
[Federal Register Volume 78, Number 131 (Tuesday, July 9, 2013)]
[Notices]
[Pages 41145-41149]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-16382]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69915; File No. SR-NYSEArca-2013-56]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to Listing and Trading of 
Shares of the PowerShares China A-Share Portfolio Under NYSE Arca 
Equities Rule 8.600

July 2, 2013.

I. Introduction

    On May 21, 2013, 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 
PowerShares China A-Share Portfolio (``Fund'') under NYSE Arca Equities 
Rule 8.600. The proposed rule change was published for comment in the 
Federal Register on May 30, 2013.\3\ The Commission received no 
comments on the proposed rule change. 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. 69634 (May 23, 
2013), 78 FR 32487 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Fund pursuant 
to NYSE Arca Equities Rule 8.600, which governs the listing and trading 
of Managed Fund Shares on the Exchange. The Shares will be offered by 
PowerShares Actively Managed Exchange-Traded Fund 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 will be Invesco 
PowerShares Capital Management LLC (``Adviser''). Invesco Distributors, 
Inc. (``Distributor'') will serve as the distributor of the Fund 
Shares. The Bank of New York Mellon Corporation (``Administrator,'' 
``Transfer Agent,'' or ``Custodian'') will serve as administrator, 
custodian, and transfer agent for the Fund. The Exchange states that 
the Adviser is not a broker-dealer but 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 Fund's portfolio.\5\
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    \4\ The Trust is registered under the Investment Company Act of 
1940 (``1940 Act''). On April 20, 2012, the Trust filed with the 
Commission a post-effective amendment to Form N-1A under the 
Securities Act of 1933 and under the 1940 Act relating to the Fund 
(File Nos. 333-147622 and 811-22148) (``Registration Statement''). 
The Commission has issued an order granting certain exemptive relief 
to the Trust under the 1940 Act. See Investment Company Act Release 
No. 28171 (February 27, 2008) (File No. 812-13386) (``Exemptive 
Order'').
    \5\ See NYSE Arca Equities Rule 8.600, Commentary .06. In the 
event (a) the Adviser becomes newly affiliated with a broker-dealer, 
or (b) any new adviser or sub-adviser is a registered broker-dealer 
or becomes affiliated with a broker-dealer, it will implement a fire 
wall with respect to its relevant personnel or its broker-dealer 
affiliate 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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    The Fund's investment objective will be to seek to provide long 
term capital appreciation. The Fund will seek to achieve its investment 
objective by using a quantitative, rules-based strategy designed to 
provide returns that correspond to the performance of the FTSE China 
A50 Index (``Benchmark''). The Benchmark is designed for investors who 
seek exposure to China's domestic market through ``A-Shares,'' which 
are securities of companies that are incorporated in mainland China and 
that trade on the Shanghai Stock Exchange or the Shenzhen Stock 
Exchange. The Benchmark is comprised of the securities of the largest 
50 A-Share companies, as determined by full market capitalization, 
listed on the Shanghai and Shenzhen Stock Exchanges.
    Under normal circumstances,\6\ the Fund generally will invest at 
least 80%

[[Page 41146]]

