
[Federal Register Volume 79, Number 26 (Friday, February 7, 2014)]
[Notices]
[Pages 7487-7496]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-02620]



[[Page 7487]]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-71468; File No. SR-NYSEARCA-2014-11]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade Shares of the SPDR SSgA Risk 
Aware ETF; SPDR SSgA Large Cap Risk Aware ETF; and SPDR SSgA Small Cap 
Risk Aware ETF Under NYSE Arca Equities Rule 8.600

February 3, 2014.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on January 24, 2014, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following 
under NYSE Arca Equities Rule 8.600 (``Managed Fund Shares''): SPDR 
SSgA Risk Aware ETF; SPDR SSgA Large Cap Risk Aware ETF; and SPDR SSgA 
Small Cap Risk Aware ETF. The text of the proposed rule change is 
available on the Exchange's Web site at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of SPDR 
SSgA Risk Aware ETF; SPDR SSgA Large Cap Risk Aware ETF; and SPDR SSgA 
Small Cap Risk Aware ETF (each, a ``Fund'' and, collectively, the 
``Funds'') under NYSE Arca Equities Rule 8.600, which governs the 
listing and trading of Managed Fund Shares \4\ on the Exchange.\5\ The 
Shares will be offered by SSgA Active ETF Trust (the ``Trust''), which 
is organized as a Massachusetts business trust and is registered with 
the Securities and Exchange Commission (the ``Commission'') as an open-
end management investment company.\6\ SSgA Funds Management, Inc. (the 
``Adviser'') will serve as the investment adviser to the Funds. State 
Street Global Markets, LLC (the ``Distributor'' or ``Principal 
Underwriter'') will be the principal underwriter and distributor of the 
Funds' Shares. State Street Bank and Trust Company (the 
``Administrator,'' ``Custodian'' or ``Transfer Agent'') will serve as 
administrator, custodian and transfer agent for the Funds.
---------------------------------------------------------------------------

    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
    \5\ The Commission has previously approved listing and trading 
on the Exchange of a number of actively managed funds under Rule 
8.600. See, e.g., Securities Exchange Act Release Nos. 57801 (May 8, 
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order 
approving Exchange listing and trading of twelve actively-managed 
funds of the WisdomTree Trust); 62502 (July 15, 2010), 63076 
(October 12, 2010), 75 FR 63874 (October 18, 2010) (SR-NYSEArca-
2010-79) (order approving listing of Cambria Global Tactical ETF); 
66343 (February 7, 2012), 77 FR 7647 (February 13, 2012) (SR-
NYSEArca-2011-85) (order approving listing of five funds of the SSgA 
Active ETF Trust); and 70342 (September 6, 2013), 78 FR 56256 
(September 12, 2013) (SR-NYSEArca-2013-71) (order approving listing 
of the SPDR SSgA Ultra Short Term Bond ETF; SPDR SSgA Conservative 
Ultra Short Term Bond ETF; and SPDR SSgA Aggressive Ultra Short Term 
Bond ETF).
    \6\ The Trust is registered under the 1940 Act. On December 14, 
2012, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act''), and under the 1940 Act 
relating to the Funds (Files Nos. 333-173276 and 811-22542) 
(``Registration Statement''). The description of the operation of 
the opeation of the Trust and the Funds herein is based, in part, on 
the Registration Statement. In addition, the Commission has issued 
an order granting certain exemptive relief to the Trust under the 
1940 Act. See Investment Company Act Release No. 29524 (December 13, 
21010) (File No. 812-13487) (``Exemptive Order'').
---------------------------------------------------------------------------

    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\7\ In addition, 
Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Adviser is not 
registered as a broker-dealer but is affiliated with a broker-dealer 
and has implemented a ``fire wall'' with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to the Funds' portfolios. In the event (a) the Adviser or any 
sub-adviser becomes, or becomes newly affiliated with, a broker-dealer, 
or (b) any new adviser or sub-adviser is, or becomes affiliated with, a 
broker-dealer, it will implement a fire wall with respect to its 
relevant personnel or broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to a portfolio, 
and will be subject to procedures designed to prevent the use and 
dissemination of

[[Page 7488]]

material non-public information regarding such portfolio.
---------------------------------------------------------------------------

    \7\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``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.
---------------------------------------------------------------------------

    The Funds are intended to be managed in a ``master-feeder'' 
structure, under which each Fund will invest substantially all of its 
assets in a corresponding portfolio (each, a ``Portfolio'') (i.e. a 
``master fund''), which is a separate mutual fund registered under the 
1940 Act that has an identical investment objective. As a result, each 
Fund (i.e., a ``feeder fund'') will have an indirect interest in all of 
the securities and other assets owned by each corresponding Portfolio. 
Because of this indirect interest, each Fund's investment returns 
should be the same as those of the corresponding Portfolio, adjusted 
for the expenses of the Fund. In extraordinary instances, each Fund 
reserves the right to make direct investments in securities.
    The Adviser will manage the investments of each respective 
Portfolio. Under the master-feeder arrangement, investment advisory 
fees charged at the master-fund level are deducted from the advisory 
fees charged at the feeder-fund level. This arrangement avoids a 
``layering'' of fees, e.g., a Fund's total annual operating expenses 
would be no higher as a result of investing in a master-feeder 
arrangement than they would be if the Fund pursued its investment 
objectives directly. Each Fund may discontinue investing through the 
master-feeder arrangement and pursue its investment objectives directly 
if the Fund's Board of Trustees determines that doing so would be in 
the best interests of shareholders.
    The Funds will not be index Funds. The Funds will be actively 
managed and will not seek to replicate the performance of a specified 
index.
SPDR SSgA Risk Aware ETF
    According to the Registration Statement, the SPDR SSgA Risk Aware 
ETF will seek to provide competitive returns compared to the broad U.S. 
equity market and capital appreciation.
    According to the Registration Statement, under normal 
circumstances,\8\ the Fund will invest all of its assets in the SSgA 
Risk Aware Portfolio (the ``Risk Aware Portfolio''), a separate series 
of the SSgA Master Trust with an identical investment objective as the 
Fund. As a result, the Fund will invest indirectly through the Risk 
Aware Portfolio.
---------------------------------------------------------------------------

    \8\ The term ``under normal circumstances'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the equity markets or the financial markets generally; operational 
issues causing dissemination of inaccurate market information; or 
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
---------------------------------------------------------------------------

