
[Federal Register Volume 77, Number 99 (Tuesday, May 22, 2012)]
[Notices]
[Pages 30341-30345]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12306]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67001; File No. SR-NYSEArca-2012-21]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, Relating to the Listing and Trading of the First Trust North 
American Infrastructure Fund Under NYSE Arca Equities Rule 8.600

May 16, 2012.

I. Introduction

    On March 13, 2012, 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 First 
Trust North American Infrastructure Fund (``Fund'') under NYSE Arca 
Equities Rule 8.600. The proposed rule change was published for comment 
in the Federal Register on April 3, 2012.\3\ The Commission received no 
comments on the proposed rule change. On May 16, 2012, the Exchange 
submitted Amendment No. 1 to the proposed rule change.\4\ This order 
grants approval of the proposed rule change, as modified by Amendment 
No. 1 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. 66669 (March 28, 
2012), 77 FR 20079 (``Notice'').
    \4\ In Amendment No. 1, the Exchange proposes to remove 
references to the Exemptive Order (as defined herein) to clarify 
that the percentage limitations with respect to the Fund's 
investments in certain derivative instruments are to be imposed by 
the Fund, and are not specifically imposed under the Exemptive 
Order. This technical amendment does not require notice and comment 
as it did not materially affect the substance of the proposed rule 
change or raise any unique or novel regulatory issues.
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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 
First Trust Exchange-Traded Fund IV (``Trust''),\5\ which is organized 
as a Massachusetts business trust and is registered with the Commission 
as an open-end management investment company. The investment adviser to 
the Fund will be First Trust Advisors L.P. (``Adviser'' or ``First 
Trust''). Energy Income Partners LLC will serve as investment sub-
adviser to the Fund (``Sub-Adviser'') and provide day-to-day portfolio 
management of the Fund. First Trust Portfolios L.P. will be the 
principal underwriter and distributor of the Fund's Shares. Bank of New 
York Mellon will serve as administrator, custodian, and transfer agent 
for the Fund. The Exchange states that the Adviser and Sub-Adviser are 
each affiliated with a broker-dealer and, as such, represents that each 
of the Adviser and Sub-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 Fund's portfolio.\6\
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    \5\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On July 19, 2011, the Trust filed with the 
Commission a registration statement on Form N-1A under the 
Securities Act of 1933 (15 U.S.C. 77a) (``Securities Act'') and 
under the 1940 Act relating to the Fund (File Nos. 333-174332 and 
811-22559) (``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. 28468 
(October 27, 2008) (File No. 812-13477) (``Exemptive Order'').
    \6\ See NYSE Arca Equities Rule 8.600, Commentary .06. 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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First Trust North American Infrastructure Fund

    The Fund's investment objective is to seek total return with an 
emphasis on current distributions and dividends paid to shareholders. 
Under normal market conditions,\7\ the Fund will invest at least 80% of 
its net assets (plus the amount of any borrowings for investment 
purposes) in exchange-traded equity securities of companies domiciled 
in the United States or Canada and deemed to be engaged in the energy 
infrastructure segment of the energy and utilities sectors. Equity 
securities include common stocks; preferred securities; warrants to 
purchase common stocks or preferred securities; securities convertible 
into common stocks or preferred securities; and other securities with 
equity characteristics. Such securities may include depositary 
receipts, master limited partnerships (``MLPs''), MLP I-shares (``I-
Shares'') (as described below), MLP subordinated units (as described 
below), securities of pipeline and power utility companies, and 
securities of Canadian energy infrastructure companies and Canadian 
Energy Infrastructure Trusts \8\ (``CEITs''). The

[[Page 30342]]

