
[Federal Register Volume 76, Number 84 (Monday, May 2, 2011)]
[Notices]
[Pages 24548-24554]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-10502]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-64342; File No. SR-NYSEArca-2011-17]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to the Listing and Trading of the 
Madrona Forward Domestic ETF, Madrona Forward International ETF, and 
Madrona Forward Global Bond ETF

April 26, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on April 13, 2011, NYSE Arca, Inc. (``Exchange'' 
or ``NYSE Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade the following under NYSE 
Arca Equities Rule 8.600 (``Managed Fund Shares''): Madrona Forward 
Domestic ETF; Madrona Forward International ETF; and Madrona Forward 
Global Bond ETF. The text of the proposed rule change is available at 
the Exchange, the Commission's Public Reference Room, and http://www.nyse.com.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade the following Managed Fund 
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: Madrona 
Forward Domestic ETF; Madrona Forward International ETF; and Madrona 
Forward Global Bond ETF (each, a ``Fund'' and, collectively, 
``Funds'').\4\ The Shares will be offered by AdvisorShares Trust 
(``Trust''), a statutory trust organized under the laws of the State of 
Delaware and registered with the Commission as an open-end management 
investment company.\5\ The investment adviser to the Funds is 
AdvisorShares Investments, LLC (``Adviser''). Madrona Funds LLC is the 
Funds' sub-adviser (``Sub-Adviser'') and provides day-to-day portfolio 
management of the Funds. Foreside Fund Services, LLC (``Distributor'') 
is the principal underwriter and distributor of the Funds' Shares. The 
Bank of New York Mellon Corporation (``Administrator'') serves as 
administrator, custodian, and transfer agent for the Funds.
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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) (``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 Commission approved NYSE Arca Equities Rule 8.600 and 
the listing and trading of certain funds of the PowerShares Actively 
Managed Exchange-Traded Funds Trust on the Exchange pursuant to Rule 
8.600 in Securities Exchange Act Release No. 57619 (April 4, 2008), 
73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission 
also previously 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. 57801 (May 8, 2008), 73 FR 
27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order approving Exchange 
listing and trading of twelve actively-managed funds of the 
WisdomTree Trust); 60460 (August 7, 2009), 74 FR 41468 (August 17, 
2009) (SR-NYSEArca-2009-55) (order approving listing of Dent 
Tactical ETF); 61365 (January 15, 2010), 75 FR 4124 (January 26, 
2010) (SR-NYSEArca-2009-114) (order approving listing and trading of 
Grail McDonnell Fixed Income ETFs); 60981 (November 10, 2009), 74 FR 
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving 
listing of five fixed income funds of the PIMCO ETF Trust); 62502 
(July 15, 2010), 75 FR 42471 (July 21, 2010) (SR-NYSEArca-2010-57) 
(order approving listing of AdvisorShares WCM/BNY Mellon Focused 
Growth ADR ETF); 63076 (October 12, 2010), 75 FR 63874 (October 18, 
2010) (SR-NYSEArca-2010-79) (order approving listing of Cambria 
Global Tactical ETF); 63329 (November 17, 2010), 75 FR 71760 
(November 24, 2010) (SR-NYSEArca-2010-86) (order approving listing 
of Peritus High Yield ETF).
    \5\ The Trust is registered under the 1940 Act. On November 30, 
2010, the Trust filed with the Commission Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a) and under the 1940 Act 
relating to the Funds (File Nos. 333-157876 and 811-22110) 
(``Registration Statement''). The Trust has also filed an 
Application for an Order under Section 6(c) of the 1940 Act for 
exemptions from various provisions of the 1940 Act and rules 
thereunder (File No. 812-13677, dated May 6, 2010) (``Exemptive 
Application''). The description of the operation of the Trust and 
the Funds herein is based on the Registration Statement.
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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 non-public information 
regarding the open-end fund's

