
[Federal Register Volume 78, Number 30 (Wednesday, February 13, 2013)]
[Notices]
[Pages 10222-10226]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-03276]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68863; File No. SR-NYSEArca-2012-142]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, To List and Trade the Guggenheim Enhanced Total Return ETF 
Under NYSE Arca Equities Rule 8.600

February 7, 2013.

I. Introduction

    On December 13, 2012, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to list and trade shares 
(``Shares'') of the Guggenheim Enhanced Total Return ETF (``Fund'') 
under NYSE Arca Equities Rule 8.600. The proposed rule change was 
published for comment in the Federal Register on December 27, 2012.\3\ 
On February 4, 2013, the Exchange filed Amendment No. 1 to the proposed 
rule change.\4\ The Commission received no comments on the proposed

[[Page 10223]]

rule change. This order grants approval of the proposed rule change, as 
modified by Amendment No. 1 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 68488 (December 20, 
2012), 77 FR 76326 (``Notice''). See also Securities Exchange Act 
Release No. 68488 (December 20, 2012), 78 FR 1892 (January 9, 2013) 
(SR-NYSEArca-2012-142) (correcting a typographical error by the 
Federal Register to the File No. reference).
    \4\ Amendment No. 1 amended the following sentence: ``The Fund 
may invest in mortgage- or asset-backed securities and is limited to 
10% of its total assets in any combination of mortgage-related or 
other asset-backed interest-only, principal-only or inverse floater 
securities.'' As amended, the sentence reads: ``The Fund may invest 
in mortgage- or asset-backed securities and is limited to 10% of its 
total assets in any combination of mortgage-related or other asset-
backed interest-only or principal-only securities.'' This amendment 
was intended to clarify that the Fund will not invest in inverse 
floaters. See Notice, supra note 3, at 76328. Because the changes 
made by Amendment No. 1 do not materially alter the substance of the 
proposed rule change or raise any novel regulatory issues, Amendment 
No. 1 is not subject to notice and comment.
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund under 
NYSE Arca Equities Rule 8.600, which governs the listing and trading of 
Managed Fund Shares. The Shares will be offered by the Claymore 
Exchange-Traded Fund Trust 2 (``Trust''),\5\ a statutory trust 
organized under the laws of the State of Delaware and registered with 
the Commission as an open-end management investment company. The 
investment adviser for the Fund is Guggenheim Funds Investment 
Advisors, LLC (``Adviser''). The Bank of New York Mellon is the 
custodian and transfer agent for the Fund. Guggenheim Funds 
Distributors, LLC is the distributor for the Fund. The Exchange states 
that the Adviser is affiliated with a broker-dealer and that the 
Adviser has represented that it has implemented a fire wall with 
respect to its broker-dealer affiliate regarding access to information 
concerning the composition and/or changes to the Fund's portfolio.\6\
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    \5\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On June 9, 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 the 1940 
Act relating to the Fund (File Nos. 333-135105 and 811-21910) 
(``Registration Statement''). In addition, the Commission has issued 
an order granting certain exemptive relief to the Trust under the 
1940 Act. See Investment Company Act Release No. 29271 (May 18, 
2010) (File No. 812-13534) (``Exemptive Order'').
    \6\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the 
event (a) the Adviser or any sub-adviser becomes newly affiliated 
with a broker-dealer, or (b) any new adviser or sub-adviser becomes 
affiliated with a broker-dealer, it will implement a fire wall with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio, and will 
be subject to procedures designed to prevent the use and 
dissemination of material non-public information regarding such 
portfolio.
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Guggenheim Enhanced Total Return ETF

    The Fund's investment objective will be to seek maximum total 
return, composed of income and capital appreciation. The Fund will 
normally \7\ invest in a portfolio of fixed-income instruments of 
varying maturities and equity securities.
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    \7\ The term ``normally'' includes, but is not limited to, the 
absence of extreme volatility or trading halts in the securities 
markets or the financial markets generally; circumstances under 
which the Fund's investments are made for temporary defensive 
purposes; 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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Fixed-Income Instruments Investments