    According to the Registration Statement, in seeking its objective, 
the Risk Aware Portfolio will invest in a diversified selection of 
equity securities included in the Russell 3000 Index that the Adviser 
believes are aligned with predicted investor risk preferences.\9\ The 
Russell 3000 Index measures the performance of the largest 3,000 U.S. 
companies, including business development companies, representing 
approximately 98% of the investable U.S. equity market. The Russell 
3000 Index is constructed to provide a comprehensive, unbiased, and 
stable barometer of the broad market and is completely reconstituted 
annually to ensure new and growing equities are reflected. As of 
September 30, 2013, the Russell 3000 Index was comprised of 2,965 
stocks.
---------------------------------------------------------------------------

    \9\ The Portfolios 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.
---------------------------------------------------------------------------

    According to the Registration Statement, in selecting securities 
for the Risk Aware Portfolio, the Adviser will utilize a proprietary 
quantitative investment process to measure and predict investor risk 
preferences. This investment process recognizes that the attributes 
that render a particular security ``risky'' or ``safe'' from an 
investor's perspective will change over time. The process therefore 
will begin with a broad set of plausible dimensions of risk, or factors 
that may be viewed by investors as contributing to a security's risk 
level at any given time. This set will include, among many other items, 
market beta, liquidity, and exposure to certain commodities, leading 
economic indicators, currency, credit risk, and performance differences 
between cyclical and defensive sectors. The Adviser will then use a 
sequence of procedures to develop a subset of attributes representing 
those it believes to be relevant to investors at a given time. This 
subset will help form the Adviser's forecast for aggregate risk 
appetite and assist the Adviser in generating the groups of securities 
likely to benefit the most and least in light of that forecast. 
Different predictions of risk appetite may result in portfolios that 
are more defensive or risk-seeking, based on what the market considers 
safe and/or risky at a given time. For example, during periods of 
anticipated investor preference for low risk, the Adviser will adjust 
the Risk Aware Portfolio's composition to be defensive and may increase 
exposure to large cap companies. On the other hand, during periods of 
anticipated investor preference for high risk, the Adviser will adjust 
the Risk Aware Portfolio's composition to be risk-seeking and may 
increase exposure to small cap companies. Similarly, exposures to 
value, growth, quality and other themes will vary depending on how they 
align with investor risk appetite at a given time. In periods of 
anticipated investor preference for moderate risk, the Risk Aware 
Portfolio's composition will more closely reflect the weighted 
composition of the Russell 3000 Index. The Adviser believes the ebbing 
and flowing of risk preferences give this strategy the potential to 
provide competitive returns relative to the Russell 3000 Index over the 
long term. The Risk Aware Portfolio will be non-diversified for 
purposes of the 1940 Act, and as a result may invest a greater 
percentage of its assets in a particular issuer than a diversified 
fund. However, it is expected that the Risk Aware Portfolio will have 
exposure to a diversified mix of equity securities.
SPDR SSgA Large Cap Risk Aware ETF
    According to the Registration Statement, the SPDR SSgA Large Cap 
Risk Aware ETF will seek to provide competitive returns compared to the 
large cap U.S. equity market and capital appreciation.
    According to the Registration Statement, under normal 
circumstances,\10\ the Fund will invest all of its assets in the SSgA 
Large Cap Risk Aware Portfolio (the ``Large Cap Portfolio''), a 
separate series of the SSgA Master Trust with an identical investment 
objective as the Fund. As a result, the Fund will invest indirectly 
through the Large Cap Portfolio.
---------------------------------------------------------------------------

    \10\ See supra note 8.
---------------------------------------------------------------------------

    According to the Registration Statement, in seeking its objective, 
the Large Cap Portfolio will invest in a diversified selection of 
equity securities included in the Russell 1000 Index that the Adviser 
believes are aligned with predicted investor risk preferences.\11\ The 
Russell 1000 Index measures the performance of the large-cap segment of 
the U.S. equity universe. It is a subset of the Russell 3000[supreg] 
Index and includes approximately 1,000 of the largest securities, which 
may include business development companies, based on a combination of 
their market cap and current index membership. The Russell 1000 Index 
represents approximately 92% of the U.S. market. The Russell 1000 Index 
is constructed to provide a comprehensive and unbiased barometer for 
the large-cap segment and is

[[Page 7489]]

completely reconstituted annually to ensure new and growing equities 
are reflected. As of September 30, 2013, the Russell 1000 Index was 
comprised of 1,003 stocks.
---------------------------------------------------------------------------

    \11\ See supra note 9.
---------------------------------------------------------------------------

    According to the Registration Statement, under normal 
circumstances, the Large Cap Portfolio will invest at least 80% of its 
net assets (plus the amount of borrowings for investment purposes) in 
securities of large-cap companies. The Large Cap Portfolio considers 
large-cap companies to be companies with market capitalizations falling 
within the range of the Russell 1000 Index at the time of initial 
purchase. In selecting securities for the Large Cap Portfolio, the 
Adviser will utilize a proprietary quantitative investment process to 
measure and predict investor risk preferences. This investment process 
recognizes that the attributes that render a particular security 
``risky'' or ``safe'' from an investor's perspective will change over 
time. The process therefore will begin with a broad set of plausible 
dimensions of risk, or factors that may be viewed by investors as 
contributing to a security's risk level at any given time. This set 
includes, among many other items, market beta, liquidity, and exposure 
to certain commodities, leading economic indicators, currency, credit 
risk, and performance differences between cyclical and defensive 
sectors. The Adviser then will use a sequence of procedures to develop 
a subset of attributes representing those it believes to be relevant to 
investors at a given time. This subset will help form the Adviser's 
forecast for aggregate risk appetite and assist the Adviser in 
generating the groups of securities likely to benefit the most and 
least in light of that forecast. Different predictions of risk appetite 
may result in portfolios that are more defensive or risk-seeking, based 
on what the market considers safe and/or risky at a given time. For 
example, during periods of anticipated investor preference for low 
risk, the Adviser will adjust the Large Cap Portfolio's composition to 
be defensive. On the other hand, during periods of anticipated investor 
preference for high risk, the Adviser will adjust the Large Cap 
Portfolio's composition to be risk-seeking. Similarly, exposures to 
value, growth, quality and other themes will vary depending on how they 
align with investor risk appetite at a given time. In periods of 
anticipated investor preference for moderate risk, the Large Cap 
Portfolio's composition will more closely reflect the weighted 
composition of the Russell 1000 Index. The Adviser believes the ebbing 
and flowing of risk preferences give this strategy the potential to 
provide competitive returns relative to the Russell 1000 Index over the 
long term. The Large Cap Portfolio will be non-diversified for purposes 
of the 1940 Act, and as a result may invest a greater percentage of its 
assets in a particular issuer than a diversified fund. However, it is 
expected that the Large Cap Portfolio will have exposure to a 
diversified mix of equity securities.
SPDR SSgA Small Cap Risk Aware ETF
    According to the Registration Statement, the SPDR SSgA Small Cap 
Risk Aware ETF will seek to provide competitive returns compared to the 
small cap U.S. equity market and capital appreciation.
    According to the Registration Statement, under normal 
circumstances,\12\ the Fund will invest all of its assets in the SSgA 
Small Cap Risk Aware Portfolio (the ``Small Cap Portfolio''), a 
separate series of the SSgA Master Trust with an identical investment 
objective as the Fund. As a result, the Fund will invest indirectly 
through the Small Cap Portfolio.
---------------------------------------------------------------------------