Sub-Adviser's priority will be to focus on steady fee-for-service 
income and will limit the cyclical energy exposure of the portfolio in 
order to reduce the volatility of returns.
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    \7\ The term ``under normal market conditions'' 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.
    \8\ CEITs are Canadian trusts that own or invest in companies 
engaged in activities in the energy infrastructure sector, including 
the exploration, mining, production, processing, transportation and 
storage of energy-related resources. An investment in units of CEITs 
involves risks which differ from an investment in common stock of a 
corporation. CEITs generally pass revenue on to unit holders rather 
than reinvesting in the business, which may lead to the sacrifice of 
potential growth. CEITs generally do not guarantee minimum 
distributions or return of capital. If the assets underlying a CEIT 
do not perform as expected, the CEIT may reduce or eliminate 
distributions. The declaration of such distributions generally 
depends upon various factors, including the operating performance 
and financial condition of the CEITs and general economic 
conditions.
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    The Fund may invest in U.S. dollar-denominated, exchange-listed 
depositary receipts and U.S. dollar-denominated foreign (primarily 
Canadian) equity securities.\9\ The Fund's investments may include 
American Depositary Receipts (``ADRs''), Global Depositary Receipts 
(``GDRs''), European Depositary Receipts (``EDRs'') or other depositary 
receipts (collectively ``Depositary Receipts''), or New York Shares or 
Global shares.\10\
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    \9\ The foreign equity securities in which the Fund may invest, 
including any Depositary Receipts (as defined herein) and/or New 
York Shares and Global shares, as described herein, will be limited 
to securities that trade in markets that are members of the 
Intermarket Surveillance Group (``ISG''), which includes all U.S. 
national securities exchanges and certain foreign exchanges, or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange.
    \10\ ADRs are receipts typically issued by an American bank or 
trust company that evidence ownership of underlying securities 
issued by a foreign corporation. EDRs are receipts issued by a 
European bank or trust company evidencing ownership of securities 
issued by a foreign corporation. New York Shares are typically 
issued by a company incorporated in the Netherlands and represent a 
direct interest in the company. GDRs are receipts issued throughout 
the world that evidence a similar arrangement. ADRs, EDRs, and GDRs 
may trade in foreign currencies that differ from the currency the 
underlying security for each ADR, EDR, or GDR principally trades in. 
Generally, ADRs and New York Shares, in registered form, are 
designed for use in the U.S. securities markets. EDRs, in registered 
form, are used to access European markets. GDRs, in registered form, 
are traded both in the United States and in Europe and are designed 
for use throughout the world. Global shares are the actual 
(ordinary) shares of a non-U.S. company which trade both in the home 
market and the United States. Global shares are represented by the 
same share certificate in the United States and the home market. 
Separate registrars in the United States and the home country are 
maintained. In most cases, purchases occurring on a U.S. exchange 
would be reflected on the U.S. registrar. Global shares may also be 
eligible to list on exchanges in addition to the United States and 
the home country.
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    The Fund may invest in MLPs, which are limited partnerships whose 
shares (or common units) are listed and traded on a U.S. securities 
exchange. To qualify to be treated as a partnership for federal income 
tax purposes, such an MLP must receive at least 90% of its income from 
qualifying sources such as natural resource activities. Natural 
resource activities include the exploration, development, mining, 
production, processing, refining, transportation, storage, and 
marketing of mineral or natural resources.\11\
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    \11\ MLPs generally have two classes of owners, the general 
partner and limited partners. The general partner, which is 
generally a major energy company, investment fund, or the management 
of the MLP, typically controls the MLP through a 2% general partner 
equity interest in the MLP plus common units and subordinated units. 
Limited partners own the remainder of the partnership, through 
