
[Federal Register Volume 77, Number 46 (Thursday, March 8, 2012)]
[Notices]
[Pages 14048-14052]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-5610]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66507; File No. SR-NYSEArca-2011-81]


 Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 3 
Thereto, Relating to the Listing and Trading of the Guggenheim Enhanced 
Short Duration High Yield Bond ETF Under NYSE Arca Equities Rule 8.600

March 2, 2012.

I. Introduction

    On November 14, 2011, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the Guggenheim Enhanced Short Duration High Yield Bond 
ETF (``Fund'') under NYSE Arca Equities Rule 8.600. The proposed rule 
change was published for comment in the Federal Register on December 5, 
2011.\3\ On January 17, 2012, the Exchange filed Amendment No. 1 to the 
proposed rule change.\4\ On January 18, 2012, the Exchange filed 
Amendment No. 2 to the proposed rule change.\5\ On February 7, 2012, 
the Exchange extended the time period for Commission action to March 4, 
2012. On February 29, 2012, the Exchange filed Amendment No. 3 to the 
proposed rule change.\6\ The Commission received no comments on the 
proposal. This order grants approval of the proposed rule change, as 
modified by Amendment No. 3 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 65847 (November 29, 
2011), 76 FR 75926 (``Notice'').
    \4\ The Exchange withdrew Amendment No. 1 on January 18, 2012 
and extended the time period for Commission action to January 25, 
2012. On January 23, 2012, the Exchange extended the time period for 
Commission action to February 8, 2012.
    \5\ The Exchange withdrew Amendment No. 2 on February 29, 2012.
    \6\ Amendment No. 3 amended the sentence: ``The Fund may invest 
in the aggregate up to 15% of its net assets (taken at the time of 
investment) in: (1) Illiquid securities \13\ and (2) Rule 144A 
securities.'' The amended sentence reads: ``The Fund may hold in the 
aggregate up to 15% of its net assets in (1) illiquid 
securities,\13\ and (2) Rule 144A securities.'' Amendment No. 3 also 
amended the sentences: ``Master notes are generally illiquid and 
therefore subject to the Fund's percentage limitations for 
investments in illiquid securities. The Fund may invest up to 15% of 
its net assets in bank loans, which include participation interests 
(as described below).'' The amended sentences read: ``Master notes 
are generally illiquid and therefore subject to the Fund's 
percentage limitations for holdings of illiquid securities. The Fund 
may hold up to 15% of its net assets in bank loans, which include 
participation interests (as described below).'' Lastly, Amendment 
No. 3 amended the sentence: ``Generally, the Fund considers 
participation interests to be illiquid and therefore subject to the 
Fund's percentage limitations for investments in illiquid 
securities.'' The amended sentence reads: ``Generally, the Fund 
considers participation interests to be illiquid and therefore 
subject to the Fund's percentage limitations for holdings of 
illiquid securities.'' For each of the amendments discussed above, 
the Exchange also made corresponding amendments to Exhibit 1 of the 
filing. The purpose of Amendment No. 3 was to make the proposed rule 
change more consistent with the Investment Company Act of 1940 
(``1940 Act'') requirements relating to restrictions on holdings of 
illiquid securities by registered open-end management investment 
companies. Because Amendment No. 3 seeks to maintain consistency 
with the 1940 Act and rules and regulations thereunder, and does not 
materially alter the substance of the proposed rule change or raise 
any novel regulatory issues, the amendment is not subject to notice 
and comment.
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant 
to NYSE Arca Equities Rule 8.600, which governs the listing and trading 
of Managed Fund Shares on the Exchange. The Shares will be offered by 
the Claymore Exchange-Traded Fund Trust (``Trust''),\7\ a statutory 
trust organized under the laws of the State of Delaware and registered 
with the Commission as an open-end management investment company. The 
investment adviser for the Fund is Guggenheim Funds Investment 
Advisors, LLC (``Adviser''). The Bank of New York Mellon is the 
custodian and transfer agent for the Fund. Guggenheim Funds 
Distributors, Inc. is the distributor for the Fund. The Adviser is 
affiliated with a broker-dealer and has represented that it has 
implemented a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the portfolio.\8\
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    \7\ The Trust is registered under the 1940 Act. On December 8, 
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 Fund (File Nos. 333-134551 and 811-21906) 
(``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. 29271 (May 18, 
2010) (File No. 812-13534) (``Exemptive Order'').
    \8\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the 
event (a) the Adviser or any 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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Guggenheim Enhanced Short Duration High Yield Bond ETF

