[Federal Register Volume 80, Number 183 (Tuesday, September 22, 2015)]
[Notices]
[Pages 57251-57261]
[FR Doc No: 2015-23973]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75930; File No. SR-NYSEArca-2015-73]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, Relating to
Listing and Trading of Shares of the Guggenheim Total Return Bond ETF
Under NYSE Arca Equities Rule 8.600

September 16, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given
that, on September 1, 2015, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. On September 15, 2015, the Exchange filed Amendment No. 1
to the proposed rule change.\4\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as modified by
Amendment No. 1, from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
    \4\ Amendment No. 1 replaces and supersedes the original filing
in its entirety.
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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''):
Guggenheim Total Return Bond 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 the
Guggenheim Total Return Bond ETF (the ``Fund'') under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares.\5\ The Shares will be offered by the Claymore Exchange-
Traded Fund Trust 2 (the ``Trust''),\6\ a statutory trust organized
under the laws of the State of Delaware and registered with the
Commission as an open-end management investment company.\7\
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    \5\ 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.
    \6\ The Trust is registered under the 1940 Act. On November 25,
2014, 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 the 1940 Act relating to
the Fund (File Nos. 333-135105 and 811-21910) (the ``Registration
Statement''). The description of the operation of the Trust and the
Fund 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. 29271 (May 18, 2010) (File No. 812-13534)
(``Exemptive Order'').
    \7\ The Commission previously approved listing and trading on
the Exchange of the following actively managed funds under Rule
8.600. See 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); 60981 (November 10, 2009), 74 FR 59594 (November
18, 2009) (SR-NYSEArca-2009-79) (order approving listing of five
fixed income funds of the PIMCO ETF Trust); 63329 (November 17,
2010), 75 FR 71760 (November 24, 2010) (SR-NYSEArca-2010-86) (order
approving listing of Peritus High Yield ETF) ; 64550 (May 26, 2011),
76 FR 32005 (June 2, 2011) (SR-NYSEArca-2011-11) (order approving
listing of Guggenheim Enhanced Core Bond ETF and Guggenheim Enhanced
Ultra-Short Bond ETF).

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    The investment adviser for the Fund is Guggenheim Partners
Investment Management, LLC (``Adviser''). The Bank of New York Mellon
is the custodian and transfer agent for the Fund. Guggenheim Funds
Distributors, LLC is the distributor for the Fund.\8\
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    \8\ The Commission has previously approved a proposed rule
change relating to listing and trading of shares of the Guggenheim
Enhanced Total Return ETF under NYSE Arca Equities Rule 8.600. See
Securities Exchange Act Release Nos. 68488 (December 20, 2012), 77
FR 76326 (December 27, 2012) (SR-NYSEArca-2012-142) (notice of
filing of proposed rule change regarding listing and trading of
shares of the Guggenheim Enhanced Total Return ETF under NYSE Arca
Equities Rule 8.600) (the ``Prior Notice''); 68863 (February 7,
2013), 78 FR 10222 (February 13, 2013) (SR-NYSEArca-2012-142) (order
approving proposed rule change relating to listing and trading of
shares of the Guggenheim Enhanced Total Return ETF under NYSE Arca
Equities Rule 8.600) (the ``Prior Order'' and, together with the
Prior Notice, the ``Prior Release'')). Shares of the Guggenheim
Enhanced Total Return ETF have not commenced Exchange listing and
trading. The Guggenheim Total Return Bond ETF would replace the
Guggenheim Enhanced Total Return ETF as approved in the Prior
Release. As set forth in the Registration Statement, the Fund's
investments will differ from those described in the Prior Release.
This proposed rule change supersedes the Prior Release in its
entirety. In addition, prior to commencement of trading of Shares of
the Fund, the Trust will file an amendment to its Registration
Statement to change the name of the Guggenheim Enhanced Total Return
ETF to the Guggenheim Total Return Bond ETF.
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    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.\9\ 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
affiliated with a broker-dealer and has represented that it has
implemented a fire wall with respect to its broker-dealer affiliate
regarding access to information concerning the composition and/or
changes to the portfolio. In the event (a) the Adviser or any sub-
adviser becomes newly affiliated with a broker-dealer, or (b) any new
adviser or sub-adviser becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to such broker-dealer regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding such
portfolio.
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    \9\ 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.
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Principal Investment Strategies
    According to the Registration Statement, the Fund's investment
objective is to seek maximum total return, comprised of income and
capital appreciation. The Fund will normally \10\ invest at least 80%
of its assets in ``Fixed-Income Instruments'' (as defined below) of
varying maturities and of any credit quality, which may be represented
by certain derivative instruments as discussed below,\11\ and exchange-
traded funds (``ETFs'') \12\ and exchange-traded and over-the-counter
(``OTC'') closed-end funds (``CEFs'') (which may include ETFs and CEFs
affiliated with the Fund) that invest substantially all of their assets
in Fixed-Income Instruments (the ``80% Policy''). The Fixed-Income
Instruments in which the Fund will invest, as described further below,
are the following. bonds, including corporate bonds; \13\ other debt
securities \14\ of U.S. and non-U.S. issuers; securities issued by the
U.S. government or its agencies, instrumentalities or sponsored
corporations (including those not backed by the full faith and credit
of the U.S. government); agency and non-agency mortgage-backed
securities (``MBS'') and asset-backed securities (``ABS''); \15\ U.S.
agency mortgage pass-through securities; \16\ repurchase agreements;
reverse repurchase agreements; convertible securities; \17\

