
[Federal Register Volume 79, Number 10 (Wednesday, January 15, 2014)]
[Notices]
[Pages 2715-2722]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-00575]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71263; File No. SR-NYSEArca-2013-121]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to the Listing and Trading of 
Shares of AdvisorShares Sage Core Reserves ETF Under NYSE Arca Equities 
Rule 8.600

January 9, 2014.

I. Introduction

    On November 5, 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'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to list and trade shares (``Shares'') of 
AdvisorShares Sage Core Reserves ETF (``Fund'') of the AdvisorShares 
Trust (``Trust''). The proposed rule change was published for comment 
in the Federal Register on November 25, 2013.\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. 70902 (Nov. 19, 
2013), 78 FR 70370 (``Notice'').
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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 Trust,\4\ a 
Delaware statutory trust that is registered with the Commission as an 
open-end management investment company. The investment adviser to the 
Fund will be AdvisorShares Investments, LLC (``Adviser''). Sage 
Advisory Services Ltd. Co. (``Sub-Adviser'') will be the Fund's sub-
adviser and will provide day-to-day portfolio management of the Fund. 
Foreside Fund Services, LLC will be the principal underwriter and 
distributor of the Fund's Shares. The Bank of New York Mellon will 
serve as the administrator,

[[Page 2716]]

custodian, transfer agent, and accounting agent for the Fund. The 
Exchange represents that neither the Adviser nor the Sub-Adviser is 
registered as a broker-dealer or is affiliated with a broker-dealer.\5\
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    \4\ On August 13, 2013, 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 
Investment Company Act of 1940 (``1940 Act'') relating to the Fund 
(File Nos. 333-157876 and 811-22110) (``Registration Statement''). 
In addition, the Exchange states that the Trust has obtained certain 
exemptive relief under the 1940 Act. See Investment Company Act 
Release No. 29291 (May 28, 2010) (File No. 812-13677).
    \5\ See Commentary .06 to NYSE Arca Equities Rule 8.600. The 
Exchange represents that, in the event that (a) the Adviser or the 
Sub-Adviser becomes a registered broker-dealer or 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, the Advisor or Sub-Advisor will implement a fire wall 
with respect to its relevant personnel or its broker-dealer 
affiliate regarding access to information concerning the composition 
of or changes to the portfolio and will be subject to procedures 
designed to prevent the use and dissemination of material non-public 
information regarding the portfolio.
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategies, including other 
portfolio holdings and investment restrictions.\6\
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    \6\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, portfolio holdings, disclosure 
policies, distributions, and taxes, among other information, is 
included in the Notice and the Registration Statement, as 
applicable. See Notice and Registration Statement, supra notes 3 and 
4, respectively.
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Principal Investments

