[Federal Register Volume 78, Number 15 (Wednesday, January 23, 2013)]
[Notices]
[Pages 4960-4966]
[FR Doc No: 2013-01222]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68666; File No. SR-NYSEArca-2013-01]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to Listing and Trading of the Newfleet
Multi-Sector Income ETF Under NYSE Arca Equities Rule 8.600

January 16, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on January 4, 2013, NYSE Arca, Inc. (the ``Exchange'' or
``NYSE Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change 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.
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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 the following under NYSE
Arca Equities Rule 8.600 (``Managed Fund Shares''): Newfleet Multi-
Sector Income 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 the shares (``Shares'') of
the Newfleet Multi-Sector Income ETF (the ``Fund'') \4\ under NYSE Arca
Equities Rule 8.600, which governs the listing and trading of Managed
Fund Shares.\5\ The Shares will be offered by AdvisorSharesTrust (the
``Trust''), a statutory trust organized under the laws of the State of
Delaware and registered with the Commission as an open-end management
investment company.\6\
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    \4\ The Commission has previously approved the listing and
trading on the Exchange of other actively managed funds under Rule
8.600. See e.g., Securities Exchange Act Release Nos. 57801 (May 8,
2008), 73 FR 27878 (May 14, 2008) (SR-NYSEArca-2008-31) (order
approving Exchange listing and trading of twelve actively-managed
funds of the WisdomTree Trust); 60981 (November 10, 2009), 74 FR
59594 (November 18, 2009) (SR-NYSEArca-2009-79) (order approving
Exchange listing and trading of five fixed income funds of the PIMCO
ETF Trust); 66321 (February 3, 2012) 77 FR 6850 (February 9, 2012)
(SR-NYSEArca-2011-95) (order approving Exchange listing and trading
of PIMCO Total Return ETF); 66670 (March 28, 2012) 77 FR 20087
(April 3, 2012) (SR-NYSEArca-2012-09) (order approving Exchange
listing and trading of PIMCO Global Advantage Inflation-Linked Bond
Strategy Fund).
    \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 June 25,
2012, the Trust filed with the Commission an amendment to its
registration statement on Form N-1A under the Securities Act of 1933
(15 U.S.C. 77a) and the 1940 Act relating to the Fund (File Nos.
333-157876 and 811-22110) (``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.
29291 (May 28, 2010) (File No. 812-13677) (``Exemptive Order'').
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    The investment manager to the Fund will be AdvisorShares
Investments LLC (the ``Adviser''). Newfleet Asset Management, LLC will
serve as sub-adviser to the Fund (``Sub-Adviser''). Foreside Fund
Services, LLC will serve as the distributor for the Fund
(``Distributor''). The Bank of New York Mellon will serve as the
custodian and transfer agent for the Fund (``Custodian'', ``Transfer
Agent'' or ``Administrator'').
    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 will erect a
``fire wall'' between the investment adviser and the broker-dealer with
respect to access to information concerning the composition and/or
changes to such investment company portfolio.\7\ In addition,

Commentary .06 further requires that personnel who make decisions on
the open-end fund's portfolio composition must be subject to procedures
designed to prevent the use and dissemination of material nonpublic
information regarding the open-end fund's portfolio. The Sub-Adviser is
affiliated with a broker-dealer and has implemented a fire wall with
respect to such broker-dealer regarding access to information
concerning the composition and/or changes to the portfolio, and will be
subject to procedures designed to prevent the use and dissemination of
material non-public information regarding the portfolio. The Adviser is
not affiliated with a broker-dealer. In the event (a) the Adviser or
the Sub-Adviser becomes newly affiliated with a broker-dealer, or (b)
any new adviser or sub-adviser becomes affiliated with a broker-dealer,
they 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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    \7\ An investment adviser to an open-end fund is required to be
registered under the Investment Advisers Act of 1940 (the ``Advisers
Act''). As a result, the Adviser and the Sub-Adviser, and their
related personnel, are subject to the provisions of Rule 204A-1
under the Advisers Act relating to codes of ethics. This Rule
requires investment advisers to adopt a code of ethics that reflects
the fiduciary nature of the relationship to clients as well as
compliance with other applicable securities laws. Accordingly,
procedures designed to prevent the communication and misuse of non-
public information by an investment adviser must be consistent with
Rule 204A-1 under the Advisers Act. In addition, Rule 206(4)-7 under
the Advisers Act makes it unlawful for an investment adviser to
provide investment advice to clients unless 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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Description of the Fund
Principal Investments
    The Fund will, under normal market conditions,\8\ invest at least
eighty percent (80%) in investment-grade fixed income securities, which
are fixed income securities with credit ratings within the four highest
rating categories of a nationally recognized statistical rating
organization. The Fund may invest in unrated securities to a limited
extent if such security is determined by the Sub-Adviser to be of
comparable quality.\9\ The average duration of the Fund's fixed income
investments will range from one to three years.