commercial instruments; \18\ variable or floating rate instruments and
variable rate demand instruments; \19\ zero-coupon and pay-in-kind
securities; \20\ bank instruments, including certificates of deposit
(``CDs''), time deposits and bankers' acceptances from U.S. banks; \21\
and participations in and assignments of bank loans or corporate loans,
which loans include senior loans, syndicated bank loans, junior loans,
bridge loans,\22\ unfunded commitments,\23\ revolving credit facilities
(``revolvers''),\24\ and participation interests.\25\
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    \10\ The term ``normally'' includes, but is not limited to, the
absence of extreme volatility or trading halts in the securities
markets or the financial markets generally; circumstances under
which the Fund's investments are made for temporary defensive
purposes; operational issues causing dissemination of inaccurate
market information; or force majeure type events such as systems
failure, natural or man-made disaster, act of God, armed conflict,
act of terrorism, riot or labor disruption or any similar
intervening circumstance.
    \11\ See ``The Fund's Use of Derivatives,'' infra. The Fund will
invest in the following derivative instruments on Fixed-Income
Securities: Foreign exchange forward contracts, exchange-traded
futures on securities, indices, currencies and other investments;
exchange-traded and OTC options; exchange-traded and OTC options on
futures contracts; exchange-traded and OTC interest rate swaps,
cross-currency swaps, total return swaps, inflation swaps, and
credit default swaps; and options on such swaps.
    \12\ For purposes of this filing, ETFs consist of 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). All ETFs will be listed and traded in the U.S.
on a national securities exchange. While the Fund may invest in
inverse ETFs, the Fund will not invest in leveraged (e.g., 2X, -2X,
3X or -3X) ETFs.
    \13\ The Adviser expects that normally the Fund generally will
seek to invest at least 75% of its corporate bond assets in
issuances that have at least $100,000,000 par amount outstanding in
developed countries or at least $200,000,000 par amount outstanding
in emerging market countries.
    \14\ Debt securities and other similar instruments may be of
varying maturities and of any credit quality rating.
    \15\ The MBS in which the Fund may invest may also include
residential mortgage-backed securities (``RMBS''), collateralized
mortgage obligations (``CMOs'') and commercial mortgage-backed
securities (``CMBS''). The ABS in which the Fund may invest include
collateralized debt obligations (``CDOs''). CDOs include
collateralized bond obligations (``CBOs''), collateralized loan
obligations (``CLOs'') and other similarly structured securities. A
CBO is a trust which is backed by a diversified pool of high risk,
below investment grade fixed income securities. A CLO is a trust
typically collateralized by a pool of loans, which may include
domestic and foreign senior secured loans, senior unsecured loans,
and subordinate corporate loans, including loans that may be rated
below investment grade or equivalent unrated loans.
    \16\ The Fund 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. TBA
transactions generally are conducted in accordance with widely-
accepted guidelines which establish commonly observed terms and
conditions for execution, settlement and delivery.
    \17\ According to the Registration Statement, convertible
securities include bonds, debentures, notes, preferred stocks and
other securities that may be converted into a prescribed amount of
common stock or other equity securities at a specified price and
time.
    \18\ Commercial instruments include commercial paper, master
notes, asset-backed commercial paper and other short-term corporate
instruments. Commercial paper normally represents short-term
unsecured promissory notes issued in bearer form by banks or bank
holding companies, corporations, finance companies and other
issuers. Commercial paper may be traded in the secondary market
after its issuance. Master notes are demand notes that permit the
investment of fluctuating amounts of money at varying rates of
interest pursuant to arrangements with issuers who meet the quality
criteria of the Fund. Master notes are generally illiquid and
therefore subject to the Fund's percentage limitations for
investments in illiquid securities. Asset-backed commercial paper is
issued by a special purpose entity that is organized to issue the
commercial paper and to purchase trade receivables or other
financial assets.
    \19\ Variable or floating rate instruments and variable rate
demand instruments, including variable amount master demand notes,
will normally involve industrial development or revenue bonds that
provide that the rate of interest is set as a specific percentage of
a designated base rate (such as the prime rate) at a major
commercial bank. In addition, the interest rate on these securities
may be reset daily, weekly or on some other reset period and may
have a floor or ceiling on interest rate changes. The Adviser will
monitor the pricing, quality and liquidity of the variable or
floating rate securities held by the Fund.
    \20\ Zero-coupon and pay-in-kind securities are debt securities
that do not make regular cash interest payments. Zero-coupon
securities are sold at a deep discount to their face value. Pay-in-
kind securities pay interest through the issuance of additional
securities.
    \21\ A bankers' acceptance is a bill of exchange or time draft
drawn on and accepted by a commercial bank. A CD is a negotiable
interest-bearing instrument with a specific maturity.
    \22\ Bridge loans are short-term loan arrangements (e.g.,
maturities that are generally less than one year) typically made by
a borrower following the failure of the borrower to secure other
intermediate-term or long-term permanent financing. A bridge loan
remains outstanding until more permanent financing, often in the
form of high yield notes, can be obtained. Most bridge loans have a
step-up provision under which the interest rate increases
incrementally the longer the loan remains outstanding so as to
incentivize the borrower to refinance as quickly as possible. In
exchange for entering into a bridge loan, the Fund typically will
receive a commitment fee and interest payable under the bridge loan
and may also have other expenses reimbursed by the borrower. Bridge
loans may be subordinate to other debt and generally are unsecured.
    \23\ Unfunded commitments are contractual obligations pursuant
to which the Fund agrees in writing to make one or more loans up to
a specified amount at one or more future dates. The underlying loan
documentation sets out the terms and conditions of the lender's
obligation to make the loans as well as the economic terms of such
loans. The portion of the amount committed by a lender that the
borrower has not drawn down is referred to as ``unfunded.'' Loan
commitments may be traded in the secondary market through dealer
desks at large commercial and investment banks although these
markets are generally not considered liquid.
    \24\ Revolving credit facilities (``revolvers'') are borrowing
arrangements in which the lender agrees to make loans up to a
maximum amount upon demand by the borrower during a specified term.
As the borrower repays the loan, an amount equal to the repayment
may be borrowed again during the term of the revolver. Revolvers
usually provide for floating or variable rates of interest.
    \25\ All or a significant portion of the loans in which the Fund
will invest may be below investment grade quality. There will be no
minimum par amount outstanding with respect to loans in which the
Fund may invest.
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    With respect to Fixed Income Instrument investments, the Fund may
invest in restricted securities (Rule 144A securities), which are
subject to legal restrictions on their sale. The Fund has no target
duration for its investment portfolio.
    In addition, with respect to Fixed Income Instrument investments,
the Fund may, without limitation, seek to obtain market exposure to the
securities in which it primarily invests by entering into a series of
purchase and sale contracts or by using other investment techniques
(such as buy backs or dollar rolls).
    The Fund may also use leverage to the extent permitted under the
1940 Act by entering into reverse repurchase agreements and borrowing
transactions (principally lines of credit) for investment purposes. The
Fund's exposure to reverse repurchase agreements will be covered by
securities having a value equal to or greater than such commitments.
Under the 1940 Act, reverse repurchase agreements are considered
borrowings. Although there is no limit on the percentage of Fund assets
that can be used in connection with reverse repurchase agreements, the
Portfolio does not expect to engage, under normal circumstances, in
reverse repurchase agreements with respect to more than 331/3% of its
assets.
Other Investments
    While the Fund normally will invest at least 80% of its assets in
the securities and financial instruments described above, the Fund may
invest its remaining assets in the securities and financial instruments
described below.
    According to the Registration Statement, the Fund may invest in
exchange-traded and OTC hybrid instruments, which combine 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 commodity, currency or securities
index or another interest rate or some other economic factor
(``underlying benchmark'').\26\
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    \26\ According to the Registration Statement, certain hybrid
instruments may provide exposure to the commodities markets. These
are derivative securities with one or more commodity-linked
components that have payment features similar to commodity futures
contracts, commodity options, or similar instruments. Commodity-
linked hybrid instruments may be either equity or debt securities,
and are considered hybrid instruments because they have both
security and commodity-like characteristics. A portion of the value
of these instruments may be derived from the value of a commodity,
futures contract, index or other economic variable. The Fund would
only invest in commodity-linked hybrid instruments that qualify,
under applicable rules of the Commodity Futures Trading Commission,
for an exemption from the provisions of the Commodity Exchange Act
(7 U.S.C. 1).
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    According to the Registration Statement, the Fund is permitted to
invest in structured notes, which 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.
    According to the Registration Statement, the Fund may invest in
credit-linked notes, which are a type of structured note. The
difference between a credit default swap and a credit-linked note is
that the seller of a credit-linked note receives the principal payment
from the buyer at the time the contract is originated. Through the
purchase of a credit-linked note, the buyer assumes the risk of the
reference asset and funds this exposure through the purchase of the
note. The buyer takes on the exposure to the seller to the full amount
of the funding it has provided. The seller has hedged its risk on the
reference asset without acquiring any additional credit exposure. The
Fund has the right to receive periodic interest payments from the
issuer of the credit-linked note at an agreed-upon interest rate and a
return of principal at the maturity date.
    According to the Registration Statement, the Fund may invest in
risk-linked securities (``RLS''), which are a form of derivative issued
by insurance companies and insurance-related special purpose vehicles
that apply securitization techniques to catastrophic property and
casualty damages.\27\
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    \27\ RLS are typically debt obligations for which the return of
principal and the payment of interest are contingent on the non-
occurrence of a pre-defined ``trigger event.'' Depending on the
specific terms and structure of the RLS, this trigger could be the
result of a hurricane, earthquake or some other catastrophic event.
Insurance companies securitize this risk to transfer to the capital
markets the truly catastrophic part of the risk exposure. A typical
RLS provides for income and return of capital similar to other
fixed-income investments, but would involve full or partial default
if losses resulting from a certain catastrophe exceeded a
predetermined amount.

