
[Federal Register: April 10, 2008 (Volume 73, Number 70)]
[Notices]               
[Page 19544-19550]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr10ap08-105]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57619; File No. SR-NYSEArca-2008-25]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Amendment No. 1 to Proposed Rule Change and Order Granting 
Accelerated Approval of Such Proposed Rule Change, as Modified by 
Amendment No. 1 Thereto, Relating to Rules Permitting the Listing and 
Trading of Managed Fund Shares, Trading Hours and Halts, Listing Fees 
Applicable To Managed Fund Shares, and the Listing and Trading of 
Shares of the PowerShares Active AlphaQ Fund, PowerShares Active Alpha 
Multi-Cap Fund, PowerShares Active Mega-Cap Portfolio, and the 
PowerShares Active Low Duration Portfolio

April 4, 2008.

I. Introduction

    On February 27, 2008, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange''), through its wholly owned subsidiary, NYSE Arca Equities, 
Inc. (``NYSE Arca Equities'' or ``Corporation''), filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change seeking to: (1) 
Add new NYSE Arca Equities Rule 8.600 to permit the listing and 
trading, or trading pursuant to unlisted trading privileges (``UTP''), 
of securities issued by an actively managed, open-end investment 
management company (``Managed Fund Shares''); (2) list and trade the 
shares (``Shares''), offered by PowerShares Actively Managed Exchange-
Traded Fund Trust (``Trust''), of the PowerShares Active AlphaQ Fund, 
PowerShares Active Alpha Multi-Cap Fund, PowerShares Active Mega-Cap 
Portfolio, and the PowerShares Active Low Duration Portfolio 
(collectively, the ``Funds''); (3) amend NYSE Arca Equities Rule 7.34 
(Trading Sessions) to reference Managed Fund Shares; and (4) amend its 
listing fees to include Managed Fund Shares under the term ``Derivative 
Securities Products.'' The proposed rule change was published for 
comment in the Federal Register on March 5, 2008.\3\ The Commission 
received no comments regarding the proposal. On March 31, 2008, the 
Exchange filed Amendment No. 1 to the proposed rule change.\4\ This 
order provides notice of, and solicits comments from interested persons 
regarding, Amendment No. 1 to the proposed rule change and approves the 
proposed rule change, as modified by Amendment No. 1, on an accelerated 
basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 57395 (February 28, 
2008), 73 FR 11974 (``Notice'').
    \4\ In Amendment No. 1, the Exchange added Commentary .07 to 
proposed NYSE Arca Equities Rule 8.600 which would require the 
following: (1) If the investment adviser to the Investment Company 
(as defined herein) issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser must erect a ``firewall'' 
between such investment adviser and the broker-dealer with respect 
to access to information concerning the composition and/or changes 
to the Investment Company portfolio; and (2) personnel who make 
decisions on the Investment Company's portfolio composition must be 
subject to procedures designed to prevent the use and dissemination 
of material non-public information regarding the applicable 
Investment Company portfolio. In addition, the Exchange provided a 
representation that PowerShares Capital Management LLC, the 
investment adviser of the Funds, is affiliated with a broker-dealer 
and has therefore implemented a firewall with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to the Fund's portfolio. Lastly, the 
Exchange provided a description of the ethical and fiduciary 
requirements under the Investment Advisers Act of 1940 (``Advisers 
Act'') and rules thereunder, as they apply to PowerShares Capital 
Management LLC.
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II. Description of the Proposal

    The Exchange proposes to add new NYSE Arca Equities Rule 8.600 to 
permit the listing and trading, or trading pursuant to UTP, of Managed 
Fund Shares, which are securities issued by an actively managed, open-
end investment management company. The Exchange also proposes to amend 
NYSE Arca Equities Rule 7.34 (Trading Sessions) to reference Managed 
Fund Shares in paragraph (a)(3)(A), relating to hours of the Exchange's 
Core Trading Session, and paragraph (a)(4)(A), relating to trading 
halts when trading pursuant to UTP during the Exchange's Opening 
Session.\5\ In addition, the Exchange proposes to amend its listing 
fees by incorporating Managed Fund Shares in the term ``Derivative 
Securities Products.'' Finally, pursuant to new NYSE Arca Equities Rule 
8.600, the Exchange proposes to list and trade the Shares of the Funds.
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    \5\ See NYSE Arca Equities Rule 7.34(a) (setting forth, 
generally, the three trading sessions on the Exchange: (1) Opening 
Session, from 4 a.m. to 9:30 a.m. Eastern Time or ``ET''; (2) Core 
Trading Session, from 9:30 a.m. to 4 p.m. ET; and (3) Late Trading 
Session, from 4 p.m. to 8 p.m. ET).
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Proposed Listing Rules for Managed Fund Shares