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    \8\ The term ``under normal market conditions'' includes, but is
not limited to, the absence of extreme volatility or trading halts
in the fixed income markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
    \9\ In determining whether a security is of ``comparable
quality'', the Sub-Adviser will consider, for example, whether the
issuer of the security has issued other rated securities; whether
the obligations under the security are guaranteed by another entity
and the rating of such guarantor (if any); whether and (if
applicable) how the security is collateralized; other forms of
credit enhancement (if any); the security's maturity date; liquidity
features (if any); relevant cash flow(s); valuation features; other
structural analysis; macroeconomic analysis and sector or industry
analysis.
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    According to the Registration Statement, the Fund's investment
objective is to provide a competitive level of current income,
consistent with preservation of capital, while limiting fluctuations in
net asset value (``NAV'') due to changes in interest rates. The Fund
seeks to apply extensive credit research and a time tested approach to
capitalize on opportunities across undervalued areas of the bond
markets.
    The Sub-Adviser will seek to provide diversification by allocating
the Fund's investments among various sectors of the fixed income
markets including investment grade debt securities issued primarily by
U.S. issuers and secondarily by non-U.S. issuers, as follows:
     Securities issued or guaranteed as to principal and
interest by the U.S. government, its agencies, authorities or
instrumentalities, including collateralized mortgage obligations
(``CMOs''), real estate mortgage investment conduits (``REMICs'') and
other pass-through securities;
     Non-agency \10\ commercial mortgage-backed securities
(``CMBS''), agency and ``non-agency'' residential mortgage-backed
securities (``RMBS'') \11\ and other asset backed securities;
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    \10\ ``Non-agency'' securities are financial instruments that
have been issued by an entity that is not a government-sponsored
agency, such as the Federal National Mortgage Association (``Fannie
Mae''), Federal Home Loan Mortgage Corporation (``Freddie Mac''),
Federal Home Loan Banks, or the Government National Mortgage
Association (``Ginnie Mae'').
    \11\ Although the Fund has not established a fixed limit to the
amount of non-agency securities in which it will invest, at least
80% of the Fund's net assets will be, under normal market conditions
(see note 8, supra), invested in U.S. dollar denominated investment
grade fixed income securities. The liquidity of any such security
will be a factor in the selection of any such security.
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     U.S. and non-U.S. corporate bonds; \12\
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    \12\ The Adviser expects that under normal market conditions,
the Fund will seek to invest at least 75% of its assets in corporate
bond issuances that have at least $100,000,000 par amount
outstanding in developed countries and at least $200,000,000 par
amount outstanding in emerging market countries.
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     Yankee bonds; \13\
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    \13\ Yankee bonds are denominated in U.S. dollars, registered in
accordance with the Securities Act of 1933 and publicly issued in
the U.S. by foreign banks and corporations.
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     Taxable municipal bonds, tax-exempt municipal bonds; and
     Debt securities issued by foreign governments and their
political subdivisions.