ownership of common units, and have a limited role in the 
partnership's operations and management.
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    The Fund may invest in Energy MLPs, which can generally be 
classified as Midstream MLPs, Propane MLPs, and Coal MLPs.
    Midstream MLP natural gas services include the treating, gathering, 
compression, processing, transmission, and storage of natural gas and 
the transportation, fractionation, and storage of natural gas liquids 
(primarily propane, ethane, butane, and natural gasoline). Midstream 
MLP crude oil services include the gathering, transportation, storage, 
and terminaling of crude oil. Midstream MLP refined petroleum product 
services include the transportation (usually via pipelines, barges, 
rail cars, and trucks), storage, and terminaling of refined petroleum 
products (primarily gasoline, diesel fuel, and jet fuel) and other 
hydrocarbon by-products. Midstream MLPs may also operate ancillary 
businesses, including the marketing of the products and logistical 
services.
    Propane MLP services include the distribution of propane to 
homeowners for space and water heating and to commercial, industrial, 
and agricultural customers. Propane serves approximately 3% of the 
household energy needs in the United States, largely for homes beyond 
the geographic reach of natural gas distribution pipelines. Volumes are 
weather dependent, and a majority of annual cash flow is earned during 
the winter heating season (October through March).
    Coal MLP services include the owning, leasing, managing, 
production, and sale of coal and coal reserves. Electricity generation 
is the primary use of coal in the United States. Demand for electricity 
and supply of alternative fuels to generators are the primary drivers 
of coal demand.
    The Fund may invest in MLP subordinated units, which are typically 
issued by MLPs to their original sponsors, such as their founders, 
corporate general partners of MLPs, entities that sell assets to the 
MLP, and institutional investors.
    The Fund may invest in I-Shares, which represent an ownership 
interest issued by an affiliated party of an MLP. The MLP affiliate 
uses the proceeds from the sale of I-Shares to purchase limited 
partnership interests in the MLP in the form of i-units. I-units have 
similar features as MLP common units in terms of voting rights, 
liquidation preference, and distributions. However, rather than 
receiving cash, the MLP affiliate receives additional i-units in an 
amount equal to the cash distributions received by MLP common units. 
Similarly, holders of I-Shares will receive additional I-Shares, in the 
same proportion as the MLP affiliates' receipt of i-units, rather than 
cash distributions. I-Shares themselves have limited voting rights, 
which are similar to those applicable to MLP common units. I-Shares are 
listed and traded on the New York Stock Exchange LLC (``NYSE'') and 
NYSE Amex LLC.
    The Fund may invest in securities of other U.S. and Canadian-listed 
and traded open-end or closed-end investment companies, including 
exchange-traded funds that are registered under the 1940 Act 
(``ETFs''), such as ETFs listed on the Exchange under NYSE Arca 
Equities Rules 5.2(j)(3) and 8.600, that invest primarily in securities 
of the types in which the Fund may invest directly. The Fund also may 
invest in other types of U.S. exchange-traded products, such as 
exchange traded notes (``ETNs'') and exchange-traded pooled investment 
vehicles (collectively, with ETNs, ``Underlying ETPs'').\12\
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    \12\ Underlying ETPs, which will be listed on a national 
securities exchange, include the following: Index-Linked Securities 
(as described in NYSE Arca Equities Rule 5.2(j)(6)); 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); and closed-end funds.
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    The Fund may invest in the securities of ETFs in excess of the 
limits imposed under the 1940 Act pursuant to exemptive orders obtained 
by such ETFs and their sponsors from the Commission. Securities of 
other investment companies may be leveraged; such investments will not 
be used to enhance leverage and will be consistent with the Fund's 
investment objective.
    Under normal market conditions, the Fund will invest substantially 
all of its assets to meet its investment objective. The Fund may invest 
the remainder of its assets in securities with maturities of less than 
one year or cash equivalents, or it may hold cash, as described below. 
The percentage of the Fund invested in such holdings will vary and 
depend on

