV per Share of the Fund will be computed by dividing the 
value of the net assets of the Fund (i.e., the value of its total 
assets less total liabilities) by the total number of Shares of the 
Fund outstanding, rounded to the nearest cent. Expenses and fees, 
including without limitation, the management, administration and 
distribution fees, will be accrued daily and taken into account for 
purposes of determining NAV per Share. The NAV per Share for the Fund 
will be calculated by the Administrator and determined as of the 
regularly scheduled close of normal trading on the NYSE (normally 4:00 
p.m. Eastern Time) on each day that the NYSE is open.
    In computing the Fund's NAV, the Fund's securities holdings will be 
valued based on their last readily available market price. Price 
information on listed securities, including ETFs, ETNs and ETPs in 
which the Fund invests, will be taken from the exchange where the 
security is primarily traded. Other portfolio securities and assets for 
which market quotations are not readily available or determined to not 
represent the current fair value will be valued based on fair value as 
determined in good faith by the Fund's Sub-Adviser in accordance with 
procedures adopted by the Fund's Board of Trustees (``Board'').
    Exchange-traded equity securities, including common stocks, ETFs, 
ETNs, ETPs, preferred stocks, rights, warrants, convertible securities, 
closed-end funds, certain Depositary Receipts, MLPs, REITs, and BDCs 
will be valued at market value, which will generally be determined 
using the last reported official closing or last trading price on the 
exchange or market on which the security is primarily traded at the 
time of valuation or, if no sale has occurred, at the last quoted bid 
price on the primary market or exchange on which they are traded. If 
market prices are unavailable or the Fund believes that they are 
unreliable, or when the value of a security has been materially 
affected by events occurring after the relevant market closes, the Fund 
will price those securities at fair value as determined in good faith 
using methods approved by the Fund's Board.
    OTC-traded common stocks, OTC ADRs, preferred stocks, rights, 
warrants, convertible securities, and MLPs will be valued at the last 
reported sale price from the OTC Bulletin Board or OTC Link LLC on the 
valuation date. If such OTC-traded security does not trade on a 
particular day, then the mean between the last quoted closing bid and 
asked price will be used.
    Non-exchange-traded convertible securities, U.S. government 
securities, short-term debt securities, repurchase agreements and 
reverse repurchase agreements will be valued at prices supplied by 
approved pricing services.
    Investment company securities (other than exchange-traded 
investment company securities) will be valued at NAV.
Availability of Information
    The Fund's Web site (www.advisorshares.com), 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''),\21\ 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 that will 
form the basis for the Fund's calculation of NAV at the end of the 
business day.\22\
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    \21\ The Bid/Ask Price of Shares of the Fund will be determined 
using the mid-point 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.
    \22\ 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, on behalf of the Fund, will disclose 
on the Fund's Web site the following information regarding each 
portfolio holding, as applicable to the type of holding: Ticker symbol, 
CUSIP number or other identifier, if any; a description of the holding 
(including the type of holding); the identity of the security, index, 
or other asset or instrument underlying the holding, if any; quantity 
held (as measured by, for example, par value, notional value or number 
of shares, contracts or units); maturity date, if any; coupon rate, if 
any; effective date, if any; market value of the holding; and the 
percentage weighting of the holding in the Fund's portfolio. The Web 
site information will be publicly available at no charge.
    In addition, a basket composition file, which includes the security 
names and share quantities (as applicable) required to be delivered in 
exchange for Fund Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the NYSE via the NSCC. The basket will represent one Creation Unit of 
the Fund.
    Investors can also obtain the Fund's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports will be 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 www.sec.gov. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Price information for stocks listed on the Korea 
Exchange is available from the Korea Exchange Web site and from major 
market data vendors. Quotation and last sale information for the Shares 
and U.S. exchange-listed equity securities, including common stocks, 
ETFs, ETNs, ETPs, preferred stocks, rights, warrants, convertible 
securities, closed-end funds, MLPs, REITs, and BDCs and certain 
Depositary Receipts will be available via the Consolidated Tape 
Association (``CTA'') high-speed line, and will be available from the 
national securities exchange on which they are listed. Prices related 
to foreign exchange-traded common stocks, preferred stocks, rights, 
warrants, convertible securities, MLPs, REITs and BDCs will be 
available from the applicable exchange or from major market data 
vendors. Intra-day and closing price information relating to OTC-traded 
common stocks, OTC ADRs, preferred stocks, rights, warrants, 
convertible securities and MLPs will be

[[Page 32369]]

available from major market data vendors. Price information regarding 
investment company securities (other than exchange-traded investment 
company securities) will be available from the applicable fund. Price 
information regarding U.S. government securities, short-term debt 
securities, non-exchange-traded convertible securities, money market 
funds, repurchase agreements, and reverse repurchase agreements may be 
obtained from brokers and dealers who make markets in such securities 
or through nationally recognized pricing services through subscription 
agreements.
    In addition, the Portfolio Indicative Value, as defined in NYSE 
Arca Equities Rule 8.600 (c)(3), based on current information regarding 
the value of the securities and other assets in the Disclosed 
Portfolio, will be widely disseminated at least every 15 seconds during 
the Core Trading Session by one or more major market data vendors.\23\ 
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 will provide a 
close estimate of that value throughout the trading day. The Portfolio 
Indicative Value should not be viewed as a ``real-time'' update of the 
NAV per Share of the Fund, which will be calculated once per day.
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    \23\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

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 the Fund.\24\ 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.
---------------------------------------------------------------------------

