
[Federal Register Volume 76, Number 226 (Wednesday, November 23, 2011)]
[Notices]
[Pages 72474-72480]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30202]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-65778; File No. SR-NYSEArca-2011-80]


 Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the Rockledge 
SectorSAM ETF Under NYSE Arca Equities Rule 8.600

November 17, 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 November 3, 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''): Rockledge SectorSAM 
\TM\ ETF. The text of the proposed rule change is available at the 
Exchange, the Commission's Public Reference Room, and 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: Rockledge 
SectorSAM ETF (``Fund'').\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 Fund is AdvisorShares Investments, LLC (``Adviser''). Rockledge 
Advisers LLC serves as investment sub-adviser to the Fund 
(``Rockledge'' or ``Sub-Adviser'') and provides day-to-day portfolio 
management of the Fund. Foreside Fund Services, LLC (``Distributor'') 
is the principal underwriter and distributor of the Fund's Shares. The 
Bank of New York Mellon Corporation (``Administrator'')

[[Page 72475]]

serves as administrator, custodian and transfer agent for the Fund.
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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 has 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); 62502 (July 15, 2010), 75 FR 42471 (July 21, 
2010) (SR-NYSEArca-2010-57) (order approving listing of 
AdviserShares 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 April 11, 
2011, the Trust filed with the Commission Post-Effective Amendment 
No. 23 to Form N-1A under the Securities Act of 1933 (15 U.S.C. 
77a), and under the 1940 Act relating to the Fund (File Nos. 333-
157876 and 811-22110) (``Registration Statement''). The description 
of the operation of the Trust and the Fund herein is based, in part, 
on the Registration Statement. In addition, the Commission has 
issued an order granting certain exemptive relief to the Trust under 
the 1940 Act. See Investment Company Act Release No. 29291 (May 28, 
2010) (File No. 812-13677) (``Exemptive Order'').
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    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio. In addition, Commentary 
.06 further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material nonpublic information 
regarding the open-end fund's portfolio.\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, it will implement a fire wall 
with respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the 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, the Fund is considered a 
``fund-of-funds'' that seeks to achieve its investment objective by 
primarily investing in other U.S.-listed exchange-traded funds 
(``Underlying ETFs'') that offer diversified exposure to U.S. large 
capitalization (generally, Standard & Poor 500 companies) sectors. The 
Sub-Adviser will use ``Sector Scoring and Allocation Methodology'' 
(``SectorSAM''), which is a proprietary quantitative analysis, to 
forecast each sector's excess return within a specific time horizon. 
The Sub-Adviser will seek to achieve the Fund's investment objective by 
buying (taking long positions in) Underlying ETFs intended to capture 
the performance of the most promising sectors and selling (establishing 
short positions) in Underlying ETFs with the intent of profiting from 
the least promising sectors of U.S. large capitalization broad market 
securities. The strategy is designed to generate higher returns in a 
higher interest rate environment, which is often associated with 
increased inflation.\7\
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    \7\ The Underlying ETFs are registered under the 1940 Act and 
will be listed and traded in the U.S. on registered exchanges.
