[Federal Register Volume 76, Number 36 (Wednesday, February 23, 2011)]
[Notices]
[Pages 10073-10076]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3984]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63919; File No. SR-NYSEArca-2010-116]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, Relating to the Listing and Trading of the WisdomTree Asia 
Local Debt Fund

February 16, 2011.

I. Introduction

    On December 13, 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 Asia 
Local Debt Fund (f/k/a WisdomTree Asia Bond Fund) under NYSE Arca 
Equities Rule 8.600. The proposed rule change was published for comment 
in the Federal Register on January 3, 2011.\3\ On February 15, 2011, 
the Exchange filed Amendment No. 1 to the proposed rule change.\4\ The 
Commission received no comments on the proposal. This order grants 
approval of the proposed rule change, as amended.
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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. 63609 (December 27, 
2010), 76 FR 194 (``Notice'').
    \4\ In Amendment No. 1, the Exchange modified the name of the 
Fund from ``WisdomTree Asia Bond Fund'' to ``WisdomTree Asia Local 
Debt Fund,'' updated references to the amended Registration 
Statement (as defined herein), and clarified that the Fund intends 
to invest in issuers in Australia and New Zealand. Because such 
modifications are either technical in nature or clarifications, the 
amendment does not require notice and comment.
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II. Description of the Proposal

    The Exchange proposes to list and trade shares (``Shares'') of the 
WisdomTree Asia Local Debt Fund (``Fund'') of the WisdomTree Trust 
(``Trust'') under 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.\5\ WisdomTree Asset Management, Inc. (``WisdomTree 
Asset Management'') is the investment adviser (``Adviser'') to the 
Fund,\6\ and Mellon Capital Management serves as sub-adviser for the 
Fund (``Sub-Adviser'').\7\ The Bank of New York Mellon is the 
administrator, custodian, and transfer agent for the Trust, and ALPS 
Distributors, Inc. serves as the distributor for the Trust.
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    \5\ The Fund has filed a registration statement on Form N-1A 
(``Registration Statement'') with the Commission. See Post-Effective 
Amendment No. 42 to Registration Statement on Form N-1A for the 
Trust, dated January 24, 2011 (File Nos. 333-132380 and 811-21864).
    \6\ WisdomTree Investments, Inc. is the parent company of 
WisdomTree Asset Management.
    \7\ The Sub-Adviser is responsible for day-to-day management of 
the Fund and, as such, typically makes all decisions with respect to 
portfolio holdings. The Adviser has ongoing oversight 
responsibility.
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    The Fund seeks to provide investors with a high level of total 
return consisting of both income and capital appreciation. The Fund is 
designed to provide exposure to a broad range of Asian government and 
corporate bonds through investment in both local currency (e.g., Hong 
Kong dollar; South Korean won) and U.S. dollar-

[[Page 10074]]

