[Federal Register Volume 77, Number 247 (Wednesday, December 26, 2012)]
[Notices]
[Pages 76121-76127]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-31016]



[[Page 76121]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68476; File No. SR-NYSEArca-2012-138]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change To List and Trade PIMCO Foreign Currency 
Strategy Exchange-Traded Fund Under NYSE Arca Equities Rule 8.600

December 19, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act'')\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that, on December 6, 2012, NYSE Arca, Inc. 
(``Exchange'' or ``NYSE Arca'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been prepared by the 
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\ 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''): PIMCO Foreign 
Currency Strategy Exchange-Traded Fund. 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade shares (``Shares'') of the 
PIMCO Foreign Currency Strategy Exchange-Traded Fund (``Fund'') under 
NYSE Arca Equities Rule 8.600,\3\ which governs the listing and trading 
of Managed Fund Shares.\4\ The Shares will be offered by PIMCO ETF 
Trust (``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.\5\
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    \3\ 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. 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 
listing and trading of PIMCO Total Return Exchange Traded Fund); and 
66670 (March 28, 2012), 77 FR 20087 (April 3, 2012) (SR-NYSEArca-
2012-09) (order approving listing and trading of PIMCO Global 
Advantage Inflation-Linked Bond Strategy Fund).
    \4\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index, or 
combination thereof.
    \5\ The Trust is registered under the 1940 Act. On October 28, 
2011, the Trust filed an amendment to its registration statement on 
Form N-1A under the Securities Act of 1933 (15 U.S.C. 77a) (``1933 
Act'') and the 1940 Act relating to the Fund (File Nos. 333-155395 
and 811-22250) (``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. 28993 (November 10, 
2009) (File No. 812-13571) (``Exemptive Order'').
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    The investment manager to the Fund is Pacific Investment Management 
Company LLC (``PIMCO'' or ``Adviser''). PIMCO Investments LLC serves as 
the distributor for the Fund (``Distributor''). State Street Bank & 
Trust Co. serves as the custodian and transfer agent for the Fund 
(``Custodian'' or ``Transfer Agent'').
    Commentary .06 to Rule 8.600 provides that, if the investment 
adviser to the investment company issuing Managed Fund Shares is 
affiliated with a broker-dealer, such investment adviser shall erect a 
``fire wall'' between the investment adviser and the broker-dealer with 
respect to access to information concerning the composition and/or 
changes to such investment company portfolio.\6\ In addition, 
Commentary .06 further requires that personnel who make decisions on 
the open-end fund's portfolio composition must be subject to procedures 
designed to prevent the use and dissemination of material nonpublic 
information regarding the open-end fund's portfolio. The Adviser is 
affiliated with a broker-dealer and has implemented a ``fire wall'' 
with respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the Fund's portfolio. If 
PIMCO elects to hire a sub-adviser for the Fund that is also affiliated 
with a broker-dealer, such sub-adviser will implement a fire wall with 
respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio. In the 
event (a) the Adviser or any sub-adviser becomes newly affiliated with 
a broker-dealer, or (b) any new manager, adviser, or sub-adviser 
becomes affiliated with a broker-dealer, it will implement a fire wall 
with respect to such broker-dealer regarding access to information 
concerning the composition and/or changes to the portfolio, and will be 
subject to procedures designed to prevent the use and dissemination of 
material, non-public information regarding such portfolio.
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    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (``Advisers 
Act''). As a result, the Adviser and its related personnel are 
subject to the provisions of Rule 204A-1 under the Advisers Act 
relating to codes of ethics. This Rule requires investment advisers 
to adopt a code of ethics that reflects the fiduciary nature of the 
relationship to clients as well as compliance with other applicable 
securities laws. Accordingly, procedures designed to prevent the 
communication and misuse of non-public information by an investment 
adviser must be consistent with Rule 204A-1 under the Advisers Act. 
In addition, Rule 206(4)-7 under the Advisers Act makes it unlawful 
for an investment adviser to provide investment advice to clients 
unless such investment adviser has (i) adopted and implemented 
written policies and procedures reasonably designed to prevent 
violation, by the investment adviser and its supervised persons, of 
the Advisers Act and the Commission rules adopted thereunder; (ii) 
implemented, at a minimum, an annual review regarding the adequacy 
of the policies and procedures established pursuant to subparagraph 
(i) above and the effectiveness of their implementation; and (iii) 
designated an individual (who is a supervised person) responsible 
for administering the policies and procedures adopted under 
subparagraph (i) above.
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Principal Investment Strategies
    According to the Registration Statement, the Fund will seek maximum