    The Fund will seek to preserve capital while maximizing income. 
Under normal market conditions,\7\ the Sub-Adviser will seek to achieve 
the Fund's investment objective by investing at least 80% of the Fund's 
net assets in a variety of fixed-income securities issued by U.S. and 
foreign issuers. These fixed-income securities will be U.S. dollar-
denominated investment-grade debt securities rated Baa or higher by 
Moody's Investors Service, Inc. (``Moody's''), equivalently rated by 
Standard & Poor's Ratings Services (``S&P'') or Fitch, Inc. 
(``Fitch''), or, if unrated, determined by the Sub-Adviser to be of 
comparable quality. The Fund may retain a security if its rating falls 
below investment-grade and the Sub-Adviser determines that retention of 
the security is in the Fund's best interest.\8\
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    \7\ The Exchange states that the term ``under normal market 
conditions'' means, without limitation, the absence of extreme 
volatility or trading halts in the fixed-income 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\ In determining whether a security is of ``comparable 
quality,'' the Exchange represents that the Sub-Adviser will 
consider, for example, whether the issuer of the security has issued 
other rated securities; whether the obligations under the security 
are guaranteed by another entity and, if so, the rating of the 
guarantor (if any); whether and (if applicable) how the security is 
collateralized; other forms of credit enhancement (if any); the 
security's maturity date, liquidity features (if any), relevant cash 
flow(s), and valuation features; other structural analysis; 
macroeconomic analysis; and sector or industry analysis.
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    The Exchange represents that the Fund's investment portfolio of 
fixed-income securities will meet certain criteria for index-based, 
fixed-income exchange-traded funds (``ETFs'') contained in NYSE Arca 
Equities Rule 5.2(j)(3), Commentary .02.\9\
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    \9\ See NYSE Arca Equities Rule 5.2(j)(3), Commentary .02 
governing fixed-income-based Investment Company Units. The 
requirements of Rule 5.2(j)(3), Commentary .02(a) that will be met 
include the following: (i) The index or portfolio must consist of 
Fixed-income Securities (as defined in Rule 5.2(j)(3), 
Commentary.02) (Commentary .02(a)(1)); (ii) components that in the 
aggregate account for at least 75% of the weight of the index or 
portfolio each must have a minimum original principal amount 
outstanding of $100 million or more (Rule 5.2(j)(3), 
Commentary.02(a)(2)); (iii) a component may be a convertible 
security; however, once the convertible security converts to an 
underlying equity security, the component is removed from the index 
or portfolio (Rule 5.2(j)(3), Commentary.02(a)(3)); (iv) no 
component fixed-income security (excluding Treasury Securities) will 
represent more than 30% of the weight of the index or portfolio, and 
the five highest weighted component fixed-income securities do not 
in the aggregate account for more than 65% of the weight of the 
index or portfolio (Rule 5.2(j)(3), Commentary.02(a)(4)); and (v) an 
underlying index or portfolio (excluding exempted securities) must 
include securities from a minimum of 13 non-affiliated issuers (Rule 
5.2(j)(3), Commentary.02(a)(5)).
    The Commission notes that the Fund's investment portfolio of 
fixed-income securities would not be required to meet the 
quantitative criteria in NYSE Arca Equities Rule 5.2(j)(3) 
Commentary.02(a)(6), which requires that component securities that 
in aggregate account for at least 90% of the weight of the index or 
portfolio must be either (a) from issuers that are required to file 
reports pursuant to Sections 13 and 15(d) of the Securities Exchange 
Act of 1934; (b) from issuers that have a worldwide market value of 
its outstanding common equity held by non-affiliates of $700 million 
or more; (c) from issuers that have outstanding securities that are 
notes, bonds, debentures, or evidence of indebtedness having a total 
remaining principal amount of at least $1 billion; (d) exempted 
securities as defined in Section 3(a)(12) of the Securities Exchange 
Act of 1934; or (e) from issuers that are a government of a foreign 
country or a political subdivision of a foreign country.
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    The average duration of the Fund will vary based on the Sub-
Adviser's forecast for interest rates and will normally not exceed one 
year.\10\ The dollar-weighted average portfolio maturity of the Fund 
will normally not be expected to exceed three years.
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    \10\ According to the Exchange, duration is a measure used to 
determine the sensitivity of a security's price to changes in 
interest rates. The longer a security's duration, the more sensitive 
it will be to changes in interest rates.
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    The Fund may invest in debt securities, which are securities 
consisting of a certificate or other evidence of a debt (secured or 
unsecured) on which the issuing company or governmental body promises 
to pay the holder thereof a fixed, variable, or floating rate of 
interest for a specified length of time and to repay the debt on the 
specified maturity date. Some debt securities, such as zero-coupon 
bonds, do not make regular interest payments but are issued at a 
discount to their principal or maturity value. The debt securities that 
the Fund will invest in will include a variety of fixed-income 
obligations, including, but not limited to, corporate debt securities, 
government securities, municipal securities, convertible securities, 
and mortgage-backed securities.
    The Fund may invest in variable- and floating-rate instruments, 
which involve certain obligations that may carry variable or floating 
rates of interest and may involve a conditional or unconditional demand 
feature. These instruments bear interest at rates that are not fixed, 
but that vary with changes in specified market rates or indices. The 
interest rates on these securities may be reset daily, weekly, 
quarterly, or according to some other reset period, and there may be a 
set floor or ceiling on interest rate changes. There is a risk that the 
current interest rate on these obligations may not accurately reflect 
existing market interest rates. A demand instrument with a demand 
notice exceeding seven days may be considered illiquid if there is no 
secondary market for the security.
    The Fund may invest in bank obligations, including certificates of 
deposit, bankers' acceptances, and fixed time deposits. Certificates of 
deposit are negotiable certificates issued against funds deposited in a 
commercial bank for a definite period of time and earning a specified 
return. Bankers' acceptances are negotiable drafts or bills of 
exchange, normally drawn by an importer or exporter to pay for specific 
merchandise, that are ``accepted'' by a bank, meaning, in effect, that 
the bank unconditionally agrees to pay the face value of the instrument 
on maturity. The Exchange states that fixed time deposits are bank 
obligations payable at a stated maturity date and bearing interest at a 
fixed rate. Fixed time deposits may be withdrawn on demand by the 
investor, but may be subject to early withdrawal penalties that vary 
depending upon market conditions and the remaining maturity of the 
obligation.
    The Fund may invest in commercial paper. The Exchange represents 
that commercial paper is a short-term obligation with a maturity 
ranging from one to 270 days issued by banks, corporations, and other 
borrowers and that these investments are unsecured and usually 
discounted. To the extent

[[Page 2717]]

