
[Federal Register Volume 77, Number 104 (Wednesday, May 30, 2012)]
[Notices]
[Pages 31899-31906]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-12996]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67045; File No. SR-NYSEArca-2012-44]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to Listing and Trading of iShares 
Strategic Beta U.S. Large Cap Fund and iShares Strategic Beta U.S. 
Small Cap Fund Under NYSE Arca Equities Rule 8.600

May 23, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby 
given that, on May 14, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items

[[Page 31900]]

have been substantially 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''): iShares Strategic 
Beta U.S. Large Cap Fund and iShares Strategic Beta U.S. Small Cap 
Fund. The text of the proposed rule change is available on the 
Exchange's Web site at www.nyse.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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 shares (``Shares'') of the 
following under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares: \3\ iShares Strategic Beta 
U.S. Large Cap Fund and iShares Strategic Beta U.S. Small Cap Fund 
(each, a ``Fund'' and, collectively, ``Funds'').\4\ The Shares of each 
Fund will be offered by iShares U.S. ETF Trust (``Trust''), which is 
organized as a Delaware statutory trust and is registered with the 
Commission as an open-end management investment company.\5\ The Funds 
will be managed by BlackRock Fund Advisors (``BFA'' or ``Adviser''), an 
indirect wholly-owned subsidiary of BlackRock, Inc. BlackRock 
Investments, LLC (``Distributor'') will be the principal underwriter 
and distributor of the Funds' Shares. State Street Bank and Trust 
Company (``Administrator,'' ``Custodian,'' or ``Transfer Agent'') will 
serve as administrator, custodian, and transfer agent for the Funds.
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    \3\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``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 and 
trading of Dent Tactical ETF); and 63076 (October 12, 2010), 75 FR 
63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order approving 
listing and trading of Cambria Global Tactical ETF).
    \5\ The Trust is registered under the 1940 Act. On, December 21, 
2011, 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 (i) iShares Strategic Beta U.S. Large Cap Fund (File 
Nos. 333-178677 and 811-22649) (``Large Cap Registration 
Statement''), and (ii) iShares Strategic Beta U.S. Small Cap Fund 
(File Nos. 333-178675 and 811-22649) (``Small Cap Registration 
Statement'' and, together with the Large Cap Registration Statement, 
``Registration Statements''). The description of the operation of 
the Trust and the Funds herein is based, in part, on the 
Registration Statements. In addition, the Commission has issued an 
order granting certain exemptive relief to the Trust under the1940 
Act. See Investment Company Act Release No. 29571 (File No. 812-
13601) (``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. 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. The Adviser is 
affiliated with multiple broker-dealers and has implemented a ``fire 
wall'' with respect to such broker-dealers regarding access to 
information concerning the composition and/or changes to the Funds' 
portfolios. 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 a portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser and 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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iShares Strategic Beta U.S. Large Cap Fund
    According to the Large Cap Registration Statement, the iShares 
Strategic Beta U.S. Large Cap Fund will seek long-term capital 
appreciation. The Fund will seek to achieve its investment objective by 
investing, under normal circumstances,\7\ at least 80% of its net 
assets in U.S. exchange-listed and traded equity securities of large-
capitalization issuers. The Fund will seek to maintain strategic 
exposure to U.S. large-capitalization stocks with targeted investment 
characteristics. BFA

[[Page 31901]]

