
[Federal Register: March 22, 2010 (Volume 75, Number 54)]
[Notices]               
[Page 13616-13618]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22mr10-118]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-61697; File No. SR-NYSEArca-2010-04]

 
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Accelerated Approval of Proposed Rule Change Relating to the WisdomTree 
Real Return Fund

March 12, 2010.

I. Introduction

    On January 25, 2010, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') 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 the shares (``Shares'') of the 
WisdomTree Real Return Fund (``Fund'') under NYSE Arca Equities Rule 
8.600. The proposed rule change was published for comment in the 
Federal Register on February 23, 2010.\3\ The Commission received no 
comment letters on the proposed rule change. 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. 61519 (February 16, 
2010), 75 FR 8164 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares pursuant to NYSE 
Arca Equities Rule 8.600, which governs the listing and trading of 
Managed Fund Shares on the Exchange.\4\ The Fund will be an actively-
managed exchange traded fund, and the Shares will be offered by the 
WisdomTree Trust (``Trust''), a Delaware statutory trust that is 
registered with the Commission as an investment company.\5\ WisdomTree 
Asset Management, Inc. (``Adviser'') will be the investment adviser to 
the Fund and is not affiliated with any broker-dealer. The Mellon 
Capital Management Corporation (``Sub-Adviser''), which will serve as 
the sub-adviser for the Fund, is affiliated with multiple broker-
dealers and, accordingly, has implemented a ``fire wall'' with respect 
to such broker-dealers regarding access to information concerning the 
composition and/or changes to the Fund's portfolio.\6\ The Bank of New 
York Mellon will be the administrator, custodian and transfer agent for 
the Fund, and ALPS Distributors, Inc. will serve as the distributor for 
the Fund.
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    \4\ Managed Fund Shares are defined as securities that (a) 
represent an interest in a registered 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; (b) are 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; and (c) 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 
net asset value. See NYSE Arca Equities Rule 8.600(c)(1).
    \5\ See Trust Registration Statement on Form N-1A filed on 
October 28, 2009 (File Nos. 333-132380 and 811-21864) 
(``Registration Statement'').
    \6\ See Commentary .07 to NYSE Arca Equities Rule 8.600 
(requiring the use of ``fire walls'' between investment advisers and 
affiliated broker-dealers with respect to access to information 
concerning the composition and/or changes to the fund portfolio). 
The Exchange represents that the Adviser and the Sub-Adviser of the 
Funds, and their respective related personnel, are subject to Rule 
204A-1 under the Investment Advisers Act of 1940 (``Advisers Act''), 
which generally 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.
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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 \7\ and that the Shares will comply 
with Rule 10A-3 under the Act,\8\ as provided by NYSE Arca Equities 
Rule 5.3.
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    \7\ 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 for the Fund will be 
calculated daily and that the NAV and the Disclosed Portfolio will 
be made available to all market participants at the same time.
    \8\ See 17 CFR 240.10A-3.
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    The Fund will seek to provide investors with total returns that 
exceed the rate of inflation over long-term investment horizons. To 
achieve its objective, the Fund intends to invest in a portfolio of 
inflation-linked securities, such as U.S. Treasury Inflation Protected 
Securities (``TIPS'') and other investment-grade fixed income 
securities. The Fund will have targeted exposure to commodities and 
commodity strategies.
    While the Fund intends to invest up to 70% or more of the value of 
its portfolio in TIPS, the Fund may invest in other types of inflation-
linked fixed income securities, such as investment-grade, floating-rate 
fixed income securities linked to U.S. inflation rates that are issued 
by the U.S. government, government agencies, or corporations. The Fund 
may also invest in inflation-linked swaps, securities linked to 
inflation rates outside the U.S., including securities or instruments 
linked to rates in emerging market countries, and fixed income 
securities that are not linked to inflation, such as U.S. government 
securities. While the Fund intends to invest primarily in investment-
grade securities, the Fund may invest up to 10% of its net assets in 
securities rated ``BB'' or lower by at least two nationally recognized 
statistical rating organizations or, if unrated, deemed to be of 
equivalent quality. The Fund may invest in securities with effective or 
final maturities of any length and will seek to keep the average 
effective duration of its portfolio between two and ten years. The Fund 
may adjust its portfolio holdings or average effective duration based 
on actual or anticipated changes in interest rates or credit quality.
    The Fund also intends to have targeted exposure to commodities 
across a number of sectors, such as energy, precious metals, and 
agriculture, primarily through its investments in the
    WisdomTree Real Return Investment Portfolio, Inc. 
(``Subsidiary''),\9\ a wholly-owned subsidiary organized in the Cayman 
Islands,\10\ as well as in