the Fund invests in commercial paper, the Fund will invest in 
commercial paper rated A-1 or A-2 by S&P or Prime-1 or Prime-2 by 
Moody's.
    The Fund 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. The 
Exchange represents that 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 National Credit Union Administration, and the Federal 
Agricultural Mortgage Corporation.
    The Fund may invest in inflation-indexed bonds, which are fixed-
income securities whose principal value is periodically adjusted 
according to the rate of inflation. According to the Exchange, two 
structures are common. The U.S. Treasury and some other issuers use a 
structure that accrues inflation into the principal value of the bond. 
Most other issuers pay out the Consumer Price Index accruals as part of 
a semi-annual coupon. Inflation-indexed securities issued by the U.S. 
Treasury have maturities of five, ten, or thirty years, although it is 
possible that securities with other maturities will be issued in the 
future. The U.S. Treasury securities pay interest on a semi-annual 
basis, equal to a fixed percentage of the inflation-adjusted principal 
amount.
    The Fund may invest in mortgage-related securities and asset-backed 
securities (``ABSs'').\11\ According to the Exchange, mortgage-related 
securities are interests in pools of residential or commercial mortgage 
loans, including mortgage loans made by savings and loan institutions, 
mortgage bankers, commercial banks, and others. Pools of mortgage loans 
are assembled as securities for sale to investors by various 
governmental, government-related, and private organizations. The Fund 
also may invest in debt securities that are secured with collateral 
consisting of mortgage-related securities. According to the Exchange, 
interests in pools of mortgage-related securities differ from other 
forms of debt instruments, which normally provide for periodic payment 
of interest in fixed amounts with principal payments at maturity or 
specified call dates. Instead, these securities provide a monthly 
payment that consists of both interest and principal payments. In 
effect, these payments are a ``pass-through'' of the monthly payments 
made by the individual borrowers on their residential or commercial 
mortgage loans, net of any fees paid to the issuer or guarantor of 
these securities. Additional payments are caused by repayments of 
principal resulting from the sale of the underlying property, 
refinancing or foreclosure, net of fees or costs that may be incurred. 
Some mortgage-related securities (such as securities issued by Ginnie 
Mae) are described as ``modified pass-through.'' These securities 
entitle the holder to receive all interest and principal payments owed 
on the mortgage pool, net of certain fees, at the scheduled payment 
dates regardless of whether or not the mortgagor actually makes the 
payment.
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    \11\ According to the Exchange, ABSs are bonds backed by pools 
of loans or other receivables. ABSs are created from many types of 
assets, including auto loans, credit card receivables, home equity 
loans, and student loans. ABSs are issued through special purpose 
vehicles that are bankruptcy remote from the issuer of the 
collateral. The credit quality of an ABS transaction depends on the 
performance of the underlying assets. To protect ABS investors from 
the possibility that some borrowers could miss payments or even 
default on their loans, ABSs include various forms of credit 
enhancement.
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    The Fund may invest in agency mortgage-related securities. 
According to the Exchange, the principal governmental guarantor of 
mortgage-related securities is Ginnie Mae. Ginnie Mae is a wholly owned 
United States government corporation within the Department of Housing 
and Urban Development. Ginnie Mae is authorized to guarantee, with the 
full faith and credit of the United States government, the timely 
payment of principal and interest on securities issued by institutions 
approved by Ginnie Mae (such as savings and loan institutions, 
commercial banks, and mortgage bankers) and backed by pools of 
mortgages insured by the Federal Housing Administration or guaranteed 
by the Department of Veterans Affairs.
    The Fund may invest up to 10% of its net assets in privately issued 
(non-government-sponsored entity (``non-GSE'')) mortgage-related 
securities, including commercial mortgage-backed securities,\12\ 
collateralized mortgage obligations (``CMOs''),\13\ and adjustable rate 
mortgage-backed securities (``ARMBSs'').\14\ According to the Exchange, 
commercial banks, savings and loan institutions, private mortgage 
insurance companies, mortgage bankers, and other secondary market 
issuers also create pass-through pools of conventional residential 
mortgage loans. These issuers may be the originators or servicers of 
the underlying mortgage loans as well as the guarantors of the 
mortgage-related securities. The Fund will not purchase mortgage-
related securities (including non-GSE mortgage-related securities) or 
any other assets that in the Sub-Adviser's opinion are illiquid if, as 
a result, more than 15% of the Fund's net assets will be invested in 
illiquid securities.
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    \12\ The Exchange states that commercial mortgage-backed 
securities include securities that reflect an interest in, and are 
secured by, mortgage loans on commercial real property.
    \13\ The Exchange states that CMOs are debt obligations of a 
legal entity and that they are collateralized by mortgages and 
divided into classes. Similarly to a bond, interest and prepaid 
principal is paid, in most cases, on a monthly basis. CMOs may be 
collateralized by whole mortgage loans or private mortgage bonds, 
but are more typically collateralized by portfolios of mortgage 
pass-through securities guaranteed by Ginnie Mae, Freddie Mac, or 
Fannie Mae, and their income streams.
    \14\ The Exchange states that ARMBSs have interest rates that 
reset at periodic intervals. Acquiring ARMBSs permits the Fund to 
participate in increases in prevailing current interest rates 
through periodic adjustments in the coupons of mortgages underlying 
the pool on which ARMBSs are based. These ARMBSs generally have 
higher current yield and lower price fluctuations than is the case 
with more traditional fixed-income debt securities of comparable 
rating and maturity.
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    The Sub-Adviser will seek to manage the portion of the Fund's 
assets committed to privately issued mortgage-related securities in a 
manner consistent with the Fund's investment objective, policies, and 
overall portfolio risk profile. In determining whether and how much to 
invest in privately issued mortgage-related securities, and how to 
allocate those assets, the Sub-Adviser will consider a number of 
factors. These include, but are not limited to: (1) The nature of the 
borrowers (e.g., residential or commercial); (2) the collateral loan 
type (e.g., for residential: First Lien--Jumbo/Prime, First Lien--Alt-
A, First Lien--Subprime, First Lien--Pay-Option or Second Lien; for 
commercial: Conduit, Large Loan, or Single Asset/

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Single Borrower); and (3) in the case of residential loans, whether 
they are fixed-rate or adjustable-rate mortgages. Each of these 
criteria can cause privately issued mortgage-related securities to have 
differing primary economic characteristics and distinguishable risk 
factors and performance characteristics.