will utilize a proprietary investment process to assemble an investment 
portfolio from a defined group of stocks that seeks to emphasize 
companies within the group that exhibit certain quantitative investment 
characteristics, such as higher quality earnings, low relative 
valuation, and smaller relative market capitalization, and de-emphasize 
companies that lack such characteristics. The investment process is 
intended to provide an increased exposure to securities of companies 
with higher quality earnings, lower relative valuations, and smaller 
relative market capitalizations than would a fund that seeks to 
replicate the performance of a broad U.S. large-capitalization stock 
index. Companies in the universe of U.S. large capitalization 
securities represent various sectors of the U.S. large capitalization 
market.
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    \7\ 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 Fund's proprietary investment process will begin with the 
selection of securities representing a defined investable universe of 
stocks of U.S. large-capitalization issuers. The universe is then 
subjected to rules-based screens designed to exclude securities with 
very low trading volume or very low prices. The stocks will then be 
scored based on their exposure to quantitative metrics such as 
leverage, return on equity, price to book ratio, and capitalization. 
BFA will assemble a portfolio emphasizing those stocks with high 
relative exposure to the desired investment characteristics, while 
seeking to remain diversified by industry.
iShares Strategic Beta U.S. Small Cap Fund
    According to the Small Cap Registration Statement, the iShares 
Strategic Beta U.S. Small Cap Fund seeks long-term capital 
appreciation. The Fund will seek to achieve its investment objective by 
investing, under normal circumstances, at least 80% of its net assets 
in U.S. exchange-listed and traded equity securities of small-
capitalization issuers. The Fund will seek to maintain strategic 
exposure to U.S. small-capitalization stocks with targeted investment 
characteristics. BFA will utilize a proprietary investment process to 
assemble an investment portfolio from a defined group of stocks that 
seeks to emphasize companies within the group that exhibit certain 
quantitative investment characteristics, such as higher quality 
earnings, low relative valuation, and smaller relative market 
capitalization, and de-emphasize companies that lack such 
characteristics. The investment process is intended to provide an 
increased exposure to securities of companies with higher quality 
earnings, lower relative valuations, and smaller relative market 
capitalizations than would a fund that seeks to replicate the 
performance of a broad U.S. small-capitalization stock index. Companies 
in the universe of U.S. small capitalization securities represent 
various sectors of the U.S. small capitalization market.
    The Fund's proprietary investment process will begin with 
securities representing a defined investable universe of stocks of U.S. 
small-capitalization issuers. The universe will then be subjected to 
rules-based screens designed to exclude securities with very low 
trading volume or very low prices. The stocks are then scored based on 
their exposure to quantitative metrics such as leverage, return on 
equity, price to book ratio, and capitalization. BFA will assemble a 
portfolio emphasizing those stocks with high relative exposure to the 
desired investment characteristics, while seeking to remain diversified 
by industry.
    With respect to each of the Funds, no less than 80% of the equity 
securities held by the respective Fund will be listed and traded on a 
U.S. national securities exchange.\8\
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    \8\ See note 22, infra.
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Other Investments
    While each Fund, under normal circumstances, will invest at least 
80% of its net assets in their respective investments, each Fund may 
directly invest in certain other investments, as described below. The 
Funds may temporarily depart from their normal investment process,\9\ 
provided that the alternative, in the opinion of BFA, is consistent 
with a Fund's investment objective and is in the best interest of a 
Fund. However, BFA will not seek to actively time market movements.
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    \9\ Circumstances under which the Funds may temporarily depart 
from their normal investment process include, but are not limited 
to, 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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    Each Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment), 
including Rule 144A securities. Each Fund will monitor its portfolio 
liquidity on an ongoing basis to determine whether, in light of current 
circumstances, an adequate level of liquidity is being maintained, and 
will consider taking appropriate steps in order to maintain adequate 
liquidity if, through a change in values, net assets, or other 
circumstances, more than 15% of a Fund's net assets are held in 
illiquid securities. Illiquid securities include securities subject to 
contractual or other restrictions on resale and other instruments that 
lack readily available markets as determined in accordance with 
Commission staff guidance.\10\
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    \10\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); and Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the 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); and 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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    The Funds may invest in repurchase and reverse repurchase 
agreements. A repurchase agreement is an instrument under which the 
purchaser (i.e., a Fund) acquires the security and the seller agrees, 
at the time of the sale, to repurchase the security at a mutually 
agreed upon time and price, thereby determining the yield during the 
purchaser's holding period. 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 Funds may invest in other short-term instruments, including 
money market instruments, on an ongoing basis to provide liquidity or 
for other reasons. Money market instruments are generally short-term 
investments that may include but are not limited to: (i) Shares of 
money market funds (including those advised by BFA or otherwise 
affiliated with BFA); (ii) obligations issued or guaranteed by the U.S. 
government, its agencies, or instrumentalities (including government-
sponsored enterprises); (iii) negotiable certificates of deposit 
(``CDs''), bankers' acceptances, fixed-time deposits, and other 
obligations of U.S. and non-U.S. banks (including non-U.S. branches) 
and similar institutions; (iv) commercial paper rated, at the date of 
purchase, ``Prime-1'' by Moody's[supreg] Investors Service, Inc., ``F-
1'' by Fitch Inc., or ``A-1'' by Standard & Poor's[supreg] 
(``S&P[supreg]''), or if unrated, of comparable quality as determined 
by BFA; (v) non-