    \12\ See supra note 8.
---------------------------------------------------------------------------

    According to the Registration Statement, in seeking its objective, 
the Small Cap Portfolio will invest in a diversified selection of 
equity securities included in the Russell 2000 Index that the Adviser 
believes are aligned with predicted investor risk preferences.\13\ The 
Russell 2000 Index measures the performance of the small-cap segment of 
the U.S. equity market. The Russell 2000 Index is a subset of the 
Russell 3000[supreg] Index representing approximately 10% of the total 
market capitalization of the Russell 3000[supreg] Index. The Russell 
2000 Index includes approximately 2000 of the smallest securities, 
including business development companies, based on a combination of 
their market cap and current index membership. The Russell 2000 Index 
is constructed to provide a comprehensive and unbiased small-cap 
barometer and is completely reconstituted annually to ensure larger 
stocks do not distort the performance and characteristics of the true 
small-cap opportunity set. As of September 30, 2013, the Russell 2000 
Index was comprised of 1,962 securities.
---------------------------------------------------------------------------

    \13\ See supra note 9.
---------------------------------------------------------------------------

    According to the Registration Statement, under normal 
circumstances, the Small Cap Portfolio will invest at least 80% of its 
net assets (plus the amount of borrowings for investment purposes) in 
securities of small-cap companies. The Small Cap Portfolio considers 
small-cap companies to be companies with market capitalizations falling 
within the range of the Russell 2000 Index at the time of initial 
purchase. In selecting securities for the Small Cap Portfolio, the 
Adviser will utilize a proprietary quantitative investment process to 
measure and predict investor risk preferences. This investment process 
recognizes that the attributes that render a particular security 
``risky'' or ``safe'' from an investor's perspective will change over 
time. The process therefore will begin with a broad set of plausible 
dimensions of risk, or factors that may be viewed by investors as 
contributing to a security's risk level at any given time. This set 
will include, among many other items, market beta, liquidity, and 
exposure to certain commodities, leading economic indicators, currency, 
credit risk, and performance differences between cyclical and defensive 
sectors. The Adviser then will use a sequence of procedures to develop 
a subset of attributes representing those it believes to be relevant to 
investors at a given time. This subset will help form the Adviser's 
forecast for aggregate risk appetite and assist the Adviser in 
generating the groups of securities likely to benefit the most and 
least in light of that forecast. Different predictions of risk appetite 
may result in portfolios that are more defensive or risk-seeking, based 
on what the market considers safe and/or risky at a given time. For 
example, during periods of anticipated investor preference for low 
risk, the Adviser will adjust the Small Cap Portfolio's composition to 
be defensive. On the other hand, during periods of anticipated investor 
preference for high risk, the Adviser will adjust the Small Cap 
Portfolio's composition to be risk-seeking. Similarly, exposures to 
value, growth, quality and other themes will vary depending on how they 
align with investor risk appetite at a given time. In periods of 
anticipated investor preference for moderate risk, the Small Cap 
Portfolio's composition will more closely reflect the weighted 
composition of the Russell 2000 Index. The Adviser believes the ebbing 
and flowing of risk preferences give this strategy the potential to 
provide competitive returns relative to the Russell 2000 Index over the 
long term. The Small Cap Portfolio will be non-diversified for purposes 
of the 1940 Act, and as a result may invest a greater percentage of its 
assets in a particular issuer than a diversified fund. However, it is 
expected that the Small Cap Portfolio will have exposure to a 
diversified mix of equity securities.
Other Investments
    While, under normal circumstances, the Adviser, with respect to 
each

[[Page 7490]]

Portfolio, will invest at least 80% of such Portfolio's net assets in 
equity securities, as described above, the Adviser may invest up to 20% 
of a Portfolio's net assets in other securities and financial 
instruments, as described below.
    According to the Registration Statement, each Fund may (either 
indirectly through its investments in the corresponding Portfolio or, 
in the absence of normal circumstances,\14\ directly) invest in the 
following types of investments. The investment practices of the 
Portfolios are the same in all material respects to those of the Funds.
---------------------------------------------------------------------------

    \14\ See supra note 8.
---------------------------------------------------------------------------