Other Fund Investments

    In order to respond to adverse market, economic, political, or 
other conditions, the Fund may invest 100% of its total assets, without 
limitation, in investment-grade debt securities and money market 
instruments, either directly or through ETFs.\15\ The Fund may be 
invested in this manner for extended periods, depending on the Sub-
Adviser's assessment of market conditions. These debt securities and 
money market instruments include shares of other fixed-income mutual 
funds, commercial paper, certificates of deposit, bankers' acceptances, 
U.S. government securities, repurchase agreements, and bonds that are 
rated BBB or higher. While the Fund is in a defensive position, the 
opportunity to achieve its investment objective will be limited.
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    \15\ The ETFs in which the Fund may invest will be registered 
under the 1940 Act and include Investment Company Units (as 
described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio 
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100); 
and Managed Fund Shares (as described in NYSE Arca Equities Rule 
8.600). These ETFs all will be listed and traded in the U.S. on 
registered exchanges. While the Fund may invest in inverse ETFs, the 
Fund will not invest in leveraged or inverse leveraged (e.g., 2X, -
2X, 3X, or -3X) ETFs.
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    While the Fund, under normal market conditions, will invest at 
least 80% of its net assets in investment-grade fixed-income 
securities, as described above, the Fund may invest its remaining 
assets in the following.
    The Fund may invest in non-investment-grade securities. According 
to the Exchange, non-investment-grade securities, also referred to as 
``high-yield securities'' or ``junk bonds,'' are debt securities that 
are rated lower than the four highest rating categories by a nationally 
recognized statistical rating organization (for example, lower than 
Baa3 by Moody's or lower than BBB- by S&P) or are determined to be of 
comparable quality by the Fund's Sub-Adviser. These securities are 
generally considered to be, on balance, predominantly speculative with 
respect to capacity to pay interest and repay principal in accordance 
with the terms of the obligation and will generally involve more credit 
risk than securities in the investment-grade categories. According to 
the Exchange, investment in these securities generally provides greater 
income and increased opportunity for capital appreciation than 
investments in higher quality securities, but they also typically 
entail greater price volatility and principal and income risk.
    The Fund may invest in equity securities, including common stocks, 
preferred stocks, warrants to acquire common stock, securities 
convertible into common stock, investments in master limited 
partnerships, and rights. With respect to its equity securities 
investments, the Fund will invest only in equity securities that trade 
in markets that are members of the Intermarket Surveillance Group 
(``ISG'') or are parties to a comprehensive surveillance sharing 
agreement with the Exchange.
    The Fund may invest in exchange-traded notes (``ETNs''). According 
to the Exchange, ETNs (also called ``index-linked securities'' as would 
be listed, for example, under NYSE Arca Equities Rule 5.2(j)(6)), are 
senior, unsecured, and unsubordinated debt securities, issued by an 
underwriting bank, that are designed to provide returns that are linked 
to a particular benchmark, minus investor fees. ETNs have a maturity 
date and, generally, are backed only by the creditworthiness of the 
issuer.
    The Fund may invest in CMO residuals, which the Exchange states are 
mortgage securities issued by agencies or instrumentalities of the U.S. 
government or by private originators of, or investors in, mortgage 
loans, including savings and loan associations, homebuilders, mortgage 
banks, commercial banks, investment banks, and special purpose entities 
of the foregoing. CMO residuals, whether or not registered under the 
Securities Act, may be subject to certain restrictions on 
transferability and may be deemed ``illiquid'' and subject to the 
Fund's limitations on investment in illiquid securities.
    The Fund may invest in the securities of exchange-traded pooled 
vehicles that are not investment companies and, thus, not required to 
comply with the provisions of the 1940 Act.\16\ As a result, as a 
shareholder of these pooled vehicles, the Fund will not have all of the 
investor protections afforded by the 1940 Act. These pooled vehicles 
may, however, be required to comply with the provisions of other 
federal securities laws, such as the Securities Act. These pooled 
vehicles typically hold currency or commodities, such as gold or oil, 
or other property that is itself not a security. If the Fund invests in 
and, thus, is a shareholder of a pooled vehicle, the Fund's 
shareholders will indirectly bear the Fund's proportionate share of the 
fees and expenses paid by the pooled vehicle, including any applicable 
management fees, in addition to both the management fees payable 
directly by the Fund to the Adviser and the other expenses that the 
Fund bears directly in connection with its own operations.
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    \16\ These securities 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).
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    The Fund may invest in equities issuers located outside the United 
States directly \17\ or through financial instruments, ETFs, ETNs, and 
exchange-traded pooled vehicles that are indirectly linked to the 
performance of foreign issuers.
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    \17\ Securities of equities issuers may be any one of the 
following: American Depositary Receipts (``ADRs''), Global 
Depositary Receipts (``GDRs''), European Depositary Receipts 
(``EDRs''), International Depository Receipts (``IDRs''), ``ordinary 
shares,'' and ``New York shares'' issued and traded in the U.S. 
(collectively, ``Equity Financial Instruments''). The Exchange 
states that ADRs are U.S.-dollar-denominated receipts typically 
issued by U.S. banks and trust companies that evidence ownership of 
underlying securities issued by a foreign issuer. Generally, ADRs in 
registered form are designed for use in domestic securities markets 
and are traded on exchanges or over-the-counter in the U.S. GDRs, 
EDRs, and IDRs are similar to ADRs in that they are certificates 
evidencing ownership of shares of a foreign issuer; however, GDRs, 
EDRs, and IDRs may be issued in bearer form and denominated in other 
currencies, and they are generally designed for use in specific or 
multiple securities markets outside the U.S. EDRs, for example, are 
designed for use in European securities markets while GDRs are 
designed for use throughout the world. Ordinary shares are shares of 
foreign issuers that are traded abroad and on a U.S. exchange. New 
York shares are shares that a foreign issuer has allocated for 
trading in the U.S. ADRs may be sponsored or unsponsored, but 
unsponsored ADRs will not exceed 10% of the Fund's net assets. With 
respect to its investments in equity securities (including Equity 
Financial Instruments), the Fund will invest at least 90% of its 
assets invested in securities that trade in markets that are members 
of the ISG or are parties to a comprehensive surveillance sharing 
agreement with the Exchange.
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    The Fund may invest directly and indirectly in foreign currencies. 
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). At the discretion of the Adviser, 
the Fund may, but is not obligated to, enter into forward currency 
exchange contracts for hedging purposes to help reduce the risks and 
volatility caused by changes in foreign currency exchange rates. When 
used for hedging purposes, forward currency contracts tend to limit any 
potential gain that may be realized if the value of the Fund's