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    The Fund may invest a portion of its assets in high-quality money
market instruments on an ongoing basis to provide liquidity.
    The Fund may invest in U.S. and foreign common stocks, both
exchange-listed and OTC.
    The Fund may gain exposure to commodities through the use of
investments in exchange-traded products (``ETPs'') \28\ and exchange-
traded notes (``ETNs'').\29\
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    \28\ Such ETPs include Trust Issued Receipts (as described in
NYSE Arca Equities Rule 8.200); Commodity-Based Trust Shares (as
described in NYSE Arca Equities Rule 8.201); Currency Trust Shares
(as described in NYSE Arca Equities Rule 8.202); Commodity Index
Trust Shares (as described in NYSE Arca Equities Rule 8.203); and
Trust Units (as described in NYSE Arca Equities Rule 8.500).
    \29\ ETNs include Index-Linked Securities (as described in NYSE
Arca Equities Rule 5.2(j)(6)).
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    The Fund may invest in the securities of exchange-traded and OTC
real estate investment trusts (``REITs'').
Investment Restrictions
    The Fund may invest up to 20% of its total assets in the aggregate
in MBS and ABS that are privately issued, non-agency and non-government
sponsored entity (``Private MBS/ABS''), and in asset-backed commercial
paper.\30\ Such holdings would be subject to the respective limitations
on the Fund's investments in illiquid assets and high yield securities.
The liquidity of a security, especially in the case of Private MBS/ABS,
will be a substantial factor in the Fund's security selection process.
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    \30\ See note 18, supra.
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    The Fund may invest up to 20% of its total assets in the aggregate
in junior loans, bridge loans, unfunded commitments, and revolvers.
Such holdings would be subject to the respective limitations on the
Fund's investments in illiquid assets and high yield securities. The
liquidity of such securities will be a substantial factor in the Fund's
security selection process.
    The Fund may invest in debt securities and instruments that are
economically tied to emerging market countries.\31\
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    \31\ See note 13, supra. Generally, the Fund considers an
instrument to be economically tied to an emerging market country
through consideration of some or all of the following factors: (i)
Whether the issuer is the government of the emerging market country
(or any political subdivision, agency, authority or instrumentality
of such government), or is organized under the laws of the emerging
market country; (ii) amount of the issuer's revenues that are
attributable to the emerging market country; (iii) the location of
the issuer's management; (iv) if the security is secured or
collateralized, the country in which the security or collateral is
located; and/or (v) the currency in which the instrument is
denominated or currency fluctuations to which the issuer is exposed.
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    The Fund may invest without limitation in securities denominated in
foreign currencies and in U.S. dollar-denominated securities of foreign
issuers.
    The Fund may invest up to 33\1/3\% of its total assets in high
yield debt securities (``junk bonds''), which are debt securities that
are rated below investment grade by nationally recognized statistical
rating organizations, or are unrated securities that the Adviser
believes are of comparable below investment grade quality. The Fund may
invest in defaulted or distressed Private MBS/ABS.
    The Fund will be considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund.\32\
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    \32\ A ``non-diversified company,'' as defined in Section
5(b)(2) of the 1940 Act, means any management company other than a
diversified company (as defined in Section 5(b)(1) of the 1940 Act).
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    The Fund may not invest more than 25% of the value of its net
assets in securities of issuers in any one industry or group of
industries. This restriction does not apply to obligations issued or
guaranteed by the U.S. Government, its agencies or
instrumentalities.\33\
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    \33\ 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).
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    The Fund's investments, including investments in derivative
instruments, are subject to all of the restrictions under the 1940 Act,
including restrictions with respect to illiquid assets. The Fund may
hold up to an aggregate amount of 15% of its net assets in illiquid
assets (calculated at the time of investment), including Rule 144A
securities, Private MBS/ABS, master notes, loans and loan commitments
deemed illiquid by the Adviser,\34\ consistent with Commission
guidance.\35\ 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 assets. Illiquid
assets 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.\36\
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    \34\ In reaching liquidity decisions with respect to Rule 144A
securities, the Adviser may consider the following factors: The
frequency of trades and quotes for the security; the number of
dealers willing 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).
    \35\ 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).
    \36\ See id.
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    The Fund intends to qualify for and to elect to be treated as a
separate regulated investment company (``RIC'') under Subchapter M of
the Internal Revenue Code.\37\
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    \37\ 26 U.S.C. 851.
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    The Fund's investments will be consistent with the Fund's
investment objective and will not be used to enhance leverage. That is,
while the Fund will be permitted to borrow as permitted under the 1940
Act, the Fund's investments will not be used to seek performance that
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's
primary broad-based securities benchmark index (as defined in Form N-
1A).\38\
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    \38\ The Fund's broad-based securities benchmark index will be
identified in a future amendment to the Registration Statement
following the Fund's first full calendar year of performance.
---------------------------------------------------------------------------