[[Page 24549]]

portfolio.\6\ 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 affiliated with a broker-dealer. In the event (a) 
the Adviser or the Sub-Adviser becomes newly affiliated with a broker-
dealer, or (b) any new adviser or sub-adviser becomes affiliated with a 
broker-dealer, they will implement a fire wall with respect to such 
broker-dealer regarding access to information concerning the 
composition and/or changes to a 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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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (``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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    According to the Registration Statement, with respect to each of 
the Funds, the Sub-Adviser employs a forward-looking fundamental 
investment process when making capital allocation decisions across 
investment strategies for the Funds. The underlying investment process 
for the Madrona Forward Domestic ETF and the Madrona Forward 
International ETF is based on a measure of forecasted earnings and 
projected growth relative to the price of the equities. The underlying 
investment process for the Madrona Forward Global Bond ETF is based on 
fundamental yield curve analysis and a measure of mean reversion for 
future expected yield curve trajectory.
    Each Fund utilizes a core investment allocation strategy which 
seeks to replace what the Sub-Adviser's investment committee deems 
inefficient index methodologies for core investing that are prevalent 
in the marketplace. The Funds invest in actively managed, broadly 
diversified portfolios and differ from most traditional indices in that 
the proportion, or weighting, of the securities in the Funds are based 
on forward-looking fundamental analysis rather than only on market 
capitalization of such securities. Risk management guidelines are 
employed to protect against dramatic over- or under-weighting of 
individual securities, reducing company specific risks.
Madrona Forward Domestic ETF
    According to the Registration Statement, the Madrona Forward 
Domestic ETF seeks to provide long-term capital appreciation above the 
capital appreciation of its benchmark, the S&P 500 Index. The Sub-
Adviser seeks to achieve the Fund's investment objective primarily by 
selecting a portfolio of up to 500 of the largest U.S. exchange-traded 
equity securities.\7\ The Sub-Adviser selects the securities for the 
Fund's portfolio using a weighted allocation system based on a 
consensus of analyst estimates of the present value of future expected 
earnings relative to the share price of each security. The Sub-
Adviser's investment committee meets on a bi-weekly basis to monitor 
the portfolio and make allocation decisions. The investment committee 
uses third-party analyst research and a proprietary fundamental process 
to make allocation decisions, and employs guidelines to protect against 
dramatic over- or under-weighting of individual securities in the 
Fund's portfolio. The investment committee relies heavily on a stock's 
price and market cap relative to its future expected earnings in its 
analysis of individual securities. Changes to the Fund's portfolio 
typically occur upon the reporting and analysis of individual 
securities through the earnings season and rely heavily on a stock's 
price and market cap relative to the future expected earnings.
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    \7\ The Fund may hold only equity securities traded in the U.S. 
on registered exchanges and will hold a minimum of 13 equity 
components.
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    According to the Registration Statement, the Fund utilizes the 
following investment process:

    Step 1: The Sub-Adviser's use of third-party research consists 
of analyzing the consensus analyst valuation estimates to drive the 
proprietary models that derive the present value of future expected 
earnings relative to the current stock price of each stock.
    Step 2: The Sub-Adviser reviews this data on a company-by-
company basis, and the companies are put in order from most 
attractive to least attractive, and the Fund weights these companies 
accordingly.
    Step 3: Risk management guidelines are established to allocate 
the total percentage invested in each quartile of securities. In 
other words, each group of up to 125 securities will receive a 
certain investment percentage within the Sub-Adviser's established 
guidelines. This process ensures no dramatic over-weighting or 
under-weighting of individual securities.
    Step 4: The Fund's portfolio is consistently monitored when 
company-specific data is released, and the Sub-Adviser's models are 
updated to drive allocation changes.
Madrona Forward International ETF
    According to the Registration Statement, the Madrona Forward 
International ETF seeks to provide long-term capital appreciation above 
the capital appreciation of its international benchmarks, the MSCI EAFE 
Index, the Fund's primary benchmark, and the BNY Mellon Classic ADR 
Index, the Fund's secondary benchmark. The Fund seeks to achieve the 
Fund's investment objective by selecting a portfolio primarily composed 
of U.S. exchange-listed American Depository Receipts (``ADRs'') from 
among the largest issuers of Europe, Australasia and the Far East 
(``EAFE''), and Canada. The Fund's portfolio may also include U.S. 
exchange-listed equity securities of large-capitalization non-U.S. 
issuers that provide exposure to certain markets deemed to be emerging 
markets. Securities are selected, weighted, and sold based upon the 
Sub-Adviser's proprietary investment process. The Sub-Adviser's 
investment committee meets on a bi-weekly basis to monitor the 
portfolio and make allocation decisions. The investment committee uses 
third-party analyst research and a proprietary fundamental process to 
make allocation decisions. Changes to the Fund's portfolio typically 
occur upon the reporting and analysis of individual securities through 
the earnings season and rely heavily on a security's price and market 
cap relative to future earnings.
    The composition of the Fund's portfolio, on a continual basis, will 
be subject to the following:
    (1) Component stocks, including component stocks underlying ADRs, 
that, in the aggregate, account for at least 90% of the weight of the 
portfolio, each shall have a minimum market value of at least $100 
million;
    (2) Component stocks, including component stocks underlying ADRs, 
that, in the aggregate, account for at least 70% of the weight of the 
portfolio, each shall have a minimum global

[[Page 24550]]

monthly trading volume of 250,000 shares, or minimum global notional 
volume traded per month of $25,000,000, averaged over the last six 
months;
    (3) A minimum of 20 component stocks, including component stocks 
underlying ADRs, of which the most heavily weighted component stock 
shall not exceed 25% of the weight of the portfolio, and the five most 
heavily weighted component stocks shall not exceed 60% of the weight of 
the portfolio; and
    (4) Each non-U.S. equity security underlying ADRs held by the Fund 
will be listed and traded on an exchange that has last-sale reporting.
    According to the Registration Statement, the Fund utilizes the 
following investment process:

    Step 1: The Sub-Adviser's use of third-party research consists 
of analyzing the consensus analyst valuation estimates to drive the 
proprietary models that derive the present value of future expected 
earnings relative to the current stock price of each stock.
    Step 2: The Sub-Adviser reviews this data on a company-by-
company basis, and the companies are put in order from most 
attractive to least attractive, and the Fund weights these companies 
accordingly.
    Step 3: Risk management guidelines are established to allocate 
the total percentage invested in each quartile of securities. Each 
quartile will receive a certain investment percentage within the 
Sub-Adviser's established guidelines. This process ensures no 
dramatic over-weighting or under-weighting of individual securities.
    Step 4: The Fund's portfolio is consistently monitored when 
company specific data is released, and the Sub-Adviser's models are 
updated to drive allocation changes.

