
[Federal Register Volume 77, Number 153 (Wednesday, August 8, 2012)]
[Notices]
[Pages 47482-47486]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-19351]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67559; File No. SR-NYSEArca-2012-57]


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

August 1, 2012.

I. Introduction

    On June 1, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
list and trade shares (``Shares'') of the QAM Equity Hedge ETF 
(``Fund'') under NYSE Arca Equities Rule 8.600. The proposed rule 
change was published for comment in the Federal Register on June 19, 
2012.\3\ The Commission received no comments on the proposal. This 
order grants approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 67196 (June 13, 
2012), 77 FR 36591 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade the Shares of the Fund 
pursuant to NYSE Arca Equities Rule 8.600, which governs the listing 
and trading of Managed Fund Shares on the Exchange. The Shares will be 
offered by 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.\4\ 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 is the principal 
underwriter and distributor of the Fund's Shares. The Bank of New York

[[Page 47483]]

Mellon Corporation serves as administrator, custodian, and transfer 
agent for the Fund. The Exchange represents that, while the Adviser is 
not affiliated with a broker-dealer, 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.\5\
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``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 (``Securities Act'') and under the 
1940 Act relating to the Fund (File Nos. 333-157876 and 811-22110) 
(``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).
    \5\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that in the event (a) the Adviser or Sub-Adviser 
becomes newly affiliated with a broker-dealer, or (b) any new 
adviser or sub-adviser becomes affiliated with a broker-dealer, it 
will implement a fire wall with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to the portfolio and will be subject to procedures designed 
to prevent the use and dissemination of material, non-public 
information regarding such portfolio.
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Principal Investment Strategies

    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.\6\ The Fund is a ``fund of funds'' that seeks to 
achieve its investment objective, under normal circumstances,\7\ by 
investing at least 60% of its portfolio in both long and short 
positions in exchange-traded funds (``ETFs'') \8\ and exchange-traded 
notes (``ETNs'') \9\ 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''),\10\ 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.\11\ 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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    \6\ 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.
    \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.
    \8\ 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).
    \9\ 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).
    \10\ 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.
    \11\ 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 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: 
(i) 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; (ii) equity securities of foreign 
issuers, including the securities of foreign issuers in emerging 
countries; \12\ and (iii) shares of real estate investment trusts 
(REITs), which are pooled investment vehicles which invest primarily in 
real estate or real estate-related loans.
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    \12\ The Exchange states that emerging or developing markets 
exist in countries that are considered to be in the initial stages 
of industrialization. The risks of investing in these markets are 
similar to the risks of international investing in general, although 
the risks are greater in emerging and developing markets. Countries 
with emerging or developing securities markets tend to have economic 
structures that are less stable than countries with developed 
securities markets, 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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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

[[Page 47484]]

company or partnership and consist of common stocks, preferred stocks, 
warrants to acquire common stock, securities convertible into common 
stock, and investments in master limited partnerships.
    The Fund or an Underlying ETP may invest in American Depositary 
Receipts (``ADRs''), as well as Global Depositary Receipts (``GDRs,'' 
and 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.
    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.
    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.
    The Fund will seek to qualify for treatment as a Regulated 
Investment Company (RIC) under the Internal Revenue Code. 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).\13\ The Fund will not invest in leveraged or 
inverse leveraged Underlying ETPs.
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    \13\ The Exchange states that 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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    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings, disclosure policies, 
distributions, and taxes, among other

[[Page 47485]]