The Fund's Use of Derivatives
    The Fund proposes to seek certain exposures through derivative
transactions as described below. The Fund may invest in the following
derivative instruments: Foreign exchange forward contracts; exchange-
traded futures on securities, indices, currencies and other
investments; exchange-traded and OTC options; exchange-traded and OTC
options on

futures contracts; exchange-traded and OTC interest rate swaps, cross-
currency swaps, total return swaps, inflation swaps and credit default
swaps; and options on such swaps (``swaptions'').\39\ Generally,
derivatives are financial contracts whose value depends upon, or is
derived from, the value of an underlying asset, reference rate or
index, and may relate to stocks, bonds, interest rates, currencies or
currency exchange rates, commodities, and related indexes. The Fund
may, but is not required to, use derivative instruments for risk
management purposes or as part of its investment strategies.\40\ The
Fund may also engage in derivative transactions for speculative
purposes to enhance total return, to seek to hedge against fluctuations
in securities prices, interest rates or currency rates, to change the
effective duration of its portfolio, to manage certain investment risks
and/or as a substitute for the purchase or sale of securities or
currencies.
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    \39\ Options on swaps are traded OTC. In the future, in the
event that there are exchange-traded options on swaps, the Fund may
invest in these instruments.
    \40\ The Fund will seek, where possible, to use counterparties
whose financial status is such that the risk of default is reduced;
however, the risk of losses resulting from default is still
possible. The Adviser will monitor the financial standing of
counterparties on an ongoing basis. This monitoring may include
information provided by credit agencies, as well as the Adviser's
credit analysts and other team members who evaluate approved
counterparties using various methods of analysis, including but not
limited to earnings updates, the counterparty's reputation, the
Adviser's past experience with the broker-dealer, market levels for
the counterparty's debt and equity, the counterparty's liquidity and
its share of market participation.
---------------------------------------------------------------------------

    Investments in derivative instruments will be made in accordance
with the 1940 Act and consistent with the Fund's investment objective
and policies. As described further below, the Fund will typically use
derivative instruments as a substitute for taking a position in the
underlying asset and/or as part of a strategy designed to reduce
exposure to other risks, such as interest rate or currency risk. The
Fund may also use derivative instruments to enhance returns. To limit
the potential risk associated with such transactions, the Fund will
segregate or ``earmark'' assets determined to be liquid by the Adviser
in accordance with procedures established by the Trust's Board of
Trustees (the ``Board'') and in accordance with the 1940 Act (or, as
permitted by applicable regulation, enter into certain offsetting
positions) to cover its obligations under derivative instruments. These
procedures have been adopted consistent with Section 18 of the 1940 Act
and related Commission guidance. In addition, the Fund will include
appropriate risk disclosure in its offering documents, including
leveraging risk. Leveraging risk is the risk that certain transactions
of the Fund, including the Fund's use of derivatives, may give rise to
leverage, causing the Fund to be more volatile than if it had not been
leveraged.\41\ Because the markets for certain securities, or the
securities themselves, may be unavailable or cost prohibitive as
compared to derivative instruments, suitable derivative transactions
may be an efficient alternative for the Fund to obtain the desired
asset exposure.
---------------------------------------------------------------------------

    \41\ To mitigate leveraging risk, the Adviser will segregate or
``earmark'' liquid assets or otherwise cover the transactions that
may give rise to such risk.
---------------------------------------------------------------------------

    The Adviser believes that derivatives can be an economically
attractive substitute for an underlying physical security that the Fund
would otherwise purchase. For example, the Fund could purchase Treasury
futures contracts instead of physical Treasuries or could sell credit
default protection on a corporate bond instead of buying a physical
bond. Economic benefits include potentially lower transaction costs or
attractive relative valuation of a derivative versus a physical bond
(e.g., differences in yields).
    The Adviser further believes that derivatives can be used as a more
liquid means of adjusting portfolio duration as well as targeting
specific areas of yield curve exposure, with potentially lower
transaction costs than the underlying securities (e.g., interest rate
swaps may have lower transaction costs than physical bonds). Similarly,
money market futures can be used to gain exposure to short-term
interest rates in order to express views on anticipated changes in
central bank policy rates. In addition, derivatives can be used to
protect client assets through selectively hedging downside (or ``tail
risks'') in the Fund.
    The Fund also can use derivatives to increase or decrease credit
exposure. Index credit default swaps (CDX) can be used to gain exposure
to a basket of credit risk by ``selling protection'' against default or
other credit events, or to hedge broad market credit risk by ``buying
protection''. Single name credit default swaps (CDS) can be used to
allow the Fund to increase or decrease exposure to specific issuers,
saving investor capital through lower trading costs. The Fund can use
total return swap contracts to obtain the total return of a reference
asset or index in exchange for paying a financing cost. A total return
swap may be more efficient than buying underlying securities of an
index, potentially lowering transaction costs.
    The Fund may attempt to reduce foreign currency exchange rate risk
by entering into contracts with banks, brokers or dealers to purchase
or sell foreign currencies at a future date (``forward
contracts'').\42\
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    \42\ A foreign currency forward contract is a negotiated
agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate.
The rate can be higher or lower than the spot rate between the
currencies that are the subject of the contract.
---------------------------------------------------------------------------

    The Adviser believes that the use of derivatives will allow the
Fund to selectively add diversifying sources of return from selling
options. Option purchases and sales can also be used to hedge specific
exposures in the portfolio, and can provide access to return streams
available to long-term investors such as the persistent difference
between implied and realized volatility. Option strategies can generate
income or improve execution prices (i.e., covered calls).
    In addition to the Fund's use of derivatives in connection with its
80% Policy, under the proposal the Fund would seek to invest in
derivative instruments not based on Fixed-Income Instruments,
consistent with the Fund's investment restrictions relating to exposure
to those asset classes.
Valuation Methodology for Purposes of Determining Net Asset Value
    According to the Registration Statement, the net asset value
(``NAV'') of the Fund's Shares will be determined by dividing the total
value of the Fund's portfolio investments and other assets, less any
liabilities, by the total number of Shares outstanding. Fund Shares
will be valued as of the close of regular trading (normally 4:00 p.m.,
Eastern time (``E.T.'')) (the ``NYSE Close'') on each day NYSE Arca is
open (``Business Day''). Information that becomes known to the Fund or
its agents after the NAV has been calculated on a particular day will
not generally be used to retroactively adjust the price of a portfolio
asset or the NAV determined earlier that day. The Fund reserves the
right to change the time its NAV is calculated if the Fund closes
earlier, or as permitted by the Commission.
    For purposes of calculating NAV, portfolio securities and other
assets for which market quotes are readily available will be valued at
market value. Market value will generally be determined on the basis of
last reported sales prices, or if no sales are reported,

based on quotes obtained from a quotation reporting system, established
market makers, or pricing services. Domestic and foreign fixed income
securities and non-exchange-traded derivatives 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. 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 and
options on futures will generally be valued at the settlement price
determined by the applicable exchange.
    Derivatives for which market quotes are readily available will be
valued at market value. Local closing prices will be used for all
instrument valuation purposes. Futures will be valued at the last
reported sale or settlement price on the day of valuation. Swaps traded
on exchanges such as the Chicago Mercantile Exchange (``CME'') or the
Intercontinental Exchange (``ICE-US'') will use the applicable exchange
closing price where available.
    Foreign currency-denominated derivatives will generally be valued
as of the respective local region's market close.
    With respect to specific derivatives:
     Currency spot and forward rates from major market data
vendors \43\ will generally be determined as of the NYSE Close.
---------------------------------------------------------------------------