    The Fund represents that the portfolio will include a minimum of 13
non-affiliated issuers of fixed income securities. The Fund will only
purchase performing securities, not distressed debt. Distressed debt is
debt that is currently in default and is not expected to pay the
current coupon.
    In seeking to achieve the Fund's investment objective, the Sub-
Adviser will employ active sector rotation and disciplined risk
management in the construction of the Fund's portfolio. The Fund's
investable assets will be allocated among various sectors of the fixed
income market using a ``top-down'' \14\ relative value approach that
looks at factors such as yield and spreads, supply and demand,
investment environment, and sector fundamentals. The Sub-Adviser will
select particular investments using a bottom-up, fundamental research
driven analysis that includes assessment of credit risk, company
management, issuer capital structure, technical market conditions, and
valuations. The Sub-Adviser will select securities it believes offer
the best potential to achieve the Fund's investment objective of
providing a high level of total return, including a competitive level
of current income, while preserving capital.
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    \14\ A ``top-down'' portfolio management style utilizes a
tactical and globally diversified allocation strategy in an attempt
to reduce risk and increase overall performance. This management
style begins with a look at the overall economic picture and current
market conditions and then narrows its focus down to sectors,
industries or countries and ultimately to individual companies. The
final step is a fundamental analysis of each individual security and
to a lesser extent technical analysis.
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Other Investments
    As disclosed in the Registration Statement, while the Fund will
invest at least eighty percent (80%) in investment-grade fixed income
securities, the Fund may invest 100% of its total assets, without
limitation, in short term high-quality debt securities and money market
instruments either directly or through exchange traded funds (``ETFs'')
\15\ in the absence of normal market conditions. The Fund may be
invested in this manner for

extended periods depending on the Sub-Adviser's assessment of market
conditions. These short-term debt instruments and money market
instruments include shares of other mutual funds, commercial paper,
certificates of deposit, bankers' acceptances, U.S. government
securities, repurchase and reverse repurchase agreements \16\ and bonds
that are rated BBB or higher.
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    \15\ The ETFs in which the Fund may invest will be registered
under the 1940 Act and include Investment Company Units (as
described in NYSE Arca Equities Rule 5.2(j)(3)); Portfolio
Depositary Receipts (as described in NYSE Arca Equities Rule 8.100);
Managed Fund Shares (as described in NYSE Arca Equities Rule 8.600);
and closed-end funds. Such ETFs all will be listed and traded in the
U.S. on registered exchanges. While the Fund may invest in inverse
ETFs, the Fund will not invest in leveraged or inverse leveraged
ETFs (e.g., 2X or 3X).
    \16\ The Fund may enter into repurchase agreements with
financial institutions, which may be deemed to be loans. The Fund
follows certain procedures designed to minimize the risks inherent
in such agreements. These procedures include effecting repurchase
transactions only with large, well-capitalized and well-established
financial institutions whose condition will be continually monitored
by the Sub-Adviser. In addition, the value of the collateral
underlying the repurchase agreement will always be at least equal to
the repurchase price, including any accrued interest earned on the
repurchase agreement. In the event of a default or bankruptcy by a
selling financial institution, the Fund will seek to liquidate such
collateral. Reverse repurchase agreements involve sales by the Fund
of portfolio assets concurrently with an agreement by the Fund to
repurchase the same assets at a later date at a fixed price.
