
[Federal Register: January 26, 2010 (Volume 75, Number 16)]
[Notices]               
[Page 4124-4126]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ja10-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61365; File No. SR-NYSEArca-2009-114]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Accelerated Approval of Proposed Rule Change Relating to Listing of 
Grail McDonnell Fixed Income ETFs

January 15, 2010.
    On December 16, 2009, NYSE Arca, Inc. (``NYSE Arca'' or 
``Exchange''), through its wholly owned subsidiary, NYSE Arca Equities, 
Inc. (``NYSE Arca Equities''), 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 to list and trade shares 
(``Shares'') of the Grail McDonnell Intermediate Municipal Bond ETF and 
the Grail McDonnell Core Taxable Bond ETF (each an ``ETF'' and, 
collectively, the ``ETFs'') under NYSE Arca Equities Rule 8.600 
(Managed Fund Shares). The proposed rule change was published in the 
Federal Register on December 30,

[[Page 4125]]

2009.\3\ The Commission received no comments on the proposal. This 
order approves the proposed rule change 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. 61227 (September 3, 
2009), 74 FR 69175 (``Notice'').
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I. Description of the Proposal

    The Exchange proposes to list and trade the Shares pursuant to NYSE 
Arca Equities Rule 8.600, which governs the listing of Managed Fund 
Shares. Each ETF will be an actively managed exchange-traded fund each 
of which is a series of Grail Advisors ETF Trust (``Trust''). The 
Shares will be offered by the Trust.\4\ Grail Advisors, LLC is each 
Fund's investment manager (``Manager''). McDonnell Investment 
Management, LLC (``McDonnell'' or ``Sub-Adviser'') serves as each ETF's 
sub-adviser. The Bank of New York Mellon Corporation is the 
administrator, Fund accountant, transfer agent and custodian for the 
ETFs. ALPS Distributors, Inc. serves as the distributor of Creation 
Units for each ETF on an agency basis.
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    \4\ The Trust is a Delaware statutory trust that is registered 
under the Investment Company Act of 1940 (15 U.S.C. 80a) (``1940 
Act''). See Registration Statement on Form N-1A for the Trust filed 
with the Commission on October 5, 2009 (File Nos. 333-148082 and 
811-22154) (``Registration Statement'').
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    The Exchange states that the Shares will be subject to the initial 
and continued listing criteria under NYSE Arca Equities Rule 8.600(d) 
applicable to Managed Fund Shares \5\ and that the Shares will comply 
with Rule 10A-3 under the Act,\6\ as provided by NYSE Arca Equities 
Rule 5.3. Additional information regarding the Trust, each of the ETFs, 
the Shares, the ETFs' investment objectives, strategies, policies, and 
restrictions, risks, fees and expenses, creation and redemption 
procedures, portfolio holdings and policies, distributions and taxes, 
availability of information, trading rules and halts, and surveillance 
procedures, among other things, can be found in the Registration 
Statement and in the Notice, as applicable.\7\
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    \5\ The Exchange states that a minimum of 100,000 Shares will be 
outstanding at the commencement of trading on the Exchange, and the 
Exchange will obtain a representation from the issuer of the Shares 
that the net asset value (``NAV'') per Share will be calculated 
daily and that the NAV and the Disclosed Portfolio will be made 
available to all market participants at the same time. See Notice, 
supra note 3.
    \6\ 17 CFR 240.10A-3.
    \7\ See supra notes 3 and 4.
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II. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \8\ and the rules and regulations thereunder applicable to a 
national securities exchange.\9\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\10\ 
which requires, among other things, that the Exchange's rules be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission notes that the Shares must comply with 
the requirements of NYSE Arca Equities Rule 8.600 to be listed and 
traded on the Exchange.
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    \8\ 15 U.S.C. 78f.
    \9\ In approving this proposed rule change the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \10\ 17 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\11\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information for the Shares will be available via the Consolidated Tape 
Association high-speed line, and the Portfolio Indicative Value 
(``PIV'') will be updated and disseminated by one or more major market 
data vendors at least every 15 seconds during the Core Trading Session. 
In addition, the Trust will make available on its Web site on each 
business day, before the commencement of trading in Shares in the Core 
Trading Session, the Disclosed Portfolio that will form the basis for 
the calculation of the NAV, which will be determined at the end of the 
business day. The Trust's Web site will also include additional 
quantitative information updated on a daily basis relating to the prior 
business day's reported NAV, mid-point of the bid/ask spread at the 
time of calculation of such NAV (the ``Bid/Ask Price''),\12\ and a 
calculation of the premium and discount of the Bid/Ask Price against 
the NAV and 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. Information regarding the market price and volume of the 
Shares will be continually available on a real-time basis throughout 
the day on broker' computer screens and other electronic services, and 
the previous day's closing price and trading volume information for the 
Shares will be published daily in the financial sections of newspapers.
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    \11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \12\ The Bid/Ask Price of each ETF is determined using the 
midpoint of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the NAV. The records relating to Bid/
Ask Prices will be retained by each ETF and its service providers.
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    The Commission further believes that the proposal is reasonably 
designed to promote fair disclosure of information that may be 
necessary to price the Shares appropriately and to prevent trading when 
a reasonable degree of transparency cannot be assured. The Commission 
notes that the Exchange will obtain a representation from the issuer 
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.\13\ Additionally, if it becomes aware 
that the NAV or the Disclosed Portfolio is not disseminated daily to 
all market participants at the same time, the Exchange will halt 
trading in the Shares until such information is available to all market 
participants.\14\ Further, if the PIV is not being disseminated as 
required, the Exchange may halt trading during the day in which the 
disruption occurs; if the interruption persists past the day in which 
it occurred, the Exchange will halt trading no later than the beginning 
of the trading day following the interruption.\15\ The Exchange 
represents that the Adviser is affiliated with a broker-dealer, Grail 
Securities LLC, and has implemented a ``fire wall'' between it and its 
broker-dealer affiliate with respect to access to information 
concerning the composition and/or changes to each of the ETF's 
portfolio. Further, the Commission notes that the Reporting Authority 
that provides the Disclosed Portfolio must implement and maintain, or 
be subject to, procedures designed to prevent the use and dissemination 
of material non-public