    \43\ Major market data vendors may include, but are not limited
to: Thomson Reuters, JPMorgan Chase PricingDirect Inc., Markit Group
Limited, Bloomberg, Interactive Data Corporation or other major data
vendors.
---------------------------------------------------------------------------

     Exchange-traded futures will generally be valued at the
settlement price of the relevant exchange.
     A total return swap on an index will be valued at the
publicly available index price. The index price, in turn, is determined
by the applicable index calculation agent, which generally values the
securities underlying the index at the last reported sale price.
     Equity total return swaps will generally be valued using
the actual underlying equity at local market closing, while bank loan
total return swaps will generally be valued using the evaluated
underlying bank loan price minus the strike price of the loan.
     Exchange-traded non-equity options, (for example, options
on bonds, Eurodollar options and U.S. Treasury options), index options,
and options on futures will generally be valued at the official
settlement price determined by the relevant exchange, if available.
     OTC and exchange-traded equity options will generally be
valued on a basis of quotes obtained from a quotation reporting system,
established market makers, or pricing services or at the settlement
price of the applicable exchange.
     OTC foreign currency (FX) options will generally be valued
by pricing vendors.
     All other swaps such as interest rate swaps, inflation
swaps, swaptions, credit default swaps, and CDX/CDS will generally be
valued by pricing services.
    Exchange-traded equity securities (including common stocks, ETPs,
ETFs, ETNs, CEFs, exchange-traded convertible securities, REITs and
preferred securities) will be valued at the official closing price or
the last trading price on the exchange or market on which the security
is primarily traded at the time of valuation. If no sales or closing
prices are reported during the day, exchange-traded equity securities
will generally be valued at the mean of the last available bid and ask
quotation on the exchange or market on which the security is primarily
traded, or using other market information obtained from quotation
reporting systems, established market makers, or pricing services.
Investment company securities that are not exchange-traded will be
valued at NAV. Equity securities traded OTC will be valued based on
price quotations obtained from a broker-dealer who makes markets in
such securities or other equivalent indications of value provided by a
third-party pricing service. Structured notes, exchange-traded and OTC
hybrids and RLS will be valued based on prices obtained from an
independent pricing vendor such as IDC or Reuters or on the basis of
prices obtained from brokers and dealers. Fixed Income Instruments will
generally be valued on the basis of independent pricing services or
quotes obtained from brokers and dealers.
    If a foreign security's value has materially changed after the
close of the security's primary exchange or principal market but before
the NYSE Close, the security will be valued at fair value based on
procedures established and approved by the Board. Foreign securities
that do not trade when the NYSE is open will also be valued at fair
value.
    The Board has adopted policies and procedures for the valuation of
the Fund's investments (the ``Valuation Procedures''). Pursuant to the
Valuation Procedures, the Board has delegated to a valuation committee,
consisting of representatives from Guggenheim's investment management,
fund administration, legal and compliance departments (the ``Valuation
Committee''), the day-to-day responsibility for implementing the
Valuation Procedures, including, under most circumstances, the
responsibility for determining the fair value of the Fund's securities
or other assets. Valuations of the Fund's securities are supplied
primarily by pricing services appointed pursuant to the processes set
forth in the Valuation Procedures. The Valuation Committee convenes
monthly, or more frequently as needed and will review the valuation of
all assets which have been fair valued for reasonableness. The Fund's
officers, through the Valuation Committee and consistent with the
monitoring and review responsibilities set forth in the Valuation
Procedures, regularly review procedures used by, and valuations
provided by, the pricing services.
    Debt securities with a maturity of greater than 60 days at
acquisition will be valued at prices that reflect broker/dealer
supplied valuations or are obtained from independent pricing services,
which may consider the trade activity, treasury spreads, yields or
price of bonds of comparable quality, coupon, maturity, and type, as
well as prices quoted by dealers who make markets in such securities.
Short-term securities with remaining maturities of 60 days or less will
be valued at market price, or if a market price is not available, at
amortized cost, provided such amount approximates market value. Money
market instruments will be valued at net asset value.
    Generally, trading in foreign securities markets is substantially
completed each day at various times prior to the close of the NYSE. The
values of foreign securities are determined as of the close of such
foreign markets or the close of the NYSE, if earlier. All investments
quoted in foreign currency will be valued in U.S. dollars on the basis
of the foreign currency exchange rates prevailing at the close of U.S.
business at 4:00 p.m. E.T. The Valuation Committee will determine the
current value of such foreign securities by taking into consideration
certain factors which may include those discussed above, as well as the
following factors, among others: The value of the securities traded on
other foreign markets, closed-end fund trading, foreign currency
exchange activity, and the trading prices of financial products that
are tied to foreign securities. In addition, under the Valuation
Procedures, the Valuation Committee and the Adviser are authorized to
use prices and other information supplied