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    The Fund may invest up to 20% of its total assets in fixed-income
securities that are rated below investment grade at the time of
purchase. Such securities include corporate high yield debt securities,
emerging market high yield debt securities, and bank loans. In
addition, such securities may include non-investment grade CMBS, RMBS,
or other asset-backed securities, or debt securities issued by foreign
issuers. If certain of the Fund's holdings experience a decline in
their credit quality and fall below investment grade, the Fund may
continue to hold the securities and they will not count toward the
Fund's 20% investment limit; however, the Fund will make reasonable
investment decisions relating to the Fund's holdings aligned with its
investment objective with respect to such securities. Generally, the
Fund will limit its investments in corporate high yield debt securities
to 10% of its assets and will limit its investments in non-U.S. issuers
to 30% of its assets. The Sub-Adviser will regularly review the Fund's
portfolio construction, endeavoring to minimize risk exposure by
closely monitoring portfolio characteristics such as sector
concentration and portfolio duration and by investing no more than 5%
of the Fund's total assets in securities of any single issuer
(excluding the U.S. government, its agencies, authorities or
instrumentalities).
    The Fund may invest in equity securities. Equity securities
represent ownership interests in a company or partnership and consist
not only of common stocks, which are one of the Fund's primary types of
investments, but also preferred stocks, warrants to acquire common
stock, securities convertible into common stock, and investments in
master limited partnerships. The Fund will purchase such equity
securities traded in the U.S. on registered exchanges. Additionally,
the Fund may invest in the equity securities of foreign issuers,
including the securities of foreign issuers in emerging countries.\17\
With respect to its equity securities investments, the Fund will invest
only in equity securities (including Equity Financial Instruments) that
trade in markets that are members of the Intermarket Surveillance Group
(``ISG'') or are parties to a comprehensive surveillance sharing
agreement with the Exchange.\18\
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    \17\ As disclosed in the Registration Statement, the Fund may
invest in issuers located outside the United States directly, or in
financial instruments that are indirectly linked to the performance
of foreign issuers. Examples of such financial instruments include
American Depository Receipts (``ADRs''), ``ordinary shares,'' and
``New York shares'' (each of which is issued and traded in the
U.S.); and Global Depository Receipts (``GDRs''), European
Depository Receipts (``EDRs'') and International Depository Receipts
(``IDRs''), which are traded on foreign exchanges (all of the
foregoing financial instruments collectively defined as ``Equity
Financial Instruments''). ADRs are U.S. dollar denominated receipts
typically issued by U.S. banks and trust companies that evidence
ownership of underlying securities issued by a foreign issuer. The
underlying securities may not necessarily be denominated in the same
currency as the securities into which they may be converted. The
underlying securities are held in trust by a custodian bank or
similar financial institution in the issuer's home country. The
depositary bank may not have physical custody of the underlying
securities at all times and may charge fees for various services,
including forwarding dividends and interest and corporate actions.
Generally, ADRs in registered form are designed for use in domestic
securities markets. GDRs, EDRs, and IDRs are similar to ADRs in that
they are certificates evidencing ownership of shares of a foreign
issuer, however, GDRs, EDRs, and IDRs may be issued in bearer form
and denominated in other currencies, and are generally designed for
use in specific or multiple securities markets outside the U.S.
EDRs, for example, are designed for use in European securities
markets while GDRs are designed for use throughout the world.
Ordinary shares are shares of foreign issuers that are traded abroad
and on a U.S. exchange. New York shares are shares that a foreign
issuer has allocated for trading in the U.S. ADRs, ordinary shares,
and New York shares all may be purchased with and sold for U.S.
dollars, which protects the Fund from foreign settlement risks.
    \18\ See note 35, infra.
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    The Fund may invest in exchange-traded notes (``ETNs'').\19\
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    \19\ ETNs, also called index-linked securities as would be
listed, for example, under NYSE Arca Equities Rule 5.2(j)(6), are
senior, unsecured unsubordinated debt securities issued by an
underwriting bank that are designed to provide returns that are
linked to a particular benchmark less investor fees.
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    The Fund may invest in, to the extent permitted by Section 12(d)(1)
of the 1940 Act and the rules thereunder,\20\ other affiliated and
unaffiliated funds, such as open-end or closed-end management
investment companies,\21\ including other ETFs; provided that the Fund,
immediately after such purchase or acquisition, does not own in the
aggregate: (i) More than 3% of the total outstanding voting stock of
the acquired company; (ii) securities issued by the acquired company
having an aggregate value in excess of 5% of the value of the total
assets of the Fund; or (iii) securities issued by the acquired company
and all other investment companies (other than Treasury stock of the
Fund) having an aggregate value in excess of 10% of the value of the
total assets of the Fund.