    According to the Registration Statement, in the absence of normal 
circumstances, a Fund may (either directly or through the corresponding 
Portfolio) temporarily depart from its normal investment policies and 
strategies provided that the alternative is consistent with the Fund's 
investment objective and is in the best interest of the Fund. For 
example, a Fund may hold a higher than normal proportion of its assets 
in cash in times of extreme market stress.
    According to the Registration Statement, each Portfolio may invest 
in short term instruments, including money market instruments 
(including money market funds advised by the Adviser), cash and cash 
equivalents on an ongoing basis to provide liquidity or for other 
reasons. Money market instruments are generally short-term investments 
that may include but are not limited to: (i) Shares of money market 
funds (including those advised by the Adviser); (ii) obligations issued 
or guaranteed by the U.S. Government, its agencies or instrumentalities 
(including government-sponsored enterprises); (iii) negotiable 
certificates of deposit (``CDs''), bankers' acceptances, fixed time 
deposits and other obligations of U.S. and foreign banks (including 
foreign branches) and similar institutions; (iv) commercial paper rated 
at the date of purchase ``Prime-1'' by Moody's Investor's Service or 
``A-1'' by Standard & Poor's, or if unrated, of comparable quality as 
determined by the Adviser; (v) non-convertible corporate debt 
securities (e.g., bonds and debentures) with remaining maturities at 
the date of purchase of not more than 397 days and that satisfy the 
rating requirements set forth in Rule 2a-7 under the 1940 Act; and (vi) 
short-term U.S. dollar-denominated obligations of foreign banks 
(including U.S. branches) that, in the opinion of the Adviser, are of 
comparable quality to obligations of U.S. banks which may be purchased 
by a Portfolio. Commercial paper consists of short-term, promissory 
notes issued by banks, corporations and other entities to finance 
short-term credit needs. Any of these instruments may be purchased on a 
current or a forward-settled basis.
    According to the Registration Statement, each Portfolio may invest 
in repurchase agreements with commercial banks, brokers or dealers to 
generate income from its excess cash balances and to invest securities 
lending cash collateral. A repurchase agreement is an agreement under 
which a fund acquires a financial instrument (e.g., a security issued 
by the U.S. Government or an agency thereof, a banker's acceptance or a 
certificate of deposit) from a seller, subject to resale to the seller 
at an agreed upon price and date (normally, the next business day).
    According to the Registration Statement, each Portfolio may invest 
in convertible securities. Convertible securities are bonds, 
debentures, notes, preferred stocks or other securities that may be 
converted or exchanged (by the holder or by the issuer) into shares of 
the underlying common stock (or cash or securities of equivalent value) 
at a stated exchange ratio. A convertible security may also be called 
for redemption or conversion by the issuer after a particular date and 
under certain circumstances (including a specified price) established 
upon issue.
    According to the Registration Statement, each Portfolio may invest 
in U.S. Government obligations. U.S. Government obligations are a type 
of bond. U.S. Government obligations include securities issued or 
guaranteed as to principal and interest by the U.S. Government, its 
agencies or instrumentalities.
    According to the Registration Statement, each Portfolio may invest 
in U.S. agency mortgage pass-through securities. The term ``U.S. agency 
mortgage pass-through security'' refers to a category of pass-through 
securities backed by pools of mortgages and issued by one of several 
U.S. Government-sponsored enterprises: The Government National Mortgage 
Association (``Ginnie Mae''), Federal National Mortgage Association 
(``Fannie Mae''), or Federal Home Loan Mortgage Corporation (``Freddie 
Mac'').
    According to the Registration Statement, the Portfolios will seek 
to obtain exposure to U.S. agency mortgage pass-through securities 
primarily through the use of ``to-be-announced'' or ``TBA 
transactions.'' ``TBA'' refers to a commonly used mechanism for the 
forward settlement of U.S. agency mortgage pass-through securities, and 
not to a separate type of mortgage-backed security. Most transactions 
in mortgage pass-through securities occur through the use of TBA 
transactions.\15\
---------------------------------------------------------------------------

    \15\ According to the Registration Statement, to minimize the 
risk of default by a counterparty, a Portfolio will enter into TBA 
transactions only with established counterparties (such as major 
broker-dealers) and the Adviser will monitor the creditworthiness of 
such counterparties.
---------------------------------------------------------------------------

    According to the Registration Statement, each Portfolio may 
purchase U.S. exchange-listed common stocks and U.S. exchange-listed 
preferred securities of foreign corporations. Investments in common 
stock of foreign corporations may also be in the form of American 
Depositary Receipts (``ADRs''), Global Depositary Receipts (``GDRs'') 
and European Depositary Receipts (``EDRs'') (collectively ``Depositary 
Receipts''). A Portfolio may invest in unsponsored Depositary Receipts.
    According to the Registration Statement, each Portfolio may invest 
in bonds, including corporate bonds as well as U.S. registered, dollar-
denominated bonds of foreign corporations, governments, agencies and 
supra-national entities. Each Portfolio may invest up to 10% of its net 
assets in high yield debt securities.
    According to the Registration Statement, the Portfolios may invest 
in inflation-protected public obligations, commonly known as ``TIPS,'' 
of the U.S. Treasury, as well as TIPS of major governments and emerging 
market countries, excluding the United States. TIPS are a type of 
security issued by a government that are designed to provide inflation 
protection to investors.
    According to the Registration Statement, each Portfolio may invest 
in variable and floating rate securities.\16\ Variable rate securities 
are instruments issued or guaranteed by entities such as (1) the U.S. 
government or an agency or instrumentality thereof, (2) corporations, 
(3) financial institutions, (4) insurance companies, or (5) trusts that 
have a rate of interest subject to adjustment at regular intervals but 
less frequently than annually.
---------------------------------------------------------------------------

    \16\ A variable rate security provides for the automatic 
establishment of a new interest rate on set dates. A floating rate 
security provides for the automatic adjustment of its interest rate 
whenever a specified interest rate changes. Interest rates on these 
securities are ordinarily tied to, and are a percentage of, a widely 
recognized interest rate, such as the yield on 90-day US Treasury 
bills or the prime rate of a specified bank.
---------------------------------------------------------------------------

    According to the Registration Statement, each Portfolio may invest 
in Variable Rate Demand Obligations (``VRDOs''). VRDOs are short-term 
tax exempt fixed income instruments whose

[[Page 7491]]

yield is reset on a periodic basis. VRDO securities tend to be issued 
with long maturities of up to 30 or 40 years; however, they are 
considered short-term instruments because they include a put feature 
which coincides with the periodic yield reset.
    According to the Registration Statement, each Portfolio may invest 
in restricted securities. Restricted securities are securities that are 
not registered under the Securities Act, but which can be offered and 
sold to ``qualified institutional buyers'' under Rule 144A under the 
Securities Act.\17\
---------------------------------------------------------------------------

    \17\ According to the Registration Statement, when Rule 144A 
restricted securities present an attractive investment opportunity 
and meet other selection criteria, a Portfolio may make such 
investments whether or not such securities are ``illiquid'' 
depending on the market that exists for the particular security. The 
Board has delegated the responsibility for determining the liquidity 
of Rule 144A restricted securities that a Portfolio may invest in to 
the Adviser. See note 26, infra.
---------------------------------------------------------------------------

    According to the Registration Statement, each Portfolio 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 Portfolios may enter 
into forward currency exchange contracts for hedging purposes to help 
reduce the risks and volatility caused by changes in foreign currency 
exchange rates, or to gain exposure to certain currencies.
    According to the Registration Statement, each Portfolio may invest 
in the securities of other investment companies, including affiliated 
funds, money market funds and closed-end funds, subject to applicable 
limitations under Section 12(d)(1) of the 1940 Act. According to the 
Registration Statement, each Portfolio may invest in exchange-traded 
products (``ETPs'').\18\ ETPs include exchange-traded funds registered 
under the 1940 Act; exchange traded commodity trusts; and exchange 
traded notes (``ETNs'').\19\
---------------------------------------------------------------------------