[[Page 13617]]

commodity-linked instruments on a limited basis. In addition, the Fund 
and the Subsidiary may invest in swaps on commodities or commodity 
indexes, commodity-based structured notes, and exchange-traded 
commodity-based derivative products (collectively, ``Commodity-Linked 
Instruments''). While the Fund will seek exposure to commodity markets, 
it generally does not expect to invest in commodities directly in the 
spot market. The Fund represents that investments in Commodity-Linked 
Instruments must be consistent with the Fund's investment objective and 
will not be used to enhance leverage and that neither the Fund nor the 
Subsidiary will invest in non-U.S. equity securities, except for the 
Fund's investment in the shares of the Subsidiary.\11\
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    \9\ The Fund intends to invest up to 25% of its assets in the 
Subsidiary. The Subsidiary intends to invest all of its assets in 
Commodity-Linked Instruments and/or fixed income securities that 
serve as collateral for its commodity exposure. The Subsidiary's 
investments will be consolidated into the Fund's financial 
statements, and the Fund's and Subsidiary's holdings will be 
publicly available on a daily basis.
    \10\ The Exchange states that the Subsidiary is subject to the 
same investment restrictions as the Fund and will operate in the 
same manner as the Fund with regard to applicable compliance 
policies and procedures (other than investments in Commodity-Linked 
Instruments). Although the Subsidiary is not registered as an 
investment company under the Investment Company Act of 1940 (``1940 
Act''), the Adviser will manage both the Fund and the Subsidiary, 
and the Fund's Board of Trustees will oversee the operation of the 
Fund and its investment in the Subsidiary. Because the Subsidiary's 
investments are consolidated into those of the Fund, the Fund's 
combined holdings are required to comply with the 1940 Act. In 
addition, the Fund is the sole shareholder of the Subsidiary and 
does not expect shares of the Subsidiary to be offered or sold to 
other investors.
    \11\ The Fund intends to maintain the level of diversification 
necessary to qualify as a regulated investment company (``RIC'') 
under Subchapter M of the Internal Revenue Code of 1986, as amended.
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    The Fund may invest up to an aggregate amount of 15% of its net 
assets in illiquid securities. Illiquid securities include securities 
subject to contractual or other restrictions on resale and other 
instruments that lack readily available markets.\12\ The liquidity of 
securities purchased by the Fund which are eligible for resale pursuant 
to Rule 144A will be monitored by the Fund on an ongoing basis. In the 
event that such a security is deemed to be no longer liquid, the Fund's 
holdings will be reviewed to determine what action, if any, is required 
to ensure that the retention of such security does not result in the 
Fund having more than 15% of its assets invested in illiquid or not 
readily marketable securities.
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    \12\ A security is deemed ``illiquid'' if it can not be sold or 
disposed of in the ordinary course of business within seven days at 
a price that approximates fair market value.
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    Additional information regarding the Trust, the Fund, the Shares, 
the investment objectives, strategies, policies, and restrictions, 
risks, fees and expenses, creation and redemption procedures, portfolio 
holdings, 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.\13\
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    \13\ See supra notes 3 and 5.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that NYSE Arca's 
proposal to list and trade the Shares is consistent with the 
requirements of Section 6 of the Act \14\ and the rules and regulations 
thereunder applicable to a national securities exchange.\15\ In 
particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\16\ which requires, among 
other things, that the Exchange's rules be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, 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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    \14\ 15 U.S.C. 78f.
    \15\ 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).
    \16\ 15 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,\17\ 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's 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 Fund 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 \18\ that will form the basis 
for the calculation of the NAV, which will be determined at the end of 
the business day. The Fund's Web site will also include additional 
quantitative information updated on a daily basis relating to NAV. 
Information regarding the 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, and the 
previous day's closing price and trading volume information will be 
published daily in the financial section of newspapers.
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    \17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \18\ The Adviser will disclose for each portfolio security or 
other financial instrument of the Fund the following information: 
ticker symbol (if applicable), name of security or financial 
instrument, number of shares or dollar value of financial 
instruments held in the portfolio, and percentage weighting of the 
security or financial instrument in the portfolio. The Commission 
notes that the Reporting Authority providing 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. See 
NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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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 for the Fund will be calculated daily and that 
the NAV and the Disclosed Portfolio will be made available to all 
market participants at the same time.\19\ 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 such series until such time as the NAV or the Disclosed 
Portfolio is available to all market participants.\20\ Further, if the 
PIV is not being disseminated as required, the Exchange may halt 
trading during the day in which the interruption occurs; if the 
interruption persists past the trading day in which it occurred, the 
Exchange will halt trading no later than the beginning of the trading 
day following the interruption.\21\ The Exchange represents that the 
Sub-Adviser is affiliated with multiple broker-dealers and, 
accordingly, has implemented a ``fire wall'' with respect to such 
broker-dealers regarding access to information concerning the

