[Federal Register Volume 80, Number 108 (Friday, June 5, 2015)]
[Notices]
[Pages 32187-32190]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-13723]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75087; File No. SR-NYSEArca-2015-46]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to a 
Representation Regarding Investment in Certain Mortgage-Related 
Securities by the AdvisorShares Sage Core Reserves ETF

June 1, 2015.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on May 27, 2015, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to change a representation regarding 
investment in certain mortgage-related securities by the AdvisorShares 
Sage Core Reserves ETF. Shares of the AdvisorShares Sage Core Reserves 
ETF have been approved for listing and trading on the Exchange under 
NYSE Arca Equities Rule 8.600. The text of the proposed rule change is 
available on the Exchange's Web site at www.nyse.com, at the principal 
office of the Exchange, and at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Commission has approved a proposed rule change relating to 
listing and trading on the Exchange of shares (``Shares'') of the 
AdvisorShares Sage Core Reserves ETF (the ``Fund'') under NYSE Arca 
Equities Rule 8.600,\4\ which governs the listing and trading of 
Managed Fund Shares.\5\ The Fund's Shares are currently listed and 
traded on the Exchange under NYSE Arca Equities Rule 8.600.
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    \4\ See Securities Exchange Act Release No. 71263 (January 9, 
2014), 79 FR 2715 (January 15, 2014) (SR-NYSEArca-2013-121) (the 
``Prior Order''). The notice with respect to the Prior Order was 
published in Securities Exchange Act Release No. 70902 (November 19, 
2013), 78 FR 70370 (November 25, 2013) (``Prior Notice'' and, 
together with the Prior Order, the ``Prior Release'').
    \5\ A Managed Fund Share is a security that represents an 
interest in an investment company registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1) (``1940 Act'') organized as an 
open-end investment company or similar entity that invests in a 
portfolio of securities selected by its investment adviser 
consistent with its investment objectives and policies. In contrast, 
an open-end investment company that issues Investment Company Units, 
listed and traded on the Exchange under NYSE Arca Equities Rule 
5.2(j)(3), seeks to provide investment results that correspond 
generally to the price and yield performance of a specific foreign 
or domestic stock index, fixed income securities index or 
combination thereof.
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    The Shares are offered by AdvisorShares Trust (the ``Trust''), a 
statutory trust organized under the laws of the State of Delaware and 
registered with the Commission as an open-end management investment 
company.\6\ The investment adviser to the Fund is AdvisorShares 
Investments, LLC (the ``Adviser''). Sage Advisory Services Ltd. Co. 
(``Sub-Adviser'') is the Fund's sub-adviser and provides day-to-day 
portfolio management of the Fund.
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    \6\ The Trust is registered under the 1940 Act. On August 13, 
2013, the Trust filed with the Commission an amendment to its 
registration statement on Form N-1A under the Securities Act of 1933 
(15 U.S.C. 77a) (``Securities Act''), and under the 1940 Act 
relating to the Fund (File Nos. 333-157876 and 811-22110) 
(``Registration Statement''). The description of the operation of 
the Trust and the Fund herein is based, in part, on the Registration 
Statement. In addition, the Commission has issued an order granting 
certain exemptive relief to the Trust under the 1940 Act. See 
Investment Company Act Release No. 29291 (May 28, 2010) (File No. 
812-13677) (``Exemptive Order'').
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    According to the Registration Statement, the Fund will seek to 
preserve capital while maximizing income. Under normal market 
conditions, the Sub-Adviser will seek to achieve the Fund's investment 
objective by investing at least 80% of the Fund's net assets in a 
variety of fixed income securities issued by U.S. and foreign issuers. 
Such fixed income securities will be U.S. dollar-denominated investment 
grade debt 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 the Sub-Adviser to be of comparable quality.\7\ The Fund 
may retain a security if its rating falls below investment grade and 
the Sub-Adviser determines that retention of the security is in the 
Fund's best interest. The Exchange notes that the Fund's investment 
portfolio of fixed income securities will meet certain criteria for 
index-based, fixed income exchange-traded funds (``ETFs'') contained in 
NYSE Arca Equities Rule 5.2(j)(3), Commentary .02.\8\
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    \7\ See note 9 of the Prior Notice.
    \8\ See note 10 of the Prior Notice.
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    The Fund may invest, among other securities and financial 
instruments, in

