
[Federal Register Volume 77, Number 118 (Tuesday, June 19, 2012)]
[Notices]
[Pages 36591-36597]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-14905]



[[Page 36591]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67196; File No. SR-NYSEArca-2012-57]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to the Listing and Trading of QAM 
Equity Hedge ETF Under NYSE Arca Equities Rule 8.600

June 13, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that, on June 1, 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 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''): QAM Equity Hedge 
ETF. 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 the following Managed Fund 
Shares \3\ (``Shares'') under NYSE Arca Equities Rule 8.600: QAM Equity 
Hedge ETF (``Fund'').\4\ The Shares will be offered by AdvisorShares 
Trust (``Trust''), a statutory trust organized under the laws of the 
State of Delaware and registered with the Commission as an open-end 
management investment company.\5\ The investment adviser to the Fund is 
AdvisorShares Investments, LLC (``Adviser''). Commerce Asset Management 
serves as investment sub-adviser to the Fund (``Sub-Adviser'') and 
provides day-to-day portfolio management of the Fund. Foreside Fund 
Services, LLC (``Distributor'') is the principal underwriter and 
distributor of the Fund's Shares. The Bank of New York Mellon 
Corporation (``Administrator'') serves as administrator, custodian, and 
transfer agent for the Fund.
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    \3\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-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 approved NYSE Arca Equities Rule 8.600 and 
the listing and trading of certain funds of the PowerShares Actively 
Managed Exchange-Traded Funds Trust on the Exchange pursuant to Rule 
8.600 in Securities Exchange Act Release No. 57619 (April 4, 2008), 
73 FR 19544 (April 10, 2008) (SR-NYSEArca-2008-25). The Commission 
also previously approved listing and trading on the Exchange of a 
number of actively managed funds under Rule 8.600. See, e.g., 
Securities Exchange Act Release Nos. 60460 (August 7, 2009), 74 FR 
41468 (August 17, 2009) (SR-NYSEArca-2009-55) (order approving 
listing of Dent Tactical ETF); 61365 (January 15, 2010), 75 FR 4124 
(January 26, 2010) (SR-NYSEArca-2009-114) (order approving listing 
and trading of Grail McDonnell Fixed Income ETFs); 60981 (November 
10, 2009), 74 FR 59594 (November 18, 2009) (SR-NYSEArca-2009-79) 
(order approving listing of five fixed income funds of the PIMCO ETF 
Trust); 62502 (July 15, 2010), 75 FR 42471 (July 21, 2010) (SR-
NYSEArca-2010-57) (order approving listing of AdvisorShares WCM/BNY 
Mellon Focused Growth ADR ETF); and 63076 (October 12, 2010), 75 FR 
63874 (October 18, 2010) (SR-NYSEArca-2010-79) (order approving 
listing of Cambria Global Tactical ETF).
    \5\ The Trust is registered under the 1940 Act. On September 16, 
2011, the Trust filed with the Commission an amendment to its 
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. 333-157876 and 811-22110) (``Registration 
Statement''). The description of the operation of the Trust and the 
Fund herein is based, in part, on the Registration Statement. In 
addition, the Commission has issued an order granting certain 
exemptive relief to the Trust under the 1940 Act. See Investment 
Company Act Release No. 28822 (July 20, 2009) (File No. 812-13488) 
(``Exemptive Order'').
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    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio. In addition, Commentary 
.06 further requires that personnel who make decisions on the open-end 
fund's portfolio composition must be subject to procedures designed to 
prevent the use and dissemination of material, non-public 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 not affiliated with a broker-dealer. The Sub-Adviser is 
affiliated with Commerce Square Trading, LLC, a broker-dealer, and has 
implemented a fire wall with respect to its broker-dealer affiliate 
regarding access to information concerning the composition and/or 
changes to the portfolio. 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