    \24\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

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. Eastern Time 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, 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.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca 
Equities Rule 8.600(d)(2)(B)(ii), the Adviser, as the Reporting 
Authority, will 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 Fund's portfolio. 
The Exchange represents that, for initial and/or continued listing, the 
Fund will be in compliance with Rule 10A-3 \25\ under the Act, as 
provided by NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares 
will be outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares 
that the NAV per Share will be calculated daily and that the NAV and 
the Disclosed Portfolio as defined in NYSE Arca Equities Rule 
8.600(c)(2) will be made available to all market participants at the 
same time.
---------------------------------------------------------------------------

    \25\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Exchange or 
the Financial Industry Regulatory Authority (``FINRA'') on behalf of 
the Exchange, which are designed to detect violations of Exchange rules 
and applicable federal securities laws.\26\ 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 federal securities laws applicable to 
trading on the Exchange.
---------------------------------------------------------------------------

    \26\ FINRA conducts cross-market surveillances on behalf of the 
Exchange pursuant to a regulatory services agreement. The Exchange 
is responsible for FINRA's performance under this regulatory 
services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. 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 or FINRA, on behalf of the Exchange, will communicate 
as needed regarding trading in the Shares and certain underlying 
exchange-traded equity securities (including common stocks, ETFs, ETNs, 
ETPs, preferred stock, rights, warrants, exchange-traded convertible 
securities, closed-end funds, MLPs, REITs, BDCs and certain Depositary 
Receipts) with other markets and other entities that are members of the 
ISG, and the Exchange or FINRA, on behalf of the Exchange, may obtain 
trading information regarding trading in the Shares and such securities 
and financial instruments from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares and such securities and financial instruments from markets and 
other entities that are members of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement.\27\ The 
Exchange is able to access from FINRA, as needed, trade information for 
certain fixed income securities held by the Fund reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE'').
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    \27\ For a list of the current members of ISG, see 
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.
---------------------------------------------------------------------------

    Not more than 10% of the net assets of the Fund in the aggregate 
invested in equity securities (other than non-exchange-traded 
investment company securities) shall consist of equity securities whose 
principal market is not a member of the ISG or is a market with which 
the Exchange does not have a comprehensive surveillance sharing 
agreement.
    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    All statements and representations made in this filing regarding 
(a) the description of the portfolio, (b) limitations on portfolio 
holdings or reference assets, or (c) the applicability

[[Page 32370]]

of Exchange rules and surveillance procedures shall constitute 
continued listing requirements for listing the Shares on the Exchange.
    The issuer has represented to the Exchange that it will advise the 
Exchange of any failure by the Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will monitor for compliance with the 
continued listing requirements. If the Fund is not in compliance with 
the applicable listing requirements, the Exchange will commence 
delisting procedures under NYSE Arca Equities Rule 5.5(m).
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit 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 Equity Trading Permit 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 and the Disclosed Portfolio is disseminated; 
(5) the requirement that Equity Trading Permit 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 Act. The 
Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. Eastern Time each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \28\ 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.
---------------------------------------------------------------------------

    \28\ 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 or FINRA, on behalf of 
the Exchange, will communicate as needed regarding trading in the 
Shares, certain underlying exchange-traded equity securities (including 
common stocks, ETFs, ETNs, ETPs, preferred stock, rights, warrants, 
exchange-traded convertible securities, closed-end funds, REITs, MLPs, 
BDCs and certain Depositary Receipts) with other markets and other 
entities that are members of the ISG, and the Exchange or FINRA, on 
behalf of the Exchange, may obtain trading information regarding 
trading in the Shares and such securities and financial instruments 
from such markets and other entities. In addition, the Exchange may 
obtain information regarding trading in the Shares and such securities 
and financial instruments from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement. Not more than 10% of the net assets of 
the Fund in the aggregate invested in equity securities (other than 
non-exchange-traded investment company securities) shall consist of 
equity securities whose principal market is not a member of the ISG or 
is a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement. Neither the Adviser nor the Sub-Adviser 
is registered as a broker-dealer. The Fund's investments will be 
consistent with its investment objective and will not be used to 
provide multiple returns of a benchmark or to produce leveraged 
returns. The Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the 
Fund's primary broad-based securities benchmark index (as defined in 
Form N-1A).
    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 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 will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Quotation and last sale 
information for the Shares will be available via the CTA high-speed 
line. In addition, the Portfolio Indicative Value will be widely 
disseminated at least every 15 seconds during the Core Trading Session 
by one or more major market data vendors. The Fund's Web site will 
include a form of the prospectus for the Fund that may be downloaded, 
as well as additional quantitative information updated on a daily 
basis. 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. On a daily 
basis, the Adviser, on behalf of the Fund, will disclose on the Fund's 
Web site the following information regarding each portfolio holding, as 
applicable to the type of holding: Ticker symbol, CUSIP number or other 
identifier, if any; a description of the holding (including the type of 
holding); the identity of the security, index, or other asset or 
instrument underlying the holding, if any; quantity held (as measured 
by, for example, par value, notional value or number of shares, 
contracts or units); maturity date, if any; coupon rate, if any; 
effective date, if any; market value of the holding; and the percentage 
weighting of the holding in the Fund's portfolio. The Web site 
information will be publicly available at no charge.
    Moreover, prior to the commencement of trading, the Exchange will 
inform its Equity Trading Permit 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. 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

[[Page 32371]]

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 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. 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 purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional type of actively-managed exchange-traded product that 
primarily holds equity securities and that will enhance competition 
among market participants, to the benefit of investors and the 
marketplace.

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 up to 90 days (i) as the 
Commission may designate 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 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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2016-64 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2016-64. 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 
10:00 a.m. and 3:00 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-2016-64 and should 
be submitted on or before June 13, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\29\
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    \29\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-12014 Filed 5-20-16; 8:45 am]
BILLING CODE 8011-01-P