[[Page 31902]]

convertible corporate debt securities (e.g., bonds and debentures) with 
remaining maturities at the date of purchase of not more than 397 days 
and that satisfy the rating requirements set forth in Rule 2a-7 under 
the 1940 Act; and (vi) short-term U.S. dollar-denominated obligations 
of non-U.S. banks (including U.S. branches) that, in the opinion of 
BFA, are of comparable quality to obligations of U.S. banks which may 
be purchased by the Funds. Any of these instruments may be purchased on 
a current or forward-settled basis. Time deposits are non-negotiable 
deposits maintained in banking institutions for specified periods of 
time at stated interest rates.
    A Fund may invest a small portion of its net assets in tracking 
stocks, which primarily will be U.S. exchange-listed. A tracking stock 
is a separate class of common stock whose value is linked to a specific 
business unit or operating division within a larger company and is 
designed to ``track'' the performance of such business unit or 
division. The tracking stock may pay dividends to shareholders 
independent of the parent company. The parent company, rather than the 
business unit or division, generally is the issuer of tracking stock. 
However, holders of the tracking stock may not have the same rights as 
holders of the company's common stock.
    Each Fund will be classified as a ``diversified'' investment 
company under the 1940 Act.\11\
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    \11\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Funds will not purchase the securities of issuers conducting 
their principal business activity in the same industry if, immediately 
after the purchase and as a result thereof, the value of a Fund's 
investments in that industry would equal or exceed 25% of the current 
value of a Fund's total assets, provided that this restriction does not 
limit a Fund's: (i) Investments in securities of other investment 
companies, (ii) investments in securities issued or guaranteed by the 
U.S. government, its agencies or instrumentalities, or (iii) 
investments in repurchase agreements collateralized by U.S. government 
securities.\12\
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    \12\ 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 Funds intend to qualify for and to elect treatment as a 
separate regulated investment company (``RIC'') under Subchapter M of 
the Internal Revenue Code.\13\
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    \13\ 26 U.S.C. 851 et seq. According to the Registration 
Statements, in order to be taxable as a RIC, a Fund must distribute 
annually to its shareholders at least 90% of its net investment 
income (generally net investment income plus the excess of net 
short-term capital gains over net long-term capital losses) and at 
least 90% of its net tax exempt interest income, for each tax year, 
if any, to its shareholders (``Distribution Requirement'') and also 
must meet several additional requirements. Among these requirements 
are the following: (i) At least 90% of the Fund's gross income each 
taxable year must be derived 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 its business of investing in such 
stock, securities or currencies, and net income derived from an 
interest in qualified publicly traded partnerships; (ii) at the end 
of each fiscal quarter of the Fund's taxable year, at least 50% of 
the market value of its total assets must be represented by cash and 
cash items, U.S. government securities, securities of other RICs and 
other securities, with such 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 more than 10% of the outstanding voting 
securities of such issuer; and (iii) at the end of each fiscal 
quarter of the Fund's taxable year, not more than 25% of the value 
of its total assets is invested in the securities (other than U.S. 
government securities or securities of other RICs) of any one issuer 
or the securities of two or more issuers engaged in the same, 