[[Page 76122]]

total return,\7\ consistent with prudent investment management. The 
Fund will invest under normal circumstances\8\ at least 80% of its 
assets in currencies of, or Fixed Income Instruments\9\ denominated in 
the currencies of, foreign (non-U.S.) countries, including, but not 
limited to, a combination of short-term Fixed Income Instruments, money 
market securities, and currency forwards\10\ backed by high-quality, 
low duration securities (``80% Holdings'').\11\ The Fund will seek 
exposure to foreign (non-U.S.) currencies likely to outperform the U.S. 
dollar over the long-term. Assets not invested in the 80% Holdings may 
be invested in other types of Fixed Income Instruments (e.g., Fixed 
Income Instruments denominated in U.S. dollars).
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    \7\ The ``total return'' sought by the Fund will consist of 
income and capital appreciation, if any, which generally arises from 
decreases in interest rates, foreign currency appreciation, or 
improving credit fundamentals for a particular sector or security.
    \8\ The term ``under normal circumstances'' 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\ ``Fixed Income Instruments,'' as used generally in the 
Registration Statement, includes:
     Debt securities issued or guaranteed by the U.S. 
Government, its agencies or government-sponsored enterprises (``U.S. 
Government Securities'');
     Corporate debt securities of U.S. and non-U.S. issuers, 
including convertible securities and corporate commercial paper;
     Mortgage-backed and other asset-backed securities;
     Inflation-indexed bonds issued both by governments and 
corporations;
     Structured notes, including hybrid or ``indexed'' 
securities and event-linked bonds;
     Bank capital and trust preferred securities;
     Loan participations and assignments;
     Delayed funding loans and revolving credit facilities;
     Bank certificates of deposit, fixed time deposits and 
bankers' acceptances;
     Repurchase agreements on Fixed Income Instruments and 
reverse repurchase agreements on Fixed Income Instruments;
     Debt securities issued by states or local governments 
and their agencies, authorities and other government-sponsored 
enterprises;
     Obligations of non-U.S. governments or their 
subdivisions, agencies and government-sponsored enterprises; and
     Obligations of international agencies or supranational 
entities.
    Only those Fixed Income Instruments that are denominated in 
foreign (non-U.S.) currencies count towards the 80% Holdings (as 
defined above).
    \10\ A forward foreign currency exchange contract involves an 
obligation to purchase or sell a specific currency at a future date 
at a price set at the time of the contract.
    \11\ In connection with its holdings in Fixed Income 
Instruments, the Fund will seek, where possible, to use 
counterparties, as applicable, whose financial status is such that 
the risk of default is reduced; however, the risk of losses 
resulting from default is still possible. PIMCO's Counterparty Risk 
Committee evaluates the creditworthiness of counterparties on an 
ongoing basis. In addition to information provided by credit 
agencies, PIMCO credit analysts evaluate each approved counterparty 
using various methods of analysis, including company visits, 
earnings updates, the broker-dealer's reputation, PIMCO's past 
experience with the broker-dealer, market levels for the 
counterparty's debt and equity, the counterparty's liquidity and its 
share of market participation.
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    According to the Registration Statement, the Fund may invest up to 
50% of its total assets in securities and instruments that are 
economically tied to emerging market countries, which may include 
assets comprising the 80% Holdings.\12\ PIMCO will select the Fund's 
country and currency composition based on its evaluation of relative 
interest rates, inflation rates, exchange rates, monetary and fiscal 
policies, trade and current account balances, legal and political 
developments, and other specific factors PIMCO believes to be relevant. 
The Fund will normally limit its exposure to a single non-U.S. currency 
(from currency holdings or investments in securities denominated in 
that currency) to 20% of its total assets.
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    \12\ PIMCO generally considers an instrument to be economically 
tied to an emerging market country if the issuer or guarantor is a 
government of an emerging market country (or any political 
subdivision, agency, authority or instrumentality of such 
government), if the issuer or guarantor is organized under the laws 