    The fixed-income instruments in which the Fund will invest include 
bonds, debt securities, and other similar instruments--such as Treasury 
securities, collateralized mortgage obligations, collateralized loan 
obligations, and mortgage- and asset-backed securities--issued by 
various U.S. and non-U.S. public- or private-sector entities. The Fund 
will normally invest at least 65% of its assets in fixed-income 
instruments. In addition, the Fund may invest in U.S. and non-U.S. 
dollar-denominated debt securities of U.S. and foreign corporations, 
governments, agencies, and supra-national agencies.\8\
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    \8\ Generally, a corporate bond must have $100 million or more 
par amount outstanding to be considered as an eligible investment.
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    While the Fund generally will invest more than 50% of its assets in 
investment-grade fixed-income instruments, the Fund also expects to 
invest to a maximum of 35% of its total assets in high-yield debt 
securities (``junk bonds''), which are debt securities that are rated 
below investment-grade by nationally recognized statistical rating 
organizations, or are unrated securities that the Adviser believes are 
of comparable quality. The Fund may invest up to 30% of its total 
assets in debt securities denominated in foreign currencies and may 
invest without limitation in U.S. dollar-denominated debt securities of 
foreign issuers. The Fund may invest up to 20% of its total assets in 
debt securities and instruments that are economically tied to emerging 
market countries.\9\
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    \9\ Emerging market countries are countries that major 
international financial institutions, such as the World Bank, 
generally consider to be less economically mature than developed 
nations. Emerging market countries can include every nation in the 
world except the United States, Canada, Japan, Australia, New 
Zealand, and most countries located in Western Europe. Generally, a 
corporate bond of an issuer in an emerging market must have $200 
million or more par amount outstanding to be considered as an 
eligible investment.
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    The Fund may invest in mortgage- or asset-backed securities and is 
limited to 10% of its total assets in any combination of mortgage-
related or other asset-backed interest-only or principal-only 
securities.\10\ This limitation does not apply to securities issued or 
guaranteed by federal agencies or U.S. government sponsored 
instrumentalities, such as the Government National Mortgage 
Administration, the Federal Housing Administration, the Federal 
National Mortgage Association, and the Federal Home Loan Mortgage 
Corporation. The Fund may purchase or sell securities on a when-issued, 
delayed-delivery, or forward-commitment basis and may engage in short 
sales.
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    \10\ See supra note 4.
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    The Fund may invest in short-term instruments such as commercial 
paper,\11\ repurchase agreements,\12\ and reverse repurchase 
agreements.\13\ The Fund may invest in money market instruments 
(including other funds that invest exclusively in money market 
instruments). These investments in money market instruments may be as 
part of a temporary defensive strategy to protect against temporary 
market declines.
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    \11\ The commercial paper in which the Fund may invest includes 
variable-amount master demand notes and asset-backed commercial 
paper. Commercial paper normally represents short-term unsecured 
promissory notes issued in bearer form by banks or bank holding 
companies, corporations, finance companies, and other issuers.
    \12\ Repurchase agreements are fixed-income securities in the 
form of agreements backed by collateral. These agreements, which may 
be viewed as a type of secured lending by the Fund, typically 
involve the acquisition by the Fund of securities from the selling 
institution (such as a bank or a broker dealer), coupled with the 
agreement that the selling institution will repurchase the 
underlying securities at a specified price and at a fixed time in 
the future (or on demand). These agreements may be made with respect 
to any of the portfolio securities in which the Fund is authorized 
to invest. The Fund may enter into repurchase agreements with (i) 
member banks of the Federal Reserve System having total assets in 
excess of $500 million and (ii) securities dealers (``Qualified 
Institutions''). The Adviser will monitor the continued 
creditworthiness of Qualified Institutions. The Fund may accept a 
wide variety of underlying securities as collateral for the 
repurchase agreements entered into by the Fund. Such collateral may 
include U.S. government securities, corporate obligations, equity 
securities, municipal debt securities, mortgage-backed securities, 
and convertible securities. Any such securities serving as 
collateral are marked to market daily in order to maintain full 
collateralization (typically purchase price plus accrued interest).
    \13\ Reverse repurchase agreements involve the sale of 
securities with an agreement to repurchase the securities at an 
agreed-upon price, date, and interest payment and have the 
characteristics of borrowing. The securities purchased with the 
funds obtained from the agreement and securities collateralizing the 
agreement will have maturity dates no later than the repayment date. 
Generally the effect of such transactions is that the Fund can 
recover all or most of the cash invested in the portfolio securities 
involved during the term of the reverse repurchase agreement, while 
in many cases the Fund is able to keep some of the interest income 
associated with those securities.
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    The Fund may invest in debt securities that have variable or 
floating interest rates that are readjusted on set dates (such as the 
last day of the month or calendar quarter) in the case of variable 
rates, or whenever a specified interest rate change occurs in the case 
of a floating rate instrument. The Fund will not, however, invest in 
inverse