by a third party pricing vendor in valuing foreign securities.
    Investments for which market quotations are not readily available
will be fair valued as determined in good faith by the Adviser, subject
to review by the Valuation Committee, pursuant to methods established
or ratified by the Board. Valuations in accordance with these methods
are intended to reflect each security's (or asset's) ``fair value.''
Each such determination will be based on a consideration of all
relevant factors, which are likely to vary from one pricing context to
another. Examples of such factors may include, but are not limited to:
(i) The type of security, (ii) the initial cost of the security, (iii)
the existence of any contractual restrictions on the security's
disposition, (iv) the price and extent of public trading in similar
securities of the issuer or of comparable companies, (v) quotations or
evaluated prices from broker-dealers and/or pricing services, (vi)
information obtained from the issuer, analysts, and/or the appropriate
stock exchange (for exchange traded securities), (vii) an analysis of
the company's financial statements, and (viii) an evaluation of the
forces that influence the issuer and the market(s) in which the
security is purchased and sold (e.g., the existence of pending merger
activity, public offerings or tender offers that might affect the value
of the security).
    Investments initially valued in currencies other than the U.S.
dollar will be converted to the U.S. dollar using exchange rates
obtained from pricing services. As a result, the NAV of the Fund's
Shares may be affected by changes in the value of currencies in
relation to the U.S. dollar. The value of securities traded in markets
outside the United States or denominated in currencies other than the
U.S. dollar may be affected significantly on a day that the NYSE is
closed. As a result, to the extent that the Fund holds foreign (non-
U.S.) securities, the NAV of the Fund's Shares may change when an
investor cannot purchase, redeem or exchange shares.
Derivatives Valuation Methodology for Purposes of Determining Intra-Day
Indicative Value
    On each Business Day, before commencement of trading in Fund Shares
on NYSE Arca, the Fund will disclose on its Web site the identities and
quantities of the portfolio instruments and other assets held by the
Fund that will form the basis for the Fund's calculation of NAV at the
end of the Business Day.
    In order to provide additional information regarding the intra-day
value of Shares of the Fund, the NYSE Arca or a market data vendor will
disseminate every 15 seconds through the facilities of the Consolidated
Tape Association or other widely disseminated means an updated Intra-
day Indicative Value (``IIV'') for the Fund as calculated by a third
party market data provider.
    A third party market data provider will calculate the IIV for the
Fund. For the purposes of determining the IIV, the third party market
data provider's valuation of derivatives is expected to be similar to
their valuation of all securities. The third party market data provider
may use market quotes if available or may fair value securities against
proxies (such as swap or yield curves).
    With respect to specific derivatives:
     Foreign currency derivatives may be valued intraday using
market quotes, or another proxy as determined to be appropriate by the
third party market data provider.
     Futures may be valued intraday using the relevant futures
exchange data, or another proxy as determined to be appropriate by the
third party market data provider.
     Interest rate swaps and cross-currency swaps may be mapped
to a swap curve and valued intraday based on changes of the swap curve,
or another proxy as determined to be appropriate by the third party
market data provider.
     Index credit default swaps (such as, CDX/CDS) may be
valued using intraday data from market vendors, or based on underlying
asset price, or another proxy as determined to be appropriate by the
third party market data provider.
     Total return swaps may be valued intraday using the
underlying asset price, or another proxy as determined to be
appropriate by the third party market data provider.
     Exchange listed options may be valued intraday using the
relevant exchange data, or another proxy as determined to be
appropriate by the third party market data provider.
     OTC options and swaptions may be valued intraday through
option valuation models (e.g., Black-Scholes) or using exchange traded
options as a proxy, or another proxy as determined to be appropriate by
the third party market data provider.
Disclosed Portfolio
    The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Adviser will
disclose on the Fund's Web site the following information regarding
each portfolio holding, as applicable to the type of holding: Ticker
symbol, CUSIP number or other identifier, if any; a description of the
holding (including the type of holding, such as the type of swap); the
identity of the security, commodity, index or other asset or instrument
underlying the holding, if any; for options, the option strike price;
quantity held (as measured by, for example, par value, notional value
or number of shares, contracts or units); maturity date, if any; coupon
rate, if any; effective date, if any; market value of the holding; and
the percentage weighting of the holding in the Fund's portfolio. The
Web site information will be publicly available at no charge.
Impact on Arbitrage Mechanism
    The Adviser believes there will be minimal, if any, impact to the
arbitrage mechanism as a result of the use of derivatives. Market
makers and participants should be able to value derivatives as long as
the positions are disclosed with relevant information. The Adviser
believes that the price at which Shares trade will continue to be
disciplined by arbitrage opportunities created by the ability to
purchase or redeem creation Shares at their NAV, which should ensure
that Shares will not trade at a material discount or premium in
relation to their NAV.
    The Adviser does not believe there will be any significant impacts
to the settlement or operational aspects of the Fund's arbitrage
mechanism due to the use of derivatives. Because derivatives generally
are not eligible for in-kind transfer, they will typically be
substituted with a ``cash in lieu'' amount when the Fund processes
purchases or redemptions of creation units in-kind.
Creations and Redemptions of Shares
    Investors may create or redeem in Creation Unit size of 100,000
Shares or aggregations thereof (``Creation Unit'') through an
Authorized Participant, as described in the Registration Statement. The
size of a Creation Unit is subject to change. In order to purchase
Creation Units of the Fund, an investor must generally deposit a
designated portfolio of securities (the ``Deposit Securities'') (and/or
an amount in cash in lieu of some or all of the Deposit Securities) per
each Creation Unit constituting a substantial replication, or
representation, of the securities included in the Fund's portfolio as
selected by the Adviser (``Fund Securities'') and generally make a cash

payment referred to as the ``Cash Component.'' The list of the names
and the amounts of the Deposit Securities will be made available by the
Fund's custodian through the facilities of the National Securities
Clearing Corporation (``NSCC'') immediately prior to the opening of the
NYSE Arca Core Trading Session (9:30 a.m. to 4:00 p.m. E.T. The Cash
Component will represent the difference between the NAV of a Creation
Unit and the market value of the Deposit Securities.
    Shares may be redeemed only in Creation Unit size at their NAV on a
day the NYSE Arca is open for business. The Fund's custodian will make
available immediately prior to the opening of the NYSE Arca Core
Trading Session, through the facilities of NSCC, the list of the names
and the amounts of the Fund Securities that will be applicable that day
to redemption requests in proper form. Fund Securities received on
redemption may not be identical to Deposit Securities which are
applicable to purchases of Creation Units. The creation/redemption
order cut-off time for the Fund will be 4:00 p.m. E.T.
Availability of Information
    The Fund's Web site (www.guggenheiminvestments.com), which will be
publicly available prior to the public offering of Shares, will include
a form of the prospectus for the Fund that may be downloaded. The
Fund's Web site will include additional quantitative information
updated on a daily basis, including, for the Fund, (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''),\44\ 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 Fund will disclose on its Web site the Disclosed
Portfolio as defined in NYSE Arca Equities Rule 8.600(c)(2) that will
form the basis for the Fund's calculation of NAV at the end of the
Business Day.\45\
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    \44\ The Bid/Ask Price of Shares of the Fund 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 Fund's NAV. The
records relating to Bid/Ask Prices will be retained by the Fund and
its service providers.
    \45\ Under accounting procedures to be followed by the Fund,
trades made on the prior Business Day (``T'') will be booked and
reflected in NAV on the current Business Day (``T+1''). Accordingly,
the Fund 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.
---------------------------------------------------------------------------