[[Page 2719]]

foreign holdings increases because of currency fluctuations.
    The Fund may invest in other mortgage-related securities, which 
include securities other than those described above that directly or 
indirectly represent a participation in, or are secured by and payable 
from, mortgage loans on real property, including mortgage dollar rolls 
(that is, a series of purchase and sale contracts),\18\ or stripped 
mortgage-backed securities (``SMBS''), which are derivative multi-class 
mortgage securities.\19\ The other mortgage-related securities may be 
debt securities issued by agencies or instrumentalities of the U.S. 
government or by private originators of, or investors in, mortgage 
loans, including savings and loan associations, homebuilders, mortgage 
banks, commercial banks, investment banks, partnerships, trusts, and 
special purpose entities of the foregoing.
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    \18\ According to the Exchange, a mortgage dollar roll involves 
the sale of mortgage-backed securities by the Fund and its agreement 
to repurchase the instrument (or one which is substantially similar) 
at a specified time and price.
    \19\ According to the Exchange, SMBSs are usually structured 
with two classes that receive different proportions of the interest 
and principal distributions on a pool of mortgage assets. A common 
type of SMBS will have one class receiving some of the interest and 
most of the principal from the mortgage assets, while the other 
class will receive most of the interest and the remainder of the 
principal. In the most extreme case, one class will receive all of 
the interest (the interest-only or ``IO'' class), while the other 
class will receive all of the principal (the principal-only or 
``PO'' class). The yield to maturity on an IO class is extremely 
sensitive to the rate of principal payments (including pre-payments) 
on the related underlying mortgage assets, and a rapid rate of 
principal payments may have a material adverse effect on the Fund's 
yield to maturity from these securities. If the underlying mortgage 
assets experience greater than anticipated pre-payments of 
principal, the Fund may fail to recoup some or all of its initial 
investment in these securities even if the security is in one of the 
highest rating categories.
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    The Fund may invest in closed-end funds. Closed-end funds are 
pooled investment vehicles that are registered under the 1940 Act and 
whose shares are listed and traded on U.S. national securities 
exchanges.
    The Fund may invest in U.S. exchange-traded futures contracts, 
including stock index futures and U.S. Treasury futures, and options on 
these futures contracts. The Fund also may invest in U.S. exchange- and 
over-the-counter-traded options, which will generally be based on U.S. 
Treasuries.
    The Fund may enter into swap agreements generally based on fixed-
income securities, 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. 
The Fund will utilize cleared swaps, if available, to the extent 
practicable and will not enter into any swap agreement unless the 
Adviser believes that the other party to the transaction is 
creditworthy. Swaps utilized by the Fund will be backed by collateral 
of the Fund's assets, as required. The Sub-Adviser will evaluate the 
creditworthiness of counterparties on an ongoing basis. In addition to 
information provided by credit agencies, the Sub-Adviser's credit 
analysts will evaluate each approved counterparty using various methods 
of analysis, including company visits, earnings updates, the broker-
dealer's reputation, past experience with the broker-dealer, market 
levels for the counterparty's debt and equity, the counterparty's 
liquidity, and the broker-dealer's share of market participation.
    The Fund may invest in collateralized bond obligations (``CBOs''), 
collateralized loan obligations (``CLOs''), other collateralized debt 
obligations (``CDOs''), and other similarly structured securities. 
CBOs, CLOs, and other CDOs are types of ABSs. According to the 
Exchange, a CBO is a trust that is often backed by a diversified pool 
of high-risk, below-investment-grade, fixed-income securities. The 
collateral can be from many different types of fixed-income securities 
such as high-yield debt, residential privately issued mortgage-related 
securities, commercial privately issued mortgage-related securities, 
trust preferred securities, and emerging market debt. A CLO is a trust 
typically collateralized by a pool of loans, which may include, among 
others, domestic and foreign senior secured loans, senior unsecured 
loans, and subordinated corporate loans, including loans that may be 
rated below-investment-grade or equivalent unrated loans. Other CDOs 
are trusts backed by other types of assets representing obligations of 
various parties.\20\
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    \20\ According to the Exchange, the risks of an investment in a 
CBO, CLO, or other CDO depend largely on the type of the collateral 
securities and the class of the instrument in which the Fund 
invests. Normally, CBOs, CLOs, and other CDOs are privately offered 
and sold, and thus are not registered under the securities laws. As 
a result, investments in CBOs, CLOs, and other CDOs may be 
characterized by the Fund as illiquid securities; however, an active 
dealer market may exist for CBOs, CLOs, and other CDOs allowing them 
to qualify for Rule 144A transactions.
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    The Fund may invest in hybrid instruments. The Exchange represents 
that a hybrid instrument is a type of potentially high-risk derivative 
that combines a traditional stock, bond, or commodity with an option or 
forward contract. Generally, the principal amount, amount payable upon 
maturity or redemption, or interest rate of a hybrid is tied 
(positively or negatively) to the price of some security, commodity, 
currency, or securities index; another interest rate; or some other 
economic factor (each a ``benchmark''). The interest rate or (unlike 
most fixed-income securities) the principal amount payable at maturity 
of a hybrid security may be increased or decreased, depending on 
changes in the value of the benchmark. An example of a hybrid 
instrument could be a bond issued by an oil company that pays a small 
base level of interest with additional interest that accrues in 
correlation with the extent to which oil prices exceed a certain 
predetermined level. Such a hybrid instrument would be a combination of 
a bond and a call option on oil.
    The Fund may invest in structured notes, which the Exchange states 
are debt obligations that also contain an embedded derivative component 
with characteristics that adjust the obligation's risk/return profile. 
Generally, the performance of a structured note will track that of the 
underlying debt obligation and the derivative embedded within it.\21\ 
The Fund would have the right to receive periodic interest payments 
from the issuer of the structured notes at an agreed-upon interest rate 
and a return of the principal at the maturity date.
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    \21\ According to the Exchange, structured notes are typically 
privately negotiated transactions between two or more parties. The 
Fund bears the risk that the issuer of the structured note will 
default or become bankrupt, which may result in the loss of 
principal investment and periodic interest payments expected to be 
received for the duration of its investment in the structured notes.
---------------------------------------------------------------------------