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    Under normal circumstances,\8\ the Fund intends to invest equal 
dollar amounts to obtain both long and short exposure in the market at 
each major rebalancing point (on at least a monthly basis). When fully 
invested, the Fund will typically be both 100% long and 100% short of 
total portfolio value. The Sub-Adviser, in its discretion, may choose 
an additional long or short bias of up to 50% exposure, or may choose 
to hold amounts in cash or cash equivalents depending on its view of 
market conditions.
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    \8\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the equity markets or the financial markets generally; operational 
issues causing dissemination of inaccurate market information; or 
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    The Underlying ETFs in which the Fund will invest will primarily be 
ETFs that hold substantially all of their assets in securities 
representing a specific index. The main risk of investing in index-
based investments is the same as investing in a portfolio of securities 
comprising the index. The market prices of index-based investments will 
fluctuate in accordance with both changes in the market value of their 
underlying portfolio securities and due to supply and demand for the 
instruments on the exchanges on which they are traded (which may result 
in their trading at a discount or premium to their net asset values 
(``NAVs'').
    The Fund, through its investment in Underlying ETFs, may invest in 
equity securities. Equity securities represent ownership interests in a 
company or partnership and consist of common stocks, preferred stocks, 
warrants to acquire common stock, securities convertible into common 
stock, and investments in master limited partnerships.
    The Fund, through its investment in Underlying ETFs, may invest in 
American Depositary Receipts (``ADRs''), as well as Global Depositary 
Receipts (``GDRs,'' together with ADRs, ``Depositary Receipts''), which 
are certificates evidencing ownership of shares of a foreign issuer. 
Depositary Receipts may be sponsored or unsponsored. These certificates 
are issued by depositary banks and generally trade on an established 
market in the United States or elsewhere. The underlying shares are 
held in trust by a custodian bank or similar financial institution in 
the issuer's home country. The depositary bank may not have physical 
custody of the underlying securities at all times and may charge fees 
for various services, including forwarding dividends and interest and 
corporate actions. ADRs are alternatives to directly purchasing the 
underlying foreign securities in their national markets and currencies. 
However, ADRs continue to be subject to many of the risks associated 
with investing directly in foreign securities.
    Investments in Foreign Equity Securities. Through Underlying ETFs, 
the Fund may invest in the equity securities of foreign issuers, 
including the securities of foreign issuers in emerging market 
countries. Emerging or developing markets exist in countries that are 
considered to be in the initial stages of industrialization. The risks 
of investing in these markets are similar to the risks of international 
investing in general, although the risks are greater in emerging and 
developing markets. Countries with emerging or developing securities 
markets tend to have economic structures that are less stable than 
countries with developed securities markets. This is because their 
economies may be based on only a few industries and their securities 
markets may trade a small number of securities. Prices on these 
exchanges tend to be volatile, and securities in these countries 
historically have offered greater potential for gain (as well as