    The investment objective of the Fund is to seek to maximize total 
return, through monthly income and capital appreciation, consistent 
with capital preservation. The Fund will use an actively managed 
strategy that seeks to maximize total return, comprised of income and 
capital appreciation, and risk-adjusted returns in excess of the 3-
month LIBOR, while maintaining a low-risk profile relative to below 
investment grade rated, longer-term, fixed income investments. The Fund 
will primarily invest in below investment grade rated bonds while 
opportunistically allocating to investment grade bonds and other select 
securities. The Fund's portfolio will maintain an effective duration of 
one year or less.

Primary Investments

    As a principal investment strategy, under normal market 
circumstances,\9\ the Fund will invest at least 80% of its net assets 
in debt securities which are below investment grade (``high yield'' 
bonds or ``junk bonds'').\10\ Bonds are considered to be below 
investment grade if they have a Standard & Poor's or Fitch credit 
rating of ``BB+'' or lower or a Moody's credit rating of ``Ba1'' or 
lower or bonds that are unrated and deemed to be of below investment 
grade quality as determined by the Adviser.\11\ The Fund's primary 
investments also may include floating rate or adjustable rate 
bonds,\12\ callable bonds with, as

[[Page 14049]]

determined by the Adviser, a high probability of being redeemed prior 
to maturity,\13\ ``putable'' bonds (bonds that give the holder the 
right to sell the bond to the issuer prior to the bond's maturity) when 
the put date is within a 24 month period, ``busted'' convertible 
securities (a convertible security that is trading well below its 
conversion value minimizing the likelihood that it will ever reach its 
convertible price prior to maturity), and other types of securities, 
all of which may be rated at or below investment grade. The Fund will 
not invest in securities in default at the time of investment. The 
management process is intended to be highly flexible and responsive to 
market opportunities. For example, when interest rates are low and 
credit markets are healthy, the Fund may be overweight in callable 
bonds, which generally have a lower yield-to-call than yield-to-
maturity, as well as bonds that are subject to company repurchases and 
tender offers. In weaker credit markets, the Fund may be overweight in 
bonds that are at maturity or have putable features. The Adviser 
anticipates that under normal market circumstances the Fund will invest 
approximately 20% of its assets in securities that will be called, 
tendered, or mature within 60 to 90 days.
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    \9\ The term ``under normal market circumstances'' includes, but 
is not limited to, the absence of extreme volatility or trading 
halts in the fixed income 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.
    \10\ As of August 30, 2011, the Adviser represents that there 
were approximately 1,100 high yield bond issues that mature on or 
before December 2016, representing $420 billion or approximately 40% 
of the total amount of high yield bonds outstanding. (Source: 
Barclays Capital). As of August 1, 2011, floating rate bank loans 
outstanding were $637 billion. (Source regarding floating rate bank 
loans: Credit Suisse Leveraged Finance Strategy Update, August 1, 
2011).
    \11\ The Fund's investments will be subject to credit risk. 
Credit risk is the risk that issuers or guarantors of debt 
instruments or the counterparty to a derivatives contract, 
repurchase agreement or loan of portfolio securities is unable or 
unwilling to make timely interest and/or principal payments or 
otherwise honor its obligations. Debt instruments are subject to 
varying degrees of credit risk, which may be reflected in credit 
ratings. Credit rating downgrades and defaults (failure to make 
interest or principal payment) may potentially reduce the Fund's 
income and Share price.
    \12\ The Fund may invest in debt securities that have variable 
or floating interest rates which are readjusted on set dates (such 
as the last day of the month or calendar quarter) in the case of 
variable rates or whenever a specified interest rate change occurs 
in the case of a floating rate instrument. Variable or floating 
interest rates generally reduce changes in the market price of 
securities from their original purchase price because, upon 
readjustment, such rates approximate market rates. Accordingly, as 
interest rates decrease or increase, the potential for capital 
appreciation or depreciation is less for variable or floating rate 
securities than for fixed rate obligations.
    \13\ During periods of falling interest rates, an issuer of a 
callable bond may exercise its right to pay principal on an 
obligation earlier than expected, which may result in the Fund 
reinvesting proceeds at lower interest rates, resulting in a decline 
in the Fund's income.
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    The Adviser will commence the investment review process with a top-
down, macroeconomic outlook to determine both investment themes and 
relative value within each market sector and industry. Within these 
parameters, the Adviser will then apply detailed bottom-up security 
selection to select individual portfolio securities that the Adviser 
believes can add value from income and/or the potential for capital 