    The Fund may invest in shares of exchange-traded real estate 
investment trusts (``REITs''). According to the Exchange, REITs are 
pooled investment vehicles that invest primarily in real estate or real 
estate-related loans. REITs are generally classified as equity REITs, 
mortgage REITs, or a combination of equity and mortgage REITs.
    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 these 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. In 
addition, the value of

[[Page 2720]]

the collateral underlying the repurchase agreement will always be at 
least equal to the repurchase price, including any accrued interest 
earned on the repurchase agreement. It is the current policy of the 
Fund not to invest in repurchase agreements that do not mature within 
seven days if the investment, together with any other illiquid assets 
held by the Fund, amounts to more than 15% of the Fund's net assets.
    The Fund may enter into reverse repurchase agreements as part of 
the Fund's investment strategy. According to the Exchange, 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. Generally, the effect of this 
transaction 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 the Fund will be able to keep the 
interest income associated with those portfolio securities.
    The Fund may engage in short sales transactions in which the Fund 
sells a security it does not own.
    The Fund may invest in mortgage-related securities that are equity 
securities issued by agencies or instrumentalities of the U.S. 
government or by private originators of, or investors in, mortgage 
loans, including savings and loan associations, homebuilders, mortgage 
banks, commercial banks, investment banks, partnerships, trusts, and 
special purpose entities of the foregoing.\22\
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    \22\ The Exchange states that, with respect to its mortgage-
related securities holdings that are equity securities, the Fund 
will invest only in securities that trade in markets that are 
members of the ISG or are parties to a comprehensive surveillance 
sharing agreement with the Exchange.
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    The Fund, from time to time, in the ordinary course of business, 
may purchase securities on a when-issued, delayed-delivery, or forward 
commitment basis (i.e., delivery and payment can take place between a 
month and 120 days after the date of the transaction).
    The Fund may invest in U.S. Treasury zero-coupon bonds. The 
Exchange states that 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 
these stripped debt obligations and coupons. Interest is not paid in 
cash during the term of these securities, but is accrued and paid at 
maturity.

Investment Restrictions

    According to the Registration Statement, 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 an 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.
    (ii) 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.
    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 deemed illiquid by the Adviser or Sub-
Adviser \23\ in accordance with Commission guidance, CMO residuals, and 
demand instruments with a demand notice exceeding seven days. 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.
---------------------------------------------------------------------------

    \23\ In reaching liquidity decisions, the Adviser or Sub-Adviser 
may consider the following factors: The frequency of trades and 
quotes for the security; the number of dealers wishing to purchase 
or sell the security and the number of other potential purchasers; 
dealer undertakings to make a market in the security; and the nature 
of the security and the nature of the marketplace in which it trades 
(e.g., the time needed to dispose of the security, the method of 
soliciting offers and the mechanics of transfer).
---------------------------------------------------------------------------

    The Fund may invest in the securities of other investment companies 
to the extent that this investment would be consistent with the 
requirements of Section 12(d)(1) of the 1940 Act or any rule, 
regulation, or order of the Commission or interpretation thereof. The 
Trust has entered into agreements with several unaffiliated ETFs that 
permit, pursuant to a Commission order, the Fund to purchase shares of 
those ETFs beyond the Section 12(d)(1) limits described above. The Fund 
will only make these investments in conformity with the requirements of 
Subchapter M of the Internal Revenue Code of 1986. The Fund will seek 
to qualify for treatment as a Regulated Investment Company (``RIC'') 
under the Internal Revenue Code.
    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage.