[[Page 72476]]

loss) than securities of companies located in developed countries.
    The Fund, through its investment in Underlying ETFs, may invest in 
closed-end funds, pooled investment vehicles that are registered under 
the 1940 Act and whose shares are listed and traded on U.S. national 
securities exchanges.
    The Fund, through its investment in Underlying ETFs, may invest in 
shares of real estate investment trusts (``REITs''). REITs are pooled 
investment vehicles which invest primarily in real estate or real 
estate related loans. REITs are generally classified as equity REITs, 
mortgage REITs or a combination of equity and mortgage REITs.
    The Fund intends to invest primarily in the securities of 
Underlying ETFs 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 Underlying ETFs may invest in complex securities such as equity 
options, index options, repurchase agreements, foreign currency 
contracts and swaps.The Fund does not intend to invest in leveraged, 
inverse or inverse leveraged Underlying ETFs.
Investment Process
    The following describes the Sub-Adviser's investment process, as 
described in the Registration Statement:
    Quantitative Analysis. Rockledge has developed a proprietary 
SectorSAM \TM\ quantitative research and evaluation process that 
forecasts economic excess sector returns (over/under the Standard & 
Poor's 500 Index (``S&P 500 Index'') for a given timeframe). Absolute 
returns may be captured by investing long in sectors which are 
forecasted to outperform the overall U.S. equity market and shorting 
sectors that are forecasted to underperform the market.
    SectorSAM analysis provides for individual sector forecasts through 
analysis of over 200 fundamental, macroeconomic and technical factors 
influencing stock returns. The SectorSAM process creates a basket of 
factors that are meaningful to each economic sector within the S&P 500 
Index. Rockledge reviews the information to make portfolio decisions on 
behalf of the Fund.
    Long/Short Portfolio Construction. The Fund's portfolio will be 
comprised primarily of an equal dollar amount of long and short 
positions based on the Rockledge relative value strategy.\9\ Rockledge 
will actively manage and adjust the positions in its long and short 
portfolios as dictated by its proprietary SectorSAM quantitative 
research and evaluation process.
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    \9\ According to the Registration Statement, the following 
convictions constitute the guiding philosophy for the relative 
investment strategy pursued by the Sub-Adviser:
    1. The U.S. economy goes through various growth and contraction 
stages and the various economic sectors reflect these changes.
    2. Large capitalization stocks are heavily researched and well 
known to equity analysts. The valuations and pricing of these stocks 
are very close to efficient. It is difficult to make significant 
outsized returns by investing in individual large capitalization 
stocks.
    3. The valuation of each U.S. economic sector is directly based 
on the aggregation of valuation of the individual companies making 
up that sector. Up to 90% of an individual stock's performance can 
be attributed to the return of the sector that stock is in.
    4. Sector investing provides a better risk/return profile than 
individual stock investing. Sector investing eliminates company 
specific risk as sectors are inherently diversified.
    5. Appropriately and correctly forecasted, one can capture both 
the upside potential of the outperforming sectors and downside loss 
of the underperforming sectors, relative to a broad market index.
    6. There can be significant performance dispersion among various 
economic sectors. The ability to identify which sectors will 
outperform the broad market and which will underperform over a 
specified time period can lead to considerable cumulative absolute 
returns.
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    Risk Management. The Fund's core long/short portfolio construction 
generally will be dollar neutral, where the value of all long positions 
is equal to the value of all short positions. According to the 
Registration Statement, this provides a high degree of inherent risk 
control, especially when stock markets are falling. The short positions 
provide protection against market declines, and may offer the potential 
to generate positive returns when markets are falling if the short 
positions fall more than the long positions. Rockledge will use a 
number of methods to monitor and manage the inherent risk of the 
portfolio including the tracking of relative sector exposure, 
volatility, and sector correlations. Rockledge proactively will monitor 
its positions, exposure and performance attribution on a real-time 
basis to identify, monitor and mitigate the most threatening risks to 
the Fund's ability to attain its investment objective.
    The Fund's portfolio holdings will be disclosed on the Trust's Web 
site daily after the close of trading on the Exchange and prior to the 
opening of trading on the Exchange the following day.
Other Investments of the Fund
    To respond to adverse market, economic, political or other 
conditions,\10\ the Fund may invest 100% of its total assets, without 
limitation, in high-quality debt securities and money market 
instruments either directly or through Underlying ETFs. The 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,\11\ repurchase agreements \12\ and bonds that 
are BBB or higher.
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    \10\ 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.
    \11\ Securities issued or guaranteed by the U.S. government or 
its agencies or instrumentalities include U.S. Treasury securities, 
which are backed by the full faith and credit of the U.S. Treasury 
and which differ only in their interest rates, maturities, and times 
of issuance. U.S. Treasury bills have initial maturities of one year 
or less; U.S. Treasury notes have initial maturities of one to ten 
years; and U.S. Treasury bonds generally have initial maturities of 
greater than ten years. 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 (``Ginnie Mae''), 
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'').
    \12\ The Fund may enter into repurchase agreements with 
financial institutions, which may be deemed to be loans. The Fund 
follows 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. In addition, the value of the collateral 
underlying the repurchase agreement will always be at least equal to 
the repurchase price, including any accrued interest earned on the 
repurchase agreement. The Fund may enter into reverse repurchase 
agreements as part of the Fund's investment strategy. Reverse 
repurchase agreements involve sales by the 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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    The Fund, or the Underlying ETFs in which it invests, may invest in 
U.S. Treasury zero-coupon bonds. These securities are U.S. Treasury 
bonds

[[Page 72477]]