[[Page 4126]]

information regarding the actual components of each of the 
portfolios.\16\
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    \13\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \14\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
    \15\ Id. Trading in the Shares may also 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 
comprising the Disclosed Portfolio and/or the financial instruments 
of the Funds; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.
    \16\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    The Exchange has represented that the Shares are equity securities 
subject to the Exchange's rules governing the trading of equity 
securities. In support of this proposal, the Exchange has made 
representations, including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600(d).
    (2) The Exchange's surveillance procedures are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable Federal 
securities laws.
    (3) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The procedures for purchases and redemptions of Shares in Creation Unit 
aggregations and that Shares are not individually redeemable; (b) NYSE 
Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its 
ETP Holders to learn the essential facts relating to every customer 
prior to trading the Shares; (c) the risks involved in trading the 
Shares during the Opening and Late Trading Sessions when an updated PIV 
will not be calculated or publicly disseminated; (d) how information 
regarding the PIV is disseminated; (e) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (f) 
trading information.
    (4) The Funds will be in compliance with Rule 10A-3 under the Act.
    (5) The Funds will not invest in non-U.S. equity securities.
    This approval order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with the Act and the rules and regulations 
thereunder applicable to a national securities exchange.

III. Accelerated Approval

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\17\ for approving the proposal prior to the thirtieth day 
after the date of publication of the Notice in the Federal Register. 
The Commission notes that it has approved the listing and trading on 
the Exchange of shares of other actively managed exchange-traded funds 
based on a portfolio of securities, the characteristics of which are 
similar to those to be invested by the Funds.\18\ The Commission 
believes that accelerating approval of this proposal should benefit 
investors by creating, without undue delay, additional competition in 
the market for Managed Fund Shares.
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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ See, e.g., Securities Exchange Act Release No. 60981 
(November 10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-
2009-79) (approving the listing and trading of shares of five 
actively-managed fixed income funds of the PIMCO ETF Trust).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\19\ that the proposed rule change (SR-NYSEArca-2009-114), be, and 
it hereby is, approved on an accelerated basis.
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    \19\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-1430 Filed 1-25-10; 8:45 am]
BILLING CODE 8011-01-P