[[Page 32188]]

mortgage-related securities and asset-backed securities (``ABSs''). 
Mortgage-related securities are interests in pools of residential or 
commercial mortgage loans, including mortgage loans made by savings and 
loan institutions, mortgage bankers, commercial banks, and others. 
Pools of mortgage loans are assembled as securities for sale to 
investors by various governmental, government-related and private 
organizations. The Fund also may invest in debt securities which are 
secured with collateral consisting of mortgage related securities. 
Interests in pools of mortgage-related securities differ from other 
forms of debt securities, which normally provide for periodic payment 
of interest in fixed amounts with principal payments at maturity or 
specified call dates. Instead, these securities provide a monthly 
payment which consists of both interest and principal payments.
    The Prior Release stated that the Fund may invest up to 10% of its 
net assets in privately issued (non-government sponsored entity 
(``GSE'')) mortgage-related securities, including commercial mortgage-
backed securities, collateralized mortgage obligations (``CMOs''), and 
adjustable rate mortgage backed securities (``ARMBSs'') (the ``10% 
Representation''). The Prior Release further stated that the Fund will 
not purchase mortgage-related securities (including non-GSE mortgage-
related securities) or any other assets which in the Sub-Adviser's 
opinion are illiquid if, as a result, more than 15% of the Fund's net 
assets will be invested in illiquid securities.\9\
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    \9\ As stated in the Prior Release, the Sub-Adviser seeks to 
manage the portion of the Fund's assets committed to privately 
issued mortgage-related securities in a manner consistent with the 
Fund's investment objective, policies and overall portfolio risk 
profile. In determining whether and how much to invest in privately 
issued mortgage-related securities, and how to allocate those 
assets, the Sub-Adviser considers a number of factors. These 
include, but are not limited to: (1) The nature of the borrowers 
(e.g., residential vs. commercial); (2) the collateral loan type 
(e.g., for residential: First Lien--Jumbo/Prime, First Lien--Alt-A, 
First Lien--Subprime, First Lien--Pay-Option or Second Lien; for 
commercial: Conduit, Large Loan or Single Asset/Single Borrower); 
and (3) in the case of residential loans, whether they are fixed 
rate or adjustable mortgages. Each of these criteria can cause 
privately issued mortgage-related securities to have differing 
primary economic characteristics and distinguishable risk factors 
and performance characteristics.
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    The Exchange has notified the Fund that it currently is not in 
compliance with the 10% Representation.\10\ In order to permit the 
continued listing and trading of Shares of the Fund, the Exchange 
proposes to amend such statement in the Prior Release to provide that 
the Fund may invest up to 20% of its net assets in privately issued 
(non-GSE) mortgage-related securities, including commercial mortgage-
backed securities, CMOs, and adjustable rate mortgage backed 
securities.
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    \10\ The Trust issued a press release, dated March 24, 2015, 
relating to the non-compliance. The Exchange also has added a 
``below compliance'' (``.BC'') indicator to the Fund's trading 
symbol.
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    The Adviser represents that an increase to 20% in Fund assets that 
may be invested in the mortgage-related instruments enumerated above 
will provide the Fund with added flexibility to invest in instruments 
in furtherance of the Fund's investment objective. In addition, such 
increase will permit the Fund to invest in such instruments consistent 
with investment parameters approved by the Commission for other 
actively-managed ETFs. The Exchange notes that the Commission has 
previously approved similar percentage limitations for other funds 
listed on the Exchange under NYSE Arca Equities Rule 8.600.\11\
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    \11\ See, e.g., Securities Exchange Act Release No. 71125 
(December 18, 2013), 78 FR 77743 (December 24, 2013) (SR-NYSEArca-
2013-106) (order approving listing and trading on the Exchange of 
shares of the PIMCO Diversified Income Exchange-Traded Fund and the 
PIMCO Low Duration Exchange-Traded Fund).
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    Except for the change described above, all other representations 
made in the Prior Release remain unchanged.\12\ The Fund will comply 
with all initial and continued listing requirements under NYSE Arca 
Equities Rule 8.600.
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    \12\ See notes 4 and 9, supra. All terms referenced but not 
defined herein are defined in the Prior Release.
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    The Exchange represents that the trading in the Shares will be 
subject to the existing trading surveillances, administered by the 
Financial Industry Regulatory Authority (``FINRA'') on behalf of the 
Exchange, which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\13\ The Exchange represents that 
these procedures are adequate to properly monitor Exchange trading of 
the Shares in all trading sessions and to deter and detect violations 
of Exchange rules and federal securities laws applicable to trading on 
the Exchange. FINRA, on behalf of the Exchange, will communicate as 
needed regarding trading in the Shares and exchange-listed equity 
securities (including ADRs) with other markets and other entities that 
are members of the ISG, and FINRA, on behalf of the Exchange, may 
obtain trading information regarding trading in the Shares and 
exchange-listed equity securities (including ADRs) from such markets 
and other entities. The Exchange may obtain information regarding 
trading in the Shares and exchange-listed equity securities (including 
ADRs) from markets and other entities that are members of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.\14\ In addition, as stated in the Prior Release, investors 
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.
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    \13\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
    \14\ For a list of the current members of ISG, see 
www.isgportal.org. The Exchange notes that not all of the components 
of the portfolio for the Fund may trade on exchanges that are 
members of the ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \15\ 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.
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    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares are listed and traded on the Exchange pursuant to the initial 
and continued listing criteria in NYSE Arca Equities Rule 8.600.
    The Adviser represents that an increase to 20% in Fund assets that 
may be invested in the mortgage-related instruments enumerated above 
will provide the Fund with added flexibility to invest in instruments 
in furtherance of the Fund's investment objective. In addition, such 
increase will permit the Fund to invest in such instruments consistent 
with investment parameters approved by the Commission for other 
actively-managed ETFs. The Commission has previously approved similar 
percentage limitations for other funds listed on the Exchange under 
NYSE Arca Equities Rule 8.600.\16\ 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 the ISG from other exchanges 
that are