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    \20\ 15 U.S.C. 80a-12(d)(1).
    \21\ As disclosed in the Registration Statement, investment
companies may include index-based investments, such as ETFs that
hold substantially all of their assets in securities representing a
specific index.
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    According to the Registration Statement, the Fund also may invest
in the securities of other investment companies if the Fund is part of
a ``master-feeder'' structure or operates as a fund of funds in
compliance with Section 12(d)(1)(E), (F) and (G) of the 1940 Act and
the rules thereunder.\22\ Section 12(d)(1) prohibits another investment
company from selling its shares to the Fund if, after the sale: (i) The
Fund owns more than 3% of the other investment company's voting stock
or (ii) the Fund and other investment companies, and companies
controlled by them, own more than 10% of the voting stock of such other
investment company. The Trust has entered into agreements with several
unaffiliated ETFs that permit, pursuant to a Commission order, the Fund
to purchase shares of those ETFs beyond the Section 12(d)(1) limits
described above. The Fund will only make such investments in conformity
with the requirements of Subchapter M of the Internal Revenue Code of
1986, as amended (the ``Code''). According to the Registration
Statement, the Fund will seek to qualify for treatment as a Regulated
Investment Company (``RIC'') under the Code.\23\
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    \22\ 15 U.S.C. 80a-12(d)(1)(E),(F) and (G).
    \23\ 26 U.S.C. 851.
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    The Fund may invest in the exchange traded securities of pooled
vehicles that are not investment companies and, thus, not required to
comply with the provisions of the 1940 Act. Such pooled vehicles would
be required to comply with the provisions of other federal securities
laws, such as the Securities Act of 1933. These pooled vehicles
typically hold commodities, such as

gold or oil, currency, or other property that is itself not a security.
    The Fund may invest in shares of exchange-traded real estate
investment trusts (``REITs'').
    The Fund may hold up to an aggregate amount of 15% of its net
assets in illiquid securities (calculated at the time of investment),
including Rule 144A securities and loan participation interests (e.g.
bank loans). The Fund will monitor its portfolio liquidity on an
ongoing basis to determine whether, in light of current circumstances,
an adequate level of liquidity is being maintained, and will consider
taking appropriate steps in order to maintain adequate liquidity if,
through a change in values, net assets, or other circumstances, more
than 15% of the Fund's net assets are held in illiquid securities.
Illiquid securities include securities subject to contractual or other
restrictions on resale and other instruments that lack readily
available markets as determined in accordance with Commission staff
guidance.\24\
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    \24\ 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 Securities Act of 1933).
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    The Fund may not (i) with respect to 75% of its total assets,
purchase securities of any issuer (except securities issued or
guaranteed by the U.S. government, its agencies or instrumentalities or
shares of investment companies) if, as a result, more than 5% of its
total assets would be invested in the securities of such issuer; or
(ii) acquire more than 10% of the outstanding voting securities of any
one issuer.\25\
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    \25\ The diversification standard is set forth in Section
5(b)(1) of the 1940 Act (15 U.S.C. 80a-5).
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    The Fund may not invest 25% or more of its total assets in the
securities of one or more issuers conducting their principal business
activities in the same industry or group of industries. This limitation
does not apply to investments in securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, or shares of
investment companies. The Fund will not invest 25% or more of its total
assets in any investment company that so concentrates.\26\
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    \26\ 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 will not invest in options contracts, futures contracts or
swap agreements.
    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 \27\ under the Exchange Act, as provided by
NYSE Arca Equities Rule 5.3. A minimum of 100,000 Shares 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 \28\ will be made available to all market
participants at the same time. The Fund's investments will be
consistent with the Fund's investment objective and will not be used to
enhance leverage.
