[Federal Register Volume 75, Number 150 (Thursday, August 5, 2010)]
[Notices]
[Pages 47323-47326]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-19246]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62604; File No. SR-NYSEArca-2010-49]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change, as Modified by Amendment No. 1
Thereto, Regarding Listing and Trading of the WisdomTree Emerging
Markets Local Debt Fund
July 30, 2010.
I. Introduction
On June 10, 2010, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares of the WisdomTree Emerging Markets Local Debt
Fund under NYSE Arca Equities Rule 8.600. On June 18, 2010, the
Exchange filed Amendment No. 1 to the proposed rule change. The
proposed rule change, as amended, was published for comment in the
Federal Register on June 29, 2010.\3\ The Commission received no
comments on the proposal. This order grants approval of the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 62350 (June 22,
2010), 75 FR 37502 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to list and trade shares (``Shares'') of the
WisdomTree Emerging Markets Local Debt Fund (``Fund'') of the
WisdomTree Trust (``Trust''), pursuant to NYSE Arca Equities Rule
8.600, which governs the listing and trading of Managed Fund Shares on
the Exchange. The Fund will be an actively managed exchange-traded
fund. The Shares will be offered by the Trust, which was established as
a Delaware statutory trust on December 15, 2005 and is registered with
the Commission as an investment company.\4\ WisdomTree Asset
Management, Inc. is the investment adviser (``Adviser'') to the Fund,
and Mellon Capital Management Corporation serves as sub-adviser for the
Fund (``Sub-Adviser'').\5\ The Exchange represents that the Shares will
be subject to Rule 8.600(d), which sets forth the initial and continued
listing criteria applicable to Managed Fund Shares. In addition, for
initial and/or continued listing, the Shares will be in compliance with
Rule 10A-3 under the Exchange Act,\6\ as provided by NYSE Arca Equities
Rule 5.3.
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\4\ The Fund has filed a registration statement on Form N-1A
(``Registration Statement'') with the Commission. See Post-Effective
Amendment No. 32 to Registration Statement on Form N-1A for the
Trust, dated March 19, 2010 (File Nos. 333-132380 and 811-21864), as
amended on June 8, 2010.
\5\ The Exchange represents that, while the Adviser is not
affiliated with any broker-dealer, the Sub-Adviser is affiliated
with multiple broker-dealers and has implemented a ``fire wall''
with respect to such broker-dealers regarding access to information
concerning the composition and/or changes to the Fund's portfolio.
In addition, MCM personnel who make decisions regarding the Fund's
portfolio are subject to procedures designed to prevent the use and
dissemination of material non-public information regarding the
Fund's portfolio. See Commentary .06 to NYSE Arca Equities Rule
8.600.
\6\ See 17 CFR 240.10A-3.
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The Fund seeks to provide investors with a high level of total
return consisting of both income and capital appreciation and is
designed to provide exposure to a broad range of emerging market
countries and issuers through investments in local currency debt
instruments. Specifically, the Fund intends to invest in issuers in
Asia,
[[Page 47324]]
Latin America, Eastern Europe, Africa, and the Middle East. Likely
country exposures include Brazil, Chile, Colombia, Hungary, Indonesia,
Israel, Malaysia, Mexico, Peru, Poland, Russia, South Africa, South
Korea, Thailand, and Turkey. The Fund intends to invest at least 70% of
its net assets in debt instruments denominated in a currency other than
the U.S. dollar issued by emerging market governments, government
agencies, corporations, and supranational issuers, which include
international organizations such as the European Investment Bank,
International Bank for Reconstruction and Development, International
Finance Corporation, or other regional development banks (collectively,
``Debt Instruments''). The Fund expects to invest up to 20% of its net
assets in emerging market corporate bonds. The Fund will invest only in
corporate bonds that the Adviser or Sub-Adviser deems to be
sufficiently liquid. Generally, a corporate bond must have $200 million
or more par amount outstanding and significant par value traded to be
considered as an eligible investment. Economic and other conditions in
specific countries may, from time to time, lead to a decrease in the
average par amount outstanding of bond issuances. Therefore, although
the Fund does not intend to do so, the Fund may invest up to 5% of its
net assets in corporate bonds with less than $200 million par amount
outstanding if (i) the Adviser or Sub-Adviser deems such security to be
sufficiently liquid based on its analysis of the market for such
security (based on, for example, broker-dealer quotations or its
analysis of the trading history of the security or the trading history
of other securities issued by the issuer), (ii) such investment is
consistent with the Fund's goal of providing exposure to a broad range
of countries and issuers, and (iii) such investment is deemed by the
Adviser or Sub-Adviser to be in the best interest of the Fund.