of an emerging market country, or if the currency of settlement is a 
currency of an emerging market country. PIMCO has broad discretion 
to identify countries that it considers to qualify as emerging 
markets. In making investments in emerging market instruments, the 
Fund emphasizes those countries with relatively low gross national 
product per capita and with the potential for rapid economic growth. 
Emerging market countries are generally located in Asia, Africa, the 
Middle East, Latin America, and Eastern Europe.
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    According to the Registration Statement, the average portfolio 
duration of the Fund will vary based on PIMCO's forecast for interest 
rates and, under normal market conditions, will vary from zero to three 
years.\13\ The Fund may invest in both high yield securities (``junk 
bonds'') rated Ba, or investment grade securities rated Baa or higher, 
by Moody's Investors Service, Inc. (``Moody's''), or equivalently rated 
by Standard & Poor's Ratings Services (``S&P'') or Fitch, Inc. 
(``Fitch''), or, if unrated, determined by PIMCO to be of comparable 
quality.\14\ The Fund currently anticipates that at least 50% of issues 
of Fixed Income Instruments held by the Fund will be rated investment 
grade or determined by PIMCO to be of comparable quality.\15\ The Fund 
is non-diversified, which means that it may invest its assets in a 
smaller number of issuers than a diversified fund.\16\
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    \13\ Duration is a measure used to determine the sensitivity of 
a security's price to changes in interest rates. The longer a 
security's duration, the more sensitive it will be to changes in 
interest rates.
    \14\ Securities rated Ba or lower by Moody's, or equivalently 
rated by S&P or Fitch, are sometimes referred to as ``high yield 
securities'' or ``junk bonds,'' while securities rated Baa or higher 
are referred to as ``investment grade.'' Unrated securities may be 
less liquid than comparably rated securities and involve the risk 
that the portfolio manager may not accurately evaluate the 
security's comparative credit rating. To the extent that the Fund 
invests in unrated securities, the Fund's success in achieving its 
investment objective may depend more heavily on the portfolio 
manager's creditworthiness analysis than if the Fund invested 
exclusively in rated securities. See note 15, infra.
    \15\ PIMCO utilizes sophisticated proprietary techniques in its 
creditworthiness analysis of unrated securities similar to the 
processes utilized by Moody's, S&P, and Fitch in their respective 
analyses of rated securities. For example, in making a ``comparable 
quality'' determination for an unrated security, PIMCO may evaluate 
the likelihood of payment by the obligor, the nature and provisions 
of the debt obligation, and/or the protection afforded by, and 
relative position of, the debt obligation in the event of 
bankruptcy, reorganization, or other arrangement under laws 
affecting creditors' rights. Upon consideration of these and other 
factors, PIMCO may determine that an unrated security is of 
comparable quality to rated securities in which the Fund may invest 
consistent with the Fund's credit quality guidelines described 
above.
    \16\ The diversification standard is set forth in Section 
5(b)(1) of the 1940 Act (15 U.S.C. 80e).
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    While corporate debt securities and debt securities economically 
tied to an emerging market country generally must have $200 million or 
more par amount outstanding and significant par value traded to be 
considered as an eligible investment for the Fund, at least 80% of 
issues of such securities held by the Fund must have $200 million or 
more par amount outstanding. The Fund may invest up to 10% of its 
assets in mortgage-backed securities or in other asset-backed 
securities, although this limitation does not apply to securities 
issued or guaranteed by Federal agencies and/or U.S. government 
sponsored instrumentalities.
    According to the Registration Statement, the Fund may purchase or 
sell securities on a when-issued, delayed delivery, or forward 
commitment basis and may engage in short sales. The Fund may, without 
limitation, seek to obtain market exposure to the securities in which 
it primarily invests by entering into a series of purchase and sale 
contracts or by using other investment techniques (such as buy backs or 
dollar rolls).
Investment Selection Techniques
    According to the Registration Statement, in selecting investments 
for the Fund, PIMCO will develop an outlook for interest rates, 
currency exchange rates and the economy,