[[Page 32189]]

members of ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. FINRA, on behalf of the 
Exchange, will communicate as needed regarding trading in the Shares, 
underlying exchange-traded equity securities (including, without 
limitation, ETFs, equity-related financial instruments and other 
exchange-traded products, REITs and mortgage-related securities), 
futures, options on futures, and exchange-traded options with other 
markets and other entities that are members of the ISG, and FINRA, on 
behalf of the Exchange, may obtain trading information regarding 
trading in the Shares, underlying exchange-traded equity securities, 
futures, options on futures, and exchange-traded options from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, underlying exchange-traded 
equity securities (including, without limitation, ETFs, equity-related 
financial instruments and other exchange-traded products, REITs and 
mortgage-related securities), futures, options on futures, and 
exchange-traded options from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\17\ In addition, FINRA, on behalf of 
the Exchange, is able to access, as needed, trade information for 
certain fixed income securities held by the Fund reported to FINRA's 
Trade Reporting and Compliance Engine (``TRACE'').
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    \16\ See note 11, supra.
    \17\ For a list of the current members of ISG, see 
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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    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the net asset value (``NAV'') per Share is calculated daily and 
that the NAV and the Disclosed Portfolio is 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. The Portfolio Indicative Value, 
as defined in NYSE Arca Equities Rule 8.600(c)(3), is disseminated by 
one or more major market data vendors at least every 15 seconds during 
the Exchange's Core Trading Session. On a daily basis, the Fund's Web 
site discloses for each portfolio security and other financial 
instrument of the Fund the following information: Ticker symbol (if 
applicable); name and, when available, the individual identifier 
(CUSIP) of the security and/or financial instrument; number of shares 
(if applicable) and dollar value of securities and financial 
instruments held in the portfolio; and percentage weighting of the 
security and financial instrument in the portfolio. Information 
regarding market price and trading volume of the Shares is 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 is published daily in the financial section of newspapers. 
Quotation and last-sale information for the Shares and U.S. exchange-
listed equity securities, including ETFs, ETNs, exchange-traded pooled 
vehicles, ADRs, equity-related financial instruments and other 
exchange-traded products, REITs and mortgage-related securities, is 
available via the Consolidated Tape Association high-speed line, and is 
available from the national securities exchange on which they are 
listed. Information regarding unsponsored ADRs is available from major 
market data vendors. Intra-day and closing price information relating 
to the fixed income and equities investments of the Fund, as well as 
Fund investments in spot currencies and derivatives, including futures, 
forwards, options, options on futures and swaps, is available from 
major market data vendors and from securities and futures exchanges, as 
applicable. Information relating to U.S. exchange-listed options is 
available via the Options Price Reporting Authority. In addition, the 
Portfolio Indicative Value, as defined in NYSE Arca Equities Rule 
8.600(c)(3), is widely disseminated at least every 15 seconds during 
the Core Trading Session by one or more major market data vendors. 
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. Trading in the Shares is 
subject to NYSE Arca Equities Rule 8.600(d)(2)(D), which sets forth 
circumstances under which Shares of the Fund may be halted. The Web 
site for the Fund includes a form of the prospectus for the Fund and 
additional data relating to NAV and other applicable quantitative 
information. In addition, as stated in the Prior Notice, investors 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. As noted above, the Exchange represents that the 
trading in the Shares is subject to the existing trading surveillances, 
administered by FINRA on behalf of the Exchange, which are designed to 
detect violations of Exchange rules and applicable federal securities 
laws. The Exchange represents that these procedures are adequate to 
properly monitor Exchange trading of the Shares in all trading sessions 
and to deter and detect violations of Exchange rules and federal 
securities laws applicable to trading on the Exchange. In addition, as 
stated in the Prior Release, investors 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 Adviser represents that the proposed change, as described 
above, is consistent with the Fund's investment objective, and will 
further assist the Adviser and Sub-Adviser to achieve such investment 
objective.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange believes the 
proposed rule change is designed to allow the Fund to invest in a 
broader range of mortgage-related securities thereby helping the Fund 
to achieve its investment objective, and will enhance competition among 
issues of Managed Fund Shares that invest in fixed income securities.

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, if

[[Page 32190]]

consistent with the protection of investors and the public interest, 
the proposed rule change has become effective pursuant to Section 
19(b)(3)(A) of the Act \18\ and Rule 19b-4(f)(6) thereunder.\19\
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    \18\ 15 U.S.C. 78s(b)(3)(A).
    \19\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act. If the Commission takes such 
action, the Commission shall institute proceedings to determine whether 
the proposed rule should be approved or 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-2015-46 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2015-46. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing will also be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2015-46 and should 
be submitted on or before June 26, 2015.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2015-13723 Filed 6-4-15; 8:45 am]
 BILLING CODE 8011-01-P