denominated Fixed Income Securities.\8\ The Fund seeks to achieve its 
investment objective through direct and indirect investments in Fixed 
Income Securities issued by governments and corporations in Asian 
countries and intends to focus on the developing/emerging market 
economies in Asia, primarily China, Hong Kong, India, Indonesia, South 
Korea, Malaysia, the Philippines, Singapore, Taiwan, and Thailand. 
While the Fund is permitted to invest in developed market economies, 
this is not a focus of the Fund. However, the Fund intends to invest in 
issuers in Australia and New Zealand.
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    \8\ Fixed Income Securities include bonds, notes or other debt 
obligations, such as government or corporate bonds, denominated in 
local currencies or U.S. dollars, as well as issues denominated in 
Asian local currencies that are issued by ``supranational issuers,'' 
such as the European Investment Bank, International Bank for 
Reconstruction and Development, and the International Finance 
Corporation, as well as development agencies supported by other 
national governments.
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    The Fund intends to invest at least 70% of its net assets in Fixed 
Income Securities. The Fund expects to invest up to 20% of its net 
assets in Asian 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 Asia 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 Asian government and corporate 
bonds, and (iii) such investment is deemed by the Adviser or Sub-
Adviser to be in the best interest of the Fund. The Fund will hold 
Fixed Income Securities of at least 13 non-affiliated issuers.
    The Fund is designed to provide a broad-based, representative 
exposure to Asian government and corporate bonds and therefore will 
invest in both investment grade and non-investment grade securities in 
a manner designed to provide this exposure. The Fund 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 Asian government and corporate bonds, and 
because the debt ratings of the Asian governments and those corporate 
issuers will change from time to time, the exact percentage of the 
Fund's investments in investment grade and non-investment grade 
securities will change from time to time in response to economic events 
and changes to the credit ratings of the Asian 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. The Fund will not invest in non-U.S. 
equity securities.
    The Fund intends to invest in Money Market Securities in order to 
help manage cash flows in and out of the Fund, such as in connection 
with payment of dividends or expenses, and to satisfy margin 
requirements, to provide collateral or to otherwise back investments in 
derivative instruments. For these purposes, Money Market Securities 
include: short-term, high-quality obligations issued or guaranteed by 
the U.S. Treasury or the agencies or instrumentalities of the U.S. 
government; short-term, high-quality securities issued or guaranteed by 
non-U.S. governments, agencies and instrumentalities; repurchase 
agreements backed by U.S. government securities; money market mutual 
funds; and deposits and other obligations of U.S. and non-U.S. banks 
and financial institutions. All Money Market Securities acquired by the 
Fund will be rated investment grade, except that the Fund may invest in 
unrated Money Market Securities that are deemed by the Adviser or Sub-
Adviser to be of comparable quality to money market securities rated 
investment grade.
    The Fund may use derivative instruments as part of its investment 
strategies. Examples of derivative instruments include listed futures 
contracts,\9\ forward currency contracts, non-deliverable forward 
currency contracts, currency and interest rate swaps, currency options, 
options on futures contracts, swap agreements and credit-linked 
notes.\10\ The Fund's use of derivative instruments (other than credit-
linked notes) will be collateralized or otherwise backed 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.
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    \9\ The listed futures contracts in which the Fund will invest 
may be listed on exchanges either in the U.S. or in either Hong Kong 
or Singapore.
    \10\ The Fund's investments in credit-linked notes will be 
limited to notes providing exposure to Asian Fixed Income 
Securities. The Fund's overall investment in credit-linked notes 
will not exceed 25% of the Fund's assets.
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    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.
    Additional details regarding the Trust and the Fund, the investment 
objective and strategies, creations and redemptions of the Shares, 
investment risks, net asset value (``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 
found in the Notice and/or the Registration Statement, as 
applicable.\11\
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    \11\ See supra notes 3 and 5.
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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.\12\ In particular, the 
Commission finds that the proposed rule change is consistent

[[Page 10075]]

with the requirements of Section 6(b)(5) of the Act,\13\ 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. The Commission notes 
that the Shares and Fund must comply with the requirements of NYSE Arca 
Equities Rule 8.600, among other Exchange rules, to be listed and 
traded on the Exchange.
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    \12\ 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).
    \13\ 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,\14\ 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\15\ 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 NAV at the end of the business 
day.\16\ The Disclosed Portfolio will include, as applicable, the 
names, quantity, percentage weighting, and market value of Fixed Income 
Securities and other assets held by the Fund and the characteristics of 
such assets. The NAV of the Fund's Shares generally is calculated once 
daily Monday through Friday as of the close of regular trading on the 
New York Stock Exchange, generally 4:00 p.m. Eastern time. 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. Intra-day and end-of-day prices for the Fixed 
Income Securities, Money Market Securities, and derivative instruments 
held by the Fund are readily available through major market data 
providers and broker-dealers. The Web site for the Fund (http://www.wisdomtree.com) will include a form of the prospectus and 
additional data relating to NAV and other applicable quantitative 
information.
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    \14\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \15\ The Core Trading Session is 9:30 a.m. to 4:00 p.m. Eastern 
time.
    \16\ 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.\17\ 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.\18\ 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.\19\ 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.\20\
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    \17\ See NYSE Arca Equities Rule 8.600(d)(1)(B).
    \18\ 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 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.
    \19\ See Commentary .06 to NYSE Arca Equities Rule 8.600. 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 be required to implement 
a fire wall with respect to such broker-dealer regarding access to 
information concerning the composition and/or changes to the 
portfolio.
    \20\ 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, 
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

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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 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/or continued listing, the Shares must be in 
compliance with Rule 10A-3 under the Act.\21\
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    \21\ See 17 CFR 240.10A-3.

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,\22\ that the proposed rule change (SR-NYSEArca-2010-116), as 
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \22\ 15 U.S.C. 78f(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\23\
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    \23\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3984 Filed 2-22-11; 8:45 am]
BILLING CODE 8011-01-P