[[Page 36592]]

such broker-dealer regarding access to information concerning the 
composition and/or changes to the portfolio, and will be subject to 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding such portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser and Sub-Adviser and their related 
personnel are subject to the provisions of Rule 204A-1 under the 
Advisers Act relating to codes of ethics. This Rule requires 
investment advisers to adopt a code of ethics that reflects the 
fiduciary nature of the relationship to clients as well as 
compliance with other applicable securities laws. Accordingly, 
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with 
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under 
the Advisers Act makes it unlawful for an investment adviser to 
provide investment advice to clients unless such investment adviser 
has (i) adopted and implemented written policies and procedures 
reasonably designed to prevent violation, by the investment adviser 
and its supervised persons, of the Advisers Act and the Commission 
rules adopted thereunder; (ii) implemented, at a minimum, an annual 
review regarding the adequacy of the policies and procedures 
established pursuant to subparagraph (i) above and the effectiveness 
of their implementation; and (iii) designated an individual (who is 
a supervised person) responsible for administering the policies and 
procedures adopted under subparagraph (i) above.
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Principal Investment Strategies
    According to the Registration Statement, the Fund seeks investment 
results that exceed the risk adjusted performance of approximately 50% 
of the long/short equity hedge fund universe as defined by the HFRI 
Equity Hedge (Total) Index (``HFRI Index'') constituents.\7\ The Fund 
is a ``fund of funds'' that seeks to achieve its investment objective, 
under normal circumstances,\8\ by investing at least 60% of its 
portfolio in both long and short positions in exchange-traded funds 
(``ETFs'') \9\ and exchange-traded notes (``ETNs'') \10\ that offer 
diversified exposure to global regions, countries, investment styles 
(i.e., value, growth), sectors, and industries, as well as exchange-
traded currency and commodity trusts (collectively, with ETFs and ETNs, 
``Underlying ETPs''),\11\ including Underlying ETPs that invest in 
short duration debt, cash, other cash equivalents, and other highly 
liquid instruments based on the Sub-Adviser's current analysis. The 
Sub-Adviser seeks to achieve the Fund's investment objective by taking 
long and short positions in Underlying ETPs that the Sub-Adviser 
believes, in the aggregate, will track the performance of a selected 
universe of long/short equity hedge funds.\12\ The Underlying ETPs in 
which the Fund will invest will primarily be index-based ETFs that hold 
substantially all of their assets in securities that offer diversified 
exposure to global regions, countries, investment styles, sectors, and 
industries.
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    \7\ The HFRI Index contains more than 2,400 funds. Instead of 
the Fund having an investment objective to outperform the HFRI 
Index, the Fund's investment objective is to outperform 50% of the 
constituents in the HFRI Index.
    \8\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the equity markets or the financial markets generally; operational 
issues causing dissemination of inaccurate market information; or 
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption, or any similar intervening circumstance.
    \9\ For purposes of this proposed rule change, ETFs are 
securities registered under the 1940 Act such as those listed and 
traded on the Exchange under NYSE Arca Equities Rules 5.2(j)(3) 
(Investment Company Units), 8.100 (Portfolio Depositary Receipts), 
and 8.600 (Managed Fund Shares).
    \10\ For purposes of this proposed rule change, ETNs are 
securities that are registered pursuant to the Securities Act such 
as those listed and traded on the Exchange pursuant to NYSE Arca 
Equities Rule 5.2(j)(6). ETNs are debt obligations of investment 
banks that are traded on exchanges and the returns of which are 
linked to the performance of market indexes. In addition to trading 
ETNs on exchanges, investors may redeem ETNs directly with the 
issuer on a weekly basis, typically in a minimum amount of 50,000 
units, or hold the ETNs until maturity.
    \11\ Underlying ETPs include, in addition to ETFs and ETNs, the 
following securities: 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); and 
closed-end funds. The Underlying ETPs all will be listed and traded 
in the U.S. on registered exchanges.
    \12\ According to the Registration Statement, long/short equity 