[[Page 30343]]

several factors, including market conditions.

Other Investments

    Cash Equivalents and Short-Term Investments. For temporary 
defensive purposes and during periods of high cash inflows or outflows, 
the Fund may depart from its principal investment strategies and invest 
part or all of its assets in securities with maturities of less than 
one year or cash or cash equivalents. The Fund may adopt a defensive 
strategy when the portfolio managers believe securities in which the 
Fund normally invests have elevated risks due to political or economic 
factors and in other extraordinary circumstances. The Fund may, without 
limit as to percentage of assets, purchase U.S. Government securities 
or short-term debt securities \13\ to keep cash on hand fully invested 
or for temporary defensive purposes. The use of temporary investments 
will not be a part of a principal investment strategy of the Fund. The 
Fund may invest in shares of money market funds to the extent permitted 
by the 1940 Act.
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    \13\ Short-term debt securities are securities from issuers 
having a long-term debt rating of at least A by Standard & Poor's 
Ratings Group, Moody's Investors Service, Inc., or Fitch, Inc. and 
having a maturity of one year or less, and are defined to include, 
without limitation, the following:
    1. U.S. Government securities, including bills, notes, and bonds 
differing as to maturity and rates of interest, which are either 
issued or guaranteed by the U.S. Treasury or by U.S. Government 
agencies or instrumentalities.
    2. Certificates of deposit issued against funds deposited in a 
bank or savings and loan association.
    3. Bankers' acceptances, which are short-term credit instruments 
used to finance commercial transactions.
    4. Repurchase agreements, which involve purchases of debt 
securities. In such an action, at the time the Fund purchases the 
security, it will simultaneously agree to resell and redeliver the 
security to the seller, who also simultaneously will agree to buy 
back the security at a fixed price and time. The Fund may enter into 
repurchase agreements only with respect to obligations of the U.S. 
Government, its agencies, or instrumentalities; certificates of 
deposit; or bankers' acceptances in which the Fund may invest. In 
addition, the Fund may only enter into repurchase agreements where 
the market value of the purchased securities/collateral equals at 
least 100% of principal including accrued interest and is marked-to-
market daily. The Fund intends to enter into repurchase agreements 
only with financial institutions and dealers believed by First Trust 
to present minimal credit risks in accordance with criteria 
established by the Trust's Board of Trustees. First Trust will 
review and monitor the creditworthiness of such institutions. First 
Trust will monitor the value of the collateral at the time the 
action is entered into and at all times during the term of the 
repurchase agreement. First Trust will do so in an effort to 
determine that the value of the collateral always equals or exceeds 
the agreed-upon repurchase price to be paid to the Fund.
    5. Bank time deposits, which are monies kept on deposit with 
banks or savings and loan associations for a stated period of time 
at a fixed rate of interest. There may be penalties for the early 
withdrawal of such time deposits, in which case the yields of these 
investments will be reduced.
    6. Commercial paper, which are short-term unsecured promissory 
notes. The Fund will not invest in any master demand notes.
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    Investments in Derivatives. The Fund may invest up to 35% of its 
net assets in futures (``Futures'' or ``Futures Contracts''), interest 
rate swaps, total return swaps, non-U.S. currency swaps, credit default 
swaps, options, and other derivative instruments to seek to enhance 
return, to hedge some of the risks of their investments in securities, 
as a substitute for a position in the underlying asset, to reduce 
transaction costs, to maintain full market exposure (which means to 
adjust the characteristics of their investments to more closely 
approximate those of the markets in which they invest), to manage cash 
flows, to limit exposure to losses due to changes to non-U.S. currency 
exchange rates, or to preserve capital. The Fund, under normal market 
conditions, will not invest more than 20% of its net assets in such 