of its net assets in a combination of investments whose collective 
performance is designed to correspond to the performance of the 
Benchmark. These investments will be: (i) Futures contracts on the 
Benchmark; (ii) exchange-traded funds (``ETFs'') that provide exposure 
to the China A-Shares market (``Underlying ETFs''); \7\ and (iii) A-
Shares included in the Benchmark, to the extent permissible under 
Chinese law. As described below, the Fund expects to invest its 
remaining assets in U.S. government securities, money market 
instruments (including repurchase agreements), cash, and cash 
equivalent securities (i.e., corporate commercial paper) to 
collateralize investments in futures contracts or for other purposes. 
Although the Fund will seek to provide returns that generally 
correspond to the performance of the Benchmark, the Fund will be 
actively managed by the Adviser and will not be designed to track the 
performance of any index.
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    \6\ 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.
    \7\ For purposes of this proposed rule change, Underlying ETFs 
include Investment Company Units (as described in NYSE Arca Equities 
Rule 5.2(j)(3)) and Managed Fund Shares (as described in NYSE Arca 
Equities Rule 8.600). The Underlying ETFs all will be listed and 
traded in the U.S. on registered exchanges or the Stock Exchange of 
Hong Kong Limited (``HKSE''), a wholly-owned subsidiary of Hong Kong 
Exchanges and Clearing Limited. Hong Kong Exchanges and Clearing 
Limited is a member of the Intermarket Surveillance Group (``ISG'').
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    ``A-Shares'' are shares of stock that are issued by companies 
incorporated in mainland China and that are traded in Renminbi on the 
Shanghai Stock Exchange or the Shenzhen Stock Exchange. Due to strict 
controls imposed by the Chinese government, the Fund currently cannot 
invest directly in A-Shares, which are available only to domestic 
Chinese investors and a limited pool of foreign investors, including 
foreign investors who have been approved as a Qualified Foreign 
Institutional Investor (``QFII'') by the China Securities Regulatory 
Commission and have obtained a QFII license. After obtaining a QFII 
license, a QFII applies to China's State Administration of Foreign 
Exchange for a specific aggregate dollar amount investment quota of A-
Shares (``A-Share Quota'') in which the QFII can invest. In order for 
the Fund to invest directly in A-Shares, the Adviser would need to 
apply for a QFII license and obtain an A-Share Quota.
    If the Adviser obtains a QFII license, the Fund may invest directly 
in A-Shares through the QFII license. There are no assurances that such 
a QFII license would be granted, or that such a license, if granted, 
would permit the Fund to purchase A-Shares in an amount necessary to 
provide the Fund with sufficient A-Shares exposure.
    Because it currently cannot invest in A-Shares directly, the Fund 
will invest primarily in futures contracts on the Benchmark that 
provide exposure to the China A-Shares market. These futures contracts 
are listed on the Singapore Exchange (``SGX'').\8\ By investing in 
futures contracts on the Benchmark, the Fund will have no direct 
ownership of the A-Shares of the companies included in the Benchmark, 
but the Fund will gain exposure to the performance of those 
companies.\9\
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    \8\ SGX is a member of the ISG.
    \9\ Futures contracts on the Benchmark were first approved for 
investment by U.S. investors by the Commodity Futures Trading 
Commission (``CFTC'') in January 2012. Futures contracts on the 
Benchmark have expirations ranging from the two nearest consecutive 
months, and March, June, September, and December on a 1-year cycle, 
and provide investors the ability to invest based on their view of 
the future direction or movement of the Benchmark. FTSE 
International Limited (``FTSE'') reviews constituents in the 
Benchmark quarterly using data from the close of business on the 
Monday following the third Friday in February, May, August, and 
November. FTSE will implement any constituent changes on the next 
trading day following the third Friday in March, June, September, 
and December.
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    The Fund also may invest in Underlying ETFs listed on U.S. 
securities exchanges or on the HKSE that provide exposure to China A-
Shares.
    The Fund will invest in futures contracts on the Benchmark--
specifically, in SGX-listed futures contracts--as a significant part of 
its investment strategy. Generally, futures contracts are a type of 
derivative whose value depends upon, or is derived from, the value of 
an underlying asset, reference rate, or index. The Fund's use of 
futures contracts will be underpinned by investments in short-term, 
high quality U.S. Treasury Securities, money market instruments, cash, 
and cash equivalent securities, as described below.\10\ The Trust's 
Exemptive Order places no limit on the amount of derivatives in which 
the Fund can invest. The futures contracts will be used to simulate 
full investment in China A-Share securities. To the extent the Fund 
uses futures, it will do so only in accordance with Rule 4.5 of the 
Commodity Exchange Act (``CEA'').\11\
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    \10\ With respect to certain kinds of futures entered into by 
the Fund that involve obligations to make future payments to third 
parties, under applicable federal securities laws, rules, and 
interpretations thereof, the Fund must ``set aside'' (referred to 
sometimes as ``asset segregation'') liquid assets, or engage in 
other measures to ``cover'' open positions with respect to such 
transactions. With respect to futures contracts that are not 
contractually required to ``cash-settle,'' the Fund must cover its 
open positions by setting aside liquid assets equal to the 
contracts' full, notional value. With respect to futures contracts 
that are contractually required to ``cash-settle,'' the Fund may set 
aside liquid assets in an amount equal to the Fund's daily marked-
to-market (net) obligation rather than the notional value of the 
futures contract.
    \11\ 7 U.S.C. 1. To the extent the Fund uses futures contracts, 
it will do so only in accordance with Rule 4.5 of the CEA. The Trust 
has filed a notice of eligibility for exclusion from the definition 
of the term ``commodity pool operator'' or ``CPO'' in accordance 
with Rule 4.5 of the CEA. Under amendments to Rule 4.5 adopted in 
February 2012, an investment adviser of a registered investment 
company may claim exclusion from registration as a CPO only if the 
registered investment company it advises uses futures contracts 
solely for ``bona fide hedging purposes'' or limits its use of 
futures contracts for non-bona fide hedging purposes in specified 
ways. Because the Fund does not expect to use futures contracts 
solely for ``bona fide hedging purposes,'' the Fund will be subject 
to rules that will require it to limit its use of positions in 
futures contracts in accordance with the requirements of amended 
Rule 4.5 unless the Adviser otherwise complies with CPO regulation. 
To the extent that the Fund is unable to rely on Rule 4.5, the Fund 
will be operated in accordance with CFTC rules; the Adviser already 
is registered as a CPO.
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The Subsidiary