hedge funds typically buy stocks, ETFs, ETNs, or currencies that the 
hedge fund managers expect will appreciate, and concurrently either 
sell short stocks, ETFs, ETNs, or currencies that the hedge fund 
managers expect will decline in value or to hedge market or sector 
exposures.
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    In managing the Fund's portfolio, among other proprietary 
analytics, the Sub-Adviser will utilize Markov Processes International, 
LLC's (``MPI'') Dynamic Style Analysis (``DSA'') patented hedge fund 
analysis software to help select the Fund's investments and determine 
the allocation among such investments. The Sub-Adviser will identify 
approximately 50 market factors that track the aggregated exposure and 
approximate the returns of the selected universe of long/short equity 
hedge funds. The Sub-Adviser will use DSA and other proprietary 
analytics to define and track the various market factors and relative 
exposures and to adjust the Fund's portfolio as necessary. At any given 
time, such market factors may include country exposure, sector 
exposure, industry exposure, and currency exposure. In seeking to 
achieve its investment objective, the Fund will seek to remain invested 
at all times in securities or derivatives (as described below) that 
provide the desired exposures to market factors.
    The Fund's portfolio typically will consist of up to 50 Underlying 
ETPs and other securities, as described below. Under normal 
circumstances, the Fund's largest or maximum investment in any single 
issuer will range between 5% and 10% of the Fund's portfolio.
    The Fund, through its investment in Underlying ETPs, may invest in 
closed-end funds, pooled investment vehicles that are registered under 
the 1940 Act and whose shares are listed and traded on U.S. national 
securities exchanges.
    The Fund, through its investment in Underlying ETPs, may invest in 
the equity securities of foreign issuers, including the securities of 
foreign issuers in emerging countries. Emerging or developing markets 
exist in countries that are considered to be in the initial stages of 
industrialization.\13\
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    \13\ According to the Registration Statement, the risks of 
investing in these markets are similar to the risks of international 
investing in general, although the risks are greater in emerging and 
developing markets. Countries with emerging or developing securities 
markets tend to have economic structures that are less stable than 
countries with developed securities markets. This is because their 
economies may be based on only a few industries and their securities 
markets may trade a small number of securities. Prices on these 
exchanges tend to be volatile, and securities in these countries 
historically have offered greater potential for gain (as well as 
loss) than securities of companies located in developed countries.
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    The Fund, through its investment in Underlying ETPs, may invest in 
shares of real estate investment trusts (``REITs''), which are pooled 
investment vehicles which invest primarily in real estate or real 
estate-related loans.
Other Investment Practices and Strategies
    To respond to adverse market, economic, political or other 
conditions, the Fund may invest 100% of its total assets, without 
limitation, in high-quality debt securities and money market 
instruments either directly or through Underlying ETPs. The Fund may be 
invested in this manner for extended periods depending on the Sub-
Adviser's assessment of market conditions. Debt securities and money 
market instruments include shares of mutual funds, commercial paper, 
certificates of deposit, bankers' acceptances, U.S. Government 
securities, repurchase agreements, and bonds that are BBB or higher.
    Under normal circumstances, the Fund may hold up to 40% of its 
portfolio in other investments. For example, on a day-to-day basis, the 
Fund may hold money market instruments, cash or cash equivalents, and/
or Underlying ETPs that invest in these and other highly liquid 
instruments, to collateralize its derivative positions.
    The Fund, or the Underlying ETPs in which it invests, may invest in 
U.S. Treasury zero-coupon bonds. These securities are U.S. Treasury 
bonds which have been stripped of their unmatured interest coupons, the 
coupons themselves, and receipts or certificates representing interests 
in such stripped debt obligations and coupons. Interest is not paid in 
cash during the term of these securities, but is accrued and paid at 
maturity.
    The Fund or an Underlying ETP may invest in equity securities, 
which represent ownership interests in a company or partnership and 
consist of common stocks, preferred stocks,