[[Page 10224]]

floaters. Variable or floating interest rates generally reduce changes 
in the market price of securities from their original purchase price 
because, upon readjustment, such rates approximate market rates. 
Accordingly, as interest rates decrease or increase, the potential for 
capital appreciation or depreciation is less for variable or floating 
rate securities than for fixed rate obligations. Many securities with 
variable or floating interest rates purchased by the Fund will be 
subject to payment of principal and accrued interest (usually within 
seven days) on the Fund's demand. The terms of such demand instruments 
require payment of principal and accrued interest by the issuer, a 
guarantor, or a liquidity provider. The Adviser will monitor the 
pricing, quality, and liquidity of the variable or floating rate 
securities held by the Fund.
    With respect to fixed-income instrument investments, the Fund may, 
without limitation, seek to obtain market exposure to the securities in 
which it primarily invests by entering into a series of purchase and 
sale contracts or by using other investment techniques (such as buy 
backs or dollar rolls).

Equity Securities Investments

    The Fund may invest up to 35% of its total assets in U.S. exchange-
listed equity securities and foreign equity securities.\14\ The Fund 
may invest up to 30% of its total assets in U.S. exchange-listed 
preferred stock, convertible securities,\15\ and other equity-related 
securities. The Fund may gain exposure to commodities through 
investment of up to 30% of its total assets, which may include 
investments in exchange-traded products (``Underlying ETPs'') \16\ and 
exchange-traded notes (``ETNs'').\17\ The Fund may invest in the 
securities of exchange-listed real estate investment trusts 
(``REITs''), which pool investors' funds for investments primarily in 
commercial real estate properties, to the extent allowed by law. 
Investment in REITs may be the most practical available means for the 
Fund to invest in the real estate industry.
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    \14\ The foreign equity securities in which the Fund may invest 
will be limited to securities that trade in markets that are members 
of the Intermarket Surveillance Group (``ISG''), which includes all 
U.S. national securities exchanges and certain foreign exchanges, or 
markets that are parties to a comprehensive surveillance sharing 
agreement with the Exchange.
    \15\ Convertible securities include bonds, debentures, notes, 
preferred stocks, and other securities that entitle the holder to 
acquire common stock or other equity securities of the same or a 
different issuer.
    \16\ Underlying ETPs include 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 
Trust Units (as described in NYSE Arca Equities Rule 8.500).
    \17\ ETNs include Index-Linked Securities (as described in NYSE 
Arca Equities Rule 5.2(j)(6)).
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Other Investments

    As a non-principal investment strategy, the Fund may invest in 
insurance-linked securities and structured notes (notes on which the 
amount of principal repayment and interest payments are based on the 
movement of one or more specified factors, such as the movement of a 
particular security or security index) other than ETNs. The Fund may 
invest in certificates of deposit (``CDs''), time deposits, and 
bankers' acceptances from U.S. banks. A bankers' acceptance is a bill 
of exchange or time draft drawn on and accepted by a commercial bank. A 
CD is a negotiable interest-bearing instrument with a specific 
maturity. CDs are issued by banks and savings and loan institutions in 
exchange for the deposit of funds and normally can be traded in the 
secondary market prior to maturity. A time deposit is a non-negotiable 
receipt issued by a bank in exchange for the deposit of funds. Like a 
CD, it earns a specified rate of interest over a definite period of 
time; however, it cannot be traded in the secondary market.
    The Fund may invest in zero-coupon or pay-in-kind securities. These 
securities are debt securities that do not make regular cash interest 
payments. Zero-coupon securities are sold at a deep discount to their 
face value. Pay-in-kind securities pay interest through the issuance of 
additional securities. Because zero-coupon and pay-in-kind securities 
do not pay current cash income, the price of these securities can be 
volatile when interest rates fluctuate.
    The Fund may use delayed-delivery transactions as an investment 
technique. Delayed-delivery transactions, also referred to as forward-
commitments, involve commitments by the Fund to dealers or issuers to 
acquire or sell securities at a specified future date beyond the 
customary settlement for such securities. These commitments may fix the 
payment price and interest rate to be received or paid on the 
investment. The Fund may purchase securities on a delayed-delivery 
basis to the extent that it can anticipate having available cash on the 
settlement date. Delayed-delivery agreements will not be used as a 
speculative or leverage technique.
    The Adviser may attempt to reduce foreign currency exchange rate 
risk by entering into contracts with banks, brokers, or dealers to 
purchase or sell foreign currencies at a future date (``forward 
contracts'').
    The Fund may invest in the securities of other investment 
companies. Under Section 12(d) of the 1940 Act, or as otherwise 
permitted by the Commission, the Fund's investment in investment 
companies is limited to, subject to certain exceptions, (i) 3% of the 
total outstanding voting stock of any one investment company, (ii) 5% 
of the Fund's total assets with respect to any one investment company, 
and (iii) 10% of the Fund's total assets with respect to investment 
companies in the aggregate.\18\
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    \18\ 15 U.S.C. 80a-12(d).
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    The Fund will be considered non-diversified and can invest a 
greater portion of assets in securities of individual issuers than a 
diversified fund.\19\
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    \19\ A ``non-diversified company,'' as defined in Section 
5(b)(2) of the 1940 Act, means any management company other than a 
diversified company (as defined in Section 5(b)(1) of the 1940 Act).
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    The Fund may not invest more than 25% of the value of its net 
assets in securities of issuers in any one industry or group of 
industries. This restriction does not apply to obligations issued or 
guaranteed by the U.S. Government, its agencies, or its 
instrumentalities.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities \20\ (calculated at the