    Under proposed NYSE Arca Equities Rule 8.600(c)(1), a ``Managed 
Fund Share'' is a security that: (1) Represents an interest in a 
registered investment company (``Investment Company'') organized as an 
open-end management investment company or similar entity, that invests 
in a portfolio of securities selected by the Investment Company's 
investment adviser consistent with the Investment Company's investment 
objectives and policies; (2) is issued in a specified aggregate minimum 
number in return for a deposit of a specified portfolio of securities 
and/or a cash amount with a value equal to the next determined net 
asset value (``NAV''); and (3) when aggregated in the same specified 
minimum number, may be redeemed at a holder's request, which holder 
will be paid a specified portfolio of securities and/or cash with a 
value equal to the next determined NAV.
    Proposed NYSE Arca Equities Rule 8.600(c)(2) defines ``Disclosed 
Portfolio'' as the identities and quantities of the securities and 
other assets held by the Investment Company that will form the basis 
for the Investment Company's calculation of the NAV at the end of the 
business day. Proposed NYSE Arca Equities Rule 8.600(c)(3) defines 
``Portfolio Indicative Value'' as the estimated indicative value of a 
Managed Fund Share based on current information regarding the value of 
the securities and other assets in the Disclosed Portfolio. Finally, 
proposed NYSE Arca Equities Rule 8.600(c)(4) defines ``Reporting 
Authority'' as, in respect of a particular series of Managed Fund 
Shares, the Corporation,\6\ an institution, or a reporting service 
designated by the Corporation or by the Exchange that lists a 
particular series of Managed Fund Shares (if the Corporation is trading 
such series pursuant to UTP) as the official source for calculating and 
reporting information relating to such series, including, but not 
limited to, the (i) Portfolio Indicative Value, (ii) the

[[Page 19545]]