Madrona Forward Global Bond ETF
    According to the Registration Statement, the Madrona Forward Global 
Bond ETF seeks investment results that exceed the price and yield 
performance of its benchmark, the Barclays Capital Aggregate Bond 
Index. The Sub-Adviser seeks to achieve the Fund's investment objective 
primarily by selecting a portfolio of fixed income (bond) U.S. 
exchange-traded funds (``ETFs'') and other U.S. exchange-traded 
products (``ETPs,'' and, together with ETFs, ``Underlying ETPs''), 
including but not limited to, exchange-traded notes (``ETNs''), 
exchange-traded currency trusts, and exchange-traded commodity 
pools.\8\ The Fund will invest in indexed Underlying ETPs that provide 
exposure to at least 12 distinct bond classes, including, but not 
limited to, short-term treasury bonds, municipal bonds, and high-yield 
U.S. corporate bonds (sometimes referred to as ``junk bonds''). The 
Sub-Adviser will construct the Fund's portfolio using a weighted 
allocation system based on yield-curve analysis of each bond category. 
The investment committee meets on a bi-weekly basis to monitor the 
Fund's portfolio and make allocation decisions. The investment 
committee uses third-party analyst research and a proprietary 
fundamental process to make allocation decisions. Each major bond 
category would have a three percent minimum percentage inclusion in the 
Fund's portfolio.
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    \8\ Underlying ETPs include Investment Company Units (as 
described in NYSE Arca Equities Rule 5.2(j)(3)); Index-Linked 
Securities (as described in NYSE Arca Equities Rule 5.2(j)(6)); 
Portfolio Depositary Receipts (as described in NYSE Arca Equities 
Rule 8.100); Trust Issued Receipts (as described in NYSE Arca 
Equities Rule 8.200); Commodity-Based Trust Shares (as described in 
NYSE Arca Equities Rule 8.201); Currency Trust Shares (as described 
in NYSE Arca Equities Rule 8.202); Commodity Index Trust Shares (as 
described in NYSE Arca Equities Rule 8.203); Trust Units (as 
described in NYSE Arca Equities Rule 8.500); Managed Fund Shares (as 
described in NYSE Arca Equities Rule 8.600); and closed-end funds. 
The Underlying ETPs all will be listed and traded in the U.S. on 
registered exchanges. The Madrona Forward Global Bond ETF may invest 
in the securities of Underlying ETPs 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 Funds will only make such investments in conformity with the 
requirements of Section 817 of the Internal Revenue Code of 1986. 
The Underlying ETPs in which the Fund may invest will primarily be 
index-based ETFs that hold substantially all of their assets in 
securities representing a specific index.
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    Through its investments in Underlying ETPs, the Fund will invest in 
at least 12 distinct global bond classes, including, but not limited 
to, the following: Mortgage Backed/Agency; Investment Grade U.S. 
Corporate; Short-Term Treasury; Intermediate-Term Treasury; Long-Term 
Treasury; Inflation Protected Treasury (TIPS); High-Yield U.S. 
Corporate; International Treasury; Convertible and Preferred; Emerging 
Markets; Municipal; International Investment Grade Corporate; 
International High Yield; and Build America Bonds.
    The Fund will invest in an Underlying ETP for each of the bond 
classes held in the portfolio. Changes to the Fund's portfolio 
typically occur upon the reporting and analysis of each bond category's 
risk assessment.
    According to the Registration Statement, the Fund utilizes the 
following investment process:

    Step 1: The Sub-Adviser selects an Underlying ETP for each bond 
category based on expense ratios and institutional strengths of each 
Underlying ETP provider to ensure efficient internal trading.
    Step 2: The Sub-Adviser's use of third-party research consists 
of analyzing the historical class by class yield-curve analysis and 
how the curve stands in relation to the current yield-curve of the 
particular bond class. Based on the research, the Sub-Adviser 
determines which bond classes will receive higher- and lower-than-
average allocations as compared to typical bond indices.
    Step 3: Risk management guidelines are established to allocate 
the total percentage invested in each bond class. Each class will 
receive a minimum investment within the Sub-Adviser's established 
guidelines. This process ensures no dramatic over-weighting or 
under-weighting of individual bond categories.
    Step 4: The Fund's portfolio is consistently monitored when bond 
class data is released, and the Sub-Adviser's models are updated to 
drive allocation changes.
Other Investments of the Funds
    With respect to each of the Funds, to respond to adverse market, 
economic, or political conditions, a Fund may invest 100% of its total 
assets, without limitation, in short-term, high-quality debt securities 
and money market instruments either directly or through Underlying 
ETPs.\9\ A Fund may be invested in these instruments for extended 
periods, depending on the Sub-Adviser's assessment of market 
conditions. These debt securities and money market instruments include 
shares of other mutual funds, commercial paper, certificates of 
deposit, bankers' acceptances, U.S. Government securities,\10\ 
repurchase