[[Page 10225]]

time of investment), including Rule 144A securities. 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 and other illiquid assets.
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    \20\ The Fund may invest in master demand notes, which are 
demand notes that permit the investment of fluctuating amounts of 
money at varying rates of interest pursuant to arrangements with 
issuers who meet the quality criteria of the Fund. The interest rate 
on a master demand note may fluctuate based upon changes in 
specified interest rates, be reset periodically according to a 
prescribed formula, or be a set rate. Although there is no secondary 
market in master demand notes, if such notes have a demand feature, 
the payee may demand payment of the principal amount of the note 
upon relatively short notice. Master demand notes are generally 
illiquid and therefore subject to the Fund's percentage limitations 
for holdings in illiquid securities. In addition, the Fund may 
purchase participations in corporate loans. Participation interests 
generally will be acquired from a commercial bank or other financial 
institution (``Lender'') or from other holders of a participation 
interest (``Participant''). The purchase of a participation interest 
either from a Lender or a Participant will not result in any direct 
contractual relationship with the borrowing company (``Borrower''). 
The Fund generally will have no right directly to enforce compliance 
by the Borrower with the terms of the credit agreement. Instead, the 
Fund will be required to rely on the Lender or the Participant that 
sold the participation interest, both for the enforcement of the 
Fund's rights against the Borrower and for the receipt and 
processing of payments due to the Fund under the loans. Under the 
terms of a participation interest, the Fund may be regarded as a 
member of the Participant, and thus the Fund is subject to the 
credit risk of both the Borrower and a Participant. Participation 
interests are generally subject to restrictions on resale. 
Generally, the Fund considers participation interests to be illiquid 
and therefore subject to the Fund's percentage limitations for 
holdings in illiquid securities.
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    The Fund intends to qualify for and to elect to be treated as a 
separate regulated investment company under Subchapter M of the 
Internal Revenue Code.\21\
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    \21\ 26 U.S.C. 851.
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    The Exchange represents that the Shares will conform to the initial 
and continued listing criteria under NYSE Arca Equities Rule 8.600. The 
Exchange further represents that, for initial and continued listing, 
the Fund will be in compliance with Rule 10A-3 under the Exchange 
Act,\22\ as provided by NYSE Arca Equities Rule 5.3. A minimum of 
100,000 Shares of the Fund will be outstanding at the commencement of 
trading on the Exchange. The Exchange will obtain a representation from 
the issuer of the Shares that the net asset value (``NAV'') per Share 
will be calculated daily and that the NAV and the Disclosed Portfolio 
will be made available to all market participants at the same time.
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    \22\ 17 CFR 240.10A-3.
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    Consistent with the Exemptive Order, the Fund will not invest in 
options contracts, futures contracts, or swap agreements.
    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 
primary broad-based securities benchmark index (as defined in Form N-
1A).\23\
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    \23\ The Exchange represents that the Fund's broad-based 
securities benchmark index will be identified in an amendment to the 
Registration Statement to be filed following the Fund's first full 
calendar year of performance.
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    Additional information regarding the Trust, the Fund, and the 
Shares, including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, 
distributions, and taxes, among other things, is included in the Notice 
and Registration Statement, as applicable.\24\
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    \24\ See Notice and Registration Statement, supra notes 3 and 5, 
respectively.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \25\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\26\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\27\ 
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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    \25\ 15 U.S.C. 78f.
    \26\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \27\ 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,\28\ which sets forth Congress's finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association (``CTA'') high-speed line. In addition, the Portfolio 
Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), 
will be widely disseminated by one or more major market data vendors at 
least every 15 seconds during the Core Trading Session.\29\ On each 
business day, before commencement of trading in Shares in the Core 
Trading Session on the Exchange, the Fund will disclose on its Web site 
the Disclosed Portfolio, as defined in NYSE Arca Equities Rule 
8.600(c)(2), that will form the basis for the Fund's calculation of NAV 
at the end of the business day.\30\ The NAV per Share of the Fund will 
be determined as of the close of the New York Stock Exchange (usually 
4:00 p.m. Eastern Time) each day the New York Stock Exchange is open 
for trading, and a basket composition file, which will include the 
security names and share quantities required to be delivered in 
exchange for Fund 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. Information regarding market price and trading volume for 
the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services. Information regarding the previous day's closing price and 
trading volume information for the Shares will be published daily in 
the financial section of newspapers. In addition, price information for 
the debt and equity securities held by the Fund will be available 
through major market data vendors and on the securities exchanges on 
which such securities are listed and traded. The Fund's Web site will 
include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information.
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    \28\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \29\ According to the Exchange, several major market data 
vendors display and/or make widely available Portfolio Indicative 
Values taken from CTA or other data feeds.
    \30\ 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 securities and 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.
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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.\31\ 
In addition, trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted. The Exchange