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    \27\ 17 CFR 240.10A-3.
    \28\ The term ``Disclosed Portfolio'' is defined in NYSE Arca
Equities Rule 8.600(c)(2).
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Creations and Redemptions of Shares
    According to the Registration Statement, Shares of the Fund will be
``created'' at their NAV \29\ by authorized participants only in block-
size aggregations of at least 50,000 Shares (``Creation Units''). The
consideration for purchase of a Creation Unit of the Fund will
generally consist of an in-kind deposit of a designated portfolio of
securities (``Deposit Securities'') per each Creation Unit constituting
a substantial replication, or a representation, of the securities
included in the Fund's portfolio and an amount of cash (the ``Cash
Component''). Together, the Deposit Securities and the Cash Component
will constitute the ``Fund Deposit,'' which will represent the minimum
initial and subsequent investment amount for a Creation Unit of the
Fund. The Cash Component will be an amount equal to the difference
between the NAV of the Shares (per Creation Unit) and the market value
of the Deposit Securities. If the Cash Component is a positive number
(i.e., the NAV per Creation Unit exceeds the market value of the
Deposit Securities), the Cash Component will be such positive amount.
If the Cash Component is a negative number (i.e., the NAV per Creation
Unit is less than the market value of the Deposit Securities), the Cash
Component will be such negative amount and the creator will be entitled
to receive cash from the Fund in an amount equal to the Cash Component.
The Cash Component will serve the function of compensating for any
differences between the NAV per Creation Unit and the market value of
the Deposit Securities.
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    \29\ The Fund will calculate NAV by: (i) Taking the current
market value of its total assets; (ii) subtracting any liabilities;
and (iii) dividing that amount by the total number of Shares owned
by shareholders. NAV will be calculated once each business day as of
the regularly scheduled close of trading on the New York Stock
Exchange, LLC (``NYSE'') (normally, 4:00 p.m., Eastern time). For
more information regarding the valuation of Fund investments in
calculating the Fund's NAV, see the Registration Statement.
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    The Administrator, through the National Securities Clearing
Corporation (``NSCC'') will make available on each business day,
immediately prior to the opening of business on the Exchange (currently
9:30 a.m., Eastern time), the list of the names and the required amount
of Deposit Securities to be included in the current Fund Deposit (based
on information at the end of the previous business day) for the
Fund.\30\ Such Fund Deposit will be applicable, subject to any
adjustments as described above, in order to effect creations of
Creation Units of the Fund until such time as the next-announced
composition of the Deposit Securities is made available.
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    \30\ According to the Registration statement, the identity and
amount of Deposit Securities required for a Fund Deposit for the
Fund will change as rebalancing adjustments and corporate action
events are reflected from time to time by the Sub-Adviser with a
view to the investment objective of the Fund. In addition, the Trust
will reserve the right to permit or require the substitution of an
amount of cash--i.e., a ``cash in lieu'' amount--to be added to the
Cash Component to replace any Deposit Security which may not be
available in sufficient quantity for delivery or which may not be
eligible for transfer, or which may not be eligible for trading. In
addition to the list of names and numbers of securities constituting
the current Deposit Securities of a Fund Deposit, the Administrator,
through the NSCC, will also make available on each business day, the
estimated Cash Component, effective through and including the
previous business day, per outstanding Creation Unit of the Fund.
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    Shares may be redeemed only in Creation Units at their NAV next
determined after receipt of a redemption request in proper form by the
Distributor and the Fund through the Administrator and only on a
business day. The Trust will not redeem Shares in amounts less than
Creation Units. Unless cash redemptions are available or specified for
the Fund, the redemption proceeds for a Creation Unit generally consist
of ``Fund Securities''--

as announced by the Administrator on the business day of the request
for redemption received in proper form--plus cash in an amount equal to
the difference between the NAV of the Shares being redeemed, as next
determined after a receipt of a request in proper form, and the value
of the Fund Securities (the ``Cash Redemption Amount''), less a
redemption transaction fee. In the event that the Fund Securities have
a value greater than the NAV of the Shares, a compensating cash payment
equal to the differential is required to be made by or through an
authorized participant by the redeeming shareholder.