The Fund will invest in both investment grade and non-investment
grade securities in a manner designed to provide exposure to broad-
based emerging market debt. The Fund currently expects that it will
have 75% or more of its assets invested in investment grade securities,
and no more than 25% of its assets invested in non-investment grade
securities. Because the Fund is designed to provide exposure to a broad
range of emerging market countries and issuers and because the debt
ratings of such countries and issuers will change from time to time,
the exact percentage of the Fund's investments in investment grade and
non-investment grade debt will change from time to time in response to
economic events and changes to the credit ratings of such government
and corporate issuers. Within the non-investment grade category some
issuers and instruments are considered to be of lower credit quality
and at higher risk of default. In order to limit its exposure to these
more speculative credits, the Fund will not invest more than 15% of its
assets in securities rated B or below by Moody's, or equivalently rated
by S&P or Fitch. The Fund does not intend to invest in unrated
securities. However, it may do so to a limited extent, such as where a
rated security becomes unrated, if such security is determined by the
Adviser and Sub-Adviser to be of comparable quality. In determining
whether a security is of ``comparable quality,'' the Adviser and Sub-
Adviser will consider, for example, whether the issuer of the security
has issued other rated securities.
With respect to its limited investments in instruments other than
Debt Instruments, the Fund may purchase short-term obligations issued
or guaranteed by the U.S. Treasury or the agencies or instrumentalities
of the U.S. government; may invest in short-term securities issued or
guaranteed by non-U.S. governments, agencies and instrumentalities; may
invest in deposits and other obligations of U.S. and non-U.S. banks and
financial institutions; may invest in deposits and obligations of banks
and financial institutions including certificates of deposit, time
deposits, and bankers' acceptances.
The Fund also may invest in corporate debt obligations with less
than 397 calendar days remaining to maturity, purchase floating rate
and adjustable rate obligations, such as demand notes, bonds, and
commercial paper, and pursue its investment objective by investing some
of its assets in other WisdomTree Funds based on foreign currencies. In
addition, the Fund may use derivative instruments as part of its
investment strategies. The examples of derivative instruments include
forward currency contracts, non-deliverable forward currency contracts,
currency and interest rate swaps, currency options, futures contracts,
options on futures contracts, and swap agreements. The Fund's use of
derivative instruments will be underpinned by investments in short
term, high-quality U.S. money market securities. The Fund expects that
no more than 30% of the value of the Fund's net assets will be invested
in derivative instruments. Such investments will be consistent with the
Fund's investment objective and will not be used to enhance leverage.
With respect to certain kinds of derivative transactions entered
into by the Fund that involve obligations to make future payments to
third parties, including, but not limited to, futures, forward
contracts, swap contracts, the purchase of securities on a when-issued
or delayed delivery basis, or reverse repurchase agreements, under
applicable Federal securities laws, rules, and interpretations thereof,
the Fund must ``set aside'' liquid assets or engage in other measures
to ``cover'' open positions with respect to such transactions.
The Fund may engage in foreign currency transactions and may invest
directly in foreign currencies in the form of bank and financial
institution deposits, certificates of deposit, and bankers acceptances
denominated in a specified non-U.S. currency. The Fund may also enter
into forward currency contracts in order to ``lock in'' the exchange
rate between the currency it will deliver and the currency it will
receive for the duration of the contract.
The Fund may enter into swap agreements, including interest rate
swaps and currency swaps, and may buy or sell put and call options on
foreign currencies either on exchanges or in the over-the-counter
market. The Fund may also enter into repurchase agreements with
counterparties that are deemed to present acceptable credit risks and
reverse repurchase agreements involving the sale of securities held by
the Fund, subject to its agreement to repurchase the securities at an
agreed upon date or upon demand and at a price reflecting a market rate
of interest.
Lastly, the Fund may invest in the securities of other investment
companies (including money market funds and exchange-traded funds). The
Fund may invest up to an aggregate amount of 10% of its net assets in
illiquid securities. Illiquid securities include securities subject to
contractual or other restrictions on resale and other instruments that
lack readily available markets. The Fund will not invest in non-U.S.
equity securities.
Additional details regarding the investment and trading policies of
the Fund, creations and redemptions of the Shares, investment risks,
NAV calculation, the dissemination of key values and availability of
information about the underlying assets, trading halts, applicable
trading rules, surveillance, and the Information Bulletin, among other
things, can be
[[Page 47325]]
found in the Notice and/or the Registration Statement, as
applicable.\7\
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\7\ See supra notes 3 and 4.
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III. Discussion and Commission's Findings
After careful consideration, the Commission finds that the proposed
rule change to list and trade the Shares of the Fund is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\8\ In particular, the
Commission finds that the proposed rule change is consistent with the
requirements of Section 6(b)(5) of the Act,\9\ which requires, among
other things, that the Exchange's rules be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in facilitating transactions in securities, and to
remove impediments to and perfect the mechanism of a free and open
market and a national market system.