    In addition, a basket composition file, which will include the
security names and share quantities required to be delivered in
exchange for Fund Shares, together with estimates and actual cash
components, will be publicly disseminated daily prior to the opening of
the NYSE via NSCC. The basket represents one Creation Unit of the Fund.
    Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and 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 for the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares, U.S. exchange-traded common stocks, hybrid instruments, REITs,
CEFs, ETFs, ETPs and ETNs will be available via the Consolidated Tape
Association (``CTA'') high-speed line. Price information for OTC REITs,
OTC common stocks, OTC CEFs, OTC options, money market instruments,
forwards, structured notes, RLS, OTC derivative instruments and OTC
hybrid instruments will be available from major market data vendors.
Intra-day and closing price information for exchange-traded options and
futures will be available from the applicable exchange and from major
market data vendors. In addition, price information for U.S. exchange-
traded options is available from the Options Price Reporting Authority.
Quotation information from brokers and dealers or independent pricing
services will be available for Fixed Income Instruments. In addition,
the Portfolio Indicative Value, as defined in NYSE Arca Equities Rule
8.600(c)(3), will be widely disseminated by one or more major market
data vendors at least every 15 seconds during the Core Trading
Session.\46\ The dissemination of the Portfolio Indicative Value,
together with the Disclosed Portfolio, will allow investors to
determine the value of the underlying portfolio of the Fund on a daily
basis and provide a close estimate of that value throughout the trading
day.
---------------------------------------------------------------------------

    \46\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from CTA or other data feeds.
---------------------------------------------------------------------------

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 Fund.\47\ Trading in Shares of the Fund
will be halted if the circuit breaker parameters in NYSE Arca Equities
Rule 7.12 have been reached. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. These may include: (1) The
extent to which trading is not occurring in the securities and/or the
financial instruments comprising the Disclosed Portfolio of the Fund;
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 the Fund may be
halted.
---------------------------------------------------------------------------

    \47\ 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 a.m. to 8 p.m. E.T. 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.
    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 Fund will be in
compliance with Rule 10A-3 \48\ under the Act, as provided by NYSE Arca
Equities Rule 5.3. A minimum of 100,000 Shares of the Fund will be
outstanding at the commencement of

trading on the Exchange. The Exchange will obtain a representation from
the issuer of the Shares that the 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.
---------------------------------------------------------------------------

    \48\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

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. 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 federal securities laws applicable to trading on the
Exchange.\49\
---------------------------------------------------------------------------

    \49\ 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, certain exchange-traded options and
futures, certain exchange-traded equities (including ETFs, ETPs. ETNs,
CEFs, certain common stocks and certain REITs) with other markets or
other entities that are members of the Intermarket Surveillance Group
(``ISG''),\50\ and FINRA may obtain trading information regarding
trading in the Shares, certain exchange-traded options and futures,
certain exchange-traded equities (including ETFs, ETPs. ETNs, CEFs,
certain common stocks and certain REITs) from such markets or entities.
In addition, the Exchange may obtain information regarding trading in
the Shares, certain exchange-traded options and futures, certain
exchange-traded equities (including ETFs, ETPs. ETNs, CEFs, certain
common stocks and certain REITs) from markets or other entities that
are members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.\51\ 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'').
---------------------------------------------------------------------------

    \50\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
Disclosed Portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
    \51\ Certain of the exchange-traded equity securities in which
the Fund may invest may trade in markets that are not members of
ISG.
---------------------------------------------------------------------------

    Not more than 10% of the net assets of the Fund in the aggregate
invested in equity securities (other than non-exchange-traded
investment company securities) shall consist of equity securities whose
principal market is not a member of the ISG or is a market with which
the Exchange does not have a comprehensive surveillance sharing
agreement. Furthermore, not more than 10% of the net assets of the Fund
in the aggregate invested in futures contracts or exchange-traded
options contracts shall consist of futures contracts or exchange-traded
options contracts whose principal market is not a member of ISG or is a
market with which the Exchange does not have 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 (``ETP'') 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 ETP 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 and the Disclosed Portfolio is disseminated; (5) the requirement
that ETP Holders deliver a prospectus to investors purchasing newly
issued Shares prior to or concurrently with the confirmation of a
transaction; and (6) trading information.
    In addition, the Bulletin will reference that the Fund is 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 Act. The
Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. E.T. each trading day.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \52\ 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.
---------------------------------------------------------------------------

    \52\ 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
federal securities laws applicable to trading on the Exchange.
    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 Adviser is affiliated with a broker-dealer and has represented
that it has implemented a fire wall with respect to its broker-dealer
affiliate regarding access to information concerning the composition
and/or changes to the portfolio. 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.
FINRA, on behalf of the Exchange, will communicate as needed regarding
trading in the Shares, certain exchange-traded options and futures,
certain exchange-traded equities (including ETFs, ETPs. ETNs, CEFs,
certain common stocks and certain REITs) with other markets or other
entities that are members of the ISG, and FINRA may obtain trading
information regarding trading in the Shares, certain exchange-traded
options and futures, certain exchange-traded equities (including

ETFs, ETPs. ETNs, CEFs, certain common stocks and certain REITs) from
such markets or entities. In addition, the Exchange may obtain
information regarding trading in the Shares, certain exchange-traded
options and futures, certain exchange-traded equities (including ETFs,
ETPs. ETNs, CEFs, certain common stocks and certain REITs) from markets
or other entities that are members of ISG or with which the Exchange
has in place a comprehensive surveillance sharing agreement. 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 TRACE.
    The Fund's disclosure of derivative positions in the Disclosed
Portfolio will include information that market participants can use to
value these positions intraday. On a daily basis, the Fund will
disclose on the Fund's Web site the following information regarding
each portfolio holding, as applicable to the type of holding: Ticker
symbol, CUSIP number or other identifier, if any; a description of the
holding (including the type of holding, such as the type of swap); the
identity of the security, commodity, index or other asset or instrument
underlying the holding, if any; for options, the option strike price;
quantity held (as measured by, for example, par value, notional value
or number of shares, contracts or units); maturity date, if any; coupon
rate, if any; effective date, if any; market value of the holding; and
the percentage weighting of the holding in the Fund's portfolio. Price
information for the debt and equity securities held by the Fund will be
available through major market data vendors and on the applicable
securities exchanges on which such securities are listed and traded. In
addition, a large amount of information will be publicly available
regarding the Fund and the Shares, thereby promoting market
transparency. Moreover, the Portfolio Indicative Value 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 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. 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 Fund
will include a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information.
Moreover, prior to the commencement of trading, the Exchange will
inform its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares. 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, 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 Fund may be halted. In
addition, as noted above, investors will have ready access to
information regarding the Fund's holdings, the Portfolio Indicative
Value, 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
an additional type of actively-managed exchange-traded product 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. Not more than 10% of the net assets of
the Fund in the aggregate invested in equity securities (other than
non-exchange-traded investment company securities) shall consist of
equity securities whose principal market is not a member of the ISG or
is a market with which the Exchange does not have a comprehensive
surveillance sharing agreement. Furthermore, not more than 10% of the
net assets of the Fund in the aggregate invested in futures contracts
or exchange-traded options contracts shall consist of futures contracts
or exchange-traded options contracts whose principal market is not a
member of ISG or is a market with which the Exchange does not have a
comprehensive surveillance sharing agreement. In addition, as noted
above, investors will have ready access to information regarding the
Fund's holdings, the Portfolio Indicative Value, 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 purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of an
additional type of actively-managed exchange-traded product that
primarily holds fixed income securities, which may be represented by
certain derivative instruments as discussed above, which will enhance
competition among market participants, to the benefit of investors and
the marketplace.