[[Page 76123]]

analyze credit and call risks, and use other asset selection 
techniques. The proportion of the Fund's investments in securities with 
particular characteristics (such as quality, sector, interest rate, or 
maturity) will vary based on PIMCO's outlook for the U.S. economy and 
the economies of other countries in the world, the financial markets, 
and other factors. In seeking to identify undervalued currencies, PIMCO 
may consider many factors, including but not limited to longer-term 
analysis of relative interest rates, inflation rates, real exchange 
rates, purchasing power parity, trade account balances, and current 
account balances, as well as other factors that influence exchange 
rates such as flows, market technical trends, and government policies. 
With respect to fixed income investing, PIMCO will attempt to identify 
areas of the bond market that are undervalued relative to the rest of 
the market. PIMCO identifies these areas by grouping Fixed Income 
Instruments into sectors such as money markets, governments, 
corporates, mortgages, asset-backed, and international. Sophisticated 
proprietary software then will assist in evaluating sectors and pricing 
specific investments. Once investment opportunities are identified, 
PIMCO will shift assets among sectors depending upon changes in 
relative valuations, credit spreads, and other factors.
Additional Information Regarding Principal Investment Strategies\17\
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    \17\ Many of the investment strategies of the Fund are 
discretionary, which means that PIMCO can decide from time to time 
whether to use them or not.
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    The Fund will invest in currencies and Fixed Income Instruments 
that are economically tied to foreign (non-U.S.) countries. PIMCO 
generally considers an instrument to be economically tied to a non-U.S. 
country if the issuer is a foreign government (or any political 
subdivision, agency, authority, or instrumentality of such government), 
or if the issuer is organized under the laws of a non-U.S. country. In 
the case of certain money market instruments, such instruments will be 
considered economically tied to a non-U.S. country if either the issuer 
or the guarantor of such money market instrument is organized under the 
laws of a non-U.S. country.
    The Fund will invest in foreign currencies and may invest in Fixed 
Income Instruments denominated in foreign (non-U.S.) currencies or 
receive revenues in foreign currencies, and may engage in foreign 
currency transactions on a spot (cash) basis and enter into forward 
foreign currency exchange contracts.\18\ A forward foreign currency 
exchange contract, which involves an obligation to purchase or sell a 
specific currency at a future date at a price set at the time of the 
contract, reduces the Fund's exposure to changes in the value of the 
currency it will deliver and increases its exposure to changes in the 
value of the currency it will receive for the duration of the contract. 
Certain foreign currency transactions may also be settled in cash 
rather than the actual delivery of the relevant currency. The effect on 
the value of the Fund is similar to selling securities denominated in 
one currency and purchasing securities denominated in another currency. 
A contract to sell foreign currency would limit any potential gain 
which might be realized if the value of the hedged currency increases. 
The Fund may enter into these contracts to hedge against foreign 
exchange risk, to increase exposure to a foreign currency, or to shift 
exposure to foreign currency fluctuations from one currency to another. 
Suitable hedging transactions may not be available in all circumstances 
and there can be no assurance that the Fund will engage in such 
transactions at any given time or from time to time.
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    \18\ The Fund will limit its investments in currencies to those 