appreciation. Credit research may include an assessment of an issuer's 
profitability, its competitive positioning and management strength, as 
well as industry characteristics, liquidity, growth, and other factors. 
The Adviser may sell a portfolio security due to changes in credit 
characteristics or outlook, as well as changes in portfolio strategy or 
cash flow needs. A portfolio security may also be sold and replaced 
with one that presents a better value or risk/reward profile. Except 
during periods of temporary defensive positioning, the Adviser 
generally expects to be fully-invested.
    The Adviser aims to manage the Fund so as to provide investors with 
a higher degree of principal stability than is typically available in a 
portfolio of lower-rated longer-term, fixed income investments. The 
Adviser intends to invest the Fund's assets in the securities of 
issuers in many different industries and intends to invest a maximum of 
2-3% of the Fund's assets in the securities of any one issuer, though 
the Fund is not restricted from maintaining positions of greater weight 
based upon the outlook for an issuer or during periods of relatively 
small asset levels of the Fund.
    The Fund may invest a portion of its assets in various types of 
U.S. government obligations. The Fund also may invest in convertible 
securities, including bonds, debentures, notes, preferred stocks, and 
other securities that may be converted into a prescribed amount of 
common stocks or other equity securities at a specified price and time. 
The Fund may invest in municipal securities and certificates of 
deposit.
    While the Adviser anticipates that the Fund will invest primarily 
in the debt securities of U.S.-registered companies, it may also invest 
in those of foreign companies in developed countries.\14\ The Fund may 
invest in U.S.-registered, dollar-denominated bonds of foreign 
corporations, governments, agencies, and supra-national agencies.\15\
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    \14\ The Adviser considers developed countries to include 
Australia, Austria, Belgium, Canada, Denmark, Finland, France, 
Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, 
Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, 
Sweden, Switzerland, the United Kingdom, and the United States.
    \15\ Such bonds have different risks than investing in U.S. 
companies. These include differences in accounting, auditing, and 
financial reporting standards, the possibility of expropriation or 
confiscatory taxation, adverse changes in investment or exchange 
control regulations, political instability, which could affect U.S. 
investments in foreign countries, and potential restrictions of the 
flow of international capital. Foreign companies may be subject to 
less governmental regulation than U.S. issuers. Moreover, individual 
foreign economies may differ favorably or unfavorably from the U.S. 
economy in such respects as growth of gross domestic product, rate 
of inflation, capital investment, resource self-sufficiency, and 
balance of payment options.
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    The Fund will be managed in accordance with the principal 
investment strategies stated above, subject to the following investment 
restrictions: The Fund will not employ any leverage in order to meet 
its investment objective, and, consistent with the Exemptive Order, the 
Fund will not invest in derivatives, including options, swaps, or 
futures.
Other Investments
    As non-principal investment strategies, the Fund may invest its 
remaining assets in money market instruments (including other funds 
which invest exclusively in money market instruments), preferred 
securities, insurance-linked securities, and structured notes (notes on 
which the amount of principal repayment and interest payments are based 
on the movement of one or more specified factors, such as the movement 
of a particular security or security index). The Fund may, from time to 
time, invest in money market instruments or other cash equivalents as 
part of a temporary defensive strategy to protect against temporary 
market declines. When the Fund takes a temporary defensive position 
that is inconsistent with its principal investment strategies, the Fund 
may not achieve its investment objective. The Fund may also invest, to 
a limited extent, in other pooled investment vehicles which are not 
registered investment companies under the 1940 Act; however, the Fund 
will not invest in hedge funds or commodity pools.
    The Fund may invest in commercial interests, including commercial 
paper and other short-term corporate instruments. Commercial paper 
consists of short-term promissory notes issued by corporations and may 
be traded in the secondary market after its issuance.
    The Fund may invest in zero-coupon or pay-in-kind securities. These 
securities are debt securities that do not make regular cash interest 
payments. Zero-coupon securities are sold at a deep discount to their 
face value. Pay-in-kind securities pay interest through the issuance of 
additional securities. Because zero-coupon and pay-in-kind securities 
do not pay current cash income, the price of these securities can be 
volatile when interest rates fluctuate.
    The Fund may invest up to 10% of its net assets in asset-backed 
securities issued or guaranteed by private issuers.
    The Fund may hold in the aggregate up to 15% of its net assets in: 
(1) Illiquid securities \16\ and (2) Rule 144A