[[Page 24551]]

agreements,\11\ and bonds that are BBB or higher. The Funds also may 
invest in shares of REITs. REITs are pooled investment vehicles which 
invest primarily in real estate or real estate related loans.
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    \9\ Adverse market conditions would include large downturns in 
the broad market value of two or more times current average 
volatility, where the Sub-Adviser views such downturns as likely to 
continue for an extended period of time. Adverse economic conditions 
would include significant negative results in factors deemed 
critical at the time by the Sub-Adviser, including significant 
negative results regarding unemployment, Gross Domestic Product, 
consumer spending or housing numbers. Adverse political conditions 
would include events such as government overthrows or instability, 
where the Sub-Adviser expects that such events may potentially 
create a negative market or economic condition for an extended 
period of time.
    \10\ Securities issued or guaranteed by the U.S. government or 
its agencies or instrumentalities include U.S. Treasury securities, 
including U.S. Treasury bills, U.S. Treasury notes, and U.S. 
Treasury bonds. Certain U.S. government securities 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 Fannie Mae, Freddie Mac, the 
Government National Mortgage Association, the Small Business 
Administration, the Federal Farm Credit Administration, the Federal 
Home Loan Banks, Banks for Cooperatives (including the Central Bank 
for Cooperatives), the Federal Land Banks, the Federal Intermediate 
Credit Banks, the Tennessee Valley Authority, the Export-Import Bank 
of the United States, the Commodity Credit Corporation, the Federal 
Financing Bank, the Student Loan Marketing Association, the National 
Credit Union Administration, and the Federal Agricultural Mortgage 
Corporation (``Farmer Mac''). The Funds may invest in U.S. Treasury 
zero-coupon bonds. These securities are U.S. Treasury bonds which 
have been stripped of their unmatured interest coupons, the coupons 
themselves, and receipts or certificates representing interests in 
such stripped debt obligations and coupons.
    \11\ The Funds may enter into repurchase agreements with 
financial institutions, which may be deemed to be loans. The Funds 
follow certain procedures designed to minimize the risks inherent in 
such agreements. These procedures include effecting repurchase 
transactions only with large, well-capitalized and well-established 
financial institutions whose condition will be continually monitored 
by the Sub-Adviser. The Funds may enter into reverse repurchase 
agreements as part of the Funds' investment strategy. Reverse 
repurchase agreements involve sales by a Fund of portfolio assets 
concurrently with an agreement by the Fund to repurchase the same 
assets at a later date at a fixed price.
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    A Fund may not (i) with respect to 75% of its total assets, 
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.\12\ For purposes of this policy, the issuer of the 
underlying security will be deemed to be the issuer of any respective 
ADR.
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    \12\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
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    A Fund may not 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 Funds will not invest 25% or more of its 
total assets in any investment company that so concentrates.\13\
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    \13\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (Oct. 30, 1975), 40 FR 54241 
(November 21, 1975).
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    For purposes of this policy, the issuer of the underlying security 
will be deemed to be the issuer of any respective ADR.
    The Funds may not purchase illiquid securities if, in the 
aggregate, more than 15% of their net assets would be invested in 
illiquid securities.\14\
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    \14\ 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 
14617 (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 ETF. 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 Securities Act of 1933).
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    According to the Registration Statement, the Funds will seek to 
qualify for treatment as a Regulated Investment Company (``RIC'') under 