Disclosed Portfolio, (iii) the amount of any cash distribution to 
holders of Managed Fund Shares, (iv) NAV, or (v) other information 
relating to the issuance, redemption, or trading of Managed Fund 
Shares. A series of Managed Fund Shares may have more than one 
Reporting Authority, each having different functions.
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    \6\ The ``Corporation'' means NYSE Arca Equities. See NYSE Arca 
Equities Rule 1.1(k) (defining Corporation).
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    Proposed NYSE Arca Equities Rule 8.600(d) sets forth the initial 
and continued listing criteria applicable to Managed Fund Shares. 
Proposed NYSE Arca Equities Rule 8.600(d)(1) provides that, for each 
series of Managed Fund Shares, the Corporation will establish a minimum 
number of Managed Fund Shares required to be outstanding at the time of 
commencement of trading. In addition, the Corporation will obtain a 
representation from the issuer of each series of Managed Fund Shares 
that the NAV per share for the series will be calculated daily and that 
the NAV and the Disclosed Portfolio will be made available to all 
market participants at the same time.
    Proposed NYSE Arca Equities Rule 8.600(d)(2) provides that each 
series of Managed Fund Shares will be listed and traded subject to 
application of the following continued listing criteria: (1) The 
Portfolio Indicative Value for Managed Fund Shares will be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the time when the Managed Fund Shares trade on the 
Corporation; (2) the Disclosed Portfolio will be disseminated at least 
once daily and will be made available to all market participants at the 
same time; and (3) the Reporting Authority that provides the Disclosed 
Portfolio must implement and maintain, or be subject to, procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the actual components of the portfolio.
    Proposed NYSE Arca Equities Rule 8.600(d)(2)(C) provides that the 
Corporation will consider the suspension of trading in, or removal from 
listing of, a series of Managed Fund Shares under any of the following 
circumstances: (1) If, following the initial twelve-month period after 
commencement of trading on the Exchange of a series of Managed Fund 
Shares, there are fewer than 50 beneficial holders of the series of 
Management Fund Shares for 30 or more consecutive trading days; (2) if 
the value of the Portfolio Indicative Value is no longer calculated or 
available or the Disclosed Portfolio is not made available to all 
market participants at the same time; (3) if the Investment Company 
issuing the Managed Fund Shares has failed to file any filings required 
by the Commission or if the Corporation is aware that the Investment 
Company is not in compliance with the conditions of any exemptive order 
or no-action relief granted by the Commission to the Investment Company 
with respect to the series of Managed Fund Shares; or (4) if such other 
event shall occur or condition exists which, in the opinion of the 
Corporation, makes further dealings on the Corporation inadvisable.
    Proposed NYSE Arca Equities Rule 8.600(d)(2)(D) provides that, if 
the Portfolio Indicative Value of a series of Managed Fund Shares is 
not being disseminated as required, the Corporation may halt trading 
during the day in which the interruption to the dissemination of the 
Portfolio Indicative Value occurs. If the interruption to the 
dissemination of the Portfolio Indicative Value persists past the 
trading day in which it occurred, the Corporation will halt trading no 
later than the beginning of the trading day following the interruption. 
If a series of Managed Fund Shares is trading on the Corporation 
pursuant to UTP, the Corporation will halt trading in that series as 
specified in NYSE Arca Equities Rule 7.34(a), as proposed to be 
amended. In addition, if the Exchange becomes aware that the NAV or the 
Disclosed Portfolio with respect to a series of Managed Fund Shares is 
not disseminated to all market participants at the same time, it will 
halt trading in such series until such time as the NAV or the Disclosed 
Portfolio is available to all market participants.
    Proposed NYSE Arca Equities Rule 8.600(d)(2)(E) provides that, upon 
termination of an Investment Company, the Corporation requires that 
Managed Fund Shares issued in connection with such entity be removed 
from Corporation listing. Proposed NYSE Arca Equities Rule 
8.600(d)(2)(F) provides that voting rights shall be as set forth in the 
applicable Investment Company prospectus. Proposed NYSE Arca Equities 
Rule 8.600(e) relates to the limitation of Corporation liability.
    Proposed Commentary .01 to new NYSE Arca Equities Rule 8.600 
provides that the Corporation will file separate proposals under 
Section 19(b) of the Act before the listing and/or trading of Managed 
Fund Shares. Proposed Commentary .02 provides that transactions in 
Managed Fund Shares will occur during the trading hours specified in 
NYSE Arca Equities Rule 7.34(a), as proposed to be amended. Proposed 
Commentary .03 provides that the minimum price variation for quoting 
and entry of orders in Managed Fund Shares is $0.01. Proposed 
Commentary .04 provides that the Exchange will implement written 
surveillance procedures for Managed Fund Shares.
    Proposed Commentary .05 to new NYSE Arca Equities Rule 8.600, which 
is substantially similar to existing Commentary .01(i) to NYSE Arca 
Equities Rule 5.2(j)(3), provides that, for Managed Fund Shares based 
on an international or global portfolio, the statutory prospectus or 
the application for exemption from provisions of the Investment Company 
Act of 1940 (``1940 Act'') for the series of Managed Fund Shares must 
state that such series must comply with the federal securities laws in 
accepting securities for deposits and satisfying redemptions with 
redemption securities, including that the securities accepted for 
deposits and the securities used to satisfy redemption requests are 
sold in transactions that would be exempt from registration under the 
Securities Act of 1933. Proposed Commentary .06 to new NYSE Arca 
Equities Rule 8.600, which is substantially similar to existing 
Commentary .01(h) to NYSE Arca Equities Rule 5.2(j)(3), sets forth 
certain obligations of ETP Holders \7\ with respect to Managed Fund 
Shares that receive an exemption from certain prospectus delivery 
requirements under Section 24(d) of the 1940 Act. Lastly, Commentary 
.07 to new NYSE Arca Equities Rule 8.600 provides that, if the 
investment adviser of the Investment Company issuing Managed Fund 
Shares is affiliated with a broker-dealer, such investment adviser must 
erect a ``firewall'' between such investment adviser and broker-dealer 
with respect to access to information regarding the composition and/or 
changes to the Investment Company's portfolio. In addition, proposed 
Commentary .07 further requires that personnel who make decisions on 
the Investment Company's portfolio composition must be subject to 
procedures designed to prevent the use and dissemination of material 
non-public information regarding the Investment Company's portfolio. 
The Exchange states that Commentary .07 is similar to Commentary 
.03(a)(i) and (iii) to NYSE Arca Equities Rule 5.2(j)(3); however, the 
proposed Commentary in connection with the establishment of a 
``firewall'' between the investment