instruments. In connection with hedging activities in which the Fund 
may engage, First Trust may cause the Fund to utilize a variety of 
financial instruments, including options, forward contracts, Futures 
Contracts, and options on Futures Contracts to attempt to hedge the 
Fund's holdings.\14\ The use of Futures is not a part of a principal 
investment strategy of the Fund.\15\
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    \14\ The Trust has filed a notice of eligibility for exclusion 
from the definition of the term ``commodity pool operator'' with the 
National Futures Association. The Fund will not enter into Futures 
and options transactions if the sum of the initial margin deposits 
and premiums paid for unexpired options exceeds 5% of the Fund's 
total assets.
    \15\ Hedging or derivative instruments on securities generally 
will be used to hedge against price movements in one or more 
particular securities positions that the Fund owns or intends to 
acquire. Such instruments may also be used to ``lock-in'' realized 
but unrecognized gains in the value of portfolio securities. Hedging 
instruments on stock indices, in contrast, generally are used to 
hedge against price movements in broad equity market sectors in 
which the Fund has invested or expects to invest. The use of hedging 
instruments is subject to applicable regulations of the Commission, 
the several options and Futures exchanges upon which they are 
traded, the Commodity Futures Trading Commission (``CFTC'') and 
various state regulatory authorities.
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    The Fund may use derivative investments to hedge against interest 
rate and market risks. The Fund may engage in various interest rate and 
currency hedging transactions, including buying or selling options or 
entering into other transactions including forward contracts, swaps, 
and other derivatives transactions. The Fund may also engage in certain 
transactions intended to hedge its exposure to currency risks due to 
foreign currency denominated investments. The Fund may sell covered 
calls on equity positions in the portfolio in order to enhance its 
income.
    The Fund may purchase stock index options, sell stock index options 
in order to close out existing positions, and/or write covered options 
on stock indices for hedging purposes. Stock index options are put 
options and call options on various stock indices. The Fund may enter 
into Futures Contracts, including index Futures as a hedge against 
movements in the equity markets, in order to hedge against changes on 
securities held or intended to be acquired by the Fund or for other 
purposes permissible under the Commodity Exchange Act (``CEA''). The 
Fund's hedging may include sales of Futures as an offset against the 
effect of expected declines in stock prices and purchases of Futures as 
an offset against the effect of expected increases in stock prices. The 
Fund will not enter into Futures Contracts which are prohibited under 
the CEA and will, to the extent required by regulatory authorities, 
enter only into Futures Contracts that are traded on national Futures 
exchanges and are standardized as to maturity date and underlying 
financial instrument. The principal interest rate Futures exchanges in 
the United States are the Chicago Board of Trade and the Chicago 
Mercantile Exchange.
    The Fund may also purchase or write put and call options on Futures 
Contracts and enter into closing transactions with respect to such 
options to terminate an existing position.
    The Fund may use options on Futures Contracts in connection with 
hedging strategies. Generally, these strategies would be applied under 
the same market and market sector conditions in which the Fund uses put 
and call options on securities or indices.
    The Fund may invest in companies that are considered to be 
``passive foreign investment companies'' (``PFICs''), which are 
generally certain non-U.S. corporations that receive at least 75% of 
their annual gross income from passive sources (such as interest, 
dividends, certain rents and royalties or capital gains) or that hold 
at least 50% of their assets in investments producing such passive 
income.\16\
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    \16\ See supra note 9.
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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 securities issued by 
energy infrastructure companies or obligations issued or guaranteed by 
the