currencies with a minimum average daily foreign exchange turnover of 
USD $1 billion, as determined by the Bank for International 
Settlements (``BIS'') Triennial Central Bank Survey. As of the most 
recent BIS Triennial Central Bank Survey, at least 52 separate 
currencies had minimum average daily foreign exchange turnover of 
USD $1 billion. For a list of eligible BIS currencies, see 
www.bis.org.
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    The Fund may invest in variable and floating rate debt securities, 
which are securities that pay interest at rates that adjust whenever a 
specified interest rate changes and/or that reset on predetermined 
dates (such as the last day of a month or calendar quarter). To the 
extent the Fund invests in variable and floating rate debt securities 
that are deemed illiquid, the Fund will limit such holdings to an 
amount consistent with the 15% limitation on illiquid securities 
discussed below. The Fund may invest in floating rate debt instruments 
(``floaters'') and engage in credit spread trades. Variable and 
floating rate securities generally are less sensitive to interest rate 
changes, but may decline in value if their interest rates do not rise 
as much, or as quickly, as interest rates in general. Conversely, 
floating rate securities will not generally increase in value if 
interest rates decline.
    The Fund may invest in bank capital securities. Bank capital 
securities are issued by banks to help fulfill their regulatory capital 
requirements. There are two common types of bank capital: Tier I and 
Tier II. Bank capital is generally, but not always, of investment grade 
quality. Tier I securities are typically exchange-traded and often take 
the form of trust preferred securities. Tier II securities are commonly 
thought of as hybrids of debt and preferred stock. Tier II securities 
are typically traded over-the-counter, are often perpetual (with no 
maturity date), callable, and have a cumulative interest deferral 
feature. This means that under certain conditions, the issuer bank can 
withhold payment of interest until a later date. However, such deferred 
interest payments generally earn interest.
    The Fund may make short sales as part of its overall portfolio 
management strategies or to offset a potential decline in value of a 
security.
Other Portfolio Holdings and Non-Principal Investment Strategies
    For the purpose of achieving income, the Fund may lend its 
portfolio securities to brokers, dealers, and other financial 
institutions, provided a number of conditions are satisfied, including 
that the loan is fully collateralized. When the Fund lends portfolio 
securities, its investment performance will continue to reflect changes 
in the value of the securities loaned, and the Fund will also receive a 
fee or interest on the collateral. Cash collateral received by the Fund 
in securities lending transactions may be invested in short-term liquid 
Fixed Income Instruments or in money market or short-term mutual funds 
or similar investment vehicles, including affiliated money market or 
short-term mutual funds.
    The Fund may invest in, to the extent permitted by Section 
12(d)(1)(A) of the 1940 Act, other affiliated and unaffiliated funds, 
such as open-end or closed-end management investment companies, 
including other exchange traded funds, provided that the Fund's 
investment in units or shares of investment companies and other open-
end collective investment vehicles will not exceed 10% of the Fund's 
total assets. The Fund may invest securities lending collateral in one 
or more money market funds to the extent permitted by Rule 12d1-1 under 
the 1940 Act, including series of PIMCO Funds, an affiliated open-end 
management investment company managed by PIMCO.
    Subject to the restrictions and limitations of the 1940 Act, the 
Fund may elect to pursue its investment objective either by investing 
directly in

[[Page 76124]]