    \18\ For each of the Portfolios, ETPs include Investment Company 
Units (as described in NYSE Arca Equities Rule 5.2(j)(3)); Index-
Linked Securities (as described in NYSE Arca Equities Rule 
5.2(j)(6)); Portfolio Depositary Receipts (as described in NYSE Arca 
Equities Rule 8.100); 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); Trust 
Units (as described in NYSE Arca Equities Rule 8.500); Managed Fund 
Shares (as described in NYSE Arca Equities Rule 8.600), and closed-
end funds. The ETPs all will be listed and traded in the U.S. on 
registered exchanges. While a Fund may invest in inverse ETPs, a 
Fund will not invest in leveraged or inverse leveraged ETPs (e.g., 
2X or 3X).
    \19\ ETNs are debt obligations of investment banks which are 
traded on exchanges and the returns of which are linked to the 
performance of market indexes. In addition to trading ETNs on 
exchanges, investors may redeem ETNs directly with the issuer on a 
weekly basis, typically in a minimum amount of 50,000 units, or hold 
the ETNs until maturity.
---------------------------------------------------------------------------

    According to the Registration Statement, the Adviser may invest up 
to 20% of its total assets in one or more ETPs that are qualified 
publicly traded partnerships (``QPTPs'') and whose principal activities 
are the buying and selling of commodities or options, futures, or 
forwards with respect to commodities.\20\ A QPTP is an entity that is 
treated as a partnership for federal income tax purposes, subject to 
certain requirements. Income from QPTPs is generally qualifying income 
for purposes of Subchapter M of the Internal Revenue Code.\21\
---------------------------------------------------------------------------

    \20\ Examples of such entities are the PowerShares DB Energy 
Fund, PowerShares DB Oil Fund, PowerShares DB Precious Metals Fund, 
PowerShares DB Gold Fund, PowerShares DB Silver Fund, PowerShares DB 
Base Metals Fund, and PowerShares DB Agriculture Fund, which are 
listed and traded on the Exchange pursuant to NYSE Arca Equities 
Rule 8.200.
    \21\ 26 U.S.C. 851 et seq.
---------------------------------------------------------------------------

    According to the Registration Statement, the Portfolios may invest 
in real estate investment trusts (``REITs'').
    According to the Registration Statement, each Portfolio may enter 
into reverse repurchase agreements.
    Neither the Funds nor the Portfolios will invest in options 
contracts, futures contracts, or swap agreements.
    The Funds' investments will be consistent with the Funds' 
investment objectives and will not be used to enhance leverage.
    According to the Registration Statement, each Fund is classified as 
``non-diversified.'' \22\
---------------------------------------------------------------------------

    \22\ According to the Registration Statement, each Fund will be 
``non-diversified'' under the 1940 Act and may invest more of its 
assets in fewer issuers than ``diversified'' funds. The 
diversification standard is set forth in Section 5(b)(1) of the 1940 
Act (15 U.S.C. 80a-5(b)(1)).
---------------------------------------------------------------------------

    According to the Registration Statement, the Funds do not intend to 
concentrate their investments in any particular industry.\23\
---------------------------------------------------------------------------

    \23\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
---------------------------------------------------------------------------

    According to the Registration Statement, the Funds intend to 
qualify for and to elect treatment as a separate regulated investment 
company (``RIC'') under Subchapter M of the Internal Revenue Code.\24\
---------------------------------------------------------------------------

    \24\ 26 U.S.C. 851 et seq.
---------------------------------------------------------------------------

    Each Portfolio 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.\25\ Each 
Portfolio 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 a 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.\26\
---------------------------------------------------------------------------

    \25\ In reaching liquidity decisions, the 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).
    \26\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also, Investment Company 
Act Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 
1970) (Statement Regarding ``Restricted Securities''); Investment 
Company Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 
20, 1992) (Revisions of Guidelines to Form N-1A). A fund's portfolio 
security is illiquid if it cannot be disposed of in the ordinary 
course of business within seven days at approximately the value 
ascribed to it by the fund. See Investment Company Act Release No. 
14983 (March 12, 1986), 51 FR 9773 (March 21, 1986) (adopting 
amendments to Rule 2a-7 under the 1940 Act); Investment Company Act 
Release No. 17452 (April 23, 1990), 55 FR 17933 (April 30, 1990) 
(adopting Rule 144A under the 1933 Act).
---------------------------------------------------------------------------

Net Asset Value
    According to the Registration Statement, each Fund will calculate 
net asset value (``NAV'') using the NAV of the respective Portfolio. 
NAV per Share for each Portfolio will be computed by dividing the value 
of the net assets of the Portfolio (i.e., the value of its total assets 
less total liabilities) by the total number of Shares outstanding, 
rounded to the nearest cent. Expenses and fees, including the 
management fees, will be accrued daily and taken into account for 
purposes of determining NAV. The NAV of a Portfolio will be calculated 
by the Custodian and determined at the close of the regular trading 
session on the New York Stock Exchange (ordinarily 4:00 p.m. Eastern 
time (``E.T.'')) on each day that such exchange is open, provided that 
assets (and, accordingly, a Portfolio's NAV) may be valued as of the 
announced closing time for trading in

[[Page 7492]]

instruments on any day that the applicable exchange or market on which 
a Portfolio's investments are traded announces an early closing time. 
Creation/redemption order cut-off times may also be earlier on such 
days.
    According to the Adviser, each Portfolio's investments will be 
valued at market value or, in the absence of market value with respect 
to any investment, at fair value in accordance with valuation 
procedures adopted by the Board of Trustees of the SSgA Master Trust 
and the Board of Trustees of the SSgA Active ETF Trust \27\ (the 
``Board'') and in accordance with the 1940 Act. Common stocks and 
equity securities (including shares of REITs and ETPs, such as QPTPs) 
traded on a recognized domestic securities exchange will be valued at 
the last reported sale price or the official closing price on that 
exchange where the stock is primarily traded on the day that the 
valuation is made. Portfolio securities traded in the over-the-counter 
market will be valued at the last reported sale price on the valuation 
date. Foreign equities and listed ADRs will be valued at the last sale 
or official closing price on the relevant exchange on the valuation 
date. If, however, neither the last sales price nor the official 
closing price is available, each of these securities will be valued at 
either the last reported sale price or official closing price as of the 
close of regular trading of the principal market on which the security 
is listed consistent with the respective primary benchmark.
---------------------------------------------------------------------------

    \27\ The Board of Trustees of the SSgA Master Trust and the 
Board of Trustees of the SSgA Active ETF Trust have adopted the same 
valuation procedures.
---------------------------------------------------------------------------