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 \24\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\25\ In particular, the Commission finds that the 
proposal is consistent with Section 6(b)(5) of the Act,\26\ which 
requires, among other things, that the Exchange's rules be designed to 
promote just and equitable principles of trade, 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 initial and continued listing criteria in NYSE Arca Equities 
Rule 8.600 for the Shares to be listed and traded on the Exchange.
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    \24\ 15 U.S.C. 78f.
    \25\ 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).
    \26\ 17 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    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,\27\ 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 and U.S. exchange-listed equity 
securities, including ETFs, ETNs, exchange-traded pooled vehicles, 
ADRs,

[[Page 2721]]

equity-related financial instruments and other exchange-traded 
products, REITs, and mortgage-related securities, will be available via 
the Consolidated Tape Association (``CTA'') high-speed line and will be 
available from the national securities exchange on which they are 
listed. Information regarding unsponsored ADRs will be available from 
major market data vendors. Intra-day and closing price information 
relating to the fixed income and equities investments of the Fund, as 
well as Fund investments in spot currencies and derivatives, including 
futures, forwards, options, options on futures, and swaps, will be 
available from major market data vendors and from securities and 
futures exchanges, as applicable. Information relating to U.S. 
exchange-listed options will be available via the Options Price 
Reporting Authority. 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.\28\ On each business day, 
before commencement of trading in Shares in the Core Trading Session on 
the Exchange, the Fund will disclose on its Web site the Disclosed 
Portfolio that will form the basis for the Fund's calculation of NAV at 
the end of the business day.\29\ In addition, a basket composition 
file, which includes the security names and share quantities (as 
applicable) 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, 
LLC (``NYSE'') via the National Securities Clearing Corporation. The 
basket will represent one creation unit of the Fund. The Administrator 
will calculate NAV and NAV per Share once each business day as of the 
regularly scheduled close of normal trading on the NYSE (normally, 4:00 
p.m., Eastern Time).\30\ Information regarding market price and trading 
volume of the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services. Information regarding the previous day's closing price and 
trading volume information for the Shares will be published daily in 
the financial section of newspapers. The Web site for the Fund will 
include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information.
---------------------------------------------------------------------------

    \27\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \28\ According to the Exchange, several major market data 
vendors display or make widely available Portfolio Indicative Values 
taken from CTA or other data feeds.
    \29\ On a daily basis, the Fund's Web site will disclose for 
each portfolio security and other financial instrument of the Fund 
the following information: Ticker symbol (if applicable); name and, 
when available, the individual identifier (CUSIP) of the security 
and financial instrument; number of shares (if applicable) and 
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.
    \30\ According to the Exchange, price information on listed 
securities, including ETFs, ETNs, exchange-traded pooled vehicles, 
ADRs, equity-related financial instruments and other exchange-traded 
products, REITs, and mortgage-related securities, will be taken from 
the exchange where the security is primarily traded. Other portfolio 
securities and assets for which market quotations are not readily 
available or determined to not represent the current fair value will 
be valued based on fair value as determined in good faith in 
accordance with procedures adopted by the Trust's Board of Trustees 
and in accordance with the 1940 Act. For assets such as options, 
futures, and swaps, in general, Bloomberg will be the primary source 
for pricing, and Reuters will be the secondary source. Spot currency 
transactions and non-exchange-traded derivatives, including 
forwards, swaps, and certain options will normally be valued on the 
basis of quotes obtained from brokers and dealers or pricing 
services using data reflecting the earlier closing of the principal 
markets for those assets. The Exchange states that prices obtained 
from independent pricing services use information provided by market 
makers or estimates of market values obtained from yield data 
relating to investments or securities with similar characteristics. 
Exchange-traded options will be valued at market closing prices. 
Futures and options on futures will be valued at the settlement 
price determined by the applicable exchange. Unsponsored ADRs will 
be valued on the basis of the market closing price on the exchange 
where the stock of the foreign issuer that underlies the ADR is 
listed. Domestic and foreign fixed-income securities generally trade 
in the over-the-counter market rather than on a securities exchange. 
The Fund will generally value these portfolio securities by relying 
on independent pricing services. The Fund's pricing services will 
use valuation models or matrix pricing to determine current value. 
The Exchange states that, in general, pricing services use 
information with respect to comparable bond and note transactions, 
quotations from bond dealers, or by reference to other securities 
that are considered comparable in these characteristics as rating, 
interest rate, maturity date, option-adjusted spread models, 
prepayment projections, interest rate spreads, and yield curves. A 
matrix price is an estimated price or value for a fixed-income 
security. Matrix pricing is considered a form of fair-value pricing.
---------------------------------------------------------------------------

    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 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. Trading in Shares of the Fund will be 
halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached or because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable,\31\ and trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth additional circumstances 
under which Shares of the Fund may be halted. The Exchange states that 
it has a general policy prohibiting the distribution of material, non-
public information by its employees. Consistent with NYSE Arca Equities 
Rule 8.600(d)(2)(B)(ii), the Reporting Authority 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 Funds' portfolios. In addition, the Exchange states 
that neither the Adviser nor Sub-Adviser is registered as a broker-
dealer or is affiliated with a broker-dealer.\32\ The Exchange 
represents that trading in the Shares will be subject to the existing 
trading surveillances, administered by the Financial Industry 
Regulatory Authority (``FINRA'') on behalf of the Exchange, which are 
designed to detect violations of Exchange rules and

[[Page 2722]]

applicable federal securities laws.\33\ The Exchange further represents 
that these procedures are adequate to properly monitor Exchange trading 
of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws. 
Moreover, prior to the commencement of trading, the Exchange states 
that it will inform its Equity Trading Permit Holders in an Information 
Bulletin of the special characteristics and risks associated with 
trading the Shares.
---------------------------------------------------------------------------