securities or instruments, or by investing in one or more underlying 
investment vehicles or companies that have substantially similar 
investment objectives and policies as the Fund.
    The Fund may hold up to an aggregate amount of 15% of its net 
assets in illiquid securities (calculated at the time of investment). 
Certain financial instruments, including, but not limited to, Rule 144A 
securities, loan participations and assignments, delayed funding loans, 
revolving credit facilities,\19\ and fixed- and floating-rate loans 
\20\ will be included in the 15% limitation on illiquid securities. 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.\21\
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    \19\ The Fund may enter into, or acquire participations in, 
delayed funding loans and revolving credit facilities, in which a 
lender agrees to make loans up to a maximum amount upon demand by 
the borrower during a specified term. These commitments may have the 
effect of requiring the Fund to increase its investments in a 
company at a time when it might not otherwise decide to do so 
(including at a time when the company's financial condition makes it 
unlikely that such amounts will be repaid). To the extent that the 
Fund is committed to advance additional funds, it will segregate or 
``earmark'' assets determined to be liquid by PIMCO in accordance 
with procedures established by the Fund's Board of Trustees in an 
amount sufficient to meet such commitments.
    \20\ The Fund may invest in fixed- and floating-rate loans, 
which investments generally will be in the form of loan 
participations and assignments of portions of such loans. 
Participations and assignments involve special types of risk, 
including credit risk, interest rate risk, liquidity risk, and the 
risks of being a lender.
    \21\ 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); and Investment Company Act Release No. 17452 
(April 23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A 
under the 1933 Act).
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    The Fund intends to qualify annually and elect to be treated as a 
regulated investment company under Subchapter M of the Internal Revenue 
Code.\22\
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    \22\ 26 U.S.C. 851.
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    The Fund may not concentrate its investments in a particular 
industry, as that term is used in the 1940 Act, and as interpreted, 
modified, or otherwise permitted by regulatory authority having 
jurisdiction from time to time.\23\
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    \23\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
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    If PIMCO believes that economic or market conditions are 
unfavorable to investors, PIMCO may temporarily invest up to 100% of 
the Fund's assets in certain defensive strategies, including holding a 
substantial portion of the Fund's assets in cash, cash equivalents, or 
other highly rated short-term securities, including securities issued 
or guaranteed by the U.S. government, its agencies, or 
instrumentalities.
    The Fund will not invest in any non-U.S registered equity 
securities, except if such securities are traded on exchanges that are 
members of the Intermarket Surveillance Group (``ISG'').
    The Fund's investments will be consistent with the Fund's 
investment objective and will not be used to enhance leverage. That is, 
while the Fund will be permitted to borrow as permitted under the 1940 
Act, the Fund's investments will not be used to seek performance that 
is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the Fund's 
broad-based securities market index (as defined in Form N-1A).\24\
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    \24\ The Fund's broad-based securities market index will be 
identified in a future amendment to the Registration Statement 
following the Fund's first full calendar year of performance.
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    The Fund will not invest in options contracts, futures contracts, 
or swap agreements, in accordance with the Trust's Exemptive Order.
    The Shares will conform to the initial and continued listing 
criteria under NYSE Arca Equities Rule 8.600. Consistent with NYSE Arca 
Equities Rule 8.600(d)(2)(B)(ii), the Fund's Reporting Authority will 
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 Fund's portfolio. The Exchange 
represents that, for initial and/or continued listing, the Fund will be 
in compliance with Rule 10A-3 under the Exchange Act,\25\ 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 net asset value (``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.
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    \25\ 17 CFR 240.10A-3.
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Net Asset Value
    The NAV of the Fund's Shares will be determined by dividing the 
total value of the Fund's portfolio investments and other assets, less 
any liabilities, by the total number of Shares outstanding.
    Fund Shares will be valued as of the close of trading (normally 
4:00 p.m. Eastern time (``E.T.'')) on each business day. Information 
that becomes known to the Fund or its agents after the NAV has been 
calculated on a particular day will not generally be used to 
retroactively adjust the price of a security or the NAV determined 
earlier that day. The Fund reserves the right to change the time its 
NAV is calculated if the Fund closes earlier, or as permitted by the 
Commission.
    For purposes of calculating NAV, portfolio securities and other 
assets for which market quotes are readily available will be valued at 
market value. Market value is generally determined on the basis of last 
reported sales prices, or if no sales are reported, based on quotes 
obtained from a quotation reporting system, established market makers, 
or pricing services. Domestic and foreign fixed income securities will 
normally be valued on the basis of quotes obtained from brokers and 
dealers or pricing services using data reflecting the earlier closing 
of the principal markets for those securities. Prices obtained from 
independent pricing services use information provided by market makers 
or estimates of market values obtained from yield data relating to 
investments or securities with similar characteristics.
Creations and Redemptions of Shares
    According to the Registration Statement, Shares of the Fund that 
trade in the secondary market will be ``created'' at NAV \26\ by 
Authorized