[[Page 30344]]

U.S. Government, its agencies, or instrumentalities. Accordingly, the 
Fund will concentrate its investments in energy infrastructure 
companies.
    The Fund may hold illiquid securities (i.e., securities that are 
not readily marketable). For purposes of this restriction, illiquid 
securities include, but are not limited to, restricted securities 
(securities the disposition of which is restricted under the federal 
securities laws), securities that may only be resold pursuant to Rule 
144A under the Securities Act, and repurchase agreements with 
maturities in excess of seven days. However, the Fund will not hold 
illiquid securities if, as a result, such securities would comprise 
more than 15% of the value of the Fund's net assets.
    The Fund intends to qualify annually and to elect to be treated as 
a regulated investment company under the Internal Revenue Code of 1986, 
as amended.
    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 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.
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    \17\ 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/or the 
Registration Statement, as applicable.\18\
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    \18\ See Notice and Registration Statement, supra notes 3 and 5, 
respectively.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change, as modified by Amendment No. 1 thereto, is consistent with the 
requirements of Section 6 of the Act \19\ and the rules and regulations 
thereunder applicable to a national securities exchange.\20\ In 
particular, the Commission finds that the proposed rule change, as 
modified by Amendment No. 1 thereto, is consistent with the 
requirements of Section 6(b)(5) of the Act,\21\ 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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    \19\ 15 U.S.C. 78f.
    \20\ 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).
    \21\ 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,\22\ 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 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.\23\ 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.\24\ The NAV of the Fund will be 
determined as of the close of trading (normally 4:00 p.m., Eastern 
Time) on each day the NYSE is open for business. Information regarding 
market price and trading volume of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services. 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 portfolio securities held by the 
Fund will be readily available from the securities exchanges trading 
such securities, automated quotation systems, published or other public 
sources, or online information services such as Bloomberg or Reuters. 
The Fund's Web site 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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    \22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \23\ 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. The price of a non-U.S. 
security that is primarily traded on a non-U.S. exchange will be 
updated, using the last sale price, every 15 seconds throughout the 
trading day, provided that, upon the closing of such non-U.S. 
exchange, the closing price of the security, after being converted 
to U.S. dollars, will be used. Furthermore, in calculating the 
Portfolio Indicative Value of the Fund's Shares, exchange rates may 
be used throughout the day (9:00 a.m. to 4:15 p.m., Eastern Time) 
that may differ from those used to calculate the NAV per Share of 
the Fund and, consequently, may result in differences between the 
NAV and the Portfolio Indicative Value.
    \24\ 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 securities and 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.\25\ 
In addition, 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. The Exchange 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.\26\ Further, the

[[Page 30345]]

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.\27\ 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 and Sub-Adviser 
are each affiliated with a broker-dealer, and the Adviser and Sub-
Adviser have each implemented a fire wall with respect to its broker-
dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio.\28\
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    \25\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \26\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing 
additional considerations for the suspension of trading in or 
removal from listing of Managed Fund Shares on the Exchange). 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.
    \27\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \28\ See supra note 6. 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 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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    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 Holders (``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,\29\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \29\ 17 CFR 240.10A-3.
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    (6) The foreign equity securities in which the Fund may invest, 
including any Depositary Receipts, New York Shares, and Global shares, 
will be limited to securities that trade in markets that are members of 
the Intermarket Surveillance Group, which includes all U.S. national 
securities exchanges and certain foreign exchanges, or are parties to a 
comprehensive surveillance sharing agreement with the Exchange.
    (7) While the Fund may invest in securities of other investment 
companies that are leveraged, such investments will not be used to 
enhance leverage and will be consistent with the Fund's investment 
objective.
    (8) The Fund may invest up to 35% of its net assets in Futures 
Contracts, interest rate swaps, total return swaps, non-U.S. currency 
swaps, credit default swaps, options, and other derivative instruments 
to seek to enhance return, to hedge some of the risks of their 
investments in securities, as a substitute for a position in the 
underlying asset, to reduce transaction costs, to maintain full market 
exposure, to manage cash flows, to limit exposure to losses due to 
changes to non-U.S. currency exchange rates, or to preserve capital. 
The Fund, under normal market conditions, will not invest more than 20% 
of its net assets in such instruments.
    (9) The Fund will not hold illiquid securities, which include 
restricted securities, Rule 144A securities, and repurchase agreements 
with maturities in excess of seven days, if, as a result, such 
securities would comprise more than 15% of the value of the Fund's net 
assets.
    (10) 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 all of the Exchange's representations.
    For the foregoing reasons, the Commission finds that the proposed 
rule change, as modified by Amendment No. 1 thereto, is consistent with 
Section 6(b)(5) of the Act \30\ and the rules and regulations 
thereunder applicable to a national securities exchange.
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    \30\ 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,\31\ that the proposed rule change (SR-NYSEArca-2012-21), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \31\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\32\
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    \32\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-12306 Filed 5-21-12; 8:45 am]
BILLING CODE 8011-01-P