the Internal Revenue Code.\15\
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    \15\ 26 U.S.C. 851. One of several requirements for RIC 
qualification is that a Fund must receive at least 90% of the Fund's 
gross income each year from dividends, interest, payments with 
respect to securities loans, gains from the sale or other 
disposition of stock, securities or foreign currencies, or other 
income derived with respect to the Fund's investments in stock, 
securities, foreign currencies, and net income from an interest in a 
qualified publicly traded partnership (``90% Test''). A second 
requirement for qualification as a RIC is that a Fund must diversify 
its holdings so that, at the end of each fiscal quarter of the 
Fund's taxable year: (a) At least 50% of the market value of the 
Fund's total assets is represented by cash and cash items, U.S. 
Government securities, securities of other RICs, and other 
securities, with these other securities limited, in respect to any 
one issuer, to an amount not greater than 5% of the value of the 
Fund's total assets or 10% of the outstanding voting securities of 
such issuer; and (b) not more than 25% of the value of its total 
assets are invested in the securities (other than U.S. Government 
securities or securities of other RICs) of any one issuer or two or 
more issuers which the Fund controls and which are engaged in the 
same, similar, or related trades or businesses, or the securities of 
one or more qualified publicly traded partnership (``Asset Test'').
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    Except for Underlying ETPs that may hold non-U.S. issues, the Funds 
will not otherwise invest in non-U.S.-registered issues.
    Pursuant to the terms of the Exemptive Application, the Funds will 
not invest in options contracts, futures contracts, or swap agreements. 
The Funds' investments will be consistent with the each Fund's 
investment objective and will not be used to enhance leverage.
Net Asset Value
    Each Fund calculates net asset value (``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 Funds calculate NAV once each 
business day as of the regularly scheduled close of normal trading on 
the New York Stock Exchange (``NYSE'') (normally, 4 p.m. Eastern Time).
    In calculating NAV, the Funds generally value investment portfolios 
at market price. If market prices are unavailable or a Fund thinks that 
they are unreliable, or when the value of a security has been 
materially affected by events occurring after the relevant market 
closes, the Funds will price those securities at fair value as 
determined in good faith using methods approved by the Funds' Board of 
Trustees.
Creation and Redemption of Shares
    The Funds offer and issue Shares on a continuous basis at NAV only 
in aggregated lots of 25,000 or more Shares (each a ``Creation Unit'' 
or ``Creation Unit Aggregation''), generally in exchange for: (i) A 
basket of equity securities (``Deposit Securities'') and (ii) an amount 
of cash (``Cash Component''). Shares are redeemable only in Creation 
Unit Aggregations, and, generally, in exchange for portfolio securities 
and a specified cash payment.
    A ``creator'' enters into an authorized participant agreement 
(``Participant Agreement'') with the Distributor or uses a Depository 
Trust Company (``DTC'') participant who has executed a Participant 
Agreement (``Authorized Participant''), and deposits into a Fund a 
portfolio of securities closely approximating the holdings of that Fund 
and a specified amount of cash, together totaling the NAV of the 
Creation Unit(s), in exchange for 25,000 Shares of the Fund (or 
multiples thereof).
    All orders to purchase Creation Units must be received by the 
Distributor no later than the close of the regular trading session on 
the NYSE (ordinarily 4:00 p.m. Eastern Time) on the date such order is 
placed in order for the purchase of Creation Units to be effected based 
on the NAV of Shares of a Fund as next determined on such date after 
receipt of the order in proper form.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by a 
Fund through the Administrator and only on a business day.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents 
that, for initial and/or continued listing, the Funds will be in 
compliance with Rule 10A-3 under the Exchange Act,\16\ as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for each Fund 
will be outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a