[[Page 19546]]

adviser and the broker-dealer reflects the applicable open-end fund's 
portfolio, not an underlying benchmark index, as is the case with 
current exchange-traded funds.
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    \7\ An ``ETP Holder'' is a sole proprietorship, 
partnership,corporation, limited liability company, or other 
organization in good standing that has been issued an Equity Trading 
Permit or ``ETP.'' An ETP Holder must be a registered broker or 
dealer pursuant to Section 15 of the Act (15 U.S.C. 78o). See NYSE 
Arca Equities Rule 1.1(m) and (n) (defining ETP and ETP Holder).
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Amendments to NYSE Arca Equities Rule 7.34

    The Exchange proposes to amend NYSE Arca Equities Rule 
7.34(a)(3)(A) to add Managed Fund Shares to the list of securities for 
which the Core Trading Session on the Exchange concludes at 4:15 p.m. 
ET. In addition, the Exchange proposes to amend NYSE Arca Equities Rule 
7.34(a)(4)(A) to include Managed Fund Shares under ``Derivative 
Securities Products'' in connection with trading halts for trading 
pursuant to UTP on the Exchange.

Amendments to Listing Fees

    The Exchange proposes to add Managed Fund Shares to the securities 
included under the term ``Derivative Securities Products,'' as defined 
in the NYSE Arca Equities Schedule of Fees and Charges for Exchange 
Services.\8\
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    \8\ Further descriptions regarding key features of Managed Fund 
Shares, including information about interests in a registered 
investment company, exemptive relief under the 1940 Act, intraday 
trading of Managed Fund Shares, creation and redemption of Managed 
Fund Shares, Portfolio Disclosure, and Portfolio Indicative Value, 
among other things, can be found in the Notice. See Notice, supra 
note 3.
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Description of the Funds and the Trust

    The Shares will be offered by the Trust, a business trust organized 
under the laws of the State of Delaware and registered with the 
Commission as an open-end management investment company.\9\ The Trust 
currently consists of the four Funds, each a separate, actively managed 
exchange-traded fund. The Exchange represents that: (1) The Funds will 
not purchase or sell securities in markets outside the United States; 
and (2) the Shares will conform to the initial and continued listing 
criteria under proposed NYSE Arca Equities Rule 8.600 and Commentary 
thereto.\10\
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    \9\ The Exchange states that the Trust is registered under the 
1940 Act. On November 26, 2007 the Trust filed with the Commission a 
Registration Statement for the Funds on Form N-1A under the 
Securities Act and under the 1940 Act (File Nos. 333-147622 and 811-
22148) (``Registration Statement''). On November 16, 2007 the Trust 
filed with the Commission on Form 40-6C/A an Amended and Restated 
Application (``Application'') for an Amended Order under Sections 
6(c) and 17(b) of the 1940 Act (File No. 812-13386-04). See 
Investment Company Act Release No. 28140 (February 1, 2008), 73 FR 
7328 (February 7, 2008) (File No. 812-13386) (providing notice of 
application for an exemptive order under Section 6 of the 1940 Act).
    \10\ The Exchange further represents that, for initial and/or 
continued listing, Managed Fund Shares must also be in compliance 
with Rule 10A-3 under the Act, as provided by NYSE Arca Equities 
Rule 5.3. See 17 CFR 240.10A-3. In addition, the Exchange represents 
that PowerShares Capital Management LLC, the investment adviser for 
the Funds, is affiliated with a broker-dealer, AIM Distributors, 
Inc., and has implemented a firewall with respect to such broker-
dealer regarding access to information concerning the composition 
and/or changes to the Fund's portfolio. Further, the Exchange 
represents that the investment adviser and its related personnel are 
subject to Rule 204A-1 under the Advisers Act, which relates to 
codes of ethics for investment advisers. Rule 204A-1 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, the 
Exchange notes that ``firewall'' procedures, as well as procedures 
designed to prevent the 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 (17 
CFR 275.206(4)-7) 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 rules 
thereunder; (ii) implemented, at a minimum, an annual review 
regarding the adequacy of such policies and procedures and the 
effectiveness of their implementation; and (iii) designated an 
individual (who is a supervised person) responsible for 
administering such policies and procedures. See also Section 204A of 
the Advisers Act (15 U.S.C. 80b-4a) (requiring investment advisers 
to establish, maintain, and enforce written policies and procedures 
reasonably designed to prevent the misuse of material, non-public 
information by such investment adviser or any person associated with 
such investment adviser).
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    Detailed descriptions of the investment objectives, strategies, and 
methodologies of the four Funds, management and structure of the Funds, 
and other relevant information relating to the Shares and Funds can be 
found in the Notice, the Registration Statement, and/or the 
Application, as applicable.