[[Page 14050]]

securities.\17\ Illiquid securities include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets. Rule 144A securities are securities 
which, while privately placed, are eligible for purchase and resale 
pursuant to Rule 144A under the Securities Act of 1933. Rule 144A 
permits certain qualified institutional buyers, such as the Fund, to 
trade in privately placed securities even though such securities are 
not registered under the Securities Act of 1933.
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    \16\ The Fund may invest in master notes, which are demand notes 
that permit the investment of fluctuating amounts of money at 
varying rates of interest pursuant to arrangements with issuers who 
meet the quality criteria of the Fund. The interest rate on a master 
note may fluctuate based upon changes in specified interest rates, 
be reset periodically according to a prescribed formula or be a set 
rate. Although there is no secondary market in master demand notes, 
if such notes have a demand future, the payee may demand payment of 
the principal amount of the note upon relatively short notice. 
Master notes are generally illiquid and therefore subject to the 
Fund's percentage limitations for holdings of illiquid securities. 
See supra note 6. The Fund may hold up to 15% of its net assets in 
bank loans, which include participation interests (as described 
below). See id. Any bank loans will be broadly syndicated and may be 
first or second liens; the Fund will not invest in third lien or 
mezzanine loans. The interest rate on bank loans and other 
adjustable rate securities typically resets every 90 days based upon 
then current interest rates. The Fund may purchase participations in 
corporate loans. Participation interests generally will be acquired 
from a commercial bank or other financial institution (``Lender'') 
or from other holders of a participation interest (``Participant''). 
The purchase of a participation interest either from a Lender or a 
Participant will not result in any direct contractual relationship 
with the borrowing company (``Borrower''). The Fund generally will 
have no right directly to enforce compliance by the Borrower with 
the terms of the credit agreement. Instead, the Fund will be 
required to rely on the Lender or the Participant that sold the 
participation interest, both for the enforcement of the Fund's 
rights against the Borrower and for the receipt and processing of 
payments due to the Fund under the loans. Under the terms of a 
participation interest, the Fund may be regarded as a member of the 
Participant, and thus the Fund is subject to the credit risk of both 
the Borrower and a Participant. Participation interests are 
generally subject to restrictions on resale. Generally, the Fund 
considers participation interests to be illiquid and therefore 
subject to the Fund's percentage limitations for holdings of 
illiquid securities. See id.
    \17\ See supra note 6.
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    The Fund may invest in the securities of other investment companies 
(including money market funds). Under Section 12(d) of the 1940 Act, or 
as otherwise permitted by the Commission, the Fund's investment in 
investment companies is limited to, subject to certain exceptions, (i) 
3% of the total outstanding voting stock of any one investment company, 
(ii) 5% of the Fund's total assets with respect to any one investment 
company and (iii) 10% of the Fund's total assets in investment 
companies in the aggregate.\18\
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    \18\ 15 U.S.C. 80a-12(d).
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    The Fund may enter into repurchase \19\ and reverse repurchase 
agreements.\20\ The Fund also may invest in the securities of real 
estate investment trusts to the extent allowed by law, which pool 
investors' funds for investments primarily in commercial real estate 
properties.
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    \19\ Repurchase agreements are agreements pursuant to which 
securities are acquired by the Fund from a third party with the 
understanding that they will be repurchased by the seller at a fixed 
price on an agreed date. These agreements may be made with respect 
to any of the portfolio securities in which the Fund is authorized 