    The Fund may seek to gain exposure to the A-Shares market through 
investments in a subsidiary organized in the Cayman Islands 
(``Subsidiary'') that in turn would make investments in futures 
contracts that provide exposure to China A-Shares. If utilized, the 
Subsidiary would be wholly-owned and controlled by the Fund, and its 
investments would be consolidated into the Fund's financial statements. 
Should the Fund invest in the Subsidiary, that investment may not 
exceed 25% of the Fund's total assets at each quarter end of the Fund's 
fiscal year. Further, should the Fund invest in the Subsidiary, it 
would be expected to provide the Fund with exposure to A-Share returns 
within the limits of the federal tax requirements applicable to 
investment companies, such as the Fund.
    The Subsidiary would be able to invest in futures contracts that 
would provide exposure to A-Shares, as well in other investments that 
would serve as margin or collateral or otherwise support the 
Subsidiary's futures positions. The Subsidiary, accordingly, would be 
subject to the same general investment policies and restrictions as the 
Fund, except that unlike the Fund, which must invest in futures 
contracts in compliance with the requirements of Subchapter M of the 
Internal Revenue Code,\12\ federal securities laws, and the CEA, the 
Subsidiary may invest without limitation in futures. References to the

[[Page 41147]]

investment strategies and risks of the Fund include the investment 
strategies and risks of the Subsidiary.
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    \12\ 26 U.S.C. 851.
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    The Fund may utilize the Subsidiary, but is not required to do so. 
If it is utilized, the Subsidiary will not be registered under the 1940 
Act. As an investor in the Subsidiary, the Fund, as the Subsidiary's 
sole shareholder, would not have the protections offered to investors 
in registered investment companies. However, because the Fund would 
wholly own and control the Subsidiary, and the Fund and Subsidiary 
would be managed by the Adviser, the Subsidiary would not take action 
contrary to the interests of the Fund or the Fund's shareholders. The 
Board of Trustees of the Trust (``Board'') has oversight responsibility 
for the investment activities of the Fund, including its investment in 
the Subsidiary, and the Fund's role as the sole shareholder of the 
Subsidiary. Also, in managing the Subsidiary's portfolio, the Adviser 
would be subject to the same investment restrictions and operational 
guidelines that apply to the management of the Fund. Changes in the 
laws of the United States, under which the Fund is organized, or of the 
Cayman Islands, under which the Subsidiary is organized, could result 
in the inability of the Fund or the Subsidiary to operate as described 
in the filing or in the Registration Statement and could negatively 
affect the Fund and its shareholders.