Availability of Information

    The Funds' Web site (http://www.powershares.com), which will be 
publicly available prior to the public offering of the Shares, will 
include a form of the prospectus for each Fund that may be downloaded. 
The Web site will include for each Fund additional quantitative 
information updated on a daily basis, including: (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''),\11\ 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 the Core Trading Session, each 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.\12\
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    \11\ The Bid/Ask Price of a Fund is determined using the highest 
bid andthe lowest offer on the Exchange as of the time of 
calculation of such Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Funds and their service providers.
    \12\ Under accounting procedures followed by the Funds, trades 
made on the prior business day (``T'') will be booked and reflected 
in the NAV on the current business day (``T+1''). Accordingly, the 
Funds 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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    Investors interested in a particular Fund can also obtain the 
Trust's Statement of Additional Information (``SAI''), each Fund's 
Shareholder Reports, and its 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 (http://www.sec.gov).
    Information regarding market price and volume is and will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services. The previous 
day's closing price and trading volume information will be published 
daily in the financial section of newspapers. Quotation and last sale 
information for the Shares will be available via the facilities of the 
Consolidated Tape Association (``CTA''). In addition, the Portfolio 
Indicative Value will be disseminated by the Exchange at least every 15 
seconds during the Core Trading Session through the facilities of CTA. 
The NAV of each Fund will normally be determined as of the close of the 
regular trading session on the New York Stock Exchange LLC (ordinarily 
4 p.m. ET) on each business day.

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 a Fund.\13\ Trading in the Shares of the Funds 
will be halted if the circuit breaker parameters under NYSE Arca 
Equities Rule 7.12 are 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

[[Page 19547]]

include: (1) The extent to which trading is not occurring in the 
securities comprising the Disclosed Portfolio and/or the financial 
instruments of a 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 proposed 
NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth circumstances 
under which trading in the Shares of a Fund may be halted.
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    \13\ See Commentary .04 to NYSE Arca Equities Rule 7.12.
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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. The Shares will trade 
on the NYSE Arca Marketplace from 4 a.m. to 8 p.m. ET, in accordance 
with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late Trading 
Sessions).\14\ The Exchange states that it has appropriate rules to 
facilitate transactions in the Shares during all trading sessions.
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    \14\ See supra note 5.
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Surveillance

    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which will 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. The Exchange's current trading 
surveillance focuses on detecting securities trading outside their 
normal patterns. When such situations are detected, surveillance 
analysis follows and, where appropriate, investigations are opened 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 who are members or 
affiliate members of ISG. 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 
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;\15\ (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.
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    \15\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder, 
before recommending a transaction, must have reasonable grounds to 
believe that the recommendation is suitable for the customer based 
on any facts disclosed by the customer as to his other security 
holdings and as to his financial situation and needs. Further, the 
rule provides, with a limited exception, that prior to the execution 
of a transaction recommended to a non-institutional customer, the 
ETP Holder shall make reasonable efforts to obtain information 
concerning the customer's financial status, tax status, investment 
objectives, and any other information that the ETP Holder believes 
would be useful to make a recommendation.
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    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement 
and 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 p.m. ET each trading day.

III. Discussion

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange.\16\ In particular, the Commission believes that the proposal 
is consistent with Section 6(b)(5) of the Act,\17\ which requires, 
among other things, that the rules of a national securities exchange be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and in general, to protect investors and the 
public interest.
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    \16\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \17\ 15 U.S.C. 78f(b)(5).
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Proposed Listing Rules for Managed Fund Shares