to invest. Repurchase agreements may be characterized as loans 
secured by the underlying securities. The Fund may enter into 
repurchase agreements with (i) member banks of the Federal Reserve 
System having total assets in excess of $500 million and (ii) 
securities dealers (``Qualified Institutions''). The Adviser will 
monitor the continued creditworthiness of Qualified Institutions.
    \20\ Reverse repurchase agreements involve the sale of 
securities with an agreement to repurchase the securities at an 
agreed-upon price, date and interest payment and have the 
characteristics of borrowing. The securities purchased with the 
funds obtained from the agreement and securities collateralizing the 
agreement will have maturity dates no later than the repayment date. 
Generally the effect of such transactions is that the Fund can 
recover all or most of the cash invested in the portfolio securities 
involved during the term of the reverse repurchase agreement, while 
in many cases the Fund is able to keep some of the interest income 
associated with those securities.
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    The Fund may not invest 25% or more of the value of its total 
assets in securities of issuers in any one industry or group of 
industries. This restriction does not apply to obligations issued or 
guaranteed by the U.S. government, its agencies, or instrumentalities.
    The Fund's portfolio holdings will be disclosed on its Web site 
(www.guggenheimfunds.com) daily after the close of trading on the 
Exchange and prior to the opening of trading on the Exchange the 
following day.
    The Fund intends to maintain the level of diversification necessary 
to qualify as a regulated investment company under Subchapter M of the 
Internal Revenue Code of 1986, as amended.\21\ The Fund represents that 
the portfolio will include a minimum of 13 non-affiliated issuers. The 
Fund will only purchase performing securities, not distressed debt. 
Distressed debt is debt that is currently in default and is not 
expected to pay the current coupon.
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    \21\ 26 U.S.C. 851.
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    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,\22\ as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares of 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 net asset value (``NAV'') per Share will be calculated daily 
and that the NAV and the Disclosed Portfolio will be made available to 
all market participants at the same time. In addition, the Fund will 
not invest in non-U.S.-registered equity securities.
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    \22\ 17 CFR 240.10A-3.
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    Additional information regarding the Trust, Fund, Shares, Fund's 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings and disclosure policies, distributions and taxes, 
availability of information, trading rules and halts, and surveillance 
procedures, among other things, can be found in the Notice and the 
Registration Statement, as applicable.\23\
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    \23\ See Notice and Registration Statement, supra notes 3 and 7, 
respectively.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \24\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\25\ In particular, the Commission finds that the 
proposed rule change is consistent with the requirements of Section 
6(b)(5) of the Act,\26\ which requires, among other things, that the 
Exchange's rules be designed to prevent fraudulent and manipulative 
acts and practices, to promote just and equitable principles of trade, 
to foster cooperation and coordination with persons engaged in 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and, in general, to protect investors and the public interest. 
The Commission notes that the Fund and the Shares must comply with the 
requirements of NYSE Arca Equities Rule 8.600 to be listed and traded 
on the Exchange.
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    \24\ 15 U.S.C. 78f.
    \25\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \26\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\27\ which sets forth Congress's finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association (``CTA'') high-speed