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 up to 90 days (i) as the Commission may designate
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, as modified by Amendment No. 1, 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<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2015-73 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields,
Secretary, Securities

and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2015-73. 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 Section, 100 F Street
NE., Washington, DC 20549 on official business days between 10 a.m. and
3 p.m. Copies of the filing will also 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-2015-73 and should be submitted
on or before October 13, 2015.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\53\
---------------------------------------------------------------------------

    \53\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Brent J. Fields,
Secretary.
[FR Doc. 2015-23973 Filed 9-21-15; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register: June 1, 2006 (Volume 71, Number 105)]
[Notices]
[Page 31242-31243]
[DOCID:fr01jn06-120]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53868; File No. SR-CHX-2006-13]

Self-Regulatory Organizations; Chicago Stock Exchange, Inc.;
Notice of Filing of Proposed Rule Change Relating to Participant Fees
and Credits

May 25, 2006.
    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on April 24, 2006, the Chicago Stock Exchange, Inc. (``CHX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the CHX. 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\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The CHX proposes to amend its Participant Fee Schedule (``Fee
Schedule'') to reduce, retroactively to March 1, 2006, the assignment
fees charged to specialist firms seeking the right to trade securities
to $500 per assignment, when the securities are assigned in competition
with other firms.\3\ The text of this proposed rule change is available
on the Exchange's Web site at http://www.chx.com/rules/ proposed--

rules.htm and at the Commission's Public Reference Room.
---------------------------------------------------------------------------

    \3\ The Exchange filed with the Commission a separate filing
proposing an identical assignment fee reduction (SR-CHX-2006-12) on
April 24, 2006, which was immediately effective as of that date
under section 19(b)(3)(A) of the Act and Rule 19b-4(f)(2)
thereunder. Because the Exchange seeks to apply the assignment fee
reduction to its Fee Schedule on a retroactive basis as of March 1,
2006, the Exchange is submitting this proposal to the Commission
under section 19(b)(2) of the Act, to be published for notice and
comment. The Commission notes that the discussion in the Purpose
section below reflects the Fee Schedule as it existed prior to the
immediately effective changes made pursuant to SR-CHX-2006-12.
---------------------------------------------------------------------------

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 CHX 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 these statements may be examined at the places specified in
Item IV below. The CHX has prepared summaries, set forth in Sections A,
B, and C below, of the most significant aspects of such statements.

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

1. Purpose
    Under the Exchange's rules, the Committee on Specialist Assignment
and Evaluation is responsible for appointing participant firms to act
as specialists on the Exchange.\4\ When more than one firm competes for
the right to be the specialist in a particular security, the Exchange
charges assignment fees of $1,000 or $4,000 for the assignment,
depending on the number of firms competing for that right.\5\
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    \4\ See CHX Article IV, Rule 6.
    \5\ For ``dual trading system'' securities, a group of
securities which includes securities listed on the New York Stock
Exchange or American Stock Exchange, the Exchange currently charges
a $1,000 assignment fee if the security (or a group of securities)
was assigned in competition with at least one other participant and
up to one-third of all participants that trade these issues. The fee
for the assignment of this type of security is increased to $4,000
if the security (or a group of securities) was assigned in
competition with more than one-third of the participants that trade
these issues. For Nasdaq/NM securities, the Exchange currently
charges a $1,000 assignment fee if the security was assigned in
competition with one other participant firm; the fee is increased to
$4,000 if two or more firms compete for the assignment.
---------------------------------------------------------------------------

    In a separate filing, the Exchange has submitted a proposal to
implement a

new trading model, which features an automated Matching System into
which orders may be sent for execution, but which does not involve the
use of specialists to handle customer orders.\6\ Instead, in this new
model, off-Exchange market makers may choose to handle customer orders,
sending those orders to the Exchange or to other venues for execution.
Because the Exchange hopes to be able to implement its new model in the
second quarter of 2006, the Exchange believes that the right to trade
securities as an Exchange specialist has only a short-term benefit. For
that reason, the Exchange has filed another proposal to reduce the
assignment fees to $500 per security, regardless of the number of
participants competing for the assignments and regardless of the type
of security that is being assigned.\7\ Through this proposed rule
change, the Exchange seeks to make the assignment fee reduction
effective, on a retroactive basis, to March 1, 2006. The Exchange
believes that this retroactive effectiveness will appropriately allow
the Exchange to apply the fee reduction to assignments that have been
made in recent weeks, when the Exchange's management began talking with
specialist firms about the reasons for, and possibility of, this type
of fee reduction.
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    \6\ See SR-CHX-2006-05.
    \7\ See supra note 3. The Exchange believes that it is
appropriate to maintain at least a $500 assignment fee to help
defray the costs of the assignment process. The Exchange will
continue to charge no fee when securities are assigned without
competition.
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2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with section 6(b)(4) of the Act \8\ in that it provides for the
equitable allocation of reasonable dues, fees and other charges among
its members and creates an appropriate (and limited) incentive for a
firm to agree to act as specialist on a temporary basis.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78(f)(b)(4).
---------------------------------------------------------------------------

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

    The Exchange does not believe that the proposed rule changes will
impose any burden on competition.

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

    No written comments were either solicited or received.

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

    Within 35 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 Exchange consents, the Commission will:
    (A) By order approve such 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 e-mail to<EMAIL_ADDRESS>Please include

File Number SR-CHX-2006-13 on the subject line.

Paper Comments

     Send paper comments in triplicate to Nancy M. Morris,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-CHX-2006-13. This
file number should be included on the subject line if e-mail 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 inspection
and copying in the Commission's Public Reference Room. Copies of the
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-CHX-2006-13 and should be submitted on or before June
22, 2006.

    For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\9\
---------------------------------------------------------------------------

    \9\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

J. Lynn Taylor,
Assistant Secretary.
 [FR Doc. E6-8482 Filed 5-31-06; 8:45 am]

BILLING CODE 8010-01-P