[[Page 76125]]

Participants only in block-size Creation Units of 100,000 Shares or 
multiples thereof. The Fund will offer and issue Shares at their NAV 
per Share generally in exchange for a basket of debt securities held by 
the Fund (``Deposit Securities'') together with a deposit of a 
specified cash payment (``Cash Component''). Alternatively, the Fund 
may issue Creation Units in exchange for a specified all-cash payment 
(``Cash Deposit''). Similarly, Shares can be redeemed only in Creation 
Units, generally in-kind for a portfolio of debt securities held by the 
Fund and/or for a specified amount of cash.
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    \26\ The NAV of the Fund's Shares generally will be calculated 
once daily Monday through Friday as of the close of trading on the 
New York Stock Exchange (``NYSE''), generally 4:00 p.m. E.T. (``NAV 
Calculation Time'') on any business day. NAV per Share is calculated 
by dividing the Fund's net assets by the number of Fund Shares 
outstanding. For more information regarding the valuation of Fund 
investments in calculating the Fund's NAV, see the Registration 
Statement.
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    Except when aggregated in Creation Units, Shares will not be 
redeemable by the Fund. The prices at which creations and redemptions 
occur are based on the next calculation of NAV after an order is 
received. Requirements as to the timing and form of orders are 
described in the Authorized Participant agreement. PIMCO will make 
available on each business day via the National Securities Clearing 
Corporation (``NSCC''), prior to the opening of business (subject to 
amendments) on the Exchange (currently 9:30 a.m. E.T.), the identity 
and the required amount of each Deposit Security and the amount of the 
Cash Component (or Cash Deposit) to be included in the current Fund 
Deposit \27\ (based on information at the end of the previous business 
day). Creations and redemptions must be made by an Authorized 
Participant or through a firm that is either a participant in the 
Continuous Net Settlement System of the NSCC or a DTC participant, and 
in each case, must have executed an agreement with the Distributor and 
Transfer Agent with respect to creations and redemptions of Creation 
Unit aggregations.
---------------------------------------------------------------------------

    \27\ The Deposit Securities and Cash Component or, 
alternatively, the Cash Deposit, constitute the ``Fund Deposit,'' 
which represents the investment amount for a Creation Unit of the 
Fund.
---------------------------------------------------------------------------

    Additional information regarding the Trust, the Fund 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.pimcoetfs.com), which is publicly 
available prior to the public offering of Shares, 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 (``Bid/Ask 
Price''),\28\ 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. E.T. to 
4:00 p.m. E.T.) 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.\29\
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    \28\ 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.
    \29\ 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 Adviser will disclose for each portfolio 
security or 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 securities and other financial 
instruments held by the Fund will be available through major market 
data vendors.
    In addition, a basket composition file, which includes the security 
names and share quantities, if applicable, required to be delivered in 
exchange for Fund Shares, together with estimates and actual cash 
components, will be publicly disseminated daily prior to the opening of 
the NYSE via the NSCC. The basket represents one Creation Unit of the 
Fund. The NAV of the Fund will normally be determined as of the close 
of the regular trading session on the NYSE (ordinarily 4:00 p.m. E.T.) 
on each business day.
    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.\30\ 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 to provide a close estimate of that value 
throughout the trading day.
---------------------------------------------------------------------------

    \30\ 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.
---------------------------------------------------------------------------

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.\31\ 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

[[Page 76126]]

forth circumstances under which Shares of the Fund may be halted.
---------------------------------------------------------------------------