[[Page 36593]]

warrants to acquire common stock, securities convertible into common 
stock, and investments in master limited partnerships.
    The Fund or an Underlying ETP may invest in American Depositary 
Receipts (``ADRs''), as well as Global Depositary Receipts (``GDRs'', 
together with ADRs, ``Depositary Receipts''), which are certificates 
evidencing ownership of shares of a foreign issuer. Depositary Receipts 
will be sponsored. These certificates are issued by depositary banks 
and generally trade on an established market in the United States or 
elsewhere. The underlying shares are held in trust by a custodian bank 
or similar financial institution in the issuer's home country. The 
depositary bank may not have physical custody of the underlying 
securities at all times and may charge fees for various services, 
including forwarding dividends and interest and corporate actions. 
Depositary Receipts are alternatives to directly purchasing the 
underlying foreign securities in their national markets and currencies. 
However, Depositary Receipts continue to be subject to many of the 
risks associated with investing directly in foreign securities.
    The Fund, or the Underlying ETPs in which it invests, may invest in 
U.S. government securities. Securities issued or guaranteed by the U.S. 
government or its agencies or instrumentalities include U.S. Treasury 
securities, which are backed by the full faith and credit of the U.S. 
Treasury and which differ only in their interest rates, maturities, and 
times of issuance. U.S. Treasury bills have initial maturities of one-
year or less; U.S. Treasury notes have initial maturities of one to ten 
years; and U.S. Treasury bonds generally have initial maturities of 
greater than ten years. Certain U.S. government securities are issued 
or guaranteed by agencies or instrumentalities of the U.S. government 
including, but not limited to, obligations of U.S. government agencies 
or instrumentalities such as Fannie Mae, Freddie Mac, the Government 
National Mortgage Association (Ginnie Mae), the Small Business 
Administration, the Federal Farm Credit Administration, the Federal 
Home Loan Banks, Banks for Cooperatives (including the Central Bank for 
Cooperatives), the Federal Land Banks, the Federal Intermediate Credit 
Banks, the Tennessee Valley Authority, the Export-Import Bank of the 
United States, the Commodity Credit Corporation, the Federal Financing 
Bank, the Student Loan Marketing Association, the National Credit Union 
Administration, and the Federal Agricultural Mortgage Corporation 
(Farmer Mac).
    The Fund may not (i) with respect to 75% of its total assets, 
purchase securities of any issuer (except securities issued or 
guaranteed by the U.S. Government, its agencies or instrumentalities, 
or shares of investment companies) if, as a result, more than 5% of its 
total assets would be invested in the securities of such issuer; or 
(ii) acquire more than 10% of the outstanding voting securities of any 
one issuer. For purposes of this policy, the issuer of the underlying 
security will be deemed to be the issuer of any respective Depositary 
Receipt.\14\
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    \14\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act.
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    The Fund may not invest 25% or more of its total assets in the 
securities of one or more issuers conducting their principal business 
activities in the same industry or group of industries. This limitation 
does not apply to investments in securities issued or guaranteed by the 
U.S. Government, its agencies or instrumentalities, or shares of 
investment companies. The Fund will not invest 25% or more of its total 
assets in any investment company that so concentrates. For purposes of 
this policy, the issuer of the underlying security will be deemed to be 
the issuer of any respective Depositary Receipt.\15\
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    \15\ 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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    While the Fund may invest up to 40% of its total assets in put and 
call options on indices (and enter into related closing transactions), 
exchange-listed futures contracts, and options on futures contracts, 
the Adviser expects that, under normal market conditions, the Fund will 
invest no more than 15% in such options and 15% in such futures on a 
daily basis.
    The Fund may conduct foreign currency transactions on a spot (i.e., 
cash) or forward basis (i.e., by entering into forward contracts to 
purchase or sell foreign currencies up to 10% of its total assets). 
Currency transactions made on a spot basis are for cash at the spot 
rate prevailing in the currency exchange market for buying or selling 
currency.
    The Fund may enter into repurchase agreements with financial 
institutions, which may be deemed to be loans. The Fund follows certain 
procedures designed to minimize the risks inherent in such agreements. 
These procedures include effecting repurchase transactions only with 
large, well-capitalized, and well-established financial institutions 
whose condition will be continually monitored by the Sub-Adviser. The 
Fund may enter into reverse repurchase agreements without limit as part 
of the Fund's investment strategy. Reverse repurchase agreements 
involve sales by the Fund of portfolio assets concurrently with an 
agreement by the Fund to repurchase the same assets at a later date at 
a fixed price.
    The Fund may invest up to 15% of its total assets in swap 
agreements, including, but not limited to, total return swaps, index 
swaps, and interest rate swaps. The Fund may utilize swap agreements in 
an attempt to gain exposure to the securities in a market without 
actually purchasing those securities, or to hedge a position. In 
seeking to establish a long or short position in such instruments, the 
Fund may use swaps based on published indices, including international 
indices.
    The 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 and loan participation interests. The 
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 the 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.\16\
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    \16\ 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''); 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); Investment Company Act Release No. 17452 (April 
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under 
the Securities Act).
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    According to the Registration Statement, the Fund will seek to 
qualify for treatment as a Regulated Investment