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\8\ In approving this proposed rule change, the Commission notes
that it has considered the proposed rule's impact on efficiency,
competition, and capital formation. See 15 U.S.C. 78c(f).
\9\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is also consistent with Section 11A(a)(1)(C)(iii) of
the Act,\10\ which sets forth Congress' finding that it is in the
public interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information regarding the Shares will be available via the
Consolidated Tape Association's high-speed line. On each business day
before commencement of trading in the Shares in the Core Trading
Session on the Exchange, the Trust will disclose on its Web site the
identities and quantities of the portfolio of securities and other
assets (``Disclosed Portfolio'') held by the Fund that will form the
basis for the Fund's calculation of the NAV at the end of the business
day.\11\ The Disclosed Portfolio will include, as applicable, the
names, quantity, percentage weighting and market value of securities,
and other assets held by the Fund and the characteristics of such
assets. In addition, an estimated value that reflects an estimated
intraday value of the Fund's portfolio, defined in NYSE Arca Equities
Rule 8.600 as the ``Portfolio Indicative Value,'' will also be
disseminated. The Portfolio Indicative Value will be based upon the
current value for the components of the Disclosed Portfolio and will be
updated and disseminated by one or more major market data vendors at
least every 15 seconds during the Core Trading Session on the Exchange.
In addition, during hours when the markets for securities in the Fund's
portfolio are closed, the Portfolio Indicative Value will be updated at
least every 15 seconds during the Core Trading Session to reflect
currency exchange fluctuations. The Web site for the Fund (http://www.wisdomtree.com) will contain the prospectus and additional data
relating to NAV and other applicable quantitative information.
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\10\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\11\ 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''). Notwithstanding the
foregoing, portfolio trades that are executed prior to the opening
of the Exchange on any business day may be booked and reflected in
NAV on such business day. 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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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission notes that the Exchange will obtain a
representation from the issuer of the Shares that the NAV and the
Disclosed Portfolio will be made available to all market participants
at the same time. If the Exchange becomes aware that the NAV or
Disclosed Portfolio with respect to the Shares is not disseminated to
all market participants at the same time, it will halt trading in the
Shares until such time as the NAV or Disclosed Portfolio is available
to all market participants. Further, the Exchange may halt trading
during the day in which an interruption to the dissemination of the
Portfolio Indicative Value occurs. If the interruption to the
dissemination of the Portfolio Indicative Value persists past the
trading day in which it occurred, the Exchange will halt trading no
later than the beginning of the trading day following the
interruption.\12\ The Exchange also represents that the Sub-Adviser,
which is affiliated with multiple broker-dealers, has implemented a
``fire wall'' with respect to such broker-dealers regarding access to
information concerning the composition and/or changes to the Fund's
portfolio. In addition, Sub-Adviser personnel who make decisions
regarding the Fund's portfolio are subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding the Fund's portfolio.\13\ Finally, the Commission notes that
the Reporting Authority that provides the Disclosed Portfolio must
implement and maintain, or be subject to, procedures designed to
prevent the use and dissemination of material non-public information
regarding the actual components of the portfolio.\14\
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\12\ See NYSE Arca Equities Rule 8.600(d)(2)(D). Trading in the
Shares may also 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 comprising the Disclosed
Portfolio and/or the financial instruments of the Fund; or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.
\13\ See supra note 5 and accompanying text.
\14\ See NYSE Arca Equities Rule 8.600(d)(2)(B)(ii).
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The Exchange has represented that the Shares are deemed equity
securities subject to the Exchange's rules governing the trading of
equity securities. In support of this proposal, the Exchange has made
representations, including the following:
(1) The Shares will be subject to NYSE Arca Equities Rule 8.600(d),
which sets forth the initial and continued listing criteria applicable
to Managed Fund Shares.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange's surveillance procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable Federal
securities laws.
(4) Prior to the commencement of trading, the Exchange will inform
its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (a)
The procedures for purchases and redemptions of Shares in Creation Unit
aggregations (and that Shares are not individually redeemable); (b)
NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence
on its ETP Holders to learn the essential facts relating to every
customer prior to trading the Shares; (c) the risks involved in trading
the Shares during the Opening and Late Trading Sessions when an updated
Portfolio Indicative Value will not be calculated or publicly
disseminated; (d) how information
[[Page 47326]]
regarding the Portfolio Indicative Value is disseminated; (e) the
requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (f) trading information.
(5) A minimum of 100,000 Shares will be outstanding at the
commencement of trading on the Exchange.
(6) For initial and continued listing, the Shares must be in
compliance with Rule 10A-3 under the Act.\15\
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\15\ See supra note 6.
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This approval order is based on the Exchange's representations.
For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\16\ that the proposed rule change (SR-NYSEArca-2010-49), as
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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\16\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\17\
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\17\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-19246 Filed 8-3-10; 8:45 am]
BILLING CODE 8010-01-P