Other Investments

    The Fund, under normal circumstances, may invest no more than 20% 
of its net assets in other investments such as money market instruments 
(including repurchase agreements, as described below), cash, and cash 
equivalents to provide liquidity or to collateralize its investments in 
futures contracts. The instruments in which the Fund may invest 
include: (i) Short-term obligations issued by the U.S. Government; \13\ 
(ii) short-term negotiable obligations of commercial banks, fixed time 
deposits,\14\ and bankers' acceptances \15\ of U.S. and foreign banks 
and similar institutions; (iii) commercial paper rated at the date of 
purchase ``Prime-1'' by Moody's Investors Service, Inc. or ``A-1+'' or 
``A-1'' by Standard & Poor's or, if unrated, of comparable quality, as 
the Adviser of the Fund determines; and (iv) money market mutual funds.
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    \13\ The Fund may invest in U.S. government obligations. 
Obligations issued or guaranteed by the U.S. Government, its 
agencies, and instrumentalities include bills, notes, and bonds 
issued by the U.S. Treasury, as well as ``stripped'' or ``zero 
coupon'' U.S. Treasury obligations representing future interest or 
principal payments on U.S. Treasury notes or bonds.
    \14\ Time deposits are non-negotiable deposits maintained in 
banking institutions for specified periods of time at stated 
interest rates.
    \15\ Banker's acceptances are time drafts drawn on commercial 
banks by borrowers, usually in connection with international 
transactions.
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    The Fund may invest in the securities of other investment companies 
(including money market funds) beyond the limits permitted under the 
1940 Act, subject to certain terms and conditions set forth in a 
Commission exemptive order issued pursuant to Section 12(d)(1)(J) of 
the 1940 Act.\16\
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    \16\ Investment Company Act Release No. 30238 (October 23, 2012) 
(File No. 812-13820).
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    The Fund may enter into repurchase agreements, which are agreements 
pursuant to which securities are acquired by the Fund from a third 
party with the understanding that they will be repurchased by the 
seller at a fixed price on an agreed date. These agreements may be made 
with respect to any of the portfolio securities in which the Fund is 
authorized to invest. Repurchase agreements may be characterized as 
loans secured by the underlying securities. 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 enter into reverse repurchase agreements, which 
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.

Investment Restrictions

    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment). 
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 not use futures for speculative purposes.
    The Fund may not concentrate its investments (i.e., 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 instrumentalities.
    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.\17\
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    \17\ 26 U.S.C. 851.
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    The Fund will not invest in any non-U.S. equity securities (other 
than shares of the Subsidiary and Underlying ETFs listed on HKSE), to 
the extent that the Fund may not invest directly in China A-Shares 
through the QFII license, as described above. The Fund will not invest 
in options or swaps.
    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 things, is included in the Notice 
and Registration Statement, as applicable.\18\
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    \18\ See Notice and Registration Statement, supra notes 3 and 4, 
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 \19\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\20\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\21\ 
which requires, among other things, that the Exchange's rules be 
designed to prevent fraudulent and manipulative acts and practices, to 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system,

[[Page 41148]]

and, in general, to protect investors and the public interest. The 
Commission notes that the Fund and the Shares must comply with the 
requirements of NYSE Arca Equities Rule 8.600 to be listed and traded 
on the Exchange.
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    \19\ 15 U.S.C. 78f.
    \20\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \21\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\22\ which sets forth Congress's finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated 
Tape Association (``CTA'') high-speed line. In addition, the Portfolio 
Indicative Value, as defined in NYSE Arca Equities Rule 8.600(c)(3), 
will be widely disseminated at least every 15 seconds during the Core 
Trading Session by one or more major market data vendors.\23\ On each 
business day, before commencement of trading in Shares in the Core 
Trading Session on the Exchange, the Fund will disclose on its Web site 
the Disclosed Portfolio, as defined in NYSE Arca Equities Rule 
8.600(c)(2), held by the Fund and the Subsidiary that will form the 
basis for the Fund's calculation of NAV at the end of the business 
day.\24\ The NAV per Share of the Fund will be determined at the close 
of regular trading (normally 4:00 p.m. Eastern Time) every day the New 
York Stock Exchange is open. A basket composition file, which will 
include the security names and share quantities to deliver in exchange 
for Shares, together with estimates and actual cash components, will be 
publicly disseminated daily prior to the opening of the Exchange via 
the National Securities Clearing Corporation. 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 on the value and the 
constituents of the Benchmark may be found on the Web site of FTSE, the 
Benchmark's provider. 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 intra-day, closing, 
and settlement prices of the portfolio investments (e.g., futures 
contracts and Underlying ETFs) are also readily available from the 
exchanges trading such securities or futures contracts, automated 
quotation systems, published or other public sources, or on-line 
information services such as Bloomberg or Reuters. The Fund's Web site 
will include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information.
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    \22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \23\ According to the Exchange, several major market data 
vendors widely disseminate Portfolio Indicative Values taken from 
CTA or other data feeds.
    \24\ On a daily basis, the Fund will disclose for each portfolio 
security, futures contract, and other financial instrument of the 
Fund and the Subsidiary the following information on the Fund's Web 
site: ticker symbol (if applicable); name of security, futures 
contract, and financial instrument; number of shares, if applicable, 
and dollar value of each security, futures contract, and financial 
instrument in the portfolio; and percentage weighting of the 
security, futures contract, 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.\25\ 
In addition, trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares of the Fund may be halted. The Exchange may halt trading 
in the Shares if trading is not occurring in the securities, futures 
contracts, and/or the financial instruments comprising the Disclosed 
Portfolio of the Fund, or if other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.\26\ Further, the Commission notes that the Reporting Authority 
that provides the Disclosed Portfolio must implement and maintain, or 
be subject to, procedures designed to prevent the use and dissemination 
of material, non-public information regarding the actual components of 
the portfolio.\27\ The Commission notes that the Financial Industry 
Regulatory Authority (``FINRA''), on behalf of the Exchange,\28\ will 
communicate as needed regarding trading in the Shares with other 
markets that are members of the ISG or with which the Exchange has in 
place 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 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.\29\
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    \25\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \26\ See NYSE Arca Equities Rule 8.600(d)(2)(C) (providing 
additional considerations for the suspension of trading in or 
removal from listing of Managed Fund Shares on the Exchange). With 
respect to trading halts, the Exchange may consider 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.
    \27\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
    \28\ The Exchange states that, while FINRA surveils trading on 
the Exchange pursuant to a regulatory services agreement, the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
    \29\ See supra note 5. 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 represents that trading in the Shares will be 
subject to the existing trading surveillances, administered by FINRA on 
behalf of the