[[Page 13618]]

composition and/or changes to the Fund'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 information regarding the actual components of each of the 
portfolios.\22\
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    \19\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \20\ See NYSE Arca Equities Rule 8.600(d)(2)(D).
    \21\ 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 Fund; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.
    \22\ See supra note 18.
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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.
    (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 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 Fund will be in compliance with Rule 10A-3 under the 
Act.\23\
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    \23\ See supra note 8.
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    (5) The Fund and the Subsidiary will not invest in non-U.S. equity 
securities, except that the Fund will invest in shares issued by the 
Subsidiary.
    (6) The Fund's investments in Commodity-Linked Instruments will be 
consistent with the Fund's investment objective and will not be used to 
enhance leverage.

    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.

IV. Accelerated Approval

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\24\ 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 Fund.\25\ The Commission also 
notes that it has not received any comments regarding this proposal. 
The Commission believes that the proposal to list and trade the Shares 
of the Fund do not raise any novel regulatory issues and 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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    \24\ 15 U.S.C. 78s(b)(2).
    \25\ See, e.g., Securities Exchange Act Release Nos. 57514 
(March 17, 2008), 73 FR 15230 (March 21, 2008) (SR-Amex-2008-02) 
(approving the listing and trading of shares of the Bear Stearns 
Current Yield Fund); 57801 (May 8, 2008), 73 FR 27878 (May 14, 2008) 
(SR-NYSEArca-2008-31) (approving the listing and trading of shares 
of twelve actively-managed funds of the WisdomTree Trust); 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); and 
61365 (January 15, 2010), 75 FR 4124 (January 26, 2010) (SR-
NYSEArca-2009-114) (approving the listing and trading of shares of 
two actively-managed funds of the Grail Advisors ETF Trust).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\26\ that the proposed rule change (SR-NYSEArca-2010-04) be, and it 
hereby is, approved on an accelerated basis.
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    \26\ 15 U.S.C. 78s(b)(1).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\27\
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    \27\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-6114 Filed 3-19-10; 8:45 am]
BILLING CODE 8011-01-P