similar, or related trades or businesses if the Fund owns at least 
20% of the voting power of such issuers, or the securities of one or 
more qualified publicly traded partnerships.
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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 Funds will be in 
compliance with Rule 10A-3 under the Exchange Act,\14\ as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for each Fund 
will be outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a 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, as defined in NYSE Arca 
Equities Rule 8.600(c)(2), will be made available to all market 
participants at the same time.
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    \14\ 17 CFR 240.10A-3.
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    In accordance with the Exemptive Order, the Funds will not invest 
in options, futures, or swaps. The Funds may invest in currency 
forwards for hedging and trade settlement purposes.\15\ Each Fund's 
investments will be consistent with its respective investment objective 
and will not be used to enhance leverage.
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    \15\ A forward currency contract is an obligation to purchase or 
sell a specific currency at a future date, which may be any fixed 
number of days from the date of the contract agreed upon by the 
parties, at a price set at the time of the contract.
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    The Funds will not invest in non-U.S.-registered equity securities.
Creation and Redemption of Shares
    According to the Registration Statements, the Funds will issue and 
redeem Shares on a continuous basis at the NAV only in large specified 
numbers of Shares called a ``Creation Unit.''
    The consideration for purchase of Creation Units of each Fund 
generally will consist of the in-kind deposit of a designated portfolio 
of securities (including any portion of such securities for which cash 
may be substituted) (i.e., ``Deposit Securities''), and the ``Cash 
Component'' computed as described below. Together, the Deposit 
Securities and the Cash Component constitute the ``Fund Deposit,'' 
which will be applicable (subject to possible amendment or correction) 
to creation requests received in proper form. The Fund Deposit 
represents the minimum initial and subsequent investment amount for a 
Creation Unit of the respective Fund.
    The Cash Component will be an amount equal to the difference 
between the NAV of the respective Shares (per Creation Unit) and the 
``Deposit Amount,'' which will be an amount equal to the market value 
of the Deposit Securities, and serve to compensate for any differences 
between the NAV per Creation Unit and the Deposit Amount. Each Fund 
currently will offer Creation Units for in-kind deposits but reserves 
the right to utilize a ``cash'' option in lieu of some or all of the 
applicable Deposit Securities for creation of Shares.
    BFA will make available through the National Securities Clearing 
Corporation (``NSCC'') on each business day, prior to the opening of 
business on the Exchange, the list of names and the required number or 
par value of each Deposit Security and the amount of the Cash Component 
to be included in the current Fund Deposit (based on information as of 
the end of the previous business day) for each Fund.
    Creation Units may be purchased only by or through a Depository 
Trust Company (``DTC'') participant that has entered into an Authorized 
Participant Agreement (as described in the Registration Statements) 
with the Distributor (``Authorized Participant''). Except as noted 
below, all creation orders must be placed for one or more Creation 
Units and must be received by the Distributor in proper form no later 
than the closing time of the regular trading session of the Exchange 
(normally 4:00 p.m., Eastern time) in each case on the date such order 
is placed in order for creation of Creation Units to be effected based 
on the NAV of Shares of the respective Fund as next