[[Page 14051]]

line. 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.\28\ 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.\29\ The NAV 
per Share of the Fund will be determined once daily as of the close of 
the New York Stock Exchange (``NYSE''), usually 4 p.m. Eastern Time, 
each day the NYSE is open for trading, provided that any assets or 
liabilities denominated in currencies other than the U.S. dollar shall 
be translated into U.S. dollars at the prevailing market rates on the 
date of valuation as quoted by one or more major banks or dealers that 
makes a two-way market in such currencies (or a data service provider 
based on quotations received from such banks or dealers); and U.S. 
fixed income instruments may be valued as of the announced closing time 
for trading in fixed income instruments on any day that the Securities 
Industry and Financial Markets Association announces an early closing 
time. Information regarding market price and trading volume for the 
Shares 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. In addition, price information for the 
debt securities held by the Fund will be available through major market 
data vendors. 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.
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    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \28\ According to the Exchange, several major market data 
vendors display and/or make widely available Portfolio Indicative 
Values published on CTA or other data feeds.
    \29\ On a daily basis, the Adviser will disclose on the Fund's 
Web site for each portfolio security or other financial instrument 
of the Fund the following information: Ticker symbol (if 
applicable), name of security or financial instrument, number of 
shares or dollar value of financial instruments held in the 
portfolio, and percentage weighting of the security or financial 
instrument in the portfolio. The Web site information will be 
publicly available at no charge.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange 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.\30\ 
In addition, the Exchange will halt trading in the Shares under the 
specific circumstances set forth in NYSE Arca Equities Rule 
8.600(d)(2)(D) and may halt trading in the Shares if trading is not 
occurring in the securities and/or the financial instruments comprising 
the Disclosed Portfolio of the Fund, or if other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.\31\ Further, the Commission notes that the 
Reporting Authority that provides the Disclosed Portfolio must 
implement and maintain, or be subject to, procedures designed to 
prevent the use and dissemination of material non-public information 
regarding the actual components of the portfolio.\32\ The Exchange 
states that it has a general policy prohibiting the distribution of 
material, non-public information by its employees. The Exchange also 
states that the Adviser is affiliated with a broker-dealer, and the 
Adviser has implemented a fire wall with respect to its broker-dealer 
affiliate regarding access to information concerning the composition 
and/or changes to the portfolio.\33\
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    \30\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \31\ See NYSE Arca Equities Rule 8.600(d)(2)(C). With respect to 
trading halts, the Exchange may consider other relevant factors in 
exercising its discretion to halt or suspend trading in the Shares 
of the Fund. 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.
    \32\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \33\ See supra note 8. The Commission notes that 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 its 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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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures applicable to derivative 
products, which include Managed Fund Shares, 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.
    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
of the special characteristics and risks associated with trading the 
Shares. Specifically, the Information Bulletin will discuss the 
following: (a) The procedures for purchases and redemptions of Shares 
in Creation Unit Aggregations (and that Shares are not individually 
redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (c) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (d) how information regarding the 
Portfolio Indicative Value is disseminated; (e) the requirement that 
ETP Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (f) trading information.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\34\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \34\ 17 CFR 240.10A-3.
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    (6) The Fund will not: (a) Invest in non-U.S.-registered equity 
securities; (b) employ any leverage in order to meet its

[[Page 14052]]

investment objective; and (c) consistent with the Exemptive Order, 
invest in derivatives, including options, swaps, or futures.
    (7) The Fund may hold in the aggregate up to 15% of its net assets 
in: (a) Illiquid securities; and (b) Rule 144A securities.\35\
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    \35\ See supra note 6.
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    (8) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    This approval order is based on the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \36\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \36\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-NYSEArca-2011-81), as 
modified by Amendment No. 3 thereto, be, and it hereby is, approved.
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    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-5610 Filed 3-7-12; 8:45 am]
BILLING CODE 8011-01-P