    The Commission finds that NYSE Arca's proposal contains adequate 
rules and procedures to govern the listing and trading of Managed Fund 
Shares on the Exchange.\18\ Prior to listing and/or trading on the 
Exchange, NYSE Arca must file a separate proposed rule change pursuant 
to Section 19(b) of the Act for each series of Managed Fund Shares. All 
such securities listed and/or traded under proposed NYSE Arca Equities 
Rule 8.600 will be subject to the full panoply of NYSE Arca Equities 
rules and procedures that currently govern the trading of equity 
securities on the Exchange.
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    \18\ The Commission believes that the proposed rules and 
procedures are adequate with respect to the Fund Shares. However, 
the Commission notes that other proposed series of Managed Fund 
Shares may require additional Exchange rules and procedures to 
govern their listing and trading on the Exchange. For example, in 
the case of a proposed series of Managed Fund Shares that are based 
on a portfolio, at least in part, of non-U.S. securities, rules 
relating to comprehensive surveillance sharing agreements and 
quantitative initial and continued listing standards may be 
required.
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    For the initial listing of each series of Managed Fund Shares under 
proposed NYSE Arca Equities Rule 8.600(d)(1), the Exchange must 
establish a minimum number of Managed Fund Shares required to be 
outstanding at the commencement of trading. In addition, the Exchange 
must obtain a representation from the issuer of Managed Fund 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.
    The Commission believes that the proposed continued listing and 
trading standards under proposed NYSE Arca Equities Rule 8.600(d)(2) 
are adequate to ensure transparency of key values and information 
regarding the securities. For continued listing of each series of 
Managed Fund Shares, the Portfolio Indicative Value must be widely 
disseminated by one or more major market data vendors at least every 15 
seconds during the time when the Managed Fund Shares trade on the 
Exchange. Further, the Disclosed Portfolio must be disseminated at 
least once daily and made available to all market participants at the 
same time.
    The Commission finds that the Exchange's rules with respect to 
trading halts under proposed NYSE Arca Equities Rule 8.600(d)(2)(D) 
should help ensure the availability of key values and information 
relating to Managed Fund Shares. If the Portfolio Indicative Value is 
not being disseminated as required, the Exchange may halt trading 
during

[[Page 19548]]

the day in which the interruption to the dissemination of the Portfolio 
Indicative Value occurs. If the interruption of such value persists 
past the trading day in which it occurred, the Exchange must halt 
trading no later than the beginning of the trading day following the 
interruption.\19\ In addition, if the Exchange becomes aware that the 
NAV or Disclosed Portfolio related to a series of Managed Fund Shares 
is not being disseminated to all market participants at the same time, 
the Exchange will halt trading in such series of Managed Fund 
Shares.\20\ Finally, in exercising its discretion to halt or suspend 
trading in the Shares, the Exchange may consider all relevant factors, 
including the extent to which trading is not occurring in the 
securities comprising the Disclosed Portfolio and/or the financial 
instruments of a Fund or whether other unusual conditions or 
circumstances that are detrimental to the maintenance of a fair and 
orderly market are present.
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    \19\ Under proposed NYSE Arca Equities Rule 8.600(d)(2)(D), if a 
series of Managed Fund Shares is trading on the Exchange pursuant to 
unlisted trading privileges, the Exchange will halt trading in that 
series as specified in NYSE Arca Equities Rule 7.34(a)(4). See NYSE 
Arca Equities Rule 7.34(a)(4) (setting forth rules regarding trading 
halts for trading pursuant to UTP of certain derivative securities 
products).
    \20\ The Exchange may resume trading in such series of Managed 
Fund Shares only when the NAV or Disclosed Portfolio is disseminated 
to all market participants. See proposed NYSE Arca Equities Rule 
8.600(d)(2)(D).
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    The Exchange may also consider the suspension of trading in, or 
removal from listing of, a series of Managed Fund Shares if: (1) 
Following the initial twelve-month period after commencement of trading 
on the Exchange of a series of Managed Fund Shares, there are fewer 
than 50 beneficial holders of the series of the Managed Fund Shares for 
30 or more consecutive trading days; (2) the value of the Portfolio 
Indicative Value is no longer calculated or available, or the Disclosed 
Portfolio is not made available to all market participants at the same 
time; (3) the Trust has not filed, on a timely basis, any required 
filings with the Commission, or if the Exchange becomes aware that the 
Trust is not in compliance with the conditions of any exemptive order 
or no-action relief granted by the Commission to or otherwise 
applicable to the Trust; or (4) such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings of the Managed Fund Shares on the Exchange inadvisable.
    The Commission believes that the foregoing requirements of proposed 
NYSE Arca Equities Rule 8.600 should help to prevent trading when a 
reasonable degree of transparency cannot be assured and to maintain a 
fair and orderly market for Managed Fund Shares. The Commission also 
believes that the proposed listing and trading rules for Managed Fund 
Shares, many of which track existing Exchange rules relating to 
Investment Company Units, are reasonably designed to promote a fair and 
orderly market for such Managed Fund Shares by, among other things, 
requiring disclosure of information that may be necessary to price 
Managed Fund Shares. The proposed rules also require surveillance 
procedures,\21\ establish trading guidelines,\22\ and impose other 
requirements.\23\ In addition, Commentary .07 to proposed NYSE Arca 
Equities Rule 8.600 requires that: (1) If the investment adviser of the 
Investment Company is affiliated with a broker-dealer, such investment 
adviser must erect a ``firewall'' between such investment adviser and 
broker-dealer with respect to access to information regarding the 
composition and/or changes to the Investment Company's portfolio; and 
(2) personnel who make decisions on the Investment Company's portfolio 
composition must be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding the 
Investment Company's portfolio. Lastly, proposed NYSE Arca Equities 
Rule 8.600(d)(2)(B)(ii) requires that the Reporting Authority that 
provides the Disclosed Portfolio implement and maintain, or be subject 
to, procedures designed to prevent the use and dissemination of 
material non-public information regarding the actual components of the 
portfolio.
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    \21\ See Commentary .04 to proposed NYSE Arca Equities Rule 
8.600. See also supra note 18.
    \22\ See Commentaries .02 and .03 to proposed NYSE Arca Equities 
Rule 8.600.
    \23\ See, e.g., Commentaries .05 and .06 to proposed NYSE Arca 
Equities Rule 8.600.
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Amendments to NYSE Arca Equities Rule 7.34 and Listing Fees