    The Administrator, through the NSCC, will make available
immediately prior to the opening of business on the Exchange (currently
9:30 a.m., Eastern time) on each business day, the Fund Securities that
will be applicable (subject to possible amendment or correction) to
redemption requests received in proper form on that day. Fund
Securities received on redemption may not be identical to Deposit
Securities which are applicable to creations of Creation Units.
    Additional information regarding the Trust and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings, disclosure policies,
distributions and taxes is included in the Registration Statement. All
terms relating to the Fund that are referred to but not defined in this
proposed rule change are defined in the Registration Statement.
Availability of Information
    The Trust's Web site (www.Advisorshares.com), which will be
publicly available, will include a form of the prospectus for the Fund
that may be downloaded. The Trust'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''),\31\ and a calculation
of the premium and discount of the Bid/Ask Price against the NAV, and
(2) data in chart format displaying the frequency distribution of
discounts and premiums of the daily Bid/Ask Price against the NAV,
within appropriate ranges, for each of the four previous calendar
quarters. On each business day, before commencement of trading in
Shares in the ``Core Trading Session'' (9:30 a.m. Eastern time to 4:00
p.m. Eastern time) on the Exchange, the Fund will disclose on the
Trust's 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.\32\
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    \31\ The Bid/Ask Price 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.
    \32\ Under accounting procedures 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.
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    On a daily basis, the Fund will disclose for each portfolio
security and other financial instrument of the Fund the following
information: ticker symbol (if applicable), name of security and
financial instrument, number of shares or dollar value of securities
and financial instruments held in the portfolio, and percentage
weighting of the security and financial instrument in the portfolio.
The Web site information will be publicly available at no charge. In
addition, price information for the debt and other securities and
investments held by the Fund will be available through major market
data vendors or on the exchanges on which they are traded.
    Investors can also obtain the Trust's Statement of Additional
Information (``SAI''), the Fund's Shareholder Reports, and its Form N-
CSR and Form N-SAR, filed twice a year. The Trust's SAI and Shareholder
Reports are available free upon request from the Trust, and those
documents and the Form N-CSR and Form N-SAR may be viewed on-screen or
downloaded from the Commission's Web site at www.sec.gov. Information
regarding market price and trading volume of the Shares will be
continually available on a real-time basis throughout the day on
brokers' computer screens and other electronic services. Information
regarding the previous day's closing price and trading volume
information for the Shares will be published daily in the financial
section of newspapers. Quotation and last sale information for the
Shares will be available via the Consolidated Tape Association
(``CTA'') high-speed line. In addition, the Portfolio Indicative Value,
as defined in NYSE Arca Equities Rule 8.600(c)(3), will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session.\33\ 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 will provide a close estimate of that
value throughout the trading day.
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    \33\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available
Portfolio Indicative Values taken from the CTA or other data feeds.
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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.\34\ 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.
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    \34\ See NYSE Arca Equities Rule 7.12, Commentary .04.
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Trading Rules
    The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. Eastern time in
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late
Trading Sessions). The Exchange has appropriate rules to facilitate
transactions in the Shares during all trading sessions. As provided in
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price
variation (``MPV'') for quoting and entry of orders in equity
securities traded on the NYSE Arca Marketplace is $0.01, with the
exception of securities that are priced less than $1.00 for which the
MPV for order entry is $0.0001.
Surveillance
    The Exchange represents that trading in the Shares will be subject
to the existing trading surveillances, administered by the Financial
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal

securities laws. The Exchange represents that these procedures are
adequate to properly monitor Exchange trading of the Shares in all
trading sessions and to deter and detect violations of Exchange rules
and applicable federal securities laws.