[[Page 36594]]

Company (``RIC'') under the Internal Revenue Code.\17\
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    \17\ 26 U.S.C. 851. One of several requirements for RIC 
qualification is that the Fund must receive at least 90% of the 
Fund's gross income each year from dividends, interest, payments 
with respect to securities loans, gains from the sale, or other 
disposition of stock, securities, or foreign currencies, or other 
income derived with respect to the Fund's investments in stock, 
securities, foreign currencies, and net income from an interest in a 
qualified publicly traded partnership (``90% Test''). A second 
requirement for qualification as a RIC is that the Fund must 
diversify its holdings so that, at the end of each fiscal quarter of 
the Fund's taxable year: (a) At least 50% of the market value of the 
Fund's total assets is represented by cash and cash items, U.S. 
Government securities, securities of other RICs, and other 
securities, with these other securities limited, in respect to any 
one issuer, to an amount not greater than 5% of the value of the 
Fund's total assets or 10% of the outstanding voting securities of 
such issuer; and (b) not more than 25% of the value of its total 
assets are invested in the securities (other than U.S. Government 
securities or securities of other RICs) of any one issuer or two or 
more issuers which the Fund controls and which are engaged in the 
same, similar, or related trades or businesses, or the securities of 
one or more qualified publicly traded partnership (``Asset Test'').
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    Except for Underlying ETPs that may hold non-U.S. issues, the Fund 
will not otherwise invest in non-U.S.-registered issues.
    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's 
broad-based securities market index (as defined in Form N-1A).\18\ The 
Fund will not invest in leveraged or inverse leveraged Underlying ETPs.
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    \18\ The Fund's broad-based securities market index, which is to 
be determined, will be identified in an amendment to the 
Registration Statement.
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Net Asset Value
    The Fund will calculate NAV by: (i) Taking the current market value 
of its total assets; (ii) subtracting any liabilities; and (iii) 
dividing that amount by the total number of Shares owned by 
shareholders. The Fund will calculate NAV once each business day as of 
the close of normal trading on the New York Stock Exchange (``NYSE'') 
(normally, 4:00 p.m., Eastern Time). In calculating NAV, the Fund 
generally will value investment portfolios at market price. If market 
prices are unavailable or the Fund thinks that they are unreliable, or 
when the value of a security has been materially affected by events 
occurring after the relevant market closes, the Fund will price those 
securities at fair value as determined in good faith using methods 
approved by the Board of Trustees.
    The use of fair valuation in pricing a security involves the 
consideration of a number of subjective factors and, therefore, is 
susceptible to the unavoidable risk that the valuation may be higher or 
lower than the price at which the security might actually trade if a 
reliable market price were readily available.
Creation and Redemption of Shares
    The Fund will offer and issue Shares on a continuous basis at NAV 
only in aggregated lots of 50,000 or more Shares (each a ``Creation 
Unit'' or ``Creation Unit Aggregation''), generally in exchange for: 
(i) A basket of equity securities (``Deposit Securities''); and (ii) an 
amount of cash (``Cash Component''). Shares are redeemable only in 
Creation Unit Aggregations, and, generally, in exchange for portfolio 
securities and a specified cash payment.
    A ``creator'' will enter into an authorized participant agreement 
(``Participant Agreement'') with the Distributor or use a Depository 
Trust Company (``DTC'') participant who has executed a Participant 
Agreement (``Authorized Participant''), and deposit into the Fund a 
portfolio of securities closely approximating the holdings of the Fund 
and a specified amount of cash, together totaling the NAV of the 
Creation Unit(s), in exchange for 50,000 Shares of the Fund (or 
multiples thereof).
    All orders to purchase Creation Units must be received by the 
Distributor no later than the close of the regular trading session on 
the NYSE (ordinarily 4:00 p.m., Eastern Time) on the date such order is 
placed in order for the purchase of Creation Units to be effected based 
on the NAV of Shares of the Fund as next determined on such date after 
receipt of the order in proper form.
    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by the 
Fund through the Administrator and only on a business day. With respect 
to the Fund, the Administrator, through the National Securities 
Clearing Corporation, will make available immediately prior to the 
opening of business on the Exchange (currently 9:30 a.m., Eastern Time) 
on each business day, the portfolio of securities (``Fund Securities'') 
that will be applicable to redemption requests received in proper form 
on that day. Fund Securities received on redemption may not be 
identical to Deposit Securities which are applicable to creations of 
Creation Units. Unless cash redemptions are available or specified for 
the Fund, the redemption proceeds for a Creation Unit generally will 
consist of Fund Securities plus cash in an amount equal to the 
difference between the NAV of the Shares being redeemed, as next 
determined after a receipt of a request in proper form, and the value 
of the Fund Securities less a redemption transaction fee, as described 
in the Registration Statement. In the event that the Fund Securities 
have a value greater than the NAV of the Shares, a compensating cash 
payment equal to the differential will be required to be made by or 
through an Authorized Participant by the redeeming shareholder.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents 
that, for initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\19\ as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for the Fund 
will be outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares 
that the NAV per Share will be calculated daily and that the NAV and 
the Disclosed Portfolio will be made available to all market 
participants at the same time.
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    \19\ 17 CFR 240.10A-3.
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Availability of Information
    The Fund's Web site (www.advisorshares.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Fund's Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Fund, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (``Bid/Ask 
Price''),\20\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Fund will disclose on its