[[Page 10226]]

may halt trading in the Shares if trading is not occurring in the 
securities or the financial instruments constituting 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.\32\ 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.\33\ All of the equity investments to be held by the 
Fund, including the non-U.S.-listed equity securities, will trade in 
markets that are ISG members or markets that are parties to a 
comprehensive surveillance sharing agreement with the Exchange.\34\ The 
Exchange represents that it may obtain information via the ISG from 
other exchanges that are members of ISG or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. The 
Exchange states that it has a general policy prohibiting the 
distribution of material, non-public information by its employees. The 
Exchange also states that the Adviser is affiliated with a broker-
dealer and that the Adviser has implemented a fire wall with respect to 
its broker-dealer affiliate regarding access to information concerning 
the composition and/or changes to the portfolio.\35\
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    \31\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \32\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing 
additional considerations for the suspension of trading in or 
removal from listing of Managed Fund Shares on the Exchange). With 
respect to trading halts, the Exchange may consider other relevant 
factors in exercising its discretion to halt or suspend trading in 
the Shares of the Fund. Trading in Shares of the Fund will be halted 
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 
have been reached. Trading also may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable.
    \33\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \34\ See supra note 14.
    \35\ See supra note 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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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance procedures applicable to derivative 
products, which include Managed Fund Shares, are adequate to properly 
monitor Exchange trading of the Shares in all trading sessions and to 
deter and detect violations of Exchange rules and applicable federal 
securities laws.\36\
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    \36\ See supra note 14.
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    (4) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit (``ETP'') Holders in an Information Bulletin 
of the special characteristics and risks associated with trading the 
Shares. Specifically, the Information Bulletin will discuss the 
following: (a) The procedures for purchases and redemptions of Shares 
in Creation Units (and that Shares are not individually redeemable); 
(b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due 
diligence on its ETP Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (c) the risks involved in 
trading the Shares during the Opening and Late Trading Sessions, when 
an updated Portfolio Indicative Value will not be calculated or 
publicly disseminated; (d) how information regarding the Portfolio 
Indicative Value is disseminated; (e) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (f) 
trading information.
    (5) For initial and continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\37\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \37\ 17 CFR 240.10A-3.
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    (6) While the Fund generally will invest more than 50% of its 
assets in investment-grade fixed-income instruments, the Fund may 
invest up to 35% of its total assets in high-yield debt securities.
    (7) Consistent with the Exemptive Order, the Fund will not invest 
in options contracts, futures contracts, or swap agreements. The Fund's 
investments will be consistent with its investment objective and will 
not be used to enhance leverage.
    (8) 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, master demand notes, and loan 
participation interests.\38\
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    \38\ See supra note 20.
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    (9) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.

This approval order is based on all of the Exchange's representations 
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\39\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \39\ 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,\40\ that the proposed rule change (SR-NYSEArca-2012-142), as 
modified by Amendment No. 1 thereto be, and it hereby is, approved.
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    \40\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-03276 Filed 2-12-13; 8:45 am]
BILLING CODE 8011-01-P