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.
    The Fund may invest in exchange-traded notes (``ETNs''). As 
described in the Registration Statement, ETNs are debt obligations of 
investment banks which are traded on exchanges and the returns of which 
are linked to the performance of market indexes. In addition to trading 
ETNs on exchanges, investors may redeem ETNs directly with the issuer 
on a weekly basis, typically in a minimum amount of 50,000 units, or 
hold the ETNs until maturity. ETNs may be riskier than ordinary debt 
securities and may have no principal protection.
    The 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. For purposes of this policy, the issuer of the underlying 
security will be deemed to be the issuer of any respective Depositary 
Receipt.\13\
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    \13\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The 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 Fund will not invest 25% or more of its total 
assets in any investment company that so concentrates. For purposes of 
this policy, the issuer of the underlying security will be deemed to be 
the issuer of any respective Depositary Receipt.\14\
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    \14\ 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 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    The Fund will not purchase illiquid securities, including Rule 144A 
securities and loan participation interests.\15\
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    \15\ A fund's portfolio security is illiquid if it cannot be 
disposed of in the ordinary course of business within seven days at 
approximately the value ascribed to it by the fund. See Investment 
Company Act Release No. 14983 (March 12, 1986), 51 FR 9773 (March 
21, 1986) (adopting amendments to Rule 2a-7 under the 1940 Act); 
Investment Company Act Release No. 17452 (April 23, 1990), 55 FR 
17933 (April 30, 1990) (adopting Rule 144A under the Securities Act 
of 1933).
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    According to the Registration Statement, the Fund will seek to 
qualify for treatment as a Regulated Investment Company (``RIC'') under 
the Internal Revenue Code.\16\
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    \16\ 26 U.S.C. 851. One of several requirements for RIC 
qualification is that the 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 the 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 ETFs that may hold non-U.S. issues, the Fund 
will not otherwise invest in non-U.S.-registered issues.
    Pursuant to the terms of the Exemptive Order, the Fund will not 
invest in options contracts, futures contracts or swap agreements. The 
Fund's investments will be consistent with the Fund's investment 
objective and will not be used to enhance leverage.
Net Asset Value
    The Fund will calculate NAV by: (i) Taking the current market value 
of its total assets; (ii) subtracting any liabilities; and (iii) 
dividing that amount by the total number of Shares owned by 
shareholders.
    The Fund will calculate NAV once each business day as of the 
regularly scheduled close of the Core Trading Session on the Exchange 
(normally, 4 p.m., Eastern Time).
    In calculating NAV, the Fund generally will value investment 
portfolios at market price. If market prices are unavailable or the 
Adviser believes they are unreliable, or when the value of a security 
has been materially affected by events occurring after the relevant 
market closes, the Fund will price those securities at fair value as 
determined in good faith using methods approved by the Fund's Board of 
Trustees.
    The use of fair valuation in pricing a security involves the 
consideration of a number of subjective factors and therefore, is 
susceptible to the unavoidable risk that the valuation may be higher or 
lower than the price at which the security might actually trade if a 
reliable market price were readily available.
Creation and Redemption of Shares
    The Fund will offer and issue Shares on a continuous basis at NAV 
only in aggregated lots of 50,000 or more Shares (each a ``Creation 
Unit'' or a ``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'' will enter into an authorized participant agreement 
(``Participant Agreement'') with the Distributor or use a Depository 
Trust Company (``DTC'') participant who has executed a Participant 
Agreement (``Authorized Participant''), and deposit into the Fund a 
portfolio of securities closely approximating the holdings of the Fund 
and a specified amount of cash, together totaling the NAV of the 
Creation Unit(s), in exchange for 50,000 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 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 the 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 the 
Fund through the Administrator and only on a business day. With respect 
to the Fund, the Administrator, through the National Securities 
Clearing Corporation (``NSCC''), will make available immediately prior 
to the opening of business on the Exchange (currently 9:30 a.m., 
Eastern Time) on each business day, the portfolio of securities (``Fund 
Securities'') that will be applicable to redemption requests received 
in proper form on that day. Fund Securities received on redemption may 
not be identical to Deposit Securities which are applicable to 
creations of Creation Units. Unless cash redemptions are available or 
specified for the Fund, the redemption proceeds

[[Page 72478]]