    According to the Adviser, fixed income securities, including 
mortgage-backed securities, treasuries, and corporate bonds will 
generally be valued at bid prices received from independent pricing 
services as of the announced closing time for trading in fixed-income 
instruments in the respective market or exchange. In determining the 
value of a fixed income investment, pricing services determine 
valuations for normal institutional-size trading units of such 
securities using valuation models or matrix pricing, which incorporates 
yield and/or price with respect to bonds that are considered comparable 
in characteristics such as rating, interest rate and maturity date and 
quotations from securities dealers to determine current value. Short-
term investments that mature in less than 60 days when purchased will 
be valued at cost adjusted for amortization of premiums and accretion 
of discounts.
    Any assets or liabilities denominated in currencies other than the 
U.S. dollar will be converted into U.S. dollars at the current market 
rates on the date of valuation as quoted by one or more sources. 
Forward foreign currency contracts will be valued based upon the 
difference in the forward exchange rates at the dates of entry into the 
contracts and the forward rates as of the current valuation date as 
quoted by one or more independent sources.
    If a security's market price is not readily available or does not 
otherwise accurately reflect the fair value of the security, the 
security will be valued by another method that the Board believes will 
better reflect fair value in accordance with the Trust's valuation 
policies and procedures and in accordance with the 1940 Act. The Board 
has delegated the process of valuing securities for which market 
quotations are not readily available or do not otherwise accurately 
reflect the fair value of the security to the Pricing and Investment 
Committee (the ``Committee'').\28\ The Committee, subject to oversight 
by the Board, may use fair value pricing in a variety of circumstances, 
including but not limited to, situations when trading in a security has 
been suspended or halted. Accordingly, a Portfolio's NAV may reflect 
certain securities' fair values rather than their market prices. Fair 
value pricing involves subjective judgments and it is possible that the 
fair value determination for a security is materially different than 
the value that could be received on the sale of the security.
---------------------------------------------------------------------------

    \28\ The Pricing and Investment Committee has implemented 
procedures designed to prevent the use and dissemination of 
material, non-public information regarding the Portfolios and the 
Funds.
---------------------------------------------------------------------------

    The pre-established pricing methods and valuation policies and 
procedures outlined above may change, subject to the review and 
approval of the Committee and Board, as necessary.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. The Exchange represents 
that, for initial and/or continued listing, the Funds will be in 
compliance with Rule 10A-3 \29\ under the Exchange Act, as provided by 
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares for each Fund 
will be outstanding at the commencement of trading on the Exchange. The 
Exchange will obtain a representation from the issuer of the Shares 
that the NAV per Share of each Fund will be calculated daily and that 
the NAV and the Disclosed Portfolio of each Fund will be made available 
to all market participants at the same time.
---------------------------------------------------------------------------

    \29\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Creation and Redemption of Shares
    According to the Registration Statement, each Fund will offer and 
issue Shares only in aggregations of a specified number of Shares 
(each, a ``Creation Unit''). Creation Unit sizes will be 50,000 Shares 
per Creation Unit. The Creation Unit size for a Fund may change. Each 
Fund will issue and redeem Shares only in Creation Units at the NAV 
next determined after receipt of an order on a continuous basis on a 
Business Day. The NAV of a Fund will be determined once each Business 
Day, normally as of the close of trading on the New York Stock Exchange 
(normally, 4:00 p.m., E.T.). An order to purchase or redeem Creation 
Units will be deemed to be received on the Business Day on which the 
order is placed provided that the order is placed in proper form prior 
to the applicable cut-off time (typically required by 2:00 p.m. E.T.). 
A ``Business Day'' with respect to a Fund will be, generally, any day 
on which the New York Stock Exchange is open for business.
    The consideration for purchase of a Creation Unit of a Fund will 
generally consist of the in-kind deposit of a designated portfolio of 
securities (the ``Deposit Securities'') per each Creation Unit and a 
specified cash payment (the ``Cash Component''). However, consideration 
may consist of the cash value of the Deposit Securities (``Deposit 
Cash'') and the Cash Component.
    Together, the Deposit Securities or Deposit Cash, as applicable, 
and the Cash Component will constitute the ``Fund Deposit,'' which 
represents the minimum initial and subsequent investment amount for a 
Creation Unit of any Fund. The ``Cash Component'' is an amount equal to 
the difference between the NAV of the Shares (per Creation Unit) and 
the market value of the Deposit Securities or Deposit Cash, as 
applicable. The Cash Component serves the function of compensating for 
any differences between the NAV per Creation Unit and the market value 
of the Deposit Securities or Deposit Cash, as applicable.
    The Custodian, through the National Securities Clearing Corporation 
(``NSCC'') will make available on each Business Day, immediately prior 
to the opening of business on the Exchange (currently 9:30 a.m., E.T.), 
the list of the names and the required number of shares of each Deposit 
Security or the required amount of Deposit Cash, as applicable, to be 
included in the current Fund Deposit (based on information at

[[Page 7493]]

the end of the previous Business Day) for a Fund.
    The Trust reserves the right to permit or require the substitution 
of an amount of cash (i.e., a ``cash in lieu'' amount) to be added to 
the Cash Component to replace any Deposit Security including, without 
limitation, situations where the Deposit Security: (i) May not be 
available in sufficient quantity for delivery, (ii) may not be eligible 
for transfer through the systems of the Depository Trust Company for 
corporate securities and municipal securities or the Federal Reserve 
System for U.S. Treasury securities; (iii) may not be eligible for 
trading by an authorized participant or the investor for which it is 
acting; (iv) would be restricted under the securities laws or where the 
delivery of the Deposit Security to the authorized participant would 
result in the disposition of the Deposit Security by the authorized 
participant becoming restricted under the securities laws, or (v) in 
certain other situations in accordance with the Exemptive Order.\30\
---------------------------------------------------------------------------

    \30\ To be eligible to be an authorized participant, an entity 
must (a) enter into a participant agreement and (b) be a broker-
dealer or other participant in the clearing process through the 
Continuous Net Settlement System of the National Securities Clearing 
Corporation or a DTC participant.
---------------------------------------------------------------------------

    Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt of a redemption request in proper form by a 
Fund through the Transfer Agent and only on a Business Day.
    With respect to each Fund, the Custodian, through the NSCC, will 
make available immediately prior to the opening of business on the 
Exchange (currently 9:30 a.m. E.T.) on each Business Day, the list of 
the names and share quantities of each Fund's portfolio securities that 
will be applicable (subject to possible amendment or correction) to 
redemption requests received in proper form on that day (``Fund 
Securities'').
    Redemption proceeds for a Creation Unit will be paid either in-kind 
or in cash or a combination thereof, as determined by the Trust. With 
respect to in-kind redemptions of a Fund, redemption proceeds for a 
Creation Unit will consist of Fund Securities as announced by the 
Custodian on the Business Day of the request for redemption received in 
proper form plus cash in an amount equal to the difference between the 
NAV of the Shares being redeemed, as next determined after a receipt of 
a request in proper form, and the value of the Fund Securities (the 
``Cash Redemption Amount''), less a fixed redemption transaction fee 
and any applicable additional variable charge.
    The Trust may, in its discretion, exercise its option to redeem 
Shares in cash, and the redeeming Shareholders will be required to 
receive their redemption proceeds in cash, as described in the 
Registration Statement. The investor will receive a cash payment equal 
to the NAV of its Shares based on the NAV of Shares of the relevant 
Fund next determined after the redemption request is received in proper 
form.
Availability of Information
    The Funds' Web site (www.spdrs.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Funds that may be downloaded. The Funds' Web 
site will include additional quantitative information updated on a 
daily basis, including, for the Funds, (1) daily trading volume, the 
prior business day's reported closing price, NAV and mid-point of the 
bid/ask spread at the time of calculation of such NAV (the ``Bid/Ask 
Price''),\31\ and a calculation of the premium and discount of the Bid/
Ask Price against the NAV, and (2) data in chart format displaying the 
frequency distribution of discounts and premiums of the daily Bid/Ask 
Price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. On each business day, before commencement 
of trading in Shares in the Core Trading Session on the Exchange, the 
Funds will disclose on their Web site the Disclosed Portfolio as 
defined in NYSE Arca Equities Rule 8.600(c)(2) that will form the basis 
for the Funds' calculation of NAV at the end of the business day.\32\
---------------------------------------------------------------------------

    \31\ The Bid/Ask Price of the Funds will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Funds' NAV. The records relating 
to Bid/Ask Prices will be retained by the Funds and their service 
providers.
    \32\ Under accounting procedures followed by the Funds, trades 
made on the prior business day (``T'') will be booked and reflected 
in NAV on the current business day (``T+1''). Accordingly, the Funds 
will be able to disclose at the beginning of the business day the 
portfolio that will form the basis for the NAV calculation at the 
end of the business day.
---------------------------------------------------------------------------

    On a daily basis, the Adviser will disclose for each portfolio 
security and other financial instrument of the Funds and of the 
Portfolios the following information on the Funds' Web site: ticker 
symbol (if applicable), name of security and financial instrument, 
number of shares or dollar value of 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.
    In addition, a basket composition file, which includes the security 
names and share quantities required to be delivered in exchange for a 
Fund's Shares, together with estimates and actual cash components, will 
be publicly disseminated daily prior to the opening of the New York 
Stock Exchange via NSCC. The basket represents one Creation Unit of 
each Fund.
    Investors can also obtain the Trust's Statement of Additional 
Information (``SAI''), the Funds' Shareholder Reports, and the Trust's 
Form N-CSR and Form N-SAR, filed twice a year. The Trust's SAI and 
Shareholder Reports are available free upon request from the Trust, and 
those documents and the Form N-CSR and Form N-SAR may be viewed on-
screen or downloaded from the Commission's Web site at www.sec.gov. 
Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares and underlying U.S. exchange-traded equities, including 
exchange-traded ETPs, will be available via the Consolidated Tape 
Association (``CTA'') high-speed line and from the national securities 
exchange on which they are listed. Pricing information regarding each 
asset class in which the Funds or Portfolios will invest is generally 
available through nationally recognized data service providers through 
subscription arrangements. Quotation information from brokers and 
dealers or pricing services will be available for fixed income 
securities, including U.S. Government obligations, other money market 
instruments, repurchase and reverse repurchase agreements, convertible 
securities, U.S. agency mortgage pass-through securities, unsponsored 
Depositary Receipts, corporate bonds, TIPS, variable floating rate 
securities (including VRDOs), and spot and forward currency 
transactions held by the Funds and Portfolios.
    Every fifteen seconds during NYSE Arca Core Trading Session, an 
indicative optimized portfolio value (``IOPV'') relating to each Fund 
will be disseminated by one or more major

[[Page 7494]]

market data vendors.\33\ The IOPV is the Portfolio Indicative Value as 
defined in NYSE Arca Equities Rule 8.600 (c)(3).\34\ The dissemination 
of the IOPV, together with the Disclosed Portfolio, will allow 
investors to determine the value of the underlying portfolio of the 
Funds and of the Portfolios on a daily basis and to provide a close 
estimate of that value throughout the trading day. The intra-day, 
closing and settlement prices of the Portfolio securities and other 
assets held by the Funds and Portfolios are also readily available from 
the national securities exchanges trading such securities or other 
assets, automated quotation systems, published or other public sources, 
or on-line information services such as Bloomberg or Reuters.
---------------------------------------------------------------------------

    \33\ The IOPV calculations are estimates of the value of the 
Funds' NAV per Share using market data converted into U.S. dollars 
at the current currency rates. The IOPV price is based on quotes and 
closing prices from the securities' local market and may not reflect 
events that occur subsequent to the local market's close. Premiums 
and discounts between the IOPV and the market price may occur. This 
should not be viewed as a ``real-time'' update of the NAV per Share 
of the Funds, which is calculated only once a day.
    \34\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IOPVs 
taken from CTA or other data feeds.
---------------------------------------------------------------------------

    Additional information regarding the Trust and the Shares, 
including investment strategies, risks, creation and redemption 
procedures, fees, portfolio holdings disclosure policies, distributions 
and taxes is included in the Registration Statement. All terms relating 
to the Funds that are referred to, but not defined in, this proposed 
rule change are defined in the Registration Statement.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Funds.\35\ Trading in Shares of the Funds 
will be halted if the circuit breaker parameters in NYSE Arca Equities 
Rule 7.12 have been reached. Trading also may be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. These may include: (1) The 
extent to which trading is not occurring in the securities and/or the 
financial instruments comprising the Disclosed Portfolios of the Funds; 
or (2) whether other unusual conditions or circumstances detrimental to 
the maintenance of a fair and orderly market are present. Trading in 
the Shares will be subject to NYSE Arca Equities Rule 8.600(d)(2)(D), 
which sets forth circumstances under which Shares of a Fund may be 
halted.
---------------------------------------------------------------------------