    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. The Exchange
will communicate as needed regarding trading in the Shares with other
markets that are members of the Intermarket Surveillance Group
(``ISG'') or with which the Exchange has in place a comprehensive
surveillance sharing agreement.\35\
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    \35\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all components of the
Fund's portfolio may trade on markets that are members of ISG or
with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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    As stated earlier, the Fund will invest only in equity securities
and Equity Financial Instruments that trade in markets that are members
of the ISG or are parties to a comprehensive surveillance sharing
agreement with the Exchange.
    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 Unit aggregations (and that Shares are not individually
redeemable); (2) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its 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 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 Exchange Act.
The Bulletin will also disclose that the NAV for the Shares will be
calculated after 4:00 p.m. Eastern time each trading day.
2. Statutory Basis
    The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5) \36\ 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.
---------------------------------------------------------------------------

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

    The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule
8.600. The Exchange has in place surveillance procedures that are
adequate to properly monitor trading in the Shares in all trading
sessions and to deter and detect violations of Exchange rules and
applicable federal securities laws. The Exchange 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. The Fund will, under normal market conditions, principally
invest in investment-grade securities, which are securities with credit
ratings within the four highest rating categories of a nationally
recognized statistical rating organization or, if unrated, those
securities that the Sub-Adviser determines to be of comparable
quality.\37\ The Sub-Adviser is affiliated with a broker-dealer and has
implemented a fire wall with respect to such broker-dealer regarding
access to information concerning the composition and/or changes to the
portfolio, and will be subject to procedures designed to prevent the
use and dissemination of material non-public information regarding the
portfolio. The Adviser is not affiliated with a broker-dealer. In the
event (a) the Adviser becomes newly affiliated with a broker-dealer, or
(b) any new adviser or sub-adviser becomes affiliated with a broker-
dealer, they 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 the portfolio. Price information for the debt and other
securities and investments held by the Fund will be available through
major market data vendors or on the exchanges on which they are traded.
The Fund's investments will be consistent with the Fund's investment
objective and will not be used to enhance leverage. The Fund may invest
up to 20% of its total assets in fixed-income securities that are rated
below investment grade at the time of purchase. Generally, the Fund
will limit its investments in corporate high yield debt securities to
10% of its assets and will limit its investments in non-U.S. issuers to
30% of its assets. The Fund may hold up to an aggregate amount of 15%
of its net assets in illiquid securities (calculated at the time of
investment), including Rule 144A securities and loan participation
interests (e.g. bank loans). The Fund will monitor its portfolio
liquidity on an ongoing basis to determine whether, in light of current
circumstances, an adequate level of liquidity is being maintained, and
will consider taking appropriate steps in order to maintain adequate
liquidity if, through a change in values, net assets, or other
circumstances, more than 15% of the Fund's net assets are held in
illiquid securities. With respect to its equity securities investments,
the Fund will invest only in equity securities (including Equity
Financial Instruments) that trade in markets that are members of the
ISG or are parties to a comprehensive surveillance sharing agreement
with the Exchange. The Fund will not invest in options contracts,
futures contracts or swap agreements.
---------------------------------------------------------------------------

    \37\ See note 9, supra.
---------------------------------------------------------------------------

    The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV per Share will be calculated daily and that the NAV
and the Disclosed Portfolio will be made available to all market
participants at the same time. In addition, a large amount of
information is 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 the Trust's Web site the Disclosed
Portfolio that will form the basis for the Fund's calculation of NAV at
the end of the business day. The Trust's Web site 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. 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 purposes of the Act. The Exchange believes that
the proposed rule change 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.

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

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

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-NYSEArca-2013-01 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2013-01. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549 on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing will also be available
for inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. 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-2013-01 and should be submitted on or before
February 13, 2013.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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    \38\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-01222 Filed 1-22-13; 8:45 am]
BILLING CODE 8011-01-P