for a Creation Unit generally will consist of Fund Securities plus cash 
in an amount equal to the difference between the NAV of the Shares 
being redeemed, as next determined after a receipt of a request in 
proper form, and the value of the Fund Securities less a redemption 
transaction fee, as described in the Registration Statement. In the 
event that the Fund Securities have a value greater than the NAV of the 
Shares, a compensating cash payment equal to the differential will be 
required to be made by or through an Authorized Participant by the 
redeeming shareholder.
    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 Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\17\ as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for the Fund 
will be outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares 
that the NAV per Share will be calculated daily and that the NAV and 
the Disclosed Portfolio will be made available to all market 
participants at the same time.
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    \17\ 17 CFR 240.10A-3.
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Availability of Information
    The Fund's 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 Fund that may be downloaded. The 
Fund's Web site will include additional quantitative information 
updated on a daily basis, including, for the Fund, (1) Daily trading 
volume, the prior business day's reported closing price, NAV and mid-
point of the bid/ask spread at the time of calculation of such NAV 
(``Bid/Ask Price''),\18\ and a calculation of the premium and discount 
of the Bid/Ask Price against the NAV, and (2) data in chart format 
displaying the frequency distribution of discounts and premiums of the 
daily Bid/Ask Price against the NAV, within appropriate ranges, for 
each of the four previous calendar quarters. On each business day, 
before commencement of trading in Shares in the Core Trading Session on 
the Exchange, the Fund will disclose on its Web site the Disclosed 
Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) that will 
form the basis for the Fund's calculation of NAV at the end of the 
business day.\19\
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    \18\ The Bid/Ask Price of the Fund will be determined using the 
highest bid and the lowest offer on the Exchange as of the time of 
calculation of the Fund's NAV. The records relating to Bid/Ask 
Prices will be retained by the Fund and its service providers.
    \19\ Under accounting procedures followed by the Fund, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Fund 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business day.
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    On a daily basis, the Adviser will disclose for each portfolio 
security or other financial instrument of the Fund the following 
information on the Fund's 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 the 
Fund's Shares, together with estimates and actual cash components, will 
be publicly disseminated daily prior to the opening of the NYSE via 
NSCC. The basket represents one Creation Unit of the Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's 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 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 for the Shares 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 and, for the Underlying ETFs, will be 
available from the national securities exchange on which they are 
listed. In addition, the Portfolio Indicative Value, as defined in NYSE 
Arca Equities Rule 8.600(c)(3), will be widely disseminated by one or 
more major market data vendors at least every 15 seconds during the 
Core Trading Session.\20\
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    \20\ Currently, it is the Exchange's understanding that several 
major market data vendors widely disseminate Portfolio Indicative 
Values taken from CTA or other data feeds.
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    The dissemination of the Portfolio Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and 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 Fund 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 Fund.\21\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments comprising the Disclosed Portfolio of the Fund; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of the Fund may be 
halted.
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    \21\ 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

[[Page 72479]]

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 Exchange has in place a comprehensive 
surveillance sharing agreement.\22\ In addition, the Exchange could 
obtain information from the U.S. exchanges, all of which are ISG 
members, on which the Underlying ETFs are listed and traded.
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    \22\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    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 Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the 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) \23\ 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.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78f(b)(5).
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    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 holdings of the Fund will be comprised primarily of 
U.S.-exchange listed Underlying ETFs. The listing and trading of such 
Underlying ETFs is subject to rules of the exchanges on which they are 
listed and traded, as approved by the Commission. Except for Underlying 
ETFs that may hold non-U.S. issues, the Fund will not otherwise invest 
in non-U.S.-registered issues. The Fund will not purchase illiquid 
securities, including Rule 144A securities and loan participation 
interests. The Fund does not intend to invest in leveraged, inverse or 
inverse leveraged Underlying ETFs. The Fund 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 Fund and the Shares, 
thereby promoting market transparency. In addition, the Portfolio 
Indicative Value will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the Core Trading 
Session.
    On each business day, before commencement of trading in Shares in 
the Core Trading Session on the Exchange, the Fund will disclose on its 
Web site the Disclosed Portfolio that will form the basis for the 
Fund's calculation of NAV at the end of the business day. 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 Fund will include a form of the prospectus 
for the Fund 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 Fund will be halted if the 
circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been 
reached or because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable, 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 Fund may be halted. In addition, as noted above, investors will 
have ready access to information regarding the Fund's holdings, the 
Portfolio Indicative Value, the Disclosed Portfolio, and quotation and 
last sale information for the Shares.

[[Page 72480]]

    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 Fund's holdings, 
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2011-80 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-2011-80. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE. 
Washington, DC 20549, on official business days between the hours of 10 
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-2011-80 and should be 
submitted on or before December 14, 2011.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2011-30202 Filed 11-22-11; 8:45 am]
BILLING CODE 8011-01-P