[[Page 36595]]

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.\21\
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    \20\ The Bid/Ask Price of the Fund 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 Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \21\ Under accounting procedures followed by the Fund, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Fund 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business day.
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    On a daily basis, the Adviser will disclose for each portfolio 
security and other financial instrument of the Fund the following 
information on the Fund's Web site: Ticker symbol (if applicable), name 
of security and financial instrument, number of shares or dollar value 
of each security and financial instrument 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 the 
Fund's Shares, together with estimates and actual cash components, will 
be publicly disseminated daily prior to the opening of the NYSE via the 
National Securities Clearing Corporation. The basket represents one 
Creation Unit of the Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Fund's Shareholder Reports, and the Trust's 
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and 
Shareholder Reports are available free upon request from the Trust, and 
those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov. 
Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last-sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line and, for the Underlying ETPs, will be 
available from the national securities exchange on which they are 
listed. In addition, the Portfolio Indicative Value, as defined in NYSE 
Arca Equities Rule 8.600(c)(3), will be widely disseminated at least 
every 15 seconds during the Core Trading Session by one or more major 
market data vendors.\22\ The dissemination of the Portfolio Indicative 
Value, together with the Disclosed Portfolio, will allow investors to 
determine the value of the underlying portfolio of the Fund on a daily 
basis and to provide a close estimate of that value throughout the 
trading day. The intra-day, closing, and settlement prices of the 
portfolio investments (e.g., Underlying ETPs, put and call options, 
futures contracts, forward contracts, money market funds, and options 
on futures contracts) will also be 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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    \22\ Currently, it is the Exchange's understanding that several 
major market data vendors widely disseminate Portfolio Indicative 
Values taken from CTA or other data feeds.
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    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, 
distributions, and taxes is included in the Registration Statement. All 
terms relating to the Fund that are referred to, but not defined in, 
this proposed rule change are defined in the Registration Statement.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund.\23\ Trading in Shares of the Fund 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments comprising the Disclosed Portfolio of the Fund; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of the Fund may be 
halted.
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    \23\ 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 or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\24\ In addition, the Exchange could 
obtain information from the U.S. exchanges, all of which are ISG 
members, on which the Underlying ETPs, Depositary Receipts, futures, 
options, and other applicable portfolio securities are listed and 
traded. The Exchange may obtain surveillance information from all 
securities exchanges listing and/or trading the securities held by the 
Fund.
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    \24\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its