    \31\ These reasons may include: (1) The extent to which trading 
is not occurring in the securities or the financial instruments 
composing the Disclosed Portfolio of a Fund; or (2) whether other 
unusual conditions or circumstances detrimental to the maintenance 
of a fair and orderly market are present. With respect to trading 
halts, the Exchange may consider all relevant factors in exercising 
its discretion to halt of suspend trading in the Shares of the Fund.
    \32\ See supra note 5 and accompanying text. The Exchange states 
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 the 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.
    \33\ The Exchange states that FINRA surveils trading on the 
Exchange pursuant to a regulatory services agreement and that the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
---------------------------------------------------------------------------

    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 the following:
    (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) FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares, underlying exchange-traded equity 
securities (including, without limitation, ETFs, ETNs, exchange-traded 
pooled vehicles, ADRs, equity-related financial instruments and other 
exchange-traded products, REITs, and mortgage-related securities), 
futures, options on futures, and exchange-traded options with other 
markets and other entities that are members of the ISG, and FINRA, on 
behalf of the Exchange, may obtain trading information regarding 
trading in the Shares, underlying exchange-traded equity securities, 
futures, options on futures, and exchange-traded options from these 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, underlying exchange-traded 
equity securities (including, without limitation, ETFs, ETNs, exchange-
traded pooled vehicles, ADRs, equity-related financial instruments and 
other exchange-traded products, REITs, and mortgage-related 
securities), futures, options on futures, and exchange-traded options 
from markets and other entities that are members of ISG or with which 
the Exchange has in place a comprehensive surveillance sharing 
agreement. In addition, FINRA, on behalf of the Exchange, is able to 
access, as needed, trade information for certain fixed-income 
securities held by the Fund reported to FINRA's Trade Reporting and 
Compliance Engine (``TRACE'').
    (4) At least 90% of the Fund's investments in equity securities 
(including Equity Financial Instruments) will be in securities that 
trade in markets that are members of the ISG or are parties to a 
comprehensive surveillance sharing agreement with the Exchange. With 
respect to its mortgage-related securities holdings that are equity 
securities, the Fund will invest only in securities that trade in 
markets that are members of the ISG or are parties to a comprehensive 
surveillance sharing agreement with the Exchange.
    (5) Prior to the commencement of trading, the Exchange will inform 
its Equity Trading Permit Holders in an Information Bulletin of the 
special characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (1) 
The procedures for purchases and redemptions of Shares in creation unit 
aggregations (and that Shares are not individually redeemable); (2) 
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence 
on its Equity Trading Permit Holders to learn the essential facts 
relating to every customer prior to trading the Shares; (3) the risks 
involved in trading the Shares during the Opening and Late Trading 
Sessions when an updated Portfolio Indicative Value will not be 
calculated or publicly disseminated; (4) how information regarding the 
Portfolio Indicative Value is disseminated; (5) the requirement that 
Equity Trading Permit Holders deliver a prospectus to investors 
purchasing newly issued Shares prior to or concurrently with the 
confirmation of a transaction; and (6) trading information.
    (6) For initial and continued listing, the Funds must be in 
compliance with Rule 10A-3 under the Act,\34\ as provided by NYSE Arca 
Equities Rule 5.3.
---------------------------------------------------------------------------

    \34\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (7) 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 deemed illiquid by the Adviser or Sub-
Adviser in accordance with Commission guidance, CMO residuals, and 
demand instruments with a demand notice exceeding seven days.
    (8) The Fund will utilize cleared swaps, if available, to the 
extent practicable and will not enter into any swap agreement unless 
the Adviser believes that the other party to the transaction is 
creditworthy. Swaps utilized by the Fund will be backed by collateral 
of the Fund's assets, as required. The Sub-Adviser will evaluate the 
creditworthiness of counterparties on an ongoing basis.
    (9) The Fund will effect repurchase transactions only with large, 
well-capitalized and well-established financial institutions whose 
condition will be continually monitored by the Sub-Adviser. In 
addition, the value of the collateral underlying the repurchase 
agreement will always be at least equal to the repurchase price, 
including any accrued interest earned on the repurchase agreement.
    (10) The Fund may invest up to 10% of its net assets in privately 
issued non-GSE mortgage-related securities (including commercial 
mortgage-backed securities, CMOs, and ARMBS).
    (11) The Fund's fixed-income investment portfolio will meet certain 
listing criteria for index-based, fixed-income exchange-traded funds 
contained in NYSE Arca Equities Rule 5.2(j)(3), Commentary .02.\35\
---------------------------------------------------------------------------

    \35\ See supra note 9 and accompanying text.
---------------------------------------------------------------------------

    (12) The Fund's investments will be consistent with that Fund's 
investment objective and will not be used to enhance leverage. In 
addition, the Fund will not invest in leveraged or inverse leveraged 
(e.g., 2X, -2X, 3X, or -3X) ETFs.
    (13) 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, including those set forth above and in the Notice, and 
the Exchange's description of the Funds.
    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \36\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\37\ that the proposed rule change (SR-NYSEArca- 2013-121), be, and 
it hereby is, approved.
---------------------------------------------------------------------------

    \37\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\38\
---------------------------------------------------------------------------

    \38\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-00575 Filed 1-14-14; 8:45 am]
BILLING CODE 8011-01-P