things, can be found in the Notice and Registration Statement, as 
applicable.\14\
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    \14\ See Notice and Registration Statement, supra notes 3 and 4, 
respectively.
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III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act \15\ and the rules and regulations thereunder applicable to a 
national securities exchange.\16\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\17\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Commission notes that 
the Fund and the Shares must comply with the requirements of NYSE Arca 
Equities Rule 8.600 to be listed and traded on the Exchange.
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    \15\ 15 U.S.C. 78f.
    \16\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \17\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\18\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association (``CTA'') high-speed line. In addition, the Portfolio 
Indicative Value (``PIV''), as defined in NYSE Arca Equities Rule 
8.600(c)(3), will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Exchange's Core 
Trading Session.\19\ On each business day before commencement of 
trading in Shares in the Core Trading Session on the Exchange, the Fund 
will disclose on its Web site the Disclosed Portfolio, as defined in 
NYSE Arca Equities Rule 8.600(c)(2), that will form the basis for the 
Fund's calculation of the net asset value (``NAV'') at the end of the 
business day.\20\ The Fund will calculate NAV once each business day as 
of the close of normal trading on the New York Stock Exchange 
(normally, 4:00 p.m. Eastern Time). In addition, 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 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. 
The Web site for the Fund will include a form of the prospectus for the 
Fund, additional data relating to NAV, and other applicable 
quantitative information. 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. Further, 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 New York Stock Exchange 
via the National Securities Clearing Corporation. The basket represents 
one ``Creation Unit'' of the Fund.
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    \18\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \19\ According to the Exchange, several major market data 
vendors widely disseminate PIVs taken from CTA or other data feeds.
    \20\ 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.
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    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the issuer of the Shares that the NAV per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.\21\ 
In addition, the Exchange will halt trading in the Shares under the 
specific circumstances set forth in NYSE Arca Equities Rule 
8.600(d)(2)(D), and may halt trading in the Shares if trading is not 
occurring in the securities and/or the financial instruments comprising 
the Disclosed Portfolio of the Fund, or if other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present.\22\ The Exchange will consider the suspension of 
trading in or removal from listing of the Shares if the PIV is no 
longer calculated or available or the Disclosed Portfolio is not made 
available to all market participants at the same time.\23\ The Exchange 
represents that the Adviser is not affiliated with a broker-dealer. The 
Exchange further represents that 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.\24\ The Commission notes 
that Adviser and Sub-Adviser personnel who make decisions on the Fund's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material, non-

[[Page 47486]]

public information regarding the Fund's portfolio.\25\ Further, the 
Commission notes that the Reporting Authority that provides the 
Disclosed Portfolio must implement and maintain, or be subject to, 
procedures designed to prevent the use and dissemination of material, 
non-public information regarding the actual components of the 
portfolio.\26\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. The Commission also notes that the Exchange would be able to 
obtain surveillance information from all securities exchanges listing 
and/or trading the securities held by the Fund, including 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.
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    \21\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \22\ 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. 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.
    \23\ See NYSE Arca Equities Rule 8.600(d)(2)(C)(ii).
    \24\ See supra note 5 and accompanying text. The Commission 
notes that an investment adviser to an open-end fund is required to 
be registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser, the 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.
    \25\ See Commentary .06 to NYSE Arca Equities Rule 8.600.
    \26\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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    The Exchange further represents that the Shares are deemed to be 
equity securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures applicable to derivative 
products, which include Managed Fund Shares, are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin 
(``Bulletin'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Bulletin will discuss the 
following: (a) The procedures for purchases and redemptions of Shares 
in Creation Unit aggregations (and that Shares are not individually 
redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty 
of due diligence on its Equity Trading Permit Holders to learn the 
essential facts relating to every customer prior to trading the Shares; 
(c) the risks involved in trading the Shares during the Opening and 
Late Trading Sessions when an updated PIV will not be calculated or 
publicly disseminated; (d) how information regarding the PIV is 
disseminated; (e) the requirement that Equity Trading Permit Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (f) 
trading information.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Act,\27\ as provided by NYSE Arca 
Equities Rule 5.3.
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    \27\ See 17 CFR 240.10A-3.
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    (6) The Fund may not hold more than 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.
    (7) 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.
    (8) 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.
    (9) The Exchange would be able to obtain surveillance information 
from all securities exchanges listing and/or trading the securities 
held by the Fund, including 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.
    (10) A minimum of 100,000 Shares of each Fund will be outstanding 
at the commencement of trading on the Exchange.
This approval order is based on the Exchange's representations and 
description of the Fund, including those set forth above and in the 
Notice.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act\28\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \28\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\29\ that the proposed rule change (SR-NYSEArca-2012-57) be, and it 
hereby is, approved.
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    \29\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\30\
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    \30\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-19351 Filed 8-7-12; 8:45 am]
BILLING CODE 8011-01-P