[[Page 31903]]

determined on such date after receipt of the order in proper form.
    Shares of each Fund may be redeemed only in Creation Units at their 
NAV next determined after receipt of a redemption request in proper 
form by the Distributor and only on a business day. BFA will make 
available through the NSCC, prior to the opening of business on the 
Exchange on each business day, the designated portfolio of securities 
(including any portion of such securities for which cash may be 
substituted) that will be applicable (subject to possible amendment or 
correction) to redemption requests received in proper form on that day 
(``Fund Securities''). Fund Securities received on redemption may not 
be identical to Deposit Securities that are applicable to creations of 
Creation Units.
    Unless cash redemptions are available or specified for the 
respective Fund, the redemption proceeds for a Creation Unit generally 
will consist of a specified amount of cash, Fund Securities, plus 
additional cash in an amount equal to the difference between the NAV of 
the Shares being redeemed, as next determined after the receipt of a 
request in proper form, and the value of the specified amount of cash 
and Fund Securities, less a redemption transaction fee. Each Fund 
currently will redeem Shares for Fund Securities, but each Fund 
reserves the right to utilize a ``cash'' option for redemption of 
Shares.
    Redemption requests for Creation Units of the Funds must be 
submitted to the Distributor by or through an Authorized Participant no 
later than 4:00 p.m. Eastern time on any business day, in order to 
receive that day's NAV.
    Detailed descriptions of the Funds, procedures for creating and 
redeeming Shares, transaction fees and expenses, dividends, 
distributions, taxes, risks, and reports to be distributed to 
beneficial owners of the Shares can be found in the Registration 
Statements or on the Web site for the Funds (www.iShares.com), as 
applicable.
Determination of Net Asset Value
    According to the Registration Statements, the NAV of the Funds 
normally will be determined once each business day, generally as of the 
regularly scheduled close of business of the New York Stock Exchange 
(``NYSE'') (normally 4:00 p.m., Eastern time) on each day that the NYSE 
is open for trading, based on prices at the time of closing provided 
that (a) any Fund assets or liabilities denominated in currencies other 
than the U.S. dollar are translated into U.S. dollars at the prevailing 
market rates on the date of valuation as quoted by one or more data 
service providers, and (b) U.S. fixed-income assets may be valued as of 
the announced closing time for trading in fixed-income instruments in a 
particular market or exchange. The NAV of the Funds will be calculated 
by dividing the value of the net assets of each Fund (i.e., the value 
of its total assets less total liabilities) by the total number of 
outstanding shares of a Fund, generally rounded to the nearest cent.
    The value of the securities and other assets held by the Funds, and 
their liabilities, will be determined pursuant to valuation policies 
and procedures approved by the Trust's Board of Trustees (``Board''). 
The Funds' assets and liabilities will be valued primarily on the basis 
of market quotations.
    Equity investments will be valued at market value, which is 
generally determined using the last reported official closing price or 
last trading price on the exchange or market on which the security is 
primarily traded at the time of valuation.
    Generally, trading in U.S. government securities, money market 
instruments, and certain fixed-income securities is substantially 
completed each day at various times prior to the close of business on 
the NYSE. The values of such securities used in computing the NAV of 
each Fund will be determined as of such times.
    When market quotations are not readily available or are believed by 
BFA to be unreliable, the Funds' investments will be valued at fair 
value.\16\ Fair value determinations will be made by BFA in accordance 
with policies and procedures approved by the Trust's Board. BFA may 
conclude that a market quotation is not readily available or is 
unreliable if a security or other asset or liability does not have a 
price source due to its lack of liquidity, if a market quotation 
differs significantly from recent price quotations or otherwise no 
longer appears to reflect fair value, where the security or other asset 
or liability is thinly traded, or where there is a significant event 
subsequent to the most recent market quotation. A ``significant event'' 
is an event that, in the judgment of BFA, is likely to cause a material 
change to the closing market price of the asset or liability held by a 
Fund.
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    \16\ According to the Registration Statements, fair value 
represents a good faith approximation of the value of an asset or 
liability. The fair value of an asset or liability held by a Fund is 
the amount a Fund might reasonably expect to receive from the 
current sale of that asset or the cost to extinguish that liability 
in an arm's-length transaction. Valuing a Fund's investments using 
fair value pricing will result in prices that may differ from 
current market valuations and that may not be the price at which 
those investments could have been sold during the period in which 
the particular fair values were used.
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Availability of Information
    The Funds' Web site (www.iShares.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Funds that may be downloaded. The Funds' Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Funds, (1) the prior business day's 
reported closing price, NAV and mid-point of the bid/ask spread at the 
time of calculation of such NAV (``Bid/Ask Price''),\17\ and a 
calculation of the premium and discount of the Bid/Ask Price against 
the NAV, and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Funds will disclose on their Web site the Disclosed Portfolio that will 
form the basis for the Funds' calculation of NAV at the end of the 
business day.\18\
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    \17\ The Bid/Ask Price of the Funds' Shares will be determined 
using the mid-point of the highest bid and the lowest offer on the 
Exchange as of the time of calculation of the Funds' NAV. The 
records relating to Bid/Ask Prices will be retained by the Funds and 
their service providers.
    \18\ Under accounting procedures followed by the Funds, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Funds 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business day.
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    On a daily basis, the Adviser will disclose for each portfolio 
security or other financial instrument of the Funds the following 
information on the Funds' Web site: ticker symbol (if applicable), name 
of security and financial instrument, number of shares or dollar value 
of financial instruments held in the portfolio, and percentage 
weighting of the security and financial instrument in the portfolio. 
The Web site information will be publicly available at no charge.
    In addition, a basket composition file, which includes the security 
names and share quantities required to be delivered in exchange for a 
Fund's Shares, together with estimates and actual cash components, will 
be publicly disseminated daily prior to the opening of the NYSE via 
NSCC. The basket will represent one Creation Unit of each Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information

[[Page 31904]]