    As proposed, Managed Fund Shares will be: (1) Added to the list of 
securities for which the Core Trading Session on the Exchange concludes 
at 4:15 p.m. ET; and (2) included under the term ``Derivative 
Securities Products,'' as defined in NYSE Arca Equities Rule 
7.34(a)(4), in connection with trading halts for trading pursuant to 
UTP on the Exchange. In addition, Managed Fund Shares will be included 
under the term ``Derivative Securities Products,'' as defined in the 
NYSE Arca Equities Schedule of Fees and Charges for Exchange Services, 
and, as a result, the Exchange's listing fees will be applicable to a 
series of Managed Fund Shares. The Commission finds that the conforming 
changes made to the Exchange's rules governing trading hours, trading 
halts, and listing fees are reasonable and promote transparency of the 
rules to be imposed with respect to a series of Managed Fund Shares.

Proposal To List and Trade the Shares of the Fund

    The Exchange proposes to list and trade the Fund Shares pursuant to 
proposed NYSE Arca Equities Rule 8.600 and Commentary thereto. The 
Exchange represents that the Shares will conform to the initial and 
continued listing criteria under such proposed rule.\24\
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    \24\ See supra note 10.
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    The Commission believes that the proposal to list and trade the 
Shares of the Fund on the Exchange is consistent with Section 
11A(a)(1)(C)(iii) of the Act,\25\ which sets forth Congress' finding 
that it is in the public interest and appropriate for the protection of 
investors and the maintenance of fair and orderly markets to assure the 
availability to brokers, dealers, and investors of information with 
respect to quotations for and transactions in securities. Quotations 
and last-sale information for the Shares will be disseminated by means 
of the facilities of the CTA. In addition, the Portfolio Indicative 
Value will be disseminated at least every 15 seconds during the Core 
Trading Session, in accordance with proposed NYSE Arca Equities Rule 
8.600(d)(2)(A), and on each business day before commencement of the 
Core Trading Session, each Fund will disclose on its respective Web 
site the Disclosed Portfolio that will form the basis for the Funds' 
calculation of NAV at the end of the business day, which ordinarily 
occurs at 4 p.m. ET. The Funds' Web site will also include for each 
Fund additional quantitative information updated on a daily basis, 
including, among other things, daily trading volume, prior reported 
closing prices, and NAV-related data.
---------------------------------------------------------------------------

    \25\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    Furthermore, the Commission believes that the proposal to list and 
trade the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange is required to obtain a 
representation from the Trust, prior to listing, that the NAV per Share 
for the

[[Page 19549]]

Funds will be calculated daily, and that the NAV and the Disclosed 
Portfolio will be made available to all market participants at the same 
time.\26\ The Exchange may consider the suspension of trading in, or 
removal from listing of, the Shares if the value of the Portfolio 
Indicative Value is no longer calculated or available or the Disclosed 
Portfolio is not made available to all market participants at the same 
time. Commentary .07 to proposed NYSE Arca Equities Rule 8.600 
restricts certain personnel of PowerShares Capital Management LLC with 
respect to use and dissemination of information concerning the 
composition and/or changes to the Fund's portfolio and requires the 
establishment of a ``firewall'' between PowerShares Capital Management 
LLC and any affiliated broker-dealers.\27\ In addition, proposed NYSE 
Arca Equities Rule 8.600(d)(2)(B)(ii) requires that the Reporting 
Authority that provides the Disclosed Portfolio implement and maintain, 
or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the portfolio.
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    \26\ See proposed NYSE Arca Equities Rule 8.600(d)(1)(B).
    \27\ See supra note 10.
---------------------------------------------------------------------------