    \35\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. Eastern Time in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
Surveillance
    The Exchange 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 
applicable federal securities laws.\36\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and applicable federal securities laws.
---------------------------------------------------------------------------

    \36\ 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.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations. FINRA, on 
behalf of the Exchange, will communicate as needed regarding trading in 
the Shares and underlying equity securities (including, without 
limitation, sponsored ADRs and ETPs) and other exchange-traded 
securities with other markets and other entities that are members of 
ISG and FINRA, on behalf of the Exchange, may obtain trading 
information regarding trading in the Shares and underlying equity 
securities (including, without limitation, sponsored ADRs and ETPs) and 
other exchange-traded securities from such markets and other entities. 
In addition, the Exchange may obtain information regarding trading in 
the Shares and underlying equity securities (including, without 
limitation, sponsored ADRs and ETPs) and other exchange-traded 
securities from markets and other entities that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.\37\
---------------------------------------------------------------------------

    \37\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolios for the Funds may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
Equity Trading Permit Holders in an Information Bulletin (``Bulletin'') 
of the special characteristics and risks associated with trading the 
Shares. Specifically, the Bulletin will discuss the following: (1) The 
procedures for purchases and redemptions of Shares in Creation Units 
(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 IOPV will not be calculated or publicly disseminated; (4) how 
information regarding the IOPV 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.
    In addition, the Bulletin will reference that the Funds are subject 
to various fees and expenses described in the Registration Statement. 
The Bulletin will discuss any exemptive, no-action, and interpretive 
relief granted by the Commission from any rules under the Exchange Act. 
The Bulletin will also disclose that the NAV for the Shares will be 
calculated after 4:00 p.m. Eastern Time each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is 
the

[[Page 7495]]

requirement under Section 6(b)(5) \38\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 
8.600. The Exchange has in place surveillance procedures that are 
adequate to properly monitor trading in the Shares in all trading 
sessions and to deter and detect violations of Exchange rules and 
applicable federal securities laws. The Adviser is not registered as a 
broker-dealer but is affiliated with a broker-dealer and has 
implemented a ``fire wall'' with respect to such broker-dealer 
regarding access to information concerning the composition and/or 
changes to the Funds' portfolios. In addition, the Trust's Pricing and 
Investment Committee has implemented procedures designed to prevent the 
use and dissemination of material, non-public information regarding the 
Portfolios and the Funds. The Portfolios will invest only in equity 
securities that trade in markets that are members of the ISG or are 
parties to a comprehensive surveillance sharing agreement with the 
Exchange. Neither the Funds nor the Portfolios will invest in options 
contracts, futures contracts, or swap agreements. While the Funds may 
invest in inverse ETFs, the Funds will not invest in leveraged or 
inverse leveraged ETFs (e.g., 2X or 3X). Each Portfolio 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. FINRA, on behalf of the Exchange, will 
communicate as needed regarding trading in the Shares and underlying 
equity securities (including, without limitation, sponsored ADRs and 
ETPs) and other exchange-traded securities with other markets and other 
entities that are members of ISG and FINRA, on behalf of the Exchange, 
may obtain trading information regarding trading in the Shares and 
underlying equity securities (including, without limitation, sponsored 
ADRs and ETPs) and other exchange-traded securities from such markets 
and other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares and underlying equity securities 
(including, without limitation, sponsored ADRs and ETPs) and other 
exchange-traded securities from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV per Share will be calculated daily and that the NAV 
and the Disclosed Portfolios will be made available to all market 
participants at the same time. In addition, a large amount of 
information is publicly available regarding the Funds and the Shares, 
thereby promoting market transparency. Quotation and last sale 
information for the Shares and underlying U.S. exchange-traded 
equities, including exchange-traded ETPs, will be available via the 
Consolidated Tape Association (``CTA'') high-speed line and from the 
national securities exchange on which they are listed. Quotation 
information from brokers and dealers or pricing services will be 
available for fixed income securities, including U.S. Government 
obligations, other money market instruments, repurchase and reverse 
repurchase agreements, convertible securities, U.S. agency mortgage 
pass-through securities, unsponsored Depositary Receipts, corporate 
bonds, TIPs, variable floating rate securities (including VRDOs), and 
spot and forward currency transactions held by the Funds and 
Portfolios. Pricing information regarding each asset class in which the 
Funds or Portfolios will invest is generally available through 
nationally recognized data service providers through subscription 
arrangements. The Funds' portfolio holdings will be disclosed on their 
Web site daily after the close of trading on the Exchange and prior to 
the opening of trading on the Exchange the following day. Moreover, the 
IOPV will be widely disseminated by one or more major market data 
vendors at least every 15 seconds during the Exchange's Core Trading 
Session. On each business day, before commencement of trading in Shares 
in the Core Trading Session on the Exchange, the Funds will disclose on 
their Web site the Disclosed Portfolio that will form the basis for the 
Funds' calculation of NAV at the end of the business day. Information 
regarding market price and trading volume of the Shares will be 
continually available on a real-time basis throughout the day on 
brokers' computer screens and other electronic services, and quotation 
and last sale information will be available via the CTA high-speed 
line. The Web site for the Funds will include a form of the prospectus 
for the Funds and additional data relating to NAV and other applicable 
quantitative information. Moreover, 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. Trading in Shares of the Funds will 
be halted if the circuit breaker parameters in NYSE Arca Equities Rule 
7.12 have been reached or because of market conditions or for reasons 
that, in the view of the Exchange, make trading in the Shares 
inadvisable, and trading in the Shares will be subject to NYSE Arca 
Equities Rule 8.600(d)(2)(D), which sets forth circumstances under 
which Shares of the Funds may be halted. In addition, as noted above, 
investors will have ready access to information regarding the Funds' 
holdings, the IOPV, the Disclosed Portfolio, and quotation and last 
sale information for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of actively-managed exchange-traded products that will 
enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and may 
obtain information via ISG from other exchanges that are members of ISG 
or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Funds' holdings, 
the IOPV, the Disclosed Portfolio, and quotation and last sale 
information for the Shares.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. The Exchange notes 
that the proposed rule change will facilitate the listing and trading 
of additional types of actively-managed exchange-traded products that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace.

[[Page 7496]]

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEARCA-2014-11 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEARCA-2014-11. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEARCA-2014-11 and should 
be submitted on or before February 28, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
---------------------------------------------------------------------------

    \39\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-02620 Filed 2-6-14; 8:45 am]
BILLING CODE 8011-01-P