(``SAI''), the Funds' Shareholder Reports, and the Trust's Form N-CSR 
and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder 
Reports are available free upon request from the Trust, and those 
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or 
downloaded from the Commission's Web site at www.sec.gov. 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. Quotation and last-sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line. In addition, the Indicative Optimized 
Portfolio Value (``IOPV''),\19\ which is the Portfolio Indicative 
Value, as defined in NYSE Arca Equities Rule 8.600 (c)(3), will be 
widely disseminated at least every 15 seconds during the Core Trading 
Session by one or more major market data vendors.\20\ The dissemination 
of the IOPV, together with the Disclosed Portfolio, will allow 
investors to determine the value of the underlying portfolio of the 
Funds on a daily basis and to provide a close estimate of that value 
throughout the trading day. The intra-day, closing, and settlement 
prices or other values of the portfolio securities, currency forwards, 
and other Fund investments are also generally 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.
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    \19\ According to the Registration Statements, the IOPV will be 
based on the current value of the securities and/or cash required to 
be deposited in exchange for a Creation Unit. The IOPV will not 
necessarily reflect the precise composition of the current portfolio 
of securities held by the Fund at a particular point in time or the 
best possible valuation of the current portfolio. Therefore, the 
IOPV should not be viewed as a ``real-time'' update of the Fund's 
NAV, which is computed only once a day. The IOPV will be generally 
determined by using both current market quotations and/or price 
quotations obtained from broker-dealers that may trade in the 
portfolio securities held by the Fund.
    \20\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IOPVs 
published on CTA or other data feeds.
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    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 Statements. 
All terms relating to the Funds that are referred to, but not defined 
in, this proposed rule change are defined in the Registration 
Statements.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Funds.\21\ Trading in Shares of the Funds 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments comprising the Disclosed Portfolio of the Funds; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of a Fund may be 
halted.
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    \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 4:00 a.m. to 8:00 p.m. Eastern time in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which include Managed 
Fund Shares) to monitor trading in the Shares. The Exchange represents 
that these procedures are adequate to properly monitor Exchange trading 
of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws.
    The Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. When such situations 
are detected, surveillance analysis follows and investigations are 
opened, where appropriate, to review the behavior of all relevant 
parties for all relevant trading violations.
    The Exchange may obtain information via the Intermarket 
Surveillance Group (``ISG'') from other exchanges that are members of 
ISG, including all U.S. national securities exchanges, or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement.\22\
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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 Funds may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    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 IOPV will not be calculated or publicly 
disseminated; (4) how information regarding the IOPV is disseminated; 
(5) the requirement that ETP Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (6) trading information.
    In addition, the Bulletin will reference that the Funds will be 
subject to various fees and expenses described in the Registration 
Statements. 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 4:00 p.m. Eastern time each trading 
day.

[[Page 31905]]

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.
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    \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 Adviser has implemented a 
``fire wall'' with respect to its affiliated broker-dealers regarding 
access to information concerning the composition and/or changes to the 
Funds' portfolios. The Exchange may obtain information via ISG from 
other exchanges that are members of ISG, including all U.S. national 
securities exchanges, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. No less than 80% of the 
equity securities held by the Funds will be listed and traded on a U.S. 
national securities exchange.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolio will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Funds and the Shares, 
thereby promoting market transparency. Moreover, the IOPV will be 
widely disseminated by one or more major market data vendors at least 
every 15 seconds during the Exchange's Core Trading Session. On each 
business day, before commencement of trading in Shares in the Core 
Trading Session on the Exchange, the Funds will disclose on their Web 
site the Disclosed Portfolio that will form the basis for the Funds' 
calculation of NAV at the end of the business day. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last-sale information will be available via the CTA high-speed 
line. The Web site for the Funds will include a form of the prospectus 
for the Funds and additional data relating to NAV and other applicable 
quantitative information. Moreover, prior to the commencement of 
trading, the Exchange will inform its ETP Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares. Trading in Shares of the Funds will be halted if 
the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have 
been reached or because of market conditions or for reasons that, in 
the view of the Exchange, make trading in the Shares inadvisable, and 
trading in the Shares will be subject to NYSE Arca Equities Rule 
8.600(d)(2)(D), which sets forth circumstances under which Shares of 
the Funds may be halted. In addition, as noted above, investors will 
have ready access to information regarding the Funds' holdings, the 
IOPV, the Disclosed Portfolio, and quotation and last-sale information 
for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of actively-managed exchange-traded products that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Funds' holdings, 
the IOPV, the Disclosed Portfolio, and quotation and last-sale 
information for the Shares. The Funds will be similar in their 
investment objective and guidelines, scope, and operation to many 
existing, listed index-based exchange-traded funds (``ETFs'') and will 
provide exposures similar to those provided by existing ETFs, mutual 
funds, and closed-end funds. The proposed rule change would benefit 
investors by providing them with additional choice of transparent and 
tradeable products.

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 Exchange 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 will:
    (A) By order approve or disapprove the 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 Exchange 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-2012-44 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-2012-44. 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

[[Page 31906]]

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 10:00 a.m. and 
3:00 p.m. Copies of the filing also will 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 Number SR-NYSEArca-2012-44 and should 
be submitted on or before June 20, 2012.
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    \24\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-12996 Filed 5-29-12; 8:45 am]
BILLING CODE 8011-01-P