    \31\ See NYSE Arca Equities Rule 7.12, Commentary .04.
---------------------------------------------------------------------------

Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. in 
accordance with NYSE Arca Equities Rule 7.34 (Opening, Core, and Late 
Trading Sessions). The Exchange has appropriate rules to facilitate 
transactions in the Shares during all trading sessions. As provided in 
NYSE Arca Equities Rule 7.6, Commentary .03, the minimum price 
variation (``MPV'') for quoting and entry of orders in equity 
securities traded on the NYSE Arca Marketplace is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
MPV for order entry is $0.0001.
Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products (which include Managed 
Fund Shares) to monitor trading in the Shares. 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 Exchange's current trading surveillance focuses on detecting 
securities trading outside their normal patterns. 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 may obtain information via the ISG from other 
exchanges that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.\32\
---------------------------------------------------------------------------

    \32\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange notes that not all components of the 
Disclosed Portfolio for the Fund 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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    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. E.T. 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) \33\ 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.
---------------------------------------------------------------------------

    \33\ 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 not invest in any non-U.S registered equity 
securities, except if such securities are traded on exchanges that are 
members of the ISG. The Fund's investments will be consistent with the 
Fund's investment objective and will not be used to enhance leverage; 
that is, the Fund's investments will not be used to seek performance 
that is the multiple or inverse multiple (i.e., 2Xs and 3Xs) of the 
Fund's broad-based securities market index (as defined in Form N-1A). 
According to the Registration Statement, the Fund will invest under 
normal circumstances at least 80% of its assets in currencies of, or 
Fixed Income Instruments denominated in the currencies of, foreign 
countries, including, but not limited to, a combination of short-term 
Fixed Income Instruments, money market securities, and currency 
forwards backed by high-quality, low duration securities. The Fund may 
invest up to 50% of its total assets in securities and instruments 
(including currencies and Fixed Income Instruments) that are 
economically tied to emerging market countries. The Fund currently 
anticipates that at least 50% of issues of Fixed Income Instruments 
held by the Fund will be rated investment grade or determined by PIMCO 
to be of comparable quality. The Fund will normally limit its exposure 
to a single non-U.S. currency (from currency holdings or investments in 
securities denominated in that currency) to 20% of its total assets. 
Further, the Fund will limit its investments in currencies to those 
currencies with a minimum average daily foreign exchange turnover of 
USD $1 billion as determined by the BIS Triennial Central Bank Survey. 
The Fund may invest in corporate debt securities. While corporate debt 
securities and debt securities economically tied to an emerging market 
country generally must have $200 million or more par amount outstanding 
and significant par value traded to be considered as an eligible 
investment for the Fund, at least 80% of issues of such securities held 
by the Fund must have $200 million or more par amount outstanding. The 
Fund may invest up to 10% of its assets in mortgage-backed securities 
or in other asset-backed securities, although this limitation does not 
apply to securities issued or guaranteed by Federal agencies and/or 
U.S. government sponsored instrumentalities. The Fund may hold up to 
15% of its net assets in illiquid securities. The Fund will not invest 
in options contracts, futures contracts, or swap agreements.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the

[[Page 76127]]

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. Information regarding market price and 
trading volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services, and quotation and last sale information will be 
available via the CTA high-speed line. The 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. In 
connection with its holdings in Fixed Income Instruments, the Fund will 
seek, where possible, to use counterparties, as applicable, whose 
financial status is such that the risk of default is reduced. 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. The 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 Fund's portfolio. In addition, the 
Fund's Reporting Authority will 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 
Fund's portfolio.

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.

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 protected]. Please include 
File Number SR-NYSEArca-2012-138 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number SR-NYSEArca-2012-138. 
This file number should be included on the subject line if email is 
used. To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Section, 100 
F Street, NE., Washington, DC 20549 on official business days between 
10:00 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-2012-138 and should be submitted on or before 
January 16, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-31016 Filed 12-21-12; 4:15 pm]
BILLING CODE 8011-01-P