[[Page 41149]]

Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws and 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.
    (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 will be disseminated; (e) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (f) 
trading information.
    (5) For initial and/or continued listing, the Fund will be in 
compliance with Rule 10A-3 under the Exchange Act,\30\ as provided by 
NYSE Arca Equities Rule 5.3.
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    \30\ 17 CFR 240.10A-3.
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    (6) The Fund will not invest in any non-U.S. equity securities 
(other than shares of the Subsidiary and Underlying ETFs listed on 
HKSE), to the extent that the Fund may not invest directly in China A-
Shares. To the extent that the Fund invests directly in China A-Shares, 
not more than 10% of the weight of the Fund's portfolio in the 
aggregate shall consist of such China A-Shares whose principal trading 
market is not a member of ISG or is a market with which the Exchange 
does not have a comprehensive surveillance sharing agreement.
    (7) The Fund will invest solely in SGX-listed futures contracts on 
the Benchmark. It is possible that the futures contracts on the 
Benchmark may become listed on other exchanges that are members of ISG 
or with which the Exchange has in place a comprehensive surveillance 
sharing agreement, at which time the Fund may invest in those futures 
contracts listed on such exchanges. To the extent that the Fund or the 
Subsidiary were to invest in futures contracts on the Benchmark that 
were traded on exchanges other than SGX, not more than 10% of the 
weight of such futures contracts held by the Fund or the Subsidiary in 
the aggregate would consist of components whose principal trading 
market is not a member of ISG or is a market with which the Exchange 
does not have a comprehensive surveillance sharing agreement. The Fund 
will not invest in options or swaps. 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).
    (9) Should the Fund invest in the Subsidiary, that investment may 
not exceed 25% of the Fund's total assets at each quarter end of the 
Fund's fiscal year.
    (10) A minimum of 100,000 Shares of the Fund will be outstanding at 
the commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations and description of the Fund, including those set forth 
above and in the Notice.\31\
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    \31\ The Commission notes that it does not regulate the market 
for futures in which the Fund plans to take positions. Limits on the 
positions that any person may take in futures may be directly set by 
the CFTC or by the markets on which the futures are traded. The 
Commission has no role in establishing position limits on futures 
even though such limits could impact an exchange-traded product that 
is under the jurisdiction of the Commission.
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    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \32\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \32\ 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,\33\ that the proposed rule change (SR-NYSEArca-2013-56) be, and it 
hereby is, approved.
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    \33\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
Elizabeth M. Murphy,
Secretary.
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    \34\ 17 CFR 200.30-3(a)(12).
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[FR Doc. 2013-16382 Filed 7-8-13; 8:45 am]
BILLING CODE 8011-01-P