[[Page 24552]]

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.
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    \16\ 17 CFR 240.10A-3.
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Availability of Information
    The Funds' Web site (http://www.advisorshares.com), which will be 
publicly available prior to the public offering of Shares, will include 
a form of the Prospectus for the Funds that may be downloaded. The 
Funds' Web site will include additional quantitative information 
updated on a daily basis, including, for the Funds, (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 
(``Bid/Ask Price''),\17\ 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 Funds will disclose on their Web site the Disclosed 
Portfolio, as defined in NYSE Arca Equities Rule 8.600(c)(2), that will 
form the basis for the Funds' calculation of NAV at the end of the 
business day.\18\
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    \17\ The Bid/Ask Price of the Funds is determined using the 
highest bid and the lowest offer on the Exchange as of the time of 
calculation of the Funds' NAV. The records relating to Bid/Ask 
Prices will be retained by the Funds and their service providers.
    \18\ Under accounting procedures followed by the Funds, trades 
made on the prior business day (``T'') will be booked and reflected 
in 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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    On a daily basis, the Adviser will disclose for each portfolio 
security or other financial instrument of the Funds the following 
information on the Funds' Web site: 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 
Web site information will be publicly available at no charge.
    In addition, a basket composition file, which includes the security 
names and share quantities required to be delivered in exchange for a 
Fund's Shares, together with estimates and actual cash components, will 
be publicly disseminated daily prior to the opening of the NYSE via the 
National Securities Clearing Corporation. The basket represents one 
Creation Unit of each Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Funds' Shareholder Reports, and the Trust's 
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 at http://www.sec.gov. Information regarding market price and trading volume of 
the Shares is and 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 will be published daily in the financial 
section of newspapers. Quotation and last-sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the Portfolio Indicative Value, 
as defined in NYSE Arca Equities Rule 8.600 (c)(3), will be 
disseminated by the Exchange at least every 15 seconds during the Core 
Trading Session by one or more major market data vendors. 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 Funds on a daily basis and to provide a 
close estimate of that value throughout the trading day. The intra-day, 
closing, and settlement prices of the portfolio securities are also 
readily available from the national securities exchanges trading such 
securities, automated quotation systems, published or other public 
sources, or on-line information services such as Bloomberg or Reuters.
    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, 
distributions, and taxes is included in the Registration Statement. All 
terms relating to the Funds that are referred to, but not defined in, 
this proposed rule change are defined in the Registration Statement.
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 Funds.\19\ Trading in Shares of the Funds 
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 Funds; 
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 a Fund may be 
halted.
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    \19\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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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. 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, Commentary .03, 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.
Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which 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 and applicable federal securities laws.
    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. 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 may obtain information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges that are members of 
ISG or with which the

[[Page 24553]]

Exchange has in place a comprehensive surveillance sharing 
agreement.\20\
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    \20\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Funds may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    The Exchange may obtain surveillance information from all 
securities exchanges holding the securities held by the Funds.
    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 
Equity Trading Permit (``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; (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.
    In addition, the Bulletin will reference that the Funds are 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 Exchange Act. 
The Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4 p.m. Eastern Time each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5) \21\ 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.
---------------------------------------------------------------------------

    \21\ 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 may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. The equity holdings of the Madrona Forward Domestic ETF and 
Madrona Forward International ETF will be comprised of U.S. exchange- 
listed equities, including ADRs, and the Madrona Forward Global Bond 
ETF's Underlying ETP holdings will be U.S. exchange-listed. The listing 
and trading of such equity holdings and Underlying ETPs is subject to 
rules of the exchanges on which they are listed and traded, as approved 
by the Commission. Except for Underlying ETPs that may hold non-U.S. 
issues, the Funds will not otherwise invest in non-U.S.-registered 
issues. The Funds will not invest in options contracts, futures 
contracts, or swap agreements.
    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 is publicly available regarding the Funds and the Shares, 
thereby promoting market transparency. The Funds' portfolio holdings 
will be disclosed on their Web site daily after the close of trading on 
the Exchange and prior to the opening of trading on the Exchange the 
following day. Moreover, the Portfolio Indicative Value will be 
disseminated by one or more major market data vendors at least every 15 
seconds during the Exchange's Core Trading Session. On each business 
day, before commencement of trading in Shares in the Core Trading 
Session on the Exchange, the Funds will disclose on their Web site the 
Disclosed Portfolio that will form the basis for the Funds' calculation 
of NAV at the end of the business day. Information regarding market 
price and trading volume of the Shares is and will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services, and quotation and last-sale 
information will be available via the CTA high-speed line. The Web site 
for the Funds will include a form of the Prospectus for the Funds and 
additional data relating to NAV and other applicable quantitative 
information. Moreover, 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. 
Trading in Shares of the Funds 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, and 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 Funds may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Funds' holdings, the Portfolio Indicative 
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 
additional types of actively managed exchange-traded products 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 relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Funds' 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 purposes of the Act.

[[Page 24554]]

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission shall:
    (A) By order approve or disapprove such proposed rule change, or
    (B) Institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2011-17 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2011-17. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference 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 will also 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 No. SR-
NYSEArca-2011-17 and should be submitted on or before May 23, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-10502 Filed 4-29-11; 8:45 am]
BILLING CODE 8011-01-P