    The Commission further believes that the trading rules and 
procedures to which the Shares will be subject pursuant to this 
proposal are consistent with the Act. The Exchange has represented that 
the Shares are equity securities subject to Exchange's rules governing 
the trading of equity securities.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Shares will conform to the initial and continued listing 
criteria under proposed NYSE Arca Equities Rule 8.600.
    (2) The Exchange's surveillance procedures are adequate to properly 
monitor the trading of the Shares in all trading sessions and to deter 
and detect violations of Exchange rules. Specifically, the Exchange 
intends to utilize its existing surveillance procedures applicable to 
derivative products, which will include Managed Fund Shares, to monitor 
trading in the Shares.\28\
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    \28\ See supra note 18.
---------------------------------------------------------------------------

    (3) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in a Bulletin of the special characteristics and risks 
associated with trading the Shares, including procedures for purchases 
and redemptions of Shares, suitability requirements under NYSE Arca 
Equities Rule 9.2(a), 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, 
information regarding the Portfolio Indicative Value, prospectus 
delivery requirements, and other trading information. In addition, the 
Bulletin will disclose that the Funds are subject to various fees and 
expenses, as described in the Registration Statement, and will discuss 
any exemptive, no-action, and interpretive relief granted by the 
Commission from any rules under the Act. Finally, the Bulletin will 
disclose that the NAV for the Shares will be calculated after 4 p.m. ET 
each trading day.
    (4) The Exchange represents that the Trust is required to comply 
with Rule 10A-3 under the Act \29\ for the initial and continued 
listing of the Shares, as provided under NYSE Arca Equities Rule 5.3.
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    \29\ 17 CFR 240.10A-3. See supra note 10.
---------------------------------------------------------------------------

    This approval order is based on the Exchange's representations.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning Amendment No. 1 to the proposed rule change, 
including whether the proposed rule change, as modified by Amendment 
No. 1 thereto, 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-2008-25 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2008-25. 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 inspection 
and copying 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-2008-25 and should 
be submitted on or before May 1, 2008.

V. Accelerated Approval

    The Commission finds good cause for approving the proposed rule 
change, as modified by Amendment No. 1 thereto, prior to the thirtieth 
day after the date of publication of notice of filing of Amendment No. 
1 in the Federal Register. In Amendment No. 1, the Exchange provided 
additional safeguards in Commentary .07 to proposed NYSE Arca Equities 
Rule 8.600 that relate to restricted access and dissemination of key 
information regarding the composition of, and changes to, the 
Investment Company portfolio, including the requirement of 
``firewalls'' to be erected around certain personnel of the investment 
adviser to the Investment Company, to the extent such investment 
adviser is a registered broker-dealer or affiliated with a registered 
broker-dealer, and procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio. In addition, the Exchange represented that PowerShares 
Capital Management LLC, the investment adviser of the Funds, has 
implemented a firewall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the Fund's portfolio and is already subject to the 
provisions of applicable rules under the Advisers Act.\30\ The 
Commission notes that Commentary .07 is based on, and substantially 
similar to, Commentary .01(b)(1) to NYSE Arca

[[Page 19550]]

Equities Rule 5.2(j)(3) and Commentary .06 to Amex Rule 1000B.\31\ The 
Commission believes that Amendment No. 1 strengthens the proposal by 
promoting fair disclosure of Investment Company portfolio information 
and raises no new regulatory issues. Accordingly, the Commission finds 
good cause for approving the proposal, as modified by Amendment No. 1 
thereto, on an accelerated basis.
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    \30\ See supra note 10.
    \31\ See Securities Exchange Act Release No. 57514 (March 17, 
2008), 73 FR 15230 (March 21, 2008) (SR-Amex-2008-02) (approving, 
among other things, the listing standards for Managed Fund Shares, 
including Commentary .06 to Amex Rule 1000B, which relates to 
``firewalls'' and the protection of information regarding the 
Investment Company's portfolio).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\32\ that the proposed rule change (SR-NYSEArca-2008-25), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved on 
an accelerated basis.
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    \32\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\33\
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    \33\ See 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-7514 Filed 4-9-08; 8:45 am]

BILLING CODE 8011-01-P