[[Page 36596]]

Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (1) The procedures for purchases and redemptions of Shares 
in Creation Unit Aggregations (and that Shares are not individually 
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its ETP Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (4) how information regarding the 
Portfolio Indicative Value is disseminated; (5) the requirement that 
ETP Holders deliver a prospectus to investors purchasing newly issued 
Shares prior to or concurrently with the confirmation of a transaction; 
and (6) trading information.
    In addition, the Bulletin will reference that the Fund is subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Exchange Act. 
The Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m., Eastern Time each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the requirement under Section 6(b)(5) \25\ 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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    \25\ 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 Sub-Adviser is affiliated with 
a broker-dealer, and has implemented a fire wall with respect to its 
broker-dealer affiliate regarding access to information concerning the 
composition and/or changes to the portfolio. In addition, the Sub-
Adviser is subject to procedures designed to prevent the use and 
dissemination of material, non-public information regarding such 
portfolio. The Exchange may obtain information via ISG from other 
exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. In 
addition, the Exchange could obtain information from the U.S. 
exchanges, all of which are ISG members, on which the Underlying ETPs, 
Depositary Receipts, futures, options, and other applicable portfolio 
securities are listed and traded. The Fund seeks to achieve its 
investment objective, under normal circumstances, by investing at least 
60% of its portfolio in both long and short positions in Underlying 
ETPs. The listing and trading of such Underlying ETPs is subject to 
rules of the exchanges on which they are listed and traded, as approved 
by the Commission. Except for Underlying ETPs that may hold non-U.S. 
issues, the Fund will not otherwise invest in non-U.S.-registered 
issues. Options, futures, and options on futures contracts in which the 
Fund invests will be U.S. exchange-listed. The Fund will invest no more 
than 15% of total assets in such options and 15% of total assets in 
such futures on a daily basis. The Fund may invest up to 15% of its 
total assets in swap agreements, including, but not limited to, total 
return swaps, index swaps, and interest rate swaps. The 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 and loan participation interests. The Fund will not invest 
in leveraged or inverse leveraged Underlying ETPs. The Fund's 
investments will be consistent with the Fund's investment objective and 
will not be used to enhance leverage.
    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 will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Moreover, the Portfolio 
Indicative Value will be widely disseminated through the facilities of 
the CTA or 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 Fund will disclose on its Web site the 
Disclosed Portfolio that will form the basis for the Fund's calculation 
of NAV at the end of the business day. Information regarding market 
price and trading volume of the Shares will be continually available on 
a real-time basis throughout the day on brokers' computer screens and 
other electronic services, and quotation and last-sale information will 
be available via the CTA high-speed line. The Web site for the Fund 
will include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. 
Moreover, prior to the commencement of trading, the Exchange will 
inform its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. Trading 
in Shares of the Fund will be halted if the circuit breaker parameters 
in NYSE Arca Equities Rule 7.12 have been reached or because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable, and trading in the Shares will be 
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund may be halted. In 
addition, as noted above, investors will have ready access to 
information regarding the Fund's holdings, the Portfolio Indicative 
Value, the Disclosed Portfolio, and quotation and last-sale information 
for the Shares.
    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 
an additional type of actively managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Portfolio Indicative Value, the Disclosed Portfolio, and quotation 
and last-sale information for the Shares.

[[Page 36597]]

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

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

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission 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 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-2012-57 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-2012-57. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549, on official business days between 10:00 a.m. 
and 3:00 p.m. Copies of the filing will also be available for 
inspection and copying at the NYSE's principal office and on its 
Internet Web site at www.nyse.com. 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-2012-57 and should be submitted on or before 
July 10, 2012.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
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    \26\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-14905 Filed 6-18-12; 8:45 am]
BILLING CODE 8011-01-P


